<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AS AMENDED
------------------------
ORGANIC FOOD PRODUCTS, INC.
(Exact Name of Small Business Issuer As Specified In Its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 2033 94-3076294
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code No.) I.D. Number)
incorporation or organization)
</TABLE>
550 MONTEREY ROAD
MORGAN HILL, CA 95037
(408) 782-1133
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
FLOYD R. HILL, CHIEF EXECUTIVE OFFICER
ORGANIC FOOD PRODUCTS, INC.
550 MONTEREY ROAD
MORGAN HILL, CA 95037
(408) 782-1133
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
Gary A. Agron, Esq. Dennis J. Doucette, Esq.
5445 DTC Parkway, Suite 520 Luce, Forward, Hamilton & Scripps LLP
Englewood, CO 80111 600 West Broadway, Suite 2600
(303) 770-7254 San Diego, CA 92101
(303) 770-7257 (Fax) (619) 236-1414
(619) 232-8311 (Fax)
APPROXIMATE DATE OF COMMENCEMENT OF THE OFFERING: AS SOON AS PRACTICABLE
AFTER THE DATE OF THE OFFERING.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT TO PROPOSED AMOUNT OF
OF SECURITIES BE MAXIMUM PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, no par value(1)............... 1,380,000 Shares $5.00 $6,900,000 $2,091
Representatives' Warrants(2)................ 120,000 Warrants $.0008 $100 $-0-
Common Stock, no par value, underlying
Representatives' Warrants(2).............. 120,000 Shares $6.00 $720,000 $218
Totals...................................... $7,620,100 $2,309
</TABLE>
(1) Includes the overallotment option granted to the Representatives of 180,000
shares.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares issuable upon exercise of the Representatives' Warrants is subject
to adjustment in accordance with anti-dilution provisions of such Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
(EXHIBIT INDEX LOCATED ON PAGE OF THIS FILING)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM CAPTION LOCATION OR CAPTION IN PROSPECTUS
- --------- ----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Page of
Prospectus........................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Cover Page; Risk Factors; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Underwriting
9. Legal Proceedings.................................... Not Applicable
10. Directors, Executive Officers, Promoters and Control
Persons.............................................. Management; Principal Shareholders
11. Security Ownership of Certain Beneficial Owners and
Management........................................... Principal Shareholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel................ Not Applicable
14. Disclosure of Commission Position on Indemnification
for Securities....................................... Item 24; Item 28
15. Organization Within Last Five Years.................. Prospectus Summary; Certain Transactions
16. Description of Business.............................. Risk Factors; Business
17. Management's Discussion and Analysis or Plan of
Operations........................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business--Properties
19. Certain Relationships and Related
Transactions......................................... Certain Transactions
20. Market for Common Equity and Related Shareholder
Matters.............................................. Description of Securities
21. Executive Compensation............................... Management--Executive Compensation
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MARCH 7, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
1,200,000 SHARES OF COMMON STOCK
ORGANIC FOOD PRODUCTS, INC.
[LOGO]
Organic Food Products, Inc. (the "Company") is offering 1,200,000 shares of
its no par value Common Stock (the "Common Stock") at $5.00 per share (the
"Offering") through Sentra Securities Corporation and Spelman & Co., Inc. as the
representatives (the "Representatives") of the underwriters named herein (the
"Underwriters"). The initial offering price of the Common Stock was determined
by negotiations between the Company and the Representatives and such price is
not necessarily related to the Company's financial condition, net worth or other
established criteria of value. See "Underwriting."
There is no current trading market for the Company's Common Stock and no
assurance that a trading market will develop upon completion of the Offering.
The Company has applied to have the Common Stock listed on the NASDAQ SmallCap
Market (the "SmallCap Market").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION AND SHOULD BE CONSIDERED ONLY BY PERSONS ABLE TO SUSTAIN A TOTAL LOSS
OF THEIR INVESTMENT. SEE "RISK FACTORS."
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................ $5.00 $.50 $4.50
Total(3)................................. $6,000,000 $600,000 $5,400,000
</TABLE>
(1) Excludes a nonaccountable expense allowance payable to the Representatives
of $180,000 ($207,000 if the Overallotment Option is exercised) and the
issuance of warrants to the Representatives (the "Representatives'
Warrants") to purchase up to 120,000 shares of Common Stock at a price of
$6.00 per share. The Company has granted certain registration rights with
respect to the Common Stock underlying the Representatives' Warrants and has
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933 (the "1933 Act"). See
"Underwriting."
(2) Before deducting costs of the Offering estimated to be $480,000, including
the Representatives' nonaccountable expense allowance. See "Underwriting."
(3) Assumes no exercise of the Representatives' option (the "Overallotment
Option"), exercisable within 30 days from the date of this Prospectus, to
purchase from the Company up to 180,000 additional shares of Common Stock on
the same terms as the Common Stock offered hereby solely to cover
overallotments, if any. If the Overallotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Proceeds to Company
will be $6,900,000, $690,000 and $6,210,000, respectively. See
"Underwriting."
--------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain conditions, including the right of the
Underwriters to reject orders in whole or in part. It is expected that delivery
of the certificates representing the Common Stock will be made against payment
therefor in San Diego, California, on or about three business days from the date
of this Prospectus.
SENTRA
SECURITIES CORPORATION SPELMAN & CO., INC.
The date of this Prospectus is , 1997.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ SMALLCAP MARKET AND, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS THAT APPEAR ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE OVERALLOTMENT
OPTION AND THE REPRESENTATIVES' WARRANTS HAVE NOT BEEN EXERCISED.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS SET
FORTH IN THIS PROSPECTUS INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THESE RISKS AND
UNCERTAINTIES ARE DETAILED THROUGHOUT THE PROSPECTUS AND WILL BE FURTHER
DISCUSSED FROM TIME TO TIME IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE
COMMISSION. THE FORWARD-LOOKING STATEMENTS INCLUDED IN THE PROSPECTUS SPEAK ONLY
AS OF THE DATE HEREOF.
THE COMPANY
Since 1987, the Company has manufactured and marketed pesticide free
("organic") and preservative free ("all natural") pasta sauces, salsas and
condiments under the brand names "Garden Valley Naturals" and "Parrot." The
Company began marketing its Parrot line of salsas in 1987, its Garden Valley
Naturals line of condiments in 1991 and its Garden Valley Naturals line of
pastas and salsas in 1994. In June 1996, the Company merged with Organic Food
Products, Inc. ("OFP") which also marketed a line of organic food products
(including pasta sauces and salsas, together with dry cut pastas and organic
children's meals) under the "Millina's Finest" brand name. See "Certain
Transactions."
In June 1996, the Company restructured its Garden Valley Naturals, Parrot
and Millina's Finest product lines by (i) eliminating all nonorganic products,
(ii) eliminating salsas and ketchups sold under the Millina's Finest brand name,
and (iii) adding organic fruit juices and organic frozen entrees to its product
offerings. In addition to its current products, the Company is developing a line
of organic grill sauces and organic salad dressings which it expects to
introduce in 1997. See "Business--Products."
All of the Company's products (with the exception of its organic mustards)
are manufactured at the Company's 24,000 square foot processing and warehouse
facility in Morgan Hill, California. See "Business--Manufacturing Facilities."
The Company sells its products either directly or through distributors or
independent commissioned food brokers and specialty food brokers to (i) health
food and specialty food stores, (ii) club stores (including Price/Costco and
BJ's), and (iii) retail chain and independent grocery stores (including Safeway,
A&P, Waldbaum's, Trader Joe's, Stop N' Shop, Edward's, Lucky's and Big Y). See
"Business--Distribution and Marketing."
The Company's business strategy is to (i) increase revenues by offering
additional organic food products through the Company's existing distribution
network, (ii) reduce costs and improve operating efficiencies by using the
Company's excess manufacturing capabilities to increase the volume of products
it manufactures for itself as well as for others, (iii) expand the Company's
current geographic and retail store distribution by offering the Company's
products in new markets and increasing distribution in existing markets, and
(iv) specialize exclusively in the marketing of organic food products. Proceeds
of the Offering will be used for these and other purposes. See
"Business--Strategy" and "Use of Proceeds."
The Company was incorporated in California in July 1987 as S&D Foods, Inc.
In November 1995, it changed its name to Garden Valley Naturals, Inc. and
following its June 1996 merger with OFP, changed its name to Organic Food
Products, Inc. The term "Company" used throughout this Prospectus refers to the
merged operations of Garden Valley Naturals, Inc. and OFP. The Company's
executive offices are located at 550 Monterey Road, Morgan Hill, CA 95037,
telephone (408) 782-1133.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Offering Price.................... $5.00 per share of Common Stock
Common Stock Outstanding(1)....... 5,296,000 shares
Common Stock Offered.............. 1,200,000 shares
Common Stock Outstanding After the
Offering(1)..................... 6,496,000 shares
Use of Proceeds................... The net proceeds of the Offering will be primarily used
to purchase raw materials and equipment, for repayment
of debt and for working capital. See "Use of Proceeds."
NASDAQ SmallCap Symbol............ OFPI
Transfer and Warrant Agent........ Corporate Stock Transfer, Inc.
</TABLE>
- ------------------------
(1) Excludes exercise of: (i) the Overallotment Option; (ii) the
Representatives' Warrants; (iii) outstanding stock options to purchase up to
538,000 shares of Common Stock issued under the Company's 1995 Stock Option
Plan; and (iv) common stock purchase warrants to purchase up to 400,000
shares of Common Stock. See "Dilution," "Capitalization," "Description of
Securities" and "Underwriting."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The financial information of the Company set forth below for the two years
ended June 30, 1995 and 1996 has been derived from the Company's audited
financial statements included herein. Interim information for the six months
ended December 31, 1995 and 1996 has been derived from unaudited financial
statements which are also included herein. The results of operations for the six
months ended December 31, 1996 are not necessarily indicative of the results to
be expected for the year ending June 30, 1997. The financial information should
be read in conjunction with the financial statements, related notes and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER
YEAR ENDED JUNE 30, 31,
--------------------------- --------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................... $ 13,435,634 $ 8,133,505 $ 6,477,627 $ 6,667,397
Gross profit............................................ 2,914,718 2,106,720 1,995,310 1,530,009
Operating income (loss)................................. (1,482,410) 606,746 586,945 21,566
Interest expense........................................ 403,566 124,786 91,286 83,166
Net income (loss)....................................... $ (1,704,307) $ 292,483 $ 381,521 $ (50,928)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted average shares outstanding..................... 6,249,127 6,936,250 5,805,000 5,056,758
Net income (loss) per share............................. $ (.27) $ .04 $ .07 $ (.01)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AS
1996 ADJUSTED(1)
--------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......................................................... $ (262,749) $ 4,692,453
Total assets....................................................................... 4,418,310 7,778,310
Long-term debt..................................................................... 58,491 58,491
Total liabilities.................................................................. 3,861,811 2,301,811
Shareholders' equity............................................................... $ 556,499 $ 5,476,499
</TABLE>
- ------------------------
(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of the Offering without giving effect to exercise of the
Overallotment Option, the Representatives' Warrants or other outstanding
stock options or common stock purchase warrants. See "Use of Proceeds" and
"Description of Securities."
5
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
following risk factors and the other information contained in this Prospectus
before making an investment in the Common Stock. Information contained in this
Prospectus includes "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Strategy." No assurance can be given that the future results
addressed by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results addressed in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results addressed
in such forward-looking statements.
ABSENCE OF SUBSTANTIAL PROFITABILITY; FUTURE OPERATING RESULTS. Although
the Company achieved increasing levels of revenues for the years ended June 30,
1995 and 1996 and the six months ended December 31, 1996, the Company reported a
loss for the year ended June 30, 1996 and limited profitability for the other
two periods. Future events, including unanticipated expenses, increased price
competition, unfavorable general economic conditions or decreased consumer
demand for organic food products, could have a material adverse effect on the
Company's future operating results. There can be no assurance that the Company's
revenue growth will continue in the future or that its operations will be
profitable. See "Financial Statements."
GEOGRAPHIC CONCENTRATION. The Company distributes its products in a limited
number of markets which exposes it to fluctuations caused by such factors as
adverse economic conditions and changing consumer preferences in these markets.
See "Business--Distribution and Marketing."
COST OF RAW MATERIALS, RISK OF MARKET PRICE FLUCTUATIONS; DEPENDENCE UPON
SUPPLIER. The Company's operating results and financial condition may be
adversely affected by market fluctuations in the cost of its raw materials,
particularly whole and processed organic tomatoes. Raw materials costs are
determined by a constantly changing market upon which the Company has no
control. The Company often enters into fixed price contracts to purchase a
portion of its organic tomatoes. Nevertheless, cost fluctuations in the open
market could increase the Company's product costs (for products not covered by
fixed price contracts) and adversely affect its operations. Moreover, market
price declines for raw materials which are covered by fixed price contracts
would increase the Company's product costs relative to its competitors and
reduce its gross profits on finished goods. While many raw materials are
available from a number of sources, the Company currently purchases its organic
tomatoes and tomato products from a limited number of suppliers. Any
interruption in raw materials supply (caused by factors such as drought, insect
infestation or the like) would interrupt the Company's production and adversely
affect its operations. Overcontracting for organic tomatoes or other raw
materials in order to fix prices could cause cash flow difficulties until the
excess raw materials are processed and sold. For instance, a portion of the
proceeds of the Offering has been allocated to pay for tomato paste contracted
in prior years. See "Use of Proceeds" and "Business-- Manufacturing and
Processing."
COMPETITION. The organic food and health food industries in general and the
pasta sauce and pasta, salsa, condiment and fruit juice businesses in particular
are highly competitive and there are numerous multinational, national, regional
and local firms that currently compete, or are capable of competing, with the
Company. Multinational nonorganic (i) pasta sauce competitors include Prego,
Ragu, Classico and Newman's Own, (ii) salsa competitors include Pace, El Paso
and La Victoria, (iii) condiment competitors include Heinz, French's and
Guilden's, and (iv) fruit juice competitors include Minute Maid and Del Monte.
The Company also competes with national cut pasta manufacturers such as RF,
Ronzoni and DeBoles, smaller organic or natural pasta sauce and organic salsa
competitors such as Simply Natural, Muir Glen and Enrico and smaller fruit juice
competitors such as Odwalla and Knudsen. Most of the
6
<PAGE>
Company's competitors are larger than the Company and have more financial,
marketing and management resources, and brand name recognition, than the
Company. See "Business--Competition."
DEPENDENCE ON MAJOR CUSTOMERS. One customer accounted for approximately 23%
of the Company's revenues for the year ended June 30, 1996 and two customers
each accounted for more than 10% of the Company's revenues for the six months
ended December 31, 1996. A loss of any of these customers would have a material
adverse effect on the Company's operations. See "Business--Distribution and
Marketing."
LIMITED EXPERIENCE WITH CLUB STORES AND CHAIN GROCERY STORES. Although the
Company has sold its products to health food stores since 1987, sales to club
stores and chain grocery stores commenced in December 1994 and August 1995,
respectively. There can be no assurance that (i) the Company will be able to
maintain or expand its sales to club stores and chain grocery stores or (ii)
sales will be sufficient to offset slotting fees or in-store demonstration fees
incurred to obtain shelf space in club stores and chain grocery stores. See
"Business--Marketing and Distribution."
PRODUCT LIABILITY. Food processors are subject to significant liability
should the consumption of their products cause injury, illness or death.
Although the Company carries product liability insurance, with limits per
occurrence of up to $2,000,000, there can be no assurance that this insurance
will be adequate to protect against product liability claims or that insurance
coverage will continue to be available at reasonable prices.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results
could vary from period to period as a result of a number of factors, including
the purchasing patterns of significant customers, the timing of new product
introductions by the Company and its competitors, the amount of slotting fees
and new product advertising expenses incurred by the Company, variations in
sales by distribution channel, fluctuations in market prices of raw materials
and competitive pricing policies. These factor could cause the Company's
performance to differ from investor expectations, resulting in volatility in the
price of the Common Stock.
GOVERNMENT REGULATION. The Company is subject to various federal, state and
local laws affecting its business. The Company's food processing facility is
subject to regulation by various governmental agencies, including state and
local licensing, zoning, land use, construction and environmental regulations
and various federal, state, and local health, sanitation, immigration, safety
and fire codes and standards. In order to offer organic food products, the
Company is also subject to inspection and regulation by the United States
Department of Agriculture ("USDA"). Suspension of any licenses or approvals, due
to failure to comply with applicable regulations, could interrupt the Company's
operations, cause a loss of its organic food designation, limit the number of
employees working within its facilities or otherwise materially and adversely
affect its business. The Company is also subject to federal and state laws
establishing minimum wages and regulating overtime and working conditions. Since
some of the Company's personnel are paid at rates not far above the federal or
California state minimum wage, increases in the federal or California minimum
wage will result in increases in the Company's labor costs. See
"Business--Government Regulation."
DEPENDENCE UPON EXECUTIVE OFFICERS. The Company's operations depend upon
its ability to hire and retain qualified personnel. There is competition for
such personnel, and there can be no assurance that the Company will be
successful in this regard. The Company's operations are also dependent upon the
continued services of its executive officers. The loss of the services of any of
these executive officers, whether as a result of death, disability or otherwise,
would have a material adverse effect upon the business of the Company. The
Company has employment agreements with its Chief Executive Officer and its
President, and has agreed to purchase key person life insurance on the life of
its Chief Executive Officer in the face amount of $1,000,000. The Company does
not carry key person insurance on the lives of any other executive officers. See
"Management--Directors and Executive Officers."
7
<PAGE>
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to the
Offering, there has been no public trading market for the Company's Common
Stock. The initial public offering price of the Common Stock has been determined
by negotiations between the Company and the Representatives and does not
necessarily bear any relationship to recognized criteria for the valuation of
such securities. There can be no assurance that a regular trading market for the
Company's Common Stock will develop or continue after the Offering or, if such a
market develops, that the market price of the Common Stock will exceed the
Offering price. See "Underwriting."
IMMEDIATE SUBSTANTIAL DILUTION. The Offering involves an immediate and
substantial dilution of $4.16 per share of Common Stock, an 83% difference
between the public offering price of $5.00 per share of Common Stock and the net
tangible book value of $.84 per share of Common Stock upon completion of the
Offering, assuming no exercise of the Overallotment Option, the Representatives'
Warrants or other outstanding stock options or common stock purchase warrants of
the Company. See "Dilution."
NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
and does not intend to pay dividends in the foreseeable future. See "Description
of Securities--Dividends."
POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the Company's
Common Stock following the Offering may be highly volatile, as has been the case
with the securities of other companies completing initial public offerings.
Factors such as the Company's operating results or announcements by the Company
or its competitors may have a significant effect on the market price of the
Company's securities. In addition, market prices for securities of many emerging
and small capitalization companies have experienced wide fluctuations in
response to variations in quarterly operating results and general economic
indicators and conditions, as well as other factors beyond the control of the
Company.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the open market or the availability of such shares for sale following
the Offering could adversely affect the market price for the Common Stock.
Following the Offering, the 1,200,000 shares of Common Stock offered by the
Company may be sold in the open market. An additional 4,472,500 shares of the
Company's Common Stock are currently eligible for sale under Rule 144 ("Rule
144") promulgated under the 1933 Act and the remaining 823,500 shares will be
eligible for sale under Rule 144 commencing in July 1997. Notwithstanding the
above, all of the Company's shareholders have agreed with the Representatives
not to sell or otherwise dispose of their shares of Common Stock without the
prior written consent of the Representatives for a period of 12 months from the
date of this Prospectus. See "Description of Securities--Common Stock Eligible
for Future Sale" and "Underwriting."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Common
Stock offered hereby may be sold to customers of the Representatives and the
Underwriters. Such customers subsequently may engage in transactions for the
sale or purchase of Common Stock through or with the Underwriters. Although they
have no obligation to do so, the Representatives intend to make a market in the
Company's Common Stock and may otherwise effect transactions in the Common
Stock. This market-making activity may terminate at any time. If they
participate in the market, the Representatives may exert a dominating influence
on the market, if one develops, for the Common Stock. The price and liquidity of
the Common Stock may be significantly affected by the degree, if any, of the
Underwriters' participation in such market.
CONTROL BY MANAGEMENT; AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK;
PREVENTION OF CHANGES IN CONTROL. Upon completion of the Offering, the
Company's officer and directors will own approximately 41.2% of the then issued
and outstanding shares of Common Stock (assuming no exercise of the
Overallotment Option, the Representatives' Warrant or other outstanding stock
options or common stock purchase warrants not exercisable within 60 days from
the date hereof) and will continue to elect all of the Company's directors and
control the affairs of the Company. The Company's Articles of Incorporation
authorize the issuance of up to 5,000,000 shares of Preferred Stock with such
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, under the Articles of Incorporation, the Board of
Directors may, without shareholder approval, issue Preferred Stock with
dividend,
8
<PAGE>
liquidation, conversion, voting, redemption or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. The issuance of any shares of Preferred Stock having rights superior to
those of the Common Stock may result in a decrease of the value or market price
of the Common Stock and could further be used by the Board of Directors as a
device to prevent a change in control of the Company. The Company has no other
anti-takeover provisions in its Articles of Incorporation or Bylaws. Holders of
Preferred Stock may also be granted the right to receive dividends, certain
preferences in liquidation, and conversion rights. See "Description of
Securities."
LIMITATIONS ON LIABILITY OF DIRECTORS. The Company's Articles of
Incorporation substantially limit the liability of the Company's directors to
the Company and its shareholders for breach of fiduciary or other duties to the
Company. See "Description of Securities--Limitation on Liabilities."
DILUTION
At December 31, 1996, the net tangible book value of the Company was
$509,297 (unaudited), or $.10 per share of Common Stock. "Net tangible book
value" per share represents the total amount of tangible assets of the Company,
less the total amount of liabilities of the Company, divided by the number of
shares of Common Stock outstanding. Without taking into account any changes in
net tangible book value after December 31, 1996, other than to give effect to
the sale by the Company of the 1,200,000 shares of Common Stock offered hereby,
less underwriting discounts and commissions and estimated costs of the Offering
not recorded as deferred costs as of December 31, 1996, the net tangible book
value of the Company at December 31, 1996 would have been $5,464,499, or
approximately $.84 per share. This represents an immediate increase in net
tangible book value of $.74 per share of Common Stock to existing shareholders
and an immediate dilution of $4.16 per share to new shareholders. "Dilution" per
share represents the difference between the price to be paid by the new
shareholders and the net tangible book value per share of Common Stock
immediately after this Offering.
The foregoing is illustrated in the following table:
<TABLE>
<S> <C> <C>
Public offering price per share................................ $ 5.00
Net tangible book value per share before Offering.............. $ .10
Increase in net tangible book value per share attributable to
new investors purchasing in the Offering..................... $ .74
Net tangible book value per share after the Offering........... $ .84
---------
Dilution of net tangible book value per share to new
investors.................................................... $ 4.16
---------
Percent reduction of net tangible book value to new
investors.................................................... 83%
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased, the total consideration paid and the average price per share paid by
existing shareholders as of December 31, 1996 and new investors purchasing
Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ---------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
New investors................. 1,200,000 18.5% $ 6,000,000 55.7% $ 5.00
Existing shareholders......... 5,296,000 81.5% $ 4,763,650 44.3% $ .90
---------- ----- ------------- -----
Totals........................ 6,496,000 100.0% $ 10,763,650 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The preceding discussion and the accompanying tables assume no exercise of
(i) the Overallotment Option; (ii) the Representatives' Warrants; (iii)
outstanding stock options to purchase up to 538,000 shares of Common Stock
issued under the Company's 1995 Stock Option Plan, or (iv) common stock purchase
warrants to purchase up to 400,000 shares of Common Stock. See "Capitalization,"
"Description of Securities" and "Underwriting."
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1996 and as adjusted to give effect to the sale by the Company of 1,200,000
shares of Common Stock offered hereby, without giving effect to the exercise of
the Overallotment Option, the Representatives' Warrants or other outstanding
stock options or common stock purchase warrants.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Current Liabilities................................................................ $ 2,576,137 $ 1,016,137
------------- --------------
Long-term liabilities.............................................................. 58,491 58,491
------------- --------------
Shareholders' equity
Preferred Stock, 5,000,000 no par value shares authorized, none issued........... -0- -0-
Common Stock, 20,000,000 no par value shares authorized, 5,296,000 shares
outstanding, and 6,496,000 shares outstanding, as adjusted..................... 2,535,378 7,455,378
Accumulated deficit.............................................................. (1,978,879) (1,978,879)
------------- --------------
Total shareholders' equity..................................................... 556,499 5,476,499
------------- --------------
Total capitalization......................................................... $ 3,191,127 $ 6,551,127
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of the Offering. See "Use of Proceeds."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering are
estimated to be $4,920,000 ($5,703,000 if the Overallotment Option is
exercised). The Company intends to use the net proceeds of the Offering as set
forth in the table below:
<TABLE>
<CAPTION>
PERCENT OF NET
PURPOSE AMOUNT PROCEEDS
- ------------------------------------------------------------------ ------------ --------------
<S> <C> <C>
Purchase of raw materials(1)...................................... $ 2,200,000 44.7
Purchase of equipment............................................. 400,000 8.1
Repayment of debt(2).............................................. 1,560,000 31.7
Working capital................................................... 760,000 15.5
------------ -----
Total......................................................... $ 4,920,000 100.0%
</TABLE>
- ------------------------
(1) Consists of approximately (i) $1,000,000 to purchase previously contracted
organic tomato paste and (ii) $1,200,000 to purchase organic tomatoes and
other organic vegetables in order to support the Company's plan to expand
product offerings and increase manufacturing volumes. See "Business--
Strategy."
(2) Represents the balance due to two former officers and directors in
connection with the Company's October 1995 purchase of 1,100,000 shares of
the Company's Common Stock from these two individuals at $2.00 per share.
See "Certain Transactions."
The Company estimates, but cannot assure, that the net proceeds of the
Offering, together with anticipated operating revenues, will be sufficient to
fund the Company's estimated cash requirements for at least 12 months following
this Offering.
While the above use of proceeds indicates the Company's current plans, there
may be changes due to the availability of other business opportunities and/or
changes in the Company's plan of operation. Management is not currently aware of
any such business opportunities or planned changes in operations. Pending
application, the net proceeds may be invested in short-term interest bearing
obligations.
Any funds received by the Company from exercise of the Overallotment Option
or the Representatives' Warrants will be added to working capital.
11
<PAGE>
SELECTED FINANCIAL DATA
The financial information of the Company set forth below for the two years
ended June 30, 1995 and 1996 has been derived from the Company's audited
financial statements included herein. Interim information for the six months
ended December 31, 1995 and 1996 has been derived from unaudited financial
statements which are also included herein. The results of operations for the six
months ended December 31, 1996 are not necessarily indicative of the results to
be expected for the year ending June 30, 1997. The financial information should
be read in conjunction with the financial statements, related notes and other
financial information included elsewhere in this Prospectus. In the opinion of
management of the Company, the unaudited financial statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and the results of operations for
these periods. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------- --------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................... $ 13,435,634 $ 8,133,505 $ 6,477,627 $ 6,667,397
Gross profit............................................ 2,914,718 2,106,720 1,995,310 1,530,009
Operating income (loss)................................. (1,482,410) 606,746 586,945 21,566
Interest expense........................................ 403,566 124,786 91,286 83,166
Net income (loss)....................................... $ (1,704,307) $ 292,483 $ 381,521 $ (50,928)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted average shares outstanding..................... 6,249,127 6,936,250 5,805,000 5,056,758
Net income (loss) per share............................. $ (.27) $ .04 $ .07 $ (.01)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AS
1996 ADJUSTED(1)
--------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......................................................... $ (262,749) $ 4,692,453
Total assets....................................................................... 4,418,310 7,778,310
Long-term debt..................................................................... 58,491 58,491
Total liabilities.................................................................. 3,861,811 2,301,811
Shareholders' equity............................................................... $ 556,499 $ 5,476,499
</TABLE>
- ------------------------
(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of the Offering without giving effect to exercise of the
Overallotment Option, the Representatives' Warrants or other outstanding
stock options or common stock purchase warrants. See "Use of Proceeds" and
"Description of Securities."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS AND ORGANIZATION
Since 1987, the Company has manufactured and marketed pesticide free
("organic") and preservative free ("all natural") pasta sauces, salsas and
condiments under the brand names "Garden Valley Naturals" and "Parrot." The
Company began marketing its Parrot line of salsas in 1987, its Garden Valley
Naturals line of condiments in 1991 and its Garden Valley Naturals line of
pastas and salsas in 1994. In June 1996, the Company merged with OFP which also
marketed (since 1988) a line of organic food products (including pasta sauces
and salsas, together with dry cut pastas and organic children's meals) under the
"Millina's Finest" brand name.
The Company was incorporated in July 1987 as S&D Foods, Inc. In November
1995, the Company changed its name to Garden Valley Naturals, Inc. ("GVN").
Following its June 1996 merger with OFP, the Company's name was changed to
Organic Food Products, Inc.
The Company sells its products either directly or through distributors or
independent commissioned food brokers and specialty food brokers to (i) health
food and specialty food stores, (ii) club stores (including Price/Costco and
BJ's), and (iii) retail chain and independent grocery stores (including Safeway,
A&P, Waldbaum's, Trader Joe's, Stop N' Shop, Edward's, Lucky's and Big Y).
The Company's business strategy is to (i) increase revenues by offering
additional organic food products through the Company's existing distribution
network, (ii) reduce costs and improve operating efficiencies by using the
Company' excess manufacturing capabilities to increase the volume of products it
manufactures for itself as well as for others, (iii) expand the Company's
current geographic and retail store distribution by offering the Company's
products in new markets and increasing distribution in existing markets, and
(iv) specialize exclusively in the marketing of organic food products. Proceeds
of the Offering will be used for these and other purposes.
Prospective purchasers of the Common Stock should carefully consider the
following information as well as other information contained in this Prospectus
before making an investment in the Common Stock. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g.,
"Business--Strategy." No assurance can be given that the future results covered
by the forward-looking statements will be achieved. The following matters
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results covered in
such forward-looking statements. Other factors, such as the information
contained in "Risk Factors," could also cause actual results to vary materially
from the future results covered in such forward-looking statements.
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
Historical results and percentage relationships among accounts are not
necessarily an indication of trends in operating results for any future period.
The financial statements present the accounts of GVN and OFP on a combined basis
for all periods presented, based on the pooling method of accounting. The
following analysis also discusses the separate historical results of operations
of GVN and OFP.
RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30,
1995
REVENUES
Revenues increased 65.2% from $8,133,000 in 1995 to $13,436,000 in 1996.
GVN's sales increased from $3,106,000 to $5,794,000, an 86.5% increase, while
OFP's sales increased from $5,027,000 to $7,642,000, a 52.0% increase. GVN's
sales increased due to further penetration of its branded products
13
<PAGE>
into club stores and chain grocery stores occasioned by expanded marketing
efforts which were funded by equity financings. GVN also increased its number of
product offerings, which increased its shelf space in retail stores.
OFP's sales increased due to further penetration of its branded products
into health food stores, and the introduction of three new product categories.
The new product categories were a canned tomato line, introduced in September
1995, a dry boxed cut pasta line, introduced in May 1995, and a line of organic
canned meals for children introduced in March 1995. OFP also had an
approximately $1,000,000 increase in industrial sales of organic fruit raw
materials. The Company, in the current fiscal year, has phased out the sale of
organic fruit, and in the future will be offering only raw materials that are
consistent with food ingredients used in its own products.
COST OF GOODS SOLD
Cost of goods sold on a combined basis increased to $10,521,000, or 78.3% of
sales in 1996 from $6,027,000, or 74.1% of sales in 1995. OFP's cost of goods
sold increased to $5,859,000, 76.7% of sales in 1996, from $3,698,000, 73.6% of
sales. This percentage increase was related to sales of a higher proportion of
lower gross profit, bulk products sold in 1996 and, a co-packer relationship
change which resulted in higher co-packer charges. GVN's cost of goods sold
increased to $4,662,000, 80.5% of sales in 1996, from $2,329,000, 75.0% of sales
in 1995. This percentage increase was related to the reformulating of GVN's
pasta sauces to provide a more marketable product, the relocation of GVN's
factory and certain retooling of its manufacturing process.
SALES AND MARKETING EXPENSES
The Company's combined sales and marketing expenses were $2,186,000, or
16.3% of net sales in 1996 versus $718,000, or 8.8% in 1995. The percentage
increase was primarily due to the implementation of a new marketing program by
GVN in 1996 which included the payment of slotting fees (payments to retailers
to obtain store shelf space for products), totaling approximately $473,000,
in-store food demonstration fees of approximately $200,000, and increases of
broker commissions and sales and marketing salaries of approximately $330,000.
OFP's increase in selling and marketing expenses related to an increase in
marketing expenses for new products introduced during the year. These costs
included advertising, product development, samples and sales materials. In
addition, OFP experienced a significant increase in manufacturer's chargebacks,
which were caused by its expansion into new market areas within the health food
industry.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses on a combined basis increased to
$1,760,000, or 13.1% of sales in 1996 from $782,000, or 9.6% of sales in 1995.
The increase is primarily attributed to salary increases for existing personnel
and additions of personnel for expansion purposes. OFP also incurred significant
professional fees as a result of due diligence efforts to analyze other merger
and acquisition candidates prior to its June 1996 merger with the Company.
RESTRUCTURING CHARGE
Restructuring charges were $451,000 in 1996 and included costs incurred in
the elimination of duplicate products, personnel, property and equipment
following the June 1996 merger. The principal costs included $183,000 for
elimination of redundant inventory, $190,000 in severance pay benefits, and
$78,000 for disposal of excess equipment and miscellaneous expenses.
INTEREST EXPENSE
Interest expense increased $280,000 to $404,000 in 1996 from $124,000 in
1995. This increase was due to the change in the co-packer relationship by OFP,
wherein the co-packer charged a financing fee for carrying product it
manufactured on behalf of OFP. This financing fee amounted to approximately
14
<PAGE>
$230,000 in 1996. In addition, GVN's interest expense increased by approximately
$50,000, due to debt incurred in the repurchase of 1,100,000 shares of Common
Stock prior to the June 1996 merger with the Company. See "Certain
Transactions."
RESULTS OF OPERATIONS-SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1995
REVENUES
Revenues for the six month period ended December 31, 1996 were $6,477,000, a
decrease of $190,000, or 3% from the same period in 1995. The principal reason
for this decline was the decision to phase out OFP's sales of organic raw fruit
after the June 1996 merger. This represented an approximately $650,000 decrease
in OFP sales in 1996 versus 1995. This decrease was offset by an approximately
32% increase in the sales of OFP's Millina's Finest brand products. GVN's sales
decreased approximately 3% in the six month period ended December 31, 1996
versus 1995.
The 32% growth in sales of Millina's Finest and the 3% decline in the GVN
revenues are a result of the Company's decision to place marketing emphasis on
expanding the Millina's Finest brand in health food stores, while reducing
expenditures for slotting fees in GVN's club and grocery store markets.
Management believes this decision reduced redundancies and competitiveness in
each market and promoted customer product recognition. The Company plans to
again implement slotting fees in markets where it believes payment of the fees
will yield increased sales.
In addition, the Company intends to increase marketing activities for bulk
raw materials (other than raw fruit). These efforts will be concentrated on the
Company acting as a marketer of the varieties of organic raw vegetables used in
the Company's own products.
COST OF GOODS SOLD
Cost of goods sold for the six month period ended December 31, 1996 was
$4,482,000 or 69.2% of sales, versus $5,137,000, or 77.1% of sales for the same
period in 1995. This reduction in the percentage of cost of goods sold is due to
increased efficiency at the new manufacturing facility, an elimination of the
use of co-packer relationships, changes in the Company's marketing plan to
emphasize higher gross profit product lines, and the resulting economies of
scale from the combined operations and purchasing power of GVN and OFP.
Incremental costs for including OFP's manufacturing costs in the GVN facility
were substantially lower than the costs associated with either company's
pre-merger costs of production.
SALES AND MARKETING EXPENSE
Sales and marketing expense for the six month period ended December 31, 1996
was $954,000, or 14.7% of sales, versus $713,000, or 10.7% of sales for the same
period in 1995, an increase of $241,000. This increase is attributable to
increased marketing efforts involving expansion into health food stores and
increased demonstration costs in an effort to obtain name recognition.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the six month period ended December
31, 1996 were $455,000, or 7.0% of sales, versus $795,000, or 11.9% of sales for
the same period in 1995. The combined companies reduced general and
administrative overhead through the elimination of redundancies and enhanced
operating efficiency. Redundant staff were eliminated, as well as office space,
utilities, insurance and professional services. Management anticipates that the
Company will incur additional general and administrative expenses in connection
with the Offering and to support the Company's expansion into new markets.
15
<PAGE>
INTEREST EXPENSE
Interest expense for the six month period ended December 31, 1996 was
$91,000 versus $83,000 for the same period in 1995. The interest for the six
month period ended December 31, 1996 includes approximately $40,000 of interest
related to approximately $1,560,000 of notes payable which are scheduled to be
repaid from the proceeds of the Offering. The balance of the interest expense
for 1996 is primarily related to the Company's revolving line of credit. See
"Use of Proceeds."
SEASONALITY
Historically, GVN and OFP have experienced little seasonal fluctuation in
the recognition of revenues. In relation to product purchasing, the Company will
seasonally contract for certain product for the entire year at harvest time or
at planting time to secure raw materials through the year. These purchases take
place annually from early spring to mid summer and are effected to reduce the
risk of price swings due to demand fluctuations. These annual purchases can
create overages or shortages in inventory. The Company's intention to sell
certain bulk raw materials to other manufacturers may assist in reducing any
overages and should allow for more effective purchasing of the required raw
materials.
LIQUIDITY AND CAPITAL RESOURCES
The Company is seeking additional capital from the Offering to purchase raw
materials and equipment, repay existing debt, and for working capital. During
the six month period ended December 31, 1996, the Company financed its
operations and business development activity primarily through the net proceeds
of $1.7 million in additional equity sold. These funds were used to purchase
approximately $160,000 of equipment, repay $330,000 of existing debt, purchase
and retire $78,000 of Common Stock (see "Certain Transactions"), and for working
capital.
During the year ended June 30, 1996, the Company financed its operations and
business development activity through an additional sale of equity in the
approximate amount of $1.7 million, as well as a net increase in debt in the
approximate amount of $826,000. These proceeds were used to purchase
approximately $700,000 of equipment, purchase and retire $640,000 of Common
Stock, and for working capital.
Currently, the Company has entered into fixed price contracts covering
approximately 2,000,000 pounds of organic tomatoes. The tomato contracts require
payments of approximately $900,000. The Company also intends to purchase
additional packaging equipment to convert its production facility from using
boxed cases to using shrinkwrap (or bulk glass) cases, thereby reducing
production costs. See "Use of Proceeds."
The Company also intends to incur additional retooling costs to enable the
facility to pasteurize and produce juice products. This is expected to increase
the capacity of the facility, add to sales volume and reduce the per unit cost
of fixed manufacturing overhead.
Currently, the Company has a working capital line of credit facility in the
amount of $1,700,000, of which $1,008,000 was outstanding at December 31, 1996.
The Company believes that the net proceeds of this Offering, together with
its existing cash resources and available credit facilities, will be sufficient
to meet the Company's anticipated acquisition, expansion, and working capital
needs for the next 12 months. The Company, however, may raise capital through
the issuance of long-term or short-term debt, or the issuance of securities in
private or public transactions to fund future expansion of its business, either
before or after the end of the 12 month period. There can be no assurance that
acceptable financing for future transactions can be obtained.
16
<PAGE>
BUSINESS
INTRODUCTION
Since 1987, the Company has manufactured and marketed pesticide free
("organic") and preservative free ("all natural") pasta sauces, salsas and
condiments under the brand names "Garden Valley Naturals" and "Parrot." The
Company began marketing its Parrot line of salsas in 1987, its Garden Valley
Naturals line of condiments in 1991 and its Garden Valley Naturals line of
pastas and salsas in 1994. In June 1996, the Company merged with Organic Food
Products, Inc. ("OFP") which also marketed a line of organic food products
(including pasta sauces and salsas, together with dry cut pastas and organic
children's meals) under the "Millina's Finest" brand name. See "Certain
Transactions."
In June 1996, the Company restructured its Garden Valley Naturals, Parrot
and Millina's Finest product lines by (i) eliminating all nonorganic products,
(ii) eliminating salsas and ketchups sold under the Millina's Finest brand name,
and (iii) adding organic fruit juices and organic frozen entrees to its product
offerings. In addition to its current products, the Company is developing a line
of organic grill sauces and organic salad dressings which it expects to
introduce in 1997. See "Business--Products."
All of the Company's products (with the exception of its organic mustards)
are manufactured at the Company's 24,000 square foot processing and warehouse
facility in Morgan Hill, California. See "Business--Manufacturing Facilities."
The Company sells its products either directly or through distributors or
independent commissioned food brokers and specialty food brokers to (i) health
food and specialty food stores, (ii) club stores (including Price/Costco and
BJ's), and (iii) retail chain and independent grocery stores (including Safeway,
A&P, Waldbaum's, Trader Joe's, Stop N' Shop, Edward's, Lucky's and Big Y). See
"Business--Distribution and Marketing."
STRATEGY
The Company's business strategy is to (i) increase revenues by offering
additional organic food products through the Company's existing distribution
network, (ii) reduce costs and improve operating efficiencies by using the
Company's excess manufacturing capabilities to increase the volume of products
it manufactures for itself as well as for others, (iii) expand the Company's
current geographic and retail store distribution by offering the Company's
products in new markets and increasing distribution in existing markets, and
(iv) specialize exclusively in the marketing of organic food products. Proceeds
of the Offering will be used for these and other purposes. See "Use of
Proceeds."
(i) OFFER ADDITIONAL ORGANIC FOOD PRODUCTS. Since its merger with OFP, the
Company has added organic fruit juices and plans to add organic grill sauces and
organic frozen entrees to its product offerings. The Company believes that
offering additional products will increase revenues without proportionately
increasing costs, due to the economies of scale which result from volume product
manufacturing efficiencies as well as the utilization of the Company's existing
distribution channels to offer new product lines.
(ii) INCREASE MANUFACTURING VOLUMES. The Company believes it can reduce
per unit manufacturing costs by using the Company's excess manufacturing
capabilities to increase manufacturing volume. The Company seeks to increase the
volume of products it manufactures by increasing sales of existing products,
increasing its new product offerings and by continuing to manufacture food
products for other food marketers on a contract basis.
(iii) EXPAND GEOGRAPHIC AND RETAIL STORE DISTRIBUTION. Although the
Company has national geographic distribution for its products in health food
stores, distribution of products through club stores and grocery stores is
primarily limited to northern California and the northeast coast of the United
States. The Company intends to retain additional regional distributors and
independent food brokers, offer advertising
17
<PAGE>
concessions and pay retail store slotting fees in order to increase its club
store and grocery store sales throughout the United States.
(iv) SPECIALIZE EXCLUSIVELY IN ORGANIC FOOD PRODUCTS. Following its merger
with OFP, the Company eliminated all nonorganic food lines from its product
offerings. The Company believes it can achieve superior product recognition and
customer loyalty by promoting awareness that the Company is an exclusive organic
food marketer.
PRODUCTS
The Company introduces and discontinues products on a regular basis,
consistent with customary practices of other firms in the processed food
industry. The Company's current product lines (ranked by percentage of total
sales) are as follows:
ORGANIC PASTA SAUCES AND PASTAS
The Company markets a line of 18 organic pasta sauces under the Garden
Valley Naturals and Millina's Finest brand names. The pasta sauces are also all
natural and most are fat free. Varieties include garden vegetable, sun-dried
tomato, roasted garlic tomato, tomato mushroom, sweet pepper and onions, hot and
spicy, smoked garlic and zesty basil. The Company also offers uncooked organic
dry cut pastas including spaghetti, linguini, fettucini, angel hair, rotini,
penne and bow tie.
ORGANIC SALSAS
The Company markets a line of 16 organic and all natural salsas under the
Garden Valley Naturals brand name including five varieties of fat free and
vinegar free organic salsas (sun-dried tomato, roasted garlic tomato, black
bean, black bean and corn and chunky organic tomato) in three levels of heat,
mild, medium and hot. A medium green tomatillo salsa is also available. The
Company also markets a line of 10 organic salsas under the Parrot brand name.
Varieties include chunky, black bean, tomatillo, spicy gourmet and enchilada
sauce.
ORGANIC CONDIMENTS
The Company offers two varieties of organic catsups and three organic
mustards under the Garden Valley Naturals brand name. The tomato catsup and
spicy garlic catsup are sweetened with organic fruit juice. All three mustards
use organic mustard seed for flavoring and are offered in yellow, stoneground
and dijon. All condiments are also fat free and sugar free.
The Company also offers under the Parrot brand name an organic enchilada
sauce which is fat free and low in sodium, and expects to introduce grill sauces
used for barbecuing hamburgers, hot dogs, chicken and fish in 1997.
CHILDREN'S MEALS
The Company offers three canned organic children's meals, composed of pasta
O's in tomato sauce and tomato cheese sauce and beans with veggie franks.
OTHER PRODUCTS
The Company recently introduced a line of four pasteurized organic fruit
juices under the "Cinagro" brand name in apple-carrot, tomato, vegetable and
carrot/lemon-lime flavors, and intends to introduce by June 1997 two low fat
organic frozen entrees, free range chicken ravioli and roasted vegetable
ravioli. The Company is also developing a line of organic salad dressings which
it expects to introduce in 1997.
18
<PAGE>
DISTRIBUTION AND MARKETING
The Company sells its products either directly or through distributors or
independent commissioned food brokers and specialty food brokers to (i) health
food and specialty food stores, (ii) club stores (including Price/Costco and
BJ's) and (iii) retail chain and independent grocery stores (including Safeway,
A&P, Waldbaum's, Trader Joe's, Stop 'N Shop, Edward's and Lucky's). Currently
the Company's products are offered in over 6,000 health food stores, 250 club
stores and 1,200 grocery stores located in all 50 states and in the Far East,
Middle East and Canada. The Company currently uses 12 specialty food brokers and
50 food distributors to sell to health food and other independent retail stores
and eight food brokers to sell to club stores and certain grocery store chains.
The Company also sells directly to other grocery store chains. In order to
increase its distribution and sales, primarily to club stores and grocery store
chains, the Company may pay "slotting fees" which are payments made by food
processors and distributors to retail stores in order to acquire retail shelf
space for their food products.
The Company's product marketing emphasizes the organic, all natural and
generally fat free content of its products as a healthful and tasty alternative
to similar traditional food products. The Company promotes its Millina's Finest
product line for sale to natural food and health food stores and the specialty
or "gourmet" departments of grocery stores. The Garden Valley Naturals and
Parrot brands are targeted primarily for club stores and grocery stores with
Garden Valley Naturals representing the higher priced product line. The Company
also promotes a pricing strategy in which its organic products are offered at
prices only slightly higher than their nonorganic counterparts. One customer
accounted for 23% of the Company's revenues for the year ended June 30, 1996 and
two customers each accounted for more than 10% of the Company's revenues for the
six months ended December 31, 1996. A loss of any of these customers would have
a material adverse effect on the Company's operations.
MANUFACTURING FACILITIES
The Company manufactures its products in a 24,000 square foot food
processing warehouse facility it leases in Morgan Hill, California. Manufacture
involves mixing the product's ingredients in 1,000 gallon kettles and then
bottling, labeling and casing the product for delivery to the customer. Some
products are packaged in shrink-wrapped combination packs consisting of two or
more separate products in one tray. The Company manufactures all of its
products, except its three mustard condiments which are processed and packaged
for the Company by a co-packer. In addition to the Morgan Hill facility, the
Company uses public warehouse facilities on the east coast of the United States
for inventory storage and distribution.
COMPETITION
The natural food and health food industries in general and the pasta sauce,
salsa, condiment and fruit juice businesses in particular are highly competitive
and there are numerous multinational, regional and local firms that currently
compete, or are capable of competing, with the Company. Multinational nonorganic
(i) pasta sauce competitors include Prego, Ragu, Classico and Newman's Own, (ii)
salsa competitors include Pace, El Paso and La Victoria, (iii) condiment
competitors include Heinz, French's and Guilden's, and (iv) fruit juice
competitors include Minute Maid and Del Monte. The Company also competes with
national pasta manufacturers such as RF, Ronzoni and DeBoles, smaller regional
or local organic or natural pasta sauce and salsa competitors such as Simply
Natural, Muir Glen and Enrico and smaller fruit juice competitors such as
Odwalla and Knudsen. Most of the Company's competitors are larger than the
Company and have more financial, marketing and management resources, and brand
name recognition, than the Company.
Competitive factors in the pasta sauce, salsa and related specialty foods
industry include price, quality and flavor. The Company positions its product
lines to be slightly more expensive than their nonorganic food counterparts but
consistent with prices charged by other organic food marketers. The Company
believes its products compete favorably against other organic foods with respect
to quality and flavor.
19
<PAGE>
TRADE NAMES AND TRADEMARKS
The Company has registered its "Millina's Finest" trademark in California
and has applied for federal trademark registration. The Company intends to apply
for federal and California trademark and trade name protection for its "Garden
Valley Naturals" and federal trademark and trade name protection for its
"Parrot" brands. The Company's Parrot trademark was registered in California.
There can be no assurance that any trademark or trade name registrations will be
granted to the Company, or, if granted, that the trademarks or trade names will
not be copied or challenged by others.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local regulations
relating to cleanliness, maintenance of food production equipment, food storage
and food handling, and the Company is subject to unannounced on-site inspections
of its manufacturing facilities. As a manufacturer and distributor of foods, the
Company is subject to regulation by the U.S. Food and Drug Administration
("FDA"), state food and health boards and local health boards in connection with
the manufacturing, handling, storage, transportation, labeling and processing of
food products. In order to offer organic food products, the Company is also
subject to inspection and regulation by the USDA. Regulations in new markets and
future changes in the regulations may adversely impact the Company by raising
the cost to manufacture and deliver the Company's products and/or by affecting
the perceived healthfulness of the Company's products. A failure to comply with
one or more regulatory requirements could interrupt the Company's operations and
result in a variety of sanctions, including fines and the withdrawal of the
Company's products from store shelves.
The Company is also subject to federal and state laws establishing minimum
wages and regulating overtime and working conditions. Since some of the
Company's personnel are paid at rates not far above the federal or California
state minimum wage, recent and future increases in the federal or California
minimum wage have and will result in increases in the Company's labor costs.
EMPLOYEES
The Company employs 44 individuals including its executive officers, food
production, processing and warehousing employees and administrative personnel.
The Company's employees are not covered by a collective bargaining agreement but
the Company considers its employee relations to be satisfactory.
PROPERTIES
The Company leases approximately 24,000 square feet for its corporate
office, manufacturing and warehouse facility in Morgan Hill, California on a
seven-year lease expiring April 30, 2003, at a monthly rental of $6,480. The
Company also leases 800 square feet of temporary office space at the same
location on a monthly basis for $350 per month. The Company is negotiating with
its landlord to lease to the Company an additional 26,000 square feet of space
for additional warehousing facilities, although no such lease has been executed.
20
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and term of office of each of the executive officers and
directors of the Company are set forth below:
<TABLE>
<CAPTION>
OFFICER
OR
DIRECTOR
NAME POSITION HELD WITH THE COMPANY AGE SINCE
- --------------------------------------------------- ----------------------------------------- --- -----------
<S> <C> <C> <C>
Floyd R. Hill(1)................................... Chief Executive Officer and Director 53 1995
John Battendieri(1)................................ President and Director 50 1996
Donald L. Ladwig................................... Vice President--Marketing and Sales 49 1995
Perry T. Valassis.................................. Chief Financial Officer 52 1997
Kenneth A. Steel Jr.(1)(2)......................... Director 39 1996
Charles B. Bonner(2)............................... Director 55 1996
Charles R. Dyer(2)................................. Director 53 1996
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Directors hold office for a period of one year from their election at the
annual meeting of shareholders or until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors.
BACKGROUND
The following is a summary of the business experience of each executive
officer and director of the Company for at least the last five years:
FLOYD R. HILL joined the Company in November 1995 as its Chief Operating
Officer and a director and was appointed Chief Executive Officer in December
1995. In 1989, Mr. Hill co-founded Monterey Pasta, Inc. ("Monterey"), a
publicly-traded manufacturer and marketer of fresh refrigerated pastas and
sauces. Mr. Hill served as Monterey's Chief Executive Officer from 1989 to 1993,
and its senior vice president from 1993 to November 1995. From 1969 to 1989, Mr.
Hill was employed by Eli Lilly & Co. in various marketing and product
development positions.
JOHN BATTENDIERI, age 49, founded OFP in 1988 and was its President until it
merged with the Company in June 1996. In 1987, he founded Santa Cruz Naturals,
an organic fruit juice company which he sold to Smuckers Corporation in 1992.
For more than 25 years, Mr. Battendieri has grown, developed and marketed a wide
variety of natural food products.
DONALD L. LADWIG joined the Company in June 1995 as its Vice
President--Marketing and Sales. From 1992 to May 1995, Mr. Ladwig was employed
by Del Monte Foods Corporation as a Vice President of Sales. From 1974 to 1992,
he was employed by Proctor and Gamble Corporation in various sales positions,
including his last position as Customer Business Development Manager. Mr. Ladwig
earned a Master in Business Administration degree from Pepperdine University.
PERRY T. VALASSIS joined the Company in January 1997 as its Chief Financial
Officer. From 1990 through 1996, he was employed by Western Microwave, Inc. as
its Controller. He has more than 20 years experience in financial reporting for
private industry and earned a Masters in Business Administration from the
University of Southern California.
21
<PAGE>
KENNETH A. STEEL, JR. has been employed by K.A. Steel Chemicals, Inc. ("K.A.
Steel") since 1978 and has been its Executive Vice President since 1979. K.A.
Steel is a privately-held Chicago, Illinois based chemical company in which Mr.
Steel holds primary responsibilities for sales, marketing and operations
management. Mr. Steel is also the acting Chief Executive Officer and a director
of Monterey Pasta, Inc., a publicly traded manufacturer and marketer of fresh
refrigerated pastas and sauces.
CHARLES B. BONNER has been President and majority shareholder since 1990 of
Pacific Resources Inc., a Fresno, California merger/acquisition and venture
capital firm. From 1975 to 1989, he was President of Bonner Packing Company, a
California dried fruit producer and marketer. Mr. Bonner earned a Bachelor of
Arts degree from Stanford University.
CHARLES R. DYER, age 53, founded and has been an executive officer and
principal of Monterey Bay Food Group, a marketing consultant to the food
industry, since 1979. Mr. Dyer earned a Bachelor of Arts degree from the
University of California.
EXECUTIVE COMPENSATION
The following table discloses compensation paid to certain of the Company's
executive officers for the years ended June 30, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------------
AWARDS
ANNUAL COMPENSATION --------------- PAYOUTS
--------------------------------------- -------------
(E) (F)
(A) OTHER ANNUAL RESTRICTED (G) (H)
NAME AND (B) (C) (D) COMPEN- STOCK OPTIONS/ LTIP
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) AWARD(S)($) SARS(#) PAYOUTS($)
- ------------------------------ --------- --------- ------------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Floyd R. Hill................. 1995 $ 85,000 -0- -0- -0- -0-
Chief Executive Officer 1996 $ 110,000 -0- -0- -0- 200,000(1) -0-
<CAPTION>
(I)
(A) ALL OTHER
NAME AND COMPEN-
PRINCIPAL POSITION SATION($)
- ------------------------------ -------------
<S> <C>
Floyd R. Hill................. -0-
Chief Executive Officer -0-
</TABLE>
- --------------------------
(1) See "--1995 Stock Option Plan" and "Principal Shareholders."
The Company has entered into an employment agreement with Mr. Hill expiring
July 1999 which provides for an annual salary of $110,000. Mr. Hill was
initially granted stock options to purchase 200,000 shares of Common Stock at
$2.00 per share in connection with his November 1995 employment with the
Company, all of which are fully vested. Subsequently, as a part of his July 1996
employment agreement, Mr. Hill was issued stock options to purchase an
additional 200,000 shares of the Company's Common Stock at $2.50 per share
exercisable until July 2003. Options to purchase a total of 100,000 of such
shares vest in June 1997, 50,000 options vest in June 1998 and the remaining
50,000 options vest in June 1999.
Upon completion of the merger with OFP, the Company and Mr. Battendieri
(OFP's then President) entered into a three-year employment agreement expiring
June 1999, which provides for an annual salary of $110,000 and monthly
non-interest bearing loans of $7,500 during the full term of the employment
agreement, repayable the earlier of two years from the date of this Prospectus
or upon termination of the employment agreement.
The Company's nonsalaried directors do not receive any cash compensation as
directors, although they are reimbursed for out-of-pocket expenses in attending
Board of Directors' meetings and have been granted an aggregate of 60,000 stock
options under the Company's 1995 Stock Option Plan exercisable at $2.50 per
share.
22
<PAGE>
1995 STOCK OPTION PLAN
In November 1995, the Company adopted a stock option plan (the "Plan") which
provides for the grant of stock options intended to qualify as "incentive stock
options" or "nonqualified stock options" within the meaning of Section 422 of
the United States Internal Revenue Code of 1986 (the "Code"). Incentive stock
options are issuable only to eligible officers, directors and key employees of
the Company.
The Plan is administered by the Board of Directors. The Company had reserved
625,000 shares of Common Stock for issuance under the Plan. Under the Plan, the
Board of Directors determines which individuals shall receive stock options, the
time period during which the options may be partially or fully exercised, the
number of shares of Common Stock that may be purchased under each option and the
option price.
For incentive stock options (i) the per share exercise price of the Common
Stock may not be less than the fair market value of the Common Stock on the date
the option is granted and (ii) no person who owns, directly or indirectly, at
the time of the granting of an incentive stock option, more than 10% of the
total combined voting power of all classes of stock of the Company is eligible
to receive stock options unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option on the date of grant.
No stock options may be transferred by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee, the
option may only be exercisable by the optionee. Stock options may be exercised
only if the option holder remains continuously associated with the Company from
the date of grant to the date of exercise. Stock options under the Plan must be
granted within 10 years from the effective dates of the Plan. The exercise date
of a stock option granted under the Plan cannot be later than 10 years from the
date of grant. Any options that expire unexercised or that terminate upon an
optionee's ceasing to be employed by the Company become available once again for
issuance. Shares issued upon exercise of an option will rank equally with other
shares then outstanding.
As of the date of this Prospectus, 538,000 stock options have been granted
under the Plan to officers, directors and employees at exercise prices of either
$2.00 or $2.50 per share including an aggregate of 510,000 options granted to
executive officers and directors.
23
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as of February 28, 1997, by (i) each
person who is known by the Company to own of record or beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's directors and (iii)
all directors and officers of the Company as a group. The persons listed in the
table have sole voting and investment powers with respect to the shares of
Common Stock and the address of each person is in care of the Company at 550
Monterey Road, Morgan Hill, California 95037.
<TABLE>
<CAPTION>
PERCENT PERCENT
AMOUNT OF OF CLASS OF CLASS
NAME OWNERSHIP PRIOR TO OFFERING AFTER OFFERING
- -------------------------------------------------------------------- ---------- ------------------- ---------------
<S> <C> <C> <C>
Floyd R. Hill(1).................................................... 351,200 6.4 5.2
John Battendieri.................................................... 2,102,499 39.7 32.4
Kenneth A. Steel(2)................................................. 250,000 4.7 3.8
Charles B. Bonner(3)................................................ 5,000 * *
Charles R. Dyer(4).................................................. 32,000 * *
Jack London......................................................... 250,000 4.7 3.8
Dean E. Nicholson................................................... 450,000 8.5 6.9
Steven A. Reedy..................................................... 450,000 8.5 6.9
Spelman & Co., Inc.(5).............................................. 400,000 7.0 5.8
All officers and directors as
a group (7 persons)(1)(2)(3)(4)................................... 2,760,699 50.2 41.2
</TABLE>
- ------------------------
* Less than 1%
(1) Includes stock options to purchase 200,000 shares of Common Stock at $2.00
per share at any time until November 1, 2000. Does not include options
issued in connection with Mr. Hill's employment agreement to purchase an
additional 200,000 shares of Common Stock at $2.50 per share at various
times until July 2003, which have not yet vested. See "Management--Executive
Compensation."
(2) Does not include stock options to purchase an additional 30,000 shares of
Common Stock at $2.00 per share at any time until March 2001, which have not
yet vested. See "Management--Stock Option Plan" and "Certain Transactions."
(3) Includes stock options to purchase 5,000 shares of Common Stock at $2.00 per
share at any time until March 2001. Does not include options to purchase an
additional 10,000 shares of Common Stock at any time until February 2002,
which have not yet vested. See "Management--Stock Option Plan."
(4) Does not include stock options to purchase 15,000 shares of Common Stock at
$2.50 per share at any time until February 2002, which have not yet vested.
See "Management--Stock Option Plan."
(5) Represents common stock purchase warrants to purchase (i) 200,000 shares of
Common Stock at $2.00 per share at any time until December 31, 2002 and (ii)
200,000 shares at $2.50 per share at any time until July 31, 2003. See
"Underwriting."
24
<PAGE>
CERTAIN TRANSACTIONS
In October 1995, the Company entered into an agreement with Dean E.
Nicholson and Steven A. Reedy, former officers and directors and founding
shareholders of the Company pursuant to which it agreed to repurchase from these
individuals an aggregate of 1,100,000 shares of the Company's Common Stock at
$2.00 per share for a total purchase price of $2,200,000. The Company paid
Messrs. Nicholson and Reedy an aggregate of $640,000 and is required to pay the
remaining $1,560,000 of the purchase price to them the earlier of November 1997
or the closing of the Offering. See "Use of Proceeds."
In October 1995, the Company entered into an agreement with Kenneth A.
Steel, a director of the Company, under which it borrowed $500,000 from Mr.
Steel. The loan bore interest at 10.25% per annum and was due March 31, 1996. In
February 1996, Mr. Steel converted the principal amount of the loan into 250,000
shares of the Company's Common Stock at $2.00 per share.
The Company previously leased certain machinery and equipment from Messrs.
Nicholson and Reedy paying to them an aggregate of $81,596 and $71,992 for the
years ending June 30, 1995 and 1994, respectively. In July 1995, Messrs. Reedy
and Nicholson gratuitously contributed the machinery and equipment to the
Company's capital.
In June 1996, the Company entered into a merger agreement (the "Merger
Agreement") with OFP pursuant to which the two companies merged, with the
Company becoming the surviving entity. Under the terms of the Merger Agreement,
the Company (i) issued 2,250,000 shares of its Common Stock to the shareholders
of OFP in exchange for all 606,061 shares of OFP's outstanding Common Stock and
(ii) assumed all of the obligations of OFP including a $250,000 obligation due
to John Battendieri (OFP's then President and currently the President and a
director of the Company), and a revolving line of credit in the approximate
aggregate amount of $1,100,000 due to a commercial bank and personally
guaranteed by Mr. Battendieri.
Under the terms of Mr. Battendieri's June 1996 employment agreement, the
Company is required to advance to Mr. Battendieri non-interest bearing loans of
$7,500 per month during the full term of his employment agreement which expires
in June 1999. See "Management--Executive Compensation."
In June 1996, the Company cancelled its employment agreement with Mr.
Nicholson and agreed to pay him a termination fee of $175,000 evidenced by a
promissory note in like amount, bearing interest at 8% per annum payable $7,292
per month with the balance of principal and interest due in full in August 1998.
The Company believes that the terms and conditions of the above transactions
were fair, reasonable and consistent with terms the Company could have obtained
from unaffiliated third parties. Any future transactions with the Company's
executive officers or directors will be approved by a majority of the Company's
disinterested directors.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of no par value Common
Stock. Upon issuance, the shares of Common Stock are not subject to further
assessment or call. The holders of Common Stock are entitled to one vote for
each share held of record on each matter submitted to a vote of shareholders.
Cumulative voting for election of directors is permitted. Subject to the prior
rights of any series of Preferred Stock which may be issued by the Company in
the future, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and, in the event of the liquidation, dissolution or winding
up of the Company, are entitled to share ratably in all assets remaining after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities. The
25
<PAGE>
outstanding Common Stock is, and the Common Stock to be outstanding upon
completion of the Offering will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of no par value
preferred stock (the "Preferred Stock"). The Preferred Stock may, without action
by the shareholders of the Company, be issued by the Board of Directors
("Board") from time to time in one or more series for such consideration and
with such relative rights, privileges and preferences as the Board may
determine. Accordingly, the Board has the power to fix the dividend rate and to
establish the provisions, if any, relating to voting rights, redemption rates,
sinking funds, liquidation preferences and conversion rights for any series of
Preferred Stock issued in the future.
It is not possible to state the actual effect of any other authorization of
Preferred Stock upon the rights of holders of Common Stock until the Board
determines the specific rights of the holders of any other series of Preferred
Stock. The Board's authority to issue Preferred Stock also provides a convenient
vehicle in connection with possible acquisitions and other corporate purposes,
but could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock. Accordingly, the issuance of
Preferred Stock may be used as an "anti-takeover" device without further action
on the part of the shareholders of the Company, and may adversely affect the
holders of the Common Stock. See "Risk Factors--Control by Management;
Authorization and Issuance of Preferred Stock; Prevention of Changes in
Control."
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 6,496,000 shares of Common
Stock outstanding, of which 1,200,000 shares have been registered in the
Offering, and the remaining 5,296,000 shares have not been registered in the
Offering and are "restricted securities" under Rule 144 of the 1933 Act. In
general, under Rule 144, a person (or persons whose shares are aggregated) who
has satisfied a one-year holding period may, under certain circumstances, sell
within any three-month period the number of shares which does not exceed the
greater of one percent of the then outstanding shares of Common Stock
(approximately 64,960 shares immediately after the Offering assuming no exercise
of the Representatives' Warrants, the Overallotment Option, or other outstanding
stock options or common stock purchase warrants) or the average weekly trading
volume during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of shares by a person without any quantity
limitation after the securities have been held for two years. Of the 5,296,000
shares of Common Stock that are restricted securities 4,472,500 are currently
eligible for sale under Rule 144 and 823,500 shares may be sold under Rule 144
commencing in July 1997. The Company is unable to predict the effect that any
sales, under Rule 144 or otherwise, may have on the then prevailing market price
of the Common Stock. All of the Company's shareholders have agreed not to sell
or otherwise dispose of any of their shares of Common Stock for a period of 12
months from the date of this Prospectus, without the prior written consent of
the Representatives. The Company has also granted certain demand and piggy-back
registration rights to the Representatives with respect to the Representatives'
Warrants as well as the Common Stock issuable upon exercise of the
Representatives' Warrants.
TRANSFER AGENT
The Company has appointed Corporate Stock Transfer, Inc., 370 17th Street,
Suite 2350, Denver, Colorado 80202, as the transfer agent for the Common Stock.
26
<PAGE>
DIVIDENDS
The Company has not paid dividends on its Common Stock since inception and
does not plan to pay dividends in the foreseeable future. Earnings, if any, will
be retained to finance growth.
LIMITATION ON LIABILITIES
The Company's Articles of Incorporation provide that liability of directors
to the Company for monetary damages is eliminated to the full extent provided by
California law. Under California law, a director is not personally liable to the
Company or its shareholders for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its shareholders; (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
(iii) for authorizing the unlawful payment of a dividend or other distribution
on the Company's capital stock or the unlawful purchases of its capital stock;
or (iv) for any transaction from which the director derived any improper
personal benefit.
The effect of this provision in the Articles of Incorporation is to
eliminate the rights of the Company and its shareholders (through shareholders'
derivative suits on behalf of the Company) to recover monetary damages from a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any shareholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care or any liability for violation of the federal
securities laws.
27
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Sentra Securities Corporation....................................................
Spelman & Co., Inc...............................................................
----------
Total........................................................................ 1,200,000
----------
----------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock purchased by them directly to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at a price that represents a concession of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession within the
discretion of the Representatives. The Underwriters are committed to purchase
and pay for all of the Common Stock if any Common Stock is taken. After the
initial public offering of the Common Stock, the offering price and the selling
terms may be changed by the Underwriters.
The Company has granted the Representatives an Overallotment Option,
exercisable within 30 days from the date of this Prospectus, to purchase up to
180,000 shares of Common Stock solely to cover overallotments.
The Underwriters will purchase the Common Stock (including Common Stock
subject to the Overallotment Option) from the Company at a price of $4.50 per
share. In addition, the Company has agreed to pay to the Representatives a 3%
nonaccountable expense allowance on the aggregate initial public offering price
of the shares of Common Stock, including shares subject to the Overallotment
Option, none of which has been paid.
The Company has agreed to issue the Representatives' Warrants to the
Representatives for a consideration of $100. The Representatives' Warrants are
exercisable at any time in the four-year period commencing one year from the
date of this Prospectus to purchase up to 120,000 shares of Common Stock for
$6.00 per share. The Representatives' Warrants are not transferable for one year
from the date of this Prospectus except (i) to an Underwriter or a partner or
officer of an Underwriter or (ii) by will or operation of law. During the term
of the Representatives' Warrants, the holder thereof is given the opportunity to
profit from a rise in the market price of the Company's securities. The Company
may find it
28
<PAGE>
more difficult to raise additional equity capital while the Representatives'
Warrants are outstanding. At any time at which the Representatives' Warrants are
likely to be exercised, the Company would probably be able to obtain additional
equity capital on more favorable terms. The Company has registered the Common
Stock underlying the Representatives' Warrants under the 1933 Act. If the
Company files a registration statement relating to an equity offering under the
provisions of the 1933 Act at any time during the five-year period following the
date of this Prospectus, the holders of the Representatives' Warrants or
underlying Common Stock will have the right, subject to certain conditions, to
include in such registration statement, at the Company's expense, all or part of
the underlying Common Stock at the request of the holders. Additionally, the
Company has agreed, for a period of five years commencing on the date of this
Prospectus, on demand of the holders of a majority of the Representatives'
Warrants or the Common Stock issued or issuable thereunder, to register the
Common Stock underlying the Representatives' Warrants one time at the Company's
expense. The registration of securities pursuant to the Representatives'
Warrants may result in substantial expense to the Company at a time when it may
not be able to afford such expense and may impede future financing. The Company
may find that the terms on which it could obtain additional capital may be
adversely affected while the Representatives' Warrants are outstanding. The
number of shares of Common Stock covered by the Representatives' Warrants and
the exercise price are subject to adjustment under certain events to prevent
dilution.
Spelman & Co., Inc. ("Spelman") acted as the Company's Placement Agent in
two prior private placements of the Company's securities pursuant to which
Spelman sold (i) 1,350,000 shares of the Company's Common Stock at $2.00 per
share and (ii) 823,500 shares of the Company's Common Stock at $2.50 per share.
In connection with the first private placement completed in November 1995, the
Company paid Spelman an aggregate of $351,000 in cash and issued to it common
stock purchase warrants to purchase 200,000 shares at $2.00 per share
exercisable at any time until December 31, 2002. In connection with the second
private placement completed in July 1996, the Company paid Spelman an aggregate
of $267,638 in cash and issued to it common stock purchase warrants to purchase
an additional 200,000 shares at $2.50 per share exercisable at any time until
July 31, 2003. See "Principal Shareholders."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the 1933 Act, or to contribute to
payments that any Underwriter may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gary A. Agron, Englewood, Colorado. Certain legal
matters in connection with the Offering will be passed upon for the
Representatives by Luce, Forward, Hamilton & Scripps LLP, San Diego, California.
EXPERTS
The financial statements of the Company for the years ended June 30, 1995
and 1996, appearing in this Prospectus, have been audited by Semple & Cooper
PLC, independent certified public accountants, as stated in their report
appearing herein, and have been so included herein in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the 1933 Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain items of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered by this Prospectus, reference
is made to such Registration Statement and the exhibits thereto which may be
29
<PAGE>
inspected without charge at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington, DC 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661; 7 World Trade
Center, New York, NY 10048; and 5670 Wilshire Boulevard, Los Angeles, CA 90036.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and, in accordance therewith,
will file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected at public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, DC 20549; Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661; 7 World Trade Center, New York, NY 10048; and
5670 Wilshire Boulevard, Los Angeles, CA 90036. Copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street N.W., Washington, DC 20549 at prescribed rates.
The Company will furnish annual reports to its shareholders which will
include year end audited financial statements. The Company will also furnish to
its shareholders quarterly reports and such other reports as may be authorized
by its Board of Directors.
30
<PAGE>
To The Shareholders and Board of Directors of
Organic Food Products, Inc.
We have audited the accompanying balance sheet of Organic Food Products, Inc. as
of June 30, 1996, and the related statements of operations, changes in
shareholders' equity, and cash flows for the years ended June 30, 1996 and 1995.
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 audits 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 Organic Food Products, Inc. as
of June 30, 1996, and the results of its operations, changes in shareholders'
equity, and its cash flows for the years ended June 30, 1996 and 1995, in
conformity with generally accepted accounting principles.
SEMPLE & COOPER, PLC
Certified Public Accountants
Phoenix, Arizona
February 28, 1997
F-1
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
Current Assets:
Cash............................................................................... $ 191,073 $ 5,674
Accounts receivable, net (Notes 1 and 4)........................................... 818,342 1,180,211
Inventory (Notes 1, 2, 4 and 6).................................................... 1,429,743 2,096,913
Prepaid expenses................................................................... 25,240 32,512
Advances to shareholder (Note 3)................................................... -- 43,914
Income tax refund receivable....................................................... 259,447 144,347
Deferred tax asset (Note 9)........................................................ -- 12,000
------------ ------------
Total Current Assets............................................................. 2,723,845 3,515,571
------------ ------------
Property and Equipment: (Notes 1, 4 and 5)
Computer software.................................................................. 24,431 6,563
Leasehold improvements............................................................. 109,182 144,687
Machinery and equipment............................................................ 595,396 731,422
Office equipment................................................................... 51,781 52,278
Printing plates.................................................................... 12,738 12,738
Vehicles........................................................................... 16,088 13,314
------------ ------------
809,616 961,002
Less: accumulated depreciation..................................................... (59,030) (132,568)
------------ ------------
750,586 828,434
------------ ------------
Other Assets:
Deposits and other................................................................. 24,003 39,103
Deferred offering costs (Notes 1 and 14)........................................... 71,225 35,202
------------ ------------
95,228 74,305
------------ ------------
Total Assets..................................................................... $ 3,569,659 $4,418,310
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-2
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------- -------------
<S> <C> <C>
(UNAUDITED)
Current Liabilities:
Notes payable--current portion (Note 4)........................................... $ 1,048,595 $ 1,008,412
Notes payable--related parties--current portion (Note 3).......................... 333,732 1,563,751
Capital lease obligations--current portion (Notes 1 and 5)........................ 5,323 3,974
Accounts payable (Note 6)......................................................... 2,030,234 1,135,009
Accrued wages and taxes........................................................... 74,499 67,174
------------- -------------
Total Current Liabilities....................................................... 3,492,383 3,778,320
------------- -------------
Long-Term Liabilities:
Notes payable--long-term portion (Note 4)......................................... 512 --
Notes payable--related parties-long-term portion (Note 3)......................... 1,540,541 58,491
Capital lease obligations--long-term portion (Notes 1 and 5)...................... 1,408 --
Deferred income taxes payable (Note 9)............................................ -- 25,000
------------- -------------
1,542,461 83,491
------------- -------------
Commitments (Notes 3 and 6)......................................................... -- --
Shareholders' Equity (Deficit): (Note 8)
Common stock...................................................................... 895,215 2,535,378
Accumulated deficit............................................................... (2,360,400) (1,978,879)
------------- -------------
(1,465,185) 556,499
------------- -------------
Total Liabilities and Shareholders' Equity (Deficit)............................ $ 3,569,659 $ 4,418,310
------------- -------------
------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-3
<PAGE>
ORGANIC FOODS PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTH PERIODS ENDED
--------------------------- --------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues............................................... $ 13,435,634 $ 8,133,505 $6,477,627 $6,667,397
Cost of Goods Sold..................................... 10,520,916 6,026,785 4,482,317 5,137,388
------------- ------------ ------------ ------------
Gross Profit........................................... 2,914,718 2,106,720 1,995,310 1,530,009
------------- ------------ ------------ ------------
Sales and Marketing Expense............................ 2,186,012 718,057 953,657 713,174
General and Administrative Expenses.................... 1,759,616 781,917 454,708 795,279
Restructuring charge (Note 13)......................... 451,500 -- -- --
------------- ------------ ------------ ------------
4,397,128 1,499,974 1,408,365 1,508,453
------------- ------------ ------------ ------------
Income (Loss) from Operations.......................... (1,482,410) 606,746 586,945 21,556
------------- ------------ ------------ ------------
Other Income (Expense):
Other income......................................... 2,948 10,607 11,765 8,580
Interest income...................................... 10,376 518 801 4,805
Interest expense..................................... (403,566) (124,786) (91,286) (83,166)
Gain (loss) on sale of asset......................... (7,678) -- 1,396 --
------------- ------------ ------------ ------------
(397,920) (113,661) (77,324) (69,781)
------------- ------------ ------------ ------------
Income (Loss) before Provision for Income
Taxes................................................. (1,880,330) 493,085 509,621 (48,225)
------------- ------------ ------------ ------------
Provision for Income Tax Benefit (Expense):
(Note 1)
-- current........................................... 176,023 (200,602) (115,100) 2,862
-- deferred.......................................... -- -- (13,000) (5,565)
------------- ------------ ------------ ------------
176,023 (200,602) (128,100) (2,703)
------------- ------------ ------------ ------------
Net Income (Loss)...................................... $ (1,704,307) $ 292,483 $ 381,521 $ (50,928)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Earnings (Loss) per Share (Note 1)..................... $ (.27) $ .04 $ .07 $ (.01)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted Average Number of Shares Outstanding.......... 6,249,127 6,936,250 5,805,000 5,056,758
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-4
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995 AND
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS SHAREHOLDERS'
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1994................................. $ 80,400 $ 8,571 $ (357,948) $ (268,977)
Net income for the year ended June 30, 1995.............. -- -- 292,483 292,483
------------- ----------- ------------- -------------
Balance at June 30, 1995................................. 80,400 8,571 (65,465) 23,506
Contribution of equipment by shareholders................ -- 15,000 -- 15,000
Proceeds from private offerings, net of costs of
$461,775............................................... 2,238,225 -- -- 2,238,225
Purchase and retirement of treasury stock................ (13,000) (15,000) (2,009,609) (2,037,609)
Net loss for the year ended June 30, 1996................ -- -- (1,704,307) (1,704,307)
Conversion of accumulated S corporation losses upon
merger................................................. (1,410,410) (8,571) 1,418,981 --
------------- ----------- ------------- -------------
Balance at June 30, 1996................................. 895,215 -- (2,360,400) (1,465,185)
Proceeds from private offering, net of costs of
$340,462............................................... 1,718,288 -- -- 1,718,288
Purchase and retirement of treasury stock................ (78,125) -- -- (78,125)
Net income for the six month period ended December 31,
1996................................................... -- -- 381,521 381,521
------------- ----------- ------------- -------------
Balance at December 31, 1996............................. $ 2,535,378 $ -- $ (1,978,879) $ 556,499
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-5
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTH PERIODS ENDED
----------------------------- ----------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
-------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash:
Cash flows from operating activities:
Cash received from customers...................... $ 13,424,571 $ 7,420,209 $ 6,083,609 $ 5,862,152
Cash paid to suppliers and employees.............. (14,033,325) (7,172,208) (7,398,802) (6,619,362)
Interest paid..................................... (329,905) (95,105) (50,688) (64,942)
Interest received................................. 10,376 518 801 4,805
Taxes paid........................................ (74,977) (865) -- (343,662)
-------------- ------------- ------------- -------------
Net cash provided (used) by operating
activities.................................... (1,003,260) 152,549 (1,365,080) (1,161,009)
-------------- ------------- ------------- -------------
Cash flows from investing activities:
Sale of fixed assets.............................. -- -- 5,004 --
Purchase of fixed assets.......................... (707,657) (36,590) (165,427) (55,470)
-------------- ------------- ------------- -------------
Net cash used by investing activities........... (707,657) (36,590) (160,423) (55,470)
-------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayment of capital lease........................ (4,533) (2,142) (2,757) (1,800)
Repayment of notes payable........................ (262,359) (202,485) (40,695) 0
Repayment of notes payable--
related parties................................. (715,134) (173,875) (292,630) (267,280)
Proceeds from notes payable....................... 1,115,801 186,060 -- 1,132,768
Proceeds from notes payable--
related party................................... 692,169 111,000 -- 105,536
Proceeds from issuance of stock................... 1,667,000 -- 1,754,311 1,303,225
Purchase and retirement of treasury stock......... (640,000) -- (78,125) --
-------------- ------------- ------------- -------------
Net cash provided (used) by financing
activities.................................... 1,852,944 (81,442) 1,340,104 2,272,449
-------------- ------------- ------------- -------------
Net increase (decrease) in cash..................... 142,027 34,517 (185,399) 1,055,970
Cash at beginning of period......................... 49,046 14,529 191,073 49,046
-------------- ------------- ------------- -------------
Cash at end of period............................... $ 191,073 $ 49,046 $ 5,674 $ 1,105,016
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-6
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTH PERIODS ENDED
-------------------------- ----------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Reconciliation of Net Income (Loss) to Net Cash Provided
(Used) by Operating Activities:
Net Income (Loss)....................................... $ (1,704,307) $ 292,483 $ 381,521 $ (50,928)
------------- ----------- ------------- -------------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation.......................................... 42,798 17,513 83,973 14,106
Loan discount amortization............................ 43,981 -- 40,598 3,383
Accrued interest added to note principal.............. 29,681 29,681 -- 14,841
Gain (loss) on sale of assets......................... 7,678 -- (1,396) --
Employment contract settlement........................ 175,000 -- -- --
Changes in Assets and Liabilities:
Accounts receivable................................... 258,661 (687,108) (405,783) (798,694)
Inventory............................................. (608,623) (89,933) (667,170) (963,774)
Prepaid expenses...................................... 674 (13,325) (7,272) (55,155)
Income tax refund receivable.......................... (259,447) -- 115,100 (103,774)
Deferred tax asset.................................... -- -- (12,000) --
Refundable deposits................................... (22,105) (71) (15,100) (49,000)
Accounts payable...................................... 1,244,149 370,296 (895,226) 1,057,071
Accrued wages and taxes............................... 39,600 33,276 (7,325) 8,100
Income taxes payable
-- current.......................................... (251,000) 199,737 -- (251,000)
-- deferred......................................... -- -- 25,000 13,815
------------- ----------- ------------- -------------
701,047 (139,934) (1,746,601) (1,110,081)
------------- ----------- ------------- -------------
Net cash provided (used) by operating activities........ $ (1,003,260) $ 152,549 $ (1,365,080) $ (1,161,009)
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
F-7
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES:
NATURE OF OPERATIONS:
Organic Food Products, Inc. (formerly Garden Valley Naturals, Inc.) is a
Corporation which was duly formed and organized under the laws of the State of
California. The Corporation was approved by the State of California on July 7,
1987. The principal business purpose of the Company is the production and
distribution of organic food products throughout the United States.
ACQUISITION AND MERGER:
As of June 28, 1996, Garden Valley Naturals, Inc. acquired all of the
outstanding common stock of Organic Food Products, Inc. for 2,250,000 shares of
the Company's common stock, merged the companies into one surviving corporation,
and subsequently changed the name from Garden Valley Naturals, Inc. to Organic
Food Products, Inc.
For financial accounting purposes, the acquisition was accounted for as a
pooling of interest in accordance with Accounting Principles Board Opinion No.
16. The accompanying financial statements for the year ended June 30, 1996 are
based on the assumption that the Companies were combined for the full year. The
financial statements of the prior periods have been restated to give effect to
the combination.
PERVASIVENESS 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.
INTERIM FINANCIAL STATEMENTS:
The interim financial statements for the six month periods ended December
31, 1996 and 1995 are unaudited. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair representation of the results of the interim periods. The
results of operations for the six month period ended December 31, 1996 are not
necessarily indicative of the results for the entire year.
STOCK-BASED COMPENSATION
In 1996, the Company adopted for footnote disclosure purposes only, SFAS No.
123, "Accounting for Stock-Based Compensation," which requires that companies
measure the cost of stock-based employee compensation at the grant date based on
the value of the award and recognize this cost over the service period. The
value of the stock-based award is determined using the intrinsic value method
whereby compensation cost is the excess of the market prices of the stock at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
ACCOUNTS RECEIVABLE:
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as a
percentage of accounts receivable based on a review of
F-8
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
the individual accounts outstanding, and the Company's prior history of
uncollectible accounts receivable. At June 30, 1996 and December 31, 1996, an
allowance of $89,983 and $15,000 (unaudited), respectively, has been established
for potentially uncollectible accounts receivable.
INVENTORY:
Inventory quantities and valuations are determined by a physical count and
pricing of same. Inventory is stated at the lower of cost, first-in, first-out
method, or market. At June 30, 1996 and December 31, 1996, inventory is stated
net of an allowance for obsolete inventory, in the amounts of $107,072 and
$20,000 (unaudited), respectively.
EARNINGS PER SHARE:
Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective periods, after giving retroactive effect
to the 2,250,000 shares issued in the pooling combination. In addition, for
purposes of this computation, the stock split and private offerings (as
described in Note 8) have been given retroactive effect. The Company has
proposed an initial public offering of its common stock. Pursuant to Securities
and Exchange Commission rules, shares of common stock issued for consideration
below the anticipated offering price per share prior to filing of the
registration statement have been included in the calculation of common stock
equivalent shares, as if they had been outstanding for all periods presented. In
addition, shares of common stock that are subject to options and warrants having
exercise prices that are below the anticipated offering price per share, whether
or not exercisable, have been included in the earnings per share calculation,
using the treasury stock method.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to expense as incurred. Betterments
or renewals are capitalized when incurred. For the years ended June 30, 1996 and
1995, and for the six month periods ended December 31, 1996 and 1995,
depreciation expense was $42,798, $17,513, $83,973 (unaudited) and $14,106
(unaudited), respectively.
A summary of the estimated useful lives is as follows:
<TABLE>
<S> <C>
Computer software.............................................. 5 years
Leasehold improvements......................................... 7 years
7 - 20
Machinery and equipment........................................ years
Office equipment............................................... 5 years
Printing plates................................................ 7 years
Vehicles....................................................... 5 years
</TABLE>
The Company is the lessee of vehicles and equipment under capital lease
agreements expiring through October, 1997. The assets and liabilities under the
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair market value of the assets. The assets are
depreciated over their estimated productive lives. Depreciation of the assets
under the capital leases is included in
F-9
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES: (CONTINUED)
depreciation expense, as noted above, for the years ended June 30, 1996 and
1995, and for the six month periods ended December 31, 1996 and 1995.
DEFERRED OFFERING COSTS:
Deferred offering costs represent costs incurred in connection with the
Company's equity offerings subsequent to the respective balance sheet dates. As
of June 30, 1996 and December 31, 1996, the Company had incurred $71,225 and
$35,202 (unaudited), respectively, in relation to these activities. Deferred
offering costs will be charged against the net proceeds from the offerings.
DEFERRED INCOME TAXES:
Deferred income taxes arise from timing differences resulting from revenues
and expenses reported for financial accounting and tax reporting purposes in
different periods. Deferred income taxes represent the estimated tax asset or
liability from different depreciation methods used for financial accounting and
tax reporting purposes and for timing differences in the utilization of net
operating loss carryforwards and valuation allowances.
2. INVENTORY:
As of June 30, 1996 and December 31, 1996, inventory consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
Raw materials.................................................... $ 678,034 $1,185,447
Finished goods................................................... 858,781 931,466
------------ ------------
1,536,815 2,116,913
Less: provision for obsolete inventory......................... (107,072) (20,000)
------------ ------------
$ 1,429,743 $2,096,913
------------ ------------
------------ ------------
</TABLE>
3. RELATED PARTY TRANSACTIONS:
ADVANCES TO SHAREHOLDER:
As of December 31, 1996, the Company has advanced $43,914 to a shareholder.
The advance is unsecured, non-interest bearing, and considered short-term in
nature.
F-10
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS: (CONTINUED)
NOTES PAYABLE - RELATED PARTIES:
At June 30, 1996 and December 31, 1996, notes payable - related parties,
consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
Two (2) non-interest bearing $780,000 notes payable to two (2) corporate
shareholders, due the earlier of November, 1997 or the completion of an initial
public offering, net of imputed discount of $118,411 and $77,812 (unaudited),
respectively....................................................................... $ 1,441,589 $ 1,482,188
8% note payable to a corporate shareholder, with monthly payments of $7,292,
including principal and interest, due August, 1998; unsecured...................... 175,000 140,054
Various non-interest bearing notes payable to a corporate shareholder, due January,
1997; unsecured.................................................................... 10,349 --
12% note payable to a corporate shareholder, due in full January, 1997; unsecured.... 247,335 --
------------ -------------
1,874,273 1,622,242
Less: current portion (333,732) (1,563,751)
------------ -------------
$ 1,540,541 $ 58,491
------------ -------------
------------ -------------
</TABLE>
A schedule of future minimum principal payments due on notes payable
outstanding at June 30, 1996 and December 31, 1996, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
YEAR ENDING YEAR
JUNE 30, DECEMBER 31,
------------ ------------
<S> <C> <C>
(UNAUDITED)
1997............................................................. $ 333,732 $1,563,751
1998............................................................. 1,524,157 58,491
1999............................................................. 16,384 --
------------ ------------
$ 1,874,273 $1,622,242
------------ ------------
------------ ------------
</TABLE>
COMMITMENTS:
The Company was leasing facilities from a related party. The lease was
cancelled during February, 1996. The terms of the lease agreement required the
Company to pay common area maintenance, taxes and other costs, as well as a
discretionary base rent of approximately $4,500 per month. Rent expense under
the operating lease agreement for the years ended June 30, 1996 and 1995, and
for the six month period ended December 31, 1995, was $28,000, $48,000 and
$24,000 (unaudited), respectively.
F-11
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE:
At June 30, 1996 and December 31, 1996, notes payable consist of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
Three (3) lines of credit with Wells Fargo Bank totalling $1,178,000 ($546,000,
$500,000 and $132,000). Interest is at the bank's prime rate plus .75%, 2%, and 2%,
respectively, per annum, interest due monthly, with $1,046,000 expiring October,
1996 and the remaining $132,000 expiring in February, 2001; collateralized by
various corporate assets and the personal guarantee of the corporate
shareholder........................................................................ $ 1,046,818 $ 1,008,412
9.5% note payable to GMAC in monthly installments of $173, including principal and
interest, due in full September, 1997; collateralized by a vehicle................. 2,289 --
------------ -------------
1,049,107 1,008,412
Less: current portion of long-term notes payable..................................... (1,048,595) (1,008,412)
------------ -------------
$ 512 $ --
------------ -------------
------------ -------------
</TABLE>
Subsequent to December 31, 1996, the Company renegotiated and consolidated
the revolving lines of credit with Wells Fargo Bank. Under the new terms the
credit line has been renewed through November 1, 1997 at a $1.7 million maximum,
and a $300,000, 48 month term loan has been established.
A schedule of future minimum principal payments due on notes payable
outstanding at June 30, 1996 and December 31, 1996, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING YEAR ENDING
YEAR JUNE 30, DECEMBER 31,
- --------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
(UNAUDITED)
1997....................................................................... $ 1,048,595 $1,008,412
1998....................................................................... 512 --
------------ ------------
$ 1,049,107 $1,008,412
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OBLIGATIONS UNDER CAPITAL LEASES:
The Company is the lessee of vehicles and equipment, with an aggregate cost
of $32,917, under capital lease agreements which expire through September, 1997.
As of June 30, 1996 and December 31, 1996, minimum future lease payments due
under the capital lease agreements, are as follows:
<TABLE>
<CAPTION>
YEAR
ENDING YEAR ENDING
YEAR JUNE 30, DECEMBER 31,
- ------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
(UNAUDITED)
1997........................................................................... $ 7,972 $ 4,956
1998........................................................................... 2,208 --
--------- ------------
Total minimum lease payments................................................... 10,180 4,956
Less: amount representing interest............................................. (3,449) (982)
--------- ------------
Present value of net minimum lease payments.................................... 6,731 3,974
Less: current maturities of capital lease obligations.......................... (5,323) (3,974)
--------- ------------
Non-current maturities of capital lease obligations............................ $ 1,408 $ --
--------- ------------
--------- ------------
</TABLE>
Interest rates under the capital lease obligations range from ten percent
(10%) to twenty-one and four-tenths percent (21.4%) per annum, and are imputed
based on the lessor's implicit rate of return at the inception of the lease.
6. COMMITMENTS:
INVENTORY PURCHASES:
The Company is committed to purchase tomatoes over the next year at
contracted prices. At December 31, 1996, these future committed purchases
aggregated approximately $900,000 (unaudited), based on the contracted prices.
LEASE OBLIGATIONS:
Effective February, 1996, the Company began leasing office, warehouse and
production space in Morgan Hill, California under a non-cancellable operating
lease agreement, expiring April, 2003. For the year ended June 30, 1996, and for
the six month period ended December 31, 1996, rent expense under the
aforementioned non-cancellable operating lease agreement was $31,766 and $38,880
(unaudited), respectively.
In addition, the Company is currently leasing a vehicle under a
non-cancellable operating lease agreement, expiring August, 1997. Rent expense
under the lease agreement for the years ended June 30, 1996 and 1995, and for
the six month periods ended December 31, 1996 and 1995 was $8,889, $8,889,
$4,444 (unaudited) and $4,444 (unaudited), respectively.
F-13
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS: (CONTINUED)
A schedule of future minimum lease payments due under the non-cancellable
operating leases at June 30, 1996 and December 31, 1996, is as follows:
<TABLE>
<CAPTION>
YEAR
ENDING YEAR ENDING
YEAR JUNE 30, DECEMBER 31,
- ----------------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
(UNAUDITED)
1997......................................................................... $ 86,649 $ 90,679
1998......................................................................... 80,020 79,708
1999......................................................................... 80,896 82,096
2000......................................................................... 83,320 84,558
2001......................................................................... 85,820 87,095
Subsequent................................................................... 148,492 104,732
---------- ------------
$ 565,197 $ 528,868
---------- ------------
---------- ------------
</TABLE>
EMPLOYMENT CONTRACTS:
The Company has entered into employment contracts with two key employees.
The contracts expire through July, 1999 and provide for minimum annual salaries,
adjusted for cost-of-living changes, and incentives based on the Company's
attainment of specified levels of sales and earnings. As of December 31, 1996
the total commitment, excluding incentives was approximately $550,000
(unaudited).
7. ECONOMIC DEPENDENCY:
For the years ended June 30, 1996 and 1995, and for the six month period
ended December 31, 1995, the Company had one (1) customer which accounted for
approximately twenty-three percent (23%), twenty percent (20%), and seventeen
percent (17%), (unaudited) of the total sales volume. For the six month period
ended December 31, 1996 the Company had two (2) customers which accounted for
approximately 30% (unaudited) of total sales volume. At June 30, 1996 and
December 31, 1996, the amounts due from the customer, included in accounts
receivable was $60,947 and $499,184 (unaudited), respectively.
For the years ended June 30, 1996 and 1995, and for the six month period
ended December 31, 1995, the Company had one (1) supplier which accounted for
approximately thirty-six percent (36%), twenty-nine percent (29%) and
thirty-seven percent (37%) (unaudited) of the total purchases. At June 30, 1996
and December 31, 1996, the amounts due to the supplier included in accounts
payable were $357,570 and $36,499 (unaudited), respectfully.
8. SHAREHOLDERS' EQUITY:
COMMON STOCK AND STOCK SPLIT:
On October 3, 1995, the Company increased its authorized capital from 1,000
to 20,000,000 shares of no par value common stock, and declared a 2,000 for 1
split of its common stock. At June 30, 1996, the Company had 4,500,000 shares
issued and outstanding. At December 31, 1996, the Company 5,296,000 (unaudited)
shares issued and outstanding.
F-14
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY: (CONTINUED)
PRIVATE OFFERING AND WARRANTS:
The Company issued 1,350,000 shares (after 2,000 for 1 split) of common
stock for $2,700,000 through a private offering during the year ended June 30,
1996. The net proceeds were $2,238,225, of which $640,000 was used as a down
payment to purchase 1,100,000 shares of common stock held by the principal
shareholders. In connection with this offering, the Company issued warrants to
purchase up to 200,000 shares of common stock at $2 per share to an underwriter.
These options are exercisable at any time through December 31, 2002. As of
December 31, 1996, no warrants have been exercised.
In addition, the Company had a second private offering in the six month
period ended December 31, 1996. As of December 31, 1996 the Comapny sold 823,500
shares for $1,718,288, net of costs of $340,462 (unaudited). In connection with
this offering, the Company issued warrants to purchase up to 200,000 shares of
common stock at $2.50 per share to an underwriter. As of December 31, 1996 none
of the warrants have been exercised.
PREFERRED STOCK:
On October 3, 1995, the corporate Articles of Incorporation were amended to
authorize the issuance of up to 5,000,000 shares of preferred stock, no par
value. The Board of Directors are authorized to issue preferred stock with such
rights, privileges, preferences and restrictions, as they deem appropriate. As
of June 30, 1996 and December 31, 1996, no preferred stock has been issued.
STOCK OPTIONS AND STOCK OPTION PLAN:
Effective November, 1995, the Company's Board of Directors adopted a stock
option plan. The Company has reserved 625,000 shares of common stock for
issuance under the Plan, pending Board approval. The Board of Directors
determines which individuals shall receive options. The time period during which
the options may be partially or fully exercised, the number of shares of common
stock that may be purchased under each option, and the option price. As of
December 31, 1996, 483,000 (unaudited) options were granted under the Plan at
exercise prices of $2.00 to $2.50 per share, exercisable until November 1, 2003.
As of December 31, 1996, none of the options have been exercised.
An additional 55,000 options were issued in February, 1997 with an exercise
price of $2.50 per share, terms of 5 years and various vesting schedules.
F-15
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES AND DEFERRED INCOME TAXES:
For the year ended June 30, 1996 and for the six month period ended December
31, 1996, components of deferred income taxes, are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
---------- ------------
<S> <C> <C>
(UNAUDITED)
Current Assets:
Allowances................................................................. $ 68,298 $ 12,000
Asset valuation allowance.................................................. (68,298) --
---------- ------------
$ -- $ 12,000
---------- ------------
---------- ------------
Long-Term Asset (Liability):
Depreciation............................................................... $ (16,466) $ (25,000)
Net operating loss carryforward............................................ 114,000 --
---------- ------------
Total net deferred tax asset (liability)................................... 97,534 (25,000)
Less: valuation allowance.................................................. (97,534) --
---------- ------------
$ -- $ (25,000)
---------- ------------
---------- ------------
</TABLE>
A reconciliation of the federal statutory rate to the tax provision of the
corresponding periods, is as follows:
<TABLE>
<CAPTION>
SIX MONTH PERIODS
ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------ -----------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Tax benefit (expense) at effective statutory rate... $ 630,000 $ (168,000) $ (173,000) $ 16,000
S-Corporation loss.................................. (340,000) -- -- (19,000)
Valuation limitation on net operating loss.......... (114,000) -- -- --
State income taxes.................................. -- (33,000) (35,000) --
Net operating loss carryforward..................... -- -- 80,000 --
----------- ----------- ----------- ----------
$ 176,000 $ (201,000) $ (128,000) $ (3,000)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
Organic Food Products, Inc. was a Subchapter S tax option Corporation
through the date of the merger, June 28, 1996. No proforma tax provision has
been shown in the accompanying financial statements due to the fact that the
income of Organic Food Products, Inc. was immaterial in the year ended June 30,
1995, and the Company had a loss for the year ended June 30, 1996.
10. STATEMENTS OF CASH FLOWS:
NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company recognized investing and operating activities that affected
assets and liabilities, but did not result in cash receipts or payments:
For the year ended June 30, 1996, these non-cash activities are as follows:
F-16
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STATEMENTS OF CASH FLOWS: (CONTINUED)
Accrued interest on notes payable was added to the principal portion of
the loan, in the amount of $29,681.
The Company financed the purchase of two (2) vehicles, with a recorded
cost of $7,331, through a capital lease obligation in the same amount.
The Company financed $1,560,000 of the purchase and retirement of
treasury stock. The note has been recorded net of imputed interest of
$118,411.
Equipment was contributed by a shareholder, in the amount of $15,000.
The Company repaid notes payable in the amount of $500,000, with
proceeds from a private placement offering.
The Company incurred a notes payable to related parties, in the amount
of $175,000, in the settlement of an employment contract.
For the year ended June 30, 1995, these non-cash activities are as follows:
Accrued interest on notes payable was added to the principal portion of
the loan, in the amount of $29,681.
11. CONCENTRATION OF CREDIT RISK:
The Company maintains cash balances at Wells Fargo Bank. Deposits not to
exceed $100,000 at the institution are insured by the Federal Deposit Insurance
Corporation. At December 31, 1996, the Company had uninsured cash in the
approximate amount of $41,000 (unaudited).
12. SUMMARIZED RESULTS OF OPERATIONS:
Summarized results of operations of the separate companies for the years
ended June 30, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
GARDEN VALLEY ORGANIC FOOD
NATURALS, PRODUCTS,
JUNE 30, 1996 INC. INC.
- ----------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Net sales........................................................ $ 5,794,095 $7,641,539
------------- ------------
------------- ------------
Net income (loss)................................................ $ (720,845) $ (983,462)
------------- ------------
------------- ------------
<CAPTION>
JUNE 30, 1995
- -----------------------------------------------------------------
<S> <C> <C>
Net sales........................................................ $ 3,106,227 $5,027,278
------------- ------------
------------- ------------
Net income....................................................... $ 269,065 $ 23,418
------------- ------------
------------- ------------
</TABLE>
Since the merger on June 28, 1996, the Company has operated as a single
entity.
F-17
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. RESTRUCTURING CHARGE:
In June, 1996, the Company adopted a restructuring plan to eliminate excess
equipment, personnel and inventory, that represented redundancies as a result of
the merger. For the year ended June 30, 1996, the Company reported a
restructuring charge of $451,500, which was comprised of the following:
<TABLE>
<S> <C>
Redundant inventory....................................... $ 182,550
Severance................................................. 190,000
Disposal of equipment..................................... 21,300
Other..................................................... 57,650
---------
$ 451,500
---------
---------
</TABLE>
14. COMPENSATION FROM OPTIONS AND WARRANTS:
The Company has a stock option plan pursuant to which options to purchase
shares of the Company's common stock may be granted to employees. The plan
provides that the option price shall not be less than the fair market value of
the shares on the date of grant, and that the options expire five years after
grant. Options vest ratably over a three year period as provided for in each
employee's option agreement. At December 31, 1996, there were 650,000
(unaudited) shares reserved for options to be granted under the plan.
In addition, the Company has issued warrants to an underwriter in connection
with their two private placement offerings. As of December 31, 1996, 400,000
(unaudited) warrants have been issued at exercise prices of $2.00 to $2.50 per
share and expire in approximately five years. The following summarizes stock
options and warrant transactions:
<TABLE>
<CAPTION>
SHARES
--------------------
OPTIONS WARRANTS PRICE PER SHARE
--------- --------- ----------------
<S> <C> <C> <C>
Outstanding at July 1, 1995................. -- -- $ --
Granted................................... 538,000 400,000 $ 2.00 to $2.50
Exercised................................. -- -- $ --
Expired................................... -- -- $ --
--------- --------- ----------------
Outstanding at June 30, 1996................ 538,000 400,000 $ 2.00 to $2.50
Granted................................... -- -- $ --
Exercised................................. -- -- $ --
Expired................................... -- -- $ --
--------- --------- ----------------
Outstanding at December 31, 1996............ 538,000 400,000 $ 2.00 to $2.50
--------- --------- ----------------
--------- --------- ----------------
</TABLE>
Information relating to stock options and warrants at December 31, 1996,
summarized by exercise price are as follows:
<TABLE>
<CAPTION>
EXERCISE OUTSTANDING EXERCISABLE
PRICE ---------------------------- -----------
PER SHARE SHARES LIFE (YEARS) SHARES
- --------- --------- ----------------- -----------
<S> <C> <C> <C>
$2.00 483,000 5 400,000
2.50 400,000 5 --
</TABLE>
F-18
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. COMPENSATION FROM OPTIONS AND WARRANTS: (CONTINUED)
All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of grant, and in
accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stockbased compensation been
determined based on the fair value of the grant dates consistent with the method
of SFAS 123, the Company's net income and earnings per share for the year ended
June 30, 1996 and for the six month period ended December 31, 1996, would have
been reduced to the pro forma amounts presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1996 1996
------------- ------------
<S> <C> <C>
(UNAUDITED)
Net income (loss)
As reported................................................... $ (1,704,307) $ 381,521
Pro forma..................................................... (1,815,400) 257,500
Earnings (loss) per share
As reported................................................... $ (.27) $ .07
Pro forma..................................................... (.29) .04
</TABLE>
The fair value of option and warrant grants are estimated on the date of
grant utilizing the Black-Scholes option-pricing model, with the following
assumptions for grants in the periods ended June 30, 1996 and December 31, 1996,
respectively; expected life of options of five years, expected volatility of
14.4% and 22.3%, risk-free interest rates of 8% and a 0% dividend yield. The
fair value at date of grant for options and warrants for the aforementioned
periods approximated $.23 and $.31 per option.
An additional 55,000 options were granted to employees and directors in
February, 1997, with an exercise price at $2.50 per share, terms of five years
and various vesting schedules.
15. SUBSEQUENT EVENT:
The Company's Board of Directors has resolved to proceed with a proposed
initial public offering of its common stock to the public. The Company is
currently in the process of filing a Form SB-2 Registration Statement with the
Securities and Exchange Commission to register its common stock for sale to the
public. The proposed offering is intended to issue 1,200,000 common shares at
five dollars ($5.00) per share.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Dilution....................................... 9
Capitalization................................. 10
Use of Proceeds................................ 11
Selected Financial Data........................ 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 13
Business....................................... 17
Management..................................... 21
Principal Shareholders......................... 24
Certain Transactions........................... 25
Description of Securities...................... 25
Underwriting................................... 28
Legal Matters.................................. 29
Experts........................................ 29
Available Information.......................... 29
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,200,000 SHARES
OF COMMON STOCK
ORGANIC FOOD
PRODUCTS, INC.
---------------------
PROSPECTUS
---------------------
SENTRA
SECURITIES CORPORATION
SPELMAN & CO., INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of the Registrant's Articles of Incorporation provides as
follows:
"The liabilities of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to officers, directors or
persons controlling the Company, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, Washington, D.C. 20549, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the officer, director or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such officer, director or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)(2)
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 2,309
NASD Filing Fee................................................ 1,262
Blue Sky Filing Fees........................................... 12,000
Blue Sky Legal Fees............................................ 20,000
Printing Expenses.............................................. 60,000
Legal Fees and Expenses........................................ 85,000
Accounting Fees................................................ 80,000
Transfer Agent................................................. 3,000
NASDAQ Application Fee......................................... 25,000
Miscellaneous Expenses......................................... 11,429
-----------
TOTAL...................................................... $ 300,000(1)
-----------
-----------
</TABLE>
- ------------------------
(1) Does not include the Representatives' commission and expenses of $780,000
($897,000 if the Overallotment Option is exercised).
(2) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following shares of its
Common Stock which were not registered under the Securities Act of 1933, as
amended (the "1933 Act"):
(i) In November 1995, the Registrant sold 1,100,000 shares of its Common
Stock at $2.00 per share to the following persons:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Jack London/Life O Boston Insurance................................................ 250,000
Enrique Feldman.................................................................... 175,000
Floyd Hill......................................................................... 151,200
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Paul and Becky Sigfusson........................................................... 77,750
Lyonshare Venture Capital.......................................................... 62,500
Leslie Farkas...................................................................... 50,000
William Maines..................................................................... 50,000
Richard Froehlich MD, IRA.......................................................... 25,000
William Hay........................................................................ 25,000
Jane Zivney Interiors Pension Trust................................................ 25,000
Paul and Anne Janssens Lens........................................................ 25,000
James and Jane Zivney.............................................................. 17,500
Barry Donner....................................................................... 15,800
Alfred Zacher Profit Sharing Plan.................................................. 12,500
Glenn C. Cook and R. Cook.......................................................... 12,500
Delaware Charter G&T FBO........................................................... 12,500
Froelich Family Trust.............................................................. 12,500
Marvin and Pearl Stumpf............................................................ 12,500
Elliot Wagner...................................................................... 12,500
L. Stuart and Naomi Nagasawa....................................................... 12,500
Hirn Doheny Reed & Harper PS Trust................................................. 12,500
William Schlueter.................................................................. 12,500
John and Mary Jane Scott........................................................... 12,500
Kenneth Depersio................................................................... 6,250
Michael and Susan Gernant.......................................................... 6,250
Jerrold and Carolyn Johnson........................................................ 6,250
</TABLE>
(ii) In February 1996, the Registrant sold 250,000 shares of its Common
Stock to Kenneth A. Steel, Jr. at $2.00 per share.
(iii) In July 1996, the Registrant sold 823,500 shares of its Common
Stock at $2.50 per share to the following individuals.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Rizzo Trust........................................................................ 20,000
Lori Rizzo......................................................................... 15,000
Steven and Faith Chinskey.......................................................... 5,000
James R. Barge..................................................................... 5,000
Thomas and Susan Lusty............................................................. 10,000
Jerry and Jean Mikus............................................................... 20,000
Michael J. Mehalko................................................................. 5,000
Jane Chu........................................................................... 5,000
Sunbeam Ventures................................................................... 40,000
Glenn C. Cook...................................................................... 20,000
TBP Investments.................................................................... 14,000
Enrique Feldman.................................................................... 140,000
Jeff and Adelynn Barteir........................................................... 10,000
J. Michael Turley.................................................................. 10,000
Monica Koechlin.................................................................... 40,000
Paul and Becky Sigfusson........................................................... 100,000
Vern and Grace Thomsen............................................................. 40,000
Lawrence Cannizzaro................................................................ 20,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Hooman Nikzad...................................................................... 4,000
Fred Djshandideh................................................................... 4,000
Harvey Belfer...................................................................... 10,000
Satoru Nilmoto..................................................................... 10,000
Lanny and Mariane Lahr............................................................. 10,000
William R. Maines.................................................................. 20,000
Ronald J. Faust.................................................................... 16,000
Lyonshare Venture Capital.......................................................... 25,500
Vestal Venture Capital............................................................. 15,000
Carroll and Joseph Dilustro........................................................ 10,000
Sylvanus V. Tunstall............................................................... 40,000
Donald L. Ladwig................................................................... 20,000
Mateo Lettunich.................................................................... 20,000
Marvin Stumpf...................................................................... 10,000
Donahue Bunch...................................................................... 10,000
Nathaniel and Mildred Orme......................................................... 10,000
Don Zinman......................................................................... 10,000
Kevin and Tracy McGovern........................................................... 5,000
Felicia Choi....................................................................... 10,000
John Jensen........................................................................ 15,000
Herman Kahan, Trustee.............................................................. 10,000
Poseidon Capital................................................................... 10,000
John Nelson........................................................................ 10,000
</TABLE>
(iv) In connection with the sales of Common Stock set forth in
subparagraph (i), (ii) and (iii) above, the Registrant issued to Spelman &
Co., Inc., its placement agent and one of the Representatives of the
Offering, 200,000 common stock purchase warrants exercisable at $2.00 per
share until December 31, 2002 and 200,000 common stock purchase warrants
exercisable at $2.50 per share until July 31, 2003.
(v) In July 1996 the Registrant issued 2,227,499 shares of its Common
Stock to John Battendieri and 22,501 shares to Casey Adams in connection
with the OFP merger.
(vi) From time to time, the Registrant has issued stock options
(currently aggregating 538,000 such stock options) to employees, officers
and directors under its 1995 Stock Option Plan.
With respect to the sales made, the Registrant relied on Section 4(2) of the
1933 Act, and/or Regulation D, Rule 506. No advertising or general solicitation
was employed in offering the securities. The securities were offered to a
limited number of individuals all of whom were accredited investors as that term
is defined under Regulation D under the 1933 Act and were experienced and
sophisticated investors capable of analyzing the merits and risks of their
investment. All such investors acknowledged in writing that they were acquiring
the securities for investment and not with a view toward distribution or resale
and understood the speculative nature of their investment. The transfer of the
securities was appropriately restricted from sale by the Registrant.
II-3
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------- ------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement
1.02 Form of Selected Dealer Agreement
1.03 Form of Representatives' Warrant
3.01 Articles of Incorporation of the Registrant, as amended
3.02 Bylaws of the Registrant
5.01 Opinion of Gary A. Agron, regarding legality of the Common Stock (includes Consent)
10.01 1995 Employee Stock Option Plan
10.02 Office and Warehouse Lease (Morgan Hill, California)
10.03 Employment Agreement with Mr. Hill
10.04 Employment Agreement with Mr. Battendieri
10.05 Merger Agreement between the Registrant (Garden Valley Naturals, Inc.) and Organic Food
Products, Inc.
11.01 Computation of Earnings Per Share
23.01 Consent of Semple & Cooper PLC
23.02 Consent of Gary A. Agron (See 5.01, above)
27.01 Financial Data Schedule
</TABLE>
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and Exchange
Commission such supplementary and periodic information, documents and reports as
may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(c) That any post-effective amendment filed will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the 1933 Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
II-4
<PAGE>
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(e) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(f) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(g) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Morgan Hill, California, on March 6, 1997.
<TABLE>
<S> <C> <C>
ORGANIC FOOD PRODUCTS, INC.
BY: /S/ FLOYD R. HILL
-----------------------------------------
Floyd R. Hill
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the 1933 Act, as amended, this Registration
Statement has been signed below by the following persons on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
<C> <S> <C>
/s/ FLOYD R. HILL
------------------------------------------- Chief Executive Officer and Director March 6, 1997
Floyd R. Hill
/s/ JOHN BATTENDIERI
------------------------------------------- President and Director March 6, 1997
John Battendieri
/s/ DONALD L. LADWIG
------------------------------------------- Vice President--Marketing and Sales March 6, 1997
Donald L. Ladwig
/s/ PERRY T. VALASSIS
------------------------------------------- Chief Financial Officer and Principal March 6, 1997
Perry T. Valassis Accounting Officer
/s/ KENNETH A. STEEL, JR.
------------------------------------------- Director March 6, 1997
Kenneth A. Steel, Jr.
/s/ CHARLES B. BONNER
------------------------------------------- Director March 6, 1997
Charles B. Bonner
/s/ CHARLES R. DYER
------------------------------------------- Director March 6, 1997
Charles R. Dyer
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement
1.02 Form of Selected Dealer Agreement
1.03 Form of Representatives' Warrant
3.01 Articles of Incorporation of the Registrant, as amended
3.02 Bylaws of the Registrant
5.01 Opinion of Gary A. Agron, regarding legality of the Common Stock (includes Consent)
10.01 1995 Employee Stock Option Plan
10.02 Office and Warehouse Lease (Morgan Hill, California)
10.03 Employment Agreement with Mr. Hill
10.04 Employment Agreement with Mr. Battendieri
10.05 Merger Agreement between the Registrant (Garden Valley Naturals, Inc.) and Organic Food Products,
Inc.
11.01 Computation of Earnings Per Share
23.01 Consent of Semple & Cooper PLC
23.02 Consent of Gary A. Agron (See 5.01, above)
27.01 Financial Schedule
</TABLE>
<PAGE>
ORGANIC FOOD PRODUCTS
1,200,000 Shares
UNDERWRITING AGREEMENT
_______________, 1997
Sentra Securities Corporation
Spelman & Co., Inc.
2355 Northside Drive, Suite 200
San Diego, CA 92108
(As Representatives of the Several
Underwriters Named in Schedule 1 hereto)
Dear Sirs:
Organic Food Products, a California corporation (the "Company"), hereby
confirms its agreement (this "Agreement") with the several underwriters named
in Schedule 1 hereto (the "Underwriters"), for whom Sentra Securities
Corporation and Spelman & Co., Inc. have been duly authorized to act as
representatives (in such capacity, the "Representatives"), as set forth below:
SECTION 1.
DESCRIPTION OF TRANSACTION
The Company proposes to issue and sell to the Underwriters on the
Closing Date (as defined below), pursuant to the terms and conditions of this
Agreement, an aggregate of 1,200,000 shares ("Firm Shares") of the Company's
Common Stock ("Common Stock") at a price of $5.00 per Share on the terms as
hereinafter set forth. The Company also proposes to issue and sell to the
several Underwriters on or after the Closing Date not more than 180,000
additional Shares if requested by the Representatives as provided in Section
3.02 of this Agreement (the "Option Shares"). The Firm Shares and any Option
Shares are collectively referred to herein as the "Shares."
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Underwriters to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriters
that:
<PAGE>
2.1 REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
on Form SB-2 (File No. _______) with respect to the Shares, including the
related prospectus, copies of which have heretofore been delivered by the
Company to the Underwriters, has been filed by the Company in conformity with
the requirements of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(a) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A
under the Act or permitted by Rule 424(b) under the Act and as have been
provided to and approved by the Representatives prior to the execution of
this Agreement, or (b) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Representatives prior to the execution of this Agreement. As used in
this Agreement, the term "Registration Statement" means such registration
statement on Form SB-2 and all amendments thereto, including the prospectus,
all exhibits and financial statements, as it becomes effective; the term
"Preliminary Prospectus" means each prospectus included in said Registration
Statement before it becomes effective; and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is required to be filed pursuant to said Rule 424(b),
such term means the prospectus included in the Registration Statement when it
becomes effective.
2.2 ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. Neither the
Commission nor the "blue sky" or securities authority of any jurisdiction has
issued any order preventing or suspending the use of any Preliminary Prospectus.
When (a) any Preliminary Prospectus was filed with the Commission, (b) the
Registration Statement or any amendment thereto was or is declared effective,
and (c) the Prospectus or any amendment or supplement thereto is filed with
the Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required to be so filed, when the Registration Statement
or the amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and on the Closing Date the Prospectus,
as amended or supplemented at any such time, such filing (i) contained or
will contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission promulgated
thereunder (the "Rules and Regulations") and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. The foregoing representation does
not apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
2
<PAGE>
2.3 INCORPORATION AND STANDING. The Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the State of California and is duly qualified to transact
business as a foreign corporation and is in good standing under the laws of
all other jurisdictions where the ownership or leasing of its properties or
the conduct of its business requires such qualification, except where the
failure to be so qualified does not amount to a material liability or
disability to the Company.
2.4 DUE POWER AND AUTHORITY. The Company has full corporate power
to own or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the terms
and provisions hereof to be carried out by it. The execution and delivery of
this Agreement and consummation of the transactions contemplated herein have
been duly authorized by the Company and this Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
the terms thereof, except as may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and by general equitable principles, and as rights to indemnity and
contribution hereunder may be limited by applicable law.
2.5 CONSENTS; NO DEFAULTS. The issuance, offering and sale of the
Shares to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (a) require
the consent, approval, authorization, registration or qualification of or
with any governmental authority, except such as have been obtained, or as may
be required under the Act or under the securities or blue sky laws of any
jurisdiction, or (b) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company is a party or by which the Company or any of its properties
is bound, or the charter documents or bylaws of the Company, or any statute
or any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company.
2.6 NO BREACH OR DEFAULT. The Company is not in breach of any
term or provision of its Articles of Incorporation or Bylaws; no default
exists, and no event has occurred which with notice or lapse of time or both,
would constitute a default, in the Company's due performance and observance
of any term, covenant or condition of any indenture, mortgage, deed of trust,
lease, note, bank loan or credit agreement or any other material agreement or
instrument to which the Company or its properties may be bound or affected in
any respect which would have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net worth or
results of operations of the Company.
2.7 LICENSES. Except as described in the Prospectus, the Company
possesses all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary for
the conduct of its business, including without limitation the Food and Drug
3
<PAGE>
Administration, the United States Department of Agriculture and the
Environmental Protection Agency, and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company, except as
described in or contemplated by the Registration Statement. Each approval,
registration, qualification, license, permit, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body or agency necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation
of the transactions contemplated (except such additional actions as may be
required by the National Association of Securities Dealers, Inc. or may be
necessary to qualify the Common Stock for public offering under state
securities or blue sky laws) has been obtained or made and each is in full
force and effect.
2.8 COMPLIANCE WITH LAWS. Except as disclosed in the Registration
Statement and in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), the Company is not in violation of
any laws, ordinances, governmental rules or regulations to which it is subject,
which would have a material adverse effect on the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company.
2.9 EXISTING CAPITAL STRUCTURE AND SHAREHOLDER RIGHTS. The Company
has an authorized, issued and outstanding capitalization as set forth in, and
capital stock conforms in all material respects to the description contained
in, the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus. Except as described in the Registration Statement
and in the Prospectus there are no outstanding (a) securities or obligations
of the Company convertible into or exchangeable for any capital stock of the
Company, (b) warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or any such convertible or exchangeable
securities or obligations, or (c) obligations of the Company to issue such
shares, any such convertible or exchangeable securities or obligations, or
any such warrants, rights or obligations. All of the issued shares of capital
stock of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and have been issued in compliance with all
federal and state securities laws. No preemptive rights of shareholders
exist with respect to any capital stock of the Company. No shareholder of
the Company has any right pursuant to any agreement which has not been waived
or honored to require the Company to register the sale of any securities
owned by such shareholder under the Act in the public offering contemplated
herein except as disclosed in the Registration Statement. The Company has
no subsidiaries, and does not own any shares of stock or any other equity
interest in any firm, partnership, association or other entity.
2.10 AUTHORITY FOR ISSUANCE OF SHARES. The issuance of the Common
Stock issuable in connection with the Shares has been duly authorized and at
any Firm or Option Closing Date as defined herein after payment therefor in
accordance herewith, such Common Stock will be validly issued, fully paid and
nonassessable. The Shares will conform in all material respects with all
statements with regard thereto in the Registration Statement and the Prospectus.
4
<PAGE>
2.11 TITLE TO TANGIBLE PROPERTY. Except as otherwise set forth in
or contemplated by the Registration Statement and Prospectus, the Company has
good and marketable title to all items of personal property owned by the
Company, free and clear of any security interest, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere
with the use made or proposed to be made of such property by the Company, and
any real property and buildings held under lease by the Company are held
under valid, subsisting and enforceable leases, with such exceptions as are
not material and do not materially interfere with the use made or proposed to
be made of such property and buildings by the Company.
2.12 TITLE TO INTELLECTUAL PROPERTY. The Company owns the
trademarks and intellectual property described in the Registration Statement.
The Company does not own any patents. The Company owns or possesses, or can
acquire on reasonable terms, all material, trademarks, service marks, trade
names, licenses, copyrights and proprietary or other confidential information
currently employed by it in connection with its business, and the Company has
not received any notice of infringement of or conflict with asserted rights
of any third party with respect to any of the foregoing intellectual property
rights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding would result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or results
of operations of the Company, except as described in or contemplated by the
Prospectus.
2.13 CONTRACT RIGHTS. The agreements to which the Company is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company in accordance with their terms, except
as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditor's rights generally or by equitable principles, and, to the
Company's knowledge, the other contracting party or parties thereto are not
in material breach or material default under any of such agreements.
2.14 NO MARKET MANIPULATION. The Company has not taken nor will it
take, directly or indirectly, any action designed to cause or result, or
which might reasonably be expected to cause or result, in the stabilization
or manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Stock.
2.15 NO OTHER SALES OR COMMISSIONS. The Company has not since the
filing of the Registration Statement (i) sold, bid for, purchased, attempted
to induce any person to purchase, or paid anyone any compensation for
soliciting purchases of, its capital stock or (ii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any securities
of the Company except for the sale of Shares by the Company under this
Agreement.
5
<PAGE>
2.16 ACCURACY OF FINANCIAL STATEMENTS. The financial statements and
schedules of the Company included in the Registration Statement and the
Prospectus, or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus, fairly present in all material respects the financial
position of the Company and the results of operations and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as otherwise noted therein and include all financial
information required to be included by the Act. The selected financial data
set forth under the captions "PROSPECTUS SUMMARY--Summary Financial
Information," "SELECTED FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Prospectus,
or, if the Prospectus is not in existence the most recent Preliminary
Prospectus, fairly present in all material respects, on the basis stated in
the Prospectus or such Preliminary Prospectus, the information included
therein.
2.17 INDEPENDENT PUBLIC ACCOUNTANT. Semple & Cooper, which have
certified or shall certify certain of the financial statements of the Company
filed or to be filed as part of the Registration Statement and the Prospectus,
are independent certified public accountants within the meaning of the Act
and the Rules and Regulations.
2.18 INTERNAL ACCOUNTING. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(a) transactions are executed in accordance with management's general or
specific authorization; (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (c) access to
assets is permitted only in accordance with management's general or specific
authorization; and (d) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
2.19 LITIGATION. Except as set forth in the Registration Statement
and Prospectus, there is and at the Closing Date there will be no action,
suit or proceeding before any court or governmental agency, authority or body
pending or to the knowledge of the Company threatened which might result in
judgments against the Company not adequately covered by insurance or which
collectively might result in any material adverse change in the condition
(financial or otherwise), the business or the prospects of the Company, or
would have a material adverse effect on the properties or assets of the
Company. The Company is not subject to the provisions of any injunction,
judgement, decree or order of any court, regulatory body, administrative
agency or other governmental body or arbitral forum, which might result in a
material adverse change in the business, assets or condition of the Company.
2.20 NO MATERIAL ADVERSE CHANGE. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), (a) the Company has not incurred any material
adverse change in or affecting the condition, financial or otherwise, of the
Company or the earnings,
6
<PAGE>
business affairs, management, or business prospects of the Company, whether
or not occurring in the ordinary course of business, (b) there has not been
any material transaction entered into by the Company, other than transactions
in the ordinary course of business or transactions specifically described in
the Registration Statement as it may be amended or supplemented, (c) the
Company has not sustained any material loss or interference with its business
or properties from fire, flood, windstorm, accident or other calamity, (d)
the Company has not paid or declared any dividends or other distribution with
respect to its capital stock and the Company is not in default in the payment
of principal or interest on any outstanding debt obligations, and (e) there
has not been any change in the capital stock (other than the sale of the
Common Stock hereunder or the exercise of outstanding stock options or
warrants as described in the Registration Statement) or material increase in
indebtedness of the Company. The Company does not have any known material
contingent obligation which is not disclosed in the Registration Statement
(or contained in the financial statements or related notes thereto), as such
may be amended or supplemented.
2.21 TRANSACTIONS WITH AFFILIATES. Subsequent to the respective
dates as of which information is given in the Registration Statement and
Prospectus or if the Prospectus is not in existence the most recent
Preliminary Prospectus, and except as may otherwise be indicated or
contemplated herein or therein, (a) the Company has not entered into any
transaction with an "affiliate" of the Company, as defined in the Act and the
Rules and Regulations, or (b) declared, paid or made any dividend or
distribution of any kind on or in connection with any class of its capital
stock, and (c) the Company has no knowledge of any transaction between any
affiliate of the Company and any significant customer or supplier of the
Company, except in its ordinary course of business.
2.22 INSURANCE. Except as otherwise set forth in or contemplated
by the Registration Statement and Prospectus, the Company is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the business in which it
is engaged, including without limitation products liability insurance; the
Company has not been refused any insurance coverage sought or applied for;
and the Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth or results
of operations of the Company.
2.23 TAX RETURNS. The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that any
of the foregoing is due and payable or adequate accruals have been set up to
cover any such unpaid taxes, except for any such assessment, fine or penalty
that is currently being contested in good faith.
7
<PAGE>
2.24 POLITICAL CONTRIBUTIONS. The Company has not directly or
indirectly, (a) made any unlawful contribution to any candidate for public
office, or failed to disclose fully any contribution in violation of law, or
(b) made any payment to any federal, state, local, or foreign governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any other such jurisdiction.
2.25 RELATIONSHIPS WITH CUSTOMERS, SUPPLIERS AND MANUFACTURERS.
The Company does not currently have any written contracts with any of its
customers, suppliers and manufacturers. The Company is in compliance with
all oral agreements with its customers, suppliers and manufacturers. The
Company has not received notice from any of its customers, suppliers and
manufacturers alleging any breach of contract, representation or warranty
which, in the aggregate, would have a material adverse effect on the
financial condition or operations results of the Company.
2.26 INVESTMENT COMPANY ACT. The Company conducts its operations
in a manner that does not subject it to registration as an investment company
under the Investment Company Act of 1940, as amended, and the transactions
contemplated by this Agreement will not cause the Company to become an
investment company subject to registration under the Investment Company Act
of 1940, as amended.
SECTION 3.
PURCHASE, SALE AND DELIVERY OF THE SHARES
3.1 PURCHASE OF FIRM SHARES. On the basis of the representations,
warranties, agreements and covenants herein contained and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
to each of the Underwriters named in Schedule I hereto, and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company,
at a purchase price of $4.50 per Share, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule 1 hereto. The Company will
make one or more certificates for Common Stock constituting the Firm Shares,
in definitive form and in such denomination or denominations and registered
in such name or names as the Representatives shall request upon notice to the
Company at least 48 hours prior to the Firm Closing Date, available for
checking and packaging by the Representatives at the offices of the Company's
transfer agent or registrar (or the correspondent or the agent of the
Company's transfer agent or registrar) at least 24 hours prior to the Firm
Closing Date. Payment for the Firm Shares shall be made by bank wire payable
in same day funds to the order of the Company drawn to the order of the
Company for the Firm Shares, against delivery of certificates therefor to the
Representatives. Delivery of the documents, certificates and opinions
described in Section 6 of this Agreement, the Firm Shares and payment for the
Firm Shares and the Option Shares shall be made at the offices of Sentra
Securities Corporation, 2355 Northside Drive, Suite 200, San Diego,
California 92108, at 9:00 a.m., San Diego time, on the third full business
day following the date hereof (on the fourth full business day if this
Agreement is executed after 1:30 p.m., San Diego time), or at such other
places, time or date as the Representatives and the Company
8
<PAGE>
may agree upon or as the Representatives may determine pursuant to Section 9
hereof, such time and date of delivery against payment being herein referred
to as the "Firm Closing Date" or "Closing Date" as applicable.
3.2 OVER-ALLOTMENTS; OPTION SHARES. For the purpose of covering
any over-allotments in connection with the distribution and sale of the Firm
Shares as contemplated by the Prospectus, the Company hereby grants to you on
behalf of the several Underwriters an option to purchase, severally and not
jointly, the Option Shares. The purchase price to be paid for any Option
Shares shall be the same price per share as the price per Share for the Firm
Shares set forth above in Section 3.1, plus, if the purchase and sale of any
Option Share takes place after the Firm Closing Date and after the Common
Stock is trading "ex-dividend," an amount equal to the dividends payable on
the Common Stock contained in such Option Shares. The option granted hereby
may be exercised in the manner described below as to all or any part of the
Option Shares from time to time within forty-five days after the date of the
Prospectus. The Underwriters shall not be under any obligation to purchase
any of the Option Shares prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the
Company setting forth the aggregate number of Option Shares as to which the
several Underwriters are then exercising the option and the date and time for
delivery of and payment for such Option Shares. Any such date of delivery
shall be determined by the Representatives but shall not be earlier than two
business days or later than seven business days after such exercise of the
option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such other
date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, is herein called
the "Option Closing Date" with respect to such Option Shares. Upon each
exercise of the option as provided herein, subject to the terms and
conditions herein set forth, the Company shall become obligated to sell to
each of the several Underwriters, and each of the Underwriters (severally and
not jointly) shall become obligated to purchase from the Company, the same
percentage of the total number of the Option Shares as to which the several
Underwriters are then exercising the option as such Underwriter is obligated
to purchase of the aggregate number of Firm Shares, as adjusted by the
Representatives in such manner as it deems advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Shares, one or more certificates for the Common Stock contained in such
Option Shares, in definitive form, and payment therefore, shall be delivered
on the related Option Closing Date in the manner, and upon the terms and
conditions, set forth in Section 3.1, except that reference therein to the
Firm Shares and the Firm Closing Date shall be deemed, for purposes of this
Section 3.2, to refer to such Option Shares and Option Closing Date,
respectively. No Option Shares shall be required to be, or be, sold and
delivered unless the Firm Shares have been, or simultaneously are, sold and
delivered as provided in this Agreement.
3.3 DEFAULT BY AN UNDERWRITER. It is understood that you,
individually and not as the Representatives, may (but shall not be obligated
to) make payment on behalf of any Underwriter or Underwriters for any of the
Shares to be purchased by such Underwriter or Underwriters. No such
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payment shall relieve such Underwriter or Underwriters from any of its or
their obligations hereunder.
SECTION 4.
OFFERING BY THE UNDERWRITERS
Upon payment by the Underwriters of the purchase price of $4.50 per
Share and the Company's authorization of the release of the Firm Shares, the
several Underwriters shall offer the Firm Shares for sale to the public upon
the terms set forth in the Prospectus. The Representatives may from time to
time thereafter change the public offering prices and other selling terms.
If the option set forth in Section 3.2 of this Agreement is exercised, then
upon the Company's authorization of the release of the Option Shares the
several Underwriters shall offer such Shares for sale to the public upon the
foregoing terms.
SECTION 5.
COVENANTS OF THE COMPANY
Except as otherwise stated below, the Company covenants and agrees with
each of the Underwriters that:
5.1 COMPANY'S BEST EFFORTS TO CAUSE REGISTRATION STATEMENT TO
BECOME EFFECTIVE. The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and within
the time period required by Rule 424(b) under the Act. During any time when
a prospectus relating to the Common Stock is required to be delivered under
the Act, the Company (a) will comply with all requirements imposed upon it by
the Act and the Rules and Regulations to the extent necessary to permit the
continuance of sales of or dealings in the Common Stock in accordance with
the provisions hereof and of the Prospectus, as then amended or supplemented,
and (b) will not file with the Commission the prospectus or the amendment
referred to in the second sentence of Section 2.1 hereof, any amendment or
supplement to such prospectus or any amendment to the Registration Statement
unless and until the Representatives have been advised of such proposed
filing, has been furnished with a copy for a reasonable period of time prior
to the proposed filing, and has given its consent to such filing, which shall
not be unreasonably withheld or delayed.
5.2 PREPARATION AND FILING OF AMENDMENTS AND SUPPLEMENTS. The
Company will prepare and file with the Commission, in accordance with the
Rules and Regulations of the Commission, promptly upon written request by the
Representatives or counsel for the Representatives, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that
may be reasonably necessary or advisable in connection with the distribution
of the Shares by the several Underwriters, and the Company will use its best
efforts to cause any such
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amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when
the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto
has been filed and will provide evidence satisfactory to the Representatives
of each such filing or effectiveness.
5.3 NOTICE OF STOP ORDERS. The Company will advise the
Representatives promptly after receiving notice or obtaining knowledge of:
(a) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any amendment thereto, or any
order preventing or suspending the use of any Preliminary Prospectus of the
Prospectus or any amendment or supplement thereto; (b) the suspension of the
qualification of the Shares for offering or sale in any jurisdiction; (c) the
institution, threatening or contemplation of any proceeding for any such
purpose; or (d) any request made by the Commission for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued to
obtain the withdrawal thereof as promptly as possible.
5.4 BLUE SKY QUALIFICATION. The Company will arrange and
cooperate with counsel to the Representatives for the qualification of the
Shares for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
5.5 POST-EFFECTIVE AMENDMENTS. If, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
occurs as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading, in the light of the circumstances under which they were made, or
if for any other reason it is necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules or Regulations, the
Company will promptly notify the Representatives thereof and, subject to
Section 3 hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or
effects such compliance.
5.6 DELIVERY OF PROSPECTUSES. The Company will, without charge,
provide (a) to the Representatives and to counsel for the Representatives a
signed copy of the Registration Statement originally filed with respect to
the Shares and each amendment thereto (in each case including exhibits
thereto), (b) to each other Underwriter so requesting in writing, a conformed
copy of such Registration Statement and each amendment thereto (in each case
without exhibits thereto) and (c) so long as a prospectus relating to the
Shares is required to be delivered under the Act, as
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many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request.
5.7 SECTION 11(a) FINANCIALS. The Company will, as soon as
practicable but in any event not later than 90 days after the period covered
thereby, make generally available to its security holders and to the
Representatives a consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of the Act and
Rule 158 thereunder covering a twelve-month period beginning not later than
the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement.
5.8 APPLICATION OF PROCEEDS. The Company will apply the net
proceeds from the sale of the Shares as set forth in the Prospectus and
Registration Statement and will not take any action that would cause it to
become an investment company under the Investment Company Act of 1940, as
amended.
5.9 SALES OR PURCHASES OF SECURITIES. The Company will not,
directly or indirectly, without the prior written consent of the
Representatives, offer, sell, grant any option or warrant to purchase or
otherwise dispose (or announce any offer, sale, grant of any option to
purchase or other disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of one year after the date hereof, except (a) to
the Underwriters pursuant to this Agreement and (b) options to any person
pursuant to and in accordance with the Company's 1995 Incentive Stock Option
Plan, as such plan is in effect on the date hereof, and provided that (i)
such options have an exercise price equal to the fair market value of the
Common Stock, and (ii) such person has delivered to the Representatives the
agreement described in Section 7.8 of this Agreement. The Company will not,
directly or indirectly, without the prior written consent of the
Representatives purchase any Common Stock or any securities convertible into,
or exercisable for, shares of Common Stock for a period of one year after the
date hereof.
5.10 APPLICATION TO NASDAQ SMALLCAP MARKET. The Company will cause
the Common Stock and Warrants to be duly included for quotation on the Nasdaq
SmallCap Market prior to the Closing Date. If requested by the
Representatives, the Company will also cause the Common Stock to be duly
included for listing on the Pacific Stock Exchange. The Company will use its
best efforts to ensure that the Common Stock remains included for quotation
on the Nasdaq SmallCap Market and the Pacific Stock Exchange (if applicable)
following the Closing Date for a period of not less than three years.
5.11 REPORTS TO SHAREHOLDERS. So long as any Common Stock is
outstanding until five years after the Closing Date, the Company will furnish
to the Representatives (a) as soon as available a copy of each report of the
Company mailed to shareholders and filed with the Commission and (b) from
time to time such other information concerning the Company as the
Representatives may reasonably request.
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5.12 DELIVERY OF DOCUMENTS. At or prior to the Closing, the
Company will deliver to the Representatives true and correct copies of the
articles of incorporation of the Company and all amendments thereto, all such
copies to be certified by the Secretary of State of the State of California,
a good standing certificate from the Secretary of State of California, dated
no more than five business days prior to the Closing Date; true and correct
copies of the bylaws of the Company, as amended, certified by the Secretary
of the Company and true and correct copies of the minutes of all meetings of
the directors and shareholders of the Company held prior to the Closing Date
which in any way relate to the subject matter of this Agreement.
5.13 UNDERWRITERS' WARRANT. On or prior to the Closing Date, the
Company shall deliver to the Representatives warrants (the "Underwriter's
Warrants"), at an aggregate purchase price of $100, to purchase Shares equal
to 10% of the Firm Shares sold in the Offering, which Underwriter's Warrants
shall be exercisable for a per Share exercise price equal to 120% of the per
Share public offering price of the Firm Shares.
5.14 COOPERATION WITH REPRESENTATIVES' DUE DILIGENCE. At all times
prior to the Closing Date, the Company will cooperate with the
Representatives in such investigation as the Representatives may make or
cause to be made of all the properties, business and operations of the
Company in connection with the purchase and public offering of the Shares and
the Company will make available to the Representatives in connection
therewith such information in its possession as the Representatives may
reasonably request.
5.15 STOCK TRANSFER AGENT. The Company has appointed Corporate
Stock Transfer, Inc. , Denver, Colorado, as Transfer Agent for the Common
Stock. The Company will not change or terminate such appointment for a
period of two years from the effective date without first obtaining the
written consent of the Representatives, which consent shall not be
unreasonably withheld.
5.16 PUBLICITY. Prior to the Firm Closing Date, or the Option
Closing Date, as the case may be, the Company shall not issue any press
release or other communication directly or indirectly and shall hold no press
conference with respect to the Company, its financial condition, results of
operations, business, properties, assets, liabilities and any of them, or
this offering, without the prior written consent of the Representatives. If
at any time during the 90 day period after the Registration Statement becomes
effective, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in the opinion of the
Representatives the market price of the Common Stock has been or is likely to
be materially affected, regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus, the
Company will, after written notice from the Representatives, evaluate the
propriety of disseminating a press release or other public statement
reasonably acceptable to the Representatives and their counsel, commenting on
such rumor, publication or event.
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5.17 FORECASTS AND PROJECTIONS. For a period of two years from
the effective date of the Registration Statement, the Company shall provide
the Representatives with routine internal forecasts if any such reports are
prepared by the Company for dissemination to the public.
5.18 KEY MAN INSURANCE; DIRECTOR AND OFFICER LIABILITY INSURANCE.
The Company will maintain for a period of at least five (5) years, Key Man
Insurance on Floyd Hill in the amount of $1,000,000. The Company will also
maintain for a period of at least five (5) years, Director and Officer
Liability insurance in the amount of at least $5,000,000. The Representatives
reserve the right to write the above policies at the next renewal date
thereof providing it can do so on terms no less favorable to the Company.
5.19 COMPANY'S BOARD OF DIRECTORS. The Company will maintain a
professional board of directors that will at all times include at least two
outside directors. The Company shall appoint two individuals recommended by
Representatives to the Company's Board of Directors which recommendation
shall be made by Representatives after the Closing Date.
SECTION 6.
Expenses
6.1 OFFERING EXPENSES. The Company will pay upon demand all costs
and expenses incident to the performance of the Company's obligations under
this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (a) the printing or other
production of documents with respect to the transactions, including any costs
of printing the Registration Statement originally filed with respect to the
Shares and any amendment thereto, any Preliminary Prospectus and the
Prospectus and any amendment or supplement thereto, this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, and any blue sky
memoranda, (b) all arrangements relating to the delivery to the Underwriters
of copies of the foregoing documents, (c) the fees and disbursements of
counsel, accountants and any other experts or advisors retained by the
Company, (d) preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Common Stock, including transfer agent's and
registrar's fees, (e) the qualification of the Shares under state securities
and blue sky laws, including filing fees and fees and disbursements of
counsel for the Representatives relating thereto, (f) the filing fees of the
Commission and the National Association of Securities Dealers, Inc. relating
to the Shares, (g) any listing fees for the quotation of the Common Stock on
the Nasdaq SmallCap Market, (h) the entire cost of one "tombstone
advertisement" in a national business newspaper and one-half the cost of
placing any additional "tombstone advertisements" in any publications which
may be selected by the Representatives (provided that any such cost in excess
of $5,000 shall require the consent of both the Company and the
Representatives), (i) all other advertising that has been approved in advance
by the Company relating to the offering of the Shares (other than as shall
have been specifically approved in writing by the Representatives to be paid
for by the Underwriters), and (j) road shows conducted by the Company. In
addition to the foregoing, the Company agrees to pay to the Representatives a
non-accountable expense allowance of 3% of the gross amount to be raised from
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the sale of the Shares hereunder, payable at the Closing(s), of which $50,000
has already been paid by the Company in connection with this offering. If
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 7
(other than Section 7.6) hereof is not satisfied, because this Agreement is
terminated pursuant to Section 11 hereof or because of any failure, refusal
or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder
other than by reason of a default by any of the Underwriters, the Company
will reimburse the Underwriters severally upon demand for all out-of-pocket
expenses (including counsel fees and disbursements) that shall have been
reasonably incurred by them in connection with the proposed purchase and sale
of the Shares. The Company shall in no event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
6.2 INTERIM INDEMNIFICATION. The Company agrees that as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8.1 hereof, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Company's obligation to reimburse the Underwriters
for such expenses and the possibility that such payments might later be held
to have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been improper,
the Underwriters shall promptly return such payment to the Company together
with interest, compounded daily, determined on the basis of the prime rate
(or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in THE WALL STREET JOURNAL which
represents the base rate on corporate loans posted by a substantial majority
of the nation's thirty (30) largest banks (the "Prime Rate"). Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
The Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8.2 hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company for such expenses and
the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within
thirty (30) days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
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SECTION 7.
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The obligations of the several Underwriters to purchase and pay for the
Firm Shares shall be subject, unless waived by the Representatives in its
sole discretion, to the accuracy of the representations and warranties of the
Company contained herein as of the date hereof and as of the Firm Closing
Date as if made on and as of the Firm Closing Date, to the accuracy of the
statements of the Company's officers made pursuant to the provisions hereof,
to the performance by the Company of its covenants and agreements hereunder
and to the following additional conditions:
7.1 EFFECTIVENESS OF REGISTRATION STATEMENT. If the Registration
Statement or any amendment thereto filed prior to the Firm Closing Date has
not been declared effective as of the time of execution hereof, the
Registration Statement or such amendment shall have been declared effective
not later than 11 a.m., California time, on the date on which the amendment
to the Registration Statement originally filed with respect to the Shares or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Shares has been filed with
the Commission, or such later time and date as shall have been consented to
by the Representatives; if required, the Prospectus and any amendment or
supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Act; no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that purpose
shall have been instituted or threatened or, to the knowledge of the Company
or the Representatives, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus
or otherwise) to the reasonable satisfaction of counsel for the underwriters.
7.2 OPINION OF COUNSEL. The Representatives shall have received
an opinion, dated the Firm Closing Date, of Gary A. Agron, Esq., counsel for
the Company, to the effect that:
(a) the Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
California, and duly qualified to transact business as a foreign corporation
and is in good standing under the laws of all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the Company;
(b) the Company has the corporate power to own or lease its
properties; to conduct its business as described in the Registration
Statement and the Prospectus; to enter into this Agreement and to carry out
all of the terms and provisions hereof to be carried out by it;
(c) the Company has an authorized capital stock as set
forth under the heading "CAPITALIZATION" in the Prospectus; effective upon
the Closing Date all of the Company's shares have been duly authorized and
validly issued and are fully paid and nonassessable;
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the shares have been duly authorized by all necessary corporate action of the
Company, and, when issued and delivered to and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the shares
have been duly authorized for quotation on the Nasdaq SmallCap Market; no
holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Shares;
and no holders of securities of the Company are entitled to have such
securities registered under the Registration Statement;
(d) the capital stock of the Company conforms, as to legal
matters, to the statements set forth under the heading "DESCRIPTION OF
SECURITIES" in the Prospectus in all material respects;
(e) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and this
Agreement is a valid and binding obligation of the Company except as rights
to indemnity and contribution thereunder may be limited by applicable federal
or state securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforceability of creditors' rights generally and subject to general
principles of equity;
(f) no legal or governmental proceedings are pending to
which the Company is a party or to which the property of the Company is
subject that are required to be described in the Registration Statement or
the Prospectus and are not described therein, and, to the best knowledge of
such counsel, no such proceedings have been threatened against the Company or
with respect to any of its properties that can reasonably be expected to, or,
if determined adversely to the Company, would, in any individual case or in
the aggregate, result in any material adverse change in the business,
financial condition or results of operations of the Company;
(g) no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement that is not described therein or
filed as required;
(h) the issuance, offering and sale of the Shares by the
Company pursuant to this Agreement, the compliance by the Company with the
other provisions of this Agreement and the consummation of the other
transactions herein contemplated do not require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required
under state securities or blue sky laws, or conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument, known to such counsel, to which the Company is a
party or by which the Company or any of its properties are bound, or the
Articles of Incorporation or Bylaws of the Company, or any statute or any
judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and applicable
to the Company;
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(i) the Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued by the Commission, and no proceedings for
that purpose have been instituted or, to the knowledge of such counsel, are
threatened or contemplated by the Commission;
(j) the Registration Statement and the Prospectus and each
amendment or supplement thereto (in each case, other than the financial
statements and other financial and statistical information contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the Rules
and Regulations;
(k) the Company is not required, and, if the Company uses
the proceeds of the sale of the Firm Shares and the Option Shares solely as
described in the Prospectus, will not be required as a result of the sale of
such Shares to be registered as an investment company within the meaning of
the Investment Company Act of 1940, as amended; and
(l) such counsel shall also state that they have no reason
to believe that the Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date or
the date of such opinion, included or includes any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided that in each case such counsel need
not express any opinion as to the financial statements and other financial
and statistical information contained therein.
In rendering any such opinion, such counsel may rely as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. The foregoing opinion may be
limited to the laws of the United States and the General Corporation Law of
the State of California. References to the Registration Statement and the
Prospectus in this Section 7.2 shall include any amendment or supplement
thereto at the date of such opinion. Such counsel shall permit Luce,
Forward, Hamilton & Scripps LLP to rely upon such opinion in rendering its
opinion in Section 7.3.
7.3 REVIEW BY AND OPINION OF REPRESENTATIVES' COUNSEL. The
Representatives shall have received an opinion, dated as of the Firm Closing
Date, of Luce, Forward, Hamilton & Scripps LLP, counsel for the
Representatives, with respect to certain matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents and certificates as they may reasonably request for the purpose of
enabling them to opine upon such matters.
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7.4 ACCOUNTANT'S LETTER. The Representatives shall have received
from Semple & Cooper a letter or letters dated, respectively, the date hereof
and the Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(a) they are independent accountants with respect to the
Company within the meaning of the Act and the Rules and Regulations;
(b) in their opinion, the financial statements audited by
them and included in the Registration Statement and the Prospectus comply in
form in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations;
(c) on the basis of a reading of the audited financial
statements of the Company, for the years ended June 30, 1995 and June 30,
1996, and the unaudited financial statements of the Company for the period
ended December 31, 1996, and the notes thereto, carrying out certain
specified procedures (which do not constitute an audit made in accordance
with generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph, a reading of the minute books of the shareholders, the board of
directors and any committees thereof of the Company, and inquiries of certain
officials of the Company who have responsibility for financial and accounting
matters, nothing came to their attention that caused them to believe that:
(i) the unaudited condensed financial statements of
the Company included in the Registration Statement and the Prospectus do not
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited financial statements included in the Registration Statement and the
Prospectus; and
(ii) at a specific date not more than five business
days prior to the date of such letter, there were any changes in the capital
stock or long-term debt of the Company or any decreases in net current assets
or stockholders' equity of the Company, in each case compared with amounts
shown on the December 31, 1996 balance sheet included in the Registration
Statement and the Prospectus, or for the period from December 31, 1996 to
such specified date there were any decreases, as compared with the
corresponding period in the preceding year, in net sales, gross profit,
selling, general and administrative expenses, employee plans and bonuses,
income (loss) from operations, interest expenses, income (loss) before income
taxes, provision (benefit) for income taxes, net income (loss) or net income
(loss) per share of the Company, except in all instances for changes,
decreases or increases set forth in such letter; and
(d) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records of
the Company and are included in the Registration Statement and
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<PAGE>
the Prospectus, and have compared such amounts, percentages and financial
information with such records of the Company and with information derived
from such records and have found them to be in agreement, excluding any
questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deems such explanation unnecessary, and such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase and delivery
of the Shares as contemplated by the Registration Statement, as amended as of
the date hereof.
References to the Registration Statement and the Prospectus in this
Section 7.4 with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
7.5 OFFICER'S CERTIFICATE. The Representatives shall have
received a certificate, dated the Firm Closing Date, of the president and the
principal financial or accounting officer of the Company to the effect that:
(a) the representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, in
light of the circumstances in which they were made and the Prospectus, as
amended or supplemented as of the Firm Closing Date, does not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein not misleading, in the
light of the circumstances under which they were made; and the Company has in
all material respects performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(b) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the
best of their knowledge, are contemplated by the Commission; and
(c) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not sustained any material loss or interference with its business
or properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any legal
or governmental proceeding, and there has not been any material adverse
change, or any development involving a prospective material adverse change,
in the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
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<PAGE>
7.6 NASD REVIEW. The NASD, upon review of the terms of the public
offering of the Firm Shares and Option Shares, shall not have objected to the
Underwriters' participation in such offering.
7.7 LOCKUPS. The Representatives shall have received from each
officer, director and person who owns more than five percent (5%) of the
Company's Common Stock, or securities convertible into Common Stock, an
agreement to the effect that such person will not, directly or indirectly,
without the prior written consent of the Representatives, offer, sell or
grant any option to purchase or otherwise dispose (or announce any offer,
sale, grant of an option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable for, shares
of Common Stock for a period of twelve months.
7.8 DUE DILIGENCE EXAMINATION. The counsel to the Representatives
and other persons retained by the Representatives to conduct a due diligence
investigation with respect to the offering, shall be reasonably satisfied
with the results of their respective due diligence investigations.
7.9 BLUE SKY QUALIFICATION. The Shares shall be qualified in such
states as the Representatives may reasonably request pursuant to Section 5.4,
and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the Closing Date or Option Closing Date, as the
case may be.
7.10 OTHER DOCUMENTS. On or before the Firm Closing Date, the
Representatives and counsel for the Representatives shall have received such
further certificates, documents or other information as they may have
reasonably requested from the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives and the counsel to the Representatives shall reasonably
request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Shares shall be subject, in the Representatives'
discretion, to each of the foregoing conditions to purchase the Firm Shares,
except that all references to the Firm Shares and the Firm Closing Date shall
be deemed to refer to such Option Shares and the related Option Closing Date,
respectively.
SECTION 8.
INDEMNIFICATION AND CONTRIBUTION
8.1 INDEMNIFICATION BY COMPANY. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934 (the
21
<PAGE>
"Exchange Act") against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon:
(a) any untrue statement or alleged untrue statement made
by the Company in Section 2 of this Agreement;
(b) any untrue statement or alleged untrue statement of any
material fact contained in (i) the Registration Statement or any amendment
thereto or any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (ii) any application or other document, or any
amendment or supplement thereto, executed by the Company and based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue sky
laws thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"); or
(c) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any Application
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
are made, and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by
such Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or action; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein; and provided further, that the Company will not
be liable to any Underwriter or any person controlling such Underwriter with
respect to any such untrue statement or omission made in any Preliminary
Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Shares from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein at or prior to the written confirmation of
the sale of such Shares to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) was a result
of noncompliance by the Company with Section 5.5 of this Agreement. This
indemnity agreement will be in addition to any liability which the Company
may otherwise have. The Company will not, without the prior written consent
of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter
22
<PAGE>
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out
of such claim, action, suit or proceeding.
8.2 INDEMNIFICATION BY UNDERWRITERS. Each Underwriter will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act against any losses, claims, damages or liabilities to
which the Company, any such director or officer of the Company or any such
controlling person of the Company may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(a) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application or (b) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application or
necessary to make the statements therein not misleading in light of the
circumstances in which they are made, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein; and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses reasonably incurred by the Company or any director,
officer or controlling person of the Company in connection with investigation
or defending against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or any action in respect thereof.
This indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have. No Underwriter will, without the prior
written consent of the Company, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder
(whether or not the Company, any of its directors, any of its officers who
signed the Registration Statement or any person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of the
Company and each such director, officer and controlling person from all
liability arising out of such claim, action, suit or proceeding.
8.3 NOTICE OF DEFENSE. Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section 8, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to
23
<PAGE>
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party and the indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right
to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
(which may not be unreasonably withheld or delayed) under this Section 8 for
any legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the
defense thereof, unless (a) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that in connection with such action
the indemnifying party shall not be liable for the expenses of more than one
separate counsel at any one time in any one action or separate but
substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Representatives
in the case of Section 8.1, representing the indemnified parties under such
Section 8.1 who are parties to such action or actions) or (b) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the
consent of the indemnifying party, unless such indemnified party waived its
rights under this Section 8 in which case the indemnified party may effect
such a settlement without such consent.
8.4 CONTRIBUTION. In circumstances in which the indemnity
agreement provided for in the preceding paragraphs of this Section 8 is
unavailable or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liability (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect (a) the relative benefits received by the indemnifying party or
parties on the one hand and the indemnified party on the other from the
offering of the Shares or (b) if the allocation provided by the foregoing
clause (a) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liability (or action in respect thereof).
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (after deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the parties' relative
24
<PAGE>
intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take into account the equitable consideration
referred to in the first sentence of this Section 8.4. Notwithstanding any
other provision of this Section 8.4, no Underwriter shall be obligated to
make contributions hereunder that in the aggregate exceed the underwriter
discount on the Shares purchased by such Underwriter under this Agreement,
less the aggregate amount of any damages that such Underwriter has otherwise
been required to pay in respect of the same or any substantially similar
claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in proportion
to their respective underwriting obligations and not joint, and contributions
among Underwriters shall be governed by the provisions of the Agreement Among
Underwriters. For purposes of this Section 8.4, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, shall have the same right to contribution as the
Company as the case may be.
SECTION 9.
DEFAULT OF UNDERWRITERS
If one or more Underwriters default in their obligations to purchase
Firm Shares, or Option Shares hereunder and the aggregate number of such
Shares that such defaulting Underwriter or Underwriters agreed but failed to
purchase is ten percent or less of the aggregate number of Firm Shares or
Option Shares to be purchased by all of the Underwriters at such time
hereunder, the other Underwriters may make arrangements satisfactory to the
Representatives for the purchase of such Shares by other persons (who may
include one or more of the non-defaulting Underwriters, including the
Representatives), but if no such arrangements are made by the Firm Closing
Date or the related Option Closing Date, as the case may be, the other
Underwriters shall be obligated severally in proportion to their respective
commitments hereunder to purchase the Firm Shares, or Option Shares that such
defaulting Underwriter or Underwriters agreed but failed to purchase. In the
event of any default by one or more Underwriters as described in this Section
9, the Representatives shall have the right to postpone the Firm Closing Date
or the Option Closing Date, as the case may be, established as provided in
Section 3 hereof for not more than seven business days in order that any
necessary changes may be made in the arrangements or documents for the
purpose and delivery of the Firm Shares or Option Shares, as the case may be.
As used in this Agreement, the term "Underwriter" includes any persons
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
25
<PAGE>
SECTION 10.
SURVIVAL
The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and directors
and the several Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (a) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter or any
controlling person referred to in Section 8 hereof and (b) delivery of and
payment for the Shares. The respective agreements, covenants, indemnities
and other statements set forth in Sections 5 and 8 hereof shall remain in
full force and effect, regardless of any termination or cancellation this
Agreement.
SECTION 11.
TERMINATION
11.1 BY REPRESENTATIVES. This Agreement may be terminated with
respect to the Firm Shares or any Option Shares in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date
or the related Option Closing Date, respectively, in the event that the
Company shall have failed, refused or been unable to perform all obligations
and satisfy all conditions on its part to be performed or satisfied hereunder
at or prior thereto or, if at or prior to the Firm Closing date or such
Option Closing Date, respectively:
(a) the Company shall have sustained any material loss or
interference with its business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding or there shall have
been any material adverse change, or any development involving a prospective
material adverse change (including financial or otherwise), in the business
prospects, net worth or results of operations of the Company, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(b) trading in the Common Stock shall have been suspended
by the Commission or the National Association of Securities Dealers Automated
Quotation SmallCap Market or trading in securities generally on the New York
Stock Exchange or the American Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market system;
(c) a banking moratorium shall have been declared by New
York, California, or United States authorities; or
(d) there shall have been (i) an outbreak or escalation of
hostilities between the United States and any foreign power, (ii) an outbreak
or escalation of any other insurrection or armed conflict involving the
United States or (iii) any other calamity or crisis having an effect on the
financial markets that, in the reasonable judgment of the Representatives,
makes it
26
<PAGE>
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares as contemplated by the Registration Statement, as
amended as of the date hereof.
11.2 EFFECT OF TERMINATION HEREUNDER. Termination of this
Agreement pursuant to this Section 11 shall be without liability of any party
to any other party, except as provided in Section 10 hereof.
SECTION 12.
INFORMATION SUPPLIED BY UNDERWRITERS
The statements set forth in the last paragraph on the front cover page
and under the heading "Underwriting" in any Preliminary Prospectus or the
Prospectus, to the extent such statements relate to the Underwriters
constitute the only information furnished by any Underwriter through the
Representatives to the Company for the purposes of Section 8 and 10 hereof.
The Underwriters represent and warrant to the Company that such statements,
to such extent, are correct as of the date hereof and at each Closing Date.
SECTION 13.
NOTICES
All communications hereunder shall be in writing and, if sent to any of
the Underwriters, shall be mailed (certified or registered mail, postage
prepaid, return receipt requested) or delivered or sent by facsimile
transmission and confirmed in writing to Spelman & Co., Inc., 2355 Northside
Drive, Suite 200, San Diego, California 92108, Attention: Mr. Jason Rogers
(with a copy to Dennis J. Doucette, Esq., Luce, Forward, Hamilton & Scripps
LLP, 600 West Broadway, Suite 2600, San Diego, CA 92101), if sent to the
Company, shall be mailed (certified or registered mail, postage prepaid,
return receipt requested), delivered or sent by facsimile transmission and
confirmed in writing to the Company at 550 Monterey Highway, Morgan Hill,
California 95037 Attention: Floyd Hill, CEO, (with a copy to Gary A. Agron,
Esq., Law Offices of Gary A. Agron, 5445 DTC Parkway, Suite 520, Englewood,
Colorado 80111). Notices shall be effective if mailed, 48 hours after
deposit in the mail properly addressed, sent by facsimile, upon receipt and
in any other instance, when delivered.
SECTION 14.
SUCCESSORS
This Agreement shall inure to the benefit of and shall be binding upon
the several Underwriters, the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that
(a) the indemnities of the Company contained in Section 8 of this Agreement
shall also be for
27
<PAGE>
the benefit of any person or persons who control any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (b)
the indemnities of the Underwriters contained in Section 8 of this Agreement
shall also be for the benefit of the directors of the Company, the officers
of the Company who have signed the Registration Statement and any person or
persons who control the Company within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act. No purchaser of Shares from any
Underwriter shall be deemed a successor because of such purchase.
SECTION 15.
APPLICABLE LAW
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of California without giving effect to any
provisions relating to conflicts of laws.
SECTION 16.
COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, and
each of the several Underwriters.
Very truly yours,
ORGANIC FOOD PRODUCTS
By:
------------------------------
Floyd Hill
Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Sentra Securities Corporation
Spelman & Co., Inc.
(As Representatives of the several
Underwriters named in Schedule 1 hereto)
By:
---------------------------------
Richard P. Woltman, President
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SCHEDULE 1
UNDERWRITERS
Number of Firm Shares
Underwriter to be purchased
- ----------- ---------------------
Sentra Securities Corporation
Spelman & Co., Inc.
Total
---------------------
<PAGE>
EXHIBIT 1.02
ORGANIC FOOD PRODUCTS
1,200,000 Shares
SELECTED DEALER AGREEMENT
__________________, 1997
Dear Sirs:
Sentra Securities Corporation, a California corporation, and Spelman
& Co., Inc., a California corporation, and the other Underwriters named in
the Prospectus relating to the above shares (the "Underwriters"), acting
through us as Representatives, is severally offering for sale an aggregate of
1,200,000 Shares (the "Firm Shares") of common stock ("Common Stock") of
Organic Food Products (the "Company") at a price of $5.00 per Share. In
addition, the several Underwriters have been granted an option to purchase
from the Company up to an additional 180,000 Shares (the "Option Shares") to
cover over-allotments in connection with the sale of the Firm Shares. The
Firm Shares and any Option Shares purchased are herein called the "Shares".
The Shares and the terms under which they are to be offered for sale by the
several Underwriters are more particularly described in the Prospectus.
The Underwriters are offering the Shares pursuant to a Registration
Statement (the "Registration Statement") under the Securities Act of 1933, as
amended, subject to the terms of (a) their Underwriting Agreement with the
Company, (b) this Agreement, and (c) the Representatives' instructions which
may be forwarded to the Selected Dealers from time to time. This invitation
is made by the Representatives only if the Shares may be lawfully offered by
dealers in your state. The terms and conditions of this invitation are as
follows:
1. OFFER TO SELECTED DEALERS. The Representatives are hereby
soliciting offers to buy, upon the terms and conditions hereof, a portion of
the Shares from Selected Dealers who are to act as principal. Shares are to
be offered to the public at a price of $5.00 per Share (the "Offering
Price"). Selected Dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") will be allowed, on all Shares sold by
them, a concession of $______ payable as hereinafter provided. Selected
Dealers may reallow other dealers who are members of the NASD a portion of
that concession up to the amount of $_____ per Share with respect to Shares
sold by or through them. No NASD member may reallow commissions to any
non-member broker-dealer including foreign broker-dealers registered pursuant
to the Securities Exchange Act of 1934. This offer is solicited subject to
the Company's issuance and delivery of certificates and other documents
evidencing its Shares and the acceptance thereof by the Representatives, to
the approval of legal matters by counsel, and to the terms and conditions set
forth herein.
2. REVOCATION OF OFFER. The Selected Dealer's offer to purchase,
if made prior to the effective date of the Registration Statement, may be
revoked in whole or in part without obligation
<PAGE>
or commitment of any kind by it any time prior to acceptance and no offer may
be accepted by the Representatives and no sale can be made until after the
Registration Statement covering the Shares has become effective with the
Securities and Exchange Commission. Subject to the foregoing, upon execution
by the Selected Dealer of the Offer to Purchase below and the return of same
to the Representatives, the Selected Dealer shall be deemed to have offered
to purchase the number of Shares set forth in its offer on the basis set
forth in Section 1 above. Any oral offer to purchase made by the Selected
Dealer shall be deemed subject to this Agreement and shall be confirmed by
the Representatives by the subsequent execution and return of this Agreement.
Any oral notice by the Representatives of acceptance of the Selected
Dealer's offer shall be followed by written or telegraphic confirmation
preceded or accompanied by a copy of the Prospectus. If a contractual
commitment arises hereunder, all the terms of this Selected Dealer Agreement
shall be applicable. The Representatives may also make available to the
Selected Dealer an allotment to purchase Shares, but such allotment shall be
subject to modification or termination upon notice from the Representatives
any time prior to an exchange of confirmations reflecting completed
transactions. All references hereafter in this Agreement to the purchase and
sale of Shares assume and are applicable only if contractual commitments to
purchase are completed in accordance with the foregoing.
3. SELECTED DEALER SALES. Any Shares purchased by a Selected
Dealer under the terms of this Agreement may be immediately re-offered to the
public at the Offering Price in accordance with the terms of the offering
thereof set forth herein and in the Prospectus, subject to the securities or
blue sky laws of the various states or other jurisdictions. Shares shall not
be offered or sold by the Selected Dealers below the Offering Price. The
Selected Dealer agrees to advise the Representatives, upon request, of any
Shares purchased by it remaining unsold and, the Representatives have the
right to purchase all or a portion of such Shares, at the Public Offering
Price less the selling concession or such part thereof as the Representatives
shall determine.
4. PAYMENT FOR SHARES. Payment for Shares which the Selected
Dealer purchases hereunder shall be made by the Selected Dealer on or before
three (3) business days after the date of each confirmation by certified or
bank cashier's check payable to the Representatives. Certificates for the
securities shall be delivered as soon as practicable after delivery
instructions are received by the Representatives.
5. OPEN MARKET TRANSACTIONS; STABILIZATION.
5.1 For the purpose of stabilizing the market in the
Shares, the Representatives have been authorized to make purchases and sales
of the Company's Shares in the open market or otherwise, and, in arranging
for sales, to overallot. If, in connection with such stabilization, the
Representatives contract for or purchase in the open market any Shares sold
to the Selected Dealer hereunder and not effectively placed by the Selected
Dealer, the Representatives may charge the Selected Dealer for the accounts
of the several Underwriters an amount equal to the Selected Dealer concession
on such Shares, together with any applicable transfer taxes, and the Selected
Dealer
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agrees to pay such amount to the Representatives on demand. Certificates for
Shares delivered on such repurchases need not be the identical certificates
originally purchased.
5.2 The Selected Dealer will not, until advised by the
Representatives that the entire offering has been distributed and closed, bid
for or purchase Shares in the open market or otherwise make a market in the
Shares or otherwise attempt to induce others to purchase Shares in the open
market. Nothing contained in this section shall prohibit the Selected Dealer
from acting as an agent in the execution of unsolicited orders of customers
in transactions effectuated for them through a market maker.
6. ALLOTMENTS. The Representatives reserve the right to reject
all subscriptions, in whole or in part, to make allotments and to close the
subscription books at any time without notice. If an order from a Selected
Dealer is rejected or if a payment is received which proves insufficient, any
compensation paid to the Selected Dealer shall be returned by the Selected
Dealer either in cash or by a charge against the account of the Selected
Dealer, as the Representatives may elect.
7. RELIANCE ON PROSPECTUS. The Selected Dealer agrees not to use
any supplemental sales literature of any kind without prior written approval
of the Representatives unless it is furnished by the Representatives for such
purpose. In offering and selling the Company's Shares, the Selected Dealer
will rely solely on the representations contained in the Prospectus.
Additional copies of the current Prospectus will be supplied by the
Representatives in reasonable quantities upon request.
8. REPRESENTATIONS OF SELECTED DEALER. By accepting this
Agreement, the Selected Dealer represents that it: (a) is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended; (b) is
qualified to act as a Dealer in the States or other jurisdictions in which it
offers the Shares; (c) is a member in good standing with the NASD; (d) will
maintain all such registrations, qualifications, and memberships throughout
the term of this Agreement; (e) will comply with all applicable Federal laws
relating to the offering, including, but not limited to, Rule 15c2-8 under
the Securities Exchange Act of 1934 and Release No. 4968 under the Securities
Act of 1933 relating to delivery of preliminary and final prospectuses; (f)
will comply with the laws of the state or other jurisdictions concerned; (g)
will comply the rules and regulations of the NASD including, but not limited
to, full compliance with Rules 2100, 2730 2740, 2720 and 2750 of the Conduct
Rules of the NASD and the interpretations of such sections promulgated by the
Board of Governors of the NASD including an interpretation with respect to
"Free-Riding and Withholding" dated November 1, 1970, and as thereafter
amended; and (h) confirms that the purchase of the number of Shares it has
subscribed for and may be obligated to purchase will not cause it to violate
the net capital requirements of Rule 15c3-1 under the Exchange Act.
9. BLUE SKY QUALIFICATION. The Selected Dealer agrees that it
will offer to sell the Shares only (a) in states or jurisdictions in which it
is licensed as a broker-dealer under the laws of such states, and (b) in
which the Representatives have been advised by counsel that the Shares have
been qualified for sale under the respective securities or Blue Sky laws of
such states. The
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Representatives assume no obligations or responsibilities as to the right of
any Selected Dealer to sell the Shares in any state or as to any sale therein.
10. EXPENSES. No expenses will be charged to Selected Dealers. A
single transfer tax, if any, on the sale of the Shares by the Selected Dealer
to its customers will be paid when such Shares are delivered to the Selected
Dealer for delivery to its customers. However, the Selected Dealer will pay
its proportionate share of any transfer tax or any other tax (other than the
single transfer tax described above) if any such tax shall be from time to
time assessed against the Underwriters and other Selected Dealers.
11. NO JOINT VENTURE. No Selected Dealer is authorized to act as
the Underwriters' agent, or otherwise to act on our behalf, in the offering
or selling of Shares to the public or otherwise. Nothing contained herein
will constitute the Selected Dealers an association or other separate entity
or partners with the Underwriters, or with each other, but each Selected
Dealer will be responsible for its share of any liability or expense based on
any claim to the contrary.
12. COMMUNICATIONS. This Agreement and all communications to
the Underwriters shall be sent to the Representatives at the following
address or, if sent by facsimile, to the number set forth below:
Mr. Jason Rogers
Sentra Securities Corporation
2355 Northside Drive, Ste. 200
San Diego, CA 92108
Fax No. (619) 584-7010
Any notice to the Selected Dealer shall be properly given if mailed,
telephoned, or transmitted by facsimile to the Selected Dealer at its address
or number set forth below its signature to this Agreement. All
communications and notices initially transmitted by facsimile shall be
confirmed in writing.
13. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of California.
14. REPRESENTATIVES' AUTHORITY AND OBLIGATIONS. The
Representatives shall have full authority to take such actions as may they
deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Representatives shall not be under any liability to
the Selected Dealer, except such as may be incurred under the Securities Act
of 1933 and the rules and regulations thereunder, except for lack of good
faith and except for obligations assumed by the Representatives in this
Agreement, and no obligation on their part shall be implied or inferred
herefrom.
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15. ASSIGNMENT. This Agreement may not be assigned by the Selected
Dealer without the Representatives' prior written consent.
16. TERMINATION. The Selected Dealer will be governed by the terms
and conditions of this Agreement until it is terminated. This Agreement will
terminate upon the termination of the Offering.
17. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one instrument. A copy of an executed counterpart of this
Agreement may be sent via facsimile by any party to the other party, and the
other party may deem such facsimile copy of the executed counterpart to be an
original.
18. APPLICATION. If you desire to purchase any of the Shares,
please confirm your application by signing and returning to us your
confirmation on the duplicate copy of this letter, even though you may have
previously advised us thereof by telephone or telegraph. Our signature
hereon may be by facsimile.
SENTRA SECURITIES CORPORATION
Dated: , 1997 By:
--------- ------------------------------
Richard P. Woltman, President
Dated: , 1997
--------- ---------------------------------
By:
------------------------------
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OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke set forth in Section 2) _______ Shares in accordance with the terms
and conditions set forth above.
---------------------------------
By:
------------------------------
Its:
-----------------------------
Address:
Facsimile Number:
Telephone Number:
("Selected Dealer")
Date of Acceptance:
---------------------------------
Accepted By:
----------------------------------------
IRS Employer Identification No.:
--------------------
Share Allocation:
-----------------------------------
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EXHIBIT 1.03
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF
SUCH OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A
PROSPECTUS MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF
1933 FORMING A PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT
THERETO, WHICH IS EFFECTIVE UNDER SAID ACT, UNLESS IN THE OPINION OF COUNSEL
TO THE COMPANY SUCH OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5
OF SAID ACT.
WARRANT
For the Purchase of Shares of Common Stock
of
ORGANIC FOOD PRODUCTS
Void After 5 P.M. , 2002
----------------
No. 1
Warrant to Purchase One Hundred Twenty Thousand (120,000) Shares of
Common Stock
THIS IS TO CERTIFY, that, for value received, Sentra Securities
Corporation (the "Underwriter") or registered assigns, is entitled, subject
to the terms and conditions hereinafter set forth, on or after ____________,
1998 and at any time prior to 5 P.M., Pacific Standard Time ("PST"), on
_______________, 2002, but not thereafter, to purchase such number of shares
of Common Stock (the "Shares") of Organic Food Products, a California
corporation (the "Company"), from the Company as is set forth above and upon
payment to the Company of $6.00 per Share (the "Purchase Price"), if and to
the extent this Warrant is exercised, in whole or in part, during the period
this Warrant remains in force, subject in all cases to adjustment as provided
in Section 2 hereof, and to receive a certificate or certificates
representing the Shares so purchased, upon presentation and surrender to the
Company of this Warrant, with the form of subscription attached hereto,
including changes thereto reasonably requested by the Company, duly executed,
and accompanied by payment of the Purchase Price of each Share.
SECTION 1.
TERMS OF THIS WARRANT
1.1 TIME OF EXERCISE. Subject to the provisions of Sections 1.5 and
3.1 hereof, this Warrant may be exercised at any time and from time to time
after 9:00 A.M., PST, on __________, 1998 (the "Exercise Commencement Date"),
but no later than 5:00 P.M., _________, 2002 (the "Expiration Time") at which
it shall become void, and all rights hereunder shall thereupon cease.
<PAGE>
1.2 MANNER OF EXERCISE.
1.2.1 The holder of this Warrant (the "Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
subscription attached hereto duly executed, to the Company at its corporate
office in Morgan Hill, California, together with the full Purchase Price for
each Share to be purchased in lawful money of the United States, or by
certified check, bank draft or postal or express money order payable in
United States dollars to the order of the Company, and upon compliance with
and subject to the conditions set forth herein.
1.2.2 Upon receipt of this Warrant with the form of subscription
duly executed and accompanied by payment of the aggregate Purchase Price for
the Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
1.2.3 In case the Holder shall exercise this Warrant with respect
to less than all of the Shares that may be purchased under this Warrant, the
Company shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in respect of the issue of
this Warrant, or the issue of any Shares upon the exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance or delivery of
this Warrant or of the Shares in a name other than that of the Holder at the
time of surrender, and until the payment of such tax the Company shall not be
required to issue such Shares.
1.3 EXCHANGE OF WARRANT. This Warrant may be split-up, combined or
exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Shares. If the Holder desires to split-up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its corporate office and shall surrender this Warrant and any
other Warrants to be so split-up, combined or exchanged, the Company shall
execute and deliver to the person entitled thereto a Warrant or Warrants, as
the case may be, as so requested. The Company shall not be required to
effect any split-up, combination or exchange which will result in the
issuance of a Warrant entitling the Holder to purchase upon exercise a
fraction of a Share. The Company may require the Holder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split-up, combination or exchange of Warrants.
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1.4 HOLDER AS OWNER. Prior to due presentment for registration of
transfer of this Warrant, the Company may deem and treat the Holder as the
absolute owner of this Warrant (notwithstanding any notation of ownership or
other writing hereon) for the purpose of any exercise hereof and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
1.5 TRANSFER AND ASSIGNMENT. Prior to one year from the date hereof,
this Warrant may not be sold, hypothecated, exercised, assigned or
transferred, except to individuals who are officers of the Underwriter or any
successor to its business or pursuant to the laws of descent and
distribution, and thereafter and until its expiration shall be assignable and
transferable in accordance with and subject to the provisions of the
Securities Act of 1933 and applicable state securities laws; provided,
however, that if not exercised immediately upon such transfer, this Warrant
shall lapse.
1.6 METHOD OF ASSIGNMENT. Any assignment permitted hereunder shall be
made by surrender of this Warrant to the Company at its principal office with
the form of assignment attached hereto duly executed and funds sufficient to
pay any transfer tax. In such event, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants which carry the same
rights upon presentation thereof at the corporate office of the Company
together with a written notice signed by the Holder, specifying the names and
denominations in which such new Warrants are to be issued.
1.7 RIGHTS OF HOLDER. Nothing contained in this Warrant shall be
construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders
for the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior
to the expiration of this Warrant and prior to its exercise, any of the
following shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend
or distribution payable otherwise than out of current or retained earnings;
as indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
(c) there shall be proposed any capital reorganization or
reclassification of the Common Stock, or a sale of all or substantially all
of the assets of the Company, or a consolidation or merger of the Company
with another entity; or
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(d) there shall be proposed a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed
to the Holder, at the earliest practicable time (and, in any event, not less
than twenty (20) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the shareholders entitled to
such dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation or
winding up, as the case may be. Such notice shall also set forth such facts
as shall indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Purchase Price and the kind and
amount of the Shares and other securities and property deliverable upon
exercise of this Warrant. Such notice shall also specify the date as of
which the holders of the Common Stock of record shall participate in said
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the
Company, the right to exercise this Warrant shall terminate).
Without limiting the obligation of the Company to provide notice to the
holder of actions hereunder, it is agreed that failure of the Company to give
notice shall not invalidate such action of the Company.
1.8 LOST CERTIFICATES. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such reasonable terms as to indemnity or
otherwise as it may impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant, which shall thereupon become
void. Any such new Warrant shall constitute an additional contractual
obligation of the Company, whether or not the Warrant so lost, stolen,
destroyed or mutilated shall be at any time enforceable by anyone.
1.9 COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
1.9.1 At all times it shall reserve and keep available for the
exercise of this Warrant such number of authorized shares of Common Stock as
are sufficient to permit the exercise in full of this Warrant.
1.9.2 Prior to the issuance of any Shares upon exercise of this
Warrant, the Company shall secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the Company's
Common Stock is listed for trading.
1.9.3 The Company covenants that all Shares when issued upon the
exercise of this Warrant will be validly issued, fully paid, non-assessable
and free of preemptive rights.
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SECTION 2.
ADJUSTMENT OF PURCHASE PRICE
AND NUMBER OF SHARES PURCHASABLE UPON EXERCISE
2.1 STOCK SPLITS. If the Company at any time or from time to time
after the issuance date of this Warrant effects a subdivision of the
outstanding Common Stock, the Purchase Price then in effect immediately
before that subdivision shall be proportionately decreased, and conversely,
if the Company at any time or from time to time after the issuance date of
this Warrant combines the outstanding shares of Common Stock, the Purchase
Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection 2.1 shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
2.2 DIVIDENDS AND DISTRIBUTIONS. In the event the Company at any time,
or from time to time after the issuance date of this Warrant makes, or fixes
a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event the Purchase Price then in effect
shall be decreased as of the time of such issuance or, in the event such a
record date is fixed, as of the close of business on such record date, by
multiplying the Purchase Price then in effect by a fraction (i) the numerator
of which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on
such record date, and (ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Purchase Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Purchase Price
shall be adjusted pursuant to this subsection 2.2 as of the time of actual
payment of such dividends or distributions.
2.3 RECAPITALIZATION OR RECLASSIFICATION. If the Shares issuable upon
the exercise of the Warrant are changed into the same or a different number
of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale
of assets, provided for elsewhere in this Section 2, then and in any such
event each holder of Warrants shall have the right thereafter to exercise
such Warrant as to the kind and amount of stock and/or other securities and
property receivable upon such reclassification or other change, by the holder
of the number of shares of Shares as to which such Warrant might have been
exercised immediately prior to such reclassification or exchange, all subject
to further adjustment as provided herein.
2.4 SALE OF THE COMPANY. If at any time or from time to time there is
a capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 2 or a merger or
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consolidation of the Company with or into another Company, or the sale of all
or substantially all of the Company's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that the holders of the Warrants shall
thereafter be entitled to receive upon exercise of the Warrants, the number
of shares of stock or other securities or property of the Company, or of the
successor Company resulting from such merger or consolidation or sale, to
which a holder of Shares deliverable upon exercise would have been entitled
on such capital reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Section 2 with respect to the rights of the holders of the
Warrants after the reorganization, merger, consolidation or sale to the end
that the provisions of this Section (including adjustment of the Purchase
Price then in effect and number of shares purchasable upon exercise of the
Warrants) shall be applicable after that event and be as nearly equivalent to
the provisions hereof as may be practicable.
2.5 OBSERVANCE OF DUTIES. The Company will not, by amendment of its
Certificate 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 hereunder by the
Company but will at all times in good faith assist in the carrying out of all
the provisions of this section 2 and in the taking of all such action as may
be necessary or appropriate in order to protect the Exercise Rights of the
holders of the Warrants against dilution or other impairment.
SECTION 3.
REGISTRATION UNDER THE SECURITIES ACT OF 1933
3.1 REGISTRATION AND LEGENDS. This Warrant and the Shares issuable
upon exercise of this Warrant have not been registered under the Securities
Act of 1933, as amended ("the Act"). Upon exercise, in part or in whole, of
this Warrant, the certificates representing the Shares shall bear the
following legend:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 ("ACT") OR THE SECURITIES OR BLUE SKY LAWS
OF ANY STATE AND MAY NOT BE OFFERED AND SOLD UNLESS REGISTERED
AND/OR QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL
AND STATE SECURITIES OR BLUE SKY LAWS OR AN EXEMPTION FROM SUCH
REGISTRATION OR QUALIFICATION APPLICABLE. THEREFORE, NO SALE OR
TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR
TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION
SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR
APPROVED UNDER APPROPRIATE STATE OR BLUE SKY LAWS, OR (B) THE
ISSUER SHALL HAVE FIRST RECEIVED AN OPINION OF COUNSEL
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SATISFACTORY TO IT THAT SUCH REGISTRATION, QUALIFICATION OR
APPROVAL IS NOT REQUIRED.
3.2 NO ACTION LETTER. The Company agrees that it shall be satisfied
that no post-effective amendment or new registration is required for the
public sale of the Shares if it shall be presented with a letter from the
Staff of the Securities and Exchange Commission (the "Commission") stating in
effect that, based upon stated facts which the Company shall have no reason
to believe are not true in any material respect, the Staff will not recommend
any action to the Commission if such shares are offered and sold without
delivery of a prospectus, and that, therefore, no post-effective amendment to
the Registration Statement under which such Shares are to be registered or
new registration statement is required to be filed.
3.3 DEMAND REGISTRATION RIGHTS. On one occasion at any time after the
Exercise Commencement Date and before the Expiration Time, the Company shall,
upon the demand of the holders of a majority of the Shares, register the
Shares, file a new Registration Statement, and file all necessary
undertakings with the Commission so as to permit the Underwriter, or any
assignee of the Underwriter, the right to sell publicly the Shares issued on
exercise of this Warrant. The Company will bear all expenses attendant to
registering the securities (subject to Section 3.5(e)).
3.4 PIGGYBACK REGISTRATION RIGHTS. In the event that the Underwriter
does not exercise its right to demand that the Shares be registered, the
Company agrees to include any appropriate Shares issuable upon exercise of
the Warrants in any Registration Statement filed by the Company at any time
within five (5) years from the effective date of the Company's first
Registration Statement as filed in 1997 (except for any registration on Forms
S-4 or S-8 or similar forms).
3.5 COVENANTS REGARDING REGISTRATION. In connection with any
registration under Section 3.3 or 3.4 hereof, the Company covenants and
agrees as follows:
(a) The Company will, within twenty days after written
request from the Representative, take all steps necessary to effectuate
preparation and filing with the Securities and Exchange Commission of the
registration statement as required by and in compliance with the Act.
(b) The Company shall keep such registration statement
effective for the lesser of (i) one hundred twenty (120) days, or (ii) the
period of time in which the Holders of such securities have effected the
distribution of their Shares. During such period the Company shall prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration
statement.
(c) The Company shall notify each Holder of Shares covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such
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registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing.
(d) The Company shall furnish to the Holders such numbers
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Shares owned
by them.
(e) The Company shall pay all costs, fees, and expenses in
connection with new registration statements under Section 3.3 (excluding the
costs attendant to a second demand registration) and Section 3.4 hereof
including, without limitation, the Company's legal and accounting fees,
printing expenses, blue sky fees and expenses, except that the Company shall
not pay for any of the following costs and expenses: (i) underwriting
discounts and commissions allocable to the Shares, (ii) state transfer taxes,
(iii) brokerage commissions, (iv) fees and expenses of counsel and
accountants for the holders of this Warrant or the Shares.
(f) The Company will take all necessary action which may be
required in qualifying or registering the Shares included in any Registration
Statement or post-effective amendment or new registration statement for
offering and sale under the securities or blue sky laws of such states as are
reasonably requested by the holders of such Shares, provided that the Company
shall not be obligated to execute or file any general consent to service or
process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction.
(g) The Holder shall be entitled to pay the Purchase Price
for the Shares purchasable upon the exercise of this Warrant out of the
proceeds of any sale of the Shares purchasable upon its exercise.
3.6 INDEMNITY.
3.6.1 The Company shall indemnify and hold harmless each person
registering securities pursuant to this Section (the "Seller") and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any Seller any of the Common Stock from and against any and all losses,
claims, damages, and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any new registration
statement or any supplemented prospectus under the Act included therein
required to be filed or furnished by reason of this Section, or caused by any
omission or alleged omission to state therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or alleged untrue
statement or omission or alleged omission based upon information furnished or
required to be furnished in writing to the Company by such Seller or
underwriter within the meaning of such Act; provided, however, that the
indemnity agreement set forth in this Section 3.6 with respect to any
prospectus which shall be subsequently amended prior to the written
confirmation of sale of any Shares shall not inure to the benefit of any
Seller or underwriter from whom the person asserting any such losses, claims,
damages or liabilities purchased such Shares
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which are the subject thereof (or to the benefit of any person controlling
such Seller or underwriter), if such Seller or underwriter failed to send or
give a copy of the prospectus as amended to such person at or prior to the
written confirmation of the sale of such Shares and if such amended
prospectus did not contain any untrue statement or alleged untrue statement
or omission or alleged omission giving rise to such cause, claim, damage, or
liability.
3.6.2 Each Seller which avails itself of the procedures under this
Section 3 shall indemnify and secure the agreement of any underwriter which
the Seller employs to indemnify the Company, its directors, each officer
signing the related post-effective amendment or registration statement and
each person, if any, who controls the Company, within the meaning of the Act
from and against any losses, claims, damages, and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any post-effective amendment or registration statement or any prospectus
required to be filed or furnished by reason of this Section 3 or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages, or liabilities are caused by any
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished in writing to the Company by any such Seller
or underwriter expressly for use therein.
3.7 SURVIVAL OF OBLIGATIONS. The agreements in this Section 3 shall
continue in effect regardless of the exercise and surrender of this Warrant.
SECTION 4.
OTHER MATTERS
4.1 PAYMENT OF TAXES. The Company will from time to time promptly pay,
subject to the provisions of paragraph (4) of Section 1.2 hereof, all taxes
and charges that may be imposed upon the Company in respect of the issuance
or delivery of this Warrant or the Shares purchasable upon the exercise of
this Warrant.
4.2 BINDING EFFECT. All the covenants and provisions of this Warrant
by or for the benefit of the Company shall bind and inure to the benefit of
its successors and assigns hereunder.
4.3 NOTICES. Notices or demands pursuant to this Warrant to be given
or made by the Holder to or on the Company shall be sufficiently given or
made if sent by certified or registered mail, return receipt requested,
postage prepaid, or facsimile and addressed, until another address is
designated in writing by the Company, as follows:
Organic Food Products
550 Monterey Highway
Morgan Hill, California 95037
9
<PAGE>
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
4.4 GOVERNING LAW. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of California.
4.5 PARTIES BOUND AND BENEFITTED. Nothing in this Warrant expressed
and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company and the Holder any right, remedy or claim
under promise or agreement hereof, and all covenants, conditions,
stipulations, promises and agreements contained in this Warrant shall be for
the sole and exclusive benefit of the Company and its successors and of the
Holder, its successors and, if permitted, its assignees.
4.6 HEADINGS. The Section headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ___ day of ________, 1997.
ORGANIC FOOD PRODUCTS
By:
-------------------------------------
Floyd Hill, Chief Executive Officer
10
<PAGE>
ORGANIC FOOD PRODUCTS
Assignment of Warrant
FOR VALUE RECEIVED, Sentra Securities Corporation hereby sells, assigns
and transfers unto ____________________________________________ the within
Warrant and the rights represented thereby, and does hereby irrevocably
constitute and appoint _______________________________ Attorney, to transfer
said Warrant on the books of the Company, with full power of substitution.
Dated:
---------------------
Signed:
-------------------------------
Signature guaranteed:
- ---------------------------
11
<PAGE>
ORGANIC FOOD PRODUCTS
550 Monterey Highway
Morgan Hill, California 95037
Subscription Agreement for the Exercise of Warrants
The undersigned hereby irrevocably subscribes for the purchase of
_____________ Shares pursuant to and in accordance with the terms and
conditions of this Warrant, and herewith makes payment, covering such Shares
which should be delivered to the undersigned at the address stated below,
and, if said number of Shares shall not be all of the Shares purchasable
hereunder, that a new Warrant of like tenor for the balance of the remaining
Shares purchasable hereunder be delivered to the undersigned at the address
stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Act"), such sale, transfer or other disposition
is accompanied by a prospectus meeting the requirements of Section 10 of the
Act forming a part of such registration statement, or post-effective
amendment thereto, which is in effect under the Act covering the Shares to be
so sold, transferred or otherwise disposed of, and all applicable state
securities laws have been complied with, or (b) counsel to Organic Food
Products satisfactory to the undersigned has rendered an opinion in writing
and addressed to Organic Food Products that such proposed offer, sale,
transfer or other disposition of the Shares is exempt from the provisions of
Section 5 of the Act in view of the circumstances of such proposed offer,
sale, transfer or other disposition; (2) Organic Food Products may notify the
transfer agent for the Shares that the certificates for the Shares acquired
by the undersigned are not to be transferred unless the transfer agent
receives advice from Organic Food Products that one or both of the
conditions referred to in (1)(a) and (1)(b) above have been satisfied; and
(3) Organic Food Products may affix the legend set forth in Section 3.1 of
this Warrant to the certificates for the Shares hereby subscribed for, if
such legend is applicable.
Dated: Signed:
--------------------------- ---------------------------------
Signature guaranteed: Address:
--------------------------------
----------------------------------------
- ---------------------------------
12
<PAGE>
ARTICLES OF INCORPORATION
OF
S & D FOODS, INC.
I
The name of this corporation is: S & D FOODS, INC.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in the State of California of this corporation's
initial agent for service of process is:
Dean E. Nicholson
1706 San Mateo Avenue
So. San Francisco, CA 94080
IV
This corporation is authorized to issue only one class of shares of stock;
and the total number of shares which this corporation is authorized to issue is:
1,000.
Dated: July 7, 1987
--------------------------------------
DEAN E. NICHOLSON, Incorporator
--------------------------------------
STEVE A. REEDY, Incorporator
<PAGE>
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
S & D FOODS, INC.
DEAN E. NICHOLSON and STEVE A. REEDY certify that:
1. They are the President and Secretary of S & D FOODS, INC., a
California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
I.
The name of this corporation is S & D FOODS, INC.
II.
The purpose of this corporation is to engage in any
lawful act or activity for which a corporation may be
organized under the General Corporation Law of California
other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated
by the California Corporations Code.
III.
(A) This corporation is authorized to issue two
classes of shares, to be designated common and preferred,
respectively. This corporation is authorized to issue
20,000,000 shares of common stock and 5,000,000 shares of
preferred stock.
(B) The preferred stock may be divided into such
number of series as the board of directors may determine.
The board of directors is authorized to determine and alter
the rights, preferences, privileges and restrictions granted
to or imposed upon any
<PAGE>
wholly unissued series of preferred stock, and to fix the
number of shares of any series of preferred stock and the
designation of any such series of preferred stock. The
board of directors, within the limits and restrictions
stated in any resolution or resolutions of the board of
directors originally fixing the number of shares
constituting any series, may increase or decrease (but not
below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue
of shares of that series.
IV.
The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent
permissible under California law.
V.
The corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the
California Corporations Code) through bylaws provisions,
agreements with agents, vote of shareholders or
disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California
Corporations Code with respect to actions for breach of duty
to the corporation and its shareholders.
3. The foregoing restated and amended articles of incorporation have been
duly approved by the board of directors.
4. The foregoing restated and amended articles of incorporation have been
duly approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of the
corporation is 1,000. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than fifty percent (50%).
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: October __, 1995
--------------------------------------
DEAN E. NICHOLSON, President
--------------------------------------
STEVE A. REEDY, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
S & D FOODS, INC.
DEAN E. NICHOLSON and STEVE A. REEDY certify that:
1. They are the President and Secretary of S & D Foods, Inc., a California
corporation.
2. Article III of the Articles of Incorporation of this corporation is
hereby amended by inserting the following:
(C) Upon the amendment of this article as herein set forth,
each outstanding share is split up and converted into 2,000
shares.
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the corporation
is 1,000. The number of shares voting in favor of the amendment equalled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%).
We further declare under penalty of perjury under the laws of the State of
California that the matter set forth in this Certificate are true and correct of
our own knowledge.
Dated: November 13, 1995
--------------------------------------
Dean E. Nicholson, President
--------------------------------------
Steve A. Reedy, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GARDEN VALLEY NATURALS, INC.
FLOYD HILL and CASEY ADAMS certify that:
1. They are the Chairman and Secretary of GARDEN VALLEY NATURALS, INC., a
California corporation.
2. Article I of the Articles of Incorporation of this corporation is
hereby amended to read in full as follows:
"I.
The name of this corporation is ORGANIC FOOD PRODUCTS, INC."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902
of the Corporations Code. The total number of outstanding shares of the
corporation is 4,500,000. The number of shares voting in favor of the amendment
equalled or exceeded the vote required. The percentage vote required was more
than fifty percent (50%).
We further declare under penalty of perjury under the laws of the State of
California that the matter set forth in this Certificate are true and correct of
our own knowledge.
Dated: September ____, 1996
--------------------------------------
Floyd Hill, Chairman
--------------------------------------
Casey Adams, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GARDEN VALLEY NATURALS, INC.
FLOYD HILL and CASEY ADAMS certify that:
1. They are the Chairman and Secretary of GARDEN VALLEY NATURALS, INC., a
California corporation.
2. Article I of the Articles of Incorporation of this corporation is
hereby amended to read in full as follows:
"I.
The name of this corporation is ORGANIC FOOD PRODUCTS, INC."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the corporation
is 4,500,000. The number of shares voting in favor of the amendment equalled or
exceeded the vote required. The percentage vote required was more than fifty
percent (50%).
We further declare under penalty of perjury under the laws of the State of
California that the matter set forth in this Certificate are true and correct of
our own knowledge.
Dated: September ____, 1996
--------------------------------------
Floyd Hill, Chairman
--------------------------------------
Casey Adams, Secretary
<PAGE>
BYLAWS
OF
S & D FOODS, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the Board of Directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors may at any time establish
branch or subordinate offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the Board of
Directors or by the written consent of all persons entitled to vote thereat,
given either before or after the meeting and filed with the Secretary of the
corporation. In the absence of any such designation, shareholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
held on the 15th day of July in each year at 10:00 a.m. or such other date or
such other time as may be fixed by the Board; provided, however, if this day
falls on a Saturday, Sunday, or legal holiday, then the meeting shall be held at
the same time and place on the next succeeding full business day. Any date so
fixed by the Board shall be within sixty (60) days after the date designated
above. At this meeting, directors shall be elected, and any other proper
business may be transacted which is within the powers of the shareholders.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may be
called at any time by the Board of Directors, or by the Chairman of the Board,
or by the President, or by one or more shareholders holding shares in the
aggregate entitled to cast not fewer than 10% of the votes at that meeting.
<PAGE>
If a special meeting is called by any person or persons entitled to call a
special meeting of the shareholders other than the Board of Directors, the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board, the President, any Vice President, or
the Secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 4 and 5 of this Article II, that a meeting will
be held at the time requested by the person or persons calling the meeting, not
fewer than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after receipt
of the request, the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 3 shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given to each shareholder entitled to
vote thereat in accordance with Section 5 of this Article II not fewer than ten
(10) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted and no
other business may be transacted, or (ii) in the case of the annual meeting,
those matters which the Board of Directors, at the time of giving the notice,
intends to present for action by the shareholders, but subject to the provisions
of Section 601(f) of the Corporations Code of California, any proper matter may
be presented at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the Articles of Incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of that Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of
that Code, the notice shall also state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either
2
<PAGE>
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at the address
of that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to
have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if these shall be available to the shareholder on written demand
of the shareholder at the principal executive office of the corporation for a
period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, Assistant Secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE THEREOF. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 6 of
this Article II.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting
3
<PAGE>
at which the adjournment is taken, unless a new record date for the adjourned
meeting is fixed, or unless the adjournment is for more than forty-five (45)
days from the date set for the original meeting, in which case the Board of
Directors shall set a new record date. If the adjournment is for more than
forty-five (45) days, or if a new record date is fixed for the adjourned
meeting, then notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 4 and 5 of this Article II. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Section 702 to 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter (other than
the election of directors) shall be the act of the shareholders, unless the vote
of a greater number or voting by classes is required by California General
Corporation Law or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidate or candidates' names have been placed in nomination
prior to commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
4
<PAGE>
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be valid as though had at a meeting
duly held after regular call and notice, if a quorum be present either in person
or by proxy, and if, either before or after the meeting, each person entitled to
vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes.
The waiver of notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included if that objection is
expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not fewer than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. In the case of election of
directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided
however, that a director may be elected at any time to fill a vacancy on the
Board of Directors, other than a vacancy created by removal, that has not been
filled by the directors, by the written consent of the holders of a majority of
the outstanding shares entitled to vote for the election of directors. All such
consents shall be filed with the Secretary of the corporation and shall be
maintained in the corporate records. Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the corporation before consents of the
number of shares required to authorize the proposed action have been filed with
the Secretary of the corporation.
5
<PAGE>
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a
meeting, to those shareholders entitled to vote who have not consented in
writing. This notice shall be given in the manner specified in Section 5 of
this Article II. In the case of approval of (i) contracts or transactions in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Corporations Code of California, (ii) indemnification of
agents of the corporation, pursuant to Section 317 of that Code, (iii) a
reorganization of the corporation, pursuant to Section 1201 of that Code, and
(iv) a distribution in dissolution other than in accordance with the rights
of outstanding preferred shares, pursuant to Section 2007 of that Code, the
notice shall be given at least ten (10) days before the consummation of any
action authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS. For the purposes of determining the shareholders entitled to notice
of any meeting or to vote or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor fewer than ten (10) days
before the date of any such meeting nor more than sixty (60) days before any
such action without a meeting, and in this event only shareholders of record
on the date so fixed are entitled to notice and to vote or to give consents,
as the case may be, notwithstanding any transfer of any shares on the books
of the corporation after the record date, except as otherwise provided in the
California General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice or to
vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
(b) The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior action by
the board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the board has been taken, shall be at the
close of business on the day on which the board adopts the resolution relating
to that action, or the sixtieth (60) day before the date of such other action,
whichever is later.
6
<PAGE>
Section 12. PROXIES. Every person entitled to vote for directors or on any
matter shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewritten, telegraphic
transmission, or otherwise) by the shareholder or the shareholder's attorney in
fact. A validly executed proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the person
executing it, before the vote pursuant to that proxy, by a writing delivered to
the corporation stating that the proxy is revoked, or by a subsequent proxy
executed by, or attendance at the meeting and voting in person by, the person
executing the proxy; or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless otherwise
provided in the proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of Sections 705(e) and
705(f) of the Corporation Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request
of one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy, shall appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies.
(b) Receive votes, ballots, or consents:
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents;
7
<PAGE>
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act
or certificate of all.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the Articles of Incorporation and
these bylaws relating to action required to be approved by the shareholders
or by the outstanding shares, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under the
direction of the Board of Directors. Without prejudice to these general
powers, and subject to the same limitations, the directors shall have the
power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent
with law, with the Articles of Incorporation, and with these bylaws; fix
their compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal business
office in the State of California from one location to another; cause the
corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation on any
lawful terms and for such consideration as may be lawful.
(e) Borrow money and incur indebtedness on behalf of the corporation,
and cause to be executed and delivered for the corporation's purposes, in the
corporate name, promissory notes, bonds,
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debentures, deeds of trust, mortgages, pledges, hypothecations, and other
evidences of debt and securities.
(f) Conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, or with the Articles or these bylaws, as they may deem best.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of directors shall be two (2) until changed by a duly adopted amendment to
the Articles of Incorporation or by an amendment to this bylaw duly adopted
by the shareholders; provided, however, that an amendment reducing the number
of directors to a number fewer than five (5) cannot be adopted if the votes
cast against its adoption at a meeting, or the shares not consenting in the
case of action by written consent, are equal to more than 16-2/3% of the
outstanding shares entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the shareholders to hold office until the
next annual meeting. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the terms for which
elected and until a successor has been elected and qualified.
Section 4. VACANCIES. Except for a vacancy created by the removal of a
director, vacancies in the Board of Directors may be filled by approval of
the Board, or, if the number of directors then in office is less than a
quorum, by (a) the unanimous written consent of the directors then in office,
(b) the affirmative vote of a majority of directors then in office, at a
meeting held pursuant to notice or waivers of notice, or (c) a sole remaining
director. A vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by
the vote of a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the unanimous written
consent of all of the outstanding shares entitled to vote for the election of
directors. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or
if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors is increased,
or if the shareholders fail, at any meeting of shareholders at which any
director or directors are elected, to elect the number of directors to be
voted for at that meeting.
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The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
by written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of
Directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETING AND MEETINGS BY TELEPHONE. Regular meetings
of the Board of Directors may be held at any place within or outside the
State of California that has been designated from time to time by resolution
of the board. In the absence of such a designation, regular meetings shall
be held at the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or outside the State
of California that has been designated in the notice of the meeting or, if
not stated in the notice or there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone, or similar communication equipment, so long as all
directors participating in the meeting can hear one another, and all such
directors shall be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the
transaction of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board
of Directors shall be held without call at such time and place as shall from
time to time be fixed by the Board of Directors. Such regular meetings may
be held without notice.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
for any purpose or purposes may be called at any time by the Chairman of the
Board or the President or any Vice President or the Secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegrams, charges prepaid, addressed to each director at that director's
address as it is shown on the records
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of the corporation. In case the notice is mailed, it shall be deposited in
the United States mail at least four (4) days before the time of the holding
of the meeting. In case the notice is delivered personally or by telephone
or telegram, it shall be delivered personally or by telephone or to the
telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may
be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose of
the meeting nor the place if the meeting is to be held at the principal
executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn
as provided in Section 11 of this Article III. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors,
subject to the provisions of Section 310 of the Corporations Code of
California (as to approval of contracts or transactions in which a director
has a direct or indirect material financial interest), Section 311 of that
Code (as to appointment of committees), and Section 317(e) of that Code (as
to indemnification of directors). A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 10. WAIVER OF NOTICE. The transaction of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding
the meeting or an approval of the minutes. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents, and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting before or at its
commencement, the lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and
place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is
adjourned for more than twenty-four hours, in which case notice of the time
and place shall be given before the time of the adjourned meeting, in the
manner specified in Section 8 of this
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Article III, to the directors who were not present at the time of the
adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing
to that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors. Such written consent
or consents shall be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution
of the Board of Directors. This Section 14 shall not be construed to
preclude any director from servicing the corporation in any other capacity as
an officer, agent, employee, or otherwise, and receiving compensation for
those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors,
to serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the General Corporation Law
of California, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the board
or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the Board of Directors
which by its express terms is not so amendable or repealable;
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(f) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the Board
of Directors.
(g) the appointment of any other committees of the Board of Directors or
the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver
of notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the Board of
Directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors
or by resolution of the committee; special meetings of committees may also be
called by resolution of the Board of Directors; and notice of special
meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The Board of
Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
President, a Secretary, and a Treasurer (Chief Financial Officer). The
corporation may also have at the discretion of the Board of Directors, a
Chairman of the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers as
may be appointed in accordance with provisions of Section 3 of this Article
V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the board subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business
of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the Board of Directors may from time to time determine.
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Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors at any
regular or special meeting of the board or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification, or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to
that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
the bylaws. If there is no President, the Chairman of the Board shall in
addition be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there
be such an officer, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers
of the corporation. He shall preside at all meetings of the shareholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. He shall have the general powers and
duties of management usually vested in the office of the President of a
corporation, and shall have such other powers and duties as may be prescribed
by the Board of Directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by
the Board of Directors or, if not ranked, a Vice President designated by the
Board of Directors, shall perform all the duties of the President, and when
so acting shall have all the powers of, and be subject to all the
restrictions upon, the President. The Vice Presidents shall have such other
powers and
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perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors or the bylaws, and the President, or
the Chairman of the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors
may direct, a book of minutes of all meetings and actions of directors,
committees of directors, and shareholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the
notice given, the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, if one be appointed, a record of its shareholders, showing the
names of all shareholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued for the same,
and the number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors and of any committees
thereof required by the bylaws or by law to be given, and he shall keep the
seal of the corporation, if one be adopted, in safe custody, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or by the bylaws.
Section 10. TREASURER. The Treasurer is the Chief Financial Officer of
the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Treasurer (Chief Financial Officer) shall deposit all moneys and
other valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all of his transactions as Treasurer (Chief Financial
Officer) and of the financial condition of the corporation, and shall have
other powers and perform such other duties as may be prescribed by the Board
of Directors or the bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent permitted by the California
General Corporation Law, indemnify each of its officers and directors against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of
the fact any such person is or was an agent of the corporation.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed, a record of its
shareholders, giving the names and addresses of all shareholders and the
number and class of shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and share holdings during usual business hours on five days prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their share
holdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of
demand. This list shall be made available to any such shareholder by the
transfer agent on or before the later of five (5) days after the demand is
received or the date specified in the demand as the date of which the list is
to be compiled. The record of shareholders shall also be open to inspection
on the written demand of any shareholder or holder of a voting trust
certificate, at any time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. Any inspection and copying under this
Section 1 may be made in person or by an agent or attorney of the shareholder
or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office
is not in the State of California, at its principal business office in this
state, the original or a copy of the bylaws as amended to date, which shall
be open to inspection by the shareholders at all reasonable times during
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office hours. If the principal executive office of the corporation is
outside the State of California and the corporation has no principal business
office in this state, the Secretary shall, upon the written request of any
shareholder, furnish to that shareholder a copy of the bylaws as amended to
date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders
and the Board of Directors and any committee or committees of the Board of
Directors shall be kept at such place or places designated by the Board of
Directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted in to written form. The minutes and
accounting books and records shall be open to inspection upon the written
demand of any shareholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose reasonably related
to the holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or
attorney, and shall include the right to copy and make extracts. These
rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and
each of its subsidiary corporations. This inspection by a director may be
made in person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General
Corporation Law is expressly dispensed with, but nothing herein shall be
interpreted as prohibiting the Board of Directors from issuing annual or
other periodic reports to the shareholders of the corporation as they
consider appropriate.
Section 6. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall, during the applicable filing period designated by Section 1502 of the
California General Corporation Law, in each year, file with the Secretary of
State of the State of California, on the prescribed form, a statement setting
forth the authorized number of directors, the names and complete business or
residence addresses of all incumbent directors, the names and complete
business or residence addresses of the chief executive officer, Secretary,
and chief financial officer, the street address of its principal executive
office or principal business office in this state, and the general type of
business constituting the principal business activity of the corporation,
together with a designation
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of the agent of the corporation for the purpose of service of process, all in
compliance with Section 1502 of the Corporations Code of California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or
the sixtieth (60th) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as from time
to time, shall be determined by resolution of the Board of Directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board
of Directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and this
authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power
of an officer, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract of engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the Board of
Directors may authorize the issuance of certificates or shares as partly paid
provided that these
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certificates shall state the amount of the consideration to be paid for them
and the amount paid. All certificates shall be signed in the name of the
corporation by the Chairman of the Board or Vice Chairman of the Board or the
President or Vice President and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying
the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed on a certificate shall have
ceased to be that officer, transfer agent, or registrar before that
certificate is issued, it may be issued by the corporation with the same
effect as if that person were an officer, transfer agent, or registrar at the
date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no
new certificates for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen, or destroyed, authorize
the issuance of a replacement certificate on such terms and conditions as the
board may require, including provision for indemnification of the corporation
secured by a bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft, or destruction
of the certificate or the issuance of the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman
of the Board, the President, or any Vice President, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any
and all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these
officers to vote or represent on behalf of the corporation any and all shares
held by the corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to
do so by a proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in
the California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
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ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the Articles of Incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 1 of this Article IX, to adopt, amend, or
repeal bylaws, bylaws may be adopted, amended or repealed by the Board of
Directors, provided, however, that after the issuance of shares, a bylaw
specifying or changing the fixed number of directors or the maximum or minimum
number or changing from a fixed to a variable board or vice versa may only be
adopted by approval of the outstanding shares.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, being all of the directors of S & D FOODS, INC.,
hereby assent to the foregoing bylaws and hereby adopt the same as the bylaws of
the said corporation.
IN WITNESS WHEREOF, we have subscribed our names hereto as of the 8th day
of July, 1987.
------------------------------------
DEAN E. NICHOLSON
------------------------------------
STEVE A. REEDY
ATTEST:
- ------------------------------------
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of S & D FOODS, INC., a
California corporation; and
2. That the foregoing bylaws, comprising 20 pages, constitute a true copy
of the original bylaws of said corporation as duly adopted at the first meeting
of the Board of Directors thereof duly held.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of said corporation as of the 8th day of July 1987.
------------------------------------
Secretary
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Article III, Section 2, of the corporation's bylaws was amended as of
October 20, 1995, to read in full as follows:
"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors shall be five (5) until changed by a
duly adopted amendment to the Articles of Incorporation or by an
amendment to this bylaw duly adopted by the shareholders; provided,
however, that an amendment reducing the number of directors to a
number fewer than five (5) cannot be adopted if the votes cast against
its adoption at a meeting, or the shares not consenting in the case of
action by written consent, are equal to more than 16-2/3% of the
outstanding shares entitled to vote."
22
<PAGE>
[LETTERHEAD]
March 5, 1997
Organic Foods Products, Inc.
550 Monterey Road
Morgan Hill, California 95037
RE: SEC Registration Statement on Form SB-2
Ladies and Gentlemen:
We are counsel for Organic Food Products, Inc., a California corporation
(the "Company"), in connection with its proposed public offering under the
Securities Act of 1933, as amended, of up to 1,380,000 shares of the
Company's Common Stock ("Common Stock") through a Registration Statement on
Form SB-2 ("Registration Statement") as to which this opinion is a part, to
be filed with the Securities and Exchange Commission (the "Commission").
In connection with rendering our opinion as set forth below, we have
reviewed and examined originals or copies identified to our satisfaction of
the following:
(1) Articles of Incorporation, and amendments thereto, of the Company as
filed with the Secretary of State of the State of California.
(2) Corporate minutes containing the written deliberations and
resolutions of the Board of Directors and shareholders of the Company.
(3) The Registration Statement and the Preliminary Prospectus contained
within the Registration Statement.
(4) The other exhibits to the Registration Statement.
We have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the
Company, and have made such other investigations as we have deemed necessary
and appropriate under the circumstances.
<PAGE>
Organic Food Products, Inc.
March 5, 1997
Page two
Based upon the foregoing and in reliance thereon, it is our opinion that
the 1,380,000 shares of Common Stock offered under the Registration Statement
will, upon the purchase, receipt of full payment, issuance and delivery in
accordance with the terms of the offering described in the Registration
Statement, be duly and validly authorized, legally issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part thereof.
Very truly yours,
Gary A. Agron
GAA/jp
LAW OFFICE OF GARY A. AGRON
<PAGE>
1995 STOCK OPTION PLAN
OF
S & D FOODS, INC.,
------------------------------------------
A CALIFORNIA CORPORATION
(now known as Organic Food Products, Inc.)
I. PURPOSE.
The purpose of this 1995 Stock Option Plan (the "Plan") of S & D FOODS,
INC., a California corporation (the "Company") is to encourage ownership in the
Company by one or more key employees whose long-term employment is considered
essential to the Company's continued progress and thus to provide such employee
or employees with a further incentive to continue in the employ of the Company.
The purpose of the Plan is to be carried out by issuing stock options
("Options") pursuant to the Plan. The purpose of the Plan is to be carried out
by issuing incentive stock options and nonqualified options pursuant to the Plan
(hereinafter referred to as "Options") to one or more key employees of the
Company. It is intended that to the maximum extent permissible under the Plan,
Options shall constitute incentive stock options ("Incentive Stock Options")
within the meaning of Section 422 of the Internal Revenue Code (the "Code") and
that to the extent not so permissible, such Options shall not constitute
Incentive Stock Options ("Nonqualified Stock Options"). For purposes of the
Plan, all references to a subsidiary or subsidiaries shall include only wholly-
owned subsidiaries of the Company.
II. ADMINISTRATION.
1. STOCK OPTION COMMITTEE.
The Plan shall be administered by the Board of Directors of the Company
(the "Board") sitting as a Stock Option Committee (the "Committee").
2. DUTIES AND POWERS OF COMMITTEE.
The Committee shall conduct the general administration of the Plan in
accordance with its provisions. The Committee shall from time to time at its
discretion determine to whom Options shall
<PAGE>
be issued, whether such Options shall be Incentive Stock Options,
Nonqualified Stock Options or both, the amount of stock to be optioned in
each case, and the terms and conditions pursuant to which each Option shall
be granted. The Committee shall have the power to interpret the Plan and the
Options and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret, amend
or revoke any such rules. Any such interpretations and rules shall be
consistent with a purpose of the Plan to grant "incentive stock options"
within the meaning of Section 422 of the Code to the maximum extent
permissible under Section 422. The interpretation and construction by the
Committee of any provisions of the Plan or of any Option shall be final.
3. MAJORITY RULE.
The Committee shall act by a majority of its members in office either
by vote at a meeting or by a memorandum or other written instrument signed by a
majority of the Committee.
4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall not receive compensation for their
services as members but all expenses and liabilities they incur in connection
with the administration of the Plan shall be borne by the Company. The
Committee may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Committee, the Company
and its officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
2
<PAGE>
III. MANDATORY REQUIREMENTS FOR STOCK OPTIONS.
Each Option shall be authorized by action of the Committee and shall be
evidenced by a written agreement in such form as the Committee shall from time
to time approve and shall comply with the following terms and conditions:
1. STOCK OPTION PLAN, STOCK, ELIGIBILITY, AND SHAREHOLDER APPROVAL.
a. STOCK OPTION PLAN. Options shall be granted pursuant to the
Plan.
b. STOCK. The stock subject to the Options shall be shares of the
Company's authorized but unissued or reacquired Common Stock, no par value
("Common Stock"). The aggregate number of shares which may be issued under
Options shall not exceed Two Hundred Fifty Thousand (250,000) shares of Common
Stock. The limitation established by the preceding sentence shall be subject to
adjustment as provided in paragraph 4 of Article IV of the Plan. If any
outstanding Option for any reason expires or is terminated, the shares of Common
Stock allocable to the unexercised portion of such Option may again be subjected
to an Option.
c. ELIGIBILITY.
(i) The persons who shall be eligible to receive Incentive Stock
Options ("ISO Eligible Individuals") shall be such key employees of the Company
as the Committee shall select from time to time. The holder of an Incentive
Stock Option (an "Incentive Stock Optionee") may hold more than one Option, but
only on the terms and subject to the restrictions hereinafter set forth.
(ii) The persons who shall be eligible to receive Nonqualified
Stock Options shall be such individuals whose participation the Committee
determines is in the best interests of the Company.
d. SHAREHOLDER APPROVAL. The Plan shall not take effect until
approved by the holders of a majority of the outstanding shares of capital stock
of the Company, which approval must occur within the period beginning twelve
months before and ending twelve months after the date the Plan is approved by
the Board.
3
<PAGE>
2. TERM OF PLAN.
Subject to Section 9 hereof, Incentive Stock Options may be granted
pursuant to the Plan from time to time within ten (10) years from the date the
Plan is approved by the Board, or the date the Plan is approved by the holders
of a majority of the outstanding shares of capital stock of the Company,
whichever is earlier. Nonqualified Stock Options may be granted pursuant to the
Plan at any time, and the Plan shall not have any fixed termination date with
respect to Nonqualified Stock Options.
3. COMMENCEMENT OF EXERCISABILITY.
Options shall become exercisable at such times and in such
installments (which may be cumulative), if any, as the Committee shall provide
in the terms of each individual Option; provided, however, that:
a. By a resolution adopted after an Option is granted the Committee
may, on such terms and conditions as it may determine to be appropriate,
accelerate the time at which such Option or any portion thereof may be
exercised.
b. Unless an Option specifically provides to the contrary, such
Option shall immediately become exercisable in full in the event of the
consummation of any of the following transactions:
(i) A merger or acquisition in which the Company is not the
surviving entity;
(ii) The sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) Any merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is issued to holders different from those who held the stock immediately
prior to such merger.
4. EXPIRATION OF OPTION.
a. No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten years after the date the Option was
granted;
4
<PAGE>
(ii) Except in the case of any of any Optionee who is
Permanently Disabled (as defined below), the expiration of three months after
the date of the Optionee's Termination of Employment (as defined below) for any
reason other than such Optionee's death unless the Optionee dies within such
three-month period;
(iii) In the case of an Optionee who is Permanently Disabled,
the expiration of one year after the date of the Optionee's Termination of
Employment for any reason other than such Optionee's death unless the Optionee
dies within such one-year period;
(iv) The expiration of one year after the date of the Optionee's
death.
b. Subject to the foregoing provisions of this paragraph 4, the
Committee shall provide, in the terms of each individual Option, when such
Option expires and becomes unexercisable; provided that the Committee may
provide in the terms of such individual Option that said Option expires
immediately upon a Termination of Employment for any reason.
c. "Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or a
subsidiary is terminated for any reason, including, but not by a way of
limitation, a termination by resignation, discharge, death or retirement, but
excluding terminations where there is a simultaneous reemployment by the Company
or a subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all other matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that a leave of absence shall constitute a Termination of
Employment if, and to the extent that, such leave of absence interrupts
employment for the purposes of Section 422 (a)(2) of the Code and the then
applicable regulations and revenue rulings under such section.
5
<PAGE>
d. "Permanently Disabled" shall mean the inability of the Optionee,
while in the employ of the Company and under the age of sixty-five (65) years,
to perform the Optionee's duties as such employee of the Company by reason of
sickness or accident for a continuous period of more than nine (9) months.
5. OPTION AGREEMENT.
Each Option shall be evidenced by a written stock option agreement,
which shall be executed by the Optionee and an authorized officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan.
6. OPTION PRICE.
a. Each Option shall state the purchase price of each share of
Common Stock subject to the Option (the "Option Price"). The Option Price with
respect to any Incentive Stock Option shall be not less than 100% of the fair
market value of each share of Common Stock of the Company on the date such
Incentive Stock Option is granted. Subject to the foregoing, the Committee
shall have full authority and discretion to fix the Option Price.
b. For the purpose of this paragraph 6, the fair market value of a
share of Common Stock of the Company on the date of delivery to the Company's
Secretary at his office shall be: (i) the closing price of a share of such class
of Stock on the principal exchange on which shares of such class of Stock are
then trading, if any, on such date, or, if such shares were not traded on such
date, then on the next preceding trading day during which a sale occurred; or
(ii) if such class of stock is not traded on an exchange but quoted on NASDAQ or
a successor quotation system, (1) the last sale price (if the stock is then
listed as a National market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for the stock on such date as reported by NASDAQ or such successor
quotation system; (iii) if such stock is not publicly traded on an exchange and
not quoted on NASDAQ or a successor quotation system, the mean between the
closing bid and
6
<PAGE>
asked prices for the stock on such date as determined in good faith by the
Committee; or (iv) if such stock is not publicly traded, the fair market
value established by the Committee.
7. RESTRICTIONS ON TRANSFER.
a. An Option shall not be transferable by the Optionee otherwise
than by will or the laws of descent and distribution, and is exercisable, during
such Optionee's lifetime, only by such Optionee. If an Optionee shall die while
in the employ of the Company and shall not have fully exercised any Option, such
Option may be exercised, subject to the condition that no Option shall be
exercisable after the expiration of ten years from the date it is granted, to
the extent that such Optionee's right to exercise such Option had accrued at the
time of his death and had not previously been exercised, at any time within one
year after such Optionee's death, by the executors or administrators of such
Optionee or by any person or persons who shall have acquired the Option directly
from the Optionee by bequest or inheritance.
b. The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of an Option as it deem appropriate.
8. CERTAIN SHAREHOLDERS NOT ISO ELIGIBLE INDIVIDUALS.
The term "ISO Eligible Individual" shall not include an individual
who, at the time an Incentive Stock Option is granted, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its parent or any subsidiary corporation. This
paragraph 8 of Article III shall not apply if at the time such Incentive Stock
Option is granted the Option Price is at least one hundred ten percent (110%) of
the fair market value of the Common Stock subject to the Incentive Stock Option
and such Incentive Stock Option is by its terms not exercisable after the
expiration of five (5) years from the date such Incentive Stock Option is
granted. For purposes of determining whether an Optionee owns more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of its parent or any subsidiary corporation, stock owned
7
<PAGE>
by other persons and entities shall be attributed to such Optionee by
operation of Section 424(d) of the Code.
9. LIMITATION ON AGGREGATE FAIR MARKET VALUE.
The aggregate fair market value (determined as of the time an
Incentive Stock Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time for any ISO Eligible
Individual shall not exceed $100,000 during any calendar year, provided that
notwithstanding any other provision of the Plan, if the foregoing limitation is
exceeded for any calendar year, then the Options first exercisable during such
calendar year in excess of such limitation shall be Nonqualified Options.
IV. ADDITIONAL TERMS AND CONDITIONS. The Options shall comply with and be
subject to the following additional terms and conditions:
1. NUMBER OF SHARES.
Each Option shall state the number of shares to which it pertains.
2. PARTIAL EXERCISE.
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
paragraph 4 of Article III or paragraph 4 of this Article IV, such Option or
portion thereof may be exercised in whole or in part; provided, however, that
the Company shall not be required to issue fractional shares and the Committee
may, by the terms of the Option, require any partial exercise to be with respect
to a specified minimum number of shares.
3. MANNER OF EXERCISE
a. An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Company's Secretary or his office of all of
the following prior to the time when such Option or such portion becomes
unexercisable under paragraph 4 of Article III or paragraph 4 of this Article
IV:
8
<PAGE>
(i) Notice in writing signed by the Optionee or other person
when entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee;
(ii) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised, or shares of
Common Stock owned by the Optionee or other person then entitled to exercise
such option or portion, duly endorsed for transfer to the Company with a fair
market value (as determined under paragraph 6.b of Article III) on the date of
delivery equal to the aggregate Option Price of the shares with respect to which
such Option or portion is thereby exercised;
(iii) Such representations and additional documents as the
Committee, in its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act of 1933, as
amended, and any other federal or state securities laws or regulations. The
Committee may, in its absolute discretion, also take whatever additional actions
it deems appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer orders to
transfer agents and registrars; and
(iv) In the event that the Option or portion thereof shall be
exercised pursuant to paragraph 7 of Article III by any person or persons other
than the Optionee, appropriate proof of the right of such person or persons to
exercise the Option or portion thereof.
b. For the purpose of this paragraph 3, the fair market value of a
share of Common Stock on the date of delivery to the Company's Secretary or his
office shall be determined in accordance with Article III, Section 6.b.
4. ADJUSTMENTS IN OUTSTANDING OPTIONS.
a. If the outstanding shares of the capital stock of the Company are
increased, decreased, or changed into, or exchanged for a different number or
kind of shares or securities of the Company through reorganization, merger,
recapitalization,
9
<PAGE>
reclassification, stock split, stock dividend, stock consolidation, or
otherwise, or the Company spins off to its shareholders a material amount of
its assets, the Committee shall make an appropriate and proportionate
adjustment in the number and kind of shares as to which Options may be
granted. The Committee shall make a corresponding adjustment changing the
number or kind of shares and the exercise price per share allocated to
unexercised Options or portions thereof, which shall have been granted prior
to any such change. Any such adjustment, however, in an outstanding Option
shall be made without change in the total price applicable to the unexercised
portion of the Option (except for any change in the aggregate price resulting
from rounding-off of share quantities or prices) but with a corresponding
adjustment in the price for each share covered by the Option. Any such
adjustment made by the Committee shall be final and binding upon all
Optionees, the Company and all other interested persons.
b. Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of all or substantially all of the assets of the Company to
another corporation, the Plan shall terminate, and any Option theretofore
granted hereunder shall terminate, unless provision is made in connection with
such transaction for the assumption of Options theretofore granted, or the
substitution for such Options of new options covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to number and kind of shares and prices; and the Committee may, in its absolute
discretion and on such terms and conditions as it deems appropriate, provide,
either by the terms of such Option or by a resolution adopted prior to the
occurrence of such dissolution, liquidation, reorganization, merger,
consolidation or sale of assets, that, for some period of time prior to such
event, such Option shall be exercisable as to all shares covered thereby,
10
<PAGE>
notwithstanding anything to the contrary in paragraphs 3 and 4 of Article III or
any installment provisions of such Option.
c. Adjustments under this paragraph 4 shall be made by the
Committee, whose determination as to what adjustments shall be made and the
extent thereof shall be final, binding, and conclusive; provided that no
Incentive Stock Option shall be adjusted in a manner which causes such Incentive
Stock Option to fail to qualify as an incentive stock option within the meaning
of Section 422 of the Code.
5. RIGHTS AS A SHAREHOLDER.
An Optionee or transferee of an Option shall have no rights as a
shareholder with respect to any shares covered by his Option until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
paragraph 4 of this Article IV.
6. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify, extend or renew outstanding Options granted
under the Plan (subject to the condition that no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date it is granted), or
accept the surrender of outstanding Options (to the extent not theretofore
exercised) and authorize the granting of new Options in substitution therefor.
The Committee shall not, however, modify any outstanding Option so as to specify
a lower price or accept the surrender of any outstanding Option and authorize
the granting of a new Option in substitution therefor specifying a lower price.
Notwithstanding the foregoing, however, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option theretofore granted under the Plan.
11
<PAGE>
7. INVESTMENT PURPOSE.
Each Option under the Plan shall be granted on the condition that the
purchase of Common Stock thereunder shall be for investment purposes only, and
not with a view to resale or for sale in connection with any distribution except
that in the event the Common Stock subject to such Option is registered under
the Securities Act of 1933 as amended, or in the event a resale of such Common
Stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act of 1933 or any other applicable law,
regulation, or rule of any governmental agency.
8. CONSENT OF COMMISSIONER OF CORPORATIONS.
No shares shall be issued upon exercise of any Option unless and until
the Company shall obtain from the Commissioner of Corporations of the State of
California such permit, if any, as may be required authorizing such issuance of
shares. The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of the Options, shall pay all original issue and
transfer taxes with respect to issue and transfer of shares pursuant hereto and
all other fees and expenses necessarily incurred by the Company in connection
therewith, and shall from time to time use its best efforts to comply with all
laws and regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
9. SECURITIES ACT OF 1933.
a. Notwithstanding anything to the contrary herein, each certificate
representing shares issued to an Optionee hereunder, unless they have been
registered under the Securities Act of 1933, as amended, shall bear a legend
reading substantially as follows:
"The shares represented by this certificate have been issued in a
transaction exempt from the provisions of the Securities Act of
1933, as amended, and consequently no
12
<PAGE>
sale, offer to sell or transfer of the shares represented by this
certificate shall be made unless a registration under the federal
Securities Act of 1933, as amended, with respect to said shares is
then in effect or, in the opinion of legal counsel for the
corporation, an exemption from registration requirements of such
act is then in effect applicable to such shares."
b. Each Option shall be issued subject to the condition that if at
any time the Committee shall determine, in its discretion, that the registration
or qualification of the shares covered by the Option under any state or federal
law is necessary or desirable, delivery of any shares to the Optionee pursuant
to exercise of the Option shall be deferred until such registration or
qualification shall have been effected. In the event the Committee determines
that such registration or qualification is necessary or desirable, the Company
shall, at its expense, take such action as may be required to effect such
registration or qualification.
10. OTHER PROVISIONS.
Each Option shall contain such other provisions, including, without
limitation, restrictions upon the exercise of the Option, as the Committee shall
deem advisable. Each Incentive Stock Option shall contain such limitations and
restrictions upon the exercise of the Incentive Stock Option as shall be
necessary in order that such Incentive Stock Option will be an "incentive stock
option" as defined in Section 422 of the Code or to conform to any change in the
law.
V. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any
13
<PAGE>
Option granted thereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Committee
member is liable for gross negligence or misconduct in the performance of his
duties; provided that within 60 days after institution of any such action,
suit or proceeding a Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
VI. AMENDMENT OF THE PLAN.
The Committee may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to Options, suspend or discontinue
the Plan or revise or amend it in any respect whatsoever except that, without
approval of the shareholders, no such revision or amendment shall change the
number of shares subject to the Plan, change the designation of the classes of
persons eligible to receive Options, or decrease the price at which Options may
be granted. Furthermore, the Plan may not, without the approval of the
shareholders, be amended in any manner that will cause Incentive Stock Options
issued under it to fail to meet the requirements of incentive stock options as
defined in Section 422 of the Code.
VII. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock pursuant
to Options will be used for general corporate purposes.
VIII. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
14
<PAGE>
IX. LIMITATION OF RIGHTS
1. NO RIGHT TO AN OPTION.
Nothing in the Plan shall be construed to give any person any right to
be granted an Option.
2. NO EMPLOYMENT RIGHT.
Neither the Plan, nor the granting of an Option nor any other action
taken pursuant to the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will employ an Optionee for
any period of time or in any position, or at any particular rate of
compensation.
3. NO RIGHTS GRANTED.
The grant of any Option pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate, or sell or transfer all or any part of its
assets or business.
X. EFFECT OF PLAN UPON OTHER OPTIONS AND COMPENSATION PLANS.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any subsidiary of the Company.
Nothing in the Plan shall be construed to limit the right of the Company or any
subsidiary of the Company (a) to establish any other forms of incentives or
compensation for employees of the Company or any subsidiary of the Company or
(b) to grant or assume options otherwise than under the Plan in connection with
any proper corporate purpose, including, but not be way of limitation, the
grant or assumption of options in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of the business, stock or assets of
any corporation, firm or association.
15
<PAGE>
Article III, Section 1.b, of the 1995 Stock Option Plan was amended on June
24, 1996, to increase the aggregate number of shares which may be issued under
Options to 525,000. It was subsequently amended on February 1, 1997, to
increase the aggregate number of shares which may be issued under Options to
625,000.
16
<PAGE>
STANDARD INDUSTRIAL LEASE
--------------------------------------
BLICKMAN TURKUS
COMMERCIAL INDUSTRIAL REAL ESTATE
--------------------------------------
An Affiliate of The Woodmont Companies
--------------------------------------
1. PARTIES. This Lease, dated, for reference purposes only, December 1,
1995 is made by and between Margaret M. Bersano an undivided 1/2 interest and
Anthony F. Battaglia and Michael D. Battaglia and undivided 1/2 interest as
Tenants in common (herein called "Lessor") and S&D Foods, a California
corporation (herein called ("Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the County of Santa Clara, State of
California, commonly known as 550 Monterey Road, Morgan Hill APN#
727-21-035-000 and described as an industrial building of 24,000 s.f., an
office structure of approximately 900 s.f. and the contiguous yard area
surrounding the buildings. Reciprocal use of all driveways and Premises
entry/exit points as shown on Exhibit "A" site map and Exhibit "B" parcel map.
Said real property including the land and all improvements thereon, is herein
called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for eighty-four months (84)
commencing on 30 days after completion of Tenant improvements and ending on
April 30, 2003 unless sooner terminated pursuant to any provision hereof.
Tenant shall have the right to extend the Lease for three (3) additional five
(5) year options under the same terms.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the obligations of Lessee
hereunder or extend the term hereof, but in such case Lessee shall not be
obligated to pay rent until possession of the Premises is tendered
to Lessee; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days from said commencement
date, Lessee may, at Lessee's option, by notice in writing to Lessor within
ten (10) days thereafter, cancel this Lease, in which event the parties shall
be discharged from all obligations hereunder. If Lessee occupies the Premises
prior to said commencement date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the termination date, and
Lessee shall pay rent for such period at the initial monthly rates set forth
below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises equal monthly
payments of $6,480.00, in advance, on the 1st day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $13,992.00 as rent
for the first month of the term or March 1995 and the last month of the term
or April 2003. Rental rate shall remain at base rate for months 1 through 24
inclusive. Rental rate shall increase by three percent (3%) annually each
succeeding year throughout the term of the Lease. Lease rent schedule is
attached as Exhibit "D".
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may
designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$6,480.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit
cash with Lessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Lessee's failure to do so shall be a material
breach of this Lease. Lessor shall not be required to keep said deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect
to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for food
preparation, processing, packing and distribution and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its existing
state, but without regard to the use for which Lessee will use the
Premises, does not violate any applicable building code, regulation or
ordinance at the time this Lease is executed. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost
and expense, rectify any such violation. In the event Lessee does not give
to Lessor written notice of the violation of this warranty within 1 year from
the commencement of the term of this Lease, it shall be conclusively deemed
that such violation did not exist and the correction of the same shall be the
obligation of the Lessee.
(b) Except as provided in paragraph 6.2 (a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in
effect during the term or any part of the term hereof regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the
Premises in any manner that will tend to create waste or a nuisance or, if
there shall be more than one tenant in the building containing the Premises,
shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2 (a)
Lessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county
and state laws, ordinances and regulations governing and regulating the use
of the Premises, and accepts this Lease subject thereto and to all matters
disclosed thereby and by any exhibits attached hereto. Lessee acknowledges
that neither Lessor nor Lessor's agent has made any representation or
warranty as to the suitability of the Premises for the conduct of Lessee's
business.
7. MAINTENANCE REPAIRS AND ALTERNATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
6.2(a) and 9 and except for damage caused by any negligent or intentional act
or omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in
good order, condition and repair the foundations, exterior walls and the
exterior roof of the Premises. Lessor shall not, however, be obligated to
paint such exterior, nor shall Lessor be required to maintain the interior
surface of exterior walls, windows, doors or plate glass. Lessor shall have
no obligation to make repairs under this Paragraph 7.1 until a reasonable
time after receipt of written notice of the need for such repairs. Lessee
expressly waives the benefits of any statute now or hereafter in effect which
would otherwise afford Lessee the right to make repairs at Lessor's expense
or to terminate this Lease because of Lessor's failure to keep the Premises
in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 6.2(a), 7 and 9,
Lessee, at Lessee's expense, shall keep in good order, condition and repair
the Premises and every part thereof (whether or not the damaged portion of
the Premises or the means of repairing the same are reasonably or readily
accessable to Lessee) including, without limiting the generality of the
foregoing, all plumbing, heating, airconditioning, ventilating, electrical
and lighting facilities and equipment within the Premises, fixtures, interior
walls and interior surface of exterior walls, ceilings, windows, doors, plate
glass, and skylights, located within the Premises, and all landscaping,
driveways, parking lots, fences and signs located in the Premises and all
sidewalks and parkways adjacent to the Premises. Lessee expressly waives the
benefit of any statute now or hereinafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate
this Lease because of Lessor's failure to keep the Premises in good order,
condition and repair.
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(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2, Lessor may at Lessor's option enter upon the Premises after 10
days' prior written notice to Lessee, and put the same in good order,
condition and repair, and the cost thereof together with interest thereon at
the rate of 10% per annum shall be due and payable as additional rent to
Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, broom clean, ordinary wear and tear excepted. Lessee shall
repair any damage to the Premises occasioned by the removal of its trade
fixtures, furnishings and equipment pursuant to Paragraph 7.3(d), which
repair shall include the patching and filling of holes and repair of
structural damage.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility installations in, on or
about the Premises, except for nonstructural alterations not exceeding $1,000
in cost. As used in this Paragraph 7.3 the term "Utility Installation" shall
mean bus ducting, power panels, wiring, fluorescent fixtures, space heaters,
conduits, airconditioning and plumbing. Lessor may require that Lessee remove
any or all of said alterations, improvements, additions or Utility installations
at the expiration of the term, and restore the Premises to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility installations without the prior approval of Lessor,
Lessor may require that Lessee remove any or all of such.
(b) Any alterations, improvements, additions or Utility installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent the consent shall
be deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to
to the commencement of the work and the compliance by Lessee of all conditions
of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.
If Lessee shall, in good faith, contest the validity of any such lien, claim
or demand, then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy any such adverse judgment that may
be rendered thereon before the enforcement thereof against the Lessor or the
Premises, upon the condition that if Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to
such contested lien claim or demand indemnifying Lessor against liability for
the same and holding the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility installations
(whether or not such Utility installations constitute trade fixtures of
Lessee), which may be made on the Premises, shall become the property of
Lessor and remain upon and be surrendered with the Premises at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2(c).
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single
Limit, Bodily Injury and Property Damage insurance insuring Lessor and Lessee
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be a combined single limit policy in an amount not less than
$500,000. The policy shall contain cross liability endorsements and shall
insure performance by Lessee of the indemnity provisions of this Paragraph 8.
The limits of said insurance shall not, however, limit the liability of
Lessee hereunder. In the event that the Premises constitute a part of a
larger property said insurance shall have a Lessor's Protective Liability
endorsement attached thereto. If Lessee shall fail to procure and maintain
said insurance Lessor may, but shall not be required to, procure and maintain
the same, but at the expense of Lessee. Not more frequently than each 5
years, if, in the reasonable opinion of Lessor, the amount of liability
insurance required hereunder is not adequate, Lessee shall increase said
insurance coverage as required by Lessor. Provided, however that in no event
shall the amount of the liability insurance increase be more than fifty
percent greater than the amount thereof during the preceding five years of
the term of this lease. However, the failure of Lessor to require any
additional insurance coverage shall not be deemed to relieve Lessee from any
obligations under this Lease.
8.2 PROPERTY INSURANCE.
(a) Lessor shall obtain and keep in force during the term of this Lease
a policy or policies of insurance covering loss or damage to the Premises,
but not Lessee's fixtures, equipment or tenant improvements in the amount of
the full replacement value thereof, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk) but not plate glass
insurance. In addition, the Lessor shall obtain and keep in force, during
the term of this Lease, a policy of rental income insurance covering a period
of six months, with loss payable to Lessor which insurance shall also cover
all real estate taxes and insurance costs for said period. In the event that
the Premises contains sprinklers then the insurance coverage shall include
sprinkler leakage insurance.
(b) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, the amount of any increase in premiums for the insurance required
under this Paragraph 8.2 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the
Premises, or increased valuation of the Premises or general rate increases.
In the event that the Premises have been occupied previously the words "Base
Period" shall mean the last twelve months of the prior occupancy and in the
event that the Premises have never been previously occupied the words "Base
Period" shall mean the lowest premium reasonably obtainable for the said
insurance for the Premises assuming the most nominal use of the Premises.
Provided, however, in lieu of the Base Period the parties hereto may insert
a dollar amount at the end of this sentence which figure shall be considered
as the insurance premium for the Base Period. $ NOT APPLICABLE.
(c) If the Premises being leased herein are part of a larger property,
then Lessee shall not be responsible for paying any increase in the property
insurance caused by the acts or omissions of any other tenant of the building
of which the Premises are a part.
(d) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall also deliver to Lessee a statement of the amount of such
increase attributable to the Premises and showing in reasonable detail the
manner in which such amount was computed. If the term of this Lease shall
not expire concurrently with the expiration of the period covered by such
insurance, Lessee's liability for premium increases shall be prorated on an
annual basis.
8.3 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of B plus or better as set
forth in the most current issue of "Best Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Lessor. No such policy
shall be cancellable or subject to reduction of coverage or other
modification except after ten (10) days' prior written notice to Lessor.
Lessee shall, within ten (10) days prior to the expiration of such policies,
furnish Lessor with renewals or "binders" thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in
Paragraph 8.2.
8.4 WAIVER OF SUBROGATION. Lessee and Lessor each hereby waives any and
all rights of recovery against the other, or against the officers, employees,
agents and representatives of the other, for loss of or damage to such
waiving party or its property or the property of others under its control,
where such loss or damage is insured against under any insurance policy in
force at the time of such loss or damage. Lessee and Lessor shall, upon
obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation
is contained in this Lease.
8.5 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any negligence of the Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Lessor by reason of any such claim, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel satisfactory to
Lessor. Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property or injury to persons, in, upon or
about the Premises arising from any cause and Lessee hereby waives all
claims in respect thereof against Lessor.
8.6 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or
about the Premises, nor shall Lessor be liable for injury to the person of
Lessee, Lessee's employees, agents or contractors, whether such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury results
from conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or places,
and regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for
any damages arising from any act or neglect of any other tenant, if any, of
the building in which the Premises are located.
9. DAMAGE OR DESTRUCTION.
9.1 PARTIAL DAMAGE-INSURED. Subject to the provisions of Paragraphs
9.3 and 9.4, if the Premises are damaged and such damage was caused by a
casualty covered under an insurance policy required to be maintained pursuant
to Paragraph 8.2, Lessor shall at Lessor's expense repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect
but Lessor shall not repair or replace Lessee's fixtures, equipment or tenant
improvements.
9.2 PARTIAL DAMAGE-UNINSURED. Subject to the provisions of Paragraph
9.3 and 9.4, if at any time during the term hereof the Premises are damaged,
except by a negligent or willful act of Lessee (in which event Lessee shall
make the repairs, at its expense) and such damage was caused by a casualty
not covered under an insurance policy required to be maintained by Lessor
pursuant to Paragraph 8.2, Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which this
Lease shall continue in full force and effect, or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease as of the
date of the occurrence of such damage. In the event Lessor elects to give
such notice of Lessor's intention to cancel and terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's intention to repair such damage at
Lessee's expense, without reimbursement from Lessor, in which event this
Lease shall continue in full force and effect, and Lessee shall proceed to
make such repairs as soon as reasonably possible. If Lessee does not give
such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
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9.3 TOTAL DESTRUCTION. If at any time during the term hereof the
Premises are totally destroyed from any cause whether or not covered by the
insurance required to be maintained by Lessor pursuant to Paragraph 8.2
(including any total destruction required by any authorized public authority)
this Lease shall automatically terminate as of the date of such total
destruction.
9.4 DAMAGE NEAR END OF TERM. If the Premises are partially destroyed
or damaged during the last six months of the term of this Lease, Lessor may
at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) If the Premises are partially destroyed or damaged and Lessor or
Lessee repairs or restores them pursuant to the provisions of this Paragraph
9, the rent payable hereunder for the period during which such damage, repair
or restoration continues shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired. Except for abatement of rent, if
any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair
or restoration within 90 days after such obligations shall accrue, Lessee may
at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of
the date of such notice.
9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessee waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) which relate to termination of leases when the
thing leased is destroyed and agrees that such event shall be governed by the
terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay all real property taxes
applicable to the Premises; provided, however, that Lessee shall pay, in
addition to rent, the amount, if any, by which real property taxes applicable
to the Premises increase over the fiscal tax year 1995 - 1996. Such payment
shall be made by Lessee within thirty (30) days after receipt of Lessor's
written statement setting forth the amount of such increase and the
computation thereof. If the term of this Lease shall not expire concurrently
with the expiration of the tax fiscal year, Lessee's liability for increased
taxes for the last partial lease year shall be prorated on an annual basis.*
10.2 DEFINITION OF "REAL PROPERTY" TAX. As used herein, the term "real
property tax" shall include any form of assessment, license fee, commercial
rental tax, levy, penalty, or tax (other than inheritance or estate taxes),
imposed by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Premises or in the
real property of which the Premises are a part, as against Lessor's right to
rent or other income therefrom, or as against Lessor's business of leasing
the Premises or any tax imposed in substitution, partially or totally, of
any tax previously included within the definition of real property tax, or
any additional tax the nature of which was previously included within the
definition of real property tax.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property
taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information
as may be reasonably available. Lessor's reasonable determination thereof,
in good faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the
real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable
to Lessee within 10 days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor
of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, or to any person or
entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, provided that said assignee
assumes, in full, the obligations of Lessee under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Lessee
under the terms of this Lease even if after such assignment or subletting the
terms of this Lease are materially changed or altered without the consent of
Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or
their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable attorneys fees incurred in
connection therewith, such attorneys fees not to exceed $250.00 for each such
request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (b) above, where such failure
shall continue for a period of 30 days after written notice hereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commenced such cure
within said 30-day period and thereafter diligently prosecutes such cure
to completion.
(d) (i) The making by Lessee of any general arrangement for the
benefit of creditors; (ii) the filing by or against Lessee of a petition to
have Lessee adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii)
the appointment of a trustee or receiver to take possession of substantially
all of Lessee's assets located at the Premises or of Lessee's interest in
this Lease, where possession is not restored to Lessee within 30 days; or
(iv) the attachment, execution or other judicial seizure of substantially all
of Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within 30 days.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually-paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could
be reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws of judicial decisions of the State of California.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required by performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, If any installment of rent or any other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, Lessee shall pay to Lessor a late charge
equal to 6% of such overdue amount. The
* Tenant shall have no obligation for real property tax increase if property
is sold at any time during tenancy.
INITIALS: AB
MB
MB
FH
--------
-3-
<PAGE>
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted
hereunder.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than 10% of the
floor area of the Improvements on the premises, or more than 25% of the land
area of the Premises which is not occupied by any improvements, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing only
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the rent shall be reduced in the proportion that the floor area
taken bears to the total floor area of the building situated on the Premises.
Any award for the taking of all or any part of the Premises under the power
of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of
the fee, or as severance damages; provided, however, that Lessee shall be
entitled to any award for loss of or damage to Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall, to the extent of severance
damages received by Lessor in connection with such condemnation, repair any
damage to the Premises caused by such condemnation except to the extent that
Lessee has been reimbursed therefor by the condemning authority. Lessee
shall pay any amount in excess of such severance damages required to complete
such repair.
15. BROKER'S FEE. Upon execution of this Lease by both parties. Lessor
shall pay to BT Commercial Real Estate, a licensed real estate broker, a fee
as set forth in a separate agreement between Lessor and said broker, or in
the event there is no separate agreement between Lessor and said broker, the
sum of $19,256.88, for brokerage services rendered by said broker to Lessor
in this transaction. Lessor further agrees that if Lessee exercises any
option granted herein or any option substantially similar thereto, either to
extend the term of this Lease, to renew this Lease, to purchase said Premises
or any part thereof and/or any adjacent property which Lessor may own or in
which Lessor has an interest, or any other option granted herein, or if said
broker is the procuring cause of any other lease or sale entered into between
the parties pertaining to the Premises and/or any adjacent property in which
Lessor has an interest, then as to any of said transactions, Lessor shall pay
said broker a fee in accordance with the schedule of said broker in effect at
the time of execution of this lease. Lessor agrees to pay said fee not only
on behalf of Lessor but also on behalf of any person, corporation,
association, or other entity having an ownership interest in said real
property or any part thereof, when such fee is due hereunder. Any transferee
of Lessor's interest in this Lease, by accepting an assignment of such
interest, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Said broker shall be a third party beneficiary of the
provisions of this Paragraph.
16. GENERAL PROVISIONS.
16.1 ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force and effect)
and the date to which the rent and other charges are paid in advance, if any,
and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder or specifying such defaults if any
are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises.
(b) Lessee's failure to deliver such statement within such time shall
be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or such failure may be considered
by Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance or refinance the Premises, or any part
thereof, Lessee hereby agrees to deliver to any lender designated by Lessor
such financial statements of Lessee as may be reasonably required by such
lender. Such statements shall include the past three years' financial
statements of Lessee. All such financial statements shall be received by
Lessor in confidence and shall be used only for the purposes herein set forth.
16.2 LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean
only the owner or owners at the time in question of the fee title or a
lessee's interest in a ground lease of the Premises, and except as expressly
provided in Paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers the
then grantor) shall be relieved from and after the date of such transfer of
all liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the
time of such transfer, in which Lessee has an interest, shall be delivered to
the grantee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.
16.3 SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
16.4 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at
10% per annum from the date due. Payment of such interest shall not excuse
or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
16.5 TIME OF ESSENCE. Time is of the essence.
16.6 CAPTIONS. Article and paragraph captions are not a part hereof.
16.7 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains
all agreements of the parties with respect to any matter mentioned herein.
No prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employees or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of said Premises and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance
thereof with all applicable laws and regulations in effect during the term of
this Lease except as otherwise specifically stated in this Lease.
16.8 NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified
mail, and if given personally or by mail, shall be deemed sufficiently given
if addressed to Lessee or to Lessor at the address noted below the signature
of the respective parties, as the case may be. Either party may by notice to
the other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice purposes. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
16.9 WAIVERS. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to or approval
of any act shall not be deemed to render unnecessary the obtaining of
Lessor's consent to or approval of any subsequent act by Lessee. The
acceptance of rent hereunder by Lessor shall not be a waiver of any preceding
breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
16.10 RECORDING. Lessee shall not record this Lease without Lessor's
prior written consent, and such recordation shall, at the option of Lessor,
constitute a non-curable default of Lessee hereunder. Either party shall,
upon request of the other, execute, acknowledge and deliver to the other a
"short form" memorandum of this Lease for recording purposes.
16.11 HOLDING OVER. If Lessee remains in possession of the Premises or
any part thereof after the expiration of the term hereof without the express
written consent of Lessor, such occupancy shall be a tenancy from month to
month at a rental in the amount of the last monthly rental plus all other
charges payable hereunder, and upon all the terms hereof applicable to a
month-to-month tenancy.
16.12 CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
16.13 COVENANTS AND CONDITIONS. Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition,
16.14 BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of Paragraph 16.2, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be
<PAGE>
16.18 SIGNS AND AUCTIONS. Lessee shall not place any sign upon the
Premises or conduct any auction thereon without Lessor's prior written
consent except that Lessee shall have the right, without the prior permission
of Lessor to place ordinary and usual for rent or sublet signs thereon.
16.19 MERGER. The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work
a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
16.20 CORPORATE AUTHORITY. If Lessee is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of
said corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms. If Lessee is a corporation Lessee shall, within
thirty (30) days after execution of this Lease, deliver to Lessor a certifled
copy of a resolution of the Board of Directors of said corporation
authorizing or ratifying the execution of this Lease.
16.21 CONSENTS. Wherever in this Lease the consent of one party is
required to an act of the other party such consent shall not be unreasonably
withheld.
16.22 GUARANTOR. In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under Paragraphs 16.1
and 16.20 of this Lease.
16.23 QUIET POSSESSION. Upon Lessee paying the fixed rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Lessee's part to be observed and performed hereunder, Lessee
shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
16.24 OPTIONS. In the event that the Lessee, under the terms of this
Lease, has any option to extend the term of this Lease, or any option to
purchase the premises or any right of first refusal to purchase the premises
or other property of Lessor, then each of such options and rights are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any one other than Lessee except that it may be
exercised by or assigned to any of the entities described in paragraph 12.2
hereof for whom Lessee does not need the consent of Lessor to assign this
Lease. In the event that Lessee hereunder has any multiple options to extend
this Lease a later option to extend the lease cannot be exercised unless the
prior option has been so exercised. No option may be exercised at a time
when the Lessee is in default under its obligations under this Lease.
16.25 MULTIPLE TENANT BUILDING. In the event that the Premises are
part of a larger building or group of buildings then Lessee agrees that it
will abide by, keep and observe all reasonable rules and regulations which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the building and grounds, the parking of vehicles and the
preservation of good order therein as well as for the convenience of other
occupants and tenants of the building. Further, Lessee will promptly pay its
prorata share, as reasonably determined by Lessor, of any maintenance or
repair of such portion of the Premises or such portion of the property of
which the Premises are a part, which are common areas or used by Lessee and
other occupants thereof. The violations of any such rules and regulations, or
the failure to pay such prorata share of costs, shall be deemed a material
breach of this Lease by Lessee.
16.26 ADDITIONAL PROVISIONS. If there are no additional provisions draw
a line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.
See Exhibit "C" attached and by reference made a part hereof.
See Exhibit "D" Rent Schedule attached and by reference made a part hereof.
The following disclosures requiring signature are attached and by reference
made a part hereof.
1. Agency Disclosure - Lease.
2. Americans With Disabilities Act Notice to Owners and Tenant.
3. Special Studies Zone and Flood Hazard Disclosure.
4. Notice to Owners, Buyers, Tenants regarding Hazardous Waste.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
If this Lease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Lease or the transaction relating thereto.
Executed at Morgan Hill, California /s/ MARGARET M. BERSANO
--------------------------- -----------------------------------
By Margaret M. Bersano
on December 12, 1995 By /s/ ANTHONY F. BATTAGLIA
------------------------------------ ---------------------------------
Address 100 Ogier Avenue Anthony F. Battaglia
-------------------------------
Morgan Hill, CA 95037 By /s/ MICHAEL D. BATTAGLIA
------------------------------- ---------------------------------
Michael D. Battaglia
"LESSOR" (Corporate seal)
Executed at Burlingame, California S&D Foods, a California corporation
--------------------------- -----------------------------------
on December 12, 1995 By /s/ FLOYD HILL
------------------------------------ ---------------------------------
Address 1333 Marsten Road Floyd Hill, Chief Operating Officer
-------------------------------
Burlingame, CA 94010 By
------------------------------- ---------------------------------
"LESSEE" (Corporate seal)
<PAGE>
EXHIBIT "C"
16.26 ADDITIONAL PROVISIONS.
16.26.1 LANDLORD TENANT IMPROVEMENT WORK.
Landlord agrees to perform the following Tenant Improvement work at
Landlord's cost and expense.
A. Install 2 restrooms in the warehouse. The women's restroom
shall contain 3 water closets and stalls. The mens restroom
shall contain 2 water closets and 1 urinal.
B. Install concrete pad for boiler on west side of warehouse.
Tenant and Landlord to determine location and specifications
for pad.
C. Paint exterior of office/residence and replace floor of front
porch.
D. Install industrial halogen lighting in warehouse,
E. Install outdoor night lighting on building.
F. If required, Landlord agrees to install sufficient baserock
and paved truck parking area with temporary dock and shed
roof cover to allow fork lift operations during rain season.
16.26.2 Tenant shall make all improvements required pertinent to the
operation of its business at Tenant cost and expense.
A. Tenant shall install 3 floor drains as required in cold
room.
B. Tenant shall install holding tank and drain water line
to leach field.
C. Tenant shall install 3 exhaust vents as required in
cold room roof.
D. Tenant shall perform all interior renovation to office-
residence in lieu of paying rent for structure.
16.26.3 Landlord shall be responsible for all costs and expenses
related to the maintenance and operation of driveways, wells,
pumps and motors, transformers, fencing, and security
lighting in addition to those items delineated in paragraph
7.1 of this lease.
16.26.4 All costs and expenses not the specific responsibility of
Landlord shall be the responsibility of Tenant.
16.26.5 Tenant anticipates the need for up to an additional 50,000
s.f. of warehouse space within 18 months of occupancy.
Landlord agrees to reserve adequate property west of the
Premises to accommodate development of the now facility, Cost
of development and rental rates for the now facility shall be
determined by the Tenant electing to exercise one of the
below listed alternative plans.
(a) If Tenant elects to absorb the cost of construction no
rent shall be paid to the Landlord for the balance of
the term remaining for the initial 84 month term. Upon
completion of the balance of the initial 84 month term,
the rent on the new building would begin at twenty-
seven cents ($.27) per square foot per month gross and
continue under the terms stated in Paragraphs 3 and 4
of this Lease.
(b) If Landlord constructs the building Tenant shall pay
Landlord an initial base rate of twentyseven cents
($.27) per square foot per month gross as the base rate
plus any increased rent currently in effect under the
terms of Paragraph 3 and 4 of this Lease.
(c) In either alternative, Tenant shall be responsible for
the cost of brokerage commission due to BT Commercial
Real Estate, for the first 60 months Tenant occupies
new building, under the Schedule of Commissions in
effect at the execution of the original Lease as
provided for in Paragraph 15. Landlord and Tenant
acknowledge BT Commercial Real Estate as the procuring
broker in this expansion transaction.
16.26.6 Landlord and Tenant agree Tenant shall have the absolute right
to bid all Tenant Improvements and new construction work to
competent, licensed third party unrelated contractors and consultants
if Tenant absorbs the cost of improvements or development.
16.26.7 Tenant shall provide plans and specifications to Landlord for
Tenant Improvements.
16.26.8 Landlord's Tenant Improvement work shall be limited to $30,000
($1.25 s.f.). Tenant shall pay any additional costs amortized
over a 36 month period based on a per month per square foot
surcharge formula beginning in June of 1996. A loan constant of
1.2% per month shall be applied to the amount financed over the
$1.25 per square foot Tenant Improvement allowance.
<PAGE>
EXHIBIT "D"
RENT SCHEDULE 550 MONTEREY ROAD S&D FOODS
Term MD Annual S.F.
- ---- -- ------ ----
Months 01-24 $6,480.00 $77,760.00 $.27
Months 25-36 $6,674.40 $80,092.80 $.2781
Months 37-48 $6,874.63 $82,495.58 $.2864
Months 49-60 $7,080.86 $84,970.42 $.2950
Months 61-72 $7,293.28 $87,519-42 $.3039
Months 73-84 $7,512.07 $90,144.94 $.3130
<PAGE>
A.D.A. Compliance:
Lessor has not received: 1) Any notices alleging violation of the Americans
with Disabilities Act of 1990 ("A.D.A.") or the California Code of
Regulations-Title 24 Accessibility Standards relating to any portion of the
Property or of the Premises; 2) Any claims made or threatened in writing
regarding noncompliance with the A.D.A. and the California Code of
Regulations-Title 24 Accessibility Standards and relating to any portion of
the Property or of the Premises; or 3) Any governmental or regulatory actions
or investigations instituted or threatened regarding noncompliance with the
A.D.A. and the California Code of Regulations-Title 24 Accessibility
Standards relating to any portion of the Property or the Premises.
In the event that Lessor or Lessee receives a notice alleging violation of
the A.D.A. or the California Code of Regulations-Title 24 Accessibility
Standards, Lessor and Lessee shall notify the other party in writing of such
notice within seven (7) days after receipt.
The Property or Premises may not currently be in compliance with the A.D.A.,
and the California Code of Regulations-Title 24 Accessibility Standards.
Lessor shall be responsible for ensuring building compliance with the A.D.A.
and California Code of Regulations-Title 24 Accessibility Standards if notice
alleging violation of the A.D.A. and California Code of Regulations-Title 24
Accessibility Standards is received. Additionally, Lessor shall be responsible
for any compliance required as a result of Lessor's construction of tenant
improvements to the Premises or the Property. However, in the event that
Lessee constructs any improvements or requests permits from the City for
improvements to the Property or Premises which trigger the compliance with
A.D.A. and the California Code of Regulations-Title 24 Accessibility
Standards for the property or premises, such compliance, in part or full,
shall be at the Lessee's sole expense.
Date: 12/12/95 Lessor: Anthony Battaglia
------------------------------ -----------------------------
Date: 12/12/95 Lessor: Margaret Bersano
------------------------------ -----------------------------
Date: 12/12/95 Lessor: Michael D. Battaglia
------------------------------ -----------------------------
Date: 12/12/95 Lessor: Floyd Hill
------------------------------ -----------------------------
Date: Lessee:
------------------------------ -----------------------------
Date: Lessee:
------------------------------ -----------------------------
<PAGE>
EMPLOYMENT AGREEMIENT
THIS EMPLOYMENT AGREEMENT is dated as of July 1, 1996, by and between
GARDEN VALLEY NATURALS, INC., a California corporation ("Corporation"), and
FLOYD R. HILL ("Employee") under the following circumstances:
A. Corporation desires to employ Employee as its Chief Executive
Officer because of his knowledge, experience and expertise with respect to
the business of Corporation.
B. Employee desires to be so employed by Corporation.
C. The parties hereto desire to set forth in writing the terms and
conditions of the employment relationship to be established and continued.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT.
Corporation shall employ Employee as the Chief Executive Officer of
Corporation pursuant to the terms and conditions hereinafter set forth, and
Employee shall perform the duties of such office. Employee shall also serve
as a member of the Board of Directors of Corporation, if elected by the
shareholders of the Corporation to such position. Employee shall perform
such duties at the offices of Corporation located in Morgan Hill, California,
or at such other location(s) as may be agreed to by the parties from time to
time.
2. TERMS OF EMPLOYMENT.
Subject to the provisions of paragraph 7, the term of employment
shall be three (3) years, commencing on July 1, 1996, and continuing through
July 1, 1999.
3. DUTIES AND RESPONSIBILITIES.
Subject only to the directives of the Board of Directors of
Corporation, Employee shall be in complete charge of the operations of
Corporation commensurate with his position as the Chief Executive Officer of
Corporation. Employee agrees to perform his services conscientiously,
effectively and to the best of his ability.
Corporation acknowledges that Employee currently is a shareholder of
Monterey Pasta Company, a member of the Board of Directors of Monterey Pasta
Company, and a product development consultant to Monterey Pasta Company,
which company, INTER ALIA, produces and distributes pasta sauces. Corporation
further acknowledges that Employee intends to retain his ownership interest
in Monterey Pasta Company during the term of this Agreement, and that
Employee intends to serve on that company's board of directors during the
term of this Agreement, in order to protect his investment in Monterey Pasta
Company.
Corporation acknowledges that Monterey Pasta Company may be in
direct or indirect competition with the Corporation with respect to certain
products. However,
<PAGE>
Corporation agrees that it shall have no right in or to any activities
performed by Employee for Monterey Pasta Company, or to income or proceeds
that Employee derives therefrom. Corporation further agrees that Employee
shall have no obligation to present any investment opportunity to the
Corporation which is presented to Monterey Pasta Company, even if the
opportunity is of the character that, if presented to the Corporation, could
be taken by the Corporation. Corporation further agrees that it waives any
and all rights and claims which it may otherwise have, both now, or in the
future, against Employee in connection with his ownership interest in
Monterey Pasta Company or his rendering of services to Monterey Pasta Company.
4. BASE SALARY.
In consideration of Employee's services under this Agreement to
Corporation, Employee's base salary shall be fixed at an annual rate of One
Hundred Ten Thousand Dollars ($110,000), payable in accordance with
Corporation's normal payroll practices. Such base salary shall be reviewed
annually for increases by the Board of Directors at the same time the senior
management group of employees of Corporation is reviewed for salary increases.
5. INCENTIVE COMPENSATION.
As additional consideration of Employee's services, Corporation
hereby grants to Employee the option to purchase 200,000 shares of
Corporation's common stock pursuant to the Stock Option Agreement attached
hereto as Exhibit A.
6. INCENTIVE COMPENSATION.
As further consideration for Employee's services under this
Agreement, Corporation shall pay Employee such incentive compensation to
which Employee is entitled pursuant to any applicable Management Incentive
Compensation Plan which may be adopted by the Board of Directors of
Corporation.
7. BENEFITS.
In consideration for Employee's accepting the employment provided
for herein, Corporation agrees to provide the following benefits:
(a) All the standard benefits normally provided to the employees of
Corporation, including, but not limited to, social security benefits,
workers' compensation and any other benefits that may be subsequently made
available to employees of Corporation.
(b) Employee shall be entitled to fifteen (15) paid vacation days
per year and shall be entitled to up to ten (10) paid sick days per year.
Employee shall not be entitled to accrue more than thirty (30) paid vacation
days (no more than an aggregate of thirty (30) days of which may be carried
over to subsequent years) or more than twenty (20) paid sick days (no more
than an aggregate of twenty (20) days of which may be carried over to
subsequent years). Upon termination of Employee's employment for any reason,
Employee shall not be entitled to payment for any accrued but unpaid sick
days.
2
<PAGE>
(c) Corporation shall reimburse Employee for reasonable and
necessary expenses incurred by him in the performance of his duties hereunder
upon presentation of vouchers in accordance with Corporation's policy.
Employee shall furnish to Corporation adequate records and other documentary
evidence required by federal and state statutes and regulations for the
substantiation of such payments as deductible business expenses of
Corporation and not as deductible compensation to Employee, provided that
reimbursement of such expenses shall not be dependent on proving
deductibility of such expenses for tax purposes.
(d) During the term of this Agreement, Corporation shall pay
Employee an automobile allowance of $350.00 per month.
(e) Such other flexible executive perquisites that may be approved
by the Board of Directors of Corporation for the senior management group of
employees of Corporation.
8. EARLY TERMINATION AND SEVERANCE.
(a) BY CORPORATION. Corporation, acting through its Board of
Directors, may terminate this Agreement ONLY for "cause" upon thirty (30)
days' prior written notice to Employee. For purposes of this Agreement, such
termination shall be deemed for "cause" only if it is by reason of Employee's
commission of willful and material acts of neglect, dishonesty, fraud or
other acts involving moral turpitude which materially and adversely affect
the business or affairs of Corporation. If such termination is for "cause",
then all of the rights, duties and obligations of the parties under this
Agreement shall cease upon the effective date of termination. If such
termination is for any reason other than for "cause," then all of the rights,
duties and obligations of the parties under this Agreement shall cease upon
the effective date of termination, except that Corporation shall pay to
Employee a sum equal to the total base salary for the remaining term of this
Agreement under Section 2.
(b) BY EMPLOYEE. Employee may terminate this Agreement in his sole
discretion for any reason upon ninety (90) days' prior written notice to the
Board of Directors of Corporation. Upon the effective date of such
termination by Employee (except in the event of Employee's death, permanent
disability (as defined below), or resignation as a result of a change in
control of Corporation (as defined below)), all of the rights, duties, and
obligations of the parties under this Agreement shall cease including
Employee's right to his base salary and incentive compensation benefits. In
the event the employment of Employee is terminated at any time during the
term of this Agreement by reason of Employee's death, disability or
resignation as a result of a change in control (as defined below),
Corporation shall, upon the effective date of termination, pay to Employee,
or Employee's estate or personal representatives, a sum equal to three (3)
months' base salary plus the incentive compensation, if any, he would have
received pursuant to paragraph 6 if Employee was employed by Corporation
during such period of time.
(c) For purposes of this Agreement, a "change in control" shall
mean (i) consolidation or merger of Corporation in which Corporation is not
the surviving entity or in which there is a change in the ownership of more
than fifty percent (50%) of the outstanding capital stock of Corporation, or
(ii) the sale of substantially all of the assets of Corporation. For
purposes of this Agreement, Employee shall be considered permanently disabled
if he is unable to perform his duties hereunder on a full-time basis for a
continuous period of three (3) months.
3
<PAGE>
(d) This Agreement shall inure to the benefit of and be binding
upon Corporation, its successors and assigns, including but not limited to
any corporation which may acquire all or substantially all of Corporation's
assets or business or with which Corporation may be consolidated or merged.
Notwithstanding any other provision of this Agreement, in the event of a
change in control, Employee in his sole and absolute discretion shall have
the right to terminate this agreement upon written notice given to
Corporation, or its successors or assigns, effective no later than ninety
(90) days after the consummation of any such change in control, and in such
event Employee shall be entitled to receive the payments set forth in
paragraph 8(b) hereof.
9. NOTICES.
Notices required or permitted by this Agreement shall be effective
upon mailing, postage prepaid, or upon personal delivery, to the following
address:
To Corporation: Garden Valley Naturals, Inc.
550 Monterey Road
Morgan Hill, CA 95037
To Employee: Floyd R. Hill
P.O. Box 763
Carmel, CA 93921
10. MISCELLANEOUS PROVISIONS.
(a) The law of the State of California shall govern the
interpretation and enforcement of this Agreement.
(b) If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
(c) This Agreement contains all of the covenants and agreements
between the parties on the matter stated herein. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf
of any party, which are not embodied herein, and that no other agreement,
statement, or promise on the subject matter stated herein not contained in
this Agreement shall be valid or binding. This Agreement supersedes the
Employment Agreement between Corporation and Employee dated November 20, 1995.
(d) Any modification of this Agreement shall be effective only if
it is in writing and executed by the party or parties to be charged.
(e) This Agreement shall be binding upon and inure to the benefit
of the parties and their spouses, successors, assigns, personal
representatives, heirs and legal representatives.
4
<PAGE>
11. CONFIDENTIALITY. Employee agrees to hold in confidence and not
disclose to any third party without the prior written consent of Corporation,
any proprietary or confidential information of Corporation. Proprietary or
confidential information refers to any information not generally known among
Corporation's competitors and that has commercial value to Corporation. By
way of illustration, but not limitation, proprietary or confidential
information includes (a) developments, improvements, trade secrets, formulae,
processes, techniques, knowhow and data; (b) plans for research, development,
new products, marketing and selling; information related to business plans,
budgets and unpublished financial statements; prices and costs; information
regarding suppliers and customers; and (c) any information designated by
Corporation as confidential.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first hereinabove written.
GARDEN VALLEY NATURALS, INC.
a California corporation
By /s/ JOHN BATTAGLIA
----------------------------------
Its
---------------------------------
"Corporation"
/s/ FLOYD R. HILL
-----------------------------------
FLOYD R. HILL
"Employee"
5
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of July 1, 1996, by and between
GARDEN VALLEY NATURALS, INC., a California corporation ("Corporation"), and
JOHN BATTENDIERI ("Employee") under the following circumstances:
A. Corporation desires to employ Employee as its President because of
his knowledge, experience and expertise with respect to the business of
Corporation.
B. Employee desires to be so employed by Corporation.
C. The parties hereto desire to set forth in writing the terms and
conditions of the employment relationship to be established and continued.
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT.
Corporation shall employ Employee as the President of Corporation
pursuant to the terms and conditions hereinafter set forth, and Employee
shall perform the duties of such office. Employee shall also serve as a
member of the Board of Directors of Corporation, if elected by the
shareholders of the Corporation to such position. Employee shall perform
such duties at the offices of Corporation located in Morgan Hill, California,
or at such other location(s) as may be agreed to by the parties from time to
time.
2. TERMS OF EMPLOYMENT.
Subject to the provisions of paragraph 7, the term of employment
shall be three (3) years, commencing on July 1, 1996, and continuing through
June 30, 1999.
3. DUTIES AND RESPONSIBILITIES.
Subject only to the directives of the Board of Directors of
Corporation and subject also to the directives of the Chief Executive
Officer, Employee shall be in charge of the sales, marketing, and operations
of Corporation commensurate with his position as the President of
Corporation. Employee agrees to perform his services conscientiously,
effectively and to the best of his ability. Employee shall not, during the
term of this Agreement, compete, directly or indirectly, with Corporation,
whether as an employee, consultant, shareholder, officer, director,
lienholder, or otherwise, except upon the express written consent of
Corporation.
4. BASE SALARY.
In consideration of Employee's services under this Agreement to
Corporation, Employee's base salary shall be fixed at an annual rate of One
Hundred Ten Thousand Dollars ($110,000), payable in accordance with
Corporation's normal payroll practices. Such base salary shall be reviewed
annually for increases by the Board of Directors at the same time the senior
management group of employees of Corporation is reviewed for salary increases.
<PAGE>
5. INCENTIVE COMPENSATION.
As further consideration for Employee's services under this
Agreement, Corporation shall pay Employee such incentive compensation to
which Employee is entitled pursuant to any applicable Management Incentive
Compensation Plan which may be adopted by the Board of Directors of
Corporation.
6. BENEFITS.
In consideration for Employee's accepting the employment provided
for herein, Corporation agrees to provide the following benefits:
(a) All the standard benefits normally provided to the employees of
Corporation, including, but not limited to, social security benefits,
workers' compensation and any other benefits that may be subsequently made
available to employees of Corporation.
(b) Employee shall be entitled to fifteen (15) paid vacation days
per year and shall be entitled to up to ten (10) paid sick days per year.
Employee shall not be entitled to accrue more than thirty (30) paid vacation
days (no more than an aggregate of thirty (30) days of which may be carried
over to subsequent years) or more than twenty (20) paid sick days (no more
than an aggregate of twenty (20) days of which may be carried over to
subsequent years). Upon termination of Employee's employment for any reason,
Employee shall not be entitled to payment for any accrued but unpaid sick
days.
(c) Corporation shall reimburse Employee for reasonable and
necessary expenses incurred by him in the performance of his duties hereunder
upon presentation of vouchers in accordance with Corporation's policy.
Employee shall furnish to Corporation adequate records and other documentary
evidence required by federal and state statutes and regulations for the
substantiation of such payments as deductible business expenses of
Corporation and not as deductible compensation to Employee, provided that
reimbursement of such expenses shall not be dependent on proving
deductibility of such expenses for tax purposes.
(d) During the term of this Agreement, Corporation shall pay
Employee an automobile allowance of Three Hundred Fifty Dollars ($350) per
month.
(e) Such other flexible executive perquisites that may be approved
by the Board of Directors of Corporation for the senior management group of
employees of Corporation.
7. EARLY TERMINATION AND SEVERANCE.
(a) BY CORPORATION. Corporation, acting through its Board of
Directors, may terminate this Agreement ONLY for "cause" upon thirty (30)
days' prior written notice to Employee. For purposes of this Agreement, such
termination shall be deemed for "cause" only if it is by reason of Employee's
commission of willful and material acts of neglect, dishonesty, fraud or
other acts involving moral turpitude which materially and adversely affect
the business or affairs of Corporation. If such termination is for "cause",
then all of the rights, duties and obligations of the parties under this
Agreement shall cease upon the effective date of termination. If such
termination is for any reason other than for "cause," then all of the rights,
duties and obligations
2
<PAGE>
of the parties under this Agreement shall cease upon the effective date of
termination, except that Corporation shall pay to Employee a sum equal to the
total base salary for the remaining term of this Agreement under Section 2.
(b) BY EMPLOYEE. Employee may terminate this Agreement in his sole
discretion for any reason upon ninety (90) days' prior written notice to the
Board of Directors of Corporation. Upon the effective date of such
termination by Employee (except in the event of Employee's death, permanent
disability (as defined below), or resignation as a result of a change in
control of Corporation (as defined below)), all of the rights, duties, and
obligations of the parties under this Agreement shall cease including
Employee's right to his base salary and incentive compensation benefits. In
the event the employment of Employee is terminated at any time during the
term of this Agreement by reason of Employee's death, disability or
resignation as a result of a change in control (as defined below),
Corporation shall, upon the effective date of termination, pay to Employee,
or Employee's estate or personal representatives, a sum equal to three (3)
months' base salary plus the incentive compensation, if any, he would have
received pursuant to paragraph 5 if Employee was employed by Corporation
during such period of time.
(c) For purposes of this Agreement, a "change in control" shall mean
(i) consolidation or merger of Corporation in which Corporation is not the
surviving entity or in which there is a change in the ownership of more than
fifty percent (50%) of the outstanding capital stock of Corporation, or (ii)
the sale of substantially all of the assets of Corporation. For purposes of
this Agreement, Employee shall be considered permanently disabled if he is
unable to perform his duties hereunder on a full-time basis for a continuous
period of three (3) months.
(d) This Agreement shall inure to the benefit of and be binding upon
Corporation, its successors and assigns, including but not limited to any
corporation which may acquire all or substantially all of Corporation's
assets or business or with which Corporation may be consolidated or merged.
Notwithstanding any other provision of this Agreement, in the event of a
change in control, Employee in his sole and absolute discretion shall have
the right to terminate this agreement upon written notice given to
Corporation, or its successors or assigns, effective no later than ninety
(90) days after the consummation of any such change in control, and in such
event Employee shall be entitled to receive the payments set forth in
paragraph 7(b) hereof.
8. LOAN.
During the term of this Agreement, Corporation shall lend to
Employee Seven Thousand Five Hundred Dollars ($7,500) on the last day of each
month commencing July 31, 1996, without interest thereon (the "Loan"),
Employee shall repay the Loan on the date that is the earlier of (a)
twenty-four (24) months after Corporation's initial public offering of its
securities or (b) the termination of this Agreement.
APPROVED AS AMENDED /s/ JB JOHN BATTENDIERI
-------
/s/ FH FLOYD HILL
-------
3
<PAGE>
9. NOTICES.
Notices required or permitted by this Agreement shall be effective
upon mailing, postage prepaid, or upon personal delivery, to the following
address:
To Corporation: Garden Valley Naturals, Inc.
550 Monterey Road
Morgan Hill, CA 95037
Attn: Floyd Hill
To Employee: John Battendieri
-------------------------------
-------------------------------
10. MISCELLANEOUS PROVISIONS.
(a) The law of the State of California shall govern the
interpretation and enforcement of this Agreement.
(b) If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
(c) This Agreement contains all of the covenants and agreements
between the parties on the matter stated herein. Each party to this
Agreement acknowledges that no representations, inducements, promises, or
agreements, orally or otherwise, have been made by any party, or anyone
acting on behalf of any party, which are not embodied herein, and that no
other agreement, statement, or promise on the subject matter stated herein
not contained in this Agreement shall be valid or binding.
(d) Any modification of this Agreement shall be effective only if it
is in writing and executed by the party or parties to be charged.
(e) This Agreement shall be binding upon and inure to the benefit of
the parties and their spouses, successors, assigns, personal representatives,
heirs and legal representatives.
11. CONFIDENTIALITY. Employee agrees to hold in confidence and not
disclose to any third party without the prior written consent of Corporation,
any proprietary or confidential information of Corporation. Proprietary or
confidential information refers to any information not generally known among
Corporation's competitors and that has commercial value to Corporation. By
way of illustration, but not limitation, proprietary or confidential
information includes (a) developments, improvements, trade secrets, formulae,
processes, techniques, knowhow and data; (b) plans for research, development,
new products, marketing and selling; information related to business plans,
budgets and unpublished financial statements; prices and costs; information
regarding suppliers and customers; and (c) any information designated by
Corporation as confidential.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first hereinabove written.
GARDEN VALLEY NATURALS, INC.
a California corporation
By
------------------------------
Its /s/ FLOYD HILL
-----------------------------
"Corporation"
/s/ JOHN BATTENDIERI
--------------------------------
JOHN BATTENDIERI
"Employee"
5
<PAGE>
AGREEMENT OF MERGER
This Agreement of Merger is entered into between GARDEN VALLEY NATURALS,
INC., a California corporation ("Surviving Corporation") and ORGANIC FOOD
PRODUCTS, INC., a California corporation ("Disappearing Corporation").
1. Disappearing Corporation shall be merged into Surviving Corporation.
2. Each outstanding share of Disappearing Corporation shall be converted
to 3.7124975 shares of Surviving Corporation.
3. The outstanding shares of Surviving Corporation shall remain outstanding
and are not affected by the merger.
4. Disappearing Corporation shall, from time to time, as and when requested
by Surviving Corporation, execute and deliver all documents and instruments and
take all actions necessary or desirable to evidence or carry out this merger.
5. The effect of the merger and the effective date of the merger are as
prescribed by law.
IN WITNESS WHEREOF the parties have executed this Agreement.
GARDEN VALLEY NATURALS, INC.
By:
-----------------------------------
Floyd Hill, President
By:
-----------------------------------
Dean Nicholson, Secretary
ORGANIC FOOD PRODUCTS, INC.
By:
-----------------------------------
John Battendieri, President
By:
-----------------------------------
Casey Adams, Secretary
<PAGE>
EXHIBIT 11
ORGANIC FOOD PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
SIX MONTH
YEARS ENDED PERIODS ENDED
JUNE 30, DECEMBER 31,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:(1)
COMMON STOCK EQUIVALENTS
OPTIONS AND WARRANTS GRANTED AND UNEXERCISED 938,000 938,000 938,000 938,000
ASSUMED BUYBACK OF OPTIONS(2) (429,000) (429,000) (429,000) (429,000)
--------- --------- --------- ---------
509,000 509,000 509,000 509,000
TOTAL WEIGHTED AVERAGE SHARES ISSUED 5,740,127 6,427,250 5,296,000 4,547,758
--------- --------- --------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING 6,249,127 6,936,250 5,805,000 5,056,758
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(1) EARNINGS PER SHARE ARE BASED UPON THE WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR EACH OF THE RESPECTIVE YEARS. ALL WEIGHTED AVERAGE SHARES
OUTSTANDING GIVE RETROACTIVE EFFECT TO THE 2,000 TO 1 STOCK SPLIT IN
OCTOBER, 1995, AND THE ISSUANCE OF 2,250,000 IN RELATION TO THE POOLING
COMBINATION. PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULES, COMMON
STOCK ISSUED FOR CONSIDERATION BELOW THE ANTICIPATED OFFERING PRICE PER
SHARE DURING THE PERIOD PRIOR TO FILING OF THE REGISTRATION STATEMENT HAS
BEEN INCLUDED IN THE CALCULATION OF COMMON SHARE EQUIVALENT SHARES, USING
THE TREASURY STOCK METHOD, AS IF THEY HAD BEEN OUTSTANDING FOR ALL PERIODS
PRESENTED.
(2) BUYBACK OF OPTIONS UNDER THE TREASURY STOCK METHOD IS AT THE ASSUMED IPO
PRICE OF $5.00 PER SHARE.
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Form SB-2 Registration Statement of Organic Food
Products, Inc. of our report dated February 28, 1997 on the financial
statements of Organic Food Products, Inc. for the years ended June 30, 1996
and 1995.
Semple & Cooper, P.L.C.
Phoenix, Arizona
March 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> DEC-31-1996 JUN-30-1996
<CASH> 5,674 191,073
<SECURITIES> 0 0
<RECEIVABLES> 1,195,211 908,325
<ALLOWANCES> (15,000) (89,983)
<INVENTORY> 2,096,913 1,429,743
<CURRENT-ASSETS> 3,515,571 2,723,845
<PP&E> 961,002 809,616
<DEPRECIATION> (132,568) (59,030)
<TOTAL-ASSETS> 4,418,310 3,569,659
<CURRENT-LIABILITIES> 3,778,320 3,492,383
<BONDS> 0 0
0 0
0 0
<COMMON> 2,535,378 895,215
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 4,418,310 3,569,659
<SALES> 6,477,627 13,435,634
<TOTAL-REVENUES> 6,477,627 13,435,634
<CGS> 4,482,317 10,520,916
<TOTAL-COSTS> 1,408,365 3,945,628
<OTHER-EXPENSES> 0 451,500
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (91,286) (403,566)
<INCOME-PRETAX> 509,621 (1,880,330)
<INCOME-TAX> (128,100) 176,023
<INCOME-CONTINUING> 381,521 (1,704,307)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 381,521 (1,704,307)
<EPS-PRIMARY> .07 (.27)
<EPS-DILUTED> .07 (.27)
</TABLE>
