UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 18, 1997
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Landec Corporation
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(Exact name of registrant as specified in charter)
California
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(State or other jurisdiction of incorporation)
0-27446 94-3025618
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(Commission File Number) (IRS Employer Identification No.)
3603 Haven Avenue, Menlo Park, California 94025
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 306-1650
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N/A
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
Pursuant to a Stock Purchase Agreement by and among the Registrant,
Dock Resins Corporation ("Dock Resins"), a Delaware corporation and A. Wayne
Tamarelli, dated April 18, 1997 (the "Purchase Agreement"), the Registrant
acquired (the "Acquisition") all of the outstanding capital stock of Dock Resins
in exchange for an aggregate of 396,039 shares of the Registrant's Common Stock,
$3,262,861 in cash and a secured promissory note with principal amount of
$8,500,000. Dock Resins is a manufacturer and marketer of specialty acrylic and
other polymers. Based in Linden, New Jersey, Dock Resins' products are sold
under the Doresco(TM) trademark throughout the United States in the coating,
laminating, adhesives and printing ink industries. As a result of the
Acquisition, Dock Resins has become a wholly owned subsidiary of the Registrant.
Under the terms of the Purchase Agreement and a related Escrow
Agreement dated April 18, 1997, $1,500,000 and the 396,039 shares of the
Registrant's Common Stock will be held in escrow for the purpose of indemnifying
the Registrant against certain liabilities of Dock Resins and Mr. Tamarelli.
Such escrow will expire on April 18, 2002.
The number of shares of the Registrant's Common Stock to be issued to
Mr. Tamarelli was determined by arms-length negotiations between Mr. Tamarelli
and the Registrant.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements required by Rule 3-05(b) of
Regulation S-X are expected to be filed by the Registrant within sixty (60) days
of the date of this Report.
(b) Pro Forma Financial Information.
The financial statements required by Article 11 of Regulation
S-X are expected to be filed by the Registrant within sixty (60) days of the
date of this Report.
(c) Exhibits.
2.1 Stock Purchase Agreement (including exhibits thereto) by
and among the Registrant, Dock Resins and A. Wayne Tamarelli dated April 18,
1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Landec Corporation
(Registrant)
Dated: May 5, 1997 By: /s/ Joy T. Fry
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Joy T. Fry
Vice President of Finance and
Administration and Chief
Financial Officer
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LANDEC CORPORATION
INDEX TO EXHIBITS
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Exhibit No. Exhibit Title
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2.1 Stock Purchase Agreement (including exhibits thereto) by and
among the Registrant, Dock Resins and A. Wayne Tamarelli
dated April 18, 1997
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STOCK PURCHASE AGREEMENT
AMONG
LANDEC CORPORATION,
DOCK RESINS CORPORATION
AND
A. WAYNE TAMARELLI
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April 18, 1997
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TABLE OF CONTENTS
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Page
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ARTICLE I - SALE AND PURCHASE............................................................................1
1.1 Purchase and Sale of Stock..................................................................1
1.2 Purchase Price..............................................................................1
1.3 Purchase Price Adjustment...................................................................2
1.4 Closing.....................................................................................3
1.5 Security for the Note.......................................................................4
1.6 Section 338(h)(10) Matters..................................................................5
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER...............................................6
2.1 Authority...................................................................................6
2.2 Execution and Binding Effect................................................................6
2.3 No Violation................................................................................6
2.4 Consents and Approvals of Governmental Entities.............................................7
2.5 Brokers and Finders.........................................................................7
2.6 Ownership of Dock Stock.....................................................................7
2.7 Restricted Shares; Rule 144.................................................................7
2.8 Experience..................................................................................8
2.9 Investment..................................................................................8
2.10 Public Market; No Federal or State Approval................................................8
2.11 Access to Data.............................................................................8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF DOCK AND SHAREHOLDER.....................................8
3.1 Organization................................................................................9
3.2 Authority...................................................................................9
3.3 Capital Structure...........................................................................9
3.4 Execution and Binding Effect...............................................................10
3.5 Consents and Approvals of Governmental Entities............................................10
3.6 No Violation...............................................................................10
3.7 Financial Statements.......................................................................10
3.8 Absence of Certain Changes.................................................................11
3.9 Absence of Undisclosed Liabilities.........................................................13
3.10 Litigation................................................................................13
3.11 Restrictions on Business Activities.......................................................13
3.12 Governmental Authorization................................................................13
3.13 Title to Property.........................................................................14
3.14 Intellectual Property.....................................................................14
3.15 Environmental Matters.....................................................................15
3.16 Taxes.....................................................................................19
3.17 Employee Benefit Plans....................................................................21
3.18 Certain Agreements Affected by the Purchase...............................................23
3.19 Employee Matters..........................................................................24
3.20 Interested Party Transactions.............................................................24
3.21 Insurance.................................................................................24
3.22 Compliance With Laws......................................................................24
3.23 Minute Books..............................................................................24
3.24 Complete Copies of Materials..............................................................25
3.25 Brokers and Finders.......................................................................25
3.26 Customers and Suppliers...................................................................25
3.27 No Subsidiaries...........................................................................25
3.28 Representations Complete..................................................................25
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF LANDEC...................................................25
4.1 Organization...............................................................................26
4.2 Authority..................................................................................26
4.3 Execution and Binding Effect...............................................................26
4.4 Consent and Approvals......................................................................26
4.5 No Violation...............................................................................26
4.6 SEC Documents; Financial Statements........................................................27
4.7 Access to Data.............................................................................27
4.8 Representations Complete...................................................................27
ARTICLE V - ADDITIONAL AGREEMENTS.......................................................................28
5.1 Confidentiality............................................................................28
5.2 Public Disclosure..........................................................................28
5.3 Compliance with ISRA.......................................................................28
5.4 Section 338(h)(10) Election................................................................31
5.5 Additional Tax Matters.....................................................................32
5.6 Dock Employees.............................................................................32
5.7 Best Efforts and Further Assurances........................................................32
5.8 Use of Name; No Sale of Dock...............................................................33
ARTICLE VI - CONDITIONS TO THE CLOSING..................................................................33
6.1 Conditions to Obligations of Each Party....................................................33
6.2 Additional Conditions to Obligations of Shareholder and Dock...............................34
6.3 Additional Conditions to the Obligations of Landec.........................................34
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; ESCROW.......................36
7.1 Survival of Representations................................................................36
7.2 Indemnification by Shareholder.............................................................36
7.3 Fraud......................................................................................38
7.4 Indemnification by Landec..................................................................38
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7.5 Indemnification Procedure..................................................................39
7.6 Security and Payment of Claims.............................................................40
ARTICLE VIII - MISCELLANEOUS............................................................................41
8.1 Notices....................................................................................41
8.2 Force Majeure..............................................................................42
8.3 No Agency..................................................................................42
8.4 Severability...............................................................................42
8.5 Assignment and Succession..................................................................43
8.6 Amendments and Waivers.....................................................................43
8.7 Further Assurances.........................................................................43
8.8 Absence of Third-Party Beneficiaries.......................................................43
8.9 Governing Law..............................................................................43
8.10 Interpretation............................................................................43
8.11 Entire Agreement..........................................................................44
8.12 Counterparts..............................................................................44
8.13 Expenses..................................................................................44
8.14 Consents..................................................................................44
8.15 Headings..................................................................................44
8.16 Arbitration...............................................................................44
8.17 United States Dollars.....................................................................45
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Schedules
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Schedule 1.3......................................Adjusted Pre-Closing Balance Sheet
Schedule 3.7....................................................Financial Statements
Schedule 3.13..........................................................Real Property
Schedule 3.14..................................................Intellectual Property
Schedule 3.15..................................................Environmental Matters
Schedule 3.16(h)..................................C Corporation Net Operating Losses
Schedule 3.17............................................................ERISA Plans
Schedule 3.21..............................................................Insurance
Schedule 7.2(c)..................................................Pre-Existing Claims
Dock Resins Disclosure Schedule
Landec Disclosure Schedule
Exhibits
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Exhibit A..............................................................FIRPTA Notice
Exhibit B..........................................................IRS FIRPTA Notice
Exhibit C.......................................................Employment Agreement
Exhibit D..................................................Non-Competition Agreement
Exhibit E...........................................................Escrow Agreement
Exhibit F1...........................................Legal Opinion of Landec Counsel
Exhibit F2...................................Legal Opinion of Dock Corporate Counsel
Exhibit F3...............................Legal Opinion of Dock Environmental Counsel
Exhibit G1........................Confidentiality Agreement dated September 23, 1996
Exhibit G2..........................Confidentiality Agreement dated December 4, 1996
Exhibit H...............................................Liability Insurance Coverage
Exhibit I............................................................Promissory Note
Exhibit J.........................................................Lawsuit Assignment
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Stock Purchase Agreement
This Stock Purchase Agreement (the "Agreement") is entered into as of
April 18, 1997, by and among Dock Resins Corporation, a New Jersey corporation
("Dock"), A. Wayne Tamarelli ("Shareholder"), and Landec Corporation, a
California corporation ("Landec").
RECITALS
WHEREAS, Shareholder owns all of the issued and outstanding capital
stock of Dock;
WHEREAS, Landec desires to acquire from Shareholder, and Shareholder
desires to sell to Landec, all of the outstanding shares of Dock on the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, Dock believes it is in its best interests to become
wholly-owned by Landec;
NOW, THEREFORE, in consideration of the mutual agreements,
representations, warranties and covenants hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
SALE AND PURCHASE
1.1 Purchase and Sale of Stock. Subject to the terms and conditions of
this Agreement, Landec agrees to buy from Shareholder and Shareholder agrees to
sell, transfer and deliver to Landec, at the Closing (as such term is
hereinafter defined), all of the issued and outstanding shares of the capital
stock of Dock (the "Dock Stock") free and clear of all liens, encumbrances,
security interests, pledges, restrictions, options, voting trusts, agreements,
proxies and other rights of third parties of any type or nature, except for such
equitable liens as may exist in favor of Landec as of the Closing Date (as
hereinafter defined), in exchange for an aggregate of $3,262,861 in immediately
available funds, plus $8,500,000 in accordance with the terms of a promissory
note, executed and delivered by Landec to the Shareholder at the Closing and in
the form attached hereto as Exhibit I, (the "Note") the principal amount of
which Note shall be subject to upwards or downwards adjustment as provided in
Section 1.3 and certain shares of the Common Stock, $0.001 par value, of Landec
Corporation ("Landec Common Stock") together with an amount of cash, if any,
payable pursuant to Section 1.2(a)(iii)(y) and 1.2(b) to the Shareholder, all as
further described below.
1.2 Purchase Price.
(a) Closing Consideration. Subject to the terms and conditions
of this Agreement, including the upwards or downwards adjustment of the
principal amount of the Note as provided in Section 1.3 hereof, at the Closing
Landec agrees to:
(i) deliver by wire transfer to an account or
accounts designated by Shareholder $1,762,861 in immediately available funds
(the "Closing Cash Consideration");
(ii) execute and deliver the Note to the Shareholder;
(iii) (x) if the average closing price of Landec
Common Stock on the Nasdaq National Market for the five (5) trading days
immediately prior to the Closing Date (as hereinafter defined) (the "Closing
Price") is greater than or equal to $5.00, deliver to Chase Trust Co. of
California (the "Escrow Agent") a number of shares of Landec Common Stock which
is equal to $2,000,000 divided by the Closing Price, which have been issued in
the name of Shareholder, or
(y) if the Closing Price is less than $5.00,
deliver 400,000 shares of Landec Common Stock to the Escrow Agent, issued in the
name of Shareholder and deliver by wire transfer to an account or accounts
designated by Escrow Agent an amount of cash equal to $2,000,000 less the
product of 400,000 and the Closing Price in immediately available United States
Dollars.
(iv) deliver by wire transfer to an account or
accounts designated by the Escrow Agent $1,500,000 in immediately available
funds;
The shares of Landec Common Stock to be delivered by Landec to Escrow Agent in
accordance with the terms of this Section 1.2(a) shall hereinafter be referred
to as the "Landec Shares" and the aggregate consideration to be delivered to the
Escrow Agent in accordance with the terms of Section 1.2(a)(ii) and (iii) shall
hereinafter be referred to as the "Escrow Consideration."
(b) Fractional Shares. Notwithstanding anything to the
contrary in this Agreement, no fraction of a share of Landec Common Stock will
be issued, but in lieu thereof Shareholder shall be entitled to receive from
Landec an amount of cash (rounded to the nearest whole cent) equal to the
product of such fraction and the Closing Price.
1.3 Purchase Price Adjustment.
(a) It is contemplated that the amount of the Net Assets ("Net
Assets") of Dock as reflected on the Balance Sheet (hereinafter defined) will be
not less than $4,047,936.
(b) Prior to the Closing Date Shareholder shall deliver to
Landec a balance sheet of Dock reflecting the assets and liabilities of Dock as
of the close of operations on February 28, 1997 (the "February 28 Balance
Sheet"). The February 28 Balance Sheet shall reflect all of the assets and
liabilities (including special adjustments made thereto by mutual agreement of
the Parties), and all accruals of Dock as of such date and shall be prepared in
accordance with Dock's historical practices and in accordance with GAAP.
(c) Within forty-five (45) days after the Closing Date
Shareholder shall deliver to Landec a balance sheet of Dock, reflecting the
assets and liabilities of Dock as of the close of operations on the Closing Date
(the "Preliminary Balance Sheet"). The Preliminary Balance Sheet shall reflect
the same type of assets and liabilities (including special adjustments made
thereto by mutual agreement of the Parties), and the same type of accruals of
Dock as described in Section 1.2(b) for the February 28 Balance Sheet, and shall
reflect no changes in the
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financial condition of Dock from the February 28 Balance Sheet other than such
changes as result from the conduct of Dock's business in the ordinary course
during the period subsequent to the February 28 Balance Sheet and ending on the
Closing Date.
(d) Within forty-five (45) days after its receipt of the
Preliminary Balance Sheet, Landec shall notify Shareholder in writing of any
exceptions it may have thereto with respect to the methods and procedures of
valuation thereof or any other matter relating to the Preliminary Balance Sheet,
and its reasons therefor. If Landec files no such exceptions, the Preliminary
Balance Sheet shall be the "Balance Sheet" for purposes of this Agreement. In
the event of any such exceptions are made, Landec and Shareholder shall
negotiate in good faith to resolve such exceptions during the period commencing
on the date of Shareholder's delivery of the Preliminary Balance Sheet to Landec
and ending on the date which is 90 days thereafter (said period, the "Review
Period"). In an effort to permit the parties to resolve any exceptions on a
mutually satisfactory basis, each party and its accountants shall be entitled to
a reasonable opportunity to review the relevant work papers and other supporting
documentation used by the other party and its accountants in the creation and
calculation of the other party's determinations with respect to the Preliminary
Balance Sheet.
(e) In the event the parties are unable to resolve such
exceptions during the Review Period, the parties shall, at shared cost and
expense, submit their unresolved exceptions to arbitration in accordance with
Section 8.16 hereof.
(f) If the amount of the net assets on the Balance Sheet
exceeds $4,047,936, Landec and Shareholder agree that the Note shall be amended
and restated by Landec such that the principal amount thereof is increased by,
as of the date of determination of the Balance Sheet, by an amount equal to such
excess, and if the amount of the of the net assets on the Balance Sheet is less
than $4,047,936, Landec and Shareholder agree that the Note shall be amended and
restated such that the principal amount thereof is decreased, as of the date of
determination of the Balance Sheet, by an amount equal to such deficiency.
1.4 Closing.
(a) Closing Date. Subject to the terms and conditions of this
Agreement, the transfer of the Dock Stock, Closing Cash Consideration, Note and
Landec Stock contemplated hereby (the "Closing") shall take place at the offices
of Reed Smith Shaw & McClay, Princeton Forrestal Village, 136 Main Street, Suite
250, Princeton, New Jersey 08540 at 4:30 p.m. local time on April 18, 1997 (the
"Closing Date").
(b) Actions at the Closing. At the Closing, Landec, Dock and
Shareholder shall take such actions and execute and deliver such agreements and
other instruments and documents as necessary or appropriate to effect the
transactions contemplated by this Agreement in accordance with its terms,
including, without limitation, the following:
(i) Shareholder and Dock shall deliver certificates
representing the Dock Stock to Landec which have been duly endorsed for transfer
to Landec by Shareholder;
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(ii) Shareholder shall deliver the certificates,
instruments and documents described in Section 6.3 hereof to Landec;
(iii) Landec shall deliver to Shareholder the Closing
Cash Consideration (less any expenses incurred in connection with the Letter of
Credit as set forth in Section 1.5(b) hereof and any payments made directly to
Summit Bank pursuant to clause (viii) hereof), such sums, if any, due
Shareholder under Sections 1.2(a)(iii)(y) and/or 1.2(b) hereof and the Note;
(iv) Landec shall issue and/or deliver the Escrow
Consideration to the Escrow Agent;
(v) Landec shall deliver the certificates,
instruments and documents described in Section 6.2 hereof to Shareholder;
(vi) Landec, Dock and Shareholder shall enter into an
Employment Agreement and Non-Competition Agreement in substantially the form
attached hereto as Exhibits C and D, respectively;
(vii) Landec, Shareholder and the Escrow Agent shall
enter into an Escrow Agreement in substantially the form attached hereto as
Exhibit E (the "Escrow Agreement"); and
(viii) Shareholder shall deliver an advice of credit
and payment instruction to Landec to pay such amounts as are owing to Summit
Bank by Obligor Number 2381229859 (as defined in the internal records of such
Bank) under Obligation numbers (as defined in the internal records of such Bank)
0083 and 0091 and by Obligor Number 2381683352 under Obligation number 0018
(collectively the "Loans") on behalf of such Obligors, such payment to be
deducted from the Closing Cash Consideration otherwise payable to the
Shareholder as hereinabove provided and Landec shall deliver such amounts as are
owed by such Obligors to Summit Bank in full satisfaction of any such amounts
owing.
1.5 Security for the Note.
(a) In order to secure payment of the Note (including all
amendments and restatements thereof in accordance with Section 1.3(f) hereof)
Landec shall cause to be issued by Bank of America (or such other bank as is
requested by the Shareholder in his sole discretion), (the "Issuing Bank") at
the Closing, an irrevocable, non-transferable, direct pay Letter of Credit for
the benefit of the Shareholder (the "Letter of Credit") having a termination
date on a date which is ten (10) days after the stated maturity date of the Note
(the "Letter of Credit Termination Date"). The Letter of Credit shall be in the
amount of $8,837,638.89 which represents $8,500,000 of principal on the Note
plus an interest component equal to 260 days interest on said principal amount
of the Note at a simple interest rate of interest of 5.5% per annum. In the
event that the principal amount of the Note is increased or decreased, as the
case may be, under Section 1.3(f) hereof, Shareholder shall return the Letter of
Credit issued at Closing upon issuance to him of a replacement Letter of Credit
which Landec shall cause to be
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issued to Shareholder by the Issuing Bank as promptly as possible after the
adjustment under Section 1.3(f) is final as between the Parties, in an amount
increased or decreased, as the case may be, as shall be necessary to reflect the
increase or decrease specified in Section 1.3(f).
(b) Any fees and expenses of the Issuing Bank in connection
with the issuance of the Letter of Credit or any substitute Letter of Credit
issued reflecting any increase or decrease in the principal amount of the Note
pursuant to Section 1.3(f) hereof shall be paid by the Shareholder's issuance of
an advice of credit and payment instruction to Landec to pay such fees and
expenses on behalf of the Shareholder, such payment to be deducted from the
Closing Cash Consideration otherwise payable to the Shareholder as hereinabove
provided, or by wire transfer to an account or accounts designated by Landec
upon presentation to Shareholder of an invoice therefor, as appropriate.
(c) The Letter of Credit shall provide that the Shareholder,
as the stated beneficiary thereof, shall have the right to draw upon the Letter
of Credit only for the following purpose: to pay the principal of and the
accrued but unpaid interest on the Note when due in accordance with the terms of
the Note.
(d) Landec shall deposit $8,837,638.89 with the Issuing Bank
as collateral for the Letter of Credit. As a result, the Shareholder
acknowledges that Landec shall have no liability with respect to the Letter of
Credit if the Issuing Bank fails to make any payment with respect to the Letter
of Credit.
1.6 Section 338(h)(10) Matters.
(a) Within sixty (60) days after the Closing Date (the "338
Review Period"), Landec shall conduct, or cause to be conducted, at its sole
cost and expense, a valuation of the tangible and intangible assets of Dock for
purposes of permitting Landec and the Shareholder to make the 338 Elections (as
hereinafter defined).
(b) Prior to the end of the 338 Review Period, Landec shall
deliver to the Shareholder its final fair market valuation of such assets and
its final calculation of the Shareholder's incremental Federal and State of New
Jersey incremental tax liabilities (the "Shareholder 338 Amount"). Shareholder
shall thereafter have thirty (30) days within which to review such items and to
inform Landec, in writing, as to whether the Shareholder accepts or rejects the
calculation of the Shareholder 338 Amount. In an effort to permit the Parties to
resolve any disagreements on a mutually satisfactory basis, each Party and its
accountants shall be entitled to a reasonably opportunity to review the relevant
work papers and other supporting documentation used by the other party and its
accountants in the creation and calculation of the other Party's determinations
with respect to the Shareholder 338 Amount.
(c) If the Parties have not mutually resolved the calculation
of the Shareholder 338 Amount, the Parties shall, at shared cost and expense,
submit their disagreement to arbitration in accordance with the provisions of
Section 8.16 of this Agreement.
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(d) Within ten (10) days of the final determination of the
Shareholder 338 Amount, Landec shall pay to the Shareholder, in immediately
available funds by wire transfer to an account specified by the Shareholder, a
sum equal to the Shareholder 338 Amount determined as aforesaid plus an amount
equal to the federal and New Jersey state taxes to be paid by Shareholder in
respect of the receipt of the Shareholder 338 Amount (assuming such Shareholder
338 Amount is taxable at the highest relevant marginal rates of tax in effect
with regard to such payment for each respective governmental taxing authority as
of the date of determination of the Shareholder 338 Amount(collectively with the
Shareholder 338 Amount, the "Aggregate Gross-Up")).
(e) Notwithstanding any provision hereof to the contrary, the
Parties hereby agree that the Aggregate Gross Up paid to the Shareholder
hereunder shall not exceed $865,000.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Each representation and warranty set forth below is qualified
by any exceptions or disclosures set forth in the Shareholder/Dock Disclosure
Schedule attached hereto, which exceptions specifically reference the Section(s)
to be qualified. In all other respects, each representation and warranty set out
in this Article II is not qualified in any way whatsoever (except as set forth
within the text of such representation) will not merge on Closing or by reason
of the execution and delivery of any agreement, document or instrument on
Closing, will remain in force on and after the Closing Date until such date as
set forth in Section 7.1 hereof, is given with the intention that liability is
not confined to breaches discovered before Closing, is separate and independent
and is not limited by reference to any other representation or warranty or any
other provision of this Agreement, and is made and given with the intention of
inducing Landec to enter into this Agreement. Shareholder represents and
warrants to Landec as follows:
2.1 Authority. Shareholder has full power and authority to execute and
deliver this Agreement (and all other agreements and instruments contemplated
hereunder) and perform his obligations hereunder and thereunder.
2.2 Execution and Binding Effect. This Agreement has been duly and
validly executed and delivered by Shareholder and constitutes, and the other
agreements and instruments to be executed and delivered by Shareholder pursuant
hereto, upon their execution and delivery by Shareholder, will constitute
(assuming, in each case, the due and valid authorization, execution and delivery
thereof by Landec, Dock and Escrow Agent), legal, valid and binding agreements
of Shareholder, enforceable against Shareholder in accordance with their
respective terms.
2.3 No Violation. Neither the execution, delivery and performance of
this Agreement and all of the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (i) conflict with or result in a violation or breach
of, or constitute a default or require consent of any third party (or give rise
to any right of
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termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any notice, bond, mortgage, indenture, license, franchise,
permit, agreement, lease or other instrument or obligation to which Shareholder
is a party or by which the Dock Stock may be bound, or (ii) violate any statute,
ordinance or law or any rule, regulation, order, writ, injunction or decree of
any court, administrative agency or commission or other governmental authority
or instrumentality ("Governmental Entity") applicable to Shareholder or by which
the Dock Stock is be bound.
2.4 Consents and Approvals of Governmental Entities. There is no
requirement applicable to Shareholder to make any filing, declaration or
registration with, or to obtain any permit, authorization, consent or approval
of, any Governmental Entity as a condition to the lawful consummation by
Shareholder of the transactions on his part to perform as contemplated by this
Agreement and the other agreements and instruments to be executed and delivered
by Shareholder pursuant hereto or the consummation by Shareholder of the
transactions on his part to perform as contemplated herein or therein.
2.5 Brokers and Finders. Shareholder has not employed any broker or
finder or incurred any liability for any brokerage fee, commission or finders
fee in connection with the transactions contemplated by this Agreement.
2.6 Ownership of Dock Stock. Shareholder holds of record and owns
beneficially all of the outstanding shares of the capital stock of Dock, free
and clear of any restrictions on transfer and any taxes, security interests,
options, warrants, purchase rights, contracts, commitments, equities, claims and
demands. Shareholder is neither (i) a party to any option, warrant, purchase
right or other contract of commitment that could require him to sell, transfer
or otherwise dispose of any of the Dock Stock, nor (ii) a party to any voting
trust, proxy, or other agreement or understanding with respect to the voting of
any of the Dock Stock.
2.7 Restricted Shares; Rule 144; Rule 145. Shareholder is aware that
the Landec Shares may not be sold unless registered under the Securities Act or
an exemption from such registration is available. Shareholder is aware of the
provisions of Rules 144 and 145 promulgated under the Securities Act of 1933, as
amended (the "33 Act") which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" (as provided by Rule 144(f)) and
the number of shares being sold during any three-month period not exceeding
specified limitations. Shareholder is further aware that the Landec Shares shall
bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED
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OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL
FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE
TRANSFERRED IN CONFORMITY WITH THE PROVISIONS OF SUCH RULE OR
IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933."
2.8 Experience. Shareholder represents that he is an "Accredited
Investor" as defined in Rule 501(a) of Regulation D of the 33 Act.
2.9 Investment. Shareholder is acquiring the Landec Shares for
investment for his own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. He understands
that the Landec Shares have not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon among
other thing, the bona fide nature of the investment intent and the accuracy of
Shareholder's representations as expressed herein.
2.10 Public Market; No Federal or State Approval. Shareholder
understands that while a public market currently exists for Landec Common Stock,
Landec has made no assurances that a public market will continue to exist in the
future. Shareholder understands that no Federal or state agency has passed upon
the Landec Shares or made any finding or determination as to the fairness of the
investment or any recommendation or endorsement of the Landec Shares.
2.11 Access to Data. Shareholder has had an opportunity to discuss
Landec's business, management and financial affairs with its management.
Shareholder has also had opportunity to ask questions of officers of Landec,
which questions were answered to his satisfaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOCK AND SHAREHOLDER
Each representation and warranty set forth below is qualified
by any exceptions or disclosures set forth in the Shareholder/Dock Disclosure
Schedule attached hereto, which exceptions specifically reference the Section(s)
to be qualified. In all other respects, each
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representation and warranty set out in this Article III is not qualified in any
way whatsoever (except as set forth within the text of such representation) will
not merge on Closing or by reason of the execution and delivery of any
agreement, document or instrument on Closing, will remain in force on and after
the Closing Date until such date as set forth in Section 7.1 hereof, is given
with the intention that liability is not confined to breaches discovered before
Closing, is separate and independent and is not limited by reference to any
other representation or warranty or any other provision of this Agreement, and
is made and given with the intention of inducing the Landec to enter into this
Agreement. Each of Dock and Shareholder represents and warrants to Landec as
follows:
3.1 Organization. Dock is a corporation duly formed and validly
existing under the laws of its jurisdiction of incorporation and has full
corporate power and authority and legal right to own and operate its assets and
to carry on its business as presently conducted, to execute and deliver this
Agreement and all of the other agreements and instruments to be executed and
delivered by it, and to consummate the transactions contemplated hereby and
thereby. Dock is qualified to do business and is in good standing in each
jurisdiction in which it is required to be qualified, except in jurisdictions in
which the failure to qualify, in the aggregate, would not have a Material
Adverse Effect. As used herein the term "Material Adverse Effect" means any
change or effect that is, or is likely to be materially adverse to the business,
assets (including intangible assets), financial condition, results of operations
or prospects of Dock, either individually or in the aggregate. Dock has
delivered a true and correct copy of its articles of incorporation and bylaws,
each as amended to date, to Landec.
3.2 Authority. The execution and delivery of this Agreement (and all
other agreements and instruments contemplated hereunder) by Dock and the
performance by Dock of its obligations hereunder and thereunder have been duly
authorized by all necessary action by the Board of Directors and Shareholder of
Dock, and no other act or proceeding on the part of or on behalf of Dock or its
Shareholder is necessary to approve the execution and delivery of this Agreement
and such other agreements and instruments and the performance by Dock of its
obligations hereunder and thereunder. The signatory officers of Dock have the
power and authority to execute and deliver this Agreement and all of the other
agreements and instruments to be executed and delivered by Dock pursuant hereto,
to consummate the transactions hereby and thereby contemplated and to take all
other actions required to be taken by Dock pursuant to the provisions hereof and
thereof.
3.3 Capital Structure. The authorized capital stock of Dock consists of
2,500 shares of Common Stock, no par value of which there were issued and
outstanding as of the close of business on the Closing Date 225 shares. There
are no other outstanding shares of capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities of Dock. All outstanding shares of Dock capital stock are
duly authorized, validly issued, fully paid and non-assessable and are free of
any liens or encumbrances, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of
Dock or any agreement to which Dock is a party or by which it is bound.
Shareholder is the sole shareholder of Dock. There are no other outstanding
shares of
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capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities.
3.4 Execution and Binding Effect. This Agreement has been duly and
validly executed and delivered by Dock and constitutes, and the other agreements
and instruments to be executed and delivered by Dock pursuant hereto, upon their
execution and delivery by Dock, will constitute (assuming, in each case, the due
and valid authorization, execution and delivery thereof by Landec, Shareholder
and Escrow Agent), legal, valid and binding agreements of Dock, enforceable
against Dock in accordance with their respective terms.
3.5 Consents and Approvals of Governmental Entities. There is no
requirement applicable to Dock to make any filing, declaration or registration
with, or to obtain any permit, authorization, consent or approval of, any
Governmental Entity as a condition to the lawful consummation by Dock of the
transactions contemplated by this Agreement and the other agreements and
instruments to be executed and delivered by Dock pursuant hereto or the
consummation by Dock of the transactions contemplated herein or therein except
for such permit, authorization, consent or approval which, if not obtained or
made, would not have a Material Adverse Effect and would not prevent, or
materially alter or delay any of the transactions contemplated by this
Agreement.
3.6 No Violation. Neither the execution, delivery and performance of
this Agreement and all of the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (a) conflict with, violate or result in any breach
of the terms, conditions or provisions of the articles of incorporation or
bylaws of Dock, (b) conflict with or result in a violation or breach of, or
constitute a default or require consent of any person or entity (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any notice, bond, mortgage, indenture, license,
franchise, permit, agreement, lease or other instrument or obligation to which
Dock is a party or by which Dock or any of the properties or assets of Dock may
be bound, (c) violate any statute, ordinance or law or any rule, regulation,
order, writ, injunction or decree of any Governmental Entity applicable to Dock
or by which any properties or assets of Dock may be bound, or (d) result in any
cancellation of, or obligation to repay, any grant, loan or other financial
assistance received by Dock from any Governmental Entity. No "bulk sales"
legislation applies to the transactions contemplated by this Agreement.
3.7 Financial Statements. Attached hereto as Schedule 3.7 are the
following financial statements of Dock (the "Financial Statements"): the audited
financial statements as of, and for the fiscal years ended December 31, 1993,
December 31, 1994, December 31, 1995 and December 31, 1996 and the unaudited
financial statements as of, and for the two (2) month period ended February 28,
1997. The Balance Sheet of Dock as of February 28, 1997 included in the
Financial Statements shall be referred to herein as the February 28 Balance
Sheet. The Financial Statements (including any notes thereto) have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly the financial
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condition of Dock as of such dates and the results of operations of Dock for
such periods, are correct and complete, and are consistent with the books and
records of Dock, which books and records are complete.
3.8 Absence of Certain Changes. Since February 28, 1997 (the "Balance
Sheet Date"), Dock has conducted its business in the ordinary course consistent
with past practice and has not without the prior written approval of Landec:
(a) Charter Documents. Caused or permitted any amendments to
its articles of incorporation or bylaws;
(b) Dividends; Changes in Capital Stock. Declared or paid any
dividends on or made any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combined or
reclassified any of its capital stock or issued or authorized the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, or repurchased or otherwise acquired, directly or indirectly,
any shares of its capital stock except as to any special adjustments as agreed
to by the parties and reflected in Adjusted Pre-Closing Balance Sheet;
(c) Material Contracts. Entered into any contract or
commitment, or violated, amended or otherwise modified or waived any of the
terms of any of its contracts, which could have a Material Adverse Effect,
individually or in the aggregate, other than in the ordinary course of business
consistent with past practice;
(d) Issuance of Securities. Issued, delivered or sold or
authorized or proposed the issuance, delivery or sale of, or purchased or
proposed the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(e) Intellectual Property. Transferred to any person or entity
any rights to its Intellectual Property (as hereinafter defined) other than in
the ordinary course of business consistent with past practice;
(f) Exclusive Rights. Entered into or amended any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(g) Dispositions. Sold, leased, licensed or otherwise disposed
of or encumbered any of its properties or assets whose absence would have a
Material Adverse Effect, individually or in the aggregate, to its business,
taken as a whole, except in the ordinary course of business consistent with past
practice or as to any special adjustments as agreed to by the parties and
reflected in Adjusted Pre-Closing Balance Sheet.
(h) Indebtedness. Incurred any indebtedness for borrowed
money or guaranteed any such indebtedness or issued or sold any debt securities
or guaranteed any debt
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securities of others except borrowings under existing lines of credit not to
exceed $35,000 in the aggregate;
(i) Leases. Entered into operating lease with aggregate
expected payments in excess of $35,000;
(j) Payment of Obligations. Paid, discharged or satisfied in
an amount in excess of $35,000 in any one case or $100,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than (i) those arising in the ordinary course of
business, (ii) the payment, discharge or satisfaction of liabilities reflected
or reserved against in the Financial Statements, or (iii) payments to prepay its
existing bank line of credit;
(k) Capital Expenditures. Made any capital expenditures,
capital additions or capital improvements requiring an aggregate expenditure by
Dock in excess of the appropriately pro-rated portion of the capital
expenditures set forth on the Disclosure Schedule;
(l) Insurance. Materially reduced the amount of any material
insurance coverage provided by existing insurance policies;
(m) Termination or Waiver. Terminated or waived any right of
material value, other than in the ordinary course of business;
(n) New Hires; Pay Increases. Adopted or amended any employee
benefit or stock purchase or option plan, or hired any new director level or
officer level employee, paid any special bonus or special remuneration to any
employee or director, or increased the salaries or wage rates of its employees,
other than in the ordinary course of business consistent with past practices;
(o) Severance Arrangements. Granted any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except grants which are made in the ordinary course of business in accordance
with its standard past practice;
(p) Lawsuits. Commenced a lawsuit other than for the routine
collection of bills unless it has received the prior written approval of Landec
or unless Dock would suffer the legal remedies of a waiver or laches as a result
of this Subsection 3.8(p);
(q) Acquisitions. Acquired or agreed to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquired or
agreed to acquire any assets which are material, individually or in the
aggregate, to its business, taken as a whole;
(r) Taxes. Ceased to qualify as an S corporation for federal
and all applicable state income tax purposes and other than in the ordinary
course of business, made or changed any material election in respect of Taxes,
adopted or changed any accounting method in respect of
-12-
Taxes or consented to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(s) Revaluation. Revalued any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business or as to any special
adjustments as agreed to by the parties and reflected in Adjusted Pre-Closing
Balance Sheet; or
(t) Other. Agreed in writing or otherwise to take, any of the
actions described in Sections 3.8(a) through (s) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
Notwithstanding anything in this Agreement to the contrary, no disclosure of any
actions of Dock or Shareholder on the Disclosure Schedule with respect to the
matters discussed in subsection 3.8(k) hereof shall have the effect of
obligating Landec in any way to continue or complete any project or practice so
disclosed.
3.9 Absence of Undisclosed Liabilities. Dock has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
February 28 Balance Sheet (as hereinafter defined), (ii) those incurred in the
ordinary course of business and which would not be required to be set forth in
the February 28 Balance Sheet as prepared under GAAP, and (iii) those incurred
in the ordinary course of business since the Balance Sheet Date and consistent
with past practice.
3.10 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Dock or Shareholder,
threatened against Dock or any of its properties or any of its officers or
directors (in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. There is no
judgment, decree or order against Dock or, to the knowledge of Dock or
Shareholder, any of its directors or officers (in their capacities as such),
that could prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect. Notwithstanding anything in this Agreement to the
contrary, no disclosure of any action, suit, proceeding, claim, arbitration or
investigation, whether active or threatened, on the Disclosure Schedule hereto,
whether referenced in Section 3.10 of the Disclosure Schedule or any other
Section of the Disclosure Schedule, shall have the effect of relieving
Shareholder from his obligations to indemnify Landec with respect to the effects
of any such action, suit, proceeding, claim, arbitration or investigation
pursuant to Article VII hereof.
3.11 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Dock which has or
could be expected to have the effect of prohibiting or impairing any current or
future business practice of Shareholder or Dock, any acquisition of property by
Dock or the conduct of business by Dock as currently conducted or as proposed to
be conducted by Dock except where such consequence would not have a Material
Adverse Effect, individually or in the aggregate.
-13-
3.12 Governmental Authorization. Dock has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity (i) pursuant to which Dock currently
operates or holds any interest in any of its properties or (ii) that is required
for the operation of Dock's business or the holding of any such interest ((i)
and (ii) herein collectively called "Dock Authorizations"), and all of such Dock
Authorizations are in full force and effect, except where the failure to obtain
or have any of such Dock Authorizations could not reasonably be expected to have
a Material Adverse Effect.
3.13 Title to Property. Dock has good and valid title to all of its
properties, interests in properties and assets, real and personal, reflected in
the February 28 Balance Sheet or acquired after the Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Balance Sheet Date in the ordinary course of business or as to any
special adjustments as agreed to by the parties and reflected in Adjusted
Pre-Closing Balance Sheet), or in the case of leased properties and assets,
valid leasehold interests in such assets, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the February 28 Balance Sheet. The plants,
property and equipment of Dock that are used in the operations of the businesses
are in good operating condition and repair except (a) to the extent that the
operating condition of such assets would not have a Material Adverse Effect, or
(b) to the extent that such operating condition results from regular maintenance
as would be expected in the ordinary conduct of Dock's business. All properties
used in the operations of Dock are reflected in the February 28 Balance Sheet to
the extent GAAP require the same to be reflected. Schedule 3.13 identifies each
parcel of real property owned or leased by Dock. Notwithstanding anything in
this Agreement to the contrary, no disclosure of any actions of Dock or
Shareholder on the Disclosure Schedule with respect to the matters discussed in
this Section 3.13 shall have the effect of obligating Landec in any way to
continue or complete any project or practice so disclosed.
3.14 Intellectual Property.
(a) Dock owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used or proposed to be used in the business
of Dock as currently conducted or as proposed to be conducted by Dock, except to
the extent that the failure to have such rights have not had and would not
reasonably be expected to have a Material Adverse Effect.
(b) Schedule 3.14 lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and maskworks, which Dock
considers to be material to its business and included in
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the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Dock is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all licenses, sublicenses and other agreements as to which Dock is a party
and pursuant to which Dock is authorized to use any third party patents,
trademarks or copyrights, including software ("Third Party Intellectual Property
Rights") which are incorporated in, are, or form a part of any Dock product that
is material to its business.
(c) To the best of Dock's knowledge, after reasonable inquiry,
there is no unauthorized use, disclosure, infringement or misappropriation of
any Intellectual Property rights of Dock, any trade secret material to Dock, or
any Third Party Intellectual Property Right to the extent licensed by or through
Dock, by any third party, including any employee or former employee of Dock.
Dock has not entered into any agreement to indemnify any other person against
any charge of infringement of any Intellectual Property, other than
indemnification provisions contained in purchase orders or license agreements
arising in the ordinary course of business.
(d) Dock is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Intellectual Property or Third Party Intellectual Property Rights, the
breach of which would have a Material Adverse Effect.
(e) All patents, registered trademarks, service marks and
copyrights held by Dock are valid and subsisting. Dock (i) has not been sued in
any suit, action, or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party and (ii) has not brought any
action, suit or proceeding for infringement of Intellectual Property or breach
of any license or agreement involving Intellectual Property against any third
party. To the best of Dock's knowledge, the manufacture, marketing, licensing or
sale of Dock's products does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, except
where such infringement would not have a Material Adverse Effect.
(f) Dock has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Dock does not
already own by operation of law.
(g) Dock has taken all reasonable and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, or patent applications or copyright
("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by Dock by or to a third party has been pursuant
to the terms of a written agreement between Dock and such third party. All use,
disclosure or appropriation of Confidential Information not owned by Dock has
been pursuant to the terms of a written agreement between Dock and the owner of
such Confidential Information, or is otherwise lawful.
3.15 Environmental Matters.
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(a) Definitions. For the purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "Environmental Conditions" shall mean any
environmental contamination or pollution or threatened contamination or
pollution of, or the Release or threatened Release of Hazardous Materials into,
the surface water, groundwater, surface soil, subsurface soil, air and land.
(ii) "Environmental Laws" shall mean all federal,
regional, state, county or local laws, statutes, ordinances, decisional law,
rules, regulations, codes, orders, decrees, directives and judgments relating to
public health or safety, pollution, damage to or protection of the environment,
Environmental Conditions, Releases or threatened Releases of Hazardous Materials
into the environment or the use, manufacture, processing, distribution,
treatment, storage, generation, disposal, transport or handling of Hazardous
Materials, whether existing in the past or present or hereafter enacted,
rendered, adopted or promulgated. Environmental Laws shall include, but are not
limited to, the following laws, and the regulations promulgated thereunder, as
the same may be amended from time to time: the Comprehensive Environmental
Response Compensation and Liability Act (42 U.S.C. 9601 et seq.) ("CERCLA"); the
Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.) ("RCRA"); the
Clean Air Act (42 U.S.C. 7401 et seq.); the Clean Water Act (33 U.S.C. 1251 et
seq.); the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.)
("ISRA); the New Jersey Spill Compensation and Control Act (N.J.S.A.
58:10-23.11, et seq.) (the "Spill Act"); the New Jersey Water Pollution Control
Act (N.J.S.A. 58:10A-1 et seq.); the New Jersey Sanitary Landfill Facility
Closure and Contingency Fund Act (N.J.S.A. 13:1E-100 et seq.); the New Jersey
Underground Storage of Hazardous Substances Act (N.J.S.A. 58:10A-21 et seq.);
the New Jersey Toxic Catastrophe Prevention Act (N.J.S.A. 13:1K-19 et seq.); and
the New Jersey Environmental Rights Act, (N.J.S.A. 2A:35A-1 et seq.) ("ERA");
(iii) "Environmental Permits" shall mean all permits,
authorizations, registrations, certificates, licenses, approvals or consents
required under or issued by any Governmental Entity pursuant to Environmental
Laws.
(iv) "Former Facilities" shall mean any plants,
offices, land, manufacturing or other facilities formerly owned, operated,
leased, managed, used, controlled or occupied by Dock in connection with Dock's
business, or by any former subsidiary of Dock or any predecessor-in-interest of
Dock.
(v) "Full Compliance with ISRA" shall mean the
receipt by Dock of a Negative Declaration approval or a No Further Action Letter
(as such terms are defined under ISRA) from the NJDEP, or other document or
documents advising that all requirements under ISRA have been fulfilled to the
NJDEP's full satisfaction with respect to the Property, including without
limitation, all requirements of any Remediation Agreement issued by the NJDEP
with respect to the Property.
(vi) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste and any pollutant or contaminant, or
infectious or radioactive
-16-
substance or material, or any substances, materials and wastes defined or
regulated under any Environmental Laws, including without limitation, Hazardous
Wastes, petroleum, polychlorinated byphenyls and urea formaldehyde.
(vii) "Hazardous Waste" shall mean all solid wastes
defined or regulated under Environmental Laws.
(viii) "NJDEP" shall mean the New Jersey Department
of Environmental Protection, its divisions, bureaus and subdivisions, and its
Commissioner, Assistant Commissioners and all other officers and employees.
(ix) "Off-Site Facilities" shall mean any facilities
used for the treatment, storage or disposal of any Hazardous Waste associated
with or resulting from Dock's business.
(x) "Property" shall mean the facility located at
1512 West Elizabeth Avenue, Block 422, Lots 18 and 19, Linden, New Jersey
presently owned and operated by Dock in connection with Dock's business and any
other facilities owned and operated by Dock in connection with Dock's business.
(xi) "Release" shall mean any intentional or
unintentional release, discharge, spill, leaking, pumping, pouring, emitting,
emptying, injection, disposal or dumping.
(xii) "Remedial Action" shall mean any and all: (i)
investigations of Environmental Conditions, including assessments, remedial
investigations, sampling, monitoring or the installation of monitoring wells; or
(ii) actions taken to address Environmental Conditions, including the use,
implementation, application, installation, operation or maintenance of removal
actions, in-situ or ex-situ remediation technologies to the surface and
subsurface soils, excavation and off-site disposal of such soils, soil vapor
extraction systems, recovery wells, sumps or trenches, systems for long-term
treatment of surface water or groundwater.
(xiii) "Remediation Standards" mean either numeric or
narrative standards to which Hazardous Materials in the environment must be
remediated as established pursuant to Environmental Laws by the NJDEP.
(b) Each of Dock and Shareholder represents and warrants:
(i) Permits. Dock possesses all Environmental Permits
necessary in order to conduct Dock's business as it is now being conducted. Each
Environmental Permit issued to Dock is in full force and effect. Dock is in
compliance with all requirements, terms and provisions of the Environmental
Permits issued to Dock and has filed on a timely basis (and updated as required)
all reports, notices, applications or other documents required to be filed
pursuant to the Environmental Permits. Dock has submitted to Landec true and
complete copies of all of the Environmental Permits issued to or held by Dock
which by their terms or by operation of law will expire or otherwise become
ineffective on or before the Closing Date. Dock shall take all necessary actions
to have such Environmental Permits renewed or reissued to
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Dock prior to the Closing Date so as to allow Landec to continue Dock's business
without interruption after the Closing Date.
(ii) Compliance With Environmental Laws. Dock's
business is, and at all times has been, in material compliance with all
Environmental Laws then applicable to Dock's business, the Former Facilities,
Off-Site Facilities, or the Property.
(iii) Reports, Disclosures and Notifications. Dock
has filed on a timely basis (and updated as required) all reports, disclosures,
notifications, applications, pollution prevention, stormwater prevention or
discharge prevention or response plans or other emergency or contingency plans
required to be filed under Environmental Laws, including without limitation, the
New Jersey Worker and Community Right to Know Act, N.J.S.A. 34:5A-1 et seq., and
Title III of the Superfund Amendments and Reauthorization Act, 42 U.S.C.
ss.11001 et seq. Schedule 3.15 lists all such reports, disclosures,
notifications, applications and plans filed by Dock under Environmental Laws. To
the knowledge of Dock or Shareholder after diligent inquiry, all such reports,
disclosures, notifications, applications and plans are true, accurate and
complete.
(iv) Notices. Dock has not received any notice that
Dock, the Property or any of the Former Facilities or Off-Site Facilities: (i)
is in violation of the requirements of any Environmental Permit or Environmental
Laws; (ii) is the subject of any suit, claim, proceeding, demand, order,
investigation or request or demand for information arising under any
Environmental Permit or Environment Laws; or (iii) has actual or potential
liability under any Environmental Laws, including without limitation CERCLA,
RCRA, the Spill Act or any comparable state or local Environmental Laws.
(v) No Reporting or Remediation Obligations. There
are no Environmental Conditions or other facts, circumstances or activities
arising out of or relating to Dock's business, or the use, operation or
occupancy by Dock of the Property or, to the knowledge of the Shareholder or
Dock after diligent inquiry, the Former Facilities or Off-Site Facilities that
result or reasonably could be expected to result in (A) any obligation of Dock
to file any report or notice, to conduct any investigation, sampling or
monitoring or to effect any environmental cleanup or remediation, whether onsite
or offsite; or (B) liability, either to governmental agencies or third parties,
for damages (whether to person, property or natural resources), cleanup costs or
remedial costs of any kind or nature whatsoever.
(vi) Liens and Encumbrance. No federal, state, local
or municipal governmental agency or authority has obtained or asserted an
encumbrance or lien upon the Property or any other property of Dock or, to the
knowledge of the Shareholder or Dock after diligent inquiry, any of the Former
Facilities or Off-Site Facilities as a result of any Release, use or cleanup of
any Hazardous Material for which Dock is legally responsible, nor has any such
Release, use or cleanup occurred which could result in the assertion or creation
of such a lien or encumbrance.
(vii) Storage Transport or Disposal of Hazardous
Materials.
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(A) There is not now nor has there ever been
located on the Property any areas or vessels used or intended for the treatment,
storage or disposal of Hazardous Wastes, including, but not limited to, drum
storage areas, surface impoundments, incinerators, landfills, tanks, lagoons,
ponds, waste piles or deep well injunction systems.
(B) Dock has not transported any Hazardous
Waste for storage, treatment or disposal, or arranged for the transportation,
storage, treatment or disposal of any Hazardous Waste by contract, agreement or
otherwise, at or to any location including, without limitation, any Off-Site
Facilities or any other location used for the treatment, storage or disposal of
Hazardous Wastes.
(viii) Future Laws. There are no Environmental Laws
currently enacted or promulgated, but as to which compliance is not yet
required, that would require Dock or Landec to take any action at the Property
within three (3) years from the Closing of this Agreement in order to bring
Dock's business or the operations at the Property as presently conducted into
compliance with such Environmental Laws.
(c) Notwithstanding anything in this Agreement to the
contrary, no disclosure of any exception to the representations set forth in
subsection (b) above on the Disclosure Schedule hereto, whether referenced in
Section 3.15 of the Disclosure Schedule or any other Section of the Disclosure
Schedule or any appendix, exhibit or annex thereto, shall have the effect of
relieving Shareholder from his obligations to indemnify Landec with respect to
the effects of any such exception pursuant to Article VII hereof.
3.16 Taxes.
(a) Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.
(ii) The term "Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
relating to, or required to be filed in
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connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
(iii) The term "Code" shall mean the Internal Revenue
Code of 1986, as amended.
(b) Returns Filed and Taxes Paid. All Returns required to be
filed by or on behalf of Dock have been duly filed on a timely basis and such
Returns are true, complete and correct, except to the extent that any failures
to file or misstatements would not, individually or in the aggregate have a
Material Adverse Effect. All Taxes shown to be payable on the Returns or on
subsequent assessments with respect thereto, and all payments of estimated Taxes
required to be made by or on behalf of Dock under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis or have been accrued on the Financial Statements, and no other
Taxes are payable by Dock with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns) or with respect
to any period prior to the date of this Agreement except to the extent that any
non-payment would not have a Material Adverse Effect. Dock has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of Dock with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that Dock is
contesting in good faith through appropriate proceedings and for which
appropriate reserves have been established. Dock has not been at any time a
member of any partnership or joint venture for a period for which the statue of
limitations for any Tax potentially applicable as a result of such membership
has not expired.
(c) Tax Reserves. The amount of Dock's liability for unpaid
Taxes (whether actual or contingent) for all periods through the Balance Sheet
Date does not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) solely with respect
to Dock reflected on the February 28 Balance Sheet, and the February 28 Balance
Sheet properly accrues in accordance with GAAP all liabilities for Taxes payable
after that date attributable to transactions and events occurring prior to that
date. No material liability for Taxes has been incurred since that date (or will
be incurred prior to Closing) other than in the ordinary course of business, and
adequate provision has been made for all Taxes since that date (and will be made
through the Closing) on at least a quarterly basis.
(d) Returns Furnished. Landec has been furnished by Dock with
true and complete copies of (i) relevant portions of income tax audit reports,
statements of deficiencies, closing or other agreements received by or on behalf
of Dock or Shareholder relating to Taxes, and (ii) all federal and state income
or franchise tax returns and state sales and use tax Returns for or including
Dock for all periods ending on and after December 31, 1991. Dock has never been
a member of an affiliated group of corporations filing consolidated returns or a
unitary group of corporations filing combined returns. Dock does not do business
in or derive income from any state other than states for which Returns have been
duly filed and furnished to Landec.
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(e) Tax Deficiencies; Audits; Statutes of Limitations. The
Returns of Dock have never been audited by a government or taxing authority, nor
is any such audit in process, pending or threatened. No deficiencies exist or
have been asserted (either in writing or verbally, formally or informally) or
are expected to be asserted with respect to Taxes of Dock, and neither Dock nor
Shareholder has received notice (either in writing or verbally, formally or
informally) nor expects to receive notice that it has not filed a Return or paid
Taxes required to be filed or paid. Dock is neither a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or verbally, formally or informally)
against Dock or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Dock. Dock has
disclosed on its state income and franchise tax returns all positions taken
therein that could give rise to a substantial understatement penalty within the
meaning of Code Section 6662 or comparable provisions of applicable state tax
laws.
(f) Tax Sharing Agreements. Dock is not (nor has it ever been)
a party to any tax sharing agreement.
(g) Tax Elections and Special Tax Status. Dock has made a
valid and timely election to be treated as an S corporation under Section 1362
of the Code (and corresponding provisions of applicable state law) for its
taxable year commencing December 1, 1986 and has continued to be an S
corporation at all times since December 1, 1986. Dock is not, nor has it been, a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and Landec is not required to withhold tax on the
purchase of the Dock Stock by reason of Section 1445 of the Code. Dock is not a
"consenting corporation" under Section 341(f) of the Code. Dock has not entered
into any compensatory agreements with respect to the performance of services
which payment thereunder would result in a nondeductible expense to Dock
pursuant to Section 280G of the Code or an excise tax to the recipient of such
payment pursuant to Section 4999 of the Code. Dock has not agreed to, nor is it
required to make any adjustment under Code Section 481(a) by reason of, a change
in accounting method, and Dock does not otherwise have any material income
reportable for a period ending after the Closing Date attributable to a
transaction or other event (e.g., an installment sale) occurring prior to the
Closing Date. Dock is not, nor has it been, a "reporting corporation" subject to
the information reporting and record maintenance requirements of Section 6038A
and the regulations thereunder. Dock is in compliance with the terms and
conditions of any applicable tax exemptions, agreements or orders of any foreign
government to which it may be subject or which it may have claimed, and the
transactions contemplated by this Agreement will not have any adverse effect on
such compliance.
(h) C Corporation Net Operating Losses. Schedule 3.16(h)sets
forth accurate and complete information regarding Dock's C corporation net
operating losses for federal and each state tax purposes as of the completion of
its 1996 taxable year. Such net operating losses or other tax attributes are not
currently subject to limitation under Code Sections 382, 383 or 384.
3.17 Employee Benefit Plans.
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(a) Schedule 3.17 lists, with respect to Dock and any trade or
business (whether or not incorporated) which is treated as a single employer
with Dock (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m)
or (o) of the Code, (i) all material employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), (ii) each loan to a non-officer employee in excess of $20,000, each
loan to officers and directors and any stock option, stock purchase, phantom
stock, stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria benefit
(Code Section 125) or dependent care (Code Section 129), life insurance or
accident insurance plans, programs or arrangements, (iii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Dock and that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Dock of greater than $20,000 remain for the benefit
of, or relating to, any present or former employee, consultant or director of
Dock (together, the "Dock Employee Plans").
(b) Dock has furnished to Landec a copy of each of the Dock
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each Dock
Employee Plan which is subject to ERISA reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years. Any Dock Employee
Plan intended to be qualified under Section 401(a) of the Code has either
obtained from the Internal Revenue Service a favorable determination letter as
to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
applied to the Internal Revenue Service for such a determination letter prior to
the expiration of the requisite period under applicable Treasury Regulations or
Internal Revenue Service pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable determination.
Dock has also furnished Landec with the most recent Internal Revenue Service
determination letter issued with respect to each such Dock Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any Dock
Employee Plan subject to Code Section 401(a).
(c) (i) None of the Dock Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Dock Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Dock Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Dock and each ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any respect in default under or violation of, and have no knowledge
of any default or violation by any other party to, any of the
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Dock Employee Plans, which default or violation could reasonably be expected to
have a Material Adverse Effect; (iv) neither Dock nor any ERISA Affiliate is
subject to any liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Dock Employee Plans; (v) all
material contributions required to be made by Dock or any ERISA Affiliate to any
Dock Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Dock Employee Plan for the
current plan years; (vi) with respect to each Dock Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 or ERISA has occurred; (vii) each of the Dock Employee Plans may be
terminated by Dock at any time without liability to Dock; and (viii) no Dock
Employee Plan is covered by, and neither Dock nor any ERISA Affiliate has
incurred or expects to incur any liability under Title IV of ERISA or Section
412 of the Code. With respect to each Dock Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA or
an employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
Dock has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and, has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Dock
Employee Plan. No suit, administrative proceeding, action or other litigation
has been brought, or to the best knowledge of Dock is threatened, against or
with respect to any such Dock Employee Plan, including any audit or inquiry by
the IRS or United States Department of Labor. Neither Dock nor any ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
(d) With respect to each Dock Employee Plan, Dock has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder, except to the extent
that such failure to comply would not, in the aggregate, have a Material Adverse
Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Dock or any other ERISA Affiliate to severance benefits or any other
payment, except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Dock or other ERISA Affiliate relating
to, or change in participation or coverage under, any Dock Employee Plan which
would materially increase the expense of maintaining such Plan above the level
of expense incurred with respect to that Plan for the most recent fiscal year
included in Dock's financial statements.
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3.18 Certain Agreements Affected by the Purchase. Neither the execution
and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Dock , (ii) materially
increase any benefits otherwise payable by Dock or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
3.19 Employee Matters. Dock is in compliance in all respects with all
currently applicable laws and regulations respecting employment, discrimination
in employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice, except where the failure to be in compliance or the engagement
in such unfair labor practices would not have a Material Adverse Effect. There
are no pending claims against Dock under any workers compensation plan or policy
or for long term disability. Dock has no obligations under COBRA with respect to
any former employees or qualifying beneficiaries thereunder, except for
obligations that would not have a Material Adverse Effect. There are no
controversies pending or, to the knowledge of Dock , threatened, between Dock
and any of their respective employees, which controversies have or could
reasonably be expected to have a Material Adverse Effect. Dock is not a party to
any collective bargaining agreement or other labor union contract and does Dock
not know of any activities or proceedings of any labor union to organize any
such employees.
3.20 Interested Party Transactions. Dock is not indebted to any
director, officer, employee or agent of Dock (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to Dock.
3.21 Insurance. Dock has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Dock . There is no material claim pending under any
of such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Dock are otherwise
in compliance in all material respects with the terms of such policies and
bonds. Dock has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies. Schedule 3.21 lists each
policy of insurance and bond carried by Dock and any pending claims under such
policies or bonds.
3.22 Compliance With Laws. Dock has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not be reasonably expected to have a
Material Adverse Effect. Notwithstanding anything in this Agreement to the
contrary, no disclosure of any violation of or noncompliance with laws of Dock,
on the Disclosure Schedule hereto, whether referenced in Section 3.22 of the
Disclosure Schedule or any other Section, annex, exhibit or appendix of the
Disclosure Schedule, shall have the effect of relieving Shareholder from his
obligations to indemnify Landec with respect to the effects of any such action,
suit, proceeding, claim, arbitration or investigation pursuant to Article VII
hereof.
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3.23 Minute Books. The minute books of Dock made available to Landec
contain a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
Dock through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
3.24 Complete Copies of Materials. Dock has delivered or made available
true and complete copies of each document that has been requested by Landec or
its counsel in connection with their legal and accounting review of Dock.
3.25 Brokers and Finders. Dock has not employed any broker or finder or
incurred any liability for any brokerage fee, commission or finders fee in
connection with the transactions contemplated by this Agreement.
3.26 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 1% of Dock's gross revenues during the 12
month period preceding the date hereof has indicated to Dock that it will stop,
or decrease the rate of, buying services or products of Dock, or has at any time
on or after the Balance Sheet Date decreased materially its usage of the
services or products of Dock except to the extent that such cessation or
decrease would not have a Material Adverse Effect. As of the date hereof, no
material supplier of Dock has indicated that it will stop, or decrease the rate
of, supplying materials, products or services to Dock except to the extent that
such cessation or decrease would not have a Material Adverse Effect,
individually or in the aggregate. Dock has not knowingly breached, so as to
provide a benefit to Dock that was not intended by the parties, any agreement
with, or engaged in any fraudulent conduct with respect to, any customer or
supplier of Dock.
3.27 No Subsidiaries. Since December /1, 1986, Dock has neither had
subsidiaries nor owned more than 5% of the outstanding capital stock of any
third party.
3.28 Representations Complete. None of the representations or
warranties made by Dock herein or in any Schedule hereto, including the
Shareholder/Dock Disclosure Schedule, or certificate furnished by Dock pursuant
to this Agreement, when all such documents are read together in their entirety,
contains or will contain at the Closing Date any untrue statement of a material
fact, or omits or will omit at the Closing Date to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LANDEC
Each representation and warranty set forth below is qualified by any
exceptions or disclosures set forth in the Landec Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified,
or in the Landec SEC Documents (as hereinafter defined). In all other respects,
each representation and warranty set out in this Article IV is not qualified in
any way whatsoever (except as set forth within the text of such representation)
will not merge on Closing or by reason of the execution and delivery of any
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agreement, document or instrument on Closing, will remain in force on and after
the Closing Date until such date as set forth in Section 7.1 hereof, is given
with the intention that liability is not confined to breaches discovered before
Closing, is separate and independent and is not limited by reference to any
other representation or warranty or any other provision of this Agreement, and
is made and given with the intention of inducing Shareholder to enter into this
Agreement. Landec represents and warrants to Shareholder as follows:
4.1 Organization. Landec is a corporation duly formed and validly
existing under the laws of California, and has full corporate power and
authority and the legal right to execute and deliver this Agreement, the Note
and all of the other agreements and instruments to be executed and delivered by
Landec pursuant hereto, and to consummate the transactions contemplated hereby
and thereby. Landec is qualified to do business and is in good standing in each
jurisdiction in which it is required to be qualified, except in jurisdictions in
which the failure to qualify, in the aggregate, would not have a Material
Adverse Effect. As used herein the term "Material Adverse Effect" means any
change or effect that is, or is likely to be materially adverse to the business,
assets (including intangible assets), financial condition, results of operations
or prospect of Landec.
4.2 Authority. The execution and delivery of this Agreement, the Note
(and all other agreements and instruments contemplated hereunder) by Landec, the
performance by Landec of its obligations hereunder and thereunder, and the
consummation by Landec of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action by the Board of Directors of
Landec, and no other act or proceeding on the part of Landec or its shareholders
is necessary to approve the execution and delivery of this Agreement, the Note
and such other agreements and instruments, the performance by Landec of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby. The signatory officers of Landec have the power
and authority to execute and deliver this Agreement, the Note and all of the
other agreements and instruments to be executed and delivered by Landec pursuant
hereto, to consummate the transactions hereby and thereby contemplated and to
take all other actions required to be taken by Landec pursuant to the provisions
hereof and thereof.
4.3 Execution and Binding Effect. This Agreement and the Note have been
duly and validly executed and delivered by Landec and constitutes, and the other
agreements and instruments to be executed and delivered by Landec pursuant
hereto, upon their execution and delivery by Landec, will constitute (assuming,
in each case, the due and valid authorization, execution and delivery thereof by
Shareholder, Dock and Escrow Agent), legal, valid and binding agreements of
Landec, enforceable against Landec in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency, moratorium,
or other laws affecting the enforcement of creditors' rights generally or
provisions limiting competition, and by equitable principles.
4.4 Consent and Approvals. There is no requirement applicable to Landec
to make any filing, declaration or registration with, or to obtain any permit,
authorization, consent or approval of, any Governmental Entity as a condition to
the lawful consummation by Landec of
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the transactions contemplated by this Agreement and the other agreements and
instruments to be executed and delivered by Landec pursuant hereto.
4.5 No Violation. Neither the execution, delivery and performance of
this Agreement, the Note and all of the other agreements and instruments to be
executed and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (a) conflict with, violate or result in any breach
of the terms, conditions or provisions of the articles or bylaws of Landec, (b)
conflict with or result in a violation or breach of, or constitute a default or
require consent of any person or entity (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any notice, bond, mortgage, indenture, license, franchise,
permit, agreement, lease or other instrument or obligation to which Landec is a
party or by which Landec or any of its properties or assets may be bound, or (c)
violate any statute, ordinance or law or any rule, regulation, order, writ,
injunction or decree of any Governmental Entity applicable to Landec or by which
any of its properties or assets may be bound.
4.6 SEC Documents; Financial Statements. Landec has made available to
Dock and Shareholder a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Landec since February 15, 1996, and, prior to the Closing
Date, Landec will have furnished Dock and Shareholder with true and complete
copies of any additional documents filed with the SEC by Landec prior to the
Closing Date (collectively, the "Landec SEC Documents"). In addition, Landec has
made available to Dock and Shareholder all exhibits to the Landec SEC Documents
filed prior to the date hereof, and will promptly make available to Dock and
Shareholder all exhibits to any additional Landec SEC Documents filed prior to
the Closing Date. As of their respective filing dates, the Landec SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended and the 33 Act, and none of the Landec SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Landec
SEC Document. The financial statements of Landec, including the notes thereto,
included in the Landec SEC Documents (the "Landec Financial Statements") were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Landec
Financial Statements fairly present the consolidated financial condition and
operating results of Landec and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no change in Landec
accounting policies except as described in the notes to the Landec Financial
Statements.
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4.7 Access to Data. Landec has had an opportunity to discuss Dock's
business, management and financial affairs with its management. Landec has also
had opportunity to ask questions of officers of Dock, which questions were
answered to its satisfaction.
4.8 Representations Complete. None of the representations or warranties
made by Landec herein or in any Schedule hereto, including the Landec Disclosure
Schedule and the Landec SEC Documents, or certificate furnished by Landec
pursuant to this Agreement, when all such documents are read together in their
entirety, contains or will contain at the Closing Date any untrue statement of a
material fact, or omits or will omit at the Closing Date to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Confidentiality. The parties acknowledge that Landec and Dock have
previously executed those certain Confidentiality Agreements dated September 23,
1996 and December 4, 1996 and attached hereto as Exhibits G1 and G2,
respectively (the "Confidentiality Agreements"), which shall continue in full
force and effect in accordance with their terms.
5.2 Public Disclosure. Landec and Dock shall consult with each other
before issuing any press release or otherwise making any public statement or
making any other public (or non-confidential) disclosure (whether or not in
response to an inquiry) regarding the terms of this Agreement and the
transactions contemplated hereby, and neither shall issue any such press release
or make any such statement or disclosure without the prior approval of the other
(which approval shall not be unreasonably withheld), except as may be required
by law or by obligations pursuant to any listing agreement with any national
securities exchange or with the NASD or except in connection with litigation
against the other party.
5.3 Compliance with ISRA.
(a) Full Compliance. Shareholder shall achieve Full Compliance
with ISRA with respect to the Property, including without limitation, obtaining
and posting or executing and maintaining any remediation trust fund,
environmental insurance policy, line of credit or other remediation funding
source required under any Remediation Agreement ("RA") or ISRA. Any such
remediation funding source shall be satisfactory in form and substance to the
NJDEP. Without in any way limiting the generality of the foregoing, for the
purpose of satisfying the remediation funding source requirements of the RA
secured by the Shareholder to permit the consummation of the transactions
contemplated hereby, the Shareholder shall cause Dock to apply for and secure
the NJDEP's approval of Dock's self-guaranty for the full amount of such
remediation funding source in accordance with the requirements of ISRA. In the
event at any time (i) the NJDEP notifies the Shareholder or Dock that such
self-guaranty is not satisfactory to the NJDEP, (ii) the Shareholder or Dock
fails to obtain the NJDEP's approval to renew or continue such self-guaranty, or
(iii) Dock cannot satisfy the requirements of ISRA (including without limitation
the financial requirements) applicable to the establishment or maintenance of
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such self-guaranty, the Shareholder shall promptly take all actions necessary to
replace such self guaranty with any other remediation funding source
satisfactory in form and substance to the NJDEP and shall thereafter maintain
such alternative remediation funding source as required by the NJDEP, the RA or
ISRA. Nothing in this Agreement, including without limitation the provisions of
this Section 5.3(a), shall require Landec or Dock to operate or conduct the
business of Landec or Dock in such a manner or to take or forbear from taking
any action with respect to the ownership or operation of Dock's business or the
Property as to enable or permit Dock to obtain or secure the NJDEP's approval to
renew or continue such self-guaranty at any time after the Closing Date.
(b) Conduct of ISRA Proceeding. Shareholder shall take all
actions required under the RA or ISRA to achieve Full Compliance with ISRA,
including the preparation and filing of the General Information Notice, Negative
Declaration Affidavit, Preliminary Assessment, Site Investigation, Remedial
Investigation or Remedial Action Workplan ("RAW") or any other document or
information required by the NJDEP under the RA or ISRA and the implementation of
any Remedial Actions.
(c) Payment of ISRA Compliance Costs. Subject to the
provisions of Section 7.2(c) hereof, Shareholder shall pay all fees, costs and
expenses incurred to apply for and obtain the Negative Declaration approval, RAW
approval or RA, and to achieve Full Compliance with ISRA including, without
limitation, environmental consultants' and contractors' fees, attorneys' fees,
NJDEP filing fees and oversight charges, costs (including any surcharges)
associated with securing and maintaining any remediation funding source,
laboratory and analytical costs and expenses, equipment charges, utility costs,
industrial or hazardous waste disposal costs and all other fees, costs and
expenses incurred in connection with or relating in any way to Remedial Actions.
As a matter of administrative convenience for the Shareholder, Landec and
Shareholder agree to cause Dock to directly contract with and process invoices
for all contractors and service providers involved in the ISRA remediation
process, provided however, that Shareholder shall reimburse Dock for any
payments to such contractors and service providers simultaneously with Dock's
payment of any such invoice from such contractors or service providers. The
foregoing notwithstanding, the Shareholder shall not be responsible for paying,
or reimbursing Landec or Dock for, any internal costs incurred by Landec or Dock
in connection with the Shareholder's Compliance with ISRA to the extent such
internal costs do not materially exceed the costs that Landec or Dock would
otherwise incur to conduct operations at, or to operate or maintain, the
Property, including internal administrative, management or personnel costs and
costs of Dock supplies consumed incidental to the performance of the Remedial
Actions.
(d) Addressing Environmental Conditions at the Property. As to
any Remedial Actions performed by or on behalf of Shareholder at the Property
pursuant to Sections 5.3(a) or (b) or Section 7.2 hereof, Shareholder agrees to:
(i) Cause Dock to perform, and cause Dock to cause
all consultants and contractors retained by Dock to perform, all such Remedial
Actions in a workmanlike manner and consistent with all applicable Environmental
Laws;
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(ii) Cause Dock to comply with all Environmental Laws
applicable to the implementation of such Remedial Actions at the Property and
obtain all permits, authorizations and consents required under applicable
Environmental Laws or by the NJDEP or other governmental agency or authority in
order to implement such Remedial Actions at the Property;
(iii) Cause Dock to select and propose to the NJDEP
Remedial Actions which shall not unreasonably interfere with any existing or
reasonably anticipated future operations of Landec or Dock at the Property;
(iv) Cause Dock to implement such Remedial Actions in
such manner, at such times and with such advance notice as to not unreasonably
interfere with any existing or reasonably anticipated future operations of
Landec or Dock at the Property;
(v) Cause Dock to cause all consultants and
contractors performing such Remedial Actions to provide and maintain
comprehensive general liability insurance, automobile liability insurance,
workers' compensation and employers' liability insurance, excess liability and
professional liability insurance in full force and effect with limits of
coverage not less than the amounts shown on Exhibit H hereto until sixty (60)
days following the completion of the Remedial Action. Shareholder shall provide
copies of insurance certificates indicating that Landec and Dock have been named
as additional insureds under such policies before Landec or Dock shall be
required to provide access to the Property;
(vi) Promptly upon the completion of any
investigation or Remedial Action selected, proposed or implemented pursuant to
Section 5.3 hereof, cause Dock to restore the Property to substantially the same
condition it was in prior to the performance of the investigation or Remedial
Action consistent with the provisions of the RAW, Engineering Control or
Classification Exception Area ("CEA") (as such term is defined under ISRA)
associated with such Remedial Action and approved by the NJDEP;
(vii) Provide Landec and Dock with advance notice of
any meetings or telephone conference calls with the NJDEP concerning any
Remedial Action and an opportunity to attend and monitor any such meetings or
conference calls; and
(viii) Provide Landec and Dock with the opportunity
to: (A) review and comment upon any work plans or reports respecting any
Remedial Action and other submissions to the NJDEP prior to submission and
implementation; (B) attend and monitor all meetings with the NJDEP concerning
any Remedial Actions; (C) review and copy documents concerning any Environmental
Conditions on, at, under or emanating from the Property or any Remedial Actions
proposed or implemented to address the same; (D) have a representative present
during the performance of any Remedial Action and obtain split samples of any
samples taken by or on behalf of Shareholder; and (E) consult with Shareholder
and Shareholder's consultants and contractors concerning any Remedial Action
proposed or implemented by Shareholder at or with respect to the Property.
Landec acknowledges and agrees that Shareholder shall direct and control the
conduct of Dock referenced in this subsection (d) in the performance of
Shareholder's obligations hereunder.
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(e) Consents and Covenants of Landec and Dock. As to the
Remedial Actions performed by Dock under Shareholder's direction pursuant to
Sections 5.3(a) or (b) hereof, Landec and Dock consent and covenant as follows:
(i) Landec and Dock consent to the use of
non-residential Remediation Standards or site specific alternative standards
approved by the NJDEP in connection with the Remedial Actions performed or
implemented at the Property, provided that the use of such Remediation Standards
or such site specific alternative standards shall not unreasonably interfere
with any existing or reasonably anticipated future operations of Landec or Dock
at the Property;
(ii) Landec and Dock shall provide access to the
Property, use of the utilities serving the Property and space for the
installation of any remediation equipment and for the temporary storage of
wastes and remediation equipment as reasonably requested by Shareholder,
provided that such actions do not unreasonably interfere with any existing or
reasonably anticipated future operations of Landec or Dock at the Property;
(iii) As reasonably requested by Shareholder, Landec
and Dock shall consent to the use of Engineering Controls and/or a CEA at the
Property and to the recording of a Declaration of Environmental Restrictions to
the extent the same are required and approved by the NJDEP in connection with
the use of non-residential Remediation Standards or site specific alternative
standards approved by the NJDEP at the Property, provided that such Engineering
Controls, CEA or Declaration of Environmental Restrictions shall not
unreasonably interfere with any existing or reasonably anticipated future
operations of Landec or Dock at the Property.
5.4 Section 338(h)(10) Election.
(a) Shareholder agrees to join with Landec in making an
election under Sections 338(h)(10) and 338(g) of the Code and any corresponding
elections permitted under New Jersey state tax law (hereinafter referred to as a
"338 Election") with respect to the purchase and sale of the Dock Stock
hereunder. Shareholder shall take, and cooperate with Landec in taking, all
actions necessary and appropriate (including the filing of such forms, returns,
elections, schedules and other documents as may be required) to effect and
preserve a timely 338 Election in accordance with Section 338 of the Code, and
any successor provisions, as promptly as practicable after the Closing, but not
later than the date which is the latest date for making such 338 Election, and
from time to time thereafter. Each of Shareholder and Landec shall report the
sale of the Dock Stock pursuant to this Agreement consistent with the 338
Election and take no position contrary thereto or inconsistent therewith in any
Return, any discussion with, or proceeding before any Tax authority or
otherwise. The parties further agree that any reports, filing, schedules, or
Returns which any of the parties may be required to file with the Internal
Revenue Service or any other Tax Authority relative to the allocation of the
consideration for the Dock Stock among the assets of Dock will be consistent
with the amounts agreed to by the parties pursuant to Section 1.6 hereof.
(b) Shareholder acknowledges that the filing of the 338
Election as well as Dock's prior status as an entity other than an S-Corporation
may give rise to certain tax liabilities
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for both Shareholder and Dock, pursuant to Sections 338 and 1374 of the Code.
Shareholder will be responsible for any Tax imposed on him whether or not such
amount is more or less than the amounts paid by Landec to Shareholder pursuant
to Section 1.6 hereof.
5.5 Additional Tax Matters.
(a) Tax Periods Ending On or Prior to the Closing Date.
Shareholder shall prepare, or cause to be prepared, income tax returns for Dock
(including returns for the S Termination Year (as defined by Section 1362(e) of
the Code)) for all periods ending on or prior to the Closing Date, and
Shareholder will file all such returns by their respective due dates.
Shareholder shall permit Landec or its designee to review and comment on each
such income tax return prior to filing. Shareholder shall pay all income taxes
due with respect to the periods covered by such tax returns.
(b) Cooperation on Tax Matters. Landec and Shareholder shall
cooperate fully, as and to the extent reasonably requested by the other party in
connection with the filing of tax returns and elections pursuant to Sections 5.4
and 5.5 and any audit, litigation or other proceeding with respect to Taxes,
provided that subject to Article VII hereof, Shareholder shall control any such
audit, litigation or other proceeding with respect to which Shareholder is
required to indemnify Landec.
(c) Tax Sharing Agreements. Any tax sharing agreements or
similar agreements in effect with respect to or involving Dock shall be
terminated as of the Closing Date, and as of the Closing Date, Dock shall not be
bound thereby or have any liability thereunder.
(d) Payment of Taxes. Any sales, use, transfer and/or related
taxes and fees (including any penalties and interest) which may be incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by Shareholder from the consideration received hereunder when due, and
Shareholder will, at its own expense, file all such necessary tax returns and
other documentation with respect to any such sales, use, transfer and/or related
taxes and fees.
5.6 Dock Employees. Employees of Dock who were employees of Dock prior
to the consummation of the transactions contemplated by this Agreement, shall be
eligible for grants under the Landec 1996 Stock Option and allowed to
participate in the Landec 1995 Employee Stock Purchase Plan, on terms and
conditions as established from time to time, by Landec. Landec and Dock will
adopt and maintain in effect from the Closing for a minimum period of 24 months
thereafter, an employment policy applicable to all employees of Dock (other than
the Shareholder who will execute an Employment Agreement), that will provide
that, (i) there will be no reduction in salary for any such employee, and (ii)
there will be no reduction in the aggregate benefits and perquisites offered to
any such employee, unless such salary reduction or benefit and perquisite
reduction is reviewed and approved in writing by the President of Landec and the
Chief Executive Officer of Dock. Landec shall also, effective on the Closing
Date, grant all persons referred to in the first sentence of this Section 5.6,
credit for service rendered to Dock for purposes of establishing vacation
entitlements.
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5.7 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
5.8 Use of Name; No Sale of Dock. Unless otherwise approved in writing
by the Shareholder: (a) Dock shall use the Dock tradename on products sold by
Dock as of the Closing, as long as the Shareholder remains employed by Dock,
provided, however, that Dock will be able to "co-brand" such products (e.g., "a
product of Dock Resins, a Landec company"); and (b) for a period of one (1) year
from the Closing Date, Landec will not, whether in one transaction or a series
of transactions, sell, transfer, contribute or assign all or substantially all
of the assets or capital stock of Dock to or cause Dock to be consolidated or
merged with or into Landec, its Affiliates or any other third party, without the
prior written consent of the Shareholder.
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions to Obligations of Each Party. The respective obligations
of each party to this Agreement to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, by agreement of all the parties hereto, or, in the case
of a condition solely for the benefit of one party, such condition can be waived
solely by the benefited party:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the transactions contemplated by this
Agreement, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the transactions contemplated by this Agreement, which
makes the consummation of the transactions contemplated by this Agreement
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable diligent efforts to have such injunction or
other order lifted.
(b) Governmental Approval. Landec, Dock and its respective
subsidiaries and Shareholder shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the transactions contemplated by this Agreement,
including such approvals, waivers and consents as may be required under the
Securities Act, state Blue Sky laws and ISRA.
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(c) Listing of Additional Shares. The filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the Landec Shares shall have been made.
(d) Employment Agreement. Landec, Dock and Shareholder shall
have entered into an Employment Agreement in substantially the form attached
hereto as Exhibit C.
(e) Non-Competition Agreement. Landec and Shareholder shall
have entered into a Non-Competition Agreement in substantially the form attached
hereto as Exhibit D.
(f) Escrow Agreement. Landec, Shareholder and the Escrow Agent
shall have entered into the Escrow Agreement.
(g) Note. Landec shall have executed and delivered the Note to
the Shareholder and shall have cause the Letter of Credit to be issued to the
Shareholder.
6.2 Additional Conditions to Obligations of Shareholder and Dock. The
obligations of Shareholder and Dock to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, by Shareholder and Dock or, in the case of a condition
solely for the benefit of one party, such condition can be waived solely by the
benefited party:
(a) Transfer of Lawsuit. All rights in and obligations under
Dock's claim against Reliance National Insurance Co. with respect to any
property and business interruption losses sustained prior to the Closing, shall
have been transferred to Shareholder pursuant to a an assignment substantially
in the form attached hereto as Exhibit J.
(b) Legal Opinion. Dock shall have received a legal opinion
from Venture Law Group, legal counsel to Landec, in substantially the form of
Exhibit F-1.
6.3 Additional Conditions to the Obligations of Landec. The obligations
of Landec to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, by Landec:
(a) Material Adverse Effect. For purposes of Sections 6.3(e),
6.3(g) and 8.1(e) only, the term "Material Adverse Effect" shall mean any change
or effect that is or is likely to be materially adverse to the business assets
(including intangible assets), financial condition results of operations or
prospects of Dock having a monetary value in excess of $250,000, either
individually or in the aggregate.
(b) Legal Opinion. Landec shall have received a legal opinion
from corporate legal counsel to Dock and Shareholder who is acceptable to
Landec, in substantially the form attached hereto as Exhibit F-2.
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(c) Environmental Opinion. Landec shall have received a legal
opinion from environmental legal counsel to Dock who is acceptable to Landec, in
substantially the form attached hereto as Exhibit F-3.
(d) Third Party Consents. Landec shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the transactions
contemplated by this Agreement under any material contract of Dock or otherwise,
where the failure to obtain such consent or approval will have a Material
Adverse Effect on Dock.
(e) Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Landec's conduct or operation of the
business of Dock, following the transactions contemplated by this Agreement
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(f) No Material Adverse Changes. There shall not have occurred
any Material Adverse Change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Dock.
(g) FIRPTA Certificate. Dock shall have provided Landec with
properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, substantially in the form of Exhibit A attached
hereto, which states that shares of capital stock of Dock do not constitute
"United States real property interests" under Section 897(c) of the Code, for
purposes of satisfying Landec's obligations under Treasury Regulation Section
1.1445-2(c)(3) (the "FIRPTA Notice"). In addition, simultaneously with delivery
of such Notification Letter, Dock shall have provided to Landec, as agent for
Dock, a form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and substantially in
the form of Exhibit B attached hereto along with written authorization for
Landec to deliver such notice form to the Internal Revenue Service on behalf of
Dock upon the Closing (the "IRS FIRPTA Compliance Notice").
(h) Dock and Shareholder shall have executed any documents
associated with the 338 Election.
(i) Dock shall have obtained from the NJDEP and executed a
Remediation Agreement permitting the consummation of the transactions
contemplated by this Agreement and shall have obtained and posted or executed
any remediation trust fund, environmental insurance policy, line of credit or
other remediation funding source required under such Remediation Agreement.
Shareholder and Dock shall be the Ordered Parties on such Remediation Agreement.
The form of such Remediation Agreement shall be reasonably satisfactory to
Landec.
(j) The results of all investigations of environmental matters
performed by or on behalf of Landec, Dock and the Shareholder with respect to
Dock, the Former Facilities or the
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Property, including without limitation, the results of the Assessment and all
environmental sampling, monitoring and testing, shall be satisfactory to Landec.
(k) Shareholder shall have delivered advices of credit and
payment instructions to Landec with respect to the Loans and the Letter of
Credit.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; ESCROW
7.1 Survival of Representations. All representations and warranties
made by any party to this Agreement or pursuant hereto (including any exhibits
or schedules) shall survive the Closing hereunder for a period of thirty-six
(36) months after the Closing Date; provided, however, that (a) the
representations and warranties of Shareholder and Dock in Section 3.15 hereof
shall survive for a period of sixty (60) months after the Closing Date; (b) the
representations and warranties of the Shareholder set forth in Section 2.6, 2.7,
2.8, 2.9, 2.10 and 2.11 (collectively referred to as "Certain Shareholder
Representations") shall survive the Closing Date without limitation; and (c) the
representations of the Shareholder and Dock set forth in Section 3.16 herein
shall survive until the expiration of all applicable statutes of limitation, and
thereafter shall automatically expire. No investigation, or knowledge acquired,
by Landec or on behalf of Landec with respect to any breach of any
representation or warranty made by Dock or the Shareholder, or any other matter,
shall affect Landec's rights to indemnification pursuant to this Article VII,
unless specifically waived by Landec in writing.
7.2 Indemnification by Shareholder.
(a) Subject to the terms and conditions of this Article VII,
Shareholder hereby agrees to indemnify, defend and hold harmless Landec, and its
officers, directors and Affiliates from and against all demands, claims, actions
or causes of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, sampling, monitoring or remediation
costs, consultants' and engineering fees and disbursements, costs of effecting
compliance with Environmental Laws, interest, penalties and attorneys' fees and
expenses, but excluding consequential losses and punitive damages unless such
losses or damages are awarded as a result of malicious behavior (collectively,
"Damages"), asserted against, resulting to, imposed upon or incurred by such
indemnified parties, directly or indirectly, by reason of or resulting from (i)
any failure by the Shareholder to perform any of his agreements or covenants
under this Agreement or under any of the documents or instruments delivered by
Shareholder pursuant to this Agreement (excluding the Employment Agreement);
(ii) a breach of any representation or warranty of Dock or the Shareholder
contained in or made pursuant to this Agreement or in any exhibits or schedules
(excluding the Employment Agreement); (iii) all liabilities or obligations,
including, without limitation, those relating to violations of Taxes (whether
known or unknown, accrued, fixed or contingent) of Dock arising out of or
resulting from the operation of Dock prior to Closing; (iv) any claim by any
person or entity to any brokerage fee, commission or finders fee in connection
with the transactions contemplated by this Agreement (notwithstanding the
preceding clause, Landec hereby agrees to pay all fees, costs and expenses due
Einhorn
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Associates, Inc. in connection with this Agreement); (v) Environmental
Conditions on, at, under or emanating from the Property or any Former
Facilities, occurring or existing prior to the Closing Date; (vi) the failure by
Dock or agents, servants, employees or contractors of Dock to comply with
Environmental Laws applicable to Dock's business prior to the Closing Date or to
any of the Former Facilities or to the Property prior to the Closing Date; (vii)
treatment, storage, disposal, or Release at any location of Hazardous Materials
used, generated, handled, stored, manufactured, originating at or transported
from any of the Former Facilities or the Property by Dock or its agents,
servants, employees or contractors prior to the Closing Date or in connection
with Dock's business prior to the Closing Date; (viii) claims of third parties
alleging damages arising from personal injury, property damage or damage to
natural resources arising from or related in any way to Environmental Conditions
on, at, under or emanating from the Former Facilities, the Off-Site Facilities
or the Property prior to the Closing Date or the conduct of Dock's business
prior to the Closing Date; (ix) breach of any of the representations or
warranties set forth in Sections 3.5; 3.10; 3.12; 3.15; and 3.22 hereof to the
extent such representations or warranties relate to Environmental Conditions,
Environmental Permits, Environmental Laws or Releases of Hazardous Materials; or
(x) any product warranty or liability claims made by any third party relating to
Products shipped by Dock to such party prior to the Closing Date (collectively,
the "Claims").
(b) Shareholder hereby agrees to indemnify, defend and hold
harmless Landec, and its officers, directors and Affiliates from and against any
and all Damages asserted against, resulting to, imposed upon or incurred by such
indemnified parties, directly or indirectly, by reason of or resulting from any
failure by Shareholder to comply with any of his obligations under Section 5.3
of this Agreement. Except as expressly set forth in Sections 7.2(c) and (d)
hereof, Shareholder shall be liable for Full Compliance with ISRA pursuant to
Section 5.3 hereof regardless of any limitation of liability.
(c) Shareholder shall be not required to make any
indemnification payments under Section 7.2(a) with respect to any Claims arising
thereunder until, and except to the extent that, the cumulative amount of the
Damages actually incurred by Landec as a result of all Claims actually exceeds
the sum of $150,000 (the "Claim Threshold") at which time Landec may make Claims
against Shareholder for aggregate Damages exceeding the Claim Threshold.
Notwithstanding the foregoing, Shareholder shall be required to make
indemnification payments without regard to the Claim Threshold with respect to
any Damages directly resulting from the potential Claims identified on Schedule
7.2(c) hereto (the "Pre-Existing Claims"). Notwithstanding any provision hereof
to the contrary, the cumulative liability of Shareholder under Sections 7.2(a)
and (b) shall in no event exceed the sum of $5,000,000 (the "Indemnity Cap"),
provided, however, that (i) the cumulative liability of Shareholder under
Section 7.2(a) with respect to Claims brought after the date that is thirty (30)
months after the Closing Date shall in no event exceed the sum of $4,000,000 and
(ii) only the amounts that the Shareholder has expended pursuant to Sections 5.3
or 7.2(b) hereof in excess of $1,000,000 shall be included in the foregoing
calculation of the Indemnity Cap. Indemnification for breach or violation of
representations or warranties pursuant to Section 7.2(a) shall be limited to
Claims made by Landec against Shareholder within the periods specified in
Section 7.1 of this Agreement. For purposes of Section 7.2(a), no Claim shall be
included in the calculation of the aggregate
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Damages for purposes of determining if the Claim Threshold has been exceeded if
(a) the Damages associated with such Claim have not exceeded $7,500, or (b) the
Damages are associated with a Pre-Existing Claim.
(d) The amount of any payment or reimbursement of Damages by
the Shareholder to Landec or Dock under Sections 7.2(a) or (b) shall be net of
any insurance proceeds actually received by Landec in connection with the facts
giving rise to the right of indemnification with respect to such Damages, net of
any expenses actually incurred by Landec in connection with such insurance
matters. The parties agree to use their reasonable commercial efforts to make
claims on and pursue recovery with respect to all insurance on account of such
matters, provided Shareholder advances to Landec any costs to be paid by Landec
in connection with such claim or recovery (e.g., litigation expenses).
(e) Anything in Section 7.2(a) hereof to the contrary
notwithstanding, and subject to Sections 7.2(c) and (d) hereof, in the event any
Environmental Condition to which Landec or Dock is entitled to indemnification
under Section 7.2(a)(v) hereof is initially discovered as a result of any
Remedial Action undertaken by Landec or Dock which Remedial Action is not (i)
required by any applicable Environmental Laws, the NJDEP or any other
governmental agency or authority or any court, or any order, decree or directive
of any of the same, or (ii) associated with any due diligence conducted in
connection with any financing sought by Landec or Dock with respect to the
operations of either of the same or the Property, Shareholder shall be obligated
to pay eighty (80%) percent of all costs and expenses associated with the
Remedial Actions performed or implemented with respect to such Environmental
Condition.
7.3 Fraud. Notwithstanding the provisions of Section 7.2, the parties
agree that nothing herein limits any potential remedies of Landec or any of its
Affiliates arising under applicable state and federal laws with respect to any
intentional or willful fraud, intentional or willful misrepresentation or
intentional or willful deceit committed by Shareholder Dock or any director,
officer, employee or agent of Dock.
7.4 Indemnification by Landec.
(a) Losses. Landec shall indemnify and hold harmless
Shareholder ("Indemnitees") for any and all liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments, fines and penalties
(including, without limitation, legal costs and expenses) and interest on the
amount of any Loss from the date suffered or incurred, but excluding
consequential losses and punitive damages unless such losses or damages are
awarded as a result of malicious behavior, directly or indirectly arising out
of, resulting from or caused by:
(i) any inaccuracy or misrepresentation in or breach
of any of the representations or warranties made by, or covenants or agreements
of Landec contained in this Agreement, or in any exhibits or schedules attached
hereto and thereto;
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(ii) any claim by Einhorn Associates or any other
agent retained by Landec to any brokerage fee, commission or finders fee in
connection with the transactions contemplated by this;
Notwithstanding the prior subparagraphs of this Section 7.4(a), Landec will have
no liability for the first $50,000 in aggregate Losses, but shall be liable for
any such Losses beyond the first $50,000 in aggregate Losses.
(b) Limitation. The obligation of Landec to indemnify
Shareholder under this Section 7.4 shall not be limited in time or amount
(including, without limitation, offsets from insurance, tax savings, recovery of
amounts from other parties, and the like); provided, however, that any claim
under this Section 7.4 must be made prior to three years from the Closing Date.
(c) Separate and Independent Claims. Each of the
representations and warranties contained in Article IV hereof shall be separate
and independent and claims may be made whether or not Shareholder knew or could
have discovered (whether by any reasonable investigation made by it or on its
behalf, or otherwise) that any of the representations and warranties has not
been complied with or carried out or is otherwise untrue or misleading.
(d) Fraud. Notwithstanding the other provisions of this
Section 7.3, the parties agree that nothing herein limits any potential remedies
of Shareholder arising under applicable state and federal laws with respect to
any intentional or willful fraud, intentional or willful misrepresentation or
intentional or willful deceit committed by Landec or any director, officer,
employee or agent of Landec.
7.5 Indemnification Procedure.
(a) Whenever any Claim shall be asserted against or incurred
by an Indemnitee (as defined under Section 7.2 for a Claim thereunder and under
Section 7.4 for a Claim thereunder), the Indemnitee shall give written notice
thereof to Indemnitor (which shall be Shareholder or Landec for a Claim under
Section 7.2 or 7.4 respectively) within sixty (60) days of notice of such Claim.
Indemnitee shall furnish to Indemnitor in reasonable detail such information as
the Indemnitee may have with respect to the Claim (including in any case copies
of any summons, complaint or other pleading which may have been served on it and
any written claim, demand, invoice, billing or other document evidencing or
asserting the same). The failure to give such notice shall not relieve
Indemnitor of his indemnification obligations under this Agreement.
(b) Any controversy between Indemnitor and Indemnitee
regarding a Claim shall be settled by binding arbitration in accordance with
Section 8.16, and to the extent such Claim is cognizable under the Escrow
Agreement, in accordance with the terms of the Escrow Agreement.
(c) If the Claim is based on a claim of a person that is not a
party to this Agreement, Indemnitor may, at its expense, undertake the defense
of such Claim with attorneys of its own choosing reasonably satisfactory to the
Indemnitees. In the event Indemnitor, within a
-39-
reasonable time after receiving notice of a Claim from the Indemnitees, fails to
defend the Claim, the Indemnitees may, at the expense of Indemnitor, undertake
the defense of the Claim and may compromise or settle the Claim, all for the
account of Indemnitor. After notice from Indemnitor to the Indemnitees of its
election to assume the defense of such Claim, Indemnitor shall not be liable to
the Indemnitees under this Section 7.6(c) for any legal expenses subsequently
incurred by the Indemnitees in connection with the defense thereof, except for
such reasonable expenses incurred in connection with cooperation with, or at the
request of, Indemnitor, provided, however, that the Indemnitees shall have the
right to employ, at their expense, counsel to represent them if, in the
Indemnitees' reasonable judgment, based upon the advice of counsel, it is
advisable, in light of the separate interests of the Indemnitees and Indemnitor,
for the Indemnitees to be represented by separate counsel.
(d) Indemnitor shall not, except with the prior written
consent of the Indemnitees which shall not be unreasonably withheld, consent to
entry of any judgment or enter into any settlement.
(e) Except as otherwise provided above, all reasonable costs
incurred by the Indemnitees in connection with a Claim shall be paid by
Indemnitor.
(f) In the event the satisfaction of any Claim as to which
Landec or Dock is entitled to indemnification under Section 7.2 (a) hereof
requires the performance or implementation of a Remedial Action with respect to
an Environmental Condition on, at, under or emanating from the Property, Landec
or Dock shall provide Shareholder with written notice of such Claim in
accordance with Section 7.5 (a) hereof. Shareholder shall have the right to
perform or implement all Remedial Actions in the manner provided by Sections
5.3(d) and (e) hereof with respect to such Environmental Condition by providing
written notice to Landec or Dock of his intent to perform or implement such
Remedial Actions no later than thirty (30) days after his receipt of notice of
such Claim from Landec or Dock. In the event Shareholder (i) does not provide
such notice within the time period prescribed in the preceding sentence, or (ii)
provides such notice but thereafter fails to perform or implement such Remedial
Actions in the manner provided by the provisions of Sections 5.3(d) or (e)
hereof, Landec or Dock shall have the right to take all actions necessary to
satisfy the requirements of applicable Environmental Laws, the NJDEP or other
governmental agency or authority or any court with respect to such Environmental
Condition, including without limitation, the performance and implementation of
required Remedial Actions in the manner provided by the provisions of Sections
5.3 (d) and (e) hereof.
7.6 Security and Payment of Claims.
(a) As security for the indemnity provided in Sections 7.2(a)
and (b) hereof, pursuant to Section 1.2(a)(ii) and (iii) hereof, the Escrow
Consideration shall be deposited in escrow with the Escrow Agent (the "Escrow
Fund"). The Escrow Fund shall be available for satisfaction of Damages as to
which Landec or Dock are entitled to indemnification under Sections 7.2(a) and
(b) hereof and the payment of costs incurred by Shareholder to achieve Full
Compliance with ISRA in accordance with the terms and conditions of the Escrow
Agreement.
-40-
(b) In the event the funds available in the Escrow Fund are
not sufficient to pay all or any portion of the costs incurred by Landec or Dock
in respect of which Landec or Dock is entitled to indemnification under Sections
7.2(a) or (b) hereof, Shareholder shall, subject to Sections 7.2(c) and (d)
hereof, reimburse Landec or Dock for all such costs which exceed the amount of
available funds in the Escrow Fund within thirty (30) days of Shareholder's
receipt of invoices for the same.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. Every notice or other communication required or
contemplated by this Agreement by either party shall be in writing and shall be
delivered by (i) personal delivery, (ii) postage prepaid, return receipt
requested, registered or certified mail (airmail if available), or the
equivalent of registered or certified mail under the laws of the country where
mailed, (iii) internationally recognized express courier, such as Federal
Express, UPS or DHL, (iv) "tested" telex (a telex for which the proper answer
back has been received), or (v) facsimile with a confirmation copy sent
simultaneously in the manner contemplated by clauses (i), (ii) or (iii) of this
Section 8.1, in each case addressed to the party for whom intended at the
following address:
(i) If to Landec:
Landec Corporation
3603 Haven Avenue
Menlo Park, CA 94025
Attention: President
Facsimile Number: 415-368-9818
With a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Tae Hea Nahm
Facsimile Number: 415-854-1121
(ii) If to Shareholder:
Wayne Tamarelli
49 Wexford Way
Basking Ridge, NJ 07920
Facsimile Number: 908-221-9282
-41-
(iii) If to Dock:
Dock Resins Corporation
1512 W. Elizabeth Avenue
Linden, NJ 07036
Attention: Chief Executive Officer
Facsimile Number: (908) 862-4015
(iv) If to Escrow Agent:
Chase Trust Company of California
101 California Street, Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Facsimile Number: 415-693-8850
or at such other address as the intended recipient previously shall
have designated by written notice to the other parties. Notice by registered or
certified mail shall be effective on the date it is officially recorded as
delivered to the intended recipient by return receipt or equivalent, and in the
absence of such record of delivery, the effective date shall be presumed to have
been the sixth (6th) business day after it was deposited in the mail. All
notices and other communications required or contemplated by this Agreement to
be delivered in person or sent by courier shall be deemed to have been delivered
to and received by the addressee and shall be effective on the date of personal
delivery; notices delivered by "tested" telex or by facsimile with simultaneous
confirmation copy by registered or certified or equivalent mail or courier shall
be deemed delivered to and received by the addressee and effective on the date
sent. Notice not given in writing shall be effective only if acknowledged in
writing by a duly authorized representative of the party to whom it was given.
8.2 Force Majeure. No party hereto shall be liable for failure to
perform, in whole or in material part, its obligations under this Agreement
(other than payment and indemnification obligations) if such failure is caused
by any event or condition not existing as of the date of this Agreement (unless
reasonably foreseeable by such party) and not reasonably within the control of
the affected party, including without limitation, by fire, flood, typhoon,
earthquake, explosion, strikes, labor troubles or other industrial disturbances,
unavoidable accidents, war (declared or undeclared), acts of terrorism,
sabotage, embargoes, blockage, acts of Governmental Entities, riots,
insurrections, or any other cause beyond the control of the parties; provided,
only, that the affected party promptly notifies the other party of the
occurrence of the event of force majeure and takes all reasonable steps
necessary to resume performance of its obligations so interfered with.
8.3 No Agency. This Agreement shall not constitute an appointment of
any of the parties hereto as the legal representative or agent of any other
party hereto nor shall any party hereto have any right or authority to assume,
create or incur in any manner any obligation or
-42-
other liability of any kind, express or implied, against, or in the name or on
behalf of, the other party hereto.
8.4 Severability. In the event any provision of this Agreement shall be
determined to be invalid or unenforceable under applicable law, all other
provisions of this Agreement shall continue in full force and effect unless such
invalidity or unenforceability causes substantial deviation from the underlying
intent of the parties expressed in this Agreement or unless the invalid or
unenforceable provisions comprise an integral part of, or are inseparable from,
the remainder of this Agreement. If this Agreement continues in full force and
effect as provided above, the parties shall replace the invalid provision with a
valid provision which corresponds as far as possible to the spirit and purpose
of the invalid provision.
8.5 Assignment and Succession. Except as expressly permitted herein, no
party may assign or otherwise transfer any rights, interests or obligations
under this Agreement (excluding an assignment resulting by operation of law as a
result of the merger or consolidation of any such party) without the prior
written consent of the other parties, which consent may be withheld in the sole
and absolute discretion of such party for any reason whatsoever or for no reason
and any attempted assignment in violation of this provision shall be void and of
no effect.
8.6 Amendments and Waivers. No amendment, modification, termination or
waiver of any provision of this Agreement or consent to any departure by any
party therefrom, shall in any event be effective without the written concurrence
of the other party hereto. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it is given. No notice
to or demand on any party in any case shall entitle any other party to any other
or further notice or demand in similar or other circumstances.
8.7 Further Assurances. Each of the parties hereto agrees that, from
and after the Closing, upon the reasonable request of the other party hereto and
without further consideration, such party will execute and deliver to such other
party such documents and further assurances and will take such other actions
(without cost to such party) as such other party may reasonably request in order
to carry out the purpose and intention of this Agreement including but not
limited to the effective consummation of the transactions contemplated under the
provisions of this Agreement.
8.8 Absence of Third-Party Beneficiaries. No provisions of this
Agreement, express or implied, are intended or shall be construed to confer upon
or give to any person or entity other than the parties hereto, any rights,
remedies or other benefits under or by reason of this Agreement unless
specifically provided otherwise herein, and except as so provided, all
provisions hereof shall be personal solely between the parties to this
Agreement.
8.9 Governing Law. The validity, construction, performance and
enforceability of this Agreement shall be governed in all respects by the laws
of the State of California, without reference to the choice-of-law principles
thereof.
8.10 Interpretation. This Agreement, including any exhibits, schedules
and amendments, has been negotiated at arm's length and between persons
sophisticated and
-43-
knowledgeable in the matters dealt with in this Agreement. Each party has been
represented by experienced and knowledgeable legal counsel. Accordingly, any
rule of law or legal decision that would require interpretation of any
ambiguities in this Agreement against the party that has drafted it is not
applicable and is waived. The provisions of this Agreement shall be interpreted
in a reasonable manner to effect the purposes of the parties and this Agreement.
8.11 Entire Agreement. The terms of this Agreement, the Note and the
other writings referred to herein (including but not limited to all schedules,
exhibits, addenda, and related agreements) and delivered by the parties hereto
are intended by the parties to be the final expression of their agreement with
respect to the subject matter hereof and may not be contradicted by evidence of
any prior or contemporaneous agreement; provided, however, that the terms of the
Confidentiality Agreement shall survive the execution and, if terminated, the
termination of this Agreement. The parties further intend that this Agreement,
together with the exhibits and schedules hereto and the Note, shall constitute
the complete and exclusive statement of its terms and shall supersede any prior
agreement with respect to the subject matter hereof. The parties acknowledge and
agree that this Agreement and exhibits and schedules hereto constitute the
agreements necessary to accomplish the transactions contemplated by this
Agreement and are parts of an integrated arrangement between the parties with
respect to the purchase and sale of the Assets and the operation of the Dock's
business by Landec after the Closing, and that separate agreements have been
used for the sake of convenience.
8.12 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument. Execution and
delivery of this Agreement by exchange of facsimile copies bearing the facsimile
signature of a party hereto shall constitute a valid and binding execution and
delivery of this Agreement by such party. Such facsimile copies shall constitute
enforceable original documents.
8.13 Expenses. Except as set forth in the first clause of Section
1.5(b) hereof, each of the parties agrees to pay its own expenses in connection
with the transactions contemplated by this Agreement, including without
limitation legal, consulting, accounting and investment banking fees, whether or
not such transactions are consummated. The Shareholder and Dock recognize that
any of its expenses with respect to the transactions contemplated by this
Agreement which are reflected as liabilities on the Balance Sheet shall be
subject to the Purchase Price Adjustment set forth in Section 1.3 hereof.
8.14 Consents. Whenever this Agreement requires or permits consent by
or on behalf of any party hereto, such consent shall be given in writing.
8.15 Headings. The article and section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
8.16 Arbitration. Any controversy between Shareholder and Landec
regarding this Agreement (including without limitation, a Claim or the Disputed
Purchase Price Adjustment) shall be settled by binding arbitration in accordance
with the rules of the American Arbitration
-44-
Association (the "AAA") and judgment upon the award rendered through arbitration
may be entered in any court having jurisdiction thereof. Such arbitration shall
be held in Chicago, Illinois, unless the parties mutually agree in writing to
change the location, before three neutral arbitrators appointed in the manner
prescribed by the AAA. The fees and expenses of the Arbitrator shall be borne
equally by Landec and Shareholder. Each party shall be responsible for its own
legal fees and expenses for the proceeding.
8.17 United States Dollars. All references to "$" or "Dollars" in this
Agreement shall refer to United States Dollars.
[Signature Page to Follow]
-45-
This Agreement has been duly executed and delivered by Shareholder and
the duly authorized officers of Dock and Landec as of the date first above
written.
LANDEC CORPORATION
By: /s/ Gary T. Steele
----------------------------------------
Gary T. Steele, President
A. WAYNE TAMARELLI (SHAREHOLDER)
/s/ A. Wayne Tamarelli
- -------------------------------------------
DOCK RESINS CORPORATION
By: /s/ A. Wayne Tamarelli
----------------------------------------
A. Wayne Tamarelli, Chairman
[Signature Page to Stock Purchase Agreement]
-46-
Rosenthal & Co., P.A.
Certified Public Accountants
2122 Meeting House Road
Cinnaminson, New Jersey 08077
(609) 303-0160
DOCK RESINS CORPORATION
-----------------
REPORT ON COMPILATION OF FINANCIAL STATEMENTS
FEBRUARY 28, 1997
Rosenthal & Co., P.A.
Certified Public Accountants
2122 Meeting House Road
Cinnaminson, New Jersey 08077
(609) 303-0160
March 20, 1997
To the Board of Directors of
Dock Resins Corporation
Linden, New Jersey
We have compiled the accompanying balance sheet of Dock Resins Corporation
as at February 28, 1997 and the related statements of income and retaining
earnings, cash flows, and analysis of costs and expenses for the 2 months ended,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures
required by generally accepted accounting principals. If the omitted disclosures
were included in the financial statements they might influence the user's
conclusions about the company's cash flows. Accordingly, these financial
statements are not designed for those who are not informed about such matters.
ROSENTHAL & CO., P.A.
DOCK RESINS CORPORATION
BALANCE SHEET
FEBRUARY 28, 1997
ASSETS
Current assets
Cash and cash equivalents 316,847.96
Accounts receivable - net 1,809,177.78
Inventory - RM - net 508,419.06
Inventory - FG - net 811,083.72
Marketable securities @ FMV 839,709.00
Prepaid expenses 179,831.76
--------------------
Total current $4,465,069.28
Fixed assets
Land 236,824.00
Buildings and improvements 550,547.69
Construction in progress 44,099.48
Construction in progress DPCC 220,926.53
Machinery and equipment 2,521,343.52
Less accumulated depreciation (2,007,768.82)
--------------------
Total fixed assets 1,565,972.40
---------------------
Total assets $6,031,041.68
=====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current
Accounts payable and accrued expenses 907,043.14
Payroll, bonuses and payroll taxes payable 72,679.34
Other accrued expenses payable 1,255,405.35
Income tax payable 16,506.00
Current portion - long term debt 81,720.97
--------------------
Total current 2,333,354.80
Noncurrent
Notes payable - net 13,467.09
Long term debt 713,753.84
Revolving note payable - bank 25,000.00
Deferred charges 121,398.58
--------------------
Total noncurrent 873,619.51
Note payable-shareholder 52,500.00
Stockholder's equity
Common stock, no par value:
Authorized 2,500 shares
Issued 300 shares 78,754.00
Less treasury stock-75 shares at cost (355,336.89)
Retained earnings 3,048,150.26
--------------------
Total stockholder's equity 2,824,067.37
---------------------
Total liabilities and stockholder's equity $6,031,041.68
=====================
See Accountant's Compilation Report.
DOCK RESINS CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIODS ENDED FEBRUARY 28, 1997
1 Month Ended 2 Months Ended
Feb. 28, 1997 Feb. 28, 1997
---------------------- -----------------------
Net Sales $1,056,577.94 $2,378,447.36
Cost of goods sold
Cost of goods sold 864,541.89 1,737,359.20
Selling, general and administrative 224,010.55 537,604.73
Interest - net 3,043.10 6,908.13
---------------------- -----------------------
Total cost and expenses 1,091,595.54 2,281,872.06
---------------------- -----------------------
Income (loss) before income taxes (35,017.60) 96,575.30
Provision for state income tax (73,271.00) (70,071.00)
---------------------- -----------------------
Net income (loss) 38,253.40 166,646.30
Beginning retained earnings 3,009,896.86 2,881,503.96
---------------------- -----------------------
Ending retained earnings $3,048,150.26 $3,048,150.26
====================== =======================
See Accountant's Compilation Report.
DOCK RESINS CORPORATION
ANALYSIS OF COSTS AND EXPENSES
FOR THE PERIODS ENDED FEBRUARY 28, 1997
1 Month Ended 2 Months Ended
Feb. 28, 1997 Feb. 28, 1997
---------------------- -----------------------
Cost of goods sold
Merchandise $456,672.99 $1,048,116.48
Production materials 20,306.19 30,387.82
Salaries 119,735.22 249,877.53
Electricity 8,808.81 15,536.50
Gas and fuel oil 7,662.32 23,781.35
Repairs to buildings and equipment 45,657.14 61,063.64
Forklift expenses 1,725.90 2,399.63
Laundry, cleaning and waste removal 16,345.44 34,153.03
Insurance 32,847.15 60,563.68
Taxes and licenses 9,586.72 23,781.76
Professional fees 126,425.96 148,382.46
Laboratory expenses 2,188.29 6,155.80
Depreciation on buildings and equipment 16,579.76 33,159.52
---------------------- -----------------------
Total cost of goods sold $864,541.89 $1,737,359.20
====================== =======================
Selling, general and administrative
Salaries 127,227.67 316,929.18
Commissions 10,429.97 27,460.84
Telephone 1,349.49 2,835.49
Freight out 10,370.64 28,717.27
Office expenses 6,241.23 10,177.50
Travel and entertainment 8,186.97 17,473.84
Insurance 26,169.27 53,937.03
Taxes and licenses 9,945.71 17,427.71
Professional fees 2,448.94 7,949.04
Pension and profit sharing 8,824.75 18,958.26
Bad debts (232.20) (232.20)
Unrealized gain (loss) - marketable securities 557.00 1,683.00
Sundries 12,371.03 34,047.61
Depreciation on autos and office equipment 120.08 240.16
---------------------- -----------------------
Total selling, general and administrative $224,010.55 $ 537,604.73
====================== =======================
Interest $ 3,043.10 $ 6,908.13
====================== =======================
See Accountant's Compilation Report.
DOCK RESINS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The note payable to the shareholder is included in total stockholder's
equity by the mutual subordination agreement of the Company and its primary
lender.
FINANCIAL STATEMENTS
DOCK RESINS CORPORATION
December 31, 1996
ERNST & YOUNG LLP [LOGO GOES HERE]
Dock Resins Corporation
Financial Statements
December 31, 1996
Contents
Report of Independent Auditors.................................................1
Balance Sheets.................................................................2
Statement of Income and Retained Earnings......................................3
Statement of Cash Flows........................................................4
Notes to Financial Statements..................................................5
[LOGO] ERNST & YOUNG LLP o MetroPark o Phone: 908 906 3200
99 Wood Avenue South
P.O. Box 751
Iselin, New Jersey 08830-0471
Report of Independent Auditors
The Board of Directors
Dock Resins Corporation
We have audited the accompanying balance sheets of Dock Resins Corporation at
December 31, 1996 and 1995, and the related statements of income and retained
earnings 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dock Resins Corporation at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
January 31, 1997
1
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
Dock Resins Corporation
Balance Sheets
December 31
1996 1995
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 410,230 $ 866,366
Marketable securities 841,392 -
Accounts receivable (less allowance for doubtful accounts of
$2,600 in 1995) 1,644,170 1,110,334
Inventories:
Raw materials 419,692 424,361
Finished goods 832,395 732,443
----------------- -----------------
1,252,087 1,156,804
Prepaid expenses and other current assets 241,595 106,330
----------------- -----------------
Total current assets 4,389,474 3,239,834
Property, plant and equipment, at cost:
Land 236,824 236,824
Buildings and improvements 550,548 550,548
Machinery and equipment 2,504,348 2,452,877
Construction in progress 219,932 -
----------------- -----------------
3,511,652 3,240,249
Less accumulated depreciation 1,974,369 1,786,207
----------------- -----------------
Net property, plant and equipment 1,537,283 1,454,042
----------------- -----------------
$5,926,757 $4,693,876
================= =================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $1,011,999 $ 952,676
Payroll, bonuses and payroll taxes payable 739,890 165,562
Other accrued expenses 487,662 447,913
Income taxes payable 83,077 61,192
Borrowings under revolving line of credit 25,000 25,000
Current portion of long-term debt 86,384 86,384
----------------- -----------------
Total current liabilities 2,434,012 1,738,727
Long-term debt 771,939 858,358
Deferred compensation 115,884 96,713
Stockholder's equity:
Common stock, no par value:
Authorized 2,500 shares
Issued 300 shares 78,754 78,754
Retained earnings 2,881,505 2,276,661
----------------- -----------------
2,960,259 2,355,415
Less cost of treasury stock - 75 shares 355,337 355,337
----------------- -----------------
Total stockholder's equity 2,604,922 2,000,078
----------------- -----------------
$5,926,757 $4,693,876
================= =================
See accompanying notes.
2
Dock Resins Corporation
Statements of Income and Retained Earnings
Year ended December 31
1996 1995
----------------------------
Net sales $ 13,498,204 $ 11,889,186
Cost of goods sold 9,417,975 8,866,854
----------------------------
Gross profit 4,080,229 3,022,332
Selling, general and administrative expenses 3,401,799 2,503,647
Interest expense 96,332 122,527
Interest income (29,858) (5,860)
Other expenses 11,612 --
----------------------------
3,479,885 2,620,314
----------------------------
Income before income taxes 600,344 402,018
Provision (benefit) for state income taxes:
Current 17,400 6,500
Deferred (21,900) (4,700)
----------------------------
(4,500) 1,800
----------------------------
Net income 604,844 400,218
Retained earnings at beginning of year 2,276,661 1,876,443
----------------------------
Retained earnings at end of year $ 2,881,505 $ 2,276,661
============================
See accompanying notes.
3
Dock Resins Corporation
Statements of Cash Flows
Year ended December 31
1996 1995
--------------------------
Cash flows from operating activities $ 604,844 $ 400,218
Net income
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 205,012 214,714
Changes in operating assets and liabilities:
Accounts receivable (533,836) 46,193
Inventories (95,283) 36,414
Prepaid expenses (135,265) (4,606)
Accounts payable 59,323 187,493
Payroll, bonuses and payroll taxes payable 574,328 72,150
Other accrued expenses 39,749 100,963
Income taxes payable 21,885 (10,550)
Deferred compensation 19,171 11,520
--------------------------
Net cash provided by operating activities 759,928 1,054,509
--------------------------
Cash flows from investing activities
Capital expenditures (288,253) (63,554)
Purchase of marketable securities (841,392) --
--------------------------
Net cash used in investing activities (1,129,645) (63,554)
--------------------------
Cash flows from financing activities
Borrowings under line of credit 150,000 550,000
Payments under line of credit (150,000) (950,000)
Payments of long-term debt (86,419) (104,120)
--------------------------
Net cash used in financing activities (86,419) (504,120)
--------------------------
Net (decrease) increase in cash and cash equivalents (456,136) 486,835
Cash and cash equivalents at beginning of year 866,366 379,531
--------------------------
Cash and cash equivalents at end of year $ 410,230 $ 866,366
==========================
Supplemental disclosures of cash flow information
Cash paid (refunded) during the year:
Interest $ 84,462 $ 116,796
==========================
Income taxes $ (4,485) $ 12,550
==========================
See accompanying notes.
4
Dock Resins Corporation
Notes to Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Organization
Dock Resins Corporation (the Company) manufactures and sells resins, adhesives,
sealant, coatings and related products to various industrial customers
principally in the United States.
Inventories
Inventories are stated at the lower of cost (determined by the last-in,
first-out method) or market. At December 31, 1996 and 1995, the LIFO inventory
value approximates current cost.
Property, Plant and Equipment
For financial reporting purposes, deprecation is provided on the straight-line
basis over the estimated useful life of each asset. Accelerated methods are used
for tax purposes. Replacements, betterments and additions to property, plant and
equipment are capitalized at cost. Expenditures for maintenance and repairs are
charged to income as incurred.
The estimated useful lives used in computing depreciation are as follows:
Buildings and improvements 20 years
Machinery and equipment 3-10 years
Depreciation expense charged to earnings for the years ended December 31, 1996
and 1995 was approximately $205,000 and $207,000, respectively.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
5
Dock Resins Corporation
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Research and Development
Research and development costs (approximately $1,815,000 for 1996 and $1,800,000
for 1995) are expensed as incurred.
Cash Equivalents
The Company considers as cash equivalents all highly-liquid marketable
securities with an original maturity of three months or less.
Marketable Securities
Marketable securities consist of fixed income investments (state and local
government obligations and short-term commercial paper) with maturity dates
ranging from 1997 through 2007 as of December 31, 1996 which can be readily
purchased or sold using established markets. Management determines the
appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. Such securities are
classified as available for sale and, accordingly, are carried at fair value
which approximates cost at December 31, 1996. The amortized cost of debt
securities is adjusted for amortization of premium and accretion of discounts to
maturity. Such amortization, realized gains and losses, interest and dividends
are included in interest income.
Profit Sharing Plan
The Company has a profit sharing plan which covers substantially all employees.
Contributions to the plan, which are funded as accrued, are determined at the
discretion of the Board of Directors. Such contributions were $80,000 for 1996
and $65,000 for 1995, respectively.
Effective January 1, 1995, the Company's profit sharing plan was amended to
allow for contribution qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees may elect to contribute up to 18% of their salaries,
subject to IRS limitations, to the plan. The Company contributes an amount equal
to 30% of the first 5% of employee contributions. Contributions to the plan by
the Company amounted to approximately $24,800 in 1996 and $15,300 in 1995.
6
Dock Resins Corporation
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Impairment of Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which has no
effect on its financial condition or results of operations. The Company records
impairment losses on long-lived assets used in operations or expected to be
disposed when events and circumstances indicate that the assets are less than
the carrying amounts of those assets. No such events and circumstances have
occurred.
Reclassifications
Certain 1995 balances have been reclassified to conform to 1996 presentation.
2. Debt
Long-term debt consists of the following:
1996 1995
----------------------------------------------
Unsecured note payable to shareholder, interest at 10.5%,
payable in annual principal installments of $7,500
through 2004. $ 52,500 $ 60,000
Mortgage loan payable to bank, interest at 8.5%, payable
in monthly installments of principal and interest of
$6,042 and the remaining principal of $494,936
due August 2000. 591,383 611,818
Equipment line of credit/term loan facility payable to
bank, interest at 9.0%, payable in monthly installments
of principal of $4,874 plus interest due August 2000. 214,440 272,924
----------------------------------------------
858,323 944,742
Less current maturities 86,384 86,384
----------------------------------------------
$771,939 $858,358
==============================================
7
Dock Resins Corporation
Notes to Financial Statements (continued)
2. Debt (continued)
At December 31, 1996, long-term debt was due in aggregate annual installments,
as follows:
1997 $ 86,384
1998 91,233
1999 93,465
2000 564,741
Thereafter 22,500
=================
$858,323
=================
The Company's Amended and Restated Loan and Security Agreement, dated as of June
30, 1996, provides for a $1,250,000 revolving line of credit, a $1,000,000
equipment line of credit and a $614,000 mortgage loan. Each of the borrowings
under the Amended and Restated Loan and Security Agreement is collateralized by
substantially all of the Company's assets and is guaranteed by the Company's
shareholder. Further, the unsecured note payable to the shareholder is
subordinated to each of the borrowings. The Amended and Restated Loan and
Security Agreement contains certain restrictive covenants, the more significant
of which relate to limitations on additional borrowings and require maintenance
of a specified financial leverage ratio.
The revolving line of credit, which bears interest at the lender's floating base
rate (8.25% at December 31, 1996) plus .5%, is available through June 30, 1997.
The line of credit provides for borrowings equal to 80% of the Company's
eligible accounts receivable. No commitment fees were charged under the
agreement and no compensating balances are required.
The equipment line of credit provides for borrowings by the Company through June
30, 1997 to a maximum of 80% of the purchase price of equipment purchased by the
Company. Each borrowing under this line is evidenced by a separate term loan
note, due is equal monthly principal payments over either 60 months or, for
certain specified equipment, 59 months with a balloon payment equal to the
remaining balance due on the sixtieth month.
3. Income Taxes
The Company is an "S" Corporation for federal income tax purposes. This election
generally eliminates federal income taxes at the corporate level and profits are
taxed directly to the Company's shareholder. Therefore, no provision for federal
income taxes is included in the accompanying financial statements.
8
Dock Resins Corporation
Notes to Financial Statements (continued)
3. Income Taxes (continued)
The Company is also an "S" Corporation for New Jersey state income tax purposes.
This election generally reduces state income taxes at the corporate level to a
rate equal to the difference between the corporate tax rate and the highest
marginal personal tax rate (such rate differential is 2.63% for 1996 and 2.42%
for 1995). The Company's shareholder is also taxed directly by New Jersey on the
Company's profits.
For 1996 and 1995, the effective state income tax rates are lower than the
statutory state tax rates, principally reflecting the tax benefits of state
research and development tax credits.
Deferred state income taxes are primarily attributable to temporary differences
which are not currently deductible for income tax purposes, including inventory
reserves, bonuses, deferred compensation and certain other reserves and accrued
liabilities, partially offset by differences between book and state tax
depreciation.
The Company has not recorded any valuation allowances against its deferred tax
assets at December 31, 1996 and 1995 as full realization of these assets is
expected.
4. Bonus and Deferred Compensation Plans
Certain officers and employees of the Company are paid bonuses at the discretion
of the board of directors.
The Company maintains a deferred compensation agreement for one of its
employees, with benefits payable, contingent upon continued employment, three
years after being earned. The annual expense for this agreement was $31,171 for
1996 and $26,519 for 1995. Included in payroll, bonuses and payroll taxes
payable was $27,000 and $25,000 at December 31, 1996 and 1995, respectively,
representing the current portion of deferred compensation.
5. Contingencies
The Company's largest customer accounted for approximately 24% and 17% of sales
in 1996 and 1995, respectively, and approximately 39% and 19% of accounts
receivable at December 31, 1996 and 1995, respectively.
The Company is subject to legal proceedings and environmental claims which arise
in the ordinary course of business. In the opinion of management and counsel,
the ultimate amount of liability, if any, resulting from these actions will not
materially affect the financial position of the Company.
9
Financial Statements
Dock Resins Corporation
December 31, 1995
ERNST & YOUNG LLP [LOGO GOES HERE]
Dock Resins Corporation
Financial Statements
December 31, 1995
Contents
Report of Independent Auditors.................................................1
Balance Sheets.................................................................2
Statement of Income and Retained Earnings......................................3
Statement of Cash Flows........................................................4
Notes to Financial Statements..................................................5
[LOGO] ERNST & YOUNG LLP o MetroPark o Phone: 908 906 3200
99 Wood Avenue South
P.O. Box 751
Iselin, New Jersey 08830-0471
Report of Independent Auditors
The Board of Directors
Dock Resins Corporation
We have audited the accompanying balance sheets of Dock Resins Corporation at
December 31, 1995 and 1994, and the related statements of income and retained
earnings 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dock Resins Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
March 8, 1996
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
1
Dock Resins Corporation
Balance Sheets
December 31
1995 1994
--------------------------------------------
Assets
Current assets:
Cash $ 866,366 $ 379,531
Accounts receivable (less allowance for doubtful accounts of
$2,600 in 1995 and $4,800 in 1994) 1,110,334 1,156,527
Inventories:
Raw materials 424,361 421,054
Finished goods 732,443 772,164
--------------------------------------------
1,156,804 1,193,218
Prepaid expenses 106,330 101,724
--------------------------------------------
Total current assets 3,239,834 2,831,000
Property, plant and equipment, at cost:
Land 236,824 236,824
Buildings and improvements 550,548 550,548
Machinery and equipment 2,452,877 2,405,366
--------------------------------------------
3,240,249 3,192,738
Less accumulated depreciation 1,786,207 1,594,874
--------------------------------------------
Net property, plant and equipment 1,454,042 1,597,864
Other assets (net of accumulated accumulated of $52,728 at
December 31, 1994) - 7,338
--------------------------------------------
$4,693,876 $4,436,202
============================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 952,676 $ 765,183
Payroll, bonuses and payroll taxes payable 165,562 93,412
Other accrued expenses 447,913 346,950
Income taxes payable 61,192 71,742
Borrowings under revolving line of credit 25,000 425,000
Current portion of long-term debt 86,384 130,139
--------------------------------------------
Total current liabilities 1,738,727 1,832,426
Long-term debt 858,358 918,723
Deferred compensation 96,713 85,193
Stockholder's equity:
Common stock, no par value:
Authorized 2,500 shares
Issued 300 shares 78,754 78,754
Retained earnings 2,276,661 1,876,443
--------------------------------------------
2,355,415 1,955,197
Less cost of treasury stock - 75 shares 355,337 355,337
--------------------------------------------
Total stockholder's equity 2,000,078 1,599,860
--------------------------------------------
$4,693,876 $4,436,202
============================================
See accompanying notes.
2
Dock Resins Corporation
Statements of Income and Retained Earnings
Year ended December 31
1995 1994
------------ ------------
Net sales $ 11,889,186 $ 11,185,215
Costs and expenses:
Cost of goods sold 8,866,854 8,503,673
Selling, general and administrative 2,503,647 2,266,005
Interest 116,667 150,428
------------ ------------
11,487,168 10,920,106
------------ ------------
Income before income taxes 402,018 265,109
Provision for state income taxes:
Current 6,500 12,500
Deferred (4,700) --
------------ ------------
1,800 12,500
------------ ------------
Net income 400,218 252,609
Retained earnings at beginning of year 1,876,443 1,623,834
============ ============
Retained earnings at end of year $ 2,276,661 $ 1,876,443
============ ============
See accompanying notes.
3
Dock Resins Corporation
Statements of Cash Flows
Year ended December 31
1995 1994
--------------------------------------------
Cash flows from operating activities
Net income $ 400,218 $ 252,609
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 214,714 232,257
Changes in operating assets and liabilities:
Accounts receivable 46,193 162,986
Inventories 36,414 (252,955)
Prepaid expenses (4,606) (7,328)
Accounts payable 187,493 (76,391)
Payroll, bonuses and payroll taxes payable 72,150 (6,790)
Other accrued expenses 100,963 156,331
Income taxes payable (10,550) 41,410
Deferred compensation 11,520 10,230
--------------------------------------------
Net cash provided by operating activities 1,054,509 512,359
Cash flows from investing activities
Capital expenditures (63,554) (34,281)
Decrease in other assets - 545,651
--------------------------------------------
Net cash (used in) provided by investing activities (63,554) 511,370
Cash flows from financing activities
Borrowings under line of credit 550,000 1,275,000
Payments under line of credit (950,000) (1,800,000)
Payments of long-term debt (104,120) (120,314)
--------------------------------------------
Net cash used in financing activities (504,120) (645,314)
--------------------------------------------
Net increase in cash 486,835 378,415
Cash and at beginning of year 379,531 1,116
--------------------------------------------
Cash at end of year $ 866,366 $ 379,531
============================================
Supplemental disclosures of cash flow information
Cash paid (refunded) during the year:
Interest $ 116,796 $154,963
============================================
Income taxes $ 12,550 $ (7,941)
============================================
See accompanying notes.
4
Dock Resins Corporation
Notes to Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Organization
Dock Resins Corporation (the Company) manufactures and sells resins, adhesives,
sealant, coatings and related products to various industrial customers
principally in the United States.
Inventories
Inventories are stated at the lower of cost (determined by the last-in,
first-out method) or market. At December 31, 1995 and 1994, the LIFO inventory
value approximates current cost.
Property, Plant and Equipment
For financial reporting purposes, deprecation is provided on the straight-line
basis over the estimated useful life of each asset. Accelerated methods are used
for tax purposes. Replacements, betterments and additions to property, plant and
equipment are capitalized at cost. Expenditures for maintenance and repairs are
charged to income as incurred.
The estimated useful lives used in computing depreciation are as follows:
Buildings and improvements 20 years
Machinery and equipment 3-10 years
Depreciation expense charged to earnings for the years ended December 31, 1995
and 1994 was approximately $207,000 and $220,000, respectively.
Other Assets
Other assets at December 31, 1994 consist primarily of deferred charges
including loan placement fees and security deposits. The loan placement fees
were amortized on a straight-line basis over the term of the related loans.
5
Dock Resins Corporation
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Research and Development
Research and development costs (approximately $1,800,000 for 1995 and $1,300,000
for 1994) are expensed as incurred.
Profit Sharing Plan
The Company has a profit sharing plan which covers substantially all employees.
Contributions to the plan, which are funded as accrued, are determined at the
discretion of the Board of Directors. Such contributions were $65,000 for 1995
and $60,000 for 1994, respectively.
Effective January 1, 1995, the Company's profit sharing plan was amended to
allow for contribution qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees may elect to contribute up to 18% of their salaries,
subject to IRS limitations, to the plan. The Company contributes an amount equal
to 30% of the first 5% of employee contributions. Contributions to the plan by
the Company amounted to approximately $15,300 in 1995.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
6
Dock Resins Corporation
Notes to Financial Statements (continue)
2. Debt
Long-term debt consists of the following:
1995 1994
------------------- -------------------
Unsecured note payable to shareholder, interest at 10.5%,
payable in annual principal installments of $7,500
through 2004. $ 60,000 $ 67,500
Mortgage loan payable to bank, interest at 8.5%, payable
in monthly installments of principal and interest of
$6,042 and the remaining principal of $494,936
due August 2000. 611,818 641,948
Equipment line of credit/term loan facility payable to
bank, interest at 9.0%, payable in monthly installments
of principal of $4,874 plus interest due August 2000. 272,924 -
Term loan payable to bank, interest at 8.75%, payable
in monthly installments of principal and interest
of $9,066, remaining principal of $292,418 converted
to equipment loan above August 1995. - 339,414
------------------- -------------------
944,742 1,048,862
Less current maturities 86,384 130,139
------------------- -------------------
$858,358 $ 918,723
=================== ===================
At December 31, 1995, long-term debt was due in aggregate annual installments,
as follows:
1996 $86,384
1997 90,098
1998 91,233
1999 93,465
2000 561,062
Thereafter 22,500
-----------------
$944,742
=================
The Company's Amended and Restated Loan and Security Agreement, dated as of July
31, 1995, provides for a $1,250,000 revolving line of credit, a $1,050,000
equipment line of credit and a $614,000 mortgage loan. Each of the borrowings
under the Amended and Restated Loan and Security Agreement is collateralized by
substantially all of the Company's assets and is 2. Debt (continued) guaranteed
by the Company's shareholder. Further, the
7
Dock Resins Corporation
Notes to Financial Statements (continue)
2. Debt (continue)
unsecured note payable to the shareholder is subordinated to each of the
borrowings. The Amended and Restated Loan and Security Agreement contains
certain restrictive covenants, the more significant of which relate to
limitations on additional borrowings and require maintenance of a specified
financial leverage ratio. At December 31, 1995, management believes that the
fair value of long-term debt approximates its carrying value.
The revolving line of credit, which bears interest at the lender's floating base
rate (8.5% at December 31, 1995) plus .75%, is available through June 30, 1996.
The line of credit provides for borrowings equal to 80% of the Company's
eligible accounts receivable. No commitment fees were charged under the
agreement and no compensating balances are required.
The equipment line of credit provides for borrowings by the Company through June
30, 1996 to a maximum of 80% of the purchase price of equipment purchased by the
Company. Each borrowing under this line is evidenced by a separate term loan
note, due is equal monthly principal payments over either 60 months or, for
certain specified equipment, 59 months with a balloon payment equal to the
remaining balance due on the sixtieth month.
3. Income Taxes
The Company is an "S" Corporation for federal income tax purposes. This election
generally eliminates federal income taxes at the corporate level and profits are
taxed directly to the Company's shareholder. Therefore, no provision for federal
income taxes is included in the accompanying financial statements.
Additionally, effective January 1, 1994 the Company is an "S" Corporation for
New Jersey state income tax purposes. This election generally reduces state
income taxes at the corporate level to a rate equal to the difference between
the corporate tax rate and the highest marginal personal tax rate (such rate
differential is 2.42% for 1995 and 2.35% for 1994). The Company's shareholder is
also taxed directly by New Jersey on the Company's profit.
8
Dock Resins Corporation
Notes to Financial Statements (continue)
3. Income Taxes (continued)
For 1995, the effective state income tax rates are lower than the statutory
state tax rate, principally reflecting the tax benefits of state research and
development tax credits. For 1994, the effective state income tax rate is higher
than the statutory state tax rate. This results from the non-deductibility of
certain payments and charges, partially offset by depreciation differences
between the financial reporting and tax bases of certain assets.
Deferred state income taxes are primarily attributable to temporary differences
which are not currently deductible for income tax purposes, including inventory
reserves, deferred compensation and certain other reserves and accrued
liabilities, partially offset by differences between book and state tax
depreciation.
The Company has not recorded any valuation allowances against its deferred tax
assets at December 31, 1995 and 1995 as full realization of these assets is
expected.
4. Bonus and Deferred Compensation Plans
Certain officers and employees of the Company are paid bonuses at the discretion
of the board of directors.
The Company maintains a deferred compensation agreement for one of its
employees, with benefits payable, contingent upon continued employment, three
years after being earned. The annual expense for this agreement was $26,519 for
1995 and $23,500 for 1994. Included in payroll, bonuses and payroll taxes
payable at both December 31, 1995 and 1994 is $25,000, representing the current
portion of deferred compensation.
5. Contingencies
The Company's largest customer accounted for approximately 17% and 20% of sales
in 1995 and 1994, respectively, and approximately 19% and 26% of accounts
receivable at December 31, 1995 and 1994, respectively.
The Company is subject to legal proceedings and environmental claims which arise
in the ordinary course of business. In the opinion of management and counsel,
the ultimate amount of liability, if any, resulting from these actions will not
materially affect the financial position of the Company.
9
FINANCIAL STATEMENTS
DOCK RESINS CORPORATION
December 31, 1994
ERNST & YOUNG LLP [LOGO GOES HERE]
Dock Resins Corporation
Financial Statements
December 31, 1994
Contents
Report of Independent Auditors.................................................1
Balance Sheets.................................................................2
Statement of Income and Retained Earnings......................................3
Statement of Cash Flows........................................................4
Notes to Financial Statements..................................................5
[LOGO] ERNST & YOUNG LLP o MetroPark o Phone: 908 906 3200
99 Wood Avenue South
P.O. Box 751
Iselin, New Jersey 08830-0471
Report of Independent Auditors
The Board of Directors
Dock Resins Corporation
We have audited the accompanying balance sheets of Dock Resins Corporation at
December 31, 1994 and 1993, and the related statements of income and retained
earnings 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dock Resins Corporation at
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
March 10, 1995
Dock Resins Corporation
Balance Sheets
December 31
1994 1993
--------------------------------------------
Assets
Current assets:
Cash $ 379,531 $ 1,116
Accounts receivable (less allowance for doubtful accounts of
$4,829 in 1994 and $2,059 in 1993) 1,156,527 1,319,513
Inventories:
Raw materials 421,054 389,511
Finished goods 772,164 550,752
--------------------------------------------
1,193,218 940,263
Prepaid expenses 101,724 94,396
--------------------------------------------
Total current assets 2,831,000 2,355,288
Property, plant and equipment, at cost:
Land 236,824 236,824
Buildings and improvements 550,548 537,398
Machinery and equipment 2,405,366 2,385,336
--------------------------------------------
3,192,738 3,159,558
Less accumulated depreciation 1,594,874 1,375,731
--------------------------------------------
Total property, plant and equipment 1,597,864 1,783,827
Other assets (net of accumulated amortization of $52,728 and
$40,714 at December 31, 1994 and 1993 respectively) 7,338 565,002
--------------------------------------------
$4,436,202 $4,704,117
============================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 765,183 $ 841,574
Payroll, bonuses and payroll taxes payable 93,412 100,202
Other accrued expenses 346,950 190,619
Income taxes payable 71,742 30,332
Borrowings under revolving line of credit 425,000 950,000
Current portion of long-term debt 130,139 120,371
--------------------------------------------
Total current liabilities 1,832,426 2,233,098
Long-term debt 918,723 1,048,805
Deferred compensation 85,193 74,963
Stockholder's equity:
Common stock, no par value:
Authorized 2,500 shares
Issued 300 shares 78,754 78,754
Retained earnings 1,876,443 1,623,834
--------------------------------------------
1,955,197 1,702,588
Less cost of treasury stock - 75 shares 355,337 355,337
--------------------------------------------
Total stockholder's equity 1,599,860 1,347,251
--------------------------------------------
$4,436,202 $4,704,117
============================================
See accompanying notes.
2
Dock Resins Corporation
Statements of Income and Retained Earnings
Year ended December 31
1994 1993
----------- -----------
Net sales $11,185,215 $10,257,029
Costs and expenses:
Cost of goods sold 8,503,673 7,709,504
Selling, general and administrative 2,266,005 2,223,425
Interest 150,428 176,162
----------- -----------
10,920,106 10,109,091
----------- -----------
Income before income tax 265,109 147,938
Provisions for state income tax:
Current 12,500 15,000
Deferred -- 1,000
----------- -----------
12,500 16,000
----------- -----------
Net income 252,609 131,938
Retained earnings at beginning of year 1,623,834 1,491,896
----------- -----------
Retained earnings at end of year $ 1,876,443 $ 1,623,834
=========== ===========
-3-
Dock Resins Corporation
Statements of Cash Flows
Year ended December 31
1994 1993
--------------------------
Cash flows from operating activities $ 252,609 $ 131,938
Net income
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 232,257 271,940
Deferred income taxes -- 5,750
Changes in operating assets and liabilities:
Accounts receivable 162,986 (250,536)
Inventories (252,955) 67,724
Prepaid expenses (7,328) 66,621
Accounts payable (76,391) 2,202
Payroll, bonuses and payroll taxes payable (6,790) 2,373
Other accrued expenses 156,331 32,519
Income taxes payable 41,410 (44,250)
Deferred compensation 10,230 8,735
--------------------------
Net cash provided by operating activities 512,359 295,016
Cash flows from investing activities
Capital expenditures (34,281) (63,188)
Decrease (increase) in other assets 545,651 (98,084)
--------------------------
Net cash provided by (used in) investing activities 511,370 (161,272)
Cash flows from financing activities
Borrowings under line of credit 1,275,000 1,600,000
Payments under line of credit (1,800,000) (1,650,000)
Payments of long-term debt (120,314) (107,771)
--------------------------
Net cash used in financing activities (645,314) (157,771)
--------------------------
Net increase (decrease) in cash 378,415 (24,027)
Cash at beginning of year 1,116 25,143
--------------------------
Cash at end of year $ 379,531 $ 1,116
==========================
Supplemental disclosures of cash flow information
Cash paid (refunded) during the year:
Interest $ 154,963 $ 177,737
==========================
Income taxes $ (7,941) $ 41,412
==========================
See accompanying notes.
4
Dock Resins Corporation
Notes to Financial Statements
December 31, 1994
1. Summary of Significant Accounting Policies
Organization
Dock Resins Corporation (the Company) manufactures and sells resins, adhesives,
sealant, coatings and related products to various industrial customers
principally in the United States.
Inventories
Inventories are stated at the lower of cost (determined by the last-in,
first-out method) or market. At December 31, 1994 and 1993, the LIFO inventory
value approximates current cost.
Property, Plant and Equipment
For financial reporting purposes, deprecations provided on the straight-line
basis over the estimated useful life of each asset. Accelerated methods are used
for tax purposes. Replacements, betterments and additions to property, plant and
equipment are capitalized at cost. Expenditures for maintenance and repairs are
charged to income as incurred.
The principal estimated useful lives used in computing depreciation are as
follows:
Buildings and improvements 20 years
Machinery and equipment 3-10 years
Depreciation expense charged to earnings for the years ended December 31, 1994
and 1993 was approximately $220,000 and $260,000, respectively.
Other Assets
Other assets consist primarily of deferred charges including loan placement fees
and security deposits. The loan placement fees are being amortized on a
straight-line basis over the term of the related loans. Other assets at December
31, 1993 also included an insurance receivable.
5
Dock Resins Corporation
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Research and Development
Research and development expenditures approximately ($1,272,000 for 1994 and
$925,000 for 1993) are expensed as incurred.
Profit Sharing Plan
The Company has a profit sharing plan which covers substantially all employees.
Contributions to the plan, which are funded as accured, are determined at the
discretion of the Board of Directors. Such contributions were $60,000 for 1994
and $46,000 for 1993, respectively.
2. Debt
Long-term debt consists of the following:
1994 1993
---------------------------------
Unsecured note payable to shareholder, interest at
10.5%, payable in annual principal installments of
$7,500 through 2004. $ 67,500 $ 75,000
Mortgage loan payable to bank, interest at 8.75%,
payable in monthly installments of principal and
interest of $7,493 and the remaining principal
$618,568 due August 1995. 641,948 674,581
Term loan payable to bank, interest at 8.75%, payable
in monthly installments of principal and interest of
$9,066 and the remaining principal $290,534 due
August 1995. 339,414 414,442
Capitalized lease obligations -- 5,153
---------------------------------
1,048,862 1,169,176
Less current maturities 130,139 120,371
---------------------------------
$ 918,723 $1,048,805
=================================
6
Dock Resins Corporation
Notes to Financial Statements (continued)
2. Debt (continued)
As noted above, aggregate balloon payments of approximately $909,000 are due in
August 1995 under the Company's mortgage loan and term loan. The Company is
currently negotiating with the lender to refinance these amounts on a long-term
basis, and management believes that it has the ability to obtain long-term
financing of these amounts. Accordingly, for purposes of presenting the current
portion of long-term debt at December 31, 1994, the Company has reflected a full
year of principal repayments at the Company's current borrowing terms and
classified the remaining balance as long-term debt due in 1996.
At December 31, 1994, long-term debt was due in aggregate annual installments,
as follows:
1995 $ 130,139
1996 866,223
1997 7,500
1998 7,500
1999 7,500
Thereafter 30,000
-----------
$1,048,862
===========
The Company's Loan and Security Agreement, as amended, provided a $1,250,000
line of credit, $605,000 term loan and $720,000 mortgage loan. Each of the
borrowings under the Loan and Security Agreement is collateralized by
substantially all of the Company's assets and is guaranteed by the Company's
shareholder. Further, the unsecured note payable to the shareholder is
subordinated to each of the borrowings. The Loan and Security Agreement contains
certain restrictive covenants, the more significant of which relate to
limitations on additional borrowings and require maintenance of a specified
financial leverage ratio.
The line of credit, which bears interest at the lender's floating base rate
(8.5% at December 31, 1994) plus 1%, is available through June 30, 1995. The
line of credit provides for borrowings equal to the sum of 75% of the Company's
eligible accounts receivable and 25% of inventory provided that borrowings
supported by inventory are limited to $200,000. No commiment fees were charged
under the agreement and no compensating balances are required.
7
Dock Resins Corporation
Notes to Financial Statements (continued)
3. Income Taxes
The Company is an "S" Corporation for federal income tax purposes. This election
generally eliminates federal income taxes at the corporate level and profits are
taxed directly to the Company's shareholder. Therefore, no provision for federal
income taxes is included in the accompanying financial statements.
Additionally, effective January 1, 1994 the Company is an "S" Corporation for
New Jersey state income tax purposes. This election generally reduces state
income taxes at the corporate level to a rate equal to the difference between
the corporate tax rate and the highest marginal personal tax rate (such rate
differential is 2.35% for 1994). The Company's shareholder is also taxed
directly by New Jersey on the Company's profit.
For 1994 and 1993, the effective state income tax rate is higher than the
statutory state tax rate (2.35% for 1994 and 9.375% for 1993). This results from
the non-deductibility of certain payments and charges, partially offset by
depreciation differences between the financial reporting and tax bases of
certain assets.
Deferred state income taxes are primarily attributable to temporary differences
which are not currently deductible for income tax purposes, including inventory
reserves, deferred compensation and certain other reserves and accrued
liabilities, partially offset by differences between book and state tax
depreciation.
The Company has not recorded any valuation allowances against its deferred tax
assets at December 31, 1994 as full realization of these assets is expected.
4. Bonus and Deferred Compensation Plans
Certain officers and employees of the Company are paid bonuses at the discretion
of the board of directors.
The Company maintains a deferred compensation agreement for one of its
employees, with benefits payable, contingent upon continued employment, three
years after being earned. The annual expense for this agreement was $23,500 for
1994 and $20,466 for 1993. Included in payroll, bonuses and payroll taxes
payable at both December 31, 1994 and 1993 is $25,000, representing the current
portion of deferred compensation.
8
Dock Resins Corporation
Notes to Financial Statements (continue)
5. Contingencies
The Company's largest customer accounted for approximately 20% and 17% of sales
in 1994 and 1993, respectively, and approximately 26% and 33% of accounts
receivable at December 31, 1994 and 1993 respectively.
The Company is subject to legal proceedings and environmental claims which arise
in the ordinary course of business. In the opinion of management and counsel,
the ultimate amount of liability, if any, resulting from these actions will not
materially affect the financial position of the Company.
9
DOCK RESINS
PRE-CLOSE BALANCE SHEET COMPARISON - w/o Debt
FY 1997
2/28/97 Adjustments As Adjusted
-------------------------------------------------------------------------
Cash 316,848 0 316,848
Marketable Securities 839,709 -839,709 0
Accts Receivable 1,809,178 0 1,809,178
RM Inventory 508,419 0 508,419
FG Inventory 811,084 0 811,084
Prepaid Expense 179,831 0 179,831
-------------------------------------------------------------------------
Total Current 4,465,069 -839,709 3,625,360
Land 236,824 0 236,824
Bldgs & Improvements 550,548 0 550,548
Construction in Process 265,026 0 265,026
Machinery & Equipment 2,521,344 0 2,521,344
-------------------------------------------------------------------------
Total Gross PP&E 3,573,742 0 3,573,742
Accum. Depr. -2,007,769 0 -2,007,769
-------------------------------------------------------------------------
Net PP&E 1,565,973 0 1,565,973
Other Assets 0 0 0
TOTAL ASSETS 6,031,042 -839,709 5,191,333
A/P & Accr. Liab. 907,043 0 907,043
Payroll Accruals 72,679 0 72,679
Other Accruals (a) 1,255,406 -1,213,130 42,276
Income Tax Payable 16,506 -16,506 0
Current L-T Debt 81,721 -81,721 0
-------------------------------------------------------------------------
Total Current 2,333,355 -1,311,357 1,021,998
L-T Debt 713,754 -713,754 0
Revolving Bank Note 38,467 -38,467 0
Deferred Compensation 121,399 0 121,399
-------------------------------------------------------------------------
Total Non-Current 873,620 -752,221 121,399
Note to Shareholder 52,500 -52,500 0
Common Stock 78,754 0 78,754
Treasury Stock -355,337 0 -355,337
Retained Earnings 3,048,150 1,276,369 4,324,519
-------------------------------------------------------------------------
Total Equity 2,771,567 1,276,369 4,047,936
TOTAL LIAB. & EQUITY 6,031,042 -839,709 5,191,333
(a) Adjustment is for AWT bonus ($29,000 for 1997 and $195,000 for 1996), Sub S
Income taxes ($150,000 for 1997 and $419,000 for 1996) and industrial waste
accrual ($420,130).
SCHEDULE 3.13
See Report of Title, attached hereto.
SELECT TITLE AGENCY, INC.
71 Valley Street
South Orange, New Jersey 07079
(201) 761-1112 (Fax) 761-6699
April 15, 1997
Henry King, Esq.
Reed, Smith, Shaw & McClay
136 Main Street - Suite 250
Princeton Forrestal Village
P.O. Box 7839
Princeton, New Jersey 08543-7839
RE: DOCK RESINS CORPORATION
Commitment No.: ST-597
Dear Mr. King:
Please be advised that this Company has continued the above-referenced
search from the date of Report of Title (January 7, 1997) to date.
The following are the results of said search:
As to Union County:
Search shows No Change to April 8, 1997.
As to Upper Court Searches:
Search dated March 31, 1997 shows Clear.
Hoping the above meets with your approval, I remain.
Very truly yours,
SELECT TITLE AGENCY, INC.
Agent for Commonwealth Land Title Insurance Company
and Old Republic National Title Insurance Company
By: /s/ Fred P. Reimer
----------------------------------------
Fred P. Reimer
President
SELECT TITLE AGENCY, INC.
REPORT OF TITLE
FILE NUMBER: ST-597
SCHEDULE A
(1) Effective Date: January 7, 1997
(2) Fee Simple interest in the land described in this Report of Title is at
the Effective Date hereof vested in:
DOCK RESINS CORPORATION
Title acquired by:
As to Lot 18, Block 422:
Deed from Great Eastern Chemical Corporation dated February 18, 1957
and recorded February 20, 1957 in Deed Book 2303 Page 418.
As to Lot 19, Block 422:
Deed from Nadel Lumber & Fuel Co., a Partnership consisting of Eugene
Sladowsky, Elliott Sladowsky, & Herman Farer, dated September 11, 1981
and recorded September 17, 1981 in Deed Book 3267 Page 146.
(3) The land referred to in this Report of Title is described in Schedule C.
NOTE: Liability hereunder for errors and omissions is limited to $1,000.00.
Countersigned:
SELECT TITLE AGENCY, INC.
Agent for Commonwealth Land Title Insurance Company
and Old Republic National Title Insurance Company
By: Fred P. Reimer
President
SELECT TITLE AGENCY, INC.
REPORT OF TITLE
FILE NUMBER: ST-597
SCHEDULE B
EXCEPTIONS
(1) Rights or claims of parties in possession of the land not shown by the
public record.
(2) Easements, or claims of easements, not shown by the public record.
(3) Any liens on your title, arising now or later, for labor and material,
not shown by the public record.
(4) Taxes Charges and Assessments:
Tax Search: See Copies Attached.
Assessment Search: See Copies Attached.
This property is subject to current year's taxes levied or to be
levied, and not yet certified to by the County Board of Taxation in
accordance with Chapter 397 Laws of 1941, as amended and supplemented.
(5) Superior Court of New Jersey and United States District Court Search:
See Search dated January 7, 1997 attached hereto.
(6) Mortgages of record: (ONE)
Mortgage made by DOCK RESINS CORPORATION to UNITED JERSEY BANK/CENTRAL,
N.A., dated August 10, 1990 and recorded August 10, 1990 in Mortgage
Book 4102 Page 270 in the amount of $2,325,000.00.
See Assignment of Leases dated August 10, 1990 and recorded August 10,
1990 in Mortgage Book 4102 Page 290.
See First Agreement to Modify Mortgage dated August 27, 1991 and
recorded September 10, 1991 in Mortgage Book 4326 Page 133.
See First Agreement to Modify Assignment of Leases dated August 27,
1991 and recorded September 10, 1991 in Mortgage Book 4326 Page 139.
EXCEPTIONS (continued)
SELECT TITLE AGENCY, INC.
REPORT OF TITLE
FILE NUMBER: ST-597
SCHEDULE B
EXCEPTIONS
(Continued)
See Modification and Extension Agreement dated May 31, 1992 and
recorded July 31, 1992 in Mortgage Book 4591 Page 3.
See Second Agreement to Modify Assignment of Leases dated July 31, 1992
and recorded October 27, 1992 in Mortgage Book 4672 Page 49.
See Second Agreement to Modify Mortgage dated July 31, 1992 and
recorded October 27, 1992 in Mortgage Book 4672 Page 55.
See Third Agreement to Modify Mortgage dated June 30, 1993 and recorded
November 17, 1993 in Mortgage Book 5092 Page 201.
See Third Agreement to Modify Assignment of Leases dated June 30, 1993
and recorded November 17, 1993 in Mortgage Book 5092 Page 206.
See Fourth Agreement to Modify Mortgage dated August 26, 1994 and
recorded October 12, 1994 in Mortgage Book 5473 Page 1.
See Fourth Agreement to Modify Assignment of Leases dated August 26,
1994 and recorded October 12, 1994 in Mortgage Book 5473 Page 7.
See Fifth Note and Mortgage Modification Agreement dated October 27,
1995 and recorded October 31, 1995 in Mortgage Book 5753 Page 305.
(7) Financing Statement #3927 filed August 10, 1990 by UNITED JERSEY
BANK/CENTRAL, N.A. against DOCK RESINS CORPORATION; and Continuation
filed June 23, 1995.
(8) Subject to grant to Elizabethtown Gas Company as set forth in Deed Book
2948 Page 955.
(9) Subject to any facts about the land which a correct survey would
disclose, and which are not shown by the public record.
SELECT TITLE AGENCY, INC.
REPORT OF TITLE
FILE NUMBER: ST-597
SCHEDULE C
All that certain lot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the City of Linden,
County of Union, State of New Jersey:
BEGINNING at a point in the northwesterly sideline of Elizabeth Avenue, said
point being distant 128.66 feet along a course of North 47 degrees 36 minutes
East from the point formed by the intersection of said northwesterly sideline of
Elizabeth Avenue with the northeasterly sideline of Marion Avenue; thence
running
1) North 42 degrees 20 minutes West 422.50 feet to a point; thence
2) North 47 degrees 36 minutes East parallel to Elizabeth Avenue 208.68
feet to a point; thence
3) South 42 degrees 24 minutes East 422.50 feet to a point in the
northerly sideline of Elizabeth Avenue; said point also being along
said sideline 1890.07 feet southwest of the line formerly dividing
Linden Township from Linden Borough; thence
4) along the northerly sideline of Elizabeth Avenue, South 47 degrees 36
minutes West parallel to the second course 209.08 feet to the point and
place of BEGINNING.
SCHEDULE 3.14
(i)
Doresco(R) resin trademark, registered to Dock Resins Corporation,
registered with the United States Patent and Trademark Office, registration
number 846,503, registered March 26, 1968, Registration renewed March 26, 1988.
(ii)
Agreement dated April 4, 1985 between Dock Resins Corporation and
Lawter International, Inc. to use Aqua Hyde 100.
Agreement dated January 16, 1978 between Dock Resins Corporation and
Lawter International, Inc. to use Aqua Hyde 3013, modified by an Agreement dated
November 9, 1983.
(iii)
Agreement dated April 4, 1985 between Dock Resins Corporation and
Lawter International, Inc. to use Aqua Hyde 100.
Agreement dated January 16, 1978 between Dock Resins Corporation and
Lawter International, Inc. to use Aqua Hyde 3013, modified by an Agreement dated
November 9, 1983.
SCHEDULE 3.15
Environmental Permits that will expire or become ineffective before the Closing
Date.
None.
SCHEDULE 3.16(h)
None.
SCHEDULE 3.17
(i)
Medical Insurance:
Provider: Prudential
Benefits: Choice of PPO or traditional indemnity plan (with
deductible and coinsurance)
Level: Dock pays 100% of premium for employee and dependents.
Medical Examinations:
Dock pays for annual medical examinations for manufacturing
and laboratory personnel, and biannual medical examinations
for office personnel.
Dental Insurance:
Provider: Blue Cross
Benefits: Choice of Dentists
Level: Dock pays 100% of premium for employee and dependents.
Life Insurance/Accidental Death or Disability:
Provider: Fortis Benefits Company
Benefits: Equal to annual base pay to a maximum of $50,000
Level: Dock pays 100% of premium for employee and dependents.
Long-Term Disability:
Provider: Unum Life Insurance
Benefits: Available after 180 days of disability
Level: Dock pays 100% of premium for employee and dependents
Employee Assistance Plan:
Provider: Healthwise
Benefits: Assistance with personal problems for employees and
their families
Level: Dock pays 100% of premium for employee and dependents.
Workmans Compensation
Provider: New Jersey Manufacturers Insurance
Level: Dock pays 100% of premium for employee and dependents.
Education Tuition Assistance:
Tuition for approved courses of study is reimbursed upon
successful completion with a grade of at least a C.
Vacation Benefits:
Vacation time begins to accrue upon the date of hire. After
four months of service, employees are entitled to 80 hours of
vacation. After 10 years of service, employees are entitled to
120 hours of vacation time. After 20 years of service,
employees are entitled to 160 hours of vacation time.
Profit Sharing/401(k) Plan:
Eligibility: All employees are eligible from the date of their
hire. Vesting is 10%, 10%, 20%, 20%, 20%, 20%.
Contributions: Employee may defer a portion of their salary
into their deferral account. Dock matches 30% of the first 5%
of salary deferral into the employee's employer match account.
Dock makes a discretionary contribution at the end of each
fiscal year to the employee's profit sharing account.
(ii)
Medical Insurance:
Provider: Prudential
Benefits: Choice of PPO or traditional indemnity plan (with
deductible and coinsurance)
Level: Dock pays 100% of premium for employee and dependents.
Medical Examinations:
Dock pays for annual medical examinations for manufacturing
and laboratory personnel, and biannual medical examinations
for office personnel.
Dental Insurance:
Provider: Blue Cross
Benefits: Choice of Dentists
Level: Dock pays 100% of premium for employee and dependents.
Life Insurance/Accidental Death or Disability:
Provider: Fortis Benefits Company
Benefits: Equal to annual base pay to a maximum of $50,000
Level: Dock pays 100% of premium for employee and dependents.
Long-Term Disability:
Provider: Unum Life Insurance
Benefits: Available after 180 days of disability
Level: Dock pays 100% of premium for employee and dependents
Employee Assistance Plan:
Provider: Healthwise
Benefits: Assistance with personal problems for employees and
their families
Level: Dock pays 100% of premium for employee and dependents.
Workmans Compensation
Provider: New Jersey Manufacturers Insurance
Level: Dock pays 100% of premium for employee and dependents.
(iii)
Profit Sharing/401(k) Plan:
Eligibility: All employees are eligible from the date of their
hire. Vesting is 10%, 10%, 20%, 20%, 20%, 20%.
Contributions: Employee may defer a portion of their salary
into their deferral account. Dock matches 30% of the first 5%
of salary deferral into the employee's employer match account.
Dock makes a discretionary contribution at the end of each
fiscal year to the employee's profit sharing account.
Bonuses:
Discretionary bonuses have been paid every year.
(iv)
Five managers, including Shareholder, have the use of vehicles
owned by Dock.
Three managers and one other employee have
insurance provided on their personally owned vehicles.
Shareholders expenses associated with his
membership in the Chemists Club (in New York City) are provided by Dock.
Shareholder's expenses associated with life
and disability insurance policies are provided by Dock.
Shareholder's and Philip Barbanel's expenses
for accounting are provided by Dock.
Shareholder's legal expenses are provided
for by Dock.
(v)
None.
SCHEDULE 3.21
Insurance Policies and Bond:
- --------------------------------------------------------------------------------
See attachment.
Pending Claims under Insurance Policies and Bonds:
- --------------------------------------------------------------------------------
Dock Resins v. Home Indemnity Company and National Union Fire Insurance
Company of Pittsburgh, PA, Docket No.: MER-L-1957-96.
- ------------------------------------------------------------------------------------------------------------------------------------
# POLICY TYPE INSURER X-DATE PREMIUM POLICY TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
1 Automobile Hartford 3/22/98 $24,000 $1,000,000. Liability
approx
- ------------------------------------------------------------------------------------------------------------------------------------
37 UEN ERO766 $1,000,000 Uninsured/Underinsured Motorists
- ------------------------------------------------------------------------------------------------------------------------------------
$500. Deductible Comprehensive/$1,000 Deductible
Collision
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Personal Injury Protection
- ------------------------------------------------------------------------------------------------------------------------------------
Named PIP/DOC Coverage for owners of personal
vehicles
- ------------------------------------------------------------------------------------------------------------------------------------
2 Boiler & Machinery Hartford Steam 3/1/98 $2,289 $10,000,000. Per Accident Limit/Property Damage,
BI, EE
- ------------------------------------------------------------------------------------------------------------------------------------
BMIPH8694279-06 $5,000. Ded. Property Damage/ 24 Hour Waiting
Period BI
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Plus Form
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000 Limit Hazardous Substance Cleanup
- ------------------------------------------------------------------------------------------------------------------------------------
3 DATA Processing Hartford Steam 3/1/98 $1,065 $104,000 EDP Equipment; $15,000 Media & Data
- ------------------------------------------------------------------------------------------------------------------------------------
CSIPH8699358-06 $25,000 Transit / $25,000 Ex Expense
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000 Deductible
- ------------------------------------------------------------------------------------------------------------------------------------
All Risk of Direct Physical Damage Including
Viruses
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
# POLICY TYPE INSURER X-DATE PREMIUM POLICY TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
4 Executive Risk Chubb 10/27/97 $9,261 $2,000,000 Ea Loss / Aggregate Directors &
Officers Liability
- ------------------------------------------------------------------------------------------------------------------------------------
D&O 8114-33-02G $50,000. Deductible - Insured Organization
- ------------------------------------------------------------------------------------------------------------------------------------
Includes Joseph Barbanel
- ------------------------------------------------------------------------------------------------------------------------------------
Fiduciary $2,663 $1,000,000 Fiduciary Liability
- ------------------------------------------------------------------------------------------------------------------------------------
$10,000 Deductible
- ------------------------------------------------------------------------------------------------------------------------------------
Crime $2,385 $250,000 Employee Theft Coverage / $250,000
Depositors Forgery
- ------------------------------------------------------------------------------------------------------------------------------------
$25,000 Premises Coverage / $25,000 Transit
Coverage
- ------------------------------------------------------------------------------------------------------------------------------------
$5,000 Deductible
- ------------------------------------------------------------------------------------------------------------------------------------
K & R $1,000 $1,000,000 Kidnap/Ransom/Extortion
- ------------------------------------------------------------------------------------------------------------------------------------
Covers all directors, officers and employees of
insured
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
# POLICY TYPE INSURER X-DATE PREMIUM POLICY TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
5 General Liability Continental 7/1/97 $45,149 $1 Million Each Occurrence / $2 Million General
aggregate
- ------------------------------------------------------------------------------------------------------------------------------------
$1 Million Products Liability Aggregate
- ------------------------------------------------------------------------------------------------------------------------------------
$1 Million Personal Injury
- ------------------------------------------------------------------------------------------------------------------------------------
$50,000 Fire Damage Limit
- ------------------------------------------------------------------------------------------------------------------------------------
$25,000 Self-Insured Retention Per Occurrence
- ------------------------------------------------------------------------------------------------------------------------------------
$1 Million Employee Benefit Liability
(Administrative Errors)
- ------------------------------------------------------------------------------------------------------------------------------------
Exception to Pollution Excl. for "Hostile Fire" &
"Products Pollution"
- ------------------------------------------------------------------------------------------------------------------------------------
Premium Auditable @ $3.91 per $1,000 gross
receipts
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Schedule 7.2(c)
1. Adhesives Research, Inc. v. American Inks & Coatins Corp., Civil Action No.:
1:CV-95-1975. Industrial Solvents site.
2. Doc Resins v. Home Indemnity Company and National Union Fire Insurance
Company of Pittsburgh, PA, Docket No.: MER-L-1957-96.
3. Transtech Industries, Inc. v. A & Z Septic Clean, et al., Civil Action No.
2-90-2578.
Landec Corporation Acquisition of
Dock Resins Corporation
Disclosure Schedule
PLEASE NOTE THAT DEFINED TERMS USED IN THE STOCK PURCHASE AGREEMENT (THE
"AGREEMENT") ARE USED IN THIS DISCLOSURE SCHEDULE AND ARE GIVEN THE SAME MEANING
AS USED THEREIN.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
Disclosure in regard to Section 2.1 - Authority
None.
Disclosure in regard to Section 2.2 - Execution and Binding Effect
None.
Disclosure in regard to Section 2.3 - No Violation
(i)
The New Jersey Industrial Site Recovery Act ("ISRA")
requires that the New Jersey Department of Environmental Protection
approve transactions contemplated by the Agreement. Section 5.3 of
the Agreement requires that Dock will obtain such approval and
consent. Dock has obtained such approval and consent by the
execution of a Remediation Agreement.
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
(ii)
Shareholder shall participate in any filing that must be
made by Shareholder to comply with federal securities laws and
regulations promulgated thereunder by the Securities and Exchange
Commission as a result of the issuance of stock of Landec to
Shareholder.
Shareholder shall participate in any filing that must be
made by Landec to comply with federal securities laws and
regulations promulgated thereunder by the Securities and Exchange
Commission as a result of the issuance of stock of Landec to
Shareholder.
The New Jersey Industrial Site Recovery Act ("ISRA")
requires that the New Jersey Department of Environmental Protection
approve transactions contemplated by the Agreement. Section 5.3 of
the Agreement requires that Dock will obtain such approval and
consent. Dock has obtained such approval and consent by the
execution of a Remediation Agreement.
Disclosure in regard to Section 2.4 - Consents and Approvals of Governmental
Entities
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
Shareholder shall participate in any filing that must be
made by Shareholder to comply with federal securities laws and
regulations promulgated thereunder by the Securities and Exchange
Commission as a result of the issuance of stock of Landec to
Shareholder.
Shareholder shall participate in any filing that must be
made by Landec to comply with federal securities laws and
regulations promulgated thereunder by the Securities and Exchange
Commission as a result of the issuance of stock of Landec to
Shareholder.
Shareholder shall file all necessary documents in
connection with the 338(h)(10) Election with respect to the
purchase and sale of the Dock Stock hereunder. Such action by
Shareholder is required in Section 5.14 of the Agreement.
The New Jersey Industrial Site Recovery Act ("ISRA")
requires that the New Jersey Department of Environmental Protection
approve transactions contemplated by the Agreement. Section 5.3 of
the Agreement requires that Dock will obtain such approval and
consent. Dock has obtained such approval and consent by the
execution of a Remediation Agreement.
Disclosure in regard to Section 2.5 - Brokers and Finders
None.
Disclosure in regard to Section 2.6 - Ownership of Dock Stock
None.
Disclosure in regard to Section 2.7 - Restricted Shares; Rule 144
None.
Disclosure in regard to Section 2.8 - Experience
None.
-2-
Disclosure in regard to Section 2.9 - Investment
None.
Disclosure in regard to Section 2.10 - Public Market; No Federal or State
Approval
None.
Disclosure in regard to Section 2.11 - Access to Data
None.
-3-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOCK AND SHAREHOLDER
Disclosure in regard to Section 3.1 - Organization
None.
Disclosure in regard to Section 3.2 - Authority
None.
Disclosure in regard to Section 3.3 - Capital Structure
None.
Disclosure in regard to Section 3.4 - Execution and Binding Effect
None.
Disclosure in regard to Section 3.5 - Consents and Approvals of Government
Entities
The New Jersey Industrial Site Recovery Act ("ISRA")
requires that the New Jersey Department of Environmental Protection
approve transactions contemplated by the Agreement. Section 5.3 of
the Agreement requires that Dock will obtain such approval and
consent. Dock has obtained such approval and consent by the
execution of a Remediation Agreement.
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
Disclosure in regard to Section 3.6 - No Violation
(a)
None.
(b)
The New Jersey Industrial Site Recovery Act ("ISRA")
requires that the New Jersey Department of Environmental Protection
approve transactions contemplated by the Agreement. Section 5.3 of
the Agreement requires that Dock will obtain such approval and
consent. Dock has obtained such approval and consent by the
execution of a Remediation Agreement.
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
-4-
(c)
Shareholder shall participate in any filing that must be
made by Shareholder to comply with federal securities laws and
regulations promulgated thereunder by the Securities and Exchange
Commission as a result of the issuance of stock of Landec to
Shareholder.
Shareholder shall participate in any filing that must be
made by Landec to comply with federal securities laws and
regulations promulgated thereunder by the Securities and Exchange
Commission as a result of the issuance of stock of Landec to
Shareholder.
(d)
None.
Disclosure in regard to Section 3.7 - Financial Statements
None.
Disclosure in regard to Section 3.8(a) - Absence of Certain Changes; Charter
Documents
None.
Disclosure in regard to Section 3.8(b) - Absence of Certain Changes; Charter
Documents
None.
Disclosure in regard to Section 3.8(c) - Absence of Certain Changes; Dividends;
Changes in Capital Stock
None.
Disclosure in regard to Section 3.8(d) - Absence of Certain Changes; Material
Contracts
None.
Disclosure in regard to Section 3.8(e) - Absence of Certain Changes; Issuance of
Securities
None.
Disclosure in regard to Section 3.8(f) - Absence of Certain Changes;
Intellectual Property
None.
Disclosure in regard to Section 3.8(g) - Absence of Certain Changes;
Dispositions
None.
Disclosure in regard to Section 3.8(h) - Absence of Certain Changes;
Indebtedness
None.
-5-
Disclosure in regard to Section 3.8(i) - Absence of Certain Changes; Leases
None.
Disclosure in regard to Section 3.8(j) - Absence of Certain Changes; Payment of
Obligations
None.
Disclosure in regard to Section 3.8(k) - Absence of Certain Changes; Capital
Expenditures
Dock has purchased two lift trucks on installment sale
contracts for between $20,000 and $25,000 each.
The following are capital projects that are either in
progress as of February 28, 1997, or that may be underway as of the
date of closing:
1. DPCC Plan Implementation. Dock Resins' plan has been
approved by the New Jersey Department of Environmental Protection.
The implementation of this plan will entail certain additional
spill prevention and containment upgrades for the facilities, which
include various concrete repairs and improvements, rainwater
diversion, dike upgrades, etc. These upgrades are currently being
implemented.
2. 440 Volt Electrical Power Distribution. A second
electrical power distribution center is being installed in the
water pretreatment control room to ensure sufficient power for
equipment enhancements at the site. This project is currently being
implemented.
3. Maintenance Building Loft. Repairs are being made to
the storage loft for safety reasons and to provide additional
storage area. This project is currently being implemented.
4. Production Building Emergency Exit and Roof Repair.
Roof repairs are currently being made and an easier exit from the
Kettle 6 platform is currently being installed.
5. New R801 Reactor. The existing carbon steel thinning
tank is being replaced to provide for increased capacity for
certain types of products, larger batch sizes, and operating
economies. The design for this project is currently underway and
some equipment has been purchased.
6. Laboratory Equipment. New equipment, such as a gas
chromatography (GC) and GC/Mass Spec will be desirable in the near
future.
7. Quality Control Equipment. The use of infrared
spectroscopy and other means of better checking incoming shipments
is under active consideration.
8. Vapor Return to Tank Trucks. This project is in the
design stage.
-6-
9. Plant Offices/Laboratory Improvements. Building
renovations to improve functionality, comfort and appearance are
underway.
Disclosure in regard to Section 3.8(l) - Absence of Certain Changes; Insurance
None.
Disclosure in regard to Section 3.8(m) - Absence of Certain Changes; Termination
or Waiver
None.
Disclosure in regard to Section 3.8(n) - Absence of Certain Changes; New Hires;
Pay Increases
Dock intends to promote and give raises to certain managers just before
or after the closing of the Stock Purchase Agreement, as follows:
Philip Barbanel - remains President - $3,000 per annum raise
Joseph Barbanel - promoted to VP of Operations - $10,000 per annum
raise
Albert Warman - promoted to Director of Production - $5,000 per
annum raise
Jeffrey McKeon - promoted to Director of Sales - $5,000 per annum
raise
Edward Budy - promoted to Laboratory Director - $5,000 per annum
raise
Disclosure in regard to Section 3.8(o) - Absence of Certain Changes; Severance
Agreements
None.
Disclosure in regard to Section 3.8(p) - Absence of Certain Changes; Lawsuits
None.
Disclosure in regard to Section 3.8(q) - Absence of Certain Changes;
Acquisitions
None.
Disclosure in regard to Section 3.8(r) - Absence of Certain Changes; Taxes
None.
Disclosure in regard to Section 3.8(s) - Absence of Certain Changes; Revaluation
None.
Disclosure in regard to Section 3.8(t) - Absence of Certain Changes; Other
None.
Disclosure in regard to Section 3.9 - Absence of Undisclosed Liabilities
None.
-7-
Disclosure in regard to Section 3.10 - Litigation
Dock is currently named as a party in the following
litigation, which has not been resolved:
1. Adhesives Research, Inc. v. American Inks & Coatings
Corp., Civil Action No: 1:CV-95-1975. Industrial
Solvents site. Dock Resins is "Tier I Party". The RI
for the ISCC Site in Pennsylvania was submitted in
December 1996, and the DEP has made limited comments
on water quality issues. The FS is being worked on,
and the estimated time of submittal is April 30,
1997. Dock has taken a $400,000 reserve with respect
to this matter.
2. Dock Resins v. Home Indemnity Company and National
Union Fire Insurance Company of Pittsburgh, PA,
Docket No.: MER-L-1957-96. In this case, Dock Resins
sued two of its insurance carriers for defense and
indemnification relating to contamination claims
asserted by the Commonwealth of Pennsylvania at the
Industrial Solvents Site ("ISCC"). Dock Resins sued
its insurance carriers to recover past costs relating
to the ISCC Site and for future indemnification at
the ISCC Site. The parties are currently engaging in
discovery regarding this matter.
Dock expects to be named as a party in the following
litigation:
1. In Re Chemical Control Site - Edison, New Jersey.
State action. The State has made a demand for costs
it incurred in connection with the Chemical Control
Site. The parties are currently negotiating with the
State regarding its demand. Although the parties have
successfully negotiated with the State to reduce its
demand, a settlement has not yet been reached. Dock
Resins expected to be de minimis party.
Dock has been involved in the following litigation, which has
been resolved:
1. Transtech Industries, Inc. v. A & Z Septic Clean, et
al., Civil Action No. 2-90-2578. This action was
brought in the United States District Court for the
District of New Jersey against approximately 450
defendants for cost recovery and contribution for
costs and expenses incurred and to be incurred in
response to the release or threat of release of
hazardous substances at or in connection with a
facility known as the Kin-Buc Sanitary Landfill
located in Edison, New Jersey. Dock Resins settled as
a de minimis party on 10/26/93. Pursuant to paragraph
8 of the Consent Decree entitled "Recalculation and
Supplementation of Contribution Payment", should new
information not available at the time the Consent
Decree was entered come to light which reveals by
clear and convincing proof determined with a judicial
action, that Dock Resins has contributed an
additional volume of material which exceeds the
current waste-in allocation by 100%, then Dock
Resins' contribution is subject to recalculation and
additional costs. The Decree does not contain a time
limitation. The possibility of this event occurring
is remote since four years have passed since the
Decree was entered.
-8-
Disclosure in regard to Section 3.11 - Restrictions on Business Activities
None.
Disclosure in regard to Section 3.12 - Governmental Authorization
(i)
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
(ii)
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
Disclosure in regard to Section 3.13 - Title to Property
(i)
None.
(ii)
The property owned by Dock in the City of Linden is
subject to a right of way that was granted to Elizabethtown Gas
Company .
(iii)
The properties owned by Dock in the City of Linden are
subject to a mortgage made by Dock to United Jersey Bank/Central
N.A., dated August 10, 1990 and recorded August 10, 1990 in the
amount of $2,325,000.00. This mortgage has been modified on five
separate occasions, the most recent one being a Fifth Note and
Mortgage Modification Agreement dated October 27, 1995 and recorded
October 31, 1995. Contemporaneously with the closing of the Stock
Purchase Agreement, Shareholder shall satisfy the amounts of
outstanding principal and accrued interest remaining on this
mortgage.
---------------
The following are capital projects that are either in
progress as of February 28, 1997, or that may be underway as of the
date of closing:
1. DPCC Plan Implementation. Dock Resins' plan has been
approved by the New Jersey Department of Environmental Protection.
The implementation of this plan will entail certain additional
spill prevention and containment upgrades for the facilities, which
include various concrete
-9-
repairs and improvements, rainwater diversion, dike upgrades, etc.
These upgrades are currently being implemented.
2. 440 Volt Electrical Power Distribution. A second
electrical power distribution center is being installed in the
water pretreatment control room to ensure sufficient power for
equipment enhancements at the site. This project is currently being
implemented.
3. Maintenance Building Loft. Repairs are being made to
the storage loft for safety reasons and to provide additional
storage area. This project is currently being implemented.
4. Production Building Emergency Exit and Roof Repair.
Roof repairs are currently being made and an easier exit from the
Kettle 6 platform is currently being installed.
5. New R801 Reactor. The existing carbon steel thinning
tank is being replaced to provide for increased capacity for
certain types of products, larger batch sizes, and operating
economies. The design for this project is currently underway.
6. Laboratory Equipment. New equipment, such as a gas
chromatography (CG) and CG/Mass Spec will be desirable in the near
future.
7. Quality Control Equipment. The use of infrared
spectroscopy and other means of better checking incoming shipments
is under active consideration.
8. Vapor Return to Tank Trucks. This project is in the
design stage.
9. Plant Offices/Laboratory Improvements. Building
renovations to improve functionality, comfort and appearance are
underway.
Disclosure in regard to Section 3.14(a) - Intellectual Property
From time to time, Dock receives confidential information
regarding the intellectual property of its customers to fulfill
orders for those customers and no others. Said information is
transferred in the ordinary course of business. Said information is
not always transferred pursuant to an agreement that would protect
the secrecy of the information.
Disclosure in regard to Section 3.14(b) - Intellectual Property
From time to time, Dock transfers confidential information
regarding its intellectual property to its customers to for their
use. Said information is transferred in the ordinary course of
business. Said information is not always transferred pursuant to an
agreement that would protect the secrecy of the information.
From time to time, Dock receives confidential information
regarding the intellectual property of its customers to fulfill
orders for those customers
-10-
and no others. Said information is transferred in the ordinary
course of business. Said information is not always transferred
pursuant to an agreement that would protect the secrecy of the
information.
Disclosure in regard to Section 3.14(c) - Intellectual Property
None.
Disclosure in regard to Section 3.14(d) - Intellectual Property
None.
Disclosure in regard to Section 3.14(e) - Intellectual Property
None.
Disclosure in regard to Section 3.14(f) - Intellectual Property
None.
Disclosure in regard to Section 3.14(g) - Intellectual Property
From time to time, Dock transfers confidential information
regarding its intellectual property to its customers to for their
use. Said information is transferred in the ordinary course of
business. Said information is not always transferred pursuant to an
agreement that would protect the secrecy of the information.
From time to time, Dock receives confidential information
regarding the intellectual property of its customers to fulfill
orders for those customers and no others. Said information is
transferred in the ordinary course of business. Said information is
not always transferred pursuant to an agreement that would protect
the secrecy of the information.
Disclosure in regard to Section 3.15(b)(i) - Environmental Matters; Permits
None.
Disclosure in regard to Section 3.15(b)(ii) - Environmental Matters; Compliance
With Environmental Laws
See list of reports, attached hereto as Exhibit B.
Disclosure in regard to Section 3.15(b)(iii) - Environmental Matters; Reports,
Disclosures and Notifications
None.
Disclosure in regard to Section 3.15(b)(iv) - Environmental Matters; Notices
None.
-11-
Disclosure in regard to Section 3.15(b)(v) - Environmental Matters; No Reporting
or Remediation Obligations
See list of reports, attached hereto as Exhibit B.
Disclosure in regard to Section 3.15(b)(vi) - Environmental Matters; Liens and
Encumbrance
None.
Disclosure in regard to Section 3.15(b)(vii) - Environmental Matters; Storage
Transport or Disposal of Hazardous Materials
(A)
Dock has disclosed, in the Camp Dresser & McKee report
entitled "Plant Evaluation", the DPCC Plan, dated January 28, 1997,
and the general site plan produced by Foster Wheeler, dated March
14, 1994, any areas or vessels on the Property used or intended for
the treatment, storage or disposal of Hazardous Materials,
including, but not limited to, drum storage areas, surface
impoundments, incinerators, landfills, tanks, lagoons, ponds, waste
piles or deep well injection systems.
(B)
See list attached hereto as Exhibit C TSD's utilized by
S&W and Safety Kleen.
Disclosure in regard to Section 3.15(b)(viii) - Environmental Matters; Future
Laws
None.
Disclosure in regard to Section 3.16(b) - Taxes; Returns Filed and Taxes Paid
None.
Disclosure in regard to Section 3.16(c) - Taxes; Tax Reserves
None.
Disclosure in regard to Section 3.16(d) - Taxes; Returns Furnished
None.
Disclosure in regard to Section 3.16(e) - Taxes; Tax Deficiencies; Audits;
Statutes of Limitations
Dock received an IRS audit in 1995 and was notified that
there were no deficiencies.
Dock received a New Jersey spill tax audit in 1991 and was
notified of a tax assessment of between $5,000 and $6,000. Dock
appealed. A second audit was performed and Dock was advised by the
auditor that there would not be an assessment.
-12-
Disclosure in regard to Section 3.16(f) - Taxes; Tax Sharing Agreements
None.
Disclosure in regard to Section 3.16(g) - Taxes; Tax Elections and Special Tax
Status
None.
Disclosure in regard to Section 3.16(h) - Taxes; C Corporation Net Operating
Loses
None.
Disclosure in regard to Section 3.17(a) - Employee Benefit Plans
None.
Disclosure in regard to Section 3.17(b) - Employee Benefit Plans
None.
Disclosure in regard to Section 3.17(c) - Employee Benefit Plans
None.
Disclosure in regard to Section 3.17(d) - Employee Benefit Plans
None.
Disclosure in regard to Section 3.17(e) - Employee Benefit Plans
None.
Disclosure in regard to Section 3.17(f) - Employee Benefit Plans
None.
Disclosure in regard to Section 3.18 - Certain Agreements Affected by the
Purchase
None.
Disclosure in regard to Section 3.19 - Employment Matters
None.
Disclosure in regard to Section 3.20 - Interested Party Transactions
None.
Disclosure in regard to Section 3.21 - Insurance
None.
-13-
Disclosure in regard to Section 3.22 - Compliance With Laws
The permits listed on Exhibit A, attached hereto, and
issued to Dock by Federal, State and local governments will
continue in full force and effect, provided that there is no
material change in the operations, production levels or products
regulated by such permits.
Dock expects to be named as a party in the following
litigation:
1. In Re Chemical Control Site - Edison, New Jersey. State
action. The State has made a demand for costs it incurred
in connection with the Chemical Control Site. The parties
are currently negotiating with the State regarding its
demand. Although the parties have successfully negotiated
with the State to reduce its demand, a settlement has yet
to be reached. Dock Resins expected to be de minimis
party.
Disclosure in regard to Section 3.23 - Minute Books
None.
Disclosure in regard to Section 3.24 - Complete Set of Materials
None.
Disclosure in regard to Section 3.25 - Brokers and Finders
None.
Disclosure in regard to Section 3.26 - Customers and Suppliers
None.
Disclosure in regard to Section 3.27 - No Subsidiaries
None.
Disclosure in regard to Section 3.28 - Representations Complete
None.
-14-
EXHIBIT A
NJDEP AIR PERMITS
STACK
Various DEP Batch Plant Permit (Certificate 115486; expiration date
10-17-01)
25 CLEAVER BROOKS BOILER VCB-1 (Certificate 072928; expiration
date 7-19-00)
37 TEMPORARY PACKAGE BOILER (Certificate 088921; expiration date
1-11-99)
38-41 WATER PRETREATMENT SYSTEM
38 WATER STORAGE TANK WTK-4 (Certificate 099309; expiration date
1-31-99)
39 WATER STORAGE TANK WTK-2 (Certificate 099310; expiration date
1-27-99)
40 WATER STORAGE TANK WTK-1 (Certificate 099311; expiration date
1/18/99)
41 AIR STRIPPER EXHAUST (Certificate 101281; expiration date
1-24-00)
OTHER PERMITS, ETC.
DEPE Water Treatment Works Approval #90-3897-4L; no expiration
LRSA POTW Industrial Discharge Permit #021; expiration date 8-31-97
NJ Department of Community Affairs life hazard use registration; annual
fee paid through 12-10-97
NJDEPE stormwater general discharge permit NJ0088315; expires 11/1/97
City of Linden Fire Prevention Bureau Permit for welding and cutting
equipment under the provisions of a Type 1 permit under the
State of New Jersey Uniform Fire Code, Section NJAC 5:18-2.7
(expiration date 9/1/97)
NJDEPE R&D exemption from Right-To-Know reporting; approved 5/15/90;
renews annually with annual report
NJDEPE Oil-water separator permit NJ0068284NS (no expiration date)
USEPA hazardous waste generator number NJD002177491 (no expiration
date)
USDOT RSPA Hazardous Material Certification of Registration (expires
6-30-97)
DPCC plan (expiration date 6-16-97; renewal application submitted)
Pollution prevention plan (no expiration)
Physical Connection Permit, NJDEP #1044; expired 3-31-97; renewal
application submitted.
-15-
EXHIBIT B
1. January 30, 1997 report by the Whitman Companies, entitled "Phase II
Site Investigation Results and Recommendations for Remedial
Investigation."
2. March 24, 1997 report by the Whitman Companies, entitled "Remedial
Investigation Results and Recommendations for Remedial Activities."
3. July 9, 1996 draft report by the Whitman Companies on ISRA liability.
4. August 8, 1990 Phase I environmental report by C. A. Rich Consultants.
These reports have been provided to Paul Dritsas, Esq. at McCarter &
English, counsel for Landec.
-16-
EXHIBIT C
Treatment, Storage and Disposal Facilities
Utilized by S & W Waste for Disposal of
Dock Resins Corp. Material
Facility Address Phone Number
-------- ------- ------------
E.I. Dupont Company Rte. 130 609-540-2773
Chamber Works Deepwater, NJ 07023
Ash Grove Cement Co.- Chanute 316-431-4500
Keystone Portland Cement Rte. 329 610-837-2240
Bath, PA 18014
CWM Chemical Services 4638 Adams Corner Road 219-447-5585
Fort Wayne, IN 46806
Laidlaw Environmental Services 7305, boul. Marie-Victorin 514-923-9999
Blossard, Quebec
J4W 1A6t
Envirosafe Services of Ohio, Inc. 4359 Navarre Avenue 419-698-3500
Oregon, OH 43616-3518
Giant Cement Company P.O. Box 128 803-496-7880
Harleyville, SC 29448
NEC-North East Chemical 3301 Monroe Avenue 216-961-8618
Cleveland, OH 44113
BFI-Carbon-Limestone Landfill P.O. Box 5240 216-536-8013
Poland, OH 44514
BFI-Ottowa County Landfill Rte. 358, 520 North Camp Road 419-635-2367
North Clinton, OH 43452
-17-
Treatment, Storage and Disposal Facilities
Utilized by Safety Kleen for Disposal of
Dock Resins Corp. Material
Facility Address Phone Number
-------- ------- ------------
Aptus (Rollins) Hwy 69N 316-251-6360
Coffeyville, KS 67337
Chemical Waste Management PO Box 2583 409-736-2821
Port Arthur, TX 77643 EPA ID#
TXD000838896
E.I. DuPont de Nemours Deepwater, NJ 06023 609-540-3735
Chamber Works EPA ID#
NJD002385730
Ensco American Oil Road 501-863-7173
El Dorado EPA ID#
OHD045243706
Essroc Cement RT 25 S. 219-722-1108
Logansport, IN 46947 EPA ID#
IND0005081542
Giant Cement Hwy 453N 803-498-5033
Harleyville, SC 29448 EPA ID#
SCD003351699
Holnam/Artesia PO Box 185 601-272-6024
8877 Highway 45, Alt. South
Artesia, MS 39736
Keystone Cement PO Box A 215-837-1881
Bath, PA 18014 EPA ID#
KYD088438817
Lone Star Cement 2534 S. Sprigg Street 314-335-5591
Cape Cirardeau, MO 63701 EPA ID#
MOD981127319
Norlite Corporation 628 S. Saratoga Street 516-235-0401
Cohoas, NY 12047
PORI International 105 North Point Road 410-284-1717
Baltimore, MD 21224 EPA ID# MDD003068707
Rollins 2027 Battlegroung Road 713-830-2445
Deer Park, TX 77536 EPA ID# TXD055141378
-18-
Facility Address Phone Number
-------- ------- ------------
S-K Clarksville Recycle Highway North 573-242-3585
Clarkesville, MO 63336
S-K Holly Hill 2175 Gardner Boulevard 803-496-7303
Holly Hill, SC 29059
SK- New Castle 3700 LaGrange Road 502-845-2453
Smithfield, KY 40088
TXI 245 Ward Road EPA ID#
Midlothian, TX 76004 TXD007349327
ThermalKem 2324 Vernsdale Road 803-324-5310
Rock Hill, SC 29731-2664
Waste Technologies Industries 1250 St. George Street 218-385-7336
E. Liverpool, OH 43920 EPA ID#
OHD980613541
-19-
Landec Corporation Acquisition of
Dock Resins Corporation
Disclosure Schedule by Landec Corporation
none
NOTICE OF NON U.S. REAL PROPERTY HOLDING CORPORATION STATUS
PURSUANT TO TREASURY REGULATION SECTION 1.897-2(h) AND
CERTIFICATION OF NON-FOREIGN STATUS
In a Stock Purchase Agreement among Landec Corporation ("Landec"), Dock
Resins Corporation ("Dock") and A. Wayne Tamarelli (the "Individual"), Landec
shall purchase all of the outstanding common stock of Dock from Individual,
Dock's sole shareholder.
Section 1445 of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that a transferee of a U.S. Real Property Interest must
withhold tax if the transferor is not a U.S. person. In order to confirm that
Landec, as transferee, is not required to withhold tax upon the receipt of
Dock's Stock pursuant to the Stock Purchase Agreement, the undersigned, in his
capacity as President of Dock, hereby certifies as follows:
1. The Stock of Dock to be received by Landec pursuant to the Stock
Purchase Agreement does not constitute a U.S Real Property Interest as that term
is defined in Section 897(c)(1)(A)(ii) of the Code;
2. The determination in Paragraph 1, above, is based on a determination
by Dock that Dock is not and has not been a U.S. Real Property Holding
Corporation as that term is defined in Section 897(c)(2) of the Code during the
five-year period preceding the date of this Notice, as indicated below;
3. Dock is not a foreign corporation, foreign partnership, foreign
trust or foreign estate (as those terms are defined in the Code and the Income
Tax Regulations);
4. Dock's U.S. employer identification number is 22-1454795;
5. Dock's office address is 1512-1520 West Elizabeth Avenue, Linden, NJ
07036; and
6. Dock shall file this notice with the Internal Revenue Service within
thirty (30) days of the date this notice is delivered to Landec.
This Notice is made in accordance with the requirements of Treasury
Regulation Section 1.897-2(h). Dock understands that any false statement
contained herein could be punished by fine, imprisonment or both.
Under penalties of perjury I declare that I have examined this Notice
and to the best of my knowledge and belief it is true, correct and complete, and
I further declare that I have authority to sign this document on behalf of Dock.
DOCK RESINS CORPORATION.
Dated: April 18, 1997 By: /s/ A. Wayne Tamarelli
-------------------------------
A. Wayne Tamarelli
Title: Chairman
----------------------------
NOTICE TO THE INTERNAL REVENUE SERVICE
This Notice is being provided by Dock Resins Corporation ("Dock")
pursuant to the requirements of Treasury Regulation Section 1.897-2(h)(2).
Dock is located at 1512-1520 West Elizabeth Avenue, Linden, NJ 07036.
Dock's Taxpayer Identification Number is 22-1454795.
The attached Certificate of Non U.S. Real Property Holding Corporation
Status was not requested by a foreign interest holder. Such Certificate was
requested by Landec Corporation ("Landec"), the transferee of the stock of Dock.
Landec is located at 3603 Haven Avenue, Menlo Park, CA 94025. Landec's Taxpayer
Identification Number is 94-3025618.
The interests in question, shares of Dock stock to be received by
Landec pursuant to a Stock Purchase Agreement, are not U.S. Real Property
Interests.
Under penalties of perjury I declare that I have examined this Notice
and the attachment hereto and to the best of my knowledge and belief they are
true, correct and complete, and I further declare that I have authority to sign
this document on behalf of Dock.
DOCK RESINS CORPORATION.
Dated: April 18, 1997 By: /s/ A. Wayne Tamarelli
-------------------------------
A. Wayne Tamarelli
Title: Chairman
----------------------------
-2-
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and among A. WAYNE
TAMARELLI (hereinafter "Executive") and LANDEC CORPORATION, a California
Corporation ("Landec") and DOCK RESINS CORPORATION, a New Jersey Corporation
("Dock") (hereinafter Landec and Dock shall be sometimes collectively referred
to as "Employer"), to be effective on and as of April 18, 1997.
WITNESSETH:
WHEREAS, Landec has acquired all of the outstanding shares of stock of
Dock pursuant to a Stock Purchase Agreement dated as of April 18, 1997 (the
"Stock Agreement");
WHEREAS, Executive has for many years served as Dock's Chairman and
Chief Executive Officer;
WHEREAS, Employer is interested in employing Executive to serve in the
capacity of Senior Vice President of Landec Corporation and to continue to serve
as the Chairman and Chief Executive Officer of Dock, and Executive desires to be
employed in such capacity;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto agree as follows:
1. Employment. Employer hereby employs Executive as Senior Vice
President of Landec and Chairman and Chief Executive Officer of Dock and
Executive hereby accepts such employment upon the terms and conditions
hereinafter set forth. Landec covenants and agrees during the Employment Term to
maintain a Board of Directors for Dock, and, during the Employment Term, to
nominate, or cause to be nominated, Executive to be a member of the Board of
Directors, and to take such action with respect to and to vote, or cause to be
voted, such shares of stock of Dock as shall be necessary to elect Executive to
the said Board of Directors.
2. Duties. a. Executive shall perform his services as Senior Vice
President of Landec and Chairman and Chief Executive Officer of Dock, under the
supervision of the Chief Executive Officer of Landec and within the framework of
the policies and objectives of Employer. Generally, in such capacity, Executive:
(i) shall exercise general day-to-day supervisory responsibility and operational
and management authority over the operations of Dock and Dock's officers and
executives (ii) shall provide advice and input to members of Employer's Board of
Directors and shall, at their request, attend any meetings of the Board of
either entity, and (iii) shall perform such other duties as may be assigned to
him from time to time by the Chief Executive Officer of Landec consistent with
the typical duties of Executive's position. More particularly, Executive's job
duties shall be substantially as set forth on the Initial Job Description
attached hereto as Exhibit A, which Initial Job Description shall be
1
reviewed and modified on a mutually agreeable basis between Landec and Executive
during the Employment Term.
b. Executive shall devote his entire business time, attention and
energies to the performance of his duties and functions under this Employment
Agreement and shall not during the term of his employment hereunder be engaged
in any other substantial business activity for gain, profit or other pecuniary
advantage which materially interferes with the performance of his duties
hereunder. Executive shall faithfully, loyally and diligently perform his
assigned duties and functions and shall not engage in any activities whatsoever
which conflict with the objectives of Employer's business during the term of his
employment hereunder.
c. Employer shall furnish Executive with such offices and other
facilities at Dock's headquarters location in Linden, New Jersey and such
support services as are suitable to his position and adequate for the
performance of his duties and functions hereunder. It is understood that during
the term of this Employment Agreement, Executive's principal work location shall
at all times remain in the State of New Jersey and within a twenty-five (25)
mile radius of Linden, New Jersey, subject to the provisions of subsection (d)
below.
d. It is understood that in the performance of his duties hereunder,
Executive may be required to travel outside of New Jersey from time to time, and
particularly to work at Employer's place of business in Menlo Park, California.
Employer will provide Executive with a suitable office and adequate support
services for his work in California. During the first year of the Employment
Term, Employer also agrees that it will pay the reasonable cost (i.e. rent in an
amount not to exceed $2,000.00 per month and utilities, if additional) of a
suitable furnished apartment, to be selected by Executive, in the vicinity of
Menlo Park, California for the exclusive use of Executive and his spouse.
Executive and Employer will confer at future dates and agree upon whether there
is a need to maintain such an apartment in California for Executive to occupy
after the initial year of the Employment Term and will confer from time to time
during the initial year of the Employment Term regarding whether said apartment
in fact is being used by Executive during such initial year and therefore
whether, in the absence of such use, as mutually determined, there remains a
need to maintain the apartment during the remainder of such period.
Additionally, Employer will provide or pay the rental cost of an automobile to
be used by Executive during the periods of time he is working in California. The
parties further agree that Executive shall not, without his consent, be required
to work more than twenty (20) days per quarter in California or locations other
than Linden, New Jersey.
3. Term. The term of this Employment Agreement shall commence on the
effective date hereof and, unless terminated earlier pursuant to paragraph 9
hereof, shall continue for a period of five (5) years, or until April 17, 2002
(the "Employment Term").
4. Compensation. During the twelve month period commencing on the
effective date hereof and ending on the first annual anniversary date of the
effective date, Employer shall pay to Executive, as compensation for the
services agreed to be rendered by Executive hereunder a salary at the annualized
rate of $170,000. Executive's salary for the second twelve month period arising
under this Agreement shall be established by Employer prior to April 1, 1998,
and shall
2
be no less than $170,000 on an annualized basis. Thereafter, for each successive
twelve month period of employment arising hereunder, Executive's salary may, in
Employer's sole discretion, be reviewed and adjusted by Employer in light of the
then existing circumstances and the services then being rendered by Executive,
and Executive's salary shall be increased accordingly to such higher amount as
may be determined by Employer (such annual base salary, as in effect from time
to time, being referred to herein as the "Base Salary"). For the convenience of
the parties, the Base Salary shall be paid by Dock and shall be payable in
accordance with Dock's normal payroll schedule, less appropriate deductions for
federal, state and local income taxes, FICA contributions and any other
deductions required by law or authorized by Executive. The provisions of the
preceding sentence notwithstanding, Employer shall be liable to pay to Employer
all Base Salary to which he is entitled hereunder, as well as any other payments
payable to Executive under the terms hereof, including, without limitation, the
payments due to the Executive under Paragraph 9 hereof.
5. Benefits. a. During the Employment Term, Executive shall be entitled
to participate in all group health, major medical, dental, pension, employee
assistance and profit sharing, 401(k) and other benefit plans maintained by Dock
and provided generally to Dock's executive officers, on the same terms as apply
to participation therein by Dock's senior management generally. Further, during
the Employment Term, Executive shall be entitled to participate in all of Dock's
fringe benefit programs and shall receive all perquisites if and to the extent
that they are made available to Dock's management generally, including, but not
limited to, employer-paid long-term disability insurance and life insurance
coverage. In addition, at the end of the Employment Term, Employer shall, upon
the written request of the Executive, cause any life insurance policy owned by
the Employer on the individual life of the Executive which may be assigned to
the Executive to be assigned to the Executive without charge to the Employer,
who shall thereupon be responsible for all premiums and other charges associated
therewith.
6. Expenses. During the Employment Term, Employer shall reimburse
Executive for all reasonable travel, entertainment, temporary housing and other
business expenses incurred or paid by Executive in performing his duties and
functions hereunder. Executive shall be entitled to travel by business class air
travel on all business trips outside of the continental United States. For
overnight travel, hotel lodging will be of executive class and in all events not
less than the level of accommodations customarily obtained by senior officers of
Landec for overnight lodging. Subject to the prior approval by Employer's Chief
Executive Officer, Employer will pay the reasonable cost necessary for
Executive's wife to accompany Executive in attending appropriate meetings or
functions (including trips to Employer's Menlo Park, California facility)
incident to Executive's responsibilities under this Employment Agreement.
7. Vacations and other Time-Off. a. In addition to such holidays as are
allowed under the policies of Landec to management generally (which holidays,
shall be in addition to and not in lieu of nor combined with the vacation and
personal days provided hereunder to Executive which are referred to in this
sentence following this parenthetical clause or in the third sentence of this
Section 7) Executive shall be entitled during each twelve-month period during
the Employment Term to twenty-five (25) five vacation/personal days, with full
pay. Such vacation/personal time shall be accrued at a uniform rate during each
such twelve-month period
3
and shall, to the extent unused during any such twelve-month period, be carried
over to succeeding twelve-month periods; provided, however, that the maximum
amount of vacation/personal days that Executive may accrue and carry forward in
any twelve-month period is ten (10) days of vacation/personal time. In addition
to and not in lieu of the foregoing holidays and twenty-five (25) five
vacation/personal days referred to in the first sentence of this Section 7,
Executive shall be entitled to an additional twenty-five (25) vacation days
during the entire Term of this Agreement, to accrue at a uniform rate of five
(5) days per twelve-month period arising hereunder; provided, however, that
Executive may elect to use an aggregate of ten (10) such vacation days, but no
more, in any such twelve month period. The duration of all vacation/personal
days referenced herein and the time or times when they shall be taken will be
determined by Executive in consultation with Employer, and Executive shall, at
his option, be permitted to use at least fifteen (15) days of his aggregate
vacation/personal time consecutively during each year of the Employment Term. In
addition to such other amounts as may be payable pursuant to paragraph 9 below,
Executive shall receive, within thirty (30) days after his employment hereunder
terminates for any reason a payment (based on Executive's Base Salary in effect
at the time of such termination of employment) for all of Executive's then
accrued but unused vacation/personal time.
b. Executive's duties shall also include participation in such
community service, public advisory service and business association activities
as Executive, in his discretion, deems appropriate, consistent with his past
participation is such activities.
c. Executive will also be permitted to use up to fifteen (15) business
days each year to attend professional meetings, conferences and seminars. These
days shall be in addition to and not in lieu of nor combined with the holidays,
sick leave, personal time off and vacation days referred to in subsection a.
above.
8. Non-Competition and Confidentiality. This Employment Agreement is
contingent upon Executive executing a Non-Competition and Confidentiality
Agreement with Employer which is to deemed to be part of this Employment
Agreement.
9. Termination.
a. Automatic Termination Upon Death, In the event of Executive's death
during the Employment Term, Executive's employment hereunder shall be
automatically terminated upon the date of death. As soon as reasonably
practicable following Executive's death, Employer shall pay to Executive's
estate: (i) Executive's accrued but unpaid Base Salary, through the last day of
the month of this death, and (ii) any amount due hereunder for accrued but
unused vacation time as of the date of death.
b. Termination by Employer. During the Employment Term, the Employer
shall be entitled to terminate, without liability, Executive's employment
hereunder only upon the establishment of "Cause" or the "Permanent Disability"
of Executive (as those terms are defined below) by giving written notice to that
effect to Executive.
4
For purposes hereof, the term "Cause" means either (1) conduct which
constitutes gross neglect or willful malfeasance; (2) Executive's committing
fraud or embezzlement or otherwise engaging in conduct that results in Executive
being convicted of a felony; (3) Executive's acting in an intentional or
reckless manner which is reasonably likely to be materially detrimental or
damaging to Employer's reputation, business, operations or relations with its
employees, suppliers or customers, without taking reasonable steps to remedy
such actions within ten (10) days after receiving written notice thereof from
Employer; (4) Executive's habitual abuse of alcohol or prescription drugs or
abuse of controlled substances; (5) Executive's failure to report for work on a
regular basis or to attend regularly scheduled meetings of the Board of
Directors of Dock, and such other meetings of Employer as may be reasonably
required of Executive in connection with the performance of his duties
hereunder, without taking reasonable steps to remedy such failure within ten
(10) days after Executive's receipt of written notice from Employer specifically
identifying the nature of and circumstances relevant to any such failure; (6)
Executive's committing any material breach of this Employment Agreement without
taking reasonable steps to cease or remedy such breach within thirty (30) days
after Executive's receipt of written notice from Employer specifically
identifying the nature of and circumstances relevant to any such claimed
material breach by Executive.
Executive shall be accorded certain due process rights in connection with
any termination of this Employment Agreement by Employer for "Cause".
Specifically, Executive shall be notified in writing thirty (30) days in advance
of any meeting of Landec's Board of Directors at which the subject of
termination of Executive's employment for "Cause" is scheduled as an agenda
item. Executive shall be informed of the particulars to be discussed and shall
be given the opportunity to make an oral presentation at any such meeting,
although Executive may be excused during deliberations. This provision shall not
preclude any member of the Board of Directors from raising the subject of
Executive's termination for "Cause" at any properly scheduled meeting as a
non-agenda item of new business, provided, however, that no final action can be
taken until Executive is accorded the rights specified hereinabove. Executive
shall be promptly informed of any decision with regard to termination of this
Employment Agreement and the basis for such decision.
For purposes hereof, the term "Permanent Disability" means: (i)
Executive's failure to devote full normal working time as required herein to his
employment hereunder for a period of at least 30 consecutive normal business
days (or for at least a majority of the normal business days in any consecutive
ninety-day period); and (ii) the existence of an illness or incapacity (either
physical or mental) affecting Executive which, in the reasonable opinion of a
Qualified Physician, is likely to be of such character or severity that
Executive would be unable to resume devoting his full normal working time as
required herein to his employment hereunder for a period of at least six
consecutive months. The term "Qualified Physician" means an impartial physician
competent to diagnose and treat the illness or condition which Executive is
believed to be suffering, selected by Employer and reasonably acceptable to
Executive (or if Executive is then incapable of acting for himself, Executive's
personal representative), who shall have personally examined Executive and shall
have personally reviewed Executive's relevant medical records; provided Employer
shall bear the costs of such Qualified Physician's services and
5
Executive agrees to submit to an examination by such Qualified Physician and to
the disclosure of Executive's relevant medical records to such Qualified
Physician.
The date upon which any termination effected pursuant to this
subparagraph 9(b) shall be effective is set forth in subparagraph 9(d), and the
effect of any such termination shall be as described in subparagraphs 9(e) and
(f).
c. Termination by Executive. During the Employment Term, Executive
shall be entitled to terminate, without liability, his employment hereunder (i)
upon the establishment of Good Reason by giving notice to that effect to
Employer or (ii) for any other reason or for no reason upon three (3) months
prior written notice to Employer.
For purposes hereof, "Good Reason" shall mean Executive's termination
of his employment hereunder as a direct result of (i) a reduction in Executive's
Base Salary, (ii) a material change in the nature or extent of Executive's
responsibilities that is inconsistent with Executive's intended position and
status hereunder, (iii) a change in Executive's principal work location, without
his consent, to a site that is outside the State of New Jersey and/or is beyond
a twenty-five (25) mile radius of Linden, New Jersey, (iv) the material breach
by the Employer of any provision of this Agreement which continues without
reasonable steps being taken to cure such breach for a period of 30 days after
written notice thereof by Executive to Employer; or (v) at any time within the
Employment Term and without the express prior written consent of the Executive,
(X) the sale or transfer, whether in one transaction or in a series of
transactions, of substantially all of the assets of Dock or (Y) the merger,
consolidation or amalgamation of Dock with or into any other entity (including,
without limitation, Landec); or (Z) the execution and delivery of an agreement
to transact any matter referred to in (X) or (Y).
The date upon which any termination effected pursuant to this
subparagraph 9(c) shall be effective is set forth in subparagraph 9(d), and the
effect of any such termination shall be as described in subparagraphs 9(g).
d. Termination Date. In the event Executive's employment hereunder is
terminated for circumstances constituting Cause, Permanent Disability, or Good
Reason, such termination shall take effect upon the termination date set forth
in the written notice to that effect given by Executive to Landec or by Landec
to Executive, as the case may be, (provided that if either party disputes the
propriety of such termination, the effective date of termination shall be as
established by final resolution of such dispute, whether by agreement of the
parties or award of an arbitrator as contemplated herein, in favor of the
propriety of such termination), and in any other case termination of Executive's
employment hereunder shall take effect on the date specified in the written
notice thereof delivered by Executive to Employer or by Employer to Executive,
as the case may be, (the date on which any such termination takes effect being
referred to herein as the "Termination Date"). Employer, at its option, may
require Executive to continue to perform his duties hereunder until the
Termination Date or pay to Executive such amount of compensation and benefits
otherwise due hereunder in accordance with Employees then existing salary
payment schedule or in one lump sum payment.
6
e. Effect of Termination by Employer For Cause. In the event
Executive's employment is terminated by Employer for Cause at any time during
the Employment Term, then Employer shall pay to Executive (i) Executive's
accrued but unpaid Base Salary through the Termination Date, and (ii) any amount
due hereunder for accrued but unused vacation time as of the Termination.
f. Effect of Termination Upon Permanent Disability. In the event
Executive's employment is terminated at any time during the Employment Term by
Employer upon the Permanent Disability of Executive, then:
(A) Employer shall pay to Executive (I) Executive's accrued but unpaid
Base Salary through the Termination Date, (II) an amount equal to 12 months of
Executive's then existing Base Salary from the date written notice of the
termination of Executive's employment is given by Employer, or the amount that
Executive reasonably would have expected to receive as Base Salary in the period
from the Termination Date to the expiration of the Employment Term, whichever is
lower and (III) any amount due hereunder for accrued but unused vacation time as
of the Termination Date; and
(B) Employer, at its expense, shall make all benefit payments, on
behalf of Executive and Executive's dependents, for such benefits Executive
otherwise would have been entitled to receive hereunder, for the earlier of 12
months following the date written notice of the termination of Executive's
employment is given by Employer or the expiration of the Employment Term.
g. Effect of Termination By Employee for Good Reason/Termination by
Employer Without Reason. In the event Executive's employment is terminated
during the Employment Term by Executive in circumstances constituting Good
Reason, or by Employer in any circumstances other than those permitted pursuant
to subparagraph 9(b), including, without limitation, by Employer pursuant to
Section 9 (h) below, and from and after such Termination Date, Executive shall
be entitled to receive the Base Salary which Executive reasonably would have
expected to receive in the period from the Termination Date to the expiration of
the Employment Term all of which shall become effective and payable upon the
Termination Date. Executive acknowledges and agrees that the payments due to him
under this Section 9 (g) shall be his sole remedy with respect to any
termination cognizable under this Section 9 (g).
h. Termination by Employer Without Cause. Notwithstanding any provision
hereof to the contrary, Employer shall have the right to terminate Executive's
employment hereunder for any reason or for no reason upon three (3) months prior
written notice to Executive. Termination of Executive's employment under this
Section 9 (h) shall have the consequences for Employer and Executive set forth
in Section 9 (g).
i. Miscellaneous. In the event of any termination or attempted
termination hereof (i) no termination of this Employment Agreement shall relieve
or release either party from liability hereunder based on any breach of the
terms hereof by such party occurring prior to the Termination Date; and (ii) the
terms of this Employment Agreement relevant to performance or
7
satisfaction of any obligation hereunder expressly remaining to be performed or
satisfied in whole or in part at the Termination Date shall continue in force
until such full performance or satisfaction has been accomplished and otherwise
neither party hereto shall have any other or further remaining obligations to
other party hereunder.
j. No Set-off, There shall be no right of set off or counterclaim, in
respect of any Claims (as defined in the Stock Agreement), or any actual or
alleged claim, debt or obligation, against any payments or benefits required to
be made or provided to Executive hereunder (including, without limitation,
pursuant to subparagraphs 9(f) and (g) above).
k. Termination of Director. Under all circumstances and reasons for
termination set forth herein, whether initiated by Employer or by Executive
pursuant to the terms hereof, Executive hereby convenants and agrees to resign
as a Director of Dock effective immediately upon such termination.
10. Injunctive Relief, It is agreed that the services of Executive are
unique and that any breach or threatened breach by Executive of any provision of
this Employment Agreement cannot be remedied solely by damages. Accordingly, in
the event of a breach by Executive of his obligations under this Employment
Agreement, Employer shall be entitled to seek and obtain interim restraints and
permanent injunctive relief without proving the inadequacy of damages as a
remedy, restraining Executive and any business, firm-m, partnership, individual,
corporation or entity participating in such breach or attempted breach. Nothing
herein, however, shall be construed as prohibiting Employer from pursuing any
other. remedies available at law or in equity for such breach or threatened
breach, including the recovery of damages and the termination of the services of
Executive.
11. Arbitration. Any dispute or controversy arising out of or relating
to this Employment Agreement or any claimed breach hereof shall be settled, at
the request of either party, by an arbitration proceeding conducted in
accordance with the rules of the American Arbitration Association ("AAA"), with
the award determined to be appropriate by the arbitrator therein to be final,
non-appealable and binding on the parties hereto, and with judgment upon such
award as is rendered in any such arbitration proceeding available for entry and
enforcement in any court having jurisdiction of the parties hereto. The
arbitrator shall be an impartial arbitrator qualified to serve in accordance
with the rules of the AAA and shall be reasonably acceptable to each of the
Employer and the Executive. If no such acceptable arbitrator is so appointed
within 15 days after the initial request for arbitration of such disputed
matter, each of the parties promptly shall designate a person qualified to serve
as an arbitrator in accordance with the rules of the AAA, and the two persons so
designated promptly shall select the arbitrator from among those persons
qualified to serve in accordance with the rules of the AAA. The arbitration
shall be held in Chicago, Illinois, or in such other place as may be agreed upon
at the time by the parties. The expenses of the arbitration proceeding shall be
borne equally by Employer and Executive. Each party shall pay for and bear the
cost of its or his own and experts, evidence and counsel in such arbitration
proceeding.
8
12. Amendment and Modification. This Employment Agreement contains the
entire agreement between the parties with respect to the subject matter hereof.
Subject to applicable law and upon the consent of the Board of Directors of
Landec, this Employment Agreement may be amended, modified and supplemented by
written agreement of Employer and Executive with respect to any of the terms
contained herein.
13. Waiver of Compliance. Any failure of either party to comply with
any obligation, covenant, agreement or condition on its part contained herein
may be expressly waived in writing by the other party, but such waiver or
failure to insist upon strict compliance shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. Whenever this
Employment Agreement requires or permits consent by or on behalf of any party,
such consent shall be given in writing.
14. Governing Law, This Employment Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.
15. Notices, All notices, requests, demands and other communications
required or permitted to be given pursuant to this Employment Agreement shall be
in writing and shall be deemed to be duly given (i) on the day of service
personally on the party to whom directed, (ii) seventy-two (72) hours after
mailing by first class mail, registered or certified postage prepaid and
properly addressed to the party at its address herein set forth, or (iii) the
next business day after facsimile transmittal, so long as confirmed by sending
the original of same by first-class mail or courier service no later than
seventy-two (72) hours thereafter.
If to Executive, to A. Wayne Tamarelli
49 Wexford Way
Basking Ridge, N.J. 07920
If to Employer, to: Landec Corporation
3603 Haven Avenue
Menlo Park, Ca. 94025
Attn: Chief Executive Officer
IN WITNESS WHEREOF, the parties have executed this Employment Agreement to be
effective on and as of the day and year first above written.
LANDEC CORPORATION
By: /s/ Gary T. Steele
----------------------
Gary Steele, President
and CEO
9
By: /s/ A. Wayne Tamarelli
----------------------
A. WAYNE TAMARELLI
10
EXHIBIT A
INITIAL JOB DESCRIPTION - WAYNE TAMARELLI
Position Senior Vice President - Landec Corporation, Chairman and CEO
Dock Resins
Reports to CEO of Landec Corporation
Responsibilities:
1 Exercise General Supervisory Responsibility and Operational and
Management Authority with respect to Dock Resins
Lead Dock's management team as to all aspects of Dock's day-to-day
operations.
Responsible for the hiring and discharge of all Dock employees.
Direct and oversee environmental remediation activities in respect of
which control is provided to the Executive pursuant to Section 5.3 of the Stock
Agreement, and attend meetings with respect to and otherwise monitor any other
environmental remediation activities or environmental permitting projects
undertaken at Dock's Linden, New Jersey site.
2. Manage Dock Resins for market penetration, revenue growth and
profitability (subject to review of annual operating and capital
budgets by Landec)
Manage the business to maintain excellent customer relationships and
consistent positive cash flow of Dock Resins.
Grow profitably Dock's core business as its highest priority.
Identify short term capital needs and implement plan for Dock to
upgrade facility and capacity.
Establish a long term capability and capital plan for Dock's future
growth.
Maintain and build a strong staff. Work with Landec staff to integrate
financial and administrative support functions where practicable.
Identify license/JV opportunities in Europe and Asia-Japan for Dock
technology.
3. Integrate Dock into Landec
Assist Landec by providing pilot plant and manufacturing support to
Landec.
11
With other Landec officers, develop a five year manufacturing plan to
meet Dock and Landec needs.
Work closely with Landec's Chief Operating Officer to assure effective
two way communications with Landec. Integrate the strengths of each organization
into a "common purpose."
Serve on Landec OPS Group (Landec's officer group)
- Planning and business development support as requested by the CEO
- Where needed, assist Landec with its regulatory/environmental
issues
4. Lead and Manage a designated Intelimer(R) Programs, such as the
Pressure Sensitive Adhesive Program (non-Asia) at Dock
Transfer R&D support for the Landec PSA program to Linden for
US/European markets.
5. Provide consultation help in the Intelimer(R) Polymer
Additives/intelimer Functional Polymers
Corporate partnering opportunities in US/Europe.
Economic merits of making Functional Polymers for others.
Synergism of Landec's Intelimer(R) Polymer Additives (catalyst systems)
with Dock's business.
6. Serve as a Landec/Dock Resins Industry Spokesman for
Materials/Specialty Chemical Industry
12
Landec Corporation
3603 Haven Avenue
Menlo Park, CA 94025
April 18, 1997
Wayne Tamarelli
49 Wexford Way
Basking Ridge, NJ 07920
Employment Agreement
Dear Wayne:
This letter will confirm our understanding that the twenty-five (25)
additional vacation ways referred to in the third sentence of Section 7a of your
employment agreement with Landec Corporation are being provided to you in lieu
of any days of vacation that you may have accrued while an employee of Dock
Resins Corporation and that you hereby waive any right you may have to such
accrued days.
If the foregoing reflects your understanding with respect to any such
accrued vacation days please countersign this letter where indicated below and
return the countersigned copy to me at your earliest convenience.
Sincerely,
Landec Corporation
/s/ Joy T. Fry
---------------------
Joy T. Fry, CFO
AGREED AND ACCEPTED
/s/ A. Wayne Tamarelli
- -----------------------
A. Wayne Tamarelli
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS AGREEMENT ("Agreement") effective this 18th day of April, 1997 (the
"Effective Date") by and between A. WAYNE TAMARELLI (hereinafter "Tamarelli")
and LANDEC CORPORATION, a California corporation (hereinafter "Landec").
WHEREAS, on this date Landec has acquired all of the outstanding shares
of stock of Dock Resins Corporation, a New Jersey corporation having its
principal place of business in Linden, New Jersey (hereinafter "Dock");
WHEREAS, on this date, Landec, Dock and Tamarelli will also enter into a
certain Employment Agreement ("Employment Agreement") pursuant to which
Tamarelli will be employed by the "Employer" therein defined, and will serve in
the capacity of Senior Vice President of Landec and also as the Chairman and
Chief Executive Officer of Dock;
WHEREAS, executing this Confidentiality and Non-Competition Agreement is
a condition of execution of the aforementioned;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto agree as follows:
1 Agreement with respect to Confidential and/or Proprietary Information.
In exchange for becoming employed (or his employment being continued) by Landec
Corporation or its subsidiaries, affiliates, or successor (hereinafter referred
to collectively as the "Company"), Tamarelli hereby agrees as follows:
A. As used in this Section, the term "Inventions" means designs,
trademarks, discoveries, formulae, processes, manufacturing
techniques, trade secrets, inventions, improvements, ideas or
copyrightable works, including all rights to obtain, register,
perfect and enforce these proprietary interests.
B. As used in this agreement, the term "Confidential Information"
means information pertaining to any aspects of the Company's
business which is either information not known by actual or
potential competitors of the Company or is proprietary
information of the Company or its customers or suppliers
whether of a technical nature or otherwise.
1
C. Without further compensation, Tamarelli hereby agrees promptly
to disclose to the Company, and hereby assigns and agrees to
assign to the Company or its designees, his entire right,
title, and interest in and to all Inventions which he may
solely or jointly develop or reduce to practice during the
period of his employment with the Company (i) which pertain to
any line of business activity of the Company, (ii) which are
aided by the use of time, material or facilities of the
Company, whether or not during working hours, or (iii) which
relate to any of his work during the period of his employment
with the Company, whether or not during normal working hours.
D. Tamarelli agrees to perform, during his employment, and upon
payment of reasonable compensation therefor after the
termination of his employment, all acts deemed necessary or
desirable by the Company to permit and assist it, at its
expense, in obtaining and enforcing the full benefits,
enjoyment, rights and title throughout the world in the
Inventions assigned to the Company hereunder. Such acts may
include, but are not limited to, execution of documents and
assistance or cooperation in legal proceedings.
E. Tamarelli agrees to hold in confidence and not directly or
indirectly to use or disclose, either during or after
termination of his employment with the Company, any
Confidential Information he obtains or creates during working
hours, except to the extent authorized by the Company, until
such Confidential Information becomes generally known. Except
in the ordinary course of business, Tamarelli agrees not to
make copies of such Confidential Information unless authorized
by the Company. Upon termination of his employment or upon an
earlier request of the Company, Tamarelli will destroy, return
or deliver to the Company, at the Company's expense, all
tangible forms of such Confidential Information in his
possession or control, including but not limited to drawings,
specifications, documents, records, devices, models of any
other material and copies reproductions thereof.
F. Tamarelli represents that his performance of all the terms of
this Agreement and as an employee of the Company does not and
will not breach any agreement to keep in confidence
proprietary information knowledge or data acquired by him in
confidence or in trust prior to his employment with the
Company, and he will not disclose to the Company, or induce
the Company to use any
2
confidential or proprietary information or material belonging
to any previous employer or others. Tamarelli agrees not to
enter into any agreement either written or oral in conflict
with the provisions of this Agreement.
G. The parties acknowledge and agree that this Agreement does not
apply to an Invention which qualifies fully under the
provisions of Section 2870 of the Labor Code, a copy of which
is attached hereto as Exhibit A. Tamarelli agrees to disclose
all Inventions made by him in confidence to the Company to
permit a determination as to whether or not the Invention
should be the property of the Company.
2. Agreement Not to Compete.
A. Commencing on the Effective Date and continuing until five (5)
years after the Effective Date, except as provided below,
Tamarelli agrees that he will not, without Company's
permission, as an employee, agent, consultant, advisor,
independent contractor, general partner, officer, director,
stockholder, investor, lender or guarantor of any corporation,
partnership or other entity, or in any other capacity directly
or indirectly:
(1) participate or engage in the design, development,
manufacture, production, marketing, sale or servicing of any
product, or the provision of any service, that directly
relates to the development, production or sales of acrylic
polymers and other coating, adhesive, and printing ink
polymers (the "Business") in New Jersey, California, and other
states of the United States, Canada, Mexico, United Kingdom,
France, Germany, Italy, Japan and Australia;
(2) induce or attempt to induce any person who at the time of
such inducement is an employee or consultant of Landec to
perform work or services for any other person or entity other
than Landec;
(3) solicit, induce, recruit or encourage any of Landec's
employees or consultants to terminate their relationship with
Landec, or take away such employees or consultants, or attempt
to solicit, induce, recruit, encourage or take away employees
or consultants of Landec, either for himself or for any other
person or entity; or
3
(4) permit his name to be used in connection with a
competitive Business. Notwithstanding the foregoing, Tamarelli
may own, directly or indirectly, solely as an investment, up
to three percent (3%) of any class of "publicly traded
securities" of any person or entity which owns a competitive
Business. The term "publicly traded securities" shall mean
securities that are traded on a national securities exchange
or listed on the National Association of Securities Dealers
Automated Quotation System.
B. Further, for a period of five (5) years following termination
of his employment with Landec for any reason, with or without
cause, Tamarelli shall not solicit any licensor to or customer
of Landec or licensee of Landec's products, in each case, that
are known to him, with respect to any business, products or
services that are competitive to the products or services
offered by Landec or under development as of the date of
termination of his employment.
C. Tamarelli will not be prohibited from competing with Landec in
the United States or anywhere in the world, if Landec, or any
entity deriving title to its good will or shares, ceases to
carry on a like Business anywhere in the world.
D. If any restriction set forth in this non-competition section
is found by a court to be unreasonable, then Tamarelli agrees,
and hereby submits, to the reduction and limitation of such
prohibition to such area or period as shall be deemed
reasonable.
E. Tamarelli hereby acknowledges that the consideration for his
faithful performance of his obligations in this Agreement is
included in the purchase price paid by Landec to him for the
acquisition of Dock's outstanding stock.
F. Tamarelli acknowledges that the services that he will provide
to Landec under the Employment Agreement are unique and that
irreparable harm will be suffered by Landec in the event of
the breach by him of any of his obligations under the
Employment Agreement or this Agreement, and that Landec will
be entitled, in addition to its other rights, to enforce by
injunction or decree of specific performance the obligations
set forth in this Agreement.
4
3. Miscellaneous Agreements.
A. Except as set forth in Section 2 G. above, this Agreement (i)
shall survive Tamarelli's employment by the Company, (ii) does
not in any way restrict Tamarelli's right or the right of the
Company to terminate Tamarelli's employment, (iii) inures to
the benefit of successors and assigns of the Company, and (iv)
is binding upon Tamarelli's heirs and legal representatives.
B. Tamarelli certifies that, to the best of his information and
belief, he is not a party to any other agreement which will
interfere with his full compliance with this Agreement.
C. Tamarelli certifies and acknowledges that he has carefully
read all of the provisions of the Agreement and he understands
and will fully and faithfully comply with such provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective on and as the day and year first written above.
LANDEC CORPORATION
By: /s/ Gary T. Steele
--------------------------------
Gary Steele, President and CEO
By: /s/ A. Wayne Tamarelli
--------------------------------
A. WAYNE TAMARELLI
EXHIBIT A TO
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
Section 2870 of the California Labor Code is as follows:
a) Any provisions in any employment agreement which provides an employee
shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that
the employee developed entirely on his or her own time without using
the employer's equipment, supplies, facilities or trade secret
information except for those inventions that either:
1 Relate at the time of conception or reduction to practice of the
invention to the employer's business or actual or demonstrably
anticipated research or development of the employer.
2) Result from any work performed by the employee for the employer.
b) To the extent a provision in any employment agreement purports to
require an employee to assign an invention otherwise excluded from
being required to be assigned under subdivision (a) the provision is
against the public policy of this state and is unenforceable.
6
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is made as of this 18th day of
April, 1997, by and among Chase Trust Co. of California (the "Escrow Agent"),
Landec Corporation, a California corporation ("Landec"), and A. Wayne Tamarelli
("Shareholder"), the former sole shareholder of Dock Resins Corporation, a New
Jersey corporation ("Dock"). Capitalized terms used herein and not defined
herein shall have their defined meanings as set forth in the Stock Purchase
Agreement among Landec, Dock and Shareholder of even date herewith (the
"Purchase Agreement").
RECITALS
WHEREAS, The parties have entered into the Purchase Agreement (the
"Purchase Agreement") by and among Landec, Dock and Shareholder, which provides
for the purchase by Landec, and the sale by Shareholder, of all the issued and
outstanding capital stock of Dock.
WHEREAS, Article VII of the Purchase Agreement provides that at the
Closing, Shareholder will deposit in escrow (the entirety of such deposit
constituting the "Escrow Fund") $1,500,000 in cash (the "ISRA Fund") and
certificates representing 396,039 shares of Landec's Common Stock issuable to
the Shareholder immediately prior to the Closing. Such shares (the "Escrow
Shares") and the proceeds from any sales of such Escrow Shares (the "Escrow
Stock Proceeds") and any investments of Escrow Stock Proceeds ("Escrow
Investments") shall be held as security for Shareholder's indemnification
obligations under Article VII of the Purchase Agreement. The Escrow Shares, the
Escrow Stock Proceeds and the Escrow Investments shall collectively be known as
the "Non-ISRA Fund."
WHEREAS, The parties to this Agreement desire to establish the terms
and conditions pursuant to which the ISRA Fund and the Escrow Shares will be
deposited, held in, sold and disbursed from the Escrow Fund, and Escrow Stock
Proceeds will be held, invested and disbursed from the Escrow Fund.
NOW THEREFORE, in consideration of the mutual agreements,
representations, warranties and covenants hereinafter set forth, the parties
hereto agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the
ISRA Fund and the Escrow Shares; (b) invest the ISRA funds for the benefit of
the Shareholder; (c) hold such ISRA Fund and Escrow Shares in escrow as part of
the Escrow Fund; (d) sell Escrow Shares in accordance with the provisions of
Section 2(e); (e) hold Escrow Stock Proceeds received upon sale of Escrow Shares
or Escrow Investments as part of the Escrow Fund; (f) invest Escrow Stock
Proceeds in Escrow Investments and sell Escrow Investments for Cash in
accordance with the provisions of Section 2(f); and (g) release a portion of the
Escrow Stock Proceeds to Shareholder as long as the value of the Non-ISRA Fund
equals or exceeds $2,000,000 (as determined by the Escrow Agent in its sole
discretion and in accordance with the terms of Section 2(d) hereof); all subject
to the terms and conditions of this Agreement and Article VII of the Purchase
Agreement. The Escrow Shares will include "Additional Escrow Shares" as that
term is defined in Section 2(c) of this Agreement.
2. Deposit and Maintenance of Funds and Shares.
(a) Delivery of Funds and Shares. As soon as practicable after
the Closing, the ISRA Fund and the Escrow Shares will be delivered by Landec to
the Escrow Agent. The Escrow Shares will be delivered in the form of a duly
authorized stock certificate or certificates issued in the name of the Escrow
Agent or its nominee. In the event Landec issues any Additional Escrow Shares,
such shares will be issued in the name of the Escrow Agent and delivered to the
Escrow Agent in the same manner as the Escrow Shares.
(b) Shareholder's Account. The Escrow Agent will maintain for
Shareholder an accounting record (Shareholder's "Account") specifying the ISRA
Fund and the Non-ISRA Fund and other assets held for the record of Shareholder
pursuant to the terms of this Agreement.
(c) Investment of ISRA Fund. The Escrow Agent shall, at the
direction of the Shareholder, invest the ISRA Fund one or more portfolios
offered by Vista Fund Distributors, Inc., for which affiliates of Escrow Agent
provide investment advisory services for a fee as described in the prospectus
for these funds which has been provided to the Shareholder and Landec (the
"Vista Funds") mutually acceptable to Landec and the Shareholder . All interest
generated from such investment shall be retained by Escrow Agent for the benefit
of the Shareholder and shall be referred to herein as the "ISRA Interest."
(d) Dividends, Voting and Rights of Ownership. Except for
tax-free dividends paid in stock declared with respect to the Escrow Shares
("Additional Escrow Shares") pursuant to Section 305(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), there will be distributed promptly to the
Shareholder any cash dividends, dividends payable in securities or other
distributions of any kind made in respect of the Escrow Shares and, subject to
deductions to pay for expenses associated with selling Escrow Shares and holding
and investing Escrow Stock Proceeds, earnings on Escrow Stock Proceeds.
Shareholder will have voting rights with respect to the Escrow Shares deposited
in the Escrow Fund so long as such Escrow Shares are held in escrow, and Landec
will take all reasonable steps necessary to allow the exercise of such rights.
While the Escrow Shares remain in the Escrow Agent's possession pursuant to this
Agreement and the Purchase Agreement, the Shareholder will retain and will be
able to exercise all other incidents of ownership of said Escrow Shares, Escrow
Stock Proceeds and Escrow Investments which are not inconsistent with the terms
and conditions of this Agreement and the Purchase Agreement.
(e) Sales of Shares. Upon the written request and instruction
of the Shareholder containing: (i) specification of the number of Escrow Shares
allocated to Shareholder's Account that such Shareholder wishes to sell (the
"Designated Escrow Shares"); (ii) such other selling instructions as the
Shareholder shall specify; (iii) such additional instruments of transfer and
other documents reasonably requested by the Escrow Agent; and (iv) such fees,
expenses and commissions relating to the sale of Escrow Shares as the Escrow
Agent shall reasonably request and as the Shareholder shall reasonably approve
at the request of the Escrow Agent; the Escrow Agent shall sell such Designated
Escrow Shares at a price equal to the fair market value of the Common Stock on
the date of transfer, through such broker as shall be designated by agreement
between Landec and Shareholder (the "Broker"), and all Escrow Stock
Proceeds received as proceeds from such sale of Escrow Shares shall be held in
the Account of the Shareholder in the Escrow Fund, invested as otherwise
provided in Section 2(f), or released as otherwise provided in Section 2(g) of
this Agreement.
(f) Investment of Escrow Stock Proceeds. The Escrow Agent
shall invest the Escrow Stock Proceeds held for the account of Shareholder upon
the written instruction (in form reasonably satisfactory to the Escrow Agent) of
Shareholder (the investments of Escrow Stock Proceeds so held are referred to
"Escrow Investments") and shall sell Escrow Investments and retain the proceeds
thereof as Escrow Stock Proceeds in accordance with the written instruction of
Shareholder. Escrow Stock Proceeds may be invested in United States Government
Securities, certificates of deposit of Banks with assets in excess of
$100,000,000, or other short term, highly liquid, most highly rated Vista Funds
mutually acceptable to Landec and the Shareholder, in each case with maturities
less than one year, or in Landec Common Stock. All Escrow Investments shall be
held in the Escrow Fund in accordance with the terms of this Agreement. The
Escrow Agent will promptly notify Shareholder of all transactions pursuant to
Sections 2(e) and 2(f) which will also specify in detail the respective amounts
of ISRA Fund, Escrow Shares, Escrow Stock Proceeds and Escrow Investments in
Shareholder's Account.
(g) No Encumbrance. Except as provided in this Agreement, no
Escrow Shares or Escrow Investments or any beneficial interest in the Escrow
Shares or Escrow Investments may be pledged, sold, assigned or transferred,
including by operation of law, by Shareholder or be taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of
Shareholder, prior to the delivery to Shareholder of the Escrow Shares by the
Escrow Agent.
(h) Power to Transfer Escrow Shares. The Escrow Agent is
granted the power to effect any transfer of Escrow Shares contemplated by this
Agreement. Landec will cooperate with the Escrow Agent in promptly issuing stock
certificates to effect such transfers.
(i) Right to Liquidate. Subject to the provisions of Section
3(b)(iv) hereof, the Escrow Agent shall have the right to liquidate any
investments held in order to provide funds necessary to make required payments
under this Agreement. The Escrow Agent, in its capacity as escrow agent
hereunder shall not have any liability for any loss sustained as a result of any
investment liquidated prior to its maturity or for the failure of the parties to
give the Escrow Agent instructions to invest or reinvest the Escrow Fund or any
earnings thereon.
3. Claims; Withdrawals.
(a) ISRA Fund.
(i) Claims. At any time that there is a positive balance
in the ISRA Fund, upon receipt by the Escrow Agent of a certificate signed by
Shareholder requesting a payment from the ISRA Fund, stating that such funds
shall be used in order to satisfy Shareholder's obligations under Section 5.3 of
the Purchase Agreement and providing reasonable detail as to the application of
the proceeds with respect to the RAW or RA, Escrow Agent shall deliver the
requested funds to Shareholder.
(ii) Remainder. As soon as practical after the Escrow
Agent has been provided sufficient evidence of receipt by Dock of a form of Full
Compliance with ISRA from the NJDEP, any funds remaining in the ISRA Fund
together with any ISRA Interest shall be immediately delivered to Shareholder.
(b) Non-ISRA Fund.
(i) Claims. On or before April 18, 2002, upon receipt by
the Escrow Agent of a certificate signed by either (A) both Shareholder and
Landec, or (B) the arbitrator determined in accordance with Section 8.16 of the
Purchase Agreement (the "Notice"), which (A) certifies that the cumulative
amount of all Damages arising under Section 7.2(a) of the Purchase Agreement
((as determined by the Escrow Agent in its sole discretion and in accordance
with Section 7.2(c) of the Agreement and excluding the Damages being sought
pursuant to such certificate) has exceeded $150,000, and (B) states the amount
of Damages owed to Landec pursuant to the indemnification provisions of Section
7.2(a) of the Purchase Agreement, the Escrow Agent shall deliver to Landec out
of the Non-ISRA Fund, Landec Common Stock or other assets in the Non-ISRA fund
having a value equal to such damages.
(ii) Termination Without Claims Pending. On April 18,
2002, provided that Escrow Agent has not received written notice from (x) an
arbitrator or (y) Landec, that Claims relating to the indemnification provisions
of Section 7.2 of the Purchase Agreement have been made but are not as yet paid
or are pending before an arbitrator (the "Pending Claims"), Escrow Agent shall
deliver any amounts remaining in the Non-ISRA Fund to Shareholder.
(iii) Termination With Claims Pending. If, as of April
18, 2002, any amounts remaining in the Non-ISRA fund are not distributed to
Shareholder because of Pending Claims, then upon the resolution of all such
Pending Claims, and written notice to the Escrow Agent, any amounts remaining in
the Non-ISRA Fund, after settlement of the Pending Claims shall be delivered to
the Shareholder.
(iv) Payment in Lieu of Liquidation. In the event that a
payment for Claims under this Section 3(b) would require the liquidation of any
investments held in the Non-ISRA fund, Shareholder may deliver to Escrow Agent
an amount of cash sufficient to satisfy the obligations under such Claims which
shall be delivered to Landec in satisfaction of such Claims and the investments
to have been liquidated shall be delivered to the Shareholder, provided however,
that if such transaction would result in a material delay to Landec with respect
to compensation for such Claims, Landec may nonetheless required liquidation of
such investments and immediate payment.
(c) Withdrawal of the Escrow Stock Proceeds.
(i) Withdrawal. At any time prior to the termination of
the Agreement, Shareholder may, pursuant to the terms of this Agreement,
instruct the Escrow Agent to release a portion of the Escrow Stock Proceeds (the
"Withdrawal") to Shareholder provided that the aggregate value of the assets
remaining in the Non-ISRA Fund as of such date of
Withdrawal equals or exceeds $2,000,000 (as determined by the Escrow Agent in
its sole discretion and in accordance with the terms of Section 2(d) hereof).
(ii) Reporting. Beginning on the date thirty (30) days
after the first Withdrawal by Shareholder pursuant to Section 4(c) hereof and
every thirty (30) days thereafter, or at any such other time as Landec shall
reasonably request, the Escrow Agent shall notify Landec and Shareholder of the
contents of the Non-ISRA Fund, and the aggregate value of the Non-ISRA Fund as
of such date. Each such report date shall be referred to herein as a "Reporting
Date."
(iii) Replenishment. If, as of any Reporting Date, the
aggregate value of assets in the Non-ISRA Fund does not equal or exceed
$2,000,000, Shareholder will, within five (5) business days of receiving such
report, contribute cash or Landec Common Stock to the Escrow Fund in an amount
equal to or greater than the amount necessary to restore the aggregate value of
the Non-ISRA Fund as of the date of such contribution to $2,000,000.
(d) Valuation of Securities. For purposes of this Section 2,
the value of any securities (including Landec Common Stock) as of a particular
date shall be the fair market value of such securities as of the close of
business on the business date immediately preceding such date.
4. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to
any action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other document believed by it to be genuine
and duly authorized, nor for any other action or inaction, except its own
willful misconduct, bad faith or gross negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of the terms of this Agreement. In
all questions arising under the terms of this Agreement, the Escrow Agent may
rely on the advice of counsel, and for anything done, omitted or suffered in
good faith by the Escrow Agent based on such advice, the Escrow Agent will not
be liable to anyone. The Escrow Agent will not be required to take any action
under the this Agreement involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are
served upon the Escrow Agent with respect to the Escrow Fund, the Escrow Agent
will have the absolute right, at the Escrow Agent's election, to do either or
both of the following: resign so a successor can be appointed pursuant to
Section 5 or file a suit in interpleader and obtain an order from a court of
competent jurisdiction requiring the parties to interplead and litigate in such
court their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under this
Agreement, and Landec will pay the Escrow Agent all costs, expenses and
reasonable attorney's fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 3.
5. Expenses. All fees and expenses of the Escrow Agent incurred in the
ordinary course of performing its responsibilities hereunder will be paid by
Landec upon receipt of a written invoice by the Escrow Agent. All costs
associated with a Withdrawal, the sale of Escrow Shares or the purchase or sale
of Escrow Investments will be borne by Shareholder.
6. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity as such, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
resignation to the parties to this Agreement, specifying not less than thirty
(30) days' prior written notice of such a date when such resignation will take
effect. Landec will designate a successor Escrow Agent prior to the expiration
of such 30-day period by giving written notice to the Escrow Agent and the
Shareholder's Agent. Landec may appoint a successor Escrow Agent without the
consent of the Shareholder or Shareholder's Agent so long as such successor is a
bank with assets of at least $50 million, and may appoint any other successor
Escrow Agent with the consent of the Shareholder's Agent, which will not be
unreasonably withheld. The Escrow Agent will promptly transfer all assets being
held by Escrow Agent pursuant to the terms of this Agreement to such designated
successor. In the event no successor Escrow Agent is appointed as described in
this Section 5, the Escrow Agent may apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent.
7. Limitation of Responsibility: Notices. The Escrow Agent's duties are
limited to those set forth in this Agreement and the Escrow Agent may rely upon
the written notices delivered to the Escrow Agent pursuant to the terms of this
Agreement.
8. Sales of Escrow Shares. In the event that at any time any Escrow
Shares shall remain in the Escrow Fund the Escrow Agent shall receive a written
notice from the Shareholder directing the Escrow Agent to sell in the open
market all or any portion of such Escrow Shares, the Escrow Agent shall promptly
comply with such direction in the manner set forth in the written notice. All
proceeds from any such sale of Escrow Shares shall be deemed to be part of the
Escrow Fund.
9. Agreement to Proceed Against Funds. Landec agrees that to the extent
it shall have any claims against the Shareholder for Damages pursuant to the
terms of Section 7.2(a) or (b) of the Purchase Agreement it shall first seek to
obtain recovery for such Damages from the contents of the Non-ISRA Fund and ISRA
Fund, respectively and shall exhaust its remedies against such Funds prior to
seeking to obtain recovery for the remainder of such Losses from Shareholder in
his personal capacity pursuant to such parties' indemnification obligations
contemplated by Section 7.2 of the Purchase Agreement.
10. Incorporation by Reference of Article VII. The parties agree that
the terms of Article VII of the Purchase Agreement shall be deemed to be
incorporated by reference in this Agreement as if such Article had been set
forth in its entirety herein. The parties acknowledge that the administration of
the Escrow Fund by the Escrow Agent will require reference to both the terms of
this Agreement as well as the terms of such Article VII.
11. Notices. Any notice provided for or permitted under this Agreement
will be treated as having been given when (i) delivered personally, (ii) sent by
confirmed telex, telecopy or facsimile, (iii) sent by commercial overnight
courier with written verification of receipt, or (iv) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section
10.
Escrow Agent: Chase Trust Co. of California
101 California Street, Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Facsimile No.: (415) 693-8850
Shareholder: Wayne Tamarelli
49 Wexford Way
Basking Ridge, NJ 07920
Facsimile No.: (908) 221-9282
Dock: Dock Resins Corporation
1512 W. Elizabeth Avenue
Linden, NJ 07036
Attention: Chief Executive Officer
Facsimile Number: (908) 862-4015
Landec: Landec Corporation
3063 Haven Avenue
Menlo Park, CA 94025
Attention: President
Facsimile No: (415) 261-3616
With copy to: Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Tae Hea Nahm
Facsimile No: (415) 854-1121
Such notice will be treated as having been received upon actual receipt.
12. General.
(a) Governing Laws. It is the intention of the parties hereto
that the internal laws of the State of California (irrespective of its choice of
law principles) shall govern
the validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties to this
Agreement
(b) Binding upon Successor and Assigns. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained in this Agreement shall be binding upon,
and inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall constitute
one and the same instrument. This Agreement shall become binding when one or
more counterparts of this Agreement, individually or taken together, shall bear
the signatures of all of the parties reflected in this Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Purchase
Agreement, this Agreement, the documents referenced in this Agreement and the
exhibits to such documents, constitute the entire understanding and agreement of
the parties to this Agreement with respect to the subject matter of this
Agreement and of such documents and exhibits and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
expressed or implied, written or oral, between the parties with respect to this
Agreement. The express terms of this Agreement control and supersede any course
of performance or usage of the trade inconsistent with any of the terms of this
Agreement.
(e) Waivers. No waiver by any party to this Agreement of any
condition or of any breach of any provision of this Agreement will be effective
unless in writing. No waiver by any party of any such condition or breach, in
any one instance, will be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written
consent of Landec, the Escrow Agent and Shareholder's Agent, provided that if
the Escrow Agent does not agree to an amendment agreed upon by Landec and the
Shareholder's Agent, Landec will appoint a successor Escrow Agent in accordance
with Section 5.
(g) Taxpayer Identification Numbers. Each party hereto, except
the Escrow Agent, shall provide the Escrow Agent with their Tax Identification
Number ("TIN") as assigned by the Internal Revenue Service. All interest or
other income earned under the Escrow Agreement shall be allocated and paid as
provided herein and reported by the recipient to the Internal Revenue Service as
having been so allocated and paid.
[SIGNATURE PAGE TO FOLLOW]
This Agreement has been duly executed and delivered by Shareholder and
the duly authorized officers of Landec and Escrow Agent as of the date first
written above.
LANDEC CORPORATION
By: /s/ Gary T. Steele
------------------------------
Gary T. Steele, President
ESCROW AGENT
By: /s/ Paula Oswald
------------------------------
PAULA OSWALD
Title: ASSISTANT VICE PRESIDENT
---------------------------
A. WAYNE TAMARELLI (SHAREHOLDER)
/s/ A. Wayne Tamarelli
---------------------------------
[SIGNATURE PAGE TO ESCROW AGREEMENT]
[LOGO]
VENTURE
LAW GROUP
A PROFESSIONAL CORPORATION
April 18, 1997
A. Wayne Tamarelli
49 Wexford Way
Basking Ridge, NJ 07920
Mr. Tamarelli:
We have acted as counsel for Landec Corporation, a California
corporation ("Landec"), in connection with the purchase (the "Acquisition") of
all of the outstanding capital stock of Dock Resins Corporation, a California
corporation ("Dock") from you, pursuant to the Stock Purchase Agreement by and
among Landec, Dock and yourself, dated as of April 18, 1997 (the "Purchase
Agreement") and the execution and delivery to you of the Promissory Note by
Landec dated April 18, 1997 (the "Note") and the Escrow Agreement among Landec,
Chase Trust Company of California and yourself dated April 18, 1997 (the
"Escrow Agreement" and collectively with the Note and the Purchase Agreement,
the "Agreements"). This opinion is rendered to you pursuant to Section 6.2(b) of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the same meaning given to such terms in the Purchase Agreement.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion, including the Restated Articles of Incorporation and Bylaws of Landec,
the records of its Boards of Directors relating to the Acquisition and the
Agreements.
In such examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies; and that there are no extrinsic
agreements or understandings among the parties to the Agreements that would
modify or interpret the terms of the Agreements or the respective rights or
obligations of the parties thereunder. As to any facts material to the opinions
hereinafter expressed which we did not independently establish or verify, we
have relied without investigation, upon certificates, statements and
representations of representatives of Landec. During the course of our
discussion with such officers and representatives and our review of the
documents described above in connection with the preparation of these opinions,
no facts were disclosed
2800 SAND HILL ROAD
MENLO PARK, CA 94025
PHONE 415.854.4488
FAX 415.854.1121
[LOGO]
VENTURE
LAW GROUP
A PROFESSIONAL CORPORATION
A. Wayne Tamarelli
Page 2
to us that caused us to conclude that any such certificate, statement or
representation is untrue. In making our examination of the documents executed by
entities other than Landec, we have assumed that each such other entity had the
power to enter into and perform all its obligations thereunder and the due
authorization, execution and delivery of, such documents by each such entity.
The opinions hereinafter expressed are qualified to the extent that (a)
the validity or enforceability of any of the agreements, documents or
obligations referred to herein may be subject to or affected by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting the rights and remedies of creditors generally, and (b) the
enforceability of such agreements, documents or obligations may be limited by
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and public policy,
whether applied by a court of law or equity. We do not express any opinion
herein as to the availability of any equitable or other specific remedy upon
breach of any of the agreements, documents or obligations referred to herein. We
render or imply no opinion with respect to compliance with applicable anti-fraud
statutes, rules or regulations of applicable state or Federal law.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications, and exceptions set forth herein, we
are of the opinion that:
1. Landec is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, has the corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted.
2. The execution and delivery of the Agreements by Landec, and the
carrying out of the transactions contemplated by the Agreements did not and will
not conflict with or constitute a violation under the charter documents of
Landec.
3. All corporate action on the part of Landec, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Agreements by Landec and the authorization, sale, issuance
and delivery of the Landec Common Stock, has been taken.
4. To our knowledge, no suit, action or legal, administrative,
arbitration or other proceeding or governmental investigation is pending or
threatened to which Landec or any of its assets or properties is a party which
seeks to prohibit, restrain or enjoin the transactions contemplated by the
Agreements.
-2-
[LOGO]
VENTURE
LAW GROUP
A PROFESSIONAL CORPORATION
A. Wayne Tamarelli
Page 3
5. There is no consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or
other governmental body (either foreign or domestic) required by Landec or with
respect to its assets or properties or otherwise for the consummation of the
transactions contemplated by the Agreements that has not been obtained, except
for such consents, approvals, authorizations, registration or qualifications as
may be required under state securities or Blue Sky laws in connection with the
offer and sale of Landec Common Stock pursuant to the Acquisition.
6. Based in part upon your representations of in the Purchase
Agreement, the shares of Landec Common Stock to be issued and delivered pursuant
to the Purchase Agreement will, when issued, be exempt from registration under
Section 5 of the Securities Act of 1933, as amended (the "Act") pursuant to
Section 4(2) of the Act.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based upon our knowledge, such expression means that in
the course of our representation of Landec in connection with the Acquisition
nothing has come to our attention that would give us actual knowledge of the
existence or absence of such facts. We have undertaken no independent factual
investigation to determine the existence or absence of such facts.
This opinion relates solely to the laws of the State of California and
applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions.
The opinions expressed herein are solely for your benefit in connection
with the above transactions and may not be relied upon in any manner or for any
purpose by any other person.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
THN
-3-
REED SMITH SHAW & McCLAY
MAILING ADDRESS:
P.O. BOX 7839 PRINCETON FORRESTAL VILLAGE
PRINCETON, NJ 08543-7839
136 MAIN STREET, SUITE 250
J. FERD CONVERY III, HARRISBURG, PA
RESIDENT PARTNER PRINCETON, NEW JERSEY 08540 McLEAN, VA
NEW YORK, NY
WRITER'S DIRECT NUMBERS: 609-987-0050 NEWARK, NJ
PHONE 609-514-5940 PHILADELPHIA, PA
FAX 609-520-1172 FAX 609-951-0824 PITTSBURGH, PA
INTERNET jfconver@rssm.com WASHINGTON, DC
April 18, 1997
Landec Corporation
3603 Haven Avenue
Menlo Park, CA 94025
Ladies and Gentlemen:
We have acted as counsel for Dock Resins Corporation, a New Jersey
corporation ("Dock") and A. Wayne Tamarelli ("Shareholder"), in connection with
the purchase by Landec Corporation, a California corporation ("Landec") of all
of the outstanding capital stock of Dock from Shareholder and Landec, pursuant
to the terms of that certain Stock Purchase Agreement dated April 17, 1997 (the
"Purchase Agreement"). This opinion is rendered to you pursuant to Section
6.3(b) of the Purchase Agreement. Capitalized terms used herein and not
otherwise defined shall have the same meaning give to such terms in the Purchase
Agreement.
In connection with this opinion we have examined originals or copies
certified to our satisfaction of all records of Dock, and other certificates of
public officials and of officers or representatives of Dock as we have deemed
necessary. In such examination we have assumed the authenticity of all documents
submitted to us as originals, the conformity with authentic originals of all
documents submitted to us as certified or photostatic copies and the accuracy of
the statements contained in certificates. We have further assumed that Landec
has all requisite power to enter into and perform all its obligations
thereunder, that such party (to the extent required by applicable law) has duly
authorized the execution and delivery of the Purchase Agreement (and all other
agreements and instruments contemplated thereunder) and that such Purchase
Agreement (and all other agreements and instruments contemplated thereunder) has
been duly executed and delivered by such party.
As to questions of fact material to the opinions hereinafter expressed,
we have, when relevant facts were not independently established by us, relied
upon the representations set forth in the Purchase Agreement. Further, with
respect to the opinion set forth in Paragraph 11 hereof, we have assumed that
the use by Dock of its present facility located in Linden, New Jersey
constitutes a nonconforming use of such facility, that there has been no
expansion of such
REED SMITH SHAW & McCLAY
Landec Corporation
April 18, 1997
Page 2
use by Dock since the inception of the nonconforming use, and that, as of the
Closing Date, Dock is not so expanding such nonconforming use.
Based upon, and subject to the foregoing and to the qualifications,
limitations and reliances hereinafter set forth, and having due regard for legal
considerations we deem relevant, we are of the opinion that:
1. Shareholder has full power and authority to execute and deliver the
Purchase Agreement (and all other agreements and instruments contemplated
thereunder) and perform his obligations thereunder.
2. The Purchase Agreement has been duly and validly executed and
delivered by Shareholder and Dock.
3. Dock is a corporation duly formed and validly existing under the
laws of New Jersey and has full corporate power and authority and legal right to
own and operate its assets and to carry on its business as presently conducted,
to execute and deliver the Purchase Agreement and all of the other agreements
and instruments to be executed and delivered by it, and to consummate the
transactions contemplated thereby. Dock is qualified to do business and is in
good standing in each jurisdiction in which it is required to be qualified,
except in jurisdictions in which the failure to qualify, in the aggregate, would
not have a Material Adverse Effect.
4. The execution and delivery of the Purchase Agreement (and all other
agreements and instruments contemplated thereunder) by Dock and the performance
by Dock of its obligations thereunder have been duly authorized by all necessary
action by the Board of Directors and Shareholder of Dock, and no other act or
proceeding on the part of or on behalf of Dock or its Shareholder is necessary
to approve the execution and delivery of the Purchase Agreement and all of the
other agreements and instruments to be executed and delivered by Dock pursuant
thereto, to consummate the transactions thereby contemplated and to take all
other actions required to be taken by Dock pursuant to the provisions thereof.
5. Neither the execution, delivery and performance of the Purchase
Agreement and all of the other agreements and instruments to be executed and
delivered pursuant hereto, nor the consummation of the transactions contemplated
hereby or thereby, will with or without the passage of time or the delivery of
notice or both, (a) conflict with, violate or result in any breach of the terms,
conditions or provisions of the articles of incorporation or bylaws of Dock, (b)
to our knowledge conflict with or result in a violation or breach of, or
constitute a default or require
REED SMITH SHAW & McCLAY
Landec Corporation
April 18, 1997
Page 3
consent of any person or entity (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any notice, bond, mortgage, indenture, license, franchise, permit, agreement,
lease or other instrument or obligation to which Dock is a party or by which
Dock or any of the properties or assets of Dock may be bound, (c) violate any
statute, ordinance or law or any rule, regulation, order, writ, injunction or
decree of any Governmental Entity applicable to Dock or by which any properties
or assets of Dock may be bound, (d) result in any cancellation of, or obligation
to repay, any grant, loan or other financial assistance received by Dock from
any Governmental Entity, (e) conflict with or result in a violation or breach
of, or constitute a default or require consent of any third party (or give rise
to any right of termination, cancellation or acceleration ) under, any of the
terms, conditions or provisions of any notice, bond, mortgage, indenture,
license, franchise, permit, agreement, lease or other instrument or obligation
to which Shareholder is a party or by which the Dock Stock may be bound, or (f)
violate any statute, ordinance or law or any rule, regulation, or, to our
knowledge, order, writ, injunction or decree of any Governmental Entity
applicable to Shareholder or by which the Dock Stock is to be bound. No "bulk
sales" legislation applies to the transactions contemplated by the Purchase
Agreement.
6. There is no requirement applicable to Dock or Shareholder to make
any filing, declaration or registration with, or to obtain any permit,
authorization, consent or approval of, any Governmental Entity as a condition to
the lawful consummation by Dock and Shareholder of the transactions contemplated
by the Purchase Agreement and the other agreements and instruments to be
executed and delivered by Dock and Shareholder pursuant thereto or the
consummation by Dock and Shareholder of the transactions contemplated therein
except for such permit, authorization, consent or approval as may be
contemplated under the Purchase Agreement and such other permit, authorization,
consent or approval which, if not obtained or made, would not have a material
Adverse Effect and would not prevent, or materially alter or delay any of the
transactions contemplated by the Purchase Agreement.
7. The Authorized capital stock of Dock consists of 2,500 shares of
Common Stock, no par value of which there were issued and outstanding as of the
close of business on the Closing Date, 225 shares. There are no other
outstanding shares of capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities of Dock. All outstanding shares of Dock capital stock are
duly authorized, validly issued, fully paid and non-assessable and are free of
any liens or encumbrances, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of
REED SMITH SHAW & McCLAY
Landec Corporation
April 18, 1997
Page 4
Incorporation of Bylaws of Dock or any agreement to which Dock is a party or by
which it is bound. Shareholder is the sole shareholder of Dock. There are no
other outstanding shares of capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities.
8. There is no private or governmental action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, or, to the knowledge of Dock or Shareholder, threatened
against Dock or any of its properties or any of its officers or directors (in
their capacities as such), that could prevent, enjoin, alter or materially delay
any of the transactions contemplated by the Purchase Agreement, or that could
reasonably be expected to have a Material Adverse Effect.
9. To our knowledge, there is no material agreement, judgment,
injunction, order or decree binding upon Dock other than as set forth on the
Disclosure Schedule which has or could be expected to have the effect of
prohibiting or impairing any current or future business practice of Shareholder
or Dock, any acquisition of property by Dock or the conduct of business by Dock
as currently conducted or as proposed to be conducted by Dock except where such
consequence would not have a Material Adverse Effect.
10. Dock has made a valid and timely election to be treated as an S
corporation under Section 1362 of the Code (and corresponding provisions of
applicable state law) for its taxable year commencing December 1, 1986 and has
continued to be an S corporation at all times since December 1, 1986.
11. As of the Closing Date, the sale of the Dock Stock to Landec will
not result in the forfeiture by Dock of the nonconforming use status of Dock's
use of its present facility located in Linden, New Jersey.
The opinions expressed hereinabove with respect to Dock and the
Shareholder are subject to the following assumptions and limitations. Our
examination of law relevant to matters herein is limited to the law of the State
of New Jersey and of the United States of America. We have not made an
independent review of the laws of any state other than as stated hereinabove.
Accordingly, we express no opinion as to matters governed by the laws of any
other state of jurisdiction, including the laws of the State of California which
are stated to govern the Purchase Agreement and all other agreements and
instruments contemplated thereunder.
REED SMITH SHAW & McCLAY
Landec Corporation
April 18, 1997
Page 5
The opinions hereinabove expressed are for your benefit only and may
under no circumstances whatsoever be relied upon by any other person without our
express prior written consent.
The opinion is given to you as of the date set forth above and should
not be construed to give any opinion as relating to or dependent upon any future
event; we further undertake no obligation to update this opinion.
Very truly yours,
REED SMITH SHAW & McCLAY
/s/ Reed Smith Shaw & McClay
JFC
CEE
HRK
PICCO HERBERT KENNEDY
A PROFESSIONAL CORPORATION
COUNSELORS AT LAW
50 WEST STATE STREET, SUITE 1000
P.O. BOX 1388
TRENTON, NEW JERSEY 08607-1388
M. PAIGE BERRY *** ------------ DIANE A. BETTINO *
MAEVE E. CANNON * THOMAS J. BURNS *
KAREN L. CAYCI * (609) 393-2400 STACY C. COHEN
MARY LOU DELAHANTY TELECOPIER MICHAEL W. HERBERT *
SUSAN C. GIESER **** (609) 393-2475
JAMES P. MANAHAN *
LICENSED PATENT ATTORNEY JAMES E. McGUIRE ***
STEVEN P. GOODELL * DEMERY JOHNSON ROBERTS *
MICHAEL J. HERBERT **
CERTIFIED CIVIL TRIAL ATTORNEY
DAVID B. HIMELMAN * * Member NJ & PA Bar
PATRICK D. KENNEDY ** Member NJ & DC Bar
STEVEN J. PICCO *** Member NJ, PA & DC Bar
**** Member NJ, PA, NY,
STANLEY C. VAN NESS GA & DC Bar
OF COUNSEL
April 17, 1997
Landec Corporation
3603 Haven Avenue
Menlo Park, California 94025
To Whom It May Concern:
We have acted as special environmental counsel for Dock Resins
Corportion, a New Jersey corporation (Dock) and A. Wayne Tamarelli (Shareholder)
in connection with the purchase by Landec Corporation, a California corporation
(Landec) of all of the outstanding capital stock of Dock from Shareholder
pursuant to a Stock Purchase Agreement by and among Dock, Shareholder and
Landec, dated as of April 17, 1997 (Purchase Agreement). This opinion is
rendered to you pursuant to Section 6.3(c) of the Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the same
meaning given to such terms in the Purchase Agreement.
To the best of our knowledge, and except as specifically disclosed in
the Disclosure Schedules accompanying the Purchase Agreement, we are of the
opinion that:
1. Dock possesses all Environmental Permits necessary in order to
conduct Dock's business as it is now being conducted. Each Environmental Permit
issued to Dock is in full force and effect. Dock is in compliance with all
requirements, terms and provisions of the Environmental Permits issued to Dock
and has filed on a timely basis (and updated as required) all reports, notices,
applications or other documents required to be filed pursuant to the
Environmental Permits.
2. Dock's business is, and at all times has been, in compliance
with all Environmental permits and Environmental Laws applicable to Dock's
business, the Former Facilities or the Property.
PICCO HERBERT KENNEDY
Landec Corporation
April 17, 1997
Page 2
3. Dock has filed on a timely basis (and updated as required) all
reports, disclosures, notifications, applications, pollution prevention,
stormwater prevention or discharge prevention or response plans or other
emergency or contingency plans required to be filed under Environmental Laws,
including without limitation, the New Jersey Worker and Community Right to Know
Act, N.J.S.A. 34:5A-1 et seq., and Title III of the Superfund Amendments and
Reauthorization Act, 42 U.S.C. ss. 11001 et seq. Schedule 3.15 lists all such
reports, disclosures, notifications, applications and plans filed by Dock under
Environmental Laws. All such reports, disclosures, notifications, applications
and plans are true, accurate and complete.
4. Dock has not received any notice that Dock, the Property or
any of the Former Facilities: (i) is in violation of the requirements of any
Environmental Permit or Environmental Laws; (ii) is the subject of any suit,
claim, proceeding, demand, order, investigation or request or demand for
information arising under any Environmental Permit or Environmental Laws; or
(iii) has actual or potential liability under any Environmental Laws, including
without limitation CERCLA, RCRA, the Spill Act or any comparable state or local
Environmental Law.
5. There are no Environmental Conditions or other facts,
circumstances or activities arising out of or relating to Dock's business, or
the use, operation or occupancy by Dock of the Property or, to the knowledge of
the Shareholder of Dock after diligent inquiry, the Former Facilities that
result or reasonable could be expected to result in (a) any obligation of Dock
to file any report of notice, to conduct any investigation, sampling or
monitoring or to effect any environmental cleanup or remediation, whether onsite
or offsite; or (b) liability, either to governmental agencies or third parties,
for damages (whether to person, property or natural resources), cleanup costs or
remedial costs of any kind or nature whatsoever.
6. No federal, state, local or municipal governmental agency or
authority has obtained or asserted an encumbrance or lien upon the Property or
any other property of Dock or, to the knowledge of the Shareholder or Dock after
diligent inquiry, any of the Former Facilities as a result of any Release, use
or cleanup of any Hazardous Material for which Dock is legally responsible, nor
has any such Release, use or cleanup occurred which could result in the
assertion or creation of such a lien or encumbrance.
7. There is not now nor has there ever been located on the
Property any areas or vessels used or intended for the treatment, storage or
disposal of Hazardous Materials, including, but not limited to, drum storage
areas, surface impoundments, incinerators, landfills, tanks, lagoons, ponds,
waste piles or deep well injunction systems. Dock has not transported for
storage, treatment or disposal, by contract, agreement or otherwise, or arrange
for the transportation, storage, treatment or disposal of any Hazardous Material
at or to any location
PICCO HERBERT KENNEDY
Landec Corporation
April 17, 1997
Page 3
including, without limitation, any location used for the treatment, storage or
disposal of Hazardous Materials.
8. There are no Environmental Laws currently enacted or
promulgated, but as to which compliance is not yet required, that would require
Dock or Landec to take any action at the Property within three (3) years from
the effective date of this Agreement in order to bring Dock's business or the
operations as currently conducted at the Property into compliance with such
Environmental Laws.
This opinion relates solely to the laws of the State of New Jersey and
applicable Federal laws of the United States, and we express no opinion with
respect tot he effect or applicability of laws of other jurisdictions.
The opinions expressed herein are solely for your benefit in connection
with the above transactions and may not be relied upon in any manner or for any
purpose by any other person.
Sincerely,
/s/ Steven J. Picco
Steven J. Picco
SJP/amd
CONFIDENTIALITY STATEMENT, CLIENT, #B251
Owner is willing to disclose to Client certain information which Owner
considers confidential relating to Client's considering the acquisition of
Owner.
Such information (which may be in oral, written or physical form) may
include technical information and/or information relating to Owner's financial
or other business affairs, including information concerning the existence of
Owner's interest in the above subject. Client agrees not to contact owners,
employees or customers without prior written consent of owner.
Owner wishes to safeguard such confidential information and to be
assured that it will be maintained in confidence. Therefore, in consideration of
Owner's disclosure of information, Client hereby agrees to the following terms:
1. Confidential information shall not be disclosed to any third party
(except Landec, who also has a Confidentiality Statement with
owner) nor used or reproduced by Client for its sole benefit
without the prior written consent of Owner. Information shall not
be considered confidential per subject to this Agreement if it can
be demonstrated:
A. To have been rightfully in the possession of Client prior to
the date of the disclosure of such information to Client by
Owner;
B. To have been in the public domain prior to the date of the
disclosure of such information to Client by Owner;
C. To have become part of the public domain by publication or by
any other means except an unauthorized act of omission on the
part of Client; or
D. To have been supplied to Client without restriction by a third
party who is under no obligation to Owner to maintain such
information in confidence.
The obligations imposed by this Paragraph 1 shall cease three (3)
years from the date of this letter agreement.
2. Client shall limit access to confidential information to those of
its employees who have a need to know in order to effectuate this
Agreement.
3. Confidential information shall not be deemed to be generally
available to the public or in Client' possession merely because it
may be embraced by a more general disclosure, or merely because it
may be derived form combinations of disclosures generally available
to the public or in Client' possession.
4. At any time, upon Owner's written request, Client shall return to
Owner any and all written or physical embodiments (including all
copies) of information disclosed to Client by Owner which is then
in Client' possession.
5. Information shall only be considered confidential and subject to
this Agreement if it is disclosed:
A. In writing and marked "Confidential";
B. In physical form and labeled "Confidential";
C. Orally and such information is reduced to writing and a copy of
such writing marked "Confidential" is provided to Client within
one (1) month from the date of oral disclosure.
6. Neither this Agreement nor Owner's disclosure of confidential
information shall be deemed by implication or otherwise to vest in
Client any rights in any patents, trade secrets, know-how, or other
property of Owners.
Accepted on this date: 9/23/96
---------------------------------
Name of Client: Landec Corporation
By: /s/ David Taft
----------------------------------------
David Taft, Chief Operating Officer
Name of Owner: /s/ A. Wayne Tamarelli
----------------------------------------
Wayne Tamarelli
Owner of Dock Resins Corporation
LANDEC CORPORATION
CONFIDENTIALITY AGREEMENT
Recent discussions between Landec Corporation (hereafter referred to as
"Landec") and Dock Resins Corporation (hereafter "Dock Resins") have indicated
that Landec possesses proprietary information relating to its temperature
sensitive polymer technology and applications thereof ("Landec Information").
Landec is willing to disclose to Dock Resins certain details regarding its
information for the sole purpose of determining the desirability of entering
into a business relationship with Dock Resins.
It is understood that Dock Resins is willing to receive and consider information
(which may include samples) for the above stated purpose and that either party
will be obligated to enter into any further agreement except as in its sole
judgment shall be deemed to be desirable, and that no license or immunity is
granted by this agreement by Landec to Dock Resins as to the Landec Information.
In consideration for Landec to disclose its information to Dock Resins whether
orally, in writing, or by inspection, Dock Resins agrees that it will not,
except to the extent authorized by Landec in writing, use such information for
any purpose other than the evaluation and determination contemplated hereby. In
addition, Dock Resins shall, for a period of five (5) years from the date of
receipt of the information, treat the information so disclosed as confidential
and will use best efforts to prevent the disclosure of such information to
others (except to its employees who reasonably require the same for the purpose
hereof and who are bound by a like obligation of confidentiality); provided,
however, that the foregoing restrictions on use and disclosure shall not apply
to any such information which:
1. at the time of disclosure can be shown to be already known to Dock
Resins as indicated by its prior written records;
2. at the time of disclosure or subsequent thereto is generally available
to the public other than by an act or omission on the part of the party
charged with the non-disclosure obligation; or,
3. subsequent to the disclosure shall be made available by a third party
having the lawful right to do so.
Dock Resins further agrees that upon request by Landec, it will promptly return
to Landec the original and all copies of the information furnished by Landec and
destroy all notes and copies thereof.
This agreement outlines the complete understanding of the parties with respect
to the information disclosed. This agreement may not be modified except in
writing signed by both parties. This agreement shall be governed by the laws of
the State of California. All proceedings to resolve disputes relating to this
agreement shall be brought in the County of San Mateo, State of California.
LANDEC CORPORATION DOCK RESINS CORPORATION
3603 Haven Avenue 1512 W. Elizabeth Avenue
Menlo Park, CA 94025 Linden, NJ 07036
By: /s/ David Taft By: /s/ A. Wayne Tamarelli
----------------------------- -----------------------------
Title: Chief Operating Officer Title: Chairman
----------------------------- -----------------------------
Date: 12/4/96 Date: 12/4/96
----------------------------- -----------------------------
EXHIBIT H
Insurance Requirements
TYPE OF INSURANCE LIMITS
======================================= ============================= ==========
General Liability General Aggregate $2,000,000
Products Com/PO AGG 2,000,000
Personal & Adv Injury 1,000,000
Each Occurrence 1,000,000
Fire Damage (Any one fire) 100,000
Med. Expense (Any one person) 5,000
- --------------------------------------- ----------------------------- ----------
Automobile Liability Combined Single Limit 1,000,000
Bodily Injury (per person)
Bodily Injury (per accident)
Property Damage
- --------------------------------------- ----------------------------- ----------
Statutory
Worker's Compensation and Each Accident 500,000
Employer's Liability Disease - Policy Limit 1,000,000
Disease - Each Employee 400,000
- --------------------------------------- ----------------------------- ----------
Excess Liability Umbrella Form Each Occurrence 3,000,000
Aggregate 3,000,000
- --------------------------------------- ----------------------------- ----------
Professional Liability Aggregate 3,000,000
======================================= ============================= ==========
PROMISSORY NOTE
$8,500,000.00 April 18, 1997
LANDEC CORPORATION, a California corporation (the "Maker"), for value
received, hereby promises to pay A. WAYNE TAMARELLI (the "Holder"), the
principal amount of EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($8,500,000.00),
payable on January 2, 1998, in lawful money of the United States of America, in
immediately available funds, together with accrued and unpaid interest thereon,
at an interest rate equal to FIVE AND ONE/HALF PERCENT (5 1/2%) per annum.
This Note is the "Note" referenced in, and is subject to and is
entitled to the benefits of the Stock Purchase Agreement, bearing even date
herewith, by and among the Maker, the Holder, and Dock Resins Corporation.
Capitalized terms in this Note shall have the meanings ascribed in the said
Stock Purchase Agreement.
Interest on the unpaid principal amount hereof, at the rate described
hereinabove, shall accrue from the date of this Note until the principal amount
is paid in full.
The principal amount, together with the accrued but unpaid interest
thereon, at the rate set forth hereinabove, shall be paid in full on January 2,
1998 (the "maturity date"). The Maker shall not have a right to prepay this
Note.
The occurrence of either of the following shall constitute an "Event of
Default" hereunder: Maker's failure to make payment of accrued but unpaid
interest on the maturity date hereof; or Maker's failure to pay the principal
amount on the maturity date hereof.
Maker hereby waives presentment for payment, demand, protest, notice of
protest, and of dishonor and nonpayment of this Note.
The sole security for the payment of the principal amount hereof,
together with accrued and unpaid interest thereon at the rate of interest stated
above, is the Letter of Credit which the Maker has caused to be delivered to the
Holder. Upon the occurrence of an Event of Default hereunder, Holder shall have
the irrevocable right to draw under the Letter of Credit to pay the principal
amount hereof and accrued interest thereon.
If an Event of Default exists, the Holder may exercise any right, power
or remedy permitted by law or as set forth herein or in the Letter of Credit,
including, without limitation, the right to declare the entire unpaid principal
amount hereof and all unpaid interest accrued hereon, to be, and such principal
and interest shall thereupon become, forthwith due and payable.
The waiver by Holder or failure to enforce any covenant or condition of
this Note, or to declare any Event of Default thereunder or hereunder, shall not
operate as a waiver of any subsequent Event of Default or affect the right of
Holder to exercise any right or remedy not expressly waived in writing.
Notwithstanding any provision contained in this Note, Maker's liability
for payment of interest shall not exceed the limits imposed by applicable usury
law. If any provision contained herein requires interest payments for any period
in excess of the then legally permitted maximum rate, such provision shall
automatically be deemed to require interest payments for such period at the then
legally permitted maximum rate.
Maker represents and warrants that the principal sum evidenced by this
Note relates solely to the purpose of Maker's carrying on a business or
commercial transaction and in no way represents a personal or consumer
obligation of the Maker.
The unenforceability or invalidity of any one or more of the
provisions, clauses, sentences and/or paragraphs hereof shall not render any
other provisions, clauses, sentences and/or paragraphs herein contained
unenforceable or invalid.
This obligation shall bind Maker and Maker's successors and assigns,
and the benefit hereof shall inure to Holder and his estate, executors, heirs
and beneficiaries.
The parties intend that this Note shall be construed in accordance with
and governed by the laws, including the conflict of law rules, of the State of
California.
This Note is not negotiable and is not transferable.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE MAKER AND THE HOLDER
HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR THE STOCK
PURCHASE AGREEMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
2
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first above written.
LANDEC CORPORATION
/s/ Gary T. Steele
------------------------------------
By: Gary T. Steele
Title: President & CEO
ASSIGNMENT OF ACTION
AGREEMENT, dated this 18th day of April, 1997, by and between Dock
Resins Corporation, a New Jersey Corporation ("Assignor"), and A. Wayne
Tamarelli, residing at 49 Wexford Way, Basking Ridge, New Jersey ("Assignee").
RECITALS
WHEREAS, Assignor filed a lawsuit on April 8, 1996 in the United States
District Court for the District of New Jersey, Docket 96-1593 (JUB), encaptioned
Dock Resins Corporation v. Reliance Insurance Corporation (the "Action").
WHEREAS, pursuant to a section 6.2(a) of a certain Stock Purchase
Agreement, between Assignor, Assignee, and Landec Corporation, dated April 18,
1997 (the "Stock Purchase Agreement"), Assignor has agreed to transfer to
Assignee all rights in and obligations under the Action with respect to any
property and business interruption losses sustained prior to the closing of the
Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the promises herein, the parties
agree as follows:
AGREEMENT
1. Assignor hereby assigns to Assignee all rights in and obligations
under the Action with respect to any property and business interruption losses
sustained prior to the closing of the Stock Purchase Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and the year as first written above.
DOCK RESINS CORPORATION
/s/ A. Wayne Tamarelli
-------------------------------
By:
/s/ A. Wayne Tamarelli
-------------------------------
A. Wayne Tamarelli
The undersigned hereby consents and agrees to the foregoing assignment.
LANDEC CORPORATION
By: /s/ Gary T. Steele
----------------------------
Name: Gary T. Steele
Title: President
