This document consists of 37 pages, of which this is page Number 1. The
index to Exhibits is on Page 18.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended April 30, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
California 94-3025618
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3603 Haven Avenue
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 306-1650
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
--- ---
As of May 31, 1997, 11,221,910 shares of the Registrant's common stock
were outstanding.
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LANDEC CORPORATION
FORM 10-Q For the Quarter Ended April 30, 1997
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. Financial Statements:
a) Consolidated condensed balance sheets as of April 30, 1997
and October 31, 1996 3
b) Consolidated statements of operations for the three and six
months ended April 30, 1997 and 1996 4
c) Consolidated statements of cash flows for the six months
ended April 30, 1997 and 1996 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Part II. Other Information
Signature 17
Index to Exhibits 18
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
April 30, October 31,
1997 1996
-------- --------
Assets
Current Assets:
Cash and cash equivalents $ 2,043 $ 14,185
Short-term investments 19,114 22,325
Restricted investment 8,838 --
Accounts receivable, net 2,046 23
Inventories 2,295 549
Prepaid expenses and other current assets 356 188
-------- --------
Total Current Assets 34,692 37,270
Property and equipment, net 3,888 963
Intangible assets, net 7,057 --
Other assets 126 125
-------- --------
$ 45,763 $ 38,358
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,398 $ 484
Accrued compensation 459 250
Other accrued liabilities 482 259
Payable related to acquisition of Dock
Resins Corporation 9,528 --
Current portion of long term debt 321 229
Deferred revenue 292 166
-------- --------
Total Current Liabilities 12,480 1,388
Non-current portion of long term debt 159 330
Deferred compensation 127 --
Stockholder's Equity:
Common stock 70,433 68,242
Notes receivable from shareholders (13) (13)
Deferred compensation (255) (311)
-------- --------
Accumulated deficit (37,168) (31,278)
-------- --------
Total Stockholders' Equity 32,997 36,640
-------- --------
$ 45,763 $ 38,358
======== ========
See accompanying notes.
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LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share data)
Three Months Ended April 30, Six Months Ended April 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Product sales $ 767 $ 281 $ 940 $ 412
License fees -- 600 -- 600
Research and development revenues 242 394 459 682
-------- -------- -------- --------
Total revenues 1,009 1,275 1,399 1,694
Operating costs and expenses:
Cost of product sales 634 295 943 539
Research and development 1,030 945 1,946 1,898
Selling, general and administrative 1,316 733 2,250 1,224
Purchase of in-process research and
development -- -- -- --
3,022 -- 3,022 --
-------- -------- -------- --------
Total operating costs and expenses 6,002 1,973 8,161 3,661
-------- -------- -------- --------
Loss from operations (4,993) (698) (6,762) (1,967)
Interest income 438 439 932 506
Interest expense (17) (8) (37) (54)
-------- -------- -------- --------
Net loss $ (4,572) $ (267) $ (5,867) $ (1,515)
======== ======== ======== ========
Net loss per share $ (0.42) $ (0.03) $ (0.54) $ (0.32)
======== ======== ======== ========
Shares used in computation of net loss per share 10,829 8,874 10,794 4,713
======== ======== ======== ========
See accompanying notes.
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LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended April 30,
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (5,867) $ (1,515)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of assets under capital leases 251 195
Amortization of intangibles 17 --
Amortization of deferred compensation 56 56
Write-off of purchased in-process research and development 3,022 --
Changes in current assets and liabilities (net of effects of Dock Resins
acquisition):
Accounts receivable (69) (10)
Inventories 91 (20)
Prepaid expenses and other current assets (63) (122)
Accounts payable (177) 7
Accrued compensation 114 24
Other accrued liabilities (71) 142
Deferred revenue 125 175
-------- --------
Total adjustments 3,296 447
-------- --------
Net cash used in operating activities (2,571) (1,068)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (675) (189)
Increase in other assets 1 26
Acquisition of Dock Resins, net of cash acquired (3,230) --
Purchases of available-for-sale securities (14,404) (20,108)
Sale of available-for-sale securities 4,041 --
Maturities of available-for-sale securities 13,550 3,000
-------- --------
Net cash used in investing activities (717) (17,271)
-------- --------
Cash flows from financing activities:
Purchase of restricted investment (8,838) --
Proceeds from sale of common stock 94 35,062
Proceeds from repayment of notes receivable -- 9
Payments of long-term debt (110) (136)
-------- --------
Net cash (used in) provided by financing activities (8,854) 34,935
-------- --------
Net (decrease) increase in cash and cash equivalents (12,142) 16,596
Cash and cash equivalents at beginning of period 14,185 3,585
-------- --------
Cash and cash equivalents at end of period $ 2,043 $ 20,181
======== ========
See accompanying notes.
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LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Landec
Corporation (the "Company" or "Landec") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments necessary to present fairly the financial
position, results of operations, and cash flows at April 30, 1997, and for all
periods presented, have been made. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
financial data should be reviewed in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996.
The results of operations for the three and six month periods ended
April 30, 1997 are not necessarily indicative of the results that may be
expected for the fiscal year ended October 31, 1997.
2. Acquisition of Dock Resins
On April 18, 1997, the Company acquired Dock Resins Corporation ("Dock
Resins") a privately-held manufacturer and marketer of specialty acrylics and
other polymers located in Linden, New Jersey for approximately $15.8 million
comprised of $13.7 million in cash, a secured promissory note due in January
1998 and direct acquisition costs along with 396,039 shares of common stock
valued at $2.1 million. A payable of $9.5 million has been recorded to recognize
the promissory note and other liabilities related to the acquisition. An
investment of $8.8 million has been set aside as security for payment of the
promissory note. In addition, $1.5 million of the cash consideration and all of
the equity consideration was set aside in escrow to cover future costs
associated with obligations under the representations and warranties made by
Dock Resins in connection with the acquisition. The acquisition has been
accounted for using the purchase method. The purchase price has been allocated
to the acquired assets and liabilities based on their relative fair values.
These allocations were based on independent valuations and other studies as of
the date of acquisition. The following is a summary of the purchase price
allocation (in thousands):
Net assets and liabilities $ 3,181
Property, plant and equipment 2,501
Covenant not to compete 77
Customer base 496
Work force in place 690
Trademark 775
Developed technology 5,036
In-process research and development 3,022
-----------
$ 15,778
===========
The intangible assets are being amortized over five to twenty years
based on their individually estimated useful lives. The $3,022,000 allocated to
in-process research and development technology, as determined by an independent
appraisal, was expensed during the quarter ended April 30, 1997 as required
under generally accepted accounting principles. The $2,501,000 allocated to
property, plant and equipment is based on its fair value as determined by an
independent appraisal.
The Company's results of operations and cash flows for the three months
and six months ended April 30, 1997 include the results of Dock Resins from
April 18, 1997 through April 30, 1997.
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3. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market after writing-up inventories acquired from Dock Resins to their estimated
fair market values net of estimated selling costs, and consisted of the
following:
April 30, October 31,
1997 1996
---- ----
(in thousands)
Raw materials . . . . . . . . . . . . . . $ 690 $ 149
Work in process . . . . . . . . . . . . . 173 245
Finished goods . . . . . . . . . . . . . 1,432 155
------- ------
$ 2,295 $ 549
======= ======
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto included in Part
I--Item 1 of this Form 10Q and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the year ended October 31, 1996 contained in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1996.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and, in particular
the factors described below under "Additional Factors That May Affect Future
Results," and those mentioned in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1996, under "Risk Factors."
Overview
Since its inception in October 1986, the Company has been primarily
engaged in the research and development of its Intelimer(R) technology and
related products. The Company launched its first product line, QuickCast(TM)
splints and casts, in April 1994. The Company launched its second product line,
Intellipac(TM) breathable membranes for the fresh-cut produce packaging market,
in September 1995. To date, the Company has recognized $2.1 million in total
QuickCast product and Intellipac breathable membrane sales. On April 18, 1997
the Company acquired Dock Resins, which is primarily engaged in the
manufacturing and marketing of specialty acrylics and other polymers. For the
period from the acquisition date to April 30, 1997 the Company recognized
$516,000 in revenue from Dock Resins' product sales. The balance of revenues to
date have resulted from license fees, collaborative arrangements and Small
Business Innovative Research government grants. The Company has been
unprofitable since its inception and expects to incur additional losses,
primarily due to the continuation of its research and development activities and
expenditures necessary to further develop its manufacturing and marketing
capabilities. From inception through April 30, 1997, the Company's accumulated
deficit was $37.2 million.
Results of Operations
Total revenues were $1.0 million for the second quarter of fiscal year
1997 compared to $1.3 million for the second quarter of fiscal year 1996.
Revenues from product sales increased to $767,000 in the second quarter of
fiscal year 1997 from $281,000 in the second quarter of fiscal year 1996 due
primarily to $516,000 of product sales from Dock Resins partially offset by
lower sales of Intellipac breathable membrane products due to lower per unit
sale prices. There were no revenues from license fees during the second quarter
of fiscal year 1997 compared to $600,000 during the second quarter of fiscal
year 1996. The decrease in license fees revenue was due to a one time payment in
the second quarter of 1996 under an expanded agreement with Nitta Corporation.
Revenues from research and development funding decreased to $242,000 for the
second quarter of fiscal year 1997 from $394,000 for the second quarter of
fiscal year 1996. The decrease in research and development revenue was due
primarily to fewer research and development contracts. For the first six months
of fiscal year 1997 total revenues were $1.4 million compared to $1.7 million
during the same period in 1996. Revenue from product sales for the first six
months in fiscal year 1997 increased to $940,000 from $412,000 during the same
period in 1996 due to $516,000 of product sales from Dock Resins, a small
increase in sales of QuickCast products partially offset by a small decrease in
sales of Intellipac breathable membrane products. There were no revenues from
license fees during the first six months of fiscal year 1997 compared to
$600,000 during the same period in 1996. Revenue from research and development
funding for the first six months in fiscal year 1997 decreased to $459,000 from
$682,000 during the same period in 1996 due to a decrease in research and
development contracts in fiscal year 1997. The Company expects product sales to
increase during the remainder of fiscal year 1997 based on the historical
results of Dock Resins.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $634,000 for the second quarter of fiscal year 1997 compared
to $295,000 for the second quarter of fiscal year 1996, an increase of 115%.
Cost of product sales as a percentage of product sales decreased to 83% in the
second quarter of fiscal year 1997 from 105% in the second quarter of fiscal
year 1996. Cost of product sales for the first six months of fiscal year 1997
was $943,000 compared to $539,000 during the same period in 1996, an increase of
75%. Cost of product sales as a percentage of product sales decreased to 100%
for the first six months of fiscal year 1997 from 131% during the same period in
1996. These decreases in the cost of product sales as a percentage of product
sales were primarily the result of a lower percentage cost of product sales in
the Dock Resins product line. The Company anticipates that gross margins will
improve during the remainder of
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fiscal year 1997 due to revenues from Dock Resins product sales and the
historically higher margins derived by Dock Resins. However, longer-term
improvement is unpredictable due to the early stage commercialization of several
of the Company's products and integration of certain of these products into Dock
Resins' manufacturing process.
Research and development expenses were $1.0 million for the second
quarter of fiscal year 1997 compared to $945,000 for the second quarter of
fiscal year 1996, an increase of 9%. For the first six months of fiscal years
1997 and 1996 research and development expenses were relatively flat at $1.9
million in both six-month periods. Research and development expenses increased
in the second quarter of fiscal year 1997 from the second quarter of fiscal year
1996 primarily due to increased development costs for the Company's Intelimer
polymer systems and Intellicoat(TM) products. In future periods, the Company
expects that spending for research and development will continue to increase in
absolute dollars, although it may vary as a percentage of total revenues.
Selling, general and administrative expenses were $1.3 million for the
second quarter of fiscal year 1997 compared to $733,000 for the second quarter
of fiscal year 1996, an increase of 80%. For the first six months of fiscal year
1997 selling, general and administrative expenses were $2.2 million compared to
$1.2 million during the same period in 1996, an increase of 84%. Selling,
general and administrative expenses increased primarily as a result of increased
sales and marketing expenses and the additional administrative costs associated
with supporting a public company for an entire six-month period (the Company's
initial public offering was completed on February 15, 1996). Selling, general
and administrative expenses consist primarily of sales and marketing expenses
associated with the Company's product sales, business development expenses,
staff and administrative expenses. Sales and marketing expenses increased to
$744,000 for the second quarter of fiscal year 1997 from $378,000 for the second
quarter of fiscal year 1996. For the first six months of fiscal year 1997 sales
and marketing expenses increased to $1.3 million compared to $583,000 during the
same period in 1996. The increase in sales and marketing expenses was primarily
attributable to the costs to support four national U.S. distributors for
QuickCast products including the creation of an internal sales department for
QuickCast products and the creation of marketing departments for the Intelimer
polymer systems and Intellicoat products. The Company expects that selling,
general and administrative spending will increase in absolute dollars in future
periods, although it may vary as a percentage of total revenues.
Net interest income of $421,000 for the second quarter of fiscal year
1997 was relatively unchanged compared to $431,000 for the second quarter of
fiscal year 1996. For the first six months of fiscal year 1997 net interest
income was $895,000 compared to $452,000 during the same period in 1996. Net
interest income increased due to more cash being available for investing from
the Company's initial public offering in February 1996.
Liquidity and Capital Resources
As of April 30, 1997 the Company had unrestricted cash, cash
equivalents and short-term investments of $21.2 million, a net decrease of $15.3
million from $36.5 million as of October 31, 1996. This decrease was primarily
due to funding operating losses of $2.6 million for the first six months of
fiscal year 1997, and the net payment of $3.2 million and restricted cash
related to the acquisition of Dock Resins. The Company has payables totaling
$9.5 million related to the acquisition of Dock Resins which will be distributed
by the first quarter of fiscal 1998. An investment totaling $8.8 million has
been set aside for payment of the related promissory note.
During the first six months of fiscal year 1997, the Company purchased
seed processing equipment and incurred leasehold improvements expenditures to
support the development of Intellicoat products. These expenditures represented
the majority of the $675,000 of property and equipment purchased during the
first six months of fiscal year 1997.
The Company believes that existing cash, cash equivalents and
short-term investments will be sufficient to finance its operational and capital
requirements through at least the next twelve months. The Company's future
capital requirements, however, depend on numerous factors, including the
progress of its research and development programs; the development of commercial
scale manufacturing capabilities; the development of marketing, sales and
distribution capabilities; the ability of the Company to maintain existing
collaborative arrangements and establish and maintain new collaborative
arrangements; the assimilation and integration of Dock Resins into Landec; the
timing and amount, if any, of payments received under research and development
agreements; the costs involved in preparing, filing, prosecuting, defending and
enforcing intellectual property rights; the ability to comply with regulatory
requirements; the emergence of competitive technology and market forces; the
effectiveness of product commercialization activities and arrangements; and
other factors. If the Company's currently available funds, together with the
internally generated cash flow are not sufficient to satisfy its financing
needs, the Company would be required to seek additional funding through other
arrangements with collaborative partners, bank borrowings and public or private
sales of its securities. The Company has no credit facility or
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other committed sources of capital. There can be no assurance that additional
funds, if required, will be available to the Company on favorable terms.
Additional Factors That May Affect Future Results
The Company desires to take advantage of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Specifically, the
Company wishes to alert readers that the following important factors, as well as
other factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future
quarters to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company.
History of Operating Losses and Accumulated Deficit. The Company has
incurred net losses in each year since its inception, including net losses of
$4.6 million and $267,000 during the second quarter of fiscal year 1997 and
1996, respectively, and the Company's accumulated deficit as of April 30, 1997
totaled $37.2 million. The Company expects to incur additional losses for the
foreseeable future. The amount of future net losses and time required by the
Company to reach profitability are highly uncertain and there can be no
assurance that the Company will be able to reach profitability at all.
Uncertainty Relating to Integration of Dock Resins. The successful
combination of the Company and Dock Resins will require substantial effort from
each organization. The diversion of the attention of management and any
difficulties encountered in the transition process could have an adverse impact
on the Company's ability to realize the anticipated benefits of the acquisition.
The successful combination of the two companies will also require coordination
of their research and development, manufacturing, and sales and marketing
efforts. In addition, the process of combining the two organizations could cause
the interruption of, or a loss of momentum in, the Company's activities. There
can be no assurance that the Company will be able to retain Dock Resins' key
management, technical, sales and customer support personnel, or that the Company
will realize the anticipated benefits of the acquisition.
Early Commercialization; Dependence on New Products and Technologies;
Uncertainty of Market Acceptance. While the Company recently commenced marketing
certain of its Intelimer polymer products, it is in the early stage of product
commercialization of these products and many of its potential products are in
development. The Company believes that its future success will depend in large
part on its ability to develop and market new products in its target markets and
in new markets. In particular, the Company expects that its ability to compete
effectively with existing industrial, food packaging, medical and agricultural
companies will depend substantially on successfully developing, commercializing,
achieving market acceptance of and reducing the cost of producing the Company's
products. In addition, commercial applications of the Company's temperature
switch polymer technology are relatively new and evolving. There can be no
assurance that the Company will be able to successfully develop, commercialize,
achieve market acceptance of or reduce the cost of producing the Company's
products, or that the Company's competitors will not develop competing
technologies that are less expensive or otherwise superior to those of the
Company. There can be no assurance that the Company will be able to develop and
introduce new products and technologies in a timely manner or that new products
and technologies will gain market acceptance. The failure to develop and market
successfully new products could have a material adverse effect on the Company's
business, operating results and financial condition.
The success of the Company in generating significant sales of its
products will depend in part on the ability of the Company and its partners to
achieve market acceptance of the Company's products and technology. The extent
to which, and rate at which, market acceptance and penetration are achieved by
the Company's current and future products is a function of many variables
including, but not limited to, price, safety, efficacy, reliability, conversion
costs and marketing and sales efforts, as well as general economic conditions
affecting purchasing patterns. There can be no assurance that markets for the
Company's products will develop or that the Company's products and technology
will be accepted and adopted. The failure of the Company's products to achieve
market acceptance could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Collaborative Partners. The Company's strategy for the
development, clinical and field testing, manufacturing, commercialization and
marketing of certain of its current and future products includes entering into
various collaborations with corporate partners, licensees and others. To date,
the Company has entered into collaborative arrangements with The BFGoodrich
Company and Hitachi Chemical Co., Ltd. ("Hitachi") in connection with its
Intelimer polymer systems, Fresh Express Farms and PrintPack, Inc. ("PrintPack)
in connection with its Intellipac breathable membrane products, Nitta
Corporation ("Nitta") and Hitachi in connection with its adhesive products and
Smith & Nephew Medical Limited ("Smith & Nephew"), Physician Sales and Services,
Inc., North Coast Medical, Inc. and Sammons Preston, Inc. in connection with its
QuickCast orthopedic products. The Company is dependent on its corporate
partners to
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develop, test, manufacture and/or market certain of its products. Although the
Company believes that its partners in these collaborations have an economic
motivation to succeed in performing their contractual responsibilities, the
amount and timing of resources to be devoted to these activities are not within
the control of the Company. A significant portion of the Company's revenues to
date have been derived from commercial research and development collaborations
and license agreements. In the second quarter of fiscal year 1997, development
funding from these collaborative arrangements comprised approximately 24% of the
Company's total revenues. Development funding from Hitachi and Nitta represented
approximately 19% of the Company's revenues for the second quarter of fiscal
year 1997. There can be no assurance that such partners will perform their
obligations as expected or that the Company will derive any additional revenue
from such arrangements. There can be no assurance that the Company's partners
will pay any additional option or license fees to the Company or that they will
develop and market any products under the agreements. Moreover, certain of the
collaborative agreements provide that they may be terminated at the discretion
of the corporate partner, and certain of the collaborative agreements provide
for termination under certain circumstances.
In March of 1997, the Company terminated its relationship with Smith &
Nephew for the sales and distribution of QuickCast products in certain European
and Pacific Rim countries, Canada and South Africa.
In May of 1997, the Company agreed to amend its co-development and
marketing agreement with PrintPack in the Intellipac breathable membrane area by
removing the exclusivity restrictions. This amendment will allow Landec to
explore other sources of packaging material and application equipment and
product development opportunities while continuing the collaboration with
PrintPack on a non-exclusive basis.
There can be no assurance that the Company's partners will not pursue
existing or alternative technologies in preference to the Company's technology.
Furthermore, there can be no assurance that the Company will be able to
negotiate additional collaborative arrangements in the future on acceptable
terms, if at all, or that such collaborative arrangements will be successful. To
the extent that the Company chooses not to or is unable to establish such
arrangements, it would experience increased capital requirements to undertake
research, development, manufacture, marketing or sale of its current and future
products in such markets. There can be no assurance that the Company will be
able to independently develop, manufacture, market, or sell its current and
future products in the absence of such collaborative agreements.
Competition and Technological Change. The Company operates in highly
competitive and rapidly evolving fields, and new developments are expected to
continue at a rapid pace. Competition from large industrial, food packaging,
medical and agricultural companies is expected to be intense. In addition, the
nature of the Company's collaborative arrangements may result in its corporate
partners becoming competitors of the Company. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company, and may have substantially greater
experience in conducting clinical and field trials, obtaining regulatory
approvals and manufacturing and marketing commercial products. There can be no
assurance that these competitors will not succeed in developing alternative
technologies and products that are more effective, easier to use or less
expensive than those which have been or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive.
Limited Manufacturing Experience; Dependence on Third Parties. The
Company's success is dependent in part upon its ability to manufacture its
products in commercial quantities in compliance with regulatory requirements and
at acceptable costs. There can be no assurance that the Company will be able to
achieve this. The Company has experienced negative gross margins on certain of
its product sales to date. Although Dock Resins will provide practical knowledge
in the scale-up of Intelimer polymer products, production in commercial-scale
quantities may involve technical challenges for the Company. The Company
anticipates that a substantial portion of the Company's products will be
manufactured in the Linden, New Jersey facility acquired in the purchase of Dock
Resins. The Company's reliance on this facility involves a number of risks,
including the absence of adequate capacity, the unavailability of, or
interruption in access to, certain process technologies and reduced control over
delivery schedules, and manufacturing yields and costs. The Company may also
need to consider seeking collaborative arrangements with other companies to
manufacture certain of its products. If the Company is dependent upon third
parties for the manufacture of its products, then the Company's profit margins
and its ability to develop and deliver such products on a timely basis may be
adversely affected. Moreover, there can be no assurance that such parties will
adequately perform and any failures by third parties may delay the submission of
products for regulatory approval, impair the Company's ability to deliver
products on a timely basis, or otherwise impair the Company's competitive
position. The occurrence of any of these factors could have a material adverse
effect on the Company's business, operating results and financial condition. The
manufacture of the Company's products will be subject to periodic inspection by
regulatory authorities. There can be no assurance that the Company will be able
to obtain necessary regulatory approvals on a timely basis or at all. Delays in
receipt of or failure to receive such approvals or loss of
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previously received approvals would have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Single Source Suppliers. Many of the raw materials used
in manufacturing certain of the Company's products are currently purchased from
a single source, including certain monomers used to synthesize Intelimer
polymers and substrate materials for the Company's breathable membrane products.
Upon manufacturing scale-up, the Company may enter into alternative supply
arrangements. Although to date the Company has not experienced difficulty
acquiring materials for the manufacture of its products, no assurance can be
given that interruptions in supplies will not occur in the future, that the
Company will be able to obtain substitute vendors, or that the Company will be
able to procure comparable materials at similar prices and terms within a
reasonable time. Any such interruption of supply could have a material adverse
effect on the Company's ability to manufacture its products and, consequently,
could materially and adversely affect the Company's business, operating results
and financial condition.
Customer Concentration. In the past, a limited number of customers have
accounted for a substantial portion of Dock Resins' net revenues. For the three
months ended March 31, 1997 and the twelve months ended December 31, 1996, sales
to Dock Resins' top five customers accounted for approximately 51% of Dock
Resins' net revenues, with the top customer accounting for 28% and 29%,
respectively, of Dock Resins' net revenues. The Company expects that for the
foreseeable future a limited number of customers may account for a substantial
portion of its net revenues from the Linden, New Jersey facility acquired in the
purchase of Dock Resins. Dock Resins has in the past experienced changes from
year to year in the composition of its major customer base and the Company
believes this pattern may continue. Dock Resins does not have long-term purchase
agreements with any of its customers. The reduction, delay or cancellation of
orders from one or more major customers for any reason or the loss of one or
more of such major customers could materially and adversely affect the Company's
business, financial condition and results of operations. In addition, since the
products manufactured in the Linden facility are often sole sourced to its
customers, the Company's operating results could be materially and adversely
affected if one or more of its major customers were to develop other sources of
supply. There can be no assurance that Dock Resins' current customers will
continue to place orders with the Company, that orders by existing customers
will not be canceled or will continue at the levels of previous periods or that
the Company will be able to obtain orders from new customers.
Patents and Proprietary Rights. The Company's success depends in large
part on its ability to obtain patents, maintain trade secret protection and
operate without infringing on the proprietary rights of third parties. There can
be no assurance that any pending patent applications will be approved, that the
Company will develop additional proprietary products that are patentable, that
any patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by any third parties or that the patents of
others will not prevent the commercialization of products incorporating the
Company's technology. The Company has received, and may in the future receive,
from third parties, including some of its competitors, notices claiming that it
is infringing third party patents or other proprietary rights. For example, the
Company has received a letter alleging that its Intellipac breathable membrane
product infringes patents of another party. The Company has investigated this
matter and believes that its Intellipac breathable membrane product does not
infringe the specified patents of such party. The Company has received an
opinion of patent counsel that the Intellipac breathable membrane product does
not infringe any valid claims of such patents. If the Company were determined to
be infringing any third-party patent, the Company could be required to pay
damages, alter its products or processes, obtain licenses or cease certain
activities. If the Company is required to obtain any licenses, there can be no
assurance that the Company will be able to do so on commercially favorable
terms, if at all. Litigation, which could result in substantial costs to and
diversion of effort by the Company, may also be necessary to enforce any patents
issued or licensed to the Company or to determine the scope and validity of
third-party proprietary rights. Any such litigation or interference proceeding,
regardless of outcome, could be expensive and time consuming and could subject
the Company to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require the Company to cease using such
technology and, consequently, could have a material adverse effect on the
Company's business, operating results and financial condition.
Government Regulation. The Company's products and operations are
subject to substantial regulation in the United States and foreign countries.
Although Landec believes that it will be able to comply with all applicable
regulations regarding the manufacture and sale of its products and polymer
materials, such regulations are always subject to change and depend heavily on
administrative interpretations and the country in which the products are sold.
There can be no assurance that future changes in regulations or interpretations
relating to such matters as safe working conditions, laboratory and
manufacturing practices, environmental controls, and disposal of hazardous or
potentially hazardous substances will not adversely effect the Company's
business. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations in the future,
or that such laws or regulations will not have a material adverse effect on the
Company's business, operating results and financial condition. Failure to comply
with the
-12-
applicable regulatory requirements can, among other things, result in fines,
injunctions, civil penalties, suspensions or withdrawal of regulatory approvals,
product recalls, product seizures, including cessation of manufacturing and
sales, operating restrictions and criminal prosecution.
Environmental Regulations. Federal state and local regulations impose
various environmental controls on the discharge or disposal of toxic, volatile
or otherwise hazardous chemicals and gases used in certain manufacturing
processes. Dock Resins is involved in various investigations and proceedings
conducted by the federal Environmental Protection Agency and certain state
environmental agencies regarding disposal of waste materials. Although the
factual situations and the progress of each of these matters differ, the Company
believes it has retained adequate reserves to account for any resultant
liability, including any New Jersey Industrial Site Recovery Act remediation
regarding its Linden, New Jersey facility. In most cases, the Company's
liability will be limited to sharing clean-up or other remedial costs with other
potentially responsible parties. Any failure by the Company to control the use
of, or to restrict adequately the discharge of, hazardous substances under
present or future regulations could subject it to substantial liability or could
cause its manufacturing operations to be suspended. There can be no assurance
that changes in environmental regulations will not impose the need for
additional capital equipment or other requirements.
Limited Sales or Marketing Experience. Although Dock Resins has
experience in marketing products in certain common markets with Landec's
Intelimer polymer products, the Company has only limited experience marketing
and selling its Intelimer polymer products. While Dock Resins will provide
consultation and in some cases direct marketing support for Landec's Intelimer
polymer products, the Company intends to distribute certain of its products
through its corporate partners and other distributors and to sell certain other
products through a direct sales force. Establishing sufficient marketing and
sales capability may require significant resources. There can be no assurance
that the Company will be able to recruit and retain skilled sales management,
direct salespersons or distributors, or that the Company's sales efforts will be
successful. The Company has recently changed its distribution approach with
respect to the QuickCast product line in the United States to include several
national distributors. To the extent that the Company enters into distribution
arrangements for the sale of its products, the Company will be dependent on the
efforts of third parties. There can be no assurance that such efforts will be
successful.
International Operations and Sales. In the second quarter of the fiscal
year 1997 and 1996, approximately 22% and 66%, respectively, of the Company's
total revenues were derived from product sales to and collaborative agreements
with international customers, and the Company expects that international
revenues will continue to be an important component of its total revenues. A
number of risks are inherent in international transactions. International sales
and operations may be limited or disrupted by the regulatory approval process,
government controls, export license requirements, political instability, price
controls, trade restrictions, changes in tariffs or difficulties in staffing and
managing international operations. Foreign regulatory agencies have or may
establish product standards different from those in the United States, and any
inability to obtain foreign regulatory approvals on a timely basis could have an
adverse effect on the Company's international business and its financial
condition and results of operations. While the Company's foreign sales are
priced in dollars, fluctuations in currency exchange rates may reduce the demand
for the Company's products by increasing the price of the Company's products in
the currency of the countries to which the products are sold. There can be no
assurance that regulatory, geopolitical and other factors will not adversely
impact the Company's operations in the future or require the Company to modify
its current business practices.
Quarterly Fluctuations in Operating Results. In the past, the Company's
results of operations have varied significantly from quarter to quarter and such
fluctuations are expected to continue in the future. Quarterly operating results
will depend upon several factors, including the timing and amount of expenses
associated with expanding the Company's operations, the timing of collaborative
agreements with, and performance of, potential partners, the timing of
regulatory approvals and new product introductions, the mix between pilot
production of new products and full-scale manufacturing of existing products and
the mix between domestic and export sales. In addition, the Company cannot
predict rates of licensing fees and royalties received from its partners or
ordering rates by its distributors, some of which place infrequent stocking
orders, while others order at regular intervals. As a result of these and other
factors, the Company expects to continue to experience significant fluctuations
in quarterly operating results, and there can be no assurance that the Company
will become or remain consistently profitable in the future.
Product Liability Exposure and Availability of Insurance. The testing,
manufacturing, marketing, and sale of the products being developed by the
Company involve an inherent risk of allegations of product liability. While no
product liability claims have been made against the Company to date, if any such
claims were made and adverse judgments obtained, they could have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company has taken and intends to continue to take what
it believes are appropriate precautions to minimize exposure to product
liability claims, there can be no assurance that it will avoid significant
liability. The Company
-13-
currently maintains medical product liability insurance in the minimum amount of
$2.0 million per occurrence with a minimum annual aggregate limit of $2.0
million and non-medical product liability insurance in the minimum amount of
$5.0 million per occurrence with a minimum annual aggregate limit of $5.0
million. There can be no assurance that such coverage is adequate or will
continue to be available at an acceptable cost, if at all. A product liability
claim, product recall or other claim with respect to uninsured liabilities or in
excess of insured liabilities could have a material adverse effect on the
Company's business, operating results and financial condition.
Possible Volatility of Stock Price. Factors such as announcements of
technological innovations, the attainment of (or failure to attain) milestones
in the commercialization of the Company's technology, new products, new patents
or changes in existing patents, the acquisition or disposal of a part of the
business, or development of new, collaborative arrangements by the Company, its
competitors or other parties, as well as government regulations, investor
perception of the Company, fluctuations in the Company's operating results and
general market conditions in the industry may cause the market price of the
Company's Common Stock to fluctuate significantly. In addition, the stock market
in general has recently experienced extreme price and volume fluctuations, which
have particularly affected the market prices of technology companies and which
have been unrelated to the operating performance of such companies. These broad
fluctuations may adversely effect the market price of the Company's common
stock.
-14-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In connection with the acquisition of Dock Resins on April 18, 1997,
the Company acquired all of the outstanding capital stock of Dock Resins in
exchange for an aggregate of 396,039 shares of the Company's common stock and
$13.7 million in cash, a secured promissory note and direct acquisition costs.
The issuance of securities in this Item 2 was deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Act") in
reliance on Section 4(2) of the Act as a transaction by an issuer not involving
any public offering. The recipient of the securities in such transaction
represented his intention to acquire the securities for investment only and not
with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities issued in such transaction.
The recipient was given adequate access to information about the Company.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on March 19, 1997
the following proposals were adopted by the margins indicated:
Number of Shares
----------------
Voted For Withheld
--------- --------
1. Three Class I directors were
elected by the margins indicated to
serve until the next odd numbered
year Annual Meeting (1999) during
which their successors will be
elected and qualified:
Ray F. Stewart 6,729,788 12,600
Stephen E. Halprin 6,729,288 13,100
Richard S. Schneider, Ph.D. 6,729,288 13,100
The four Class II directors were
not up for election at the Annual
Meeting. These four Class II
directors, Gary T. Steele, Kirby L.
Cramer, Richard Dulude, and Damion
E. Wicker, M.D., will serve as
Class II directors until the next
even-numbered Annual Meeting
(1998), when their successors will
be elected and qualified.
-15-
Voted Voted Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
2. To approve the adoption of the Company's 1996 Stock 5,073,371 502,099 18,200 1,148,718
Option Plan
3. To approve an amendment to the Company's 1995 6,241,859 83,954 9,700 406,875
Directors' Stock Option Plan to provide that the
options granted thereunder vest in full on the date
of grant.
4. To ratify the appointment of Ernst & Young LLP as 6,735,884 3,404 3,100 0
independent public accountants of the Company for
the fiscal year ending October 31, 1997.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.17 1996 Stock Option Plan and Form of Option Agreements
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
April 30, 1997. On May 6, 1997, the Company filed a Form 8-K reporting the
acquisition of Dock Resins.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDEC CORPORATION
By:/s/ JOY T. FRY
----------------------------------------------
Joy T. Fry
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized and Principal
Financial and Accounting Officer)
Date: June 13, 1997
-17-
LANDEC CORPORATION
INDEX TO EXHIBITS
Exhibit Sequentially
- ------- ------------
Number Exhibit Numbered Page
- ------ ------- -------------
10.17 1996 Stock Option Plan and Form of Option Agreement 19
27.1 Financial Data Schedule 37
-18-
LANDEC CORPORATION
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary
(as defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean Landec Corporation, a California
corporation.
(i) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services; provided that the term Consultant shall not
include directors who are not compensated for their services or are paid only a
director's fee by the Company.
(j) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
(1) "Employee" shall mean any person (including any Named
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system on the date of
determination (if for a given day no sales were reported, the closing bid on
that day shall be used), as such price is reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(q) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option, as designated in the
applicable written option agreement.
(r) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
-2-
(s) "Option" shall mean a stock option granted pursuant to the
Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(u) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(v) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1996 Stock Option Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(y) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 14 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is 750,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full the unpurchased Shares that were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. Notwithstanding any other provision
of the Plan, shares issued under the Plan and later repurchased by the Company
shall not become available for future grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3, and by the legal requirements relating to the administration of
incentive stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), grants under the Plan may (but need not)
be made by different administrative bodies with respect to Directors, Officers
who are not directors and Employees who are neither Directors nor Officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options to Employees or Consultants who are
also Officers or Directors of the Company, grants under the Plan shall be made
by (A) the Board, if the Board may make grants under the Plan in compliance with
Rule 16b-3 and Section 162(m) of the Code as it applies so as to qualify grants
of Options to Named Executives as performance-based
-3-
compensation, or (B) a Committee designated by the Board to make grants under
the Plan, which Committee shall be constituted in such a manner as to permit
grants under the Plan to comply with Rule 16b-3, to qualify grants of Options to
Named Executives as performance-based compensation under Section 162(m) of the
Code and otherwise so as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons.
With respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. If a Committee has been appointed
pursuant to subSection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subSection (ii), to the extent permitted by Rule 16b-3
and to the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option and/or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion);
-4-
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees, provided, however, that Employees of an Affiliate shall not
be eligible to receive Incentive Stock Options. An Employee or Consultant who
has been granted an Option may, if he or she is otherwise eligible, be granted
an additional Option or Options.
(b) Type of Option. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) No Employment Rights. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 20 of the Plan. It shall continue in effect for
a term often (10) years unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary, the term of the Option shall be five (5) years from
the date of grant thereof or such shorter term as may be provided in the Option
Agreement.
-5-
8. Limitation on Grants to Employees. Subject to adjustment as provided
in this Plan, the maximum number of Shares which may be subject to options
granted to any one Employee under this Plan for any fiscal year of the Company
shall be 500,000.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant; or
(B) granted to any person other than a Named
Executive, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding anything to the contrary in
subsections 9(a)(i) or 9(a)(ii) above, in the case of an Option granted on or
after the effective date of registration of any class of equity security of the
Company pursuant to Section 12 of the Exchange Act and prior to six months after
the termination of such registration, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(b) Permissible Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash, (2) check, (3) authorization from the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (4) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price, (5) any
combination of the foregoing methods of payment, or (6) such other consideration
and method of
-6-
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section 9(b)
of the Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code), he
-7-
or she may, but only within six (6) months (or such other period of time not
exceeding twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) from the date of such termination (but in no event later
than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. To the extent that he
or she was not entitled to exercise the Option at the date of termination, or if
he does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time
of his death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding six (6) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) following the date of death (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance but only to
the extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
three (3) months (or such other period of time as is determined by the
Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six (6)
months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee' s estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
11. Withholding Taxes. As a condition to the exercise of Options
granted hereunder, the Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of such Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this
-8-
paragraph. When an Optionee incurs tax liability in connection with an Option
which tax liability is subject to tax withholding under applicable tax laws, and
the Optionee is obligated to pay the Company an amount required to be withheld
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by one or some combination of the following methods: (a) by cash
payment, or (b) out of Optionee's current compensation, or (c) if permitted by
the Administrator, in its discretion, by surrendering to the Company Shares that
(i) in the case of Shares previously acquired from the Company, have been owned
by the Optionee for more than six months on the date of surrender, and (ii) have
a fair market value on the date of surrender equal to or less than Optionee's
marginal tax rate times the ordinary income recognized, or (d) by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option that number of Shares having a fair market value equal to the amount
required to be withheld. For this purpose, the fair market value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined (the "Tax Date").
Any surrender by an Officer or Director of previously owned
Shares to satisfy tax withholding obligations arising upon exercise of this
Option must comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is
made by an Optionee and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee shall
receive the full number of Shares with respect to which the Option is exercised
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
13. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution; provided that the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to option agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee or a transferee permitted by this
Section 13.
-9-
14. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the maximum number of shares of Common Stock for which Options may
be granted to any employee under Section 8 of the Plan, and the price per share
of Common Stock covered by each outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Administrator. The Administrator may, in the exercise of its sole discretion
in such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
15. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
-10-
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
20 of the Plan:
(i) any increase in the number of Shares subject to
the Plan, other than an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of
persons eligible to be granted Options; or
(iii) any change in the limitation on grants to
employees as described in Section 8 of the Plan or other changes which would
require shareholder approval to qualify options granted hereunder as
performance-based compensation under Section 162(m) of the Code.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 16(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 20 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-11-
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
20. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law and the
rules of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 20(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option hereunder
to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to
vote for the Plan substantially the same information that would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii)file with, or mail for filing to, the Securities
and Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
-12-
LANDEC CORPORATION
1996 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
Optionee
OptioneeAddress1
OptioneeAddress2
You have been granted an option to purchase Common Stock of Landec
Corporation, (the "Company") as follows:
Board Approval Date: ___________________________
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): ExercisePrice
Exercise Price Per Share: ExercisePrice
Total Number of Shares Granted: SharesGranted
Total Price of Shares Granted: TotalExercisePrice
Type of Option: NoSharesISO Shares Incentive Stock
Option
NoSharesNSO Shares Nonstatutory
Stock Option
Term/Expiration Date: Term/ExpirDate
Vesting Commencement Date: VestingStartDate
Vesting Schedule: VestingSchedule
Termination Period: Option may be exercised for a
period of 30 days after termination
of employment or consulting
relationship except as set out in
Sections 7 and 8 of the Stock
Option Agreement (but in no event
later than the Expiration Date).
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the Landec Corporation 1996 Stock Option Plan and
the Stock Option Agreement, all of which are attached and made a part of this
document.
OPTIONEE: LANDEC CORPORATION
____________________________ By: ________________________________
Signature
____________________________ Title: _____________________________
Print Name
-2-
LANDEC CORPORATION
STOCK OPTION AGREEMENT
1. Grant of Option. Landec Corporation, a California corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant attached to this Agreement ("Optionee"), an option (the "Option") to
purchase the total number of shares of Common Stock (the "Shares") set forth in
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
definitions and provisions of the 1996 Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated in this Agreement by reference. In the event
of a conflict between the terms of the Plan and the terms of this Agreement, the
terms of the Plan shall govern. Unless otherwise defined in this Agreement, the
terms used in this Agreement shall have the meanings defined in the Plan.
To the extent designated an Incentive Stock Option in the Notice of
Stock Option Grant, this Option is intended to qualify as an Incentive Stock
Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and, to the extent not so designated, this Option is
intended to be a Nonstatutory Stock Option.
2. Exercise of Option. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Sections 9 and 10 of the Plan as follows:
(a) Right to Exercise.
(i) This Option may not be exercised for a fraction
of a share.
(ii) In the event of Optionee's death, disability or
other termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in paragraphs
(iii) and (iv) below.
(iii) In no event may this Option be exercised after
the date of expiration of the term of this Option as set forth in the Notice of
Stock Option Grant.
(iv) If designated an Incentive Stock Option in the
Notice of Stock Option Grant, in the event that the Shares subject to this
Option (and all other Incentive Stock Options granted to Optionee by the Company
or any Parent or Subsidiary) that vest in any calendar year have an aggregate
fair market value (determined for each Share as of the Date of Grant of the
option covering such Share) in excess of $100,000, the Shares in excess of
$100,000 shall be treated as subject to a Nonstatutory Stock Option, in
accordance with Section 5 of the Plan.
(b) Method of Exercise.
(i) This Option shall be exercisable by delivering to
the Company a written notice of exercise (in the form attached as Exhibit A)
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other representations
and agreements as to the holder's investment intent with respect to such Shares
of Common Stock as may be required by the Company pursuant to the provisions of
the Plan. Such written notice shall be signed by Optionee and shall be delivered
in person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option shall
be deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
(ii) As a condition to the exercise of this Option,
Optionee agrees to make adequate provision for federal, state or other tax
withholding obligations, if any, which arise upon the exercise of the Option or
disposition of Shares, whether by withholding, direct payment to the Company, or
otherwise.
(iii) No Shares will be issued pursuant to the
exercise of an Option unless such issuance and such exercise shall comply with
all relevant provisions of law and the requirements of any stock exchange upon
which the Shares may then be listed. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to Optionee on the date on
which the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (d) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or (e) if there is a
public market for the Shares and they are registered under the Securities Act,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a
-2-
violation of any applicable federal or state securities or other law or
regulation, including any rule under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulation G") as promulgated by the Federal Reserve Board. As a
condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.
6. Termination of Relationship. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified in the Notice of Stock Option Grant, the
Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of termination of employment (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified in this Agreement, the
Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee:
(a) during the term of this Option and while an Employee of
the Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, the Option may be exercised, at any time
within six (6) months following the date of death (but in no event later than
the date of expiration of the term of this Option as set forth in Section 10
below), by Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had Optionee continued living and remained in
Continuous Status as an Employee or Consultant three (3) months after the date
of death, subject to the limitation contained in Section 2(i)(d) above in the
case of an Incentive Stock Option; or
(b) within thirty (30) days after the termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of this Option as set
forth in Section 10 below), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
9. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution. The
designation of a beneficiary does not constitute a transfer. An Option may be
exercised during the lifetime of
-3-
Optionee only by Optionee or a transferee permitted by this section. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
10. Term of Option. This Option may be exercised only within the term
set out in the Notice of Stock Option Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees
that the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Plan which is incorporated in this Agreement by reference,
shall confer upon Optionee any right with respect to continuation as an Employee
or Consultant with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS
OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option is an
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does
not qualify as an Incentive Stock Option, Optionee may incur regular federal
income tax liability upon the exercise of the Option. Optionee will be treated
as having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price. In addition, if Optionee is an employee of
the Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. If this Option is an Incentive
Stock Option and if Shares transferred pursuant to the Option are held for more
than one year after exercise and more than two years after the Date of Grant,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an
Incentive Stock Option are disposed of before the end of either of such two
holding periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary
-4-
income rates) to the extent of the excess, if any, of the lesser of (i) the fair
market value of the Shares on the date of exercise, or (ii) the sales proceeds,
over the Exercise Price. If this Option is a Nonstatutory Stock Option, then
gain realized on the disposition of Shares will be treated as long-term or
short-term capital gain depending on whether or not the disposition occurs more
than one year after the exercise date.
(d) Notice of Disqualifying Disposition. If the Option granted
to Optionee in this Agreement is an Incentive Stock Option, and if Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to the
Incentive Stock Option on or before the later of (i) the date two years after
the Date of Grant, or (ii) the date one year after transfer of such Shares to
Optionee upon exercise of the Incentive Stock Option, Optionee shall notify the
Company in writing within thirty (30) days after the date of any such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by Optionee
from the early disposition by payment in cash or out of the current earnings
paid to Optionee.
13. Signature. This Stock Option Agreement shall be deemed executed by
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
-5-
EXHIBIT A
NOTICE OF EXERCISE
To: Landec Corporation
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
This is official notice that the undersigned ("Optionee") intends to
exercise Optionee's option to purchase __________ shares of Landec Corporation
Common Stock, under and pursuant to the Company's 1996 Stock Option Plan and the
Stock Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name: ________________________________
Address: ________________________________
________________________________
________________________________
Signed: ________________________________
Date: ________________________________
5
1,000
6-MOS
OCT-31-1997
NOV-01-1996
APR-01-1997
2,043
27,952
2,124
(78)
2,295
34,692
6,424
(2,536)
45,763
12,480
0
0
0
70,433
(37,436)
45,763
940
1,399
943
2,889
3,022
20
37
(5,867)
0
(5,867)
0
0
0
(5,867)
(.54)
(.54)