As filed with the Securities and Exchange Commission on July 23, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ORGANIC FOOD PRODUCTS, INC.
-----------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
California 2033 94-3076294
----------------------- ------------------------- ----------------------
(State Of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Classification Identification Number)
Code Number)
550 Monterey Road
Morgan Hill, California 95037
(408) 782-1133
----------------------------------------------------------------
(Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Registrant's Principal Executive Offices)
-------------------------
John Battendieri
Chief Executive Officer
Organic Food Products, Inc.
550 Monterey Road
Morgan Hill, California 95037
(408) 782-1133
- --------------------------------------------------------------------------------
(Name, Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Agent For Service)
-------------------------
Copies To:
Gary A. Agron, Esq. Susan Cooper Philpot, Esq.
5445 DTC Parkway, Suite 520 Cooley Godward LLP
Englewood, Colorado 80111 One Maritime Plaza, 20th Floor
(303) 770-7254 San Francisco, California 94111
(415) 693-2000
Mark A. Cassanego, Esq. Dennis R. Book, Esq.
Carr, McClellan, Ingersoll, Bosso, Williams, Sachs, Book,
Thompson & Horn, Atack & Gallagher
Professional Corporation A Professional Corporation
216 Park Road 133 Mission Street, Suite 280
Burlingame, California 94010 Santa Cruz, California 95061
(650) 342-9600 (831) 426-8484
-------------------------
Approximate Date Of Commencement Of Proposed Sale To The Public:
As soon as practicable following the effectiveness of this Registration
Statement, the effective time of the proposed merger of Organic Ingredients,
Inc. with and into the Registrant as described in the Agreement and Plan of
Merger and Reorganization, dated May 14, 1999, attached as Annex A to the Joint
Proxy Statement/Prospectus forming a part of this Registration Statement, and
the effective time of the proposed merger of Spectrum Naturals, Inc. with and
into the Registrant, as described in the Agreement and Plan of Merger and
Reorganization, dated as of May 14, 1999, attached as Annex B to the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company, and there is compliance with
General Instruction G, check the following box. |_|
<PAGE>
If the form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(b)
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. |_|
-------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-------------------------------
===================================================================================================================================
Proposed Maximum Proposed Maximum Amount Of
Amount To Be Offering Price Aggregate Registration
Title Of Shares To Be Registered Registered (1) Per share (2) Offering Price (2) Fee (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value per share 36,286,495 $0.75 $27,214,871 $7,566
===================================================================================================================================
</TABLE>
(1) Includes the number of shares of the common stock of the Registrant that
may be issued to former shareholders of Spectrum Naturals, Inc. and the
number of shares of the common stock of the Registrant that may be issued
to former shareholders of Organic Ingredients, Inc. pursuant to the mergers
described herein.
(2) In accordance with the mergers, each share of Spectrum Naturals will be
converted into 4,669.53 shares of common stock of the Registrant and each
share of Organic Ingredients will be converted into 39.5 shares of common
stock of the Registrant. Pursuant to Rule 457(f) under the Securities Act
of 1933, as amended, the registration fee was calculated as of July 21,
1999 and was estimated solely for the purpose of computing the registration
fee.
(3) Includes $5,443 previously paid by the Registrant.
-------------------------
The Registrant hereby amends this 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, as amended, or until the Registration shall become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the Registration shall become effective on such date as the
Commission, acting pursuant to Section 8(a) may determine.
<PAGE>
[LOGO OF ORGANIC INGREDIENTS, INC.]
Organic Ingredients, Inc.
P.O. Box 658
Aptos, California 95001
Notice of Special Meeting of Shareholders
To the Shareholders of
Organic Ingredients, Inc.:
NOTICE IS HEREBY GIVEN that Organic Ingredients, Inc. will hold a special
meeting of its shareholders on August 24, 1999, at 11:00 a.m., local time, at
the Organic Ingredients corporate offices at 335 Spreckels Drive, Suite F,
Aptos, California 95003, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of May 14, 1999, by and between
Organic Ingredients and Organic Food Products, Inc., a California corporation,
providing for the merger of Organic Ingredients with and into OFPI, with OFPI as
the surviving corporation. As a result of the merger, each outstanding share of
the common stock, without par value per share, of Organic Ingredients would be
converted into the right to receive 39.5 shares of the common stock, without par
value, of OFPI.
2. To transact such other business as may properly come before the special
meeting.
Only holders of record of Organic Ingredients common stock at the close of
business on the record date of July 29, 1999 will be entitled to notice of, and
to vote at, the special meeting. The affirmative vote of a majority of the
outstanding shares of Organic Ingredients common stock entitled to vote at the
special meeting is required to approve and adopt the merger agreement.
If you attend the meeting, you may vote your shares in person, which will
revoke any previously executed proxy. FAILURE TO RETURN A PROPERLY EXECUTED
PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL GENERALLY HAVE THE SAME EFFECT
AS A VOTE AGAINST THE MERGER.
By Order of the Board of Directors
/s/ Andrew Poston
Corporate Secretary
Aptos, California
August 2, 1999
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE>
[LOGO OF SPECTRUM NATURALS, INC.]
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, California 94952
Notice of Special Meeting of Shareholders
To the Shareholders of
Spectrum Naturals, Inc.:
NOTICE IS HEREBY GIVEN that Spectrum Naturals, Inc. will hold a special
meeting of its shareholders on August 24, 1999, at 11:00 a.m., local time, at
the Spectrum corporate offices at 133 Copeland Street, Petaluma, California
94952, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of May 14, 1999, by and between
Spectrum and Organic Food Products, Inc., a California corporation, providing
for the merger of Spectrum with and into OFPI, with OFPI as the surviving
corporation. As a result of the merger, each outstanding share of the common
stock, without par value per share, of Spectrum would be converted into the
right to receive 4,669.53 shares of the common stock, without par value, of
OFPI.
2. To transact such other business as may properly come before the special
meeting.
Only holders of record of Spectrum common stock at the close of business on
the record date of July 29, 1999 will be entitled to notice of, and to vote at,
the special meeting. The affirmative vote of a majority of the outstanding
shares of Spectrum common stock entitled to vote at the special meeting is
required to approve and adopt the merger agreement.
If you attend the meeting, you may vote your shares in person, which will
revoke any previously executed proxy. FAILURE TO RETURN A PROPERLY EXECUTED
PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL GENERALLY HAVE THE SAME EFFECT
AS A VOTE AGAINST THE MERGER.
By Order of the Board of Directors
/s/ Jethren Phillips
Corporate Secretary
Petaluma, California
August 2, 1999
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE>
[LOGO OF ORGANIC FOOD PRODUCTS, INC.]
Organic Food Products, Inc.
550 Monterey Road
Morgan Hill, California 95037
Notice of Special Meeting of Shareholders
To the Shareholders of
Organic Food Products, Inc.:
NOTICE IS HEREBY GIVEN that Organic Food Products, Inc. will hold a special
meeting of its shareholders on August 24, 1999, at 8:30 a.m., local time, at the
OFPI corporate offices at 550 Monterey Road, Morgan Hill, California 95037, for
the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of May 14, 1999, by and between
OFPI and Organic Ingredients, Inc., a California corporation, providing for the
merger of OI with and into OFPI, with OFPI as the surviving corporation. As a
result of the OI merger, each outstanding share of the common stock, without par
value per share, of OI would be converted into the right to receive 39.5 shares
of the common stock, without par value, of OFPI.
2. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of May 14, 1999, by and between
OFPI and Spectrum Naturals, Inc., a California corporation, providing for the
merger of Spectrum with and into OFPI, with OFPI as the surviving corporation.
As a result of the Spectrum merger, each outstanding share of the common stock,
without par value per share, of Spectrum would be converted into the right to
receive 4,669.53 shares of the common stock, without par value, of OFPI.
3. To amend and restate the Articles of Incorporation of OFPI to increase
the number of authorized shares of common stock from 20,000,000 to 100,000,000
and to change the name of OFPI to "Spectrum Organic Products, Inc."
4. To amend and restate the OFPI 1995 Stock Option Plan to increase the
aggregate number of shares of OFPI common stock available for issuance under
that plan from 625,000 shares to 4,500,000 shares.
5. To transact such other business as may properly come before the special
meeting.
Only holders of record of OFPI common stock at the close of business on the
record date of July 29, 1999 will be entitled to notice of, and to vote at, the
special meeting. The affirmative vote of a majority of the outstanding shares of
OFPI common stock entitled to vote at the special meeting is required to approve
and adopt the merger agreement.
<PAGE>
If your shares are held of record by a broker, bank or other nominee, you
must instruct your broker, bank or other nominee on how to vote your shares, or
else your shares will not be voted. If you attend the meeting, you may vote your
shares in person, which will revoke any previously executed proxy. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
GENERALLY HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER.
By Order of the Board of Directors
/s/ Richard R. Bacigalupi
Corporate Secretary
Morgan Hill, California
August 2, 1999
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE>
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF SHAREHOLDERS OF
ORGANIC INGREDIENTS, INC., SPECTRUM NATURALS, INC. AND
ORGANIC FOOD PRODUCTS, INC.
PROSPECTUS OF ORGANIC FOOD PRODUCTS, INC.
Up to 36,286,495 Shares of
Common Stock
without par value
The Board of Directors of Organic Ingredients, Inc. and the Board of
Directors of Organic Food Products, Inc. have approved an agreement to merge OI
with and into OFPI, with OFPI as the surviving corporation. As a result of this
merger, OFPI would issue to OI shareholders 39.5 shares of OFPI common stock for
each share of OI common stock that they own. The Board of Directors of Spectrum
Naturals, Inc. and the Board of Directors of Organic Food Products, Inc. have
approved an agreement to merge Spectrum with and into OFPI, with OFPI as the
surviving corporation. As a result of this merger, OFPI would issue to Spectrum
shareholders 4,669.53 shares of OFPI common stock for each share of Spectrum
common stock that they own. OFPI common stock trades on the NASD OTC Bulletin
Board system under the symbol "OFPI."
The OI merger cannot be completed unless the OI and OFPI shareholders
approve it. The OI Board of Directors has scheduled a special meeting for OI
shareholders to vote on the OI merger as follows:
August 24, 1999
11:00 a.m.
Organic Ingredients, Inc.
331 Spreckels Drive, Suite F
Aptos, California 95003
The Spectrum merger cannot be completed unless the Spectrum and OFPI
shareholders approve it. The Spectrum Board of Directors has scheduled a special
meeting for Spectrum shareholders to vote on the Spectrum merger as follows:
August 24, 1999
11:00 a.m.
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, California 94952
The OFPI Board of Directors has scheduled a special meeting for OFPI
shareholders to vote on the issuance of shares pursuant to the OI merger and
Spectrum merger as follows:
August 24, 1999
8:30 a.m.
Organic Food Products, Inc.
550 Monterey Road
Morgan Hill, California 95037
<PAGE>
This document gives you information about the proposed mergers. OI has
provided information about OI, Spectrum has provided the information about
Spectrum and OFPI has provided the information about OFPI. Please see "Where You
Can Find More Information" on page 1 for additional information about OFPI on
file with the Securities and Exchange Commission.
This joint proxy statement/prospectus and the accompanying proxy cards are
first being mailed to OI, Spectrum and OFPI shareholders on or about August 2,
1999.
The mergers involve risks to OI, Spectrum and OFPI shareholders. See "Risk
Factors" beginning on page 16.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this joint proxy
statement/prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this joint proxy statement/prospectus is ____________, 1999.
<PAGE>
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS............................................... 1
.
WHERE YOU CAN FIND MORE INFORMATION...................................... 1
SUMMARY ................................................................ 3
The Companies................................................... 3
Reasons for the Mergers......................................... 3
What OI Shareholders Will Receive in the OI Merger.............. 4
What Spectrum Shareholders Will Receive in the
Spectrum Merger ............................................... 4
Material Federal Income Tax Consequences........................ 4
The OI Special Meeting.......................................... 4
The Spectrum Special Meeting.................................... 5
The OFPI Special Meeting........................................ 6
Ownership of OFPI Following the Mergers......................... 7
The Merger Agreements........................................... 7
Conditions to the OI Merger..................................... 7
Conditions to the Spectrum Merger............................... 8
Termination of the OI Merger Agreement.......................... 9
Termination of the Spectrum Merger Agreement.................... 9
Dissenters' Rights.............................................. 9
Accounting Treatment............................................ 10
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION........................ 11
OI Selected Historical Financial Data........................... 12
Spectrum Selected Historical Financial Data..................... 12
OFPI Selected Historical Financial Data......................... 13
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA........... 14
COMPARATIVE PER SHARE DATA............................................... 15
PRICE RANGE OF COMMON STOCK.............................................. 16
RISK FACTORS............................................................. 17
Risks Relating to the Mergers................................... 17
Risks Relating to OI............................................ 18
Risks Relating to Spectrum...................................... 19
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
Risks Relating to OFPI.......................................... 20
Risks Relating to the Combined Company.......................... 20
THE OI SPECIAL MEETING................................................... 26
Date, Time and Place............................................ 26
Purpose......................................................... 26
Record Date and Outstanding Shares.............................. 26
Vote Required.................................................. 26
Proxies......................................................... 26
Recommendation of OI Board of Directors......................... 26
THE SPECTRUM SPECIAL MEETING............................................. 27
Date, Time and Place............................................ 27
Purpose......................................................... 27
Record Date and Outstanding Shares.............................. 27
Vote Required................................................... 27
Proxies......................................................... 27
Recommendation of Spectrum Board of Directors................... 27
THE OFPI SPECIAL MEETING................................................. 29
Date, Time and Place............................................ 29
Purpose......................................................... 29
Record Date and Outstanding Shares.............................. 29
Vote Required................................................... 29
Proxies......................................................... 30
Recommendation of OFPI Board of Directors....................... 30
THE MERGERS.............................................................. 31
Background of the Mergers....................................... 31
OI's Reasons for the OI Merger................................., 32
Spectrum's Reasons for the Spectrum Merger...................... 32
OFPI's Reasons for the Mergers.................................. 33
Accounting Treatment............................................ 33
Material Federal Income Tax Consequences........................ 34
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
Dissenters' Rights............................................. 36
THE OI AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AND THE RELATED AGREEMENTS ..................................... 39
Effective Time; Effect of OI Merger............................. 39
Conversion of Shares............................................ 39
Stock Ownership Following the OI Merger......................... 39
Representations and Warranties.................................. 40
Conduct of OFPI's Business and OI's Business Prior
to the OI Merger ............................................... 40
Conduct of Business Following the OI Merger..................... 42
No Solicitation................................................. 42
Fees, Expenses and Termination Fees............................. 43
Conditions to the OI Merger..................................... 43
Termination of the OI Merger Agreement.......................... 45
Employment Agreements........................................... 46
Shareholder Lock-up Agreements.................................. 46
THE SPECTRUM AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AND THE RELATED AGREEMENTS ..................................... 47
Effective Time; Effect of Spectrum Merger....................... 47
Conversion of Shares............................................ 47
Treatment of Options and Warrants............................... 48
Stock Ownership Following the Spectrum Merger................... 48
Representations and Warranties.................................. 48
Conduct of OFPI's Business and Spectrum's Business
Prior to the Spectrum Merger ................................... 49
Conduct of Business Following the Spectrum Merger............... 51
No Solicitation................................................. 51
Fees, Expenses and Termination Fees............................. 53
Conditions to the Spectrum Merger............................... 53
Termination of the Spectrum Merger Agreement.................... 54
Employee Benefits............................................... 57
Employment Agreements........................................... 57
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
Shareholder Lock-up Agreements.................................. 58
MANAGEMENT............................................................... 59
Proposed Directors and Executive Officers of
Combined Company ............................................... 59
Compensation Committee Interlocks and Insider Participation..... 60
Board Committees................................................ 60
Director Compensation........................................... 60
Employment Agreements........................................... 60
Indemnification and Limitation of Director
and Officers Liability ......................................... 61
Executive Compensation.......................................... 62
Option Grants in Last Fiscal Year............................... 63
Aggregate Option Exercises in Fiscal 1998 and
June 30, 1998 Option Values .................................... 64
Employee Benefit Plan........................................... 64
PRINCIPAL SHAREHOLDERS................................................... 66
CERTAIN TRANSACTIONS..................................................... 68
DESCRIPTION OF OI CAPITAL STOCK.......................................... 70
OI Common Stock................................................. 70
DESCRIPTION OF SPECTRUM CAPITAL STOCK.................................... 71
Spectrum Common Stock........................................... 71
DESCRIPTION OF OFPI CAPITAL STOCK........................................ 72
OFPI Common Stock............................................... 72
OFPI Preferred Stock............................................ 72
COMPARISON OF RIGHTS OF HOLDERS OF OI COMMON STOCK, SPECTRUM
COMMON STOCK AND OFPI COMMON STOCK ............................. 74
Authorized Capital.............................................. 74
Directors and Classes of Directors; Removal of Directors........ 74
Special Meetings of Shareholders................................ 75
Cumulative Voting............................................... 75
Actions by Shareholder Written Consent.......................... 75
Amendment of Bylaws............................................. 76
OI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................... 77
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
Overview........................................................ 77
Results of Operations for the Three Months Ended
March 31, 1999 Compared to the Three Months Ended
March 31, 1998 ................................................. 77
Results of Operations for the Year Ended December 31, 1998
Compared to the Year Ended December 31, 1997 ................... 77
Liquidity and Capital Resources................................. 78
Year 2000 Compliance............................................ 78
Seasonality..................................................... 79
New Applicable Accounting Pronouncements........................ 79
BUSINESS OF OI........................................................... 80
Overview........................................................ 80
Strategy........................................................ 80
Products........................................................ 81
Sales and Marketing............................................. 81
Manufacturing................................................... 82
Competition..................................................... 82
Employees....................................................... 82
Property........................................................ 82
SPECTRUM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................ 83
Overview........................................................ 83
Results of Operations for the Three Months Ended
March 31, 1999 Compared to the Three Months Ended
March 31, 1998 ................................................. 83
Results of Operations for the Year Ended December 31, 1998
Compared to the Year Ended December 31, 1997 ................... 84
Liquidity and Capital Resources................................. 84
Year 2000 Compliance............................................ 84
Seasonality..................................................... 85
New Applicable Accounting Pronouncements........................ 86
BUSINESS OF SPECTRUM..................................................... 87
Overview........................................................ 87
Products........................................................ 87
v.
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
Markets and Customers........................................... 89
Competition..................................................... 89
Operations...................................................... 90
Marketing Strategy.............................................. 90
Trade Names and Trademarks...................................... 90
Government Regulation........................................... 91
Employees....................................................... 91
OFPI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................ 92
Overview........................................................ 92
Results of Operations for the Nine Months and the
Three Months Ended March 31, 1999 and 1998 ..................... 92
Results of Operations for the Year Ended June 30, 1998
Compared to the Year Ended June 30, 1997 ....................... 93
Year 2000 Compliance............................................ 94
Seasonality..................................................... 95
Liquidity and Capital Resources................................. 96
New Applicable Accounting Pronouncements........................ 96
Related Party Transactions...................................... 96
BUSINESS OF OFPI......................................................... 97
Overview........................................................ 97
Strategy........................................................ 97
Products........................................................ 98
Sales and Distribution.......................................... 99
Marketing and New Product Development........................... 100
Manufacturing................................................... 100
Competition..................................................... 100
Trade Names and Trademarks...................................... 101
Government Regulation........................................... 101
Employees....................................................... 101
Property........................................................ 101
vi.
<PAGE>
TABLE OF CONTENTS
(CONTINUED) PAGE
Legal Proceedings............................................... 102
CHANGE IN ACCOUNTANTS OF OFPI............................................ 103
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA.................... 104
EXPERTS ................................................................ 109
LEGAL MATTERS............................................................ 109
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this joint proxy statement/prospectus constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21B of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The reasons
for the mergers discussed under the caption "The Mergers," statements about the
expected impact of the mergers on OI's, Spectrum's and OFPI's businesses,
financial performance and condition, accounting and tax treatment of OFPI
related to the mergers are forward-looking statements. Further, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements.
Without limiting the foregoing, the words "projects," "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the results of the combined company to differ
materially from those indicated by such forward-looking statements, including
factors related to the mergers, such as the risk that anticipated synergies will
not be realized, the significant transaction charges and the potential dilutive
effect to holders of OI's, Spectrum's and OFPI's common stock that will result
from the mergers, the effect of the mergers on customers and partners of OI,
Spectrum and OFPI, and factors related to OI's, Spectrum's and OFPI's
businesses, including a history of operating losses and uncertain profitability,
a significant debt load, significant fluctuations in operating results, the
ability to recruit, train and retain qualified management and other personnel,
product liability and insurance, as well as those additional factors set forth
in this joint proxy statement/prospectus under the caption "Risk Factors."
Neither OI, Spectrum and OFPI undertakes any obligation to update any
forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
OFPI is subject to the informational requirements of the Exchange Act and
files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information OFPI files at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. OFPI's SEC filings are
also available to the public from commercial document retrieval services and at
the Website maintained by the SEC at www.sec.gov.
OFPI has filed a registration statement to register with the SEC the OFPI
common stock to be issued to Spectrum shareholders in the Spectrum merger and to
the OI shareholders in the OI merger. This joint proxy statement/prospectus is
part of that registration statement. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement.
If there is any contrary information in a previously filed document, then
you should rely on the information in this joint proxy statement/prospectus. All
information contained in this joint proxy statement/prospectus relating to OFPI
has been supplied by OFPI, all information relating to OI has been supplied by
OI, and all information relating to Spectrum has been supplied by Spectrum.
Neither OI nor Spectrum is subject to the informational requirements of the
Exchange Act and, as a result, OI and Spectrum do not file reports, proxy or
informational statements or other information with the SEC.
1.
<PAGE>
You should rely on the information contained in this joint proxy
statement/prospectus to vote on the merger agreements and the mergers. We have
not authorized anyone to provide you with information that is different from
what is contained in this joint proxy statement/prospectus. You should not
assume that the information contained in the joint proxy statement/prospectus is
accurate as of any date other than __________, 1999. This joint proxy
statement/prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities, or the solicitation of a proxy, in any
jurisdiction in which, or to any person to whom, it is unlawful to make any such
offer or solicitation.
2.
<PAGE>
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that is important to you. To understand the
mergers fully and for a more complete description of the legal terms of the
mergers, you should read carefully this entire document. See "Where You Can Find
More Information" on page 1. We have included page references parenthetically to
direct you to a more complete description of the topics presented in this
summary.
The Companies
Organic Ingredients, Inc.
335 Spreckels Drive, Suite F
Aptos, California 95003
Telephone: (831) 685-6506
OI is a leading manufacturer and supplier of industrial, premium quality,
certified organic fruit and vegetable ingredients and vinegars to the natural
foods industry.
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, California 94952
Telephone: (707) 778-8900
Spectrum is a leading manufacturer and marketer of organic and all natural
oils, vinegars, oil-based spreads and condiments under the "Spectrum Naturals"
label and essential fatty acid nutritional supplements under the "Spectrum
Essentials" label. Industrial ingredients are sold through its Spectrum
Commodities division.
A condition to the merger between Spectrum and OFPI is that Spectrum
Commodities, Inc., a California corporation, has previously merged with and into
Spectrum Naturals, Inc. OFPI has agreed that this condition will not be waived
unless prior consent is obtained from the OFPI shareholders. Except as otherwise
noted, all information in this joint proxy statement/prospectus assumes the
completion of the merger between Spectrum Commodities and Spectrum Naturals, and
any references to "Spectrum" refers to these two companies, as combined. See
"The Spectrum Merger Agreement and Plan of Merger and Reorganization and the
Related Agreements - Conditions to the Spectrum Merger."
Organic Food Products, Inc.
550 Monterey Road
Morgan Hill, California 95037
Telephone: (408) 782-1133
OFPI manufactures and markets a line of organic food products, including
pasta sauces, salsas, dry cut pasta and children's meals, under the brand names
"Millina's Finest," "Garden Valley Naturals," "Garden Valley Organics," "Grandma
Millina's" and "Parrot." OFPI also manufacturers private label food products and
markets an energy drink under the brand name "Energy Plus."
3.
<PAGE>
Reasons for the Mergers (page 31)
Each of the Spectrum, OI and OFPI Boards of Directors has concluded that
the mergers will result in a combined company with substantially more resources
and greater manufacturing, sales and distribution capabilities. Each of the
Spectrum, OI and OFPI Boards of Directors believes that the mergers are fair to
and in the best interests of their respective shareholders.
What OI Shareholders Will Receive in the OI Merger (page 38)
If the OI merger is approved, holders of OI common stock will receive 39.5
shares of OFPI common stock in exchange for each share of OI common stock they
own. OFPI will not issue fractional shares. OI shareholders will instead be paid
cash instead of fractional shares of OFPI common stock based on the market value
of OFPI common stock as reported on the NASD OTC Bulletin Board system or other
applicable market or bulletin board system at the close of trading on the last
trading day before the OI merger occurs.
You should not send in your OI stock certificates until instructed to do so
after the OI merger is completed.
What Spectrum Shareholders Will Receive in the Spectrum Merger (page 46)
If the Spectrum merger is approved, holders of Spectrum common stock will
receive 4,669.53 shares of OFPI common stock in exchange for each share of
Spectrum common stock they own. OFPI will not issue fractional shares. Spectrum
shareholders will be paid cash instead of fractional shares of OFPI common stock
based on the market value of OFPI common stock as reported on the NASD OTC
Bulletin Board system or other applicable market or bulletin board system at the
close of trading on the last trading day before the Spectrum merger occurs.
You should not send in your Spectrum stock certificates until instructed to
do so after the Spectrum merger is completed.
Material Federal Income Tax Consequences (page 33)
Each merger will be treated as a tax-free reorganization for federal income
tax purposes. Neither Spectrum shareholders nor OI shareholders will recognize
gain or loss in the mergers, except for taxes on cash received in the mergers.
The merger agreements do not require the parties to obtain a ruling from the IRS
as to the tax consequences of the mergers. As a condition to the closing of each
merger, each of OFPI, Spectrum and OI must receive opinions from its legal
counsel that the mergers will be a tax-free reorganization for federal income
tax purposes.
Tax matters are very complicated and the tax consequences of the mergers to
you will depend on the facts of your own situation. We urge you to consult your
tax advisors for a full understanding of the tax consequences of the mergers to
you.
The OI Special Meeting (page 26)
If you are a OI shareholder, you will be asked to approve and adopt the
merger agreement at a special meeting of OI shareholders. The OI special meeting
will be held at the OI corporate offices at 335 Spreckels Drive, Suite F, Aptos,
California on August 24, 1999 at 11:00 a.m.
Record Date; Voting Power (page 26)
You are entitled to vote at the special meeting if you owned shares of OI
common stock as of the close of business on July 29, 1999, the record date for
the special meeting.
4.
<PAGE>
On the record date, there were 100,000 shares of OI common stock allowed to
vote at the special meeting. OI shareholders will have one vote for each share
of OI common stock they owned on the record date.
Voting by Proxy (page 26)
You may vote on the OI merger by indicating on your proxy card how you want
to vote, and signing and mailing it in the enclosed return envelope. Please
return your proxy as soon as possible so that your shares may be represented at
the special meeting of the OI shareholders. If you sign and send in your proxy
card and do not indicate how you wish to vote, your proxy will be counted as a
vote in favor of the OI merger. If you do not vote, or you abstain, it will have
the effect of a vote against the OI merger.
Votes Required (page 26)
In order for the OI merger to proceed, a majority of the shares of OI
common stock outstanding on the record date must vote to approve and adopt the
OI merger agreement.
The Board's Recommendation to OI Shareholders (page 26)
The OI Board of Directors unanimously recommends that you vote "for" the
proposal to approve and adopt the OI merger agreement.
The Spectrum Special Meeting (page 27)
If you are a Spectrum shareholder, you will be asked to approve and adopt
the merger agreement at a special meeting of Spectrum shareholders. The Spectrum
special meeting will be held at the Spectrum corporate offices at 133 Copeland
Street, Petaluma, California on August 24, 1999 at 11:00 a.m.
Record Date; Voting Power (page 27)
You are entitled to vote at the special meeting if you owned shares of
Spectrum common stock as of the close of business on July 29, 1999, the record
date for the special meeting.
On the record date, there were 5,000 shares of Spectrum common stock
allowed to vote at the special meeting. Spectrum shareholders will have one vote
for each share of Spectrum common stock they owned on the record date.
Voting by Proxy (page 27)
You may vote on the Spectrum merger by indicating on your proxy card how
you want to vote, and signing and mailing it in the enclosed return envelope.
Please return your proxy as soon as possible so that your shares may be
represented at the special meeting of the Spectrum shareholders. If you sign and
send in your proxy card and do not indicate how you wish to vote, your proxy
will be counted as a vote in favor of the Spectrum merger. If you do not vote,
or you abstain, it will have the effect of a vote against the Spectrum merger.
Votes Required (page 27)
In order for the Spectrum merger to proceed, a majority of the shares of
Spectrum common stock outstanding on the record date must vote to approve and
adopt the merger agreement.
5.
<PAGE>
The Board's Recommendation to Spectrum Shareholders (page 27)
The Spectrum Board of Directors unanimously recommends that you vote "for"
the proposal to approve and adopt the Spectrum merger agreement.
The OFPI Special Meeting (page 28)
If you are an OFPI shareholder, you will be asked to approve and adopt the
following:
o the Spectrum merger agreement and the Spectrum merger;
o the OI merger agreement and the OI merger;
o amendment of OFPI's articles of incorporation to increase the
authorized number of shares of OFPI common stock from 20,000,000 to
100,000,000;
o change of the name of OFPI to "Spectrum Organic Products, Inc."; and
o amendment of OFPI's 1998 Stock Option Plan to increase the number of
shares of OFPI common stock available for issuance under that plan
from 625,000 to 4,500,000.
Record Date; Voting Power (page 28)
You are entitled to vote at the special meeting if you owned shares of OFPI
common stock as of the close of business on July 29, 1999, the record date for
the special meeting.
On the record date, there were __________ shares of OFPI common stock
allowed to vote at the special meeting. OFPI shareholders will have one vote for
each share of OFPI common stock they owned on the record date.
Voting by Proxy (page 28)
You may vote on the mergers, the increase in the authorized number of
shares of common stock, the increase in the number of shares available under
OFPI's stock option plan and the change of OFPI's name by indicating on your
proxy card how you want to vote, and signing and mailing it in the enclosed
return envelope. Please return your proxy as soon as possible so that your
shares may be represented at the special meeting of the OFPI shareholders. If
you sign and send in your proxy card and do not indicate how you wish to vote,
your proxy will be counted as a vote in favor of the merger. If you do not vote,
or you abstain, it will have the effect of a vote against the mergers.
Votes Required (page 28)
In order for the mergers, the increase in the authorized number of shares
of common stock, the increase in the number of shares available under OFPI's
stock option plan and the change of OFPI's name to proceed, a majority of the
shares of OFPI common stock outstanding on the record date must vote to approve
and adopt each proposal. Approval and closing of the OI merger is a condition to
the closing of the Spectrum merger.
6.
<PAGE>
The Board's Recommendation to OFPI Shareholders (page 29)
The OFPI Board of Directors unanimously recommends that you vote "for" each
proposal. The OFPI Board of Directors currently intends that it will proceed
with the OI merger only if the Spectrum merger is approved by the OFPI
shareholders and there is a high probability that the conditions to closing the
Spectrum merger will be met.
Ownership of OFPI Following the Mergers (pages 38 and 47)
We anticipate that OI shareholders will receive approximately 3,950,000
shares of OFPI common stock in the OI merger based on the number of shares of OI
common stock outstanding on June 1, 1999. We anticipate that Spectrum
shareholders will receive approximately 36,286,495 shares of OFPI common stock
in the Spectrum merger based on the number of shares of Spectrum common stock
outstanding on July 1, 1999. Based on those numbers, existing Spectrum
shareholders will own approximately 73.8% of the OFPI common stock outstanding
after the mergers, existing OI shareholders will own approximately 9.0% of the
OFPI common stock outstanding after the mergers, and existing OFPI shareholders
will own approximately 17.2% of the OFPI common stock outstanding after the
mergers.
In the Spectrum merger, the exchange ratio between Spectrum and OFPI shares
is based upon the number of OFPI shares outstanding as of the closing of the
Spectrum merger. Except as otherwise noted, all information in this joint proxy
statement/prospectus is based upon the number of OFPI shares outstanding as of
May 14, 1999. See "The OI Agreement and Plan of Merger and Reorganization and
the Related Agreements--Conversion of Shares" and "The Spectrum Agreement and
Plan of Merger and Reorganization and the Related Agreements--Conversion of
Shares."
The Merger Agreements (pages 38 and 46)
The OI merger agreement is attached as Annex A to this document. We
encourage you to read the OI merger agreement. It is the legal document
governing the OI merger.
The Spectrum merger agreement is attached as Annex B to this document. We
encourage you to read the Spectrum merger agreement. It is the legal document
governing the Spectrum merger.
Conditions to the OI Merger (page 42)
We will complete the OI merger only if we satisfy (or waive) several
conditions, including the following:
o each of OI and OFPI have completed a satisfactory investigation and
review of the other party's business, financial condition, operations,
facilities, financial performance and prospects;
o holders of a majority of the outstanding common stock of each of OI
and OFPI approve and adopt the OI merger agreement;
o all material authorizations, consents, orders or approvals of, or
filings with, any government entity have been obtained or filed;
o no court or government body or authority has acted to restrain or
prohibit the consummation of the OI merger;
7.
<PAGE>
o each party's representations and warranties contained in the OI merger
agreement continue to be accurate in all material respects;
o OI and OFPI have complied with their respective covenants contained in
the OI merger agreement in all material respects;
o no material adverse effect has occurred with respect to OI or OFPI;
o OI's counsel and OFPI's counsel deliver legal opinions and opinions
regarding some of the federal income tax consequences of the OI
merger;
o Joseph Stern, the president and a director of OI, shall have entered
into an employment agreement with OFPI;
o Kenneth A. Steel, Jr. and Charles Bonner have resigned as directors of
OFPI; and
o Jethren Phillips, John Battendieri, Neil Blomquist, Joseph Stern, Dean
Nicholson and Steven Reedy have entered into lock-up agreements with
OFPI.
Conditions to the Spectrum Merger (page 52)
We will complete the Spectrum merger only if we satisfy (or waive) several
conditions, including the following:
o each of Spectrum and OFPI have completed a satisfactory investigation
and review of the other party's business, financial condition,
operations, facilities, financial performance and prospects;
o holders of a majority of the outstanding common stock of each of
Spectrum and OFPI approve and adopt the Spectrum merger agreement;
o all material authorizations, consents, orders or approvals of, or
filings with, any government entity have been obtained or filed;
o no court or government body or authority has acted to restrain or
prohibit the consummation of the Spectrum merger;
o each party's representations and warranties contained in the Spectrum
merger agreement continue to be accurate in all material respects;
o Spectrum and OFPI have complied with their respective covenants
contained in the Spectrum merger agreement in all material respects;
o no material adverse effect has occurred with respect to Spectrum or
OFPI;
o Spectrum's counsel and OFPI's counsel deliver legal opinions and
opinions regarding some of the federal income tax consequences of the
Spectrum merger;
o Kenneth A. Steel, Jr. and Charles Bonner have resigned as directors of
OFPI;
o OI has been acquired by OFPI;
8.
<PAGE>
o Spectrum Commodities has been acquired by Spectrum Naturals;
o No greater than five percent of OFPI's shareholders are eligible for
dissenter's rights under applicable laws;
o Jethren Phillips, John Battendieri, Neil Blomquist, Joseph Stern, Dean
Nicholson and Steven Reedy have entered into lock-up agreements with
OFPI; and
o OFPI has refinanced the existing credit and loan arrangements for
OFPI, OI and Spectrum.
Termination of the OI Merger Agreement (page 44)
The Board of Directors of both OI and OFPI can jointly agree to terminate
the OI merger agreement at any time without completing the OI merger. One or
both companies can terminate the OI merger agreement if:
o the OI merger is not completed by August 31, 1999;
o the Board of Directors of either OI or OFPI fails to recommend the OI
merger;
o the required vote of the OI shareholders or OFPI shareholders is not
received;
o a court or other government entity prohibits the OI merger; or
o either OI or OFPI breaches the OI merger agreement.
Termination of the Spectrum Merger Agreement (page 53)
The Board of Directors of both Spectrum and OFPI can jointly agree to
terminate the Spectrum merger agreement at any time without completing the
Spectrum merger. One or both companies can terminate the Spectrum merger
agreement if:
o the Spectrum merger is not completed by August 31, 1999;
o the Board of Directors of either Spectrum or OFPI fails to recommend
the Spectrum merger;
o the required vote of the Spectrum shareholders or OFPI shareholders is
not received;
o a court or other government entity prohibits the Spectrum merger; or
o either Spectrum or OFPI breaches the Spectrum merger agreement.
Dissenters' Rights (page 35)
Each of OI, Spectrum and OFPI is organized under California law. Under
California law, in connection with the OI merger, (i) shareholders of OI are
entitled to exercise their dissenters' rights, which would require OI to
purchase the dissenting OI shares for cash at their fair market value and (ii)
shareholders of OFPI are entitled to exercise their dissenters' rights, which
would require OFPI to purchase the dissenting OFPI shares for cash at their fair
market value, in both cases excluding any appreciation or depreciation as a
result of the OI merger. Similarly, in connection with the Spectrum merger,
California law provides that (i) shareholders of Spectrum are entitled to
9.
<PAGE>
exercise their dissenters' rights, which would require Spectrum to purchase the
dissenting Spectrum shares for cash at their fair market value and (ii)
shareholders of OFPI are entitled to exercise their dissenters' rights, which
would require OFPI to purchase the dissenting OFPI shares for cash at their fair
market value, in both cases excluding any appreciation or depreciation as a
result of the Spectrum merger.
Accounting Treatment (page 32)
The OI merger will be accounted for under the "purchase" method of
accounting, meaning that the purchase price for OI will be allocated to the
identifiable acquired assets and assumed liabilities of OI.
The Spectrum merger will be accounted for as a reverse acquisition, with
Spectrum treated as the accounting acquiror. The purchase price for OFPI will
then be allocated to the identifiable acquired assets and assumed liabilities of
OFPI.
10
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following information to aid you in your analysis of
the financial aspects of the mergers. With respect to OI, we derived this
information from audited financial statements for the year ended December 31,
1998 included elsewhere in this document, unaudited financial statements for the
year ended December 31, 1997, not included elsewhere in this document, and
unaudited financial statements for the three months ended March 31, 1999 and
1998, included elsewhere in this document. With respect to Spectrum, we derived
this information from audited financial statements for the two years ended
December 31, 1998, and unaudited financial statements for the three months ended
March 31, 1999 and 1998 included elsewhere in this document. This information is
only a summary, and you should read it in conjunction with OI's and Spectrum's
historical financial statements (and related notes) and Management's Discussion
and Analysis of Financial Condition and Results of Operations, contained
elsewhere in this joint proxy statement/prospectus.
With respect to OFPI, we derived this information from audited financial
statements for the two years ended June 30, 1998 and unaudited financial
statements for the nine months ended March 31, 1999 and 1998, included elsewhere
in this document. This information is only a summary, and you should read it in
conjunction with OFPI's historical financial statements (and related notes) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this joint proxy statement/prospectus and in
the annual reports, quarterly reports and other information on file with the
SEC. See "Where You Can Find More Information" on page 1.
Basic earnings (loss) per share is calculated by dividing earnings or loss
for the period by the weighted average number of shares actually outstanding
during the periods presented. Diluted earnings (loss) per share also includes
shares resulting from exercise of options and warrants that have a dilutive
effect - that is, shares that would decrease earnings per share. Such potential
common stock equivalents are not considered, however, if they would have the
effect of decreasing loss per share, or if the exercise price is higher than the
current market price.
For OI and Spectrum, historical income per share and book value per share
are calculated based on the equivalent number of combined OFPI shares that will
be issued to OI and Spectrum shareholders in exchange for their current
holdings. For OI, the equivalent shares are calculated by multiplying actual
outstanding and weighted averages by the OI exchange ratio of 39.5 shares of
combined OFPI stock for each share of OI stock. For Spectrum, the equivalent
shares are calculated by multiplying actual outstanding and weighted averages by
the Spectrum exchange ratio of 4,669.53 shares of combined OFPI stock for each
share of Spectrum stock. For OFPI, historical income (loss) per share and book
value per share are based on actual outstanding and weighted average shares for
the periods presented. The pro forma combined loss per share and book value per
share are based on the equivalent number of combined OFPI shares that will be
outstanding after the mergers.
11.
<PAGE>
<TABLE>
<CAPTION>
OI Selected Historical Financial Data
(in thousands, except per share amounts)
Three Months Ended Year Ended
March 31, December 31,
------------------------------------------------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Historical Statement
of Operations Data:
Total revenues .............................. $1,324 $1,964 $5,789 $5,319
Net income .................................. -- $ 87 $ 71 $ 334
Income per share, basic and diluted ......... -- $ 0.02 $ 0.02 $ 0.09
Equivalent weighted average ................. 3,950 3,950 3,950 3,950
shares, basic and diluted
March 31, December 31
Historical Balance 1999 1998 1997
Sheet Data: -------- -----------------------
Working capital ............................... $ 348 $ 371 $ 596
Total assets .................................. $2,884 $2,827 $3,972
Long-term debt ................................ $ 205 $ 240 --
Total shareholders' equity .................... $ 421 $ 421 $ 912
Spectrum Selected Historical Financial Data
(in thousands, except per share amounts)
Three Months Ended Year Ended
March 31, December 31,
-------------------------- ---------------------------
1999 1998 1998 1997
Historical Statement
of Operations Data:
Total revenues ............................... $ 6,506 $ 5,778 $ 23,951 $ 20,392
Net income ................................... $ 236 $ 107 $ 403 $ 471
Income per equivalent share, basic and
diluted ...................................... $ 0.01 $ -- $ 0.01 $ 0.01
Equivalent weighted
average shares, basic and diluted ............ 32,336 32,336 32,336 32,336
March 31, December 31,
1999 1998 1997
-------- --------------------------
Historical Balance
Sheet Data:
Working capital .............................. $ 880 $ 467 $ 251
Total assets ................................. $ 8,390 $ 7,226 $ 6,957
Long-term debt ............................... $ 3,091 $ 2,603 $ 2,472
Total shareholders' equity (deficit) ......... $ 377 $ 141 $ (140)
12.
<PAGE>
OFPI Selected Historical Financial Data
(in thousands, except per share amounts)
Nine Months Ended Year Ended
March 31, June 30,
---------------------------- ----------------------------
1999 1998 1998 1997
---- ---- ---- ----
Historical Statement
of Operations Data:
Total revenues ........................... $ 8,015 $ 8,208 $ 12,304 $ 11,379
Net income (loss) ........................ (3,670) (723) (4,619) 55
Earnings (loss) per equivalent ........... (0.50) (0.12) (0.69) 0.01
share, basic and diluted
Weighted average equivalent .............. 7,276 6,196 6,697 5,229
shares, basic and diluted
March 31, December 31
1999 1998 1997
---------- ----------------------------
Historical Balance
Sheet Data:
Working capital (deficit) ............... $ (991) $ 1,725 $ (487)
Total assets ............................. $ 4,412 $ 7,256 $ 8,951
Total long-term debt ..................... $ 10 $ 34 $ 497
Total shareholders' equity ............... $ 207 $ 3,877 2,616
</TABLE>
13.
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial
data of OI, Spectrum and OFPI is derived from the unaudited pro forma combined
condensed financial statements and should be read in conjunction with such pro
forma statements and the notes thereto, which are included elsewhere in this
joint proxy statement/prospectus. For pro forma purposes the financial
statements of OFPI for the fiscal year ended June 30, 1998 have been restated to
reflect a December 31 year end and have been combined with the financial
statements of OI and Spectrum for the year ended December 31, 1998. For the
three months ended March 31, 1999, the financial statements of OFPI have been
combined with the financial statements of OI and Spectrum for the three months
ended March 31, 1999. The pro forma combined statement of operations data
assumes that the mergers occurred as of January 1, 1998 and the pro forma
combined balance sheet data assumes that the mergers occurred as of March 31,
1999. The pro forma data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred if the mergers had been consummated, nor is it necessarily
indicative of future operating results or financial position. See "Unaudited Pro
Forma Combined Condensed Financial Data" included elsewhere in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
Three Months Year Ended
March 31, 1999 December 31, 1998
-------------- -----------------
Pro Forma Combined (in thousands,
Statement of Operations Data: except per share amounts)
<S> <C> <C>
Total revenues.................................... $10,339 $ 41,800
Net loss.......................................... $ (360) $ (7,034)
Earnings (loss) per share, basic and diluted $ (0.01) $ (0.16)
Weighted average equivalent
shares, basic and diluted......................... 43,562 42,983
March 31, 1999
-------------------------------------
Pro Forma Combined (in thousands, except per share amounts)
Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 279
Working capital .................................. $ 119
Total assets...................................... $ 22,985
Total long-term debt.............................. $ 3,306
Total shareholders' equity........................ $ 8,304
Book value per share.............................. $ 0.19
</TABLE>
14.
<PAGE>
COMPARATIVE PER SHARE DATA
(unaudited)
The following table sets forth information on the earnings and book value
per common share for OI, Spectrum and OFPI on a historical and pro forma
combined basis and indicates the relative earnings and book values of the
companies for the periods covered.
Historical and pro forma book value per share is calculated by dividing
shareholders' equity at the end of the period by the number of common shares
outstanding at the end of the period. For OI and Spectrum, historical income per
share is calculated based on the equivalent number of combined OFPI shares that
will be issued to OI and Spectrum shareholders in exchange for their current
holdings. For OI, the equivalent shares are calculated by multiplying actual
outstanding and weighted averages by the OI exchange ratio of 39.5 shares of
combined OFPI stock for each share of OI stock. For Spectrum, the equivalent
shares are calculated by multiplying actual outstanding and weighted averages by
the Spectrum exchange ratio of 4,669.53 shares of combined OFPI stock for each
share of Spectrum stock.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------------- -------------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OI historical
Income per equivalent share, ............................ $ 0.00 $ 0.02 $ 0.02 $ 0.05
basic and diluted
Book value per equivalent share ......................... $ 0.11 $ 0.11 $ 0.20
Spectrum historical
Income per equivalent share, ............................ $ 0.01 $ 0.00 $ 0.01 $ 0.01
basic and diluted
Book value per equivalent share ......................... $ 0.01 $ 0.00 $ 0.00
Nine Months Ended Year Ended
March 31, June 30,
------------------------- -------------------------
1999 1998 1998 1997
---- ---- ---- ----
OFPI historical
Earnings (loss) per share, .............................. $ (0.50) $ (0.12) $ (0.69) $ 0.01
basic and diluted
Book value per share .................................... $ 0.03 $ 0.53 $ 0.49
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
-------------- -----------------
Pro Forma Combined
Loss per equivalent share, basic and diluted ............ $ (0.01) $ (0.16)
Book value per equivalent share ......................... $ 0.19
</TABLE>
The information set forth above is only a summary and you should read it in
conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements
on pages 100 through 103 and the respective audited and unaudited financial
statements of OI, Spectrum and OFPI.
15.
<PAGE>
PRICE RANGE OF COMMON STOCK
Shares of OFPI's common stock are listed on the NASD OTC Bulletin Board
system under the symbol "OFPI." The shares of OFPI common stock issued in
connection with the merger will also be listed on the NASD OTC Bulletin Board
system. The table below provides, for the calendar quarters indicated, the
reported high and low bid prices of OFPI's common stock as reported on the
Nasdaq SmallCap Market through May 26, 1999 and on the NASD OTC Bulletin Board
system thereafter. These prices represent interdealer prices without retail
mark-up, markdown or commission, and may not necessarily represent actual
transactions.
High Low
---- ---
FY 1998
First Quarter ended September 30, 1997 ............ $4.3125 $3.8750
(commencing August 12, 1997)
Second Quarter ended December 31, 1997 ............ 4.5625 2.8750
Third Quarter ended March 31, 1998 ................ 3.6250 2.6250
Fourth Quarter ended June 30, 1998 ................ 4.2500 3.0000
FY 1999
First Quarter ended September 30, 1998 ............ 3.7500 0.9688
Second Quarter ended December 31, 1998 ............ 1.0625 0.3750
Third Quarter ended March 31, 1999 ................ 1.8125 0.5625
Fourth Quarter ended June 30, 1999 ................ 1.6875 0.5318
Period from July 1, 1999 to July 21, 1999 ......... 0.8750 0.6875
On February 17, 1999, the full trading day prior to the date of the public
announcement of the proposed mergers, OFPI's common stock closed at $0.75 per
share. On July 21, 1999, the closing bid price for OFPI's common stock was $0.75
per share. As of June 3, 1999, OFPI had 47 shareholders of record.
OI is a privately owned company, and, therefore, no market value
information on its stock is available. As of July 1, 1999, OI had two
shareholders of record.
Spectrum is a privately owned company, and, therefore, no market value
information on its stock is available. As of July 1, 1999, Spectrum had one
shareholder of record.
Because the market price of OFPI common stock changes, the market value of
the shares to be issued in the mergers may increase or decrease at any time. See
"Risk Factors."
16.
<PAGE>
RISK FACTORS
Certain important factors, in addition to those discussed under the caption
"Risk Factors" and elsewhere in this document, could affect the future results
of the combined company and could cause those results to differ materially from
those expressed in our forward-looking statements. In addition, we do not have
any intention or obligation to update forward-looking statements after we
distribute this document, even if new information, future events or other
circumstances have made them incorrect or misleading.
You should carefully consider the following factors in evaluating whether
to vote to approve the merger agreements. Keep in mind that the risks described
below are not the only risks facing OI, Spectrum and OFPI or the combined
company.
Risks Relating to the Mergers
We may not achieve the intended synergies as a combined company. OI,
Spectrum and OFPI have entered into the merger agreements with the expectation
that the mergers will result in benefits to all three companies through the
integration of the companies' operations. The integration of operations will
require, among other things, that we leverage the companies' manufacturing
capabilities and combine the sales and marketing operations. The difficulties of
such integration may be increased by a number of factors, including the
following:
o geographical separation of the three companies and their employees;
o potential incompatibility of business cultures;
o distraction of management's attention from the day-to-day business of
the combined company;
o loss of key employees and management; and
o integration of various marketing and branding strategies could result
in increased write-offs of inventory as obsolete.
We cannot be certain that this integration will be achieved quickly or
efficiently. If we fail to integrate the three companies quickly and
efficiently, the combined company's business and results of operations could be
significantly harmed.
The mergers will result in dilution to our shareholders. The issuance of
OFPI common stock in the mergers dilute the percentage ownership of the existing
OFPI shareholders in the combined company and will reduce OI's and Spectrum's
net income per share. This dilution could reduce the market price of OFPI's
common stock unless and until the combined company achieves revenue growth or
cost savings and other business economies sufficient to offset the effect of
such issuance. We cannot guarantee that we will achieve net revenue growth
together with cost savings or other business economies as a result of the
mergers or that you will achieve greater returns as an OFPI shareholder. Upon
completion of the mergers, existing Spectrum shareholders will own approximately
73.8% of the OFPI common stock outstanding after the mergers, existing OI
shareholders will own approximately 9.0% of the OFPI common stock
then-outstanding, and existing OFPI shareholders will own approximately 17.2% of
the OFPI common stock then-outstanding.
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Amortization of goodwill may delay profitability. For accounting purposes,
Spectrum is treated as the purchaser since holders of Spectrum stock will
receive OFPI shares representing a majority of the combined equity. It is
estimated that the market value of the OFPI common stock to be issued in the
mergers to holders of OI stock, or to be held by current holders of OFPI stock,
exceeds the identifiable tangible assets less liabilities assumed of OI and OFPI
by approximately $7,678,000. In accordance with generally accepted accounting
principles, the increase in this amount over existing OI goodwill of
approximately $263,000 at March 31, 1999 will be recorded as additional goodwill
and amortized over the next 12.5 years. This amortization will result in an
additional annual charge to earnings of approximately $593,000, which may
significantly decrease operating earnings and delay OFPI's return to
profitability, as well as adversely impact the market value of OFPI's common
stock in any given period.
Shares of our common stock eligible for sale may reduce our stock price. In
connection with the mergers, we estimate that an aggregate of approximately
36,286,495 newly-issued shares of OFPI common stock will be issued to current OI
and Spectrum shareholders. Certain OI, Spectrum and OFPI shareholders, who
together will beneficially own 40,124,260 shares of OFPI, have agreed to refrain
from selling their OFPI common stock until the first anniversary of the closing
date of the mergers. The future availability of this substantial number of
additional shares of OFPI common stock for sale in the market could decrease the
per share market price of OFPI's common stock.
Current contract negotiations with vendors may not be signed if the mergers
are not completed. OI is currently in negotiations with numerous vendors to
obtain exclusive sales and marketing contracts for new product lines that may be
negatively impacted or may not occur if the mergers are not completed. These
contracts depend on certain purchase needs that would not exist if OI does not
merge with OFPI and Spectrum.
The rights of OI shareholders will change. Following the OI merger, OI
shareholders will become OFPI shareholders. There are important differences
between the rights of OI shareholders and the rights of OFPI shareholders. For a
description of these differences, see "Comparisons of Rights of Holders of OI
Common Stock, Spectrum Common Stock and OFPI Common Stock."
The rights of Spectrum shareholders will change. Following the Spectrum
merger, Spectrum shareholders will become OFPI shareholders. There are important
differences between the rights of Spectrum shareholders and the rights of OFPI
shareholders. For a description of these differences, see "Comparisons of Rights
of Holders of OI Common Stock, Spectrum Common Stock and OFPI Common Stock."
Risks Relating to OI
OI is dependent upon its food broker for sales and marketing capabilities
and its relationships in the organic food industry. OI relies significantly on
Beta Pure Foods, its food broker, to market and sell OI's products. Beta
utilizes its contacts and relationships in the organic food industry to assist
OI in expanding its presence in various market segments. If Beta is unable to
successfully market and sell OI's products, or if OI's relationship with Beta is
terminated for any reason, OI may be unable to find a substitute partner to
provide such marketing and sales services or develop these capabilities and
relationships themselves.
OI is dependent upon a small number of customers. Three customers accounted
for approximately 47% of OI's revenues in 1998 and three customers accounted for
approximately 40% of OI's revenues in the first three months of 1999. In the
past, OI has derived a substantial amount of its revenues from a small number of
customers, and its list of large customers can change significantly from year to
year. Accordingly, if this customer turnover continues, the loss of its larger
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customers will adversely affect its results of operations and OI will need to
continue to obtain similarly large orders from new customers. The failure to
retain its large customers or the failure to continue to attract new large
customers will harm OI's business.
OI is dependent upon its suppliers for organic raw materials. In many
cases, OI relies on its suppliers to provide significant quantities of organic
raw materials for a particular OI product. For example, OI purchased
approximately 47% of its products from two suppliers in 1998. Further, one
supplier provides OI with all of its organic white grape juice concentrate.
Organic white grape juice concentrate constituted approximately 23% of OI's
revenues in 1998 and approximately 24% of OI's revenues for the first three
months of 1999. If the supply arrangements between OI and its larger suppliers
were to be terminated for any reason, OI may be unable to find substitute
sources for those raw materials in a timely manner, or at all. Failure to
replace these sources in a timely manner would adversely impact OI's business.
OI is subject to fluctuations in the cost of manufacturing capability. OI
does not own, or have long-term leases for, any food processing facilities, and
instead has arrangements to pay for such facilities on an as-you-go basis.
Accordingly, OI may be unable to obtain sufficient processing and manufacturing
capacity for its products on acceptable terms, or at all. If OI is unable to
obtain such capacity on a timely basis, as needed and on acceptable terms, its
business will be harmed.
Risks Relating to Spectrum
Spectrum has debt obligations that might require a significant issuance of
common stock in the event of a default. In September 1997, Spectrum repurchased
5,000 shares of its outstanding common stock in exchange for a $1,621,000
promissory note payable to a former shareholder and an additional obligation of
approximately $613,000 relating to payment of taxes and a bonus. See footnote 7
to Spectrum's audited financial statements for the year ended December 31, 1998.
Upon consummation of the mergers these obligations will become obligations of
the combined company, and the stock redemption agreement will provide that in
the event of a default on the payments the holder of the promissory note can
require the combined company to issue OFPI shares in satisfaction of the debt
measured by 90% of the mean between the bid and ask price for the ten trading
days preceding the default.
Spectrum's supplement oils and oil-based spreads businesses depend upon
technology license agreements. Spectrum has entered into a technology license
agreement with Nimbus Publications, Inc. that gives Spectrum a worldwide
exclusive license to commercialize specified Nimbus inventions relating to the
extraction and refinement of oils from nuts, seeds, vegetable and marine
materials. Spectrum believes the license agreement is material to the production
and marketing of its supplement oil products. In addition, Spectrum has an
agreement with OGAM, a United Kingdom-based research and development company and
the developer of the patented process for manufacturing "Spectrum Spread," for
the North American natural and specialty food markets. The OGAM agreement
provides Spectrum with a license for these markets, for which Spectrum pays
royalties to OGAM. The loss of either of these licenses could have a material
adverse effect on Spectrum's sales and operations.
Spectrum's consulting arrangement with OFPI may adversely impact Spectrum's
business if the mergers are not completed. As of May 1999, Spectrum has a
management contract with OFPI to market and sell specified inventory that it
acquired from OFPI. If the mergers are not completed, either party has the right
to terminate the contract, in which case Spectrum would have a large amount of
juice and related products in inventory that would not be compatible with its
core business. Termination of that contract before Spectrum is able to sell the
former OFPI inventory could adversely affect Spectrum's financial condition.
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Risks Relating to OFPI
OFPI has limited financing resources to meet immediate working capital
requirements. OFPI's operating losses have nearly exhausted the cash available
under its current loan agreement. The reduced marketing programs and inventory
levels caused by the limited cash available has resulted in decreased sales and
increased production costs due to the inefficiencies associated with smaller
production runs. As a result of the deterioration of its business, OFPI expects
to be in default of certain of its annual loan covenants as of its June 30, 1999
year end. OFPI is currently in default under debt agreements with two former
shareholders in an aggregate amount of $497,238.
In connection with the merger agreements OFPI has agreed not to pursue
incurring new debt or to sell its assets. Accordingly, given its current
financial situation and length of time required to complete the mergers, if the
mergers do not occur, OFPI would have to immediately obtain additional capital
and would have very limited financing alternatives given its operating history
and financial position.
OFPI's settlement of the litigation with Global Natural Brands, Ltd. could
reduce cash available for its operations and its reduce earnings. In October
1998, Global Natural Brands, Ltd. brought suit against OFPI, including its
officers and directors, following OFPI's termination of the management services
agreement between OFPI and Global. While OFPI intends to defend itself
vigorously, it has recorded a reserve for an anticipated settlement. Payment of
a settlement may significantly reduce cash available for working capital and any
settlement greater than the amount reserved would decrease earnings in the
period the settlement was reached. See "Business of OFPI--Legal Proceedings."
OFPI's sales are concentrated in a limited number of markets. OFPI
distributes its products in a limited number of markets, which exposes it to
fluctuations caused by factors such as adverse economic conditions and changing
consumer preferences in these particular markets.
OFPI's consulting arrangement with Spectrum may adversely impact OFPI's
business if the mergers are not completed. Spectrum has a management contract
with OFPI to market and sell specified inventory that it acquired from OFPI. If
the mergers are not completed, either party could terminate the contract and
OFPI would have to purchase inventory from Spectrum or have products produced by
copackers. In addition, customers accounts production planning would need to be
setup in OFPI's systems, adversely effecting customer relations and requiring
additional working capital. Termination of the contract before Spectrum is able
to sell its current inventory could adversely affect OFPI's customer service
levels and reduce sales.
Risks Relating to the Combined Company
We have significant debt and credit obligations and may be unable to meet
them. We will continue to be highly leveraged following the mergers with OI and
Spectrum. As a condition to closing the Spectrum merger, we will replace OFPI's,
OI's and Spectrum's existing credit facilities with a single credit facility for
the combined company. In order to obtain this financing it will be necessary to
encumber our assets, which could be lost in the event of a default.
The combined company's cash flow may not be sufficient to service the debt
obligations under the new credit facility and meet the continuing obligations of
OFPI, OI and Spectrum. Additional cash demands that may increase this risk
include continued losses from our operations, settlement of the Global
litigation, cash requirements of purchase contracts and losses from unexpected
changes in the current business environment.
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In the event future cash flow is insufficient to meet working capital
needs, we may be required to obtain additional financing or raise capital
through the issuance of securities in private or public transactions. The terms
and conditions required to obtain the additional capital may not be available to
us on favorable terms, or at all. Moreover, we cannot be certain that we will be
able to meet our future cash flow requirements or obtain future financing.
Trading of OFPI's stock has recently been moved from the Nasdaq SmallCap
Market to the NASD OTC Bulletin Board. Trading on the NASD OTC Bulletin Board
system will likely make it difficult for holders of OFPI common stock to achieve
liquidity for their investment. The OTC Bulletin Board system historically has
provided less trading volume than the Nasdaq SmallCap Market or any of the
larger markets such as the Nasdaq National Market. In addition, the lower
trading volume of OFPI's stock on the OTC Bulletin Board has resulted in and is
expected to continue to result in increased volatility in OFPI's stock price.
We depend upon our executive officers and key employees. OFPI's operations
depend upon its ability to hire and retain qualified personnel with experience
in the natural and organic food products industry. There is competition for such
personnel, and there can be no assurance that OFPI will be successful in this
regard. OFPI's operations are also dependent upon the continued services of its
executive officers. Since March 1998, OFPI has experienced significant turnover
and has lost a number of its executive officers and directors, including its
former Chief Executive Officer and Chief Financial Officer. The current board of
directors and executive management team has only been together for a short
period of time. The loss of the services of any of these executive officers,
whether as a result of death, disability or otherwise, would harm OFPI's
business. OFPI currently has an employment agreement with its Chief Executive
Officer and, upon the completion of the mergers, will have employment agreements
with its Chief Executive Officer, Chief Financial Officer, President of Retail
Brands, President of Industrial Ingredients and Vice President of Product
Development. After the mergers, OFPI will have key person life insurance on the
life of its Chief Executive Officer in the face amount of $1,000,000 and on the
life of its President of Retail Brands in the face amount of $500,000. OFPI does
not currently have and, following the mergers, will not have any key person
insurance for any other officers. See "Certain Transactions."
Our net revenues and operating results may fluctuate. OFPI's net revenues
and operating results may fluctuate significantly because of a number of
factors, some of which are outside OFPI's control. These factors may include:
o unfavorable economic conditions;
o decreased consumer demand for organic food products;
o increased price competition;
o fluctuations in market prices of raw materials;
o weather conditions;
o availability of water supply;
o unanticipated or increased expenses; and
o introduction of new products by competition.
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Based on the preceding factors, OFPI may experience a shortfall in revenue
or earnings or otherwise fail to meet public market expectations, which could
materially adversely affect OFPI's business, financial condition and the market
price of OFPI's common stock.
Our operating results depend upon the cost of raw materials, market price
fluctuations and our suppliers. OFPI's operating results and financial condition
may be adversely affected by market fluctuations in the cost and availability of
its raw materials, particularly whole and processed organic tomatoes. Raw
materials costs are determined by a constantly changing market upon which OFPI
has no control. OFPI often enters into fixed price contracts to purchase a
portion of its organic tomatoes. Nevertheless, cost fluctuations in the open
market could increase OFPI'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 OFPI'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, OFPI currently purchases its organic tomato products from only two
suppliers and has written agreements covering only a portion of its anticipated
tomato product purchases. One of these suppliers accounted for approximately 82%
of OFPI's total purchases of tomato products for the year ended June 30, 1998.
One supplier accounted for approximately 84% or more of the OFPI's total
purchases of tomato products for the nine months ended March 31, 1999. Any
interruption in raw materials supply (caused by factors such as drought, insect
infestation or the like) would interrupt OFPI'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.
We face intense competition in the food products industry. 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 us. In the non-organic
pasta sauce market, our competitors include The Campbell's Soup Company, through
its Prego brand, Unilever Canada Limited, through its Ragu brand, Borden, Inc.,
through its Classico brand, and Newman's Own. In the non-organic salsa market,
we face competition from Campbell's Soup's Pace brand, the Old El Paso brand of
International Home Foods, Inc. and the La Victoria brand of products of
Authentic Specialty Foods (DESC). Our competitors in the non-organic condiments
market include H.J. Heinz Company, Reckitt & Colman Inc., which markets French's
mustard, and International Home Foods, which markets Gulden's mustard. Our
competition in the fruit juice market includes The Coca-Cola Company, through
its Minute Maid brand, and Del Monte Foods International, Inc. We compete with
national cut pasta manufacturers such as Borden, through its Ravarino & Freschi
brand, and New World Pasta Company, which sells pasta under the American Beauty
and Ronzoni brands.
We also compete with DeBoles, which makes a line of pastas and organic and
natural pasta sauces. In the organic salsa market, our competitors include
Simply Natural, Small Planet Foods, L.L.C.'s Muir Glen line of products, and
Enrico. We face competition in the natural food condiment market from Eden,
Canoleo, Nasoya, Annie's, and Braggs. In the organic or natural fruit juice
market, we face competition from Odwalla, Inc. and J.M. Smucker Company's
Knudsen brand of drinks.
In the specialty culinary oils market, our competitors include Hain,
Loriva, Anglia (Oils of the World), Consorzio and private label. New entrants to
the market are increasing as specialty oil companies respond to upward trending
in demand. In the nutritional oils market, we face competition from Omega,
Arrowhead, Jarrow, Source Naturals, Flora, Health from the Sun, Barleans, and
numerous other private label producers.
We also face competition from makers of mass market cooking oils such as
ConAgra, Inc. through its Wesson brand, CPC International, through its Mazola
brand, The Proctor & Gamble Company, through its Puritan brand, Hollywood,
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Ventura Foods, through its Saffola brand, and Colavita. These mass market
products are commodity-based everyday cooking oils and constitute a formidable
presence on grocery and supermarket shelves, due to their lower prices due to
volume-driven freight and distribution cost savings, use of lower cost raw
material and other cost benefits.
In the industrial organic ingredients markets, we compete with Small Planet
Foods' Cascadian Farms and Muir Glen product lines. In some cases, we compete
with our own customers. In the ingredients markets, our customers sometimes have
sourced ingredients directly and bypassed us in the supply chain. Our growers
sometimes process their own crops and distribute them directly in competition
with us. In addition, from time to time, our co-packers develop their own set of
products and source raw materials in competition with us. In addition, some of
our customers are also our competitors. For example, Cascadian Farms buys white
grape juice concentrate, fruit purees and citrus products from us. In addition,
J.M. Smucker Company, a customer for our citrus products, fruit juice and fruit
puree, competes with us in the retail frozen fruit juice and applesauce
categories.
Many of our competitors are larger than us and have more financial,
marketing and management resources, and brand name recognition, than we have. If
we do not compete effectively in the organic food and health food industries,
our business will suffer.
We depend upon a few major customers. A significant amount of our revenue
will be derived from a small number of customers. Gerber accounted for
approximately 24% of OI's revenues for the year ended December 31, 1998. For the
three months ended March 31, 1999, Horizon Organic Dairy accounted for
approximately 29% of OI's revenues. United Natural Foods, Inc. accounted for
approximately 34% and Tree of Life, Inc. accounted for approximately 11% of
Spectrum's revenues for the year ended December 31, 1998. For the three months
ended March 31, 1999, United Natural Foods also accounted for approximately 33%
and Tree of Life accounted for approximately 11% of Spectrum's revenues. United
Natural Foods accounted for approximately 21% and Price/Costco accounted for
approximately 17% of OFPI's revenues for the year ended June 30, 1998. For the
nine months ended March 31, 1999, United Natural Foods accounted for
approximately 25% and Price/Costco accounted for approximately 10% of OFPI's
revenues. A loss of any of these customers would have a material adverse impact
on the combined company's operations.
We have limited experience with club stores and chain grocery stores.
Although OFPI 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 OFPI will be able to maintain or
expand its sales to club stores and chain grocery stores, or that 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.
Certain existing customers of OI may view the mergers negatively. OI
currently serves its customer base as a supplier of ingredients. If the mergers
are completed, we will have retail and distribution capabilities for our branded
and private label products that OI did not have prior to the mergers. As a
result, OI's current customers may view the combined company as a competitor
instead of as a supplier, which may cause us to lose such customers. If the
combined company's customers elect to move their business elsewhere, our
operations and financial condition could be adversely affected.
We face significant exposure to product liability claims. Food processors
are subject to significant liability should the consumption of their products
cause injury, illness or death. Although OFPI 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.
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We must comply with various government regulations. OFPI is subject to
various federal, state and local laws affecting its business. OFPI'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, OFPI is also subject to inspection and regulation by the
United States Department of Agriculture. Suspension of any licenses or
approvals, due to failure to comply with applicable regulations, could interrupt
OFPI'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. OFPI is also subject to federal and state laws
establishing minimum wages and regulating overtime and working conditions. Since
some of OFPI'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 OFPI's labor costs.
We face significant securities disclosure compliance related to penny
stocks. The SEC has adopted rules that define a "penny stock" as equity
securities priced at under $5.00 per share that are not listed for trading on
Nasdaq and (i) the issuer has net tangible assets of less than $2,000,000 if in
business for more than three years or less than $5,000,000 if in business for
less than three years or (ii) the issuer has had average annual revenues of less
than $6,000,000 for the prior three years. Accordingly, OFPI's securities are
characterized as penny stock. Therefore, broker-dealers dealing in OFPI stock
are subject to the disclosure rules for transactions involving penny stocks that
require the broker-dealer, among other things, to determine the suitability of
purchasers of the securities and obtain the written consent of purchasers to
purchase such securities and to disclose the best (inside) bid and offer prices
for such securities and the price at which the broker-dealer last purchased or
sold the securities. The additional burdens imposed upon broker-dealers may
discourage them from effecting transactions in penny stocks, which could reduce
the liquidity of OFPI's common stock.
We may require significant amounts of additional capital in the future. We
may require substantial capital resources to continue to develop, manufacture
and market our products, to expand our product lines and to fund future
operations. We cannot be certain that such financing will be available when
needed, if at all, or on terms that would be favorable to us. Any additional
equity financings would be dilutive to our shareholders, and additional debt
financings, if available, would further affect our operating results and would
likely require us to agree to additional restrictive covenants. Our inability to
raise or generate sufficient funds may require us to delay or abandon some or
all of our planned future expansion or expenditures, which could harm our
business.
Our executive management and board of directors following the mergers will
have substantial control over the company. Following the completion of the
Spectrum merger and OI merger, our directors and executive officers will
beneficially own approximately 87.8% of our outstanding common stock, many of
whom are new employees or shareholders of OFPI. As a result, if our directors
and executive officers voted together, they would be able to exercise
significant influence over the election of members of our board of directors and
other corporate actions requiring shareholder approval, and would therefore have
significant control over our management and direction.
We have a limited number of market makers and a limited public float for
our stock. Certain of the underwriters for our initial public offering in 1997
currently are market makers for our common stock. The underwriters originally
placed the 1,300,000 shares sold in that offering to their customers. OFPI
believes that a significant amount of that stock is still controlled by the
underwriters' customers. These customers may engage in transactions for the sale
or purchase of our stock through the underwriters. These underwriters may be
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able to exert a major influence on the market for our stock, which could affect
its price and liquidity. Additionally, a significant majority of our stock is
owned by our affiliates, therefore only a very small number of shares generally
are available for trading. Accordingly, our stock price fluctuate significantly
due to transactions of a small number of shares.
We must effectively manage our growth. In addition to integrating the
operations and personnel of three companies, we must manage the significantly
larger operations of the combined company to attract, train, motivate, manage
and retain employees successfully, and to continue to improve our operational,
financial and management systems. Our Chief Financial Officer joined OFPI in
January 1999, and our Chief Executive Officer and the rest of the executive
management team following the mergers will be required to oversee a public
company that is significantly larger as a result of the mergers. If we are
unable to manage our recent and future growth effectively, our business,
operating results and financial condition could be harmed.
Our directors have limitations on their liability. OFPI's articles of
incorporation substantially limit the liability of OFPI's directors to OFPI and
its shareholders for breach of fiduciary or other duties to OFPI. See
"Comparison of Rights of Holders of OI Common Stock, Spectrum Common Stock and
OFPI Common Stock."
We do not expect to pay dividends. OFPI has not paid any dividends on its
common stock and does not intend to pay dividends in the foreseeable future.
Our business could be adversely impacted by Year 2000 compliance issues. We
use computer software that may be impacted by the Year 2000 problem, and we also
rely on vendors of equipment and services whose products may be impacted by the
Year 2000 problem. Our Year 2000 compliance issues include:
o the equipment we use in our manufacturing process;
o the hardware and third-party software we use for corporate
administration;
o the services of third-party providers we purchases for certain
professional services; and
o our external services such as telecommunications and electrical power.
We have initiated a plan that will attempt to identify all computer
hardware and software, plant equipment and services upon which we rely. If we
are unable to complete the implementation of our plan in a timely manner or at
all, or if we are unable to upgrade any systems identified as requiring such an
upgrade, our operations would be adversely affected. The systems of other
companies upon which our systems rely may not be timely upgraded. A failure to
upgrade by another company or an upgrade that is incompatible with our systems
would also harm our business.
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THE OI SPECIAL MEETING
Date, Time and Place
OI's board of directors is soliciting the enclosed proxy to be used at a
special meeting of shareholders to be held on August 24, 1999, at 11:00 a.m.
local time, or at any adjournment or postponement of the meeting. The proxy will
be used for the purposes described in this joint proxy statement/prospectus and
in the accompanying notice of special meeting. The meeting will be held at the
OI corporate offices at 335 Spreckels Drive, Suite F, Aptos, California 95003.
OI intends to mail this joint proxy statement/prospectus and accompanying notice
of special meeting and proxy card on or about August 2, 1999 to all shareholders
entitled to vote at this meeting. The costs of soliciting proxies will be borne
by OI subject to the provisions of the OI merger agreement relating to the
payment of expenses.
Purpose
The purpose of the meeting is to vote upon a proposal to approve and adopt
the OI merger agreement and to approve the OI merger.
Record Date and Outstanding Shares
Only holders of record of OI common stock at the close of business on July
29, 1999 will be entitled to notice of and to vote at the meeting. At the close
of business on such date, OI had outstanding and entitled to vote 100,000 shares
of common stock. Each record holder of OI common stock on such date will be
entitled to one vote for each share held.
Vote Required
Approval and adoption of the OI merger agreement and approval of the OI
merger will require the affirmative vote of the holders of a majority of the OI
common stock outstanding on the record date. The persons named as proxy holders
on the proxy card will vote your shares as you indicate on the card. If you do
not specify on the proxy card how to vote your shares, the proxy holders will
vote your shares in favor of the OI merger agreement and the OI merger. The
inspector of election appointed for the meeting will separately tabulate
affirmative and negative votes and abstentions. Abstentions will have the same
effect as negative votes.
Directors and executive officers of OI, namely John Battendieri, a director
of OI, and Joseph Stern, the President and a director of OI, together own 100%
of the outstanding OI common stock.
Proxies
You may revoke your proxy before it is voted by filing a written notice of
revocation or a duly executed proxy bearing a later date with OI's corporate
secretary. You may also revoke your proxy by attending the meeting and voting in
person. Attending the meeting will not, by itself, revoke a proxy.
Recommendation of OI Board of Directors
The OI board of directors has approved the OI merger agreement and the
transactions contemplated by the OI merger agreement and has determined that the
OI merger is fair to, and in the best interests of, OI and its shareholders.
After careful consideration, the OI board of directors recommends that you vote
in favor of approval and adoption of the OI merger agreement and approval of the
OI merger.
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THE SPECTRUM SPECIAL MEETING
Date, Time and Place
Spectrum's board of directors is soliciting the enclosed proxy to be used
at a special meeting of shareholders to be held on August 24, 1999, at 11:00
a.m. local time, or at any adjournment or postponement of the meeting. The proxy
will be used for the purposes described in this joint proxy statement/prospectus
and in the accompanying notice of special meeting. The meeting will be held at
the Spectrum corporate offices at 133 Copeland Street, Petaluma, California
94952. Spectrum intends to mail this joint proxy statement/prospectus and
accompanying notice of special meeting and proxy card on or about August 2, 1999
to all shareholders entitled to vote at this meeting. The costs of soliciting
proxies will be borne by Spectrum subject to the provisions of the Spectrum
merger agreement relating to the payment of expense.
Purpose
The purpose of the meeting is to vote upon a proposal to approve and adopt
the Spectrum merger agreement and to approve the Spectrum merger.
Record Date and Outstanding Shares
Only holders of record of Spectrum common stock at the close of business on
July 29, 1999 will be entitled to notice of and to vote at the meeting. At the
close of business on such date, Spectrum had outstanding and entitled to vote
5,000 shares of Spectrum common stock. Each record holder of Spectrum common
stock on such date will be entitled to one vote for each share held.
Vote Required
Approval and adoption of the Spectrum merger agreement and approval of the
Spectrum merger will require the affirmative vote of the holders of a majority
of the Spectrum common stock outstanding on the record date. The persons named
as proxy holders on the proxy card will vote your shares as you indicate on the
card. If you do not specify on the proxy card how to vote your shares, the proxy
holders will vote your shares in favor of the Spectrum merger agreement and the
Spectrum merger. The inspector of election appointed for the meeting will
separately tabulate affirmative and negative votes and abstentions. Abstentions
will have the same effect as negative votes.
Jethren Phillips, Spectrum's Chief Executive Officer and Chairman of the
Board owns 100% of the outstanding Spectrum common stock.
Proxies
You may revoke your proxy before it is voted by filing a written notice of
revocation or a duly executed proxy bearing a later date with Spectrum's
corporate secretary. You may also revoke your proxy by attending the meeting and
voting in person. Attending the meeting will not, by itself, revoke a proxy.
Recommendation of Spectrum Board of Directors
The Spectrum board of directors has approved the Spectrum merger agreement
and the transactions contemplated by the Spectrum merger agreement and has
determined that the Spectrum merger is fair to, and in the best interests of,
Spectrum and its shareholders. After careful consideration, the Spectrum board
of directors recommends that you vote in favor of approval and adoption of the
Spectrum merger agreement and approval of the Spectrum merger.
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THE OFPI SPECIAL MEETING
Date, Time and Place
OFPI's board of directors is soliciting the enclosed proxy to be used at a
special meeting of shareholders to be held on August 24, 1999, at 11:00 a.m.
local time, or at any adjournment or postponement of the meeting. The proxy will
be used for the purposes described in this joint proxy statement/prospectus and
in the accompanying notice of special meeting. The meeting will be held at the
OFPI corporate offices at 550 Monterey Road, Morgan Hill, California 95037. OFPI
intends to mail this joint proxy statement/prospectus and accompanying notice of
special meeting and proxy card on or about August 2, 1999 to all shareholders
entitled to vote at this meeting. The costs of soliciting proxies will be borne
by OFPI subject to the provisions of the OI merger agreement and the Spectrum
merger agreement relating to the payment of expense.
Purpose
The purpose of the meeting is to vote upon proposals to approve and adopt
the OI merger agreement and OI merger, the Spectrum merger agreement and the
Spectrum merger, amend the OFPI articles of incorporation to increase the number
of authorized shares of common stock, to increase the number of shares of OFPI
common stock available for issuance under its stock option plan, and to change
the name of OFPI to "Spectrum Organic Products, Inc."
Record Date and Outstanding Shares
Only holders of record of OFPI capital stock at the close of business on
July 29, 1999 will be entitled to notice of and to vote at the meeting. At the
close of business on such date, OFPI had outstanding and entitled to vote
__________ shares of common stock. Each record holder of common stock on such
date will be entitled to one vote for each share held.
Vote Required
Approval and adoption of the merger agreement and approval of the merger
will require the affirmative vote of the holders of a majority of the OFPI
capital stock outstanding on the record date. The persons named as proxy holders
on the proxy card will vote your shares as you indicate on the card. If you do
not specify on the proxy card how to vote your shares, the proxy holders will
vote your shares in favor of the OI merger agreement and the Spectrum merger
agreement and the OI merger and the Spectrum merger. The inspector of election
appointed for the meeting will separately tabulate affirmative and negative
votes and abstentions. Abstentions will have the same effect as negative votes.
Directors and executive officers of OFPI, including for this purpose John
Battendieri, OFPI's Chief Executive Officer and a member of its board of
directors, and Kenneth Steel, Jr., a director of OFPI, together with
shareholders of OFPI who own 5% or more of any class or series of OFPI capital
stock, own approximately 50.9% of the outstanding OFPI capital stock.
In connection with the Spectrum merger, OFPI shareholders holding
approximately 32.4% of the outstanding shares of common stock have agreed to
vote their shares in favor of the Spectrum merger agreement and the Spectrum
merger. A form of the voting agreement is attached as Annex G to this joint
proxy statement/prospectus. We encourage you to read this agreement.
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Proxies
You may revoke your proxy before it is voted by filing a written notice of
revocation or a duly executed proxy bearing a later date with OFPI's corporate
secretary. You may also revoke your proxy by attending the meeting and voting in
person. Attending the meeting will not, by itself, revoke a proxy.
Recommendation of OFPI Board of Directors
The OFPI board of directors has approved the merger agreement and the
transactions contemplated in those agreements and has determined that both the
OI merger and the Spectrum merger is fair to, and in the best interests of, OFPI
and its shareholders. After careful consideration, the OFPI board of directors
recommends that you vote in favor of approval and adoption of the OI merger and
the Spectrum merger. The OFPI board of directors also recommends that you vote
in favor of approval and adoption of the amendment of OFPI's articles of
incorporation to increase the authorized number of common stock, the increase in
the number of shares available for issuance under the OFPI stock option plan and
the change of OFPI's corporate name.
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THE MERGERS
Background of the Mergers
Prior to June 1996, OFPI was involved in the industrial ingredient
business. As part of the June 1996 merger of OFPI's predecessors, OFPI
determined not to pursue the industrial ingredients business. Accordingly,
OFPI's industrial ingredients business was phased out in the first half of
fiscal 1997. Subsequently, a number of former OFPI employees became employed by
OI, and OI acquired a number of OFPI's ingredients customers.
From time to time between 1996 and 1998, the possibility of OFPI
re-entering the ingredients business was discussed conceptually, but was not
pursued.
In September 1997, Spectrum decided to offer its culinary oils and
condiments food lines for sale and retained Monterey Bay Corporate Development,
a financial consulting firm, to manage the sale process.
During January 1998, Spectrum had discussions with Global Natural Brands, a
management services company, regarding the possible sale of Spectrum's food
business. On February 18, 1998, Spectrum learned that Global had approached OFPI
regarding a proposed merger of Spectrum and OFPI, and on March 13, 1998,
Spectrum received a letter of intent from Global, which was accepted by
Spectrum.
On March 15, 1998, Spectrum received notification from Global of Global's
assignment of the Spectrum letter of intent agreement to OFPI and Global's plans
to merge Spectrum with OFPI. This letter of intent was terminated by Spectrum on
March 23, 1998 due to Global's failure to obtain the required letter of credit.
On April 29, 1998, OFPI announced the appointment of Global to a management
services agreement to assume control of day to day operations of OFPI, and on
May 15, 1998, OFPI announced they had reached an agreement to purchase Spectrum.
On August 12, 1998, OFPI announced the expiration of their agreement to
purchase Spectrum and announced the withdrawal of their agreement to purchase
Spectrum on October 9, 1998. Following this withdrawal, Spectrum considered
other options for selling all or a portion of its business.
In November 1998, members of Spectrum's management met with the management
of OI to discuss a potential merger of OI with Spectrum. OI's management team
included John Battendieri, a director and 50% shareholder of OI, and the chief
executive officer, chairman of the board and a 27.8% shareholder of OFPI. Both
parties agreed to hold further discussions to continue to negotiate specific
terms of a merger, including the potential of adding OFPI to the transaction.
On December 10, 1998, the management of OI, Spectrum and OFPI met at the
offices of Monterey Bay Corporate Development to review detail financial
projections and related potential synergies of merging the three companies,
along with the equity allocations of the combined company.
On February 4, 1999, Spectrum representatives met with the OFPI management
team and their auditors to explore the accounting issues related to a potential
merger. From February 4 through February 18, Spectrum, OI and OFPI
representatives continued to discuss a potential merger of the three companies,
and on February 18, 1999, OFPI entered into a letter of intent with each of
Spectrum and OI to merge into one company.
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From February 18, 1999 through May 14, 1999, OI, Spectrum and OFPI
negotiated the terms of the definitive agreements related to the mergers and
performed due diligence reviews of each other company.
On May 6, 1999, Spectrum and OFPI entered into an agreement under which
Spectrum manages and administers OFPI's juice business in exchange for royalty
payments.
On May 14, 1999, the OFPI board of directors approved the merger agreements
with each of OI and Spectrum and the Spectrum merger agreement and OI merger
agreement were signed by the companies.
OI's Reasons for the OI Merger
The OI board of directors has approved the OI merger agreement, believes
that the OI merger is fair to and in the best interests of OI and its
shareholders, and unanimously recommends the approval and adoption of the OI
merger agreement by the OI shareholders at the special meeting.
OI's board believes that combining Spectrum's oil and grain product lines
with OI's fruit and vegetable product lines would increase product offerings and
product categories. Larger volume purchasing would provide lower costs,
opportunities for crop selection, and the ability to acquire rights to crops not
available as individual companies. Combining OI's sourcing abilities and OFPI's
retail brand and distribution systems is expected to further lower costs and
improve both private label and branded business. The combined company offers new
strategic relationships for each of OI, Spectrum and OFPI and the potential to
expand financing capacity.
Spectrum's Reasons for the Spectrum Merger
The Spectrum board of directors has approved the Spectrum merger
agreement, believes that the Spectrum merger is fair to and in the best
interests of Spectrum and its shareholders, and unanimously recommends the
approval and adoption of the Spectrum merger agreement by the Spectrum
shareholders at the special meeting.
In the course of reaching its decision to approve the Spectrum merger
agreement, the Spectrum board of directors considered and reviewed with Spectrum
management a number of factors relevant to the Spectrum merger, including the
strategic overview and prospects of Spectrum, its products and its finances.
Spectrum has historically been financed by earnings and a bank line of
credit guarantee by Spectrum's founder, Jethren Phillips. In the view of
Spectrum's management, this method of financing had become restrictive and had
limited Spectrum's growth. The management of Spectrum has identified more growth
opportunities that it has been able to finance.
In September 1997, Spectrum's board of directors had determined to sell
part of the business in order to raise the funds required to support these new
opportunities. During this process it was determined Spectrum could not realize
the potential value by selling only a portion of the business, due to the
synergistic relationships between the various segments. Spectrum next explored a
merger with a new partner in order to gain critical mass and access to
additional capital.
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Merging with OI had been identified as one of the top opportunities for
Spectrum's rapidly growing industrial ingredients business. In addition, during
the previous attempt to sell the food portion of Spectrum's business to OFPI,
significant cost saving opportunities were identified, but financing was not
available at that time. Due to the business ties between OI and OFPI, it was
determined a merger of OI, Spectrum and OFPI would generate both cost savings
and revenue growth opportunities. Spectrum's board believes that combining OI,
Spectrum and OFPI will offer opportunities to lower duplicate administrative
expenses. It is also anticipated cost savings will be realized by combining
warehousing and distribution expenses. Moreover, by combining the research and
product development capabilities and organic raw material sourcing capabilities
of the companies, Spectrum expects to improve product quality and lower product
cost. Spectrum's board believes that Spectrum's relative financial strength will
improve the prospects for obtaining new financing.
In addition, access to the public marketplace for additional capital will
make it easier for Spectrum to raise the resources necessary to fund the future
capital needs to the combined company.
OFPI's Reasons for the Mergers
The OFPI board of directors has approved the OI and Spectrum merger
agreements, believes that the OI merger and Spectrum merger are fair to and in
the best interests of OFPI and its shareholders and unanimously recommends the
approval and adoption of the OI and Spectrum merger agreements by the OFPI
shareholders at the special meeting.
OFPI has exhausted the cash available under its current financing
agreement. Because of this cash flow situation, OFPI has been forced to conduct
business with its vendors on a COD basis, jeopardizing its vendor relationships
and customer service levels. In addition, OFPI has failed to meet some of its
subordinated debt obligations and is currently in default. Due to this financial
condition, OFPI has few, if any, other financing alternatives.
While OFPI recognizes the strategic and operational benefits of the
mergers, the OFPI board believe that the most critical benefit is the financing
opportunities available to the merged company. Absent the mergers, unless other
additional capital can be obtained in the near term, the availability of which
OFPI has no assurance, OFPI will be forced to file for protection under
bankruptcy laws.
In reaching its decision to approve the OI and Spectrum merger agreements,
the OFPI board of directors considered and reviewed with OFPI management a
number of relevant factors, including OFPI's strategic overview and current
financial situation.
Merging with OI and Spectrum will enable OFPI to leverage its customer and
vendor relationships, as well as provide the critical mass to be a leader in the
natural and organic products industry. The combined company is expected to
improve over the operating results of OFPI's business through lower raw
materials costs and decreased selling expenses. In addition, the mergers will
provide OFPI with the additional management resources, infrastructure and
systems to achieve operating efficiencies in OFPI's existing business and
support future growth.
Accounting Treatment
The OI merger will be accounted for under the "purchase" method of
accounting. Under this method, in the OI merger the purchase price of OI will be
compared to the value of the identifiable tangible assets less the assumed
liabilities of OI, and any excess will be recorded as goodwill. The purchase
price will be determined by multiplying the number of combined OFPI shares to be
issued to former OI shareholders by the average of the closing market prices for
the three days immediately prior to the announcement of the mergers in February
1999.
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Since a controlling interest in the combined company will be held after the
mergers by former shareholders of Spectrum, the Spectrum merger will be
accounted for as a reverse merger. For accounting purposes, Spectrum will be
treated as the acquiror, and OFPI will be treated as the acquired entity. The
assumed purchase price of OFPI will be determined by multiplying the number of
combined OFPI shares to be held by former OFPI shareholders after the Spectrum
merger by the average of the closing market prices for the three days
immediately prior to the announcement of the mergers in February 1999. Any
excess of this amount over the identifiable tangible assets less the assumed
liabilities of OFPI will be recorded as goodwill.
Material Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
considerations generally applicable to OI and Spectrum shareholders. It assumes
that Spectrum shareholders and OI shareholders hold their Spectrum common stock
and OI common stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code.
The discussion below is based on current law. Changes in the law could
affect the federal income tax consequences of the mergers to OI and Spectrum
shareholders. We have not and will not seek a ruling from the IRS in connection
with the mergers. This discussion does not address the consequences of the
mergers under state, local or foreign law, nor does the discussion address all
aspects of federal income taxation that may be important to a Spectrum
shareholder or OI shareholder in light of his or her particular circumstances or
tax issues that may be significant to Spectrum shareholders subject to special
rules, such as:
o financial institutions,
o insurance companies,
o foreign individuals and entities,
o tax-exempt entities,
o dealers in securities,
o persons who are subject to the alternative minimum tax provisions of
the Internal Revenue Code,
o persons who acquired Spectrum or OI common stock pursuant to the
exercise of an employee option (or otherwise as compensation), or
o persons who acquired Spectrum or OI common stock as part of an
integrated investment (including a "straddle") composed of Spectrum or
OI common stock and one or more other positions.
Accordingly, Spectrum shareholders and OI shareholders are urged to consult
their own tax advisors as to the specific tax consequences of the mergers,
including the applicable federal, state, local and foreign tax consequences to
them of the mergers.
Cooley Godward LLP, counsel to Spectrum, and Carr, McClellan, Ingersoll,
Thompson & Horn, Professional Corporation, counsel to OFPI, are of the opinion
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that the Spectrum merger will constitute a reorganization pursuant to Section
368(a) of the Internal Revenue Code. Bosso, Williams, Sachs, Book, Atack &
Gallagher, counsel to OI, and Carr, McClellan, counsel to OFPI, are of the
opinion that the OI merger will also constitute a reorganization pursuant to
Section 368(a) of the Code. In addition, it is a condition to the obligation of
each party to consummate the mergers that it receive an opinion of its counsel
to the effect that the mergers will each constitute such a Section 368(a)
reorganization. These opinions neither bind the IRS or the courts nor preclude
the IRS or a court from adopting a contrary position.
In addition, the tax opinions assume and are conditioned upon the
following:
o the truth and accuracy of the statements, covenants, representations
and warranties contained in the merger agreements, in the tax
representations received from OFPI and Spectrum or OI and in all other
instruments and documents related to the formation and operation of
OFPI and Spectrum or OI examined by and relied upon by Cooley Godward
or Bosso, Williams or Carr, McClellan in connection with their
respective opinions;
o that original documents submitted to counsel are authentic, documents
submitted to counsel as copies conform to the original documents, and
that those documents have been (or will be by the applicable
"effective time" of the mergers) duly and validly executed and
delivered;
o that all covenants contained in the merger agreements and the tax
representations received from OI, Spectrum and OFPI are performed
without waiver or breach of any material provision; and
o that any representation or statement made "to the best of knowledge"
or similarly qualified is correct without being qualified.
As a reorganization, the mergers will have the following federal income tax
consequences (subject to the limitations and qualifications referred to in this
joint proxy statement/prospectus):
Exchange of Spectrum Common Stock or OI Common Stock for OFPI Common Stock.
Except as discussed below, no gain or loss will be recognized for federal income
tax purposes by Spectrum or OI shareholders who exchange their Spectrum common
stock or OI common stock for OFPI common stock pursuant to the mergers. Each
Spectrum or OI shareholder's aggregate tax basis in the OFPI common stock he or
she receives in the mergers will be the same as his or her aggregate tax basis
in the Spectrum or OI common stock surrendered in the mergers (reduced by any
tax basis allocable to fractional shares exchanged for cash), and the holding
period of the OFPI common stock received will include the holding period of the
Spectrum common stock or OI common stock surrendered.
Cash Received Instead of Fractional Shares. The payment of cash to a
Spectrum or OI shareholder instead of a fractional share of OFPI common stock
generally should result in the recognition of capital gain or loss measured by
the difference between the amount of cash received and the portion of the tax
basis of the Spectrum or OI common stock allocable to that fractional share
interest. In the case of an individual, capital gain is generally subject to
United States federal income tax at a maximum rate of 20% if such individual has
held his or her Spectrum or OI common stock for more than one year at the time
of the merger, and at ordinary income rates (as a short-term capital gain) if
the individual has held his or her Spectrum or OI common stock for one year or
less at the time of the consummation of the mergers. The deductibility of
capital losses may be limited.
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If the IRS were to successfully challenge the reorganization status of the
Spectrum merger or the OI merger, Spectrum shareholders or the OI shareholders,
as applicable, would be subject to significant adverse tax consequences. Under
these circumstances, the acquired corporation would be treated as though it had
sold its assets in a taxable sale and then liquidated. An acquired corporation
shareholder would recognize gain or loss equal to the difference between the
basis in his or her shares of common stock surrendered in the merger and the
fair market value, as of the completion of the merger, of the shares of OFPI
common stock received in the merger plus any cash received instead of a
fractional share of OFPI common stock. In addition, an acquired corporation
shareholder's aggregate basis in his or her shares of OFPI common stock received
in the merger would equal the fair market value of such stock as of the
completion of the merger. Finally, an acquired corporation shareholder's holding
period for his or her OFPI common stock would begin the day after the closing
date of the applicable merger.
Reporting Requirements. Each Spectrum or OI shareholder that receives OFPI
common stock in the mergers will be required to file a statement with his or her
federal income tax return setting forth his or her basis in the Spectrum or OI
common stock surrendered and the fair market value of the OFPI common stock and
cash received in the mergers, and to retain permanent records of these facts
relating to the mergers.
Backup Withholding. Unless an exemption applies under applicable law and
regulations, the exchange agent is required to withhold, and will withhold, 31%
of any cash payments to a Spectrum or OI shareholder in the mergers unless the
shareholder provides the appropriate form as described below. Each Spectrum or
OI shareholder should complete and sign the Substitute Form W-9 included as part
of the letter of transmittal to be sent to each Spectrum or OI shareholder, so
as to provide the information, including such shareholder's taxpayer
identification number, and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
OFPI and the exchange agent.
The preceding discussion is not meant to be a complete analysis or
discussion of all potential tax effects relevant to the mergers. Thus, Spectrum
and OI shareholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the mergers, including tax return reporting
requirements, federal, state, local and other applicable tax laws and the effect
of any proposed changes in the tax laws.
Dissenters' Rights
Shareholders of OI, Spectrum or OFPI who do not vote in favor of the
mergers and who otherwise comply with the requirements of Chapter 13 of the
California Corporations Code will be entitled to exercise dissenters' rights
under California law. Such rights entitle the shareholder to require OI,
Spectrum or OFPI to purchase the dissenting shares for cash at their fair market
value, excluding any appreciation or depreciation as a result of the mergers.
The following is a summary description of the provisions of the applicable
California law. This summary is complete in all material respects but should be
read with the full text of the applicable law, a copy of which is attached
hereto as Annex C. Any holder of OFPI, Spectrum or OI common stock intending to
exercise statutory dissenters' rights is urged to review Annex C carefully and
to consult with legal counsel so as to assure strict compliance with its
provisions.
A vote in favor of the merger agreements and the mergers will constitute a
waiver of your dissenters' rights.
If the mergers are approved by the required vote of the OI, Spectrum and
OFPI shareholders, each holder of OI, Spectrum or OFPI common stock who does not
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vote in favor of the mergers and who follows the procedures set forth in Chapter
13 will be entitled to have their shares of OI, Spectrum or OFPI common stock
purchased for cash at their fair market value. The fair market value of the
OFPI, Spectrum or OI common stock will be determined as of the day before the
first announcement of the terms of the mergers, excluding any appreciation or
depreciation as a result of the mergers.
Within 10 days after approval of the mergers by the OI, Spectrum or OFPI
shareholders, OI, Spectrum and OFPI must mail a notice of such approval to
holders of shares which were not voted in favor of the mergers, together with a
statement of the price determined by OI, Spectrum and OFPI to represent the fair
market value of the shares for which dissenters' rights remain available, a
brief description of the procedures to be followed in order for the shareholder
to pursue dissenters' rights, and a copy of Sections 1300 to 1304 of Chapter 13.
The statement of price by OI, Spectrum or OFPI constitutes an offer by OI,
Spectrum or OFPI to purchase all shares for which dissenters' rights remain
available at the stated amount. Only a holder of record of shares of OI,
Spectrum or OFPI common stock on the record date (or his or her duly appointed
representative) is entitled to assert a purchase demand against the applicable
corporation for the shares registered in that holder's name.
A shareholder of OI, Spectrum or OFPI electing to exercise dissenters'
rights must, within 30 days after the date that the approval notice is mailed to
such shareholder, mail or deliver a written demand to OI, Spectrum or OFPI, as
appropriate, stating that such holder is demanding that the applicable
corporation purchase his or her shares of common stock, and a statement as to
what the shareholder claims to be the fair market value of such shares. A holder
who elects to exercise dissenters' rights should mail or deliver his or her
written demand to OI at 335 Spreckels Drive, Suite F, Aptos, California 95003,
Attention: Joseph Stern, to Spectrum at 133 Copeland Street, Petaluma,
California 94952, Attention: Jethren Phillips or to OFPI at 550 Monterey Road,
Suite B, Morgan Hill, California, 95037, Attention: Richard R. Bacigalupi. Such
statement of the fair market value of the shares of OI, Spectrum or OFPI common
stock constitutes an offer by the shareholder to sell the shares of OI, Spectrum
or OFPI at that price.
If OI, Spectrum or OFPI and the dissenting shareholder agree upon the
purchase price of the shares, the dissenting shareholder is entitled to the
agreed upon price with interest thereon at the legal rate on judgments from the
date of such agreement. Payment for the dissenting shares must be made within 30
days after the later date of such agreement or the date on which all statutory
and contractual conditions to the mergers are satisfied, and is subject to
surrender to OI, Spectrum or OFPI of the certificates for the dissenting shares.
If OI, Spectrum or OFPI and the shareholder fail to agree upon the fair
market value of shares of OI, Spectrum or OFPI common stock, then within 6
months after the date that the approval notice was mailed to shareholders, any
shareholder who has made a valid written purchase demand and who has not voted
in favor of approval and adoption of the mergers may file a complaint in
superior court requesting a determination as to whether the shares are
dissenting shares or as to the fair market value of such holder's shares of the
OI, Spectrum or OFPI common stock, or both.
Any holder of dissenting shares who has duly demanded the purchase of his
or her shares under Chapter 13 will not, after the effective time of the
mergers, be entitled to vote the shares subject to such demand for any purposes
or be entitled to the payment of dividends or other distributions on such
dissenting shares (except dividends or other distributions payable to
shareholders of record as of the date prior to the effective time of the
mergers).
If any holder of OI, Spectrum or OFPI common stock who demands the purchase
of his or her shares under Chapter 13 fails to perfect, or effectively withdraws
or loses his or her right to such purchase, the shares of such holder will
remain outstanding, in the case of OFPI shareholders, and in the case of OI and
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Spectrum shareholders, the shares of such holder will be converted into shares
of OFPI common stock in accordance with the applicable exchange ratios set forth
in the merger agreements. Dissenting shares lose their status as dissenting
shares if:
o the mergers are abandoned;
o the shares are transferred prior to their submission for the required
endorsement;
o the dissenting shareholder fails to make a timely written demand for
purchase, along with a statement of fair market value;
o the dissenting shares are voted in favor of the mergers;
o the dissenting shareholder and OI, Spectrum or OFPI, as applicable, do
not agree upon the status of the shares as dissenting shares or do not
agree on the purchase price, but neither OI, Spectrum or OFPI, as
applicable, nor the shareholder files a complaint or intervenes in a
pending action within six months after mailing of the approval notice;
or
o with OI's, Spectrum's or OFPI's consent, as the case may be, the
shareholder delivers to the applicable corporation a written
withdrawal of such shareholder's demand for purchase of his or her
shares.
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THE OI AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AND THE RELATED AGREEMENTS
Please note that the following description of the OI merger agreement is a
summary only. You should read the following summary and the OI merger agreement
attached as Annex A for a full understanding of the OI merger agreement. The OI
merger agreement is incorporated by reference into this joint proxy
statement/prospectus.
Effective Time; Effect of OI Merger
The OI merger will become effective upon the filing of a Certificate of
Merger with the Secretary of State of the State of California (the "OI Effective
Time"). The closing of the OI merger (the "OI Closing") will occur at the
offices of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco,
California 94111 at a time and on a date to be specified by the parties, which
will be no later than the second day after the satisfaction or waiver of the
conditions to the OI merger (the "OI Closing Date"). The Certificate of Merger
will be filed on the OI Closing Date. The OI Closing and the OI Effective Time
are anticipated to be on or about August 31, 1999.
At the OI Effective Time, OI shall be merged with and into OFPI, the
separate corporate existence of OI shall cease, and OFPI shall be the surviving
corporation.
Conversion of Shares
At the OI Effective Time, by virtue of the OI merger and without any action
on the part of OI or the holders of OI securities, each outstanding share of OI
common stock will be canceled and converted into 39.5 shares of OFPI common
stock.
The exchange ratio of 39.5 to 1 will be adjusted for, or OFPI will make
appropriate provisions to reflect the effect of, any stock split, reverse split,
stock dividend, extraordinary dividend or distribution, reorganization,
recapitalization or other like change with respect to OFPI common stock or OI
common stock occurring or having a record or effective date after the date of
the OI merger agreement.
No fractional shares will be issued by virtue of the OI merger. In lieu of
a fraction of a share of OFPI common stock, each OI shareholder will receive
(after all fractional shares to be received by such holder are aggregated) from
OFPI an amount of cash (rounded down to the nearest whole cent) equal to the
product of (a) such fraction, multiplied by (b) the closing price of a share of
OFPI common stock on the OI Closing Date, as reported on the NASD OTC Bulletin
Board system, or other applicable market.
Stock Ownership Following the OI Merger
Based on the capitalization of OI as of the close of business on June 1,
1999 and the 39.5 to 1 exchange ratio, an aggregate of approximately 3,950,000
shares of OFPI common stock will be issued to OI shareholders in the OI merger.
Based on the number of shares of OFPI common stock issued and outstanding as of
May 14, 1999, and after giving effect to the issuance of OFPI common stock in
the OI merger, the former holders of OI common stock would hold, and have voting
power with respect to approximately 34.3% of OFPI's total issued and outstanding
shares immediately after the OI Effective Time, and approximately 9.0% of OFPI's
total issued and outstanding shares immediately following the consummation of
the Spectrum merger.
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Representations and Warranties
OI and OFPI have made representations in the OI merger agreement relating
to, among other things:
o their respective capitalization and organization and similar corporate
matters;
o authorization, execution, delivery and enforceability of the merger
agreement;
o conflicts under governing documents, required consents or approvals,
and violations of any agreements or law;
o financial statements and documents filed with the SEC (if any) and the
accuracy of information contained therein;
o absence of material adverse events, changes or effects;
o tax matters relating to the proposed merger;
o the absence of undisclosed liabilities;
o compliance with laws, including food and drug laws;
o litigation;
o intellectual property matters;
o the disclosure and enforceability of certain material contracts;
o compliance with environmental and tax laws and regulations;
o retirement and other employee plans and matters;
o certain business matters relating to permits and licenses and
insurance;
o liabilities relating to employees, labor unions or other
organizations;
o finders and brokers;
o title to property; accounts receivable, inventory, equipment; and
o insurance.
The representations and warranties of OI or OFPI in the OI merger agreement
described above will survive for two years after the OI Effective Time.
In addition, OI and OFPI have agreed to make representations that will
serve as the basis for the tax opinions of Carr, McClellan and Bosso, Williams,
described under "The Merger-- Material Federal Income Tax Consequences."
Conduct of OFPI's Business and OI's Business Prior to the OI Merger
During the period from the date of the OI merger agreement until the OI
Effective Time, each of OI and OFPI has agreed to:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have
been conducted prior to the date of the merger agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and
employees and maintain its relations and goodwill with all suppliers,
customers, landlords, creditors, employees and other persons having
business relationships with it;
(c) keep in full force all insurance policies in effect as of the date of
the merger agreement; and
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(d) cause its officers to report regularly to OFPI or OI concerning the
status of its business.
The merger agreement further provides that, during the period from the date
of the merger agreement until the OI Effective Time, OI or OFPI will not,
subject to certain exceptions, take any of the following actions:
(a) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock
or other securities;
(b) not sell, issue or authorize the issuance of (i) any capital stock or
other security, (ii) any option, call, warrant or right to acquire, or
relating to, any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or
other security (except that OFPI may issue common stock upon the
exercise of outstanding options or upon conversion of convertible
securities outstanding on the date of the merger agreement);
(c) amend or waive any of OFPI's rights under, or (except pursuant to the
terms of OFPI options outstanding on the date of the merger agreement
which provide for automatic acceleration upon consummation of the
merger) permit the acceleration of vesting under any provision of
OFPI's stock plans, any provision of any agreement evidencing any
outstanding option or warrant or any provision of any restricted stock
purchase agreement;
(d) amend or permit the adoption of any amendment to the OI's or OFPI's
articles of incorporation or bylaws, or effect or permit OI or OFPI to
become a party to any acquisition transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or
similar transaction;
(e) form any subsidiary or acquire any equity interest or other interest
in any other entity;
(f) make any capital expenditure, except for capital expenditures that,
when added to all other capital expenditures made during the period
from the date of the OI merger agreement until the OI Effective Time,
do not exceed, in the case of OI, $100,000, and in the case of OFPI,
$50,000, in the aggregate;
(g) (i) enter into or become bound by, or permit any of the assets owned
or used by it to become bound by, any material contracts except in the
ordinary course of business, or (ii) amend or prematurely terminate,
or waive any material right or remedy under, any material contracts;
(h) (i) acquire, lease or license any material right or other material
asset from any other person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any
other person, or (iii) waive or relinquish any material right, other
than in the ordinary course of business and except for immaterial
assets acquired, leased, licensed or disposed of by OI or OFPI
pursuant to contracts that are not material contracts;
(i) (i) lend money to any person, or (ii) incur or guarantee any
indebtedness, except for routine advances of expenses to employees in
the ordinary course of business and except that OI or OFPI may make
routine borrowings in the ordinary course of business under its
existing bank lines of credit;
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(j) (i) pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its
directors, officers or employees, other than in the ordinary course of
business and solely with respect to non-officers and non-directors or
(ii) establish, adopt or amend any employee benefit plan;
(k) change any of its methods of accounting or accounting practices in any
respect;
(l) make any tax election;
(m) commence or settle any legal proceeding not disclosed in OI's or
OFPI's disclosure schedule to the OI merger agreement;
(n) enter into any material transaction or take any other material action
outside the ordinary course of business or inconsistent with its past
practices; and
(o) agree or commit to take any of the actions described in clauses "(a)"
through "(n)" described above.
Conduct of Business Following the OI Merger
Pursuant to the OI merger, OI will cease to exist as a corporation and will
be merged with and into OFPI, with OFPI as the surviving corporation. All
property, rights, privileges, powers and franchises of OI will vest in OFPI; all
debts, liabilities and duties of OI will become the debts, liabilities and
duties of OFPI.
Pursuant to the OI merger agreement, OFPI shall file Amended and Restated
Articles of Incorporation attached hereto as Annex D. The bylaws of OFPI are the
bylaws attached as Exhibit D to the OI merger agreement. The directors and
officers of OFPI are the individuals listed on Exhibit C to the OI merger
agreement.
No Solicitation
During the period from the date of the merger agreement until the OI
Effective Time, each of OI and OFPI has agreed that it shall not, and shall
cause its subsidiaries not to, and shall cause its and its subsidiaries'
respective officers and directors not to:
o solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as defined below) or take
any action (excluding any press releases issued in connection with the
announcement of the execution of the merger agreement) that could
reasonably be expected to lead to an Acquisition Proposal,
o furnish any information regarding OI or OFPI, or its subsidiaries, to
any third party in connection with or in response to an Acquisition
Proposal,
o continue or engage in discussions with any third party with respect to
any Acquisition Proposal,
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o approve, endorse or recommend any Acquisition Proposal, or
o enter into any letter of intent or similar document or any contract
contemplating or otherwise relating to any Acquisition Proposal.
For the purposes of the OI merger agreement, an "Acquisition Proposal"
means any offer or proposal made by a third party for:
o any sale, lease exchange, transfer or other disposition of the
assets of OI or OFPI, or its subsidiaries, constituting more than
10% of the consolidated assets of OI or OFPI, or accounting for
more than 10% of the consolidated revenues of OI or OFPI in any
one transaction or in a series of related transactions;
o any offer to purchase, tender offer, exchange offer or any
similar transaction or series of related transactions made by any
third party involving more than 10% of the outstanding shares of
capital stock of OI or OFPI;
o any merger, consolidation, business combination, share exchange,
reorganization or other similar transaction or series of related
transactions involving OI or OFPI; or
o any assignment, transfer or licensing or other disposition of, in
whole or in part, certain intellectual property, other than in
the ordinary course of business.
In addition, each of OI and OFPI has agreed to promptly inform the other
party orally and in writing of any Acquisition Proposal (including the identity
of the third party making such Acquisition Proposal and its terms). OI and OFPI
have also agreed to keep the other party informed regarding the status of any
such Acquisition Proposal.
Fees, Expenses and Termination Fees
Except as set forth below, all fees and expenses incurred in connection
with the merger agreement and the transactions contemplated thereby will be paid
by the party that incurs them. OFPI has agreed to pay fees and expenses incurred
by OI in connection with the OI merger and the OI merger agreement if:
o the OI merger agreement is terminated by either OFPI or OI
because the OFPI shareholders do not approve the OI merger; or
o the OI merger agreement is terminated by OI because the OFPI
Board fails to recommend the approval of the OI merger agreement
to OFPI shareholders, or withdraws, amends or modifies in a
manner adverse to OI its recommendations to OFPI shareholders for
approval of the OI merger agreement.
Conditions to the OI Merger
The respective obligations of OI and OFPI to effect the OI merger are
subject to the satisfaction or waiver in writing at or prior to the OI Effective
Time of the following conditions:
o the representations and warranties of OI or OFPI contained in the
OI merger agreement are accurate in all material respects as of
the date of the OI merger agreement;
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o OI or OFPI has performed and complied in all material respects
with all covenants or obligations required by the OI merger
agreement to be performed or complied with on or prior to the OI
Closing Date;
o all consents listed in each of OI's or OFPI's disclosure schedule
have been obtained and are in full force and effect;
o OI and OFPI shareholders have duly approved and adopted the
merger agreement and the OI merger;
o the SEC has declared effective the Registration Statement of
which this joint proxy statement/prospectus is a part, and the
Registration Statement shall not be subject to any stop order
suspending that effectiveness or proceedings seeking a stop
order;
o OFPI and OI have received legal opinions from Bosso, Williams and
Carr, McClellan, respectively;
o OFPI and OI have received opinions of Carr, McClellan and Bosso,
Williams, respectively, to the effect that the merger will
constitute a reorganization within the meaning of Section 368(a)
of the Code;
o no temporary restraining order, preliminary or permanent
injunction or other orders preventing the consummation of the OI
merger or otherwise makes it illegal has been issued by any court
of competent jurisdiction;
o a Compliance Certificate signed by the Chief Executive Officer of
OI or OFPI, evidencing compliance with the conditions set forth
in the OI merger agreement has been delivered to the other party;
and
o Joseph Stern has entered into an employment agreement mutually
satisfactory to OFPI and Mr. Stern.
In addition, the obligations of OFPI to consummate and effect the OI merger
are also subject to the satisfaction or waiver at or prior to the OI Effective
Time, of the following condition, which may be waived by OFPI:
o OI's shareholders shall have entered into an agreement with OFPI
prohibiting such shareholders from transferring any OFPI common
stock beneficially owned by such persons for a period of one year
from the OI Closing Date.
OI's obligation to consummate and effect the OI merger is also subject to
the following condition:
o OFPI shall have taken steps necessary to accomplish the Spectrum
merger immediately after the OI merger and OFPI has provided OI
with Spectrum's intent to accomplish the Spectrum merger.
Currently, both OFPI and OI anticipate that they will satisfy all
conditions to the OI merger at or prior to consummation of the OI merger.
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Termination of the OI Merger Agreement
The OI merger agreement provides that it may be terminated at any time
prior to the OI Effective Time, whether before or after approval of the OI
merger by the OI shareholders and the OFPI shareholders:
o by mutual written consent of OFPI and OI;
o by either OFPI or OI if the merger shall not have been
consummated on or before August 31, 1999 (unless the failure to
consummate the OI merger is attributable to a failure on the part
of the party seeking to terminate the OI merger agreement to
perform any material obligation required to be performed by such
party at or prior to the OI Effective Time or unless the SEC has
not completed its review of the joint proxy statement/prospectus
or OFPI is in the process of addressing SEC comments);
o by either OFPI or OI if a court of competent jurisdiction or
other governmental entity has issued a final and non-appealable
order, decree, ruling, or taken any other action, that
permanently restrains, enjoins or otherwise prohibits the OI
merger;
o by either OFPI or OI if the OFPI shareholders have not approved
the OI merger agreement at the OFPI special meeting (provided
that the right to terminate will not be available to any party
that breached in any material respect its obligations under the
OI merger agreement in a manner that contributed to the failure
to obtain that shareholder approval);
o by OI if:
i. the Board of Directors of OFPI has failed to recommend, or
for any reason withdrawn or has amended or modified in a
manner adverse to OI its unanimous recommendation in favor
of, the OI merger or approval or adoption of the OI merger
agreement;
ii. OFPI has failed to include in the joint proxy
statement/prospectus the unanimous recommendation of the
Board of Directors of OFPI in favor of approval and adoption
of the OI merger agreement and the OI merger;
iii. the Board of Directors of OFPI has approved, endorsed or
recommended any Acquisition Proposal;
iv. OFPI has entered into any letter of intent or similar
document or any contract relating to any Acquisition
Proposal;
v. OFPI has failed to hold the OFPI special meeting as promptly
as practicable and in any event within 45 days after the
definitive joint proxy statement/prospectus is filed with
the SEC;
vi. a tender or exchange offer relating to securities of OFPI
has been commenced and OFPI has not sent to its
securityholders, within five business days after the
commencement of such tender or exchange offer, a statement
disclosing that OFPI recommends rejection of such tender or
exchange offer;
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vii. an Acquisition Proposal is publicly announced, and OFPI (a)
fails to issue a press release announcing its opposition to
such Acquisition Proposal within five business days after
such Acquisition Proposal is announced or (b) otherwise
fails to actively oppose such Acquisition Proposal; or
viii. a person or group (as defined in the Exchange Act and the
rules promulgated thereunder) shall have acquired more than
fifty percent of OFPI's voting securities (excluding persons
and groups that, as of the date of the OI merger agreement,
hold more than fifty percent of OFPI's voting securities).
o by OFPI or OI if the other party has materially breached any of
its representations, warranties, covenants or agreements in the
OI merger agreement, provided that if the breaching party is
exercising reasonable efforts to cure such breach, then the other
party may not terminate the OI merger agreement. Neither party
may terminate the agreement if it shall have breached in any
material respect its obligations under the OI merger agreement.
Employment Agreements
The OI merger agreement is conditioned upon the execution of an employment
agreement between OFPI and Joseph Stern upon terms that are mutually
satisfactory to OPFI and Mr. Stern. A form of employment agreement is attached
to this joint proxy statement/prospectus as Annex E. See "Management--Employment
Agreements."
Shareholder Lock-up Agreements
The OI merger is conditioned upon the execution of one-year "lock-up"
agreements by each of the OI shareholders. A form of this lock-up agreement is
attached to this joint proxy statement/prospectus as Annex F. Under the terms of
the lock-up agreement, each OI shareholder will agree to refrain from selling or
otherwise transferring any OFPI securities, or rights to acquire any OFPI
securities, that he owns or later acquires, until after the first anniversary of
the closing of the OI merger. For more information on the holdings of Messrs.
Stern and Battendieri, OI's shareholders, see "Principal Shareholders."
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THE SPECTRUM AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AND THE RELATED AGREEMENTS
Please note that the following description of the Spectrum merger agreement
is a summary only. You should read the following summary and the Spectrum merger
agreement attached as Annex B for a full understanding of the Spectrum merger
agreement. The Spectrum merger agreement is incorporated by reference into this
joint proxy statement/prospectus.
Effective Time; Effect of Spectrum Merger
The Spectrum merger will become effective upon the filing of a Certificate
of Merger with the Secretary of State of the State of California (the "Spectrum
Effective Time"). The closing of the Spectrum merger (the "Spectrum Closing")
will occur at the offices of Cooley Godward LLP, One Maritime Plaza, 20th Floor,
San Francisco, California 94111 at a time and on a date to be specified by the
parties, which will be no later than the second day after the satisfaction or
waiver of the conditions to the Spectrum merger (the "Spectrum Closing Date").
The Certificate of Merger will be filed on the Spectrum Closing Date. The
Spectrum Closing and the Spectrum Effective Time are anticipated to be on or
about August 31, 1999.
At the Spectrum Effective Time (a) Spectrum shall be merged with and into
OFPI, (b) the separate corporate existence of Spectrum shall cease, and (c) OFPI
shall be the surviving corporation under the name "Spectrum Organic Products,
Inc."
Conversion of Shares
At the Spectrum Effective Time, by virtue of the Spectrum merger and
without any action on the part of Spectrum or the holders of Spectrum
securities, each outstanding share of Spectrum common stock, will be canceled
and converted into 4,669.53 shares of OFPI common stock.
The exchange ratio of 4,669.53 to 1 will be adjusted for, or OFPI will make
appropriate provisions to reflect the effect of, any stock split, reverse split,
stock dividend, extraordinary dividend or distribution, reorganization,
recapitalization or other like change with respect to OFPI common stock or
Spectrum common stock occurring or having a record or effective date after the
date of the Spectrum merger agreement.
The exchange ratio between the Spectrum common stock and OFPI common stock
is related to the number of OFPI shares outstanding as of the date of the
Spectrum merger, including shares of OFPI common stock issued in the OI merger.
Shares issued pursuant to any OFPI options or warrants outstanding immediately
prior to the Spectrum merger that are exercised after the closing of the
Spectrum merger will result in additional shares being issued to the Spectrum
shareholders. The number of outstanding shares of OFPI common stock used for
such calculation may also be adjusted downward if a specified number of shares
currently held in escrow relating to OFPI's acquisition of Sunny Farms
Corporation are cancelled prior to the closing of the Spectrum merger. The
exchange ratio is based in part upon the average closing price of OFPI's common
stock for the three days prior to the announcement of the mergers. The exchange
ratio may be adjusted if Spectrum and OFPI are required to use a different
valuation method.
No fractional shares will be issued by virtue of the Spectrum merger. In
lieu of a fraction of a share of OFPI common stock, each Spectrum shareholder
will receive (after all fractional shares to be received by such holder are
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aggregated) from OFPI an amount of cash (rounded down to the nearest whole cent)
equal to the product of (a) such fraction, multiplied by (b) the closing price
of a share of OFPI common stock on the Spectrum Closing Date, as reported on the
NASD OTC Bulletin Board system or other applicable market.
Treatment of Options and Warrants
At the Spectrum Effective Time, OFPI will assume all options to purchase
Spectrum common stock then outstanding under Spectrum's 1998 Equity Incentive
Plan as described below under "-- Employee Benefits." As of June 1, 1999 there
were options to purchase a total of 180 shares of Spectrum common stock
outstanding, which will represent options to purchase approximately 840,515
shares of OFPI common stock. Each Spectrum stock option, whether or not
exercisable at the Spectrum Effective Time, to the full extent permitted by
applicable law, shall be assumed by OFPI in a manner so that it shall be
exercisable after the Spectrum Effective Time upon the same terms and conditions
as under the Spectrum Stock Option Plan pursuant to which it was granted and the
applicable option agreement issued thereunder. See the more detailed discussion
under "Employee Benefits" below.
Within 5 business days after the Spectrum Effective Time, OFPI shall file a
registration statement on Form S-8 with the SEC relating to such stock options.
Stock Ownership Following the Spectrum Merger
Based on the capitalization of Spectrum as of the close of business on July
1, 1999 and the 4,669.53 to 1 exchange ratio, an aggregate of approximately
36,286,495 shares of OFPI common stock will be issued to Spectrum shareholders
in the Spectrum merger. At the Spectrum Effective Time, OFPI will assume all
options outstanding immediately prior to the Spectrum Effective Time under the
Spectrum Stock Option Plans. Based on the number of shares of OFPI common stock
issued and outstanding as of June 1, 1999, and after giving effect to the
issuance of OFPI common stock in the Spectrum merger and the OI merger, the
former holders of Spectrum common stock would hold, and have voting power with
respect to approximately 73.8% of OFPI's total issued and outstanding shares
immediately after the Spectrum Effective Time. Holders of former Spectrum
options would hold options and rights to acquire approximately 1.9% of the total
issued and outstanding shares of OFPI common stock immediately after the
Spectrum Effective Time (assuming the exercise of only such options and rights).
Representations and Warranties
Spectrum and OFPI have made representations in the Spectrum merger
agreement relating to, among other things:
o their respective capitalization and organization and similar
corporate matters;
o authorization, execution, delivery and enforceability of the
Spectrum merger agreement;
o conflicts under governing documents, required consents or
approvals, and violations of any agreements or law;
o financial statements and documents filed with the SEC (if any)
and the accuracy of information contained therein;
o absence of material adverse events, changes or effects;
o tax matters relating to the proposed merger;
o the absence of undisclosed liabilities;
o compliance with laws, including food and drug laws;
o litigation;
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o intellectual property matters;
o the disclosure and enforceability of certain material contracts;
o compliance with environmental and tax laws and regulations;
o retirement and other employee plans and matters;
o certain business matters relating to permits and licenses and
insurance;
o liabilities relating to employees, labor unions or other
organizations;
o finders and brokers;
o title to property; accounts receivable, inventory, equipment; and
o insurance.
The representations and warranties of Spectrum or OFPI in the Spectrum
merger agreement described above will survive for two years after the Spectrum
Effective Time.
In addition, Spectrum and OFPI have agreed to make representations that
will serve as the basis for the tax opinions of Carr, McClellan and Cooley
Godward described under "The Mergers -- Material Federal Income Tax
Consequences."
Conduct of OFPI's Business and Spectrum's Business Prior to the Spectrum Merger
During the period from the date of the Spectrum merger agreement until the
Spectrum Effective Time, each of Spectrum and OFPI has agreed to:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have
been conducted prior to the date of the Spectrum merger agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and
employees and maintain its relations and goodwill with all suppliers,
customers, landlords, creditors, employees and other persons having
business relationships with it or any of its subsidiaries;
(c) keep in full force all insurance policies in effect as of the date of
the Spectrum merger agreement; and
(d) cause its officers to report regularly to OFPI or Spectrum, as the
case may be, concerning the status of its business.
The Spectrum merger agreement further provides that, during the period from
the date of the Spectrum merger agreement until the Spectrum Effective Time,
Spectrum or OFPI will not, subject to certain exceptions, take any of the
following actions:
(a) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock
or other securities (other than repurchases of unvested shares from
Spectrum employees upon termination of employment);
(b) not sell, issue or authorize the issuance of (i) any capital stock or
other security, (ii) any option, call, warrant or right to acquire, or
relating to, any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or
other security (except that: (a) Spectrum or OFPI may issue common
stock upon the exercise of outstanding options or upon conversion of
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convertible securities outstanding on the date of the merger
agreement, (b) Spectrum may continue to grant stock options in the
ordinary course and consistent with past practice, provided that any
such options shall be subject to Spectrum's standard vesting schedule
(but such options shall not vest more than 25% per year following the
grant thereof) and in no event shall any such options contain any
provisions pursuant to which the vesting of such options may or would
be accelerated in any respect upon any change in control transaction
or any other transaction (including the merger) or any similar
provision, and (c) OFPI may issue shares of OFPI common stock in the
OI merger);
(c) amend or waive any of its rights under, or (except pursuant to the
terms of OFPI options outstanding on the date of the merger agreement
that provide for automatic acceleration upon consummation of the
merger) permit the acceleration of vesting under any provision of
OFPI's stock plans, any provision of any Spectrum or OFPI agreement
evidencing any outstanding option or warrant, or any provision of any
restricted stock purchase agreement;
(d) amend or permit the adoption of any amendment to Spectrum's or OFPI's
articles of incorporation or bylaws, or effect or permit Spectrum or
OFPI, or their subsidiaries, to become a party to any acquisition
transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(e) form any subsidiary or acquire any equity interest or other interest
in any other entity;
(f) make any capital expenditure, except for capital expenditures that,
when added to all other capital expenditures made during the period
from the date of the Spectrum merger agreement until the Spectrum
Effective Time, do not exceed, in the case of Spectrum, $100,000, and
in the case of OFPI, $50,000, in the aggregate;
(g) (i) enter into or become bound by, or permit any of the assets owned
or used by it to become bound by, any material contracts except in the
ordinary course of business, or (ii) amend or prematurely terminate,
or waive any material right or remedy under, any material contracts;
(h) (i) acquire, lease or license any material right or other material
asset from any other person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any
other person, or (iii) waive or relinquish any material right, other
than in the ordinary course of business and except for immaterial
assets acquired, leased, licensed or disposed of by Spectrum or OFPI
pursuant to contracts that are not material contracts;
(i) (i) lend money to any person, or (ii) incur or guarantee any
indebtedness, except for routine advances of expenses to employees in
the ordinary course of business and except that Spectrum or OFPI may
make routine borrowings in the ordinary course of business under its
existing bank lines of credit;
(j) (i) pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its
directors, officers or employees, other than in the ordinary course of
business and solely with respect to non-officers and non-directors or
(ii) establish, adopt or amend any employee benefit plan;
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(k) change any of its methods of accounting or accounting practices in any
respect;
(l) make any tax election;
(m) commence or settle any legal proceeding not disclosed in Spectrum's or
OFPI's disclosure schedule to the Spectrum merger agreement;
(n) enter into any material transaction or take any other material action
outside the ordinary course of business or inconsistent with its past
practices; and
(o) agree or commit to take any of the actions described in clauses "(a)"
through "(n)" described above.
Conduct of Business Following the Spectrum Merger
Pursuant to the Spectrum merger, Spectrum will cease to exist as a
corporation and will be merged with and into OFPI, with OFPI as the surviving
corporation. All property, rights, privileges, powers and franchises of Spectrum
will vest in OFPI; all debts, liabilities and duties of Spectrum will become the
debts, liabilities and duties of OFPI. OFPI shall change its name to "Spectrum
Organic Products, Inc."
Pursuant to the Spectrum merger agreement, OFPI shall file Amended and
Restated Articles of Incorporation attached hereto as Annex D. The bylaws of
OFPI are the bylaws attached as Exhibit D to the Spectrum merger agreement. The
directors and officers of OFPI are the individuals listed on Exhibit C to the
Spectrum merger agreement.
No Solicitation
During the period from the date of the Spectrum merger agreement until the
Spectrum Effective Time, each of Spectrum and OFPI has agreed that it shall not,
and shall cause its subsidiaries not to, and shall cause its and its
subsidiaries' respective officers and directors not to:
o solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as defined below) or
take any action (excluding any press releases issued in
connection with the announcement of the execution of the Spectrum
merger agreement) that could reasonably be expected to lead to an
Acquisition Proposal,
o furnish any information regarding Spectrum or OFPI, or its
subsidiaries, to any third party in connection with or in
response to an Acquisition Proposal,
o continue or engage in discussions with any third party with
respect to any Acquisition Proposal,
o approve, endorse or recommend any Acquisition Proposal, or
o enter into any letter of intent or similar document or any
contract contemplating or otherwise relating to any Acquisition
Proposal.
For the purposes of the Spectrum merger agreement, an "Acquisition
Proposal" means any offer or proposal made by a third party for:
50.
<PAGE>
o any sale, lease exchange, transfer or other disposition of the
assets of Spectrum or OFPI, or its subsidiaries, constituting
more than 10% of the consolidated assets of Spectrum or OFPI, or
accounting for more than 10% of the consolidated revenues of
Spectrum or OFPI in any one transaction or in a series of related
transactions;
o any offer to purchase, tender offer, exchange offer or any
similar transaction or series of related transactions made by any
third party involving more than 10% of the outstanding shares of
capital stock of Spectrum or OFPI, or any shares of the capital
stock of any of its subsidiaries;
o any merger, consolidation, business combination, share exchange,
reorganization or other similar transaction or series of related
transactions involving Spectrum or OFPI, or its subsidiaries; or
o any assignment, transfer or licensing or other disposition of, in
whole or in part, certain intellectual property, other than in
the ordinary course of business.
Spectrum or OFPI may furnish information regarding it or its subsidiaries
to, or enter discussions with, a third party in response to a Superior Proposal
(as defined below) if:
o Spectrum's or OFPI's Board of Directors concludes in good faith,
based upon the written advice of its outside legal counsel, that
such action is required in order for such party's Board of
Directors to comply with its fiduciary obligations to Spectrum's
or OFPI's shareholders, under applicable law,
o prior to furnishing any such information to, or entering into
discussions with, such third party, Spectrum or OFPI gives the
other party written notice of the identity of the third party and
of Spectrum's or OFPI's intention to furnish information to, or
enter into discussions with, such third party, and Spectrum or
OFPI, receives from such third party an executed confidentiality
agreement containing customary limitations on the use and
disclosure of all written and oral information furnished to such
third party by or on behalf of Spectrum or OFPI,
o prior to furnishing any such information to any third party,
Spectrum or OFPI furnishes such information to the other party
(to the extent such information has not been previously
furnished), and
o Spectrum or OFPI, or any of its representatives has not violated
any of the restrictions set forth above.
For purposes of the Spectrum merger agreement, the term "Superior Proposal"
means an unsolicited, bona fide written proposed Acquisition Proposal submitted
by a third party that Spectrum's or OFPI's Board of Directors determines in good
faith, based upon the written advice of its financial advisor, to be more
favorable from a financial point of view to Spectrum's or OFPI's shareholders
than the terms of the Spectrum merger; provided, however, that any such
Acquisition Proposal shall not be deemed to be a "Superior Proposal" if any
financing required to consummate the transaction contemplated by such offer is
not committed at the time such Acquisition Proposal is made.
51.
<PAGE>
In addition, each of Spectrum and OFPI has agreed to promptly inform the
other party orally and in writing of any Acquisition Proposal (including the
identity of the third party making such Acquisition Proposal and its terms).
Spectrum and OFPI have also agreed to keep the other party informed regarding
the status of any such Acquisition Proposal.
Fees, Expenses and Termination Fees
Except as set forth below, all fees and expenses incurred in connection
with the Spectrum merger agreement and the transactions contemplated thereby
will be paid by the party that incurs them. OFPI has agreed to pay fees and
expenses incurred by Spectrum in connection with the merger and the Spectrum
merger agreement if:
o the Spectrum merger agreement is terminated by either OFPI or
Spectrum because the OFPI shareholders do not approve the merger;
or
o the Spectrum merger agreement is terminated by Spectrum because
the OFPI Board fails to recommend the approval of the Spectrum
merger agreement to OFPI shareholders, or withdraws, amends or
modifies in a manner adverse to Spectrum its recommendations to
OFPI shareholders for approval of the Spectrum merger agreement.
Conditions to the Spectrum Merger
The respective obligations of Spectrum and OFPI to effect the Spectrum
merger are subject to the satisfaction or waiver in writing at or prior to the
Spectrum Effective Time of the following conditions:
o the representations and warranties of Spectrum or OFPI, contained
in the Spectrum merger agreement are accurate in all material
respects as of the date of the Spectrum merger agreement;
o Spectrum or OFPI, has performed and complied in all material
respects with all covenants or obligations required by the
Spectrum merger agreement to be performed or complied with on or
prior to the Spectrum Closing Date;
o all consents listed in each of Spectrum's or OFPI's disclosure
schedule have been obtained and are in full force and effect;
o Spectrum and OFPI shareholders have duly approved and adopted the
Spectrum merger agreement and the Spectrum merger;
o the SEC has declared effective the Registration Statement of
which this joint proxy statement/prospectus is a part, and the
Registration Statement shall not be subject to any stop order
suspending that effectiveness or proceedings seeking a stop
order;
o OFPI and Spectrum have received legal opinions from Cooley
Godward LLP and Carr, McClellan, Ingersoll, Thompson & Horn,
respectively;
o OFPI and Spectrum have received opinions of Carr, McClellan,
Ingersoll, Thompson & Horn and Cooley Godward LLP, respectively,
to the effect that the Spectrum merger will constitute a
reorganization within the meaning of Section 368(a) of the Code;
52.
<PAGE>
o no temporary restraining order, preliminary or permanent
injunction or other orders preventing the consummation of the
merger or otherwise makes it illegal has been issued by any court
of competent jurisdiction; and
o a Compliance Certificate signed by the Chief Executive Officer of
Spectrum or OFPI, evidencing compliance with the conditions set
forth in the Spectrum merger agreement has been delivered to the
other party.
In addition, the obligations of OFPI to consummate and effect the Spectrum
merger are also subject to the satisfaction or waiver at or prior to the
Spectrum Effective Time, of the following condition, which may be waived by
OFPI:
o Spectrum Commodities has merged with and into Spectrum Naturals.
In addition, the obligations of Spectrum to consummate and effect the
Spectrum merger are subject to the satisfaction or waiver at or prior to the
Spectrum Effective Time, of each of the following conditions, any of which may
be waived by Spectrum:
o Spectrum has received written resignations from specified
directors of OFPI;
o OFPI has acquired 100% of the outstanding capital stock of OI;
o OFPI has entered into Shareholder Lock-up Agreements prohibiting
specified shareholders from transferring any OFPI common stock
beneficially owned by such persons for a period of one year from
the Spectrum Closing Date;
o OFPI has entered into employment agreements with non-compete
provisions with each of Jethren Phillips, John Battendieri,
Joseph Stern, Richard Bacigalupi and Neil Blomquist;
o Spectrum, OFPI and OI have refinanced their existing credit and
loan arrangements in a manner satisfactory to Spectrum; and
o No more than five percent of OFPI's shareholders shall be
eligible for dissenters' rights.
Currently, both OFPI and Spectrum anticipate that they will satisfy all
conditions to the Spectrum merger at or prior to consummation of the Spectrum
merger.
Termination of the Spectrum Merger Agreement
The Spectrum merger agreement provides that it may be terminated at any
time prior to the Spectrum Effective Time, whether before or after approval of
the Spectrum merger by the Spectrum shareholders:
o by mutual written consent of OFPI and Spectrum;
o by either OFPI or Spectrum if the Spectrum merger shall not have
been consummated on or before August 31, 1999 (unless the failure
to consummate the Spectrum merger is attributable to a failure on
the part of the party seeking to terminate the Spectrum merger
agreement to perform any material obligation required to be
performed by such party at or prior to the Spectrum Effective
Time);
53.
<PAGE>
o by either OFPI or Spectrum if a court of competent jurisdiction
or other governmental entity has issued a final and
non-appealable order, decree, ruling, or taken any other action,
that permanently restrains, enjoins or otherwise prohibits the
Spectrum merger;
o by either OFPI or Spectrum if the OFPI shareholders have not
approved the Spectrum merger agreement at the OFPI special
meeting (provided that the right to terminate will not be
available to any party that breached in any material respect its
obligations under the Spectrum merger agreement in a manner that
contributed to the failure to obtain that shareholder approval);
o by either OFPI or Spectrum if the Spectrum shareholders have not
approved the Spectrum merger agreement at the Spectrum special
meeting (provided that the right to terminate will not be
available to any party that breached in any material respect its
obligations under the Spectrum merger agreement in a manner that
contributed to the failure to obtain that shareholder approval);
o by Spectrum if:
i. the Board of Directors of OFPI has failed to recommend, or
for any reason withdrawn or has amended or modified in a
manner adverse to Spectrum its unanimous recommendation in
favor of, the Spectrum merger or approval or adoption of the
Spectrum merger agreement;
ii. OFPI has failed to include in the joint proxy
statement/prospectus the unanimous recommendation of the
Board of Directors of OFPI in favor of approval and adoption
of the Spectrum merger agreement and the Spectrum merger;
iii. the Board of Directors of OFPI has approved, endorsed or
recommended any Acquisition Proposal;
iv. OFPI has entered into any letter of intent or similar
document or any contract relating to any Acquisition
Proposal;
v. OFPI has failed to hold the OFPI special meeting as promptly
as practicable and in any event within 45 days after the
definitive joint proxy statement/prospectus is filed with
the SEC;
vi. a tender or exchange offer relating to securities of OFPI
has been commenced and OFPI has not sent to its
securityholders, within five business days after the
commencement of such tender or exchange offer, a statement
disclosing that OFPI recommends rejection of such tender or
exchange offer;
vii. an Acquisition Proposal is publicly announced, and OFPI (a)
fails to issue a press release announcing its opposition to
such Acquisition Proposal within five business days after
such Acquisition Proposal is announced or (b) otherwise
fails to actively oppose such Acquisition Proposal; or
54.
<PAGE>
viii. a person or group (as defined in the Exchange Act and the
rules promulgated thereunder) shall have acquired more than
fifty percent of OFPI's voting securities (excluding persons
and groups that, as of the date of the Spectrum merger
agreement, hold more than fifty percent of OFPI's voting
securities).
o by OFPI if:
i. the Board of Directors of Spectrum has failed to recommend,
or has withdrawn or has amended or modified in a manner
adverse to OFPI its unanimous recommendation in favor of,
the Spectrum merger or approval or adoption of the Spectrum
merger agreement;
ii. Spectrum has failed to include in the joint proxy
statement/prospectus the unanimous recommendation of the
Board of Directors of Spectrum in favor of approval and
adoption of the Spectrum merger agreement and the Spectrum
merger;
iii. the Board of Directors of Spectrum has approved, endorsed or
recommended any Acquisition Proposal;
vi. Spectrum has entered into any letter of intent or similar
document or any contract relating to any Acquisition
Proposal;
v. Spectrum has failed to hold the Spectrum special meeting as
promptly as practicable and in any event within 45 days
after the definitive joint proxy statement/prospectus is
filed with the SEC;
vi. a tender or exchange offer relating to securities of
Spectrum has been commenced and Spectrum has not sent to its
securityholders, within five business days after the
commencement of such tender or exchange offer, a statement
disclosing that Spectrum recommends rejection of such tender
or exchange offer;
vii. an Acquisition Proposal is publicly announced, and Spectrum
(a) fails to issue a press release announcing its opposition
to such Acquisition Proposal within five business days after
such Acquisition Proposal is announced or (b) otherwise
fails to actively oppose such Acquisition Proposal; or
viii. a person or group (as defined in the Exchange Act and the
rules promulgated thereunder) shall have acquired more than
fifty percent of the Spectrum's voting securities (excluding
persons and groups that, as of the date of the Spectrum
merger agreement, hold more than fifty percent of Spectrum's
voting securities.
o by OFPI or Spectrum if the other party has materially breached
any of its representations, warranties, covenants or agreements
in the Spectrum merger agreement, provided that if the breaching
55.
<PAGE>
party is exercising reasonable efforts to cure such breach, then
the other party may not terminate the Spectrum merger agreement.
Neither party may terminate the agreement if it shall have
breached in any material respect its obligations under the
Spectrum merger agreement.
Employee Benefits
At the Spectrum Effective Time, OFPI will assume each outstanding option to
purchase shares of Spectrum common stock under the Spectrum 1998 Equity
Incentive Plan, whether that option is vested or unvested. Each Spectrum stock
option assumed by OFPI will continue to have and be subject to substantially the
same terms and conditions as applied under the Spectrum Stock Option Plan and
related documents, except that:
o each such Spectrum stock option will be exercisable for that
number of whole shares of OFPI common stock equal to the product
of the number of shares of Spectrum common stock that were
issuable on exercise of such option immediately prior to the
Spectrum Effective Time, multiplied by the 4,669.53 to 1 exchange
ratio, and rounded down to the nearest whole number of shares of
OFPI common stock; and
o the per share exercise price for the shares of OFPI common stock
issuable on exercise of the Spectrum stock option will equal the
quotient determined by dividing the exercise price per share of
Spectrum common stock at which that option was exercisable
immediately prior to the Spectrum Effective Time by the 4,669.53
to 1 exchange ratio, rounded up to the nearest whole cent.
If any shares of Spectrum common stock outstanding immediately prior to the
Spectrum Effective Time are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with Spectrum, then the shares of OFPI common stock
issued in exchange for such shares of Spectrum common stock will also be
unvested and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of OFPI common stock
may accordingly be marked with appropriate legends. Spectrum shall take all
action that may be necessary to ensure that, from and after the Spectrum
Effective Time, OFPI is entitled to exercise any such repurchase option or other
right set forth in any such restricted stock purchase agreement or other
agreement.
No later than five business days after the Spectrum Effective Time, OFPI
will file a Registration Statement on Form S-8 under the Securities Act of 1933
covering the shares of OFPI common stock issuable pursuant to outstanding
options and rights to purchase Spectrum common stock assumed by OFPI pursuant to
the Spectrum merger.
Employment Agreements
The Spectrum merger agreement is conditioned upon the execution of
employment agreements between OFPI and each of Jethren Phillips, John
Battendieri, Joseph Stern, Richard Bacigalupi and Neil Blomquist upon terms that
are mutually satisfactory to OPFI and Spectrum. A form of employment agreement
is attached to this joint proxy statement/prospectus as Annex E. See
"Management--Employment Agreements."
56.
<PAGE>
Shareholder Lock-up Agreements
The Spectrum merger is conditioned upon the execution of one-year "lock-up"
agreements by shareholders and optionholders of Spectrum. A form of this lock-up
agreement is attached to this joint proxy statement/prospectus as Annex F. Under
the terms of the lock-up agreement, each Spectrum shareholder or optionholder
will agree to refrain from selling or otherwise transferring any OFPI
securities, or rights to acquire any OFPI securities, that he owns or later
acquires, until after the first anniversary of the closing of the Spectrum
merger. For more information on the holdings of Messrs. Phillips and Blomquist,
Spectrum's shareholders (and Mr. Blomquist is Spectrum's sole optionholder), see
"Principal Shareholders."
57.
<PAGE>
MANAGEMENT
Proposed Directors and Executive Officers of Combined Company
Certain information as of May 14, 1999 regarding OFPI's proposed directors
and executive officers, as contemplated by the Spectrum merger and OI merger, is
set forth below.
Name Age Position
- ---- --- --------
Jethren Phillips (l) ........... 48 Chief Executive Officer and Chairman
of the Board
Richard R. Bacigalupi........... 49 Chief Financial Officer and Treasurer
Neil Blomquist.................. 47 President of Retail Brands and
Corporate Secretary
Joseph Stern.................... 46 President of Industrial Ingredients
John Battendieri................ 52 Vice President of Product Development
and Director
Phillip Moore (1) (2)........... 49 Director
- ----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Jethren Phillips founded Spectrum in November 1980 and has served as its
Chief Executive Officer and Chairman of the Board of Directors since its
inception. Prior to founding Spectrum, he was a principal of Spectrum Brokerage,
a natural foods brokerage and product development company, from 1978 to 1981. In
1995, Mr. Phillips founded Spectrum Commodities, an organic and natural food
ingredients company, and has served as its Chief Executive Officer and Chairman
of the Board since its inception.
Richard R. Bacigalupi has served as OFPI's Chief Financial Officer since
January 1999. Prior to joining OFPI, he served as the Chief Financial Officer
for PowerBar, Inc., a branded consumer product company, from February 1995 to
May 1998. From October 1991 to April 1994, Mr. Bacigalupi served as Corporate
Controller for Spreckels Industries, Inc., a sugar processing and equipment
manufacturing company. Mr. Bacigalupi is a Certified Public Accountant and holds
a bachelor of science degree in business administration from California State
University, Fresno.
Neil Blomquist has served as Spectrum's President and Chief Operating
Officer since January 1994, and served as its director of sales and marketing
from 1989 to 1994. Mr. Blomquist has served on the board of directors of the
California Olive Oil Council since 1996. Mr. Blomquist holds a bachelor's degree
in business management and economics from the University of South Dakota.
Joseph Stern co-founded and has served as OI's President since June 1996.
Prior to joining OI, he founded Creative Team Consulting, a consulting company,
which he operated from 1992 to 1996. From 1985 to 1991, Mr. Stern was President
of United News, which was the fourth largest publication distributor in the
United States when Mr. Stern sold that business to Charles Levy Company in 1991.
Mr. Stern holds a bachelor's degree in science from Penn State University. Prior
to that, Mr. Stern founded Earthly Organics, a natural and organic food
distributor, and served as its President from 1975 to 1985, when it was sold to
Cornucopia (now United Natural Foods).
John Battendieri founded OFPI in 1988 and has served as its President and
as a director since 1988 and as its Chief Executive Officer since October 1998.
In 1987, he founded Santa Cruz Naturals, an organic fruit juice company, which
was sold to J.M. Smucker Company, a food products and condiments company, in
58.
<PAGE>
1992. Mr. Battendieri has grown, developed and marketed a wide variety of
natural food products for more than 25 years. He has also served as a director
of OI since its inception. Mr. Battendieri attended Southern Illinois
University.
Phillip Moore founded Moore Consulting, a mergers and acquisition
consulting firm, in April 1996. Prior to that, he was the owner of Perimeter
Sales & Merchandising, a food brokerage firm, from September 1995 to April 1996.
From 1981 to September 1995, Mr. Moore served in various capacities for
McCormick & Company, Incorporated, a seasonings and specialty foods company. Mr.
Moore holds a bachelor's degree in accounting from Guilford College.
OFPI's board of directors currently is comprised of three directors, with
two vacancies. Directors are elected by the shareholders at each annual meeting
of shareholders to serve until the next annual meeting of shareholders or until
their successors are duly elected and qualified. Upon the closing of the
mergers, Jethren Phillips and Phillip Moore will be appointed to the OFPI Board,
and Kenneth Steel, Jr. and Charles Bonner will resign from the OFPI board.
Compensation Committee Interlocks and Insider Participation
None of OFPI's executive officers are members of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of OFPI's board of directors. Following the mergers, none of
OFPI's executive officers will serve as members of the board of directors or
compensation committee of any entity (other than OFPI) that has one or more
executive officers serving as a member of OFPI's board of directors.
Board Committees
The audit committee of the OFPI board of directors, currently consisting of
Messrs. Steel and Bonner, reviews the internal accounting procedures of OFPI and
consults with and reviews the services provided by OFPI's independent auditors.
The compensation committee of the OFPI board of directors, also currently
consisting of Messrs. Steel and Bonner, reviews and recommends to the OFPI board
the compensation and benefits for OFPI's executive officers. Following the
merger, OFPI's board of directors intends to appoint Mr. Moore and another
non-employee director to be named after the mergers to the audit committee, and
Messrs. Moore and Phillips to the compensation committee. Mr. Phillips will not
participate in any decisions relating to his compensation.
Director Compensation
OFPI's non-employee directors do not receive any cash compensation as
directors, although they are reimbursed for out-of-pocket expenses in attending
board of directors' meetings. Mr. Steel received options to purchase 20,000
shares of OFPI common stock at $2.50 per share and 30,000 shares of OFPI common
stock at $2.00 per share. Mr. Bonner received options to purchase 20,000 shares
of OFPI common stock at $2.50 per share and 5,000 shares of OFPI common stock at
$2.00 per share.
Employment Agreements
Upon the completion of the mergers, OFPI will enter into employment
agreements with Jethren Phillips, Richard Bacigalupi, Neil Blomquist, Joseph
Stern and John Battendieri to serve as the executive officers of OFPI, in the
capacities set forth in "Management--Proposed Directors and Executive Officers
of Combined Company."
59.
<PAGE>
Under the terms of the employment agreement, in addition to compensation
and benefits, each executive is eligible for annual bonuses in amounts
determined in accordance with performance objectives. Each executive also agrees
not to solicit any employee, customer or supplier of OFPI while employed by OFPI
and for two years thereafter. Furthermore, each executive agrees not to compete
with OFPI in any line of business engaged in (or planned to be engaged in) by
OFPI.
Indemnification and Limitation of Director and Officers Liability
OFPI's Restated Articles of Incorporation limits the liability of directors
to the maximum extent permitted by California law. California law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:
o acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
o acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director;
o any transaction from which a director derived an improper personal
benefit; or
o acts or omissions that show a reckless disregard for the director's
duty to the corporation or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury
to the corporation or its shareholders.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
60.
<PAGE>
Executive Compensation
The following table sets forth the annualized compensation awarded or paid
by OFPI during the fiscal years ended June 30, 1998 and 1997 and OFPI's Chief
Executive Officers and four other most highly compensated officers whose annual
salary and bonus exceeded $100,000 in fiscal 1998 and 1997 (hereinafter, the
"Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Other
Underlying Annual Securities
Fiscal Compen- Underlying
Name and Principal Position Year Salary ($) Bonus ($) sation ($) Options
- --------------------------- ---- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Floyd R. Hill (1)..................... 1998 $123,000 -- -- 200,000 (2)
Chief Executive Officer 1997 $110,000
1996 $ 85,000
James F. Swallow (3)................... 1998 -- -- -- 1,808,784 (3)
Chief Executive Officer
John Battendieri...................... 1998 $114,000 -- $168,000(5) --
President 1997 $110,000 -- -- --
1996 $220,000 -- -- --
Donald Ladwig (6)..................... 1998 -- -- -- --
Vice President of Sales and Marketing 1997 $100,000 -- $5,000 --
</TABLE>
- ----------
(1) Mr. Hill was OFPI's Chief Executive Officer during fiscal 1998 from July 1,
1997 through May 8, 1998.
(2) Of these options, 100,000 were terminated by agreement upon Mr. Hill's
departure from OFPI in 1998.
(3) Mr. Swallow was OFPI's Chief Executive Officer during fiscal 1998 from May
9, 1998 through June 30, 1998. In fiscal 1998, OFPI paid consulting fees of
$62,000 to Global National Brands, of which Mr. Swallow is a principal, and
he did not receive a salary from OFPI.
(4) Includes 1,808,784 shares issuable pursuant to options granted to Global
Natural Brands, Ltd., attributable to Mr. Swallow through his partial
ownership of Global. These options expired in October 1998 upon termination
of the management services agreement between OFPI and Global. See "Business
of OFPI - Legal Proceedings."
(5) Represents forgiveness of debt. See "Certain Transactions."
(6) Mr. Ladwig left OFPI in 1997.
61.
<PAGE>
3
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1998 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------
Percentage
of Total Potential Realizable Value of
Number of Options Assumed Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise For Option Term (4)
Options In Fiscal Price Expiration -------------------
Name Granted (#)(1) Year (%)(2) ($/sh)(3) Date 5%($) 10%($)
- ---- -------------- ----------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James F. Swallow 1,808,784 100% $2.25 Variable (5) -- --
</TABLE>
- ----------
(1) Options generally vest at a rate 20% on the first anniversary of the
vesting commencement date and 1/48th each month thereafter. The term of
each option granted is generally the earlier of (i) ten years or 60-90 days
after termination of the optionee's services to OFPI. Options are
immediately exercisable; however, the unvested shares purchasable under
such options subject to repurchase by OFPI at the original exercise price
paid per share upon the optionee's cessation-of service prior to the
vesting of such shares.
(2) Based on an aggregate of 1,808,784 options granted to employees,
consultants and directors (including options granted to Global National
Brands pursuant to a management agreement), including the Named Executive
Officers, of OFPI during the fiscal year ended June 30, 1998.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by OFPI's
board of directors.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that the
fair market value of OFPI's common stock on the date of grant appreciates
at the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its
term for the appreciated stock price.
(5) These options were granted to Global National Brands. The vesting of these
options was based upon the achievement of performance milestones that were
specified in a management agreement with Global. These milestones were
never achieved and the options have subsequently been cancelled.
62.
<PAGE>
Aggregate Option Exercises in Fiscal 1998 and June 30, 1998 Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Name Unexercised Options of June 30, 1998 Option of June 30, 1998 (1)
---- ------------------------------------ ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Floyd R. Hill 300,000 -- $366,250 --
James F. Swallow -- 1,808,784 (2) -- $2,939,274
Donald Ladwig -- 10,000 (2) -- $16,250
</TABLE>
- ----------
(1) Based on a fair market value of $3.3875 per share as of June 30, 1998. See
"Price Range of Common Stock."
(2) All of these options have subsequently been cancelled.
There were no exercises of options by any Named Executive Officer in
the fiscal year ended June 30, 1998.
Employee Benefit Plan
In November 1995, OFPI adopted its 1995 Stock Option 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 o the United
States Internal Revenue Code of 1986. Incentive stock options are issuable only
to eligible officers, directors and key employees of OFPI.
The 1995 Plan is administered by the OFPI board of directors. OFPI has
reserved 625,000 shares of common stock for issuance under the 1995 Plan. Under
the 1995 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 OFPI 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 OFPI
from the date of grant to the date of exercise. Stock options under the 1995
Plan must be granted within ten years from the effective date of the 1995 Plan.
The exercise date of a stock option granted under the 1995 Plan cannot be later
than ten years from the date of grant. Any options that expire unexercised or
that terminate upon an optionee's ceasing to be employed by OFPI become
available once again for issuance. Shares issued upon exercise of an option will
rank equally with other shares then outstanding.
As of March 31, 1999, 437,000 stock options were outstanding under the 1995
Plan for officers, directors and employees (84,000 for executive officers and
directors) at exercise prices of $2.00 to $3.34 per share.
63.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the OFPI's common stock as of June 3, 1999, and as
adjusted to reflect the sale of the shares of common stock offered pursuant to
the Spectrum merger and the OI merger for (i) each of the combined company's
proposed executive officers, (ii) each of the combined company's proposed
directors, (iii) each holder of more than 5% of OFPI's common stock prior to the
mergers, (iv) OFPI's current executive officers and directors and (v) all
proposed directors and executive officers of the combined company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to The Offering (1) After The Offering (2)
Beneficial Owner Number Percent Number Percent
---------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Jethren Phillips (3) .................... -- -- 31,519,328 71.9%
John Battendieri (4) .................... 2,102,499 27.8% 4,077,499 9.3%
Sunny Farms Corp. (5) ................... 566,667 7.5% 566,667 1.3%
2400 Florida Avenue
Richmond, CA ...........................
Steven Reedy ............................ 450,000 6.0% 450,000 1.0%
1104 San Mateo Avenue
San Francisco, CA ......................
Dean Nicholson .......................... 442,750 5.9% 442,750 1.0%
2609 Hillside Drive
Burlingame, CA .........................
Neil Blomquist (6) ...................... -- -- 1,657,683 3.7%
Kenneth A. Steel, Jr. (7) ............... 380,019 5.0% 380,019 *
Charles Bonner (8) ...................... 25,000 * 25,000 *
Joseph Stern (9) ........................ 2,000 * 1,977,000 4.5%
Phillip Moore (10) ...................... 48,000 * 366,000 *
Richard R. Bacigalupi (11) .............. -- -- -- --
All proposed directors and
executive officers of the
combined company as a
group (six persons) (12) ............... 2,152,499 28.5% 39,597,510 87.9%
</TABLE>
- ----------
* Less than 1%.
(1) Percentage of beneficial ownership prior to the offering is based on
7,559,002 shares of OFPI common stock outstanding as of June 3, 1999. Does
not include outstanding options to purchase 207,000 shares at exercise
prices ranging from $2.00 to $3.34, or outstanding warrants to purchase
590,656 shares at exercise prices ranging from $2.00 to $4.00. Includes
295,833 shares held in an escrow related to OFPI's acquisition of Sunny
Farms Corporation, a portion of which are subject to cancellation.
See "Certain Transactions."
(2) Percentage of beneficial ownership after the offering is based on
approximately 36,286,495 shares to be issued in connection with the
mergers.
(3) The address for Mr. Phillips is c/o Spectrum Naturals, Inc., 133 Copeland
Street, Petaluma, CA 94952. Includes 31,519,328 shares issued in connection
with the Spectrum merger.
(4) The address for Mr. Battendieri is c/o Organic Food Products, Inc., 550
Monterey Road, Suite B, Morgan Hill, CA 95037. Includes 1,975,000 shares
issued in connection with the OI merger.
64.
<PAGE>
(5) Includes 295,833 shares held in escrow, a portion of which are subject to
cancellation. See "Certain Transactions."
(6) Includes (i) 817,167 shares and (ii) 840,515 shares issuable upon the early
exercise of options vesting through October 2001, 210,128 of which will be
fully vested and no longer subject to repurchase within 60 days of June 3,
1999, each issued in connection with the Spectrum merger. The 840,515
options are exercisable at an exercise price of approximately $0.32 per
share.
(7) Includes 50,000 shares issuable upon exercise of options exercisable within
60 days of June 3, 1999 at exercise prices ranging from $2.00 to $2.50 per
share, and 25,328 shares issuable upon warrants exercisable within 60 days
of June 3, 1999 at $2.625 per share. Also includes 25,328 shares issuable
upon warrants exercisable within 60 days of June 3, 1999 at $2.625 per
share, which are beneficially owned by Mr. Steel and belong to his brother,
Robert Steel.
(8) Includes 25,000 shares issuable upon exercise of options exercisable within
60 days of June 3, 1999 at exercise prices ranging from $2.00 to $2.50 per
share.
(9) Includes 1,975,000 shares issued in connection with the OI merger.
(10) Includes approximately 318,000 shares to be paid to Moore Consulting upon
the completion of the mergers. See "Certain Transactions."
(11) Does not include 418,000 shares issuable upon exercise of options to be
granted on or prior to the closing of the mergers, none of which will be
exercisable within 60 days of June 3, 1999.
(12) Includes 841,123 shares issuable upon the early exercise of options vesting
through October 2001, 78,855 of which will be fully vested and no longer
subject to repurchase within 60 days of June 3, 1999, and approximately
318,000 shares to be issued upon completion of the mergers.
65.
<PAGE>
CERTAIN TRANSACTIONS
John Battendieri, OFPI's current Chief Executive Officer and Chairman of
the Board, is also currently a director and 50% shareholder of OI. Mr.
Battendieri abstained from voting as a director of OI and OFPI upon matters
relating to each other company. Following the mergers, Mr. Battendieri will be
Vice President of Product Development and a director of OFPI.
In October 1998, OFPI and OI entered into a joint venture arrangement under
which the two companies provide private label products to manufacturers and
retailers. Under this arrangement, OFPI and OI are currently producing juice
concentrates, applesauces, and fruit juices. OFPI and OI share equally the
inventory costs and gross profit under the arrangement, except with respect to
one customer where OI receives the first 10% of the gross margin, after which
OFPI and OI share the remainder equally. Total revenue generated under the
arrangement as of March 31, 1999 was approximately $68,000. OFPI's total
purchases from OI under this arrangement amounted to approximately $368,000
during fiscal 1998 and approximately $82,000 for the nine months ended March 31,
1999. OFPI management believes that the price of, and terms for, the ingredients
purchased from OI were fair, reasonable and consistent with prices and terms
that would be available to OFPI from third parties.
In June 1996, Mr. Battendieri entered into a three-year employment
agreement with OFPI that provides for an annual salary of $110,000. The
agreement originally called for non-interest bearing loans of $7,000 per month
during the full term of the employment agreement repayable the earlier of August
1999 or upon termination of the agreement. As of June 30, 1998, OFPI had loaned
an aggregate of $168,000 loaned to Mr. Battendieri, and that amount was forgiven
by OFPI effective as of June 30, 1998. OFPI agreed to the loan arrangement as a
negotiated part of the 1996 merger that created OFPI. This agreement will be
terminated and replaced upon the closing of the mergers. See
"Management--Employment Agreements."
Spectrum has agreed to pay to Moore Consulting, of which Phillip Moore, a
proposed director of OFPI following the mergers, is a principal, a fee upon the
closing of the Spectrum merger. Based upon OFPI's closing stock price for the
three days preceding the announcement of the signing of the Spectrum merger
letter of intent, Spectrum expects to pay to Moore Consulting a fee of
approximately $375,000. This fee will be paid in $187,500 of cash and
approximately 265,000 shares of OFPI common stock. Spectrum intends to hire
Moore Consulting on an ongoing basis after the completion of the mergers.
Moore Consulting is also a sub-contractor for Monterey Bay Corporate
Development, an investment consulting firm, which has a fee arrangement with OI.
Under the sub-contracting arrangement, Moore Consulting will be paid
approximately $37,500 and approximately 53,000 shares of OFPI stock by OI upon
the completion of the OI merger.
Spectrum has entered into a co-packing and distribution agreement with
Tummy Pleasers, Inc. Tummy Pleasers is developing a food product under the name
"Chocolate Spoonfuls." Under this agreement, Spectrum will pay for all
pre-launch development costs of the Chocolate Spoonfuls product, as well as all
sales, marketing and distribution costs. It is intended that Spectrum will
receive the gross and net profit margin from any sales, and that Tummy Pleasers
will license the use of the Chocolate Spoonfuls trademark to Spectrum. Jethren
Phillips, the Chief Executive Officer, Chairman of the Board and 95% shareholder
of Spectrum, owns 39% of Tummy Pleasers' capital stock and Neil Blomquist, the
President, Chief Operating Officer, a director and a five percent shareholder of
Spectrum, owns 19% of Tummy Pleasers' capital stock.
66.
<PAGE>
In connection with the February 1998 acquisition of assets related to the
juice and water bottling business of Sunny Farms Corporation, OFPI issued in the
name of Sunny Farms an aggregate of 566,667 shares of common stock. Of these
shares, 295,833 were placed in escrow, and were to be released only upon the
attainment of certain performance milestones by the acquired business unit.
Since the acquisition, Sunny Farms has filed for bankruptcy and OFPI is
negotiating with Sunny Farms' bankruptcy trustee to determine the amount, if
any, of shares of stock that should be released to Sunny Farms from escrow, the
remainder of which would be cancelled. If at least 107,516 shares are released,
Sunny Farms would own at least five percent of OFPI's shares of stock
outstanding as of June 3, 1999.
In October 1995, OFPI entered into an agreement with Dean Nicholson and
Steven Reedy, each of whom own at least five percent of the outstanding stock of
OFPI as of June 3, 1999, pursuant to which OFPI agreed to repurchase from these
individuals an aggregate of 1,100,000 shares of OFPI's common stock at $2.00 per
share for a total purchase price of $2,200,000. OFPI paid Messrs. Nicholson and
Reedy an aggregate of $1,340,000 and was required to pay an additional $860,000
of the purchase price by July 31, 1999. The unpaid balance of $497,238 was
payable in installments of $40,000 per month with interest at the rate of 6.0%
per annum. OFPI is currently in default under this agreement.
In October 1995, OFPI entered into an agreement with Kenneth Steel, Jr., a
director of OFPI, under which it borrowed $500,000 from Mr. Steel for working
capital. 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 OFPI's common stock at $2.00 per share.
In April 1998, OFPI entered into an agreement with Global pursuant to which
Global was to provide the services of four individuals to fill the offices of
Chief Executive Officer, Chief Financial Officer, Vice President of Sales and
Distribution, and Vice President, Marketing. The contract provided for minimum
annual cash payments to Global of $300,000, with escalations based on certain
earnings performance and acquisition attainment conditions. In addition, up to
1,808,784 options issued to Global to purchase OFPI's common stock would have
vested over a five-year period based on the achievement of certain stock price
targets and earnings milestones. The options would have been exercisable at
$2.25 per share and would have had terms of four years from the date of vesting.
Upon any change in ownership interest of more than 50% of the capital stock of
OFPI, the balance of the minimum annual cash payments for the remaining
contractual term would have become due and payable and all stock options would
have vested immediately. The management agreement with Global was terminated in
October 1998 and all options issued to Global were cancelled.
In connection with the management agreement with Global, Global purchased
222,222 shares of OFPI common stock in June 1998 for an aggregate of $500,000,
and had committed to invest an additional $500,000 before the earlier of 30 days
after completion of a qualified acquisition transaction or April 15, 1999. The
agreement targeted the value of such additional purchases at $2.50 per share,
with adjustments to account for specified market conditions.
Each of OI, Spectrum and OFPI, as applicable, believes that the foregoing
transactions were in its best interest and were made on terms no less favorable
to such company than could have been obtained from unaffiliated third parties.
All future transactions between OFPI and any of its officers, directors or
principal shareholders will be approved by a majority of the independent and
disinterested members of the OFPI board of directors, will be on terms no less
favorable to OFPI than could be obtained from unaffiliated third parties and
will be in connection with bona fide business purposes of OFPI.
67.
<PAGE>
DESCRIPTION OF OI CAPITAL STOCK
The authorized capital stock of OI consists of 100,000 shares of common
stock, without par value, of which as of the date of this joint proxy
statement/prospectus 100,000 shares are outstanding.
OI Common Stock
Holders of OI common stock have one vote per share on all matters submitted
to a vote of shareholders. Cumulative voting for election of directors is
permitted. The holders of OI common stock have the right to receive dividends if
they are declared by the OI board of directors and there are sufficient funds to
legally pay dividends. Upon the liquidation of OI, holders of OI common stock
would share ratably in any assets available for distribution to shareholders
after payment of all obligations of OI.
The OI common stock is not redeemable and has no preemptive, subscription
or conversion rights. Shares of OI common stock currently outstanding are
validly issued, fully paid and nonassessable.
68.
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DESCRIPTION OF SPECTRUM CAPITAL STOCK
The authorized capital stock of Spectrum consists of 100,000 shares of
common stock, without par value, of which as of the date of this joint proxy
statement/prospectus 6,925 shares are outstanding.
Spectrum Common Stock
Holders of Spectrum common stock have one vote per share on all matters
submitted to a vote of shareholders. Cumulative voting for election of directors
is permitted. The holders of Spectrum common stock have the right to receive
dividends if they are declared by the Spectrum board of directors and there are
sufficient funds to legally pay dividends. Upon the liquidation of Spectrum,
holders of Spectrum common stock would share ratably in any assets available for
distribution to shareholders after payment of all obligations of Spectrum.
The Spectrum common stock is not redeemable and has no preemptive,
subscription or conversion rights. Shares of Spectrum common stock currently
outstanding are validly issued, fully paid and nonassessable.
69.
<PAGE>
DESCRIPTION OF OFPI CAPITAL STOCK
The authorized capital stock of OFPI consists of 20,000,000 shares of
common stock, without par value, of which, as of June 3, 1999, approximately
7,567,002 shares were outstanding, and 5,000,000 shares of preferred stock,
without par value, none of which were outstanding as of June 3, 1999.
OFPI Common Stock
Holders of OFPI common stock have one vote per share on all matters
submitted to a vote of shareholders. Cumulative voting for election of directors
is permitted. The holders of OFPI common stock have the right to receive
dividends if they are declared by the OFPI Board and there are sufficient funds
to legally pay dividends, subject to the rights of the holders of any
outstanding OFPI preferred stock to receive preferential dividends. Upon the
liquidation of OFPI, holders of OFPI common stock would share ratably in any
assets available for distribution to shareholders after payment of all
obligations of OFPI and the aggregate liquidation preference (including accrued
and unpaid dividends) of any outstanding OFPI preferred stock.
The OFPI common stock is not redeemable and has no preemptive, subscription
or conversion rights. Shares of OFPI common stock currently outstanding are, and
the OFPI common stock to be issued in the merger will be, validly issued, fully
paid and nonassessable.
Corporate Stock Transfer, Inc. is the transfer agent and registrar for the
OFPI common stock.
OFPI Preferred Stock
The authorized OFPI preferred stock is available for issuance from time to
time at the discretion of the OFPI Board without shareholder approval. The OFPI
Board has authority to prescribe for each series of OFPI preferred stock it
establishes the number of shares in that series, the dividend rate, and the
voting rights, conversion privileges, redemption, sinking fund and liquidation
rights, if any, and any other rights, preferences, qualifications and
limitations of the particular series. The issuance of OFPI preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of OFPI common stock or adversely affect the rights and powers,
including voting rights, of the holders of OFPI common stock. OFPI has no
present plans to issue any OFPI preferred stock.
OFPI Warrants
As of June 3, 1999, OFPI had outstanding warrants to purchase an aggregate
of 590,659 shares of OFPI common stock at exercise prices ranging from $2.00 to
$4.00 per share. The warrants expire at various times ranging from December 31,
1999 to February 11, 2003. Generally, each warrant contains provision for the
adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations, reclassifications, consolidations and
certain dilutive issuances of securities at prices below the then existing
warrant exercise price. All warrants are currently exercisable.
OFPI Registration Rights
Pursuant to agreements between OFPI and the holders (or their permitted
transferees) ("Holders") of approximately 425,000 shares of OFPI common stock
and warrants to purchase 590,659 shares of OFPI common stock, certain of the
Holders are entitled to certain rights with respect to the registration of such
shares under the Securities Act. If OFPI proposes to register its common stock
under the Securities Act, subject to certain exceptions, certain of the Holders
are entitled to notice of the registration and are entitled at the OFPI's
expense to include such shares therein. In addition, certain of the Holders may
require OFPI, at its expense to file a registration statement under the
Securities Act with respect to their shares of OFPI common stock. Further, OFPI
has granted certain of the Holders piggy-back registration rights.
70.
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COMPARISON OF RIGHTS OF HOLDERS OF OI COMMON STOCK, SPECTRU
COMMON STOCK AND OFPI COMMON STOCK
Upon consummation of the mergers, the holders of OI and Spectrum common
stock will become holders of OFPI common stock. Each of OI, Spectrum and OFPI
are incorporated in the State of California. There are certain material
differences between the rights and privileges of the holders of OI common stock
and Spectrum common stock, and the holders of OFPI common stock.
Upon completion of the mergers, current Spectrum shareholders will hold
approximately 74.2% of the outstanding common stock of OFPI, current OI
shareholders will hold approximately 8.8% of the outstanding common stock of
OFPI and current OFPI shareholders will hold approximately 16.9% of the
outstanding common stock of OFPI. The percentage ownership of OFPI by each
current OFPI shareholder will be significantly reduced. Accordingly, current
OFPI shareholders will have a significantly smaller degree of voting influence
over the affairs of OFPI than they currently enjoy. In addition, the percentage
ownership of OFPI by each former OI shareholder will be substantially less than
shareholders current percentage ownership of OI, and the percentage ownership of
OFPI by each former Spectrum shareholder will be substantially less than that
shareholder's current percentage ownership of Spectrum. Accordingly, former
Spectrum and OI shareholders will have a significantly smaller voting influence
over the affairs of OFPI than they currently enjoy over the affairs of Spectrum
and OI.
Authorized Capital
OI. The total number of authorized shares of OI capital stock is 100,000,
without par value, all of which are shares of common stock.
Spectrum. The total number of authorized shares of Spectrum capital stock
is 100,000, without par value, all of which are shares of common stock.
OFPI. The total number of authorized shares of OFPI capital stock is
25,000,000, without par value, consisting of 20,000,000 shares of common stock
and 5,000,000 shares of preferred stock. No shares of preferred stock have been
issued.
Directors and Classes of Directors; Removal of Directors
OI. The OI Bylaws provide that the number of directors shall be two. The OI
board of directors is not divided into classes. The Bylaws do not contain a
provision regarding the removal of directors from office.
Spectrum. The Spectrum Bylaws set the number of directors at two. The
Spectrum board of directors is not divided into classes. The Bylaws do not
contain a provision regarding the removal of directors from office.
OFPI. OFPI's Bylaws set the number of OFPI's directors to five and provide
that an amendment to reduce the number of directors to a number less than five
cannot be adopted if 16% of OFPI shareholders vote against its adoption. The
OFPI board of directors is not divided into classes. The OFPI Bylaws do not
contain a provision regarding the removal of directors from office.
71.
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Special Meetings of Shareholders
OI. Special meetings of OI shareholders may be called by the Chairman of
the Board of Directors, the President, the board of directors or by one or more
shareholders entitled to cast at least 10% of votes at that meeting.
Spectrum. Special meetings of Spectrum shareholders may be called by the
Chairman of the Board of Directors, the President, the board of directors or by
one or more shareholders entitled to cast at least 10% of the voting power of
Spectrum.
OFPI. Special meetings of OFPI shareholders may be called by the Chairman
of the Board of Directors, the President, the board of directors or by one or
more shareholders entitled to cast at least 10% of the votes at that meeting.
Cumulative Voting
OI. OI's Bylaws do not permit cumulative voting at a shareholders' meeting
at which directors are to be elected unless a candidate has been nominated prior
to commencement of the voting and a shareholder has given notice prior to
commencement of the voting that he or she intends to cumulate votes. In such
case, every shareholder entitled to vote may cumulate votes for nominated
candidates.
Spectrum. Spectrum's Bylaws allow a shareholder to cumulate his or her
votes with respect to election of a director.
OFPI. OFPI's Bylaws do not permit cumulative voting at a shareholders'
meeting at which directors are to be elected unless a candidate has been
nominated prior to commencement of the voting and a shareholder has given notice
prior to commencement of the voting that he or she intends to cumulate votes. In
such case, every shareholder entitled to vote may cumulate votes for nominated
candidates.
Actions by Shareholder Written Consent
OI. The OI Bylaws permit any action that may be taken at a meeting of
shareholders to be taken without a meeting if the written consent of
shareholders holding outstanding shares having not less 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;
provided, however, in the case of election of directors, such written consent
will be effective only if signed by the holders of all outstanding shares
entitled to vote for the election of directors.
Spectrum. The Spectrum Bylaws permit any action that may be taken at a
meeting of shareholders to be taken without a meeting if the written consent of
shareholders holding outstanding shares having not less 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.
OFPI. The OFPI Bylaws permit any action that may be taken at a meeting of
shareholders to be taken without a meeting if the written consent of
shareholders holding outstanding shares having not less 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;
provided, however, in the case of election of directors, such written consent
will be effective only if signed by the holders of all outstanding shares
entitled to vote for the election of directors.
72.
<PAGE>
Amendment of Bylaws
OI. The OI Bylaws may be amended or repealed or new bylaws adopted by the
holders of a majority of the outstanding shares entitled to vote or by the board
of directors; provided, however, that if the Articles of Incorporation sets
forth the number of authorized directors, then the authorized number of
directors may be changed only by an amendment of the Articles of Incorporation.
Spectrum. The Spectrum Bylaws may be amended or repealed or new by-laws
adopted by the affirmative vote of a majority of the outstanding shares entitled
to vote, except that an amendment of the Bylaws which changes the number of
directors may be adopted, amended or repealed by the board of directors.
OFPI. The OFPI Bylaws may be amended or repealed or new bylaws adopted by
the affirmative vote of a majority of the outstanding shares entitled to vote or
by the board of directors; provided, however, that a bylaw amendment that
specifies or changes the fixed number of directors or the maximum or minimum
number, or changes from a fixed to a variable board (or vice versa), may only be
adopted by the approval of a majority of the outstanding shares entitled to
vote.
73.
<PAGE>
OI MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
OI is a leading supplier of industrial organic ingredients, including fruit
juices, fruit juice concentrates, fruit purees and individually quick frozen or
"IQF" frozen fruits as well as vegetable juices, vegetable juice concentrates,
vegetable purees, IQF vegetables and apple cider vinegar. OI sells industrial
ingredients to a very broad list of customers that includes all of the major
natural and organic food manufacturers in the United States and Canada, as well
as some food manufacturers that have shifted production to organic food
products. OI was formed in July 1996 as a limited liability company and was
converted to a California corporation in January 1998. OI sells to a large
variety of customers in Japan, Korea, New Zealand, Australia and the European
Union. Currently, OI sources its raw materials from the Western states of the
United States as well as Mexico, Canada, Costa Rica, Chile, Argentina, Turkey
and Italy. OI sells directly to food manufacturers in the United States through
its food broker, Beta Pure Foods. OI also sells its industrial ingredients
through trading companies, especially in Japan.
Results of Operations for the Three Months Ended March 31, 1999 Compared to the
Three Months Ended March 31, 1998
Revenues
OI revenues decreased 32.6% to $1,323,870 for the three months ended March
31, 1999 from $1,963,912 in the three months ended March 31, 1998. The decrease
resulted from a reduction in sales of puree and juice concentrate to Japanese
customers due to the general economic slowdown in Asia and to a domestic
customer who had sourced its own products instead of buying from OI.
Cost of Goods Sold
OI's cost of goods sold increased 0.4% as a percentage of sales for the
three months ended March 31, 1999 to 85.2% from 84.7% for the three months ended
March 31, 1998 due primarily to fluctuations in crop prices.
General and Administrative Expenses
General and administrative expenses increased slightly from $149,008 for
the three months ended March 31, 1998 to $150,571 for the three months ended
March 31, 1999 due to cost of living salary adjustments.
Other Income and Expenses
Other income and expenses increased 52.3% from $30,393 for the three months
ended March 31, 1998 to $46,287 for the three months ended March 31, 1999. This
increase was due to interest payments on OI's line of credit, which was utilized
to carry additional inventory.
Results of Operations for the Year Ended December 31, 1998 Compared to the Year
Ended December 31, 1997
Revenues
OI revenue increased 8.8% to $5,788,866 for the year ended December 31,
1998 from $5,319,356 for the year ended December 31, 1997. The increase resulted
primarily from additions of new product lines and improved market recognition.
The new product lines included citrus, tomatoes, and vegetable juices.
74.
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Cost of Goods Sold
OI's cost of goods sold increased 0.9% as a percentage of sales for the
year ended December 31, 1998 to 85.0% from 84.1% for the year ended December 31,
1997 due to fluctuations in crop prices and increased storage costs resulting
from expanded inventory quantities. An additional $88,000 was written off to
adjust inventory to the lower of cost or market in 1998.
General and Administrative Expenses
General and administrative expenses increased 34.5% from $486,913 for the
year ended December 31, 1997 to $654,800 for the year ended December 31, 1998
due to the addition of two employees, a sales consultant and the leasing of
additional office space.
Other Income and Expenses
Other income and expenses increased 535.7% from $17,176 to $109,185 for the
year ended December 31, 1998. This increase was due primarily to increased
interest costs as a result of higher inventory and the amortization of goodwill
in 1998.
Liquidity and Capital Resources
OI has available a $2,000,000 line of credit subject to a borrowing base
calculation. As of March 31, 1999, OI had utilized $1,240,814 of the line of
credit. OI believes that its existing line of credit and current cash flow from
operations will be sufficient to fund OI's estimated cash requirements for the
next least eight to 12 months.
Year 2000 Compliance
OI uses computer software that may be impacted by the "Year 2000" problem,
and also relies upon vendors of equipment and services whose products may be
impacted by the Year 2000 problem. OI's Year 2000 compliance issues include:
o the equipment it uses in its manufacturing process;
o the hardware and third-party software it uses for corporate
administration;
o the services of third-party providers it purchases for certain
professional services; and
o the external services such as telecommunications and electrical power.
OI has initiated a plan that will attempt to identify all computer hardware
and software, plant equipment and services upon which it relies that may be
impacted. After identification of any problem areas, OI will verify whether or
not those products or services are Year 2000 compliant. The plan includes
contacting those vendors or service providers to determine their compliance or
plans to become compliant before December 31, 1999. It is the intent of OI to
complete this process by December 31, 1999.
OI uses various pieces of equipment in its manufacturing process that may
contain computer chips that could be affected by the Year 2000 problem. OI has
started, but not completed, a program to identify which pieces of equipment
could be affected and how the affected equipment could be updated.
OI's corporate administrative and operating systems are exclusively
PC-based using a commercially available software package. OI has received
written confirmation from the legal department of the software developer
confirming that it is Year 2000 compliant.
75.
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OI uses outside service providers for the processing and administration of
its payroll and insurance benefit programs. Although a survey of these service
providers has not been completed, OI believes that these providers will have
Year 2000-compliant systems.
OI has not deferred any information technology projects to date due to the
need to assess or ensure Year 2000 compliance of its systems, and does not
anticipate that any other information technology projects will be delayed in the
future due to the Year 2000 problem.
Although the total costs of compliance have not been completely assessed,
OI management does not believe they will be material in nature. OI believes it
has or will achieve timely Year 2000 compliance in advance of December 31, 1999.
With respect to external companies that provide telecommunications and
electrical power, OI is less certain about the impact of their non-compliance
regarding the Year 2000 problem. The loss of these services would create a major
disruption of OI's normal operations. Given this scenario, OI would be required
to obtain these services from other sources. The cost of switching to other
utility providers has not been assessed.
Issues similar to these also face OI's customers and vendors. OI has not
yet completed an assessment of Year 2000 readiness of its customers and vendors.
However, based on initial discussions with certain customers and vendors,
management does not currently believe that business with those customers and
vendors will be significantly disrupted by the Year 2000 problem.
Seasonality
Historically, OI has experienced some seasonal fluctuation in revenues. OI
occasionally contracts for certain product purchases for the entire year at
harvest time, or at planting time, to secure raw materials throughout 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 and supply
fluctuations. These annual purchases can create overages in inventory.
New Applicable Accounting Pronouncements
Effective January 1, 1999, OI adopted the Provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS 130, which establishes standards for reporting and display of comprehensive
income and its components in the entity's financial statements. The objective of
SFAS 130 is to report a measure of all changes in the equity of an enterprise
that result from transactions and other economic events of the period.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS 130 does not address issues of recognition or measurement for
comprehensive income and its components and, therefore, had no impact on the
financial condition or results of OI upon adoption. OI currently has no
transactions that would be classified as elements of comprehensive income not
reported in the Statement of Operations.
Effective January 1, 1999, OI also adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement requires reporting of financial and descriptive information about
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. OI believes it operates in only
one business segment, production and distribution of processed organic foods,
and has already substantially complied with any additional disclosure
requirements. SFAS 131 does not address issues of recognition or measurement in
the basic financial statements, and thus had no impact on OI's financial
condition or results of operation upon adoption.
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BUSINESS OF OI
Overview
OI is a leading supplier of industrial organic ingredients, including fruit
juices, fruit juice concentrates, fruit purees and individually quick frozen or
"IQF" frozen fruits as well as vegetable juices, vegetable juice concentrates,
vegetable purees, IQF vegetables and apple cider vinegar. OI sells industrial
ingredients to a very broad list of customers that includes all of the major
natural and organic food manufacturers in the United States and Canada, as well
as some food manufacturers that have shifted production to organic food
products. OI was formed in July 1996 as a limited liability company and was
converted to a corporation in January 1998. OI sells to a large variety of
customers in Japan, Korea, New Zealand, Australia and the European Union.
Currently, OI sources its raw materials from the Western states of the United
States as well as Mexico, Canada, Costa Rica, Chile, Argentina, Turkey and
Italy. OI sells directly to food manufacturers in the United States through its
food broker, Beta Pure Foods. OI also sells its industrial ingredients through
trading companies, especially in Japan.
OI, through a joint venture with OFPI, has recently developed a private
label program and is currently packing products for customers such as Wild Oats
Markets. OI is currently producing Wild Oats' 3+1 frozen juice concentrate and
their line of apple products, and is negotiating a contract for their food
service program. OI is a leading manufacturer of organic white grape juice
concentrate in the United States and is a leading supplier of organic citrus
products in the United States. OI has leveraged its experience and expertise in
fruit-based products to expand its focus into the vegetable-based products
market.
Strategy
Through valued relationships with growers, suppliers and processors, OI
provides a diverse range of quality organic ingredients to the global
marketplace while maintaining the integrity of OI's environment-friendly
policies through dedication to the principles of sustainable agriculture.
OI's business strategy is to develop strategic alliances with various food
processors that allow OI to become the leading supplier of a vast array of
organic commodities. OI currently has a contract with the second largest winery
in the world to manufacture OI's organic white grape juice concentrate. This
contract represents a substantial part of OI's business. OI currently plans to
expand its product line to include Red, Concord, Muscat and Niagara grape juice
concentrates as well. OI also has contracts with a number of other processors
that provide significant, and in some cases, exclusive, agreements for the
supply of citrus products, specifically single strength orange juice and apple
juice concentrate, and for the production of organic vegetable juices and
vegetable juice blends. OI has recently entered into a contract with a tomato
packer to allow OI to source organic tomatoes as a low cost producer, which will
allow OI to supply OFPI with tomato ingredients at very low cost. OI's strategy
is to continue to develop these strategic relationships with suppliers in order
to develop a broad array of organic industrial ingredients for its customers.
OI also intends to continue to develop long term relationships with fruit
and vegetable growers so that OI can manage involved in the entire supply chain
of various organic commodities in order to insure a consistent year round supply
for its customers. OI intends to continue using an outside food broker to
fulfill the sales and marketing aspects of its business, which allows OI to
reduce costs and expand sales and marketing resources as volume warrants. OI is
currently negotiating a long-term brokerage contract with Beta Pure Foods, which
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is one of the largest organic food brokers in the United States, Canada, and
Japan. Beta Pure Foods markets and sells the majority of all of OI's industrial
organic ingredients.
OI also intends to expand the categories of food commodities that it offers
in order to become a "one-stop shop" for industrial organic needs. OI's goal is
to expand its product offerings beyond fruits and vegetables into grains and
sweeteners.
Products
OI has an expansive offering of organic food products and ingredients:
Category Variety
-------- -------
Citrus Products single strength juice, concentrate, and
citrus byproducts, including oils, pulps and
essences. All citrus products are made from
orange, lemon, grapefruit, lime and
tangerine.
Fruit juices and juice apple, pineapple, orange, lemon, lime,
concentrates grapefruit, blackberry, cranberry, pear,
peach, raspberry, strawberry and white grape.
Fruit purees and fruit puree apple, apricot, blackberry, kiwifruit, mango,
concentrates nectarine, peach, pear, strawberry and
raspberry.
Vegetable juice and vegetable beet, bellpepper, carrot, celery, lettuce,
juice concentrates parsley, spinach, watercress, tomato,
cabbage, cucumber, broccoli, garlic and
cauliflower.
Vegetable purees butternut squash, cabbage, carrot, celery,
eggplant, garlic, onion and spinach.
Essences apple, blackberry, peach, raspberry and
strawberry
Vinegars apple cider, white wine and balsamic.
Whole frozen fruit blackberries, raspberries and strawberries.
Fresh bulk fruit apricots (including machine-pitted apricots),
apples, blackberries, grapes, pears,
kiwifruit, peaches, raspberries,
strawberries, nectarines and limes.
Fresh bulk vegetables and beets, bell peppers, carrots, celery,
prepared vegetables lettuce, parsley, spinach, butternut squash,
watercress, garlic, tomato paste and diced
tomatoes.
OI also offers private label programs for organic food retailers. These
programs include 3 + 1 frozen organic juice, ready-to-drink juices and
lemonades, apple sauce and vinegar. Each of these products can be packaged in a
variety of sizes and styles.
Sales and Marketing
OI historically has sold all of its products through Beta Pure Foods, which
is an organic and non-organic food broker selling to food manufacturers
worldwide. OI has utilized Beta as its primary sales and marketing agent, which
has enabled OI to expand into new markets such as Japan, Korea, New Zealand,
Australia and the European Union. OI is currently negotiating a new brokerage
contract with Beta to ensure continued representation of OI for its current
customer base. From time to time, OI utilizes the services of other food
brokers. OI currently sells to food manufacturers in the United States and
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Canada such as Gerber, H.J. Heinz, J.M. Smucker Company, Horizon Organic Dairy,
Vita Mills, Mountain Sun, Wild Oats, Cascadian Farms and OFPI.
Manufacturing
OI currently uses over 25 different processing plants around the world to
co-pack its products. OI pays usage fees for each of these manufacturing
facilities. OI's products are produced in a co-pack arrangement under a contract
with the processor or under a toll or fee arrangement for one-time production
runs, depending on the product, commodity, and market conditions.
OI's raw materials come from growers across the United States and in other
countries. In some cases adverse weather conditions can impact OI's ability to
procure enough raw materials. In the case of the organic white grape
concentrate, a termination of OI's contract with its supplier could
substantially affect its ability to produce the volume of organic white grape
juice concentrate that OI would need to satisfy its customers.
Competition
The natural and organic food industry is growing very rapidly and is
intensely competitive, with more and more growers and manufacturers entering the
market for organic food products. OI's growers sometimes process their own crops
in competition with OI. From time to time, OI's co-packers develop products and
source raw materials directly in competition with OI. Some products have limited
resources and if there is large demand, OI could face intense competition from
its growers and co-packers using these items, as well as from other OI
customers.
OI competes with Small Planet Foods, which sells products under the
Cascadian Farms and Muir Glen brands, in the industrial organic ingredients and
tomato-based products markets. In some cases, OI competes with its own customers
where these customers have sourced ingredients directly and bypassed OI in the
supply chain. In addition, some of OI's competitors also purchase products from
OI. For example, Cascadian Farms buys white grape juice concentrate, fruit
purees and citrus products from OI. In addition, J.M. Smucker Company, a
customer for OI's citrus products, fruit juice and fruit puree, competes with OI
in the retail frozen juice and applesauce categories. Furthermore, Beta
represents some of OI's competitors and directly sells products that are
competitive to OI's products. A customer or supplier that competes with OI may
elect to reduce its volume of purchases from OI, which would harm OI's business.
Employees
As of June 1, 1999, OI had six employees and used outside consultants for
some financial accounting, sales and marketing. OI's employees are not covered
by any collective bargaining agreement and OI considers its relations with its
employees to be good.
Property
OI leases approximately 1,644 square feet of office space at its
headquarters in Aptos, California, which is subject to a lease through September
1999. OI has recently given notice to extend that lease for one year.
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SPECTRUM MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Spectrum is a leading provider of natural and organic edible oils, condiments
and essential fatty acid or "EFA" supplements. Since its incorporation in 1980,
Spectrum has introduced innovative natural and organic products and has
developed markets for its products worldwide. Spectrum has introduced
chemical-free oils, flavorful natural condiments, and nutritionally rich EFA
products to the marketplace, and has been integral in raising public awareness
of the numerous health benefits of consuming EFAs as well as the differences
between "good" and "bad" fats. Spectrum has developed the first certified
organic olive oil, the first expeller-pressed canola oil, the first fresh
organic flax oil, the first organic vinegars, and the first no tropical fat,
non-dairy, non-hydrogenated condiment spread known as "Spectrum Spread."
Spectrum's current lines of business consist of culinary oils, vinegars,
mayonnaise, dressings and spreads under the "Spectrum Naturals" brand, branded
food service/commissary sales to natural food retailers, delis, bakeries,
restaurants, and other institutions, and EFA nutritional supplement oils under
the "Spectrum Essentials" brand.
Results of Operations for the Three Months Ended March 31, 1999 Compared to the
Three Months Ended March 31, 1998
Revenues
Revenues increased 12.6% from $5,777,800 for the three months ended March 31,
1998 to $6,506,300 for the three months ended March 31, 1999. The increase was
due to growth in the natural food product marketplace.
Cost of Goods Sold
Cost of good sold for Spectrum as a percentage of revenue decreased from 64.6%,
or $3,736,100, in the three months ended March 31, 1998, to 62.4%, or
$4,057,500, in the three months ended March 31, 1999. This decrease resulted
from reduced commodities costs in the first quarter of 1999 compared to the
prior period, increased purchasing power in the first three months of 1999
compared to the first three months of 1998, and improvements in production that
allowed for per unit cost savings in the first quarter of 1999.
Operating Expenses
Spectrum's operating expenses increased 30.1% from $1,175,900 in the first
quarter of 1998 to $1,530,100 in the first quarter of 1999. This increase was
due primarily to costs associated with marketing for brand development through a
new media and direct mail campaign.
Other Expenses
Spectrum's other expenses decreased 32.4% from $151,700 in the first three
months of 1998 to $102,600. This decrease was primarily due to the availability
of more favorable interest rates on outstanding debt and a reduced use of
Spectrum's line of credit.
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Results of Operations for the Year Ended December 31, 1998 Compared to the Year
Ended December 31, 1997
Revenues
Spectrum's sales increased 17.5% from $20,392,400 in 1997 to $23,951,000 in
1998. The increase was due to sales of existing products in a growing health
food marketplace.
Cost of Goods Sold
Cost of goods sold as a percentage of revenues decreased from 65.1% of
sales in 1997 or $13,267,400, to 64.5% of sales in 1998 or $15,483,300. The
decrease in the cost of goods sold as a percentage of revenue was due to lower
raw material costs, more efficient manufacturing processes and a higher
percentage of revenues coming from the higher margin Spectrum Essentials product
line.
Operating Expenses
Operating expenses increased 19.8% from $4,470,900 in 1997 to $5,356,500 in
1998. This increase was due primarily to increased sales and marketing related
expenses resulting from the higher revenues, and increased general and
administrative expenses as a result of one-time expenses associated with the
efforts to sell the business.
Other Expenses
Other expenses increased 30.4% from $391,000 in 1997 to $509,800 in 1998.
This increase was due to increased long-term debt to finance equipment purchases
and loss on disposal of assets due to write-off of non year-2000 compliant
software and obsolete equipment.
Liquidity and Capital Resources
As of March 31, 1999 Spectrum had utilized $1,092,000 of an aggregate of
$2,600,000 in two separate revolving lines of credit with National Bank of the
Redwoods and Bank of the West. The agreements require Spectrum to meet
restrictions related to key financial ratios, cash flow, and non-bank debt, and
are secured by substantially all assets of Spectrum, a life insurance policy in
the name of the majority shareholder and the majority shareholder's personal
guarantee. Spectrum also had $428,600 available from a $1,000,000 new equipment
loan, which was fully utilized by June 30, 1999. Spectrum also has a number of
long-term debt instruments aggregating approximately $3,600,000.
Spectrum believes that the existing credit line and term debt, together
with the current cash flow from operations, will be sufficient to fund
Spectrum's estimated cash requirements for at least 12 months. Spectrum, however
may also need to raise additional capital through additional debt or the
issuance of securities in private or public transactions to complete the
mergers. There can be no assurance that acceptable financing for future
transactions can be obtained. If such financing is sought by Spectrum, it may be
necessary to encumber Spectrum's assets that could be lost in the event of a
default by Spectrum. Moreover, there can be no assurance that Spectrum will be
able to generate sufficient funds to satisfy interest payments due on any such
financing.
Year 2000 Compliance
Spectrum uses computer software that may be impacted by the "Year 2000"
problem, and also relies upon vendors of equipment and services whose products
may be impacted by the Year 2000 problem. Spectrum's Year 2000 compliance issues
include:
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o the equipment it uses in its manufacturing process;
o the hardware and third-party software it uses for corporate
administration;
o the services of third-party providers it purchases for certain
professional services; and
o the external services such as telecommunications and electrical power.
Spectrum has initiated a plan that will attempt to identify all computer
hardware and software, plant equipment and services upon which it relies that
may be impacted. After identification of any problem areas, Spectrum will verify
whether or not those products or services are Year 2000 compliant. The plan
includes contacting those vendors or service providers to determine their
compliance or plans to become compliant before December 31, 1999. It is the
intent of Spectrum to complete this process by December 31, 1999.
Spectrum uses various pieces of equipment in its manufacturing process that
may contain computer chips that could be affected by the Year 2000 problem.
Spectrum has started, but not completed, a program to identify which pieces of
equipment could be affected and how the affected equipment could be updated.
Spectrum's corporate administrative and operating systems are exclusively
PC-based using a commercially available software package. Spectrum has received
written confirmation from the legal department of the software developer
confirming that it is Year 2000 compliant.
Spectrum uses outside service providers for the processing and
administration of its payroll, 401(k) retirement plan and insurance benefit
programs. Although a survey of these service providers has not been completed,
Spectrum believes that these providers will have Year 2000-compliant systems.
Spectrum has not deferred any information technology projects to date due
to the need to assess or ensure Year 2000 compliance of its systems, and does
not anticipate that any other information technology projects will be delayed in
the future due to the Year 2000 problem.
Although the total costs of compliance have not been completely assessed,
Spectrum management does not believe they will be material in nature. Spectrum
believes it has or will achieve timely Year 2000 compliance in advance of
December 31, 1999. With respect to external companies that provide
telecommunications and electrical power, Spectrum is less certain about the
impact of their non-compliance regarding the Year 2000 problem. The loss of
these services would create a major disruption of Spectrum's normal operations.
Given this scenario, Spectrum would be required to obtain these services from
other sources. The cost of switching to other utility providers has not been
assessed.
Issues similar to these also face Spectrum's customers and vendors.
Spectrum has not yet completed an assessment of Year 2000 readiness of its
customers and vendors. However, based on initial discussions with certain
customers and vendors, management does not currently believe that business with
those customers and vendors will be significantly disrupted by the Year 2000
problem.
Seasonality
Historically, Spectrum has experienced little seasonal fluctuation in
revenues. Spectrum occasionally contracts for certain product purchases for the
entire year at harvest time, or at planting time, to secure raw materials
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throughout 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 and shortages in
inventory.
New Applicable Accounting Pronouncements
Effective January 1, 1999, Spectrum adopted the Provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS 130, which establishes standards for reporting and display of comprehensive
income and its components in the entity's financial statements. The objective of
SFAS 130 is to report a measure of all changes in the equity of an enterprise
that result from transactions and other economic events of the period.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS 130 does not address issues of recognition or measurement for
comprehensive income and its components and, therefore, had no impact on the
financial condition or results of Spectrum upon adoption. Spectrum currently has
no transactions that would be classified as elements of comprehensive income not
reported in the Statement of Operations.
Effective January 1, 1999, Spectrum also adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
Statement requires reporting of financial and descriptive information about
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Spectrum believes it operates
in only one business segment, production and distribution of processed organic
foods, and has already substantially complied with any additional disclosure
requirements. SFAS 131 does not address issues of recognition or measurement in
the basic financial statements, and thus had no impact on Spectrum's financial
condition or results of operation upon adoption.
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BUSINESS OF SPECTRUM
Overview
Spectrum is a leading provider of natural and organic edible oils,
condiments and essential fatty acid or "EFA" supplements. Spectrum has
introduced innovative natural and organic products and has developed markets for
its products worldwide. Spectrum has introduced chemical-free oils, flavorful
natural condiments, and nutritionally rich EFA products to the marketplace, and
has been integral in raising public awareness of the numerous health benefits of
consuming EFAs as well as the differences between "good" and "bad" fats.
Spectrum has developed the first certified organic olive oil, the first
expeller-pressed canola oil, the first fresh organic flax oil, the first organic
vinegars, and the first no tropical fat, non-dairy, non-hydrogenated condiment
spread known as "Spectrum Spread." Spectrum's current lines of business consist
of culinary oils, vinegars, mayonnaise, dressings and spreads under the
"Spectrum Naturals" brand, branded food service/commissary sales to natural food
retailers, delis, bakeries, restaurants, and other institutions, and EFA
nutritional supplement oils under the "Spectrum Essentials" brand.
Products
Culinary Oils and Condiments
Spectrum manufactures and markets a complete line of branded edible
vegetable oils that are processed and packaged to appeal to the high-end, health
conscious consumer. Spectrum also markets a wide range of co-packed certified
organic and natural condiments including dressings, mayonnaise, vinegars, and a
non-hydrogenated butter and margarine substitute known as Spectrum Spread. All
oils are naturally and mechanically expeller extracted or cold-pressed from
fruits, nuts, seeds or grain without the use of toxic solvents, chemical
adjuncts or preservatives. In 1998, branded retail products accounted for
approximately 77% of Spectrum's total sales. A selection of Spectrum's products,
including Spectrum Spread, Spectrum Naturals brand mayonnaise and vinegars, and
selected vegetable-oil products are sold in one gallon and five gallon
containers for commissary and institutional food service sales.
Spectrum markets over 20 different refined, unrefined natural and
third-party certified organic vegetable oils under the Spectrum Naturals brand
name. Spectrum's culinary oils and condiment products include:
o almond, avocado, apricot, canola, coconut, sesame, walnut, peanut,
olive, olive/canola blend, super canola, sunflower, soy and safflower
oils;
o four grades of olive oils, including three premium organic extra
virgin olive oils (one of which has been awarded a four-star rating
from Wine & Spirits Magazine), and a commercial premium extra virgin;
o organic, flavored spray oils for cooking and seasoning, a spray blend
of organic extra virgin olive and canola oils, and a super canola
spray for high heat sauteing and coating baking pans;
o Spectrum's World Cuisine line of flavored ethnic oils, which include
flavors such as Asian, Mediterranean, Southwestern, and Thai;
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o canola and "lite canola" (egg-free) mayonnaise products that contain
healthy oils and no sugars or preservatives;
o organic vinegars, including filtered and unfiltered apple cider
vinegar, brown rice vinegar, balsamic vinegar, red wine vinegar and
white wine vinegar;
o low-fat salad dressings in flavors such as Zesty Italian, Mango
Madness, Creamy Roasted Pepper, Honey Dijon, Southwestern Caesar and
Blue Cheese style;
o fat-free salad dressings in flavors such as Creamy Dill, Creamy
Garlic, Sweet Onion and Garlic and Toasted Sesame;
o New Essential dressings, launched in June 1999, which are 100% organic
and contain EFAs as a value-added feature; and
o Spectrum Spread, a non-hydrogenated, non-trans-fatty acid, tasty and
healthful alternative to butter or margarine, which contains no
tropical fats, dairy or synthetic saturated fats, and has high
efficacy, and is sold in flavors such as Only Olive, Mediterranean,
and Essential Omega (the first EFA-based spread).
The Spectrum Naturals line has been endorsed by Gary Jenanyan, a well-known
gourmet chef. Spectrum also produces private labeled products for companies such
as Wild Oats Market.
Nutritional Supplement Oils
Spectrum also markets a cold expeller-pressed brand of oils under its
Spectrum Essentials brand. The Spectrum Essentials products are produced in an
environment free of the potentially damaging effects of heat, light, and oxygen
in order to preserve its nutritional potency. The Spectrum Essentials line
includes a complete line of liquid and encapsulated EFA products that are rich
in omega 3 and omega 6 fatty acids. The Spectrum Commodities division uses its
proprietary SpectraVac technology to preserve the quality and high level of
nutrients of fragile oils that must be handled at cold pressing temperatures to
eliminate deterioration. Optimal refrigeration ensures that Spectrum's
"seed-to-shelf" process delivers products that are nutritionally potent and
chemically stable, with a consistently appealing flavor.
The Spectrum Essentials product line includes:
o eight varieties of certified organic, EFA-rich products, six of which
are marketed as Veg-Omega3 liquid or capsules;
o organic Essential Max EFA Blend, which includes unrefined flax, soy,
and borage oils, expeller-pressed unrefined wheat germ, lecithin, and
natural antioxidants such as Vitamin C and rosemary;
o organic flax-borage oil and 100% organic borage oil capsules;
o hemp oil (which contains no active THC and is therefore legal to
produce), a perfectly balanced source of EFAs and rich in chlorophyll,
phospholipids and sterols. Many nutritionists believe that hemp oil
promotes cell membrane regeneration and improved immunity. Spectrum's
hemp oil has a nutty flavor and year-long shelf life;
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o unrefined wheat germ oil and fish oil, which have been shown to aid in
cholesterol control, and contain a high concentration of Vitamin E and
other potent antioxidant agents; and
o evening primrose oil, the world's largest selling EFA supplement,
which is known to help regulate hormones and vital brain functions.
Industrial Ingredients
Founded in 1995 to leverage Spectrum's procurement and vertical integration
strength, the Spectrum Commodities division sells organic and natural oils and
vinegars to other manufacturers as industrial ingredients. The growing list of
customers includes organic and specialty food companies, health and beauty aid
manufacturers and nutritional supplement marketers that use EFAs as an
ingredient.
Spectrum's production facility packs oils in various sizes from one gallon
to 290 gallon totes, as well as the movement of full tankers directly from
Spectrum's contract producers to ingredients customers. Drums of organic apple
cider, wine and rice vinegar are packed for industrial sales from Spectrum's
annual production of these certified organic commodities. An increasing number
of new customers are evolving from the sale of EFA supplement oils and
by-products manufactured using Spectrum's SpectraVac technology.
Markets and Customers
Spectrum's products are sold in three main market segments within the
natural foods marketplace:
o Natural foods retailers represent Spectrum's oldest market and
comprised about 75% of its sales in 1998. While Spectrum products are
sold to stores of all sizes, the larger natural foods remain
Spectrum's key customers.
o Mainstream food retailers, which include both specialty/gourmet
retailers and supermarket chains, and accounted for about 9% of
Spectrum's total sales in 1998. The product categories that have
proved most successful in the specialty and grocery segments are
packaged culinary oils and vinegars. Mainstream grocery stores are
becoming strong competitors to natural foods supermarkets as they
stock a wider array of natural foods that appeal to the crossover
consumer market. During the last three years, the crossover of
nontraditional consumers of natural food has become a fast-growing
segment.
o Spectrum has developed a strong program of sales to retailer deli
sections along with commissary and institutions, which accounted for
approximately 10% of total sales in 1998. Bulk products sold include a
full range of natural oils, some organic cooking oils, spreads and
selected condiments.
Competition
In the specialty culinary oils market, Spectrum's competitors include Hain,
Loriva, Anglia (Oils of the World), Consorzio and other private label brands.
New entrants to the market are increasing as specialty oil companies respond to
upward trending in demand. In the nutritional oils market, Spectrum faces
competition from Omega, Arrowhead, Jarrow, Source Naturals, Flora, Health from
the Sun, Barleans, and numerous other private label producers. Spectrum faces
competition in the natural food condiments market from Eden, Canoleo, Nasoya,
Annie's, and Braggs.
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Spectrum also faces competition from makers of mass market cooking oils
such as ConAgra, Inc. through its Wesson brand, CPC International, through its
Mazola brand, The Proctor & Gamble Company, through its Puritan brand,
Hollywood, Ventura Foods, through its Saffola brand, and Colavita. These mass
market products are commodity-based everyday cooking oils and constitute a
formidable presence on grocery and supermarket shelves, due to their lower
prices due to volume-driven freight and distribution cost savings, use of lower
cost raw material and other cost benefits.
Many of Spectrum's competitors are larger than Spectrum and have more
financial, marketing and management resources, and brand name recognition, than
it does.
Operations
Spectrum operates multiple production and bottling lines that accounted for
55% of gross sales in 1998. Oil bottling is currently only being utilized on a
one shift basis, and warehousing is at approximately 90% capacity. Spectrum is
moving towards full capacity utilization on a single shift basis, and has
already upgraded bottling systems to meet unique packaging and private labeling
requirements, such as the use of plastic bottles, square bottles and
pressure-sensitive labels, as well as the packing of sensitive nutritional and
culinary oils. A dedicated bulk line exists for one gallon container, five
gallon containers, drums and totes.
Spectrum currently occupies a 50,000 square-foot facility and leased an
additional 6,000 square feet of office space in June 1999.
Marketing Strategy
The Spectrum Naturals brand continues to be well-positioned as a high
quality provider of natural and organic vegetable oils and condiments to the
natural foods marketplace. The Spectrum Essentials brand has also been
well-positioned as a leading provider of nutritional supplements in the EFA
category. Spectrum has already achieved a memorable brand image through its
colorful and inviting packaging, consistency in using superior quality raw
ingredients, outstanding product literature and information, and excellent
tasting products. Educational programs are an important component of Spectrum's
marketing strategy, as it seeks to raise consumer awareness of all its product
lines, and Spectrum's use of manufacturing practices that have minimal
environmental impact.
Spectrum is aggressively pursuing greater market share through product line
extensions and diversification and further penetration into U.S. and Canadian
markets. Spectrum intends to enter new market segments as opportunities are
identified. Spectrum also intends to position its brand to advance more deeply
into foreign markets such as Japan and Europe.
Trade Names and Trademarks
Spectrum has federal registrations for its "Spectrum Naturals," "Spectrum
Essentials," "SpectraVac," "Spectrum Spread, "Veg-Omega3," "Community Foods" and
"World Cuisine" trademarks. There can be no assurance that any trademark,
service mark or trade name registrations will be granted to the Spectrum, or, if
granted, that the trademarks, service marks or trade names will not be infringed
upon or challenged by others.
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Government Regulation
Spectrum is subject to various federal, state and local regulations
relating to cleanliness, maintenance of food production equipment, food storage
and food handling, and Spectrum is subject to unannounced on-site inspections of
its manufacturing facilities. As a manufacturer and distributor of foods,
Spectrum is subject to regulation by the U.S. Food and Drug Administration,
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, Spectrum is also subject
to inspection and regulation by the U.S. Department of Agriculture. Regulations
in new markets and future changes in the regulations may adversely impact
Spectrum by raising the cost to manufacture and deliver Spectrum's products
and/or by affecting the perceived healthfulness of Spectrum's products. A
failure to comply with one or more regulatory requirements could interrupt
Spectrum's operations and result in a variety of sanctions, including fines and
the withdrawal of Spectrum's products from store shelves. Spectrum holds all
material licenses and permits required to conduct its operations.
Spectrum is also subject to Federal and state laws establishing minimum
wages and regulating overtime and working conditions.
Employees
As of June 1, 1999, Spectrum had 50 employees, including production,
warehousing, administrative and senior managers. No Spectrum employees are
covered by a collective bargaining agreement. Spectrum believes that its
relation with its employees are good. Additionally, Spectrum uses strategic
consultants in the following areas: MIS, financial management, engineering,
research and development, and quality assurance programs.
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OFPI MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
OFPI was incorporated in 1987 as S&D Foods, Inc., and changed its name to
Garden Valley Naturals in 1995. Doing business as Garden Valley Naturals from
1987 to 1996, OFPI has manufactured and marketed pesticide-free or "organic" and
"all natural" pasta sauces, salsas and condiments under the brand names "Garden
Valley Naturals", "Garden Valley Organics," "Millina's Finest" and "Parrot." It
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 pasta sauces
and salsas in 1994. In June 1996, Garden Valley Naturals merged with Organic
Food Products, which also marketed a line of organic food products, including
pasta sauces, salsas and canned tomatoes, together with dry cut pastas and
organic children's meals. The surviving merged entity operates under the Organic
Food Products, Inc. name.
Results of Operations for the Nine Months and the Three Months Ended March 31,
1999 and 1998
OFPI reported a net loss for the nine and three months ended March 31, 1999
of $3,670,000 and $579,000 respectively, compared to net losses of $723,000 and
$313,000 for the same periods from the prior year. This loss for the nine months
ended March 31, 1999 is partially attributed to the write-off of the goodwill
for Sunny Farms of $1.0 million and Global Natural Brand management fees and
expenses. Higher organic tomato prices from the prior year and increased cost of
goods due to plant inefficiencies resulted in operating losses in the nine and
three months period of fiscal 1999.
Revenues
Revenues decreased $193,000 or 2.3% for the nine months and $38,000 or 1.5%
for the three months ended March 31, 1999, compared to the same periods from the
prior fiscal year. The decrease in the year-to-date and quarterly revenues
resulted from a reduction in club stores sales and a decrease in overall pasta
sauce product sales due to competitive pressures within the product category.
The decrease in pasta sauce sales was partially offset by the sales of juice
products as a result of the Sunny Farms acquisition in February 1998.
Cost of Goods Sold
OFPI's cost of goods sold increased as a percentage of sales for the nine
and three months ended March 31, 1999, reaching 87.1% and 84.2% respectively,
compared to 73.8% and 76.8% for the same periods from the prior year. The
increase in the year-to-date and quarterly expense resulted from organic tomato
price increases over the previous fiscal periods, manufacturing inefficiencies
in the production facility and production of low margin juice products in fiscal
1998.
Sales and Marketing Expenses
OFPI's sales and marketing expense decreased as a percentage of sales for
the nine and three months ended March 31, 1999, reaching 25.7% and 25.4%,
respectively, compared to 27.2% and 25.6% for the same periods from the prior
year. The decrease in the year-to-date and quarterly expense reflected a
reduction in fixed selling costs, partially off-set by higher manufacturers'
charge-backs and other promotional programs. The reduction in fixed selling
expenses was essentially offset by higher promotional cost in the three month
period.
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General and Administrative Expenses
OFPI's general and administrative expense as a percentage of sales for
the nine months ended March 31, 1999 was 17.3% and 10.4%, respectively, compared
to 9.4% and 12.1% for the same periods from the prior year. The percentage and
dollars increase in the year-to-date expense resulted from charges for
management service fees from Global Natural Brands and increases in legal and
accounting services. The quarterly expense percentage and dollars decreased from
the same period prior year reflecting a reduction in salaries and wages,
partially offset by increased professional fees.
Loss on Write-down of Goodwill
During December 1998, OFPI determined that goodwill related to the February
1998 purchase of Sunny Farms was impaired, based on estimations of expected
undiscounted future cash flows under current operating conditions. Discounted
cash flow estimates under the same operating assumptions indicated they may not
be sufficient to recover the cost of the goodwill arising from the purchase of
Sunny Farms and, accordingly, goodwill of $1,020,000 was written off. This
amount, which includes an estimate of the value of the contingent shares to be
released to the former owners of Sunny Farms based on certain earnout
provisions, is included in "loss on writedown of fixed assets and goodwill" in
the accompanying statements of operations.
Net Interest Expense
OFPI's net interest expense increased as a percentage of sales for the nine
and three months ended March 31, 1999, reaching 1.7% and 2.9%, respectively,
compared to 0.7% and 0.8% for the same periods from the prior year. The increase
in the year-to-date and quarterly expense resulted from increased usage of
OFPI's line-of-credit facility to fund operating losses and the higher interest
rate charged by FINOVA Capital versus Wells Fargo Bank.
Results of Operations for the Year Ended June 30, 1998 Compared to the Year
Ended June 30, 1997
Revenues
OFPI's revenues for the year ended June 30, 1998 were $12,304,000 compared
to $11,379,000 for the year ended June 30, 1997, an increase of $925,000, or
8.1% compared to 48.9% increase in 1997. The increase in revenues in fiscal 1998
was primarily due to the acquisition of the natural juice business of Sunny
Farms Corporation in February of 1998. The fiscal 1997 increase was attributable
to the acquisition of OFP in June 1996.
Cost of Goods Sold
OFPI's cost of goods sold for fiscal 1998 was $9,420,000 or 76.6% of sales,
versus $7,530,000, or 66.2% of sales for fiscal 1997. The increase in
cost-of-goods sold was due to increased manufacturing costs due to excess
capacity, inventory write-downs, and higher priced raw food ingredients for
Sunny Farms' products. Moreover, Sunny Farms' products were co-packed
(manufactured and packaged by an outside processor) from the time of its
acquisition through the end of fiscal 1998. Accordingly, the resultant gross
margin was significantly below the margin which could have been attained had all
products been produced by OFPI. Subsequent to year-end, Sunny Farms has been
fully integrated into the OFPI organization and the anticipated synergies should
be attained given that its products are now being manufactured by OFPI.
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Additionally, subsequent to year-end, organizational changes have been made
within the manufacturing and purchasing functions. As a result, management
believes that OFPI's operations will become more efficient and purchasing costs
will decrease by the end of fiscal 1999, producing reductions in cost of goods
sold in subsequent periods.
Sales and Marketing Expenses
OFPI's sales and marketing expense for fiscal 1998 as $3,049,000, or 24.8%
of sales, versus $2,409,000 or 21.2% of sales for fiscal 1997. The increase in
sales and marketing expense was due to increases in personnel and increases in
promotional activities such as in-store demonstrations, etc.
General and Administrative Expenses
OFPI's general and administrative expenses for fiscal 1998 were $1,922,000,
or 15.6% of sales, versus $1,119,000 or 9.8% of sales for fiscal 1997. This
change was due, in large part, to increases in professional services, legal
fees, accounting and tax services and such other costs incidental to OFPI
becoming a public company. Moreover, notes receivable from shareholder,
$168,000, separation costs associated with the former Chief Executive Officer,
$167,000, and $217,000 associated with a failed acquisition were written off.
Additionally, contributing to this increase were $154,000 in expenses associated
with retaining the Global Natural Brands management team during the fourth
quarter of fiscal 1998.
Loss on Write-down of Fixed Assets and Goodwill
During fiscal 1998, OFPI determined that certain goodwill and fixed assets
were impaired, based on estimations of expected undiscounted future cash flows
from operations under current operating conditions. Discounted cash flow
estimates under the same operating assumptions indicated that they may not be
sufficient to recover the cost of the goodwill arising from the purchase of OFP,
and accordingly, goodwill of $2,182,000 was written off. The related fixed
assets were reduced by $240,000 to its fair value as estimated by appraisal from
an independent third party. The resulting total $2,422,000 loss is included in
"Loss on write-down of fixed assets and goodwill" in the accompanying statements
of operations. The affected fixed assets will be depreciated at their new book
basis over their remaining useful life. Unamortized goodwill of $923,000
relating to the February 1998 Sunny Farms acquisition was not affected as of
June 30, 1998, but was reevaluated in December 1998.
Net Interest Expense
OFPI's interest expense for fiscal 1998 was $102,000 versus $261,000 for
fiscal 1997. The decrease in interest expense resulted from a 60% reduction in
notes payable as well as a decrease in the utilization of the revolving credit
line due to the application of IPO proceeds to pay down debt. (See Liquidity and
Capital Resources).
Deferred Tax Assets
Since OFPI could not determine that it was more likely then not that the
deferred tax assets would be realized, a 100% valuation allowance was provided.
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Year 2000 Compliance
OFPI uses computer software that may be impacted by the "Year 2000"
problem, and also relies upon vendors of equipment and services whose products
may be impacted by the Year 2000 problem. OFPI's Year 2000 compliance issues
include:
o the equipment it uses in its manufacturing process;
o the hardware and third-party software it uses for corporate
administration;
o the services of third-party providers it purchases for certain
professional services; and
o the external services such as telecommunications and electrical power.
OFPI has initiated a plan that will attempt to identify all computer
hardware and software, plant equipment and services upon which it relies that
may be impacted. After identification of any problem areas, OFPI will verify
whether or not those products or services are Year 2000 compliant. The plan
includes contacting those vendors or service providers to determine their
compliance or plans to become compliant before December 31, 1999. It is the
intent of OFPI to complete this process by December 31, 1999.
OFPI uses various pieces of equipment in its manufacturing process that may
contain computer chips that could be affected by the Year 2000 problem. OFPI has
started, but not completed, a program to identify which pieces of equipment
could be affected and how the affected equipment could be updated.
OFPI's corporate administrative and operating systems are exclusively
PC-based using a commercially available software package. OFPI has received
written confirmation from the legal department of the software developer
confirming that it is Year 2000 compliant.
OFPI uses outside service providers for the processing and administration
of its payroll, 401(k) retirement plan and insurance benefit programs. Although
a survey of these service providers has not been completed, OFPI believes that
these providers will have Year 2000-compliant systems.
OFPI has not deferred any information technology projects to date due to
the need to assess or ensure Year 2000 compliance of its systems, and does not
anticipate that any other information technology projects will be delayed in the
future due to the Year 2000 problem.
Although the total costs of compliance have not been completely assessed,
management does not believe they will be material in nature. OFPI believes it
has or will achieve timely Year 2000 compliance in advance of December 31, 1999.
With respect to external companies that provide telecommunications and
electrical power, OFPI is less certain about the impact of their non-compliance
regarding the Year 2000 problem. The loss of these services would create a major
disruption of OFPI's normal operations. Given this scenario, OFPI would be
required to obtain these services from other sources. The cost of switching to
other utility providers has not been assessed.
Issues similar to these also face OFPI's customers and vendors. OFPI has
not yet completed an assessment of Year 2000 readiness of its customers and
vendors. However, based on initial discussions with certain customers and
vendors, management does not currently believe that business with those
customers and vendors will be significantly disrupted by the Year 2000 problem.
Seasonality
Historically, OFPI has experienced little seasonal fluctuation in revenues.
OFPI occasionally contracts for certain product purchases for the entire year at
harvest time, or at planting time, to secure raw materials throughout 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 and shortages in inventory.
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Liquidity and Capital Resources
As of March 31, 1999, OFPI's cash position was limited. OFPI has a
$3,000,000 revolving line of credit and a $500,000 equipment line. The funds
available to OFPI are based upon discounted accounts receivable and inventory.
Thus, OFPI has only been able to borrow approximately 44% or $1,319,000 of the
$3,000,000 revolving line of credit, much of which has been used to repay prior
debt commitments. The operating losses over the past nine months have
significantly reduced working capital and availability of funds under OFPI's
line of credit. Without the infusion of additional capital resources, management
is uncertain OFPI will have sufficient cash to support future business
operations. To remedy this situation, management implemented a cost reduction
program, reducing cash expenditures in the most recent quarter, and has explored
various options to generate additional cash.
New Applicable Accounting Pronouncements
Effective July 1, 1998, OFPI adopted the Provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS 130, which establishes standards for reporting and display of comprehensive
income and its components in the entity's financial statements. The objective of
SFAS 130 is to report a measure of all changes in the equity of an enterprise
that result from transactions and other economic events of the period.
Comprehensive income is the total of net income and all other non-owner changes
in equity. SFAS 130 does not address issues of recognition or measurement for
comprehensive income and its components and, therefore, had no impact on the
financial condition or results of OFPI upon adoption. OFPI currently has no
transactions that would be classified as elements of comprehensive income not
reported in the Statement of Operations.
Effective July 1, 1998, OFPI also adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement requires reporting of financial and descriptive information about
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. OFPI believes it operates in
only one business segment, production and distribution of processed organic
foods, and has already substantially complied with any additional disclosure
requirements. SFAS 131 does not address issues of recognition or measurement in
the basic financial statements, and thus had no impact on OFPI's financial
condition or results of operation upon adoption.
Related Party Transactions
During the nine month period ended March 31, 1999, Global billed OFPI
$380,290. However, certain of these amounts are in dispute and may be offset by
amounts owed to OFPI by Global. These related party transactions include
expenses for personal expenses. Global, a shareholder of OFPI, was a management
group retained by OFPI through October 1998 to oversee daily operations. The
management services agreement with Global was terminated on October 26, 1998.
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BUSINESS OF OFPI
Overview
OFPI was incorporated in 1987 as S&D Foods, Inc., and changed its name to
Garden Valley Naturals in 1995. Doing business as Garden Valley Naturals from
1987 to 1996, OFPI has manufactured and marketed pesticide-free or "organic" and
"all natural" pasta sauces, salsas and condiments under the brand names "Garden
Valley Naturals", "Garden Valley Organics", "Millina's Finest" and "Parrot." It
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 pasta sauces
and salsas in 1984. In June 1996, Garden Valley Naturals merged with Organic
Foods Products, which also marketed a line of organic food products, including
pasta sauces, salsas and canned tomatoes, together with dry cut pastas and
organic children's meals. The surviving merged entity operates under the Organic
Food Products, Inc. name.
In June 1996, OFPI restructured its Garden Valley Organics, Parrot and
Millina's Finest product lines by eliminating all non-organic products,
eliminating salsas and ketchup sold under the Millina's Finest brand name, and
adding pasteurized organic fruit juices to its product offerings. In February
1998, OFPI acquired product lines from Sunny Farms Corporation of Richmond,
California, a producer of natural fruit and vegetable juices for the food
service retail market. Sunny Farms also markets a line of bottled water products
under the Napa Valley Springs Water brand. In April 1998, OFPI introduced a new
energy drink known as Energy Plus. This drink is positioned to compete with
energy drinks marketed under the brand names Red Bull and Hansen's. The
ingredients in Energy Plus are healthy and meant to give the users a "natural"
lift.
OFPI sells its products either directly or through distributors or
independent commissioned food brokers and specialty food brokers to health food
and specialty food stores, club stores, including Price/Costco and BJ's, and
retail chain and independent grocery stores, including Safeway, A&P, Trader
Joe's, Raley's, Long's and Lucky's.
Strategy
OFPI's business strategy is to:
o increase revenue by offering additional organic food products through
OFPI's existing distribution network;
o reduce costs and improve operating efficiencies by using OFPI's excess
manufacturing capacity to increase the volume of products it
manufactures for itself as well as for others;
o expand current geographic and retail store distribution by offering
OFPI's products in new markets and increasing distribution in existing
markets; and
o specialize in the marketing of organic food products.
OFPI has added new products through its strategic purchase of two brands as
well as the private label juice business from Sunny Farms. New product offerings
open new channels of distribution, expand revenues and improve the utilization
of manufacturing facilities, expand OFPI's current geographic and retail store
distribution by offering OFPI's products in new markets and increasing
distribution in existing markets, and specialize in the marketing of organic
food products.
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Offer additional organic food products. OFPI continues to offer new
products and develop new flavors and packages for its sauces and salsas in order
to add to its product offerings. OFPI believes that offering additional products
will increase revenues without proportionately increasing costs, due to the
economies of scale that result from volume product manufacturing efficiencies as
well as better utilization of OFPI's existing distribution channels.
Increase manufacturing volumes. OFPI believes it can reduce per unit
manufacturing costs by using its excess manufacturing capacity to increase
manufacturing volume. OFPI seeks to increase its manufacturing volume by adding
new products and by manufacturing food products for other food marketers on a
contract basis.
Expand geographic and retail store distribution. Although OFPI has national
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. OFPI is seeking
additional distribution channels in order to increase its club store, grocery
store, and convenience store sales throughout the United States.
Specialize in the marketing of organic food products. OFPI believes its
exclusive marketing of organic food products will improve its brand image and
awareness and generally promote its consumer sales.
Products
OFPI introduces and discontinues products on a regular basis, consistent
with customary practices of other firms in the processed food industry. OFPI's
current product lines are as follows:
Organic Pasta Sauces and Pastas
OFPI markets 20 organic pasta sauces under the Garden Valley Organic and
Millina's Finest brand names. The pasta sauces are 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. OFPI also offers dry organic pastas including spaghetti,
linguini, fettuccine, angel hair, rotini, penne and bowties.
Organic Salsas
OFPI markets 16 organic salsas under the Garden Valley Organic brand name
including five varieties of fat-free and vinegar-free 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. OFPI also markets a line of ten organic salsas under
the Parrot brand name. Varieties include chunky, black bean, tomatillo, spicy
gourmet as well as an enchilada sauce.
Natural Juices and Water
OFPI markets a line of natural fruit and vegetable juices under the Sunny
Farms brand name. In addition, it also distributes a line of bottled water
products under the Napa Valley Springs Water brand.
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Organic Condiments
OFPI offers three organic mustards under the Garden Valley Organic brand
name. All three mustards use organic mustard seed for flavoring and are offered
in yellow, stoneground and dijon. OFPI offers an organic ketchup and an organic
crushed garlic under the Millina's Finest brand name. All condiments are
fat-free and sugar-free.
Children's Meals
OFPI offers five canned organic children's meals, composed of pasta rings
in tomato sauce, pasta rings in tomato cheese sauce, letters and numbers in
tomato sauce, pasta rings and veggie franks, and beans with veggie franks.
Organic Juices
OFPI markets a line of pasteurized organic fruit juices under the "Cinagro"
brand name in 32 oz. and 10 oz. glass jars. Flavors include Carrot/Lemon Lime,
Apple Carrot Smoothie, Total Tomato, Veggie Array, Hibiscus Super "C", Lemon
Berry, Tropical Peach, and Very Berry Cranberry.
Functional Beverages
OFPI markets a functional beverage called Energy Plus, sold in 7.7 oz. cans
in a single flavor.
Sales and Distribution
OFPI sells its products either directly or through distributors or
independent commissioned food brokers and specialty food brokers to health food
and specialty food stores, club stores, including Price/Costco and BJ's, retail
chain and independent grocery stores, including Safeway, A&P, Trader Joe's,
Raley's, Long's and Lucky's, and convenience stores. Currently OFPI's products
are offered in over 6,000 health food stores, 250 club stores and 2,000 grocery
stores located in all 50 states and in the Far East, Middle East, Canada, and
Europe. OFPI currently uses 21 specialty food brokers and 50 food distributors
to sell to health food and other independent retail stores and 8 food brokers to
sell to club stores and certain grocery store chains. OFPI also sells directly
to other grocery store chains. In order to increase its distribution and sales,
OFPI offers special promotional pricing and occasionally 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.
A broker incentive plan has been implemented based on semi-annual quotas to
motivate brokers to increase their sales of OFPI products. OFPI has also entered
into "preferred vendor" arrangements with certain retail store chains to obtain
closer working relationships and enhanced retail merchandising and promotional
support. It has also entered into an agreement with California Beverages in San
Francisco to distribute OFPI's Energy Plus line through some of California
Beverages' 2,600 San Francisco area accounts, and is working to add other
distributors to expand coverage in the San Francisco area.
OFPI is focusing on its core natural foods distribution, and is entering
into new distribution arrangements with mass market accounts where profitable.
Management believes there is an opportunity to enter conventional supermarkets
as they become more committed to providing a variety of organic and natural food
products.
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Marketing and New Product Development
OFPI'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. Each brand is targeted toward specific consumer
segments with appropriate products, flavor variants, images and messages. OFPI
promotes its Millina's Finest and Parrot product lines for sale to natural food
and health food stores and the specialty or "gourmet" departments of grocery
stores, while the Garden Valley Naturals line is offered as a lower priced mass
market product. OFPI also promotes a pricing strategy in which its organic food
products are offered at prices only slightly higher than their non-organic
counterparts. United Natural Foods accounted for approximately 26% and
Price/Costco accounted for approximately 17% of OFPI's revenues for the year
ended June 30, 1998. In the nine months ended March 31, 1999, United Natural
Foods accounted for approximately 25% and Price/Costco accounted for
approximately 10% of OFPI's revenue. A loss of either of these customers would
have a material adverse effect on OFPI's operations.
Manufacturing
OFPI manufactures its products in a 24,000 square-foot food processing and
warehouse facility it leases in Morgan Hill, California. Manufacturing 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. OFPI manufactures all of its products, except its mustard
condiments, Kids' Meals, Energy Plus and certain beverage sizes and pastas which
are processed and packaged for OFPI by a co-packer. In addition to the Morgan
Hill facility, OFPI uses public warehouse facilities on the east coast of the
United States for inventory storage and distribution.
While many raw materials are available from a number of sources, OFPI
currently purchases its organic tomato products from only two suppliers and has
written agreements covering a majority of its anticipated tomato product
purchases. Sun Garden Packing Company sourced approximately 20% of OFPI's raw
material purchases for the year ended June 30, 1998. OFPI believes that other
suppliers are available who could provide products at similar prices and terms.
A change in suppliers, however, could cause a delay in manufacturing and a
possible loss of sales, which could adversely affect operating results.
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 OFPI. In the non-organic
pasta sauce market, our competitors include The Campbell's Soup Company, through
its Prego brand, Unilever Canada Limited, through its Ragu brand, Borden, Inc.,
through its Classico brand, and Newman's Own. In the non-organic salsa market,
we face competition from Campbell's Soup's Pace brand, the Old El Paso brand of
International Home Foods, Inc. and the La Victoria brand of products of
Authentic Specialty Foods (DESC). Our competitors in the non-organic condiments
market include H.J. Heinz Company, Reckitt & Colman Inc., which markets French's
mustard, and International Home Foods, which markets Gulden's mustard. Our
competition in the fruit juice market includes The Coca-Cola Company, through
its Minute Maid brand, and Del Monte Foods International, Inc. We compete with
national cut pasta manufacturers such as Borden, through its Ravarino & Freschi
brand, and New World Pasta Company, which sells pasta under the American Beauty
and Ronzoni brands.
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We also compete with DeBoles, which makes a line of pastas and organic and
natural pasta sauces. In the organic salsa market, our competitors include
Simply Natural, Small Planet Foods, L.L.C.'s Muir Glen line of products, and
Enrico. We face competition in the natural food condiment market from Eden,
Canoleo, Nasoya, Annie's, and Braggs. In the organic or natural fruit juice
market, we face competition from Odwalla, Inc. and J.M. Smucker Company's
Knudsen brand of drinks.
Competitive factors in the pasta sauce, salsa and related specialty foods
industry include price, quality, brand image and flavor. OFPI positions its
product lines to be slightly more expensive than their nonorganic food
counterparts but consistent with prices charged by other organic food marketers.
OFPI believes its products compete favorably against other organic foods with
respect to quality and flavor.
Trade Names and Trademarks
OFPI has federally registered its "Millina's Finest" and "Parrot Brand"
trademarks, and has applied for federal trademark registration for its "Cinagro"
brand. There can be no assurance that any trademark or trade name registrations
will be granted to OFPI, or, if granted, that the trademarks or trade names will
not be copied or challenged by others.
Government Regulation
OFPI is subject to various federal, state and local regulations relating to
cleanliness, maintenance of food production equipment, food storage and food
handling, and OFPI is subject to unannounced on-site inspections of its
manufacturing facilities. As a manufacturer and distributor of foods, OFPI is
subject to regulation by the U.S. Food and Drug Administration, 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, OFPI is also subject to inspection and
regulation by the U.S. Department of Agriculture. Regulations in new markets and
future changes in the regulations may adversely impact OFPI by raising the cost
to manufacture and deliver OFPI's products and/or by affecting the perceived
healthfulness of OFPI's products. A failure to comply with one or more
regulatory requirements could interrupt OFPI's operations and result in a
variety of sanctions, including fines and the withdrawal of OFPI's products from
store shelves. OFPI holds all material licenses and permits required to conduct
its operations.
OFPI is also subject to federal and state laws establishing minimum wages
and regulating overtime and working conditions.
Employees
As of June 1, 1999, OFPI had 29 employees including its executive officers,
food production, processing and warehousing employees and administrative
personnel. OFPI's employees are not covered by a collective bargaining
agreement, but OFPI considers its employee relations to be satisfactory.
Property
OFPI leases approximately 24,000 square feet for its corporate office,
manufacturing and warehouse facility in Morgan Hill, California from a
non-affiliate on a seven-year lease expiring April 30, 2003, at a monthly rental
of $6,674 plus rental escalations of 3% per year. OFPI is negotiating with its
landlord to lease to OFPI an additional 30,000 square feet of space for
additional warehousing facilities, although no such lease has been executed.
98.
<PAGE>
Legal Proceedings
In October 1998, OFPI terminated its management agreement with Global
Natural Brands, Ltd., pursuant to which Global was to provide executive
management services to OFPI. Following the termination of the agreement, Global
and the following employees of Global, James F. Swallow, David J. O'Gorman, J.
Bradley Barbeau, and Ronald Balsbaugh, filed a complaint against OFPI and its
board of directors in Santa Clara County Superior Court, Case No. CV777541. The
complaint made claims for damages for breach of the management agreement of
approximately $306,000, plus other unspecified amounts, unpaid wages, and
injunctive relief to enjoin OFPI from terminating the management agreement.
In October 1998, Global's application for a temporary restraining order
against OFPI was denied. In November 1998, OFPI requested mediation of the
dispute in accordance with the terms of the management agreement. In December
1998, Global's motion for preliminary injunction was denied. In January 1999,
Global amended its complaint to include additional causes of action and applied
for a right to attach order and an order for issuance of a writ of attachment.
The court denied Global's attachment application on January 13, 1999. In June
1999, the parties mediated the dispute without success. Global has requested
binding arbitration under the terms of the management agreement. OFPI intends to
continue to defend itself vigorously with respect to these legal matters.
See "Where You Can Find More Information" on page 1.
99.
<PAGE>
CHANGE IN ACCOUNTANTS OF OFPI
In June 1998, OFPI elected to terminate its relationship with Semple &
Cooper, LLP as independent auditors of OFPI.
None of Semple & Cooper's reports on OFPI's financial statements for the
fiscal years ended June 30, 1997 and June 30, 1996 contained an adverse opinion
or disclaimer of opinion, nor were their opinions qualified or modified as to
audit scope or accounting principles. During the fiscal years ended June 30,
1997 and June 30, 1996 and the subsequent interim period through Semple &
Cooper's termination, there were no disagreements with Semple & Cooper on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to Semple & Cooper's
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their reports, not were there any reportable
events of the type requiring disclosure under Item 304(a)(1)(v) of Regulation
S-K of the Securities Act.
On June 18, 1998, the audit committee of the board of directors approved
the termination of Semple & Cooper and authorized the appointment of BDO
Seidman, LLP as OFPI's new accountants.
In July 1998, OFPI appointed BDO Seidman as OFPI's independent auditors for
the fiscal year ended June 30, 1998. During the fiscal year ended June 30, 1998,
OFPI did not consult with BDO Seidman, LLP regarding the application of
accounting principles or type of audit opinion that might be rendered nor any
matter that was either the subject of a disagreement, as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event of the type requiring disclosure under
Item 304(a)(1)(v) of Regulation S-K.
100.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma combined statements of operations for the
year ended December 31, 1998 and the three month period ended March 31, 1999,
and the unaudited pro forma combined balance sheet as of March 31, 1999 have
been prepared to illustrate the estimated effects of the OI merger and the
Spectrum merger. The pro forma financial statements do not reflect any
anticipated costs savings from the mergers, or any synergies that may result,
and there can be no assurance that any such cost savings or synergies will
occur.
The unaudited pro forma combined statements of operations for the year
ended December 31, 1998 and for the three months ended March 31, 1999, give
effect to the mergers as if they each had occurred on January 1, 1998. For pro
forma purposes, the financial statements of OFPI for the fiscal year ended June
30, 1998 have been restated to reflect a December 31 year end, and have been
combined with the financial statements of OI and Spectrum for the year ended
December 31, 1998. The unaudited pro forma combined balance sheet gives effect
to the mergers as if they had occurred on March 31, 1999.
The information in the historical columns for OI and Spectrum is based on
the historical financial statements elsewhere in this joint proxy
statement/prospectus. The information in the historical column for OFPI for the
pro forma balance sheet is based on the historical financial statements
elsewhere in this joint proxy statement/prospectus. The information in the
historical columns for OFPI for the pro forma statements of operations is based
on or derived from historical financial statements not included in this
prospectus in order to present reporting periods comparable to those of OI and
Spectrum. The adjustments are described in the accompanying notes and are based
upon available information and certain assumptions that management believes are
reasonable.
The pro forma financial statements are not necessarily indicative of what
the combined companies' financial position or results of operations would
actually have been had the mergers in fact occurred on such dates, or to project
the combined companies' results of operations for any future period. The pro
forma financial statements should be read in conjunction with the historical
financial statements (and related notes) and Management's Discussion and
Analysis of Financial Condition and Results of Operations for each of OI,
Spectrum and OFPI included elsewhere in this joint proxy statement/prospectus.
101.
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Three Months Ended March 31, 1999)
Pro Forma Pro Forma
OI OFPI Spectrum Adjustments Combined
-- ---- -------- ----------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues ................................. $ 1,324 $ 2,530 $ 6,506 (a) $ (21) $ 10,339
Cost of goods sold ....................... 1,130 2,130 4,057 (a) $ (21) 7,296
-------- -------- -------- -------- --------
Gross profit ............................. 194 400 2,449 -- 3,043
Goodwill amortization .................... 7 -- -- (b) 148 155
Operating expenses ....................... 143 906 1,979 -- 3,028
-------- -------- -------- -------- --------
Earnings (loss) from ..................... 44 (506) 470 (148) (140)
operations
Interest and other expense, net .......... (44) (73) (103) -- (220)
-------- -------- -------- -------- --------
Income (loss) before income taxes ........ -- (579) 367 (148) (360)
Income tax (expense) benefit ............. -- -- (131) (c) 131 --
-------- -------- -------- -------- --------
Net income (loss) ........................ $ -- $ (579) $ 236 $ (17) $ (360)
======== ======== ======== ======== ========
Loss per share, basic
and diluted ............................. $ (0.01)
========
Weighted average equivalent
shares .................................. 43,562
========
102.
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Year Ended December 31, 1998)
Pro Forma Pro Forma
OI OFPI Spectrum Adjustments Combined
-- ---- -------- ----------- --------
(in thousands, except per share amounts)
Revenues ................................ $ 5,789 $ 12,149 $ 23,951 (a) $ (89) $ 41,800
Cost of goods sold ...................... 4,921 10,193 15,483 (a) (89) 30,508
-------- -------- -------- -------- --------
Gross profit ............................ 868 1,956 8,468 -- 11,292
Goodwill amortization ................... -- 3,491 -- 593 4,084
and writeoff ............................ (b)
Operating expenses ...................... 655 5,474 7,324 -- 13,453
-------- -------- -------- -------- --------
Earnings (loss)
from operations ......................... 213 (7,009) 1,144 (593) 6,245
Gain (loss) on .......................... -- -- (110) -- (110)
disposal of assets
Interest and other ...................... (109) (170) (400) -- (679)
-------- -------- -------- -------- --------
expense, net
Income (loss) ........................... 104 (7,179) 634 (593) (7,034)
before income taxes
Income tax (expense) benefit ............ (33) 122 (231) (c) 142 --
-------- -------- -------- -------- --------
Net income (loss) ....................... $ 71 $ (7,057) $ 403 $ (451) $ (7,034)
======== ======== ======== ======== ========
Loss per share, ......................... $ (0.16)
========
basic and diluted
Weighted average ........................ 42,983
========
Equivalent shares
Notes to the Unaudited Pro Forma Combined Statements of Operations
(a) Pro forma adjustment to eliminate inter-company sales between OI and OFPI.
(b) Pro forma adjustment to record amortization of goodwill related to the
purchase by Spectrum of OI and OFPI, as combined. The increase in goodwill,
determined as described in notes (a) and (b) to the Unaudited Pro Forma
Combined Balance Sheet that follows, will be amortized over 12.5 years.
(c) Pro forma adjustment to reflect estimated tax position of the combined
entity.
103.
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(March 31, 1999)
Pro Forma Pro Forma
OI OFPI Spectrum Adjustments Combined
-- ---- -------- ----------- --------
(in thousands, except per share amounts)
Cash ........................................................... $ -- $ -- $ 279 $ -- $ 279
Accounts and other receivables, net ............................ 839 1,088 2,283 -- 4,210
Inventories .................................................... 1,686 1,942 2,666 -- 6,294
Other current assets ........................................... 80 174 346 (c) (117) 483
-------- -------- -------- -------- --------
Total current assets ........................................... 2,605 3,204 5,574 (c) (117) 11,266
Fixed assets, net .............................................. -- 1,208 2,342 -- 3,550
Intangibles and other long-term assets ......................... 279 -- 474 (a) 2,376 8,169
(b) 5,040
-------- -------- -------- -------- --------
$ 2,884 $ 4,412 $ 8,390 $ 7,299 $ 22,985
======== ======== ======== ======== ========
Accounts payable and accrued
Expenses ....................................................... $ 481 $ 2,379 $ 2,996 $ -- $ 5,856
Lines of credit ................................................ 1,241 1,314 1,092 -- 3,647
Other notes and loans payable, current ......................... 536 502 606 -- 1,644
-------- -------- -------- -------- --------
Total current liabilities ...................................... 2,258 4,195 4,694 -- 11,147
Long-term debt ................................................. 205 10 3,091 -- 3,306
Other long-term liabilities .................................... -- -- 228 -- 228
Shareholders' equity ........................................... 421 207 377 (a) 7,299 8,304
(b)
(c)
-------- -------- -------- -------- --------
$ 2,884 $ 4,412 $ 8,390 $ 7,299 $ 22,985
======== ======== ======== ======== ========
</TABLE>
Notes to the Unaudited Pro Forma Balance Sheet
(a) Pro forma adjustment to record the effects of the OI merger under the
purchase method of accounting. The excess of the $2,798,000 value of the
shares in the combined company to be held by former shareholders of OI over
the identified tangible net assets of OI is accounted for as goodwill. For
this purpose, Spectrum is considered to be the accounting acquirer of OI,
since former shareholders of Spectrum will hold a majority of the shares of
the combined company.
The additional goodwill is calculated as follows: (in thousands)
Consideration - shares to be issued, valued at
average of closing price of OFPI stock for the
three days prior to announcement of the Mergers $ 2,798
Net tangible assets of OI as of March 31, 1999
at estimated fair value 159
---------
Excess of cost over assets acquired 2,639
Amounts already recorded as goodwill on OI books
related to earlier transaction 263
---------
104.
<PAGE>
Additional goodwill to be recorded $ 2,376
=========
(b) Pro forma adjustment to record the effects of the Spectrum merger under the
purchase method of accounting. The excess of the $5,354,000 value of the
shares in the combined company to be held by former shareholders of OFPI
over the identified tangible net assets of OI is accounted for as goodwill.
For this purpose, Spectrum is considered to be the accounting acquirer of
OFPI, since former shareholders of Spectrum will hold a majority of the
shares of the combined company.
The additional goodwill is calculated as follows: (in thousands)
Consideration - shares to be held after Mergers by
OFPI shareholders, valued at average of closing price
of OFPI stock for the three days prior to
announcement of the Mergers $ 5,354
Net tangible assets of OFPI as of March 31, 1999
at estimated fair value 314
---------
Excess of cost over assets acquired $ 5,040
=========
(c) Pro Forma adjustment to eliminate deferred tax assets of OI and Spectrum,
as it cannot be determined whether they will be realized after the mergers.
105.
<PAGE>
EXPERTS
The financial statements of OI for the year ended December 31, 1998
included in this joint proxy statement/prospectus have been audited by
Hutchinson and Bloodgood LLP, independent certified public accountants, to the
extent and for the periods set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The financial statements of Spectrum Naturals, Inc., for the years ended
December 31, 1998 and 1997, included in this joint proxy statement/prospectus
have been audited by Moss Adams LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and accounting.
The financial statements of OFPI for the year ended June 30, 1998 included
in this joint proxy statement/prospectus have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.
The financial statements of OFPI for the year ended June 30, 1997 included
in this joint proxy statement/prospectus have been audited by Semple & Cooper,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the OFPI common stock to be issued by OFPI in connection
with the mergers will be passed upon by Carr, McClellan, Ingersoll, Thompson &
Horn, Professional Corporation, Burlingame, California.
Carr, McClellan will provide an opinion to OFPI as to the qualification of
the Spectrum merger and the OI merger as reorganizations under the Internal
Revenue Code. Cooley Godward LLP will provide an opinion to Spectrum as to the
qualification of the Spectrum merger as a reorganization under the Internal
Revenue Code, and Bosso, Williams, Sachs, Book, Atack & Gallagher, A
Professional Corporation will provide OI an opinion as to the qualification of
the OI merger as a reorganization under the Internal Revenue Code.
106.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Organic Ingredients, Inc.
Page
----
Independent Auditors' Report.................................... F-2
Balance Sheets.................................................. F-3
Statements of Income and Retained Earnings...................... F-5
Statements of Cash Flows........................................ F-6
Notes to Financial Statements................................... F-8
Spectrum Naturals, Inc.
Independent Auditors' Report.................................... F-13
Balance Sheets.................................................. F-14
Statements of Income............................................ F-16
Statements of Stockholder's Equity.............................. F-17
Statements of Cash Flow......................................... F-18
Notes to Financial Statements................................... F-20
Organic Food Products, Inc.
Report of Independent Certified Public Accountants ............. F-32
Report of Independent Certified Public Accountants ............. F-33
Balance Sheets.................................................. F-34
Statements of Operations........................................ F-36
Statements of Shareholders' Equity.............................. F-37
Statements of Cash Flow......................................... F-38
Summary of Accounting Policies.................................. F-40
Notes to Financial Statements................................... F-44
107.
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors
Organic Ingredients, Inc.
Aptos, California
We have audited the accompanying balance sheet of Organic Ingredients, Inc. as
of December 31, 1998, and the related statements of income and retained earnings
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Ingredients, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
April 29, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
Organic Ingredients, Inc.
Balance Sheets
- --------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
---- ----
Assets (Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ -- $ 21,200
Accounts receivable, trade 679,380 277,384
Other receivables 2,720 11,015
Advances to suppliers 157,310 235,147
Inventories (Notes 1 and 7) 1,686,287 1,916,279
Prepaid expenses 36,246 33,479
Deferred tax benefit (Note 5) 42,575 42,575
---------- ----------
Total current assets 2,604,518 2,537,079
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Office equipment 25,387 25,387
Less accumulated depreciation 25,387 25,387
---------- ----------
-- --
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization of $30,000 (Note 1) 262,500 270,000
Deposits 10,525 10,901
Loan fees, net of accumulated amortization of $3,100 6,200 9,300
---------- ----------
279,225 290,201
---------- ----------
$2,883,743 $2,827,280
========== ==========
The notes to the financial statements are an integral part of this statement.
F-3
<PAGE>
Organic Ingredients, Inc.
Balance Sheets
- ---------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
---- ----
Liabilities and Shareholders' Equity (Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt, related (Note 3) $ 85,648 $ 85,648
Line of credit (Note 2) 1,240,814 1,088,894
Notes payable, officers, demand 450,000 450,000
Accounts payable and accrued expenses 478,915 473,108
Accrued interest, related -- 39,438
Deposits 1,961 29,385
---------- ----------
Total current liabilities 2,257,338 2,166,473
---------- ----------
LONG-TERM DEBT
Long-term debt, related, less current portion (Note 3) 205,444 240,117
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock, no par value, 100,000 shares authorized,
100,000 shares issued and outstanding 350,000 350,000
Retained earnings 70,961 70,690
---------- ----------
420,961 420,690
---------- ----------
$2,883,743 $2,827,280
========== ==========
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organic Ingredients, Inc.
Statements of Income and Retained Earnings
- ----------------------------------------------------------------------------------------------
Three Months Three Months Year
Ended Ended Ended
March 31, March 31, December 31,
1999 1998 1998
---- ---- ----
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
Sales $ 1,323,870 $ 1,963,912 $ 5,788,866
Cost of goods sold 1,129,659 1,664,333 4,921,057
----------- ----------- -----------
Gross profit 194,211 299,579 867,809
General and administrative expense 150,120 149,008 654,800
----------- ----------- -----------
Operating income 44,091 150,571 213,009
----------- ----------- -----------
Other income (expense)
Interest income 2,467 -- 20,520
Other income -- 684 8,287
Interest expense (46,287) (30,393) (137,992)
----------- ----------- -----------
Total other income (expense) (43,820) (29,709) (109,185)
----------- ----------- -----------
Income before provision for income taxes 271 120,862 103,824
Provision for income taxes (Note 5) -- 33,134 33,134
----------- ----------- -----------
Net income 271 87,728 70,690
Retained earnings, beginning 70,690 -- --
----------- ----------- -----------
Retained earnings, ending $ 70,961 $ 87,728 $ 70,690
=========== =========== ===========
The notes to the financial statements are an integral part of this statement.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organic Ingredients, Inc.
Statements of Cash Flows
- -----------------------------------------------------------------------------------------------
Three Months Three Months Years
Ended Ended Ended
March 31, March 31, December 31,
1999 1998 1998
---- ---- ----
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Cash received from customers $ 930,169 $ 1,755,897 $ 6,115,545
Cash paid to suppliers and employees (985,109) (1,859,600) (6,396,692)
Interest paid (85,725) (29,694) (113,935)
Interest received 2,467 -- 20,520
Income tax paid (249) -- (108,688)
----------- ----------- -----------
Net cash used by operating activities (138,447) (133,397) (483,250)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid to acquire equipment -- -- (6,438)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit 151,920 241,631 354,319
Loan fees paid -- -- (12,400)
Advances from officer (34,673) (108,234) 168,969
----------- ----------- -----------
Net cash provided by financing activities 117,247 133,397 510,888
----------- ----------- -----------
Net increase in cash and cash equivalents (21,200) -- 21,200
CASH AND CASH EQUIVALENTS, BEGINNING 21,200 -- --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ -- $ -- $ 21,200
=========== =========== ===========
The notes to the financial statements are an integral part of this statement.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organic Ingredients, Inc.
Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended Years Ended
March 31, 1999 March 31, 1998 December 31, 1998
-------------- -------------- -----------------
(Unaudited) (Unaudited)
RECONCILIATION OF NET INCOME TO NET
CASH FLOWS USED BY OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 271 $ 87,728 $ 70,690
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation -- 6,438
Amortization 10,600 7,500 33,100
(Increase) decrease in:
Accounts receivable, trade (401,995) (211,898) 329,410
Other receivables 550 3,200 (92,962)
Deposits 85,957 (3,095) (159,406)
Inventory 229,992 601 (93,413)
Prepaid income taxes -- 150,032 (32,979)
Prepaid expenses (2,767) (1,267) 1,000
Deferred income taxes -- -- (42,575)
Increase (decrease) in:
Accounts payable (115,021) 132,289 (216,106)
Bank overdraft 120,828 38,287 (51,459)
Payroll taxes payable -- (1,944) (526)
Accrued payroll -- (24,960) 22,688
Customer deposits (27,424) (310,569) (281,207)
Interest payable (39,438) 699 24,057
--------- --------- ---------
Net cash used by operating activities $(138,447) $(133,397) $(483,250)
========= ========= =========
The notes to the financial statements are an integral part of this statement.
F-7
</TABLE>
<PAGE>
ORGANIC INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Organic Ingredients, Inc., was incorporated on December 17, 1997. The
Company operated as a limited liability company from July, 1996 until the
date of incorporation. The Company is based in Aptos, California, and sells
wholesale organic products to both national and international customers.
Accounting Policies
The accounting policies relative to the carrying values of property and
equipment, goodwill, and loan fees are indicated in captions on the balance
sheet. Other significant accounting policies are:
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.
Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include
time deposits, certificates of deposit, and all highly liquid debt
instruments with original maturities of three months or less.
Accounts Receivable, Trade
Trade receivables are stated at face amount with no allowance for
uncollectible accounts, which management believes to be immaterial.
Interim Financial Statements
The accompanying unaudited financial statements for the three months
ended March 31, 1999 and 1998 have been prepared on substantially 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 set forth therein. Operating
results for the three months ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the entire year
ending December 31, 1998
F-8
<PAGE>
ORGANIC INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Finished goods $ 517,613
Manufacturered goods 1,030,762
Citrus 367,904
----------
Total $1,916,279
==========
Depreciation
The modified accelerated cost recovery system of depreciation is used over
the estimated useful lives of the depreciable assets:
Software 3 years
Office equipment 5 -10 years
Goodwill
Goodwill was created when the Company was formed. It is being amortized on
a straight-line basis over a 10 year period. For federal and California
income tax purposes, it has no basis and therefore is not amortizable.
Note 2. BANK LINE OF CREDIT
The Company has a borrowing agreement with Wells Fargo Bank which expires
October 10, 1999. The agreement has an established limit of $2,000,000,
secured by the Company's accounts receivable, inventory, equipment,
instruments, general intangibles and contract rights. The rate of interest
is 1.0% above the prime rate. The effective rate of interest at December
31, 1998, was 8.75%.
F-9
<PAGE>
ORGANIC INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998
Note 3. LONG-TERM DEBT
Long-term debt and the related current portion as of December 31, 1998,
consist of the following:
Officers $325,765
Less current portion 85,648
--------
$240,117
========
The long-term notes due to officers are payable in monthly installments of
$20,000, including accrued interest and current interest at 10%, through
June 30, 1999. The remaining balance is then amortized over five years. The
notes are unsecured. Final payment is due June, 2004.
Aggregate maturities or payments required on principal under long-term debt
for each of the succeeding years ending December 31 are as follows:
1999 $ 85,648
2000 44,470
2001 49,128
2002 54,272
2003 59,954
Thereafter 32,293
---------
$ 325,765
=========
Note 4. COMMITMENT, OPERATING LEASES
The Company leases an office building under an operating lease which
expires September 30, 1999. The Company has exercised its option to extend
the lease through September 30, 2000, with the monthly rent of $2,677 to be
increased as determined by the change in the Consumer Price Index.
The Company leases two vehicles under operating leases which expire in
various years through 2001.
F-10
<PAGE>
ORGANIC INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998
Note 4. COMMITMENT, OPERATING LEASES (Continued)
The following is a schedule of future minimum lease payments under
operating leases having remaining terms in excess of one year for each of
the succeeding years ending December 31:
1999 $ 42,144
2000 30,763
2001 2,500
--------
$ 75,407
========
Note 5. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following at December 31,
1998:
Statutory tax liability:
Federal $ 56,038
California 19,671
--------
Current tax provision 75,709
--------
Adjustments for:
Inventory reserve (42,082)
Depreciation differences (493)
--------
Deferred tax provision (42,575)
--------
Provision for income taxes $ 33,134
========
F-11
<PAGE>
ORGANIC INGREDIENTS, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998
Note 6. ECONOMIC DEPENDENCY
Major Customers
The Company sells approximately 23% of its product to one customer. During
the year ended December 31, 1998, sales to that customer aggregated
$1,303,058. At December 31, 1998, the amount due from that customer
included in trade accounts receivable was $20,912.
Major Suppliers
During the year ended December 31, 1998, the Company purchased
approximately 47% of its product from two suppliers. At December 31, 1998,
amounts due to those suppliers included in accounts payable totaled
$35,843.
Sales and Marketing
The Company is dependent upon its food broker for sales and marketing
capabilities and its relationships in the organic food industries. If the
food broker is unable to successfully market and sell the Company's
products, or if the relationship is terminated for any reason, Organic
Ingredients, Inc. may be unable to find a substitute partner.
Note 7. INVENTORY WRITE DOWN
During 1998, the market value for certain manufactured products in the
Company's inventory declined below cost. Accordingly, at December 31, 1998,
inventories of apple juice concentrate, apricot puree, nectarine puree, and
peach puree have been written down to their estimated net realizable value,
and results of operations for 1998 include a corresponding charge of
$77,949.
Note 8. SUBSEQUENT EVENTS
The Company has entered into negotiations with three other corporations
regarding the possible acquisition of Organic Ingredients, Inc., for stock.
The target date is June 30, 1999. There are no signed agreements as of
April 29, 1999.
F-12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Spectrum Naturals, Inc.
On May 14, 1999, the Company entered into a definitive agreement to merge with
Organic Food Products, Inc. (OFPI) in a stock exchange to be accounted for as a
reverse acquisition. As part of that transaction, Spectrum Naturals, Inc. (SNI)
and Spectrum Commodities, Inc. (SCI) would merge prior to the effective date of
the merger with OFPI. Since SNI and SCI are related entities, their merger is
accounted for on the same basis as a pooling. Therefore, these financial
statements are prepared as if the SNI and SCI merger has been effected. Upon
completion of the Agreement and Plan of Reorganization between SNI and OFPI, our
opinion will read as follows:
We have audited the accompanying balance sheets of Spectrum Naturals, Inc., as
of December 31, 1998 and 1997, and the related statements of income,
stockholders' equity and cash flows for the years then ended. 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 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 Spectrum Naturals, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Santa Rosa, California June 18, 1999 (except for Notes 7 and 12, as to which the
date is July 2, 1999)
F-13
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM NATURALS, INC.
BALANCE SHEETS
=====================================================================================================================
ASSETS
March 31, December 31,
----------------------------- -----------------------------
1999 1998 1998 1997
---------- ----------- ---------- ----------
CURRENT ASSETS (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash $ 278,600 $ 121,400 $ 500 $ 154,400
Receivables 2,282,500 1,562,300 1,712,400 1,709,900
Note receivable-stockholder -- 34,800 -- 34,500
Inventories 2,666,300 2,455,800 2,772,200 2,497,500
Prepaid expenses 273,000 292,000 148,300 254,100
Deferred income taxes 73,100 60,400 73,100 60,400
---------- ---------- ---------- ----------
Total current assets 5,573,500 4,526,700 4,706,500 4,710,800
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT 2,341,700 1,854,200 2,076,900 1,813,000
---------- ---------- ---------- ----------
OTHER ASSETS
Trademarks and label development 369,600 376,000 352,600 391,200
Other intangible assets 3,500 22,800 7,700 27,000
Cash surrender value of life
insurance 76,500 -- 67,600 --
Other 25,000 15,000 15,000 15,000
---------- ---------- ---------- ----------
474,600 413,800 442,900 433,200
---------- ---------- ---------- ----------
Total assets $8,389,800 $6,794,700 $7,226,300 $6,957,000
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
=====================================================================================================================
F-14
<PAGE>
SPECTRUM NATURALS, INC.
BALANCE SHEETS (Continued)
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
------------------------------ ------------------------------
1999 1998 1998 1997
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Checks written in excess of funds
deposited $ 112,300 $ -- $ 186,400 $ 97,000
Lines of credit 1,092,000 2,083,000 1,417,500 2,021,000
Accounts payable 2,406,200 1,609,300 1,701,300 1,764,500
Accrued wages, bonuses, and
payroll taxes 248,900 169,000 308,700 175,700
Accrued liabilities and other payables 98,200 39,700 59,200 50,300
Income taxes payable 130,500 76,900 19,000 103,100
Current maturities of long-term debt 573,300 202,800 512,700 219,400
Current maturities of obligations under
capital lease 32,500 36,400 35,300 28,800
----------- ----------- ----------- -----------
Total current liabilities 4,693,900 4,217,100 4,240,100 4,459,800
----------- ----------- ----------- -----------
Long-term debt, less current maturities 3,026,700 2,348,600 2,531,700 2,393,000
Obligations under capital lease,
less current maturities 64,100 96,500 70,800 78,900
Deferred income taxes 168,000 165,000 168,000 165,000
Other 60,000 -- 75,000 --
----------- ----------- ----------- -----------
3,318,800 2,610,100 2,845,500 2,636,900
----------- ----------- ----------- -----------
Common stock, no par value; 100,000
shares authorized, 6,925 shares
issued and outstanding 95,500 95,500 95,500 95,500
Notes receivable from stock sales -- (10,000) -- (10,000)
Retained earnings (accumulated deficit) 281,600 (118,000) 45,200 (225,200)
----------- ----------- ----------- -----------
377,100 (32,500) 140,700 (139,700)
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $ 8,389,800 $ 6,794,700 $ 7,226,300 $ 6,957,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
=======================================================================================================================
F-15
<PAGE>
SPECTRUM NATURALS,INC.
STATEMENTS OF INCOME
=========================================================================================================================
Three months ended March 31, Years ended December 31,
-------------------------------- --------------------------------
1999 1998 1998 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited)
GROSS SALES $ 6,506,300 $ 5,777,800 $ 23,951,000 $ 20,392,400
COST OF GOODS SOLD 4,057,500 3,736,100 15,483,300 13,267,400
------------ ------------ ------------ ------------
GROSS PROFIT 2,448,800 2,041,700 8,467,700 7,125,000
DISCOUNTS AND PROMOTIONS 449,200 530,000 1,967,500 1,454,800
OPERATING EXPENSES 1,530,100 1,175,900 5,356,500 4,470,900
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 469,500 335,800 1,143,700 1,199,300
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income -- -- 3,600 1,500
Interest expense (111,600) (130,600) (474,800) (396,800)
Miscellaneous 9,000 100 71,400 (2,400)
Gain (loss) on disposal of assets -- (21,200) (110,000) 6,700
------------ ------------ ------------ ------------
(102,600) (151,700) (509,800) (391,000)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 366,900 184,100 633,900 808,300
PROVISION FOR INCOME TAXES 130,500 76,900 230,700 337,400
------------ ------------ ------------ ------------
NET INCOME $ 236,400 $ 107,200 $ 403,200 $ 470,900
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
=========================================================================================================================
F-16
<PAGE>
SPECTRUM NATURALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
===============================================================================================================================
Notes Retained
Receivable Additional Earnings
From Paid-in (Accumulated
Shares Amount Stock Sales Capital Deficit) Total
------ ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 10,000 $ 10,000 $ -- $ 130,000 $ 897,700 $ 1,037,700
Stock redemption (5,000) (5,000) -- (130,000) (1,593,800) (1,728,800)
Assets contributed for common stock 1,750 80,500 -- -- -- 80,500
Sale of stock for notes receivable 175 10,000 (10,000) -- -- --
Net income -- -- -- -- 470,900 470,900
---------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 6,925 95,500 (10,000) -- (225,200) (139,700)
Stock redemption -- -- -- -- (132,800) (132,800)
Payment on notes receivable -- -- 10,000 -- -- 10,000
Net income -- -- -- -- 403,200 403,200
---------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 6,925 95,500 -- -- 45,200 140,700
Net income for the three months
ended March 31, 1999 (unaudited) -- -- -- -- 236,400 236,400
---------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 (unaudited) 6,925 $ 95,500 $ -- $ -- $ 281,600 $ 377,100
========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
===============================================================================================================================
F-17
<PAGE>
SPECTRUM NATURALS, INC.
STATEMENTS OF CASH FLOWS
==============================================================================================================================
Three months ended Years ended
March 31, December 31,
----------------------- ----------------------
1999 1998 1998 1997
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES (unaudited) (unaudited)
Net income $ 236,400 $ 107,200 $ 403,200 $ 470,900
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 78,100 84,500 348,700 316,800
(Gain) loss on disposal of assets -- 21,200 110,000 (6,700)
Deferred income taxes -- -- (9,700) 18,600
Imputed interest on non-interest bearing
notes payable 7,000 3,200 19,200 5,700
Allowances for doubtful accounts and chargebacks 36,800 438,800 (26,800) 32,900
Changes in:
Receivables (606,900) (291,200) 24,300 (440,400)
Inventories 105,900 41,700 (274,700) (608,000)
Prepaid expenses (124,700) (37,900) 105,800 (82,400)
Other assets (10,000) -- -- 7,400
Accounts payable 704,900 (155,200) (63,200) 204,200
Accrued wages, bonuses, and payroll taxes (59,800) (6,700) 133,000 32,000
Accrued liabilities and other payables 38,900 (10,600) 8,900 28,300
Income taxes payable 111,500 (26,200) (84,100) (28,100)
Other (15,000) -- 75,000 --
--------- --------- --------- ---------
Net cash provided (used) by operating activities 503,100 168,800 769,600 (48,800)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (324,300) (82,800) (595,300) (557,100)
Trademark and label development (31,300) (12,200) (38,400) (93,900)
Increase in cash surrender value of life insurance (8,900) -- (67,600) --
Loan to stockholder -- (300) -- (62,800)
Repayments on note receivable- stockholder -- -- 34,500 28,300
Proceeds from sale of assets -- 800 2,200 21,200
--------- --------- --------- ---------
Net cash used by investing activities (364,500) (94,500) (664,600) (664,300)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit (325,500) 62,000 (603,500) 685,000
Principal repayments on long-term debt (72,700) (61,000) (220,000) (286,200)
Checks written in excess of funds deposited (74,100) (97,000) 89,400 97,000
Proceeds from note receivable from stock sale -- -- 10,000 --
Principal payments on obligations under capital lease (9,500) (11,300) (34,800) (97,600)
Proceeds from sale of common stock -- -- -- 49,600
Proceeds from long-term debt 621,300 -- 500,000 146,000
--------- --------- --------- ---------
Net cash provided (used) by financing activities 139,500 (107,300) (258,900) 593,800
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH 278,100 (33,000) (153,900) (119,300)
CASH, beginning of period 500 154,400 154,400 273,700
--------- --------- --------- ---------
CASH, end of period $ 278,600 $ 121,400 $ 500 $ 154,400
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
==============================================================================================================================
F-18
<PAGE>
SPECTRUM NATURALS, INC.
STATEMENTS OF CASH FLOWS (Continued)
================================================================================
Three months Years ended
ended March 31, December 31,
-------------------------- --------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
SUPPLEMENTAL CASH-FLOW INFORMATION (unaudited) (unaudited)
Cash paid during the period for:
Interest $ 105,800 $ 127,400 $ 454,400 $ 391,000
Income taxes $ 34,700 $ 104,900 $ 432,400 $ 357,200
Non-cash investing and financing activities:
Equipment acquired through capital lease $ -- $ 33,300 $ 33,300 $ 95,000
Redemption of stock through issuance of note payable $ -- $ -- $ 132,700 $1,728,800
Assets and liabilities contributed for common stock $ -- $ -- $ -- $ 30,900
Note receivable from sale of common stock $ -- $ -- $ -- $ 10,000
The accompanying notes are an integral part of these financial statements.
====================================================================================================================================
F-19
</TABLE>
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of operations - Spectrum Naturals, Inc., manufactures, packages, and
sells organic and natural food products, including cooking and nutritional oils,
condiments, dressings and spreads on a wholesale basis to distributors. The
majority of sales are domestic.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and equipment - Property and equipment are stated at cost and
depreciated or amortized using the straight-line method over the assets'
estimated useful lives. Costs of maintenance and repairs are charged to expense
as incurred; significant renewals and betterments are capitalized. Estimated
useful lives are as follows:
Fixtures and equipment 2 - 25 years
Leasehold improvements 1 - 7 years
Equipment under capital lease 4 - 6 years
Computer equipment 3 - 6 years
Vehicles 5 - 6 years
Amortization - Trademark, label development and other intangible assets are
amortized on the straight-line method over five to thirty years.
Income taxes - Income taxes are recognized using enacted tax rates, and are
composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between financial
statement carrying amounts and tax bases of existing assets and liabilities.
Use of estimates - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits in excess of FDIC insurance thresholds and trade receivables.
Concentrations of credit risk with respect to trade receivables is limited due
to the large number of customers comprising the Company's customer base and
through ongoing credit evaluations of its customers.
Other assets - Other assets include a $15,000 investment in a limited liability
company. The investment is accounted for at the lower of cost or market. The
Company will recoup the investment though reduced food processing costs and will
share in the profits and losses of the investment. The Company guarantees up to
$25,000 of bank debt incurred by the limited liability company, including all
interest, late charges and other costs of enforcement of the guaranty.
Advertising - Costs associated with the production of pamphlets and other
advertising literature are capitalized and amortized over the period of
distribution, which is generally six to twelve months. Total capitalized
advertising literature costs at December 31, 1998 and 1997, were $12,800 and
$52,600, respectively. Total capitalized advertising literature costs at March
31, 1999 and 1998, were $11,600 (unaudited) and $40,900 (unaudited),
respectively. All other advertising costs are expensed as incurred. Total
advertising expenses were $387,200 and $244,800, for the years ended December
31, 1998 and 1997, respectively.
================================================================================
F-20
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Research and development - Research and development costs are expensed as
incurred and totaled $46,000 and $49,600 for the years ended December 31, 1998
and December 31, 1997, respectively. Research and development costs totaled
$49,900 (unaudited) and $2,800 (unaudited) for the three months ended March 31,
1999 and 1998, respectively.
Interim financial statements - The accompanying unaudited financial statements
for the three months ended March 31, 1999 and 1998, have been prepared on
substantially 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 information set forth therein.
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable, and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The carrying amount of Company borrowings under the lines of
credit, long-term debt agreements, and obligations under capital lease,
approximates fair value because current interest rates available to the Company
for similar debt are approximately the same.
New accounting pronouncements - The Financial Accounting Standard Board has
issued SFAS no. 133 "Accounting for Derivatives and Hedging Activities." It
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair market value. Gains or losses resulting from
changes in the value of those derivatives are accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving the offsetting changes in fair value or cash flows. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes that the adoption of SFAS No. 133 will have
no material effect on its financial statements.
NOTE 2 - BUSINESS COMBINATION
On May 14, 1999, the Company entered into a definitive agreement to merge with
Organic Food Products, Inc. (OFPI) in a stock exchange to be accounted for as a
reverse acquisition. As part of that transaction, Spectrum Naturals, Inc. (SNI)
and Spectrum Commodities, Inc. (SCI) would merge prior to the effective date of
the merger with OFPI. Since SNI and SCI are related entities, their merger is
accounted for on the same basis as a pooling. Therefore, these financial
statements are prepared as if the SNI and SCI merger has been effected.
Upon the effective date of the SNI and SCI merger, the stockholders of Spectrum
Commodities, Inc., will transfer all of their outstanding common stock for 1,925
shares of Spectrum Naturals, Inc., in a tax free exchange accounted for as a
pooling of interests. Accordingly, the financial statements have been restated
for all periods prior to the business combination to include the accounts and
results of operations of Spectrum Commodities, Inc. All intercompany
transactions have been eliminated.
================================================================================
F-21
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
====================================================================================================================
NOTE 2 - BUSINESS COMBINATION (Continued)
Gross sales and net income for the individual companies reported prior to the
merger were as follows:
Three months ended March 31, Years ended December 31,
--------------------------------- ---------------------------------
1999 1998 1998 1997
------------ ------------ ------------ ------------
Gross sales: unaudited) (unaudited)
<S> <C> <C> <C> <C>
Spectrum Naturals, Inc. $ 5,612,400 $ 5,005,300 $ 20,140,800 $ 18,169,300
Spectrum Commodities, Inc. 1,369,500 1,342,100 7,755,600 4,855,000
------------ ------------ ------------ ------------
6,981,900 6,347,400 27,896,400 23,024,300
Eliminating entries (475,600) (569,600) (3,945,400) (2,631,900)
------------ ------------ ------------ ------------
$ 6,506,300 $ 5,777,800 $ 23,951,000 $ 20,392,400
============ ============ ============ ============
Net income:
Spectrum Naturals, Inc. $ 229,900 $ 81,300 $ 261,400 $ 369,200
Spectrum Commodities, Inc. 6,500 25,900 141,800 101,700
------------ ------------ ------------ ------------
$ 236,400 $ 107,200 $ 403,200 $ 470,900
============ ============ ============ ============
The consolidated financial information presented above reflects eliminating
entries for intercompany sales. The conforming of the accounting policies of
Spectrum Naturals, Inc., and Spectrum Commodities, Inc., resulted in no
adjustments to net income or stockholders' equity.
NOTE 3 - RECEIVABLES
March 31, December 31,
----------------------------- -----------------------------
1999 1998 1998 1997
---------- ----------- ---------- ----------
(unaudited) (unaudited)
Trade $2,177,000 $2,038,900 $1,608,500 $1,748,200
Income taxes 105,700 -- 90,000 --
Stockholder 35,500 11,000 30,500 9,000
Other 31,000 7,900 13,300 9,400
---------- ---------- ---------- ----------
2,349,200 2,057,800 1,742,300 1,766,600
Less allowances for doubtful accounts
and chargebacks 66,700 495,500 29,900 56,700
---------- ---------- ---------- ----------
$2,282,500 $1,562,300 $1,712,400 $1,709,900
========== ========== ========== ==========
===================================================================================================================
F-22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
=====================================================================================================================
NOTE 4 - INVENTORIES
March 31, December 31,
---------------------------------- ---------------------------------
1999 1998 1998 1997
----------- ----------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Finished goods $1,234,000 $1,579,900 $1,643,900 $1,378,700
Raw materials 1,432,300 875,900 1,128,300 1,118,800
---------- ---------- ---------- ----------
$2,666,300 $2,455,800 $2,772,200 $2,497,500
========== ========== ========== ==========
Note 5 - PROPERTY AND EQUIPMENT
March 31, December 31,
--------------------------- ---------------------------
1999 1998 1998 1997
---------- ---------- ---------- ----------
(unaudited) (unaudited)
Fixtures and equipment $2,914,800 $2,245,600 $2,736,500 $2,335,300
Leasehold improvements 168,100 147,000 166,400 114,900
Equipment under capital lease 165,900 165,900 165,900 132,600
Computer equipment 151,900 282,700 69,800 282,700
Vehicles 126,700 64,500 64,500 64,500
---------- ---------- ---------- ----------
3,527,400 2,905,700 3,203,100 2,930,000
Less accumulated depreciation and amortization 1,185,700 1,051,500 1,126,200 1,117,000
---------- ---------- ---------- ----------
$2,341,700 $1,854,200 $2,076,900 $1,813,000
========== ========== ========== ==========
</TABLE>
NOTE 6 - LINES OF CREDIT
The Company has available a $2,000,000 line of credit, bearing interest at prime
plus 1.75%. The bank's commitment under the line of credit terminates in October
1999, and is subject to a borrowing base of 80% of eligible domestic accounts
receivable and 60% of eligible inventory, not to exceed $1,250,000 in
corresponding loan amount based on eligible inventory, as defined in the
agreement. This agreement requires the Company meet restrictions related to key
financial ratios, cash flow, and non-bank debt, and is secured by substantially
all assets of the Company, a life insurance policy in the name of the majority
stockholder, and the majority stockholder's personal guarantee. Upon the
completion of the merger between Spectrum Naturals, Inc., and Spectrum
Commodities, Inc., the bank's commitment under this line of credit will increase
to $2,600,000, with the maximum inventory commitment increasing to $1,550,000.
The Company is in violation of certain loan covenants at December 31, 1998. The
bank has not waived these violations, but has given the Company until June 30,
1999 to be in compliance. Management believes the Company will meet the bank's
requirements.
The Company has available a $600,000 line of credit, which includes a $200,000
letter of credit facility, with interest at the bank's prime rate plus 1.5%. The
bank's commitment is considered month-to-month and can be terminated with 30
days' written notice. The commitment is subject to a borrowing base of 80% of
eligible accounts receivable and 40% of eligible inventory, not to exceed
$200,000 in corresponding loan amount, as defined in the agreement. This
agreement requires the Company meet restrictions relating to tangible net worth,
key financial ratios, annual profitability, non-bank debt and officer's
compensation and is secured by all assets of the Company and the personal
guarantee of the majority stockholder.
================================================================================
F-23
<PAGE>
<TABLE>
<CAPTION>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
=============================================================================================================================
NOTE 7 - LONG-TERM DEBT
March 31, December 31,
------------------------------ --------------------------------
1999 1998 1998 1997
---------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Note payable to former stockholder, with
interest due monthly at an escalating
rate from 7.8 to 12%. Principal is due
in annual installments as follows:
$121,700 in 1999, $500,000 per year in
2000 and 2001, and $250,000 per year in
2002 and 2003. Principal payments will
accelerate in the event of future stock
transactions, as defined in the
agreement. The note is secured by a life
insurance policy on the majority
stockholder, redeemed common stock, and
the majority stockholder's personal
guarantee and is subordinated to all
bank debt and note payable to California
Economic Development Lending Initiative
(see Note 12) $ 1,621,700 $ 1,621,700 $ 1,621,700 $ 1,621,700
Non-interest bearing notes payable to
former stockholder, due in two payments;
one $100,000 payment in 1999 and one
balloon payment of $513,300, five years
after the last principal payment on the
above note. Interest has been imputed at
effective interest rates of 9.5% and
10.75%, with an expected repayment date
of December 2007, unsecured. Accrued
interest at December 31, 1998 and 1997
was $24,900 and $5,700, respectively
(see Note 12) 271,700 116,000 264,700 112,700
Note payable to bank, due in monthly
installments of $8,300, plus interest at
prime plus 1.75%, maturing December
2003. The agreement requires the Company
meet certain restrictions related to key
financial ratios, cash flow, and
non-bank debt, and is secured by
substantially all assets of the Company
and the majority stockholder's personal
guarantee. The Company is in violation
of certain loan covenants at December
31, 1998 (see Note 6) 475,000 -- 500,000 --
=============================================================================================================================
F-24
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================================================================
NOTE 7 - LONG-TERM DEBT (Continued)
March 31, December 31,
---------------------------------- -------------------------------
1999 1998 1998 1997
----------- ----------- ----------- ----------
(unaudited) (unaudited)
Note payable to bank, (SBA loan), due in
monthly installments of $5,700,
including interest at prime plus 2.75%,
maturing in March 2005, secured by the
majority stockholder's personal
guarantee 296,300 327,400 305,200 337,000
Note payable to bank, due in monthly
installments of $5,000, including
interest at the bank's reference rate
plus 1.75%, maturing in April 2002,
secured by equipment and the majority
stockholder's personal guarantee 155,500 197,500 166,500 206,500
Note payable to bank (SBA loan), due in
monthly installments of $6,600,
including interest at prime plus 2.75%,
maturing in March 2000, secured by
substantially all assets of the Company
and the majority stockholder's personal
guarantee 79,800 150,300 98,500 167,900
Note payable to California Economic
Development Lending Initiative, a
California corporation, due in monthly
installments of $2,800, plus interest at
prime plus 3.25%, maturing October 2001,
secured by equipment, a life insurance
policy on the majority stockholder, and
majority stockholder's personal
guarantee. The note is subordinated to
the line of credit and all notes payable
to bank, and requires the Company meet
certain restrictions relating to
tangible net worth, key financial
ratios, incurrence of new debt, payment
of dividends, and redemption of stock 79,300 110,500 87,800 121,800
Note payable to credit union, due in
monthly installments of $990, including
interest at 7.04%, maturing in January
2004, secured by vehicle 49,300 -- -- --
=============================================================================================================================
F-25
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
=============================================================================================================================
NOTE 7 - LONG-TERM DEBT (Continued)
March 31, December 31,
---------------------------------- -------------------------------
1999 1998 1998 1997
----------- ---------- ----------- -------------
(unaudited) (unaudited)
Equipment loan commitment from a bank,
allowing the Company to draw up to
$1,000,000 for equipment purchases
through June 1999; draws bear interest
at prime plus 1.75%, payable monthly.
Beginning July 1999, principal will be
repaid over a five year term. The
commitment requires the Company meet
restrictions related to key financial
ratios, cash flow, and non-bank debt and
is secured by equipment financed by the
commitment and the majority
stockholder's personal guarantee. The
Company is in violation of certain loan
covenants at December 31, 1998 (see Note
6) 571,400 -- -- --
Notes payable to bank, due in monthly
installments totaling $5,600, plus
interest at the bank's reference rate
plus 2.25%, maturing August 1998,
secured by substantially all assets of
the Company and the majority
stockholder's personal guarantee -- 28,000 -- 44,800
---------- ---------- ---------- ----------
3,600,000 2,551,400 3,044,400 2,612,400
Less current maturities 573,300 202,800 512,700 219,400
---------- ---------- ---------- ----------
$ 3,026,700 $ 2,348,600 $ 2,531,700 $ 2,393,000
=========== =========== =========== ===========
Maturities of long-term debt for succeeding years are as follows:
Year Ending December 31,
-----------------------
1999 $ 512,700
2000 743,600
2001 718,700
2002 419,500
2003 405,700
Thereafter 244,200
-------------
$ 3,044,400
=============
=============================================================================================================================
F-26
</TABLE>
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
NOTE 8 - OBLIGATIONS UNDER CAPITAL LEASE
Future minimum lease payments for equipment under capital lease agreements are
as follows:
Year Ending December 31,
------------------------
1999 $ 45,500
2000 35,100
2001 31,800
2002 15,200
----------
127,600
Less amounts representing interest 21,500
----------
Present value of minimum lease payments 106,100
Less current maturities 35,300
----------
$ 70,800
==========
NOTE 9 - COMMITMENTS
The Company rents office, production, and warehouse facilities under a
month-to-month lease at $17,700 per month.
The Company rents office equipment under operating leases expiring through
September 2002, with lease payments of $600 per month. Options exist to renew
one lease or purchase the equipment based on the fair-market value of the
equipment at the expiration date.
Rental expense for the years ended December 31, 1998 and 1997, totaled $237,300
and $228,200, respectively. Rent expense for the three months ended March 31,
1999 and 1998, totaled $54,900 (unaudited).
Future minimum lease payments are as follows:
Year Ending December 31,
------------------------
1999 $ 7,700
2000 7,000
2001 4,600
2002 1,200
---------
$ 20,500
=========
The Company has entered into a bonus agreement with the family of a deceased
employee, whereby the family will be paid $75,000 in the event the Company is
sold.
================================================================================
F-27
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
NOTE 10 - INCOME TAXES
The significant temporary differences between the carrying amounts and tax basis
of existing assets and liabilities that give rise to deferred tax assets and
liabilities include using a different method of depreciation and amortization
for tax purposes and deduction of paid vacation pay, paid stockholder salary and
bonus, and the previous year's state income taxes, rather that the current state
tax liability.
<TABLE>
<CAPTION>
Three months ended March 31, Years ended December 31,
--------------------------- --------------------------
1999 1998 1998 1997
---------- ---------- --------- ---------
Provision for income taxes: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Federal $ 121,700 $ 62,600 $ 192,900 $ 268,800
State 8,800 14,300 58,300 73,000
Benefit from investment tax credits -- -- (10,800) (23,000)
--------- --------- --------- ---------
130,500 76,900 240,400 318,800
Change in deferred income taxes -- -- (9,700) 18,600
--------- --------- --------- ---------
$ 130,500 $ 76,900 $ 230,700 $ 337,400
========= ========= ========= =========
March 31, December 31,
-------------------------- --------------------------
1999 1998 1998 1997
---------- --------- --------- ---------
Current deferred income taxes: (unaudited) (unaudited)
Gross deferred tax assets $ 77,800 $ 63,800 $ 77,800 $ 63,800
Gross deferred tax liabilities (4,700) (3,400) (4,700) (3,400)
--------- --------- --------- ---------
$ 73,100 $ 60,400 $ 73,100 $ 60,400
========= ========= ========= =========
Non-current deferred income taxes:
Gross deferred tax assets $ (19,600) $ (26,800) $ (19,600) $ (26,800)
Gross deferred tax liabilities 187,600 191,800 187,600 191,800
--------- --------- --------- ---------
$ 168,000 $ 165,000 $ 168,000 $ 165,000
========= ========= ========= =========
</TABLE>
NOTE 11 - 401(k) PLAN
The Company provides an Internal Revenue Code Section 401(k) Plan covering
substantially all employees meeting certain age and service requirements. Plan
contributions are made at the discretion of the Board of Directors.
Contributions for the years ended December 31, 1998 and 1997, were $26,100 and
$18,000, respectively. Contributions for the three months ended March 31, 1999
and 1998, were $12,500 (unaudited) and $4,900 (unaudited), respectively.
================================================================================
F-28
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
NOTE 12 - STOCK PURCHASE AGREEMENT
During the year ended December 31, 1997, the Company repurchased 5,000 shares of
Company stock from a stockholder for a minimum amount of $2,235,000. A note
payable to the Seller was issued in the amount of $1,621,700. In addition, a
final payment of at least $613,300, will be paid in two payments; one payment of
$100,000 in 1999 and the balance approximately five years after the final
principal payment on the note, subject to certain potential income tax events.
This minimum final payment has been accrued at its net present value. The
agreement was amended during 1998 to increase the final payment from $306,600 to
$613,300 (see Note 7).
NOTE 13 - STOCK OPTIONS
During 1998, the Company adopted a stock option plan that provides for the
granting of incentive and nonstatutory stock options, stock bonuses, and
incentive stock rights to employees, directors, and consultants of the Company
and its affiliates to purchase up to an aggregate of 280 shares of common stock.
No options shall be granted under the Plan after 2008. During 1998, 180 options
were granted, no options were exercised, and no options were forfeited. At
December 31, 1998, 15 options were exercisable at an exercise price of $1,500,
and expire in 2008. At March 31, 1999, 30 options were exercisable at an
exercise price of $1,500 and expire in 2009 (unaudited).
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for stock
options. Accordingly, no compensation expense has been recognized for stock
options issued during 1998. Had compensation cost for the Company's options been
determined based on the fair value at the grant date for awards in 1998
consistent with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Company's net income
would have changed to the pro forma amounts indicated below:
Year ended Three months ended
December 31, 1998 March 31, 1999
----------------- ------------------
(unaudited)
Net income - as reported $ 403,200 $ 236,400
Net income - pro forma $ 398,700 $ 231,000
The fair value of options granted is estimated on date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1998
----------
Dividends None
Risk Free interest rate 4.34%-5.04%
Expected life 10-13 years
================================================================================
F-29
<PAGE>
SPECTRUM NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
NOTE 13 - STOCK OPTIONS (Continued)
Options issued during 1998 had an estimated fair value of $658.
The stock option activity is as follows:
Weighted-
Shares Average
Under Exercise
Options Price
---------- -------------
Balance, January 1, 1998 -- $ --
Granted 180 1,500
Exercised -- --
Forfeited -- --
----------
Balance, December 31, 1998 180 $ 1,500
Granted -- --
Exercised -- --
Forfeited -- --
-----------
Balance, Mrach 31, 1999 (unaudited) 180 $ 1,500
===========
================================================================================
F-30
<PAGE>
[This page intentionally left blank]
F-31
<PAGE>
Report of Independent Certified Public Accountants
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, 1998, and the related statements of operations, changes in
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Organic Food Products, Inc.
as of June 30, 1998, and the results of its operations, changes in shareholders'
equity, and its cash flows for the year ended in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Certified Public Accountants
San Francisco, California
September 23, 1998, except
for Note 5, as to which the
date is October 9, 1998
F-32
<PAGE>
Report of Independent Certified Public Accountants
To The Shareholders and Board of Directors of Organic Food Products, Inc.
We have audited the accompanying statements of operations, changes in
shareholders' equity, and cash flows of Organic Food Products, Inc., for the
year ended June 30, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, changes in shareholders'
equity, and cash flow of Organic Food Products, Inc., for the year ended June
30, 1997, in conformity with generally accepted accounting principles.
Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
September 24, 1997
F-33
<PAGE>
Organic Food Products, Inc.
Balance Sheets
================================================================================
March 31, June 30,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Assets
Current Assets
Cash $ -- $ 41,585
Accounts receivable, less allowances
for bad debts, spoils and returns,
and manufacturer charge back
adjustments of $416,313 and $324,493
(Notes 2, 5, 6 and 7) 1,010,695 1,096,285
Inventory, net (Notes 1, 2, 4 and 6) 1,942,362 3,693,986
Prepaid expenses 173,250 187,469
Receivable from related party (Note 2) 77,346 50,000
- --------------------------------------------------------------------------------
Total current assets 3,203,653 5,069,325
- --------------------------------------------------------------------------------
Fixed assets (Notes 3, 4, and 5) 1,208,295 1,263,007
Goodwill (Notes 3, 4 and 8) -- 923,515
- --------------------------------------------------------------------------------
Total Assets $4,411,948 $7,255,847
================================================================================
See accompanying summary of accounting policies
and notes to financial statements.
F-34
<PAGE>
Organic Food Products, Inc.
Balance Sheets
================================================================================
March 31, June 30,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable and capitalized lease
obligation payable-current portion
(Note 5) $1,318,683 $ 992,589
Accounts payable and accrued
expenses-related parties (Note 2) 535,617 587,015
Accounts payable and accrued
expenses (Notes 6 and 7) 1,687,567 1,102,582
Accrued wages and taxes 155,899 199,221
Notes payable-related parties-current
portion (Note 2) 497,238 462,754
- --------------------------------------------------------------------------------
Total current liabilities 4,195,004 3,344,161
Notes payable-related parties-
long-term portion (Note 2) -- 34,484
Capital lease obligation-long-term
portion (Note 5) 9,580 --
- --------------------------------------------------------------------------------
Total Liabilities 4,204,584 3,378,645
- --------------------------------------------------------------------------------
Commitments (Notes 4, 5, 12 and 13)
Shareholders' Equity (Notes 4, 8, 9 and 12):
Common stock, no par value, 20,000,000
shares authorized, 7,275,688 issued
and outstanding 9,851,687 9,851,687
Accumulated deficit (9,644,323) (5,974,485)
- --------------------------------------------------------------------------------
Total shareholders' equity 207,364 3,877,202
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $4,411,948 $7,255,847
================================================================================
See accompanying summary of accounting policies
and notes to financial statements.
F-35
<PAGE>
<TABLE>
<CAPTION>
Organic Food Products, Inc.
Statements of Operations
===================================================================================================================================
Nine Months ended
March 31, Years ended June 30,
----------------------------- -----------------------------
1999 1998 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues (Note 7) $ 8,015,326 $ 8,207,704 $ 12,304,323 $ 11,378,916
Cost of Goods Sold (Notes 2 and 7) 6,984,684 6,054,441 9,419,802 7,530,270
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 1,030,642 2,153,263 2,884,521 3,848,646
- -----------------------------------------------------------------------------------------------------------------------------------
Sales and Marketing Expense 2,058,958 2,232,404 3,048,865 2,408,864
General and Administrative Expenses (Note 2) 1,386,972 771,956 1,922,030 1,118,686
Loss on Write-down of Fixed Assets and Goodwill (Note 3) 1,019,921 -- 2,410,936 --
- -----------------------------------------------------------------------------------------------------------------------------------
4,465,851 3,004,360 7,381,831 3,527,550
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Operations (3,435,209) (851,097) (4,497,310) 321,096
Interest Expense, Net (Note 2) (140,124) (56,902) (102,413) (261,376)
Other Income (Expense), Net (94,505) (55,805) (34,719) 11,447
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) before Income Taxes (3,669,838) (963,804) (4,634,442) 71,167
Provision for Income Tax Benefit (Expense) (Note 10) -- 240,948 15,200 (16,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (3,669,838) $ (722,856) $ (4,619,242) $ 55,167
====================================================================================================================================
Basic and Diluted Earnings (Loss) per Share (Note 8) $ (.50) $ (.12) $ (.69) $ .01
===================================================================================================================================
Weighted Average Number of Shares Outstanding (Note 8) 7,275,668 6,196,064 6,696,945 5,229,061
===================================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
F-36
<PAGE>
Organic Food Products, Inc.
Statements of Changes in Shareholders' Equity
===================================================================================================================================
Retained Total
Common Stock Earnings Shareholders'
------------------------ Accumulated Equity
Shares Amount Deficit) (Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 1, 1996 4,500,000 $ 2,317,400 $(1,410,410) $ 906,990
Proceeds from private offering, net of costs of $340,462 (Note 8) 823,500 1,718,288 -- 1,718,288
Repurchase of shares (31,250) (78,125) -- (78,125)
Stock issued for director expenses 5,663 14,157 -- 14,157
Net income for the year -- -- 55,167 55,167
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30,1997 5,297,913 3,971,720 (1,355,243) 2,616,477
Repurchase of Shares (40,000) (100,000) -- (100,000)
Proceeds from initial public offering, net of
costs of $1,306,404 (Note 8) 1,495,000) 4,595,566 -- 4,595,566
Stock issued for director expenses 17,200 34,401 -- 34,401
Stock issued for acquisition of Sunny Farms, Inc. (Note 4) 283,333 850,000 -- 850,000
Proceeds from sale of stock to Global Natural Brands (Note 8) 222,222 500,000 -- 500,000
Net loss for the year -- -- (4,619,242) (4,619,242)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 7,275,668 9,851,687 (5,974,485) 3,877,202
Net loss for the period (unaudited) -- -- (3,669,838) (3,669,838)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 (unaudited) 7,275,668 $ 9,851,687 $(9,644,323) $ 207,364
===================================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
F-37
<PAGE>
Organic Food Products, Inc.
Statements of Cash Flows
===========================================================================================================================
Nine Months ended March 31, Years ended June 30,
--------------------------- --------------------
Increase (Decrease) in Cash: 1999 1998 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash flows from operating activities:
Net Income (Loss) $(3,669,838) $ (722,856) $(4,619,242) $ 55,167
Adjustments to reconcile net income (loss) to net
cash used by operating activities
Depreciation and amortization 222,059 151,237 345,352 235,875
Loan discount amortization -- -- -- 118,410
Inventory financed through notes payable -- -- -- 222,523
Loan to shareholder forgiven -- -- 168,000 --
Loss on write-down of fixed assets and goodwill
1,024,213 -- 2,410,977 --
Stock issued for director's expenses -- -- 34,401 14,157
Provision for reserves against receivables 116,820 -- 160,981 --
Provision for reserve for inventory obsolescence 88,240 -- 85,000 --
Deferred income taxes -- (102,000) (16,000) 16,000
Changes in Assets and Liabilities
Accounts receivable, net (31,230) (53,726) 36,625 (525,549)
Inventory 1,663,384 (1,133,182) 410,061 (2,021,955)
Prepaid expenses and other 14,219 (386,228) (143,644) 5,418
Income tax refund receivable -- 167,694 167,694 91,753
Accounts payable 197,967 (223,489) (461,227) 44,272
Accrued liabilities 172,753 41,797 206,029 (11,022)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (201,413) (2,260,753) (1,214,993) (1,754,951)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (111,178) (421,322) (603,915) (243,596)
Advances to shareholder (27,346) (63,000) (84,000) (84,000)
Cash received from sale of fixed assets -- -- 34,600 5,483
Purchase of Sunny Farms -- -- (971,171) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (138,524) (484,322) (1,624,486) (322,113)
- ---------------------------------------------------------------------------------------------------------------------------
F-38
<PAGE>
Organic Food Products, Inc.
Statements of Cash Flows
===========================================================================================================================
Nine Months ended March 31, Years ended June 30,
--------------------------- --------------------
Increase (Decrease) in Cash: 1999 1998 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash flows from financing activities:
Repayment of notes payable and capital lease (22,921) (2,098,523) (81,356) (140,627)
Repayment of notes payable-related parties -- (1,555,966) (1,749,322) (257,685)
Proceeds from notes payable -- 1,378,563 -- 1,057,178
Proceeds from issuance of stock -- 4,958,277 5,516,904 1,718,288
Proceeds from line of credit 3,765,363 -- 1,911,205 --
Repayments on line of credit (3,444,090) -- (2,679,292) --
Re-purchase of treasury stock -- -- (100,000) (78,125)
Deferred offering costs -- -- -- (350,113)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 298,352 2,682,351 2,818,139 1,948,916
- ---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (41,585) (62,724) (21,340) (128,148)
Cash at beginning of period 41,585 62,925 62,925 191,073
- ---------------------------------------------------------------------------------------------------------------------------
Cash at End of Period $ -- $ 201 $ 41,585 $ 62,925
============================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
F-39
</TABLE>
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Nature of Operations Organic Food Products, Inc. ("OFPI" or the "Company")
is a California corporation incorporated on July 7,
1987. The principal business purpose of the Company is
the production and distribution of organic food
products throughout the United States.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Stock-Based Statement of Financial Accounting Standards (SFAS) No.
Compensation 123, Accounting for Stock-Based Compensation
established a fair value method of Accounting for
stock-based compensation plans and for transactions in
which an entity acquires goods or services from
non-employees in exchange for equity instruments. SFAS
123 encourages, but does not require companies to
record compensation cost for stock-based employee
compensation. The Company has chosen to continue to
account for employee utilizing the intrinsic value
method prescribed in Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to
Employees. Accordingly, compensation cost for employee
stock options is measured as the excess, if any, of the
fair market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire
the stock. Options granted to non-employees are
recorded at the estimated fair value of the option
granted over the service peri net income and earning
per share is provided as if the Company had elected the
fair value method of accounting for all stock-based
compensation awards.
Accounts Receivable The Company provides allowances for estimated credit
and Allowances losses, product returns, spoilage, and other
manufacturer charge back adjustments (for advertising
allowances, etc.) at a level deemed appropriate to
adequately provide for known and inherent risks related
to such amounts.
The allowances are based on reviews of loss, return,
spoilage, adjustment history, contractual relationships
with customers, current economic conditions, and other
factors that deserve recognition in estimating
potential losses. While management uses the best
information available in making its determination, the
ultimate recovery of recorded accounts, notes, and
other receivables is also dependent on future economic
and other conditions that may be beyond management's
control.
F-40
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
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.
Earnings Per Share In February 1997, the financial Accounting Standards
Board issued SFAS No. 128, Earnings Per Share, which
supersedes APB No. 15, the existing authoritative
guidance. SFAS No. 128 is effective for financial
statements for periods ending after December 15, 1997,
and requires restatement of all prior-period earnings
per share data presented. The new statement modifies
the calculations of primary and fully diluted earnings
per share and replaces them with basic and diluted
earning per share are computed by dividing income or
loss available to common shareholders by the weighted
average number of shares actually outstanding for the
period. Diluted earnings per share reflect the
potential dilution of securities that could share in
the earnings of an entity. Because of losses in 1998,
the decline in market price below the exercise price of
certain options and warrants, and differences of less
than $.01 per share due to certain other options and
warrants, o securities are either anti-dilutive or have
no effect. Accordingly, calculations under the new
standard, which was adopted in the quarter ended
December 31, 1997 were the same as those under the
prior method.
Income Taxes The Company accounts for corporate income taxes in
accordance with SFAS No. 109, Accounting for Income
Taxes, which requires an asset and liability approach.
This approach results in the recognition of deferred
tax assets (future tax benefits) and liabilities for
the expected future tax consequences of temporary
timing differences between the book carrying amounts
and the tax basis of assets and liabilities. Future tax
benefits are subject to a valuation allowance to the
extent deferred tax assets may not be realized.
Revenue Recognition The Company recognizes revenues through sales of
products primarily to grocery and club store chains.
Sales are recorded when goods are shipped for most
customers and upon delivery to retail locations for the
Direct Store Delivery program. Potential returns,
adjustments and spoilage allowances are provided for in
accounts receivable allowances and accruals.
F-41
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Fixed Assets Fixed Assets are recorded at cost. Depreciation is
provided 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.
Goodwill Goodwill represents the excess of the cost of companies
or operations acquired over the fair value of their net
assets at the date of acquisition, and is amortized on
the straight-line method over the estimated period of
benefit, generally 15 years. Amortization expense
charged to operations for the years ended June 30, 1998
and 1997 was $135,194 and $94,887. The Company
evaluates the estimated net realizable value of its
goodwill at each balance sheet date, and records w
value exceeds net realizable value (see also "Long
Lived Assets").
Long-Lived Assets Long-lived assets, including fixed assets, goodwill,
and other intangible assets, are assessed for possible
impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be
recoverable, or whenever management has committed to a
plan to dispose of the assets. Such assets are carried
at the lower of book value or fair value as estimated
by management based on appraisals, current market
value, and comparable sales value, as appropriate.
Assets by such impairment loss are depreciated or
amortized at their new carrying amount over the
remaining estimated life; assets to be sold or
otherwise disposed of are not subject to further
depreciation or amortization. In determining whether an
impairment exists, the company uses undiscounted future
cash flows compared to the carrying value of assets.
Fair Value of The Company's notes payable approximate fair value
Financial Instuments based on rates currently available from the bank for
debt with similar terms and maturities. The fair value
of notes payable-related parties approximates the book
value due to shortness of the remaining term. The fair
value of the Company's commitments to purchase
inventory is based on current market prices available
to the Company. The carrying amounts of accounts
receivable approximate fair value because of the short
maturity of these items.
Other New Accounting During 1997, the Financial Accounting Standards Board
Pronouncements released SFAS No. 130, Reporting Comprehensive Income.
SFAS 130, which is effective for fiscal years beginning
after December 15, 1997, establishes standards for
reporting and display of comprehensive income and its
F-42
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
components in the entity's financial statements. The
objective of SFAS 130 is to report a measure of all
changes in the equity of an enterprise that result from
transactions and other economic events of the peri the
total of net income and all other non-owner changes in
equity. SFAS 130 does not address issues of recognition
or measurement for comprehensive income and its
components and, therefore, it will not have an impact
on the financial condition or results of the Company
upon adoption. The Financial Accounting Standards Board
also recently released SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This
statement, which is also effective for fisca December
15, 1997, requires reporting of financial and
descriptive information about reportable operating
segments. Operating segments are components of an
enterprise about which separate financial information
is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate
resources and in assessing performance. The Company
believes it operates in only one business segment,
production and distribution of processed organic foods,
and h complied with any additional disclosure
requirements. SFAS 131 does not address issues of
recognition or measurement in the basic financial
statements, and thus will have no impact on the
Company's financial condition or results of operation
upon adoption.
Interim Financial The unaudited interim financial statements include all
Statements adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary in
order to make the financial statements not misleading.
Operating results for the nine-month period ended March
31, 1999, are not necessarily indicative of the results
that may be expected for the entire year ending June
30, 1999. These financial statements have been prepared
in accordance with the instructions for F certain
information required by generally accepted accounting
principles. These statements should be read in
conjunction with financial statements and notes thereto
included in the Company's Form 10-KSB for the year
ended June 30, 1998.
F-43
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
1. Inventory Inventory consisted of the following:
March 31, 1999 June 30, 1998
-------------------------------------------------------
Raw materials $ 775,373 $1,513,659
Finished goods 1,283,304 2,305,327
---------- ----------
2,058,677 3,818,986
Less: provision for
obsolete inventory (166,315) (125,000)
-------------------------------------------------------
$1,942,362 $3,693,986
=======================================================
2. Related Party Advances to Shareholder
Transactions
As of June 30, 1997, the Company had advanced $168,000
to a shareholder in accordance with an employment
agreement. The advance was unsecured, non- interest
bearing, and considered short-term in nature. As of
June 30, 1998, this agreement was eliminated and future
payments were discontinued. The balance of the
non-interest-bearing note ($168,000) was written off at
June 30, 1998.
Notes Payable-Related Parties
At June 30, 1998, notes payable-related parties,
consist of the following: Two 6% interest bearing notes
payable for $248,619 to two corporate shareholders,
with monthly payments of $20,000, including principal
and interest until paid in full; unsecured and
subordinated to other secured parties.
A schedule of future minimum principal payments due on
notes payable outstanding at June 30, 1998, is as
follows:
Year ending June 30, Amount
-------------------------------------------------------
1999 $462,754
2000 34,484
-------------------------------------------------------
$497,238
=======================================================
Organic Ingredients, Inc. ("OGI"), a company 50% owned
by the Company's President, supplies certain organic
ingredients used primarily in the Company's fruit juice
products. Total purchases from OGI amounted to $564,450
during fiscal year 1998. The price of, and terms for,
the ingredients are fair, reasonable and consistent
with prices and terms which would be available to the
Company from third parties.
F-44
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Management Services Contract
In April 1998, the Company contracted for management
services from Global Natural Brands, Inc. (Global).
Under the contract, Global provided the services of
four individuals to fill the offices of Chief Executive
Officer, Chief Financial Officer, Vice President-Sales
& Distribution and Vice President-Marketing for a
four-year period ending June 30, 2002. The contract
provided for minimum annual cash payments to Global of
$300,000, with escalations based on certain earnin
attainment conditions. In addition, up to 1,808,784
options to purchase the Company's Common Stock could
have vested over a total of four years based on certain
stock price and earnings improvement performance
conditions. However, the contract with Global was
terminated by the Company in October 1998.
Under the agreement, $154,135 in management fees and
related relocation expenses was incurred during the
year ended June 30, 1998. Additionally, Global also
agreed to reimburse the Company $50,000 in costs
related to a failed acquisition of an unrelated third
party during the year ended June 30, 1998.
During the nine-month period ended March 31, 1999, the
Company recorded payables to Global Natural Brands
totaling $380,000. However, certain of these amounts
are in dispute due to the contract's termination, and
may be offset by amounts owed to the Company by Global
Natural Brands. These related-party transactions
included expenses for management's fees and personal
expenses.
F-45
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
3. Fixed Assets A summary of fixed assets at June 30, 1998 is as
and Goodwill follows:
<TABLE>
<CAPTION>
Life Amount
----------------------------------------------------------------
<S> <C> <C>
Computer software and equipment 5 years $ 53,750
Leasehold improvements 7 years 182,994
Machinery and equipment 7-20 years 1,036,259
Office equipment 5 years 52,500
Printing plates 7 years 28,998
Vehicles 5 years 19,542
----------------------------------------------------------------
1,373,863
Accumulated depreciation (110,856)
----------------------------------------------------------------
$1,263,007
================================================================
</TABLE>
During 1998, the Company determined that certain
goodwill and fixed assets were potentially impaired,
based on estimations of expected undiscounted future
cash flows from operations under current operating
conditions. Discounted cash flow estimates under the
same operating assumptions indicated that there may not
be sufficient cash flows to recover the cost of the
goodwill arising from the purchase of OFP, and
accordingly, goodwill of $2,182,401 was written off.
The rela by $240,024 to their fair value as estimated
by appraisal from an independent third party. The
resulting total $2,422,425 loss is included in "Loss on
write-down of fixed assets and goodwill" in the
accompanying statements of operations. The affected
fixed assets will be depreciated at their new book
basis over the remaining useful life. Unamortized
goodwill of $923,156 relating to the February 1998
Sunny Farms acquisition (see Note 4) was not affected,
and will be reeva ongoing basis.
During the nine months ended December 31, 1998,
additional goodwill in the amount of $156,867 was
recorded to reflect the estimated value of escrowed
shares of common stock which will be released and
recorded in 1999 in connection with the Sunny Farms'
purchase (see Note 4). This amount and all remaining
unamortized goodwill, totaling $1,080,382, was written
off during the nine months ended March 31, 1999, as it
was determined that, based on the results for the first
year amounts could not be recovered under current
operating conditions.
For the years ended June 30, 1998 and 1997,
depreciation expense was $210,158 and $140,988,
respectively.
F-46
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
4. Acquisition of In February, 1998, OFPI acquired the natural fruit
Sunny Farms juice and water bottling operations of Sunny Farms
Corporation for a total of $971,171 in cash (including
costs of acquisition) and assumption of debt, and the
issuance of Common Stock of the Company valued at
$1,700,000. Of the total purchase price, $850,000 of
the Common Stock portion is contingent upon certain
performance conditions over the first year after
acquisition and, accordingly, was not yet recorded at
June 30, 1998.
The $963,822 excess of the remaining purchase price
over identified inventory and fixed assets of
approximately $857,000 was accounted for as goodwill.
Of the contingent consideration, $156,867 was recorded
and subsequently written off in the nine months ended
March 31, 1999 (see Note 3).
The actual number of common stock to be released is
currently under review and will be recorded when
mutually agreed to by both parties involved.
The agreement was accounted for as a purchase and,
accordingly, the results of the Sunny Farms operations
are included from February 11, 1998 forward. Pro forma
unaudited estimated results of operations as if the
acquisition had been made effective July 1, 1996,
beginning of the first period presented, are as
follows:
Years ended June 30, 1998 1997
-------------------------------------------------------
Revenues $15,486,000 $18,498,000
Net loss $(5,059,000) $(1,061,000)
Loss per share $ (.75) $ (.18)
-------------------------------------------------------
Only the basic shares issued in February 1998 not
subject to forfeit (see Note 8) are included in the
above pro forma computations of loss per share.
F-47
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
5. Notes Payable At June 30, 1998 notes payable consist of the
following:
--------------------------------------------------------
Revolving line of credit with Wells
Fargo Bank for $1,000,000, interest
at the bank's prime rate plus 1%
per annum (9.5% at June 30, 1998),
interest due monthly, with
principal balance due in full in
October, 1998; collateralized by
various corporate assets. Replaced
subsequent to year end(1). $874,853
12% Interest-bearing note payable
to Deere Park Capital Management. 100,000
Other 17,736
-------------------------------------------------------
$992,589
=======================================================
(1) On October 9, 1998, a new financing agreement with
Finova Capital Corporation was signed for a prime plus
2.5% $3,000,000 revolving line of credit to be secured
by inventory and receivables, as well as a $500,000
equipment line.
During the nine months ended March 31, 1999, the
Company entered into a four-year capitalized equipment
lease in the amount of $23,752.
6. Commitments Inventory Purchases
The Company is committed to purchase raw materials over
the next year at contracted prices. At June 30, 1998,
these future committed purchases aggregated
approximately $1,846,000 based on the contracted
prices. The Company has no other material future
commitments.
Lease Obligations
The Company leases office, warehouse and production
space in Morgan Hill, California under a non-cancelable
operating lease agreement, expiring April, 2003. Rent
expense under this lease agreement for the years ended
June 30, 1998 and 1997 was $102,590 and $78,732
respectively. A schedule of future minimum lease
payments due under the non-cancelable operating leases
at June 30, 1998, is as follows:
F-48
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Year ending Amount
-------------------------------------------------------
1999 $ 83,585
2000 83,545
2001 85,820
2002 88,395
Subsequent 60,097
-------------------------------------------------------
$401,442
=======================================================
Employment Contracts
The Company entered into employment contracts with two
key employees. The contracts were to 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 June 30, 1998, contracts
were terminated by mutual agreement and approximately
$167,000 still due under one of the contracts has been
accrued.
In connection with the Sunny Farms acquisition (see
Note 4), the Company entered into employment agreements
with two former employees of Sunny Farms. The
agreements expire in February 2000 and provide for
payments of the remaining base salaries (aggregating
approximately $12,000 per month) in the event of
termination other than for cause or resignation of the
employee(s). Both of these employees resigned during
the nine months ended March 31, 1999.
7. Significant For the years ended June 30, 1998 and 1997, the Company
Concentrations had one customer which accounted for approximately
seventeen percent (17%) and twenty-one percent (21%),
respectively, of the total sales volume. At June 30,
1998 and 1997, the amounts due from the customer
included in accounts receivable were $128,662 and
$374,591, respectively. For the year ended June 30,
1998, the Company had one supplier, which accounted for
an aggregate of approximately twenty percent (20%) of
year ended June 30, 1997, the Company had one supplier,
which accounted for approximately thirty-one percent
(31%) of the total purchases. At June 30, 1998 and
1997, the amounts due to these suppliers included in
accounts payable were $84,022 and $473,658,
respectively. The Company believes that other suppliers
are available who could provide product at similar
prices and terms. A change in suppliers, however, could
cause a delay in manufacturing and a possible loss of s
operating results adversely.
F-49
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
8. Shareholders' Common Stock
Equity
The Company completed a private placement offering
during the year ended June 30, 1997 at a gross price of
$2.50 per share. The proceeds from the offering of
823,500 shares were $1,718,288, net of costs of
$340,462. The Company completed its initial public
offering of 1,495,000 shares of its no par value common
stock at a price of $4.00 per share sold (including
195,000 underwriters over-allotment shares at $3.60 per
share) under its Registration Statement and Prospectus
proceeds of approximately $5,900,000 were received by
the Company.
In connection with the management contract discussed in
Note 3, Global purchased a total of 222,222 shares of
the Company's Common Stock in June, 1998 for $500,000,
and has committed to invest an additional $500,000
before the earlier of 30 days after completion of an
acquisition transaction (as defined) or April 15, 1999.
The agreement targeted the value of the purchases at
$2.50 per share. OFPI committed to issue additional
shares to bring the market value of the share amount if
the market value of the Common Stock was less than
$2.50 per share for the average of the closing prices
on specified trading dates in August and September,
1998 (with a minimum assigned value of $2.25 per
share). Under this provision, the Company issued 22,222
additional shares in connection with the first $500,000
purchase, and will issue 222,222 shares in total for
the second purchase. The additional shares related to
the first purchase are treated as if the June, 1998
date of sale of the initial related shares.
In connection with the February, 1998 Sunny Farms
acquisition, the Company issued a total of 425,000
shares at $4.00 per share, of which 212,500 were placed
in escrow. The agreement provided for issuance of
additional shares if the market price of the Company's
shares was not at least $4.00 per share for the average
of the closing prices on specified trading dates in
August, 1998 (with a minimum assigned value of $3.00
per share). Under this provision, the Company issued in
connection with the purchase. These additional shares
are treated as if they were outstanding for the entire
period since the Sunny Farms acquisition date.
F-50
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
However, as discussed in Note 4, as one-half of the
total are contingent shares held in escrow pending
future performance conditions, only 283,333 have
actually been recorded as issued in the year ended June
30, 1998. The contingently forfeitable shares are not
included in the calculation of earnings (loss) per
share.
9. Stock Options Otions
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 and directors. 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 ten years after
grant. Options generally vest ratably over four or five
year periods for employees, and up to two years for
directors. At June 30, 1998, there were 625,000 be
granted under the plan.
The following table shows activity in outstanding
options during 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 625,000 $2.11 483,000 $2.00
Granted-employees and directors 40,000 $3.34 142,000 $2.50
Granted-management services 1,808,784 $2.25 - -
Canceled or expired (131,000) $2.50 - -
Outstanding, end of year 2,342,784 $2.26 625,000 $2.11
-----------------------------------------------------------------------------------
Options exercisable at year end 283,000 $2.00 311,000 $2.10
-----------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year-
employee and director shares only $1.75 $0.29
-----------------------------------------------------------------------------------
The following table shows information for options
outstanding or exercisable as of June 30, 1998:
F-51
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Options Outstanding Options Exercisable
------------------------------------ ------------------------------------
Weighted Weighted
Average Weighted Average Weighted
Number Remaining Average Number Remaining Average
Range of Outstanding Contractual Exercise Exercisable Contractual Exercise
Exercise Price at 12/31/98 Life (Years) Price at 12/31/98 Life (Years) Price
----------------------------------------------------------------------------------------------
$2-$2.99 2,302,784 6.6 $2.24 283,000 6.8 $2.10
$3-$3.34 40,000 10.0 $3.34 -- -- --
----------------------------------------------------------------------------------------------
2,342,784 6.3 $2.26 283,000 6.8 $2.10
==============================================================================================
</TABLE>
In 1998, the Company also granted options for 1,808,784
shares at $2.25 per share to the management company
providing executive management services (see Note 2).
The options vest over a four-year period beginning
April 15, 1998, and are exercisable for four years
after vesting. Vesting of each year's options is
dependent upon performance conditions relating to
improvement in earnings and share price for which
targets are to be established yearly. The fair value of
the op expense upon attainment or probability of
attainment of the performance target over the service
period. However, as of June 30, 1998, no such targets
were set by OFPI and the management company, and,
accordingly, no amounts were included in expense. No
shares had vested by October 1998 when the management
company's contract was terminated (see Note 2).
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. 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
stock-based compensation been determined based on the
fair value of the grant dates consistent with the
method of SFAS 123, th and earnings (loss) per share
for the years ended June 30, 1998 and 1997, would have
been adjusted to the pro forma amounts presented below:
June 30, 1998 1997
-------------------------------------------------------
Net income (loss)
As reported $(4,619,233) $55,167
Pro forma $(4,622,802) $13,987
Earnings (loss) per share
As reported $ (.69) $ .01
Pro forma $ (.69) $ --
=======================================================
F-52
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
The fair value of option grants are estimated on the
date of grant utilizing the Black-Scholes
option-pricing model, with the following assumptions
for grants in the years ended June 30, 1998 and 1997,
respectively: expected life of five years, expected
volatility of 50.4% and 14.4%, risk-free interest rates
of 5.6% and 8%, and no dividend yield. The fair value
at date of grant for director and employee options for
1998 and 1997 approximated $1.75 and $.29 per share,
res the 1998 management company options, estimated as
of September 23,1998, the date of this report,
approximated $.50 per share.
Warrants
The Company issued warrants to an underwriter in
connection with a private placement offering in 1995.
As of June 30, 1998, 150,000 warrants were outstanding
at exercise prices of $2.00 per share, expiring on
December 31, 2002.
In addition, the Company issued warrants to individuals
in connection with various ten percent (10%) promissory
note agreements in 1997. As of June 30, 1998, 200,666
warrants were outstanding at exercise prices of $3.00
per share, expiring on December 31, 1999.
In connection with its August, 1997 IPO, the Company
issued 130,000 warrants to purchase shares of common
stock at $4.80 per share, expiring in August, 2002.
Also in 1998, the Company issued warrants at $2.625 per
share expiring in February, 2003 in exchange for
services related to the Sunny Farms acquisition (see
Note 5).
10. Income Taxes and A reconciliation of the Federal statutory rate to the
Deferred Income tax provision of the corresponding years is as follows:
Taxes 1998 1997
-------------------------------------------------------
Tax benefit (expense) at
effective Federal
statutory rate $1,564,800 $ (8,800)
Non deductible expens (10,900) (2,600)
Valuation limitation on
deferred tax assets (1,749,600) --
State income tax expense
(benefit), net of Federal
effect 210,900 (4,600)
-------------------------------------------------------
$ 15,200 $(16,000)
=======================================================
F-53
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Deferred tax assets at June 30, 1998 are as follows:
-------------------------------------------------------
Net operating losses $ 888,200
Goodwill amortization and write-down 712,700
Depreciation and fixed asset write-down 11,900
Allowances against receivables 110,300
State income taxes, net of Federal benefits 234,000
Other 42,700
Total 1,999,800
Valuation allowance (1,999,800)
-------------------------------------------------------
Net $ --
=======================================================
Since the Company could not determine it was more
likely than not that the deferred tax assets would be
realized, a 100% valuation allowance has been provided.
At June 30, 1998, the Company had Federal and state net
operating loss carryforwards available to offset future
Federal and state taxable income, in the approximate
amounts of $2,612,000 and $1,426,000, expiring through
June 30, 2013 and 2003, respectively.
11. Statements of Non-Cash Investing and Financing Activities
Cash flows
The Company recognized investing and financing
activities that affected assets and liabilities, but
did not result in cash receipts or payments. These
non-cash activities are as follows:
Years ended June 30, 1998 1997
-------------------------------------------------------
Issuance of stock for a
portion of Sunny Farms
acquisition $850,000 $ --
Deferred offering costs
charged to Shareholder'
equity 421,338 --
F-54
<PAGE>
Organic Food Products, Inc.
Summary of Accounting Policies
(Information as of and for the nine months ended
March 31, 1999 and 1998 is Unaudited)
================================================================================
Stock issued for directors
expenses 34,401 14,157
Inventory financed through
the issuance of a note
payable -- 222,523
Asset additions financed
through the issuance of
notes payable -- 141,186
Interest imputed on a
discounted note payable -- 118,410
Asset additions financed
through capital lease
obligations -- 23,752
========================================================
During the nine-month period ended March 31, 1999, the
Company reclassed $37,322 previously held in accounts
payable to notes payable related parties. Additionally,
goodwill in the amount of $156,867 was recorded to
reflect the estimated value of escrowed shares of
common stock, which will be released and recorded as
issued in 1999 (see Note 4).
12. Subsequent Event On May 14, 1999, the Company and Spectrum Naturals,
Inc., and its affiliate, Spectrum Commodities,
(collectively, "SNI") entered into a definitive
agreement to merge the companies in a stock exchange.
In addition, the Company entered into a definitive
agreement to acquire all the outstanding shares of
Organic Ingredients, Inc. Under the terms of the
anticipated merger, which will be accounted for as a
reverse acquisition purchase, SNI will receive
approximately 75% of th the Company, subject to certain
adjustments. The merger and related acquisition are
subject to shareholders' approvals. The completion
dates for the transactions are dependent upon
regulatory approvals and preparation of the related
proxy. In the interim, the Company and SNI have entered
into an advisory services agreement until the merger is
completed.
13. Year 2000 Issues Like other companies, Organic Food Products, Inc.,
(Unaudited) could be adversely affected if the computer systems,
which the Company and its providers use, do not
properly process and calculate date-related information
and data from the period surrounding and including
January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact
non-computer systems and devices such as production
equipment, elevators, etc. At this time, because of the
comp issue, management cannot provide assurances that
the Year 2000 issue will not have an impact on the
Company's operations.
F-55
<PAGE>
INDEX TO ANNEXES
Agreement and Plan of Merger and Reorganization
dated May 14, 1999 by and between Organic Food
Products, Inc. and Organic Ingredients, Inc. ........................ Annex A
Agreement and Plan of Merger and Reorganization
dated May 14, 1999 by and between Organic Food
Products, Inc. and Spectrum Naturals, Inc. .......................... Annex B
Section 1300 to 1304 of the California Corporation Code ............. Annex C
Form of Amended and Restated Articles of Incorporation
of Organic Food Products, Inc........................................ Annex D
Form of Organic Food Products, Inc. Employment Agreement ............ Annex E
Form of Organic Food Products, Inc. Shareholder Lock-up
Agreement ........................................................... Annex F
Form of Voting Agreement dated May 14, 1999
between Spectrum Naturals, Inc. and certain shareholders of
Organic Food Products, Inc........................................... Annex G
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZAITON
by and between:
ORGANIC FOOD PRODUCTS, INC.
a California corporation; and
ORGANIC INGREDIENTS, INC.,
a California corporation
------------------------
May 14, 1999
------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1.DESCRIPTION OF TRANSACTION.......................................1
1.1 Merger of the Company into OFPI..........................1
1.2 Effect of the Merger.....................................1
1.3 Closing; Effective Time..................................1
1.4 Directors and Officers...................................2
1.5 Conversion of Shares.....................................2
1.6 Closing of the Company's Transfer Books..................2
1.7 Exchange of Certificates.................................2
1.8 Tax Consequences.........................................3
1.9 Accounting Treatment.....................................3
1.10 Further Action...........................................3
SECTION 2.REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................3
2.1 Due Organization; No Subsidiaries; Etc...................4
2.2 Articles of Incorporation and Bylaws; Records............4
2.3 Capitalization...........................................4
2.4 Financial Statements.....................................5
2.5 Absence of Changes.......................................5
2.6 Title to Assets..........................................7
2.7 Accounts Receivable; Loans and Advances..................7
2.8 Inventory................................................8
2.9 Equipment; Leasehold.....................................8
2.10 Proprietary Assets.......................................8
2.11 Contracts................................................9
2.12 No Undisclosed Liabilities..............................11
2.13 Compliance with Legal Requirements......................11
2.14 Governmental Authorizations.............................11
2.15 Tax Matters.............................................11
2.16 Employee and Labor Matters; Benefit Plans...............12
2.17 Environmental Matters...................................14
2.18 Sale of Products; Performance of Services...............15
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TABLE OF CONTENTS
(continued)
Page
2.19 Insurance...............................................15
2.20 Related Party Transactions..............................16
2.21 Legal Proceedings; Orders...............................16
2.22 Authority; Binding Nature of Agreement..................16
2.23 Non-Contravention; Consents.............................17
2.24 Vote Required...........................................17
2.25 Company Action..........................................18
2.26 Full Disclosure.........................................18
2.27 Finder's Fee............................................18
SECTION 3.REPRESENTATIONS AND WARRANTIES OF OFPI..........................18
3.1 Due Organization, Etc...................................18
3.2 Articles of Incorporation and Bylaws; Records...........19
3.3 Capitalization, Etc.....................................19
3.4 SEC Filings; Financial Statements.......................20
3.5 Absence of Changes......................................20
3.6 Title to Assets.........................................22
3.7 Accounts Receivable; Loans and Advances.................23
3.8 Inventory...............................................23
3.9 Equipment; Leasehold....................................23
3.10 Proprietary Assets......................................24
3.11 Contracts...............................................25
3.12 No Undisclosed Liabilities..............................26
3.13 Compliance with Legal Requirements......................26
3.14 Governmental Authorizations.............................27
3.15 Tax Matters.............................................27
3.16 Employee and Labor Matters; Benefit Plans...............27
3.17 Environmental Matters...................................29
3.18 Sale of Products; Performance of Services...............30
3.19 Insurance...............................................30
3.20 Related Party Transactions..............................31
ii
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TABLE OF CONTENTS
(continued)
Page
3.21 Legal Proceedings; Orders...............................31
3.22 Authority; Binding Nature of Agreement..................31
3.23 Non-Contravention; Consents.............................32
3.24 Vote Required...........................................32
3.25 OFPI Action.............................................32
3.26 Full Disclosure.........................................33
3.27 Finder's Fee............................................33
SECTION 4.CERTAIN COVENANTS OF THE COMPANY................................33
4.1 Access and Investigation................................33
4.2 Operation of the Company's Business.....................34
4.3 Notification; Updates to Company Disclosure Schedule....35
4.4 No Solicitation. During the Pre-Closing Period..........36
4.5 Company Shareholders' Meeting...........................36
4.6 Tax Representation Letters; Continuity of Interest
Certificates............................................37
SECTION 5.CERTAIN COVENANTS OF OFPI.......................................37
5.1 Access and Investigation................................37
5.3 Notification; Updates to OFPI Disclosure Schedule.......39
5.4 No Solicitation.........................................40
5.5 OFPI Shareholders' Meeting..............................40
5.6 Tax Representation Letters..............................41
SECTION 6.ADDITIONAL COVENANTS OF THE PARTIES.............................41
6.1 Filings and Consents....................................41
6.2 Public Announcements....................................42
6.3 Reasonable Efforts......................................42
6.4 Registration Statement..................................42
6.5 Additional Agreements...................................43
6.6 Regulatory Approvals....................................43
SECTION 7.CONDITIONS PRECEDENT TO OBLIGATIONS OF OFPI.....................43
7.1 Satisfactory Completion of Pre-Merger Review............44
7.2 Accuracy of Representations.............................44
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TABLE OF CONTENTS
(continued)
Page
7.3 Performance of Covenants................................44
7.4 Compliance Certificate..................................44
7.5 Shareholder Approval....................................44
7.6 Consents................................................44
7.7 Legal Opinion...........................................44
7.8 Tax Opinion.............................................44
7.9 No Restraints...........................................44
7.10 Employment Agreements...................................44
7.11 Shareholder Lock-up Agreements..........................45
SECTION 8.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY..............45
8.1 Accuracy of Representations.............................45
8.2 Performance of Covenants................................45
8.3 Compliance Certificate..................................45
8.4 Shareholder Approval....................................45
8.5 Consents................................................45
8.6 Legal Opinion...........................................45
8.7 Tax Opinion.............................................45
8.8 No Restraints...........................................46
SECTION 9.TERMINATION AND INDEMNIFICATION.................................46
9.1 Termination.............................................46
9.2 Effect of Termination...................................47
9.3 Fees and Expenses; Termination Fees.....................47
9.4 Indemnification by OFPI.................................47
9.5 Indemnification by the Company..........................48
9.6 Threshold...............................................49
9.7 Maximum Liability.......................................49
9.8 Calculation of Indemnification Payments.................49
SECTION 10. MISCELLANEOUS PROVISIONS.....................................50
10.1 Survival of Representations and Warranties..............50
10.2 Further Assurances......................................50
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TABLE OF CONTENTS
(continued)
Page
10.3 Attorneys' Fees.........................................50
10.4 Notices.................................................50
10.5 Time of the Essence.....................................51
10.6 Governing Law; Venue....................................51
10.7 Successors and Assigns..................................51
10.8 Remedies Cumulative; Specific Performance...............52
10.9 Waiver..................................................52
10.10 Amendments .............................................52
10.11 Severability ...........................................52
10.12 Parties in Interest ....................................52
10.13 Disclosure Schedules ...................................52
10.14 Entire Agreement .......................................53
10.15 Construction ...........................................53
10.16 Headings ...............................................53
10.17 Counterparts ...........................................53
v
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EXHIBITS
Exhibit A - Certain Definitions
Exhibit B - Directors and Officers of OFPI
Exhibit C - Company Tax Representative Letter
Exhibit D - OFPI Tax Representation Letter
Exhibit E - Form of Company Legal Opinion
Exhibit F - Form of Company Tax Opinion
Exhibit G - Form of OFPI Legal Opinion
Exhibit H - Form of OFPI Tax Opinion
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of May 14, 1999, among ORGANIC FOOD PRODUCTS, INC., a
California corporation ("OFPI"), ORGANIC INGREDIENTS, INC., a California
corporation (the "Company"), JOHN BATTENDIERI and JOSEPH STERN (collectively,
"Company Shareholders"). Certain capitalized terms used in this Agreement are
defined in the attached Exhibit A.
RECITALS
A. OFPI and the Company intend to effect a merger of the Company with and
into OFPI (the "Merger") in accordance with this Agreement and the California
General Corporation Law (the "CGCL"). Upon consummation of the Merger, the
Company will cease to exist, and OFPI will continue as the surviving
corporation.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
treated as a purchase by OFPI by the Company.
C. This Agreement has been adopted and approved by the respective boards of
directors of OFPI and the Company. The Company Shareholders are the sole owners
of the Company stock.
D. It is intended that promptly after the consummation of the Merger,
Spectrum Naturals, Inc. ("Spectrum"), will merge with and into OFPI (the
"Spectrum Merger").
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 Merger of the Company into OFPI. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), the Company shall be merged with and into OFPI, and the separate
existence of the Company shall cease. OFPI will continue as the surviving
corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the CGCL.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California
94111 at a time and on a date which shall be promptly (but not more than two (2)
<PAGE>
days following) the satisfaction or waiver of the conditions set forth in
Sections 7 and 8 (the "Closing Date"). Contemporaneously with or as promptly as
practicable after the Closing, a properly executed agreement or certificate of
merger conforming to the requirements of the CGCL (the "Certificate of Merger")
shall be filed with the Secretary of State of the State of California. The
Merger shall take effect at the time the Certificate of Merger is filed with and
accepted by the Secretary of State of the State of California (the "Effective
Time").
1.4 Directors and Officers. Unless otherwise determined by OFPI prior to
the Effective Time the directors and officers of OFPI immediately after the
Spectrum Merger Effective Time shall be the individuals identified on the
attached Exhibit B.
1.5 Conversion of Shares. Subject to Section 1.7(b) and Section 1.8, at the
Effective Time, by virtue of the Merger and without any further action on the
part of OFPI, the Company or any shareholder of the Company, each share of
Company Common Stock (as defined in Section 2.3) outstanding immediately prior
to the Effective Time shall be converted into thirty-five (35) fully paid and
non-assessable shares (the "Shares") of OFPI Common Stock (as defined in Section
3.3) such that the Company shall issue 3,950,000 shares of OFPI Common Stock by
virtue of the Merger.
1.6 Closing of the Company's Transfer Books. At the Effective Time, (a) all
certificates representing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall automatically be canceled and retired and
shall cease to exist, and all holders of certificates representing shares of
Company Common Stock that were outstanding immediately prior to the Effective
Time shall cease to have any rights as shareholders of the Company, and (b) the
stock transfer books of the Company shall be closed with respect to all shares
of such Company Common Stock outstanding immediately prior to the Effective
Time. No further transfer of any such shares of Company Common Stock shall be
made on such stock transfer books after the Effective Time. If, after the
Effective Time, a valid certificate previously representing any of such shares
of Company Common Stock (a "Company Stock Certificate") is presented to OFPI,
such Company Stock Certificate shall be canceled and shall be exchanged as
provided in Section 1.7.
1.7 Exchange of Certificates.
(a) Exchange Procedures. At or as soon as practicable after the
Closing, the holders of Company Common Stock shall surrender their Company Stock
Certificates in exchange for certificates representing OFPI Common Stock,
pursuant to this Agreement. Subject to Section 1.7(b), upon such surrender of a
Company Stock Certificate for exchange, (1) the holder of such Company Stock
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of shares of OFPI Common Stock that such holder has the
right to receive pursuant to Section 1.5, and (2) the Company Stock Certificate
so surrendered shall be canceled. Until surrendered as contemplated by this
Section 1.7(a), each Company Stock Certificate shall be deemed, from and after
the Effective Time, to represent only the right to receive shares of OFPI Common
Stock (and cash in lieu of any fractional share of OFPI Common Stock as
contemplated by Section 1.7(b)), pursuant to this Agreement. If any Company
2
<PAGE>
Stock Certificate shall have been lost, stolen or destroyed, OFPI shall issue a
certificate representing OFPI Common Stock with respect to such lost, stolen or
destroyed Company Stock Certificate in accordance with this Agreement upon
delivery by the owner of such lost, stolen or destroyed Company Stock
Certificate to OFPI of an appropriate affidavit as indemnity against any claim
that may be made against OFPI with respect to such Company Stock Certificate.
(b) Fractional Shares. No fractional shares of OFPI Common Stock shall
be issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Common Stock who would otherwise be entitled to receive a fraction of
a share of OFPI Common Stock (after aggregating all fractional shares of OFPI
Common Stock issuable to such holder) shall, upon surrender of such holder's
Company Stock Certificate(s), be paid in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying such fraction
by the Designated OFPI Stock Price. The "Designated OFPI Stock Price" shall be
the closing sales price of one share of OFPI Common Stock as reported on the
Nasdaq Small Cap Market on the Closing Date, or if not so reported, as reported
on the electronic bulletin board as of such date.
(c) No Liability. OFPI shall not be liable to any holder or former
holder of Company Common Stock for any shares of OFPI Common Stock (or dividends
or distributions with respect thereto), or for any cash amounts, delivered to
any public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
1.9 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a purchase. For purposes of determining the purchase price, the
price per share shall be $0.7083, which is the average of the closing sale
prices per share of OFPI's Common Stock as traded on the Nasdaq Small Cap Market
on the three (3) trading days immediately preceding February 19, 1999, the date
the terms of the transaction were first publicly announced (the "Applicable
Price").
1.10 Further Action. If, at any time after the Effective Time, any further
action is determined by OFPI to be necessary to carry out the purposes of this
Agreement or to vest OFPI with full right, title and possession of and to all
rights and property of the Company, the officers and directors of OFPI shall be
fully authorized, in the name of the Company, to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to OFPI that, except as set forth in
the disclosure schedule prepared by the Company in accordance with the
requirements of Section 10.13 and that has been delivered by the Company to OFPI
on the date of this Agreement (the "Company Disclosure Schedule"):
3
<PAGE>
2.1 Due Organization; Subsidiaries; Etc.
(a) Each of Company and its subsidiary is duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation with full corporate power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted (ii)
to own and use its assets in the manner in which its assets are currently owned
and used and (iii) to perform its obligations under all Contracts by which is
its bound. The Company has no subsidiaries other than the subsidiary disclosed
in Part 2.1 of the Company Disclosure Schedule (the "Company Subsidiary").
(b) The Company and the Company Subsidiary maintain facilities or
employees in each state listed in Part 2.1(b) of the Company Disclosure
Schedule. Each of the Company and the Company Subsidiary is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified would have a Material Adverse Effect on the Company or on the
ability of the Company to consummate the transactions contemplated hereby.
2.2 Articles of Incorporation and Bylaws; Records. The Company has
delivered or made available to OFPI accurate and complete copies of: (1) the
Company's articles of incorporation and bylaws as currently in effect, including
all amendments thereto; (2) the stock records of the Company; and (3) the
minutes and other records of the meetings and other proceedings (including any
actions taken by written consent or otherwise without a meeting) of the
shareholders of the Company, the Board of Directors of the Company and all
committees of the Board of Directors of the Company. The Company is not in
violation of any of the provisions of its articles of incorporation or bylaws.
The books of account, stock records, minute books and other records of the
Company are accurate and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 Capitalization. The authorized capital stock of the Company consists
of: 100,000 shares of Common Stock, no par value per share ("Company Common
Stock"), of which 100,000 shares have been issued and are outstanding as of the
date hereof. Part 2.3 of the Company Disclosure Schedule sets forth, as of the
date hereof, the number of shares of Company Common Stock owned of record by
each of the Company Shareholders. All of the outstanding shares of Company
Common Stock have been duly authorized and validly issued, and are fully paid
and non-assessable, and none of such shares is subject to any repurchase option
or restriction on transfer other than restrictions imposed by federal or state
securities laws. There are no outstanding subscriptions, options, calls,
warrants or other rights (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of the Company. All outstanding
shares of Company Common Stock have been issued in compliance with all
applicable securities laws and other applicable Legal Requirements. Except as
set forth in Part 2.3 of the Company Disclosure Schedule, the Company has never
repurchased, redeemed or otherwise reacquired any shares of its capital stock or
other securities. There are no preemptive or similar rights with respect to the
Company's capital stock. There is no Company Contract (or, to the Company's
knowledge, any other agreement or arrangement to which the Company is not a
party) relating to the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or granting any option
or similar right with respect to), any shares of Company Common Stock. There is
4
<PAGE>
no shareholder rights plan (or similar plan commonly referred to as a "poison
pill") or Contract under which Company is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities.
2.4 Financial Statements.
(a) The Company has delivered to OFPI the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) the audited balance sheets of the Company as of December 31,
1998, and the reviewed balance sheets as of December 31, 1997 and 1996, and the
related audited statements (as to the year ending December 31, 1998) and
reviewed but unaudited statements (as to the year ending December 31, 1997 and
1996) of income, statements of shareholders' equity and statements of cash flows
of the Company for the years then ended, together with the notes thereto and the
report of an independent auditor relating thereto; and
(ii) The unaudited balance sheet of the Company as of March 31,
1999, and the related unaudited statement of income of the Company for the
one-month period then ended.
(b) The Company Financial Statements present fairly the financial
position of the Company as of the respective dates thereof and the results of
operations and cash flows of the Company for the periods covered thereby. The
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered.
2.5 Absence of Changes. Except as described in Part 2.5 of the Company
Disclosure Schedule, since March 31, 1999 through the date of this Agreement:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of the
Company, and, to the Knowledge of the Company, no event has occurred that could
reasonably be expected to have a Material Adverse Effect on the Company taken as
a whole;
(b) there has not been any loss, damage or destruction to any of the
Company's assets (whether or not covered by insurance) that could reasonably be
expected to have a Material Adverse Effect on the Company;
(c) neither the Company nor the Company Subsidiary has declared,
accrued, set aside or paid any dividend stock split, combination or
reclassification or made any other distribution in respect of any shares of
capital stock and has not repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities;
(d) neither the Company nor the Company Subsidiary has sold, issued or
authorized the issuance of (i) any capital stock or other security, (ii) any
option, call, warrant or right to acquire, or otherwise relating to, any capital
5
<PAGE>
stock or any other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) there has been no amendment to the articles of organization or
bylaws of the Company or the Company Subsidiary, and neither the Company nor the
Company Subsidiary has effected or been a party to any Company Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(f) neither the Company nor the Company Subsidiary has amended or
waived any of its rights under, or permitted the acceleration of vesting under
any restricted stock purchase agreement;
(g) neither the Company nor the Company Subsidiary has formed any
subsidiary or acquired any equity interest in any other Entity;
(h) neither the Company nor the Company Subsidiary has made any
capital expenditure which, when added to all other capital expenditures made
since March 31, 1999, exceeds $25,000 in the aggregate;
(i) neither the Company nor the Company Subsidiary has (i) entered
into any Material Company Contract (as defined in Section 2.10(a)), or (ii)
amended or prematurely terminated, or waived any material right or remedy under,
any Material Company Contract to which it is or was a party or under which it
has or had any material rights or obligations;
(j) neither the Company nor the Company Subsidiary has (i) acquired,
leased or licensed any right or other asset from any other Person, (ii) sold or
otherwise disposed of, or leased or licensed, any right or other asset to any
other Person, or (iii) waived or relinquished any right, except for purchases of
inventory and sales of products in the ordinary course of business and except
for immaterial rights or other immaterial assets acquired, leased, licensed or
disposed of in the ordinary course of business and consistent with the Company's
past practices;
(k) neither the Company nor the Company Subsidiary has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness in excess of $10,000 individually or
$25,000 in the aggregate;
(l) neither the Company nor the Company Subsidiary has made any pledge
of any of its assets or otherwise permitted any of its assets to become subject
to any Encumbrance, except for pledges of assets valued at $25,000 or less,
individually or in the aggregate, made in the ordinary course of business and
consistent with the Company's past practices;
(m) neither the Company nor the Company Subsidiary has not (i) lent
money to any Person, or (ii) incurred or guaranteed any indebtedness for
borrowed money;
(n) neither the Company nor the Company Subsidiary has (i)
established, adopted or amended any Employee Benefit Plan, (ii) paid any bonus
or made any profit-sharing or similar payment to, or increased the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration
6
<PAGE>
payable to, any of its directors, officers or employees, (iii) hired any new
employee, in either case except in the ordinary course of business and
consistent with past practices or (iv) entered into any severance or employment
agreement with any person;
(o) neither the Company nor the Company Subsidiary has changed any of
its methods of accounting or accounting practices in any material respect;
(p) neither the Company nor the Company Subsidiary has made any Tax
election;
(q) neither the Company nor the Company Subsidiary has commenced or
settled
any Legal Proceeding;
(r) neither the Company nor the Company Subsidiary has entered into
any material transaction or taken any other material action outside the ordinary
course of business or inconsistent with its past practices;
(s) neither the Company nor the Company Subsidiary has made any
material write-down of inventory; and
(t) neither the Company nor the Company Subsidiary has agreed or
committed to take any of the actions referred to in clauses "(c)" through "(s)"
above.
2.6 Title to Assets.
(a) Each of the Company and the Company Subsidiary owns, and has good
and valid title to all assets purported to be owned by it, including all of the
assets reflected in the Company Financial Statements and all other assets
reflected in the Company's books and records as being owned by the Company.
Except as set forth in Part 2.6(a) of the Company Disclosure Schedule, all of
said assets are owned by the Company and the Company Subsidiary free and clear
of any liens or other Encumbrances, except for (i) any lien for current taxes
not yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that would not (in any case or in the aggregate) have a
Material Adverse Effect on the Company.
(b) Part 2.6(b) of the Company Disclosure Schedule identifies all
assets that are being leased or licensed to the Company and the Company
Subsidiary that involve obligations of the Company in excess of $25,000 on an
individual basis.
2.7 Accounts Receivable; Loans and Advances.
(a) All accounts receivable of the Company and the Company Subsidiary that
are reflected in the Company Financial Statements or in the accounting records
of the Company as of the date hereof (collectively, the "Company Accounts
Receivable") represent valid obligations arising from sales actually made or
services actually performed in the ordinary course of business. The Company
Accounts Receivable are current and collectible net of any respective reserves
shown in the Company Financial Statements or on the accounting records of the
7
<PAGE>
Company as of the date hereof (which reserves are adequate and calculated
consistent with past practice). There is no contest, claim, or right of set-off,
other than returns in the ordinary course of business, under any Contract with
any obligor of any Company Accounts Receivable relating to the amount or
validity of such Company Accounts Receivable.
(b) Part 2.7(b) of Company Disclosure Schedule contains an accurate
and complete list of all loans and advances made by the Company or the Company
Subsidiary (and pursuant to which amounts are outstanding as of the date of this
Agreement) to any employee, director, consultant or independent contractor of
Company or the Company Subsidiary, other than routine travel advances made to
employees in the ordinary course of business.
2.8 Inventory. Part 2.8 of the Company Disclosure Schedule provides an
accurate and complete breakdown of all inventory (including raw materials, work
in process and finished goods) of the Company as of March 31, 1999. All of the
Company's existing inventory (including all inventory that is reflected on the
unaudited balance sheet referenced in Section 2.4(ii) and that has not been
disposed of by the Company since March 31, 1999):
(a) is of such quality and quantity as to be usable and saleable by
the Company in the ordinary course of business and consistent with the Company's
past practices;
(b) has been priced at the lower of cost or market value using the
"first-in, first-out" method; and
(c) is free of any defect or deficiency.
The inventory levels maintained by the Company (i) are not excessive in
light of the Company's normal operating requirements, (ii) are adequate for the
conduct of the Company's operations in the ordinary course of business and
consistent with past practices, and (iii) are comparable to the inventory levels
maintained by Company Comparable Entities.
2.9 Equipment; Leasehold. The real property leased by and other tangible
assets leased or owned by the Company are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the Company's business in the
manner in which such business is now being conducted.
Neither the Company nor the Company Subsidiary owns any real property or
any material interest in real property. Part 2.9(b) of the Company Disclosure
Schedule describes all leases of real property held by the Company and the
Company Subsidiary.
2.10 Proprietary Assets.
(a) Except as set forth in Part 2.10 of the Company Disclosure
Schedule, there is no Proprietary Asset that is owned by or licensed to the
Company or that is otherwise used or useful in connection with the Company's
business. The Company Proprietary Assets identified in Part 2.10 of the Company
Disclosure Schedule constitute all of the Proprietary Assets necessary to enable
the
8
<PAGE>
Company to conduct its business in the manner in which its business is currently
being conducted and in the manner in which its business is proposed to be
conducted.
(b) To the Knowledge of the Company, the Company has good and valid
title to all Company Proprietary Assets free and clear of all liens and other
Encumbrances, and has a valid right to use all Proprietary Assets. Neither the
Company nor the Company Subsidiary is obligated to make any payment to any
Person for the use of any Company Proprietary Asset. To the Knowledge of the
Company, each of the Company and the Company Subsidiary is free to use, modify,
copy, distribute, sell, license or otherwise exploit each of the Company
Proprietary Assets on an exclusive basis. (except for any Proprietary Asset that
is licensed to the Company on a non-exclusive basis under any third party
software license generally available to the public at a cost of less than
$2,500).
(c) Each of the Company and the Company Subsidiary has taken
reasonable measures and precautions necessary to protect and maintain the
confidentiality and secrecy of all Company Proprietary Assets (except Company
Proprietary Assets whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the value of all Company Proprietary Assets.
Neither the Company nor the Company Subsidiary has disclosed or delivered or
permitted to be disclosed or delivered to any Person, and no Person (other than
the Company) has access to or has any rights with respect to any Company
Proprietary Asset, in either case except pursuant to a valid non-disclosure
agreement.
(d) To the Knowledge of the Company, none of the Company Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the Knowledge of the Company, neither the Company nor the
Company Subsidiary is infringing, misappropriating or making any unlawful use
of, and neither the Company nor the Company Subsidiary has at any time
infringed, misappropriated or made any unlawful use of, or received any notice
or other communication of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other Person. To the Knowledge of the Company, no other Person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset owned or used by any other Person infringes or conflicts with, any Company
Proprietary Asset.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been conducted. Neither the Company nor the Company
Subsidiary has licensed any of the Company Proprietary Assets to any Person on
an exclusive basis, and neither the Company nor the Company Subsidiary has
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(f) No shareholder, officer or director of the Company has title to
any Company Proprietary Asset which would be necessary to enable the Company to
conduct its business in the manner in which such business is currently being
conducted.
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2.11 Contracts.
(a) Part 2.11(a) (and Part 2.9 regarding leases of real property) of
the Company Disclosure Schedule identifies each Company Contract that
constitutes a "Material Company Contract." For purposes of this Agreement, a
"Material Company Contract" shall be deemed to be any Company Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of the Company in excess of $25,000 per
year, including any Company Contract involving severance payments or
acceleration benefits upon a Company Acquisition Transaction;
(ii) relating to the acquisition, transfer, use, development,
sharing or license of any Company Proprietary Asset (except in the ordinary
course of business and except for any Company Proprietary Asset that is licensed
to the Company under any third party software license agreement generally
available to the public at a cost of less than $25,000);
(iii) imposing any material restriction on the Company's or the
Company Subsidiary's right or ability (A) to compete with any other Person, (B)
to acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any Company Proprietary Asset;
(iv) creating or involving any agency relationship, distribution
arrangement or franchise relationship involving payments to or from the Company
or obligations in excess of $25,000 per year;
(v) relating to the acquisition, issuance or transfer of any
securities of the Company under which the Company has any current rights or
obligations;
(vi) creating or relating to the creation of any Encumbrance with
respect to any asset owned or used by the Company or the Company Subsidiary
having a value in excess of $25,000;
(vii) involving or incorporating any guaranty, any pledge, any
performance or completion bond, any indemnity, any right of contribution or any
surety arrangement in excess of $25,000 per year;
(viii) creating or relating to any partnership or joint venture
or any material sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or other
asset by or to, or the performance of any services by or for, any Related Party
(as defined in Section 2.20);
(x) entered into outside the ordinary course of business;
(xi) that may not be terminated by the Company or the Company
Subsidiary (without penalty) within 120 days after the delivery of a termination
notice by
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the Company the Company Subsidiary and which involves payments or commitments of
$5,000 or more;
(xii) contemplating or involving (A) the payment or delivery of
cash or other consideration in an amount or having a value in excess of $25,000
in the aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate; and
(xiii) which is a lease of real property.
(b) The Company has delivered to OFPI accurate and complete copies of all
Material Company Contracts identified in Part 2.11(a) of the Company Disclosure
Schedule, including all amendments thereto. Each Material Company Contract
identified in Part 2.11(a) of the Company Disclosure Schedule is valid and in
full force and effect, and is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Neither the Company nor the Company Subsidiary nor, to the Company's
Knowledge, any other party, has materially violated or breached, or committed
any material default under, any Material Company Contract;
(i) to the Knowledge of the Company, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a violation or breach of
any of the provisions of any Material Company Contract, (B) give any Person the
right to declare a default or exercise any remedy under any Material Company
Contract, (C) give any Person the right to accelerate the maturity or
performance of any Material Company Contract, or (D) give any Person the right
to cancel, terminate or modify any Material Company Contract;
(ii) since March 31, 1999, neither the Company nor the Company Subsidiary
has received any notice or other communication regarding (i) any actual or
possible violation or breach of, or default under, any Material Company
Contract, or (ii) any actual or possible termination of any Material Company
Contract; and
(iii) neither the Company nor the Company Subsidiary has waived any of its
material rights under any Material Company Contract.
2.12 No Undisclosed Liabilities. Except as set forth in the Company
Financial Statements and except for current liabilities incurred in the ordinary
course of business since March 31, 1999, the Company has no accrued, contingent
or other liabilities of any nature, either matured or unmatured.
2.13 Compliance with Legal Requirements. Each of the Company and the
Company Subsidiary is, and has at all times been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and will not have a Material Adverse Effect on
the Company. Neither the Company nor the Company Subsidiary has received any
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notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement;
provided, however, that this representation shall not apply to the matters
covered by the representations contained in Sections 2.15, 2.16 and 2.17.
2.14 Governmental Authorizations. The Company and the Company Subsidiary
have all Governmental Authorizations necessary to enable the Company and the
Company Subsidiary to conduct their businesses in the manner in which their
businesses are currently being conducted, except for Governmental Authorizations
the failure of which to obtain would not have a Material Adverse Effect on the
Company. Each of the Company and the Company Subsidiary is, and at all times has
been, in compliance with the material terms and requirements of such
Governmental Authorizations, except for any noncompliance which would not have a
Material Adverse Effect on the Company. Neither the Company nor the Company
Subsidiary has received any notice or other communication from any Governmental
Body regarding (a) any actual or possible violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
2.15 Tax Matters.
(a) All Material Tax Returns required to be filed by or on behalf of
the Company with any Governmental Body with respect to any transaction occurring
or any taxable period ending on or before the date hereof (the "Company
Returns") (i) have been filed when due, and (ii) have been accurately and
completely prepared in compliance with all applicable Legal Requirements. Each
of the Company and the Company Subsidiary has, within the time (including any
extensions of applicable due dates) and in the manner prescribed by law, paid
all Taxes that are due and payable, except Taxes that, individually and in the
aggregate, are not material. The Company Financial Statements fully accrue all
actual and contingent liabilities for Taxes with respect to all periods through
the dates thereof in accordance with generally accepted accounting principles.
(b) No claim or Legal Proceeding is pending or has been threatened
against or with respect to the Company or the Company Subsidiary in respect of
any Tax. There are no unsatisfied liabilities for Taxes (including liabilities
for interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by the Company
or the Company Subsidiary. There are no liens for Taxes upon any of the assets
of the Company or the Company Subsidiary, except liens for current Taxes not yet
due and payable.
2.16 Employee and Labor Matters; Benefit Plans.
(a) Part 2.16(a) of the Company Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement whose
annual salaries are greater than $30,000, and correctly reflects their salaries,
any other compensation payable to them (including compensation payable pursuant
to bonus, deferred compensation or commission arrangements), their dates of
employment and their positions. The Company is not a party to any collective
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bargaining contract or other Contract with a labor union involving any of its
employees.
(b) Part 2.16(b) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, health,
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (individually referred to as a "Company
Plan" and collectively referred to as the "Company Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee of the Company.
(c) The Company does not maintain, sponsor or contribute to, and, to
the knowledge of the Company, neither the Company has at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), subject to Title IV of ERISA for the benefit of employees
or former employees of the Company (a "Company Defined Benefit Plan").
(d) The Company does not maintain, sponsor or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of employees or former employees of the Company.
(e) With respect to each Company Plan, the Company has made available
to OFPI:
(i) an accurate and complete copy of such Company Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such Company Plan for the three most
recent plan years;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each summary of material modifications
thereto (if required under ERISA) with respect to such Company Plan, and (B)
each material employee communication relating to such Company Plan;
(iv) if such Company Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Company Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
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(vi) an accurate and complete copy of the most recent
determination, notification, advisory and/or opinion letter received from the
Internal Revenue Service with respect to such Company Plan (if such Company Plan
is intended to be qualified under Section 401(a) of the Code).
(f) The Company is not required to be, and, to the Knowledge of the
Company, the Company has never been required to be, treated as a single employer
with any other Person under Section 4001(b)(1) of ERISA or Section 414(b), (c),
(m) or (o) of the Code. The Company has never been a member of an "affiliated
service group" within the meaning of Section 414(m) of the Code. To the of the
Knowledge of the Company, the Company has never made a complete or partial
withdrawal from a " multiemployer plan" (as defined in Section 3(37) of ERISA)
resulting in "withdrawal liability" (as defined in Section 4201 of ERISA),
without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA.
(g) The Company has no plan or commitment to create any additional
Company employee benefit plan within the meaning of ERISA, or to modify or
change any such plan (other than to comply with applicable law).
(h) No Company Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of the
Company after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the balance sheet as of January 31, 1999, or (iii) benefits the
full cost of which are borne by current or former employees of the Company (or
their beneficiaries)).
(i) With respect to each of the Company Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") have been complied with in all material respects.
(j) Each of the Company Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the Company Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(l) Neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will result in any bonus payment, golden parachute payment,
severance payment or other payment to any current or former employee or director
of the Company (whether or not under any Company Plan), or materially increase
the benefits payable under any Company Plan, or result in any acceleration of
the time of payment or vesting of any such benefits.
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(m) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, employee compensation, wages, bonuses and terms and conditions of
employment.
2.17 Environmental Matters. Each of the Company and the Company Subsidiary
is and has at all times been in compliance, in all material respects, with all
applicable Environmental Laws. The Company and the Company Subsidiary possess
all permits and other Governmental Authorizations required under applicable
Environmental Laws, and each of the Company and the Company Subsidiary is and
has at all times been in compliance with the terms and requirements of all such
Governmental Authorizations, except where the failure to possess such
Governmental Authorizations or failure to be in compliance would not have a
Material Adverse Effect on the Company. Neither the Company nor the Company
Subsidiary has received any notice or other communication (whether from a
Governmental Body, citizens group, employee or otherwise) that alleges that the
Company or the Company Subsidiary is not in compliance with any Environmental
Law. To the Knowledge of the Company, no current or prior owner of any property
leased or owned by the Company or the Company Subsidiary has received any notice
or other communication (whether from a Governmental Body, citizens group,
employee or otherwise) that alleges that such current or prior owner or the
Company is not or was not in compliance with any Environmental Law. (For
purposes of this Section 2.17 and Section 3.17: (i) "Environmental Law" means
any federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "Materials of
Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or in the future regulated by any Environmental Law or that is otherwise
a danger to health, reproduction or the environment.) To the Knowledge of the
Company, no Materials of Environmental Concern have been released or are located
on or under any property leased or owned by the Company or the Company
Subsidiary. Neither the Company nor the Company Subsidiary have received any
notice or communication (whether from a Governmental Body, citizen group,
employee, or otherwise) regarding a release of, or the existence of, Materials
of Environmental Concern at, under, or about any property leased or owned by the
Company or the Company Subsidiary.
2.18 Sale of Products; Performance of Services.
(a) To the Company's Knowledge, each product that has been sold by the
Company to any Person:
(i) conformed and complied in all respects with the terms and
requirements of any applicable warranty or other Contract and with all
applicable Legal Requirements; and
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(ii) was free of any design defects, construction defects or
other defects or deficiencies at the time of sale.
All services that have been performed by the Company were performed
properly and in full conformity with the terms and requirements of all
applicable warranties and other Contracts and with all applicable Legal
Requirements.
(b) To the Knowledge of the Company, the Company will not incur or
otherwise become subject to any Liability arising directly or indirectly from
any product manufactured or sold, or any repair services or other services
performed by, the Company on or at any time prior to the Closing Date.
(c) To the Knowledge of the Company, no product manufactured or sold
by the Company has been the subject of any recall or other similar action; and
no event has occurred, and no condition or circumstance exists, that might (with
or without notice or lapse of time) directly or indirectly give rise to or serve
as a basis for any such recall or other similar action relating to any such
product.
(d) Except as set forth in Part 2.18 of the Company Disclosure
Schedule, no customer or other Person has ever asserted or threatened to assert
any claim against the Company (i) under or based upon any warranty provided by
or on behalf of the Company, or (ii) under or based upon any other warranty
relating to any product sold by the Company or any services performed by the
Company. To the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for the assertion
of any such claim.
(e) The Company has in place an adequate and appropriate quality
control system that is at least as comprehensive and effective as the quality
control systems customarily maintained by Company Comparable Entities.
2.19 Insurance. The business and properties of the Company are insured for
the benefit of the Company in amounts deemed adequate by the Company's
management against risks usually insured against by persons operating businesses
similar to those of the Company in the localities where such properties are
located. The Company has received no notice of cancellation or refusal of
coverage and copies of all of such insurance policies have been delivered to
OFPI.
2.20 Related Party Transactions. Except as set forth in Part 2.20 of the
Company Disclosure Schedule, (a) no Related Party has, and no Related Party has
at any time since December 31, 1995 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company or
the Company Subsidiary in a manner that would be required to be disclosed under
Item 404 of Regulation S-K promulgated by the SEC; (b) no Related Party is, or
has at any time since December 31, 1995 been, indebted to the Company in a
manner that would be required to be disclosed under Item 404 of Regulation S-K
promulgated by the SEC; (c) since December 31, 1995, no Related Party has
entered into, or has had any direct or indirect financial interest in, any
Material Company Contract, transaction or business dealing involving the Company
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or the Company Subsidiary in a manner that would be required to be disclosed
under Item 404 of Regulation S-K promulgated by the SEC; (d) no Related Party is
competing, or has at any time since December 31, 1995 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company or the Company Subsidiary (other than rights to receive
compensation for services performed as an employee of the Company). (For
purposes of this Section 2.20, each of the following shall be deemed to be a
"Related Party": (i) each individual who is, or who has at any time since
December 31, 1995 been, an officer or director of the Company or the Company
Subsidiary; (ii) each individual who is, or who at any time since December 31,
1995 been, a member of the immediate family of any of the individuals referred
to in clause "(i)" above; (iii) any shareholder of the Company or the Company
Subsidiary; and (iv) any trust or other Entity in which any one of the
individuals referred to in clauses "(i)," "(ii)" "(iii)" and "(iv)"above holds
(or in which more than one of such individuals collectively hold), beneficially
or otherwise, a material voting, proprietary or equity interest.)
2.21 Legal Proceedings; Orders. There is no pending Legal Proceeding, and,
to the knowledge of the Company, no Person has threatened to commence any Legal
Proceeding that: (i) may have a Material Adverse Effect on the Company or the
Company Subsidiary, or its respective business; or (ii) challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement. To the Knowledge of the Company, no event has occurred, and no claim,
dispute or other condition or circumstance exists that could reasonably be
expected to give rise to or serve as a basis for the commencement of any such
Legal Proceeding. There is no order, writ, injunction, judgment or decree to
which the Company or the Company Subsidiary, or any of the assets owned or used
by the Company or the Company Subsidiary, is subject. To the Knowledge of the
Company, no officer or other employee of the Company is subject to any order,
writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the Company's or the Company Subsidiary's business. There is no
action, suit, proceeding or investigation by the Company or the Company
Subsidiary currently pending or which the Company intends to initiate.
2.22 Authority; Binding Nature of Agreement. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
the Company of this Agreement have been duly authorized by all necessary action
on the part of the Company, its Board of Directors and its shareholders. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by (i) laws of general application relating
to bankruptcy, insolvency, moratorium, reorganization or other similar laws,
both state and federal, affecting the enforcement of creditors' rights or
remedies in general, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
2.23 Non-Contravention; Consents. Except as set forth in Part 2.23 of the
Company Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (2) the consummation of the Merger or any of the other transactions
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contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of the Company's or the Company Subsidiary's articles of organization
or bylaws;
(b) with respect to the Company or the Company Subsidiary, contravene,
conflict with or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the transactions contemplated by this
Agreement or to exercise any remedy or obtain any relief under, any Legal
Requirement or any order, writ, injunction, judgment or decree to which the
Company or the Company Subsidiary, or any of the assets owned or used by the
Company or the Company Subsidiary, is subject;
(c) with respect to the Company or the Company Subsidiary, contravene,
conflict with or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by the Company
or the Company Subsidiary or that otherwise relates to the Company's business or
to any of the assets owned or used by the Company or the Company Subsidiary;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Material Company Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any Material Company Contract, (ii) accelerate the maturity or performance of
any Material Company Contract, or (iii) cancel, terminate or modify any Material
Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or would have a
Material Adverse Effect on the Company).
Except as may be required by the CGCL and state securities or blue sky
laws, and except as set forth in Part 2.23 of the Company Disclosure Schedule,
the Company is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with (x) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
2.24 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock of the Company (the "Requisite Company
Vote"), is the only vote of the holders of any class or series of Company's
capital stock necessary to adopt and approve this Agreement, the Merger and the
transactions contemplated thereby. The Company Shareholders approve this
Agreement, the Merger and the transactions contemplated thereby.
2.25 Company Action. The Company's Board of Directors has (a) unanimously
determined that the Merger is advisable and fair and in the best interests of
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Company and its shareholders, and (b) unanimously approved this Agreement and
the Merger in accordance with the applicable provisions of the CGCL.
2.26 Full Disclosure.
(a) To the Company's Knowledge, all documents, contracts, instruments,
certificates, notices, consents, affidavits, letters, telegrams, telexes,
written statements, schedules (including the Company Disclosure Schedule),
exhibits (including the Exhibits to this Agreement) and any other papers
whatsoever (excluding in all cases drafts and interim versions marked as such or
apparent as such on their face) delivered to OFPI by the Company in connection
with this Agreement and the transactions contemplated thereby, are true and
complete copies thereof. The representations and warranties of the Company
contained in this Agreement, as modified by the Company Disclosure Schedule,
contain no untrue statements of any material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not false or
misleading.
(b) The information supplied by the Company for inclusion in the Joint
Proxy Statement (including the Company Financial Statements) will not, as of the
date of the Joint Proxy Statement or as of the date of the OFPI Shareholders'
Meeting (as defined in Section 5.5), and in each case, as of the date such
information is prepared or presented, contain any statement that is inaccurate
or misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make such information not false or
misleading.
2.27 Finder's Fee. Except for Monterey Bay Food Group, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or any of the other transactions
contemplated thereby based upon arrangements made by or on behalf of the
Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF OFPI
OFPI represents and warrants to the Company that, except as set forth in
the disclosure schedule prepared by OFPI in accordance with the requirements of
Section 10.13 and that has been delivered by OFPI to the Company on the date of
this Agreement (the "OFPI Disclosure Schedule"):
3.1 Due Organization, Etc.
(a) OFPI is a corporation duly organized, validly existing and in good
standing under the laws of California, and has full corporate power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets in the manner in which
its assets are currently owned and used; and (iii) to perform its obligations
under all Contracts by which it is bound. OFPI has no subsidiaries.
(b) OFPI maintains facilities or employees in each state listed in
Part 3.1(b) of the OFPI Disclosure Schedule. OFPI is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
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so qualified would have a Material Adverse Effect on OFPI or on the ability of
OFPI to consummate the transactions contemplated hereby.
3.2 Articles of Incorporation and Bylaws; Records. OFPI has delivered or
made available to Company accurate and complete copies of: (1) OFPI's articles
of incorporation and bylaws as currently in effect, including all amendments
thereto; (2) the stock records of OFPI; and (3) the minutes and other records of
the meetings and other proceedings (including any actions taken by written
consent or otherwise without a meeting) of the shareholders of OFPI, the Board
of Directors of OFPI and all committees of the Board of Directors of OFPI. OFPI
is not in violation of any of the provisions of its articles of incorporation or
bylaws. The books of account, stock records, minute books and other records of
OFPI are accurate and complete in all material respects, and have been
maintained in accordance with prudent business practices.
3.3 Capitalization, Etc. The authorized capital stock of OFPI consists of:
(i) 20,000,000 shares of Common Stock, no par value per share ("OFPI Common
Stock"), of which 7,559,002 shares have been issued and are outstanding as of
the date hereof; and (ii) 5,000,000 shares of preferred stock, no par value per
share, none of which are outstanding. All of the outstanding shares of OFPI
capital stock have been duly authorized and validly issued, and are fully paid
and non-assessable, and none of such shares is subject to any repurchase option
or restriction on transfer other than restrictions imposed by federal and state
securities laws. All outstanding shares of OFPI capital stock have been issued
in compliance with all applicable securities laws and other applicable Legal
Requirements. Part 3.3 of the OFPI Disclosure Schedule sets forth, as of the
date hereof, (i) the names of each holder of 5% or more of the outstanding
voting stock of OFPI together with the number of shares held by each such
holder, and (ii) all outstanding subscriptions, options, calls, warrants or
other rights (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of OFPI. The Shares, when issued by OFPI to
the Company's shareholders will be duly authorized, validly issued, fully paid
and non-assessable, will be issued in compliance with applicable federal and
state securities laws and will be free and clear of all Encumbrances as a result
of any actions by OFPI. OFPI has never repurchased, redeemed or otherwise
reacquired any shares of its capital stock or other securities. Other than the
irrevocable proxies set forth in Part 3.3 of the OFPI Disclosure Schedule, there
are no preemptive or similar rights with respect to the OFPI's capital stock.
There is no OFPI Contract (or, to OFPI's knowledge, any other agreement or
arrangement to which OFPI is not a party) relating to the voting or registration
of, or restricting any Person from purchasing, selling, pledging or otherwise
disposing of (or granting any option or similar right with respect to), any
shares of OFPI Common Stock. There is no shareholder rights plan (or similar
plan commonly referred to as a "poison pill") or Contract under which OFPI is or
may become obligated to sell or otherwise issue any shares of its capital stock
or any other securities.
3.4 SEC Filings; Financial Statements
(a) OFPI has delivered to the Company accurate and complete copies of
each report, schedule, registration statement and definitive proxy statement
filed by OFPI with the SEC since August 8, 1997 (the "OFPI SEC Documents"),
which are all the reports and documents required to be filed by OFPI with the
SEC since August 8, 1997. Each of the OFPI SEC Documents was timely filed by the
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OFPI in accordance with the rules and regulations of the SEC and the NASD. As of
the time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing): (i) each
of the OFPI SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be); and
(ii) none of the OFPI SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements (including, in each case,
any notes related thereto) contained in the OFPI SEC Documents: (i) complied as
to form in all material respects with the published rules and regulations of the
SEC applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes to such financial statements
and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to year-end audit adjustments); and (iii) fairly present the
consolidated financial position of OFPI as of the respective dates thereof and
the consolidated results of operations of OFPI for the periods covered thereby.
(c) OFPI has furnished to the Company a complete and accurate copy of
any amendments, supplements or modifications that have not yet been filed with
the SEC to agreements, documents or other instruments that have been previously
filed by OFPI with the SEC pursuant to the Securities Act or the Exchange Act,
if any.
(d) OFPI has furnished the Company the unaudited balance sheets of
OFPI as of January 31, 1999 and the related unaudited statements of income of
OFPI for the seven months then ended. Such financial statements fairly present
the financial position of OFPI as of the respective dates thereof and the
results of operations and cash flows of OFPI for the periods covered thereby.
Such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered (except that they do not contain footnotes and are subject to
normal and recurring year-end adjustments, which will not, individually or in
the aggregate be material in magnitude). The financial statements referred to in
subsection (b) and this subsection (d) are hereinafter referred to as the "OFPI
Financial Statements."
3.5 Absence of Changes. Except as described in Part 3.5 of OFPI Disclosure
Schedule, since January 31, 1999 through the date of this Agreement:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of OFPI,
and, to the knowledge of OFPI, no event has occurred that could reasonably be
expected to have a Material Adverse Effect on OFPI taken as a whole;
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(b) there has not been any loss, damage or destruction to any of the
assets of OFPI (whether or not covered by insurance) that could reasonably be
expected to have a Material Adverse Effect on OFPI;
(c) OFPI has not declared, accrued, set aside or paid any dividend,
stock split, combination or reclassification or made any other distribution in
respect of any shares of capital stock nor has repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities;
(d) OFPI has not sold, issued or authorized the issuance of (i) any
capital stock or other security (except for OFPI Common Stock issued upon the
exercise of outstanding OFPI Options or OFPI Warrants described in the OFPI
Disclosure Schedule), (ii) any option, call, warrant or right to acquire, or
otherwise relating to, any capital stock or any other security (except for OFPI
Options and OFPI Warrants described in the OFPI Disclosure Schedule), or (iii)
any instrument convertible into or exchangeable for any capital stock or other
security;
(e) there has been no amendment to the articles of organization or
bylaws of OFPI, and OFPI has not effected or been a party to any OFPI
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) OFPI has not amended or waived any of its rights under, or
permitted the acceleration of vesting under (i) any provision of any agreement
evidencing any outstanding OFPI Option or OFPI Warrant, or (ii) any restricted
stock purchase agreement;
(g) OFPI has not formed any subsidiary or acquired any equity interest
or other interest in any other Entity;
(h) OFPI has not made any capital expenditure which, when added to all
other capital expenditures made since January 31, 1999, exceeds $25,000 in the
aggregate;
(i) OFPI has not (i) entered into any Material OFPI Contract (as
defined in Section 3.10(a)), or (ii) amended or prematurely terminated, or
waived any material right or remedy under, any Material OFPI Contract to which
it is or was a party or under which it has or had any material rights or
obligations;
(j) OFPI has not (i) acquired, leased or licensed any right or other
asset from any other Person, (ii) sold or otherwise disposed of, or leased or
licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for purchases of inventory and sales of products
in the ordinary course and except for immaterial rights or other immaterial
assets acquired, leased, licensed or disposed of in the ordinary course of
business and consistent with past practices;
(k) OFPI has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of $5,000 individually or $25,000 in the aggregate;
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(l) OFPI has not made any pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Encumbrance, except for
pledges of assets valued at $25,000 or less, individually or in the aggregate,
made in the ordinary course of business and consistent with past practices;
(m) OFPI has not (i) lent money to any Person, or (ii) incurred or
guaranteed any indebtedness for borrowed money;
(n) OFPI has not (i) established, adopted or amended any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees, (iii) hired any new employee, in either case except in the
ordinary course of business and consistent with past practices or (iv) entered
into any severance or employment agreement with any Person;
(o) OFPI has not changed any of its methods of accounting or
accounting practices in any material respect;
(p) OFPI has not made any Tax election;
(q) OFPI has not commenced or settled any Legal Proceeding;
(r) neither OFPI nor any OFPI Subsidiary has not entered into any
material transaction or taken any other material action outside the ordinary
course of business or inconsistent with its past practices;
(s) OFPI has not made any material write-down of inventory; and
(t) OFPI has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(s)" above.
3.6 Title to Assets.
(a) OFPI owns, and has good and valid title to, all assets purported
to be owned by it, including all of the assets reflected in the OFPI SEC
Documents and all other assets reflected in such entity's books and records as
being owned by OFPI. Except as set forth in Part 3.6(a) of the OFPI Disclosure
Schedule, all of said assets are owned by OFPI and each OFPI Subsidiary free and
clear of any Encumbrances, except for (i) any lien for current taxes not yet due
and payable and (ii) minor liens that have arisen in the ordinary course of
business and that would not (in any case or in the aggregate) have a Material
Adverse Effect on OFPI.
(b) Part 3.6(b) of the OFPI Disclosure Schedule identifies all assets
that are being leased or licensed to OFPI that involve obligations in excess of
$25,000 on an individual basis, that are not otherwise disclosed in the OFPI SEC
Documents.
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3.7 Accounts Receivable; Loans and Advances.
(a) All accounts receivable of OFPI and each OFPI Subsidiary that are
reflected in OFPI SEC Documents or in the accounting records of OFPI as of the
date hereof (collectively, the "OFPI Accounts Receivable") represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. The OFPI Accounts Receivable are current and
collectible net of any respective reserves shown in the OFPI SEC Documents as of
the date hereof (which reserves are adequate and calculated consistent with past
practice). There is no contest, claim, or right of set-off, other than returns
in the ordinary course of business, under any Contract with any obligor of any
OFPI Accounts Receivable relating to the amount or validity of such OFPI
Accounts Receivable.
(b) Part 3.7(b) of OFPI Disclosure Schedule contains an accurate and
complete list of all loans and advances made by OFPI (and pursuant to which
amounts are outstanding as of the date of this Agreement) to any employee,
director, consultant or independent contractor of OFPI or any OFPI Subsidiary,
other than routine travel advances made to employees in the ordinary course of
business.
3.8 Inventory. Part 3.8 of the OFPI Disclosure Schedule provides an
accurate and complete breakdown of all inventory (including raw materials, work
in process and finished goods) of OFPI as of January 31, 1999. All of the
existing inventory of OFPI (including all inventory that is reflected on the
unaudited balance sheet referenced in Section 3.4(ii) and that has not been
disposed of by OFPI since January 31, 1999):
(a) is of such quality and quantity as to be usable and saleable by
OFPI in the ordinary course of business and consistent with the past practices
of OFPI, as the case may be;
(b) has been priced at the lower of cost or market value using the
"first-in, first-out" method; and
(c) is free of any defect or deficiency.
The inventory levels maintained by OFPI are adequate for the conduct of
OFPI's operations in the ordinary course of business and consistent with past
practices.
3.9 Equipment; Leasehold.
(a) The real property leased by, and other tangible assets leased or
owned by OFPI are adequate for the uses to which they are being put, are in good
condition and repair (ordinary wear and tear excepted) and are adequate for the
conduct of such entity's business in the manner in which such business is now
being conducted.
(b) OFPI does not own any real property or any material interest in
real property, except as described in the OFPI SEC Documents and set forth on
Part 3.9(b) of the OFPI Disclosure Schedule.
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3.10 Proprietary Assets.
(a) Except as set forth in Part 3.10 of the OFPI Disclosure Schedule,
there is no Proprietary Asset that is owned by or licensed to OFPI or that is
otherwise used or useful in connection with the business of OFPI. The OFPI
Proprietary Assets identified in Part 3.10 of the OFPI Disclosure Schedule
constitute all of the Proprietary Assets necessary to enable OFPI to conduct its
business in the manner in which its business is currently being conducted and in
the manner in which its business is proposed to be conducted.
(b) To the Knowledge of OFPI, OFPI has good and valid title to all
OFPI Proprietary Assets free and clear of all Encumbrances, and has a valid
right to use all OFPI Proprietary Assets. OFPI is not obligated to make any
payment to any Person for the use of any OFPI Proprietary Asset. To the
Knowledge of OFPI, OFPI is free to use, modify, copy, distribute, sell, license
or otherwise exploit each of the OFPI Proprietary Assets on an exclusive basis
(except for any Proprietary Asset that is licensed to OFPI on a non-exclusive
basis under any third party software license generally available to the public
at a cost o less than $2,500).
(c) OFPI has taken reasonable measures and precautions necessary to
protect and maintain the confidentiality and secrecy of all OFPI Proprietary
Assets (except OFPI Proprietary Assets whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the value of all OFPI
Proprietary Assets. OFPI has not disclosed or delivered or permitted to be
disclosed or delivered to any Person, and no Person (other than OFPI) has access
to or has any rights with respect to any OFPI Proprietary Asset, in either case
except pursuant to a valid non-disclosure agreement.
(d) To the Knowledge of OFPI, none of the OFPI Proprietary Assets
infringes or conflicts with any Proprietary Asset owned or used by any other
Person. To the Knowledge of OFPI, OFPI is not infringing, misappropriating or
making any unlawful use of, and OFPI has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. To the Knowledge of OFPI, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any OFPI Proprietary
Asset.
(e) OFPI Proprietary Assets constitute all the Proprietary Assets
necessary to enable OFPI to conduct its business in the manner in which such
business has been conducted. OFPI has not licensed any of the OFPI Proprietary
Assets to any Person on an exclusive basis, and OFPI has not entered into any
covenant not to compete or Contract limiting its ability to exploit fully any of
its Proprietary Assets or to transact business in any market or geographical
area or with any Person.
(f) No shareholder, officer or director of OFPI has title to any OFPI
Proprietary Asset which would be necessary to enable OFPI to conduct its
business in the manner in which such business is currently being conducted.
3.11 Contracts.
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(a) Part 3.11(a) (and Part 3.9(b) regarding leases of real property)
of the OFPI Disclosure Schedule identifies each OFPI Contract that constitutes a
"Material OFPI Contract." For purposes of this Agreement, a "Material OFPI
Contract" shall be deemed to be any OFPI Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of OFPI in excess of $25,000 per year,
including any OFPI Contract involving severance payments or acceleration
benefits upon a OFPI Acquisition Transaction;
(ii) relating to the acquisition, transfer, use, development,
sharing or license of any OFPI Proprietary Asset (except in the ordinary course
of business and except for any OFPI Proprietary Asset that is licensed to OFPI
under any third party software license agreement generally available to the
public at a cost of less than $25,000);
(iii) imposing any material restriction on OFPI's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or other
asset to or perform any services for any other Person or to transact business or
deal in any other manner with any other Person, or (C) to develop or distribute
any OFPI Proprietary Asset;
(iv) creating or involving any agency relationship, distribution
arrangement or franchise relationship involving payments to or from OFPI or
obligations in excess of $25,000 per year;
(v) relating to the acquisition, issuance or transfer of any
securities of OFPI;
(vi) creating or relating to the creation of any Encumbrance with
respect to any asset owned or used by OFPI having a value in excess of $25,000;
(vii) involving or incorporating any guaranty, any pledge, any
performance or completion bond, any indemnity, any right of contribution or any
surety arrangement in excess of $25,000 per year;
(viii) creating or relating to any partnership or joint venture
or any material sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or other
asset by or to, or the performance of any services by or for, any Related Party
(as defined in Section 3.20);
(x) entered into outside the ordinary course of business;
(xi) that may not be terminated by OFPI (without penalty) within
120 days after the delivery of a termination notice by OFPI and which involves
payments or commitments of $5,000 or more;
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(xii) contemplating or involving (A) the payment or delivery of
cash or other consideration in an amount or having a value in excess of $25,000
in the aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate); and
(xiii) which is a lease of real property.
(b) OFPI has delivered to the Company accurate and complete copies of
all OFPI Material Contracts identified in Part 3.11(a) of OFPI Disclosure
Schedule, including all amendments thereto. Each Material OFPI Contract
identified in Part 3.11(a) of the OFPI Disclosure Schedule is valid and in full
force and effect, and is enforceable by OFPI in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(i) neither OFPI nor, to OFPI's Knowledge, any other party has
materially violated or breached, or committed any material default under, any
OFPI Material Contract;
(ii) to the Knowledge of OFPI, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a violation or breach of
any of the provisions of any OFPI Material Contract, (B) give any Person the
right to declare a default or exercise any remedy under any OFPI Material
Contract, (C) give any Person the right to accelerate the maturity or
performance of any OFPI Material Contract, or (D) give any Person the right to
cancel, terminate or modify any OFPI Material Contract;
(iii) since January 31, 1999, OFPI has not received any notice or
other communication regarding (i) any actual or possible violation or breach of,
or default under, any OFPI Material Contract, or (ii) any actual or possible
termination of any OFPI Material Contract; and
(iv) OFPI has not waived any of its material rights under any
OFPI Material Contract.
3.12 No Undisclosed Liabilities. Except as set forth in the OFPI SEC
Documents and except for current liabilities incurred in the ordinary course of
business since January 31, 1999, OFPI has not accrued, contingent or other
liabilities of any nature, either matured or unmatured.
3.13 Compliance with Legal Requirements. OFPI is, and has at all times
been, in compliance with all applicable Legal Requirements, except where the
failure to comply with such Legal Requirements has not had and will not have a
Material Adverse Effect on OFPI taken as a whole. OFPI has not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement;
provided, however, that this representation shall not apply to the matters
covered by the representations contained in Sections 3.15, 3.16 and 3.17.
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3.14 Governmental Authorizations. OFPI has all Governmental Authorizations
necessary to enable OFPI to conduct its business in the manner in which its
business is currently being conducted, except for Governmental Authorizations
the failure of which to obtain would not have a Material Adverse Effect on OFPI.
OFPI is, and at all times has been, in compliance with the material terms and
requirements of such Governmental Authorizations, except for any noncompliance
which would not have a Material Adverse Effect on OFPI. OFPI has not received
any notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
3.15 Tax Matters.
(a) All Material Tax Returns required to be filed by or on behalf of
OFPI with any Governmental Body with respect to any transaction occurring or any
taxable period ending on or before the date hereof (the "OFPI Returns") (i) have
been filed when due, and (ii) have been accurately and completely prepared in
compliance with all applicable Legal Requirements. OFPI has, within the time
(including any extensions of applicable due dates) and in the manner prescribed
by law, paid all Taxes that are due and payable, except Taxes that, individually
and in the aggregate, are not material. The consolidated financial statements of
OFPI contained in the OFPI SEC Documents fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with generally accepted accounting principles.
(b) No claim or Legal Proceeding is pending or has been threatened
against or with respect to OFPI in respect of any Tax. There are no unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by OFPI. There are no liens for Taxes upon any of
the assets of OFPI, except liens for current Taxes not yet due and payable.
3.16 Employee and Labor Matters; Benefit Plans.
(a) Part 3.16(a) of the OFPI Disclosure Schedule contains a list of
all salaried employees of OFPI as of the date of this Agreement whose annual
salaries are greater than $30,000, and correctly reflects their salaries, any
other compensation payable to them (including compensation payable pursuant to
bonus, deferred compensation or commission arrangements), their dates of
employment and their positions. OFPI is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its employees.
(b) Part 3.16(b) of the OFPI Disclosure Documents identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, health,
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (individually referred to as a "OFPI Plan"
and collectively referred to as the "OFPI Plans") sponsored, maintained,
contributed to or required to be contributed to by OFPI for the benefit of any
current or former employee of OFPI.
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(c) OFPI does not maintain, sponsor or contribute to, and, to the
Knowledge of OFPI, OFPI has not at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
subject to Title IV of ERISA for the benefit of employees or former employees of
OFPI (a "OFPI Defined Benefit Plan").
(d) OFPI does not maintain, sponsor or contribute to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA, whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of employees or former employees of OFPI.
(e) With respect to each OFPI Plan, OFPI has made available to the
Company:
(i) an accurate and complete copy of such OFPI Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such OFPI Plan for the three (3) most
recent plan years;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each summary of material modifications
thereto (if required under ERISA) with respect to such OFPI Plan, and (B) each
material employee communication relating to such OFPI Plan;
(iv) if such OFPI Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such OFPI Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination, notification, advisory and/or opinion letter received from the
Internal Revenue Service with respect to such OFPI Plan (if such OFPI Plan is
intended to be qualified under Section 401(a) of the Code).
(f) OFPI is not required to be, and, to the Knowledge of OFPI, OFPI
has never been required to be, treated as a single employer with any other
Person under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of
the Code. OFPI has never been a member of an "affiliated service group" within
the meaning of Section 414(m) of the Code. To the Knowledge of OFPI, OFPI has
never made a complete or partial withdrawal from a "multiemployer plan" (as
defined in Section 3(37) of ERISA) resulting in "withdrawal liability" (as
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defined in Section 4201 of ERISA), without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA.
(g) OFPI has no any plan or commitment to create any additional OFPI
employee benefit plan within the meaning of ERISA, or to modify or change any
such plan (other than to comply with applicable law).
(h) No OFPI Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of OFPI
after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the consolidated financial statements included in the OFPI SEC
Documents, and (iii) benefits the full cost of which are borne by current or
former employees of OFPI (or their beneficiaries)).
(i) With respect to each of OFPI Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") have been complied with in all material respects.
(j) Each of the OFPI Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
ERISA and the Code.
(k) Each of the OFPI Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and OFPI is not aware of any reason why any such determination
letter should be revoked.
(l) Neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will result in any bonus payment, golden parachute payment,
severance payment or other payment to any current or former employee or director
of OFPI (whether or not under any OFPI Plan), or materially increase the
benefits payable under any OFPI Plan, or result in any acceleration of the time
of payment or vesting of any such benefits.
(m) OFPI is in compliance in all material respects with all applicable
Legal Requirements and Contracts relating to employment, employment practices,
employee compensation, wages, bonuses and terms and conditions of employment.
3.17 Environmental Matters. OFPI is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
OFPI possesses all permits and other Governmental Authorizations required under
applicable Environmental Laws, and OFPI is and has at all times been in
compliance with the terms and requirements of all such Governmental
Authorizations except where the failure to possess such Governmental
Authorizations or failure to be in compliance would not have a Material Adverse
Effect on OFPI. OFPI has not received any notice or other communication (whether
from a Governmental Body, citizens group, employee or otherwise) that alleges
that OFPI is not in compliance with any Environmental Law. To the Knowledge of
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OFPI, no current or prior owner of any property leased or owned by OFPI has
received any notice or other communication (whether from a Governmental Body,
citizens group, employee or otherwise) that alleges that such current or prior
owner or OFPI is not or was not in compliance with any Environmental Law. To the
Knowledge of OFPI, no Materials of Environmental Concern have been released or
are located on or under any property leased or owned by OFPI. OFPI has not
received any notice or other communication (whether from a Governmental Body,
citizens group, employee, or otherwise) regarding a release of, or the existence
of, Materials of Environmental Concern at, under, or about any property leased
or owned by OFPI.
3.18 Sale of Products; Performance of Services.
(a) To OFPI's Knowledge, each product that has been sold by OFPI to
any Person:
(i) conformed and complied in all respects with the terms and
requirements of any applicable warranty or other Contract and with all
applicable Legal Requirements; and
(ii) was free of any design defects, construction defects or
other defects or deficiencies at the time of sale.
(b) To OFPI's Knowledge, OFPI will not incur or otherwise become
subject to any Liability arising directly or indirectly from any product
manufactured or sold, or any repair services or other services performed by,
OFPI on or at any time prior to the Closing Date.
(c) To OFPI's Knowledge, no product manufactured or sold by OFPI has
been the subject of any recall or other similar action; and no event has
occurred, and no condition or circumstance exists, that might (with or without
notice or lapse of time) directly or indirectly give rise to or serve as a basis
for any such recall or other similar action relating to any such product.
(d) Except as set forth in Part 3.18 of the OFPI Disclosure Schedule,
no customer or other Person has ever asserted or threatened to assert any claim
against OFPI (i) under or based upon any warranty provided by or on behalf of
OFPI, or (ii) under or based upon any other warranty relating to any product
sold by OFPI or any services performed by OFPI. To the Knowledge of OFPI, no
event has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for the assertion of any such claim.
(e) OFPI has in place an adequate and appropriate quality control
system that is at least as comprehensive and effective as the quality control
systems customarily maintained by OFPI Comparable Entities.
3.19 Insurance. The business and properties of OFPI are insured for the
benefit of OFPI in amounts deemed adequate by OFPI's management against risks
usually insured against by persons operating businesses similar to those of OFPI
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in the localities where such properties are located. OFPI has received no notice
of cancellation or refusal of coverage and copies of all of such insurance
policies have been delivered to the Company.
3.20 Related Party Transactions. Except as set forth in the OFPI SEC
Documents: (a) no Related Party has, and no Related Party has at any time since
June 30, 1995 had, any direct or indirect interest in any material asset used in
or otherwise relating to the business of OFPI; (b) no Related Party is, or has
at any time since June 30, 1995 been, indebted to OFPI; (c) since June 30, 1995,
no Related Party has entered into, or has had any direct or indirect financial
interest in, any Material OFPI Contract, transaction or business dealing
involving OFPI; (d) no Related Party is competing, or has at any time since June
30, 1995 competed, directly or indirectly, with OFPI; and (e) no Related Party
has any claim or right against OFPI (other than rights to receive compensation
for services performed as an employee of OFPI). (For purposes of this Section
3.20, each of the following shall be deemed to be a "Related Party": (i) each
individual who is, or who has at any time since June 30, 1995 been, an officer
or director of OFPI; (ii) each individual who is, or who at any time since June
30, 1995 been, a member of the immediate family of any of the individuals
referred to in clause "(i)" above; (iii) any 5% shareholder of the OFPI; and
(iv) any trust or other Entity (other than OFPI) in which any one of the
individuals referred to in clauses "(i)," "(ii)" and "(iii)" above holds (or in
which more than one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest.)
3.21 Legal Proceedings; Orders. There is no pending Legal Proceeding, and,
to the Knowledge of OFPI, no Person has threatened to commence any Legal
Proceeding that: (i) may have a Material Adverse Effect on OFPI, or its
business; or (ii) challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Merger or any of the
other transactions contemplated by this Agreement. To the Knowledge of OFPI, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that could reasonably be expected to give rise to or serve as a basis
for the commencement of any such Legal Proceeding. There is no order, writ,
injunction, judgment or decree to which OFPI, or any of the assets owned or used
by OFPI, is subject. To the Knowledge of OFPI, no officer or other employee of
OFPI is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to OFPI's business. There is no action,
suit, proceeding or investigation by OFPI currently pending or which OFPI
intends to initiate.
3.22 Authority; Binding Nature of Agreement. OFPI has the absolute and
unrestricted right, power and authority to perform its obligations under this
Agreement; the execution, delivery and performance by OFPI of this Agreement
have been duly authorized by all necessary action on the part of OFPI and its
Board of Directors. This Agreement constitutes the legal, valid and binding
obligation of OFPI, enforceable against OFPI in accordance with its terms,
except as enforcement thereof may be limited by (i) laws of general application
relating to bankruptcy, insolvency, moratorium, reorganization or other similar
laws, both state and federal, affecting the enforcement of creditors' rights or
remedies in general, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
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3.23 Non-Contravention; Consents. Except as set forth in Part 3.23 of the
OFPI Disclosure Schedule, neither (1) the execution, delivery or performance of
this Agreement or any of the other agreements referred to in this Agreement, nor
(2) the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will directly or indirectly (with or without notice or lapse
of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of OFPI's articles of organization, certificate of incorporation or
bylaws;
(b) with respect to OFPI, contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which OFPI, or any of the assets owned or used
by OFPI, is subject;
(c) with respect to OFPI, contravene, conflict with or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, any Governmental Authorization that is held by
OFPI or that otherwise relates to OFPI's business or to any of the assets owned
or used by OFPI;
(d) contravene, conflict with or result in a violation of breach of,
or result in a default under, any provision of any Material OFPI Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any Material OFPI Contract, (ii) accelerate the maturity or performance of any
Material OFPI Contract, or (iii) cancel, terminate or modify any Material OFPI
Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by OFPI (except for
minor liens that will not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or would have a Material Adverse
Effect on OFPI).
Except as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the CGCL, and the NASD Bylaws (as they relate to
the Joint Proxy Statement), OFPI is not nor will be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any other agreement referred to in this Agreement, or (y) or the consummation of
the Merger.
3.24 Vote Required. The affirmative vote of a majority of the shares of
OFPI Common Stock (the "Requisite OFPI Vote") present in person or by proxy at
the OFPI Shareholders' Meeting at which a quorum is present is the only vote of
the holders of any class or series of OFPI's capital stock necessary to approve
the issuance of the Merger Shares and to adopt and approve this Agreement, the
Merger and the transactions contemplated thereby.
3.25 OFPI Action. The Board of Directors of OFPI (at a meeting duly called
and held) has (a) unanimously (without counting the vote of John Battendieri)
determined that the Merger is advisable and fair and in the best interests of
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OFPI and its shareholders, (b) unanimously (without counting the vote of John
Battendieri) approved this Agreement, the Merger and the Restated Articles in
accordance with the applicable provisions of the CGCL, and (c) unanimously
(without counting the vote of John Battendieri) recommended the adoption and
approval of this Agreement and the Merger by the holders of OFPI Common Stock
and directed that this Agreement, and the Merger be submitted for consideration
by the OFPI's shareholders at the OFPI Shareholders' Meeting.
3.26 Full Disclosure.
(a) To OFPI's Knowledge, all documents, contracts, instruments,
certificates, notices, consents, affidavits, letters, telegrams, telexes,
written statements, schedules (including the OFPI Disclosure Schedule), exhibits
(including the Exhibits to this Agreement) and any other papers whatsoever
(excluding in all cases drafts and interim versions marked as such or apparent
as such on their face) delivered to the Company by OFPI in connection with this
Agreement and the transactions contemplated thereby, are true and complete
copies thereof. The representations and warranties of OFPI contained in this
Agreement, as modified by the OFPI Disclosure Schedule, contain no untrue
statements of any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not false or misleading.
(b) The information supplied by OFPI for inclusion in the Joint Proxy
Statement (including the OFPI Financial Statements) will not, as of the date of
the Joint Proxy Statement or as of the date of the OFPI Shareholders' Meeting
(as defined in Section 5.5), and in each case, as of the date such information
is prepared or presented, contain any statement that is inaccurate or misleading
with respect to any material fact, or (ii) omit to state any material fact
necessary in order to make such information not false or misleading.
3.27 Finder's Fee. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or any of the other transactions contemplated thereby based upon arrangements
made by or on behalf of OFPI.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 Access and Investigation. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide OFPI and OFPI's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company and (b)
provide OFPI and OFPI's Representatives with such copies of the existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as OFPI may reasonably request.
4.2 Operation of the Company's Business. Except as agreed to in writing by
OFPI, during the Pre-Closing Period, the Company shall, and shall cause the
Company Subsidiary to:
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(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and other Persons having business relationships
with the Company or the Company Subsidiary;
(c) keep in full force all insurance policies in effect as of the date
of this Agreement;
(d) cause its officers to report regularly to OFPI concerning the
status of the Company's business;
(e) not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(f) not sell, issue or authorize the issuance of (i) any capital stock
or other security, (ii) any option, call, warrant or right to acquire, or
relating to, any capital stock or other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(g) not amend or permit the adoption of any amendment to the Company's
articles of incorporation or bylaws, or effect or permit the Company or the
Company Subsidiary to become a party to any Company Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(h) not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(i) not make any capital expenditure, except for capital expenditures
that, when added to all other capital expenditures made by the Company or the
Company Subsidiary during the Pre-Closing Period, do not exceed $100,000 in the
aggregate;
(j) not (i) enter into or become bound by, or permit any of the assets
owned or used by it to become bound by, any Material Company Contract except in
the ordinary course of business, or (ii) amend or prematurely terminate, or
waive any material right or remedy under, any Material Company Contract;
(k) not (i) acquire, lease or license any material right or other
material asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any other
Person, or (iii) waive or relinquish any material right, other than in the
ordinary course of business and except for immaterial assets acquired, leased,
licensed or disposed of by the Company pursuant to Contracts that are not
Material Company Contracts;
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(l) not (i) lend money to any Person, or (ii) incur or guarantee any
indebtedness, except for routine advances of expenses to employees in the
ordinary course of business and except that the Company may make routine
borrowings in the ordinary course of business under its existing bank lines of
credit;
(m) not (i) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, other than in the ordinary course of business and solely
with respect to non-officers and non-directors or (ii) establish, adopt or amend
any Employee Benefit Plan;
(n) not change any of its methods of accounting or accounting
practices in any respect;
(o) not make any Tax election;
(p) not commence or settle any Legal Proceeding not disclosed in the
Company Disclosure Schedule;
(q) not enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with its past
practices; and
(r) not agree or commit to take any of the actions described in
clauses "(e)" through "(q)" of this Section 4.2.
4.3 Notification; Updates to Company Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
OFPI in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the Company
hereunder; and
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(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Company Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Company shall promptly deliver to OFPI an update
to the Company Disclosure Schedule specifying such change. No such update shall
be deemed to supplement or amend the Company Disclosure Schedule for the purpose
of (i) determining the accuracy of any of the representations and warranties
made by the Company in this Agreement, or (ii) determining whether any of the
conditions set forth in Section 7 has been satisfied.
4.4 No Solicitation. During the Pre-Closing Period:
(a) Company shall not directly or indirectly, and shall not authorize
or permit any Representative of Company directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any action (excluding any press releases issued in
connection with the announcement of the execution of this Agreement) that could
reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any
information regarding Company to any Person in connection with or in response to
an Acquisition Proposal, (iii) continue or engage in discussions with any Person
with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any Contract contemplating or otherwise relating to any Company Acquisition
Transaction.
(b) The Company shall promptly advise OFPI orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the term thereof) that is made or
submitted by any Person during the Pre-Closing Period.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal.
4.5 Company Shareholders' Meeting.
(a) The Company shall take all action necessary under all applicable
Legal Requirements to call, give notice of, convene and duly hold a meeting or
obtain the unanimous written consent of the holders of Company Common Stock (the
"Company Shareholders' Meeting") to consider, act upon and vote upon the
adoption and approval of this Agreement and approval of the Merger. The Company
Shareholders' Meeting will be held as promptly as practicable.
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4.6 Tax Representation Letters; Continuity of Interest Certificates. As
soon as practicable after the execution of this Agreement, the Company shall
deliver to Bosso, Williams, Sachs, Book, Atack & Gallagher, A Professional
Corporation ("Bosso, Williams") and Carr, McClellan, Ingersoll, Thompson & Horn
Professional Corporation, tax representation letters substantially in the form
of the attached Exhibit C (which will be used and relied upon by such firms in
connection with the legal opinions contemplated by Section 7.8 and Section 8.7).
SECTION 5. CERTAIN COVENANTS OF OFPI
5.1 Access and Investigation. During the Pre-Closing Period, OFPI shall,
and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives with reasonable access to OFPI's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to OFPI; and (b) provide the
Company and the Company's Representatives with such copies of the existing
books, records, Tax Returns, work papers and other documents and information
relating to OFPI, and with such additional financial, operating and other data
and information regarding OFPI, as the Company may reasonably request.
5.2 Operation of OFPI's Business. Except as relates to the Spectrum Merger,
as agreed to by Spectrum or as agreed to in writing by the Company, during the
Pre-Closing Period, OFPI shall:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and other Persons having business relationships
with OFPI;
(c) keep in full force all insurance policies in place as of the date
of this Agreement;
(d) cause its officers to report regularly to the Company concerning
the status of OFPI's business;
(e) not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(f) not, without the written consent of the Company, sell, issue or
authorize the issuance of (i) any capital stock or other security, (ii) any
option, call, warrant or right to acquire, or relating to, any capital stock or
other security, or (iii) any instrument convertible into or exchangeable for any
capital stock or other security (except that OFPI shall be permitted to issue
OFPI Common Stock upon the exercise of OFPI Options outstanding as of the date
hereof;
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(g) not amend or waive any of its rights under, or (except pursuant to
the express terms of OFPI Options outstanding on the date hereof and listed on
Part 3.3 of the OFPI Disclosure Schedule which provide for automatic
acceleration upon consummation of the Merger) permit the acceleration of vesting
under, (i) any provision of its OFPI Stock Plans, (ii) any provision of any
agreement evidencing any outstanding OFPI Option or OFPI Warrant, or (iii) any
provision of any restricted stock purchase agreement;
(h) not amend or permit the adoption of any amendment to its articles
of incorporation or bylaws, or effect or permit OFPI to become a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction (except for the Spectrum
Merger);
(i) not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(j) not make any capital expenditure, except for capital expenditures
that, when added to all other capital expenditures made by OFPI during the
Pre-Closing Period, do not exceed $50,000 in the aggregate;
(k) not (i) enter into or become bound by, or permit any of the assets
owned or used by it to become bound by, any Material OFPI Contract except in the
ordinary course of business, or (ii) amend or prematurely terminate, or waive
any material right or remedy under, any Material OFPI Contract;
(l) not (i) acquire, lease or license any material right or other
material asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any other
Person, or (iii) waive or relinquish any material right, other than in the
ordinary course of business and except for immaterial assets acquired, leased,
licensed or disposed of by OFPI pursuant to Contracts that are not Material OFPI
Contracts;
(m) not (i) lend money to any Person, or (ii) incur or guarantee any
indebtedness, except for routine advances of expenses to employees in the
ordinary course of business and except that OFPI may make routine borrowings in
the ordinary course of business under its existing bank lines of credit
disclosed in the OFPI SEC Documents;
(n) not (i) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees other than in the ordinary course of business and solely
with respect to non-officers and non-directors, or (ii) establish, adopt or
amend any Employee Benefit Plan;
(o) not change any of its methods of accounting or accounting
practices in any respect;
(p) not make any Tax election;
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(q) not commence or settle any Legal Proceeding;
(r) not enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with its past
practices; and
(s) not agree or commit to take any of the actions described in
clauses "(e)" through "(r)" of this Section 5.2.
5.3 Notification; Updates to OFPI Disclosure Schedule.
(a) During the Pre-Closing Period, OFPI shall promptly notify the
Company in writing of:
(i) the discovery by OFPI of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by OFPI in this Agreement or an inaccuracy in the OFPI SEC
Documents;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
OFPI in this Agreement or inaccuracy in the OFPI SEC Documents; if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of OFPI hereunder;
and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 5.3(a) requires any change in the OFPI
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the OFPI Disclosure Schedule were dated as of the
date of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then OFPI shall promptly deliver to the Company an update to the
OFPI Disclosure Schedule specifying such change. No such update shall be deemed
to supplement or amend the OFPI Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
OFPI in this Agreement, or (ii) determining whether any of the conditions set
forth in Section 8 has been satisfied.
5.4 No Solicitation. Except as related to the Spectrum Merger, during the
Pre-Closing Period:
(a) OFPI shall not directly or indirectly, and shall not authorize or
permit any Representative of OFPI directly or indirectly to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
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Acquisition Proposal or take any action (excluding any press releases issued in
connection with the execution of this Agreement or action in compliance with
OFPI's required disclosure obligations under the Exchange Act) that could
reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any
information regarding OFPI to any Person in connection with or in response to an
Acquisition Proposal, (iii) continue or engage in discussions with any Person
with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any Contract contemplating or otherwise relating to any OFPI Acquisition
Transaction; provided, however, that this Section 5.4(a) shall not prohibit OFPI
from furnishing information regarding OFPI to, or entering into discussions
with, any Person in response to a Superior OFPI Proposal if (1) the Board of
Directors of OFPI concludes in good faith, based upon the written advice of its
outside legal counsel, that such action is required in order for the Board of
Directors of OFPI to comply with its fiduciary obligations to OFPI's
shareholders under applicable law, (2) prior to furnishing any such information
to, or entering into discussions with, such Person, OFPI gives the Company
written notice of the identity of such Person and of OFPI's intention to furnish
information to, or enter into discussions with, such Person, and OFPI receives
from such Person an executed confidentiality agreement containing customary
limitations on the use and disclosure of all written and oral information
furnished to such Person by or on behalf of OFPI, (3) prior to furnishing any
such information to such Person, OFPI furnishes such information to the Company
(to the extent such information has not been previously furnished by OFPI to the
Company) and (4) neither OFPI nor any Representative of OFPI shall have violated
any of the restrictions set forth in this Section 5.4.
(b) OFPI shall promptly advise the Company orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the term thereof) that is made or
submitted by any Person during the Pre-Closing Period. OFPI shall keep the
Company fully informed with respect to the status of any such Acquisition
Proposal and any modifications or proposed modifications thereto.
(c) OFPI shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal.
5.5 OFPI Shareholders' Meeting.
(a) OFPI shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and duly hold a meeting of the
holders of OFPI Common Stock (the "OFPI Shareholders' Meeting") to consider, act
upon and vote upon the approval of the issuance of the Merger Shares, the
adoption and approval of this Agreement, the Merger and the Restated Articles.
The OFPI Shareholders' Meeting will be held as promptly as practicable and in
any event within 45 days after the S-4 Registration Statement is declared
effective under the Securities Act (which 45-day period shall be extended on a
day-for-day basis if and for so long as any stop order or other similar action
is in place, pending or threatened by the SEC). OFPI's obligation to call, give
notice of, convene and hold the OFPI Shareholders' Meeting in accordance with
this Section 5.5(a) shall not be limited or otherwise affected by the
commencement, disclosure, announcement or submission of any Superior OFPI Offer
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or other OFPI Acquisition Transaction, or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of OFPI with
respect to the Merger.
(b) Subject to Section 5.5(c): (i) the Board of Directors of OFPI
shall unanimously recommend (without including the vote of John Battendieri, who
will abstain) that OFPI's Shareholders vote in favor of and approve the issuance
of the Merger Shares and adopt and approve this Agreement, the Merger and the
Restated Articles; (ii) the Joint Proxy Statement shall include a statement to
the effect that the Board of Directors of OFPI has unanimously (without
including John Battendieri, who will abstain) made such recommendation; and
(iii) neither the Board of Directors of OFPI nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify,
in a manner adverse to the Company, such unanimous recommendation. For purposes
of this Agreement, said recommendation of the Board of Directors shall be deemed
to have been modified in a manner adverse to the Company if said recommendation
shall no longer be unanimous (without including the vote of John Battendieri,
who will abstain).
(c) Nothing in Section 5.5(b) shall prevent the Board of Directors of
OFPI from withdrawing, amending or modifying its unanimous recommendation in
favor of the Merger if (i) a Superior OFPI Proposal is made to OFPI and is not
withdrawn, (ii) neither OFPI nor any of its Representatives shall have violated
any of the restrictions set forth in Section 5.4, and (iii) the Board of
Directors of OFPI concludes in good faith, based upon the written advice of its
outside counsel, that the withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of OFPI to comply
with its fiduciary obligations to OFPI's Shareholders under applicable law.
Nothing contained in this Section 5.5 shall limit OFPI's obligation to call,
give notice of, convene and hold the OFPI Shareholders' Meeting (regardless of
whether the unanimous recommendation of the Board of Directors of OFPI shall
have been withdrawn, amended or modified).
5.6 Tax Representation Letters. As soon as practicable after the execution
of this Agreement, OFPI shall deliver to Bosso, Williams and Carr, McClellan,
Ingersoll, Thompson & Horn Professional Corporation, tax representation letters
in the form of the attached Exhibit D (which will be used and relied upon in
connection with the legal opinions contemplated by Section 7.8 and Section 8.7).
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1 Filings and Consents. As promptly as practicable after the execution of
this Agreement, each party to this Agreement (a) shall make all filings (if any)
and give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use his or its reasonable efforts to obtain each
Consent (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger or any of the other transactions contemplated by this Agreement. Each
party shall promptly deliver to the other party a copy of each such filing made,
each such notice given and each such Consent obtained by such parties during the
Pre-Closing Period.
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6.2 Public Announcements. The parties shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Merger and the transactions contemplated thereby. Without limiting the
generality of the foregoing, neither party shall (and neither party shall permit
any of its Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without the other party's prior
consent, except that either party shall be permitted, without the consent of the
other party, to make such disclosures as are required to be made under
applicable law.
6.3 Reasonable Efforts. During the Pre-Closing Period, (a) the Company
shall use its reasonable efforts to cause the conditions set forth in Section 7
to be satisfied on a timely basis, and (b) OFPI shall use its reasonable efforts
to cause the conditions set forth in Section 8 to be satisfied on a timely
basis.
6.4 Registration Statement.
(a) As promptly as practicable after the date of this Agreement, OFPI
shall prepare and cause to be filed with the SEC a preliminary Joint Proxy
Statement to be sent to the Shareholders of OFPI in connection with the OFPI
Shareholders' Meeting. OFPI and the Company shall use all reasonable efforts to
cause the Joint Proxy Statement to comply with the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its
staff and to have the Joint Proxy Statement cleared by the SEC for distribution
to the OFPI Shareholders. OFPI shall prepare and cause to be filed with the SEC
a registration statement on Form S-4 concerning the OFPI Common Stock to be
issued upon the Merger (the "S-4 Registration Statement") after the Company's
financial statements for the 12 months ended December 31, 1998 have been audited
by the Company's independent auditors and such auditors' report is available.
The S-4 Registration Statement shall contain or incorporate by reference the
Joint Proxy Statement as a prospectus, and any other documents required by the
Securities Act or the Exchange Act in connection with the Merger. The parties
acknowledge and agree that the foregoing arrangements may be altered by mutual
consent of the parties as reasonably necessary to respond to any comments or
requests received from the SEC. OFPI shall use all reasonable efforts to cause
the S-4 Registration Statement (including the Joint Proxy Statement) to comply
with the rules and regulations promulgated by the SEC, to respond promptly to
any comments of the SEC or its staff and to have the S-4 Registration Statement
declared effective under the Securities Act as promptly as practicable after it
is filed with the SEC. OFPI will use all reasonable efforts to cause the Joint
Proxy Statement to be mailed to OFPI's Shareholders, and the Company will use
all reasonable efforts to cause the Joint Proxy Statement to be mailed to the
Company's shareholders, as promptly as practicable after the S-4 Registration
Statement is declared effective under the Securities Act. The Company shall
promptly furnish to OFPI all information concerning the Company and the
Company's shareholders that may be required or reasonably requested in
connection with any action contemplated by this Section 6.4 (including, without
limitation, the Company Financial Statements). In addition, the Company shall
promptly furnish to OFPI all information concerning the Company and the Company
shareholders that may be required or reasonably requested in connection with any
pre- or post-effective amendment to the S-4 Registration Statement. If the
Company becomes aware of any information that should be set forth in an
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amendment or supplement to the S-4 Registration Statement or the Joint Proxy
Statement, then the Company shall promptly inform OFPI thereof and shall
cooperate with OFPI in filing such amendment or supplement with the SEC and, if
appropriate, in mailing such amendment or supplement to the shareholders of the
Company.
(b) Prior to the Effective Time, OFPI shall make all required filings
with state regulatory authorities and the NASD, and shall ensure that the OFPI
Common Stock to be issued in the Merger will be qualified under the applicable
securities or "blue sky" laws.
6.5 Additional Agreements.
(a) Subject to Section 6.5(b), OFPI and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, but subject to
Section 6.5(b), each party to this Agreement shall use all reasonable efforts to
lift any restraint, injunction or other legal bar to the Merger. Each party
shall promptly deliver to the other, to the extent material, a copy of each such
filing made, each such notice given and each such Consent obtained by such party
during the Pre-Closing Period.
(b) Notwithstanding anything to the contrary contained in this
Agreement, neither OFPI nor the Company shall have any obligation under this
Agreement to do any of the following (or cause the other to do any of the
following): (i) to dispose or cause any of its subsidiaries to dispose of any
assets; (ii) to discontinue or cause any of its subsidiaries to discontinue
offering any product; (iii) to license or otherwise make available, or cause any
of its subsidiaries to license or otherwise make available, to any Person, any
technology, software or other Proprietary Asset; (iv) to hold separate or cause
any of its subsidiaries to hold separate any assets or operations (either before
or after the Closing Date); or (v) to make or cause any of its subsidiaries to
make any commitment (to any Governmental Body or otherwise) regarding its future
operations.
6.6 Regulatory Approvals. The Company and OFPI shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF OFPI
The obligations of OFPI to effect the Merger and otherwise consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
or prior to the Closing, of each of the following conditions:
7.1 Satisfactory Completion of Pre-Merger Review. OFPI shall have
satisfactorily completed its pre-Merger investigation and review of the
Company's business, condition, assets, liabilities, operations, facilities,
financial performance, net income and prospects and shall be satisfied with the
results of that investigation and review.
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7.2 Accuracy of Representations. The representations and warranties made by
the Company in this Agreement shall have been accurate in all material respects
as of the date of this Agreement and the Closing Date; provided, however, that
any representations or warranties of the Company that are qualified as to
materiality or "Material Adverse Effect" shall have been true and correct in all
respects as of the date of this Agreement.
7.3 Performance of Covenants. Each material covenant or obligation
contained in this Agreement that the Company is required to comply with or to
perform at or prior to the Closing shall have been complied with and performed
in all material respects.
7.4 Compliance Certificate. The Company shall have delivered to OFPI a
certificate (the "Company Compliance Certificate") of the Chief Executive
Officer of the Company evidencing compliance with the conditions set forth in
Sections 7.2 and 7.3.
7.5 Shareholder Approval. The issuance of the Merger Shares, this
Agreement, and the Merger shall have been adopted and approved by the Requisite
OFPI Vote and this Agreement and the Merger shall have been adopted and approved
by the Requisite Company Vote.
7.6 Consents. All Consents listed in Part 2.23 of the Company Disclosure
Schedule and Part 3.23 of the OFPI Disclosure Schedule shall have been obtained
and shall be in full force and effect.
7.7 Legal Opinion. OFPI shall have received a legal opinion of Bosso,
Williams, in substantially the form of the attached Exhibit E, dated as of the
Closing Date;
7.8 Tax Opinion. Company shall have received a legal opinion of Bosso,
Williams in substantially the form of the attached Exhibit F, dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code (it being understood that, in
rendering such opinion, Bosso, Williams may rely upon the tax representation
letters referred to in Section 4.6).
7.9 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
7.10 Employment Agreements. Joseph Stern shall have entered into an
employment agreement mutually satisfactory to OFPI and Joseph Stern.
7.11 Shareholder Lock-up Agreements. The Company's Shareholders shall have
entered into an agreement with OFPI prohibiting such persons from transferring
any OFPI Common Stock beneficially owned by such persons for a period of one
year from the Closing Date.
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SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
8.1 Accuracy of Representations. The representations and warranties made by
OFPI in this Agreement shall have been accurate in all material respects as of
the date of this Agreement; provided, however, that any representations or
warranties of OFPI that are qualified as to materiality or "Material Adverse
Effect" shall have been true and correct in all respects as of the date of this
Agreement.
8.2 Performance of Covenants. Each material covenant or obligation
contained in this Agreement that OFPI is required to comply with or to perform
at or prior to the Closing shall have been complied with and performed in all
material respects.
8.3 Compliance Certificate. OFPI shall have delivered to the Company a
certificate (the "OFPI Compliance Certificate") of the Chief Executive Officer
of the OFPI evidencing compliance with the conditions set forth in Sections 8.1
and 8.2.
8.4 Shareholder Approval. The issuance of the Merger Shares and this
Agreement, the Merger and the Restated Articles shall have been adopted and
approved by the Requisite OFPI Vote and this Agreement and the Merger shall have
been adopted and approved by the Requisite Company Vote.
8.5 Consents. All Consents listed in Part 2.21 of the Company Disclosure
Schedule and Part 3.21 of the OFPI Disclosure Schedule shall have been obtained
and shall be in full force and effect.
8.6 Legal Opinion. The Company shall have received a legal opinion of Carr,
McClellan, Ingersoll, Thompson & Horn Professional Corporation, dated as of the
Closing Date, in substantially the form of the attached Exhibit G;
8.7 Tax Opinion. OFPI shall have received a legal opinion of Carr,
McClellan, Ingersoll, Thompson & Horn Professional Corporation in substantially
the form of the attached Exhibit H, dated as of the Closing Date, to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code (it being understood that, in rendering such opinion, Carr,
McClellan, Ingersoll, Thompson & Horn Professional Corporation may rely upon the
tax representation letters and Continuity of Interest Certificates referred to
in Section 4.6);
8.8 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
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8.9 Spectrum Merger. OFPI shall have taken all steps necessary to
accomplish the Spectrum Merger immediately after the Merger and shall provide
the Company with evidence of Spectrum's intent to accomplish the Spectrum Merger
immediately following the Merger.
8.10 Employment Agreement. OFPI shall have entered into an employment
agreement with Joseph Stern mutually satisfactory to OFPI and Joseph Stern.
SECTION 9. TERMINATION AND INDEMNIFICATION
9.1 Termination. This Agreement may be terminated prior to the Effective
Time (whether before or after approval of the Merger by the Requisite Company
Vote and/or the Requisite OFPI Vote):
(a) by mutual written consent of OFPI and the Company;
(b) by either OFPI or the Company if the Merger shall not have been
consummated by August 31, 1999 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
party at or prior to the Effective Time or unless the SEC has not completed its
review of the Joint Proxy Statement or OFPI is in the process of addressing SEC
comments);
(c) by either OFPI or the Company if a court of competent jurisdiction
or other Governmental Body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(d) by either OFPI or the Company if (i) the OFPI Shareholders'
Meeting (including any adjournments thereof) shall have been held and completed
and OFPI's Shareholders shall have taken a final vote on a proposal to approve
the issuance of the Merger Shares and to approve and adopt this Agreement and
the Merger and (ii) this Agreement and the Merger shall not have been adopted
and approved at such meeting by the Requisite OFPI Vote; provided, however, that
OFPI shall not be permitted to terminate this Agreement pursuant to this Section
9.1(d) if the failure of OFPI's Shareholders to approve the issuance of the
Merger Shares and to adopt and approve this Agreement and the Merger at the OFPI
Shareholders' Meeting is attributable to a failure on the part of OFPI to
perform any material obligation required to have been performed by OFPI under
this Agreement; and provided, further, that OFPI shall not be permitted to
terminate this Agreement pursuant to this Section 9.1(d) unless OFPI shall have
paid the fee referred to in Section 9.3(b);
(e) at any time prior to the adoption and approval of this Agreement
and the Merger by the Requisite OFPI Vote and the Requisite Company Vote, by the
Company if a OFPI Triggering Event shall have occurred; or
(f) by either party if any of the other party's covenants contained in
this Agreement shall have been breached in any material respect; provided,
however, that if a breach of a covenant by a party is curable by such party and
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such party is continuing to exercise all reasonable efforts to cure such breach,
then the other party may not terminate this Agreement under this Section 9.1(f)
on account of such breach and provided, further, that a party may not terminate
this Agreement pursuant to this Section 9.1(f) if it shall have materially
breached this Agreement.
9.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 9.2, Section 9.3,
Section 6.2 and Section 10 shall survive the termination of this Agreement and
shall remain in full force and effect, and (ii) the termination of this
Agreement shall not relieve any party from any liability for any breach of this
Agreement.
9.3 Fees and Expenses; Termination Fees.
(a) Except as set forth in this Section 9.3, each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees
and accounting fees) that have been incurred or that are incurred in the future
by such party in connection with the transactions contemplated by this
Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of (a) the investigation and review conducted by
such party (or its Representatives) with respect to the other party's business
(and the furnishing of information to the other party and its Representatives in
connection with such investigation and review), (b) the negotiation, preparation
and review of this Agreement and all agreements, certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of all Consents and Governmental Authorizations required to be obtained in
connection with any of such transactions, and (d) the consummation of the Merger
("Out of Pocket Costs").
(b) If this Agreement is terminated by OFPI or the Company under
Section 9.1(e) or by OFPI under Section 9.1(f), the Company shall immediately
pay to OFPI all termination fees to be paid by OFPI to Spectrum in connection
with the Spectrum Merger and OFPI's Out of Pocket Costs.
9.4 Indemnification by OFPI.
(a) OFPI shall hold harmless and indemnify each of the Company
Indemnitees from and against, and shall compensate and reimburse each of the
Company Indemnitees for, any Damages which are directly or indirectly suffered
or incurred by any of the Company Indemnitees or to which any of the Company
Indemnitees may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and which arise directly or
indirectly from or as a direct or indirect result of, or are directly or
indirectly connected with:
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(i) any breach of any representation or warranty made by OFPI in
this Agreement (without giving effect to any update to the OFPI Disclosure
Schedule) or in the OFPI Compliance Certificate;
(ii) any breach of any representation, warranty, statement,
information or provision contained in the OFPI Disclosure Schedule or in any
other document delivered or otherwise made available to the Company or any of
its Representatives by or on behalf of OFPI or any of OFPI's Representatives;
(iii) any breach of any covenant or obligation of OFPI;
(iv) any Liability to which the Company or any of the other
Company Indemnitees may become subject and that arises directly or indirectly
from or relates directly or indirectly to (A) any product manufactured or sold,
or any service performed, by or on behalf of OFPI on or at any time prior to the
Closing Date, (B) the presence of any Hazardous Material at any site owned,
leased, occupied or controlled by OFPI on or at any time prior to the Closing
Date, or (C) the generation, manufacture, production, transportation,
importation, use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether lawfully or
unlawfully) by or on behalf of OFPI on or at any time prior to the Closing Date;
or
(v) any Legal Proceeding relating directly or indirectly to any
Breach, alleged Breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," "(iii)," or "(iv)," above (including any Legal Proceeding
commenced by any Company Indemnitee for the purpose of enforcing any of its
rights under this Section 9).
9.5 Indemnification by the Company.
(a) The Company shall hold harmless and indemnify each of the OFPI
Indemnitees from and against, and shall compensate and reimburse each of the
OFPI Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the OFPI Indemnitees or to which any of the OFPI Indemnitees
may otherwise become subject at any time (regardless of whether or not such
Damages relate to any third-party claim) and which arise directly or indirectly
from or as a direct or indirect result of, or are directly or indirectly
connected with:
(i) any breach of any representation or warranty made by the
Company in this Agreement (without giving effect to any update to the Company
Disclosure Schedule) or in the Company Compliance Certificate;
(ii) any breach of any representation, warranty, statement,
information or provision contained in the Company Disclosure Schedule or in any
other document delivered or otherwise made available to OFPI or any of its
Representatives by or on behalf of the Company or any of the Company's
Representatives;
(iii) any breach of any covenant or obligation of the Company;
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(iv) any Liability to which OFPI or any of the other OFPI
Indemnitees may become subject and that arises directly or indirectly from or
relates directly or indirectly to (A) any product manufactured or sold, or any
service performed, by or on behalf of the Company on or at any time prior to the
Closing Date, (B) the presence of any Hazardous Material at any site owned,
leased, occupied or controlled by the Company on or at any time prior to the
Closing Date, or (C) the generation, manufacture, production, transportation,
importation, use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether lawfully or
unlawfully) by or on behalf of the Company on or at any time prior to the
Closing Date; or
(v) any Legal Proceeding relating directly or indirectly to any
Breach, alleged breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," "(iii)," or "(iv), above (including any Legal Proceeding
commenced by any OFPI Indemnitee for the purpose of enforcing any of its rights
under this Section 9).
9.6 Threshold. Neither OFPI nor the Company shall be required to make any
indemnification payment pursuant to Sections 9.4 or 9.5, respectively, until
such time as the total amount of all Damages (including the Damages arising from
such Breach and all other Damages arising from any other Breach or Liability)
that have been directly or indirectly suffered or incurred by any one or more of
the Company Indemnitees or OFPI Indemnitees, as the case may be, or to which any
one or more of the Company Indemnitees or OFPI Indemnities, as the case may be,
has or have otherwise become subject, exceeds $100,000 in the aggregate. At such
time as the total amount of such Damages exceeds $100,000 in the aggregate, the
Indemnitees shall be entitled to be indemnified against the full amount of such
Damages (and not merely the portion of such Damages exceeding $100,000).
9.7 Maximum Liability. The total amount of the payments that either the
Company or OFPI can be required to make under or in connection with this Section
9 shall be limited in the aggregate to a maximum of $500,000, and neither the
Company's nor OFPI's respective cumulative liability shall exceed such amount.
9.8 Calculation of Indemnification Payments. In the event that either OFPI
or the Company is required to make any indemnification payment pursuant to
Sections 9.4 or 9.5, respectively, each as limited by Sections 9.6 and 9.7, the
number of shares of OFPI Common Stock issued to the Company Shareholders
pursuant to Section 1.5(b)(iii) shall be adjusted as follows:
(a) If the Company is required to make an indemnification payment to
OFPI, then the number of shares of OFPI Common Stock beneficially owned by the
Company Shareholders equal to the amount of such required payment shall be
cancelled by OFPI, based upon a per share price of the OFPI Common Stock equal
to the average of the per share price of the OFPI Common Stock for the three
trading days prior to the Closing Date; and
(b) If OFPI is required to make an indemnification payment to the
Company, then the number of shares of OFPI Common Stock equal to the amount of
such required payment shall be issued by OFPI to the Company Shareholders based
upon a per share price of the OFPI Common Stock equal to the average of the per
share price of the OFPI Common Stock for the three trading days prior to the
Closing Date.
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SECTION 10. MISCELLANEOUS PROVISIONS
10.1 Survival of Representations and Warranties. The representations and
warranties contained in this Agreement or in any instrument delivered pursuant
to this Agreement shall survive the Merger for a period of two (2) years.
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Attorneys' Fees. Subject to Section 9.3(b), if any action at law or
suit in equity to enforce this Agreement or the rights of any of the parties
hereunder is brought against any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
10.4 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to OFPI:
ORGANIC FOOD PRODUCTS, INC.
550 Monterey Road, Suite B
Morgan Hill, CA 95037
Attention: Chief Executive Officer
Facsimile: (408) 782-1143
with a copy to (which shall not constitute notice):
Carr, McClellan, Ingersoll, Thompson &
Horn Professional Corporation
216 Park Road
Burlingame, CA 94010
Attention: James F. Blood, Esq.
Facsimile: (650) 342-7685
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if to the Company:
Organic Ingredients, Inc.
335 Spreckler Drive, Suite F
Aptos, CA 95003
Attention: Joseph Stern
Facsimile: (___) ________
with a copy to (which shall not constitute notice):
Bosso, Williams, Sachs, Book
Atack & Gallagher, A Professional Corporation
133 Mission Street, Suite 280
Santa Cruz, CA 95061
Attention: Dennis R. Book
Facsimile: (831) 423-2839
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, upon completion of successful transmission of the
communication, (c) in the case of delivery by nationally recognized, overnight
courier, on the business day following dispatch and (d) in the case of mailing,
on the fifth business day following such mailing.
10.5 Time of the Essence. Time is of the essence of this Agreement.
10.6 Governing Law; Venue. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
10.7 Successors and Assigns. Except as provided in Section 10.8, this
Agreement shall be binding upon and shall be enforceable by and inure solely to
the benefit of, the parties hereto and their successors and assigns; provided,
however, that this Agreement may not be assigned by any party without the
written consent of the other parties, and any attempted assignment without such
consent shall be void and of no effect.
10.8 Remedies Cumulative; Specific Performance. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
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10.9 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.10 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.11 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.12 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns (if any).
10.13 Disclosure Schedules. The disclosure schedules shall be arranged in
separate parts corresponding to the numbered and lettered sections contained in
Section 2 or in Section 3, as the case may be. The information disclosed in any
numbered or lettered part shall be deemed to be disclosed and incorporated in
any other numbered or lettered part where the relevance of such disclosure to
another numbered or lettered part would be reasonably apparent from such
disclosure.
10.14 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and supersede all prior and contemporaneous agreements and
understandings among or between any of the parties relating to the subject
matter hereof.
10.15 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
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(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
10.16 Headings. The bold-faced section headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.17 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one and the same instrument.
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The parties hereto have caused this Agreement and Plan of Merger and
Reorganization to be executed and delivered as of the date first written above.
ORGANIC FOOD PRODUCTS, INC.,
a California corporation
/s/ John Battendieri
______________________________ By: /s/ Richard R. Bacigalupi
JOHN BATTENDIERI
Name: Richard R. Bacigalupi
Title: Chief Financial Officer
/s/ Joseph Stern
______________________________ ORGANIC INGREDIENTS, INC.,
JOSEPH STERN a California corporation
By: /s/ Joseph Stern
Name: Joseph Stern
Title: President
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
SIGNATURE PAGE
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Proposal. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by OFPI or the Company, as the case
may be) contemplating or otherwise relating to any Company Acquisition
Transaction or OFPI Acquisition Transaction, as the case may be.
Agreement. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including all other
exhibits), as it may be amended from time to time.
Breach. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure,
claim, or circumstance.
Company Acquisition Transaction. "Company Acquisition Transaction" shall
mean any transaction involving:
(a) any sale, lease exchange, transfer or other disposition of the assets
of Company constituting more than 10% of the consolidated assets of Company or
accounting for more than 10% of the consolidated revenues of Company in any one
transaction or in a series of related transactions.
(b) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any Person involving more
than 10% of the outstanding shares of the capital stock of the Company.
(c) any merger, consolidation, business combination, share exchange,
reorganization or other similar transaction or series of related transactions
involving Company.
(d) any assignment, transfer or licensing or other disposition of, in whole
or in part, the Company Proprietary Assets, other than in the ordinary course of
business. Company Comparable Entities. "Company Comparable Entities" shall mean
Entities (other than the Company) that are engaged in businesses similar to the
Company's business.
Company Contract. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
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Company Disclosure Schedule. "Company Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to OFPI by the
Company.
Company Indemnitees. "Company Indemnitees" shall mean the following
Persons:
(a) the Company;
(b) the Company's current and future affiliates (including OFPI);
(c) the respective Representatives of the Persons referred to in clauses
"(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons referred to in
clauses "(a)", "(b)" and "(c)" above;
provided, however, that (i) OFPI shall not be entitled to exercise any rights as
a Company Indemnitee prior to the Closing, and (ii) shareholders of OFPI other
than the Persons that receive Shares pursuant to the Merger shall not be deemed
to be "Company Indemnitees."
Company Proprietary Asset. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company .
Company Shareholders. "Company Shareholders" shall mean those holders of
Company Common Stock entitled to receive shares of OFPI Common Stock pursuant to
Section 1.5.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
Employee Benefit Plan. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
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Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Joint Proxy Statement. "Joint Proxy Statement" shall mean that proxy
statement to be prepared by OFPI with the cooperation of Spectrum and the
Company to be filed with the SEC and to be included or incorporated by reference
into the Form S-4 registration statement to be filed by OFPI with the SEC.
Knowledge. "Knowledge" shall mean, as it relates to either the Company or
OFPI with respect to any matter in question, that any of the Chief Executive
Officer, Chief Financial Officer or any other executive officers of the Company
or OFPI, as the case may be, has actual knowledge of such matter.
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
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<PAGE>
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Liability. "Liability" shall mean any debt, obligation, duty or liability
of any nature (including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability), regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
Material Adverse Effect. A violation or other matter will be deemed to have
a "Material Adverse Effect" on the Company or OFPI, as the case may be, if such
violation or other matter would have a material adverse effect on the business,
condition, assets, liabilities, operations, financial performance or prospects
of the Company or OFPI, as the case may be.
OFPI Acquisition Transaction. "OFPI Acquisition Transaction" shall mean any
transaction involving:
(a) any sale, lease exchange, transfer or other disposition of the assets
of OFPI constituting more than 10% of the consolidated assets of OFPI or
accounting for more than 10% of the consolidated revenues of OFPI in any one
transaction or in a series of related transactions.
(b) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any Person involving more
than 10% of the outstanding shares of the capital stock of OFPI.
(c) any merger, consolidation, business combination, share exchange,
reorganization or other similar transaction or series of related transactions
involving OFPI.
(d) any assignment, transfer or licensing or other disposition of, in whole
or in part, the OFPI Proprietary Assets, other than in the ordinary course of
business.
OFPI Comparable Entities. "OFPI Comparable Entities" shall mean Entities
(other than OFPI) that are engaged in businesses similar to OFPI's business.
OFPI Contract. "OFPI Contract" shall mean any Contract: (a) to which OFPI
is a party; (b) by which OFPI or any of its assets is or may become bound or
under which OFPI has, or may become subject to, any obligation; or (c) under
which OFPI has or may acquire any right or interest.
OFPI Disclosure Schedule. "OFPI Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to the Company by
OFPI.
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OFPI Indemnitees. "OFPI Indemnitees" shall mean the following Persons:
(a) OFPI;
(b) the respective Representatives of the Persons referred to in clause
"(a)"; and
(c) the respective successors and assigns of the Persons referred to in
clauses "(a)" and "(b)" above;
provided, however, that (i) the Company shall not be entitled to exercise any
rights as an OFPI Indemnitee prior to the Closing, and (ii) the Persons that
receive any Merger Shares shall not be deemed to be "OFPI Indemnitees."
OFPI Proprietary Asset. "OFPI Proprietary Asset" shall mean any Proprietary
Asset owned by or licensed to OFPI or otherwise used by OFPI.
OFPI Triggering Event. A "OFPI Triggering Event" shall be deemed to have
occurred if: (i) the Board of Directors of OFPI shall have failed to recommend,
or shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to the Company its unanimous recommendation (not including John
Battendieri) in favor of, the Merger or approval or adoption of this Agreement;
(ii) OFPI shall have failed to include in the Joint Proxy Statement the
unanimous recommendation (not including John Battendieri) of the Board of
Directors of OFPI in favor of approval and adoption of this Agreement and the
Merger; (iii) the Board of Directors of OFPI shall have approved, endorsed or
recommended any Acquisition Proposal; (iv) OFPI shall have entered into any
letter of intent or similar document or any Contract relating to any Acquisition
Proposal; (v) OFPI shall have failed to hold the OFPI Shareholders' Meeting as
promptly as practicable and in any event within 45 days after the definitive
Proxy Statement was filed with the SEC; (vi) a tender or exchange offer relating
to securities of OFPI shall have been commenced and OFPI shall not have sent to
its securityholders, within five business days after the commencement of such
tender or exchange offer, a statement disclosing that OFPI recommends rejection
of such tender or exchange offer; (vii) an Acquisition Proposal is publicly
announced, and OFPI (A) fails to issue a press release announcing its opposition
to such Acquisition Proposal within five business days after such Acquisition
Proposal is announced or (B) otherwise fails to actively oppose such Acquisition
Proposal; or (viii) a person or group (as defined in the Exchange Act and the
rules promulgated thereunder) shall have acquired more than fifty percent (50%)
of OFPI's voting securities (excluding persons and groups that, as of the date
of this Agreement, hold more than fifty percent (50%) of OFPI's voting
securities or that may be deemed to have acquired such percentage upon execution
of the Voting Agreements).
Person. "Person" shall mean any individual, Entity or Governmental Body.
Proprietary Asset. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
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application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Superior OFPI Proposal. "Superior OFPI Proposal" shall mean an unsolicited,
bona fide written proposed Acquisition Proposal submitted by a third party that
the Board of Directors of OFPI determines, in good faith, based upon the written
advice of its financial advisor, to be more favorable from a financial point of
view to the OFPI's Shareholders than the terms of the Merger; provided, however,
that any such Acquisition Proposal shall not be deemed to be a "Superior OFPI
Proposal" if any financing required to consummate the transaction contemplated
by such offer is not committed at the time such Acquisition Proposal is made.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
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EXHIBIT B
DIRECTORS AND OFFICERS OF PARENT
DIRECTORS:
Jethren Phillips
John Battendieri
Philip Moore
To be determined___________
To be determined___________
OFFICERS
Jethren Phillips Chief Executive Officer
Richard Bacigalupi Chief Financial Officer and Treasurer
Neil Blomquist Secretary
Other executive officers to be determined by OFPI and Spectrum
<PAGE>
EXHIBIT C
COMPANY TAX REPRESENTATION LETTER
May __, 1999
Bosso, Williams, Sachs, Book, Atack Carr, McClellan, Ingersoll, Thompson
& Gallagher, A Professional Corporation & Horn, P.C.
133 Mission Street, Suite 280 216 Park Road, P.O. Box 513
P.O. Box 1822 Burlingame, California 94011
Santa Cruz, CA 95061
Re: Merger pursuant to the Agreement and Plan of Merger and Reorganization
(the "Reorganization Agreement") dated May __, 1999, among ORGANIC FOOD
PRODUCTS, INC., a California corporation ("Acquiror") and ORGANIC
INGREDIENTS, INC., a California corporation (the "Company"), and the
related Agreement of Merger between Acquiror and the Company (the
"Certificate of Merger").
Ladies and Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Reorganization Agreement. The Reorganization Agreement and the
Certificate of Merger, including exhibits and schedules attached thereto, are
collectively referred to as the "Agreements."
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will continue
to be true as of the Effective Time of the Merger and thereafter where relevant:
1. Other than in the ordinary course of business or pursuant to its
obligations under the Agreements, the Company has made no transfer of any of its
assets (including any distribution of assets with respect to, or in redemption
of, stock) in contemplation of the Merger or during the period ending on the
Effective Time of the Merger and beginning with the commencement of negotiations
(whether formal or informal) with Acquiror regarding the Merger (the "Pre-Merger
Period");
2. The Company's principal reasons for participating in the Merger are bona
fide business purposes unrelated to taxes;
3. At the Effective Time of the Merger, the Company will have no
outstanding equity interests other than those disclosed in Section 2.3 of the
Reorganization Agreement. At the time of the Merger, except as specified in the
Reorganization Agreement, the Company will have no outstanding warrants,
options, or convertible securities or any other type of right outstanding
pursuant to which any person could acquire shares of capital stock of the
<PAGE>
Company or any other equity interest in the Company, other than those disclosed
in Section 2.3 of the Reorganization Agreement or the Disclosure Schedule with
respect thereto;
4. The total fair market value of all consideration other than shares of
Acquiror Common Stock received by shareholders of the Company in the Merger
(including, without limitation, cash paid to the Company shareholders perfecting
dissenter's rights or in lieu of fractional shares of Acquiror Common Stock)
will be less than ten percent (10%) of the aggregate fair market value of shares
of stock of the Company outstanding immediately prior to the Merger;
5. The Company intends that Acquiror shall continue the Company's historic
business or use a significant portion of its historic business assets in a
business following the Merger;
6. The liabilities of the Company have been incurred by the Company in the
ordinary course of its business;
7. The fair market value of the Company's assets will, on the Effective
Time of the Merger, exceed the aggregate liabilities of the Company plus the
amount of liabilities, if any, to which such assets are subject;
8. The Company is not and will not be on the Effective Time of the Merger
an "investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv)
of the Code;
9. The Company is not and will not be on the Effective Time of the Merger
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code;
10. The Company has made no extraordinary distributions within the meaning
of Temporary Federal Treasury Regulation Section 1.368-1T(e) with respect to its
stock, prior to and in connection with the Merger;
11. The Company has not redeemed and no "related person" with respect to
the Company, as such term is defined by Treasury Regulation Section
1.368-1(e)(3), (without regard to Section 1.368-1(e)(3)(i)(A)), has purchased
any capital stock of the Company prior to and in connection with the Merger;
12. The fair market value of the shares of Acquiror Common Stock and other
consideration received by each shareholder of the Company will be approximately
equal to the fair market value of the shares of stock of the Company surrendered
in exchange therefor and the aggregate consideration received by shareholders of
the Company in exchange for their shares of stock of the Company will be
approximately equal to the fair market value of all of the outstanding shares of
stock of the Company immediately prior to the Merger;
13. Each of Acquiror, the Company and each shareholder of the Company will
pay separately his, hers or its own expenses relating to the Merger;
2
<PAGE>
14. There is no intercorporate indebtedness existing between Acquiror and
the Company that was issued, acquired, or will be settled at a discount as a
result of the Merger; Acquiror will assume no liabilities of any shareholder of
the Company in connection with the Merger;
15. The terms of the Reorganization Agreement and the other agreements
relating thereto are the product of arm's length negotiations;
16. None of the compensation received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any of their shares
of stock of the Company; none of the shares of Acquiror Common Stock received by
any shareholder-employees of the Company will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and the
compensation paid to any shareholder-employees of the Company will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services;
17. With respect to each instance, if any, in which shares of stock of the
Company have been purchased by a shareholder of Acquiror (a "Shareholder")
during the Pre-Merger period (a "Stock Purchase"): (i) to the best knowledge of
the Company, (A) the Stock Purchase was made by such Shareholder on its own
behalf, rather than as a representative, or for the benefit, of Acquiror, (B)
the Stock Purchase was entered into solely to satisfy the separate interests of
such Shareholder and the seller, and (C) the purchase price paid by such
Shareholder pursuant to the Stock Purchase was the product of arm's length
negotiations; and (ii) the Stock Purchase was not a formal or informal condition
to consummation of the Merger; and
18. The Company is authorized to make all of the representations set forth
herein.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be subject
to certain limitations and qualifications including that they may not be relied
upon if any such representations are not accurate in all material respects.
The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
ORGANIC INGREDIENTS, INC.,
a California corporation
By:
Printed Name:
Title:
3
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EXHIBIT D
ACQUIROR TAX REPRESENTATION LETTER
May __, 1999
Bosso, Williams, Sachs, Book, Atack Carr, McClellan, Ingersoll, Thompson
& Gallagher, A Professional Corporation & Horn, P.C.
133 Mission Street, Suite 280 216 Park Road, P.O. Box 513
P.O. Box 1822 Burlingame, California 94011
Santa Cruz, CA 95061
Re: Merger pursuant to the Agreement and Plan of Merger and Reorganization
(the "Reorganization Agreement") dated May __, 1999, among ORGANIC FOOD
PRODUCTS, INC., a California corporation ("Acquiror") and ORGANIC
INGREDIENTS, INC., a California corporation (the "Company"), and the
related Agreement of Merger between Acquiror and the Company (the
"Certificate of Merger").
Ladies and Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Reorganization Agreement. The Reorganization Agreement and the
Certificate of Merger, including exhibits and schedules attached thereto, are
collectively referred to as the "Agreements."
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will continue
to be true as of the Effective Time of the Merger and thereafter where relevant:
1. Acquiror's principal reasons for participating in the Merger are bona
fide business purposes not related to taxes;
2. Except for transfers described in Section 368(a)(2)(C) of the Code,
Acquiror has no plan or intention to sell, distribute or otherwise dispose of
any of the assets acquired from the Company in the transaction, except for
dispositions made in the ordinary course of business;
3. Acquiror intends that, following the Merger, it will continue the
Company's historic business or use a significant portion of its historic
business assets in a business;
4. Acquiror is not an "investment company" within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code;
<PAGE>
5. No shareholder of the Company is acting as agent for Acquiror in
connection with the Merger or the approval thereof; Acquiror will not reimburse
any shareholder of the Company for any stock of the Company such shareholder may
have purchased or for other obligations such shareholder may have incurred;
6. Except for repurchases or redemptions of Acquiror Common Stock that are
consistent with past practices and pursuant to pre-existing purchase programs
that were not created or modified in connection with the Merger, neither
Acquiror nor any "related person" of Acquiror (as such term is defined by
Treasury Regulation Section 1.368-1(e)(3)) will repurchase or redeem any of the
Acquiror Common Stock to be issued to the shareholders of the Company in
connection with the Merger;
7. During the past five (5) years, none of the outstanding shares of
capital stock of the Company, including the right to acquire or vote any such
shares have, directly or indirectly, been owned by Acquiror or affiliates of
Acquiror;
8. The total fair market value of all consideration other than Acquiror
Common Stock received by shareholders of the Company in the Merger (including,
without limitation, cash paid to shareholders of the Company perfecting
dissenter's rights or in lieu of fractional shares of Acquiror Common Stock)
will be less than ten percent (10%) of the aggregate fair market value of stock
of the Company outstanding immediately prior to the Merger;
9. The fair market value of the Acquiror Common Stock and other
consideration received by each shareholder of the Company will be approximately
equal to the fair market value of the stock of the Company surrendered in
exchange therefor, and the aggregate consideration received by shareholders of
the Company in exchange for their stock of the Company will be approximately
equal to the fair market value of all of the outstanding shares of stock of the
Company immediately prior to the Merger;
10. Each of Acquiror, the Company and each shareholder of the Company will
pay separately his, hers or its own expenses relating to the Merger;
11. There is no intercorporate indebtedness existing between Acquiror and
the Company that was issued, acquired or will be settled at a discount as a
result of the Merger, and Acquiror will assume no liabilities of any shareholder
of the Company in connection with the Merger;
12. The terms of the Reorganization Agreement and the agreements related
thereto are the product of arm's length negotiations;
13. None of the compensation received by any shareholder-employee of the
Company will be separate consideration for, or allocable to, any of their shares
of stock of the Company; none of the shares of Acquiror Common Stock received by
any shareholder-employee of the Company will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and the
compensation paid to any shareholder-employee of the Company will be for
2
<PAGE>
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services;
14. With respect to each instance, if any, in which shares of stock of the
Company have been purchased by a shareholder of Acquiror (a "Shareholder")
during the period ending on the Effective Time of the Merger and beginning with
the commencement of negotiations (whether formal or informal) with Acquiror
regarding the Merger) (a "Stock Purchase"): (i) the Stock Purchase was made by
such Shareholder not as a representative of Acquiror; (ii) the purchase price
paid by such Shareholder pursuant to the Stock Purchase was the product of arm's
length negotiations, was not advanced, and will not be reimbursed, either
directly or indirectly, by Acquiror; (iii) at no time was such Shareholder or
any other party required or obligated to surrender to Acquiror the capital stock
of the Company acquired in the Stock Purchase, and neither such Shareholder nor
any other party will be required to surrender to Acquiror the Acquiror Common
Stock for which such shares of stock of the Company will be exchanged in the
Merger; and (iv) the Stock Purchase was not a formal or informal condition to
consummation of the Merger; and
15. Acquiror is authorized to make all of the representations set forth
herein.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be subject
to certain limitations and qualifications including that they may not be relied
upon if any such representations are not accurate in all material respects.
The undersigned recognize that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
ORGANIC FOOD PRODUCTS, INC.,
a California corporation
By:
Printed Name:
Title:
3
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EXHIBIT E
OPINION OF COMPANY COUNSEL
1. Organic Ingredients, Inc. (the "Company") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California.
2. The Company has the requisite corporate power to own, operate and lease its
property and assets and to conduct its business as it is currently being
conducted. To our knowledge, the Company is qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in the United States
in which the ownership of its property or the conduct of its business requires
such qualification except where the failure to so qualify would not materially
and adversely affect the Company's business, financial condition and results of
operations, taken as a whole.
3. All corporate action on the part of the Company, its Board of Directors and
its shareholders necessary for the authorization, execution and delivery of the
Merger Agreement by the Company and the performance of the Company's obligations
under the Merger Agreement has been taken. The Merger Agreement has been duly
and validly authorized, executed and delivered by the Company and constitutes
the valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, except as rights to indemnity under section 9.5 of
the Merger Agreement may be limited by applicable law and except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance.
4. The authorized capital stock of the Company consists of (i) 100,000 shares of
Common Stock, no par value, of which 100,000 shares have been issued and are
outstanding immediately prior to the Closing, and (ii) no shares of Preferred
Stock. To our knowledge, except as expressly set forth in the Merger Agreement
(including the Company Disclosure Schedule), there are no options, warrants,
conversion privileges, or other rights presently outstanding to purchase any
authorized but unissued capital stock of the Company. Except for _________,
there are no voting agreements, co-sale rights or rights of first refusal
applicable to any of the Company's outstanding capital stock under the Company's
Articles of Incorporation, Bylaws or any Material Company Contract disclosed in
Part 2.9 and Part 2.11(a) of the Company Disclosure Schedule.
5. The execution, delivery and performance by the Company of the Merger
Agreement and the consummation by the Company of the Merger as provided therein
will not violate any provision of the Company's Articles of Incorporation or
Bylaws, and do not constitute a material default (or give rise to any right of
termination, cancellation or acceleration) under any provision of any Material
Company Contract disclosed in Part 2.9 and Part 2.11(a) of the Company
Disclosure Schedule and do not violate or contravene (A) any governmental
statute, rule or regulation applicable to the Company or (B) any order, writ,
judgment, injunction, decree, determination or award which has been entered
against the Company and of which we are aware, the violation or contravention of
which would have a material adverse effect on the Company's business, financial
condition and results of operations, taken as a whole.
<PAGE>
6. To our knowledge, there is no action, proceeding or investigation pending or
threatened in writing against the Company before any court or administrative
agency that questions the validity of the Merger Agreement or might result in a
material adverse change in the Company's business, financial condition and
results of operations, taken as a whole.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required to be obtained prior to the Closing in
connection with the Company's execution, delivery and performance of the Merger
Agreement and the consummation by the Company of the Merger as contemplated
therein have been made or obtained, other than the filing of the Certificate of
Merger with the Secretary of State of the State of California as contemplated by
Section 1.3 of the Merger Agreement.
8. The Merger Agreement has been duly authorized by the Company's Board of
Directors and its shareholders and, assuming compliance by the Company with all
requirements of applicable law and the Merger Agreement necessary to effect the
Merger, upon filing of the Certificate of Merger with and acceptance by the
Secretary of State of the State of California, the Merger will be effective.
2
<PAGE>
EXHIBIT F
COMPANY TAX OPINION
____________, 1999
Organic Food Products, Inc.
- ---------------------------
- ---------------------------
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 8.7 of the Agreement
and Plan of Merger and Reorganization dated as of _________ , 1999 (the
"Reorganization Agreement") by and between Organic Food Products, Inc., a
California corporation ("Acquiror"), and Organic Ingredients, Inc., a California
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Acquiror in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated __________, 1999 and
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Acquiror and the Company and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE>
(b) All representations, warranties and statements made or agreed to by
Acquiror and the Company, their managements, employees, officers, directors and
shareholders in connection with the Merger, including, but not limited to, those
set forth in the Reorganization Agreement (including the exhibits thereto) and
the Tax Representation Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Acquiror and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated __________, 1999 rendered by Bosso, Williams, Sachs,
Book, Atack & Gallagher, A Professional Corporation, to the Company with respect
to the qualification of the Merger as a reorganization within the meaning of
Section 368 of the Code has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
<PAGE>
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered pursuant to the Reorganization Agreement. It is
intended solely for the benefit of the Company and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
Carr, McClellan, Ingersoll, Thompson
& Horn Professional Corporation
<PAGE>
EXHIBIT G
OPINION OF OFPI COUNSEL
1. Organic Food Products, Inc. ("OFPI") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California.
2. OFPI has the requisite corporate power to own, operate and lease its property
and assets and to conduct its business as it is currently being conducted. To
our knowledge, OFPI is qualified as a foreign corporation to do business and is
in good standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification except where the failure to so qualify would not materially and
adversely affect OFPI's business, financial condition and results of operations,
taken as a whole.
3. All corporate action on the part of OFPI, its Board of Directors and its
shareholders necessary for the authorization, execution and delivery of the
Merger Agreement by OFPI and the performance of OFPI's obligations under the
Merger Agreement has been taken. The Merger Agreement has been duly and validly
authorized, executed and delivered by OFPI and constitutes the valid and binding
agreement of OFPI enforceable against OFPI in accordance with its terms, except
as rights to indemnity under section 9.4 of the Merger Agreement may be limited
by applicable law and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
4. The authorized capital stock of OFPI consists of (i) 20,000,000 shares of
Common Stock, no par value, of which _________ shares have been issued and are
outstanding immediately prior to the Closing, (ii) 5,000,000 shares of Preferred
Stock, no par value, none of which are outstanding immediately prior to the
Closing. To our knowledge, except as expressly set forth in the Merger Agreement
(including the OFPI Disclosure Schedule), there are no options, warrants,
conversion privileges, or other rights presently outstanding to purchase any
authorized but unissued capital stock of OFPI. Except for ______________, there
are no voting agreements, co-sale rights or rights of first refusal applicable
to any of OFPI's outstanding capital stock under OFPI's Articles of
Incorporation, Bylaws or any Material OFPI Contract disclosed in Part 3.9(b) and
Part 3.11(a) of the OFPI Disclosure Schedule.
5. The execution, delivery and performance by OFPI of the Merger Agreement and
the consummation by OFPI of the Merger as provided therein will not violate any
provision of OFPI's Articles of Incorporation or Bylaws, and do not constitute a
material default (or give rise to any right of termination, cancellation or
acceleration) under any provision of any Material OFPI Contract disclosed in
Part 3.9(b) and Part 3.11(a) of the OFPI Disclosure Schedule and do not violate
or contravene any order, writ, judgment, injunction, decree, determination or
award which has been entered against OFPI and of which we are aware, the
violation or contravention of which would have a material adverse effect on
OFPI's business, financial condition and results of operations, taken as a
whole.
<PAGE>
6. To our knowledge, there is no action, proceeding or investigation pending or
threatened in writing against OFPI before any court or administrative agency
that questions the validity of the Merger Agreement or might result in a
material adverse change in OFPI's business, financial condition and results of
operations, taken as a whole.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required to be obtained prior to the Closing in
connection with OFPI's execution, delivery and performance of the Merger
Agreement and the consummation by OFPI of the Merger as contemplated therein
have been made or obtained, other than the filing of the Certificate of Merger
with the Secretary of State of the State of California as contemplated by
Section 1.3 of the Merger Agreement.
8. The Merger Agreement has been duly authorized by OFPI's Board of Directors
and its shareholders and, assuming compliance by OFPI with all requirements of
applicable law and the Merger Agreement necessary to effect the Merger, upon
filing of the Certificate of Merger with and acceptance by the Secretary of
State of the State of California, the Merger will be effective.
2
<PAGE>
EXHIBIT H
OFPI TAX OPINION
____________, 1999
Organic Ingredients, Inc.
- ------------------------
- ------------------------
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 7.8 of the Agreement
and Plan of Merger and Reorganization dated as of _________ , 1999 (the
"Reorganization Agreement") by and between Organic Food Products, Inc., a
California corporation ("Acquiror"), and Organic Ingredients, Inc., a California
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated __________, 1999 and
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Acquiror and the Company and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE>
(b) All representations, warranties and statements made or agreed to by
Acquiror and the Company, their managements, employees, officers, directors and
shareholders in connection with the Merger, including, but not limited to, those
set forth in the Reorganization Agreement (including the exhibits thereto) and
the Tax Representation Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Acquiror and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated __________, 1999 rendered by Carr, McClellan,
Ingersoll, Thompson & Horn, P.C. to Acquiror with respect to the qualification
of the Merger as a reorganization within the meaning of Section 368 of the Code
has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
<PAGE>
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered pursuant to the Reorganization Agreement. It is
intended solely for the benefit of the Company and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
Bosso, Williams, Sachs, Book, Atack &
Gallagher, A Professional Corporation
<PAGE>
ANNEX B
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and between:
ORGANIC FOOD PRODUCTS, INC.
a California corporation; and
SPECTRUM NATURALS, INC.,
a California corporation
---------------------------
May 14, 1999
---------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DESCRIPTION OF TRANSACTION......................................1
1.1 Merger of the Company into OFPI..........................1
1.2 Effect of the Merger.....................................1
1.3 Closing; Effective Time..................................1
1.4 Articles of Incorporation and Bylaws;
Directors and Officers...................................2
1.5 Conversion of Shares.....................................2
1.6 Closing of the Company's Transfer Books..................4
1.7 Exchange of Certificates.................................4
1.8 Dissenting Shares........................................5
1.9 Tax Consequences.........................................5
1.10 Accounting Treatment.....................................5
1.11 Further Action...........................................6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPAN....................6
2.1 Due Organization; No Subsidiaries; Etc...................6
2.2 Articles of Incorporation and Bylaws; Records............6
2.3 Capitalization...........................................6
2.4 Financial Statements.....................................7
2.5 Absence of Changes.......................................7
2.6 Title to Assets..........................................9
2.7 Accounts Receivable; Loans and Advances.................10
2.8 Inventory...............................................10
2.9 Equipment; Leasehold....................................10
2.10 Proprietary Assets......................................11
2.11 Contracts...............................................12
2.12 No Undisclosed Liabilities..............................13
2.13 Compliance with Legal Requirements......................14
2.14 Governmental Authorizations.............................14
2.15 Tax Matters.............................................14
2.16 Employee and Labor Matters; Benefit Plans...............14
2.17 Environmental Matters...................................17
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUTED)
PAGE
2.18 Sale of Products; Performance of Services...............17
2.19 Insurance...............................................18
2.20 Related Party Transactions..............................18
2.21 Legal Proceedings; Orders...............................19
2.22 Authority; Binding Nature of Agreement..................19
2.23 Non-Contravention; Consents.............................20
2.24 Vote Required...........................................20
2.25 Company Action..........................................21
2.26 Full Disclosure.........................................21
2.27 Finder's Fee............................................21
SECTION 3. REPRESENTATIONS AND WARRANTIES OF OFPI.........................21
3.1 Due Organization, Etc...................................22
3.2 Articles of Incorporation and Bylaws; Records...........22
3.3 Capitalization, Etc.....................................22
3.4 SEC Filings; Financial Statements.......................23
3.5 Absence of Changes......................................24
3.6 Title to Assets.........................................26
3.7 Accounts Receivable; Loans and Advances.................26
3.8 Inventory...............................................26
3.9 Equipment; Leasehold....................................27
3.10 Proprietary Assets......................................27
3.11 Contracts...............................................28
3.12 No Undisclosed Liabilities..............................30
3.13 Compliance with Legal Requirements......................30
3.14 Governmental Authorizations.............................30
3.15 Tax Matters.............................................30
3.16 Employee and Labor Matters; Benefit Plans...............31
3.17 Environmental Matters...................................33
3.18 Sale of Products; Performance of Services...............34
3.19 Insurance...............................................34
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.20 Related Party Transactions..............................35
3.21 Legal Proceedings; Orders...............................35
3.22 Authority; Binding Nature of Agreement..................35
3.23 Non-Contravention; Consents.............................36
3.24 Vote Required...........................................36
3.25 OFPI Action.............................................37
3.26 Full Disclosure.........................................37
3.27 Finder's Fee............................................37
SECTION 4. ERTAIN COVENANTS OF THE COMPANY................................37
4.1 Access and Investigation................................37
4.2 Operation of the Company's Business.....................38
4.3 Notification; Updates to Company Disclosure Schedule....39
4.4 No Solicitation.........................................40
4.5 Company Shareholders' Meeting...........................41
4.6 Tax Representation Letters..............................42
SECTION 5. CERTAIN COVENANTS OF OFPI......................................42
5.1 Access and Investigation................................42
5.2 Operation of OFPI's Business............................42
5.3 Notification; Updates to OFPI Disclosure Schedule.......44
5.4 No Solicitation.........................................45
5.5 OFPI Shareholders' Meeting..............................46
5.6 Tax Representation Letters..............................47
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES............................47
6.1 Filings and Consents....................................47
6.2 Public Announcements....................................47
6.3 Reasonable Efforts......................................47
6.4 Registration Statement..................................47
6.5 Additional Agreements...................................48
6.6 Regulatory Approvals....................................49
6.7 Indemnification.........................................49
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF OFPI....................50
7.1 Accuracy of Representations.............................50
7.2 Performance of Covenants................................50
7.3 Effectiveness of Registration Statement.................50
7.4 Compliance Certificate..................................50
7.5 Shareholder Approval....................................50
7.6 Consents................................................50
7.7 Legal Opinion...........................................50
7.8 Tax Opinion.............................................50
7.9 No Restraints...........................................51
7.10 HSR Act.................................................51
7.11 Acquisition of Spectrum Commodities, Inc................51
7.12 Satisfactory Completion of Pre-Merger Review............51
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.............51
8.1 Satisfactory Completion of Pre-Merger Review............51
8.2 Accuracy of Representations.............................51
8.3 Performance of Covenants................................51
8.4 Effectiveness of Registration Statement.................51
8.5 Compliance Certificate..................................52
8.6 Shareholder Approval....................................52
8.7 Consents................................................52
8.8 Legal Opinion...........................................52
8.9 Tax Opinion.............................................52
8.10 No Restraints...........................................52
8.11 HSR Act.................................................52
8.12 Resignations of Certain Directors.......................52
8.13 Acquisition of Organic Ingredients, Inc.................52
8.14 Shareholder Lock-up Agreements..........................52
8.15 Employment Agreements...................................53
8.16 Refinancing of Existing Debt............................53
iv.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
8.17 Dissenters' Rights......................................53
SECTION 9. TERMINATION AND INDEMNIFICATION................................53
9.1 Termination.............................................53
9.2 Effect of Termination...................................54
9.3 Fees and Expenses; Termination Fees.....................54
9.4 Indemnification by OFPI.................................55
9.5 Indemnification by the Company..........................56
9.6 Threshold...............................................56
9.7 Maximum Liability.......................................57
9.8 Calculation of Indemnification Payments.................57
SECTION 10. MISCELLANEOUS PROVISIONS......................................57
10.1 Survival of Representations and Warranties..............57
10.2 Further Assurances......................................57
10.3 Attorneys' Fees.........................................57
10.4 Notices.................................................58
10.5 Time of the Essence.....................................58
10.6 Governing Law; Venue....................................59
10.7 Successors and Assigns..................................59
10.8 Remedies Cumulative; Specific Performance...............59
10.9 Waiver..................................................59
10.10 Amendments..............................................59
10.11 Severability............................................59
10.12 Parties in Interest.....................................59
10.13 Disclosure Schedules....................................60
10.14 Entire Agreement........................................60
10.15 Construction............................................60
10.16 Headings................................................60
10.17 Counterparts............................................60
v.
<PAGE>
EXHIBITS
Exhibit A - Certain Definitions
Exhibit B - Restated Articles
Exhibit C - Directors and Officers of OFPI
Exhibit D - Bylaws of OFPI
Exhibit E - Certain OFPI Shareholders
Exhibit F - Company Tax Representation Letter
Exhibit G - OFPI Tax Representation Letter
Exhibit H - Form of Cooley Godward LLP Legal Opinion
Exhibit I - Form of Cooley Godward LLP Tax Opinion
Exhibit J - Form of Carr, McClellan Legal Opinion
Exhibit K - Form of Carr, McClellan Tax Opinion
Exhibit L - Resignations of Certain Directors
Exhibit M - Certain Persons Subject to Lock-Up Restrictions
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of May 14, 1999, by and between ORGANIC FOOD PRODUCTS, INC.,
a California corporation ("OFPI"), and SPECTRUM NATURALS, INC., a California
corporation (the "Company"). Certain capitalized terms used in this Agreement
are defined in the attached Exhibit A.
RECITALS
A. OFPI and the Company intend to effect a merger of the Company with and
into OFPI (the "Merger") in accordance with this Agreement and the California
General Corporation Law (the "CGCL"). Upon consummation of the Merger, the
Company will cease to exist, and OFPI will continue as the surviving
corporation.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
treated as a purchase by the Company of OFPI.
C. This Agreement has been adopted and approved by the respective boards of
directors of OFPI and the Company.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION.
1.1 Merger of the Company into OFPI. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), the Company shall be merged with and into OFPI, and the separate
existence of the Company shall cease. OFPI will continue as the surviving
corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the CGCL.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California
94111 at a time and on a date which shall be promptly (but not more than two (2)
days following) the satisfaction or waiver of the conditions set forth in
Sections 7 and 8 (the "Closing Date"). Contemporaneously with or as promptly as
practicable after the Closing, a properly executed agreement or certificate of
merger conforming to the requirements of the CGCL (the "Certificate of Merger")
shall be filed with the Secretary of State of the State of California. The
Merger shall take effect at the time the Certificate of Merger is filed with and
accepted by the Secretary of State of the State of California (the "Effective
Time").
<PAGE>
1.4 Articles of Incorporation and Bylaws; Directors and Officers. Unless
otherwise determined by the Company prior to the Effective Time:
(a) effective on or promptly following the Effective Time, by the
filing of Amended and Restated Articles of Incorporation with the Secretary of
State of the State of California or as otherwise permitted by the CGCL, OFPI
shall (i) amend its Articles of Incorporation to change its name from "Organic
Food Products, Inc." to "Spectrum Organic Products, Inc." and (ii) make such
other changes as set forth in the Amended and Restated Articles of Incorporation
attached hereto as Exhibit B (the "Restated Articles");
(b) the directors and officers of OFPI immediately after the Effective
Time shall be the individuals identified on the attached Exhibit C; and
(c) the Bylaws of OFPI shall be as set forth in the Bylaws attached
hereto as Exhibit D.
1.5 Conversion of Shares.
(a) Subject to Section 1.7(b) and Section 1.8, at the Effective Time,
by virtue of the Merger and without any further action on the part of OFPI, the
Company or any shareholder of the Company, each share of Company Common Stock
(as defined in Section 2.3) outstanding immediately prior to the Effective Time
shall be converted into the Applicable Multiple (as defined below) of fully paid
and non-assessable shares (the "Shares") of OFPI Common Stock (as defined in
Section 3.3).
(b) For purposes of this Agreement:
(i) the term "Applicable Multiple" shall mean a fraction the
numerator of which is the number of Merger Shares and the denominator of which
is the number of Company Shares;
(ii) the term "Company Shares" shall mean (A) the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time plus (B) the maximum number of shares of Company Common Stock underlying
instruments convertible into or exchangeable for Company Common Stock (without
regard to vesting or similar restrictions) outstanding immediately prior to the
Effective Time; and
(iii) the term "Merger Shares" shall mean the shares of OFPI
Common Stock to be issued to the Company Shareholders in the Merger and shall be
equal to the sum of:
(1) the product of (A) three (3) multiplied by (B) the number of shares of
OFPI Common Stock outstanding immediately prior to the Effective Time
(including shares of OFPI Common Stock issued pursuant to the "OI
Acquisition," as that term is defined in Section 8.13, and including
adjustments for shares of OFPI Common Stock that are cancelled
pursuant to OFPI's transaction with Sunny Farms Corp.), reduced by
450,000 shares of OFPI Common Stock; plus
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(2) three (3) shares for each share of OFPI Common Stock issued upon
exercise, in accordance with their terms, of any and all warrants or
options to purchase OFPI Common Stock outstanding as of the Closing
Date; plus
(3) any "Additional Shares," as that term is defined in Section 1.5(e).
(c) At the Effective Time, all rights with respect to Company Common Stock
under Company Options that are then outstanding shall be converted into and
become rights with respect to OFPI Common Stock, and OFPI shall assume each
Company Option in accordance with the terms (as in effect as of the date hereof)
of the stock option plan under which it was issued and the stock option
agreement by which it is evidenced. From and after the Effective Time, (i) each
Company Option assumed by OFPI may be exercised solely for shares of OFPI Common
Stock, (ii) the number of shares of OFPI Common Stock subject to each Company
Option shall be equal to the number of shares of Company Common Stock subject to
such Company Option immediately prior to the Effective Time multiplied by the
Applicable Multiple, rounding down to the nearest whole share, (iii) the per
share exercise price under each such Company Option shall be adjusted by
dividing the per share exercise price under each such Company Option by the
Applicable Multiple and rounding up to the nearest cent and (iv) any restriction
on the exercise of any Company Option shall continue in full force and effect
and the term, exercisability, vesting schedule and other provisions of such
Company Option shall otherwise remain unchanged; provided, however, that each
such Company Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
subdivision, reclassification, reorganization, stock split, combination or
similar transaction subsequent to the Effective Time. The Company shall take all
action that may be necessary (under the stock option plan or other agreements
pursuant to which Company Options are outstanding) to effectuate the provisions
of this Section 1.5(c) and to ensure that, from and after the Effective Time,
holders of Company Options have no rights with respect thereto other than those
specifically provided herein. OFPI shall file with the SEC, no later than five
(5) business days after Effective Time, a registration statement on Form S-8
relating to the shares of OFPI Common Stock issuable with respect to the Company
Options assumed by OFPI in accordance with this Section 1.5(c). This Section
1.5(c) will survive the consummation of the Merger and the Effective Time, is
intended to benefit and may be enforced by each of the persons who hold Company
Options and will be binding on all successors and assigns of OFPI and the
Surviving Corporation.
(d) If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company, then (unless such condition
terminates by virtue of the Merger pursuant to the express terms of such
agreement) the shares of OFPI Common Stock issued in exchange for such shares of
Company Common Stock will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of OFPI Common Stock may accordingly be marked with appropriate
legends. The Company shall take all action that may be necessary to ensure that,
from and after the Effective Time, OFPI is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
3.
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(e) The number of Merger Shares determined in Section 1.5(b) shall be
adjusted such that OFPI shall issue to the Company Shareholders additional
shares of OFPI Common Stock, subject to Section 1.7(b), as determined as follows
(collectively, the "Additional Shares"):
in the event that the Applicable Price (as defined in Section
1.10, and as may later be adjusted by the parties) exceeds $0.75 per share (the
"Baseline Price"), then for each $0.01 per share above the Baseline Price, OFPI
shall issue 189,000 additional shares of OFPI Common Stock to the Company
Shareholders; provided that any such Additional Shares issued to the Company
Shareholders, together with the Merger Shares calculated pursuant to Section
1.5(b)(iii), shall not exceed eighty percent (80%) of the outstanding capital
stock of OFPI following the consummation of the transactions contemplated in
this Agreement, including all outstanding options, warrants or other rights to
acquire capital stock of OCLI.
1.6 Closing of the Company's Transfer Books. At the Effective Time, (a) all
certificates representing shares of Company Common Stock outstanding immediately
prior to the Effective Time shall automatically be canceled and retired and
shall cease to exist, and all holders of certificates representing shares of
Company Common Stock that were outstanding immediately prior to the Effective
Time shall cease to have any rights as shareholders of the Company, and (b) the
stock transfer books of the Company shall be closed with respect to all shares
of such Company Common Stock outstanding immediately prior to the Effective
Time. No further transfer of any such shares of Company Common Stock shall be
made on such stock transfer books after the Effective Time. If, after the
Effective Time, a valid certificate previously representing any of such shares
of Company Common Stock (a "Company Stock Certificate") is presented to OFPI,
such Company Stock Certificate shall be canceled and shall be exchanged as
provided in Section 1.7.
1.7 Exchange of Certificates.
(a) Exchange Procedures. At or as soon as practicable after the
Closing, the holders of Company Common Stock shall surrender their Company Stock
Certificates in exchange for certificates representing OFPI Common Stock,
pursuant to this Agreement. Subject to Section 1.7(b), upon such surrender of a
Company Stock Certificate for exchange, (1) the holder of such Company Stock
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of shares of OFPI Common Stock that such holder has the
right to receive pursuant to Section 1.5(a)(i), and (2) the Company Stock
Certificate so surrendered shall be canceled. Until surrendered as contemplated
by this Section 1.7(a), each Company Stock Certificate shall be deemed, from and
after the Effective Time, to represent only the right to receive shares of OFPI
Common Stock (and cash in lieu of any fractional share of OFPI Common Stock as
contemplated by Section 1.7(b)), pursuant to this Agreement. If any Company
Stock Certificate shall have been lost, stolen or destroyed, OFPI shall issue a
certificate representing OFPI Common Stock with respect to such lost, stolen or
destroyed Company Stock Certificate in accordance with this Agreement upon
delivery by the owner of such lost, stolen or destroyed Company Stock
Certificate to OFPI of an appropriate affidavit as indemnity against any claim
that may be made against OFPI with respect to such Company Stock Certificate.
4.
<PAGE>
(b) Fractional Shares. No fractional shares of OFPI Common Stock shall
be issued in connection with the Merger, and no certificates for any such
fractional shares shall be issued. In lieu of such fractional shares, any holder
of Company Common Stock who would otherwise be entitled to receive a fraction of
a share of OFPI Common Stock (after aggregating all fractional shares of OFPI
Common Stock issuable to such holder) shall, upon surrender of such holder's
Company Stock Certificate(s), be paid in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying such fraction
by the Designated OFPI Stock Price. The "Designated OFPI Stock Price" shall be
the closing sales price of one share of OFPI Common Stock as reported on the
Nasdaq Small Cap Market on the Closing Date, or if not so reported, as reported
on the electronic bulletin board as of such date.
(c) No Liability. OFPI shall not be liable to any holder or former
holder of Company Common Stock for any shares of OFPI Common Stock (or dividends
or distributions with respect thereto), or for any cash amounts, delivered to
any public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8 Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, any shares of Company Common Stock outstanding immediately
prior to the Effective Time that were not voted in favor of the Merger and are
held by shareholders who have complied with the applicable provisions of Chapter
13 of the CGCL (the "Dissenting Shares") shall not be converted into or
represent the right to receive OFPI Common Stock in accordance with Sections
1.5(a)(i) and 1.5(a)(ii), as the case may be (or cash in lieu of fractional
shares in accordance with Section 1.7(b)), and each holder of Dissenting Shares
shall be entitled only to such rights as may be granted to such holder under
Chapter 13 of the CGCL. From and after the Effective Time, a holder of
Dissenting Shares shall not have and shall not be entitled to exercise any of
the voting rights or other rights of a shareholder of OFPI. If any holder of
Dissenting Shares shall fail to assert or perfect, or shall waive, rescind,
withdraw or otherwise lose, such holder's right to dissent and obtain payment
under Chapter 13 of the CGCL, then such shares shall automatically be converted
into and shall represent only the right to receive (upon the surrender of
Company Stock Certificate(s) previously representing such shares) OFPI Common
Stock in accordance with Section 1.5(a)(i) (and cash in lieu of any fractional
share in accordance with Section 1.7(b)).
1.9 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
1.10 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a purchase. For purposes of determining the purchase price, the
price per share shall be $0.7083, which is the average of the closing sale
prices per share of OFPI's Common Stock as traded on the Nasdaq Small Cap Market
on the three (3) trading days immediately preceding February 19, 1999, the date
the terms of the transaction were first publicly announced (the "Applicable
Price").
5.
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1.11 Further Action. If, at any time after the Effective Time, any further
action is determined by OFPI to be necessary to carry out the purposes of this
Agreement or to vest OFPI with full right, title and possession of and to all
rights and property of the Company, the officers and directors of OFPI shall be
fully authorized, in the name of the Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to OFPI that, except as set forth
in the disclosure schedule prepared by the Company in accordance with the
requirements of Section 10.13 and that has been delivered by the Company to OFPI
on the date of this Agreement (the "Company Disclosure Schedule"):
2.1 Due Organization; No Subsidiaries; Etc.
(a) Each of the Company and each subsidiary of the Company are
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation with full corporate
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted (ii) to own and use its assets in the
manner in which its assets are currently owned and used and (iii) to perform its
obligations under all Contracts by which is its bound. The Company has no
subsidiaries other than the subsidiaries disclosed in Part 2.1 of the Company
Disclosure Schedule, which, for the purposes of this Section 2, shall include
"SCI" (as defined in Section 7.11) (collectively, the "Company Subsidiaries").
(b) The Company and the Company Subsidiaries maintain facilities or
employees in each state listed in Part 2.1(b) of the Company Disclosure
Schedule. The Company and each Company Subsidiary is duly qualified to do
business corporation and is in good standing in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on the Company
or on the ability of the Company to consummate the transactions contemplated
hereby.
2.2 Articles of Incorporation and Bylaws; Records. The Company has
delivered or made available to OFPI accurate and complete copies of: (1) the
Company's articles of incorporation and bylaws as currently in effect, including
all amendments thereto; (2) the stock records of the Company; and (3) the
minutes and other records of the meetings and other proceedings (including any
actions taken by written consent or otherwise without a meeting) of the
shareholders of the Company, the Board of Directors of the Company and all
committees of the Board of Directors of the Company. The Company is not in
violation of any of the provisions of its articles of incorporation or bylaws.
The books of account, stock records, minute books and other records of the
Company are accurate and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 Capitalization. The authorized capital stock of the Company consists
of: 100,000 shares of Common Stock, no par value per share ("Company Common
Stock"), of which 5,000 shares have been issued and are outstanding as of the
date hereof. Part 2.3 of the Company Disclosure Schedule sets forth, as of the
date hereof, the names of the Company's shareholders and the number of shares of
6.
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Company Common Stock owned of record by each of such shareholders. All of the
outstanding shares of Company Common Stock have been duly authorized and validly
issued, and are fully paid and non-assessable, and none of such shares is
subject to any repurchase option or restriction on transfer other than
restrictions imposed by federal or state securities laws and other than
repurchase options exercisable by the Company upon termination of employment.
Part 2.3 of the Company Disclosure Schedule, sets forth all outstanding
subscriptions, options, calls, warrants or other rights (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of the Company. All outstanding shares of Company Common Stock have
been issued in compliance with all applicable securities laws and other
applicable Legal Requirements. Except as set forth in Part 2.3 of the Company
Disclosure Schedule, the Company has never repurchased, redeemed or otherwise
reacquired any shares of its capital stock or other securities. Other than the
irrevocable proxies set forth in Part 2.3 of the Company Disclosure Schedule,
there are no preemptive or similar rights with respect to the Company's capital
stock. There is no Company Contract (or, to the Company's knowledge, any other
agreement or arrangement to which the Company is not a party) relating to the
voting or registration of, or restricting any Person from purchasing, selling,
pledging or otherwise disposing of (or granting any option or similar right with
respect to), any shares of Company Common Stock. There is no shareholder rights
plan (or similar plan commonly referred to as a "poison pill") or Contract under
which Company is or may become obligated to sell or otherwise issue any shares
of its capital stock or any other securities.
2.4 Financial Statements.
(a) The Company has delivered to OFPI the following financial
statements and notes (collectively, the "Company Financial Statements"): the
audited balance sheets of the Company as of December 31, 1998, December 31, 1997
and December 31, 1996, and the related audited statements of income, statements
of shareholders' equity and statements of cash flows of the Company for the
years then ended, together with the notes thereto and the unqualified report of
an independent auditor relating thereto; and
(b) The Company Financial Statements present fairly the financial
position of the Company as of the respective dates thereof and the results of
operations and cash flows of the Company for the periods covered thereby. The
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered.
2.5 Absence of Changes. Except as described in Part 2.5 of the Company
Disclosure Schedule, since December 31, 1998 through the date of this Agreement:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of the
Company or any of the Company Subsidiaries, and, to the knowledge of the
Company, no event has occurred that could reasonably be expected to have a
Material Adverse Effect on the Company and its subsidiaries taken as a whole;
7.
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(b) there has not been any loss, damage or destruction to any of the
assets of the Company or any of the Company Subsidiaries (whether or not covered
by insurance) that could reasonably be expected to have a Material Adverse
Effect on the Company;
(c) neither the Company nor any Company Subsidiary has declared,
accrued, set aside or paid any dividend, stock split, combination or
reclassification or made any other distribution in respect of any shares of
capital stock nor has repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities;
(d) neither the Company nor any Company Subsidiary has sold, issued or
authorized the issuance of (i) any capital stock or other security (except for
Company Common Stock issued upon the exercise of outstanding Company Options),
(ii) any option, call, warrant or right to acquire, or otherwise relating to,
any capital stock or any other security (except for Company Options described in
Part 2.3 of the Company Disclosure Schedule), or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) there has been no amendment to the articles of organization or
bylaws of the Company or any Company Subsidiary, and neither the Company nor any
Company Subsidiary has effected or been a party to any Company Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(f) neither the Company nor any Company Subsidiary has amended or
waived any of its rights under, or permitted the acceleration of vesting under
(i) any provision of any agreement evidencing any outstanding Company Option, or
(ii) any restricted stock purchase agreement;
(g) neither the Company nor any Company Subsidiary has formed any
subsidiary or acquired any equity interest in any other Entity;
(h) neither the Company nor any Company Subsidiary has made any
capital expenditure which, when added to all other capital expenditures made
since December 31, 1998, exceeds $25,000 in the aggregate;
(i) neither the Company nor any Company Subsidiary has (i) entered
into any Material Company Contract (as defined in Section 2.11(a)), or (ii)
amended or prematurely terminated, or waived any material right or remedy under,
any Material Company Contract to which it is or was a party or under which it
has or had any material rights or obligations;
(j) neither the Company nor any Company Subsidiary has (i) acquired,
leased or licensed any right or other asset from any other Person, (ii) sold or
otherwise disposed of, or leased or licensed, any right or other asset to any
other Person, or (iii) waived or relinquished any right, except for purchases of
inventory and sales of products in the ordinary course of business and except
for immaterial rights or other immaterial assets acquired, leased, licensed or
disposed of in the ordinary course of business and consistent with the Company's
past practices;
(k) neither the Company nor any Company Subsidiary has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness in excess of $5,000 individually or
$25,000 in the aggregate;
8.
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(l) neither the Company nor any Company Subsidiary has made any pledge
of any of its assets or otherwise permitted any of its assets to become subject
to any Encumbrance, except for pledges of assets valued at $25,000 or less,
individually or in the aggregate, made in the ordinary course of business and
consistent with the Company's past practices;
(m) neither the Company nor any Company Subsidiary has (i) lent money
to any Person, or (ii) incurred or guaranteed any indebtedness for borrowed
money;
(n) neither the Company nor any Company Subsidiary has (i)
established, adopted or amended any Employee Benefit Plan, (ii) paid any bonus
or made any profit-sharing or similar payment to, or increased the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, (iii)
hired any new employee, in either case except in the ordinary course of business
and consistent with past practices or (iv) entered into any severance or
employment agreement with any person;
(o) neither the Company nor any Company Subsidiary has changed any of
its methods of accounting or accounting practices in any material respect;
(p) neither the Company nor any Company Subsidiary has made any Tax
election;
(q) neither the Company nor any Company Subsidiary has commenced or
settled any Legal Proceeding;
(r) neither the Company nor any Company Subsidiary has entered into
any material transaction or taken any other material action outside the ordinary
course of business or inconsistent with its past practices;
(s) neither the Company nor any Company Subsidiary has made any
material write-down of inventory; and
(t) neither the Company nor any Company Subsidiary has agreed or
committed to take any of the actions referred to in clauses "(c)" through "(s)"
above.
2.6 Title to Assets.
(a) The Company and each Company Subsidiary owns, and has good and
valid title to all assets purported to be owned by it, including all of the
assets reflected in the Company Financial Statements and all other assets
reflected in the Company's books and records as being owned by the Company.
Except as set forth in Part 2.6(a) of the Company Disclosure Schedule, all of
said assets are owned by the Company and each Company Subsidiary free and clear
of any liens or other Encumbrances, except for (i) any lien for current taxes
not yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that would not (in any case or in the aggregate) have a
Material Adverse Effect on the Company.
9.
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(b) Part 2.6(b) of the Company Disclosure Schedule identifies all
assets that are being leased or licensed to the Company and each Company
Subsidiary that involve obligations of the Company in excess of $25,000 on an
individual basis.
2.7 Accounts Receivable; Loans and Advances.
(a) All accounts receivable of the Company and each Company Subsidiary
that are reflected in the Company Financial Statements or in the accounting
records of the Company as of the date hereof (collectively, the "Company
Accounts Receivable") represent valid obligations arising from sales actually
made or services actually performed in the ordinary course of business. The
Company Accounts Receivable are current and collectible net of any respective
reserves shown in the Company Financial Statements or on the accounting records
of the Company as of the date hereof (which reserves are adequate and calculated
consistent with past practice). There is no contest, claim, or right of set-off,
other than returns in the ordinary course of business, under any Contract with
any obligor of any Company Accounts Receivable relating to the amount or
validity of such Company Accounts Receivable.
(b) Part 2.7(b) of Company Disclosure Schedule contains an accurate
and complete list of all loans and advances made by the Company or any Company
Subsidiary (and pursuant to which amounts are outstanding as of the date of this
Agreement) to any employee, director, consultant or independent contractor of
Company or any Company Subsidiary, other than routine travel advances made to
employees in the ordinary course of business.
2.8 Inventory. Part 2.8 of the Company Disclosure Schedule provides an
accurate and complete breakdown of all inventory (including raw materials, work
in process and finished goods) of the Company as of December 31, 1998. All of
the Company's existing inventory (including all inventory that is reflected on
the audited balance sheet referenced in Section 2.4 and that has not been
disposed of by the Company since December 31, 1998):
(a) is of such quality and quantity as to be usable and saleable by
the Company in the ordinary course of business and consistent with the Company's
past practices;
(b) has been priced at the lower of cost or market value using the
"first-in, first-out" method; and
(c) is free of any defect or deficiency.
The inventory levels maintained by the Company (i) are not excessive in light of
the Company's normal operating requirements, (ii) are adequate for the conduct
of the Company's operations in the ordinary course of business and consistent
with past practices, and (iii) are comparable to the inventory levels maintained
by Company Comparable Entities.
2.9 Equipment; Leasehold. The real property leased by and other tangible
assets leased or owned by the Company and each Company Subsidiary are adequate
for the uses to which they are being put, are in good condition and repair
(ordinary wear and tear excepted) and are adequate for the conduct of the
Company's business in the manner in which such business is now being conducted.
Neither the Company nor any Company Subsidiary owns any real property or any
material interest in real property. Part 2.9 of the Company Disclosure Schedule
describes all leases of real property held by the Company and each Company
Subsidiary.
10.
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2.10 Proprietary Assets.
(a) Except as set forth in Part 2.10 of the Company Disclosure
Schedule, there is no Proprietary Asset that is owned by or licensed to the
Company or that is otherwise used or useful in connection with the Company's
business. The Company Proprietary Assets identified in Part 2.10 of the Company
Disclosure Schedule constitute all of the Proprietary Assets necessary to enable
the Company to conduct its business in the manner in which its business is
currently being conducted and in the manner in which its business is proposed to
be conducted.
(b) To the Knowledge of the Company, the Company has good and valid
title to all Company Proprietary Assets free and clear of all liens and other
Encumbrances, and has a valid right to use all Proprietary Assets. Neither the
Company nor any Company Subsidiary is obligated to make any payment to any
Person for the use of any Company Proprietary Asset. To the Knowledge of the
Company, the Company and each Company Subsidiary is free to use, modify, copy,
distribute, sell, license or otherwise exploit each of the Company Proprietary
Assets on an exclusive basis (except for any Proprietary Asset that is licensed
to the Company on a non-exclusive basis under any third party software license
generally available to the public at a cost of less than $2,500).
(c) The Company and each Company Subsidiary has taken reasonable
measures and precautions necessary to protect and maintain the confidentiality
and secrecy of all Company Proprietary Assets (except Company Proprietary Assets
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the value of all Company Proprietary Assets. Neither the Company nor
any Company Subsidiary has disclosed or delivered or permitted to be disclosed
or delivered to any Person, and no Person (other than the Company) has access to
or has any rights with respect to any Company Proprietary Asset, in either case
except pursuant to a valid non-disclosure agreement.
(d) To the Knowledge of the Company, none of the Company Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the Knowledge of the Company, neither the Company nor any
Company Subsidiary is infringing, misappropriating or making any unlawful use
of, and the Company has not at any time infringed, misappropriated or made any
unlawful use of, or received any notice or other communication of any actual,
alleged, possible or potential infringement, misappropriation or unlawful use
of, any Proprietary Asset owned or used by any other Person. To the Knowledge of
the Company, no other Person is infringing, misappropriating or making any
unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been conducted. Neither the Company nor any Company
Subsidiary has licensed any of the Company Proprietary Assets to any Person on
an exclusive basis, and neither the Company nor any Company Subsidiary has
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
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(f) No shareholder, officer or director of the Company has title to
any Company Proprietary Asset which would be necessary to enable the Company to
conduct its business in the manner in which such business is currently being
conducted.
2.11 Contracts.
(a) Part 2.11(a) (and Part 2.9 regarding leases of real property) of
the Company Disclosure Schedule identifies each Company Contract that
constitutes a "Material Company Contract." For purposes of this Agreement, a
"Material Company Contract" shall be deemed to be any Company Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of the Company in excess of $25,000 per
year, including any Company Contract involving severance payments or
acceleration benefits upon a Company Acquisition Transaction;
(ii) relating to the acquisition, transfer, use, development,
sharing or license of any Company Proprietary Asset (except in the ordinary
course of business and except for any Company Proprietary Asset that is licensed
to the Company under any third party software license agreement generally
available to the public at a cost of less than $25,000);
(iii) imposing any material restriction on the Company's or any
Company Subsidiary's right or ability (A) to compete with any other Person, (B)
to acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any Company Proprietary Asset;
(iv) creating or involving any agency relationship, distribution
arrangement or franchise relationship involving payments to or from the Company
or obligations in excess of $25,000 per year;
(v) relating to the acquisition, issuance or transfer of any
securities of the Company or any Company Subsidiary under which the Company has
any current rights or obligations;
(vi) creating or relating to the creation of any Encumbrance with
respect to any asset owned or used by the Company or any Company Subsidiary
having a value in excess of $25,000;
(vii) involving or incorporating any guaranty, any pledge, any
performance or completion bond, any indemnity, any right of contribution or any
surety arrangement in excess of $25,000 per year;
(viii) creating or relating to any partnership or joint venture
or any material sharing of revenues, profits, losses, costs or liabilities;
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(ix) relating to the purchase or sale of any product or other
asset by or to, or the performance of any services by or for, any Related Party
(as defined in Section 2.20);
(x) entered into outside the ordinary course of business;
(xi) that may not be terminated by the Company or any Company
Subsidiary (without penalty) within 120 days after the delivery of a termination
notice by the Company or any Company Subsidiary and which involves payments or
commitments of $5,000 or more;
(xii) contemplating or involving (A) the payment or delivery of
cash or other consideration in an amount or having a value in excess of $25,000
in the aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate; and
(xiii) which is a lease of real property.
(b) The Company has delivered to OFPI accurate and complete copies of
all Material Company Contracts identified in Part 2.11(a) of the Company
Disclosure Schedule, including all amendments thereto. Each Material Company
Contract identified in Part 2.11(a) of the Company Disclosure Schedule is valid
and in full force and effect, and is enforceable by the Company in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) Neither the Company nor any Company Subsidiary nor, to the
Company's knowledge, any other party, has materially violated or breached, or
committed any material default under, any Material Company Contract;
(i) to the knowledge of the Company, no event has occurred, and
no circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, (A) result in a violation or
breach of any of the provisions of any Material Company Contract, (B) give any
Person the right to declare a default or exercise any remedy under any Material
Company Contract, (C) give any Person the right to accelerate the maturity or
performance of any Material Company Contract, or (D) give any Person the right
to cancel, terminate or modify any Material Company Contract;
(ii) since December 31, 1998, neither the Company nor any Company
Subsidiary has received any notice or other communication regarding (i) any
actual or possible violation or breach of, or default under, any Material
Company Contract, or (ii) any actual or possible termination of any Material
Company Contract; and
(iii) neither the Company nor any Company Subsidiary has waived
any of its material rights under any Material Company Contract.
2.12 No Undisclosed Liabilities. Except as set forth in the Company
Financial Statements and except for current liabilities incurred in the ordinary
course of business since December 31, 1998, neither the Company nor any Company
Subsidiary has accrued, contingent or other liabilities of any nature, either
matured or unmatured.
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2.13 Compliance with Legal Requirements. The Company and each Company
Subsidiary is, and has at all times been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and will not have a Material Adverse Effect on the
Company. Neither the Company nor any Company Subsidiary has received any notice
or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement;
provided, however, that this representation shall not apply to the matters
covered by the representations contained in Sections 2.15, 2.16 and 2.17.
2.14 Governmental Authorizations. The Company and each Company Subsidiary
has all Governmental Authorizations necessary to enable the Company and such
Company Subsidiary to conduct its business in the manner in which its business
is currently being conducted, except for Governmental Authorizations the failure
of which to obtain would not have a Material Adverse Effect on the Company. The
Company and each Company Subsidiary is, and at all times has been, in compliance
with the material terms and requirements of such Governmental Authorizations,
except for any noncompliance which would not have a Material Adverse Effect on
the Company. Neither the Company nor any Company Subsidiary has received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.15 Tax Matters.
(a) All Material Tax Returns required to be filed by or on behalf of
the Company with any Governmental Body with respect to any transaction occurring
or any taxable period ending on or before the date hereof (the "Company
Returns") (i) have been filed when due, and (ii) have been accurately and
completely prepared in compliance with all applicable Legal Requirements. The
Company and each Company Subsidiary has, within the time (including any
extensions of applicable due dates) and in the manner prescribed by law, paid
all Taxes that are due and payable, except Taxes that, individually and in the
aggregate, are not material. The Company Financial Statements fully accrue all
actual and contingent liabilities for Taxes with respect to all periods through
the dates thereof in accordance with generally accepted accounting principles.
(b) No claim or Legal Proceeding is pending or has been threatened
against or with respect to the Company or any Company Subsidiary in respect of
any Tax. There are no unsatisfied liabilities for Taxes (including liabilities
for interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by the Company
or any Company Subsidiary. There are no liens for Taxes upon any of the assets
of the Company or any Company Subsidiary, except liens for current Taxes not yet
due and payable.
2.16 Employee and Labor Matters; Benefit Plans.
(a) Part 2.16(a) of the Company Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement whose
annual salaries are greater than $30,000, and correctly reflects their salaries,
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any other compensation payable to them (including compensation payable pursuant
to bonus, deferred compensation or commission arrangements), their dates of
employment and their positions. Neither the Company nor any Company Subsidiary
is a party to any collective bargaining contract or other Contract with a labor
union involving any of its employees.
(b) Part 2.16(b) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, health,
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (individually referred to as a "Company
Plan" and collectively referred to as the "Company Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company or
any Company Subsidiary for the benefit of any current or former employee of the
Company or any Company Subsidiary.
(c) Neither the Company nor any Company Subsidiary maintains, sponsors
or contributes to, and, to the knowledge of the Company, neither the Company nor
any Company Subsidiary has at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
subject to Title IV of ERISA for the benefit of employees or former employees of
the Company (a " Company Defined Benefit Plan").
(d) Neither the Company nor any Company Subsidiary maintains, sponsors
or contributes to any employee welfare benefit plan (as defined in Section 3(1)
of ERISA, whether or not excluded from coverage under specific Titles or Merger
Subtitles of ERISA) for the benefit of employees or former employees of the
Company or any Company Subsidiary.
(e) With respect to each Company Plan, the Company has made available
to OFPI:
(i) an accurate and complete copy of such Company Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such Company Plan for the three most
recent plan years;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each summary of material modifications
thereto (if required under ERISA) with respect to such Company Plan, and (B)
each material employee communication relating to such Company Plan;
(iv) if such Company Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Company Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
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(vi) an accurate and complete copy of the most recent
determination, notification, advisory and/or opinion letter received from the
Internal Revenue Service with respect to such Company Plan (if such Company Plan
is intended to be qualified under Section 401(a) of the Code).
(f) Neither the Company nor any Company Subsidiary is required to be,
and, to the knowledge of the Company, the Company has never been required to be,
treated as a single employer with any other Person under Section 4001(b)(1) of
ERISA or Section 414(b), (c), (m) or (o) of the Code. Neither the Company nor
any Company Subsidiary has ever been a member of an "affiliated service group"
within the meaning of Section 414(m) of the Code. To the of the knowledge of the
Company, neither the Company nor any Company Subsidiary has ever made a complete
or partial withdrawal from a "multiemployer plan" (as defined in Section 3(37)
of ERISA) resulting in "withdrawal liability" (as defined in Section 4201 of
ERISA), without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA.
(g) Neither the Company nor any Company Subsidiary has any plan or
commitment to create any additional Company employee benefit plan within the
meaning of ERISA, or to modify or change any such plan (other than to comply
with applicable law).
(h) No Company Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of the
Company after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the balance sheet as of December 31, 1998, or (iii) benefits the
full cost of which are borne by current or former employees of the Company or
any Company Subsidiary (or their beneficiaries)).
(i) With respect to each of the Company Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") have been complied with in all material respects.
(j) Each of the Company Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the Company Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(l) Neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will result in any bonus payment, golden parachute payment,
severance payment or other payment to any current or former employee or director
of the Company or any Company Subsidiary (whether or not under any Company
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Plan), or materially increase the benefits payable under any Company Plan, or
result in any acceleration of the time of payment or vesting of any such
benefits.
(m) The Company and each Company Subsidiary is in compliance in all
material respects with all applicable Legal Requirements and Contracts relating
to employment, employment practices, employee compensation, wages, bonuses and
terms and conditions of employment.
2.17 Environmental Matters. The Company and each Company Subsidiary is and
has at all times been in compliance, in all material respects, with all
applicable Environmental Laws. The Company and each Company Subsidiary possesses
all permits and other Governmental Authorizations required under applicable
Environmental Laws, and the Company and each Company Subsidiary is and has at
all times been in compliance with the terms and requirements of all such
Governmental Authorizations, except where the failure to possess such
Governmental Authorizations or failure to be in compliance would not have a
Material Adverse Effect on the Company. Neither the Company nor any Company
Subsidiary has received any notice or other communication (whether from a
Governmental Body, citizens group, employee or otherwise) that alleges that the
Company or any Company Subsidiary is not or was not in compliance with any
Environmental Law. To the knowledge of the Company, no current or prior owner of
any property leased or owned by the Company or any Company Subsidiary has
received any notice or other communication (whether from a Governmental Body,
citizens group, employee or otherwise) that alleges that such current or prior
owner or the Company is not or was not in compliance with any Environmental Law.
(For purposes of this Section 2.17 and Section 3.17: (i) "Environmental Law"
means any federal, state, local or foreign Legal Requirement relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata), including
any law or regulation relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern; and (ii) "Materials
of Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or in the future regulated by any Environmental Law or that is otherwise
a danger to health, reproduction or the environment.) To the Knowledge of the
Company, no Materials of Environmental Concern have been released or are located
on or under any property leased or owned by the Company or any Company
Subsidiary. Neither the Company nor any Company Subsidiary has received any
notice or other communication (whether from a Governmental Body, citizens group,
employee or otherwise) regarding a release of, or the existence of, Materials of
environmental concern at, under or about any property leased or owned by the
Company or any Company Subsidiary.
2.18 Sale of Products; Performance of Services.
(a) Each product that has been sold by the Company to any Person:
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(i) conformed and complied in all respects with the terms and
requirements of any applicable warranty or other Contract and with all
applicable Legal Requirements; and
(ii) was free of any design defects, construction defects or
other defects or deficiencies at the time of sale.
All services that have been performed by the Company were performed properly and
in full conformity with the terms and requirements of all applicable warranties
and other Contracts and with all applicable Legal Requirements.
(b) To the Knowledge of the Company, the Company will not incur or
otherwise become subject to any Liability arising directly or indirectly from
any product manufactured or sold, or any repair services or other services
performed by, the Company on or at any time prior to the Closing Date.
(c) To the Knowledge of the Company, no product manufactured or sold
by the Company has been the subject of any recall or other similar action; and
no event has occurred, and no condition or circumstance exists, that might (with
or without notice or lapse of time) directly or indirectly give rise to or serve
as a basis for any such recall or other similar action relating to any such
product.
(d) Except as set forth in Part 2.18 of the Company Disclosure
Schedule, no customer or other Person has ever asserted or threatened to assert
any claim against the Company (i) under or based upon any warranty provided by
or on behalf of the Company, or (ii) under or based upon any other warranty
relating to any product sold by the Company or any services performed by the
Company. To the Knowledge of the Company, no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for the assertion
of any such claim.
(e) The Company has in place an adequate and appropriate quality
control system that is at least as comprehensive and effective as the quality
control systems customarily maintained by Company Comparable Entities.
2.19 Insurance. The business and properties of the Company and each Company
Subsidiary are insured for the benefit of the Company and each Company
Subsidiary in amounts deemed adequate by the Company's management against risks
usually insured against by persons operating businesses similar to those of the
Company in the localities where such properties are located. The Company has
received no notice of cancellation or refusal of coverage and copies of all of
such insurance policies have been delivered to OFPI.
2.20 Related Party Transactions. Except as set forth in Part 2.20 of the
Company Disclosure Schedule, (a) no Related Party has, and no Related Party has
at any time since December 31, 1995 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company or
any Company Subsidiary in a manner that would be required to be disclosed under
Item 404 of Regulation S-K promulgated by the SEC; (b) no Related Party is, or
has at any time since December 31, 1995 been, indebted to the Company or any
Company Subsidiary in a manner that would be required to be disclosed under Item
404 of Regulation S-K promulgated by the SEC; (c) since December 31, 1995, no
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Related Party has entered into, or has had any direct or indirect financial
interest in, any Material Company Contract, transaction or business dealing
involving the Company or any Company Subsidiary in a manner that would be
required to be disclosed under Item 404 of Regulation S-K promulgated by the
SEC; (d) no Related Party is competing, or has at any time since December 31,
1995 competed, directly or indirectly, with the Company; and (e) no Related
Party has any claim or right against the Company or any Company Subsidiary
(other than rights to receive compensation for services performed as an employee
of the Company or any Company Subsidiary). (For purposes of this Section 2.20,
each of the following shall be deemed to be a "Related Party": (i) each
individual who is, or who has at any time since December 31, 1995 been, an
officer or director of the Company or any Company Subsidiary; (ii) each
individual who is, or who at any time since December 31, 1995 been, a member of
the immediate family of any of the individuals referred to in clause "(i)"
above; (iii) any shareholder of the Company or any Company Subsidiary, provided,
however, that with respect to shareholders who hold less than 5% of the
outstanding Common Stock of the Company or any Company Subsidiary determined on
an as-if-converte basis, such representations are made only to the knowledge of
the Company or any Company Subsidiary, and (iv) any trust or other Entity (other
than the Company or any Company Subsidiary) in which any one of the individuals
referred to in clauses "(i)," "(ii)" and "(iii)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.)
2.21 Legal Proceedings; Orders. There is no pending Legal Proceeding, and,
to the knowledge of the Company, no Person has threatened to commence any Legal
Proceeding that: (i) may have a Material Adverse Effect on the Company, any
Company Subsidiaries or their respective businesses; or (ii) challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger or any of the other transactions contemplated by
this Agreement. To the knowledge of the Company, no event has occurred, and no
claim, dispute or other condition or circumstance exists that could reasonably
be expected to give rise to or serve as a basis for the commencement of any such
Legal Proceeding. There is no order, writ, injunction, judgment or decree to
which the Company or any Company Subsidiary, or any of the assets owned or used
by the Company or any Company Subsidiary, is subject. To the knowledge of the
Company, no officer or other employee of the Company or any Company Subsidiary
is subject to any order, writ, injunction, judgment or decree that prohibits
such officer or other employee from engaging in or continuing any conduct,
activity or practice relating to the Company's or such Company Subsidiary's
business. There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company or any Company Subsidiary intends to
initiate.
2.22 Authority; Binding Nature of Agreement. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
the Company of this Agreement have been duly authorized by all necessary action
on the part of the Company, its Board of Directors and its shareholders. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by (i) laws of general application relating
to bankruptcy, insolvency, moratorium, reorganization or other similar laws,
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both state and federal, affecting the enforcement of creditors' rights or
remedies in general, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
2.23 Non-Contravention; Consents. Except as set forth in Part 2.23 of the
Company Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
nor (2) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of the Company's or any Company Subsidiary's articles of organization
or bylaws;
(b) with respect to the Company or any Company Subsidiary, contravene,
conflict with or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the transactions contemplated by this
Agreement or to exercise any remedy or obtain any relief under, any Legal
Requirement or any order, writ, injunction, judgment or decree to which the
Company or any Company Subsidiary, or any of the assets owned or used by the
Company or any Company Subsidiary, is subject;
(c) with respect to the Company or any Company Subsidiary, contravene,
conflict with or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by the Company
or any Company Subsidiary or that otherwise relates to the Company's or any
Company Subsidiary's business or to any of the assets owned or used by the
Company or any Company Subsidiary;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Material Company Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any Material Company Contract, (ii) accelerate the maturity or performance of
any Material Company Contract, or (iii) cancel, terminate or modify any Material
Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company or
any Company Subsidiary (except for minor liens that will not, in any case or in
the aggregate, materially detract from the value of the assets subject thereto
or have a Material Adverse Effect on the Company).
Except as may be required by the CGCL and state securities or blue sky laws, and
except as set forth in Part 2.23 of the Company Disclosure Schedule, the Company
is not and will not be required to make any filing with or give any notice to,
or to obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.24 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock of the Company outstanding as of the
record date of the Company Shareholders' Meeting (as defined below), voting as
separate classes (the "Requisite Company Vote"), is the only vote of the holders
of any class or series of Company's capital stock necessary to adopt and approve
this Agreement, the Merger and the transactions contemplated thereby.
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2.25 Company Action. The Board of Directors of Company (at a meeting duly
called and held) has (a) unanimously determined that the Merger is advisable and
fair and in the best interests of Company and its shareholders, (b) unanimously
approved this Agreement and the Merger in accordance with the applicable
provisions of the CGCL, and (c) unanimously recommended the adoption and
approval of this Agreement and the Merger by the holders of Company Common Stock
and directed that this Agreement and the Merger be submitted for consideration
by the Company's shareholders at the Company Shareholders' Meeting. With respect
to any action of the Board of Directors of the Company described in this Section
2.25, any unanimous determination, approval or recommendation of such Board
shall refer to the unanimous action of the disinterested members of such Board,
as applicable. The Company and each of the individuals identified on Exhibit E
shall have executed those certain voting agreements (collectively, the "Voting
Agreements") of even date herewith.
2.26 Full Disclosure.
(a) To the Company's knowledge, all documents, contracts, instruments,
certificates, notices, consents, affidavits, letters, telegrams, telexes,
written statements, schedules (including the Company Disclosure Schedule),
exhibits (including the Exhibits to this Agreement) and any other papers
whatsoever (excluding in all cases drafts and interim versions marked as such or
apparent as such on their face) delivered to OFPI by the Company in connection
with this Agreement and the transactions contemplated thereby, are true and
complete copies thereof. The representations and warranties of the Company
contained in this Agreement, as modified by the Company Disclosure Schedule,
contain no untrue statements of any material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not false or
misleading.
(b) The information supplied by the Company for inclusion in the Joint
Proxy Statement (including the Company Financial Statements) will not, as of the
date of the Joint Proxy Statement or as of the date of the OFPI Shareholders'
Meeting (as defined in Section 5.5), and in each case, as of the date such
information is prepared or presented, contain any statement that is inaccurate
or misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make such information not false or
misleading.
2.27 Finder's Fee. Except for Moore Consulting ("Moore"), no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or any of the other transactions
contemplated thereby based upon arrangements made by or on behalf of the
Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF OFPI.
OFPI represents and warrants to the Company that, except as set forth in
the disclosure schedule prepared by OFPI in accordance with the requirements of
Section 10.13 and that has been delivered by OFPI to the Company on the date of
this Agreement (the "OFPI Disclosure Schedule"):
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3.1 Due Organization, Etc.
(a) Each of OFPI and each subsidiary of OFPI are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, and each of them have full corporate
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted; (ii) to own and use its assets in the
manner in which its assets are currently owned and used; and (iii) to perform
its obligations under all Contracts by which it is bound. OFPI has no
subsidiaries other than the subsidiaries disclosed in Part 3.1 of the OFPI
Disclosure Schedule (collectively, the "OFPI Subsidiaries").
(b) OFPI and the OFPI Subsidiaries maintain facilities or employees in
each state listed in Part 3.1(b) of the OFPI Disclosure Schedule. Each of OFPI
and each OFPI Subsidiary is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect on OFPI or on the ability of OFPI to consummate the
transactions contemplated hereby.
3.2 Articles of Incorporation and Bylaws; Records. OFPI has delivered or
made available to Company accurate and complete copies of: (1) OFPI's articles
of incorporation and bylaws as currently in effect, including all amendments
thereto; (2) the stock records of OFPI; and (3) the minutes and other records of
the meetings and other proceedings (including any actions taken by written
consent or otherwise without a meeting) of the shareholders of OFPI, the Board
of Directors of OFPI and all committees of the Board of Directors of OFPI. OFPI
is not in violation of any of the provisions of its articles of incorporation or
bylaws. The books of account, stock records, minute books and other records of
OFPI are accurate and complete in all material respects, and have been
maintained in accordance with prudent business practices.
3.3 Capitalization, Etc. The authorized capital stock of OFPI consists of:
(i) 20,000,000 shares of Common Stock, no par value per share ("OFPI Common
Stock"), of which 7,559,002 shares have been issued and are outstanding as of
the date hereof; and (ii) 5,000,000 shares of preferred stock, no par value per
share, none of which are outstanding. All of the outstanding shares of OFPI and
each OFPI Subsidiary capital stock have been duly authorized and validly issued,
and are fully paid and non-assessable, and none of such shares is subject to any
repurchase option or restriction on transfer other than restrictions imposed by
federal and state securities laws. All outstanding shares of OFPI and OFPI
Subsidiaries capital stock have been issued in compliance with all applicable
securities laws and other applicable Legal Requirements. Part 3.3 of the OFPI
Disclosure Schedule sets forth, as of the date hereof, (i) the names of each
holder of 5% or more of the outstanding voting stock of OFPI together with the
number of shares held by each such holder, and (ii) all outstanding
subscriptions, options, calls, warrants or other rights (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of OFPI. All of the outstanding shares of capital stock of each OFPI
Subsidiary are owned beneficially and of record by OFPI, free and clear of any
Encumbrances. The Shares, when issued by OFPI to the Company's shareholders will
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be duly authorized, validly issued, fully paid and non-assessable, will be
issued in compliance with applicable federal and state securities laws and will
be free and clear of all Encumbrances as a result of any actions by OFPI. OFPI
has never repurchased, redeemed or otherwise reacquired any shares of its
capital stock or other securities. Other than the irrevocable proxies set forth
in Part 3.3 of the OFPI Disclosure Schedule, there are no preemptive or similar
rights with respect to the OFPI's capital stock. There is no OFPI Contract (or,
to OFPI's knowledge, any other agreement or arrangement to which OFPI is not a
party) relating to the voting or registration of, or restricting any Person from
purchasing, selling, pledging or otherwise disposing of (or granting any option
or similar right with respect to), any shares of OFPI Common Stock. There is no
shareholder rights plan (or similar plan commonly referred to as a "poison
pill") or Contract under which OFPI is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities.
3.4 SEC Filings; Financial Statements.
(a) OFPI has delivered to the Company accurate and complete copies
(including unredacted copies of all exhibits) of each report, schedule,
registration statement and definitive proxy statement filed by OFPI with the SEC
since August 8, 1997 (the "OFPI SEC Documents"), which are all the reports and
documents required to be filed by OFPI with the SEC since August 8, 1997. Each
of the OFPI SEC Documents was timely filed by OFPI in accordance with the rules
and regulations of the SEC and the NASD. As of the time it was filed with the
SEC (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the OFPI SEC Documents
complied in all material respects with the applicable requirements of the
Securities Act or the Exchange Act (as the case may be); and (ii) none of the
OFPI SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) The consolidated financial statements (including, in each case,
any notes related thereto) contained in the OFPI SEC Documents: (i) complied as
to form in all material respects with the published rules and regulations of the
SEC applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes to such financial statements
and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to year-end audit adjustments); and (iii) fairly present the
consolidated financial position of OFPI and its subsidiaries as of the
respective dates thereof and the consolidated results of operations of OFPI and
its subsidiaries for the periods covered thereby.
(c) OFPI has furnished to the Company a complete and accurate copy of
any amendments, supplements or modifications that have not yet been filed with
the SEC to agreements, documents or other instruments that have been previously
filed by OFPI with the SEC pursuant to the Securities Act or the Exchange Act,
if any.
(d) OFPI has furnished the Company the unaudited balance sheets of
OFPI as of January 31, 1999 and the related unaudited statements of income of
OFPI for the seven months then ended. Such financial statements fairly present
the financial position of OFPI as of the respective dates thereof and the
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results of operations and cash flows of OFPI for the periods covered thereby.
Such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered (except that they do not contain footnotes and are subject to
normal and recurring year-end adjustments, which will not, individually or in
the aggregate be material in magnitude). The financial statements referred to in
subsection (b) and this subsection (d) are hereinafter referred to as the "OFPI
Financial Statements."
3.5 Absence of Changes. Except as described in Part 3.5 of the OFPI
Disclosure Schedule, since January 31, 1999 through the date of this Agreement:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of OFPI or
any of the OFPI Subsidiaries, and, to the knowledge of OFPI, no event has
occurred that could reasonably be expected to have a Material Adverse Effect on
OFPI and its subsidiaries taken as a whole;
(b) there has not been any loss, damage or destruction to any of the
assets of OFPI or any of the OFPI Subsidiaries (whether or not covered by
insurance) that could reasonably be expected to have a Material Adverse Effect
on OFPI;
(c) neither OFPI nor any OFPI Subsidiary has declared, accrued, set
aside or paid any dividend, stock split, combination or reclassification or made
any other distribution in respect of any shares of capital stock nor has
repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities;
(d) neither OFPI nor any OFPI Subsidiary has sold, issued or
authorized the issuance of (i) any capital stock or other security (except for
OFPI Common Stock issued upon the exercise of outstanding OFPI Options or OFPI
Warrants described in the OFPI Disclosure Schedule), (ii) any option, call,
warrant or right to acquire, or otherwise relating to, any capital stock or any
other security (except for OFPI Options and OFPI Warrants described in the OFPI
Disclosure Schedule), or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
(e) there has been no amendment to the articles of organization or
bylaws of OFPI or any OFPI Subsidiary, and neither OFPI nor any OFPI Subsidiary
has effected or been a party to any OFPI Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) neither OFPI nor any OFPI Subsidiary has amended or waived any of
its rights under, or permitted the acceleration of vesting under (i) any
provision of any agreement evidencing any outstanding OFPI Option or OFPI
Warrant, or (ii) any restricted stock purchase agreement;
(g) neither OFPI nor any OFPI Subsidiary has formed any subsidiary or
acquired any equity interest or other interest in any other Entity;
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(h) neither OFPI nor any OFPI Subsidiary has made any capital
expenditure which, when added to all other capital expenditures made since
December 31, 1998, exceeds $25,000 in the aggregate;
(i) neither OFPI nor any OFPI Subsidiary has (i) entered into any
Material OFPI Contract (as defined in Section 3.10(a)), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
Material OFPI Contract to which it is or was a party or under which it has or
had any material rights or obligations;
(j) neither OFPI nor any OFPI Subsidiary has (i) acquired, leased or
licensed any right or other asset from any other Person, (ii) sold or otherwise
disposed of, or leased or licensed, any right or other asset to any other
Person, or (iii) waived or relinquished any right, except for purchases of
inventory and sales of products in the ordinary course and except for immaterial
rights or other immaterial assets acquired, leased, licensed or disposed of in
the ordinary course of business and consistent with past practices;
(k) neither OFPI nor any OFPI Subsidiary has written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness in excess of $5,000 individually or
$25,000 in the aggregate;
(l) neither OFPI nor any OFPI Subsidiary has made any pledge of any of
its assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of assets valued at $25,000 or less,
individually or in the aggregate, made in the ordinary course of business and
consistent with past practices;
(m) neither OFPI nor any OFPI Subsidiary has (i) lent money to any
Person, or (ii) incurred or guaranteed any indebtedness for borrowed money;
(n) neither OFPI nor any OFPI Subsidiary has (i) established, adopted
or amended any Employee Benefit Plan, (ii) paid any bonus or made any
profit-sharing or similar payment to, or increased the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, (iii) hired any new
employee, in either case except in the ordinary course of business and
consistent with past practices or (iv) entered into any severance or employment
agreement with any Person;
(o) neither OFPI nor any OFPI Subsidiary has changed any of its
methods of accounting or accounting practices in any material respect;
(p) neither OFPI nor any OFPI Subsidiary has made any Tax election;
(q) neither OFPI nor any OFPI Subsidiary has commenced or settled any
Legal Proceeding;
(r) neither OFPI nor any OFPI Subsidiary has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices;
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(s) neither OFPI nor any OFPI Subsidiary has made any material
write-down of inventory; and
(t) neither OFPI nor any OFPI Subsidiary has agreed or committed to
take any of the actions referred to in clauses "(c)" through "(s)" above.
3.6 Title to Assets.
(a) OFPI and each OFPI Subsidiary owns, and has good and valid title
to, all assets purported to be owned by it, including all of the assets
reflected in the OFPI SEC Documents and all other assets reflected in such
entity's books and records as being owned by OFPI. Except as set forth in Part
3.6(a) of the OFPI Disclosure Schedule, all of said assets are owned by OFPI and
each OFPI Subsidiary free and clear of any Encumbrances, except for (i) any lien
for current taxes not yet due and payable and (ii) minor liens that have arisen
in the ordinary course of business and that would not (in any case or in the
aggregate) have a Material Adverse Effect on OFPI.
(b) Part 3.6(b) of the OFPI Disclosure Schedule identifies all assets
that are being leased or licensed to OFPI and each OFPI Subsidiary that involve
obligations in excess of $25,000 on an individual basis, that are not otherwise
disclosed in the OFPI SEC Documents.
3.7 Accounts Receivable; Loans and Advances.
(a) All accounts receivable of OFPI and each OFPI Subsidiary that are
reflected in OFPI SEC Documents or in the accounting records of OFPI as of the
date hereof (collectively, the "OFPI Accounts Receivable") represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. The OFPI Accounts Receivable are current and
collectible net of any respective reserves shown in the OFPI SEC Documents as of
the date hereof (which reserves are adequate and calculated consistent with past
practice). There is no contest, claim, or right of set-off, other than returns
in the ordinary course of business, under any Contract with any obligor of any
OFPI Accounts Receivable relating to the amount or validity of such OFPI
Accounts Receivable.
(b) Part 3.7(b) of OFPI Disclosure Schedule contains an accurate and
complete list of all loans and advances made by OFPI or any OFPI Subsidiary (and
pursuant to which amounts are outstanding as of the date of this Agreement) to
any employee, director, consultant or independent contractor of OFPI or any OFPI
Subsidiary, other than routine travel advances made to employees in the ordinary
course of business.
3.8 Inventory. Part 3.8 of the OFPI Disclosure Schedule provides an
accurate and complete breakdown of all inventory (including raw materials, work
in process and finished goods) of OFPI and each OFPI Subsidiary as of January
31, 1999. All of the existing inventory of OFPI and each OFPI Subsidiary
(including all inventory that is reflected on the unaudited balance sheet
referenced in Section 3.4(d) and that has not been disposed of by OFPI or any
OFPI Subsidiary since January 31, 1999):
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(a) is of such quality and quantity as to be usable and saleable by
OFPI or an OFPI Subsidiary in the ordinary course of business and consistent
with the past practices of OFPI or an OFPI Subsidiary, as the case may be;
(b) has been priced at the lower of cost or market value using the
"first-in, first-out" method; and
(c) is free of any defect or deficiency.
The inventory levels maintained by OFPI and each OFPI Subsidiary (i) are not
excessive in light of OFPI's or such OFPI Subsidiary's normal operating
requirements, (ii) are adequate for the conduct of OFPI's or such OFPI
Subsidiary's operations in the ordinary course of business and consistent with
past practices, and (iii) are comparable to the inventory levels maintained by
OFPI Comparable Entities.
3.9 Equipment; Leasehold.
(a) The real property leased by, and other tangible assets leased or
owned by OFPI and each OFPI Subsidiary are adequate for the uses to which they
are being put, are in good condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of such entity's business in the
manner in which such business is now being conducted.
(b) Neither OFPI nor any OFPI Subsidiary owns any real property or any
material interest in real property, except as described in the OFPI SEC
Documents and set forth on Part 3.9(b) of the OFPI Disclosure Schedule.
3.10 Proprietary Assets.
(a) Except as set forth in Part 3.10 of the OFPI Disclosure Schedule,
there is no Proprietary Asset that is owned by or licensed to OFPI or an OFPI
Subsidiary or that is otherwise used or useful in connection with the business
of OFPI or any OFPI Subsidiary. The OFPI Proprietary Assets identified in Part
3.10 of the OFPI Disclosure Schedule constitute all of the Proprietary Assets
necessary to enable OFPI and any OFPI Subsidiary to conduct its business in the
manner in which its business is currently being conducted and in the manner in
which its business is proposed to be conducted.
(b) To the Knowledge of OFPI, OFPI and each OFPI Subsidiary has good
and valid title to all OFPI Proprietary Assets free and clear of all
Encumbrances, and has a valid right to use all OFPI Proprietary Assets. Neither
OFPI nor any OFPI Subsidiary is obligated to make any payment to any Person for
the use of any OFPI Proprietary Asset. To the Knowledge of OFPI, OFPI and each
OFPI Subsidiary is free to use, modify, copy, distribute, sell, license or
otherwise exploit each of the OFPI Proprietary Assets on an exclusive basis
(except for any Proprietary Asset that is licensed to OFPI or any OFPI
Subsidiary on a non-exclusive basis under any third party software license
generally available to the public at a cost of less than $2,500).
(c) OFPI and each OFPI Subsidiary has taken reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all OFPI Proprietary Assets (except OFPI Proprietary Assets whose value would be
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unimpaired by public disclosure) and otherwise to maintain and protect the value
of all OFPI Proprietary Assets. Neither OFPI nor any OFPI Subsidiary has
disclosed or delivered or permitted to be disclosed or delivered to any Person,
and no Person (other than OFPI or a OFPI Subsidiary) has access to or has any
rights with respect to any OFPI Proprietary Asset, in either case except
pursuant to a valid non-disclosure agreement.
(d) To the Knowledge of OFPI, none of the OFPI Proprietary Assets
infringes or conflicts with any Proprietary Asset owned or used by any other
Person. To the knowledge of OFPI, neither OFPI nor any OFPI Subsidiary is
infringing, misappropriating or making any unlawful use of, and neither OFPI nor
any OFPI Subsidiary has at any time infringed, misappropriated or made any
unlawful use of, or received any notice or other communication of any actual,
alleged, possible or potential infringement, misappropriation or unlawful use
of, any Proprietary Asset owned or used by any other Person. To the Knowledge of
OFPI, no other Person is infringing, misappropriating or making any unlawful use
of, and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any OFPI Proprietary Asset.
(e) OFPI Proprietary Assets constitute all the Proprietary Assets
necessary to enable OFPI and each OFPI Subsidiary to conduct its business in the
manner in which such business has been conducted. Neither OFPI nor any OFPI
Subsidiary has licensed any of the OFPI Proprietary Assets to any Person on an
exclusive basis, and neither OFPI nor any OFPI Subsidiary has entered into any
covenant not to compete or Contract limiting its ability to exploit fully any of
its Proprietary Assets or to transact business in any market or geographical
area or with any Person.
(f) No shareholder, officer or director of OFPI has title to any OFPI
Proprietary Asset which would be necessary to enable OFPI to conduct its
business in the manner in which such business is currently being conducted.
3.11 Contracts.
(a) Part 3.11(a) (and Part 3.9(b) regarding leases of real property)
of the OFPI Disclosure Schedule identifies each OFPI Contract that constitutes a
"Material OFPI Contract." For purposes of this Agreement, a "Material OFPI
Contract" shall be deemed to be any OFPI Contract:
(i) relating to the employment or engagement of, or the
performance of services by, any employee, consultant or independent contractor
which involves a potential commitment of OFPI in excess of $25,000 per year,
including any OFPI Contract involving severance payments or acceleration
benefits upon a OFPI Acquisition Transaction;
(ii) relating to the acquisition, transfer, use, development,
sharing or license of any OFPI Proprietary Asset (except in the ordinary course
of business and except for any OFPI Proprietary Asset that is licensed to OFPI
or any OFPI Subsidiary under any third party software license agreement
generally available to the public at a cost of less than $25,000);
(iii) imposing any material restriction on OFPI's or any OFPI
Subsidiary's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any OFPI Proprietary Asset;
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(iv) creating or involving any agency relationship, distribution
arrangement or franchise relationship involving payments to or from OFPI or
obligations in excess of $25,000 per year;
(v) relating to the acquisition, issuance or transfer of any
securities of OFPI or any OFPI Subsidiary;
(vi) creating or relating to the creation of any Encumbrance with
respect to any asset owned or used by OFPI or any OFPI Subsidiary having a value
in excess of $25,000;
(vii) involving or incorporating any guaranty, any pledge, any
performance or completion bond, any indemnity, any right of contribution or any
surety arrangement in excess of $25,000 per year;
(viii) creating or relating to any partnership or joint venture
or any material sharing of revenues, profits, losses, costs or liabilities;
(ix) relating to the purchase or sale of any product or other
asset by or to, or the performance of any services by or for, any Related Party
(as defined in Section 3.20);
(x) entered into outside the ordinary course of business;
(xi) that may not be terminated by OFPI or such OFPI Subsidiary
(without penalty) within 120 days after the delivery of a termination notice by
OFPI or such OFPI Subsidiary and which involves payments or commitments of
$5,000 or more;
(xii) contemplating or involving (A) the payment or delivery of
cash or other consideration in an amount or having a value in excess of $25,000
in the aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate; and
(xiii) which is a lease of real property.
(b) OFPI has delivered to the Company accurate and complete copies of
all OFPI Material Contracts identified in Part 3.11(a) of OFPI Disclosure
Schedule, including all amendments thereto. Each Material OFPI Contract
identified in Part 3.11(a) of the OFPI Disclosure Schedule is valid and in full
force and effect, and is enforceable by OFPI or such OFPI Subsidiary in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(i) neither OFPI nor any OFPI Subsidiary (nor, to OFPI's
knowledge, any other party) has materially violated or breached, or committed
any material default under, any OFPI Material Contract;
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(ii) to the knowledge of OFPI, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, (A) result in a violation or breach of
any of the provisions of any OFPI Material Contract, (B) give any Person the
right to declare a default or exercise any remedy under any OFPI Material
Contract, (C) give any Person the right to accelerate the maturity or
performance of any OFPI Material Contract, or (D) give any Person the right to
cancel, terminate or modify any OFPI Material Contract;
(iii) since January 31, 1999, neither OFPI nor any OFPI
Subsidiary has received any notice or other communication regarding (i) any
actual or possible violation or breach of, or default under, any OFPI Material
Contract, or (ii) any actual or possible termination of any OFPI Material
Contract; and
(iv) neither OFPI nor any OFPI Subsidiary has waived any of its
material rights under any OFPI Material Contract.
3.12 No Undisclosed Liabilities. Except as set forth in the OFPI SEC
Documents and except for current liabilities incurred in the ordinary course of
business since January 31, 1999, neither OFPI nor any OFPI Subsidiary has
accrued, contingent or other liabilities of any nature, either matured or
unmatured.
3.13 Compliance with Legal Requirements. OFPI and each OFPI Subsidiary is,
and has at all times been, in compliance with all applicable Legal Requirements,
except where the failure to comply with such Legal Requirements has not had and
will not have a Material Adverse Effect on OFPI and its Subsidiaries taken as a
whole. Neither OFPI nor any OFPI Subsidiary has received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement; provided,
however, that this representation shall not apply to the matters covered by the
representations contained in Sections 3.15, 3.16 and 3.17.
3.14 Governmental Authorizations. OFPI and each OFPI Subsidiary has all
Governmental Authorizations necessary to enable OFPI and such OFPI Subsidiary to
conduct its business in the manner in which its business is currently being
conducted, except for Governmental Authorizations the failure of which to obtain
would not have a Material Adverse Effect on OFPI. OFPI and each OFPI Subsidiary
is, and at all times has been, in compliance with the material terms and
requirements of such Governmental Authorizations, except for any noncompliance
which would not have a Material Adverse Effect on OFPI. Neither OFPI nor any
OFPI Subsidiary has received any notice or other communication from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization.
3.15 Tax Matters.
(a) All Material Tax Returns required to be filed by or on behalf of
OFPI with any Governmental Body with respect to any transaction occurring or any
taxable period ending on or before the date hereof (the "OFPI Returns") (i) have
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been filed when due, and (ii) have been accurately and completely prepared in
compliance with all applicable Legal Requirements. OFPI and each OFPI Subsidiary
has, within the time (including any extensions of applicable due dates) and in
the manner prescribed by law, paid all Taxes that are due and payable, except
Taxes that, individually and in the aggregate, are not material. The
consolidated financial statements of OFPI contained in the OFPI SEC Documents
fully accrue all actual and contingent liabilities for Taxes with respect to all
periods through the dates thereof in accordance with generally accepted
accounting principles.
(b) No claim or Legal Proceeding is pending or has been threatened
against or with respect to OFPI or any OFPI Subsidiary in respect of any Tax.
There are no unsatisfied liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by OFPI or any
OFPI Subsidiary. There are no liens for Taxes upon any of the assets of OFPI or
any OFPI Subsidiary, except liens for current Taxes not yet due and payable.
3.16 Employee and Labor Matters; Benefit Plans.
(a) Part 3.16(a) of the OFPI Disclosure Schedule contains a list of
all salaried employees of OFPI and each OFPI Subsidiary as of the date of this
Agreement whose annual salaries are greater than $30,000, and correctly reflects
their salaries, any other compensation payable to them (including compensation
payable pursuant to bonus, deferred compensation or commission arrangements),
their dates of employment and their positions. Neither OFPI nor any OFPI
Subsidiary is a party to any collective bargaining contract or other Contract
with a labor union involving any of its employees.
(b) Part 3.16(b) of the OFPI Disclosure Documents identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, health,
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (individually referred to as a "OFPI Plan"
and collectively referred to as the "OFPI Plans") sponsored, maintained,
contributed to or required to be contributed to by OFPI or any OFPI Subsidiary
for the benefit of any current or former employee of OFPI or any OFPI
Subsidiary.
(c) Neither OFPI nor any OFPI Subsidiary maintains, sponsors or
contributes to, and, to the knowledge of OFPI, neither OFPI nor any OFPI
Subsidiary has at any time in the past maintained, sponsored or contributed to,
any employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), subject to Title
IV of ERISA for the benefit of employees or former employees of OFPI (a "OFPI
Defined Benefit Plan").
(d) Neither OFPI or any OFPI Subsidiary maintains, sponsors or
contributes to any employee welfare benefit plan (as defined in Section 3(1) of
ERISA, whether or not excluded from coverage under specific Titles or Merger
Subtitles of ERISA) for the benefit of employees or former employees of OFPI or
any OFPI Subsidiary.
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(e) With respect to each OFPI Plan, OFPI has made available to the
Company:
(i) an accurate and complete copy of such OFPI Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such OFPI Plan for the three (3) most
recent plan years;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each summary of material modifications
thereto (if required under ERISA) with respect to such OFPI Plan, and (B) each
material employee communication relating to such OFPI Plan;
(iv) if such OFPI Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such OFPI Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination, notification, advisory and/or opinion letter received from the
Internal Revenue Service with respect to such OFPI Plan (if such OFPI Plan is
intended to be qualified under Section 401(a) of the Code).
(f) Neither OFPI nor any OFPI Subsidiary is required to be, and, to
the knowledge of OFPI, neither OFPI nor any OFPI Subsidiary has ever been
required to be, treated as a single employer with any other Person under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code. Neither OFPI
nor any OFPI Subsidiary has ever been a member of an "affiliated service group"
within the meaning of Section 414(m) of the Code. To the knowledge of OFPI,
neither OFPI nor any OFPI Subsidiary has ever made a complete or partial
withdrawal from a "multiemployer plan" (as defined in Section 3(37) of ERISA)
resulting in "withdrawal liability" (as defined in Section 4201 of ERISA),
without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA.
(g) Neither OFPI nor any OFPI Subsidiary has any plan or commitment to
create any additional OFPI employee benefit plan within the meaning of ERISA, or
to modify or change any such plan (other than to comply with applicable law).
(h) No OFPI Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of OFPI
or any OFPI Subsidiary after any such employee's termination of service (other
than (i) benefit coverage mandated by applicable law, including coverage
provided pursuant to Section 4980B of the Code, (ii) deferred compensation
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benefits accrued as liabilities on the consolidated financial statements
included in the OFPI SEC Documents, and (iii) benefits the full cost of which
are borne by current or former employees of OFPI or any OFPI Subsidiary (or
their beneficiaries)).
(i) With respect to each of OFPI Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") have been complied with in all material respects.
(j) Each of the OFPI Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including ERISA and the Code.
(k) Each of the OFPI Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and OFPI is not aware of any reason why any such determination
letter should be revoked.
(l) Neither the execution, delivery or performance of this Agreement,
nor the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will result in any bonus payment, golden parachute payment,
severance payment or other payment to any current or former employee or director
of OFPI or any OFPI Subsidiary (whether or not under any OFPI Plan), or
materially increase the benefits payable under any OFPI Plan, or result in any
acceleration of the time of payment or vesting of any such benefits.
(m) OFPI and each OFPI Subsidiary is in compliance in all material
respects with all applicable Legal Requirements and Contracts relating to
employment, employment practices, employee compensation, wages, bonuses and
terms and conditions of employment.
3.17 Environmental Matters. OFPI and each OFPI Subsidiary is and has at all
times been in compliance, in all material respects, with all applicable
Environmental Laws. OFPI and each OFPI Subsidiary possesses all permits and
other Governmental Authorizations required under applicable Environmental Laws,
and OFPI and each OFPI Subsidiary is and has at all times been in compliance
with the terms and requirements of all such Governmental Authorizations except
where the failure to possess such Governmental Authorizations or failure to be
in compliance would not have a Material Adverse Effect on OFPI. Neither OFPI nor
any OFPI Subsidiary has received any notice or other communication (whether from
a Governmental Body, citizens group, employee or otherwise) that alleges that
OFPI or any OFPI Subsidiary is not in compliance with any Environmental Law. To
the knowledge of OFPI, no current or prior owner of any property leased or owned
by OFPI and/or such OFPI Subsidiary has received any notice or other
communication (whether from a Governmental Body, citizens group, employee or
otherwise) that alleges that such current or prior owner or OFPI and/or such
OFPI Subsidiary is not or was not in compliance with any Environmental Law. To
the Knowledge of OFPI, no Materials of Environmental Concern have been released
or are located on or under any property leased or owned by OFPI or any OFPI
Subsidiary. Neither OFPI nor any OFPI Subsidiary has received any notice or
other communication (whether from a Governmental Body, citizens group, employee
or otherwise) regarding a release of, or the existence of, Materials of
environmental concern at, under or about any property leased or owned by OFPI or
any OFPI Subsidiary.
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3.18 Sale of Products; Performance of Services.
(a) Each product that has been sold by OFPI or any OFPI Subsidiary to
any Person:
(i) conformed and complied in all respects with the terms and
requirements of any applicable warranty or other Contract and with all
applicable Legal Requirements; and
(ii) was free of any design defects, construction defects or
other defects or deficiencies at the time of sale.
All services that have been performed by OFPI or any OFPI Subsidiary were
performed properly and in full conformity with the terms and requirements of all
applicable warranties and other Contracts and with all applicable Legal
Requirements.
(b) To the Knowledge of OFPI, neither OFPI nor any OFPI Subsidiary
will incur or otherwise become subject to any Liability arising directly or
indirectly from any product manufactured or sold, or any repair services or
other services performed by, OFPI or any OFPI Subsidiary on or at any time prior
to the Closing Date.
(c) To the Knowledge of OFPI, no product manufactured or sold by OFPI
or any OFPI Subsidiary has been the subject of any recall or other similar
action; and no event has occurred, and no condition or circumstance exists, that
might (with or without notice or lapse of time) directly or indirectly give rise
to or serve as a basis for any such recall or other similar action relating to
any such product.
(d) Except as set forth in Part 3.18 of the OFPI Disclosure Schedule,
no customer or other Person has ever asserted or threatened to assert any claim
against OFPI or any OFPI Subsidiary (i) under or based upon any warranty
provided by or on behalf of the OFPI or any OFPI Subsidiary, or (ii) under or
based upon any other warranty relating to any product sold by OFPI or any OFPI
Subsidiary or any services performed by OFPI or any OFPI Subsidiary. To the
Knowledge of OFPI, no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) directly or
indirectly give rise to or serve as a basis for the assertion of any such claim.
(e) OFPI and each OFPI Subsidiary has in place an adequate and
appropriate quality control system that is at least as comprehensive and
effective as the quality control systems customarily maintained by OFPI
Comparable Entities.
3.19 Insurance. The business and properties of OFPI and each OFPI
Subsidiary are insured for the benefit of OFPI or such OFPI Subsidiary in
amounts deemed adequate by OFPI's management against risks usually insured
against by persons operating businesses similar to those of OFPI or such OFPI
Subsidiary in the localities where such properties are located. OFPI has
received no notice of cancellation or refusal of coverage and copies of all of
such insurance policies have been delivered to the Company.
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3.20 Related Party Transactions. Except as set forth in the OFPI SEC
Documents: (a) no Related Party has, and no Related Party has at any time since
June 30, 1995 had, any direct or indirect interest in any material asset used in
or otherwise relating to the business of OFPI or any OFPI Subsidiary; (b) no
Related Party is, or has at any time since June 30, 1995 been, indebted to OFPI
or any OFPI Subsidiary; (c) since June 30, 1995, no Related Party has entered
into, or has had any direct or indirect financial interest in, any Material OFPI
Contract, transaction or business dealing involving OFPI or any OFPI Subsidiary;
(d) no Related Party is competing, or has at any time since June 30, 1995
competed, directly or indirectly, with OFPI or any OFPI Subsidiary; and (e) no
Related Party has any claim or right against OFPI or any OFPI Subsidiary (other
than rights to receive compensation for services performed as an employee of
OFPI or any OFPI Subsidiary). (For purposes of this Section 3.20, each of the
following shall be deemed to be a "Related Party": (i) each individual who is,
or who has at any time since June 30, 1995 been, an officer or director of OFPI
or any OFPI Subsidiary; (ii) each individual who is, or who at any time since
June 30, 1995 been, a member of the immediate family of any of the individuals
referred to in clause "(i)" above; (iii) any 5% shareholder of the OFPI; and
(iv) any trust or other Entity (other than OFPI or a OFPI Subsidiary) in which
any one of the individuals referred to in clauses "(i)," "(ii)" and "(iii)"
above holds (or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.)
3.21 Legal Proceedings; Orders. There is no pending Legal Proceeding, and,
to the knowledge of OFPI, no Person has threatened to commence any Legal
Proceeding that: (i) may have a Material Adverse Effect on OFPI, any OFPI
Subsidiary or their respective businesses; or (ii) challenges, or that may have
the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement. To the knowledge of OFPI, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that could reasonably be
expected to give rise to or serve as a basis for the commencement of any such
Legal Proceeding. There is no order, writ, injunction, judgment or decree to
which OFPI or any OFPI Subsidiary, or any of the assets owned or used by OFPI or
any OFPI Subsidiary, is subject. To the knowledge of OFPI, no officer or other
employee of OFPI or any OFPI Subsidiary is subject to any order, writ,
injunction, judgment or decree that prohibits such officer or other employee
from engaging in or continuing any conduct, activity or practice relating to
OFPI's or such OFPI Subsidiary's business. There is no action, suit, proceeding
or investigation by OFPI or any OFPI Subsidiary currently pending or which OFPI
or any OFPI Subsidiary intends to initiate.
3.22 Authority; Binding Nature of Agreement. OFPI has the absolute and
unrestricted right, power and authority to perform its obligations under this
Agreement; the execution, delivery and performance by OFPI of this Agreement
have been duly authorized by all necessary action on the part of OFPI and its
Board of Directors. This Agreement constitutes the legal, valid and binding
obligation of OFPI, enforceable against OFPI in accordance with its terms,
except as enforcement thereof may be limited by (i) laws of general application
relating to bankruptcy, insolvency, moratorium, reorganization or other similar
laws, both state and federal, affecting the enforcement of creditors' rights or
remedies in general, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
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3.23 Non-Contravention; Consents. Except as set forth in Part 3.23 of the
OFPI Disclosure Schedule, neither (1) the execution, delivery or performance of
this Agreement or any of the other agreements referred to in this Agreement, nor
(2) the consummation of the Merger or any of the other transactions contemplated
by this Agreement, will directly or indirectly (with or without notice or lapse
of time):
(a) contravene, conflict with or result in a violation of any of the
provisions of OFPI's or any OFPI Subsidiary's articles of organization,
certificate of incorporation or bylaws;
(b) with respect to OFPI or any OFPI Subsidiary, contravene, conflict
with or result in a violation of, or give any Governmental Body or other Person
the right to challenge any of the transactions contemplated by this Agreement or
to exercise any remedy or obtain any relief under, any Legal Requirement or any
order, writ, injunction, judgment or decree to which OFPI or any OFPI
Subsidiary, or any of the assets owned or used by OFPI or any OFPI Subsidiary,
is subject;
(c) with respect to OFPI or any OFPI Subsidiary, contravene, conflict
with or result in a violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, withdraw, any Governmental
Authorization that is held by OFPI or any OFPI Subsidiary or that otherwise
relates to OFPI's or any OFPI Subsidiary's business or to any of the assets
owned or used by OFPI or any OFPI Subsidiary;
(d) contravene, conflict with or result in a violation of breach of,
or result in a default under, any provision of any Material OFPI Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any Material OFPI Contract, (ii) accelerate the maturity or performance of any
Material OFPI Contract, or (iii) cancel, terminate or modify any Material OFPI
Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by OFPI or any OFPI
Subsidiary (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the assets subject thereto or
have a Material Adverse Effect on OFPI).
Except as may be required by the Securities Act, the Exchange Act, state
securities or "blue sky" laws, the CGCL, and the NASD Bylaws (as they relate to
the Joint Proxy Statement), neither OFPI nor any OFPI Subsidiary is nor will be
required to make any filing with or give any notice to, or to obtain any Consent
from, any Person in connection with (x) the execution, delivery or performance
of this Agreement or any other agreement referred to in this Agreement, or (y)
or the consummation of the Merger.
3.24 Vote Required. The affirmative vote of a majority of the shares of
OFPI Common Stock (the "Requisite OFPI Vote") present in person or by proxy at
the OFPI Shareholders' Meeting at which a quorum is present is the only vote of
the holders of any class or series of OFPI's capital stock necessary to approve
the issuance of the Merger Shares and to adopt and approve this Agreement, the
Merger and the transactions contemplated thereby, including but not limited to
the Restated Articles.
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3.25 OFPI Action. The Board of Directors of OFPI (at a meeting duly called
and held) has (a) unanimously determined that the Merger is advisable and fair
and in the best interests of OFPI and its shareholders, (b) unanimously approved
this Agreement, the Merger and the Restated Articles in accordance with the
applicable provisions of the CGCL, and (c) unanimously recommended the adoption
and approval of this Agreement, the Merger and the Restated Articles by the
holders of OFPI Common Stock and directed that this Agreement, the Merger and
the Restated Articles be submitted for consideration by the OFPI's shareholders
at the OFPI Shareholders' Meeting. With respect to any action of the Board of
Directors of OFPI described in this Section 3.25, any unanimous determination,
approval or recommendation of such Board shall refer to the unanimous action of
the disinterested members of such Board, as applicable.
3.26 Full Disclosure.
(a) To OFPI's knowledge, all documents, contracts, instruments,
certificates, notices, consents, affidavits, letters, telegrams, telexes,
written statements, schedules (including the OFPI Disclosure Schedule), exhibits
(including the Exhibits to this Agreement) and any other papers whatsoever
(excluding in all cases drafts and interim versions marked as such or apparent
as such on their face) delivered to the Company by OFPI in connection with this
Agreement and the transactions contemplated thereby, are true and complete
copies thereof. The representations and warranties of OFPI contained in this
Agreement, as modified by the OFPI Disclosure Schedule, contain no untrue
statements of any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not false or misleading.
(b) The information supplied by OFPI for inclusion in the Joint Proxy
Statement (including the OFPI Financial Statements) will not, as of the date of
the Joint Proxy Statement or as of the date of the OFPI Shareholders' Meeting
(as defined in Section 5.5), and in each case, as of the date such information
is prepared or presented, contain any statement that is inaccurate or misleading
with respect to any material fact, or (ii) omit to state any material fact
necessary in order to make such information not false or misleading.
3.27 Finder's Fee. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the Merger
or any of the other transactions contemplated thereby based upon arrangements
made by or on behalf of OFPI or any of its subsidiaries.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY.
4.1 Access and Investigation. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide OFPI and OFPI's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company and each
Company Subsidiary and (b) provide OFPI and OFPI s Representatives with such
copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to the Company and each Company Subsidiary,
and with such additional financial, operating and other data and information
regarding the Company and each Company Subsidiary, as OFPI may reasonably
request.
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4.2 Operation of the Company's Business. Except as agreed to in writing by
OFPI, during the Pre-Closing Period, the Company shall, and shall cause each
Company Subsidiary to:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and other Persons having business relationships
with the Company or any Company Subsidiary;
(c) keep in full force all insurance policies in effect as of the date
of this Agreement;
(d) cause its officers to report regularly to OFPI concerning
the status of the Company's and the Company Subsidiaries' businesses;
(e) not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities (other than repurchases of unvested shares from employees upon
termination of employment);
(f) not sell, issue or authorize the issuance of (i) any capital stock
or other security, (ii) any option, call, warrant or right to acquire, or
relating to, any capital stock or other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security (except
that the Company shall be permitted to issue Company Common Stock upon the
exercise of outstanding Company Options or upon conversion of convertible
securities outstanding on the date hereof) and the Company may continue to grant
stock options in the ordinary course and consistent with past practice, provided
that any such options shall be subject to the Company's standard vesting
schedule (but such options shall not vest more than 25% per year following the
grant thereof) and in no event shall any such options contain any provisions
pursuant to which the vesting of such options may or would be accelerated in any
respect upon any change in control transaction or any other transaction
(including without limitation the Merger) or any similar provision;
(g) not amend or waive any of its rights under, or permit the
acceleration of vesting under any provision of any agreement evidencing any
outstanding Company Option;
(h) not amend or permit the adoption of any amendment to the Company's
articles of incorporation or bylaws, or effect or permit the Company or any
Company Subsidiary to become a party to any Company Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
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(i) not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(j) not make any capital expenditure, except for capital expenditures
that, when added to all other capital expenditures made by the Company or any
Company Subsidiary during the Pre-Closing Period, do not exceed $100,000 in the
aggregate;
(k) not (i) enter into or become bound by, or permit any of the assets
owned or used by it to become bound by, any Material Company Contract except in
the ordinary course of business, or (ii) amend or prematurely terminate, or
waive any material right or remedy under, any Material Company Contract;
(l) not (i) acquire, lease or license any material right or other
material asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any material right or other material asset to any other
Person, or (iii) waive or relinquish any material right, other than in the
ordinary course of business and except for immaterial assets acquired, leased,
licensed or disposed of by the Company pursuant to Contracts that are not
Material Company Contracts;
(m) not (i) lend money to any Person, or (ii) incur or guarantee any
indebtedness, except for routine advances of expenses to employees in the
ordinary course of business and except that the Company and each Company
Subsidiary may make routine borrowings in the ordinary course of business under
its existing bank lines of credit;
(n) not (i) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, other than in the ordinary course of business and solely
with respect to non-officers and non-directors or (ii) establish, adopt or amend
any Employee Benefit Plan;
(o) not change any of its methods of accounting or accounting
practices in any respect;
(p) not make any Tax election;
(q) not commence or settle any Legal Proceeding not disclosed in the
Company Disclosure Schedule;
(r) not enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with its past
practices; and
(s) not agree or commit to take any of the actions described in
clauses "(e)" through "(r)" of this Section 4.2.
4.3 Notification; Updates to Company Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
OFPI in writing of:
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(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any breach of any covenant or obligation of the Company
hereunder; and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Company Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Company shall promptly deliver to OFPI an update
to the Company Disclosure Schedule specifying such change. No such update shall
be deemed to supplement or amend the Company Disclosure Schedule for the purpose
of (i) determining the accuracy of any of the representations and warranties
made by the Company in this Agreement, or (ii) determining whether any of the
conditions set forth in Section 7 has been satisfied.
4.4 No Solicitation. During the Pre-Closing Period:
(a) Company shall not directly or indirectly, and shall not
authorize or permit any Company Subsidiary or Representative of Company directly
or indirectly to, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal or take any action
(excluding any press releases issued in connection with the announcement of the
execution of this Agreement) that could reasonably be expected to lead to an
Acquisition Proposal, (ii) furnish any information regarding Company or any
Company Subsidiary to any Person in connection with or in response to an
Acquisition Proposal, (iii) continue or engage in discussions with any Person
with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any Contract contemplating or otherwise relating to any Company Acquisition
Transaction; provided, however, that this Section 4.4(a) shall not prohibit
Company from furnishing information regarding the Company or any Company
Subsidiary to, or entering into discussions with, any Person in response to a
Superior Company Proposal if (1) the Board of Directors of Company concludes in
good faith, based upon the written advice of its outside legal counsel, that
such action is required in order for the Board of Directors of Company to comply
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with its fiduciary obligations to Company's shareholders under applicable law,
(2) prior to furnishing any such information to, or entering into discussions
with, such Person, Company gives OFPI written notice of the identity of such
Person and of Company's intention to furnish information to, or enter into
discussions with, such Person, and Company receives from such Person an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all written and oral information furnished to such Person by or on
behalf of Company, (3) prior to furnishing any such information to such Person,
Company furnishes such information to OFPI (to the extent such information has
not been previously furnished by Company to OFPI) and (4) neither the Company
nor any Representative of the Company shall have violated any of the
restrictions set forth in this Section 4.4. Without limiting the generality of
the foregoing, Company acknowledges and agrees that any violation of any of the
restrictions set forth in the preceding sentence by any Representative of
Company or any Company Subsidiary, whether or not such Representative is
purporting to act on behalf of Company or any Company Subsidiary, shall be
deemed to constitute a breach of this Section 4.4 by Company.
(b) The Company shall promptly advise OFPI orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
submitting such Acquisition Proposal and the term thereof) that is made or
submitted by any Person during the Pre-Closing Period. The Company shall keep
OFPI fully informed with respect to the status of any such Acquisition Proposal
and any modifications or proposed modifications thereto.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal.
4.5 Company Shareholders' Meeting.
(a) The Company shall take all action necessary under all applicable
Legal Requirements to call, give notice of, convene and duly hold a meeting of
the holders of Company Common Stock (the "Company Shareholders' Meeting") to
consider, act upon and vote upon the adoption and approval of this Agreement and
approval of the Merger. The Company Shareholders' Meeting will be held as
promptly as practicable and in any event within 45 days after the S-4
Registration Statement (as defined below) is declared effective under the
Securities Act (which 45-day period shall be extended on a day-for-day basis if
and for so long as any stop order or other similar action is in place, pending
or threatened by the SEC). The Company's obligation to call, give notice of,
convene and hold the Company Shareholders' Meeting in accordance with this
Section 4.5(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission of any Superior Company Offer or other
Company Acquisition Transaction, or by any withdrawal, amendment or modification
of the recommendation of the Board of Directors of the Company with respect to
the Merger.
(b) Subject to Section 4.5(c): (i) the Board of Directors of the
Company shall unanimously recommend that the Company's shareholders vote in
favor of and adopt and approve this Agreement and approve the Merger at the
Company Shareholders' Meeting; (ii) the Joint Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company's shareholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Shareholders' Meeting; and (iii) neither the Board of Directors of the Company
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nor any committee thereof shall withdraw, amend or modify, or propose or resolve
to withdraw, amend or modify, in a manner adverse to OFPI, the unanimous
recommendation of the Board of Directors of the Company that the Company's
shareholders vote in favor of the adoption and approval this Agreement and the
approval of the Merger. For purposes of this Agreement, said recommendation of
the Board of Directors shall be deemed to have been modified in a manner adverse
to OFPI if said recommendation shall no longer be unanimous.
(c) Nothing in Section 4.5(b) shall prevent the Board of Directors of
the Company from withdrawing, amending or modifying its unanimous recommendation
in favor of the Merger if (i) a Superior Company Proposal is made to the Company
and is not withdrawn, (ii) neither the Company nor any of its Representatives
shall have violated any of the restrictions set forth in Section 4.4, and (iii)
the Board of Directors of the Company concludes in good faith, based upon the
written advice of its outside counsel, that the withdrawal, amendment or
modification of such recommendation is required in order for the Board of
Directors of the Company to comply with its fiduciary obligations to the
Company's shareholders under applicable law. Nothing contained in this Section
4.5 shall limit the Company's obligation to call, give notice of, convene and
hold the Company Shareholders' Meeting (regardless of whether the unanimous
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified).
4.6 Tax Representation Letters. As soon as practicable after the execution
of this Agreement, the Company shall deliver to Cooley Godward LLP and Carr,
McClellan, Ingersoll, Thompson & Horn, P.C. ("Carr, McClellan"), tax
representation letters substantially in the form of the attached Exhibit F
(which will be used and relied upon by such firms in connection with the legal
opinions contemplated by Section 7.8 and Section 8.9).
SECTION 5. CERTAIN COVENANTS OF OFPI.
5.1 Access and Investigation. During the Pre-Closing Period, OFPI shall,
and shall cause its Representatives to: (a) provide the Company and the
Company's Representatives with reasonable access to OFPI's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to OFPI and each OFPI
Subsidiary; and (b) provide the Company and the Company's Representatives with
such copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to OFPI and each OFPI Subsidiary, and with
such additional financial, operating and other data and information regarding
OFPI and each OFPI Subsidiary, as the Company may reasonably request.
5.2 Operation of OFPI's Business. Except as agreed to in writing by the
Company, during the Pre-Closing Period, OFPI shall, and shall cause each OFPI
Subsidiary to:
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and maintain its relations and goodwill with all suppliers, customers,
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landlords, creditors, employees and other Persons having business relationships
with OFPI or any OFPI Subsidiary;
(c) keep in full force all insurance policies in place as of the date
of this Agreement;
(d) cause its officers to report regularly to the Company concerning
the status of OFPI's and the OFPI Subsidiaries' businesses, taken as a whole;
(e) not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(f) not, without the written consent of the Company, sell, issue or
authorize the issuance of (i) any capital stock or other security, (ii) any
option, call, warrant or right to acquire, or relating to, any capital stock or
other security, or (iii) any instrument convertible into or exchangeable for any
capital stock or other security (except that OFPI shall be permitted to (A)
issue OFPI Common Stock upon the exercise of OFPI Options outstanding as of the
date hereof, and (B) issu shares of OFPI Common Stock in the OI Acquisition);
(g) not amend or waive any of its rights under, or (except pursuant to
the express terms of OFPI Options outstanding on the date hereof and listed on
Part 3.3 of the OFPI Disclosure Schedule which provide for automatic
acceleration upon consummation of the Merger) permit the acceleration of vesting
under, (i) any provision of its OFPI Stock Plans, (ii) any provision of any
agreement evidencing any outstanding OFPI Option or OFPI Warrant, or (iii) any
provision of any restricted stock purchase agreement;
(h) not amend or permit the adoption of any amendment to its articles
of incorporation or bylaws, or effect or permit OFPI or any OFPI Subsidiary to
become a party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction (except for the OI Acquisition and for any reverse stock split that
the OFPI Board of Directors shall deem appropriate to maintain listing on the
NASDAQ Small Cap Market);
(i) not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(j) not make any capital expenditure, except for capital expenditures
that, when added to all other capital expenditures made by OFPI or any OFPI
Subsidiary during the Pre-Closing Period, do not exceed $50,000 in the
aggregate;
(k) not (i) enter into or become bound by, or permit any of the assets
owned or used by it to become bound by, any Material OFPI Contract except in the
ordinary course of business, or (ii) amend or prematurely terminate, or waive
any material right or remedy under, any Material OFPI Contract;
(l) not (i) acquire, lease or license any material right or other
material asset from any other Person, (ii) sell or otherwise dispose of, or
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lease or license, any material right or other material asset to any other
Person, or (iii) waive or relinquish any material right, other than in the
ordinary course of business and except for immaterial assets acquired, leased,
licensed or disposed of by OFPI pursuant to Contracts that are not Material OFPI
Contracts;
(m) not (i) lend money to any Person, or (ii) incur or guarantee any
indebtedness, except for routine advances of expenses to employees in the
ordinary course of business and except that OFPI and each OFPI Subsidiary may
make routine borrowings in the ordinary course of business under its existing
bank lines of credit disclosed in the OFPI SEC Documents;
(n) not (i) pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees other than in the ordinary course of business and solely
with respect to non-officers and non-directors, or (ii) establish, adopt or
amend any Employee Benefit Plan;
(o) not change any of its methods of accounting or accounting
practices in any respect;
(p) not make any Tax election;
(q) not commence or settle any Legal Proceeding;
(r) not enter into any material transaction or take any other material
action outside the ordinary course of business or inconsistent with its past
practices; and
(s) not agree or commit to take any of the actions described in
clauses "(e)" through "(r)" of this Section 5.2.
5.3 Notification; Updates to OFPI Disclosure Schedule.
(a) During the Pre-Closing Period, OFPI shall promptly notify the
Company in writing of:
(i) the discovery by OFPI of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by OFPI in this Agreement or an inaccuracy in the OFPI SEC
Documents;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
OFPI in this Agreement or inaccuracy in the OFPI SEC Documents; if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of OFPI hereunder;
and
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(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 7 or
Section 8 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 5.3(a) requires any change in the OFPI
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the OFPI Disclosure Schedule were dated as of the
date of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then OFPI shall promptly deliver to the Company an update to the
OFPI Disclosure Schedule specifying such change. No such update shall be deemed
to supplement or amend the OFPI Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
OFPI in this Agreement, or (ii) determining whether any of the conditions set
forth in Section 8 has been satisfied.
5.4 No Solicitation. During the Pre-Closing Period:
(a) OFPI shall not directly or indirectly, and shall not authorize or
permit any OFPI Subsidiary or any Representative of OFPI directly or indirectly
to, (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal or take any action (excluding any press
releases issued in connection with the execution of this Agreement or action in
compliance with OFPI's required disclosure obligations under the Exchange Act)
that could reasonably be expected to lead to an Acquisition Proposal, (ii)
furnish any information regarding OFPI or any OFPI Subsidiary to any Person in
connection with or in response to an Acquisition Proposal, (iii) continue or
engage in discussions with any Person with respect to any Acquisition Proposal,
(iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into
any letter of intent or similar document or any Contract contemplating or
otherwise relating to any OFPI Acquisition Transaction; provided, howeve , that
this Section 5.4(a) shall not prohibit OFPI from furnishing information
regarding OFPI or any OFPI Subsidiary to, or entering into discussions with, any
Person in response to a Superior OFPI Proposal if (1) the Board of Directors of
OFPI concludes in good faith, based upon the written advice of its outside legal
counsel, that such action is required in order for the Board of Directors of
OFPI to comply with its fiduciary obligations to OFPI's shareholders under
applicable law, (2) prior to furnishing any such information to, or entering
into discussions with, such Person, OFPI gives the Company written notice of the
identity of such Person and of OFPI's intention to furnish information to, or
enter into discussions with, such Person, and OFPI receives from such Person an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all written and oral information furnished to such Person by
or on behalf of OFPI, (3) prior to furnishing any such information to such
Person, OFPI furnishes such information to the Company (to the extent such
information has not been previously furnished by OFPI to the Company) and (4)
neither OFPI nor any Representative of OFPI shall have violated any of the
restrictions set forth in this Section 5.4. Without limiting the generality of
the foregoing, OFPI acknowledges and agrees that any violation of any of the
restrictions set forth in the preceding sentence by any Representative of OFPI,
whether or not such Representative is purporting to act on behalf of OFPI, shall
be deemed to constitute a breach of this Section 5.4 by OFPI.
(b) OFPI shall promptly advise the Company orally and in writing of
any Acquisition Proposal (including the identity of the Person making or
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submitting such Acquisition Proposal and the term thereof) that is made or
submitted by any Person during the Pre-Closing Period. OFPI shall keep the
Company fully informed with respect to the status of any such Acquisition
Proposal and any modifications or proposed modifications thereto.
(c) OFPI shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal.
5.5 OFPI Shareholders' Meeting.
(a) OFPI shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and duly hold a meeting of the
holders of OFPI Common Stock (the "OFPI Shareholders' Meeting") to consider, act
upon and vote upon the approval of the issuance of the Merger Shares, the
adoption and approval of this Agreement, the Merger and the Restated Articles.
The OFPI Shareholders' Meeting will be held as promptly as practicable and in
any event within 45 days after the S-4 Registration Statement is declared
effective under the Securities Act (which 45-day period shall be extended on a
day-for-day basis if and for so long as any stop order or other similar action
is in place, pending or threatened by the SEC). OFPI's obligation to call, give
notice of, convene and hold the OFPI Shareholders' Meeting in accordance with
this Section 5.5(a) shall not be limited or otherwise affected by the
commencement, disclosure, announcement or submission of any Superior OFPI Offer
or other OFPI Acquisition Transaction, or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of OFPI with
respect to the Merger.
(b) Subject to Section 5.5(c): (i) the Board of Directors of OFPI
shall unanimously recommend that OFPI's Shareholders vote in favor of and
approve the issuance of the Merger Shares and adopt and approve this Agreement,
the Merger and the Restated Articles; (ii) the Joint Proxy Statement shall
include a statement to the effect that the Board of Directors of OFPI has
unanimously made such recommendation; and (iii) neither the Board of Directors
of OFPI nor any committee thereof shall withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify, in a manner adverse to the Company, such
unanimous recommendation. For purposes of this Agreement, said recommendation of
the Board of Directors shall be deemed to have been modified in a manner adverse
to the Company if said recommendation shall no longer be unanimous.
(c) Nothing in Section 5.5(b) shall prevent the Board of Directors of
OFPI from withdrawing, amending or modifying its unanimous recommendation in
favor of the Merger if (i) a Superior OFPI Proposal is made to OFPI and is not
withdrawn, (ii) neither OFPI nor any of its Representatives shall have violated
any of the restrictions set forth in Section 5.4, and (iii) the Board of
Directors of OFPI concludes in good faith, based upon the written advice of its
outside counsel, that the withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of OFPI to comply
with its fiduciary obligations to OFPI's Shareholders under applicable law.
Nothing contained in this Section 5.5 shall limit OFPI's obligation to call,
give notice of, convene and hold the OFPI Shareholders' Meeting (regardless of
whether the unanimous recommendation of the Board of Directors of OFPI shall
have been withdrawn, amended or modified).
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5.6 Tax Representation Letters. As soon as practicable after the execution
of this Agreement, OFPI shall deliver to Cooley Godward LLP and Carr, McClellan,
tax representation letters in the form of the attached Exhibit G (which will be
used and relied upon in connection with the legal opinions contemplated by
Section 7.8 and Section 8.9).
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES.
6.1 Filings and Consents. As promptly as practicable after the execution of
this Agreement, each party to this Agreement (a) shall make all filings (if any)
and give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use his or its reasonable efforts to obtain each
Consent (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger or any of the other transactions contemplated by this Agreement. Each
party shall promptly deliver to the other party a copy of each such filing made,
each such notice given and each such Consent obtained by such parties during the
Pre-Closing Period.
6.2 Public Announcements. The parties shall consult with each other before
issuing any press release or otherwise making any public statements with respect
to the Merger and the transactions contemplated thereby. Without limiting the
generality of the foregoing, neither party shall (and neither party shall permit
any of its Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without the other party's prior
consent, except that either party shall be permitted, without the consent of the
other party, to make such disclosures as are required to be made under
applicable law.
6.3 Reasonable Efforts. During the Pre-Closing Period, (a) the Company
shall use its reasonable efforts to cause the conditions set forth in Section 7
to be satisfied on a timely basis, and (b) OFPI shall use its reasonable efforts
to cause the conditions set forth in Section 8 to be satisfied on a timely
basis.
6.4 Registration Statement.
(a) As promptly as practicable after the date of this Agreement, OFPI
shall prepare and cause to be filed with the SEC a preliminary Joint Proxy
Statement to be sent to the Shareholders of OFPI and the shareholders of the
Company in connection with the OFPI Shareholders' Meeting and the Company
Shareholders' Meeting, respectively. OFPI and the Company shall use all
reasonable efforts to cause the Joint Proxy Statement to comply with the rules
and regulations promulgated by the SEC, to respond promptly to any comments of
the SEC or its staff and to have the Joint Proxy Statement cleared by the SEC
for distribution to the OFPI Shareholders and the Company shareholders. OFPI
shall prepare and cause to be filed with the SEC a registration statement on
Form S-4 concerning the OFPI Common Stock to be issued upon the Merger (the "S-4
Registration Statement") after the Company's financial statements for the 12
months ended December 31, 1998 have been audited by the Company's independent
auditors and such auditors' report is available. The S-4 Registration Statement
shall contain or incorporate by reference the Joint Proxy Statement (which shall
include such Company December 31, 1997 financial statements) as a prospectus,
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and any other documents required by the Securities Act or the Exchange Act in
connection with the Merger. The parties acknowledge and agree that the foregoing
arrangements may be altered by mutual consent of the parties as reasonably
necessary to respond to any comments or requests received from the SEC. OFPI
shall use all reasonable efforts to cause the S-4 Registration Statement
(including the Joint Proxy Statement) to comply with the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its
staff and to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after it is filed with the SEC. OFPI
will use all reasonable efforts to cause the Joint Proxy Statement to be mailed
to OFPI's Shareholders, and the Company will use all reasonable efforts to cause
the Joint Proxy Statement to be mailed to the Company's shareholders, as
promptly as practicable after the S-4 Registration Statement is declared
effective under the Securities Act. The Company shall promptly furnish to OFPI
all information concerning the Company and the Company's shareholders that may
be required or reasonably requested in connection with any action contemplated
by this Section 6.4 (including, without limitation, the Company Financial
Statements). In addition, the Company shall promptly furnish to OFPI all
information concerning the Company and the Company shareholders that may be
required or reasonably requested in connection with any pre- or post-effective
amendment to the S-4 Registration Statement. If the Company becomes aware of any
information that should be set forth in an amendment or supplement to the S-4
Registration Statement or the Joint Proxy Statement, then the Company shall
promptly inform OFPI thereof and shall cooperate with OFPI in filing such
amendment or supplement with the SEC and, if appropriate, in mailing such
amendment or supplement to the shareholders of the Company.
(b) Prior to the Effective Time, OFPI shall make all required filings
with state regulatory authorities and the NASD, and shall ensure that the OFPI
Common Stock to be issued in the Merger will be qualified under the securities
or "blue sky" law of every jurisdiction of the United States in which any
registered stockholder of the Company has an address of record on the record
date for determining the Shareholders entitled to notice of and to vote on the
Merger (other than qualifying to do business in a state in which it is not now
qualified).
6.5 Additional Agreements.
(a) Subject to Section 6.5(b), OFPI and the Company shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, but subject to
Section 6.5(b), each party to this Agreement shall use all reasonable efforts to
lift any restraint, injunction or other legal bar to the Merger. Each party
shall promptly deliver to the other, to the extent material, a copy of each such
filing made, each such notice given and each such Consent obtained by such party
during the Pre-Closing Period.
(b) Notwithstanding anything to the contrary contained in this
Agreement, neither OFPI nor the Company shall have any obligation under this
Agreement to do any of the following (or cause the other to do any of the
following): (i) to dispose or cause any of its subsidiaries to dispose of any
assets; (ii) to discontinue or cause any of its subsidiaries to discontinue
offering any product; (iii) to license or otherwise make available, or cause any
of its subsidiaries to license or otherwise make available, to any Person, any
technology, software or other Proprietary Asset; (iv) to hold separate or cause
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any of its subsidiaries to hold separate any assets or operations (either before
or after the Closing Date); or (v) to make or cause any of its subsidiaries to
make any commitment (to any Governmental Body or otherwise) regarding its future
operations.
6.6 Regulatory Approvals. The Company and OFPI shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement, all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. Without limiting the generality of the foregoing, the
Company and OFPI shall, promptly after the date of this Agreement, prepare and
file the notifications, if any, required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), in connection with the
Merger. The Company and OFPI shall respond as promptly as practicable to (i) any
inquiries or requests received from the Federal Trade Commission or the
Department of Justice for additional information or documentation and (ii) any
inquiries or requests received from any state attorney general or other
Governmental Body in connection with antitrust or related matters. Each of the
Company and OFPI shall (1) give the other party prompt notice of the
commencement of any Legal Proceeding by or before any Governmental Body with
respect to the Merger or any of the other transactions contemplated by this
Agreement, (2) keep the other party informed as to the status of any Legal
Proceeding, and (3) promptly inform the other party of any communication to or
from the Federal Trade Commission, the Department of Justice or any other
Governmental Body regarding the Merger. The Company and OFPI will consult and
cooperate with one another, and will consider in good faith the views of one
another, in connection with any analysis, appearance, presentation, memorandum,
brief, argument, opinion or proposal made or submitted in connection with any
Legal Proceeding under or relating to the HSR Act of any other federal or state
antitrust or fair trade law. In addition, except as may be prohibited by the HSR
Act of any Governmental Body or by any Legal Requirement, in connection with any
Legal Proceeding under or relating to any other federal or state antitrust or
fair trade law or any other similar Legal Proceeding, each of the Company and
OFPI agrees to permit authorized Representatives of the other party to be
present at each meeting or conference relating to any such Legal Proceeding and
to have access to and be consulted in connection with any document, opinion or
proposal made or submitted to any Governmental Body in connection with any such
Legal Proceeding.
6.7 Indemnification.
(a) From and after the consummation of the Merger, OFPI will fulfill
and honor in all material respects the obligations of the OFPI and the Company
pursuant to (i) each indemnification agreement in effect at such time between
the OFPI and each person who is or was a director or officer of OFPI and the
Company at or prior to the Effective Time and (ii) any indemnification
provisions under OFPI's and the Company's respective Articles of Incorporation
or Bylaws, as each is in effect on the date hereof (the persons to be
indemnified pursuant to this agreement and provisions referred to in clauses (i)
and (ii) of this Section 6.7 shall be referred to individually, the "Indemnified
Party"). The respective Articles of Incorporation and the Bylaws of the OFPI and
the Company shall continue to contain the provisions with respect to
indemnification and exculpation from liability set forth in such documents as of
the date of this Agreement and such provisions shall not be amended, repealed or
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otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights thereunder of any Indemnified
Party.
(b) This Section 6.7 shall survive the consummation of the Merger at
the Effective Time, is intended to be for the benefit of the OFPI and the
Company and each Indemnified Party and such Indemnified Party's heirs and
representatives, and shall be binding on all successors and assigns of OFPI and
the Surviving Corporation.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF OFPI.
The obligations of OFPI to effect the Merger and otherwise consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
or prior to the Closing, of each of the following conditions:
7.1 Accuracy of Representations. Each of the representations and warranties
made by the Company in this Agreement shall have been accurate in all respects
as of the date of this Agreement, and shall be accurate in all respects as of
the Closing Date as if made at the Closing Date without giving effect to any
update of the Company Disclosure Schedule.
7.2 Performance of Covenants. Each material covenant or obligation
contained in this Agreement that the Company is required to comply with or to
perform at or prior to the Closing shall have been complied with and performed
in all material respects.
7.3 Effectiveness of Registration Statement. The S-4 Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act, and no stop order shall have been issued by the SEC with respect to the S-4
Registration Statement.
7.4 Compliance Certificate. The Company shall have delivered to OFPI a
certificate (the "Company Compliance Certificate") of the Chief Executive
Officer of the Company evidencing compliance with the conditions set forth in
Sections 7.1 and 7.2.
7.5 Shareholder Approval. The issuance of the Merger Shares, this
Agreement, the Merger and the Restated Articles shall have been adopted and
approved by the Requisite OFPI Vote and this Agreement and the Merger shall have
been adopted and approved by the Requisite Company Vote.
7.6 Consents. All Consents listed in Part 2.21 of the Company Disclosure
Schedule and Part 3.21 of the OFPI Disclosure Schedule shall have been obtained
and shall be in full force and effect.
7.7 Legal Opinion. OFPI shall have received a legal opinion of Cooley
Godward LLP, in substantially the form of the attached Exhibit H, dated as of
the Closing Date;
7.8 Tax Opinion. Company shall have received a legal opinion of Cooley
Godward LLP in substantially the form of the attached Exhibit I, dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code (it being understood that, in
rendering such opinion, Cooley Godward LLP may rely upon the tax representation
letters and Continuity of Interest Certificates referred to in Section 4.6).
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7.9 No Restraints. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Merger shall have
been issued by any court of competent jurisdiction and remain in effect, and
there shall not be any Legal Requirement enacted or deemed applicable to the
Merger that makes consummation of the Merger illegal.
7.10 HSR Act. If applicable, the waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
7.11 Acquisition of Spectrum Commodities, Inc. Spectrum Commodities, Inc.,
a California corporation ("SCI"), shall have merged with or into the Company or
a Company Subsidiary.
7.12 Satisfactory Completion of Pre-Merger Review. OFPI shall have
satisfactorily completed its pre-Merger investigation and review of the
Company's business, condition, assets, liabilities, operations, facilities,
financial performance, net income and prospects and shall be satisfied with the
results of that investigation and review.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
8.1 Satisfactory Completion of Pre-Merger Review. The Company shall have
satisfactorily completed its pre-Merger investigation and review of OFPI's
business, condition, assets, liabilities, operations, facilities, financial
performance, net income and prospects and shall be satisfied with the results of
that investigation and review.
8.2 Accuracy of Representations. Each of the representations and warranties
made by OFPI in this Agreement shall have been accurate in all respects as of
the date of this Agreement, and shall be accurate in all respects as of the
Closing Date as if made at the Closing Date without giving effect to any update
of the OFPI Disclosure Schedule; provided that such representations and
warranties shall give effect to OFPI's acquisition of, or merger with OI.
8.3 Performance of Covenants. Each material covenant or obligation
contained in this Agreement that OFPI is required to comply with or to perform
at or prior to the Closing shall have been complied with and performed in all
material respects.
8.4 Effectiveness of Registration Statement. The S-4 Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act, and no stop order shall have been issued by the SEC with respect to the S-4
Registration Statement.
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8.5 Compliance Certificate. OFPI shall have delivered to the Company a
certificate (the "OFPI Compliance Certificate") of the Chief Executive Officer
of the OFPI evidencing compliance with the conditions set forth in Sections 8.2
and 8.3.
8.6 Shareholder Approval. The issuance of the Merger Shares and this
Agreement, the Merger and the Restated Articles shall have been adopted and
approved by the Requisite OFPI Vote and this Agreement and the Merger shall have
been adopted and approved by the Requisite Company Vote.
8.7 Consents. All Consents listed in Part 2.21 of the Company Disclosure
Schedule and Part 3.21 of the OFPI Disclosure Schedule) shall have been obtained
and shall be in full force and effect.
8.8 Legal Opinion. The Company shall have received a legal opinion of Carr,
McClellan, dated as of the Closing Date, in substantially the form of the
attached Exhibit J;
8.9 Tax Opinion. OFPI shall have received a legal opinion of Carr,
McClellan in substantially the form of the attached Exhibit K, dated as of the
Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code (it being understood that, in
rendering such opinion, Carr, McClellan may rely upon the tax representation
letters and Continuity of Interest Certificates referred to in Section 4.6);
8.10 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
8.11 HSR Act. If applicable, the waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
8.12 Resignations of Certain Directors. The Company shall have received the
written resignations of the directors of OFPI listed on the attached Exhibit L
hereto, effective as of the Effective Time.
8.13 Acquisition of Organic Ingredients, Inc. OFPI or a OFPI Subsidiary
shall have closed the acquisition (the "OI Acquisition") of 100% of the
outstanding capital stock of Organic Ingredients, Inc., a California corporation
("OI"), in exchange for shares of OFPI Common Stock; provided that OFPI shall
have delivered to the Company no later than ten (10) days prior to the Closing
Date a copy of the final OI Acquisition merger agreement, together with all
applicable schedules and exhibits.
8.14 Shareholder Lock-up Agreements. Each of the persons listed on the
attached Exhibit M shall have entered into an agreement with OFPI prohibiting
such persons from transferring any OFPI Common Stock beneficially owned by such
persons for a period of one (1) year from the Closing Date.
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8.15 Employment Agreements. OFPI shall have entered into employment
agreements mutually satisfactory to OFPI and the Company, which agreements shall
include standard covenants not to compete, with each of Jethren Phillips, John
Battendieri, Joseph Stern, Richard Bacigalupi and Neil Blomquist.
8.16 Refinancing of Existing Debt. The Company, OFPI and OI shall have
refinanced their existing credit and loan arrangements in a manner satisfactory
to the Company, to be determined in the Company's sole discretion.
8.17 Dissenters' Rights. No greater than five percent (5%) of OFPI
Shareholders shall be eligible for dissenters' rights as of the Closing Date.
SECTION 9. TERMINATION AND INDEMNIFICATION.
9.1 Termination. This Agreement may be terminated prior to the Effective
Time (whether before or after approval of the Merger by the Requisite Company
Vote and/or the Requisite OFPI Vote):
(a) by mutual written consent of OFPI and the Company;
(b) by either OFPI or the Company if the Merger shall not have been
consummated by August 31, 1999 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
party at or prior to the Effective Time);
(c) by either OFPI or the Company if a court of competent jurisdiction
or other Governmental Body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;
(d) by either OFPI or the Company if (i) the OFPI Shareholders'
Meeting (including any adjournments thereof) shall have been held and completed
and OFPI's Shareholders shall have taken a final vote on a proposal to approve
the issuance of the Merger Shares and to approve and adopt this Agreement, the
Merger and the Restated Articles and (ii) this Agreement, the Merger and the
Restated Articles shall not have been adopted and approved at such meeting by
the Requisite OFPI Vote; provided, however, that OFPI shall not be permitted to
terminate this Agreement pursuant to this Section 9.1(d) if the failure of
OFPI's Shareholders to approve the issuance of the Merger Shares and to adopt
and approve this Agreement, the Merger and the Restated Articles at the OFPI
Shareholders' Meeting is attributable to a failure on the part of OFPI to
perform any material obligation required to have been performed by OFPI under
this Agreement; and provided, further, that OFPI shall not be permitted to
terminate this Agreement pursuant to this Section 9.1(d) unless OFPI shall have
paid the fee referred to in Section 9.3(b);
(e) by either OFPI or the Company if (i) the Company Shareholders'
Meeting (including any adjournments thereof) shall have been held and completed
and the Company's shareholders shall have taken a final vote on a proposal to
approve and adopt this Agreement and the Merger and (ii) this Agreement and the
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Merger shall not have been adopted and approved at such meeting by the Requisite
Company Vote; provided, however, that Company shall not be permitted to
terminate this Agreement pursuant to this Section 9.1(e) if the failure of the
Company's shareholders to adopt and approve this Agreement and the Merger at the
Company Shareholders' Meeting is attributable to a failure on the part of the
Company to perform any material obligation required to have been performed by
the Company under this Agreement; and provided, further, that the Company shall
not be permitted to terminate this Agreement pursuant to this Section 9.1(e)
unless the Company shall have paid the fee referred to in Section 9.3(b);
(f) at any time prior to the adoption and approval of this Agreement
and the Merger by the Requisite OFPI Vote and the Requisite Company Vote, by the
Company if a OFPI Triggering Event shall have occurred or by OFPI if a Company
Triggering Event shall have occurred; or
(g) by either party if any of the other party's covenants contained in
this Agreement shall have been breached in any material respect; provided,
however, that if a breach of a covenant by a party is curable by such party and
such party is continuing to exercise all reasonable efforts to cure such breach,
then the other party may not terminate this Agreement under this Section 9.1(g)
on account of such breach and provided, further, that a party may not terminate
this Agreement pursuant to this Section 9.1(g) if it shall have materially
breached this Agreement.
9.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 9.2, Section 9.3,
Section 6.2 and Section 10 shall survive the termination of this Agreement and
shall remain in full force and effect, and (ii) the termination of this
Agreement shall not relieve any party from any liability for any breach of this
Agreement.
9.3 Fees and Expenses; Termination Fees.
(a) Except as set forth in this Section 9.3, each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees
and accounting fees) that have been incurred or that are incurred in the future
by such party in connection with the transactions contemplated by this
Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of (a) the investigation and review conducted by
such party (or its Representatives) with respect to the other party's business
(and the furnishing of information to the other party and its Representatives in
connection with such investigation and review), (b) the negotiation, preparation
and review of this Agreement and all agreements, certificates, opinions and
other instruments and documents delivered or to be delivered in connection with
the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of all Consents and Governmental Authorizations required to be obtained in
connection with any of such transactions, and (d) the consummation of the Merger
("Out of Pocket Costs").
(b) If this Agreement is terminated by OFPI or the Company pursuant to
Section 9.1(d), or if this Agreement is terminated by the Company pursuant to
Section 9.1(f), OFPI shall pay to the Company, in cash (at the time specified in
Section 9.3(c)), the Company's Out of Pocket Costs through the date of such
termination.
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(c) In the case of termination of this Agreement by OFPI pursuant to
Section 9.1(d), the fee referred to in Section 9.3(b) shall be paid by OFPI
prior to such termination, and in the case of termination of this Agreement by
the Company pursuant to Section 9.1(d) or Section 9.1(f), the fee referred to in
Section 9.3(b) shall be paid by OFPI within three (3) business days after such
termination.
9.4 Indemnification by OFPI.
(a) OFPI and each OFPI Subsidiary, jointly and severally, shall hold
harmless and indemnify each of the Company Indemnitees from and against, and
shall compensate and reimburse each of the Company Indemnitees for, any Damages
which are directly or indirectly suffered or incurred by any of the Company
Indemnitees or to which any of the Company Indemnitees may otherwise become
subject at any time (regardless of whether or not such Damages relate to any
third-party claim) and which arise directly or indirectly from or as a direct or
indirect result of, or are directly or indirectly connected with:
(i) any breach of any representation or warranty made by OFPI or
any OFPI Subsidiary in this Agreement (without giving effect to any update to
the OFPI Disclosure Schedule) or in the OFPI Compliance Certificate;
(ii) any breach of any representation, warranty, statement,
information or provision contained in the OFPI Disclosure Schedule or in any
other document delivered or otherwise made available to the Company or any of
its Representatives by or on behalf of OFPI, any OFPI Subsidiary or any of
OFPI's Representatives;
(iii) any breach of any covenant or obligation of OFPI or any
OFPI Subsidiary;
(iv) any Liability to which the Company or any of the other
Company Indemnitees may become subject and that arises directly or indirectly
from or relates directly or indirectly to (A) any product manufactured or sold,
or any service performed, by or on behalf of OFPI or any OFPI Subsidiary on or
at any time prior to the Closing Date, (B) the presence of any Hazardous
Material at any site owned, leased, occupied or controlled by OFPI or any OFPI
Subsidiary on or at any time prior to the Closing Date, or (C) the generation,
manufacture, production, transportation, importation, use, treatment,
refinement, processing, handling, storage, discharge, release or disposal of any
Hazardous Material (whether lawfully or unlawfully) by or on behalf of OFPI or
any OFPI Subsidiary on or at any time prior to the Closing Date;
(v) any matter identified or referred to in Part 3.21 of the OFPI
Disclosure Schedule to the extent that it exceeds the reserve for such matters
contained in the January 31, 1999 balance sheet;
(vi) the failure to collect in full the receivable from Global
Natural Brands; or
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(vii) any Legal Proceeding relating directly or indirectly to any
Breach, alleged Breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," "(iii)," "(iv)," or "(v)" above (including any Legal Proceeding
commenced by any Company Indemnitee for the purpose of enforcing any of its
rights under this Section 9).
9.5 Indemnification by the Company.
(a) The Company and each Company Subsidiary, jointly and severally,
shall hold harmless and indemnify each of the OFPI Indemnitees from and against,
and shall compensate and reimburse each of the OFPI Indemnitees for, any Damages
which are directly or indirectly suffered or incurred by any of the OFPI
Indemnitees or to which any of the OFPI Indemnitees may otherwise become subject
at any time (regardless of whether or not such Damages relate to any third-party
claim) and which arise directly or indirectly from or as a direct or indirect
result of, or are directly or indirectly connected with:
(i) any breach of any representation or warranty made by the
Company or any Company Subsidiary in this Agreement (without giving effect to
any update to the Company Disclosure Schedule) or in the Company Compliance
Certificate;
(ii) any breach of any representation, warranty, statement,
information or provision contained in the Company Disclosure Schedule or in any
other document delivered or otherwise made available to OFPI or any of its
Representatives by or on behalf of the Company or any of the Company's
Representatives;
(iii) any breach of any covenant or obligation of the Company or
any Company Subsidiary;
(iv) any Liability to which OFPI or any of the other OFPI
Indemnitees may become subject and that arises directly or indirectly from or
relates directly or indirectly to (A) any product manufactured or sold, or any
service performed, by or on behalf of the Company on or at any time prior to the
Closing Date, (B) the presence of any Hazardous Material at any site owned,
leased, occupied or controlled by the Company on or at any time prior to the
Closing Date, or (C) the generation, manufacture, production, transportation,
importation, use, treatment, refinement, processing, handling, storage,
discharge, release or disposal of any Hazardous Material (whether lawfully or
unlawfully) by or on behalf of the Company on or at any time prior to the
Closing Date;
(v) any matter identified or referred to in Part 2.21 of the
Company Disclosure Schedule; or
(vi) any Legal Proceeding relating directly or indirectly to any
Breach, alleged breach, Liability or matter of the type referred to in clause
"(i)," "(ii)," "(iii)," "(iv)," or "(v)" above (including any Legal Proceeding
commenced by any OFPI Indemnitee for the purpose of enforcing any of its rights
under this Section 9).
9.6 Threshold. Neither OFPI nor the Company shall be required to make any
indemnification payment pursuant to Sections 9.4 and 9.5, respectively, until
such time as the total amount of all Damages (including the Damages arising from
such Breach and all other Damages arising from any other Breach or Liability)
that have been directly or indirectly suffered or incurred by any one or more of
the Company Indemnitees or OFPI Indemnitees, as the case may be, or to which any
one or more of the Company Indemnitees or OFPI Indemnities, as the case may be,
has or have otherwise become subject, exceeds $100,000 in the aggregate. At such
time as the total amount of such Damages exceeds $100,000 in the aggregate, the
Indemnitees shall be entitled to be indemnified against the full amount of such
Damages (and not merely the portion of such Damages exceeding $100,000).
9.7 Maximum Liability. The total amount of the payments that either the
Company or OFPI can be required to make under or in connection with Sections 9.4
and 9.5 shall be limited in the aggregate to a maximum of $2,000,000, and
neither the Company's nor OFPI's respective cumulative liability shall exceed
such amount.
9.8 Calculation of Indemnification Payments. In the event that either OFPI
or the Company is required to make any indemnification payment pursuant to
Sections 9.4 or 9.5, respectively, each as limited by Sections 9.6 and 9.7, the
number of shares of OFPI Common Stock issued to the Company Shareholders
pursuant to Section 1.5(b)(iii) shall be adjusted as follows:
56.
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(a) If the Company is required to make an indemnification payment to
OFPI, then the number of shares of OFPI Common Stock beneficially owned by the
Company Shareholders equal to the amount of such required payment shall be
cancelled by OFPI, based upon a per share price of the OFPI Common Stock equal
to the average of the per share price of the OFPI Common Stock for the three (3)
trading days prior to the Closing Date; and
(b) If OFPI is required to make an indemnification payment to the
Company, then the number of shares of OFPI Common Stock equal to the amount of
such required payment shall be issued by OFPI to the Company Shareholders based
upon a per share price of the OFPI Common Stock equal to the average of the per
share price of the OFPI Common Stock for the three (3) trading days prior to the
Closing Date.
SECTION 10. MISCELLANEOUS PROVISIONS.
10.1 Survival of Representations and Warranties. The representations and
warranties contained in this Agreement or in any instrument delivered pursuant
to this Agreement shall survive the Merger for a period of two (2) years.
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Attorneys' Fees. Subject to Section 9.3(b), if any action at law or
suit in equity to enforce this Agreement or the rights of any of the parties
hereunder is brought against any party hereto, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
57.
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10.4 Notices. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to OFPI:
ORGANIC FOOD PRODUCTS, INC.
550 Monterey Road, Suite B
Morgan Hill, CA 95037
Attention: Chief Executive Officer
Facsimile: (408) 782-1143
with a copy to (which shall not constitute notice):
Carr, McClellan, Ingersoll, Thompson & Horn, P.C.
216 Park Road
P.O. Box 513
Burlingame, CA 94011
Attention: James F. Blood, Esq.
Facsimile: (650) 342-7685
if to the Company:
SPECTRUM NATURALS, INC.
133 Copeland Street
Petaluma, CA 94951
Attention: Chief Executive Officer
Facsimile: (707) 765-1026
with a copy to (which shall not constitute notice):
COOLEY GODWARD LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Susan Cooper Philpot, Esq.
Facsimile: (415) 951-3699
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such telecopy shall have
confirmed receipt of the communication or when a confirming copy is delivered to
the recipient pursuant to this Section 10.4, (c) in the case of delivery by
nationally recognized, overnight courier, on the business day following dispatch
and (d) in the case of mailing, on the fifth business day following such
mailing.
10.5 Time of the Essence. Time is of the essence of this Agreement.
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10.6 Governing Law; Venue. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
10.7 Successors and Assigns. Except as provided in Section 10.8, this
Agreement shall be binding upon and shall be enforceable by and inure solely to
the benefit of, the parties hereto and their successors and assigns; provided,
however, that this Agreement may not be assigned by any party without the
written consent of the other parties, and any attempted assignment without such
consent shall be void and of no effect.
10.8 Remedies Cumulative; Specific Performance. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.9 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.10 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.11 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.12 Parties in Interest. None of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns (if any); provided, however,
that the provisions of Section 1.5(c) shall inure to the benefit of and may be
enforced by holders of Company Options, and the provisions of Section 6.7 shall
inure to the benefit of and may be enforced by the Indemnified Parties.
59.
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10.13 Disclosure Schedules. The disclosure schedules shall be arranged in
separate parts corresponding to the numbered and lettered sections contained in
Section 2 or in Section 3, as the case may be. The information disclosed in any
numbered or lettered part shall be deemed to be disclosed and incorporated in
any other numbered or lettered part where the relevance of such disclosure to
another numbered or lettered part would be reasonably apparent from such
disclosure.
10.14 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and supersede all prior and contemporaneous agreements and
understandings among or between any of the parties relating to the subject
matter hereof.
10.15 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
10.16 Headings. The bold-faced section headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.17 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one and the same instrument.
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The parties hereto have caused this Agreement and Plan of Merger and
Reorganization to be executed and delivered as of the date first written above.
ORGANIC FOOD PRODUCTS, INC.,
a California corporation
By: /s/ Richard R. Bacigalupi
-----------------------------------
Name: Richard R. Bacigalupi
Title: Chief Financial Officer
SPECTRUM NATURALS, INC.,
a California corporation
By: /s/ Jethren P. Phillips
------------------------------------
Name: Jethren P. Phillips
Title: CEO/Chairman
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
SIGNATURE PAGE
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Proposal. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by OFPI or the Company, as the case
may be) contemplating or otherwise relating to any Company Acquisition
Transaction or OFPI Acquisition Transaction, as the case may be.
Agreement. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including all other
exhibits), as it may be amended from time to time.
Breach. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
Company Acquisition Transaction. "Company Acquisition Transaction" shall
mean any transaction involving:
(a) any sale, lease exchange, transfer or other disposition of the
assets of Company or any Company Subsidiary constituting more than 10% of the
consolidated assets of Company or accounting for more than 10% of the
consolidated revenues of Company in any one transaction or in a series of
related transactions.
(b) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any Person involving more
than 10% of the outstanding shares of the capital stock of the Company or any
shares of the capital stock of any Company Subsidiary.
(c) any merger, consolidation, business combination, share exchange,
reorganization or other similar transaction or series of related transactions
involving Company or any Company Subsidiary.
(d) any assignment, transfer or licensing or other disposition of, in
whole or in part, the Company Proprietary Assets, other than in the ordinary
course of business.
Company Comparable Entities. "Company Comparable Entities" shall mean
Entities (other than the Company) that are engaged in businesses similar to the
Company's business.
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Company Contract. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or under which the Company has, or may become subject to, any
obligation; or (c) under which the Company has or may acquire any right or
interest.
Company Disclosure Schedule. "Company Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to OFPI by the
Company.
Company Indemnitees. "Company Indemnitees" shall mean the following
Persons:
(a) the Company;
(b) the Company's current and future affiliates (including OFPI);
(c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)" and "(c)" above;
provided, however, that (i) neither OFPI nor any OFPI Subsidiary shall be
entitled to exercise any rights as a Company Indemnitee prior to the Closing,
and (ii) shareholders of OFPI other than the Persons that receive Merger Shares
pursuant to the Merger shall not be deemed to be "Company Indemnitees."
Company Option. "Company Option" shall mean any option to purchase capital
stock of the Company held by any director, officer or employee of, or consultant
to, the Company.
Company Proprietary Asset. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or any Company Subsidiary
or otherwise used by the Company or any Company Subsidiary.
Company Shareholders. "Company Shareholders" shall mean those holders of
Company Common Stock entitled to receive shares of OFPI Common Stock pursuant to
Section 1.5.
Company Triggering Event. A "Company Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of Company shall have failed to
recommend, or shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to OFPI its unanimous recommendation in favor of,
the Merger or approval or adoption of this Agreement; (ii) Company shall have
failed to include in the Joint Proxy Statement the unanimous recommendation of
the Board of Directors of Company in favor of approval and adoption of this
Agreement and the Merger; (iii) the Board of Directors of Company shall have
approved, endorsed or recommended any Acquisition Proposal; (iv) Company shall
have entered into any letter of intent or similar document or any Contract
relating to any Acquisition Proposal; (v) Company shall have failed to hold the
Company Shareholders' Meeting as promptly as practicable and in any event within
45 days after the definitive Proxy Statement was filed with the SEC; (vi) a
tender or exchange offer relating to securities of Company shall have been
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commenced and Company shall not have sent to its securityholders, within five
business days after the commencement of such tender or exchange offer, a
statement disclosing that Company recommends rejection of such tender or
exchange offer; (vii) an Acquisition Proposal is publicly announced, and Company
(A) fails to issue a press release announcing its opposition to such Acquisition
Proposal within five business days after such Acquisition Proposal is announced
or (B) otherwise fails to actively oppose such Acquisition Proposal; or (viii) a
person or group (as defined in the Exchange Act and the rules promulgated
thereunder) shall have acquired more than fifty percent (50%) of the Company's
voting securities (excluding persons and groups that, as of the date of this
Agreement, hold more than fifty percent (50%) of the Company's voting securities
or that may be deemed to have acquired such percentage upon execution of the
Voting Agreements).
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
Employee Benefit Plan. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company, limited liability company,
joint stock company, firm or other enterprise, association, organization or
entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
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Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Joint Proxy Statement. "Joint Proxy Statement" shall mean that proxy
statement to be prepared by OFPI with the cooperation of the Company to be filed
with the SEC and to be included or incorporated by reference into the Form S-4
registration statement to be filed by OFPI with the SEC.
Knowledge. "Knowledge" shall mean, as it relates to either the Company or
OFPI with respect to any matter in question, that any of the Chief Executive
Officer, Chief Financial Officer or any other executive officers of the Company
or OFPI, as the case may be, has actual knowledge of such matter.
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Liability. "Liability" shall mean any debt, obligation, duty or liability
of any nature (including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability), regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
Material Adverse Effect. A violation or other matter will be deemed to have
a "Material Adverse Effect" on the Company or OFPI, as the case may be, if such
violation or other matter would have a material adverse effect on the business,
condition, assets, liabilities, operations, financial performance or prospects
of the Company and its subsidiaries or the OFPI and its subsidiaries taken as a
whole, as the case may be.
OFPI Acquisition Transaction. "OFPI Acquisition Transaction" shall mean any
transaction involving:
(a) any sale, lease exchange, transfer or other disposition of the
assets of OFPI or any OFPI Subsidiary constituting more than 10% of the
consolidated assets of OFPI or accounting for more than 10% of the consolidated
revenues of OFPI in any one transaction or in a series of related transactions.
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(b) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any Person involving more
than 10% of the outstanding shares of the capital stock of OFPI or any shares of
the capital stock of any OFPI Subsidiary.
(c) any merger, consolidation, business combination, share exchange,
reorganization or other similar transaction or series of related transactions
involving OFPI or any OFPI Subsidiary.
(d) any assignment, transfer or licensing or other disposition of, in
whole or in part, the OFPI Proprietary Assets, other than in the ordinary course
of business.
OFPI Comparable Entities. "OFPI Comparable Entities" shall mean Entities
(other than OFPI or an OFPI Subsidiary) that are engaged in businesses similar
to OFPI's business or the business of any OFPI Subsidiary.
OFPI Contract. "OFPI Contract" shall mean any Contract: (a) to which OFPI
is a party; (b) by which OFPI or any of its assets is or may become bound or
under which OFPI has, or may become subject to, any obligation; or (c) under
which OFPI has or may acquire any right or interest.
OFPI Disclosure Schedule. "OFPI Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to the Company by
OFPI.
OFPI Indemnitees. "OFPI Indemnitees" shall mean the following Persons:
(a) OFPI;
(b) any OFPI Subsidiary;
(c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons referred
to in clauses "(a)", "(b)" and "(c)" above;
provided, however, that (i) the Company shall not be entitled to exercise any
rights as an OFPI Indemnitee prior to the Closing, and (ii) the Persons that
receive any Merger Shares shall not be deemed to be "OFPI Indemnitees."
OFPI Proprietary Asset. "OFPI Proprietary Asset" shall mean any Proprietary
Asset owned by or licensed to OFPI or any OFPI Subsidiary or otherwise used by
OFPI or any OFPI Subsidiary.
A-5
<PAGE>
OFPI Triggering Event. A "OFPI Triggering Event" shall be deemed to have
occurred if: (i) the Board of Directors of OFPI shall have failed to recommend,
or shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to the Company its unanimous recommendation in favor of, the
Merger or approval or adoption of this Agreement; (ii) OFPI shall have failed to
include in the Joint Proxy Statement the unanimous recommendation of the Board
of Directors of OFPI in favor of approval and adoption of this Agreement and the
Merger; (iii) the Board of Directors of OFPI shall have approved, endorsed or
recommended any Acquisition Proposal; (iv) OFPI shall have entered into any
letter of intent or similar document or any Contract relating to any Acquisition
Proposal; (v) OFPI shall have failed to hold the OFPI Shareholders' Meeting as
promptly as practicable and in any event within 45 days after the definitive
Proxy Statement was filed with the SEC; (vi) a tender or exchange offer relating
to securities of OFPI shall have been commenced and OFPI shall not have sent to
its securityholders, within five business days after the commencement of such
tender or exchange offer, a statement disclosing that OFPI recommends rejection
of such tender or exchange offer; (vii) an Acquisition Proposal is publicly
announced, and OFPI (A) fails to issue a press release announcing its opposition
to such Acquisition Proposal within five business days after such Acquisition
Proposal is announced or (B) otherwise fails to actively oppose such Acquisition
Proposal; or (viii) a person or group (as defined in the Exchange Act and the
rules promulgated thereunder) shall have acquired more than fifty percent (50%)
of OFPI's voting securities (excluding persons and groups that, as of the date
of this Agreement, hold more than fifty percent (50%) of OFPI's voting
securities or that may be deemed to have acquired such percentage upon execution
of the Voting Agreements).
Person. "Person" shall mean any individual, Entity or Governmental Body.
Proprietary Asset. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Superior Company Proposal. "Superior Company Proposal" shall mean an
unsolicited, bona fide written proposed Acquisition Proposal submitted by a
third party that the Board of Directors of the Company determines, in good
faith, based upon the written advice of its financial advisor, to be more
favorable from a financial point of view to the Company's shareholders than the
terms of the Merger; provided, however, that any such Acquisition Proposal shall
not be deemed to be a "Superior Company Proposal" if any financing required to
consummate the transaction contemplated by such offer is not committed at the
time such Acquisition Proposal is made.
A-6
<PAGE>
Superior OFPI Proposal. "Superior OFPI Proposal" shall mean an unsolicited,
bona fide written proposed Acquisition Proposal submitted by a third party that
the Board of Directors of OFPI determines, in good faith, based upon the written
advice of its financial advisor, to be more favorable from a financial point of
view to the OFPI's Shareholders than the terms of the Merger; provided, however,
that any such Acquisition Proposal shall not be deemed to be a "Superior OFPI
Proposal" if any financing required to consummate the transaction contemplated
by such offer is not committed at the time such Acquisition Proposal is made.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
A-7
<PAGE>
EXHIBIT B
AMENDED AND RESTATED
ARTICLES OF INCORPORAITON
OF
SPECTRUM ORGANIC PRODUCTS, INC.
JOHN BATTENDIERI and RICHARD BACIGALUPI certify that:
1. They are the President and Secretary of Organic Food Products, 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 Spectrum Organic Products, 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 60,000,000 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 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.
<PAGE>
3. The foregoing amended and restated articles of incorporation have been
duly approved by the board of directors.
4. The foregoing amended and restated 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 __________. 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%).
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: __________________, 1999
------------------------------------
, President
---------------
------------------------------------
, Secretary
---------------
<PAGE>
EXHIBIT C
DIRECTORS AND OFFICERS OF PARENT
DIRECTORS:
Jethren Phillips
John Battendieri
Phillip Moore
To be determined
To be determined
OFFICERS
Jethren Phillips Chief Executive Officer
Richard Bacigalupi Chief Financial Officer and Treasurer
Neil Blomquist Secretary
Other executive officers to be determined by OFPI and Company
* Member of Audit Committee
** Member of Compensation Committee
<PAGE>
EXHIBIT D
BYLAWS
OF
SPECTRUM ORGANIC PRODUCTS, 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.
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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
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;
<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, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities.
<PAGE>
(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 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.
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.
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.
<PAGE>
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 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
<PAGE>
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 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 114. 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:
<PAGE>
(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;
(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.
<PAGE>
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.
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.
<PAGE>
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 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.
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.
<PAGE>
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 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
<PAGE>
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 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 7. 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 8. 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 9. 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 10. 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 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 11. 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 12. 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
<PAGE>
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 13. 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.
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 Spectrum Organic
Products, 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 ___ day
of ______, 1999.
-----------------------------------
-----------------------------------
ATTEST:
- -------------------------------
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Spectrum Organic
Products, Inc., a California corporation; and
2. That the foregoing bylaws, comprising __ 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 ___ day of ____ 1989.
--------------------------------------
SECRETARY
<PAGE>
EXHIBIT E
CERTAIN OFPI SHAREHOLDERS
No. of Shares of Common Percent of Outstanding
Shareholder Name: Stock Held Common Stock Held:
----------------- ---------- ------------------
John Battendieri 2,102,499 27.8%
Ken Steel 279,363 3.7%
Chas Bonner 0 0.0%
<PAGE>
EXHIBIT F
FORM OF
COMPANY TAX REPRESENTATION LETTER
May __, 1999
Cooley Godward LLP Carr, McClellan, Ingersoll, Thompson
One Maritime Plaza & Horn, P.C.
20th Floor 216 Park Road, P.O. Box 513
San Francisco, California 94111 Burlingame, California 94011
Re: Merger pursuant to the Agreement and Plan of Merger and Reorganization
(the "Reorganization Agreement") dated May __, 1999, among ORGANIC FOOD
PRODUCTS, INC., a California corporation ("Acquiror") and SPECTRUM
NATURALS, INC., a California corporation (the "Company"), and the
related Agreement of Merger between Acquiror and the Company (the
"Certificate of Merger").
Ladies and Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Reorganization Agreement. The Reorganization Agreement and the
Certificate of Merger, including exhibits and schedules attached thereto, are
collectively referred to as the "Agreements."
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will continue
to be true as of the Effective Time of the Merger and thereafter where relevant:
1. Other than in the ordinary course of business or pursuant to its
obligations under the Agreements, the Company has made no transfer of any of its
assets (including any distribution of assets with respect to, or in redemption
of, stock) in contemplation of the Merger or during the period ending on the
Effective Time of the Merger and beginning with the commencement of negotiations
(whether formal or informal) with Acquiror regarding the Merger (the "Pre-Merger
Period");
2. The Company's principal reasons for participating in the Merger are bona
fide business purposes unrelated to taxes;
3. At the Effective Time of the Merger, the Company will have no
outstanding equity interests other than those disclosed in Section 2.3 of the
Reorganization Agreement. At the time of the Merger, except as specified in the
Reorganization Agreement, the Company will have no outstanding warrants,
options, or convertible securities or any other type of right outstanding
pursuant to which any person could acquire shares of capital stock of the
Company or any other equity interest in the Company, other than those disclosed
in Section 2.3 of the Reorganization Agreement or the Disclosure Schedule with
respect thereto;
<PAGE>
4. The total fair market value of all consideration other than shares of
Acquiror Common Stock received by shareholders of the Company in the Merger
(including, without limitation, cash paid to the Company shareholders perfecting
dissenter's rights or in lieu of fractional shares of Acquiror Common Stock)
will be less than ten percent (10%) of the aggregate fair market value of shares
of stock of the Company outstanding immediately prior to the Merger;
5. The Company intends that Acquiror shall continue the Company's historic
business or use a significant portion of its historic business assets in a
business following the Merger;
6. The liabilities of the Company have been incurred by the Company in the
ordinary course of its business;
7. The fair market value of the Company's assets will, on the Effective
Time of the Merger, exceed the aggregate liabilities of the Company plus the
amount of liabilities, if any, to which such assets are subject;
8. The Company is not and will not be on the Effective Time of the Merger
an "investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv)
of the Code;
9. The Company is not and will not be on the Effective Time of the Merger
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code;
10. The Company has made no extraordinary distributions within the meaning
of Temporary Federal Treasury Regulation Section 1.368-1T(e) with respect to its
stock, prior to and in connection with the Merger;
11. The Company has not redeemed and no "related person" with respect to
the Company, as such term is defined by Treasury Regulation Section
1.368-1(e)(3), (without regard to Section 1.368-1(e)(3)(i)(A)), has purchased
any capital stock of the Company prior to and in connection with the Merger;
12. The fair market value of the shares of Acquiror Common Stock and other
consideration received by each shareholder of the Company will be approximately
equal to the fair market value of the shares of stock of the Company surrendered
in exchange therefor and the aggregate consideration received by shareholders of
the Company in exchange for their shares of stock of the Company will be
approximately equal to the fair market value of all of the outstanding shares of
stock of the Company immediately prior to the Merger;
13. Each of Acquiror, the Company and each shareholder of the Company will
pay separately his, hers or its own expenses relating to the Merger;
14. There is no intercorporate indebtedness existing between Acquiror and
the Company that was issued, acquired, or will be settled at a discount as a
result of the Merger; Acquiror will assume no liabilities of any shareholder of
the Company in connection with the Merger;
2
<PAGE>
15. The terms of the Reorganization Agreement and the other agreements
relating thereto are the product of arm's length negotiations;
16. None of the compensation received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any of their shares
of stock of the Company; none of the shares of Acquiror Common Stock received by
any shareholder-employees of the Company will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and the
compensation paid to any shareholder-employees of the Company will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services;
17. With respect to each instance, if any, in which shares of stock of the
Company have been purchased by a shareholder of Acquiror (a "Shareholder")
during the Pre-Merger period (a "Stock Purchase"): (i) to the best knowledge of
the Company, (A) the Stock Purchase was made by such Shareholder on its own
behalf, rather than as a representative, or for the benefit, of Acquiror, (B)
the Stock Purchase was entered into solely to satisfy the separate interests of
such Shareholder and the seller, and (C) the purchase price paid by such
Shareholder pursuant to the Stock Purchase was the product of arm's length
negotiations; and (ii) the Stock Purchase was not a formal or informal condition
to consummation of the Merger; and
18. The Company is authorized to make all of the representations set forth
herein.
The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be subject
to certain limitations and qualifications including that they may not be relied
upon if any such representations are not accurate in all material respects.
The undersigned recognizes that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
SPECTRUM NATURALS, INC.
a California corporation
By:
------------------------------
Printed Name:
---------------------
Title:
---------------------------
3
<PAGE>
EXHIBIT G
FORM OF
ACQUIROR TAX REPRESENTATION LETTER
May __, 1999
Cooley Godward LLP Carr, McClellan, Ingersoll, Thompson
One Maritime Plaza & Horn, P.C.
20th Floor 216 Park Road, P.O. Box 513
San Francisco, California 94111 Burlingame, California 94011
Re: Merger pursuant to the Agreement and Plan of Merger and Reorganization
(the "Reorganization Agreement") dated May __, 1999, among ORGANIC FOOD
PRODUCTS, INC., a California corporation ("Acquiror") and SPECTRUM
NATURALS, INC., a California corporation (the "Company"), and the
related Agreement of Merger between Acquiror and the Company (the
"Certificate of Merger").
Ladies and Gentlemen:
This letter is supplied to you in connection with your rendering of opinions
regarding certain federal income tax consequences of the Merger. Unless
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Reorganization Agreement. The Reorganization Agreement and the
Certificate of Merger, including exhibits and schedules attached thereto, are
collectively referred to as the "Agreements."
After consulting with its counsel and auditors regarding the meaning of and
factual support for the following representations, the undersigned hereby
certifies and represents that the following facts are now true and will continue
to be true as of the Effective Time of the Merger and thereafter where relevant:
1. Acquiror's principal reasons for participating in the Merger are bona
fide business purposes not related to taxes;
2. Except for transfers described in Section 368(a)(2)(C) of the Code,
Acquiror has no plan or intention to sell, distribute or otherwise dispose of
any of the assets acquired from the Company in the transaction, except for
dispositions made in the ordinary course of business;
3. Acquiror intends that, following the Merger, it will continue the
Company's historic business or use a significant portion of its historic
business assets in a business;
4. Acquiror is not an "investment company" within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code;
5. No shareholder of the Company is acting as agent for Acquiror in
connection with the Merger or the approval thereof; Acquiror will not reimburse
any shareholder of the Company for any stock of the Company such shareholder may
have purchased or for other obligations such shareholder may have incurred;
<PAGE>
6. Except for repurchases or redemptions of Acquiror Common Stock that are
consistent with past practices and pursuant to pre-existing purchase programs
that were not created or modified in connection with the Merger, neither
Acquiror nor any "related person" of Acquiror (as such term is defined by
Treasury Regulation Section 1.368-1(e)(3)) will repurchase or redeem any of the
Acquiror Common Stock to be issued to the shareholders of the Company in
connection with the Merger;
7. During the past five (5) years, none of the outstanding shares of
capital stock of the Company, including the right to acquire or vote any such
shares have, directly or indirectly, been owned by Acquiror or affiliates of
Acquiror;
8. The total fair market value of all consideration other than Acquiror
Common Stock received by shareholders of the Company in the Merger (including,
without limitation, cash paid to shareholders of the Company perfecting
dissenter's rights or in lieu of fractional shares of Acquiror Common Stock)
will be less than ten percent (10%) of the aggregate fair market value of stock
of the Company outstanding immediately prior to the Merger;
9. The fair market value of the Acquiror Common Stock and other
consideration received by each shareholder of the Company will be approximately
equal to the fair market value of the stock of the Company surrendered in
exchange therefor, and the aggregate consideration received by shareholders of
the Company in exchange for their stock of the Company will be approximately
equal to the fair market value of all of the outstanding shares of stock of the
Company immediately prior to the Merger;
10. Each of Acquiror, the Company and each shareholder of the Company will
pay separately his, hers or its own expenses relating to the Merger;
11. There is no intercorporate indebtedness existing between Acquiror and
the Company that was issued, acquired or will be settled at a discount as a
result of the Merger, and Acquiror will assume no liabilities of any shareholder
of the Company in connection with the Merger;
12. The terms of the Reorganization Agreement and the agreements related
thereto are the product of arm's length negotiations;
13. None of the compensation received by any shareholder-employee of the
Company will be separate consideration for, or allocable to, any of their shares
of stock of the Company; none of the shares of Acquiror Common Stock received by
any shareholder-employee of the Company will be separate consideration for, or
allocable to, any employment agreement or any covenants not to compete; and the
compensation paid to any shareholder-employee of the Company will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services;
14. With respect to each instance, if any, in which shares of stock of the
Company have been purchased by a shareholder of Acquiror (a "Shareholder")
during the period ending on the Effective Time of the Merger and beginning with
2
<PAGE>
the commencement of negotiations (whether formal or informal) with Acquiror
regarding the Merger) (a "Stock Purchase"): (i) the Stock Purchase was made by
such Shareholder not as a representative of Acquiror; (ii) the purchase price
paid by such Shareholder pursuant to the Stock Purchase was the product of arm's
length negotiations, was not advanced, and will not be reimbursed, either
directly or indirectly, by Acquiror; (iii) at no time was such Shareholder or
any other party required or obligated to surrender to Acquiror the capital stock
of the Company acquired in the Stock Purchase, and neither such Shareholder nor
any other party will be required to surrender to Acquiror the Acquiror Common
Stock for which such shares of stock of the Company will be exchanged in the
Merger; and (iv) the Stock Purchase was not a formal or informal condition to
consummation of the Merger; and
15. Acquiror is authorized to make all of the representations set forth
herein. The undersigned recognizes that (i) your opinions will be based on the
representations set forth herein and on the statements contained in the
Agreements and documents related thereto, and (ii) your opinions will be subject
to certain limitations and qualifications including that they may not be relied
upon if any such representations are not accurate in all material respects.
The undersigned recognize that your opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except as
expressly set forth in such opinions.
Very truly yours,
ORGANIC FOOD PRODUCTS, INC.,
a California corporation
By:
-------------------------------------
Printed Name:
----------------------------
Title:
----------------------------------
3
<PAGE>
EXHIBIT H
OPINION OF COMPANY COUNSEL
1. Spectrum Naturals, Inc. (the "Company") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California.
2. The Company has the requisite corporate power to own, operate and lease its
property and assets and to conduct its business as it is currently being
conducted. To our knowledge, the Company is qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in the United States
in which the ownership of its property or the conduct of its business requires
such qualification except where the failure to so qualify would not materially
and adversely affect the Company's business, financial condition and results of
operations, taken as a whole.
3. All corporate action on the part of the Company, its Board of Directors and
its shareholders necessary for the authorization, execution and delivery of the
Merger Agreement by the Company and the performance of the Company's obligations
under the Merger Agreement has been taken. The Merger Agreement has been duly
and validly authorized, executed and delivered by the Company and constitutes
the valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, except as rights to indemnity under section 9.5 of
the Merger Agreement may be limited by applicable law and except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance.
4. The authorized capital stock of the Company consists of (i) 100,000 shares of
Common Stock, no par value, of which _________ shares have been issued and are
outstanding immediately prior to the Closing, (ii) _____________ shares of
Preferred Stock, no par value, none of which are outstanding immediately prior
to the Closing. To our knowledge, except as expressly set forth in the Merger
Agreement (including the Company Disclosure Schedule), there are no options,
warrants, conversion privileges, or other rights presently outstanding to
purchase any authorized but unissued capital stock of the Company. Except for
______________, there are no voting agreements, co-sale rights or rights of
first refusal applicable to any of the Company's outstanding capital stock under
the Company's Articles of Incorporation, Bylaws or any Material Company Contract
disclosed in Part 2.9 and Part 2.11(a) of the Company Disclosure Schedule.
5. The execution, delivery and performance by the Company of the Merger
Agreement and the consummation by the Company of the Merger as provided therein
will not violate any provision of the Company's Articles of Incorporation or
Bylaws, and do not constitute a material default (or give rise to any right of
termination, cancellation or acceleration) under any provision of any Material
Company Contract disclosed in Part 2.9 and Part 2.11(a) of the Company
Disclosure Schedule and do not violate or contravene (A) to our knowledge, any
governmental statute, rule or regulation applicable to the Company or (B) any
<PAGE>
order, writ, judgment, injunction, decree, determination or award which has been
entered against the Company and of which we are aware, the violation or
contravention of which would have a material adverse effect on the Company's
business, financial condition and results of operations, taken as a whole.
6. To our knowledge, there is no action, proceeding or investigation pending or
threatened in writing against the Company before any court or administrative
agency that questions the validity of the Merger Agreement or might result in a
material adverse change in the Company's business, financial condition and
results of operations, taken as a whole.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required to be obtained prior to the Closing in
connection with the Company's execution, delivery and performance of the Merger
Agreement and the consummation by the Company of the Merger as contemplated
therein have been made or obtained, other than the filing of the Certificate of
Merger with the Secretary of State of the State of California as contemplated by
Section 1.3 of the Merger Agreement.
8. The Merger Agreement has been duly authorized by the Company's Board of
Directors and its shareholders and, assuming compliance by the Company with all
requirements of applicable law and the Merger Agreement necessary to effect the
Merger, upon filing of the Certificate of Merger with and acceptance by the
Secretary of State of the State of California, the Merger will be effective.
2
<PAGE>
EXHIBIT I
COOLEY GODWARD LLP
____________, 1999
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, California 94951
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 7.8 of the Agreement
and Plan of Merger and Reorganization dated as of _________ , 1999 (the
"Reorganization Agreement") by and between Organic Food Products, Inc., a
California corporation ("Acquiror"), and Spectrum Naturals, Inc., a California
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated __________, 1999 and
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Acquiror and the Company and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE>
COOLEY GODWARD LLP
Spectrum Naturals, Inc.
-------------- , 1999
Page Two
(b) All representations, warranties and statements made or agreed to by
Acquiror and the Company, their managements, employees, officers, directors and
shareholders in connection with the Merger, including, but not limited to, those
set forth in the Reorganization Agreement (including the exhibits thereto) and
the Tax Representation Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Acquiror and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated __________, 1999 rendered by Carr, McClellan,
Ingersoll, Thompson & Horn, P.C. to Acquiror with respect to the qualification
of the Merger as a reorganization within the meaning of Section 368 of the Code
has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
<PAGE>
COOLEY GODWARD LLP
Spectrum Naturals, Inc.
-------------- , 1999
Page Three
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered pursuant to the Reorganization Agreement. It is
intended solely for the benefit of the Company and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
Cooley Godward LLP
Susan Cooper Philpot
SCP:dp
<PAGE>
EXHIBIT J
OPINION OF OFPI COUNSEL
1. Organic Food Products, Inc. ("OFPI") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California.
2. OFPI has the requisite corporate power to own, operate and lease its property
and assets and to conduct its business as it is currently being conducted. To
our knowledge, OFPI is qualified as a foreign corporation to do business and is
in good standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification except where the failure to so qualify would not materially and
adversely affect OFPI's business, financial condition and results of operations,
taken as a whole.
3. All corporate action on the part of OFPI, its Board of Directors and its
shareholders necessary for the authorization, execution and delivery of the
Merger Agreement by OFPI and the performance of OFPI's obligations under the
Merger Agreement has been taken. The Merger Agreement has been duly and validly
authorized, executed and delivered by OFPI and constitutes the valid and binding
agreement of OFPI enforceable against OFPI in accordance with its terms, except
as rights to indemnity under section 9.4 of the Merger Agreement may be limited
by applicable law and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
4. The authorized capital stock of OFPI consists of (i) __________________
shares of Common Stock, no par value, of which _________ shares have been issued
and are outstanding immediately prior to the Closing, (ii) 5,000,000 shares of
Preferred Stock, no par value, none of which are outstanding immediately prior
to the Closing. To our knowledge, except as expressly set forth in the Merger
Agreement (including the OFPI Disclosure Schedule), there are no options,
warrants, conversion privileges, or other rights presently outstanding to
purchase any authorized but unissued capital stock of OFPI. Except for
______________, there are no voting agreements, co-sale rights or rights of
first refusal applicable to any of OFPI's outstanding capital stock under OFPI's
Articles of Incorporation, Bylaws or any Material OFPI Contract disclosed in
Part 3.9(b) and Part 3.11(a) of the OFPI Disclosure Schedule.
5. The execution, delivery and performance by OFPI of the Merger Agreement and
the consummation by OFPI of the Merger as provided therein will not violate any
provision of OFPI's Articles of Incorporation or Bylaws, and do not constitute a
material default (or give rise to any right of termination, cancellation or
acceleration) under any provision of any Material OFPI Contract disclosed in
Part 3.9(b) and Part 3.11(a) of the OFPI Disclosure Schedule and do not violate
or contravene (A) to our knowledge, any governmental statute, rule or regulation
applicable to OFPI or (B) any order, writ, judgment, injunction, decree,
determination or award which has been entered against OFPI and of which we are
aware, the violation or contravention of which would have a material adverse
effect on OFPI's business, financial condition and results of operations, taken
as a whole.
<PAGE>
6. To our knowledge, there is no action, proceeding or investigation pending or
threatened in writing against OFPI before any court or administrative agency
that questions the validity of the Merger Agreement or might result in a
material adverse change in OFPI's business, financial condition and results of
operations, taken as a whole.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required to be obtained prior to the Closing in
connection with OFPI's execution, delivery and performance of the Merger
Agreement and the consummation by OFPI of the Merger as contemplated therein
have been made or obtained, other than the filing of the Certificate of Merger
with the Secretary of State of the State of California as contemplated by
Section 1.3 of the Merger Agreement.
8. The Merger Agreement has been duly authorized by OFPI's Board of Directors
and its shareholders and, assuming compliance by OFPI with all requirements of
applicable law and the Merger Agreement necessary to effect the Merger, upon
filing of the Certificate of Merger with and acceptance by the Secretary of
State of the State of California, the Merger will be effective.
2
<PAGE>
EXHIBIT K
<PAGE>
EXHIBIT L
RESIGNATIONS OF CERTAIN DIRECTORS
Ken Steel
Chas Bonner
<PAGE>
EXHIBIT M
CERTAIN PERSONS SUBJECT TO LOCK-UP RESTRICTIONS
Jethren Phillips
Neil Blomquist
John Battendieri
Joseph Stern
Dean Nicholson
Steven Reedy
<PAGE>
ANNEX C
CORPORATIONS CODE
ss. 1300 TO ss. 1304 (CA DISSENTER'S RIGHTS)
ss. 1300. Right to Require Purchase - "Dissenting Shares" and "Dissenting
Shareholder" Defined.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and Sections
1301, 1302, 1303 and 1304; provided, however, that this provision does not apply
to any shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided, further,
that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
<PAGE>
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. Leg.H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1982 ch. 36, effective
February 17, 1982, 1990 ch. 1018, 1993 ch. 543.
1993 Notes: Nothing in this act shall be construed to modify or alter the
prohibition contained in Sections 15503 and 15616 of the Corporations Code or
Section 1648 of the Insurance Code, or modify or alter any similar prohibition
relating to the operation of a business in limited partnership form. Stats. 1993
ch. 543 ss. 24.
Nothing in this act shall be construed to modify or impair any rights of
limited partners under the Thompson-Killea Limited Partners Protection Act of
1992 (Chapter 1183 of the Statutes of 1992). Stats. 1993 ch. 543 ss. 25.
Ref.: Ballantine & Sterling, Cal. Corp. Laws, Ch. 12, "Corporation
Acquisitions, Mergers, and Reorganizations"; Wood, Cal. Small Business Guide,
Ch. 35, "Tax-Free and Partially Tax- Free Mergers and Acquisitions."
ss. 1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) or paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
2.
<PAGE>
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price. Leg.H.
1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs. 501, 1155.
Ref.: Ballantine & Sterling, Cal. Corp. Laws, Ch. 12, "Corporation
Acquisitions, Mergers, and Reorganizations."
ss. 1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares. Leg.H. 1975 ch. 682, effective
January 1, 1977, 1986 ch. 766.
ss. 1303. Agreed Price - Time for Payment.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement. Leg.H. 1975 ch. 682, effective January
1, 1977, 1980 ch. 501, 1986 ch. 766.
Ref.: Ballantine & Sterling, Cal. Corp. Laws, Ch. 12, "Corporation
Acquisitions, Mergers, and Reorganizations"; Wood, Cal. Small Business Guide,
Ch. 35, "Tax-Free and Partially Tax-Free Mergers and Acquisitions."
ss. 1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
3.
<PAGE>
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. Leg.H. 1975 ch.
682, effective January 1, 1977.
Ref.: Ballantine & Sterling, Cal. Corp. Laws, Ch. 12, "Corporation
Acquisitions, Mergers, and Reorganizations"; Wood, Cal. Small Business Guide,
Ch. 35, "
4.
<PAGE>
ANNEX D
AMENDED AND RESTATED
ARTICLES OF INCORPORAITON
OF
SPECTRUM ORGANIC PRODUCTS, INC.
JOHN BATTENDIERI and RICHARD BACIGALUPI certify that:
1. They are the President and Secretary of Organic Food Products, Inc., a
California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows: 986900084I.
The name of this corporation is Spectrum Organic Products, 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 60,000,000 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 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.
<PAGE>
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 amended and restated articles of incorporation have been
duly approved by the board of directors.
4. The foregoing amended and restated 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 __________. 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%).
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: __________________, 1999
---------------------------------
__________________, President
---------------------------------
__________________, Secretary
2.
<PAGE>
ANNEX E
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into by
___________________, an individual ("Executive"), and Organic Food Products,
Inc., a California corporation ("Company"). This Agreement will be effective,
and Executive will become employed by Company, on ______________, 1999.
Recitals
WHEREAS, Company engages in the business of producing organic and natural
food products;
WHEREAS, Executive desires to become employed by Company as __________ of
its __________ Division on the terms and conditions set forth herein, and
Company desires to employ Executive on such terms and conditions;
NOW THEREFORE, in consideration of the foregoing recitals, the terms and
conditions set forth herein, and other valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
---------
1. Employment by Company; Term of Employment.
1.1. Full Time and Best Efforts. Subject to the terms and conditions set
forth in this Agreement, Company agrees to employ Executive as
_________ of its _________ Division, and Executive hereby accepts this
employment. During his term of employment with Company, Executive will
devote his full time and best efforts to performing his duties and to
Company's business and affairs.
1.2. Duties. Executive shall serve in an executive capacity and shall
perform such duties as are consistent with his position as ___________
of Company's ______________ Division and as may be reasonably required
by Company's Board of Directors (the "Board"). Such duties shall
include, without limitation, leading and coordinating Company's
efforts to develop and implement strategic and operating plans for
Company (including, without limitation, the production, manufacture,
marketing, distribution, and sale of Company products); executing
day-to-day general management of Company; developing relationships
with new distributors, customers, and suppliers; maintaining and
solidifying relationships with Company's existing distributors,
customers, and suppliers; and supporting the development and growth of
Company.
1.3. Company Policies. The employment relationship between the parties
shall be governed by the general employment policies and practices of
Company, including but not limited to those relating to protecting
confidential information and assignment of inventions; provided,
however, that when the terms of this Agreement differ from or are in
conflict with Company's general employment policies or practices, this
Agreement shall control.
<PAGE>
1.4. Term. The initial term of employment of Executive under this Agreement
shall begin on the effective date of this Agreement and end on the
third anniversary of that date (such 3-year period is the "Initial
Term"). The Initial Term, together with any extensions, is referred to
herein as the "Term".
1.5. Renewal. Unless Company or Executive has given the other party written
notice at least 90 days before the end of the Initial Term that this
Agreement shall not be renewed, the term and other provisions of this
Agreement shall be automatically extended for a one-year period; this
procedure shall be followed in each such successive yearly period.
2. Compensation and Benefits.
2.1. Salary. Executive shall receive for services rendered an annual base
salary of One Hundred Fifty Thousand Dollars ($150,000.00) (the "Base
Salary") payable twice monthly, subject to standard withholding for
taxes, Social Security, and the like.
2.2. Participation in Benefit Plans. During the term of this Agreement,
Executive shall be entitled to participate in any group insurance,
hospitalization, medical, dental, health and accident, disability, or
similar plan or program of Company now existing or established
hereafter. Company may, in its sole discretion and from time to time,
establish additional senior management benefit programs as it deems
appropriate. Executive understands that any such plans may be modified
or eliminated in Company's discretion in accordance with applicable
law.
2.3. Vacation. Executive shall be entitled to annual paid vacation time of
four weeks per year. The days selected for Executive's vacation shall
be mutually agreeable to Company and Executive.
2.4. Car Expense. During the Term, Company shall provide Executive an
automobile, or shall lease a vehicle for Executive, and shall pay for
all gas, oil, maintenance and insurance expenses related to
Executive's operation of such vehicle.
2.5. Trade Association Dues. Company shall pay for all dues required by
Executive for Executive's membership in any industry or trade
associations, professional organizations or organizations reasonably
related to the operation of Company or its operating subsidiaries.
2.
<PAGE>
3. Options and Bonus Plans.
3.1. Options. Concurrent with this Agreement, Executive shall receive the
right to participate in Company stock option plans on terms and
conditions then in effect for similar Company executives, such plans
to be in effect no later than December 31, 1999.
3.2. Bonuses. Executive shall be eligible for an annual bonus in amounts
determined in accordance with performance objectives; such amounts
will be paid to Executive within 90 days after the end of each such
calendar year. For other calendar years during which this Agreement is
in effect, Executive shall receive bonuses based on Company's
performance (as measured by Company's revenues and earnings before
interest and taxes) during such calendar year, the amount of the
bonuses to be established in good faith by the Compensation Committee
of the Board of Directors before the start of each calendar year, each
bonus to be paid to Executive within 90 days following that calendar
year.
3.3. Retirement Benefits. Company shall establish a 401(k) plan in which
Executive shall be entitled to participate fully.
3.4. Life Insurance. Company shall provide a life insurance policy payable
to the estate of Executive throughout the term of this Agreement in an
amount equal to or greater than two years of Executive's annual
salary.
4. Reasonable Business Expenses and Support.
Executive shall be reimbursed for documented and reasonable business
expenses, including any attendance at trade shows, in connection with the
performance of his duties under this Agreement and in accordance with Company's
general policies on business expenses. Executive shall be furnished reasonable
office space, assistance, and facilities.
5. Termination of Employment; Termination Date.
The date on which Executive's employment by Company is deemed to have
ceased, as defined in the provisions below, is referred to as the "Termination
Date".
5.1. Termination for Cause.
a. Termination; Payment of Accrued Salary and Vacation. The Board
may terminate Executive's employment with Company at any time for
"cause" (as defined below), immediately on written notice to
Executive of the circumstances leading to termination for cause.
If Executive's employment is terminated under this paragraph (a),
Executive shall receive payment for all accrued salary, vacation
time, and benefits under Company's benefit plans through the
Termination Date, which for purposes of this paragraph (a) shall
3.
<PAGE>
be the date on which notice of termination is given. The Company
shall have no further obligation to pay any compensation of any
kind (including, without limitation, any bonus or portion of a
bonus that otherwise may have become due and payable to Executive
with respect to the year in which such Termination Date occurs,
which for purposes of this Agreement shall be the date specified
in Company's notice) or severance payment of any kind nor to make
any payment in lieu of notice. All benefits provided by Company
to Executive under this Agreement or otherwise shall cease on the
Termination Date.
b. Definition of Cause. "Cause" means the occurrence or existence of
any of the following with respect to Executive, as determined by
a majority of the disinterested directors of the Board: (1) any
act of misappropriation, embezzlement, intentional fraud, or
similar conduct by Executive involving Company or its affiliates;
or (2) the conviction or the plea of nolo contendere or the
equivalent in respect of a felony involving moral turpitude.
5.2. Voluntary Termination. Executive may voluntarily terminate his
employment with Company at any time on 90 days' prior written notice.
If Executive provides such notice, Company, at its discretion, may
accelerate the termination of Executive's employment to any date after
its receipt of such notice from Executive and before the date of the
termination specified in such notice from Executive. Any acceleration
of the termination of Executive's employment shall be effective on
written notice being delivered to Executive by Company. On any such
acceleration by Company, Executive shall not be entitled to any
payment in lieu of notice. If Executive's employment is terminated
under this section 5.2, Executive shall receive payment for all
accrued salary, vacation time, and benefits under Company's benefit
plans through the Termination Date, which for purposes of this section
5.2 shall be the date on which the 90 days referred to above expires.
Company shall also pay to Executive a prorated bonus based on the then
applicable bonus plan in an amount equal to the bonus that would
otherwise be paid for the fiscal year in which Executive is
terminated, multiplied by a fraction, the numerator of which is the
number of days that Executive was employed during that year, and the
denominator of which is 365, it being understood that this prorated
bonus will be payable in accordance with Company's normal bonus
payment policy, but in no event later than 90 days after the end of
the fiscal year in which Executive's employment is terminated. All
benefits provided by Company to Executive under this Agreement or
otherwise shall cease on the Termination Date.
5.3. Termination on Disability. Company may terminate Executive's
employment if Executive suffers a disability that renders Executive
unable, as determined in good faith by the Board, to perform the
essential functions of the position, even with reasonable
accommodation, for four months in any 12-month period. If Executive's
4.
<PAGE>
employment is terminated under this section 5.3, Executive shall
receive payment for all Base Salary, vacation time, and benefits under
Company benefit plans through the Term. Company shall also pay to
Executive a prorated bonus based on the then applicable bonus plan in
an amount equal to the bonus that would otherwise be paid for the
fiscal year in which Executive is terminated, multiplied by a
fraction, the numerator of which is the number of days that Executive
was employed during that year, and the denominator of which is 365, it
being understood that this prorated bonus will be payable in
accordance with Company's normal bonus payment policy, but in no event
later than 90 days after the end of the fiscal year in which
Executive's employment is terminated. All benefits provided under
section 2.2 shall be extended, at Executive's election and Company's
expense, to the extent permitted by Company's insurance policies and
benefit plans, for six months after Executive's Termination Date,
except as required by law (e.g., COBRA health insurance continuation
election).
5.4. Termination Without Cause.
a. Termination Payment. On 60 days' prior written notice, Company
may terminate Executive without "cause" (as defined in paragraph
(b) of section 5.1); provided, however, that Company reserves the
right to terminate Executive's employment immediately and provide
60 days' pay in lieu of notice to Executive. If Executive's
employment is terminated under this section 5.3, Executive shall
receive payment for all Base Salary, vacation time, and benefits
under Company benefit plans for a twelve (12) month period
following the Termination Date. Company shall also pay to
Executive a prorated bonus based on the then applicable bonus
plan in an amount equal to the bonus that would otherwise be paid
for the fiscal year in which Executive is terminated, multiplied
by a fraction, the numerator of which is the number of days that
Executive was employed during that year, and the denominator of
which is 365, it being understood that this prorated bonus will
be payable in accordance with Company's normal bonus payment
policy, but in no event later than 90 days after the end of the
fiscal year in which Executive's employment is terminated.
Company shall provide Executive with outplacement services
equivalent in value to 10% of the Base Salary or pay Executive an
equivalent amount in cash.
b. Other Circumstances. In the event of substantial diminution in
Executive's duties, authority, pay, or responsibilities without
performance or market justification, Executive may terminate his
employment; provided, however, that Executive shall give Company
30 days' written notice before any such termination, specifying
the nature of the circumstance allegedly justifying such
termination by Executive, and Company shall have until the end of
such 30-day period to cure such circumstances in all material
respects. A termination in these circumstances shall be treated
as a Company termination without cause, and Executive shall be
5.
<PAGE>
entitled to the severance payments and benefits as set forth in
paragraph (a) above. The Termination Date under this paragraph
(b) shall be the day after the 30-day cure period expires if
Company fails to cure those circumstances in all material
respects by the expiration of that cure period.
5.5. Termination on Death. If Executive dies before the term of this
Agreement expires, Company shall pay to Executive's estate all
Base Salary, vacation time, benefits under Company benefit plans
and proceeds from Executive's life insurance policy.
6. Proprietary Information Obligations.
During the term of employment under this Agreement, Executive will have
access to and become acquainted with Company's confidential and proprietary
information (collectively, "Proprietary Information"), including but not limited
to information or plans concerning Company's customer relationships; personnel;
sales, marketing, and financial operations and methods; trade secrets; formulas;
devices; secret inventions; processes; and other compilations of information,
records, and specifications. Executive shall not disclose any of Company's
proprietary information directly or indirectly, or use it in any way, either
during the term of this Agreement or at any time thereafter, except as
reasonably necessary in the course of his employment for Company or as
authorized in writing by Company. All files, records, documents,
computer-recorded or electronic information, drawings, specifications,
equipment, and similar items relating to Company business, whether prepared by
Executive or otherwise coming into his possession, shall remain Company's
exclusive property and shall not be removed from Company premises under any
circumstances whatsoever without Company's prior written consent, except when
(and only for the period) necessary to carry out Executive's duties hereunder,
and if removed shall be immediately returned to Company on termination of
employment, and no copies shall be kept by Executive.
7. Noninterference.
While employed by Company and for two years thereafter, Executive agrees
not to (a) solicit or attempt to solicit, directly or indirectly, any employee,
customer, or supplier of Company; or (b) take any other action that may cause
any such employee, customer, or supplier to terminate or adversely alter his,
her, or its relationship with Company.
8. Noncompete.
Unless terminated without cause, while employed by Company and for three
years thereafter, Executive agrees not to, directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate, representative,
consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other
person, corporation, firm, partnership or other entity whatsoever which were
known to Executive to directly compete with the Company, throughout the world,
in any line of business engaged in (or planned to be engaged in) by the Company;
provided, however, that anything above to the contrary notwithstanding,
Executive may own, as a passive investor, securities of any competitor
6.
<PAGE>
corporation, so long as Executive's direct holdings in any one such corporation
shall not in the aggregate constitute more than 1% of the voting stock of such
corporation.
9. Dispute Resolution and Mediation.
Executive and Company agree that, if a dispute arises concerning or
relating to Executive's employment with Company, the dispute shall be submitted
to mediation. The mediation shall take place in Sonoma County, California, or in
the county where the Company's corporate headquarters is located. Executive and
Company agree that mediation will be the initial means of redress for any
disputes relating to or arising from Executive's employment with Company,
including disputes over rights provided by federal, state, or local statutes,
regulations, ordinances, and common law, including all laws that prohibit
discrimination based on any protected classification, and that the parties agree
to negotiate and participate in mediation in good faith
10. Miscellaneous Provisions.
10.1.Notices. Any notices provided hereunder must be in writing and shall
be deemed effective on the earlier of personal delivery (including
personal delivery by telecopy or telex) or the third day after mailing
by first class mail to the recipient at the address indicated below:
To the Company:
To Executive:
- ---------------------
- ---------------------
- ---------------------
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
10.2.Severability. If any term, provision, or part of this Agreement is
found by a court to be invalid, illegal, or incapable of being
enforced by any rule of law or public policy, all other terms,
provisions, and parts of this Agreement shall nevertheless remain in
full force and effect as long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner
materially adverse to any party. On such determination that any term,
provision, or part of this Agreement is invalid, illegal, or incapable
7.
<PAGE>
of being enforced, this Agreement shall be deemed to be modified so as
to effect the parties' original intent as closely as possible to the
end that the transactions contemplated by this Agreement and the terms
and provisions of this Agreement are fulfilled to the greatest extent
possible.
10.3.Entire Agreement. This document constitutes the final, complete, and
exclusive embodiment of the entire agreement and understanding between
the parties related to the subject matter of this Agreement and
supersedes and preempts any prior or contemporaneous understandings,
agreements, or representations by or between the parties, written or
oral. Without limiting the generality of the foregoing, except as
provided in this Agreement, all understandings and agreements, written
or oral, relating to Executive's employment by Company, or the payment
of any compensation or the provision of any benefit in connection
therewith or otherwise, are hereby terminated and shall be of no
future force and effect.
10.4.Counterparts. This Agreement may be executed on separate copies, any
one of which need not contain signatures of more than one party, but
all of which taken together will constitute one and the same
agreement.
10.5.Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and Company, and
their respective successors and assigns, except that Executive may not
assign any of his rights or duties under this Agreement without
Company's prior written consent.
10.6.Attorney Fees. If any legal proceeding is necessary to enforce or
interpret the terms of this Agreement, or to recover damages for
breach of this Agreement, the prevailing party shall be entitled to
reasonable attorney fees, as well as costs and disbursements, in
addition to any other relief to which the prevailing party may be
entitled.
10.7.Amendments. No amendments or other modifications to this Agreement
may be made except by a writing signed by both parties. Except for
Executive's estate under section 5.5, nothing in this Agreement,
express or implied, is intended to confer on any third person any
rights or remedies under or because of this Agreement.
10.8.Choice of Law. All questions concerning the construction, validity,
and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of California.
8.
<PAGE>
IN WITNESS WHEREOF AND WITH INTENT TO BE BOUND, the parties now execute
this Agreement, to be effective on the date it is last executed below by either
party.
Executive:
_________________________________ Dated: ________________, 1999
Company:
ORGANIC FOOD PRODUCTS, INC., a California corporation
By: ______________________________
By: ______________________________
9.
<PAGE>
ANNEX F
June ___, 1999
Organic Food Products, Inc.
55 Monterey Road
Morgan Hill, California 95037
Ladies and Gentlemen:
The undersigned is a shareholder or has rights to acquire shares of common
stock, without par value ("Common Stock"), of Organic Food Products, Inc. (the
"Company") and wishes to facilitate the transactions (the "Mergers")
contemplated in (1) the Agreement and Plan of Merger and Reorganization dated
May 14, 1999 (the "Spectrum Merger Agreement") by and between the Company and
Spectrum Naturals, Inc., (2) the Agreement and Plan of Merger and Reorganization
dated May 14, 1999 (the "OI Merger Agreement") by and between the Company and
Organic Ingredients, Inc. and (3) a Registration Statement on Form S-4,
including a joint proxy statement/prospectus (the "Registration Statement") to
be transmitted for filing with the Securities and Exchange Commission on or
about June 18, 1999.
In consideration of the foregoing, and in order to induce you to proceed with
the Mergers, the undersigned hereby irrevocably agrees that it will not,
directly or indirectly, sell, offer, contract to sell, transfer the economic
risk of ownership in, make any short sale, pledge or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock, without
the prior written consent of the Company's Board of Directors, for a period
beginning on the date hereof and ending on the date one year from the date of
the closing of the Mergers (the "Lock-Up Period").
Notwithstanding the foregoing, if the undersigned is an individual, he or she
may transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for the Company's Common Stock either during his or
her lifetime or on death by will or intestacy to his or her immediate family or
to a trust the beneficiaries of which are exclusively the undersigned and/or a
member or members of his or her immediate family; provided, however, that prior
to any such transfer each transferee shall execute an agreement, satisfactory to
the Company, pursuant to which each transferee shall agree to receive and hold
such shares of Common Stock, or securities convertible into or exchangeable or
exercisable for the Common Stock, subject to the provisions hereof, and there
shall be no further transfer except in accordance with the provisions hereof.
For the purposes of this paragraph, "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor.
The undersigned hereby waives any rights of the undersigned to sell shares of
Common Stock or any other security issued by the Company pursuant to the Mergers
or the Registration Statement, and acknowledges and agrees that during the
Lock-Up Period the undersigned has no right to require the Company to register
under the Securities Act of 1933 such Common Stock or other securities issued by
the Company and beneficially owned by the undersigned.
<PAGE>
Organic Food Products, Inc.
June __, 1999
Page 2
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of Common Stock or other securities of the Company held by
the undersigned except in compliance with this agreement.
Very truly yours,
Dated:
--------------------- -------------------------------------
Signature
------------------------------------
Printed Name and Title
<PAGE>
ANNEX G
VOTING AGREEMENT
THIS VOTING AGREEMENT is entered into as of May 14, 1999, by and BETWEEN
SPECTRUM NATURALS, INC., a California corporation ("SNI"), and _______________
("Shareholder").
RECITALS
A. and Organic Food Products, Inc., a California corporation (the
"Company") are entering into an Agreement and Plan of Merger and Reorganization
of even date herewith (the "Reorganization Agreement") which provides (subject
to the conditions set forth therein) for the merger of SNI with and into the
Company (the "Merger").
B. In order to induce SNI to enter into the Reorganization Agreement,
Shareholder is entering into this Voting Agreement.
AGREEMENT
The parties to this Voting Agreement, intending to be legally bound, agree
as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Voting Agreement:
(a) "Company Common Stock" shall mean the common stock, no par value,
of the Company.
(b) "Expiration Date" shall mean the earlier of (i) the date upon
which the Reorganization Agreement is validly terminated, or (ii) the date upon
which the Merger becomes effective.
(c) Shareholder shall be deemed to "Own" or to have acquired
"Ownership" of a security if Shareholder: (i) is the record owner of such
security; or (ii) is the "beneficial owner" (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934) of such security.
(d) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental authority.
(e) "Subject Securities" shall mean: (i) all securities of the Company
(including all shares of Company Common Stock and all options, warrants and
other rights to acquire shares of Company Common Stock) Owned by Shareholder as
of the date of this Agreement; and (ii) all additional securities of the Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company Common Stock) of
which Shareholder acquires Ownership during the period from the date of this
Agreement through the Expiration Date.
<PAGE>
(f) A Person shall be deemed to have effected a "Transfer" of a
security if such Person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security; or (ii) enters into an agreement or commitment
contemplating the possible sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
SECTION 2. TRANSFER OF SUBJECT SECURITIES
2.1 Transferee of Subject Securities to be Bound by this Agreement.
Shareholder agrees that, during the period from the date of this Voting
Agreement through the Expiration Date, Shareholder shall not cause or permit any
Transfer of any of the Subject Securities to be effected unless each Person to
which any of such Subject Securities, or any interest in any of such Subject
Securities, is or may be transferred shall have: (a) executed a counterpart of
this Voting Agreement and a proxy in the form attached hereto as Exhibit A (with
such modifications as SNI may reasonably request); and (b) agreed to hold such
Subject Securities (or interest in such Subject Securities) subject to all of
the terms and provisions of this Voting Agreement.
2.2 Transfer of Voting Rights. Shareholder agrees that, during the period
from the date of this Voting Agreement through the Expiration Date, Shareholder
shall ensure that: (a) none of the Subject Securities is deposited into a voting
trust; and (b) no proxy is granted, and no voting agreement or similar agreement
is entered into, with respect to any of the Subject Securities.
SECTION 3. VOTING OF SHARES
3.1 Voting Agreement. Shareholder agrees that, during the period from the
date of this Voting Agreement through the Expiration Date:
(a) at any meeting of shareholders of the Company, however
called, Shareholder shall (unless otherwise directed in writing by SNI)
cause all outstanding shares of Company Common Stock that are Owned by
Shareholder as of the record date fixed for such meeting to be voted in
favor of the approval and adoption of the Reorganization Agreement and
the approval of the Merger, and in favor of each of the other actions
contemplated by the Reorganization Agreement; and
(b) in the event written consents are solicited or otherwise
sought from shareholders of the Company with respect to the approval or
adoption of the Reorganization Agreement, with respect to the approval
of the Merger or with respect to any of the other actions contemplated
by the Reorganization Agreement, Shareholder shall (unless otherwise
directed in writing by SNI) cause to be executed, with respect to all
outstanding shares of Company Common Stock that are Owned by
Shareholder as of the record date fixed for the consent to the proposed
action, a written consent or written consents to such proposed action.
2.
<PAGE>
3.2 Proxy; Further Assurances.
(a) Contemporaneously with the execution of this Voting Agreement: (i)
Shareholder shall deliver to SNI a proxy in the form attached to this Voting
Agreement as Exhibit A, which shall be irrevocable to the fullest extent
permitted by law, with respect to the shares referred to therein (the "Proxy");
and (ii) Shareholder shall cause to be delivered to SNI an additional proxy (in
the form attached hereto as Exhibit A) executed on behalf of the record owner of
any outstanding shares of Company Common Stock that are owned beneficially
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934),
but not of record, by Shareholder.
(b) Shareholder shall, at his own expense, perform such further acts
and execute such further documents and instruments as may reasonably be required
to vest in SNI the power to carry out and give effect to the provisions of this
Voting Agreement.
SECTION 4. WAIVER OF APPRAISAL RIGHTS
Shareholder hereby irrevocably and unconditionally waives, and agrees to
cause to be waived and to prevent the exercise of, any rights of appraisal, any
dissenters' rights and any similar rights relating to the Merger or any related
transaction that Shareholder or any other Person may have by virtue of the
ownership of any outstanding shares of Company Common Stock Owned by
Shareholder.
SECTION 5. NO SOLICITATION
Shareholder agrees that, during the period from the date of this Voting
Agreement through the Expiration Date, Shareholder shall not, directly or
indirectly, and Shareholder shall ensure that his Representatives (as defined in
the Reorganization Agreement) do not, directly or indirectly: (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal (as defined in the Reorganization Agreement) or take any
action that could reasonably be expected to lead to an Acquisition Proposal;
(ii) furnish any information regarding the Company or any direct or indirect
subsidiary of the Company to any Person in connection with or in response to an
Acquisition Proposal or potential Acquisition Proposal; or (iii) engage in
discussions with any Person with respect to any Acquisition Proposal.
Shareholder shall immediately cease and discontinue, and Shareholder shall
ensure that his Representatives immediately cease and discontinue, any existing
discussions with any Person that relate to any Acquisition Proposal.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Shareholder hereby represents and warrants to SNI as follows:
6.1 Authorization, etc. Shareholder has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Voting
Agreement and the Proxy and to perform his obligations hereunder and thereunder.
3.
<PAGE>
This Voting Agreement and the Proxy have been duly executed and delivered by
Shareholder and constitute legal, valid and binding obligations of Shareholder,
enforceable against Shareholder in accordance with their terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
6.2 No Conflicts or Consents
(a) The execution and delivery of this Voting Agreement and the Proxy
by Shareholder do not, and the performance of this Voting Agreement and the
Proxy by Shareholder will not: (i) conflict with or violate any law, rule,
regulation, order, decree or judgment applicable to Shareholder or by which he
or any of his properties is or may be bound or affected; or (ii) result in or
constitute (with or without notice or lapse of time) any breach of or default
under, or give to any other Person (with or without notice or lapse of time) any
right of termination, amendment, acceleration or cancellation of, or result
(with or without notice or lapse of time) in the creation of any encumbrance or
restriction on any of the Subject Securities pursuant to, any contract to which
Shareholder is a party or by which Shareholder or any of his affiliates or
properties is or may be bound or affected.
(b) The execution and delivery of this Voting Agreement and the Proxy
by Shareholder do not, and the performance of this Voting Agreement and the
Proxy by Shareholder will not, require any consent or approval of any Person.
6.3 Title to Securities. As of the date of this Voting Agreement: (a)
Shareholder holds of record (free and clear of any encumbrances or restrictions)
the number of outstanding shares of Company Common Stock set forth under the
heading "Shares Held of Record" on the signature page hereof; (b) Shareholder
holds (free and clear of any encumbrances or restrictions) the options, warrants
and other rights to acquire shares of Company Common Stock set forth under the
heading "Options and Other Rights" on the signature page hereof; (c) Shareholder
Owns the additional securities of the Company set forth under the heading
"Additional Securities Beneficially Owned" on the signature page hereof; and (d)
Shareholder does not directly or indirectly Own any shares of capital stock or
other securities of the Company, or any option, warrant or other right to
acquire (by purchase, conversion or otherwise) any shares of capital stock or
other securities of the Company, other than the shares and options, warrants and
other rights set forth on the signature page hereof.
6.4 Accuracy of Representations. The representations and warranties
contained in this Voting Agreement are accurate in all respects as of the date
of this Voting Agreement, will be accurate in all respects at all times through
the Expiration Date and will be accurate in all respects as of the date of the
consummation of the Merger as if made on that date.
SECTION 7. ADDITIONAL COVENANTS OF SHAREHOLDER
7.1 Further Assurances. From time to time and without additional
consideration, Shareholder shall (at Shareholder's sole expense) execute and
deliver, or cause to be executed and delivered, such additional transfers,
4.
<PAGE>
assignments, endorsements, proxies, consents and other instruments, and shall
(at Shareholder's sole expense) take such further actions, as SNI may request
for the purpose of carrying out and furthering the intent of this Voting
Agreement.
7.2 Legend. Immediately after the execution of this Voting Agreement (and
from time to time upon the acquisition by Shareholder of Ownership of any shares
of Company Common Stock prior to the Expiration Date), Shareholder shall ensure
that each certificate evidencing any outstanding shares of Company Common Stock
or other securities of the Company Owned by Shareholder bears a legend in the
following form:
THE SECURITY OR SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE VOTING AGREEMENT DATED
AS OF MAY 10, 1999, BETWEEN THE HOLDER HEREOF AND SPECTRUM NATURALS,
INC., AS IT MAY BE AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF SPECTRUM NATURALS, INC.
SECTION 8. MISCELLANEOUS
8.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements made by Shareholder in
this Voting Agreement shall survive (i) the consummation of the Merger, (ii) any
termination of the Reorganization Agreement, and (iii) the Expiration Date.
8.2 Indemnification. Shareholder shall hold harmless and indemnify SNI and
SNI's affiliates from and against, and shall compensate and reimburse SNI and
SNI's affiliates for, any loss, damage, claim, liability, fee (including
attorneys' fees), demand, cost or expense (regardless of whether or not such
loss, damage, claim, liability, fee, demand, cost or expense relates to a
third-party claim) that is directly or indirectly suffered or incurred by SNI or
any of SNI's affiliates, or to which SNI or any of SNI's affiliates otherwise
becomes subject, and that arises directly or indirectly from, or relates
directly or indirectly to, (a) any inaccuracy in or breach of any representation
or warranty contained in this Voting Agreement, or (b) any failure on the part
of Shareholder to observe, perform or abide by, or any other breach of, any
restriction, covenant, obligation or other provision contained in this Voting
Agreement or in the Proxy.
8.3 Expenses. All costs and expenses incurred in connection with the
transactions contemplated by this Voting Agreement shall be paid by the party
incurring such costs and expenses.
8.4 Notices. Any notice or other communication required or permitted to be
delivered to either party under this Voting Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by facsimile) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other party):
5.
<PAGE>
if to Shareholder:
at the address set forth below Shareholder's
signature on the signature page hereof
if to SNI:
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, CA 94951
Attn: Chief Executive Officer
Fax: (707) 765-1026
8.5 Severability. If any provision of this Voting Agreement or any part of
any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) the
invalidity or unenforceability of such provision or part thereof shall not
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Voting Agreement. Each
provision of this Voting Agreement is separable from every other provision of
this Voting Agreement, and each part of each provision of this Voting Agreement
is separable from every other part of such provision.
8.6 Entire Agreement. This Voting Agreement, the Proxy and any other
documents delivered by the parties in connection herewith constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings between the
parties with respect thereto. No addition to or modification of any provision of
this Voting Agreement shall be binding upon either party unless made in writing
and signed by both parties.
8.7 Assignment; Binding Effect. Except as provided herein, neither this
Voting Agreement nor any of the interests or obligations hereunder may be
assigned or delegated by Shareholder and any attempted or purported assignment
or delegation of any of such interests or obligations shall be void. Subject to
the preceding sentence, this Voting Agreement shall be binding upon Shareholder
and his heirs, estate, executors, personal representatives, successors and
assigns, and shall inure to the benefit of SNI and its successors and assigns.
Without limiting any of the restrictions set forth in Section 2 or elsewhere in
this Voting Agreement, this Voting Agreement shall be binding upon any Person to
whom any Subject Securities are transferred. Nothing in this Voting Agreement is
intended to confer on any Person (other than SNI and its successors and assigns)
any rights or remedies of any nature.
6.
<PAGE>
8.8 Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Voting Agreement or the
Proxy was not performed in accordance with its specific terms or was otherwise
breached. Shareholder agrees that, in the event of any breach or threatened
breach by Shareholder of any covenant or obligation contained in this Voting
Agreement or in the Proxy, SNI shall be entitled (in addition to any other
remedy that may be available to it, including monetary damages) to seek and
obtain (a) a decree or order of specific performance to enforce the observance
and performance of such covenant or obligation, and (b) an injunction
restraining such breach or threatened breach. Shareholder further agrees that
neither SNI nor any other Person shall be required to obtain, furnish or post
any bond or similar instrument in connection with or as a condition to obtaining
any remedy referred to in this Section 8.8, and Shareholder irrevocably waives
any right he may have to require the obtaining, furnishing or posting of any
such bond or similar instrument.
8.9 Non-Exclusivity. The rights and remedies of SNI under this Voting
Agreement are not exclusive of or limited by any other rights or remedies which
it may have, whether at law, in equity, by contract or otherwise, all of which
shall be cumulative (and not alternative). Without limiting the generality of
the foregoing, the rights and remedies of SNI under this Voting Agreement, and
the obligations and liabilities of Shareholder under this Voting Agreement, are
in addition to their respective rights, remedies, obligations and liabilities
under common law requirements and under all applicable statutes, rules and
regulations. Nothing in this Voting Agreement shall limit any of Shareholder's
obligations, or the rights or remedies of SNI, under any Affiliate Agreement
between SNI and Shareholder; and nothing in any such Affiliate Agreement shall
limit any of Shareholder's obligations, or any of the rights or remedies of SNI,
under this Voting Agreement.
8.10 Governing Law; Venue.
(a) This Voting Agreement and the Proxy shall be construed in
accordance with, and governed in all respects by, the laws of the State of
California (without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this Voting
Agreement or the Proxy or the enforcement of any provision of this Voting
Agreement or the Proxy may be brought or otherwise commenced in any state or
federal court located in the County of San Francisco, California. Shareholder:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of
San Francisco, California (and each appellate court located in the
State of California), in connection with any such legal proceeding;
(ii) agrees that service of any process, summons, notice or
document by U.S. mail addressed to him at the address set forth in
Section 8.4 shall constitute effective service of such process,
summons, notice or document for purposes of any such legal proceeding;
7.
<PAGE>
(iii) agrees that each state and federal court located in the
County of San Francisco, California, shall be deemed to be a convenient
forum; and
(iv) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or
federal court located in the County of San Francisco, California, any
claim that Shareholder is not subject personally to the jurisdiction of
such court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is improper or
that this Voting Agreement or the subject matter of this Voting
Agreement may not be enforced in or by such court.
Nothing contained in this Section 8.10 shall be deemed to limit or otherwise
affect the right of SNI to commence any legal proceeding or otherwise proceed
against Shareholder in any other forum or jurisdiction.
(c) SHAREHOLDER IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS VOTING AGREEMENT OR THE
PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS VOTING AGREEMENT OR THE PROXY.
8.11 Counterparts. This Voting Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
8.12 Captions. The captions contained in this Voting Agreement are for
convenience of reference only, shall not be deemed to be a part of this Voting
Agreement and shall not be referred to in connection with the construction or
interpretation of this Voting Agreement.
8.13 Attorneys' Fees. If any legal action or other legal proceeding
relating to this Voting Agreement or the enforcement of any provision of this
Voting Agreement is brought against Shareholder, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
8.14 Waiver. No failure on the part of SNI to exercise any power, right,
privilege or remedy under this Voting Agreement, and no delay on the part of SNI
in exercising any power, right, privilege or remedy under this Voting Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. SNI shall not be deemed to have waived any claim available
to SNI arising out of this Voting Agreement, or any power, right, privilege or
remedy of SNI under this Voting Agreement, unless the waiver of such claim,
power, right, privilege or remedy is expressly set forth in a written instrument
duly executed and delivered on behalf of SNI; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
8.
<PAGE>
8.15 Construction.
(a) For purposes of this Voting Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(b) The parties agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied
in the construction or interpretation of this Voting Agreement.
(c) As used in this Voting Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this Voting
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Voting Agreement and Exhibits to this Voting Agreement.
IN WITNESS WHEREOF, SNI and Shareholder have caused this Voting Agreement
to be executed as of the date first written above.
SPECTRUM NATURALS, INC.
By:
-------------------------------
Jethren Phillips, CEO
SHAREHOLDER:
----------------------------------
Name:
Address:
--------------------------
Facsimile:
--------------
Additional Securities
Shares Held of Record Options and Other Rights Beneficially Owned
- --------------------- ------------------------ ------------------
9.
<PAGE>
EXHIBIT A
FORM OF IRREVOCABLE PROXY
The undersigned shareholder of Organic Food Products, Inc., a California
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Jethren Phillips and Spectrum Naturals, Inc., a
California corporation ("SNI"), and each of them, the attorneys and proxies of
the undersigned with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to (i) the outstanding shares of
capital stock of the Company owned of record by the undersigned as of the date
of this proxy, which shares are specified on the final page of this proxy, and
(ii) any and all other shares of capital stock of the Company which the
undersigned may acquire on or after the date hereof. (The shares of the capital
stock of the Company referred to in clauses "(i)" and "(ii)" of the immediately
preceding sentence are collectively referred to as the "Shares.") Upon the
execution hereof, all prior proxies given by the undersigned with respect to any
of the Shares are hereby revoked, and the undersigned agrees that no subsequent
proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Voting Agreement, dated as of the date hereof, between SNI
and the undersigned (the "Voting Agreement"), and is granted in consideration of
SNI entering into the Agreement and Plan of Merger and Reorganization, dated as
of the date hereof, between SNI and the Company (the "Reorganization
Agreement").
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Reorganization Agreement or the effective time of the
merger contemplated thereby (the "Merger") at any meeting of the shareholders of
the Company, however called, or in connection with any solicitation of written
consents from shareholders of the Company, in favor of the approval and adoption
of the Reorganization Agreement and the approval of the Merger, and in favor of
each of the other actions contemplated by the Reorganization Agreement.
The undersigned may vote the Shares on all other matters.
This proxy shall be binding upon the heirs, estate, executors, personal
representatives, successors and assigns of the undersigned (including any
transferee of any of the Shares).
If any provision of this proxy or any part of any such provision is held
under any circumstances to be invalid or unenforceable in any jurisdiction, then
(a) such provision or part thereof shall, with respect to such circumstances and
in such jurisdiction, be deemed amended to conform to applicable laws so as to
be valid and enforceable to the fullest possible extent, (b) the invalidity or
unenforceability of such provision or part thereof under such circumstances and
in such jurisdiction shall not affect the validity or enforceability of such
provision or part thereof under any other circumstances or in any other
jurisdiction, and (c) the invalidity or unenforceability of such provision or
A-1
<PAGE>
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or enforceability of any other provision of this
proxy. Each provision of this proxy is separable from every other provision of
this proxy, and each part of each provision of this proxy is separable from
every other part of such provision.
This proxy shall terminate upon the earlier of the valid termination of the
Reorganization Agreement or the effective time of the Merger.
Dated: ________, 1999.
------------------------------------
Name
Number of shares of common stock of
the Company owned of record as of
the date of this proxy:
------------------------------------
A-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit
Number Description of Exhibits
2.1 Agreement and Plan of Merger and Reorganization, dated as of May 14,
1999, between Registrant and Organic Ingredients, Inc. Reference is
made to Annex A of the Joint Proxy Statement/Prospectus that is
included in the Registration Statement.
2.2 Agreement and Plan of Merger and Reorganization, dated May 14, 1999,
between Registrant and Spectrum Naturals, Inc. Reference is made to
Annex B of the Joint Proxy Statement/Prospectus that is included in
the Registration Statement.
2.3 Form of Employment Agreement Reference is made to Annex E of the Joint
Proxy Statement/Prospectus that is included in the Registration
Statement.
2.4 Form of Shareholder Lock-up Agreement. Reference is made to Annex F of
the Joint Proxy Statement/Prospectus that is included in the
Registration Statement.
2.5 Form of Certificate of Merger between Organic Ingredients, Inc. and
Registrant.
2.6 Form of Certificate of Merger between Spectrum Naturals, Inc. and
Registrant.
3.1 Certificate of Amendment of Articles of Incorporation of Garden Valley
Naturals, Inc. filed with the California Secretary of State on
September 18, 1996.
3.2 Form of Amended and Restated Articles of Incorporation of Registrant.
Reference is made to Annex D of the Joint Proxy Statement/Prospectus
that is included in the Registration Statement.
3.3 Bylaws of Registrant.
3.4 Form of Restated Bylaws of Registrant.
5.1 Form of Opinion of Carr, McClellan, Ingersoll, Thompson & Horn P.C.
5.2 Form of Opinion of Cooley Godward LLP.
5.3 Form of Opinion of Bosso, Williams, Sachs, Book, Atack & Gallagher, A
Professional Corporation ("Bosso, Williams").
8.1 Form of Tax Opinion of Carr, McClellan, Ingersoll, Thompson & Horn
P.C.
8.2 Form of Tax Opinion of Cooley Godward, LLP.
8.3 Form of Tax Opinion of Bosso, Williams.
10.1 Form of Voting Agreement, dated as of May 14, 1999, between Spectrum
Naturals, Inc. and certain shareholders of Registrant. Reference is
made to Annex G to the Joint Proxy Statement/Prospectus that is
included in the Registration Statement.
10.2 Redemption Agreement dated November 1, 1996 ("Redemption Agreement")
between Debora Bainbridge Phillips and Spectrum Naturals, Inc.
(including related Pledge Agreement dated June 6, 1997, Guaranty dated
June 6, 1997 of Jethren Phillips and Promissory Note dated June 1,
1997 of Spectrum Naturals, Inc.).
10.3 First Amendment to Redemption Agreement dated September 11, 1998.
10.4 Second Amendment to Redemption Agreement dated July 2, 1998.
10.5 Third Amendment to Redemption Agreement dated July 9, 1999.
10.6 Fourth Amendment to Redemption Agreement dated July 12, 1999.
21.1 Subsidiaries of Registrant.
23.1 Consent of Carr, McClellan, Ingersoll, Thompson & Horn P.C. Reference
is made to Exhibits 5.1 and 8.1.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibits 5.2 and
8.2.
II-1
<PAGE>
Exhibit
Number Description of Exhibits
23.3 Consent of Bosso, Williams. Reference is made to Exhibits 5.3 and 8.3.
23.4 Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
23.5 Consent of Semple & Cooper, LLP, Independent Certified Public
Accountants
23.6 Consent of Moss Adams LLP Independent Certified Public Accountants.
23.7 Consent of Hutchinson and Bloodgood LLP, Independent Certified Public
Accountants.
24.1 Power of Attorney. Reference is made to page II-4.
27.1 Financial Data Schedule - Organic Food Products, Inc.
99.1 Form of proxy card for the Registrant's Special Meeting of
Shareholders.
99.2 Form of proxy card for the Spectrum Naturals, Inc. Special Meeting of
Shareholders.
99.3 Form of proxy card for the Organic Ingredients, Inc. Special Meeting
of Shareholders.
- ----------
(b) Financial Statement of Schedules
None Required.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) 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
Securities Act of 1933;
(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 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(3) 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.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement shall
II-2
<PAGE>
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.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, 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.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
(8) To supply by means of a post-effective amendment all required
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, 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 Securities Act
of 1933 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 whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 21st day of July,
1999.
ORGANIC FOOD PRODUCTS, INC.
By: /s/ John Battendieri
-----------------------------------
John Battendieri
Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John
Battendieri and Richard R. Bacigalupi, as his true and lawful attorney-in-fact
and agent, each with full power of substitution for him and in his name, place
and stead in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-of-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each said attorneys-in-fact
and agent or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ John Battendieri Chairman of the Board, Chief July 21, 1999
- ---------------------------- Executive Officer and Director
John Battendieri (Principal Executive Officer)
/s/ Richard R. Bacigalupi Chief Financial Officer July 21, 1999
- ---------------------------- (Principal Financial and
Richard R. Bacigalupi Accounting Officer)
/s/ Kenneth A. Steel, Jr. Director July 20, 1999
- ----------------------------
Kenneth A. Steel, Jr.
/s/ Charles Bonner Director July 20, 1999
- ----------------------------
Charles Bonner
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
2.1 Agreement and Plan of Merger and Reorganization, dated as of May 14,
1999, between Organic Food Products, Inc. ("OFPI") and Spectrum
Naturals, Inc. ("Spectrum"). Reference is made to Annex A of the Joint
Proxy Statement/Prospectus that is included in the Registration
Statement.
2.2 Agreement and Plan of Merger and Reorganization, dated May 14, 1999,
between OFPI and Organic Ingredients, Inc. Reference is made to Annex
B of the Joint Proxy Statement/Prospectus that is included in the
Registration Statement.
2.3 Form of Employment Agreement. Reference is made to Annex E of the
Joint Proxy Statement/Prospectus that is included in the Registration
Statement.
2.4 Form of Shareholder Lock-up Agreement. Reference is made to Annex F of
the Joint Proxy Statement/Prospectus that is included in the
Registration Statement
2.5 Form of Certificate of Merger between Spectrum Naturals, Inc. and
Organic Food Products, Inc.
3.1 Restated Articles of Incorporation of Garden Valley Naturals, Inc.
filed with the California Secretary of State on September 18, 1986.
3.2 Form of Amended and Restated Articles of Incorporation of Registrant.
Reference is made to Annex D of the Joint Proxy Statement/Prospectus
that is included in the Registration Statement.
3.3 Bylaws of Registrant.
3.4 Form of Restated Bylaws of Registrant.
5.1 Form of Opinion of Carr, McClellan, Ingersoll, Thompson & Horn P.C.
5.2 Form of Opinion of Cooley Godward LLP.
5.3 Form of Opinion of Bosso, Williams, Sachs, Book, Atack & Gallagher, A
Professional corporation ("Bosso, Williams").
8.1 Form of Tax Opinion of Carr, McClellan, Ingersoll, Thompson & Horn
P.C.
8.2 Form of Tax Opinion of Cooley Godward, LLP.
8.3 Form of Tax Opinion of Bosso, Williams.
10.1 Form of Voting Agreement, dated as of May 14, 1999, between Spectrum
Naturals, Inc. and certain shareholders of Registrant. Reference is
made to Annex G to the Joint Proxy Statement/Prospectus that is
included in the Registration Statement.
10.2 Redemption Agreement dated November 1, 1996 ("Redemption Agreement")
between Debora Bainbridge Phillips and Spectrum Naturals, Inc.
(including related Pledge Agreement dated June 6, 1997, Guaranty dated
June 6, 1997 of Jethren Phillips and Promissory Note dated June 6,
1997 of Spectrum Naturals, Inc.).
10.3 First Amendment to Redemption Agreement dated September 11, 1998.
10.4 Second Amendment to Redemption Agreement dated July 2, 1998.
10.5 Third Amendment to Redemption Agreement dated July 9, 1999.
10.6 Fourth Amendment to Redemption Agreement dated July 12, 1999.
21.1 Subsidiaries of Registrant.
23.1 Consent of Carr, McClellan, Ingersoll, Thompson & Horn P.C. Reference
is made to Exhibits 5.1 and 8.1.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibits 5.2 and
8.2.
23.3 Consent of Bosso, Williams. Reference is made to Exhibits 5.3 and 8.3.
23.4 Consent of BDO Seidman, LLP, Independent Certified Public Accountants.
23.5 Consent of Semple & Cooper, LLP, Independent Certified Public
Accountants
23.6 Consent of Moss Adams LLP, Independent Certified Public Accountants.
23.7 Consent of Hutchinson and Bloodgood LLP, Independent Certified Public
Accountants.
24.1 Power of Attorney. Reference is made to page II-4.
27.1 Financial Data Schedule - Organic Food Products, Inc.
II-5
<PAGE>
Exhibit
Number Description of Exhibits
99.1 Form of proxy card for the Registrant's Special Meeting of
Shareholders.
99.2 Form of proxy card for the Spectrum Naturals, Inc. Special Meeting of
Shareholders.
99.3 Form of proxy card for the Organic Ingredients, Inc. Special Meeting
of Shareholders.
II-6
EXHIBIT 2.5
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Joseph J. Stern and Andrew Poston certify that:
1. They are the President and the Secretary, respectively, of ORGANIC
INGREDIENTS, INC., a California corporation (the "Corporation").
2. The Agreement and Plan of Merger and Reorganization between the
Corporation and Organic Food Products, Inc., a California corporation, dated as
of May 14, 1999, a copy of which is attached hereto, was duly approved by the
Board of Directors and Shareholders of the Corporation.
3. The Shareholder approval was the holders of _____% of the outstanding
shares of the Corporation.
4. The authorized capital stock of the Corporation consists of 100,000
shares of common stock, of which, as of the date hereof, all shares are
outstanding.
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: __________, 1999 /s/ Joseph J. Stern
--------------------------------
Joseph J. Stern, President
/s/ Andrew Poston
--------------------------------
Andrew Poston, Secretary
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
John Battendieri and Richard Bacigalupi certify that:
5. They are the President and the Secretary, respectively, of ORGANIC FOOD
PRODUCTS, INC., a California corporation (the "Corporation").
6. The Agreement and Plan of Merger and Reorganization between the
Corporation and Organic Ingredients, Inc., a California corporation, dated as of
May 14, 1999, a copy of which is attached hereto, was duly approved by the Board
of Directors and Shareholders of the Corporation.
7. The Shareholder approval was the holders of _____% of the outstanding
shares of the Corporation.
8. The authorized capital stock of the Corporation consists of 20,000,000
shares of common stock, of which, as of the date hereof, approximately 7,567,002
shares are outstanding, and 5,000,000 shares of preferred stock, none of which
are outstanding as of the date hereof.
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: __________, 1999 /s/ John Battendieri
-------------------------------
John Battendieri, President
/s/ Richard Bacigalupi
-------------------------------
Richard Bacigalupi, Secretary
EXHIBIT 2.6
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Jethren Phillips and Neil Blomquist certify that:
1. They are the President and the Secretary, respectively, of SPECTRUM
NATURALS, INC., a California corporation (the "Corporation").
2. The Agreement and Plan of Merger and Reorganization between the
Corporation and Organic Food Products, Inc., a California corporation, dated as
of May 14, 1999, a copy of which is attached hereto, was duly approved by the
Board of Directors and Shareholders of the Corporation.
3. The Shareholder approval was the holders of _____% of the outstanding
shares of the Corporation.
4. The authorized capital of the Corporation consists of 100,000 shares of
common stock, of which, as of the date hereof, approximately 6,925 shares are
outstanding.
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: __________, 1999 /s/ Jethren Phillips
-------------------------------
Jethren Phillips, President
/s/ Neil Blomquist
-------------------------------
Neil Blomquist, Secretary
<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
John Battendieri and Richard Bacigalupi certify that:
5. They are the President and the Secretary, respectively, of ORGANIC FOOD
PRODUCTS, INC., a California corporation (the "Corporation").
6. The Agreement and Plan of Merger and Reorganization between the
Corporation and Spectrum Naturals, Inc., a California corporation, dated as of
May 14, 1999, a copy of which is attached hereto, was duly approved by the Board
of Directors and Shareholders of the Corporation.
7. The Shareholder approval was the holders of _____% of the outstanding
shares of the Corporation.
8. The authorized capital stock of the Corporation consists of 20,000,000
share of common stock, of which, as of the date hereof, approximately 7,567,002
shares are outstanding, and 5,000,000 shares of preferred stock, none of which
are outstanding as of the date hereof.
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: __________, 1999 /s/ John Battendieri
-----------------------------
John Battendieri, President
/s/ Richard Bacigalupi
-----------------------------
Richard Bacigalupi, Secretary
EXHIBIT 3.3
BYLAWS
OF
S & D FOODS, INC.
ARTICLE I
OFFICES
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.
1. 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
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.
1. ANNUAL MEETING. The annual meeting of share-holders 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.
1. SPECIAL MEETING. A special meeting of the share-holders 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.
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
<PAGE>
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 pro-visions 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.
1. 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.
1. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of
shareholders shall be given either 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
2.
<PAGE>
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 share-holder 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.
1. 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.
1. ADJOURNED MEETING; NOTICE THEREOF. Any share-holders' 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 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.
1. 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 pro-visions 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 share-holders' 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
3.
<PAGE>
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.
1. 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.
1. 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,
4.
<PAGE>
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.
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.
1. 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.
(a) 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.
5.
<PAGE>
1. 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.
1. 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.
(a) Receive votes, ballots, or consents:
(a) Hear and determine all challenges and questions in any way arising
in connection with
the right to vote;
(a) Count and tabulate all votes or consents;
(g) Determine when the polls shall close;
(a) Determine the result; and
6.
<PAGE>
(a) 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
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:
(j) 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.
(j) 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.
(j) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(j) Authorize the issuance of shares of stock of the corporation on
any lawful terms and for such consideration as may be lawful.
(j) 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, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities.
(j) 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.
1. 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
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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.
1. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at
each annual meeting of the share-holders 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.
1. 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 share-holders 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 share-holders
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.
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.
1. 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
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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.
1. 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.
1. 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.
1. 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 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.
1. 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 commit-tees), 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.
1. 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
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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.
1. ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
1. 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 Article III, to the directors who were not present at the time
of the adjournment.
1. 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.
1. 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
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:
(p) the approval of any action which, under the General Corporation
Law of California, also requires shareholders' approval or approval of the
outstanding shares;
(p) the filling of vacancies on the Board of Directors or in any
committee;
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(p) the fixing of compensation of the directors for serving on the
board or on any committee;
(p) the amendment or repeal of bylaws or the adoption of new bylaws;
(p) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(p) 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.
(p) the appointment of any other committees of the Board of Directors
or the members of these committees.
1. 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
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.
1. 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.
1. 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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1. 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.
1. 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.
1. 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.
1. 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
super-vision, direction, and control of the business and the officers of the
corporation. He shall preside at all meetings of the share-holders 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.
1. 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 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.
1. 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
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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 share-holders' 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.
1. 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.
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.
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ARTICLE VII
RECORDS AND REPORTS
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.
1. 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 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 share-holder 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
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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.
1. 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.
1. 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.
1. 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 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
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.
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1. 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
deter-mined by resolution of the Board of Directors.
1. 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.
1. 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
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.
1. 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.
1. 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.
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1. 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.
ARTICLE IX
AMENDMENTS
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 there-of 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."
Article II, Section 2, of the corporation's bylaws was amended by the Board of
Directors on October 7, 1998, to read in full as follows:
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
held on November 30 of each year at such time or on such other date as may be
fixed by the Board; provided, however, if this day falls of 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 of 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.
19.
EXHIBIT 3.4
EXHIBIT D
BYLAWS
OF
SPECTRUM ORGANIC PRODUCTS, 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 May 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 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.
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
(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;
(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.
<PAGE>
(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, 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 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.
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.
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.
<PAGE>
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 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.
<PAGE>
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 Article III, to the directors who were not present at the time
of the adjournment.
Section 113. 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.
<PAGE>
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;
(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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 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 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.
<PAGE>
ARTICLE VIII
General Corporate Matters
Section 7. 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 8. 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 9. 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 10. 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 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
<PAGE>
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 11. 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 12. 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 13. 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.
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
<PAGE>
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 Spectrum Organic
Products, 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 ___ day
of ______, 1999.
--------------------------------------
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Attest:
- --------------------------------
<PAGE>
Certificate Of Secretary
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Spectrum Organic
Products, Inc., a California corporation; and
2. That the foregoing bylaws, comprising __ 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 ___ day of ____ 1999.
-----------------------------------
Secretary
EXHIBIT J
Opinion of OFPI Counsel
1. Organic Food Products, Inc. ("OFPI") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California.
2. OFPI has the requisite corporate power to own, operate and lease its property
and assets and to conduct its business as it is currently being conducted. To
our knowledge, OFPI is qualified as a foreign corporation to do business and is
in good standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification except where the failure to so qualify would not materially and
adversely affect OFPI's business, financial condition and results of operations,
taken as a whole.
3. All corporate action on the part of OFPI, its Board of Directors and its
shareholders necessary for the authorization, execution and delivery of the
Merger Agreement by OFPI and the performance of OFPI's obligations under the
Merger Agreement has been taken. The Merger Agreement has been duly and validly
authorized, executed and delivered by OFPI and constitutes the valid and binding
agreement of OFPI enforceable against OFPI in accordance with its terms, except
as rights to indemnity under section 9.4 of the Merger Agreement may be limited
by applicable law and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
4. The authorized capital stock of OFPI consists of (i) __________________
shares of Common Stock, no par value, of which _________ shares have been issued
and are outstanding immediately prior to the Closing, (ii) 5,000,000 shares of
Preferred Stock, no par value, none of which are outstanding immediately prior
to the Closing. To our knowledge, except as expressly set forth in the Merger
Agreement (including the OFPI Disclosure Schedule), there are no options,
warrants, conversion privileges, or other rights presently outstanding to
purchase any authorized but unissued capital stock of OFPI. Except for
______________, there are no voting agreements, co-sale rights or rights of
first refusal applicable to any of OFPI's outstanding capital stock under OFPI's
Articles of Incorporation, Bylaws or any Material OFPI Contract disclosed in
Part 3.9(b) and Part 3.11(a) of the OFPI Disclosure Schedule.
5. The execution, delivery and performance by OFPI of the Merger Agreement and
the consummation by OFPI of the Merger as provided therein will not violate any
provision of OFPI's Articles of Incorporation or Bylaws, and do not constitute a
material default (or give rise to any right of termination, cancellation or
acceleration) under any provision of any Material OFPI Contract disclosed in
Part 3.9(b) and Part 3.11(a) of the OFPI Disclosure Schedule and do not violate
or contravene (A) to our knowledge, any governmental statute, rule or regulation
applicable to OFPI or (B) any order, writ, judgment, injunction, decree,
determination or award which has been entered against OFPI and of which we are
aware, the violation or contravention of which would have a material adverse
effect on OFPI's business, financial condition and results of operations, taken
as a whole.
<PAGE>
6. To our knowledge, there is no action, proceeding or investigation pending or
threatened in writing against OFPI before any court or administrative agency
that questions the validity of the Merger Agreement or might result in a
material adverse change in OFPI's business, financial condition and results of
operations, taken as a whole.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required to be obtained prior to the Closing in
connection with OFPI's execution, delivery and performance of the Merger
Agreement and the consummation by OFPI of the Merger as contemplated therein
have been made or obtained, other than the filing of the Certificate of Merger
with the Secretary of State of the State of California as contemplated by
Section 1.3 of the Merger Agreement.
8. The Merger Agreement has been duly authorized by OFPI's Board of Directors
and its shareholders and, assuming compliance by OFPI with all requirements of
applicable law and the Merger Agreement necessary to effect the Merger, upon
filing of the Certificate of Merger with and acceptance by the Secretary of
State of the State of California, the Merger will be effective.
2
EXHIBIT 5.2
EXHIBIT H
Opinion of Company Counsel
1. Spectrum Naturals, Inc. (the "Company") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of California.
2. The Company has the requisite corporate power to own, operate and lease its
property and assets and to conduct its business as it is currently being
conducted. To our knowledge, the Company is qualified as a foreign corporation
to do business and is in good standing in each jurisdiction in the United States
in which the ownership of its property or the conduct of its business requires
such qualification except where the failure to so qualify would not materially
and adversely affect the Company's business, financial condition and results of
operations, taken as a whole.
3. All corporate action on the part of the Company, its Board of Directors and
its shareholders necessary for the authorization, execution and delivery of the
Merger Agreement by the Company and the performance of the Company's obligations
under the Merger Agreement has been taken. The Merger Agreement has been duly
and validly authorized, executed and delivered by the Company and constitutes
the valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, except as rights to indemnity under section 9.5 of
the Merger Agreement may be limited by applicable law and except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance.
4. The authorized capital stock of the Company consists of (i) 100,000 shares of
Common Stock, no par value, of which _________ shares have been issued and are
outstanding immediately prior to the Closing, (ii) _____________ shares of
Preferred Stock, no par value, none of which are outstanding immediately prior
to the Closing. To our knowledge, except as expressly set forth in the Merger
Agreement (including the Company Disclosure Schedule), there are no options,
warrants, conversion privileges, or other rights presently outstanding to
purchase any authorized but unissued capital stock of the Company. Except for
______________, there are no voting agreements, co-sale rights or rights of
first refusal applicable to any of the Company's outstanding capital stock under
the Company's Articles of Incorporation, Bylaws or any Material Company Contract
disclosed in Part 2.9 and Part 2.11(a) of the Company Disclosure Schedule.
5. The execution, delivery and performance by the Company of the Merger
Agreement and the consummation by the Company of the Merger as provided therein
will not violate any provision of the Company's Articles of Incorporation or
Bylaws, and do not constitute a material default (or give rise to any right of
termination, cancellation or acceleration) under any provision of any Material
Company Contract disclosed in Part 2.9 and Part 2.11(a) of the Company
Disclosure Schedule and do not violate or contravene (A) to our knowledge, any
governmental statute, rule or regulation applicable to the Company or (B) any
order, writ, judgment, injunction, decree, determination or award which has been
entered against the Company and of which we are aware, the violation or
<PAGE>
contravention of which would have a material adverse effect on the Company's
business, financial condition and results of operations, taken as a whole.
6. To our knowledge, there is no action, proceeding or investigation pending or
threatened in writing against the Company before any court or administrative
agency that questions the validity of the Merger Agreement or might result in a
material adverse change in the Company's business, financial condition and
results of operations, taken as a whole.
7. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required to be obtained prior to the Closing in
connection with the Company's execution, delivery and performance of the Merger
Agreement and the consummation by the Company of the Merger as contemplated
therein have been made or obtained, other than the filing of the Certificate of
Merger with the Secretary of State of the State of California as contemplated by
Section 1.3 of the Merger Agreement.
8. The Merger Agreement has been duly authorized by the Company's Board of
Directors and its shareholders and, assuming compliance by the Company with all
requirements of applicable law and the Merger Agreement necessary to effect the
Merger, upon filing of the Certificate of Merger with and acceptance by the
Secretary of State of the State of California, the Merger will be effective.
2
EXHIBIT 8.1
____________, 1999
Organic Food Products, Inc.
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- ---------------------------
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 8.7 of the Agreement
and Plan of Merger and Reorganization dated as of _________ , 1999 (the
"Reorganization Agreement") by and between Organic Food Products, Inc., a
California corporation ("Acquiror"), and Organic Ingredients, Inc., a California
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Acquiror in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated __________, 1999 and
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Acquiror and the Company and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE>
(b) All representations, warranties and statements made or agreed to by
Acquiror and the Company, their managements, employees, officers, directors and
shareholders in connection with the Merger, including, but not limited to, those
set forth in the Reorganization Agreement (including the exhibits thereto) and
the Tax Representation Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Acquiror and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated __________, 1999 rendered by Bosso, Williams, Sachs,
Book, Atack & Gallagher, A Professional Corporation, to the Company with respect
to the qualification of the Merger as a reorganization within the meaning of
Section 368 of the Code has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
<PAGE>
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered pursuant to the Reorganization Agreement. It is
intended solely for the benefit of the Company and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
Carr, McClellan, Ingersoll, Thompson
& Horn Professional Corporation
EXHIBIT 8.2
Cooley Godward LLP
____________, 1999
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, California 94951
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 7.8 of the Agreement
and Plan of Merger and Reorganization dated as of _________ , 1999 (the
"Reorganization Agreement") by and between Organic Food Products, Inc., a
California corporation ("Acquiror"), and Spectrum Naturals, Inc., a California
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated __________, 1999 and
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Acquiror and the Company and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE>
Cooley Godward LLP
Spectrum Naturals, Inc.
- -----------------, 1999
Page Two
(b) All representations, warranties and statements made or agreed to by
Acquiror and the Company, their managements, employees, officers, directors and
shareholders in connection with the Merger, including, but not limited to, those
set forth in the Reorganization Agreement (including the exhibits thereto) and
the Tax Representation Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Acquiror and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated __________, 1999 rendered by Carr, McClellan,
Ingersoll, Thompson & Horn, P.C. to Acquiror with respect to the qualification
of the Merger as a reorganization within the meaning of Section 368 of the Code
has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
<PAGE>
Cooley Godward LLP
Spectrum Naturals, Inc.
- -----------------, 1999
Page Three
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered pursuant to the Reorganization Agreement. It is
intended solely for the benefit of the Company and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
Cooley Godward LLP
Susan Cooper Philpot
SCP:dp
EXHIBIT 8.3
____________, 1999
Organic Ingredients, Inc.
- -------------------------
- -------------------------
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 7.8 of the Agreement
and Plan of Merger and Reorganization dated as of _________ , 1999 (the
"Reorganization Agreement") by and between Organic Food Products, Inc., a
California corporation ("Acquiror"), and Organic Ingredients, Inc., a California
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated __________, 1999 and
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Acquiror and the Company and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
<PAGE>
(b) All representations, warranties and statements made or agreed to by
Acquiror and the Company, their managements, employees, officers, directors and
shareholders in connection with the Merger, including, but not limited to, those
set forth in the Reorganization Agreement (including the exhibits thereto) and
the Tax Representation Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) The Merger will be reported by Acquiror and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(f) The opinion dated __________, 1999 rendered by Carr, McClellan,
Ingersoll, Thompson & Horn, P.C. to Acquiror with respect to the qualification
of the Merger as a reorganization within the meaning of Section 368 of the Code
has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
<PAGE>
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered pursuant to the Reorganization Agreement. It is
intended solely for the benefit of the Company and may not be relied upon or
utilized for any other purpose or by any other person and may not be made
available to any other person without our prior written consent.
Sincerely,
Bosso, Williams, Sachs, Book, Atack &
Gallagher, A Professional Corporation
Exhibit 10.2
REDEMPTION AGREEMENT
--------------------
This Agreement is made November 1, 1996, by and between DEBORA BAINBRIDGE
PHILLIPS (the "Seller") and SPECTRUM NATURALS, INC., a California corporation
(the "Corporation").
RECITALS
--------
WHEREAS Seller is the Owner of a 50% interest in an of the outstanding sham
of Corporation by virtue of her community property interest in said shares with
the sole shareholder of record of the Corporation, JETHREN PHILLIPS; and
WHEREAS FURTHER such 50% interest comprises 5,000 shares of the common
stock of the Corporation: and
WHEREAS FURTHER Seller desires to sell all of her sham in the Corporation
and the Corporation desires to buy all of her shares in the Corporation and the
Corporation desires to purchase on the terms hereinafter set forth.
The parties therefore agree as follows:
1. Purchase Price. The Seller hereby sells and delivers to the Corporation
and the Corporation hereby purchases from Seller, 5,000 shares of common stock
of the Corporation for the sum of $1,621,716.00, subject to adjustment as
hereinafter provided in this Agreement.
2. Manner of Payment. Corporation shall pay the Seller for ha sham by
delivering to the Seller, at Closing, a Promissory Note made by the Corporation,
and dated as of the Closing Date, in the form of Exhibit "A" attached hereto and
by this reference incorporated herein. Without limiting the foregoing said
Promissory Note shall have a principal balance of $1,621,716.00 and shall bear
interest at the rate of 7.8167% per annum for the first six months, 8% per
annum, for the next eighteen months 10% for years 3 and 4, and 12% for years 5
and 6 and shall call for monthly payments of interest only on the principal
balance from time to time outstanding. Principal shall be paid as follows:
<PAGE>
Two years from Closing Date - $621,716
Three years from Closing Date - $250,000.00
Four years from Closing Date - $250,000.00
Five years from Closing Date - $250,000.00
Six years from Closing Date - $250,000.00 at which time all sums are
due.
Said Note shall further contain a late penalty of 1% of any payment not
made within 5 days of its due date. There shall be no pre-payment penalty, said
Promissory Note shall be personally guaranteed by Jethren Phillips in a form
substantially similar to Exhibit "A-1" attached hereto.
3. Security for the Promissory Note.
The Promissory Note shall be secured by a collateral assignment of a life
insurance policy on the life of Jethren Phillips in an amount not less than 110
percent of the principal balance of the Promissory Note from time to time
outstanding, which collateral assignment shall provide that the full proceeds
thereof shall be applied, at the option of Payee, to satisfaction of said
Promissory Note. Any such policy shall provide for 30 days prior written notice
to assignee before cancellation or material change in coverage.
As further security for the payment of the Promissory Note referred to in
paragraph 2 the corporation, at Closing shall deposit with Belden, Abbey,
Weitzenberg & Kelly as agent for Seller, all of the shares of the Corporation
purchased hereunder, duly endorsed in blank for transfer. Corporation, at
Closing, shall execute a Security/Pledge Agreement in the form of Exhibit "B"
attached hereto and by this reference incorporated herein, which shall provide,
among other things, that if the Corporation defaults in the payment of any sums
due under the Promissory Note and such default continues unremedied beyond any
cure provided for in said Promissory Note or Security Agreement, then the shares
may, at Seller's request, be sold at public or private sale in accordance with
the provisions of the California Commercial Code. The Security Agreement shall
provide that so long as them is no default under the terms of the Promissory
Note or Security Agreement, 1/3 of the pledged stock shall be released after the
2.
<PAGE>
$250,000 payment due 4 years from date and 1/3 following the $250,000 payment
due 5 years from date, with all shares released upon payment in full of the
Promissory Note.
So long as the Corporation is not in default under this Agreement or the
promissory note, it shall exercise and enjoy all of the rights accruing from the
ownership of the shares. Notwithstanding. the foregoing, so long as any such
Promissory Note is unpaid, the Corporation shall not issue any new or additional
shares, except as provided for in this Agreement, incur any indebtedness, except
in the regular course of business, or make any dividend or other distributions
to its shareholders if the net worth of the Corporation after such distribution
or dividend would be less than 90% of the net worth as shown on the financial
statements of the Corporation on the date of execution of this agreement.
4. Restrictions With Respect to Payment. If, at the time any payment is due
on the Promissory Note, the Corporation does not have sufficient retained
earnings, or Cannot otherwise meet the tests prescribed by the California
Corporations Code (Section 500, et seq.) with respect to such payment, the
Corporation shall take all reasonable actions to enable the Corporation to make
such payment under the terms of such applicable code sections. If,
notwithstanding such efforts, such payment cannot be made in its entirety, then
partial payment shall be made to the extent allowable by the California
Corporations Code. If the payment not made is a principal payment, then such
non-payment shall not constitute a default under the Promissory Note and payment
of such principal balance shall be deferred until the earlier of the date that
the applicable provisions of the California Corporations Code can be met with
respect to said deferred payment or the date of the next regularly scheduled
principal payment. If the Corporation is unable to make both the regularly
scheduled principal payment and the deferred principal payment when due, then
such non-payment shall be deemed a default under the terms of the Promissory
Note.
5. Approval. The Corporation shall obtain approval from Corporation's
lenders for the redemption provided for herein. The Promissory Note and the
Corporation's obligations to pay thereunder shall at a times be subject to, and
subordinate to, any terms and conditions of payment imposed by said lenders.
Provided, however, that no new and additional restrictions shall be imposed
after the Closing Date, which restrictions are not first agreed to in writing by
Seller.
3.
<PAGE>
6. Issuance of Additional Shares or Sale of Shares.
A. If (a) the Corporation issues any additional shares, such that the
remaining outstanding shares of Jethren Phillips, immediately after such new
issuance, constitute 20% or low of the outstanding shares of the Corporation or
(b) Jethren Phillips, the sole remaining shareholder of the Corporation, sells,
transfers or otherwise disposes of 80% or more of his shares of the corporation,
then in that event, all sums due under the Promissory Note and under the
Guaranty issued by Jethren Phillips shall become immediately due and payable.
B. In the event that Jethren Phillips and/or the Corporation sell,
transfer or issue shares of the Corporation such that after such transaction,
Jethren Phillips' ownership of the outstanding shares of the Corporation
(excluding those shares sold hereunder) constitutes 50% or less of the
outstanding shares of the Corporation, then in that event, a sum equal to 50% of
the net after tax proceeds of such transaction received by Jethren Phillips
and/or the Corporation, shall be paid as against the sums due under the
Promissory Note. Such payments shall be applied to the principal balance of the
Note, but shall not otherwise alter the payment schedule thereunder except to
the extent that such principal application results in the principal obligation
being paid off, in full, under the payment schedule at an earlier date.
C. In the event that Jethren Phillips individually, sells shares of
the Corporation prior to the first payment being made on the Promissory Note,
then in that event a sum equal to 40% of the net after tax proceeds of such
transaction received by Jethren Phillips shall be paid as against the sums due
under the Promissory Note up to the fall amount of the first payment due
totaling $621,716.
D. In the event that the Corporation issues additional shares prior to
the time that the first principal payment is made under the Promissory Note,
then in that event, the lesser of the amount of said first principal payment or
25% of the net proceeds of said issuance shall be immediately paid to Seller in
satisfaction of the obligation for such first principal payment under the
Promissory Note.
4.
<PAGE>
E. In the event any other issuance of shares by the Corporation in
circumstances other than as expressly provided for, in subsections A, B, C or D
have there shall be a principal pay down on the Promissory Note of a sum as
follows:
Number of now shares issued/total numbers of shares outstanding including
shares pledged and newly issued shares x total consideration received for shares
issued, Such principal payment shall be applied against, and be prepayment of,
principal installments due under said Note.
F. At least 15 days prior to the issuance of any additional shares
pursuant to the terms of this paragraph 6, Corporation shall provide written
notice to Seller of intent to issue such shares. Such notice shall include all
documentation relating to the issuance of the additional shares including, but
not limited to, the total consideration to be received on account of such
shares, Notice shall be given by personal delivery or by courier delivery (such
as Federal Express) and shall be deemed completed 24 hours following the date of
delivery to said courier service.
7. General Release - Resignation. At Closing, the Corporation shall deliver
to Seller an unconditional general release and the Seller shall deliver to the
Corporation a general release which excepts therefrom the Corporation's
obligations hereunder. Seller shall also submit a resignation, if applicable, as
an officer and director of the Corporation.
8. Representations of Seller. The Seller represents and warrants that she
is the owner, free and clear of any encumbrances, of all of the shams in the
Corporation sold and delivered by her hereunder.
Seller is not aware of, nor has Seller incurred, any obligation in the name
of the Corporation other than in the ordinary course of business and as
disclosed on the financial books and records of the Corporation.
9. Representations of the Corporation. Corporation represents and warrants
that the execution and delivery of this Agreement by it has been duly authorized
by proper corporate action, that the Promissory Note delivered by it to the
Seller constitutes a valid binding and enforceable obligation of the Corporation
in accordance with its terms and that the Corporation presently complies with
all provisions of the California Corporations Code in conjunction with the
redemption called for hereunder.
5.
<PAGE>
10. Closing. This agreement shall be in effect for a period of one year
from its date of execution and shall be of no force and effect after such one
year period unless, during such one year period, either Jethren Phillips or
Debora Phillips shall file an action for dissolution of their marriage in a
court of competent jurisdiction. If such action is filed then the terms and
conditions of this agreement shall control all issues of value and disposition
of the 5,000 shares covered by this agreement and the terms of this agreement
shall be incorporated into any Marital Settlement Agreement or court order
dealing with division of property. In the event such action for Dissolution of
Marriage shall be dismissed, this agreement shall be of no further force and
effect.
Nothing contained in this Agreement, not any actions taken hereunder, shall
in any way change the character of any property of the parties as between
separate or community nor shall any payments made or actions taken affect in any
way any marital property rights, including the Tight to support, that the
parties may otherwise have.
Closing shall be at the offices of Abbey, Weitzenberg, Kelly, Nadler,
Hoffman & Emery, 1105 North Dutton Avenue, Santa Rosa, California, not later
than 180 days from the filing date of such Dissolution of Marriage action
("Closing Date").
11. Adjustments for Taxes. It is contemplated between the parties to this
Agreement that this redemption shall not be a taxable event for federal or
California state income tax purposes. If at any time it shall be determined that
a liability exists on the part of Seller for the payment of state or federal
income taxes due to payments received pursuant to this Redemption Agreement then
in addition to the amount to be paid under the promissory Note, the Corporation
shall pay to Seller, in cash, an amount equal to any such additional state
and/or federal income tax imposed on the payments made hereunder. Said payment
shall be made within 60 days of assessment by such taxing entity of such
additional tax due upon Seller. In the event the Corporation desires to contest
the validity of such assessment, Corporation may do so at its sole cost and
expense, and Seller agrees to cooperate in all reasonable respects in pursuing
such process. During any such contest or appeal, Corporation shall either
arrange for a stay of enforcement of any tax assessed or pay such assessed tax
but in the event of success on such appeal shall be entitled to a refund of any
such tax paid. The sums to be paid pursuant to this provision shall include all
interest and penalties, if any, imposed in such assessment.
6.
<PAGE>
12. Bonus Payment. After payment of all sums due under the Promissory Note,
without the claim for taxes by any taxing agency occasioned thereby, Seller
shall also be entitled, in addition to all other sums called for under the sums
called for under the Promissory Note or under this Agreement, to a bonus payment
of $306,642.00, Such contingent payment without interest, shall be payable, in
cash, and shall be due December 31 of the fourth calendar year following the
year in which the State and Federal Income Tax returns which reflect the last
payment made under the Promissory Note or under this Agreement. By way of
example, if the last payment is made in 2002 and the tax return reflecting such
payment, after extension, is filed October 15, 2003, then the payment will be
due December 31, 2007.
13. Arbitration. Any controversy under this Agreement shall be settled by
arbitration under the Commercial Rules of the American Arbitration Association
to be administered through the San Francisco, California office. Any arbitration
will be held in Sonoma County, California.
14. Modification. This Agreement may not be modified or terminated orally
and no modification or termination, shall be valid unless in writing and signed
by the party against whom the same is sought to be enforced.
15. Binding Effect. This Agreement shall be bind and inure to the benefit
of the parties hereto, their personal representatives, successors and assigns.
16. Entire Agreement. This Agreement supersedes all prior agreements
between the parties relating to this subject matter, provided, however, that
this Agreement is entered into in conditioned upon dissolution of marriage
proceedings between Jethren Phillips and Debora Phillips and it is further
contemplated that this Agreement, either in this form or, in substance, will be
incorporated into a Marital Settlement Agreement or other orders of the court in
conjunction with said dissolution of marriage proceeding.
17. California Law. This Agreement shall be construed in accordance with
the laws of the State of California.
7.
<PAGE>
18. Attorneys Fees. In the event of litigation or arbitration to interpret
or enforce the terms of this Agreement, the prevailing party will be entitled to
their reasonable attorneys' fees and costs.
19. Obligations of Corporation.
(a) So long as the Promissory Note remains outstanding, Seller shall
receive, at least quarterly, financial statements of Corporation.
(b) Corporation shall indemnify, defend and hold Seller harmless from
all debts, claims or liabilities arising from the transaction of business
affairs by Corporation.
(c) Seller shall be removed from all corporate obligations and
gu4rantees of corporate obligations, except for S.B.A. guarantees if not
possible, provided however that all efforts will be made to attempt such removal
from the S.B.A. guarantee. Corporation agrees to indemnify, defend and hold
Seller harmless (including attorneys' fees) from any claim arising from any
corporate obligations and/or guarantees of corporate obligations.
Executed this 1st day of November, 1996 at Santa Rosa, California.
SPECTRUM NATURALS, INC.
a California corporation
By: /s/ Jethren P. Phillips
--------------------------------
"Corporation"
Date: /s/ Debora Bainbridge Phillips
------------------------------
DEBORA BAINBRIDGE PHILLIPS
"Seller"
8.
<PAGE>
GUARANTY AGREEMENT
------------------
1. For valuable consideration, the undersigned, Jethren Phillips
(hereinafter called "Guarantor") unconditionally guarantees to Debora B.
Phillips (hereinafter called "Obligee") the following obligation(s) of Spectrum
Naturals, Inc. (hereinafter called "Obligor"): a) The payment of any And all
indebtedness and performance of all obligations of Obligor to Obligee under the
Pledge Agreement and Promissory Note dated June 6, 1997, in the principal sum of
$1,621,716; and b) due performance of all terms of the Redemption Agreement
dated November 1, 1996, The word "indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations, and
liabilities of Obligor or any one or more of them, heretofore now, or hereafter
made, incurred, or created, whether voluntary or involuntary and however
arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Obligor maybe liable
individually or jointly with others, or whether recovery upon such obligation
may be or hereafter become barred by any statute of limitations, or whether such
obligation may be or hereafter become otherwise unenforceable.
2. The obligations hereunder are joint and several and independent of the
obligations of Obligor, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Obligor or
whether Obligor has been joined in any such action or actions; and Guarantor
waives the benefit of any statute of limitations affecting his liability
hereunder or the enforcement thereof.
3. Guarantor authorizes Obligee, without notice or demand and without
affecting their liability hereunder from time to time to (a) renew, compromise,
extend, accelerate, or otherwise change the time for performance of, or
otherwise change the terms of the obligation or any part thereof, including
increase or decrease of the rate of interest thereon; (b) take and hold security
for the performance of this guaranty or the obligation guaranteed, and exchange,
enforce, waive and release any such security; (c) apply such security and direct
the order or manner of sale thereof as Obligee in its discretion may determine;
and (d) release or substitute any one or more of the endorsers or guarantors.
Obligee may without notice assign this guaranty in whole or in part.
<PAGE>
4. Guarantor waives any right to require Obligee to (a) proceed against
Obligor; (b) proceed against or exhaust any security held from Obligor, or (c)
pursue any other remedy in Obligee's power whatsoever. Guarantor waives any
defense arising by reason of any disability or other defense of Obligor or by
reason of the cessation from any cause whatsoever of the liability of Obligor.
Until all obligations of Obligor to Obligee shall have been fully performed,
even though the extent of such performance is in excess of Guarantor's liability
hereunder, Guarantor shall have no right of subrogation, and waive any right to
enforce any remedy which Obligee now has or may hereafter have against Obligor,
and waive any benefit of and any right to participate in, any security now or
hereafter held by Obligee. Obligee may foreclose, either by judicial foreclosure
or by exercise of power of sale, any deed of trust securing the indebtedness,
and, even though the foreclosure may destroy or diminish Guarantor's rights
against Obligor, Guarantor shall be liable to Obligee for any part of the
indebtedness remaining unpaid after the foreclosure. Guarantor waives all
presentments, demands for performance, notices of top performance, protests,
notices of protest notices of dishonor, and notices of acceptance of this
guaranty and of the existence, creation, or incurring of new or additional
obligations. Guarantor waives all rights and defenses arising out of an election
of remedies by the Obligee, even though the election of remedies, such as a
non-judicial foreclosure with respect to security for a guaranteed obligation,
has destroyed the Guarantor's rights of subrogation and reimbursement against
the principal by the operation of Section 580(d) of the Code of Civil Procedure
or otherwise.
5. In addition to all liens upon, and rights of set-off against the moneys.
securities, or other property of Guarantor has given to Obligee by law, Obligee
shall have alien upon and a right of set-off against all moneys, securities, and
other property of Guarantor now or hereafter in the possession of Obligee,
whether held in a general or special account, or for safekeeping or otherwise;
and every such lien and right of set-off may be exercised without demand upon or
notice to Guarantor. No lieen or right of set-off shall be deemed to have been
waived by any art or conduct on the part of Obligee, or by any neglect to
exercise such right of set-off or to enforce such lien, or by any delay in so
doing; and every right of set-off and lien shall continue in full force and
effect until such right of set-off or lien is specifically waived or released by
an instrument in writing executed by Obligor.
2.
<PAGE>
6. Any indebtedness of Obligor now or hereafter hold by Guarantor is hereby
subordinated to any indebtedness of Obligor to Obligee, and such indebtedness of
Obligor to Guarantor if Obligee so requests shall be collected, enforced, and
received by Guarantor as trustees for Obligee and held as security for
performance of the obligation of Obligor to Obligee but without reducing or
affecting in any manner the liability of Guarantor under the other provisions of
this guaranty.
7. When any Obligor is a corporation or partnership, it is not necessary
for Obligee to inquire into the powers of Obligor or the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
obligations made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
8. Guarantor warrants and represents to Obligee, and acknowledges that in
accepting this Guaranty Obligee is relying on such warranties and
representations to be true, that this Guaranty is supported by full and
sufficient consideration; that Guarantor's execution, delivery, and performance
of this Guaranty have been duly authorized; that the provisions of this Guaranty
constitute binding obligations of Guarantor enforceable in accordance with their
respective terms; that Guarantor is a person or entity completely separate and
distinct from Obligor, and that this Guaranty therefore is the totally separate
and distinct guaranty of the obligations of Obligor by totally separate and
distinct guarantors who are not in any respect or to any extent the Obligor
under this Agreement.
9. Guarantor agrees to pay reasonable attorney's fees and all other costs
and expenses which may be incurred by Obligee in the enforcement of this
guaranty.
10. This Guaranty shall be governed by and construed according to the laws
of the State of California, to the jurisdiction of which the undersigned
Guarantor submits.
3.
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty on
June 6, 1997.
/s/ Jethren Phillips
-----------------------------
JETHREN PHILLIPS
4.
<PAGE>
PLEDGE AGREEMENT
----------------
This Pledge Agreement is effective June 6, 1997, by and between SPECTRUM
NATURALS, INC., a California corporation (hereinafter referred to as "Pledgor"),
DEBORA B. PHILLIPS (hereinafter referred to as "Pledgee") and RICHARD W. ABBEY,
Attorney at law (hereinafter referred to as "Escrow Holder").
WHEREAS, Pledgor is indebted to Pledgee in the principal stun of One
Million Six Hundred Twenty One Thousand Seven Hundred Sixteen ($1,621,716.00)
pursuant to the terms of a Promissory Note of even date herewith (the
"Obligation");
WHEREAS, Pledgor has agreed to secure payment of the obligations as
hereinbelow set forth;
NOW, THEREFORE, IT IS AGREED as follows:
1. Escrow Holder. The parties do hereby appoint and designate Richard W.
Abbey as the Escrow Holder for purposes of this Agreement as hereinafter set
forth. By execution of this Agreement, Escrow Holder agrees to act in accordance
with the terms of this Agreement.
2. Deposit of Stock. Concurrently with the execution of this Agreement,
Pledgor shall deliver to Escrow Holder its certificates representing Five
Thousand (5,000) shares of common stock of the Pledgor (the "stock"), attached
to which certificate shall be a Stock Power endorsed by Pledgor. Thereafter,
Escrow Holder shall hold said share certificate(s) and shall dispose of same in
accordance with the terms and provisions of this Pledge Agreement By execution
of this Agreement, Pledgor hereby grants to Pledgee a security interest in the
stock as security for payment in full of the Obligation.
3. Terms. Subject to release of shares as provided for in paragraph 7,
Pledgor and Pledgee hereby mutually authorize Escrow Holder to keep and preserve
said certificates in the possession of Escrow Holder, pending payment in full of
the Obligation.
4. Default. Time is of the essence of this Pledge Agreement. Any of the
following events which are not cured within 10 days (or such longer cure period
as specifically provided for in any subpart of this paragraph) after delivery of
written notice by Pledgee to Pledgor, shall constitute events of default under
this Agreement:
<PAGE>
A. Any failure to pay the full amount of any payment of principal,
interest or other charges of the Obligation which are or may be secured hereby
subject to the terms of the Promissory Note evidencing said payments.
B. Any falsity of any representation by Pledgor herein or in any
Agreement or document executed by the Pledgor.
C. Pledgor's failure to comply with material non-monetary terms and
conditions of the Obligation, said failure continuing for a period of thirty
(30) days after delivery of written notice by Pledgee to Pledgor; and
D. Pledgor's breach or default of the material terms of the Redemption
Agreement between Pledgor and Pledgee dated November 1, 1996.
E. Breach or default of the material terms of the Guaranty made by
Jethren Phillips dated June 6, 1997.
Then and in any of such events of default, the entire principal and all
accrued interest of the Obligation shall then or at any time thereafter, at the
option of Pledgee, become immediately due and payable without notice or demand,
and Pledgee shall have an immediate right to pursue all remedies provided by law
and as set forth in this Pledge Agreement.
5. Remedies. When an event of default occurs, Pledgee, or the holders of
the Oblipti6n at the time of default may, at her option, at any time, without
further notice, elect to declare the entire principal balance of the Obligation,
together with interest accrued thereon, if any immediately due and payable, and
Pledgee (or holder) shall have the rights and remedies, not in conflict with
this Pledge Agreement, provided for in the Uniform Commercial Code in existence
in the state of California as of the date of this Pledge Agreement, and to have
the certificates held by the Escrow Holder transferred to Pledgee (or Holder),
and Pledgee (or Holder) shall be entitled to all of the rights, preferences,
privileges and benefits conferred upon the owner of such shares.
2.
<PAGE>
Upon written notification from Pledgee (or Holder) to Escrow Holder of the
occurrence of any such default and the election of Pledgee (or Holder) to take
title and possession of said shares of stock under this Pledge Agreement, Escrow
Holder shall forthwith deliver to Pledgee (or Holder) the certificates referred
to hereinabove.
6. Voting Rights and Dividends Prior to Default. So long as the
certificates of stock are held by the Escrow Holder (and until the Pledgor's
default in payment of any of the installments due under or default in the
Obligation, or default in the terms of this Agreement), Pledgor shall retain
full right to vote such stock for all purposes. So long as these certificates of
stock continue to be held by the Escrow Holder, or until the Pledgor defaults in
the Obligation, all dividends upon such stock payable in the form of additional
stock of Pledgor, shall belong to Pledgor, but shall be delivered to the Escrow
Holder as additional security for payment and performance of the Obligation.
Pledgor shall be solely entitled to any cash dividends declared on such stock.
7. Release of Shares. Upon written notification from Pledgee that the
Obligation has been paid in full, the Escrow Holder shall deliver to Pledgor,
together with all stock dividends received and held under this Agreement the
certificates evidencing the shares and all obligations between Pledgor, Pledgee
and Escrow Holder under this Agreement shall thereupon cease.
So long as there is no default under the terms of this Pledge Agreement or
the Obligation which it secures, one thousand six hundred sixty-seven (1,667)
shares held pursuant hereto shall be released and delivered to Pledgor after the
satisfactory payment of the Two Hundred Fifty Thousand Dollar ($250,000.00)
principal payment due four years from the date of the Obligation, an additional
one thousand six hundred sixty-seven (1,667) shares of stock held hereunder
shall be, released and delivered to pledgor upon the satisfactory payment of the
Two Hundred Fifty Thousand Dollar ($250,000.00) principal obligation due five
(5) years from the date of the Obligation.
8. No Obligation or Liability of Escrow Holder. It is agreed that the
Escrow Holder has no obligation to collect, sue for or otherwise enforce
collection of the Obligation. It is further agreed that the Escrow Holder shall
in no case or event be liable for the failure of the conditions of this Pledge
Agreement or damage caused by exercise of his discretion in any particular
manner, or for any other reason, excepting only gross negligence or willful
misconduct with reference to Escrow Holder's obligations under this Pledge
Agreement.
3.
<PAGE>
9. Pledgor's Warranties. Pledgor wan-ants and represents with respect to
said shares that:
A. Pledgor is the absolute owner of the respective shares;
B. Said shares are not subject to any prior assignment, claim, lien or
security interest, and Pledgor will not make any further assignment thereof or
create any further security interest therein, nor permit Pledgor's right therein
to be breached by attachment, levy, garnishment or other judicial process; and
C. Any and all information, financial or otherwise, now or hereafter
supplied to Pledgee by Pledgor, is true and correct.
10. Further Assurances. Pledgor shall execute and deliver to Pledgee any
additional agreements, assignments or documents that are necessary to effectuate
the purpose of this Agreement.
11. Successors. This Pledge Agreement shall be binding upon and &hall inure
to the benefit of the parties hereto and their respective successors and
assigns.
12. Notices. All notices required to be given under this Agreement. or
under provision of any applicable law of the state of California shall be sent
certified mail, return receipt request to the addresses set forth below the
signature lines to this Pledge Agreement.
13. Indemnification. Pledgor hereby agrees to indemnify, defend and hold
Pledgee free and harmless from. and against all damages, liabilities, costs or
expenses (including reasonable attorney's fees and court costs) arising from or
relating to Pledgee's security interest in the stock
14. Costs. Any costs for the services of the Escrow Holder shall be paid by
Pledgor.
4.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed their names on the day
and year, indicated below.
Dated: June 6, 1997 "Pledgee"
/s/ Debora B. Phillips
-------------------------------------
DEBORAH B. PHILLIPS
-------------------------------------
-------------------------------------
Dated: June 6, 1997 "Pledgor"
SPECTRUM NATURALS, INC.
a California Corporation
By: /s/ Jethren Phillips
---------------------------------
JETHREN PHILLIPS, CEO
-------------------------------------
-------------------------------------
Dated: June 6, 1997 "Escrow Holder"
/s/ Richard W. Abbey
-------------------------------------
RICHARD W. ABBEY
P.O. Box 1566
Santa Rosa, CA 95402-1566
5.
<PAGE>
PROMISSORY NOTE
---------------
June 6, 1997
Santa Rosa, California
For value received receipt of which is hereby acknowledged, Spectrum Naturals,
Inc., a California corporation hereby promises to pay to Debora Bainbridge
Phillips, or order, at such place as designated by the holder hereunder, the
principal sum of $1,621,716 together with interest thereon as hereinafter
provided and in installments as hereinafter provided.
The outstanding principal balance shall bear interest at the rate of
7.8167% for the fast six months; thereafter at the rate of 8% percent per annum
for the next eighteen months; thereafter on the second anniversary of this note,
the interest rate shall be adjusted and the then outstanding principal balance
shall bear interest at the rate of 10 percent per annum for years three and four
and thereafter shall be further adjusted an the fourth anniversary such that the
outstanding principal balance shall bear interest at the rate of 12 percent per
annum for years five and six. Interest on the principal balance from time to
time outstanding shall be paid in monthly installments of interest only on the
fifth day of each month. In addition to said interest payments, principal shall
be paid in as follows:
Two years from the date of this Note -- $621,716;
Three years from the date of this Note -- S250,000.00;
Four years from the date of this Note -- $250,000.00;
Five years from the date of this Note - $250,000.00;
Six years from the date of this Note, all principal and accrued
interest shall be due and payable in full.
In the event that any payment of principal or interest shall not be made
within five (5) days of its due date, there shall also be due a late payment fee
equal to one percent of the payment of principal or interest not made when due.
This Promissory Note may by prepaid in whole or in part at any time without
penalty.
Presentment and demand for payment, notice of dishonor, protest and notice
of protest are hereby waived.
<PAGE>
All payments shall be in the lawful money of the United States. Any payment
received shall be applied first to interest outstanding and then to reduction of
principal. In the event that any payment of principal or interest shall not be
made when due and a period of ten (10) days shall have past from written notice
of such nonpayment without cure, then the holder of this Note may, without
further notice, declare the entire principal and interest due and payable.
In the event that any action is initiated to enforce or interpret the terms
of this Agreement, and the prevailing party of such litigation shall be entitled
to recover, as an element of cost of such a litigation, the reasonable
attorneys' fees.
This Note is secured by a pledge of stock pursuant to the term of the
Pledge Agreement of even date herewith, and is further personally guaranteed by
Jethren Phillips.
Any default under the terms of the Redemption Agreement dated November 1,
1996, pursuant to which this Note is issued or the Pledge Agreement or Personal
Guaranty of Jethren Phillips shall also constitute a default under this
Promissory Note and a default hereunder shall, likewise, constitute a default
under said agreements.
Any notice to be given hereunder shall be deemed to be effective on the
third day following deposit of such notice in the United States mail postage
prepaid, first-class, return receipt requested and directed to parties at the
addresses set forth below:
Spectrum Naturals, Inc.
133 Copeland Street
Petaluma, CA 94952
Debora Bainbridge Phillips
Spectrum Naturals, Inc.
By: /s/ Jethren Phillips
-----------------------------
Exhibit 10.3
FIRST AMENDMENT TO
REDEMPTION AGREEMENT
This First Amendment to Redemption Agreement is entered into this 11th day
of September, 1998 by and between DEBORA BAINBRIDGE PHILLIPS (the "Seller") and
SPECTRUM NATURALS, INC., a California corporation (the "Corporation").
WHEREAS, in or around November 1996, the Seller and the Corporation entered
into that certain Redemption Agreement (the "Redemption Agreement") providing
for the redemption of all the Corporation's common stock owned by the Seller;
AND WHEREAS, the Seller and the Corporation desire to amend the Redemption
Agreement to provide for an additional bonus payment to the Seller on the terms
and conditions set forth therein;
NOW, THEREFORE, the Redemption Agreement is hereby amended as follows:
The first sentence of Paragraph 12 ("Bonus Payment") of the
Redemption Agreement is amended to replace the bonus payment amount of
"$306,642.00" with the bonus payment amount of "$613,284.00."
In all other respects, the Seller and the Corporation confirm the
Redemption Agreement.
IN WITNESS WHEREOF, the Seller and the Corporation have executed this First
Amendment to Redemption Agreement on the date first above written.
"Seller" "Corporation"
/s/ Debora Bainbridge Phillips Spectrum Naturals, Inc.,
------------------------------ a California corporation
Debora Bainbridge Phillips
By: /s/ Jethren P. Phillips
--------------------------
Jethren P. Phillips
Exhibit 10.4
SECOND AMENDMENT TO
REDEMPTION AGREEMENT
This Second Amendment to Redemption Agreement is entered into this 2nd day
of July, 1999, by and between DEBORA BAINBRIDGE PHILLIPS (the "Seller"),
SPECTRUM NATURALS, INC., a California corporation (the "Corporation"), and
Jethren Phillips.
WHEREAS, on or around November 1, 1996, the Seller and the Corporation
entered into that certain Redemption Agreement (the "Redemption Agreement")
providing for the redemption of all the Corporation's common stock owned by the
Seller;
AND WHEREAS, on May 14, 1999 the Corporation entered into an Agreement and
Plan of Merger and Reorganization that provides, among other things, for the
merger of the Corporation with and into Organic Food Products, Inc. (the
"Merger");
AND WHEREAS, the Seller and the Corporation desire to amend the Redemption
Agreement and the related Promissory Note, Pledge Agreement and Guaranty
Agreement, to provide for a revised payment schedule and to accommodate the
Merger as set forth herein;
NOW, THEREFORE, the Redemption Agreement, the Promissory Note, the Pledge
Agreement and the Guaranty Agreement are amended as follows:
1. The third sentence of Section 2 of the Redemption Agreement and the fourth
sentence of the Promissory Note shall be amended to reflect the following
principal payment schedule:
$121,716 on November 5, 1999
$500,000 on November 5, 2000
$250,000 on May 5, 2001
$250,000 on November 5, 2001
$250,000 on July 5, 2002
$250,000 on July 5, 2003
2. The second sentence of Section 2 of the Redemption Agreement and the second
sentence of the Promissory Note shall be amended to reflect that from the
date of this Amendment the outstanding principal balance under the
Promissory Note shall bear interest at the rate of 12 percent per annum.
3. Effective upon the closing of the Merger the second and third paragraphs of
Section 3 of the Redemption Agreement shall be eliminated and shall be
replaced with the following:
With respect to obligations existing on and after the Merger,
(a) the term "Corporation" under the Redemption Agreement shall refer to
OFPI.
<PAGE>
(b) OFPI shall expressly assume the Corporation's obligations under the
Promissory Note and the Redemption Agreement.
(c) Seller and the Corporation shall direct that the cancelled share
certificate representing 5,000 shares of the Corporation's common
stock held by Belden, Abbey, Weitzenberg & Kelly, or their successor,
shall be delivered to OFPI, as the successor to the Corporation.
(d) OFPI shall reserve for future issuance a number of shares of OFPI
common stock equal to (i) the unpaid principal and interest due under
the Promissory Note from time to time, divided by (ii) 90% of the mean
between the then current bid and ask price for OFPI stock, as reported
on the NASD Bulletin Board.
(e) If OFPI defaults in the payment of any sums due under the Promissory
Note and such default continues unremedied beyond any cure period
provided in said Promissory Note, then at Seller's request and at
Seller's option, a certificate issued in the name of Seller
representing a number of shares of OFPI common stock equal to the
amount due and payable under the Promissory Note divided by 90% of the
mean between the bid and ask price for the 10 trading days preceding
the default, as reported on the NASD Bulletin Board, shall be
delivered by OFPI to Seller in payment of such defaulted amounts
against delivery of (i) appropriate documentation reflecting the
cancellation of the portion of the debt for which the shares were
issued, and (ii) appropriate investment letters and other
documentation necessary to comply as a private placement under federal
and state securities laws for the issuance of the shares or, at
Seller's request, OFPI shall file an application for permit under the
California corporate securities laws and request a fairness hearing
pursuant to Section 25142 of the California Corporations Code to
secure a federal exemption from the Securities Act of 1933 pursuant to
Section 3(a)(10). In the event of default, Seller shall have the right
to pursue all rights under the Guaranty Agreement for amounts which
are due and owing under the Promissory Note and for which Seller has
not received payment in stock.
(f) The Pledge Agreement shall be cancelled and all references to the
Pledge Agreement in the Redemption Agreement, the Promissory Note and
the Guaranty Agreement shall be eliminated.
4. Section 4, 5 and 6 of the Redemption Agreement shall be eliminated.
5. Effective upon the Merger all references to "Obligor" in the Guaranty
Agreement with respect to matters on or after the Merger, shall be a
reference to OFPI.
6. Concurrently with the execution of this Amendment, the Corporation shall
pay to Seller $100,000 which amount shall be an advance payment on the
Corporation's obligations under Sections 11 and 12 of the Redemption
Agreement, as amended.
2.
<PAGE>
7. The obligations of the Corporation and, upon the Merger, OFPI, under the
Redemption Agreement, as amended, and the Promissory Note, as amended by
the First Amendment dated September 11, 1998 and as amended by this Second
Amendment and reissued, shall continue to be guaranteed by Guarantor under
the Guaranty Agreement. The second sentence of Section 4 of the Guaranty
Agreement is hereby amended to provide that upon payment by Guarantor on
the guarantee, the Guarantor shall have a right of subrogation against the
Obligor for the proportionate part of the Promissory Note satisfied by the
Guarantor.
8. The Promissory Note shall be amended to include the following additional
language:
(a) This Promissory Note is a medium for investment and a "security"
within the meaning of the California Commercial Code ss. 8102 and is
governed by Division 8 of the California Commercial Code.
(b) This Promissory Note is divisible into a class or series of
obligations at the request of the holder.
(c) The transfer of this Promissory Note may be registered upon the books
of the issuer.
9. A copy of this Amendment shall be affixed to the original Redemption
Agreement, the Promissory Note, the Pledge Agreement and the Guaranty
Agreement.
10. The Corporation hereby agrees to pay concurrently with the execution of
this Amendment the reasonable attorneys fees of Seller incurred in the
preparation of this Second Amendment to Redemption Agreement and matters
incidental thereto.
SELLER CORPORATION
Spectrum Naturals, Inc.
/s/ Debora Bainbridge Phillips By: /s/ Jethren Phillips
- ------------------------------- ---------------------------
Debora Bainbridge Phillips
Effective only upon the Merger
Organic Food Products, Inc.
By: /s/ Jethren Phillips
--------------------------- ----------------------------
Jethren Phillips
3.
Exhibit 10.5
THIRD AMENDMENT TO
REDEMPTION AGREEMENT
This Third Amendment to Redemption Agreement is entered into this 9th day of
July, 1999, by and between DEBORA BAINBRIDGE PHILLIPS (the "Seller"), SPECTRUM
NATURALS, INC., a California corporation (the "Corporation") and Jethren
Phillips.
WHEREAS, the Seller and the Corporation entered into that certain
Redemption Agreement (the "Redemption Agreement") dated November 1, 1996, as
amended by the First Amendment to Redemption Agreement and the Second Amendment
to Redemption Agreement between the parties, and a related Promissory Note in
the principal amount of $1,621,716; and
WHEREAS, the Seller and the Corporation wish to confirm for the benefit of
the National Bank of the Redwoods (the "Bank") as the lender to the Corporation,
that amounts due under the Promissory Note are subordinate to certain
indebtedness of the Corporation to the Bank;
NOW, THEREFORE, the Redemption Agreement is further amended to add the
following statement:
The Promissory Note and the Corporation's obligations to pay thereunder
shall at all times be subject to and subordinate to, any terms and conditions of
payment imposed by the Bank, but only as to the aggregate levels of indebtedness
currently provided for (whether or not currently drawn down) under the lending
agreements between the Corporation and the Bank.
SELLER CORPORATION
Spectrum Naturals, Inc.
/s/ Debora Bainbridge Phillips By: /s/ Debora Bainbridge Phillips
- ------------------------------ ----------------------------------
Debora Bainbridge Phillips
/s/ Jethren Phillips
----------------------------------
Jethren Phillips
Exhibit 10.6
FOURTH AMENDMENT TO
REDEMPTION AGREEMENT
This Fourth Amendment to Redemption Agreement is entered into this 12th day of
July, 1999, by and between DEBORA BAINBRIDGE PHILLIPS (the "Seller"), SPECTRUM
NATURALS, INC., a California corporation (the "Corporation") and Jethren
Phillips.
WHEREAS, the Seller and the Corporation entered into that certain
Redemption Agreement (the "Redemption Agreement") dated November 1, 1996, as
amended by the First Amendment to Redemption Agreement, the Second Amendment to
Redemption Agreement and the Third Amendment to Redemption Agreement between the
parties, and a related Promissory Note in the principal amount of $1,621,716;
and
WHEREAS, the Seller and the Corporation wish to confirm for the benefit of
the California Economic Development Lending Initiative (the "Lender") as the
lender to the Corporation, that amounts due under the Promissory Note are
subordinate to certain indebtedness of the Corporation to the Lender;
NOW, THEREFORE, the Redemption Agreement is further amended to add the
following statement:
The Promissory Note and the Corporation's obligations to pay thereunder
shall at all times be subject to and subordinate to, any terms and conditions of
payment imposed by the Lender, but only as to the aggregate levels of
indebtedness currently provided for (whether or not currently drawn down) under
the lending agreements between the Corporation and the Lender.
SELLER CORPORATION
Spectrum Naturals, Inc.
/s/ Debora Bainbridge Phillips By: /s/ Jethren Phillips
- ------------------------------ ---------------------------
Debora Bainbridge Phillips
/s/ Jethren Phillips
----------------------------
Jethren Phillips
Exhibit 23.4
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Organic Food Products, Inc.
Morgan Hill, California
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting a part of the Registration Statement on Form S-4 to be filed with
the U.S. Securities and Exchange Commission on or about July 21, 1999 of our
report dated September 23, 1998, except for Note 5 which is as of October 9,
1998, relating to the financial statements of Organic Food Products, Inc. which
are contained in the Joint Proxy Statement/Prospectus.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/Prospectus.
/s/ BDO Seidman, LLP
----------------------------
BDO SEIDMAN, LLP
San Francisco, California
July 21, 1999
Exhibit 23.5
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Organic Food Products, Inc.
Morgan Hill, California
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting a part of the Registration Statement on Form S-4 to be filed with
the U.S. Securities and Exchange Commission on or about July 22, 1999 of our
report dated September 24, 1997, relating to the financial statements of Organic
Food Products, Inc., which are contained in the Joint Proxy
Statement/Prospectus.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/Prospectus.
Semple & Cooper, LLP
Phoenix, Arizona
July 22, 1999
Exhibit 23.6
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Organic Food Products, Inc.
Morgan Hill, California
We consent to the use of our report dated June 18, 1999 (except for Notes 7
and 12, as to which the date is July 2, 1999), with respect to the financial
statements of Spectrum Naturals, Inc. included in the Joint Proxy
Statement/Prospectus that is part of the Registration Statement on Form S-4. We
also consent to the reference to our Firm under the caption "Experts".
Moss Adams, LLP
Santa Rosa, California
July 22, 1999
Exhibit 23.7
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Organic Food Products, Inc.
Morgan Hill, California
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting a part of the Registration Statement on Form S-4 to be filed with
the U.S. Securities and Exchange Commission on or about July 21, 1999 of our
report dated April 29, 1999, relating to the financial statements of Organic
Ingredients, Inc., which are contained in the Joint Proxy Statement/Prospectus.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/Prospectus.
Hutchinson and Bloodgood LLP
Watsonville, California
July 21, 1999
EXHIBIT 99.1
ORGANIC FOOD PRODUCTS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS [RULE 14a-4(a)(1)]
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
The undersigned hereby appoints John Battendieri and Richard R. Bacigalupi
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Organic Food Products,
Inc. which the undersigned may be entitled to vote at the Special Meeting of
Shareholders of Organic Food Products, Inc. to be held at the Organic Food
Products corporate offices at 550 Monterey Road, Morgan Hill, California 95037
on [DAY OF WEEK], [DATE] at [TIME OF DAY] (local time), and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3 AND 4, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT.
IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
PROPOSAL 1: To approve the Agreement and Plan of Merger and
Reorganization, dated as of May 14, 1999, by and between the
Company and Organic Ingredients, Inc., a California
corporation, providing for the merger of Organic Ingredients
with and into the Company, with the Company as the surviving
corporation. As a result of the merger with Organic
Ingredients, each outstanding share of the common stock,
without par value per share, of Organic Ingredients would be
converted into the right to receive 39.5 shares of the common
stock, without par value, of the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL 2: To approve the Agreement and Plan of Merger and
Reorganization, dated as of May 14, 1999, by and between the
Company and Spectrum Naturals, Inc., a California corporation,
providing for the merger of Spectrum with and into the
Company, with the Company as the surviving corporation. As a
result of the Spectrum merger, each outstanding share of the
common stock, without par value per share, of Spectrum would
be converted into the right to receive 4,669.53 shares of the
common stock, without par value, of the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
PROPOSAL 3: To approve an amendment to and restatement of the Company's
Articles of Incorporation to increase the authorized number of
shares of Common Stock from 20,000,000 to 100,000,000 shares
and to change the name of the Company to "Spectrum Organic
Products, Inc."
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL 4: To approve an amendment to and restatement of the Company's
1995 Stock Option Plan to increase the aggregate number of
shares of Common Stock authorized for issuance under such plan
from 625,000 shares to 4,500,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
DATED
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SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
EXHIBIT 99.2
SPECTRUM NATURALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS [RULE 14a-4(a)(1)]
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
The undersigned hereby appoints Jethren Phillips and Neil Blomquist, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Spectrum Naturals, Inc.
which the undersigned may be entitled to vote at the Special Meeting of
Shareholders of Spectrum Naturals, Inc. to be held at the Spectrum corporate
offices at 133 Copeland Street, Petaluma, California 94952 on [DAY OF WEEK],
[DATE] at [TIME OF DAY] (local time), and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1: To approve the Agreement and Plan of Merger and
Reorganization, dated as of May 14, 1999, by and between
Spectrum and Organic Food Products, Inc. ("OFPI"), a
California corporation, providing for the merger of Spectrum
with and into OFPI, with OFPI as the surviving corporation. As
a result of the merger, each outstanding share of the common
stock, without par value per share, of Spectrum would be
converted into the right to receive 4,669.53 shares of the
common stock, without par value, of OFPI.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
DATED
------------------ ---------------------------------------------
---------------------------------------------
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
EXHIBIT 99.3
ORGANIC INGREDIENTS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS [RULE 14a-4(a)(1)]
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
The undersigned hereby appoints John Battendieri and Joseph Stern, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Organic Ingredients, Inc.
which the undersigned may be entitled to vote at the Special Meeting of
Shareholders of Organic Ingredients, Inc. to be held at the Organic Ingredients
corporate offices at 335 Spreckels Drive, Suite F, Aptos, California 95003 on
[DAY OF WEEK], [DATE] at [TIME OF DAY] (local time), and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1: To approve the Agreement and Plan of Merger and
Reorganization, dated as of May 14, 1999, by and between
Organic Ingredients and Organic Food Products, Inc. ("OFPI"),
a California corporation, providing for the merger of Organic
Ingredients with and into OFPI, with OFPI as the surviving
corporation. As a result of the merger, each outstanding share
of the common stock, without par value per share, of Organic
Ingredients would be converted into the right to receive 39.5
shares of the common stock, without par value, of OFPI.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
DATED
---------------------- ---------------------------------------------
---------------------------------------------
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating title.
If signer is a partnership, please sign in
partnership name by authorized person.
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
