UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2018
or
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ________________________ to _______________________________
Commission File Number 001-34719
S&W SEED COMPANY
Nevada Incorporation or Organization) |
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27-1275784 Identification No.) |
106 K Street, Suite 300, Sacramento, California (Address of Principal Executive Offices) |
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95814 |
(559) 884-2535
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class |
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Name of Each Exchange on Which Registered |
Common Stock, $0.001 Par Value |
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Nasdaq Capital Market |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ Yes x NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨ Yes x NoIndicate 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer ¨
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Smaller reporting company x |
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes x NoThe aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter was $47,685,994.
The number of shares outstanding of common stock of the registrant as of September 20, 2018 was 25,956,252.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement is to be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended June 30, 2018.
S&W SEED COMPANY TABLE OF CONTENTS i
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause
our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any
projections of revenue, margins, expenses, tax provisions, earnings, cash flows and other financial items; any statements of the plans, strategies and objectives of management for future operations; any
statements regarding our ability to raise capital in the future; any statements concerning expected development, performance or market acceptance relating to our products or services or our ability to
expand our grower or customer bases or to diversify our product offerings; any statements regarding future economic conditions or performance; any statements of expectation or belief; any statements
regarding our ability to retain key employees; and any statements of assumptions underlying any of the foregoing. These forward-looking statements are often identified by the use of words such as, but
not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may,"
"will," "plan," "project," "seek," "should," "target," "will," "would," and similar expressions or variations intended
to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. Such forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.
Risks, uncertainties and assumptions include the following: 1
You are urged to carefully review the disclosures made concerning risks and uncertainties that may affect our business or operating results, which include, among others, those listed in Part I, Item
1A. "Risk Factors" of this Annual Report on Form 10-K. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors
discussed in this Annual Report on Form 10-K, some of which are beyond our control, will be important in determining our future performance. Consequently, these statements are inherently uncertain and
actual results may differ materially from those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking
statement in this Annual Report on Form 10-K as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking
statements. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Furthermore, such forward-looking
statements represent our views as of, and speak only as of, the date of this Annual Report on Form 10-K, and such statements should not be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all potentially available relevant information. We undertake no obligation to publicly update any forward-looking statements, or to update the reasons why actual results could differ
materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. When used in this Annual Report on Form 10-K, the terms "we," "us," "our," "the Company," "S&W" and "S&W Seed"
refer to S&W Seed Company and its subsidiaries or, as the context may require, S&W Seed Company only. Our fiscal year ends on June 30, and accordingly, the terms "fiscal
2018," "fiscal 2017" and "fiscal 2016" in this Annual Report on Form 10-K refer to the respective fiscal year ended June 30, 2018, 2017 and 2016, respectively, with
corresponding meanings to any fiscal year reference beyond such dates. Trademarks, service marks and trade names of other companies appearing in this report are the property of their respective
holders. 2
PART I Overview Founded in 1980 and headquartered in Sacramento, California, we are a global agricultural company. Grounded in our historical expertise and what we believe is our
present leading position in the breeding, production and sale of alfalfa seed, we continue to build towards our goal of being recognized as the world's preferred proprietary forage, grain and specialty crop
seed company. In addition to our primary activities in alfalfa seed, we have recently expanded our product portfolio by adding hybrid sorghum and sunflower seed, which complement our alfalfa seed
offerings by allowing us to leverage our infrastructure, research and development expertise and our distribution channels, as we begin to diversify into what we believe are higher margin opportunities. We also continue to conduct our stevia breeding program, having been granted four patents by the U.S. Patent and Trademark Office. Our alfalfa seed is produced under contract with growers in the Western United States, Canada and Australia, and we sell our alfalfa seed varieties in more than 30 countries across the globe.
Historically, we have been recognized as the leading producer of non-dormant alfalfa seed varieties that have been bred for warm climates and high-yields, including varieties that can thrive in poor, saline
soils. Our December 2014 acquisition of certain alfalfa research and production facility and conventional (non-GMO) alfalfa germplasm assets of DuPont Pioneer, a wholly-owned subsidiary of E.I. du Pont
de Nemours and Company ("DuPont Pioneer"), has provided us with the opportunity to become a leading producer of dormant, high yield alfalfa seed varieties, which are the varieties bred to
survive cold winter conditions. As a result, our alfalfa seed business now encompasses the production, breeding and sale of non-dormant and dormant conventional varieties and the potential for future
production and sale of GMO (genetically modified organism) varieties. Following our initial public offering in fiscal year 2010, we expanded certain pre-existing business initiatives and added new ones, including: 3
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We believe our 2013 combination with S&W Australia created the world's largest non-dormant alfalfa seed company and gave us the competitive advantages of year-round production in that
market. With the completion of the acquisition of dormant alfalfa seed assets from DuPont Pioneer in December 2014, we believe we have become the largest alfalfa seed company worldwide (by
volume), with industry-leading research and development, as well as production and distribution capabilities in both hemispheres and the ability to supply proprietary dormant and non-dormant alfalfa
seed. Our operations span the world's alfalfa seed production regions, with operations in the San Joaquin and Imperial Valleys of California, five additional Western states, Australia and three
provinces in Canada. Our May 2016 acquisition of the hybrid sorghum and sunflower germplasm business and assets of SV Genetics as well as our April 2018 acquisition of a portfolio of sorghum germplasm signal
management's commitment to our strategy of identifying opportunities to diversify our product lines and improve our gross margins. The Asset Purchase and Sale Agreement for the Pioneer Acquisition previously contemplated that, subject to the satisfaction of certain conditions, we would acquire certain GMO germplasm varieties
and other related assets from DuPont Pioneer for a purchase price of $7.0 million. The conditions for this additional acquisition were not satisfied by the required date, and DuPont Pioneer has informed
us that it does not intend to extend the deadline or complete the transaction at this point in time. As a result, we do not expect to close the acquisition of DuPont Pioneer's GMO germplasm varieties and
related assets in the previously disclosed structure or pay the $7,000,000 purchase price. We continue to have a long-term distribution agreement with DuPont Pioneer regarding conventional (non GMO) varieties, the term of which extends into 2024. Our production agreement with
DuPont Pioneer (relating to GMO-traited varieties) will terminate on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million
annually, commencing with our Fiscal Year 2020. However, we expect that the DuPont Pioneer distribution agreement will continue to be a significant source of our annual revenue through December
2024. We are in discussions with DuPont Pioneer regarding the orderly transition of activities previously conducted by us under the production and research agreements (relating to GMO-traited varieties),
as well as the possibility of certain ongoing commercial relationships between us relating to GMO-traited varieties, among other things. World Agriculture We believe that one of the biggest challenges of the 21st century will be to expand agricultural production so that it can meet the food and nutritional demands of the world's growing population.
According to World Population Prospects: The 2015 Revision, Key Findings and Advance Tables, published by the United Nations, Department of Economic and Social Affairs, Population Division,
the world population is estimated to reach 8.5 billion in 2030 and to surpass 9.7 billion by 2050. 5
Improvements in farm productivity have allowed agriculture to keep pace with growing food demand. Yield-enhancing technologies such as mechanization, hybrid seed and crop protection chemicals
have enabled farmers to meet the ever-growing demand for food. Because of decreases in the amount of arable land and shrinking worldwide fresh water resources, further increases in agricultural
production must come from improvements in agricultural productivity. We address this need by breeding high-yielding alfalfa varieties that are adapted to the major growing regions of the world.
Additionally, some of our alfalfa varieties expand the addressable acreage for forage production with their ability to tolerate inferior, saline soils. Alfalfa Seed Industry Alfalfa seed is primarily used for growing alfalfa hay, which is grown throughout the world as "forage" for livestock, including dairy and beef cattle, horses and sheep. It is most often
harvested as hay, but can also be made into silage, grazed or fed as green-chop to ruminant livestock. The alfalfa industry (and therefore the alfalfa seed industry) is highly dependent on the dairy
industry, which is the largest consumer of alfalfa hay. As markets around the world continue to expand to a more westernized diet with high-protein consumption, the demands for alfalfa production around
the world should continue to increase. Alfalfa is indigenous to the Middle East where it is considered a "non-dormant" plant, meaning it grows year-round. "Dormant" varieties of alfalfa have adapted to cold climates
by going dormant during periods when frost or snow conditions would otherwise kill them. Dormancy is rated using a numerical system under which "dormant" varieties are rated toward the
lower end of a 1 through 11 scale, such as 2 through 4, while "non-dormant" varieties are rated toward the upper end of the scale, such as 8 through 11. The number typically identifies the
number of cuttings that a farmer might be able to obtain each year. While exact production estimates worldwide are difficult to obtain, we estimate that approximately 150 million pounds of alfalfa seed are produced worldwide each year, roughly divided evenly between
non-dormant and dormant production. Alfalfa seed for the non-dormant marketplace is primarily grown in just a few key regions of the world, including the San Joaquin Valley of California, the Imperial
Valley of California, and Southern Australia. However, the growing regions for "non-dormant" alfalfa hay include the Southwestern U.S., the Middle East, North Africa, Latin America and other
hot, arid regions of the world. "Dormant" alfalfa seed, by contrast, is grown in the western United States and Canada for production of alfalfa hay in colder climates, including the northern
regions of the United States, Canada, Europe and China. Alfalfa seed production is demanding for even the most experienced farmers. Farming practices must be tailored to the climatic conditions of each area. Irrigation must be carefully controlled and
timed to stress the plants to cause maximum flowering and seed production. Weed control is essential in order to pass inspections for purity needed for certification. Insect pests, especially lygus bugs,
must be managed throughout the season, using strategies that protect pollinators, such as honey bees, leafcutter bees and alkali bees. Fields are desiccated using chemicals that remove moisture and
then are harvested as quickly thereafter as possible to limit or avoid rain damage. 6
Stevia is a relative newcomer in the estimated over $100 billion global sweetener market. Stevia is a part of the high-intensity sweetener (HIS) market, also known as the non-caloric sweetener
market, which is a $2.4 billion segment of the overall market. Although the overall market is still dominated by sugar, sugar substitutes continue to increase in market share as consumer concern over
sugar intake increases. The global obesity and diabetes epidemic is expected to drive growth of products like stevia, supported by sugar taxes, which have become prevalent in developed economies.
Stevia leaf and its refined products constitute a natural, non-caloric high intensity sweetener, estimated to be 200 to 300 times sweeter than sugar. Its taste has a slower onset and longer duration than
that of sugar. It has the advantage of not breaking down with heat, making it more stable for cooking than other sugar alternatives. In the U.S., approximately 70% of all new products formulated with
stevia are beverages, with the remainder split between diverse categories, including dairy products and baked goods. The stevia plant is indigenous to the rain forests of Paraguay and has been used as a sweetener in its raw, unprocessed form for hundreds of years. In recent years, it has been grown commercially in
Brazil, Paraguay, Uruguay, parts of Central America, Thailand, China and the U.S. Currently, the majority of global commercial stevia production occurs in China. The incorporation of stevia-derived extracts into foods and beverages in the U.S. has seen a rapid increase since the beginning of 2009, when stevia was first introduced as a sweetener alternative to
sugar and approved by the FDA as generally regarded as safe. Within the high impact sweetener category, Stevia represented a $423 million market in 2014. Beverages account for 50% of the stevia
extract market in 2016, and major soft drink producers have active programs to further develop the use of Stevia in soda. Based on IHS Market projections, from 2016-2021, stevia is expected to grow at
8.1% year-year, with higher growth rates predicted for Europe. While sales of artificial sweeteners, such as aspartame, acesulfame K and sucralose still dominate the high-intensity sweetener market,
consumer demand for artificial sweeteners has seen a decline since the introduction of stevia. Sorghum comes in two types, forage and grain, and is considered one of the indispensable crops in the world. It has traditionally been used for livestock feed, as well as ethanol, but is gaining
increasingly in popularity in food products in the U.S. due to its gluten-free characteristics, as well as its antioxidant, high protein, lower fat, high fiber and non-GMO properties. Consequently, grain
sorghum is becoming a desired substitute for wheat, rye and barley. Additionally, the pet food industry increasingly utilizes grain sorghum for its nutritional benefits and enhanced digestibility. 7
Similar to alfalfa, sorghum grows well in poor soil and drought conditions, thanks to its hardiness, market versatility and high-quality seed. Sorghum requires less water to grow than many other crops
and is generally used as a replacement for corn and other grains in areas where water is scarce. In Africa, sorghum can be a food staple for human consumption. The majority of the world's sorghum is
grown in developing countries, primarily in Africa and Asia The U.S. Department of Agriculture (the "USDA") projects that world grain sorghum production for 2018/2019 will be approximately 59 million metric tons based on 41.5 million hectares of
production. The USDA further projects the 2018/2019 U.S. sorghum crop to encompass 6 million acres (2.4 million hectares) with total production of 375 million bushels of grain sorghum (9.5 million metric
tons). Sunflower Industry Sunflowers have multiple specialty uses including oil, birdseed and human consumption. Our current sunflower seed focus is on the oil market. Sunflower oil is light in taste and
appearance and supplies more Vitamin E than any other vegetable oil. It is a combination of monounsaturated and polyunsaturated fats with low saturated fat levels. The versatility of this healthy oil is
recognized by cooks internationally, valued for its frying performance and health benefits. With multiple types of sunflower oils available, it meets the needs of consumer and food manufacturers alike for a
healthy and high performance non-transgenic vegetable oil. USDA projects global sunflower seed production for 2018/2019 at 49.9 million tons, up 5 percent from 2017/2018. The sunflower seed oil trade
is forecasted to rise, supported by demand in India, the EU, North Africa, and the Middle East. Business Strategy Over the years, we have built our business upon four pillars that serve as our foundation and drive our future plans and direction. These include: We strive to enhance our growth potential and improve gross margins by expanding our alfalfa seed business, by leveraging our expertise in plant discovery and development and by continually
assessing opportunities to expand into the development, production and sale of other, higher margin crops. We intend to continue to pursue our strategy to be recognized as the world's preferred provider of seed for forage, grain and specialty crops by: 8
These goals are being accomplished both through organic growth of our legacy business and through strategic acquisitions. We will continue to look for additional acquisition or internal opportunities
that will expand our existing business or provide us with a gateway to entering new markets that complement our existing business. We also are continuing to exploit the emerging market for stevia through our stevia breeding program. The goal of this program is to leverage our research, development and breeding expertise to
invent stevia varieties with flavor characteristics that best complement the food and beverages into which stevia is increasingly being incorporated or that can be consumed on its own. Our Current Alfalfa Seed Products We have a history of innovation in alfalfa breeding, dating back to the early 1980s when our non-dormant varieties ("S&W varieties") were first
introduced to the market. Starting in 2003, our Australian subsidiary, S&W Australia, began a breeding program targeted at creating varieties that maximize seed yields, thereby reducing the cost of
seed production. Historically, we differentiated our products by optimizing our varieties for geographical regions that have hot climates and, in the case of S&W varieties, challenging soil conditions
such as high-salt content, while maximizing crop yield. Our December 2014 acquisition of DuPont Pioneer's conventional, dormant alfalfa seed varieties built upon our initial 2012 launch into dormant
alfalfa seed markets by adding a wide selection of dormant alfalfa seed varieties that are suited for higher elevation and cooler climate conditions. Our current portfolio of alfalfa seed products includes
varieties that, depending upon the particular variety, exhibit traits including high yield, muscle (strength in the field), salt tolerance, drought tolerance, leafhopper resistance and stem nematode resistance,
among other traits sought by farmers who grow forage hay. Fall Dormancy Ratings of Our Varieties Fall dormancy is a key characteristic that can vary among alfalfa varieties. Fall Dormancy (FD) ratings are assigned to varieties based on their performance in standardized tests for the onset of
dormancy in the fall. Standard check varieties span an FD rating continuum from FD 1 to FD 11, where the onset of dormancy is measured as fall height relative to standard check varieties. FD1
represents the earliest onset of fall dormancy, whereas FD 11 represents a completely non-dormant growth habit. Early FD ratings are
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generally most suited to cold winter climates where plants must
cease fall growth early allowing individual plants to survive cold winters and frozen soils conditions for lengthy periods. FD 2 and FD 3 ratings are typically associated with early onset fall dormancy, when
grown in the upper Midwest for example. FD 9 and FD 10 ratings are typically non-dormant, are characterized as having relatively little slowdown in fall growth and are more suited for continuing forage
yield production and improved yield potential in warm winter climates where soils do not freeze. Our current commercial product line-up includes alfalfa seed varieties that span from FD 3 (our earliest onset of fall-dormancy) to FD 10 (our most non-dormant, most winter active). The legacy
S&W product development efforts were focused on FD 8, FD 9 and FD 10, with some breeding effort devoted to FD 4, FD 6 and FD7. S&W Varieties S&W varieties are all bred and developed to meet the guidelines for certification by the National Alfalfa Variety Review Board and/or the Association of Official
Seed Certifying Agencies. In February 2012, we announced the certification of our first proprietary dormant alfalfa seed variety, which was specifically bred to thrive in high altitude and cooler climates.
In August 2012, we purchased the rights to a portfolio of alfalfa varieties suited for higher elevations and colder climate conditions, marking our commitment to expand more aggressively into the dormant
variety market. The colder climate or higher elevation varieties that we acquired are in the range of FD 3, FD 4 and FD 5. In December 2014, we acquired from DuPont Pioneer one of the alfalfa industry's
largest portfolios of dormant alfalfa germplasm, along with their active breeding program. The Pioneer breeding program amassed a significant germplasm base that spans from FD 3 through FD 9. The
primary focus of the Pioneer breeding program was FD 4 and FD 5 for the North America market. These acquisitions of dormant germplasm significantly expand the range of geographic and climatic
growing regions where we can offer adapted varieties. Our non-dormant varieties (FD 8, FD 9 and FD 10) still represent a large proportion of our business and are best suited to hot, arid climates. Our salt tolerant non-dormant varieties do well in salty
irrigation waters and salty soils. Our leading non-dormant varieties include SW10, SW9720, SW9215, SW9628, and SW8421S. Of these varieties, SW9720, SW9215 and SW8421S are bred to perform
very well in highly saline conditions that would stunt or kill ordinary alfalfa. Our FD 3, FD 4 and FD 5 S&W varieties are adapted to the winter-hardy intermountain west and the northern half of the United States and Canada. These include Rhino, SW4107, and SW5909.
Some of these varieties are derived from the DuPont Pioneer germplasm base for commercial introduction as S&W brand varieties. Other dormant varieties from the DuPont Pioneer germplasm have
been selected as potential varieties for licensing to third party brands. Our breeding and genetics experts continue the multi-year process of developing improved varieties over all of the dormancy
spectrum, but concentrating primarily on dormancy 9 with high salt- and heat-tolerant varieties, and dormancy 4 high yield winter hardy type varieties where we have established ourselves as a leading
provider. We also create blends of seed varieties. 10
IVS Varieties IVS markets both common and certified alfalfa seeds, sourced from growers located in the Imperial Valley of Southeast California. Portions of the alfalfa seed sold by
IVS in fiscal 2017 and 2018 were common varieties (i.e., uncertified seed) while the balance consisted of certified CUF (a public variety) and proprietary varieties. The primary proprietary varieties
we acquired in the IVS acquisition are LaJolla, Catalina and Saltana. Because GMO alfalfa is not permitted in the Imperial Valley, we are able to rely upon the seed grown in the Imperial Valley, along with
seed grown in Australia, to supply customers in regions such as the Middle East and Europe, where GMO products are strictly prohibited. S&W Australia Varieties S&W Australia has developed well-known proprietary varieties of alfalfa, such as SuperSonic, SuperNova, SuperStar, SuperCharge, SuperAurora, SuperSequel
and SuperSiriver. Since 2003, the varieties developed by S&W Australia have attracted an expanding grower base, and in 2018, S&W Australia accounted for
approximately 60% of the total Australian certified proprietary alfalfa seed production. S&W Australia's alfalfa seed varieties are bred to resist disease, exhibit persistence in the field and produce
higher yields of both the alfalfa hay forage and alfalfa seed production for our seed growers. S&W Australia's proprietary varieties exhibit superior seed yield capability compared to traditional non-
proprietary alfalfa varieties in Australia, with the most recent varieties showing the highest seed yields. Forage yields of the older S&W Australia proprietary varieties are at least equivalent to
traditional non-proprietary varieties, and the forage yields of the more recent S&W Australia varieties are even better. All of S&W Australia's proprietary alfalfa varieties, excluding SuperAurora,
have FD ratings of 8-9 and therefore achieve optimum growth and forage production in Mediterranean to desert climates. S&W Australia's breeding program includes a number of initiatives addressing semi-dormant and highly non-dormant alfalfa varieties and tropical alfalfa seed varieties. Additionally, S&W Australia has a breeding and production platform of proprietary white clover varieties, including SuperHuia, SuperLadino, SuperHaifa and SuperHaifa II. In fiscal 2018, clover sales represented approximately 8.1% of S&W Australia's total seed sales and a nominal amount of our total consolidated sales. S&W Australia's
white clover varieties are used for forage and ornamentation. Genetically Modified Organism Alfalfa Currently, Europe, the Middle East and certain other parts of the world prohibit the sale of genetically modified organism (GMO) alfalfa. Therefore, historically, we have
not employed genetic engineering in the breeding of our current commercial seed varieties for these markets, and consequently, we have products that can be sold throughout the world. As a result of the
January 2011 deregulation by the USDA of Roundup Ready® alfalfa, a GMO product, Roundup Ready® alfalfa is currently being grown in the United States without
any federal or state regulations governing field isolation and other protections. 11
Collaborative stewardship programs have been developed to facilitate the coexistence of GMO and non-GMO seed. For example, in 2010, the AOSCA launched its Alfalfa Seed Stewardship Program
(the "ASSP"). The ASSP is a voluntary, fee-based certification program for the production of alfalfa seed to be sold into markets that prohibit the sale of GMO alfalfa. ASSP certification of seed
fields includes testing for GMO material and observance of a minimum stated isolation distance of five miles from any GMO alfalfa seed production field. Also in 2010, the California Crop Improvement
Association (the "CCIA") developed a web-based alfalfa seed field isolation "pinning" map for alfalfa seed production in the Western U.S. This map is intended to pin both GMO and
non-GMO seed fields. Although beneficial to growers and customers alike, these stewardship programs do not afford legal protection to non-GMO growers. We continue to evaluate our options with respect to incorporating biotechnology into our alfalfa seed traits and the resulting impact on our business strategy and operations. In April 2013, we entered
into a license agreement with Forage Genetics International, LLC, a subsidiary of Land O' Lakes, Inc. ("FGI") to develop and commercialize seed varieties that incorporate proprietary traits,
including the Roundup Ready® trait. This agreement further documented and formalized our previously announced collaboration with FGI and Monsanto to develop genetically modified
versions of certain of our proprietary alfalfa varieties. This development of biotech seed varieties consists of several phases including greenhouse work and field trials to confirm agronomic performance
and trait efficiency of each developed variety. Recently we have undertaken a new commercial license for both Roundup Ready and HarvXtra alfalfa with FGI and we have entered into a variety-specific
license agreement with them for a Roundup ready alfalfa variety. In December 2014, we also entered into a Contract Alfalfa Production Services Agreement with DuPont Pioneer, whereby we produce alfalfa seed of commercial DuPont
Pioneer varieties containing the Roundup Ready® gene. These varieties are exclusive to DuPont Pioneer and accordingly, we do not produce them for or sell them to any other
customer. In August 2018, we entered into an amendment to this Production Services Agreement which extended the maturity date through May 31, 2019. If the Production Services Agreement
terminates, DuPont Pioneer would be free to pursue alternative production arrangements for the GMO-traited varieties, and DuPont Pioneer's minimum purchase commitments to us under our separate
distribution agreement would be materially reduced. As a result of the increasing use of Roundup Ready® alfalfa by traditional hay farmers and the lack of federal or state rules requiring adequate isolation of Roundup
Ready® alfalfa fields from conventional fields to prevent cross-pollination of GMO plants with non-GMO plants, we have experienced an increase in the number of seeds in recent
harvests that have tested positive for the adventitious presence of GMO. To date, the low percentage of seeds that have tested positive has not undermined our ability to meet international demand, and
we expect to be able to sell these seeds domestically and in other jurisdictions that permit the importation of GMO alfalfa at our customary prices for certified seed. Nevertheless, we are taking proactive
steps to protect our seed crops to ensure we have sufficient seed to meet the demand
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for our varieties in international markets. These steps include seeking collaborative agreements, regulations or other
measures to ensure neighboring farms that grow GMO limit the extent to which they allow the flowering and cross-pollination of their GMO-based crops with our conventional non-GMO crops to occur; and
expanding our contracted grower base in areas that have less GMO alfalfa present including the Imperial Valley of California and the Canadian provinces of Alberta, Manitoba and Saskatchewan. We also
have begun to grow S&W varieties in Australia, where there is no GMO activity in alfalfa, and intend to increase that production in future growing seasons. Alfalfa Seed Cleaning and Processing Alfalfa seed processing is similar in all of our growing regions and begins with the harvest. Each field is harvested and identified separately with unique information such
as variety, lot number, grower name, field name, acres and certification number. During harvest, our growers load field run harvested seed separately for each field out of the combine into bulk containers
for transport to the processing facility. When the containers arrive at the facility, each container is weighed, labeled with the unique field information and a sample is taken. Harvested seed is then sent to seed-cleaning lines where it is cleaned and foreign matter such as weeds, inert matter and other crop seed is removed. Clean seed samples are taken and tested for
purity and germination to meet company quality standards. The clean seed is then stored in bulk until needed to fulfill a sales order. Upon receipt of a sales order, the clean seed is pulled from inventory
and processed through our packaging equipment to meet specific customer requirements such as treatment, package size and unique bag and labeling. We have processing facilities in Nampa, Idaho and Five Points (San Joaquin Valley), California and handle processing of our Imperial Valley seed under a long-term service agreement. The facility in
Nampa, Idaho gives us exclusive access to the use of patented coating technology that, among other things, allows for the extension of rhizobium (seed treatment) lifespan. S&W Processing S&W proprietary seed is packaged into an S&W branded seed bag as well as unique customer-specific branded seed bags. Final packaging for customers includes attaching a label with
variety name and physical quality data, and attaching a State Certification tag (also known as a "blue tag") to each individual bag. When the seed is treated with any type of seed treatment, a
treatment tag must also be attached to each individual bag. S&W proprietary seed production is produced under a state seed certification program. As part of the DuPont Pioneer acquisition, we acquired a CCIA certified lab that enables us to collect,
analyze and submit to the state all of the data needed for certification of our seed varieties so that we no longer are required to outsource that function. Certification by these programs ensures both
physical and genetic quality standards for individual lots of seed. Additional testing may be required, dependent on the market to which the shipment is destined, such as Saudi Arabia or Mexico. Samples
may be sent to the Federal Seed Laboratory (part of the USDA) or a State Department of Agriculture laboratory for further physical quality testing and/or market specific phytosanitary testing. 13
Unlike many other plant species, the physiological characteristics of alfalfa seed allow for longer term storage without losing physical quality of the seed. When we have unsold inventory at the end of
a sales season, these seed characteristics ensure the ability to store and sell the inventory in subsequent years. As our alfalfa seed business grows, processing facility utilization will be increased by implementing process improvements such as autonomous maintenance and quicker material changeovers to
reduce downtime. In addition, we will increase throughput by sequencing operations to remove bottlenecks and by adding work shifts. Finally, we may make capital improvements to our facilities when
business opportunities exist to create a strong return on investment. S&W Australia's growers contract directly with independent mills in the southeast region of Southern Australia for the cleaning and preparation of S&W Australia's varieties. The S&W Australia growers are required to deliver seed that meets S&W Australia's processing specifications, based on international and domestic certification standards. In a typical year,
approximately 90-95% of product received from the growers meets S&W Australia's specifications. In June 2016, S&W Australia's new packaging facility in Keith, South Australia gained final accreditation to become fully operational. In this state-of-the-art facility, S&W Australia bags and
labels its seed varieties and stores the inventory pending sale. We expect to pack over half of the S&W Australia seed at the Keith facility and consequently, we will be less reliant on third party
processors to provide this function. Alfalfa Seed Product Development Classical Breeding Our alfalfa breeding program is designed to make steady genetic improvements in our germplasm base that is used to create better performing varieties for our customer. A typical alfalfa variety
can take as little as five years or as long as 18 years to be developed, depending on methodology and the desired agronomic traits. Because of the many years required to develop a new alfalfa variety,
we believe our successful breeding program allows us to offer seed varieties incorporating a combination of characteristics desired by farmers that are not available from any other source, thereby
providing us with a competitive advantage. In connection with the breeding of our non-GMO varieties, we conduct tests to ensure that we have no adventitious presence (AP) of GMO contamination. Both field and greenhouse breeding
locations are used in our breeding program. 14
Biotechnology Breeding We are also looking to build on our research and development expertise and expand our biotechnology initiatives. As such, we look for opportunities to collaborate with other companies that have
technologies that we believe complement our proprietary products and/or our research and development breeding expertise to develop as yet unavailable specialized alfalfa seed products and potentially,
other seed products. We currently are collaborating with Calyxt, Inc. (Nasdaq CLXT) to research, develop, produce and commercialize alfalfa seed products involving next generation gene editing technology on our elite
alfalfa seed genetics. The goal of this collaboration is to create novel traits that are currently classified as non-GMO, which ultimately can be incorporated into our seed varieties. We believe this
relationship is starting to deliver meaningful product developments, however, we do not expect to see a material impact on our revenue for at least two years, if ever. However, this biotech initiative
demonstrates our willingness and ability to expand our research and development efforts beyond our classically-bred proprietary alfalfa seed breeding program. Sales, Marketing and Distribution S&W Sales and Marketing Historically, we primarily sold high quality proprietary "non-dormant" seed varieties to those parts of the world with hot, arid climates. Our primary geographical focus for non-dormant
seed is the Middle East, North Africa, and Mexico although we currently sell to customers in a broad range of areas, including the Western U.S., South America, and Southern Africa, as well as other
countries with Mediterranean climates. Unlike cooler climates, the geographic areas on which we have historically concentrated are able to sustain long growing seasons and therefore alfalfa growers can
benefit from our high-yielding, non-dormant varieties. In recent periods, we have expanded geographically into colder climates where our more recently-acquired dormant varieties thrive. Our customers
are primarily our distributors and dealers. Our distributors and dealers, in turn, sell to farmers, consisting primarily of dairy farmers, livestock producers and merchant hay growers. Although we have a sales team, we primarily sell our seed through our network of distributors and dealers, as well as through the services of seed brokers. We do not have formal distribution
agreements with most of our distributors, but instead operate on the basis of purchase orders and invoices. We believe that selling through dealers and distributors enables our products to reach hay
growers in areas where there are geographic or other constraints on direct sales efforts. We select dealers and distributors based on shared vision, technical expertise, local market knowledge and
financial stability. Over the years, we have built dealer/distributor loyalty through an emphasis on service, access to breeders, ongoing training and promotional material support. We limit the number of
dealers and distributors with whom we have relationships in any particular area in order to provide adequate support and opportunity to those with whom we choose to do business. 15
Through our distributors, our primary export market historically had been Saudi Arabia and to a lesser extent, certain other Middle Eastern and North African countries. The overall international sales
mix changed beginning in fiscal 2013 with our acquisition of S&W Australia in South Australia. In recent years, in addition to sales to Saudi Arabia and Australia, we have been selling to customers in
Sudan, Morocco, Egypt and Libya, and to customers in other regions of the world, including Latin America, (Argentina and Mexico) and South Asia (Pakistan), both of which we view as important regions
for potential expansion. In total, we sell our alfalfa seed varieties in approximately 30 countries throughout the world. Domestic seed marketing is based primarily upon the dormancy attributes of our varieties as suited to climates in target markets. Prior to the DuPont Pioneer acquisition, we marketed our alfalfa seed,
which consisted primarily of non-dormant varieties, in California, Arizona, New Mexico, Texas and Nevada. We slowly began broadening our domestic geographic reach beginning in fiscal 2013, with our
first sales of dormant alfalfa seed, and significantly expanded in fiscal 2015 following the acquisition of DuPont Pioneer's dormant alfalfa seed assets. In connection with that acquisition, we entered into a
distribution agreement with DuPont Pioneer pursuant to which we became the sole supplier, subject to certain exceptions, of certain alfalfa seed
products for sale to customers by DuPont Pioneer through September 2024. In fiscal 2018, DuPont Pioneer accounted for approximately 62% of our revenue. Given its
historical market share in the sale of dormant alfalfa seed, we expect sales to DuPont Pioneer to be a significant portion of our annual sales throughout the term of the distribution agreement. A disruption
in this relationship could have a material adverse impact on our results of operations and financial condition. The price, terms of sale, trade credit and payment terms are negotiated on a customer-by-customer basis. Our arrangements with our distributors do not include a right of return. Typical terms for
domestic customers require payment in full within 60 days of the date of shipment. Our credit terms with DuPont Pioneer are governed by the distribution agreement, as amended, and provide that we
receive equal installment payments in September, January and February of each year. Sales to our international customers are paid in advance of shipment or typically within 120 days of shipment and may also be accomplished through use of letters of credit, cash against documents
and installment payment arrangements. Our credit policies are determined based upon the long-term nature of the relationship with our customers. Credit limits are established for individual customers
based on historical collection experience, current economic and market conditions and a review of the current status of each customer's trade accounts receivable. Both farmers (dairy farmers and hay growers) and dealers use pest-control advisors who recommend the varieties of alfalfa that will produce the best results in a particular location. Therefore, a
key part of our marketing strategy is to educate the consultants, as well as the farmers, as to benefits of our seed varieties. 16
We believe that our best marketing tool is the dissemination of information regarding the quality and characteristics of our propriety seed varieties to those persons who make the hay growing
decisions. We continue to place advertisements in trade journals, participate in seed industry conferences and trade shows and engage in various other educational and outreach programs as we deem
appropriate. Most of our international marketing efforts are accomplished through face-to-face meetings with our existing and potential customers and their end users. In addition, we participate in international
trade shows to boost our international presence and sales efforts. S&W Australia sells a majority of its proprietary alfalfa seed (approximately 70-90% of its total sales per year) into Saudi Arabia, the United States and Argentina. S&W Australia sells the
bulk of its proprietary clover seed to China, Europe and the U.S. Similar to S&W Seed, S&W Australia has historically relied upon a network of distributors to market and sell its products. In marketing its products, S&W Australia's initial impetus was to gain market penetration through the sale of improved versions of proven varieties (e.g., SuperSiriver and SuperAurora) in
the market place at competitive pricing. Subsequently, S&W Australia launched additional varieties such as SuperSonic. S&W Australia utilizes a variety of distribution strategies. Through
distribution arrangements, S&W Australia's proprietary varieties are marketed directly as S&W Australia brands or under customer brand labels, and strategic allocations of full and partial
exclusivity rights are made in specific countries and geographical regions to incentivize distributors to establish markets for S&W Australia products. Alfalfa Seed Production As of the end of our 2018 fiscal year, we have alfalfa seed production capabilities in California and most of the other states in the Western United States, including
higher elevations and colder climatic regions where dormant alfalfa seed is produced, the Canadian provinces of Alberta, Manitoba and Saskatchewan and in the Australian States of South Australia,
Victoria, and New South Wales. S&W and IVS Alfalfa Seed Production Historically, we fulfilled all of our alfalfa seed requirements under contracts with farmers primarily located in the San Joaquin Valley of California. For a brief period, beginning in fiscal 2013, we
were engaged in our own internal farming operations and acquired, through purchase and lease, acreage on which to grow our seed directly. However, in fiscal 2015, we made a strategic decision to
move away from internal farming, and we began selling some of the farmland acreage we had been using for that purpose. After completion of the fall 2015 harvest, we shut down our internal farming
operations as a source of our alfalfa seed, and instead, returned to sourcing all of our production from third party growers. 17
As of June 30, 2018, we had contracts with several hundred growers in the Western United States and Canada. Generally, we enter into contracts to produce alfalfa seed, which is typical industry
practice. Our normal contracts with U.S. growers range from one to three years, include a price for the seed that is determined annually and that generally do not vary from grower to grower or variety to
variety. Under these contracts, we pay our growers based on the weight of cleaned and processed seed. The growers' contracts that we acquired in connection with the DuPont Pioneer acquisition were
primarily for production in the Pacific Northwest and Canada. The terms of these contracts are similar in substance to the contracts we have historically entered into with the S&W grower base.
Because a key to our success as a business is to have the product mix required by our customers, aligning the growers' production plan to the anticipated purchase needs of our customers is a challenge
on which management has focused considerable efforts in recent periods, with increasing success. Alfalfa seed is an extremely demanding crop. Our network of growers has the expertise needed to successfully grow high quality alfalfa seed. We have worked with many of the same growers for
much of the past 35 years, and we believe that we have strong relationships with them. We allocate our seed production among our growers so that we can purchase the proper mix of seed varieties each
year. The growers incur the greatest cost in the first year of production, when they plant seed, eradicate weeds and pests and manage the pollination process; they then may be able to harvest seed from
the same stands for several additional years, with the average alfalfa seed field producing for three years. With the added resources of the DuPont Pioneer alfalfa business, we believe we have expanded
our production capabilities in the Western United States and Canada with both existing growers and by recruiting new growers in these regions. Alfalfa seed is harvested annually in the Northern Hemisphere beginning in July for the southwest region of the United States and concluding in October in the Canadian provinces. As of June 30, 2018, S&W Australia had contracts with approximately 150 individual growers in Western Victoria, South Australia and New South Wales to grow its alfalfa seed varieties on a
total of approximately 20,000 irrigated and 8,000 non-irrigated acres. In the Southern Hemisphere, alfalfa seed is grown counter seasonally to the Northern Hemisphere and is harvested annually, in
March through early May. Under its current form of S&W Australia alfalfa seed production agreement, S&W Australia provides foundation seed to each grower and grants each grower a license to use its seed for the
purpose of production of seed for sale to S&W Australia. Each grower is responsible for all costs of the crop production. Title in the produced seed passes to S&W Australia upon it being
certified compliant; and, if the seed is not compliant, title will only pass to S&W Australia upon S&W Australia's further agreement to purchase the non-compliant seed. S&W Australia uses
a staggered payment system with the growers of its alfalfa and white clover seed, and the payment amounts are based upon an estimated budget price ("EBP") for compliant seed. EBP is a
forecast of the final price that S&W Australia believes will be achieved taking into account prevailing and predicted market conditions at the time the estimate is made. Following the grower's delivery
of uncleaned seed to a milling facility, S&W Australia typically pays 40% of the EBP to the grower based on a percentage of the pre-cleaning weight. Following this initial
18
payment and prior to the final
payment, S&W Australia will make a series of scheduled progress payments and, if applicable, a bonus payment for "first grade" (high quality) alfalfa seed. The final price payable to each
grower (and therefore the total price) is dependent upon and subject to adjustment based upon the clean weight of the seed grown, on the average price at which S&W Australia sells the pooled seed
and other costs incurred by S&W Australia. Accordingly, the total price paid by S&W Australia to its grower may be more or less than the EBP. S&W Australia's seed production agreements
for alfalfa provide for an initial term of seven years and an optional renewal term of three years. S&W Australia's seed production agreements for white clover provide for an initial term of two years
and an optional renewal term of one year. Historically, S&W Australia has not required its growers to harvest seed in every year under the seed production agreement. Some growers have elected to
have non-harvest years, and their alfalfa is cut for hay or used for grazing instead of being harvested for seed production. Seasonality We contract with growers based upon our anticipated market demand; we mill, clean and stock the seed during the harvest season and ship from inventory throughout
the year. However, our alfalfa seed business is seasonal. Internal tests have shown that seed that has been held in inventory for over one year improves in quality. Therefore, provided that we have sufficient capital to carry additional inventory, we may
increase our seed purchases and planned season end inventory if, in our judgment, we can generate increased margins and revenue with the aged seed. This will also reduce the potential for inventory
shortages in the event that we have higher than anticipated demand or other factors, such as growers electing to plant alternative, higher priced crops, reducing our available seed supply in a particular
year. Clover Production and Distribution In addition to its core business of producing and selling alfalfa seed, S&W Australia also operates a small white clover and annual clover production and
distribution business. S&W Australia's white clover varieties are bred for winter activity, while the annual clover is particularly adapted to a variety of soil types ranging from sandy to heavy clays,
which can be farmed under irrigation or under dry conditions. S&W Australia leverages its production, processing and distribution channels to also make available a total of five clover seed varieties.
S&W Australia's clover seed is sold primarily in Europe, China, Argentina and Australia. SV Genetics Crops - Expansion into Complementary Crops In May 2016, we acquired the assets and business operations of SV Genetics, based in Queensland, Australia. Since 2006, SV Genetics has been in the business of
breeding, selling and licensing hybrid sorghum and sunflower seed germplasm. We see this acquisition as an opportunity to leverage the worldwide research, production and distribution platforms we have
built over the decades in alfalfa seed with the addition of complementary new crops that are consistent with our strategy to be the world's preferred provider of proprietary seed for forage, grain and
specialty crops. As a result of the acquisition,
19
we currently license proprietary seed genetics and sell parent seed to local-market production/distribution partners. The licensees produce hybrid seed using
the SV Genetics and pay a royalty on the seed produced and sold. We acquired licensing agreements with 14 different partners under which we provide grain sorghum, forage sorghum and sunflower
genetics in approximately ten locations throughout the world, including Australia, Argentina, Brazil, Bolivia, China, Europe, Pakistan, South Africa, Ukraine and the United States. In addition to licensing,
SV Genetics also engages in the production and selling of commercial varieties to international customers. Stevia Breeding, Research and Development Since we began our stevia business in 2010, our stevia activities have evolved from exploring on a small scale the potential commercial production of stevia in
California to focusing on developing varieties we believe can add value at the front end of the supply chain through breeding of unique plant varieties. Since fiscal 2013 when we ceased pursuing the
commercial production of stevia, we have leveraged our breeding research and development expertise in order to develop new varieties of stevia that embody specifically targeted characteristics, focusing
in particular on increased yields and strong plant vigor, which are of value to farmers, and taste preferences of consumers, including sweet taste combined with little or no bitterness and aftertaste. In our breeding program, we have identified stevia plant lines that we believe grow to heights and plant mass that compare favorably to the results for stevia plants grown in China and Paraguay,
which have historically been the primary regions for growing stevia. Our lines contain high overall steviol glycosides, including Reb A, Reb B and Reb C as well as other minor glycosides. We conduct
extensive high-pressure liquid chromatography ("HPLC") sample testing of stevia plants under development and make further selections and crosses of these plants based upon test results.
The goal is to develop a stevia plant with an inherently pleasant taste profile, a large and hardy plant mass high levels of desirable stevia glycosides. We are focused on developing our proprietary stevia germplasm into commercial varieties. Towards that end, we have been granted four patents by the U.S. Patent and Trademark Office
("USPTO") for unique stevia plant varieties. As our breeding program produces new lines, we plan to file additional patent applications in the future. Two of the patents cover lines that have been developed with a pleasing taste profile, thereby enabling the resulting dried leaf to be consumed directly. At the present time, farmers are conducting
trials with this variety. If these trials yield satisfactory results, we expect to develop a farmer based production system that may include payment of a royalty calculated as a percent of the gross sales. 20
Proprietary Rights Ownership of and access to intellectual property rights are important to us and our competitors. We sell only our proprietary alfalfa seed varieties that have been
specially selected to manifest the traits we deem best suited to particular regions in which our seed is planted for alfalfa hay. Our ability to compete effectively is dependent upon the proprietary nature of
the seeds, seedlings, processes, technologies and materials owned by or used by us or our growers. If any competitors independently develop any technologies that substantially equal or surpass our
process technology, it will adversely affect our competitive position. In addition to patent protection for some of our alfalfa seed varieties that we acquired from DuPont Pioneer, we guard our proprietary varieties by exercising a high degree of control over the supply
chain. As part of this control process, we require our growers to deliver back to us all seed derived from our proprietary varieties. Historically, we have found that this control mechanism has been an
effective means to protect our proprietary seed. However, because we do not have more formal proprietary rights protections in place with our growers, it would be possible for persons with access to our
seed or plants grown from our seed to potentially reproduce proprietary seed varieties, which could significantly harm our business and our reputation. In the future, we may deem it appropriate to
implement more formal proprietary rights protections. S&W Australia registers its varieties under the Australian Plant Breeder's Rights Act 1994 (Cth) (the "PBR Act"). Currently the varieties SuperSequel, SuperSiriver, SuperAurora,
SuperSonic, SuperStar, SuperSiriver II, SuperNova, SuperLadino, SuperHuia and SuperHaifa are protected under the PBR Act. Seed from varieties with plant breeder's rights ("PBR")
protection can only be bought from the PBR registrant, commercial partner, licensee or an agent authorized by the registrant. Exceptions exist for use of a PBR variety, including for private and non-
commercial purposes, for experimental purposes, and for breeding other plant varieties. PBR protections last for 20 years in Australia in respect of registered plant varieties, and generally for 20 years in
other member countries of the International Union for the Protection of New Varieties of Plants ("UPOV"), an international convention concerning plant breeder's rights. There are currently
more than 70 countries that are members of the UPOV. S&W Australia has licensed production and marketing rights of several of its varieties in exchange for royalties. In addition to PBR and licensing arrangements, S&W Australia controls dissemination of its proprietary lines by including a demand right in its form of seed production agreement for the return of
unused foundation seed if a grower fails to propagate the seed within 60 days after the grower's acquires it. We are also continuing to develop proprietary stevia lines for which we have been granted four patents by the USPTO. It is our intention to continue building our patent portfolio of proprietary stevia
lines developed through the efforts of our stevia breeding program. 21
The SV Genetics proprietary products are protected via hybrid production systems. Male and female parent seed is provided to licensees for production of F1 Hybrid seed for sale to customers.
Production of F1 Hybrid seed is only possible using the correct parents and it is not possible to produce parent seed from parent seed so the licensee is reliant on ongoing supply of parent seed from SV
Genetics. Competition Competition in the alfalfa seed industry both domestically and internationally is intense. We face direct competition by other seed companies, including small family-
owned businesses, as well as subsidiaries or other affiliates of chemical, pharmaceutical and biotechnology companies, many of which have substantially greater resources than we do. Our principal competitors in our alfalfa seed business are Forage Genetics International (a subsidiary of Land O' Lakes, Inc.), Alforex Seeds (a subsidiary of Corteva), and Pacific International Seed
Company, Inc. We believe that the key competitive drivers in the industry are proven performance, customer support in the field and value, which takes into account not simply the price of the seed but
also yield in the field. Breeding a new variety of alfalfa seed takes many years and considerable expertise and skill. We believe that our reputation for breeding and producing high-quality proprietary varieties of alfalfa seed
that manifest the traits the farmers need provide us with a competitive advantage, not only in the niche market for high salt- and heat-tolerant, non-dormant alfalfa seed, which has been our core business
for several decades, but also, with the December 2014 acquisition of the research and development assets of DuPont Pioneer, in the full range of dormant varieties suited for colder climates as well. We
believe our research and development capabilities are unmatched in the industry and provide us with a distinct competitive advantage. In addition to our competitors, S&W Australia's principal regional competitors in the proprietary alfalfa seed market are Heritage Seeds Pty. Ltd., PGG Wrightson Seeds Ltd, Naracoorte Seeds
Pty. Ltd., Pasture Genetics Pty Ltd (formerly Seed Distributors Pty. Ltd.) and various other minor companies compete with S&W Australia through sales of Siriver, a common alfalfa variety. S&W
Australia also faces competition from lower value alfalfa seed produced in the European Union and, to a lesser extent, Argentina. S&W Australia faces similar competitors in its proprietary white
clover business. These companies compete with S&W Australia for acres and in sales by selling Haifa, a common white clover variety. Competitively priced white clover is also produced and sold
from the European Union, USA, and New Zealand. In relation to the SV Genetics business, sorghum and sunflower genetics tend to be concentrated globally amongst a few large international companies, resulting in a significant barrier to entry for
many intermediate and regionally based seed companies and their reliance on just a few suppliers for elite genetics. 22
Despite the advantages we perceive we have over many of our competitors, many of our existing and potential competitors have substantially greater research and product development capabilities
and financial, marketing and human resources than we do. As a result, these competitors may: We are not aware of any significant domestic or international persons or companies engaged in ongoing stevia breeding activities similar to or that could be considered competitive with our stevia
breeding program. Environmental and Regulatory Matters Our agricultural operations are subject to a broad range of evolving environmental laws and regulations. These laws and regulations include the Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation and Liability
Act. These environmental laws and regulations are intended to address concerns related to air quality, storm water discharge and management and disposal of agricultural chemicals relating to seed
treatment both for domestic and overseas varieties. We maintain particulate matter air emissions from our milling activities below annual tonnage limits through cyclone air handling systems. We maintain
storm water onsite, which eliminates the risk of waterway or tributary contamination. Pesticide and agricultural chemicals are managed by trained individuals, certified and licensed through the California
Department of Pesticide Regulation. County agricultural commissioners monitor all seed-treating activity for compliance. 23
Compliance with these laws and related regulations is an ongoing process that does not, and is not expected to, have a material effect on our capital expenditures, earnings or competitive position.
Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by us, and there can be no assurance that the cost of compliance with environmental laws
and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, and further restrictions on the
use of agricultural chemicals, could result in increased compliance costs. We also are subject to the Federal Seed Act (the "FSA"), which regulates the interstate shipment of agricultural and vegetable seed. The FSA requires that seed shipped in interstate
commerce be labeled with information that allows seed buyers to make informed choices and mandates that seed labeling information and advertisements pertaining to seed must be truthful. The FSA
also helps to promote uniformity among state laws and fair competition within the seed industry. Because, under our existing business plan, we are acting as a breeder of stevia leaf and will not be extracting Reb-A or other derivatives from the leaves or adding such derivatives to any food or
beverages, we believe that we do not need to apply to the U.S. Food and Drug Administration ("FDA") for a Generally Recognized as Safe ("GRAS") no-objections determination or
any other FDA approval in connection with our stevia business. However, should our plans with respect to stevia cultivation and processing expand in future years, we will then reexamine the advisability
of seeking a GRAS determination or other FDA approval. We do not believe that our current stevia operations are subject to any special regulatory oversight. Internationally, we are subject to various government laws and regulations (including the U.S. Foreign Corrupt Practices Act and similar non-U.S. laws and regulations) and local government
regulations. To help ensure compliance with these laws and regulations, we have adopted specific risk management and compliance practices and policies, including a specific policy addressing the U.S.
Foreign Corrupt Practices Act. We are also subject to numerous other laws and regulations applicable to businesses operating in California and other states, including, without limitation, health and safety regulations. Our Australian operations are subject to a number of laws that regulate the conduct of business in Australia, and more specifically, S&W Australia's agricultural activities. Laws regulating the
operation of companies in Australia, including in particular the Corporations Act 2001 (Cth) are central to S&W Australia's corporate actions and corporate governance issues in Australia. Competition
laws and laws relating to employment and occupational health and safety matters are also of fundamental importance in the Australian regulatory environment. These include the Competition and
Consumer Act 2010 (Cth), the Fair Work Act 2009 (Cth), the Work Health and Safety Act 2012 (SA) and related regulations. Notably Australian employment laws are much more favorable to the employee
than U.S. employment laws. S&W Australia's intellectual property rights in Australia are protected and governed by laws relating to plant breeder's rights, copyright, trademarks, the protection of confidential information, trade
secrets and know-how. These include the PBR Act, the Copyright Act 1968 (Cth), the Trade Marks Act 1995 (Cth) and related regulations. 24
Our Australian operations are also subject to a number of environmental laws, regulations and policies, including in particular the Environment Protection Act 1993 (SA), the Agricultural and Veterinary
Products (Control of Use) Act 2002 (SA), the Genetically Modified Crops Management Act 2004 (SA), the Dangerous Substances Act 1979 (SA), the Controlled Substances Act 1984 (SA) and related
regulations and policies. These laws regulate matters including air quality, water quality and the use and disposal of agricultural chemicals. Research and Development R&D for the year ended June 30, 2018 totaled $3,887,723 compared to $3,032,112 in the year ended June 30, 2017. As of September 20, 2018, S&W had 79 full-time employees, of which 18 are employed by S&W Australia. We also employ 5 part-time employees, of which 4
are S&W Australia employees. We also retain consultants for specific purposes when the need arises. None of our employees are represented by a labor union. We consider our relations with our
employees to be good. Corporate History From 1980 until 2009, our business was operated as a general partnership. We bought out the former partners beginning in June 2008, incorporated in October 2009 in
Delaware, and completed the buyout of the general partners in May 2010. We reincorporated in Nevada in December 2011. In April 2013, we, together with our wholly-owned subsidiary, S&W Holdings Australia Pty Ltd, an Australia corporation (f/k/a S&W Seed Australia Pty Ltd "S&W Holdings"),
consummated an acquisition of all of the issued and outstanding shares of Seed Genetics International Pty Ltd, an Australia corporation ("SGI"), from SGI's shareholders. In April 2018, SGI
changed its name to S&W Seed Company Australia Pty Ltd ("S&W Australia"). Our Contact Information Our principal business office is located at 106 K Street, Suite 300, Sacramento, CA 95814, and our telephone number is (559) 884-2535. Our website address is
www.swseedco.com. Information contained on our website or any other website does not constitute part of this Annual Report on Form 10-K, and the inclusion of our website address in this report is an
inactive textual reference only. 25
Risks Relating to Our Business and Industry Our earnings can be negatively impacted by declining demand brought on by varying factors, many of which are out of our control. A variety of factors, notably a severe downturn in the dairy industry, could have a negative effect on sales of alfalfa hay, and as a result, the demand for our alfalfa seed in the domestic
market. In addition, demand for our products could decline because of other supply and quality issues or for any other reason, including products of competitors that might be considered superior by end
users. A decline in demand for our products could have a material adverse effect on our business, results of operations and financial condition. Our earnings may also be sensitive to fluctuations in market prices for seed. Market prices for our alfalfa seed can be impacted by factors such as the quality of the seed and the available supply, including whether lower quality, uncertified seed is available. Growing
conditions, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests and the adventitious presence of GMO, are primary factors influencing the
quality and quantity of the seed and, therefore, the market price at which we can sell our seed to our customers. A decrease in the prices received for our products could have a material adverse effect on
our business, results of operations and financial condition. Our earnings are vulnerable to cost increases. Future increase in costs, such as the costs of growing seed, could cause our margins and earnings to decline unless we are able to pass along the increased price of
production to our customers. We may not be able to increase the price of our seed sufficiently to maintain our margins and earnings in the future. Our inventory of seed can be adversely affected by the market price being paid for other crops. Our seed production, whether in the U.S., Australia or Canada, relies entirely on unaffiliated growers to grow our proprietary seed and to sell it to us at negotiated prices each year. Growers
have a choice of what crops to plant. If a particular crop is paying a materially higher price than has been paid in the past, growers may decide to not grow alfalfa seed in favor of receiving a higher return
from an alternative crop planted on the same acreage. If our growers decline to a significant degree to plant the acreage on which we rely, and if we cannot find other growers to plant the lost acreage, our
inventory of seed could be insufficient to satisfy the needs of our customers unless we are able to procure the necessary additional seed in the market at prices we cannot control. If these circumstances
occur, our business, results of operations and financial condition could materially decline. In addition, our customers could look to other suppliers for their seed if we cannot satisfy their requirements, and
we may not be able to regain them as customers once our inventory levels have returned to normal. 26
Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business. Alfalfa seed, our primary product, is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are common but difficult to predict. In
addition, alfalfa seed is vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment
applied and climatic conditions. Unfavorable growing conditions can reduce both crop size and quality. Although we no longer grow any of our seed directly, these factors can still impact us by potentially
decreasing the quality and yields of our seed and reducing our available inventory. These factors can increase costs, decrease revenue and lead to additional charges to earnings, which may have a
material adverse effect on our business, results of operations and financial condition. Because our alfalfa seed business is highly seasonal, our revenue, cash flows from operations and operating results may fluctuate on a seasonal and quarterly basis. We expect that the majority of our revenue will continue to be generated from our alfalfa seed business for the foreseeable future. Our alfalfa seed business is seasonal. The seasonal nature
of our operations results in significant fluctuations in our working capital during the growing and selling cycles. We have experienced, and expect to continue to experience, significant variability in net
sales, operating cash flows and net income (loss) on a quarterly basis. We have had a material concentration of revenue from a small group of customers that fluctuates, and the loss of any of these customers in any quarter could have a material adverse effect on
our revenue. On a historical basis, we have experienced a material concentration of revenue from a small group of customers. This concentration fluctuates from quarter to quarter, depending on our
customer's specific requirements, which are themselves cyclical. However, in any particular quarter, we generally have a small group of customers that accounts for a substantial portion of that quarter's
revenue. Most of these customers are not contractually obligated to purchase seed from us. The loss of one or more of these customers on a quarterly basis, when taken year over year, could have a
material adverse impact on our business, financial position, results of operations and operating cash flows. We could also suffer a material adverse effect from any losses arising from a major customer's
disputes regarding shipments, product quality or related matters, or from our inability to collect accounts receivable from any major customer. There are no assurances that we will be able to maintain our
current customer relationships or that they will continue to purchase our seed in the current projected quantities. Any failure to do so may materially adversely impact our business. 27
Because we depend on a core group of significant customers, our sales, cash flows from operations and results of operations may be negatively affected if our key customers reduce the
amount of products they purchase from us. We rely upon a small group of customers for a large percentage of our net revenue. One customer, DuPont Pioneer, accounted for 62% of our fiscal 2018 revenue. Our production agreement
with DuPont Pioneer (relating to GMO-traited varieties) will terminate on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million
annually, commencing with our Fiscal Year 2020. We expect that a small number of customers will continue to account for a substantial portion of our net revenue for the foreseeable future. There is no
assurance that we will be able to maintain the relationships with our major customers or that they will continue to purchase our seed in the quantities that we expect and rely upon. If we cannot do so, our
results of operations could suffer. Because we do not grow the alfalfa seed that we sell, we are completely dependent on our network of contract growers, and our sales, cash flows from operations and results of operations
may be negatively affected if we are unable to maintain an adequate network of contract growers to supply our seed requirements. We do not directly grow any of the alfalfa seed that we sell, and therefore, we are entirely dependent upon our network of growers. While we have some supply contracts with our growers of
two or three years in duration, many of our grower contracts cover only one year, which makes us particularly vulnerable to factors beyond our control. Events such as a shift in pricing caused by an
increase in the value of commodity crops other than seed crops, increase in land prices, unexpected competition or reduced water availability could disrupt our supply chain. Any of these disruptions could
limit the supply of seed that we obtain in any given year, adversely affecting supply and thereby lowering revenue. Such disruption could also damage our customer relationships and loyalty to us if we
cannot supply the quantity of seed expected by them. In recent years, we have had some of our California growers decide to not grow alfalfa seed due to drought conditions. This situation could reoccur
and could negatively impact our revenue if we do not otherwise have sufficient seed inventory available for sale. S&W Australia relies on a pool of approximately 150 Australian growers to produce its proprietary seeds. Each grower arrangement is typically made for a term of seven to ten harvests. Although
S&W Australia's grower pool is diversified, it is not without risks. Adverse agronomic, climatic or other factors could lead to grower exodus and negatively impact S&W Australia's revenue if
S&W Australia does not otherwise have sufficient seed inventory available for sale. Our ability to contract for sufficient acreage presents challenges. In order to increase revenue and earnings, we continue to need more production acreage. As we continue to increase the number of acres under contract and/or to move production into new
geographical locations, we face challenges that can impede our ability to produce as much seed inventory as we have budgeted. For example, when we move production into new geographical locations,
28
we may find it difficult to identify growers with the expertise to grow alfalfa seed, and we may not have sufficient company personnel available in such new locations to provide production advice on a
timely basis. We also face increased competition for conventional seed acreage as the need for technology acres grows, which is further complicated by the field isolation issue relating to GMO crops that
can reduce the amount of acreage available for conventional alfalfa seed crops. If we are unable to secure the acreage we need to meet our planned production for the crop year and are unable to
purchase seed in the market, our results of operations could suffer, as would our reputation. A lack of availability of water in the U.S., Australia or Canada could impact our business. Adequate quantities and correct timing of the application of water are vital for most agriculture to thrive. Whether particular farms are experiencing water shortages depends, in large part, on
their location. However, continuing drought conditions can threaten all farmland other than those properties with their own water sources. Foreign or domestic regulations regarding water usage and rights
may also limit the availability of water. Although alfalfa seed is not a water-intensive crop, the availability or the cost of water is a factor in the planting of the alfalfa hay grown from our seed. Moreover, if
the dairy farmers and others who purchase our alfalfa seed to grow hay cannot get an adequate supply of water, or if the cost of water makes it uneconomical for the farmers to grow alfalfa, we may not be
able to sell our seed, which could have an adverse impact on our results of operations. We cannot predict if limitations on the availability of water will impact our business in the future, but if alfalfa hay
growers are impacted by limitations on the availability of water, our business could also materially decline. We face intense competition, and our inability to compete effectively for any reason could adversely affect our business. The alfalfa seed market is highly competitive, and our products face competition from a number of small seed companies, as well as large agricultural and biotechnology companies. We
compete primarily on the basis of consistency of product quality and traits, product availability, customer service and price. Many of our competitors are, or are affiliated with, large diversified companies
that have substantially greater marketing and financial resources than we have. These resources give our competitors greater operating flexibility that, in certain cases, may permit them to respond better
or more quickly to changes in the industry or to introduce new products more quickly and with greater marketing support. Increased competition could result in lower profit margins, substantial pricing
pressure, reduced market share and lower operating cash flows. Price competition, together with other forms of competition, could have a material adverse effect on our business, financial position, results
of operations and operating cash flows. If we are unable to estimate our customers' future needs accurately and to match our production to the demand of our customers, our business, financial condition and results of operations
may be adversely affected. We sell our seed primarily to dealers and distributors who, in turn, sell primarily to hay and dairy farmers who grow hay for dairy cattle and other livestock. Due to the nature of the alfalfa seed
industry, we normally produce seed according to our production plan before we sell and deliver seed to distributors
29
and dealers. Our dealers and distributors generally make purchasing decisions for our
products based on market prices, economic and weather conditions and other factors that we and our dealers and distributors may not be able to anticipate accurately in advance. If we fail to accurately
estimate the volume and types of products sought by the end users and otherwise adequately manage production amounts, we may produce more seed than our dealers and distributors want, resulting in
excess inventory levels. For example, in large part due to decreased sales to the Saudi Arabia markets, our inventory levels as of June 30, 2016, 2017 and 2018 were $21.8 million, $31.5 million, and
$60.4 million, respectively. It may be difficult for us to dispose of all of our inventory on commercially reasonable terms, or at all, and we may need to record an impairment charge for a portion of this
inventory in subsequent fiscal periods. Any such impairment charge or any failure to sell inventory on commercially reasonable terms could have a material adverse effect on our business, financial
position, results of operations and operating cash flows. On the other hand, if we underestimate demand, we may not be able to satisfy our dealers and distributors' demand for alfalfa seed, and thus damage our customer relations and end-user loyalty. Our
failure to estimate end users' future needs and to match our production to the demand of our customers may adversely affect our business, financial condition and results of operations. Our third-party distributors may not effectively distribute our products. We depend in part on third-party distributors and strategic relationships for the marketing and selling of our products. We depend on these distributors' efforts to market our products, yet we
are unable to control their efforts completely. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the sale of our products, including the United States Foreign
Corrupt Practices Act of 1977, as amended. If our distributors fail to effectively market and sell our products, and in full compliance with applicable laws, our operating results and business may suffer. We extend credit to our largest international customer and to certain of our other international customers, which exposes us to the difficulties of collecting our receivables in foreign jurisdictions
if those customers fail to pay us. Although payment terms for our seed sales generally are 90 to 120 days, we regularly extend credit to our largest international customer, Sorouh, and to other international customers up to
180 days. Sales of our alfalfa seed varieties to Sorouh and to other international customers represented a material portion of our revenue in historical periods and we expect that we will continue to extend
credit in connection with future sales. Because these customers are located in foreign countries, collection efforts, were they to become necessary, could be much more difficult and expensive than
pursuing similar claims in the United States. Moreover, future political and/or economic factors, as well as future unanticipated trade regulations, could negatively impact our ability to timely collect
outstanding receivables from these important customers. The extension of credit to our international customers exposes us to the risk that our seed will be delivered but that we may not receive all or a
portion of the payment therefor. If these customers are unable or unwilling to fully pay for the seed they purchase on credit, our results of operations and financial condition could be materially negatively
impacted. Moreover, our internal forecasts on which we make business decisions throughout the year could be severely compromised, which could, in turn, mean that we spend capital for operations,
investment or otherwise that we would not have spent had we been aware that the customer would not honor its credit extension obligation. 30
The future demand for our non-dormant alfalfa seed varieties in Saudi Arabia is uncertain. Historically, sales to customers in Saudi Arabia have represented a significant portion of our revenue. Regulatory uncertainty in Saudi Arabia surrounding water use restrictions for large
forage producers caused customers in the region to defer purchases and/or reduce inventory carrying levels. The outlook for demand for our non-dormant varieties in Saudi Arabia over the next two to
four years continues to be uncertain because of the potential for water use restrictions and further regulations from the Saudi Arabian government on water usage. As a result of the continued decrease in
sales to our customers in Saudi Arabia, we have experienced a material decline in revenue and earnings. Given the foregoing regulatory uncertainty, there may be a continued depressed demand from
our customers in Saudi Arabia, and, in the absence of sales growth in other regions and other products, we may experience a further material decline in revenue and earnings. Our current reliance on the seed development and production business does not permit us to spread our business risks among different business segments, and thus a disruption in our seed
production or the industry would harm us more immediately and directly than if we were more diversified. We currently operate primarily in the alfalfa seed business, and we do not expect this to change materially in the foreseeable future, despite recent diversification efforts into hybrid sorghum
and sunflower seeds. Without business line diversity, we will not be able to spread the risk of our operations. Therefore, our business opportunities, revenue and income could be more immediately and
directly affected by disruptions from such things as drought and disease or widespread problems affecting the alfalfa industry, payment disruptions and customer rejection of our varieties of alfalfa seed. If
there is a disruption as described above, our revenue and earnings could be reduced, and our business operations might have to be scaled back. If we fail to introduce and commercialize new alfalfa seed varieties, we may not be able to maintain market share, and our future sales may be harmed. The performance of our new alfalfa seed varieties may not meet our customers' expectations, or we may not be able to introduce and commercialize specific seed varieties. Reorder rates are
uncertain due to several factors, many of which are beyond our control. These include changing customer preferences, which could be further complicated by competitive price pressures, our failure to
develop new products to meet the evolving demands of the end users, the development of higher-demand products by our competitors and general economic conditions. The process for new products to
gain market recognition and acceptance is long and has uncertainties. If we fail to introduce and commercialize a new seed variety that meets the demand of the end user, if our competitors develop
products that are favored by the end users, or if we are unable to produce our existing products in sufficient quantities, our growth prospects may be materially and adversely affected, and our revenue
may decline. In addition, sales of our new products could replace sales of some of our current similar products, offsetting the benefit of a successful product introduction. 31
The presence of GMO alfalfa in Australia or California could impact our sales. GMO crops currently are prohibited in most of the international markets in which our proprietary seed is currently sold. There are regions in the United States, including the Pacific Northwest,
where even small quantities of GMO material inadvertently interspersed with conventional (non-GMO) seed make the seed undesirable, which causes customers to look elsewhere for their alfalfa seed
requirements. The greater the use of GMO seed in California and other alfalfa seed growing regions, the greater the risk that the adventitious presence of GMO material in our seed production will occur
due to pollination from hay fields or other seed fields. We regularly test for the adventitious presence of GMO in our conventional seed, and we have seen a slight increase in the percentage of GMO
presence in conventional seed over the past several years. Our seed containing GMO material can only be sold domestically or in other jurisdictions that permit the importation of GMO alfalfa. If we are
unable to isolate our conventional seed from inadvertently being contaminated by GMO seed, we may find it more difficult to sell that seed in our key markets and we may have insufficient quantities of
seed to sell internationally, either of which could materially adversely impact our revenue over time. We have limited experience in the hybrid sorghum and sunflower markets. In May 2016, we acquired the assets and business operations of SV Genetic's hybrid sorghum and sunflower seed germplasm business in Queensland, Australia. Having spent over 35 years
focused almost exclusively on the alfalfa seed market, these are new markets for us. If we are unable to successfully draw upon the research, development and distribution expertise we have developed in
the alfalfa seed industry and apply it to the new crops into which we have recently diversified, we may not be able to attain the revenue and margins improvements we hope to achieve within our currently
budgeted time frame, if at all. The stevia market may not develop as we anticipate, and therefore our continued research and development activities with respect to stevia may never become profitable to us. There are a number of challenges to market acceptance of stevia as a natural, non-caloric sweetener. Stevia has its own unique flavor, which can affect the taste of some foods and
beverages. A common complaint about stevia is that some of its extracts and derivatives have a bitter aftertaste, and its taste does not uniformly correspond to all regional taste preferences or combine
well with some food flavors. Other factors that could impact market acceptance include the price structure compared to other sugar substitutes and availability. If the high-intensity, non-caloric sweetener
market declines or if stevia fails to achieve substantially greater market acceptance than it currently enjoys, we might never be able to profit from our continued research and development activities relating
to stevia or any commercial applications that we derive therefrom. Even if products conform to applicable safety and quality standards, sales could be adversely affected if consumers in target markets
lose confidence in the safety, efficacy and quality of stevia. Adverse publicity about stevia or stevia-based products may discourage consumers from buying
32
products that contain stevia. Any of these
developments could adversely impact the future amount of dry leaf stevia, processed stevia leaves or extract we are able to sell, which could adversely impact our results of operations. The loss of key employees or the failure to attract qualified personnel could have a material adverse effect on our ability to run our business. The loss of any of our current executives, key employees or key advisors, or the failure to attract, integrate, motivate and retain additional key employees, could have a material adverse effect
on our business. Although we have employment agreements with our Chief Executive Officer, our Chief Financial Officer, our Chief Operating Officer, and our Chief Marketing and Technology Officer, as
well as certain other employees, any employee could leave our employ at any time if he or she chose to do so. We do not carry "key person" insurance on the lives of any of our management
team. As we develop additional capabilities, we may require more skilled personnel who must be highly skilled and have a sound understanding of our industry, business or processing requirements.
Recruiting skilled personnel is highly competitive. Although to date we have been successful in recruiting and retaining qualified personnel, there can be no assurance that we will continue to attract and
retain the personnel needed for our business. The failure to attract or retain qualified personnel could have a material adverse effect on our business. We may not be able to manage expansion of our operations effectively. We expect our operations to continue to grow in the future, both as we expand our historical alfalfa seed business both domestically and internationally through internal growth and synergistic
acquisitions and increase our growers' production. These efforts will require the addition of employees, expansion of facilities and greater oversight, perhaps in diverse locations. If we are unable to
manage our growth effectively, we may not be able to take advantage of market opportunities, execute on our business strategies or respond to competitive pressures, and we may have difficulties
maintaining and updating the internal procedures and the controls necessary to meet the planned expansion of our overall business. Our management will also be required to maintain and expand our relationships with customers, suppliers and other third parties as well as attract new customers and suppliers. We expect that our
sales and marketing costs will increase as we grow our product lines and as we increase our sales efforts in new and existing markets. Our current and planned operations, personnel, systems and
internal procedures and controls may not be adequate to support our future growth. We may be unable to successfully integrate the businesses we have recently acquired and may acquire in the future with our current management and structure. As part of our growth strategy, we have acquired and may continue to acquire additional businesses, product lines or other assets. We may not be able to locate or make suitable acquisitions
on acceptable terms, and future acquisitions may not be effectively and profitably integrated into our business. Our failure to successfully complete the integration of the businesses we acquire could have
an adverse effect
33
on our prospects, business activities, cash flow, financial condition, results of operations and stock price. Integration challenges may include the following: In connection with any such transactions, we may also issue equity securities, incur additional debt, assume contractual obligations or liabilities or expend significant cash. Such transactions could
harm our operating results and cash position and negatively affect the price of our stock. For example, on September 5, 2018, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Novo Advisors (f/k/a Turnaround Advisory Group Inc.), solely in its
capacity as the receiver for, and on behalf of, Chromatin, Inc., a Delaware corporation (together with certain of its subsidiaries and affiliates in receivership, "Chromatin") (the "Receiver").
Pursuant to the Asset Purchase Agreement, we agreed to purchase substantially all of Chromatin's assets, as well as assume certain contracts and other liabilities of Chromatin (collectively, the
"Chromatin Acquisition"), for a purchase price of $23.0 million. On September 14, 2018, we entered into an updated Asset Purchase Agreement with the Receiver to reflect updated terms and
conditions of the Chromatin Acquisition, including a purchase price of $26.5 million. To fund the Chromatin Acquisition, cover transaction expenses and provide additional working capital, we entered into a
Securities Purchase Agreement (the "September SPA") with MFP Partners, L.P. ("MFP"), pursuant to which we agreed to sell and issue to MFP 1,607,717 shares of common stock of the
Company (the "Common Shares") for approximate gross proceeds of $5.0 million at an initial closing (the "Initial Closing") and, subject to the satisfaction of certain conditions, 7,235 shares of newly
designated Series A Convertible Preferred Stock of the Company ("Preferred Shares") for aggregate gross proceeds of $22.5 million at a second closing (the "Second Closing"), each in a private
placement. The Initial Closing was completed on September 5, 2018. We cannot guarantee that the Chromatin Acquisition will be consummated as expected, or at all. In addition, there can be no assurance we will achieve the revenues, growth prospects and synergies
expected from this acquisition, our prior acquisitions or any future acquisitions, or that we will achieve such revenue, growth prospects and synergies in a manner consistent with our expectations. Our
failure to do so could adversely affect our business, operating results and financial condition. 34
The diversion of management's attention and costs associated with acquisitions may have a negative impact on our business. If management's attention is diverted from the management of our existing businesses as a result of its efforts in evaluating and negotiating new acquisitions and strategic transactions, the
prospects, business activities, cash flow, financial condition and results of operations of our existing businesses may suffer. We also may incur unanticipated costs in connection with pursuing acquisitions
and strategic transactions, whether they ultimately are consummated or not. Only five milling facilities are regularly used by S&W Australia's grower pool to clean and process S&W Australia seed. Should one or more of these facilities become unusable,
there could be a significant effect on S&W Australia's ability to get its Australian seed to market in a timely manner or at all. S&W Australia's growers use Tatiara to process approximately 70%
of the seed grown for S&W Australia. The owner of Tatiara has begun to sell his own common seed and is now a competitor of S&W Australia. This competing seed business creates a potential
conflict of interest for Tatiara in the care and handling of S&W Australia's product and could impact S&W Australia's ability to have seed available to sell on the time schedule required by our
customers. S&W Australia is thinly capitalized and may become dependent upon us for financing. Because S&W Australia has relatively little net working capital, it is substantially dependent upon its credit arrangement with National Australia Bank Ltd ("NAB") to purchase
its seed inventory. If S&W Australia breaches its credit arrangement in the future or other reasons cause this credit arrangement to become unavailable to S&W Australia, S&W Australia
may become reliant on us to finance its operations or for financial guarantees. We currently are a guarantor on S&W Australia's NAB credit facility. S&W Australia's financial dependency upon us
could have a negative adverse effect upon our financial condition. S&W Australia is dependent on a pool of seed growers and a favorable pricing model. S&W Australia relies on a pool of approximately 150 Australian contract growers to produce its proprietary seeds. In this system, growers contract with S&W Australia to grow
S&W Australia's seed for terms of seven to ten years in the case of alfalfa and two to three years for white clover. S&W Australia uses a staggered payment system with the growers of its alfalfa
and white clover; the payment amounts are based upon an estimated budget price, or EBP, for compliant seed. EBP is a forecast of the final price that S&W Australia believes will be achieved taking
into account prevailing and predicted market conditions at the time the estimate is made. Following the grower's delivery of uncleaned seed to a milling facility, S&W Australia typically pays 40% of
the EBP to the grower based on pre-cleaning weight. Following this initial payment and prior to the final payment, S&W Australia makes a series of
35
scheduled progress payments and, if applicable, a
bonus payment for "first grade" alfalfa seed. The final price payable to each grower (and therefore the total price) is dependent upon and subject to adjustment based upon the clean weight of
the seed grown, on the average price at which S&W Australia sells the pooled seed and other costs incurred by S&W Australia. Accordingly, the total price paid by S&W Australia to its
growers may be more or less than the EBP. This arrangement exposes S&W Australia's business to unique risks, including, the potential for current growers to make collective demands that are
unfavorable to S&W Australia and the potential for our competitors to offer more favorable terms for seed production, including fixed (instead of variable) payment terms. S&W Australia's reliance upon an estimated purchase price to growers could result in changes in estimates in our consolidated financial statements. Our subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year's sales cycle, pursuant to the standard contract production
agreement. We record an estimated unit price, and accordingly, inventory, cost of goods sold and gross profits are based upon management's best estimate of the final purchase price to our S&W
Australia growers. To the extent the estimated purchase price varies from the final purchase price for seed, the adjustment to actual could materially impact the results in the period when the difference
between estimates and actuals are identified. If the actual purchase price is in excess of our estimated purchase price, this would negatively impact our financial results, including a reduction in gross
profits and net income. We may need to raise additional capital in the future. We may find it necessary or advisable to raise additional capital in the future, whether to enhance our working capital, to repay indebtedness, to fund acquisitions or for other reasons. If we
are required or desire to raise additional capital in the future, such additional financing may not be available on favorable terms, or available at all, may be dilutive to our existing stockholders, if in the form
of equity financing, or may contain restrictions on the operation of our business, if in the form of debt financing. If we fail to obtain additional capital as and when required, such failure could have a material
impact on our business, results of operations and financial condition. Changes in government policies and laws could adversely affect international sales and therefore our financial results. Historically, sales to our distributors who sell our proprietary alfalfa seed varieties outside the United States have constituted a meaningful portion of our annual revenue. We anticipate that
sales into international markets will continue to represent a meaningful portion of our total sales and that continued growth and profitability will require further international expansion, particularly in the
Middle East and North Africa. Our financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies
and similar organizations. These conditions include but are not limited to changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing and marketing of
products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries,
36
changes in the regulatory or legal environment, burdensome taxes and tariffs and other
trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced distribution of our products
into international markets and reduced profitability associated with such sales. We are subject to risks associated with doing business globally. Our operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions
and geographies. Although we sell seed to various regions of the world, a large percentage of our sales outside the United States in fiscal year 2018, including those of S&W Australia, were
principally to customers in the Middle East, North Africa and Mexico. Accordingly, developments in those parts of the world generally have a more significant effect on our operations than developments in
other places. Our operations outside the United States are subject to special risks and restrictions, including, without limitation: fluctuations in currency values and foreign-currency exchange rates;
exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy;
restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the U.S.
Foreign Corrupt Practices Act and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control. Acts of terror or war may impair our
ability to operate in particular countries or regions, and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it
could become more expensive for them to purchase imported products in their local currency, or sell their commodity at prevailing international prices, and we may be unable to collect receivables from
such customers. Further, changes in exchange rates may affect our net earnings, the book value of our assets outside the United States and our stockholders' equity. Failure to comply with the laws and
regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations. Failure to comply with the United States Foreign Corrupt Practices Act or similar laws could subject us to penalties and other adverse consequences. We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies, including their suppliers, distributors and other commercial partners,
from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur
from time-to-time in the countries in which we distribute products. We have adopted formal policies and procedures designed to facilitate compliance with these laws. If our employees or other agents,
including our distributors or suppliers, are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business,
financial condition and results of operations. 37
Environmental regulation affecting our alfalfa seed, sorghum, sunflower or stevia products could negatively impact our business. As an agricultural company, we are subject to evolving environmental laws and regulations by federal and state governments. Federal laws and regulations include the Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Seed Act, and potentially regulations of the FDA and/or other State regulatory agencies. Our Australian operations are also subject to a number of environmental laws, regulations and policies, including in particular the Environment Protection Act 1993 (SA), the Agricultural and Veterinary
Products (Control of Use) Act 2002 (SA), the Genetically Modified Crops Management Act 2004 (SA), the Dangerous Substances Act 1979 (SA), the Controlled Substances Act 1984 (SA) and related
regulations and policies. These laws regulate matters including air quality, water quality and the use and disposal of agricultural chemicals. Our failure to comply with these laws and related regulations could have an adverse effect on our business, financial condition or results of operations. Moreover, it is possible that future
developments, such as increasingly strict environmental laws and enforcement policies thereunder, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs
which, in turn, could have a material adverse effect on our business, financial condition or results of operations. Insurance covering defective seed claims may become unavailable or be inadequate. Defective seed could result in insurance claims and negative publicity. Although we carry general liability insurance to cover defective seed claims, such coverage may become unavailable or
be inadequate. Even if coverage is offered, it may be at a price and on terms not acceptable to us. If claims exceed coverage limits, or if insurance is not available to us, the occurrence of significant
claims could have a material adverse effect on our business, results of operations and financial condition. We may be exposed to product quality claims, which may cause us to incur substantial legal expenses and, if determined adversely against us, may cause us to pay significant damage
awards. We may be subject to legal proceedings and claims from time to time relating to our seed or stevia quality. The defense of these proceedings and claims can be both costly and time
consuming and may significantly divert efforts and resources of our management personnel. An adverse determination in any such proceeding could subject us to significant liability and damage our
market reputation and prevent us from achieving increased sales and market share. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase of our
products. 38
Capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our growers and customers. The capital and credit markets have experienced increased volatility and disruption over the past several years, making it more difficult for companies to access those markets. Although we
believe that our operating cash flows, recent access to the capital market and our lines of credit will permit us to meet our financing needs for the foreseeable future, continued or increased volatility
and disruption in the capital and credit markets may impair our liquidity or increase our costs of borrowing, if we need to access the credit market. Our business could also be negatively impacted if our
growers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy. If we are unable to protect our intellectual property rights, our business and prospects may be harmed. Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings, processes, technologies and materials owned by or used by us or our growers. If any
competitors independently develop new traits, seeds, seedlings, processes or technologies that customers or end users determine are better than our existing products, such developments could
adversely affect our competitive position. In addition to patent protection for some of our alfalfa seed varieties that we acquired from DuPont Pioneer, the USPTO has granted us patents covering stevia
plant varieties SW201 and SW227 for the fresh and dry leaf market and varieties SW107 and SW 129 for the commercial processing market. We also rely on trade secret protection and confidentiality
agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our discovery and development processes that involve
proprietary know-how, information or technology that is not covered by patents. Although we require our employees, consultants, advisors and any third parties who have access to our proprietary know-
how, information, or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors
will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, we guard our proprietary property by exercising a high
degree of control over the alfalfa seed supply chain from our S&W varieties, as well as over our stevia material, while our newly-acquired hybrid sorghum and sunflower seed varieties are made
available pursuant to licensing arrangements that reasonably safeguard our ownership and control of our intellectual property. In Australia, S&W Australia has secured protection under the PBR Act
for its most popular varieties. However, even with these measures in place, it would be possible for persons with access to our seed or plants grown from our seed to reproduce and market products substantially similar to our
proprietary seed varieties, which could significantly harm our business and our reputation. We may be unable to obtain further protection for our intellectual property in the United States and other key
jurisdictions, and third parties may challenge the validity, enforceability or scope of our existing patents, which may result in such patents being cancelled, narrowed, invalidated or held unenforceable.
Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant
problems in protecting and defending our intellectual property both in the United States and abroad. Litigation may be necessary to protect our
39
proprietary property and determine the validity and scope of
the proprietary rights of competitors. Intellectual property litigation could result in substantial costs and diversion of our management and other resources. If we are unable to successfully protect our
intellectual property rights, our competitors could market products that compete with our proprietary products without obtaining a license from us. We currently depend on DuPont Pioneer for the majority of our sales of dormant alfalfa seed and have agreed to limitations on other sales of the seed varieties we sell to DuPont Pioneer. Any
decline in DuPont Pioneer's demand will have a material adverse effect on our results of operations. DuPont Pioneer was our largest customer in fiscal 2018. Our distribution agreement with DuPont Pioneer limits our ability to otherwise sell the specific varieties of dormant alfalfa seed we
supply to DuPont Pioneer in the sales territory covered by DuPont Pioneer. The DuPont Pioneer sales territory includes the United States, Europe and many other of the principal dormant alfalfa seed
markets. In these markets, our ability to sell the specified varieties through distribution channels other than DuPont Pioneer is limited to certain blended, private label and variety not stated forms and
cannot exceed a specified percentage of DuPont Pioneer's demand. As result of these limitations, sales to DuPont Pioneer represent and, for the foreseeable future will continue to represent, the majority
of our sales of dormant alfalfa seed. Any decline in DuPont Pioneer's demand for our dormant alfalfa seed products will have a material adverse effect on our results of operations. DuPont Pioneer may purchase alfalfa seed from other sources and reduce its purchase commitments to us. Under our distribution agreement with DuPont Pioneer, DuPont Pioneer has made minimum purchase commitments for our dormant alfalfa seed products that extend through September 30,
2024. However, there are circumstances under which DuPont Pioneer is permitted to purchase seed from other sources and reduce its purchase commitments to us, including: 40
Any reduction in DuPont Pioneer's purchase commitment to us would have a material adverse effect on our results of operations. We are committed to sell dormant alfalfa seed to DuPont Pioneer at initial fixed prices with fixed subsequent maximum price increases per year. Increases in our costs of production at rates
higher than our contractual ability to increase prices would erode our profit margins and could have a material adverse effect on our results of operations. Under our distribution agreement with DuPont Pioneer, we were committed to sell dormant alfalfa seed at initial fixed prices that can only increase by up to a fixed percentage per year by
variety. Although DuPont Pioneer has agreed to discuss in good faith an increase in the fixed maximum percentage price increase cap for any sales year in which an increase in grower compensation
costs due to changes in market conditions cause our total production costs to increase at a percentage exceeding the amount of the cap, we cannot be certain that any such discussions will result in
additional pricing flexibility for us. If our grower compensation costs or other productions costs increase at a rate greater than the fixed maximum percentage increase per year, our profit margins would
erode, and we could potentially be required to sell product at a loss. Any such change in our cost structure would have a material adverse effect on our results of operations. If we fail to perform our obligations under our distribution agreement and production agreement with DuPont Pioneer, DuPont Pioneer could terminate the agreements and reduce or eliminate
purchases of alfalfa seed from us, and we could be exposed to claims for damages. The DuPont Pioneer distribution agreement and the production agreement impose numerous obligations on us relating to, among other things, product and service quality and compliance
with laws and third party obligations. Both the distribution agreement and the production agreement permit DuPont Pioneer to terminate the agreement if we materially breach the agreement and fail to
cure the breach within a 60-day notice period, or in the case of certain bankruptcy or insolvency events. DuPont Pioneer can also immediately terminate the production agreement if we breach certain
agreements or policies with FGI related to the production of GMO-traited varieties. If DuPont Pioneer terminates either the distribution agreement or the production agreement, DuPont Pioneer could
reduce or eliminate altogether its purchase of alfalfa seed from us, and we could be left with inventory of seed that it would be difficult or impossible for us to dispose of on commercially reasonable terms.
In addition, we could be exposed to significant claims for damages to DuPont Pioneer if the termination of an agreement results from our material breach of the agreement. 41
If we do not meet seed planting and production commitments to DuPont Pioneer, we could incur significant financial penalties. Under our distribution agreement with DuPont Pioneer, if we fail to plant sufficient acreage (based on historical yields), together with any carryover inventory, to meet 110% of DuPont
Pioneer's demand, and we actually fail to meet DuPont Pioneer's demand, then we are obligated to pay DuPont Pioneer a cash penalty based on the amount of the shortfall. We contract all of our
production of dormant alfalfa seed with third-party growers. If, in any year, we are unable to obtain sufficient grower commitments to meet DuPont Pioneer's demand, we could be obligated to pay
significant financial penalties to DuPont Pioneer. Risks Related to our Financial Position and Investment in Our Securities Raising additional capital may cause dilution to our stockholders or restrict our operations. From time to time, we expect to finance our cash needs through a combination of equity and debt financings, as well as potentially entering into collaborations, strategic alliances and licensing
arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest could be diluted and the terms of these securities may include
liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends and may be secured by all or a portion of our assets. For example, on September 5, 2018, we entered into the September SPA with MFP and issued 1,607,717 shares of common stock at the Initial Closing, and are obligated to issue 7,235 shares of
newly designated Series A Convertible Preferred Stock of the Company for aggregate gross proceeds of $22.5 million at the Second Closing. As a result of the Initial Closing, our investors other than MFP
experienced dilution of their ownership interests. If the Second Closing is completed, our investors will experience further dilution. The value of our common stock can be volatile. Our common stock is listed on the Nasdaq Capital Market. The overall market and the price of our common stock can fluctuate greatly. The trading price of our common stock may be
significantly affected by various factors, including but not limited to: 42
Our quarter-to-quarter performance may vary substantially, and this variance, as well as general market conditions, may cause the price of our securities to fluctuate greatly and potentially
expose us to litigation. Our alfalfa seed business, which is our primary source of revenue, is highly seasonal because it is tied to the growing and harvesting seasons. If sales in particular quarters are lower than
expected, our operating results for these quarters could cause our share price to decline. Our future expense estimates are based, in large part, on estimates of future revenue, which is difficult to predict. We expect to continue to make significant expenditures in order to expand
production, sales, marketing and processes. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected revenue shortfall. If our increased expenses are not
accompanied by increased revenue in the same quarter, our quarterly operating results would be harmed. In one or more future quarters, our results of operations may fall below the expectations of investors or analysts, and the trading price of our securities may decline as a consequence. We believe that
quarter-to-quarter comparisons of our operating results will not be a good indication of our future performance and should not be relied upon to predict the future performance of our stock price. In the past, companies that have experienced volatility in the market price of their stock have often been subject to securities class action litigation. We may be the target of this type of litigation in the
future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business. If we issue shares of preferred stock, the holdings of those owning our common stock could be diluted or subordinated to the rights of the holders of preferred stock. Our board of directors is authorized by our articles of incorporation to establish classes or series of preferred stock and fix the designation, powers, preferences and rights of the shares of
each such class or series without any further vote or action by our stockholders. Any shares of preferred stock so issued could have priority over our common stock with respect to dividend or liquidation
rights. For example, we are obligated to issue shares of preferred stock in the Second Closing of our September 2018 financing and the terms of such shares of preferred stock provide for a liquidation
preference. If these shares of preferred stock are not converted into shares of common stock, they could subordinate your holdings to the higher priority rights of the holders of shares of such preferred
stock. In addition, each share of the preferred stock is, following satisfaction of certain conditions, into 1,000 shares of common stock, and this conversion could cause further dilution to the existing
holders of our common stock. 43
Our actual operating results may differ significantly from our guidance. We routinely release annual guidance in our quarterly earnings releases, our quarterly earnings conference calls and in other forums we consider appropriate. Such guidance regarding our
future performance represents our management's estimates as of the date of release or other communication. This guidance, which includes forward-looking statements, is based on projections prepared
by our management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our independent
registered public accountants nor any other independent expert or outside party compiles or examines the projections, and accordingly, no such person expresses any opinion or any other form of
assurance with respect thereto. Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. If we issue
guidance, we will generally state possible outcomes as high and low ranges or approximations that are intended to provide a sensitivity analysis as variables are changed but are not intended to represent
that actual results could not fall outside of the suggested ranges or approximations. The principal reason that we would release guidance would be to provide a basis for our management to discuss our
business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual
results. Accordingly, our guidance, when given, is only an estimate of what management believes is realizable as of the date of release or other communication. Actual results will vary from our guidance,
and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance in making an investment decision about our securities. We do not anticipate declaring any cash dividends on our common stock. We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings
for use in the operation and expansion of our business. If we do not pay cash dividends, our stock may be less valuable to investors because a return on their investment will only occur if our stock price
appreciates. 44
Anti-takeover provisions and our right to issue preferred stock could make a third-party acquisition of us difficult. Our articles of incorporation and bylaws contain provisions that would make it more difficult for a third party to acquire control of us, including a provision that our board of directors may issue
preferred stock without stockholder approval. In addition, certain anti-takeover provisions of Nevada law, if and when applicable, could make it more difficult for a third party to acquire control of us, even if
such change in control would be beneficial to our stockholders. Item 1B. Unresolved Staff Comments None. 45
The following is a description of our material properties: Location Size Primary Use Leased or Owned Arlington (Columbia County), Wisconsin 25 acres Alfalfa research and development Owned by S&W Drayton, Queensland 3,068 sq. ft. Sunflower and sorghum research and development facilities Leased by S&W Australia Five Points (Fresno County), CA 5 acres Milling facilities Owned by S&W Kern County, CA 584 acres Farmland suitable for farming alfalfa seed and alfalfa hay Leased by S&W Keith, South Australia 8.2 acres Processing facility Owned by S&W Australia Keith, South Australia 38 acres Research farm Leased by S&W Australia Nampa (Canyon County), Idaho 80 acres (approx.) Alfalfa research and development facilities Owned by S&W Nampa (Canyon County), Idaho 16 acres Milling facilities Owned by S&W Nampa (Canyon County), Idaho 8,000 sq. ft. Production warehouse storage Leased by S&W Nampa (Canyon County), Idaho 7,500 sq. ft. Production warehouse storage Leased by S&W Sacramento (Sacramento County), CA 4,885 sq. ft. Corporate headquarters for S&W Leased by S&W Stirling, South Australia 1,690 sq. ft. Corporate headquarters for S&W Australia Leased by S&W Australia 46
We believe that our current facilities are adequate for our needs for the immediate future and that, should it be needed, suitable additional space will be available to accommodate expansion of our
operations on commercially reasonable terms From time to time, we are involved in lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business.
There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows. Item 4. Mine Safety Disclosures Not applicable. 47
PART II
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2018
Market Information Regarding Our Common Stock
Our common stock is traded on the Nasdaq Capital Market under the symbol "SANW." The following table sets forth the range of high and low sales prices per share of common stock as reported on Nasdaq for the periods indicated. The closing price of our common stock on September 17, 2018 was $3.05.
High |
Low |
|||
Year Ended June 30, 2017 |
||||
First Quarter |
$5.14 |
$4.24 |
||
Second Quarter |
5.35 |
4.25 |
||
Third Quarter |
5.00 |
4.15 |
||
Fourth Quarter |
5.20 |
3.80 |
||
Year Ended June 30, 2018 |
||||
First Quarter |
$4.20 |
$2.90 |
||
Second Quarter |
4.00 |
2.90 |
||
Third Quarter |
4.40 |
3.30 |
||
Fourth Quarter |
3.80 |
3.05 |
Holders
As of September 17, 2018, we had 25,956,252 shares of common stock outstanding held by 35 stockholders of record. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record holders.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant. In addition, our credit facility with KeyBank contains restrictions on our ability to pay dividends.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
48
Purchases of Equity Securities by the Issuer and Affiliate Purchasers
None.
Item 6. Selected Financial Data
As a smaller reporting company, we are not required to provide information typically disclosed under this item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8, "Financial Statements" of this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as referred to on page 2 of this Annual Report on Form 10-K. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, "Risk Factors."
Executive Overview
Founded in 1980 and headquartered in Sacramento, California, we are a global agricultural company. Grounded in our historical expertise and what we believe is our present leading position in the breeding, production and sale of alfalfa seed, we continue to build towards our goal of being recognized as the world's preferred proprietary forage, grain and specialty crop seed company. In addition to our primary activities in alfalfa seed, we have recently expanded our product portfolio by adding hybrid sorghum and sunflower seed, which complement our alfalfa seed offerings by allowing us to leverage our infrastructure, research and development expertise and our distribution channels, as we begin to diversify into what we believe are higher margin opportunities. We also continue to conduct our stevia breeding program, having been granted four patents by the U.S. Patent and Trademark Office.
Following our initial public offering in fiscal year 2010, we expanded certain pre-existing business initiatives and added new ones, including:
49
We have accomplished these expansion initiatives through a combination of organic growth and strategic acquisitions, foremost among them:
50
We believe our 2013 combination with S&W Australia created the world's largest non-dormant alfalfa seed company and gave us the competitive advantages of year-round production in that market. With the completion of the acquisition of dormant alfalfa seed assets from DuPont Pioneer in December 2014, we believe we have become the largest alfalfa seed company worldwide (by volume), with industry-leading research and development, as well as production and distribution capabilities in both hemispheres and the ability to supply proprietary dormant and non-dormant alfalfa seed. Our operations span the world's alfalfa seed production regions, with operations in the San Joaquin and Imperial Valleys of California, five additional Western states, Australia and three provinces in Canada.
Our May 2016 acquisition of the hybrid sorghum and sunflower germplasm business and assets of SV Genetics as well as our April 2018 acquisition of a portfolio of sorghum germplasm signals management's commitment to our strategy of identifying opportunities to diversify our product lines and improve our gross margins.
The Asset Purchase and Sale Agreement for the Pioneer Acquisition previously contemplated that, subject to the satisfaction of certain conditions, we would acquire certain GMO germplasm varieties and other related assets from DuPont Pioneer for a purchase price of $7.0 million. The conditions for this additional acquisition were not satisfied by the required date, and DuPont Pioneer has informed us that it does not intend to extend the deadline or complete the transaction at this point in time. As a result, we do not expect to close the acquisition of DuPont Pioneer's GMO germplasm varieties and related assets in the previously disclosed structure or pay the $7,000,000 purchase price.
We continue to have a long-term distribution agreement with DuPont Pioneer regarding conventional (non GMO) varieties, the term of which extends into 2024. Our production agreement with DuPont Pioneer (relating to GMO-traited varieties) terminates on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020. Although the production agreement will terminate on May 31, 2019, the Company expects that the DuPont Pioneer distribution agreement will continue to be a significant source of the Company's annual revenue through December 2024.
We are in discussions with DuPont Pioneer regarding the orderly transition of activities previously conducted by us under the production and research agreements (relating to GMO-traited varieties), as well as the possibility of certain ongoing commercial relationships between us relating to GMO-traited varieties, among other things.
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Components of Our Statements of Operations Data
Revenue and Cost of Revenue
Revenue
We derive most of our revenue from the sale of our proprietary alfalfa seed varieties. We expect that over the next several years, a substantial majority of our revenue will continue to be generated from the sale of alfalfa seed, although we are continually assessing other possible product offerings or means to increase revenue, including expanding into other, higher margin crops. In late fiscal year 2016, we began that expansion with the acquisition of the hybrid sorghum and sunflower business and assets of SV Genetics. Revenue from the SV Genetics germplasm will be primarily derived from the sale of sorghum and sunflower seed as well as royalty-based payments set forth in various licensing agreements.
Fiscal year 2016 was the first full fiscal year in which we had a full range of non-dormant and dormant alfalfa seed varieties. This is expected to enable us to significantly expand the geographic reach of our sales efforts. The mix of our product offerings will continue to change over time with the introduction of new alfalfa seed varieties resulting from our robust research and development efforts, including our potential expansion into gene edited varieties in future periods. Currently, we have a long-term distribution agreement with DuPont Pioneer, which we expect will be the source of a significant portion of our annual revenue through December 2024.
Our revenue will fluctuate depending on the timing of orders from our customers and distributors. Because some of our large customers and distributors order in bulk only one or two times per year, our product revenue may fluctuate significantly from period to period. However, some of this fluctuation is offset by having operations in both the northern and southern hemispheres.
Our stevia breeding program has yet to generate any meaningful revenue. However, management continues to evaluate this portion of our business and assess various means to monetize the results of our effort to breed new, better tasting stevia varieties. Such potential opportunities include possible licensing agreements and royalty-based agreements.
Cost of Revenue
Cost of revenue relates to sale of our seed varieties and consists of the cost of procuring seed, plant conditioning and packaging costs, direct labor and raw materials and overhead costs.
Operating Expenses
Research and Development Expenses
Seed and stevia research and development expenses consist of costs incurred in the discovery, development, breeding and testing of new products incorporating the traits we have specifically selected.
52
These expenses consist primarily of employee salaries and benefits, consultant services, land leased for field trials, chemicals and supplies and other external expenses. With the acquisition of SV Genetics in late fiscal 2016, similar costs are now being incurred as we continue the research and development efforts begun by SV Genetics in the development of new varieties of hybrid sorghum and sunflower seed germplasm. Because we have been in the alfalfa seed breeding business since our inception in 1980, we have expended far more resources in development of our proprietary alfalfa seed varieties throughout our history than on our stevia breeding program, which we commenced in fiscal year 2010.
In fiscal year 2013, we made the decision to shift the focus of our stevia program away from commercial production and towards the breeding of improved varieties of stevia. We have continued that effort, which has resulted in the granting by the USPTO of four patents covering stevia plant varieties SW 107, SW 201, SW 129 and SW 227.
Our research and development expenses increased significantly with the acquisition of the alfalfa research and development assets of DuPont Pioneer in December 2014. We also have expanded our genetics research both internally and in collaboration with third parties. In addition, we acquired additional research and development operations in connection with our May 2016 acquisition of SV Genetics that we expect will factor into an overall increase in R&D expense. Overall, we have been focused on controlling research and development expenses, while balancing that objective against the recognition that continued advancement in product development is an important part of our strategic planning. We expect our research and development expenses will fluctuate from period to period as a result of the timing of various research and development projects.
Our internal research and development costs are expensed as incurred, while third party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or construed for research and development activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses consist primarily of employee costs, including salaries, employee benefits and share-based compensation, as well as professional service fees, insurance, marketing, travel and entertainment expense, public company expense and other overhead costs. We proactively take steps on an ongoing basis to control selling, general and administrative expense as much as is reasonably possible.
Depreciation and Amortization
Most of the depreciation and amortization expense on our statement of operations consists of amortization expense. We amortize intangible assets, including those acquired from DuPont Pioneer in December 2014 and from SV Genetics in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of periods of 10-30 years for technology/IP/germplasm, 10-20 years for customer
53
relationships and trade names and 3-20 years for other intangible assets. Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset, consisting of periods of 5-28 years for buildings, 3-20 years for machinery and equipment and 3-5 years for vehicles.
Other Expense
Other expense consists primarily of foreign currency gains and losses, changes in the fair value of derivative liabilities related to our warrants, changes in the fair value of our contingent consideration obligations and interest expense in connection with amortization of debt discount. In addition, interest expense primarily consists of interest costs related to outstanding borrowings on our credit facilities, including our current KeyBank revolving line of credit and on S&W Australia's credit facilities, our three-year secured promissory note issued in December 2014 in connection with the DuPont Pioneer Acquisition which was paid off on December 1, 2017, and our newly issued secured promissory notes with Conterra Agricultural Capital, LLC ("Conterra").
Provision (Benefit) for Income Taxes
Our effective tax rate is based on income, statutory tax rates, differences in the deductibility of certain expenses and inclusion of certain income items between financial statement and tax return purposes, and tax planning opportunities available to us in the various jurisdictions in which we operate. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. Tax regulations require certain items to be included in the tax return at different times than when those items are required to be recorded in the consolidated financial statements. As a result, our effective tax rate reflected in our consolidated financial statements is different from that reported in our tax returns. Some of these differences are permanent, such as meals and entertainment expenses that are not fully deductible on our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our consolidated statements of operations. In the fourth quarter of fiscal year 2017, we recorded a valuation allowance against all of our deferred tax assets. The full valuation allowance was recorded during the fiscal year 2017 as a result of changes to our operating results and future projections, resulting from a recent decline in export sales to Saudi Arabia. In addition, our available tax planning strategies are currently not expected to overcome the uncertainty of the Saudi Arabian market. As a result of these factors, we don't believe that it is more likely than not that our deferred tax assets will be realized.
54
Results of Operations
Fiscal Year Ended June 30, 2018 Compared to the Fiscal Year Ended June 30, 2017
Revenue and Cost of Revenue
Sales into international markets represented 35% and 45% of revenue during the years ended June 30, 2018 and 2017, respectively. Domestic revenue accounted for 65% and 55% of our total revenue for the years ended June 30, 2018 and 2017, respectively. The increase in domestic revenue as a percentage of total revenue is primarily attributable to reduced sales to customers in Saudi Arabia.
We recorded sales of approximately $39.5 million from our distribution and production agreements with DuPont Pioneer during the year ended June 30, 2018, which was an increase of $2.6 million from the prior year amount of $36.9 million. Our production agreement with DuPont Pioneer (relating to GMO-traited varieties) terminates on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020. Although the production agreement will terminate on May 31, 2019, we expect sales to DuPont Pioneer under our distribution agreement will continue to represent a significant portion of our domestic sales, as well as overall sales, through December 2024.
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The following table shows revenue from external sources by destination country:
Years Ended June 30, |
||||||||
2018 |
2017 |
|||||||
United States | $ | 41,662,556 | 65% | $ | 41,505,305 | 55% | ||
Mexico | 4,932,105 | 8% | 4,749,315 | 6% | ||||
Sudan | 3,178,039 | 5% | 2,747,923 | 4% | ||||
Argentina | 2,748,492 | 4% | 2,881,050 | 4% | ||||
Peru | 1,844,898 | 3% | 1,230,999 | 2% | ||||
Saudi Arabia | 1,461,368 | 2% | 12,055,276 | 16% | ||||
Australia | 1,242,957 | 2% | 1,882,899 | 2% | ||||
Italy | 938,252 | 1% | 151,415 | 0% | ||||
Libya | 936,423 | 1% | 158,500 | 0% | ||||
South Africa | 802,629 | 1% | 1,190,789 | 2% | ||||
Other | 4,337,791 | 8% | 6,820,338 | 9% | ||||
Total | $ | 64,085,510 | 100% | $ | 75,373,810 | 100% |
Cost of revenue of $49,332,052 for the year ended June 30, 2018 was 77.0% of revenue, while the cost of revenue of $59,232,846 for the year ended June 30, 2017 was 78.6% of revenue. Cost of revenue decreased on a dollar basis primarily due to the decrease in revenue as well as a reduction in product costs.
Total gross profit margin for the fiscal year ended June 30, 2018 was 23.0% compared to 21.4% in the prior year. The increase in gross profit margins was primarily due to product sales mix during the current year where we had a higher concentration of sales, as a percentage of total revenue, to DuPont Pioneer which are higher margin sales. Additionally, the product costs of proprietary seed are lower in the current year due to more favorable production contracts and arrangements.
Selling, General and Administrative Expenses
Selling, General and Administrative ("SG&A") expense for the year ended June 30, 2018 totaled $10,503,020 compared to $11,794,024 for the year ended June 30, 2017. The $1.3 million decrease in SG&A expense versus the prior year was primarily due to a decrease in stock-based compensation of $660,852, a decrease in bad debt expense of $370,610 as well as other expense reductions. As a percentage of revenue, SG&A expenses were 16.4% in the year ended June 30, 2018, compared to 15.6% in the prior year.
Research and Development Expenses
Research and development expenses for the year ended June 30, 2018 totaled $3,887,723 compared to $3,032,112 for the year ended June 30, 2017. The $855,611 increase in research and development expense versus the prior year is driven by additional investment in our hybrid sorghum and sunflower programs as well as our stevia program. We expect our research and development spend for fiscal 2019 to increase as we expand our hybrid sorghum and sunflower programs.
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Depreciation and Amortization
Depreciation and amortization expense for the year ended June 30, 2018 was $3,439,287 compared to $3,325,743 for the year ended June 30, 2017. Included in the amount was amortization expense for intangible assets, which totaled $2,124,333 for the year ended June 30, 2018 and $2,223,909 for the year ended June 30, 2017. The $113,544 increase in depreciation and amortization expense over the prior year is primarily driven by additional depreciation expense associated with fixed asset additions.
Impairment Charges
We did not record an impairment charge during the year ended June 30, 2018. During the year ended June 30, 2017, we recorded an impairment charge of $319,001. The impairment charge related to the carrying value of certain stand establishment assets which were deemed impaired and uncollectible from a certain sub-leasee.
Foreign Currency (Gain) Loss
We incurred a foreign currency gain of $12,584 for the year ended June 30, 2018 compared to a loss of $1,388 for the year ended June 30, 2017. The foreign currency gains and losses are associated with S&W Australia, our wholly-owned subsidiary in Australia.
Change in Derivative Warrant Liability
The derivative warrant liability was considered a level 3 fair value financial instrument and was measured at each reporting period until December 31, 2017 at which time the warrants were reclassified to equity due to the expiration of the down-round price protection provision. We recorded a non-cash change in derivative warrant liability gain of $431,300 in the year ended June 30, 2018 compared to a gain of $1,517,500 in the year ended June 30, 2017. The gain represents the decrease in fair value of the outstanding warrants issued in December 2014.
Change in Contingent Consideration Obligations
The contingent consideration obligations are considered level 3 fair value financial instruments and will be measured at each reporting period. There was no contingent consideration obligation expense during the year ended June 30, 2018. The $231,584 charge to change in contingent consideration obligations expense for the year ended June 30, 2017 represented the increase in the estimated fair value of the contingent consideration obligations during that respective period due to the decrease in the present value discount factor used to estimate the fair value of the contingent consideration obligations.
Loss on Equity Method Investment
Loss on equity method investment totaled $0 and $144,841 for the years ended June 30, 2018 and 2017, respectively. The loss in the prior year represented our 50% share of losses incurred by our joint corporation (S&W Semillas S.A.) in Argentina. Our carrying value in the equity method investee company was reduced to zero in fiscal 2017, accordingly, no further losses will be recorded in our consolidated financial statements related to this equity method investment.
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Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the year ended June 30, 2018 was $169,045 compared to $1,176,023 for the year ended June 30, 2017. The expense in the current period represents the amortization of the debt issuance costs associated with our KeyBank working capital facility and our secured property and equipment notes with Conterra. The expense in the prior year represents the amortization of the debt discount, beneficial conversion feature and debt issuance costs associated with the convertible debentures issued December 31, 2014 and the debt issuance costs associated with our KeyBank working capital facility. As of March 1, 2017, the convertible debentures have been fully retired and accordingly, the amortization of debt discount associated with the convertible debentures is complete.
Interest Expense
Interest expense for the year ended June 30, 2018 totaled $1,863,288 compared to $1,324,945 for the year ended June 30, 2017. Interest expense for the year ended June 30, 2018 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, and the new secured property and equipment loans entered into in November 2017. Interest expense for the year ended June 30, 2017 primarily consisted of interest incurred on the convertible debentures issued on December 31, 2014, on the note payable issued to DuPont Pioneer as part of the purchase consideration for the DuPont Pioneer Acquisition and the working capital credit facilities with KeyBank and NAB. The $538,343 increase in interest expense for the year ended June 30, 2018 is primarily driven by $592,128 of interest on the secured property and equipment loans as well as higher interest rates on the working capital credit facilities partially offset by a $150,000 reduction in interest expense from the pay-off of the DuPont Pioneer note and a $168,769 reduction in interest expense from the pay-off of the convertible debentures.
Income tax expense totaled $143,049 for the year ended June 30, 2018 compared to income tax expense of $7,627,705 for the year ended June 30, 2017. Our effective tax rate was (3.1%) for the year ended June 30, 2018 compared to 181.9% for the year ended June 30, 2017. The decrease in our effective tax rate for the year ended June 30, 2018 was primarily attributable to the full valuation allowance recorded against substantially all of our deferred tax assets in the year ended June 30, 2017. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operating results, as such results are generally incorporated in our net operating loss deferred tax asset position, which has a full valuation allowance against it. However, we did record tax expense related to certain other factors occurring throughout the year. For example, we have certain intangible assets with indefinite lives for financial reporting purposes. The write down of these assets cannot be assumed and thus, the deferred tax liability created by the difference in the basis in these assets for financial reporting and tax purposes cannot be used as a source of taxable income against our deferred tax assets. The increase in the deferred tax liability due to the yearly tax amortization on these intangible
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assets is recorded as income tax expense. We also analyzed additional information related to our tax return filings in the third quarter of fiscal 2018. To the extent that differences arise between the filed tax returns and the estimates of tax return filings that are completed during the preparation of the prior year financial statements, these differences are generally recorded in the quarter that they arise and are commonly referred to as provision to return adjustments. Such adjustments related to our Australian tax return filings also generated additional income tax expense for the year ended June 30, 2018.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act reduced the corporate tax rate from the maximum federal statutory rate of 35% to 21%. The Tax Act states that the 21% corporate tax rate is effective for tax years beginning on or after January 1, 2018. However, existing tax law, which was not amended under the Tax Act, governs when a change in tax rate is effective. Existing tax law provides that if the taxable year includes the effective date of any rate change (unless the change is the first date of the taxable year), taxes should be calculated by applying a blended rate to the taxable income for the year. Our blended federal rate is 27.6%. As a result of the new law, we have concluded that our deferred tax assets will need to be revalued. Our deferred tax assets represent a reduction in corporate taxes that are expected to be paid in the future. As a result of the Tax Act, we have estimated a reduction to the value of our deferred tax assets which is almost entirely offset by a reduction to our valuation allowance for the year ended June 30, 2018. The net impact of the decrease to both the deferred tax assets and the valuation allowance will be a remeasuring of our net deferred tax liability associated with indefinite lived intangibles for which we cannot predict a reversal into taxable income. In conjunction with the tax law changes, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. We have recognized the provisional tax impacts related to deemed repatriated earnings, the potential impact of new section 162(m) rules on our deferred tax balances, and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended June 30, 2018. The aforementioned provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act, (ii) potential additional guidance from the Securities and Exchange Commission or the FASB related to the Act and (iii) management's further assessment of the Act and related regulatory guidance.
In addition to the impacts described above, the Tax Act also allows for one hundred percent expensing of the cost of qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. We do not plan to take advantage of this provision for the near term and have the option of opting out of this provision. In addition, net operating losses incurred in tax years beginning after December 31, 2017 are only allowed to offset a taxpayer's taxable income by eighty percent, but those net operating losses are allowed to be carried forward indefinitely with no expiration. Also, as part of the Tax Act, our net interest expense deductions are limited to 30% of earnings before interest, taxes, depreciation, and amortization through 2021 and of earnings before interest and taxes thereafter. This provision also takes effect for tax years beginning after 2017 and isn't expected to have a material impact to our deferred tax asset position. The Tax Act also incorporates changes to certain international tax
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provisions. There is a one-time transition tax on foreign income earned by subsidiaries at a rate of 15.5% for cash and cash equivalents and at a rate of 8% for the remainder of the foreign earnings. There is a provision for the current inclusion in US taxable income of global intangible low-tax income and also the imposition of a tax equal to its base erosion minimum tax amount. The new laws incorporate a potential benefit for foreign derived intangible income, but the benefit only applies if the foreign derived sales and services income exceeds a calculated 'routine return' and if we have taxable income. We do not currently anticipate that any of the foreign provisions will have an impact to our tax accounts. The Company is not complete in its assessment of the impact of the Tax Act on its business and financial statements. While the effective date of most of the provisions of the Tax Act do not apply until the Company's tax year beginning July 1, 2018, we will continue the assessment of the impact of the Tax Act on our business and financial statements throughout the one-year measurement period as provided by ASC 740.
Liquidity and Capital Resources
Our working capital and working capital requirements fluctuate from quarter to quarter depending on the phase of the growing and sales cycle that falls during a particular quarter. Our need for cash has historically been highest in the second and third fiscal quarters (October through March) because we historically have paid our North American contracted growers progressively, starting in the second fiscal quarter. In fiscal year 2018, we paid our North American growers approximately 50% in October 2017 and the balance was paid in February 2018. This payment cycle to our growers was similar in fiscal year 2017. S&W Australia, our Australian-based subsidiary, has a production cycle that is counter-cyclical to North America; however, this also puts a greater demand on our working capital and working capital requirements during the second, third and fourth fiscal quarters based on timing of payments to growers in the second through fourth quarters.
Historically, due to the concentration of sales to certain distributors, our month-to-month and quarter-to-quarter sales and associated cash receipts are highly dependent upon the timing of deliveries to and payments from these distributors, which varies significantly from year to year. The timing of collection of receivables from DuPont Pioneer, which is our largest customer, is defined in the distribution agreement with DuPont Pioneer and consists of three installment payments, the first on September 15th, the second on January 15th, and the third payment on February 15th. Our future revenue and cash collections pertaining to the distribution agreement with DuPont Pioneer is expected to provide us with greater predictability.
We continuously monitor and evaluate our credit policies with all of our customers based on historical collection experience, current economic and market conditions and a review of the current status of the respective trade accounts receivable balance. Our principal working capital components include cash and cash equivalents, accounts receivable, inventory, prepaid expense and other current assets, accounts payable and our working capital lines of credit.
In addition to funding our business with cash from operations, we have historically relied upon occasional sales of our debt and equity securities and credit facilities from financial institutions, both in the United States and South Australia.
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In recent periods, we have consummated the following equity and debt financings:
On December 31, 2014, in connection with the Pioneer Acquisition, we issued a secured promissory note (the "Pioneer Note") payable by us to DuPont Pioneer in the initial principal amount of $10,000,000 (issued at closing), and a potential earn-out payment (payable as an increase in the principal amount of the Pioneer Note) of up to $5,000,000 based on our sales under the distribution and production agreements entered into in connection with the Pioneer Acquisition, as well as other sales of products we consummate containing the acquired germplasm in the three-year period following the closing. The earn-out payment of $2,500,000 to DuPont Pioneer was finalized in October 2017 and this amount was added to the Pioneer Note in October 2017. The Pioneer Note accrued interest at 3% per annum. Interest was payable in three annual installments, in arrears, commencing on December 31, 2015. On December 1, 2017, we repaid the Pioneer Note. The repayment amount included the $2.5 million earn-out payment related to the Pioneer Acquisition that was added to the principal amount of the Pioneer Note in October 2017.
On November 30, 2017, we entered into a secured note financing transaction (the "Loan Transaction") with Conterra for $12.5 million in gross proceeds. Pursuant to the Loan Transaction, we issued two secured promissory notes (the "Notes") to Conterra as follows:
On December 1, 2017, we used the proceeds from the Loan Transaction to repay the Pioneer Note.
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On August 15, 2018, we closed on a sale-leaseback transaction with American AgCredit involving certain equipment located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the sale-leaseback transaction:
On September 22, 2015, we entered into a credit and security agreement (the "KeyBank Credit Facility") with KeyBank. Key provisions of the KeyBank Credit Facility, as amended, include:
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S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facility with National Australia Bank Ltd ("NAB"). The current facility, referred to as the 2016 NAB Facilities, was amended as of April 13, 2018 and expires on March 30, 2020. As of June 30, 2018, AUD $10,400,000 (USD $7,697,040) was outstanding under the 2016 NAB Facilities.
The 2016 NAB Facilities, as currently in effect, comprises two distinct facility lines: (i) an overdraft facility (the "Overdraft Facility"), having a credit limit of AUD $1,000,000 (USD $740,100 at June 30, 2018) and a borrowing base facility (the "Borrowing Base Facility"), having a credit limit of AUD $12,000,000 (USD $8,881,200 at June 30, 2018).
Both facilities constituting the 2016 NAB Facilities are secured by a fixed and floating lien over all the present and future rights, property and undertakings of S&W Australia and are guaranteed by us as noted above. The 2016 NAB Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia's outstanding obligations, all as set forth in the NAB facility agreements. S&W Australia was in compliance with all NAB debt covenants at June 30, 2018.
In January 2015, NAB and S&W Australia entered into a new business markets - flexible rate loan (the "Keith Building Loan") and a separate machinery and equipment facility (the "Keith Machinery and Equipment Facility"). In February 2016, NAB and S&W Australia also entered into a master asset finance facility (the "Master Assets Facility"). The Master Asset Facility has various maturity dates through 2021 and have interest rates ranging from 4.86% to 5.31%.
The Keith Building Loan and Keith Machinery and Equipment Facility are used for the construction of a building on S&W Australia's Keith, South Australia property, purchase of adjoining land and for the machinery and equipment for use in the operations of the building. The Keith Building Loan matures on November 30, 2024. The interest rate on the Keith Building Loan varies from pricing period to pricing period (each such period approximately 30 days), based on the weighted average of a specified basket of interest rates (6.31% as of June 30, 2018). Interest is payable each month in arrears. The Keith Machinery and Equipment Facility bears interest, payable in arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus 2.9%. The Keith Credit Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia's outstanding obligations, all as set forth in the facility agreement. They are secured by a lien on all the present and future rights, property and undertakings of S&W Australia, our corporate guarantee and a mortgage on S&W Australia's Keith, South Australia property.
On July 19, 2017, we entered into a Securities Purchase Agreement with certain purchasers, pursuant to which we sold and issued an aggregate of 2,685,000 shares of our Common Stock at a purchase price of $4.00 per share, for aggregate gross proceeds of $10.74 million.
On October 11, 2017, we entered into a Securities Purchase Agreement with Mark W. Wong, our President and Chief Executive Officer, pursuant to which we sold and issued an aggregate of 75,000 shares of our Common Stock at a purchase price of $3.50 per share, for aggregate gross proceeds of $262,500.
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On December 22, 2017, we completed the closing of our rights offering of 3,500,000 shares of our Common Stock. At the closing, we sold and issued an aggregate of 2,594,923 shares of our Common Stock at a subscription price of $3.50 per share (the "Subscription Price"). Pursuant to a backstop commitment with MFP Partners, L.P. ("MFP"), concurrently with the closing of rights offering, we sold and issued the remaining 905,077 shares of our Common Stock not purchased in the rights offering to MFP at the subscription price of $3.50 per share. Combined, we sold and issued an aggregate of 3,500,000 shares of our common stock for aggregate gross proceeds of $12.25 million.
On September 5, 2018, we entered into a Securities Purchase Agreement with MFP, pursuant to which we sold 1,607,717 shares of our common stock to MFP at a purchase price of $3.11 per share at an initial closing held on September 5, 2018, for gross proceeds of approximately $5.0 million. In addition, subject to the satisfaction of certain conditions, we agreed to sell and issue to MFP 7,235 shares of newly designated Series A Convertible Preferred Stock at a purchase price of $3,100 per share at a second closing (the "Second Closing"). The consummation of the Second Closing is contingent upon, among other things, certain conditions to the closing of the Chromatin Acquisition having been satisfied or reasonably expected to be satisfied.
Summary of Cash Flows
The following table shows a summary of our cash flows for the years ended June 30, 2018 and 2017:
Years Ended | ||||||
June 30, | ||||||
2018 | 2017 | |||||
Cash flows from operating activities | $ | (22,200,241) | $ | (10,300,160) | ||
Cash flows from investing activities | (1,436,511) | (2,239,188) | ||||
Cash flows from financing activities | 27,342,196 | 6,202,881 | ||||
Effect of exchange rate changes on cash | (129,551) | 176,968 | ||||
Net increase (decrease) in cash and cash equivalents | 3,575,893 | (6,159,499) | ||||
Cash and cash equivalents, beginning of period | 745,001 | 6,904,500 | ||||
Cash and cash equivalents, end of period | $ | 4,320,894 | $ | 745,001 |
Operating Activities
For the year ended June 30, 2018, operating activities used $22,200,241 in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $48,491 in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used $22,151,750 in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by increases in inventory of $29,860,271 due to an increase in production coupled with a decrease in revenue, partially offset by a decrease in accounts receivable of $9,207,302.
For the year ended June 30, 2017, operating activities used $10,300,160 in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows provided $1,602,136 in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used
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$11,902,296 in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by an increase in inventories of $9,343,989 and a decrease in accounts payable (including related parties) of $7,464,977 partially offset by a decrease in accounts receivable of $4,110,609.
Investing Activities
Investing activities during the year ended June 30, 2018 used $1,436,511 in cash. These activities consisted primarily of additions to a build out of a new research and development facility in Nampa, Idaho as well as the acquisition of germplasm assets.
Investing activities during the year ended June 30, 2017 used $2,239,188 in cash. These activities consisted primarily of additions to a build out of a new research and development facility in Nampa, Idaho and investment in internal use software. The sale of farmland generated net proceeds of approximately $0.9 million.
Financing Activities
Financing activities during the year ended June 30, 2018 provided $27,342,196 in cash. We completed two separate private placements of common stock during the year ended June 30, 2018 which raised net proceeds of $10.7 million in cash. In December 2017, we also completed the closing of our rights offering and backstop commitment with MFP. Pursuant to the rights offering and backstop commitment with MFP, we sold and issued an aggregate of 3,500,000 shares of our common stock in December 2017 for aggregate net proceeds of $11.8 million. On November 30, 2017, we entered into a secured note financing transaction for $12.5 million in gross proceeds. The proceeds from the secured note financing were used to repay the Pioneer Note. The repayment amount included the $2.5 million earn-out payment related to the Pioneer Acquisition that was added to the principal amount of the Pioneer Note in October 2017.
Financing activities during the year ended June 30, 2017 provided $6,202,881 in cash. We had net borrowings of $10.5 million on our lines of credit and made $4.7 million of redemptions on our convertible debentures. We also generated $0.6 million in net proceeds from the exercise of stock options during the nine months ended June 30, 2017.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations, including our revenue and income from continuing operations. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the year ended June 30, 2018.
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Capital Resources and Requirements
Our future liquidity and capital requirements will be influenced by numerous factors, including:
Critical Accounting Policies
The accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated financial statements.
In preparing our financial statements, we must select and apply various accounting policies. Our most significant policies are described in Note 2 - Summary of Significant Accounting Policies of the footnotes to the consolidated financial statements. In order to apply our accounting policies, we often need to make estimates based on judgments about future events. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition and changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection of our critical accounting estimates, and our disclosure regarding them, with the audit committee of our board of directors, and do so on a regular basis.
We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our results of operations, financial condition or changes in financial condition for the current period could have been materially different from those presented.
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Intangible Assets
All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is reduced by the estimated cash-flow shortfall on a discounted basis, and a corresponding loss is charged to the consolidated statement of operations. Significant changes in key assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized or expected to be utilized could result in an impairment charge.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718 Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the employee's requisite service period (generally the vesting period of the equity grant).
We account for equity instruments, including stock options issued to non-employees, in accordance with authoritative guidance for equity-based payments to non-employees (FASB ASC 505-50). Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest.
We utilize the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under share-based compensation plans. The Black-Scholes-Merton model requires us to estimate a variety of factors including, but not limited to, the expected term of the award, stock price volatility, dividend rate, risk-free interest rate. The input factors to use in the valuation model are based on subjective future expectations combined with management judgment. The expected term used represents the weighted-average period that the stock options are expected to be outstanding. We have used the historical volatility for our stock for the expected volatility assumption required in the model, as it is more representative of future stock price trends. We use a risk-free interest rate that is based on the implied yield available on U.S. Treasury issued with an equivalent remaining term at the time of grant. We have not paid dividends in the past and currently do not plan to pay any dividends in the foreseeable future, and as such, dividend yield is assumed to be zero for the purposes of valuing the stock options granted. We evaluate the assumptions used to value stock awards on a quarterly basis. If factors change, and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. When there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. To the extent that we grant additional equity securities to employees, our share-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants.
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Income Taxes
We regularly assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established or increased, an income tax charge is included in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws, statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the remaining deferred tax asset and increase the tax provision, resulting in a reduction of earnings and stockholders' equity.
Inventories
All inventories are accounted for on a lower of cost or net realizable value. Inventories consist of raw materials and finished goods. Depending on market conditions, the actual amount received on sale could differ from our estimated value of inventory. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. The factors include the age of inventory, the amount of inventory held by type, future demand for products and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. We perform a review of our inventory by product line on a quarterly basis.
Our subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year's sales cycle pursuant to its standard contract production agreement. We record an estimated unit price accordingly, inventory, cost of revenue and gross profits are based upon management's best estimate of the final purchase price to our S&W Australia growers. To the extent the estimated purchase price varies from the final purchase price for seed, the adjustment to actual could materially impact the results in the period when the difference between estimates and actuals are identified. If the actual purchase price is in excess of our estimated purchase price, this would negatively impact our financial results including a reduction in gross profits and earnings.
Allowance for Doubtful Accounts
We regularly assess the collectability of receivables and provide an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer's trade accounts receivable. Our estimates are judgmental in nature and are made at a point in time. Management believes the allowance for doubtful accounts is appropriate to cover anticipated losses in our accounts receivable under current conditions; however, unexpected, significant deterioration in any of the factors mentioned above or in general economic conditions could materially change these expectations.
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Item 7A. Qualitative and Quantitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide information typically disclosed under this item.
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Index to Consolidated Financial Statements
Page |
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Report of Independent Registered Public Accounting Firm |
71 |
Consolidated Balance Sheets at June 30, 2018 and 2017 |
72 |
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2018 and 2017 |
73 |
Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended June 30, 2018 and 2017 |
74 |
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended June 30, 2018 and 2017 |
75 |
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2018 and 2017 |
76 |
Notes to Consolidated Financial Statements |
77 |
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Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors of S&W Seed Company
Sacramento, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of S&W Seed Company (the "Company") as of June 30, 2018 and 2017, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period ended June 30, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Crowe LLP
We have served as the Company's auditor since 2015.
San Francisco, California
September 20, 2018
71
S&W SEED COMPANY
CONSOLIDATED BALANCE SHEETS
|
|
|
June 30, |
|
|
June 30, |
2018 | 2017 | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 4,320,894 | $ | 745,001 | ||
Accounts receivable, net | 13,861,932 | 23,239,325 | ||||
Inventories, net | 60,419,276 | 31,489,945 | ||||
Prepaid expenses and other current assets | 1,279,794 | 1,249,921 | ||||
TOTAL CURRENT ASSETS | 79,881,896 | 56,724,192 | ||||
Property, plant and equipment, net | 13,180,132 | 13,581,576 | ||||
Intangibles, net | 33,109,780 | 34,939,079 | ||||
Goodwill | 10,292,265 | 10,292,265 | ||||
Other assets | 1,303,135 | 1,563,176 | ||||
TOTAL ASSETS | $ | 137,767,208 | $ | 117,100,288 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable | $ | 5,935,454 | $ | 7,157,745 | ||
Accounts payable - related parties | - | 331,694 | ||||
Deferred revenue | 212,393 | 880,326 | ||||
Accrued expenses and other current liabilities | 3,114,799 | 2,733,718 | ||||
Lines of credit, net | 32,630,559 | 27,399,784 | ||||
Current portion of contingent consideration obligation | - | 2,500,000 | ||||
Current portion of long-term debt, net | 503,012 | 10,309,664 | ||||
TOTAL CURRENT LIABILITIES | 42,396,217 | 51,312,931 | ||||
Long-term debt, net, less current portion | 12,977,087 | 1,096,155 | ||||
Derivative warrant liabilities | - | 2,836,600 | ||||
Other non-current liabilities | 651,780 | 632,947 | ||||
TOTAL LIABILITIES | 56,025,084 | 55,878,633 | ||||
STOCKHOLDERS' EQUITY | ||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized; | ||||||
no shares issued and outstanding | - | - | ||||
Common stock, $0.001 par value; 50,000,000 shares authorized; | ||||||
24,367,906 issued and 24,342,906 outstanding at June 30, 2018; | ||||||
18,004,681 issued and 17,979,681 outstanding at June 30, 2017; | 24,367 | 18,004 | ||||
Treasury stock, at cost, 25,000 shares | (134,196) | (134,196) | ||||
Additional paid-in capital | 108,803,991 | 83,312,518 | ||||
Accumulated deficit | (21,161,376) | (16,436,286) | ||||
Accumulated other comprehensive loss | (5,790,662) | (5,538,385) | ||||
TOTAL STOCKHOLDERS' EQUITY | 81,742,124 | 61,221,655 | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 137,767,208 | $ | 117,100,288 |
See notes to consolidated financial statements.
72
S&W SEED COMPANY
Years Ended June 30, 2018 2017 See notes to consolidated financial statements. 73
S&W SEED COMPANY
See notes to consolidated financial statements. 74
S&W SEED COMPANY
See notes to consolidated financial statements. 75
S&W SEED COMPANY
See notes to consolidated financial statements. 76
S&W SEED COMPANY NOTE 1 - BACKGROUND AND ORGANIZATION Organization S&W Seed Company, a Nevada corporation (the "Company"), began as S&W Seed Company, a general partnership, in 1980 and was originally in the business of
breeding, growing, processing and selling alfalfa seed. We then incorporated a corporation with the same name in Delaware in October 2009, which is the successor entity to Seed Holding, LLC,
having purchased a majority interest in the general partnership between June 2008 and December 2009. Following the Company's initial public offering in May 2010, the Company purchased the
remaining general partnership interests and became the sole owner of the general partnership's original business. Seed Holding, LLC remains a consolidated subsidiary of the Company. In December 2011, the Company reincorporated in Nevada as a result of a statutory short-form merger of the Delaware corporation into its wholly-owned subsidiary, S&W Seed Company, a
Nevada corporation. On April 1, 2013, the Company, together with its wholly-owned subsidiary, S&W Holdings Australia Pty Ltd, an Australia corporation (f/k/a S&W Seed Australia Pty Ltd "S&W
Holdings"), consummated an acquisition of all of the issued and outstanding shares of Seed Genetics International Pty Ltd, an Australia corporation ("SGI"), from SGI's shareholders. In
April 2018, SGI changed its name to S&W Seed Company Australia Pty Ltd ("S&W Australia"). Business Overview Since its establishment, the Company, including its predecessor entities, has been principally engaged in breeding, growing, processing and selling agricultural seeds, primarily alfalfa seed.
The Company owns seed cleaning and processing facilities, which are located in Five Points, California, Nampa, Idaho and Keith, South Australia. The Company's seed products are primarily grown
under contract by farmers. The Company began its stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties of stevia and developing marketing and distribution programs
for its stevia products. The Company has also been actively engaged in expansion initiatives through a combination of organic growth and strategic acquisitions, including in December 31, 2014, when the Company
purchased certain alfalfa research and production facilities and conventional (non-GMO) alfalfa germplasm assets and assumed certain related liabilities ("the Pioneer Acquisition") of Pioneer
Hi-Bred International, Inc. ("DuPont Pioneer"). The Company has a long-term distribution agreement with DuPont Pioneer regarding conventional (non-GMO) varieties, the term of which extends into 2024. The Company's production agreement
with DuPont Pioneer (relating to GMO-traited varieties) terminates on May 31, 2019. Although the production agreement will terminate on May 31, 2019, the Company expects that the DuPont Pioneer
distribution agreement will continue to be a significant source of the Company's annual revenue through December 2024. 77
In May 2016, the Company acquired the assets and business of SV Genetics, a private Australian company specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower
seed germplasm, which represented the Company's initial effort to diversify its product portfolio beyond alfalfa seed and stevia. The Company's operations span the world's alfalfa seed production regions with operations in the San Joaquin and Imperial Valleys of California, five other U.S. states, Australia, and three provinces
in Canada, and the Company sells its seed products in more than 30 countries around the globe. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The Company maintains its accounting records on an accrual basis in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of Seed Holding, LLC and its other wholly-owned subsidiaries, S&W Holdings, which owns 100% of S&W Australia, and Stevia
California, LLC. All significant intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include
allowance for doubtful trade receivables, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the
Company), contingent consideration obligations, derivative liabilities, contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of
depreciable tangible and certain intangible assets, goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect
income, financial position or cash flows. Certain Risks and Concentrations The Company's revenue is principally derived from the sale of alfalfa seed, the market for which is highly competitive. The Company depends on a core group of significant customers. One
customer accounted for 62% of its revenue for the year ended June 30, 2018. Two customers accounted for 58% of its revenue for the year ended June 30, 2017. 78
One customer accounted for 35% of the Company's accounts receivable at June 30, 2018. Two customers accounted for 52% of the Company's accounts receivable at June 30, 2017. In addition, the Company sells a substantial portion of its products to international customers. Sales to international markets represented 35% and 45% of revenue during the years ended June 30,
2018 and 2017, respectively. The net book value of fixed assets located outside the United States was 20% and 19% of total assets at June 30, 2018 and June 30, 2017, respectively. Cash balances
located outside of the United States may not be insured and totaled $369,803 and $192,879 at June 30, 2018 and June 30, 2017, respectively. The following table shows revenue from external sources by destination country: Years Ended June 30, 2018 2017 International Operations The Company translates its foreign operations' assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and
income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a
component of accumulated other comprehensive income. Gains or losses from foreign currency transactions are included in the consolidated statement of operations. Revenue Recognition The Company derives its revenue primarily from sale of seed and other crops and milling services. Revenue from seed and other crop sales is recognized when risk and title to the product is
transferred to the customer. 79
The Company recognizes revenue from milling services according to the terms of the sales agreements and when delivery has occurred, performance is complete and pricing is fixed or determinable
at the time of sale. Additional conditions for recognition of revenue for all sales include the requirements that the collection of sales proceeds must be reasonably assured based on historical experience and current
market conditions, the sales price is fixed and determinable and that there must be no further performance obligations under the sale. Cost of Revenue The Company records purchasing and receiving costs, inspection costs and warehousing costs in cost of revenue. When the Company is required to pay for outward freight and/or the costs
incurred to deliver products to its customers, the costs are included in cost of revenue. Cash and Cash Equivalents For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to
be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation. Accounts Receivable The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic
and market conditions and a review of the current status of each customer's trade accounts receivable. The allowance for doubtful trade receivables was $584,202 and $526,495 at June 30, 2018 and
June 30, 2017, respectively. Inventories Inventories consist of seed and packaging materials. Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to
value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at
actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company
records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods
based on the normal capacity of the production facilities. 80
The Company's subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year's sales cycle pursuant to its standard contract production
agreement. S&W Australia records an estimated unit price; accordingly, inventory, cost of revenue and gross profits are based upon management's best estimate of the final purchase price to
growers. Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is
identified. Because the germination rate, and therefore the quality, of alfalfa seed improves over the first year of proper storage, inventory obsolescence for alfalfa seed is not a material concern. The
Company sells its inventory to distributors, dealers and directly to growers. Components of inventory are: Property, Plant and Equipment Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of 5-28 years for buildings, 3-20 years for machinery and
equipment, and 3-5 years for vehicles. Intangible Assets Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the
estimated useful life of the asset. Periods of 10-30 years for technology/IP/germplasm, 10-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average
estimated useful lives are 26 years for technology/IP/germplasm, 18 years for customer relationships and 20 years for trade names and other intangible assets. Goodwill originated from acquisitions of Imperial Valley Seeds, Inc. ("IVS") and S&W Australia in fiscal year 2013, the acquisition of the alfalfa business from DuPont Pioneer
in fiscal year 2015 and the acquisition of assets of SV Genetics in fiscal year 2016. Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value
measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion
of the business, or other factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair
81
value of a reporting unit is less than its carrying amount,
including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a two-step quantitative goodwill
impairment test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The
Company uses market capitalization and an estimate of a control premium to estimate the fair value of its one reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the
carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit. The Company performed a quantitative assessment of goodwill at June 30, 2018 and 2017 and determined that goodwill was not impaired. Equity Method Investments Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the
Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company's board of directors and
ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company's accounts are not reflected within
the Company's consolidated balance sheets and statements of operations; however, the Company's share of the earnings or losses of the investee company is reflected in the caption ``Loss on equity
method investment'' in the consolidated statements of operations. The Company's carrying value in an equity method investee company is included in the Company's consolidated balance sheets. When
the Company's carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company's consolidated financial statements unless the Company
guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until
it equals the amount of its share of losses not previously recognized. Cost Method Investments Investee companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company's
share of the earnings or losses of such investee companies is not included in the consolidated balance sheet or statement of operations. However, impairment charges are recognized in the consolidated
statement of operations. If circumstances suggest that the value of the investee company has subsequently recovered, such recovery is not recorded. 82
Research and Development Costs The Company is engaged in ongoing research and development ("R&D") of proprietary seed and stevia varieties. All R&D costs must be charged to expense as incurred.
Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results have been achieved. The
costs associated with equipment or facilities acquired or constructed for R&D activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated
useful life of the asset. Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities, as well as a consideration of net operating loss
and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce
deferred tax assets to the amount that is more likely than not to be realized. The Company's effective tax rate for the years ended June 30, 2018 and 2017 has been effected by the valuation allowance on
the Company's deferred tax assets. Net Income (Loss) Per Common Share Data Basic net income (loss) per common share ("EPS"), is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting both the numerator (net income (loss)) and the denominator (weighted-average number of shares outstanding) for the dilutive effects of potentially dilutive
securities, including options, restricted stock awards, convertible debt and common stock warrants. The calculation of Basic and Diluted EPS is shown in the table below. Classes of securities identified in the table with no adjustments in the calculation of Diluted EPS were determined to be
antidilutive for the applicable periods. 83
Impairment of Long-Lived Assets The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable
changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets
based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows
resulting from the use and ultimate disposition of the asset. 84
Derivative Financial Instruments Foreign Exchange Contracts The Company's subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the
use of foreign currency forward contracts. The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815,
"Derivatives and Hedging", which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured
at fair value. The Company's foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period
earnings. Derivative Liabilities The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion
options and redemption options, which are required to be bifurcated and accounted for separately as derivative financial instruments. Fair Value of Financial Instruments The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier fair value hierarchy, as follows: No assets or liabilities were valued at fair value on a non-recurring basis as of June 30, 2018 or June 30, 2017. The carrying value of cash and cash equivalents, accounts payable, short-term and all long-term borrowings, as reflected in the consolidated balance sheets, approximate fair value because of the
short-term maturity of these instruments or interest rates commensurate with market rates. There have been no changes in operations and/or credit characteristics since the date of issuance that could
impact the relationship between interest rate and market rates. The Company used a discounted cash flows approach to measure the fair value using Level 3 inputs. 85
Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows: During the year ended June 30, 2018, a change in derivative warrant liability of $431,300 was recorded in earnings. Upon expiration of the round-down
pricing protection on December 31, 2017, the warrants were reclassified from derivative warrant liabilities to equity. During the year ended June 30, 2018, there was no change in the contingent consideration obligations. The DuPont contingent consideration was settled on December 1, 2017. Refer to Note 5 for
further discussion. Recently Adopted and Issued Accounting Pronouncements In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). This standard eliminates Step
2 from the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective
for the Company beginning July 1, 2020. The adoption is not expected to have a material impact on the consolidated financial statements. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). This standard
addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for the Company beginning July 1, 2018 and the Company is currently
evaluating the impact that ASU 2016-15 will have on its consolidated financial statements. In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). This standard was
issued as part of the FASB's Simplification Initiative that involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards
as either equity or liabilities and classification on the statement of cash flows. Some of the areas for simplification apply only to
86
nonpublic entities. For public business entities, ASU 2016-09 is effective for
annual periods beginning after December 15, 2016 and interim periods within those annual periods. The method of adoption is dependent on the specific aspect of accounting addressed in this new
guidance. Early adoption is permitted in any interim or annual period. The Company adopted ASU 2016-09 in the first quarter of the fiscal year ended June 30, 2018. The adoption did not have a material
impact on the consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02: Leases ("ASU 2016-02"). This standard amends various aspects of existing accounting guidance for
leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating,
with classification affecting the pattern of expense recognition in the statement of operations. This standard also introduces new disclosure requirements for leasing arrangements. For public business
entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted
using a modified retrospective approach, and provides for certain practical expedients. The Company is evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements and
related disclosures. ASC Topic 606, Revenue from Contracts with Customers ("Topic 606"), is mandatorily effective for the Company in the first quarter of its next fiscal year,
which begins on July 1, 2018. This ASC topic outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most
existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Topic 606 also requires enhanced disclosures about the nature, amount,
timing, and uncertainty of revenues and cash flows arising from contracts with customers. The Company has the option of adopting Topic 606 using either 1) a full retrospective approach, in which
comparative periods presented would be adjusted to reflect the provisions of Topic 606, or 2) a modified retrospective approach, in which the cumulative effect of applying the new standards to open
contracts as of July 1, 2018 would be recognized as a cumulative effect adjustment. The Company currently anticipates adopting the new standard using the full retrospective approach. The Company is near finalization of its evaluation of the impact of the adoption of Topic 606 on its consolidated financial statements and related disclosures. From that evaluation, the Company
has identified a need to potentially change the accounting for revenue from the DuPont Pioneer distribution agreement, which made up 62% of the Company's revenues in the year ended June 30,
2018. The result of this change would be that revenue would be recognized earlier than it currently is, because the provisions of Topic 606 would require recognition during processing of the seed,
rather than upon delivery, which is the current accounting. The Company believes that the total amount of revenue for each fiscal year will remain the same, but that a significant portion of the
Pioneer revenue would be recognized in earlier quarters under ASC 606. 87
The Company has preliminarily concluded that the new standards will not result in changes to its revenue recognition policies for the rest of its customer contracts. The Company continues to
work on preparing the enhanced revenue disclosures that will be presented in the first quarter of fiscal year 2019. NOTE 3 - GOODWILL AND INTANGIBLE ASSETS The following table summarizes the activity of goodwill for the years ended June 30, 2018 and 2017, respectively. Intangible assets consist of the following: 88
Amortization expense totaled $2,124,333 and $2,223,909 for the years ended June 30, 2018 and 2017, respectively. Estimated aggregate remaining amortization is as follows: 2019 2020 2021 2022 2023 Thereafter Amortization expense $ 1,989,188 $ 1,989,188 $ 1,989,188 $ 1,989,188 $ 1,983,896 $ 23,169,132 NOTE 4 - PROPERTY, PLANT AND EQUIPMENT Components of property, plant and equipment were as follows: Depreciation expense totaled $1,314,954 and $1,101,834 for the years ended June 30, 2018 and 2017, respectively. 89
NOTE 5 - DEBT Total debt outstanding is presented on the consolidated balance sheet as follows: On September 22, 2015, the Company entered into a credit and security agreement (the "KeyBank Credit Facility") with KeyBank. Key
provisions of the KeyBank Credit Facility, as amended, include: 90
On December 31, 2014, the Company issued a three-year secured promissory note to DuPont Pioneer in the initial principal amount of $10,000,000 (the "Pioneer Note"), with a maturity
date of December 31, 2017. The Pioneer Note accrued interest at 3% per annum. Interest was payable in three annual installments, in arrears, commencing on December 31, 2015. On December 31,
2014, the Company also issued contingent consideration to DuPont Pioneer which required the Company to increase the principal amount of the Pioneer Note by up to an additional $5,000,000 if the
Company met certain performance metrics during the three-year period following December 31, 2014. The earn out payment to DuPont Pioneer was finalized in October 2017 and this amount of
$2,500,000 was added to the Pioneer Note in October 2017. On December 1, 2017, the Company repaid the Pioneer Note. The repayment amount included the $2.5 million earn-out payment related to
the Pioneer Acquisition that was added to the principal amount of the Pioneer Note in October 2017. On November 30, 2017, the Company entered into a secured note financing transaction (the "Loan Transaction") with Conterra Agricultural Capital, LLC ("Conterra") for $12.5
million in gross proceeds. Pursuant to the Loan Transaction, the Company issued two secured promissory notes (the "Notes") to Conterra as follows: 91
The Notes and related documents include customary representations and warranties in addition to customary affirmative and negative covenants (including financial covenants), and customary events
of default that permit Conterra to accelerate the Company's obligations under the Notes, including, among other things, that a default under one of the Notes would constitute a default under the other
Note. On December 1, 2017, the Company used the proceeds from the Loan Transaction to repay the Pioneer Note. S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facility with National Australia Bank Ltd ("NAB"). The current facility,
referred to as the 2016 NAB Facilities, was amended as of April 13, 2018 and expires on March 30, 2020. As of June 30, 2018, AUD $10,400,000 (USD $7,697,040) was outstanding under the 2016 NAB
Facilities. The 2016 NAB Facilities, as currently in effect, comprises two distinct facility lines: (i) an overdraft facility (the "Overdraft Facility"), having a credit limit of AUD $1,000,000 (USD $740,100
at June 30, 2018) and a borrowing base facility (the "Borrowing Base Facility"), having a credit limit of AUD $12,000,000 (USD $8,881,200 at June 30, 2018). The Borrowing Base Facility permits S&W Australia to borrow funds for periods of up to 180 days, at S&W Australia's discretion, provided that the term is consistent with its trading terms.
Interest for each drawdown is set at the time of the drawdown as follows: (i) for Australian dollar drawings, based on the Australian Trade Refinance Rate plus 1.5% per annum and (ii) for foreign currency
drawings, based on the British Bankers' Association Interest Settlement Rate for the relevant foreign currency for the relevant period, or if such rate is not available, the rate reasonably determined by NAB
to be the appropriate equivalent rate, plus 1.5% per annum. As of June 30, 2018, the Borrowing Base Facility accrued interest on Australian dollar drawings
at approximately 5.3% calculated daily. The Borrowing Base Facility is secured by a lien on all the present and future rights, property and undertakings of S&W Australia, the mortgage on
S&W Australia's Keith, South Australia property and the Company's corporate guarantee (up to a maximum of AUD $15,000,000). The Overdraft Facility permits S&W Australia to borrow funds on a revolving line of credit up to the credit limit. Interest accrues daily and is calculated by applying the daily interest rate to the
balance owing at the end of the day and is payable monthly in arrears. As of June 30, 2018, the Overdraft Facility accrued interest at approximately
6.77% calculated daily. For both the Overdraft Facility and the Borrowing Base Facility, interest is payable each month in arrears. In the event of a default, as defined in the NAB Facility Agreement, the principal balance due
under the facilities will thereafter bear interest at an increased rate per annum above the interest rate that would otherwise have been in effect from time to time under the terms of each facility (i.e.,
the interest rate increases by 4.5% per annum under the Borrowing Base Facility and the Overdraft Facility rate increases to 13.92% per annum upon the occurrence of an event of default). 92
Both facilities constituting the 2016 NAB Facilities are secured by a fixed and floating lien over all the present and future rights, property and undertakings of S&W Australia and are guaranteed by
the Company as noted above. The 2016 NAB Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to
accelerate S&W Australia's outstanding obligations, all as set forth in the NAB facility agreements. S&W Australia was in compliance with all NAB debt covenants at June 30, 2018. In January 2015, NAB and S&W Australia entered into a new business markets - flexible rate loan (the "Keith Building Loan") and a separate machinery and equipment facility (the
"Keith Machinery and Equipment Facility"). In February 2016, NAB and S&W Australia also entered into a master asset finance facility (the "Master Assets Facility"). The
Master Asset Facility has various maturity dates through 2021 and have interest rates ranging from 4.86% to 5.31%. The Keith Building Loan and Keith Machinery and Equipment Facility are used for the construction of a building on S&W Australia's Keith, South Australia property, purchase of adjoining land and
for the machinery and equipment for use in the operations of the building. The Keith Building Loan matures on November 30, 2024. The interest rate on the Keith Building Loan varies from pricing
period to pricing period (each such period approximately 30 days), based on the weighted average of a specified basket of interest rates (6.31% as of June 30, 2018). Interest is payable each month in
arrears. The Keith Machinery and Equipment Facility bears interest, payable in arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus 2.9%. The Keith
Credit Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia's outstanding
obligations, all as set forth in the facility agreement. They are secured by a lien on all the present and future rights, property and undertakings of S&W Australia, the Company's corporate guarantee
and a mortgage on S&W Australia's Keith, South Australia property. The annual maturities of short-term and long-term debt, excluding convertible debt addressed in Note 6, are as follows: 93
NOTE 6 - SENIOR CONVERTIBLE NOTES AND WARRANTS On December 31, 2014, the Company consummated the sale of senior secured convertible debentures (the "Debentures") and common stock purchase warrants (the
"Warrants") to various institutional investors ("Investors") pursuant to the terms of a securities purchase agreement among the Company and the Investors. At closing, the Company
received $27,000,000 in gross proceeds. Offering expenses of $1,931,105 attributed to the Debentures were recorded as deferred financing fees and recorded as a debt discount and offering expenses of
$424,113 attributed to the Warrants were expensed during the year ended June 30, 2015. The net proceeds were paid directly to DuPont Pioneer in partial consideration for the purchase of certain
DuPont Pioneer assets, the closing for which also took place on December 31, 2014. Debentures At the date of issuance, the Debentures were due and payable on November 30, 2017, unless earlier converted or redeemed. The Debentures bore interest on the aggregate unconverted and
then outstanding principal amount at 8% per annum, payable in arrears monthly beginning February 2, 2015. The monthly interest was payable in cash, or in any combination of cash or shares of the
Company's common stock at the Company's option, provided certain "equity conditions" defined in the Debentures were satisfied. Beginning on July 1, 2015, the Company was required to make monthly payments of principal as well, payable in cash or any combination of cash or shares of its common stock at the Company's
option, provided all of the applicable equity conditions are satisfied. As of June 30, 2017, the Debentures were fully retired and had no outstanding balance. The Debentures were initially convertible, at the holder's option, into the Company's common stock at a conversion price of $5.00. Pursuant to the terms of the Debentures, the conversion price was
reset to $4.63 on September 30, 2015. During the year ended June 30, 2017, certain holders of the Debentures converted an aggregate of $3,168,342 of principal and interest into 684,321 shares of the Company's common stock in
accordance with the terms of the Debentures. Upon conversion, the Company recognized interest expense of $194,939 related to unamortized debt discount on the Debentures and incurred $7,070 of
stock issuance costs. Warrants The Warrants entitle the holders to purchase, in the aggregate, 2,699,999 shares of the Company's common stock. The Warrants are exercisable through their expiration on June 30, 2020, unless
earlier redeemed. The Warrants were initially exercisable at an exercise price equal to $5.00. On September 30, 2015, pursuant to the terms of the Warrants, the exercise price was reset to $4.63. In
addition, if the Company issues or is deemed to have issued securities at a price lower than the then applicable exercise price during the three-year period ending December 31, 2017, the exercise price
of the Warrants will adjust based on a weighted average anti-dilution formula ("down-round protection"). On November 24,
94
2015, the Company closed on a private placement transaction in
which 1,180,722 common shares were sold at $4.15 per share. Pursuant to the down-round protection terms of the Warrants, the exercise price was adjusted to $4.59 on November 24, 2015. On
February 29, 2016, the Company completed a rights offering and accompanying noteholders' participation rights offering in which an aggregate of 2,125,682 shares of common stock were sold at $4.15
per share, triggering an adjustment of the exercise price of the Warrants to $4.53. On July 19, 2017, the Company completed a private placement transaction in which an aggregate of 2,685,000 shares of
common stock were sold at $4.00 per share, triggering an adjustment of the exercise price of the Warrants to $4.46. On December 22, 2017, the Company completed a rights offering and backstop
commitment in which an aggregate of 3,500,000 shares of common stock were sold at $3.50 per share, triggering an adjustment of the exercise price of the Warrants to $4.32. The down-round protection
provision of the warrants expired on December 31, 2017. The Warrants may be exercised for cash, provided that, if there is no effective registration statement available registering the exercise of the Warrants, the Warrants may be exercised on a cashless
basis. At any time that (i) all equity conditions set forth in the Warrants have been satisfied, and (ii) the closing sales price of the common stock equals or exceeds $12.00 for 15 consecutive trading days
(subject to adjustment for stock splits, reverse stock splits and other similar recapitalization events), the Company may redeem all or any part of the Warrants then outstanding for cash in an amount equal
to $0.25 per Warrant. Accounting for the Conversion Option and Warrants Due to the down-round price protection included in the terms of the Warrants, the Warrants were treated as a derivative liability in the consolidated balance sheet, measured at fair value and
marked to market each reporting period until December 31, 2017, when the down-round protection expires. The down-round price protection expired on December 31, 2017, accordingly, the fair value of
the Warrants as of December 31, 2017 was reclassified to additional paid in capital within the equity section of the balance sheet. At December 31, 2017 and June 30, 2017, the fair value of the Warrants
was estimated at $2,405,300 and $2,836,600, respectively. The Warrants were valued at December 31, 2017 using the Monte Carlo simulation model, under the following assumptions: (i) remaining
expected life of 2.5 years, (ii) volatility of 39.0%, (iii) risk-free interest rate of 1.92% and (iv) dividend rate of zero. The aggregate fair value of the Warrants derived via the Monte Carlo analysis were also
weighted by a prior third-party market transaction and third-party indications of fair value. The prior third-party market transaction was provided a weighting of 10.0% while the third-party indications of fair
value were provided a 50% weighting in the fair value analysis. The Warrants were valued at June 30, 2017 using the Monte Carlo simulation model, under the following assumptions: (i) remaining expected life of 3 years, (ii) volatility of 45.6%, (iii) risk-free interest
rate of 1.54% and (iv) dividend rate of zero. The aggregate fair value of the Warrants derived via the Monte Carlo analysis were also weighted by a prior third-party market transaction and third-party
indications of fair value. The prior third-party market transaction was provided a weighting of 10.0% while the third-party indications of fair value were provided a 50% weighting in the fair value
analysis. 95
NOTE 7 - INCOME TAXES Loss before income taxes consists of the following: Significant components of the provision for income taxes from continuing operations are as follows: The differences between the total calculated income tax provision and the expected income tax computed using the U.S. federal income tax rate are as follows: The Company recognizes federal and state current tax liabilities or assets based on its estimate of taxes payable to or refundable by tax authorities in the current fiscal year.
The Company also recognizes federal and state deferred tax liabilities or assets based on the Company's estimate of future tax effects attributable to temporary differences and carry forwards. The
Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. 96
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected
future taxable income and planning strategies in making this assessment. Based on projections of taxable income, the Company had previously determined that it is more likely than not that the deferred
tax assets will not be realized. Accordingly, a valuation allowance had been recorded as of June 30, 2017. The Company's valuation allowance position has not changed for the year ended June 30,
2018, as the Company does not believe that it is more likely than not that it will realize its deferred tax assets. The valuation allowance decreased $2,110,572 for the year ended June 30, 2018 related
primarily to the change in the value of the Company's deferred tax assets as a result of the Tax Cuts and Jobs Act. The U.S. Internal Revenue Code of 1986, as amended, generally imposes an annual limitation on a corporation's ability to utilize net operating loss carryovers ("NOLs") if it experiences an ownership
change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50%
over a three-year period. In the event that an ownership change has occurred, or were to occur, utilization of the Company's NOLs would be subject to an annual limitation under Section 382 as
determined by multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any unused annual
limitation may be carried over to later years. The Company could experience an ownership change under Section 382 as a result of events in the past in combination with events in the future. If so, the use
of the Company's NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under Section 382, which may result in expiration of a portion of the NOLs before
utilization. To the extent our use of net operating loss carryforwards is significantly limited under the rules of Section 382, our income could be subject to U.S. corporate income tax earlier than it would if
we were able to use net operating loss carryforwards, which could result in lower profits. Any carryforwards that expire prior to utilization as a result of such limitations will be removed, if applicable, from
deferred tax assets with a corresponding reduction of the valuation allowance. As of June 30, 2018, the Company is not aware of any applicable Section 382 limitations that may exist on its net operating
losses. 97
Significant components of the Company's deferred tax assets are shown below. As of June 30, 2018, the Company had federal and state net operating loss carry forwards of approximately $27,860,303 and $12,512,969, respectively, which will begin to
expire June 30, 2030, unless previously utilized. The Company has federal research credits of $414,425 which will expire June 30, 2031, unless previously utilized. The Company also has foreign tax
credits of $157,859 which will begin to expire June 30, 2023, unless previously utilized. The Company has state research credits of $25,089 that do not expire. As of June 30, 2018, the Company has not provided for U.S. federal and state income taxes and foreign withholding taxes on approximately $4,109,000 of undistributed earnings of its foreign
subsidiary as these earnings are considered indefinitely reinvested outside of the United States. The Company does not plan to repatriate any earnings that are currently located in its foreign subsidiaries
as of June 30, 2018. However, to the extent that the foreign subsidiaries accrue earnings and profits in the future years, the Company does plan to repatriate those funds to the U. S. and will record
withholding taxes as those earnings and profits are incurred. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax
benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the
Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an
assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. The Company is open for audit for all years since the entity became a
corporation. 98
The Company's policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not accrued interest and penalties
associated with uncertain tax positions as of June 30, 2018 and 2017. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act reduced the corporate tax rate from the maximum federal statutory rate of 35% to a
flat rate of 21%. The Tax Act states that the 21% corporate tax rate is effective for tax years beginning on or after January 1, 2018. However, existing tax law, which was not amended under the Tax Act,
governs when a change in tax rate is effective. Existing tax law provides that if the taxable year includes the effective date of any rate change (unless the change is the first date of the taxable year), taxes
should be calculated by applying a blended rate to the taxable income for the year. Our blended federal rate is 27.55%. As a result of the new law, we have concluded that our deferred tax assets will need to be revalued. Our deferred tax assets represent a reduction in corporate taxes that are expected to be paid in the
future. As a result of the Tax Act, we estimated a reduction to the value of our deferred tax assets which is almost entirely offset by a reduction to our valuation allowance in the second quarter of the year
ended June 30, 2018. The net impact of the decrease to both the deferred tax assets and the valuation allowance will be a remeasuring of our net deferred tax liability associated with indefinite lived
intangibles for which we cannot predict a reversal into taxable income. In conjunction with tax law changes, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of
U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of the Tax Act. We have recognized the provisional tax impacts related to deemed repatriated earnings, the potential impact of new section 162(m) rules on our deferred tax balances,
and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year end June 30, 2018. In all cases, we will continue to refine our
calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law. The Tax Act allows for one hundred percent expensing of the cost of qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. We do not plan to take
advantage of this provision for the near term and have the option of opting out of this provision. In addition, net operating losses incurred in tax years beginning after December 31, 2017 are only allowed
to offset a taxpayer's taxable income by eighty percent, but those net operating losses are allowed to be carried forward indefinitely with no expiration. Also, as part of the Tax Act, our net interest
expense deductions are limited to 30% of earnings before interest, taxes, depreciation, and amortization through 2021 and of earnings before interest and taxes thereafter. This provision also takes effect
for tax years beginning after 2017 and isn't expected to have a material impact to our deferred tax asset position. The Tax Act also incorporates changes to certain international tax provisions. There is a
one-time transition tax on foreign income earned by subsidiaries at a rate of 15.5% for cash and cash equivalents and at a rate of 8% for the remainder of the foreign earnings. There is a provision for the
current inclusion in US taxable income of global intangible low-tax income and also the imposition of a tax equal to its base erosion minimum tax amount. The new laws incorporate a potential benefit for
foreign derived intangible income, but the
99
benefit only applies if the foreign derived sales and services income exceeds a calculated 'routine return' and if we have taxable income. We do not currently
anticipate that any of the foreign provisions will have a net impact to our tax accounts. NOTE 8 - WARRANTS The following table summarizes the total warrants outstanding at June 30, 2018: Exercise Price Expiration Outstanding as Outstanding as Issue Date Per Share Date of June 30, 2017 New Issuances Expired of June 30, 2018 Warrants Dec 2014 $ 4.32 Jun 2020 2,699,999 - - 2,699,999 2,699,999 - - 2,699,999 The following table summarizes the total warrants outstanding at June 30, 2017: Exercise Price Expiration Outstanding as Outstanding as Issue Date Per Share Date of June 30, 2016 New Issuances Expired of June 30, 2017 Underwriter warrants May 2012 $ 6.88 Feb 2017 50,000 - (50,000) - Warrants Dec 2014 $ 4.53 Jun 2020 2,699,999 - - 2,699,999 2,749,999 - (50,000) 2,699,999 NOTE 9 - FOREIGN CURRENCY CONTRACTS The Company's subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company manages through the use of
foreign currency forward contracts. These foreign currency contracts are not designated as hedging instruments; accordingly, changes in the fair value are recorded in current period earnings. These
foreign currency contracts had a notional value of $3,980,100 at June 30, 2018 and their maturities range from July to December 2018. The Company records an asset or liability on the consolidated balance sheet for the fair value of the foreign currency forward contracts. The foreign currency contract liabilities totaled $100,138 at
June 30, 2018 and foreign currency contract asset totaled $166,629 at June 30, 2017. The Company recorded a loss on foreign exchange contracts of $272,801 and a gain on foreign exchange contracts
of $205,531, which is reflected in cost of revenue for the years ended June 30, 2018 and 2017, respectively. NOTE 10 - COMMITMENTS AND CONTINGENCIES Contingencies Based on information currently available, management is not aware of any other matters that would have a material adverse effect on the Company's financial condition,
results of operations or cash flows. 100
Legal Matters The Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can
have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter
claims have been assessed as remote. Leases The Company has entered into various non-cancelable operating lease agreements. Rent expense under operating leases was $401,375 and $555,583 for the years ended June 30, 2018 and 2017, respectively. The following table sets forth the Company's estimates of future lease payment obligations as of June 30, 2018: (a) Minimum payments have not been reduced by minimum subleases rentals of $525,600 due in the future under noncancelable sublease. The following table sets forth the composition of total rental expense for all operating leases except those with terms of a month or less that were not renewed. NOTE 11 - RELATED PARTY TRANSACTIONS Glen D. Bornt, a member of the Company's Board of Directors until January 9, 2018, is the founder and President of Imperial Valley Milling Co. ("IVM"). He is IVM's majority
shareholder and a member of its Board of Directors. Glen D. Bornt is also a majority shareholder of Kongal Seeds Pty. Ltd. ("Kongal"). IVM had a 15-year supply agreement with IVS, and this
agreement was assigned by IVS to the Company when it purchased the assets of IVS in October 2012. IVM contracts with alfalfa seed growers in California's Imperial Valley and sells its growers' seed to
the Company pursuant to a supply agreement. Under the terms of the supply agreement, IVM's entire certified and uncertified alfalfa seed production must be offered and sold to the Company, and the
Company has the exclusive option to purchase all or any portion of IVM's seed production. The Company paid $2,682,946 and $8,482,663 to IVM during the years ended June 30, 2018 and June 30,
2017, respectively. Amounts due to IVM totaled $97,136 and $326,941 at June 30, 2018 and June 30, 2017, respectively. The Company paid $159,156 and $94,744 to Kongal during the years ended
June 30, 2018 and June 30, 2017, respectively. Amounts due to Kongal totaled $357 and $4,753 at June 30, 2018 and June 30, 2017, respectively. 101
On July 19, 2017, the Company entered into a Securities Purchase Agreement with certain purchasers, including MFP Partners, L.P. ("MFP"), a stockholder of the Company, and certain entities
related to Wynnefield Capital Management LLC (collectively, "Wynnefield"), pursuant to which MFP purchased approximately $3.7 million of shares of its common stock and Wynnefield
purchased approximately $3.0 million of shares of its common stock. Each of MFP and Wynnefield is a beneficial owner of more than 5% of the Company's common stock. Alexander C. Matina, a
member of the Company's Board, is Vice President, Investments of MFP. Robert D. Straus, a member of the Company's Board since January 9, 2018, is a Portfolio Manager and Analyst at Wynnefield. On October 11, 2017, the Company entered into a Securities Purchase Agreement with Mark W. Wong, the Company's President and Chief Executive Officer, pursuant to which the Company sold
and issued an aggregate of 75,000 shares of its Common Stock at a purchase price of $3.50 per share, for aggregate gross proceeds of $262,500. On December 22, 2017, the Company completed the closing of its previously announced rights offering. At the closing, the Company sold and issued an aggregate of 2,594,923 shares of its Common
Stock at a subscription price of $3.50 per share pursuant to the exercise of subscriptions and oversubscriptions in the rights offering from its existing stockholders. Pursuant to an Investment Agreement,
dated October 3, 2017, between the Company and MFP, MFP agreed to purchase, at the subscription price, all of the shares not purchased in the Rights Offering (the "Backstop Commitment").
Accordingly, on December 22, 2017, the Company and MFP completed the closing of the Backstop Commitment, in which the Company sold and issued 905,077 shares of its Common Stock to MFP.
Combined, the Company sold and issued an aggregate of 3,500,000 shares of its common stock for aggregate gross proceeds of $12.25 million. NOTE 12 - EQUITY-BASED COMPENSATION 2009 Equity Incentive Plan In October 2009 and January 2010, the Company's Board of Directors and stockholders, respectively, approved the 2009 Equity Incentive Plan (as amended and/or restated from time to time,
the "2009 Plan"). The plan authorized the grant and issuance of options, restricted shares and other equity compensation to the Company's directors, employees, officers and consultants, and those of the
Company's subsidiaries and parent, if any. In October 2012 and December 2012, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009
Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,250,000 shares. In September 2013 and December 2013, the Company's Board of
Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the
Plan to 1,700,000 shares. In September 2015 and December 2015, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan,
including an increase in the number of shares available for issuance as grants and awards under the Plan to 2,450,000 shares. 102
The term of incentive stock options granted under the 2009 Plan may not exceed ten years, or five years for incentive stock options granted to an optionee owning more than 10% of the Company's
voting stock. The exercise price of options granted under the 2009 Plan must be equal to or greater than the fair market value of the shares of the common stock on the date the option is granted. An
incentive stock option granted to an optionee owning more than 10% of voting stock must have an exercise price equal to or greater than 110% of the fair market value of the common stock on the date
the option is granted. The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Stock options issued to non-
employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest. The Company amortizes stock-based compensation expense on
a straight-line basis over the requisite service period. The Company utilizes a Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of the
Company's common stock to estimate the fair value of employee options grants. Weighted average assumptions used in the Black-Scholes-Merton model are set forth below: During year ended June 30, 2018, the Company granted 103,283 options to its Directors, certain members of the executive management team and other employees at
exercise prices ranging from $3.00 - $4.03. These options vest in either quarterly or annual periods over one to three years, and expire ten years from the date of grant. 103
A summary of stock option activity for the years ended June 30, 2018 and 2017 is presented below: The weighted average grant date fair value of options granted and outstanding at June 30, 2018 was $1.54. At June 30, 2018, the Company had $275,584 of unrecognized
stock compensation expense, net of estimated forfeitures, related to the options under the 2009 Plan, which will be recognized over the weighted average remaining service period of 1.68 years. The
Company settles employee stock option exercises with newly issued shares of common stock. During the year ended June 30, 2017, the Company issued 77,275 restricted stock units to its directors, certain members of the executive management team, and other employees. The restricted
stock units have varying vesting periods ranging from immediate vesting to annual installments over a three-year period. The fair value of the awards totaled $374,530 and was based on the closing stock
price on the date of grants. During the year ended June 30, 2018, the Company issued 78,642 restricted stock units to its directors, certain members of the executive management team and other employees. The restricted
stock units vest in either quarterly or annual periods over one to three-years. The fair value of the awards totaled $279,611 and was based on the closing stock price on the date of grants. The Company recorded $487,391 and $1,032,170 of stock-based compensation expense associated with grants of restricted stock units during the years ended June 30, 2018 and 2017, respectively.
A summary of activity related to non-vested restricted stock units is presented below: At June 30, 2018, the Company had $203,138 of unrecognized stock compensation expense related to the restricted stock units, which will be recognized over the weighted
average remaining service period of 1.1 years. 104
At June 30, 2018, there were 713,636 shares available under the 2009 Plan for future grants and awards. Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units for the years ended June 30, 2018 and 2017, totaled $748,516 and $1,409,368,
respectively. NOTE 13 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS The below table represents supplemental information to the Company's consolidated statements of cash flows for non-cash activities during the years ended June 30, 2018 and 2017,
respectively. NOTE 14 - SUBSEQUENT EVENTS On August 15, 2018, the Company closed on a sale-leaseback transaction with American AgCredit involving
certain equipment located at the Company's Five Points, California and Nampa, Idaho production facilities. Under the terms of the sale-leaseback transaction: On September 5, 2018, the Company entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Novo Advisors (f/k/a Turnaround Advisory Group Inc.), solely in its capacity
as the receiver (the "Receiver") for, and on behalf of, Chromatin, Inc., a Delaware corporation (together with certain of its subsidiaries and affiliates in receivership, "Chromatin"), in a receivership action
pending in the United States District Court for the Northern District of Illinois (the "Court"). Pursuant to the Asset Purchase Agreement, the Company agreed to purchase substantially all of Chromatin's
assets (the "Purchased Assets"), as well as assume certain contracts ("Assigned Contracts") and other liabilities of Chromatin (collectively, the "Chromatin Acquisition"), for a purchase price of $23.0
million. Pursuant to sale procedures approved by the Court, other parties had an opportunity to submit a competing bid by September 7, 2018 and, if a qualified competing bid was submitted, an auction
would be held on September 13, 2018. At an auction held on September 13, 2018, the Company was designated the highest bidder, with a winning bid of $26.5 million. A hearing to consider approval of
the Chromatin Acquisition was held before the Court on September 17, 2018, and the sale remains subject to the Court's approval. 105
In connection with the Company's winning bid, on September 14, 2018, the Company entered into an updated Asset Purchase Agreement (the "Second Asset Purchase Agreement") with the Receiver
to reflect the updated terms and conditions under which the Company agreed to complete the Chromatin Acquisition, including the purchase price of $26.5 million. The closing of the Chromatin Acquisition is contingent upon, among other things, (a) the entry of a sale order by the Court ("Order"), (b) the written consent of CIBC Bank USA (f/k/a The PrivateBank
and Trust Company) and all other holders of any lien or other security interest in any of the Purchased Assets to the sale and transfer of the Purchased Assets to the Company, and (c) the Receiver
obtaining executed written consents to the assignment to the Company of certain Assigned Contracts from the counterparties thereto, including a waiver and release of any termination or other contract
rights based upon or related to Chromatin having been placed in receivership or the financial condition or insolvency of Chromatin. On September 5, 2018, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with MFP, pursuant to which the Company agreed to sell and issue to MFP
1,607,717 shares of its common stock (the "Common Shares") at a purchase price of $3.11 per share at an initial closing (the "Initial Closing") and, subject to the satisfaction of certain conditions, 7,235
shares of newly designated Series A Convertible Preferred Stock of the Company ("Preferred Shares") at a purchase price of $3,100 per share at a second closing (the "Second Closing"). The Initial
Closing was completed on September 5, 2018. The consummation of the Second Closing is contingent upon, among other things, the Court's entry of the Order and the other conditions to the closing of
the Chromatin Acquisition having been satisfied or reasonably expected to be satisfied. The Company will use the proceeds from the Second Closing for the Chromatin Acquisition and working capital
purposes. The Securities Purchase Agreement may be terminated prior to the completion of the Second Closing if the Chromatin Acquisition has not been completed by October 31, 2018. 106
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure Controls and Procedures Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30,
2018 (the "Evaluation Date"). The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its
principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2018, our Principal Executive Officer and Principal Financial Officer concluded that, as of such
date, our disclosure controls and procedures were effective at the reasonable assurance level. Management's Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has conducted, with the participation of our Principal Executive Officer and our Principal Accounting Officer, an assessment, including testing of the effectiveness, of our internal control
over financial reporting as of the Evaluation Date. Management's assessment of internal control over financial reporting was conducted using the criteria set forth by the Committee of Sponsoring
Organizations of the
107
Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework). A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In
connection with our management's assessment of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we have not identified any material
weaknesses in our internal control over financial reporting as of the Evaluation Date. We have thus concluded that our internal control over financial reporting was effective as of the Evaluation Date. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation
by our registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Changes in Internal Control over Financial Reporting There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during
the period of our evaluation that have significantly affected, or are reasonably likely to significantly affect, our internal control over financial reporting. As disclosed in our Current Report on Form 8-K, filed with the SEC on September 5, 2018, on September 5, 2018, we entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement") with Novo Advisors (f/k/a Turnaround Advisory Group Inc.), solely in its capacity as the receiver for, and on behalf of, Chromatin, Inc., a Delaware corporation (together with certain of its
subsidiaries and affiliates in receivership, "Chromatin") (the "Receiver"), in a receivership action pending in the United States District Court for the Northern District of Illinois (the "Court").
Pursuant to the Asset Purchase Agreement, we agreed to purchase substantially all of Chromatin's assets, as well as assume certain contracts and other liabilities of Chromatin (collectively, the
"Chromatin Acquisition"), for a purchase price of $23.0 million. Pursuant to sale procedures approved by the Court, other parties had an opportunity to submit a competing bid by September 7, 2018 and, if a qualified competing bid was submitted, an auction
would be held on September 13, 2018. At an auction held on September 13, 2018, we were designated the highest bidder, with a winning bid of $26.5 million. A hearing to consider approval of the
Chromatin Acquisition was held before the Court on September 17, 2018, and the sale remains subject to the Court's approval. In connection with our winning bid, on September 14, 2018, we entered into an updated Asset Purchase Agreement (the "Second Asset Purchase Agreement") with the Receiver to reflect the updated
terms and conditions under which we agreed to complete the Chromatin Acquisition, including the purchase price of $26.5 million. 108
The closing of our acquisition of the Chromatin Assets is contingent upon, among other things, (a) the entry of a sale order by the Court, (b) the written consent of CIBC Bank USA (f/k/a The
PrivateBank and Trust Company) and all other holders of any lien or other security interest in any of Chromatin's assets to the sale and transfer of Chromatin's assets to us, and (c) the Receiver obtaining
executed written consents to the assignment to us of certain contracts from the counterparties thereto, including a waiver and release of any termination or other contract rights based upon or related to
Chromatin having been placed in receivership or the financial condition or insolvency of Chromatin. 109
PART III Item 10. Directors, Executive Officers and Corporate Governance The information required
by Item 10 regarding directors, executive officers, promoters and control persons is incorporated by reference to the information appearing under the caption "Directors and Executive Officers" in our
definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. Our written Code of Ethics applies to all of our directors and employees, including our executive officers, including without limitation our principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions. The Code of Ethics is available on our website at http://www.swseedco.com in the Investors section under "Corporate Governance."
Changes to or waivers of the Code of Ethics will be disclosed on the same website. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or
waiver of, any provision of the Code of Ethics by disclosing such information on the same website. Item 11. Executive Compensation The information required by Item 11 is incorporated by reference to the information appearing under the caption "Executive Compensation" in our definitive Proxy
Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. The information required by Item 12 is incorporated by reference to the information appearing under the caption "Security Ownership" in our definitive Proxy Statement
relating to our 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is incorporated by reference to the information appearing under the caption "Certain Relationships and Related Transactions" in our
definitive Proxy Statement relating to our 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. 110
Item 14. Principal Accountant Fees and Services The information required by Item 14 is incorporated by reference to the information appearing under the caption "Principal Accounting Fees and Services" in our definitive Proxy Statement
relating to our 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year. Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Annual Report on Form 10-K: 1) Financial Statements: Reference is made to the Index to Consolidated Financial Statements of S&W Seed Company under Item 8 in Part II of this Form 10-K. (2) Financial Statement Schedules: As a smaller reporting company, no financial statement schedules are required. (3) Exhibits: The information required by this Section (a)(3) of Item 15 is incorporated by reference or filed with this report as set forth on the exhibit index that follows below. 111
INDEX TO EXHIBITS Incorporated by Reference Exhibit Exhibit Description Form SEC File Exhibit Filing Filed Asset Acquisition Agreement among the Registrant, Imperial Valley Seeds, Inc. ("IVS"), Glen D. Bornt, Fred Fabre and the Bornt Family Trust, dated September 28, 2012 8-K 000-34719 2.1 10/2/12 Asset Purchase and Sale Agreement between the Registrant and Pioneer Hi-Bred International, Inc. ("Pioneer"), dated December 19, 2014 8-K 000-34719 2.1 12/29/14 First Amendment to Asset Purchase and Sale Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 2.1 1/7/15 Second Amendment to the Asset Purchase and Sale Agreement between the Registrant and Pioneer, dated April 23, 2015 10-K 000-34719 2.6 9/28/15 Third Amendment to Asset Purchase and Sale Agreement between the Registrant and Pioneer, dated July 23, 2015 10-K 000-34719 2.7 9/28/15 Fourth Amendment to Asset Purchase and Sale Agreement between the Registrant and Pioneer, dated July 23, 2015 10-Q 000-34719 2.1 2/8/18 Asset Acquisition Agreement between the Registrant and SV Genetics Pty Ltd, dated May 26, 2016 8-K 000-34719 2.1 5/31/16 Asset Purchase Agreement by and between Novo Advisors, solely in its capacity as the receiver for, and on behalf of, Chromatin, Inc., dated September 5, 2018 X Asset Purchase Agreement by and between Novo Advisors, solely in its capacity as the receiver for, and on behalf of, Chromatin, Inc., dated September 14, 2018 X Registrant's Articles of Incorporation 8-K 001-34719 3.1 12/19/11 Registrant's Amended and Restated Bylaws, together with Amendments One, Two and Three thereto 10-K 000-34719 3.2 9/28/15 Form of Common Stock Certificate S-3 333-219726 4.3 8/4/17 Form of Common Stock Purchase Warrant 8-K 000-34719 10.3 12/31/14 Assignment and Assumption Agreement between the Registrant and IVS, dated October 1, 2012 8-K 000-34719 10.1 10/2/12 Supply Agreement between IVS and Imperial Valley Milling Co. ("IV Milling"), dated October 1, 2012 (assigned to the Registrant) 10-Q 000-34719 10.2 2/13/13 Subordinated Promissory Note made by the Registrant in favor of IVS, dated October 1, 2012 8-K 000-34719 10.3 10/2/12 112
Service Level Agreement with IV Milling dated April 4, 2014 10-K 000-34719 10.45 9/29/14 Roundup Ready® Alfalfa Co-Breeding Agreement between the Registrant and Forage Genetics International, LLC, dated March 21, 2013 10-K 000-34719 10.28 9/30/13 Contract Alfalfa Production Services Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.2 1/7/15 First Amendment to Contract Alfalfa Production Services Agreement between the Registrant and Pioneer, dated July 23, 2015 10-K 000-34719 10.7 9/28/15 Second Amendment to Contract Alfalfa Production Services Agreement between the Registrant and Pioneer, dated August 7, 2015 8-K 000-34719 10.2 8/17/15 Third Amendment to Contract Alfalfa Production Services Agreement between the Registrant and Pioneer, dated December 21, 2017 10-Q 000-34719 10.6 2/8/18 Fourth Amendment to Contract Alfalfa Production Services Agreement between the Registrant and Pioneer, dated August 2, 2018 X Alfalfa Distribution Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.1 1/7/15 First Amendment to Alfalfa Distribution Agreement between the Registrant and Pioneer, dated July 23, 2015 10-K 000-34719 10.10 9/28/15 Second Amendment to Alfalfa Distribution Agreement between the Registrant and Pioneer, dated August 7, 2015 8-K 000-34719 10.1 8/17/15 Research Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.3 1/7/15 First Amendment to Research Agreement between the Registrant and Pioneer Hi-Bred International, Inc., dated December 21, 2017. 10-Q 000-34719 10.7 2/8/18 Non-Exclusive Alfalfa Licensing and Assignment Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.4 1/7/15 Lease Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.5 1/7/15 Information Technology Transition Services Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.6 1/7/15 Promissory Note issued by the Registrant in favor of Pioneer, dated December 31, 2014 8-K 000-34719 10.7 1/7/15 113
Security Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.8 1/7/15 Mortgage from the Registrant to Pioneer, dated December 31, 2014 8-K 000-34719 10.9 1/7/15 Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing among the Registrant, TitleOne Corporation, as trustee, and Pioneer, as beneficiary, dated
December 31, 2014 8-K 000-34719 10.10 1/7/15 Patent License Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.11 1/7/15 Patent Assignment Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.12 1/7/15 Know-How Transfer Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.13 1/7/15 Data Transfer Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.14 1/7/15 Assignment Agreement of Plant Variety Certificates, Plant Breeders' Rights, Maintenance Rights and Registration Rights between the Registrant and Pioneer, dated
December 31, 2014 8-K 000-34719 10.15 1/7/15 First Amendment to the Assignment Agreement of Plant Variety Certificates, Plant Breeders' Rights, Maintenance Rights and Registration Rights between the
Registrant and Pioneer, dated April 23, 2015 10-K 000-34719 10.25 9/28/15 Assignment and Assumption Agreement between the Registrant and Pioneer, dated December 31, 2014 8-K 000-34719 10.16 1/7/15 General Warranty Deed by Pioneer in favor of the Registrant, dated December 31, 2014 8-K 000-34719 10.17 1/7/15 Warranty Deed by Pioneer in favor of the Registrant, dated December 31, 2014 8-K 000-34719 10.18 1/7/15 Form of Indemnification Agreement with Officers, Directors and Employees of the Registrant and Subsidiaries 8-K 000-34719 10.1 7/24/14 Amended and Restated 2009 Equity Incentive Plan as amended through Amendment No. 2, forms of Stock Option Grant and Agreement, Restricted Stock Unit Grant
and Restricted Stock Award 10-K 000-34719 10.34 9/28/15 Employment Agreement between the Registrant and Mark S. Grewal, dated March 18, 2016 8-K 000-34719 10.1 3/23/16 114
Employment Agreement between the Registrant and Matthew K. Szot, dated March 18, 2016 8-K 000-34719 10.2 3/23/16 Employment Agreement between the Registrant and Dennis C. Jury, dated March 18, 2016 8-K 000-34719 10.3 3/23/16 Contract of Employment between Seed Genetics International Pty, Ltd. and Dennis C. Jury, dated as of March 28, 2013 8-K 000-34719 10.1 4/5/13 Employment Agreement between the Registrant and Mark W. Wong, dated June 19, 2017 10-K 000-34719 10.35 9/20/17 Employment Agreement between the Registrant and Danielson B. Gardner, dated August 15, 2016 10-K 000-34719 10.36 9/20/17 Collaboration Agreement between the Registrant and Calyxt, Inc., dated May 28, 2015 and entered into by the Registrant on June 4, 2015 10-K 000-34719 10.39 9/28/15 10.41 Credit and Security Agreement between the Registrant and KeyBank, National Association ("KeyBank"), dated September 22, 2015 8-K 000-34719 10.1 9/23/15 First Amendment to Credit and Security Agreement between the Registrant and KeyBank, dated June 29, 2016 10-K 000-34719 10.39 9/20/17 Second Amendment to Credit and Security Agreement between the Registrant and KeyBank, dated October 4, 2016 10-K 000-34719 10.40 9/20/17 Third Amendment to Credit and Security Agreement between the Registrant and KeyBank, dated March 13, 2017 10-K 000-34719 10.41 9/20/17 Fourth Amendment Agreement between the Registrant and KeyBank, dated September 13, 2017 10-Q 000-34719 10.3 11/9/17 Fifth Amendment to Credit and Security Agreement between the Registrant and KeyBank, dated March 14, 2018 10-Q 000-34719 10.1 5/10/18 Sixth Amendment Agreement between the Registrant and KeyBank, dated June 28, 2018 X Revolving Credit Note dated September 22, 2015 in favor of KeyBank 8-K 000-34719 10.2 9/23/15 Intellectual Property Security Agreement of the Registrant in favor of KeyBank, dated September 22, 2015 8-K 000-34719 10.4 9/23/15 Pledge Agreement by the Registrant in favor of KeyBank, dated September 22, 2015 8-K 000-34719 10.3 9/23/15 Security Agreement (Subsidiary) by U.S. Subsidiaries of Registrant in favor of KeyBank, dated September 22, 2015 8-K 000-34719 10.6 9/23/15 115
Guaranty of Payment (Subsidiary) by U.S. Subsidiaries of Registrant in favor of KeyBank, dated September 22, 2015 8-K 000-34719 10.5 9/23/15 Form of Registration Rights Agreement among the Registrant and purchasers of the 8% Senior Secured Convertible Debentures and Warrants 8-K 000-34719 10.4 12/31/14 Registration Rights Agreement between the Registrant and MFP Partners, L.P., dated November 23, 2015 8-K 000-34719 10.2 11/24/15 Securities Purchase Agreement between the Registrant and MFP Partners, L.P., dated December 31, 2014 8-K 000-34719 4.1 12/31/14 Securities Purchase Agreement between the Registrant and MFP Partners, L.P. dated November 23, 2015 8-K 000-34719 10.1 11/24/15 Business Letter of Offer dated January 19, 2015 from NAB for SGI credit facilities 10-K 000-34719 10.43 9/28/15 Business Letter of Offer dated April 13, 2015 from NAB for SGI credit facilities 10-K 000-34719 10.44 9/28/15 Business Letter of Advice dated April 13, 2015 from NAB modifying SGI Farm Management Overdraft Facility 10-K 000-34719 10.45 9/28/15 Corporate Guarantee executed by the Registrant on April 21, 2015 in favor of National Australia Bank with respect to SGI credit facilities 10-K 000-34719 10.46 9/28/15 Business Letter of Advice to SGI dated as of April 28, 2016 (executed by SGI on May 6, 2016) from NAB for SGI credit facilities 8-K 000-34719 10.1 5/12/16 Business Letter of Advice for S&W Seed Company Pty Ltd from National Australia Bank Ltd, dated April 13, 2018 10-Q 000-34719 10.2 5/10/18 Form of Security Agreement among the Registrant and purchasers of the 8% Senior Secured Convertible Debentures 8-K 000-34719 10.5 12/31/14 Form of Guaranty provided by Seed Holding, LLC and Stevia California, LLC in favor of the purchasers of the 8% Senior Secured Convertible Debentures 8-K 000-34719 10.6 12/31/14 Form of Intercreditor and Subordination Agreement among Wells Fargo Bank, N.A., Hudson Bay Fund LP, in its capacity as agent for the holders of the 8% Senior Secured
Convertible Debentures and Pioneer 8-K 000-34719 10.7 12/31/14 Securities Purchase Agreement between the Registrant and the Purchasers named therein, dated July 19, 2017 8-K 000-34719 99.1 7/20/17 Registration Rights Agreement between the Registrant and the Purchasers, dated July 19, 2017 8-K 000-34719 99.2 7/20/17 Investment Agreement, by and between the Registrant and MFP Partners, L.P., dated October 3, 2017 8-K 000-34719 99.1 10/4/17 116
Securities Purchase Agreement by and between the Registrant and Mark W. Wong, dated October 11, 2017 8-K 000-34719 99.1 10/12/17 Registration Rights Agreement by and between the Registrant and Mark W. Wong, dated October 11, 2017 8-K 000-34719 99.2 10/12/17 Secured Promissory Notes issued by the Registrant in favor of Conterra Agricultural Capital, LLC, dated November 30, 2017 and related documents 10-Q 000-34719 10.5 2/8/18 Registration Rights Agreement by and between the Registrant and MFP Partners, L.P., dated December 22, 2017 S-3 333-222916 4.17 2/7/18 Sale and Lease Agreement by and between the Registrant and American AgCredit, dated August 15, 2018 X Securities Purchase Agreement dated September 5, 2018, by and among the Registrant and MFP 8-K 000-34719 10.1 9/6/18 Voting Rights Agreement dated September 5, 2018, by and among the Registrant and MFP 8-K 000-34719 10.2 9/6/18 Registration Rights Agreement dated September 5, 2018, by and among the Registrant and MFP 8-K 000-34719 10.3 9/6/18 Subsidiaries of the Registrant X Consent of Independent Registered Public Accounting Firm X 24.1 Power of Attorney (see signature page) X Chief Executive Officer Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended X Chief Financial Officer Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended X Chief Executive Officer Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X Chief Financial Officer Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 117
101 The following materials from the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i)
the Consolidated Balance Sheets at June 30, 2018 and June 30, 2017; (ii) the Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2018 and 2017; (iii) the Consolidated
Statements of Comprehensive (Loss) Income for the Fiscal Years Ended June 30, 2018 and 2017; (iv) the Consolidated Statement of Stockholders' Equity; (v) the Consolidated Statement of Cash Flows
for the Fiscal Years Ended June 30, 2018 and 2017; and (vi) the Notes to Consolidated Financial Statements X __________ + Portions of this exhibit have been omitted pursuant to an Order Granting Confidential Treatment under the Securities Exchange Act of 1934, as amended. ++ Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC. * Management contract or compensatory plan or arrangement. ** This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of
Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general
incorporation language contained in such filing. (1) Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant undertakes to furnish supplemental copies of any of the omitted schedules
upon request by the Securities and Exchange Commission; provided, however, that Registrant may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended, for any schedule so furnished. None. 118
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. Date: September 20, 2018 S&W SEED COMPANY By: /s/ Mark W. Wong KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark W. Wong and Matthew K. Szot, or
any of them, his attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Mark W. Wong President, Chief Executive Officer and Director (Principal Executive Officer) September 20, 2018 /s/ Matthew K. Szot Executive Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) September 20, 2018 /s/ Mark J. Harvey Chairman of the Board September 20, 2018 /s/ David A. Fischhoff Director September 20, 2018 /s/ Consuelo E. Madere Director September 20, 2018 /s/ Alexander C. Matina Director September 20, 2018 /s/ Charles B. Seidler Director September 20, 2018 Charles B. Seidler /s/ Robert D. Straus Director September 20, 2018 Robert D. Straus /s/ Grover T. Wickersham Director September 20, 2018 /s/ Allan D. Willits Director September 20, 2018 119
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue
$
64,085,510
$
75,373,810
Cost of revenue
49,332,052
59,232,846
Gross profit
14,753,458
16,140,964
Operating expenses
Selling, general and administrative expenses
10,503,020
11,794,026
Research and development expenses
3,887,723
3,032,112
Depreciation and amortization
3,439,287
3,325,743
Disposal of property, plant and equipment (gain) loss
(82,980)
78,538
Impairment charges
-
319,001
Total operating expenses
17,747,050
18,549,420
Loss from operations
(2,993,592)
(2,408,456)
Other expense
Foreign currency (gain) loss
(12,584)
1,388
Change in derivative warrant liabilities
(431,300)
(1,517,500)
Change in contingent consideration obligations
-
231,584
Loss on equity method investment
-
144,841
Anticipated loss on sub-lease land
-
424,600
Interest expense - amortization of debt discount
169,045
1,176,023
Interest expense
1,863,288
1,324,945
Loss before income taxes
(4,582,041)
(4,194,337)
Provision for income taxes
143,049
7,627,705
Net loss
$
(4,725,090)
$
(11,822,042)
Net loss per common share:
Basic
$
(0.21)
$
(0.67)
Diluted
$
(0.21)
$
(0.67)
Weighted average number of common shares outstanding:
Basic
22,481,491
17,718,057
Diluted
22,481,491
17,718,057
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended
June 30,
2018
2017
Net loss
$
(4,725,090)
$
(11,822,042)
Foreign currency translation adjustment, net of income taxes
(252,277)
251,278
Comprehensive loss
$
(4,977,367)
$
(11,570,764)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Treasury Stock
Additional
Paid-In
Accumulated
Accumulated
Other
Comprehensive
Total
Stockholders'
Shares
Amount
Shares
Amount
Capital
Deficit
Loss
Equity
Balance, June 30, 2016
17,086,111
$
17,086
(25,000)
$
(134,196)
$
78,282,461
$
(4,614,244)
$
(5,789,663)
$
67,761,444
Stock-based compensation - options, restricted stock, and RSUs
-
-
-
-
1,409,368
-
-
1,409,368
Net issuance to settle RSUs
72,468
72
-
-
(143,599)
-
-
(143,527)
Issuance of common stock upon conversion of principal and
interest of convertible debentures
684,321
684
-
-
3,160,588
-
-
3,161,272
Exercise of stock options, net of withholding taxes
161,781
162
-
-
603,700
-
-
603,862
Other comprehensive income
-
-
-
-
-
-
251,278
251,278
Net loss
-
-
-
-
-
(11,822,042)
-
(11,822,042)
Balance, June 30, 2017
18,004,681
18,004
(25,000)
(134,196)
83,312,518
(16,436,286)
(5,538,385)
61,221,655
Stock-based compensation - options, restricted stock, and RSUs
-
-
-
-
748,516
-
-
748,516
Net issuance to settle RSUs
103,225
103
-
-
(115,422)
-
-
(115,319)
Proceeds from sale of common stock, net of fees and expenses
6,260,000
6,260
-
-
22,453,079
-
-
22,459,339
Reclassification of warrants upon expiration of repricing provisions
-
-
-
-
2,405,300
-
-
2,405,300
Other comprehensive loss
-
-
-
-
-
-
(252,277)
(252,277)
Net loss
-
-
-
-
-
(4,725,090)
-
(4,725,090)
Balance, June 30, 2018
24,367,906
$
24,367
(25,000)
$
(134,196)
$
108,803,991
$
(21,161,376)
$
(5,790,662)
$
81,742,124
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
June 30,
2018
2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
(4,725,090)
$
(11,822,042)
Adjustments to reconcile net loss from operating activities to net
cash used in operating activities
Stock-based compensation
748,516
1,409,368
Change in allowance for doubtful accounts
78,980
449,590
Change in inventory provision
482,250
-
Depreciation and amortization
3,439,287
3,325,743
(Gain) loss on disposal of property, plant and equipment
(82,980)
78,538
Impairment charges
-
319,001
Change in deferred tax asset
-
7,269,420
Change in foreign exchange contracts
272,801
112,970
Change in derivative warrant liabilities
(431,300)
(1,517,500)
Change in contingent consideration obligation
-
231,584
Amortization of debt discount
169,045
1,176,023
Loss on equity method investment
-
144,841
Anticipated loss on sub-lease land
-
424,600
Changes in:
Accounts receivable
9,207,302
4,110,609
Inventories
(29,860,271)
(9,343,989)
Prepaid expenses and other current assets
(241,394)
(41,928)
Other non-current asset
259,683
(9,487)
Accounts payable
(1,052,624)
(7,400,553)
Accounts payable - related parties
(336,494)
(64,424)
Deferred revenue
(456,643)
369,688
Accrued expenses and other current liabilities
307,500
314,402
Other non-current liabilities
21,191
163,386
Net cash used in operating activities
(22,200,241)
(10,300,160)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(1,187,307)
(2,960,620)
Proceeds from disposal of property, plant and equipment
45,830
877,617
Acquisition of germplasm assets
(295,034)
-
Additions to internal use software
-
(156,185)
Net cash used in investing activities
(1,436,511)
(2,239,188)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock
22,459,339
-
Net proceeds from exercise of common stock options
-
603,862
Taxes paid related to net share settlements of stock-based compensation awards
(115,319)
(143,527)
Borrowings and repayments on lines of credit, net
5,439,382
10,488,213
Payment of contingent consideration obligation
(2,500,000)
-
Borrowings of long-term debt
12,590,318
280,654
Debt issuance costs
(257,964)
-
Repayments of long-term debt
(10,273,560)
(304,770)
Repayments of convertible debt
-
(4,721,551)
Net cash provided by financing activities
27,342,196
6,202,881
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(129,551)
176,968
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
3,575,893
(6,159,499)
CASH AND CASH EQUIVALENTS, beginning of the period
745,001
6,904,500
CASH AND CASH EQUIVALENTS, end of period
$
4,320,894
$
745,001
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest
$
1,830,277
$
1,366,854
Income taxes
(150,139)
210,682
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United States
$
41,662,556
65%
$
41,505,305
55%
Mexico
4,932,105
8%
4,749,315
6%
Sudan
3,178,039
5%
2,747,923
4%
Argentina
2,748,492
4%
2,881,050
4%
Peru
1,844,898
3%
1,230,999
2%
Saudi Arabia
1,461,368
2%
12,055,276
16%
Australia
1,242,957
2%
1,882,899
2%
Italy
938,252
1%
151,415
0%
Libya
936,423
1%
158,500
0%
South Africa
802,629
1%
1,190,789
2%
Other
4,337,791
8%
6,820,338
9%
Total
$
64,085,510
100%
$
75,373,810
100%
June 30,
June 30,
2018
2017
Raw materials and supplies
$
344,620
$
266,551
Work in progress and growing crops
2,775,398
5,603,825
Finished goods
57,299,258
25,619,569
$
60,419,276
$
31,489,945
Years Ended
June 30,
2018
2017
Numerator:
Net loss
$
(4,725,090)
$
(11,822,042)
Numerator for basic EPS
(4,725,090)
(11,822,042)
Effect of dilutive securities:
Warrants
-
-
-
-
Numerator for diluted EPS
$
(4,725,090)
$
(11,822,042)
Denominator:
Denominator for basic EPS -
weighted-average shares
22,481,491
17,718,057
Effect of dilutive securities:
Employee stock options
-
-
Employee restricted stock units
-
-
Warrants
-
-
Dilutive potential common shares
-
-
Denominator for diluted EPS -
adjusted weighted average shares
and assumed conversions
22,481,491
17,718,057
Basic EPS
$
(0.21)
$
(0.67)
Diluted EPS
$
(0.21)
$
(0.67)
Fair Value Measurements as of June 30, 2018 Using:
Level 1
Level 2
Level 3
Foreign exchange contract liability
$
-
$
100,138
$
-
Contingent consideration obligations
-
-
-
Total
$
-
$
100,138
$
-
Fair Value Measurements as of June 30, 2017 Using:
Level 1
Level 2
Level 3
Foreign exchange contract asset
$
-
$
166,629
$
-
Contingent consideration obligations
-
-
2,500,000
Derivative warrant liabilities
-
-
2,836,600
Total
$
-
$
166,629
$
5,336,600
Balance at
Balance at
July 1, 2017
Additions
June 30, 2018
Goodwill
$
10,292,265
$
-
$
10,292,265
Balance at
Balance at
July 1, 2016
Additions
June 30, 2017
Goodwill
$
10,292,265
$
-
$
10,292,265
Balance at
Balance at
July 1, 2017
Additions
Amortization
June 30, 2018
Trade name
$
1,244,306
$
-
$
(84,480)
$
1,159,826
Customer relationships
1,258,163
-
(101,208)
1,156,955
Non-compete
102,035
-
(39,315)
62,720
GI customer list
78,803
-
(7,164)
71,639
Supply agreement
1,153,415
-
(75,632)
1,077,783
Distribution agreement
6,728,753
-
(384,500)
6,344,253
Production agreement
111,670
-
(111,670)
-
Grower relationships
1,858,616
-
(105,408)
1,753,208
Intellectual property
21,725,539
295,034
(1,147,180)
20,873,393
Internal use software
677,779
-
(67,776)
610,003
$
34,939,079
$
295,034
$
(2,124,333)
$
33,109,780
Balance at
Balance at
July 1, 2016
Additions
Amortization
June 30, 2017
Trade name
$
1,328,786
$
-
$
(84,480)
$
1,244,306
Customer relationships
1,359,371
-
(101,208)
1,258,163
Non-compete
198,999
-
(96,964)
102,035
GI customer list
85,967
-
(7,164)
78,803
Supply agreement
1,229,047
-
(75,632)
1,153,415
Distribution agreement
7,113,253
-
(384,500)
6,728,753
Production agreement
335,002
-
(223,332)
111,670
Grower relationships
1,964,024
-
(105,408)
1,858,616
Intellectual property
22,870,760
-
(1,145,221)
21,725,539
Internal use software
521,593
156,186
-
677,779
$
37,006,802
$
156,186
$
(2,223,909)
$
34,939,079
June 30,
June 30,
2018
2017
Land and improvements
$
2,068,742
$
2,223,674
Buildings and improvements
8,888,196
6,401,277
Machinery and equipment
5,731,293
5,435,542
Vehicles
1,130,276
1,005,455
Construction in progress
220,089
2,196,513
Total property, plant and equipment
18,038,596
17,262,461
Less: accumulated depreciation
(4,858,464)
(3,680,885)
Property, plant and equipment, net
$
13,180,132
$
13,581,576
June 30,
June 30,
2018
2017
Working capital lines of credit
KeyBank
$
25,050,464
$
18,695,896
National Australia Bank Limited
7,697,040
8,703,888
Debt issuance costs
(116,945)
-
Total working capital lines of credit, net
$
32,630,559
$
27,399,784
Current portion of long-term debt
Capital lease
$
27,241
$
26,648
Keith facility (building loan) - National Australia Bank Limited
3,701
-
Keith facility (machinery & equipment loans) - National Australia Bank Limited
198,251
183,016
Unsecured subordinate promissory note
100,000
100,000
Promissory note - DuPont Pioneer
-
10,000,000
Secured real estate note - Conterra
229,789
-
Debt issuance costs
(76,981)
-
Secured equipment note - Conterra
37,824
-
Debt issuance costs
(16,813)
-
Total current portion, net
503,012
10,309,664
Long-term debt, less current portion
Capital lease
-
26,648
Keith facility (building loan) - National Australia Bank Limited
421,857
499,524
Keith facility (machinery & equipment loans) - National Australia Bank Limited
431,754
569,983
Secured real estate note - Conterra
10,170,211
-
Debt issuance costs
(100,576)
-
Secured equipment note - Conterra
2,062,176
-
Debt issuance costs
(8,335)
-
Total long-term portion, net
12,977,087
1,096,155
Total debt, net
$
13,480,099
$
11,405,819
Fiscal Year
Amount
2019
$
596,806
2020
2,647,415
2021
10,162,183
2022
87,676
2023
77,711
Thereafter
111,013
Total
$
13,682,804
Years Ended June 30,
2018
2017
United States
$
(5,112,254)
$
(3,545,631)
Foreign
530,213
(648,706)
Loss before income taxes
$
(4,582,041)
$
(4,194,337)
Years Ended June 30,
2018
2017
Current:
Federal
$
-
$
-
State
-
1,680
Foreign
100,122
-
Total current provision
100,122
1,680
Deferred:
Federal
20,785
6,945,260
State
22,142
691,135
Foreign
-
(10,370)
Total deferred provision (benefit)
42,927
7,626,025
Provision for income taxes
$
143,049
$
7,627,705
Years Ended June 30,
2018
2017
Tax expense (benefit) at statutory tax rate
$
(1,262,509)
$
(1,426,075)
State taxes (benefit), net of federal tax (benefit)
(133,666)
(112,798)
Mark to market on financial instruments
(118,838)
(515,950)
Section 965 toll tax
584,086
-
Other permanent differences
(144,049)
33,251
Federal and state research credits - current year
(89,572)
(103,006)
Foreign rate differential
(971)
25,407
Shortfall on restricted stock vest
155,783
129,627
Tax Cuts and Jobs Act
3,264,391
-
Valuation allowance
(2,145,250)
9,615,586
Other
33,644
(18,337)
$
143,049
$
7,627,705
June 30,
2018
2017
Deferred tax assets:
Net operating loss carry forwards
$
6,771,974
$
8,511,398
Compensation accruals
144,550
327,462
Allowance for bad debts
151,972
182,723
Stock compensation
241,837
451,303
Tax credit carry forwards
434,245
341,411
Deferred rent
90,466
153,656
Other, net
277,065
220,208
Total deferred tax assets
8,112,109
10,188,161
Valuation allowance for deferred tax assets
(7,506,759)
(9,617,331)
Deferred tax assets, net of valuation allowance
605,350
570,830
Deferred tax liabilities
Intangible assets
(519,942)
(235,218)
Fixed assets
(355,491)
(562,763)
Total deferred tax liabilities
(875,433)
(797,981)
Net deferred tax asset / (liability)
$
(270,083)
$
(227,151)
2019
2020
2021
2022
2023
2024 and
beyond
Total(a)
Operating lease obligations
$
411,055
$
358,099
$
239,012
$
143,083
$
118,772
$
116,800
$
1,386,821
Years Ended June 30,
2018
2017
Minimum rentals
$
401,375
$
555,583
Less: Sublease rentals
(43,800)
(223,200)
$
357,575
$
332,383
Years Ended June 30,
2018
2017
Risk free rate
1.7% - 2.3%
1.2% - 2.0%
Dividend yield
0%
0%
Volatility
45.3% - 45.5%
46.9% - 50.8%
Average forfeiture assumptions
1.4%
2.4%
Weighted-
Weighted -
Average
Average
Remaining
Aggregate
Number
Exercise Price
Contractual
Intrinsic
Outstanding
Per Share
Life (Years)
Value
Outstanding at June 30, 2016
1,021,418
$
5.14
4.2
$
142,381
Granted
230,610
4.19
-
-
Exercised
(232,000)
4.20
-
-
Canceled/forfeited/expired
(29,500)
5.95
-
-
Outstanding at June 30, 2017
990,528
5.12
4.3
100,344
Granted
103,283
3.45
-
-
Exercised
(49,000)
3.95
-
-
Canceled/forfeited/expired
(252,737)
6.46
-
-
Outstanding at June 30, 2018
792,074
4.55
6.3
10,413
Options vested and exercisable at June 30, 2018
579,018
4.81
5.4
1,977
Options vested and expected to vest as of June 30, 2018
791,493
$
4.55
6.3
$
10,334
Year Ended June 30, 2018
Weighted -
Number of
Weighted -
Average
Nonvested
Average
Remaining
Restricted
Grant Date
Contractual
Share Units
Fair Value
Life (Years)
Beginning nonvested restricted units outstanding
120,971
$
5.59
1.0
Granted
78,642
3.56
1.3
Vested
(105,985)
5.49
-
Forfeited
(4,435)
4.45
-
Ending nonvested restricted units outstanding
89,193
$
3.98
1.1
Years Ended
June 30,
2018
2017
Issuance of common stock upon conversion of principal and interest of convertible debentures
$
-
$
3,168,342
Reclassification of warrants upon expiration of repricing provisions
$
2,405,300
$
-
Number
Number
Number
Date
Herewith
Mark W. Wong
President and Chief Executive Officer
Exhibit 2.8
ASSET PURCHASE AGREEMENT
BETWEEN
S&W SEED COMPANY
as Purchaser,
and
NOVO ADVISORS
as Receiver
Dated as of September 5, 2018
TABLE OF CONTENTS
Page |
||||
Section 1 |
PURCHASE OF PURCHASED ASSETS. |
1 |
||
Purchase and Sale of Purchased Assets |
1 |
|||
Assumption and Exclusion of Liabilities |
4 |
|||
Assignment of Assigned Licenses |
5 |
|||
Assignment of Assigned Contracts |
5 |
|||
Non-Transferable Assets |
6 |
|||
Instruments of Conveyance |
6 |
|||
"AS IS" TRANSACTION |
6 |
|||
Section 2 |
PURCHASE PRICE. |
7 |
||
Purchase Price |
7 |
|||
Payment of the Purchase Price |
7 |
|||
Allocation of the Purchase Price |
9 |
|||
Section 3 |
EXCLUDED ASSETS. |
9 |
||
Excluded Assets |
9 |
|||
Purchaser Agreement |
10 |
|||
Section 4 |
RECEIVER'S REPRESENTATIONS AND WARRANTIES. |
10 |
||
Authorization and Power |
10 |
|||
Organization of Receiver |
10 |
|||
Title and Related Matters |
10 |
|||
Litigation |
10 |
|||
Compliance with Laws; Licenses |
10 |
|||
Brokers or Finders |
10 |
|||
Equipment |
11 |
|||
Inventory |
11 |
|||
Subsidiaries |
11 |
|||
Real Property |
11 |
|||
Intellectual Property |
12 |
|||
Products Liability |
13 |
|||
Environmental Matters |
13 |
|||
Employee Matters |
14 |
|||
Employee Benefit Plans |
14 |
|||
Labor Matters |
14 |
|||
International Trade and Anti-Corruption |
15 |
|||
Material Contracts |
15 |
|||
Licenses |
17 |
|||
Disclaimer of Implied Warranties |
17 |
|||
Section 5 |
PURCHASER'S REPRESENTATIONS AND WARRANTIES. |
17 |
||
Authorization and Power |
17 |
|||
No Conflict with Other Instruments or Agreements |
17 |
|||
Brokers or Finders |
18 |
|||
Funding |
18 |
|||
i
Section 6 |
COVENANTS, AGREEMENTS PENDING CLOSING, AND OTHER AGREEMENTS. |
18 |
||
Conduct of Debtors' Business Pending the Closing |
18 |
|||
Confidentiality; Non-Competition; Non-Solicitation |
18 |
|||
Additional Covenants and Agreements of Receiver |
21 |
|||
Covenants and Agreements of Purchaser |
22 |
|||
Court Approval and Competing Bids |
23 |
|||
Books and Records |
23 |
|||
Section 7 |
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. |
23 |
||
Representations and Warranties; Performance |
24 |
|||
Court Approval |
24 |
|||
Consents to the Transactions |
24 |
|||
Receivership Action/Bankruptcy |
24 |
|||
Consents to Assignment of Assigned Contracts |
25 |
|||
Satisfaction of Tax and Other Liens |
25 |
|||
No Material Adverse Effect |
25 |
|||
Section 8 |
CONDITIONS PRECEDENT TO RECEIVER'S OBLIGATIONS. |
25 |
||
Representations and Warranties; Performance |
25 |
|||
Consents to the Transactions |
25 |
|||
Court Approval |
25 |
|||
Section 9 |
CLOSING. |
26 |
||
Time, Place and Manner of Closing |
26 |
|||
Certain Transaction Costs |
26 |
|||
Deliveries at Closing by Receiver |
26 |
|||
Deliveries at Closing by Purchaser |
27 |
|||
Consummation of Closing |
27 |
|||
Section 10 |
TERMINATION OF AGREEMENT. |
28 |
||
Termination Events |
28 |
|||
Effect of Termination |
28 |
|||
Termination Procedure |
29 |
|||
Remedies Cumulative |
29 |
|||
Section 11 |
INDEMNIFICATION |
29 |
||
Indemnification by Receiver |
29 |
|||
Indemnification by Purchaser |
30 |
|||
Third Party Claims |
30 |
|||
Other Claims |
31 |
|||
Receiver Indemnification Claim Period |
31 |
|||
Purchaser Indemnification Claim Period |
31 |
|||
Payment from Indemnification Escrow |
32 |
|||
Miscellaneous Indemnification Provisions |
32 |
|||
ii
Section 12 |
FURTHER ASSURANCES. |
33 |
||
Separate Agreements Executed in Connection with Closing |
33 |
|||
Cooperation of the Parties After Closing |
33 |
|||
Payroll |
33 |
|||
Section 13 |
DEFINITIONS. |
33 |
||
Section 14 |
MISCELLANEOUS PROVISIONS. |
42 |
||
Nature and Survival of Representations and Warranties |
42 |
|||
Exhibits and Schedules |
42 |
|||
Assignment |
43 |
|||
Binding Effect |
43 |
|||
Governing Law and Jurisdiction |
43 |
|||
Severability |
43 |
|||
Notices |
43 |
|||
Public Announcements |
44 |
|||
Expenses |
44 |
|||
Third Parties |
44 |
|||
Time of the Essence |
44 |
|||
Construction |
45 |
|||
Counterparts; Electronic Signatures; Effectiveness of this Agreement |
45 |
|||
Entire Agreement; Amendment; Waiver |
45 |
iii
THIS ASSET PURCHASE AGREEMENT is made and dated September 5, 2018, by and between S&W Seed Company, a Nevada corporation ("Purchaser") and Novo Advisors f/k/a Novo Turnaround Advisory Group Inc., a Colorado corporation, solely in its capacity as the receiver ("Receiver") for, and on behalf of, Chromatin, Inc., a Delaware corporation ("Chromatin"), Chromatin Germplasm, LLC, a Delaware limited liability company ("Germplasm"), Chromatin Holding, LLC, a Delaware limited liability company ("Holding"), Marathon Ag Services, LLC, a Delaware limited liability company ("Marathon"), Chromatin Farms, LLC, a Delaware limited liability company ("Chromatin Farms"), and Global Sorghum Solutions, LLC, a Delaware limited liability company formerly known as Sorghum Partners, LLC ("Global Sorghum"; each of the foregoing being collectively referred to as "Debtors" and each, individually, a "Debtor"). Purchaser and Receiver are collectively referred to as the "Parties" and each, individually, a "Party".
RECITALS
A. Debtors own and operate certain assets associated with the development, production and distribution of sorghum hybrids (hereafter referred to as the "Business").
B. Pursuant to the Order Authorizing Appointment of Receiver, dated May 15, 2018, as amended by the Order Amending Order Authorizing Appointment of Receiver, dated June 4, 2018 (as amended, the "Receivership Order"), each entered by the United States District Court for the Northern District of Illinois (the "Court") in Case No. 18-sv-03417 (the "Receivership Action"), the Court appointed and authorized Receiver to, among other things, (a) take possession, custody and control of all of Debtors' business operations, assets, and property, and (b) market and sell Debtors' business operations, assets, and property, all subject to the conditions contained in the Receivership Order.
C. Purchaser desires to purchase all or substantially all of Debtors' assets (excluding the Excluded Assets), and Receiver desires to sell such assets to Purchaser for the consideration and upon the terms and subject to the conditions set forth herein (the "Transaction").
NOW THEREFORE, IN CONSIDERATION OF THE PROMISES MADE HEREIN, AND INTENDING TO BE LEGALLY BOUND HEREBY, THE PARTIES AGREE AS FOLLOWS:
SECTION 1 PURCHASE OF PURCHASED ASSETS.
1.1. Purchase and Sale of Purchased Assets.
Subject to the terms and conditions set forth in this Agreement, at the Closing, Receiver agrees to sell, convey, transfer, assign, and deliver to Purchaser, and Purchaser agrees to purchase, accept, and acquire from Receiver, for the Purchase Price hereinafter specified, all of Debtors' right, title and interest in and to all assets, properties, rights and interests, of any kind and description (whether real, personal or mixed, tangible or intangible, or fixed, contingent or otherwise), wherever located and by whomever possessed, owned, licensed or leased by any of the Debtors, other than the Excluded Assets (collectively, the "Purchased Assets"), free and clear
of all Interests to the maximum extent provided by the Sale Order or released by a party holding an Interest, other than Permitted Encumbrances and Assumed Liabilities, solely to the extent of Debtors' right, title and interest in and to such Purchased Assets on the Closing Date and otherwise to the fullest extent permitted by law, including, without limitation, the following:
1.1.1. All of Debtors' right, title and interest in and to real property, including, without limitation, land, buildings, manufacturing facilities, structures, improvements, fixtures, leaseholds and leasehold improvements, and all appurtenances and rights thereto (the "Real Property").
1.1.2. All of Debtors' right, title and interest in and to Inventory, Products, Goods, similar materials, and any other raw materials, work-in-progress and finished goods, wherever located (including items in transit) owned by Debtors or used in the operation of the Business.
1.1.3. All of Debtor's right, title and interest in and to tangible personal property (including Equipment, machinery, computers, information technology systems, supplies, materials, furniture, furnishings, tools, dies and vehicles) owned or used or held for use by Debtors in relation to the Business.
1.1.5. All of Debtors' right, title and interest in and to stock, partnership interests, joint venture interests and other equity ownership interests in any other Person, including all partially and wholly owned subsidiaries of any of the Debtors unless Purchaser designates such as an Excluded Asset.
1.1.6. All of Debtors' right, title, and interest in and to the following assets, to the extent transferrable with, or (where applicable) without, consent of a third party:
(b) all leases, Contracts, purchase and sale orders, distributorships, and other agreements of the Debtors set forth as "Assigned Contracts" on Schedule 1.1.6(b) hereto ("Assigned Contracts"), subject to Purchaser's right, (i) at any time prior to the Closing, to remove Contracts from Schedule 1.1.6(b) and no longer designate such Contracts as Assigned Contracts and (ii) at any time prior to or after Closing (but in any event prior to the termination of the Receivership Action), to add to Schedule 1.1.6(b) any Contracts copies of which were not provided to Purchaser prior to the date of this Agreement;
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(c) all Intellectual Property, including (i) all trademark rights, business identifiers, trade dress, service marks, trade names, brand names, domain names, and websites; (ii) all copyrights and all other rights associated therewith and the underlying works of authorship; (iii) all patents, patent applications and all proprietary rights associated therewith; (iv) all contracts or agreements granting any right, title, license, or privilege under the intellectual property rights of any third party; (v) all inventions, mask works and mask work registrations, know-how, discoveries, improvements, designs, trade secrets, shop and royalty rights, employee covenants and agreements respecting intellectual property and non-competition, and all other types of intellectual property; and (vi) all registrations of any of the foregoing, all applications therefor (whether in draft or filed form), (vii) all goodwill associated with any of the foregoing, and (viii) all Claims for past, present, and future infringement or breach thereof, including any of the foregoing set forth on Schedule 1.1.6(c);
(e) Debtors' customer lists, credit files, payroll records, schedules of fixed assets, books of account, contracts, sales representation and sales agency agreements, files, papers, books, records, designs, drawings, specifications and engineering data, and all other public or confidential business records, all to the extent reasonably required for the orderly continuation of the operations of the Business if such business was to otherwise continue without regard to the Transaction.
1.1.8. All of Debtors' rights under warranties, indemnities and all similar rights against third parties to the extent related to any of the Purchased Assets.
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1.1.9. All goodwill as a going concern and all other intangible property of the Business.
1.1.11. All other assets, properties, rights and interests owned by any of the Debtors as of the Closing Date, or in which any Debtor has an interest, which are not referred to in Subsections 1.1.1 through 1.1.10, including all other assets, rights and interests necessary to operate the Business following the Closing Date and which are not otherwise Excluded Assets;
provided, however, none of the Purchased Assets shall in any event be deemed to include any asset expressly designated as an Excluded Asset pursuant to Section 3.1 of this Agreement. Nothing in this Section 1.1 shall obligate Purchaser to assume any Liability, whether related to the Business, the Purchased Assets or otherwise, unless Purchaser expressly assumes such Liability pursuant to the terms and conditions of Section 1.2.1 hereof. Further, Purchaser shall have the right, upon written notice given to Receiver before Closing, to exclude any or all of the assets listed above from the definition of Purchased Assets and any assets so excluded shall be Excluded Assets and thereupon be deemed added to Schedule 3.1.
1.2. Assumption and Exclusion of Liabilities.
1.2.1. As of the Closing Date, on the terms and subject to the conditions hereof, and as additional consideration for the Purchased Assets, Purchaser shall assume and pay, perform or otherwise discharge, in accordance with their respective terms and subject to their respective conditions, only: (i) any Liabilities of Debtor under Assigned Contracts and Assigned Licenses; and (ii) any Liabilities of Debtors specifically identified and described on Schedule 1.2 (the "Assumed Liabilities"). With respect to any of the Assumed Liabilities, such assumption by Purchaser is for the benefit only of Receiver and Debtors and shall not expand, increase, broaden, or enlarge the rights or remedies of any other party, nor create in any other party any right against Purchaser that such party would not have against Receiver or Debtors if this Agreement had not been consummated.
(a) any Liabilities to the extent arising out of or related to the Excluded Assets;
(b) obligations of any Debtor under this Agreement and the Ancillary Documents;
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(c) any Liabilities (other than Cure Amounts) to the extent existing prior to the Closing Date or related to or arising out of any event, occurrence, state of facts, condition, act or omission prior to the Closing Date;
(d) any Liability (other than Cure Amounts) under any Assigned Contract, to the extent (A) arising in the first instance prior to the Closing Date, under any Assigned Contract or (B) arising after the Closing Date but due to a breach of an Assigned Contract by any Debtor prior to the Closing Date;
(e) any Liability under any Contract that is not an Assigned Contract, including under any Rights-Only Contract or any NDA Agreement that is not an Assigned Contract;
(f) any Indebtedness of any Debtor or Receiver;
(g) all Liabilities in respect of any employees of any Debtor and the beneficiaries of such employees arising prior to or accrued as of the Closing including, but not limited to, any severance payments or exit bonuses payable to such employees as a result of the Closing of the Transactions;
(h) all Liabilities relating to any product Liability, breach of warranty or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representations, warranty, agreement or guaranty made by any Debtor, or by reason of the improper performance or malfunctioning of a product, improper design or manufacture, failure to adequately package label or warn of hazard or other related product defects of any products at any time manufactured or sold or any service performed by any Debtor before the Closing; and
(i) all Liabilities for professional (including broker and advisory), Court fees, costs and expenses that have been incurred or that are incurred or owed by any Debtor or Receiver in connection with the preparation and administration of the Receivership Action; and
(j) all Liabilities for Taxes to the extent imposed with respect to the Business, the assets thereof, and/or any income or gains derived with respect thereto for any taxable period, or portion thereof, ending on or before the Closing Date.
1.3. Assignment of Assigned Licenses . Subject to the terms and conditions set forth in this Agreement and the receipt of consents and/or waivers from third parties, where applicable, at the Closing, Purchaser shall succeed to the rights and privileges of Debtors, and shall assume the express obligations of Debtors which are to be performed after the Closing, pursuant to the Assigned Licenses as and in the form of the copies thereof (or, if oral, as and in the form of the written statements of the terms thereof) furnished or made available to Purchaser.
1.4. Assignment of Assigned Contracts . Subject to the terms and conditions set forth in this Agreement and the receipt of consents and/or waivers from third parties, where applicable, at the Closing, Purchaser shall succeed to the rights and privileges of Debtors and, subject to the conditions hereof, shall assume the express obligations of Debtors which are to be
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performed only after the Closing, pursuant to the Assigned Contracts as and in the form of the copies thereof (or, if oral, as and in the form of the written statements of the terms thereof) furnished or made available to Purchaser. Purchaser shall be responsible for paying all Cure Amounts with respect to Assigned Contracts, which may be paid directly by Purchaser to the counterparty to an Assigned Contract and, following notice from Purchaser to Receiver and Indemnification Escrow Agent (as defined below) describing the Cure Amount in reasonable detail and including copies of written evidence thereof, reimbursed to Purchaser up to the aggregate amount of $150,000 by the Indemnification Escrow Agent as a claim under the Indemnification Escrow (as defined below) and Escrow Agreement (as defined below) without regard to any Indemnity Threshold (as defined below).
1.5. Non-Transferable Assets . Nothing in this Agreement shall be construed as an agreement to assign any Purchased Asset that, by its terms or pursuant to Applicable Law, is not capable of being sold, assigned, transferred or delivered without the consent or waiver of a third party or Governmental Authority unless and until such consent or waiver shall be given. Receiver shall use commercially reasonable efforts, and Purchaser shall cooperate reasonably with Receiver, to obtain such consents and waivers and to resolve the impediments to the sale, assignment, transfer or delivery contemplated by this Agreement and to obtain any other consents and waivers necessary to convey to Purchaser all of the Purchased Assets. Notwithstanding anything in this Agreement to the contrary, in no event shall Receiver be obligated to pay any amounts to or for any third party in connection with Receiver's obligations in this Section 1.5.
1.6. Instruments of Conveyance . The sale, conveyance, transfer, assignment and delivery of the Purchased Assets, and the assumption of the Assigned Contracts, the Assigned Licenses and the Assumed Liabilities, as herein provided, shall be effected by bills of sale, assignments, deeds, consents, endorsements, drafts, stock powers or other instruments in such reasonable and customary form as shall be requested by Purchaser and acceptable to Receiver, and Receiver shall at any time and from time to time after the Closing (but only so long as the Receiver remains the Court-appointed receiver for Debtors) execute, acknowledge, and deliver such additional bills of sale, endorsements, assignments, deeds, drafts, checks, stock powers or other instruments in such reasonable and customary form as shall be requested by Purchaser and take such other actions as may be reasonably required to vest title to the Purchased Assets in Purchaser and otherwise effectuate the Transaction.
1.7. "AS IS" TRANSACTION . PURCHASER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, RECEIVER MAKES NO (AND RECEIVER EXPRESSLY DISCLAIMS AND NEGATES ANY) REPRESENTATIONS OR WARRANTIES OF ANY KIND, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PURCHASED ASSETS OR ANY OTHER MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, INCOME TO BE DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE PURCHASED ASSETS, THE PHYSICAL CONDITION OF ANY PART OF THE PURCHASED ASSETS OR ANY OTHER ASSET WHICH IS THE SUBJECT OF ANY LEASE OR CONTRACT TO BE ASSUMED BY PURCHASER AT THE CLOSING, THE ENVIRONMENTAL CONDITION OR OTHER MATTER RELATING TO THE PHYSICAL CONDITION OF ANY REAL PROPERTY OWNED BY DEBTORS OR WHICH IS THE
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SUBJECT OF ANY REAL PROPERTY LEASE TO BE ASSUMED BY PURCHASER AT THE CLOSING, THE ZONING OF ANY SUCH REAL ESTATE, THE VALUE OF THE PURCHASED ASSETS (OR ANY PORTION THEREOF), THE TRANSFERABILITY OF THE PURCHASED ASSETS, THE TERMS, AMOUNT, VALIDITY OR ENFORCEABILITY OF ANY ASSUMED LIABILITIES, THE TITLE OF THE PURCHASED ASSETS (OR ANY PORTION THEREOF), THE MERCHANTABILITY OR FITNESS OF ANY OF THE PURCHASED ASSETS FOR ANY PARTICULAR PURPOSE, OR ANY OTHER MATTER OR THING RELATING TO THE PURCHASED ASSETS OR ANY PORTION THEREOF. WITHOUT IN ANY WAY LIMITING THE FOREGOING, RECEIVER HEREBY DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AS TO ANY PORTION OF THE PURCHASED ASSETS. PURCHASER FURTHER ACKNOWLEDGES THAT PURCHASER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF THE PURCHASED ASSETS AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE PURCHASED ASSETS AS PURCHASER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE PURCHASED ASSETS, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN, PURCHASER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. ACCORDINGLY, SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, PURCHASER WILL ACCEPT THE PURCHASED ASSETS AT THE CLOSING "AS IS," "WHERE IS," AND "WITH ALL FAULTS."
SECTION 2 PURCHASE PRICE.
2.1. Purchase Price . In consideration for the sale, conveyance, transfer, and delivery of the Purchased Assets, upon the terms and subject to the covenants and conditions set forth in this Agreement, Purchaser shall assume the Assigned Contracts, the Assigned Licenses and the Assumed Liabilities and Purchaser shall pay to Receiver the amount of Twenty-Three Million Dollars and No Cents ($23,000,000.00) (the "Purchase Price"), payable as set forth in this Section 2.
2.2. Payment of the Purchase Price.
(a) If the Closing shall occur, Receiver and Purchaser shall jointly instruct the Deposit Escrow Agent to, on the Closing Date, deliver the Cash Deposit, together with all accrued investment income thereon, by wire transfer of immediately available funds, on behalf of Receiver, as provided in Section 2.2.2 and the instructions provided to the Deposit Escrow Agent (and such amounts shall be applied toward the payment of the Purchase Price).
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(c) If this Agreement is terminated prior to Closing for any reason other than as set forth in Section 2.2.1(b), the Deposit Escrow Agent shall deliver the Cash Deposit, together with all accrued investment income thereon, to Purchaser.
2.2.2. At the Closing, in consideration of the purchase and sale of the Purchased Assets, Purchaser shall, pay the following amounts from the Purchase Price to the following Persons, in cash, by wire transfer of immediately available funds: (i) to the Indemnification Escrow Agent, the Indemnification Escrow (as defined below), to be held, administered and disbursed by the Indemnification Escrow Agent pursuant to the terms of the Escrow Agreement, as further described in Section 2.2.3; (ii) to any Governmental Authority for which a Tax (other than Taxes payable pursuant to Section 9.2.1) is required to be paid to satisfy the condition that the Purchased Assets be transferred to Purchaser free and clear of any Encumbrances, and (iii) to Receiver, a net amount equal to the Purchase Price less the items identified in subparagraphs (i) and (ii) above, less any amount paid by Purchaser entitled to be reimbursed from the Indemnification Escrow pursuant to Section 1.4 hereof, and less the Cash Deposit and any accrued investment income on the Cash Deposit (such net amount, the "Closing Payment"). All payments described above shall be made pursuant to written wire transfer instructions delivered by Receiver to Purchaser at least two (2) Business Days prior to the Closing Date. At the Closing, the Deposit Escrow Agent shall transfer the Cash Deposit and any accrued investment income on the Cash Deposit to Receiver by wire transfer of immediately available funds to such account as Receiver shall designate.
2.2.3. Simultaneously with the Closing, the Parties shall enter into an escrow agreement in customary form acceptable to Purchaser and Receiver (the "Escrow Agreement"), with an escrow agent reasonably acceptable to Purchaser and Receiver (the "Indemnification Escrow Agent"), pursuant to which Purchaser will deposit with the Indemnification Escrow Agent an amount equal to One Million Dollars and No Cents ($1,000,000.00) of the Purchase Price (the "Indemnification Escrow"). The Indemnification Escrow shall be Purchaser's sole remedy against Receiver pursuant to this Agreement, the Ancillary Documents and with respect to the transactions contemplated by this Agreement, except to the extent non-monetary relief such as injunctive or other equitable relief is available hereunder, and shall be available to Purchaser to satisfy any amounts owed to Purchaser pursuant to this Agreement (including any payments to be made to Purchaser pursuant to Receiver's indemnification obligations under Section 11). The Indemnification Escrow shall be held for twelve (12) months following the Closing Date, and distributed as provided in the Escrow Agreement.
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2.3. Allocation of the Purchase Price . The Purchase Price and the Assumed Liabilities will be allocated in accordance with Section 1060 of the Internal Revenue Code by Purchaser and its accountants in good faith consistent in all respects with applicable Laws. The allocation shall be adjusted consistent with any post-Closing adjustment to the Purchase Price. The Parties shall utilize the agreed allocation in all statements and returns filed with any taxing authority (including on IRS Form 8594) and shall not take any position that is inconsistent with such allocation, and each Party will promptly notify the other Party if any challenge to such allocation is made by any taxing authority.
SECTION 3 EXCLUDED ASSETS.
3.1. Excluded Assets . The Purchased Assets to be acquired by Purchaser hereunder do not include the following (hereinafter referred to as the "Excluded Assets"):
3.1.1. any cash on hand, in banks, and any cash equivalents;
3.1.2. Receiver's rights under this Agreement and the Escrow Agreement and all cash and non-cash consideration payable or deliverable to Receiver pursuant to the terms and provisions hereof;
3.1.3. all insurance policies and proceeds, all unearned insurance premiums, and all accrued insurance refunds or rebates, but excepting casualty insurance proceeds or claims with respect to the Purchased Assets relating to casualty losses occurring whether before, on, or after the date of this Agreement;
3.1.4. all rights and Claims in or to any refunds or credits of or with respect to any Taxes, assessments or similar charges paid by or on behalf of any Debtor or Receiver, in each case to the extent applicable to any period prior to the Closing;
3.1.5. except as set forth in Section 1.1.7, Tax records and minute books of Debtors, and any other books and records relating solely to the Excluded Assets;
3.1.6. all claims arising on or prior to the Closing Date under any directors and officers liability insurance policies owned by Debtors;
3.1.8. professional retainers paid by Debtors or Receiver;
3.1.9. any letters of credit or similar financial accommodations issued to any third party(ies) for the account of Debtors or Receiver;;
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3.1.10. all rights of offset, rebates, credits and other rights of recovery against third parties, solely to the extent the foregoing rights relate to assets other than the Purchased Assets;
3.1.11. causes of action, rights of recovery, rights of recoupment and judgments (any proceeds thereof) relating to the Production Plus Proceeding; and
3.1.12. the other assets, properties, rights and interests of Debtors set forth on Schedule 3.1.
3.2. Purchaser Agreement . Purchaser expressly agrees and understands that Receiver shall not sell, assign, transfer, convey or deliver to Purchaser any of the Excluded Assets.
SECTION 4 RECEIVER'S REPRESENTATIONS AND WARRANTIES.
As a material inducement to Purchaser to enter into this Agreement and purchase the Purchased Assets, Receiver represents and warrants:
4.1. Authorization and Power . By virtue of the Receivership Order, and subject to entry of the Sale Order, Receiver has the right, power and authority to enter into this Agreement and each other agreement, instrument and other document required to be executed by it hereunder and to consummate the Transaction, and otherwise to comply with and perform its obligations under this Agreement.
4.2. Organization of Receiver . Receiver is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado.
4.3. Title and Related Matters . Except as set forth on Schedule 4.3, each Debtor owns and has good and marketable title to, or a valid leasehold interest in, all Purchased Assets, and will deliver the Purchased Assets free and clear of all Encumbrances, except for Permitted Encumbrances.
4.4. Litigation . Except as set forth on Schedule 4.4 and except for the Receivership Action, there are no pending actions, suits, Proceedings, orders, investigations or Claims against any Debtor or any of the Purchased Assets, at Law or in equity, or before or by any Governmental Authority.
4.5. Compliance with Laws; Licenses . Except as set forth on Schedule 4.5, each Debtor, in the conduct of its business, is in material compliance with all laws, statutes, ordinances, regulations, orders, judgments, or decrees applicable to it or the Purchased Assets. All material licenses and permits of the Debtors issued by or with any Governmental Authority relating to the ownership, development or operation of the Business are in good standing.
4.6. Brokers or Finders . Except as set forth on Schedule 4.6, there are no claims for brokerage commissions, finders' fees or similar compensation payable in connection with the Transaction based on any arrangement or agreement made by or on behalf of Receiver or Debtors.
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4.7. Equipment . All material Equipment, machinery, and vehicles of Debtors are (a) in good repair and good operating condition suitable for its current use, ordinary wear and tear excepted, (b) in material compliance with all applicable laws, statutes, ordinances, regulations, orders, judgments, and decrees, and (c) in the possession or control of Receiver, or of Debtors or their Affiliates.
4.8. Inventory . The Inventory is saleable in the Ordinary Course of Business.
4.9. Subsidiaries . Schedule 4.9 sets forth each subsidiary of any Debtor ("Subsidiary") and all stock or equity interests of any kind owned by any Debtor in such Subsidiaries or any other Person, together with the respective ownership share, or other equity interests held. Except as set forth on Schedule 4.9, each Subsidiary each Subsidiary (a) is wholly-owned by such identified Debtor and (b) has no Liabilities of any kind to any Person.
4.10. Real Property .
4.10.2. Schedule 4.10.2 indicates the address or other description of any Real Property leased to any Debtor or which any Debtor has been granted the right to use or occupy (the "Leased Real Property"). The Receiver has made available to Purchaser a complete and correct copy of each lease or similar agreement related to the Leased Real Property, all of which are identified on Schedule 4.10.2.
4.10.3. Except as set forth on Schedule 4.10.3, the Owned Real Property and Leased Real Property constitutes all of the Real Property currently used or occupied by the Debtors in connection with or related to the Business. The Debtors enjoy peaceful and undisturbed possession of such Owned Real Property and Leased Real Property.
4.10.6. Except as set forth on Schedule 4.10.6, neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, is a lessor under, or otherwise a party to, any lease, license, assignment, encumbrance, hypothecation or concession pursuant to which any Debtor has granted to any Person the right to use or occupy all or any portion of the Owned Real Property or the Leased Real Property.
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4.11. Intellectual Property.
4.11.1. Schedule 1.1.6(c) identifies all Intellectual Property, including, but not limited to, all Patents, Trademarks and Copyrights owned by any Debtor, which has been registered with or issued by, or is the subject of an application for registration or issuance, any Governmental Authority anywhere in the world. All Intellectual Property that is currently registered with any Governmental Authority was done so in material compliance with applicable Laws regarding such registration. The Purchased Assets include all of the material Intellectual Property rights used, or held for use primarily, in the conduct of the Business as it is currently being conducted by Debtors.
4.11.5. No Intellectual Property has been or has been alleged to have been, misappropriated from any Person, and no employee, subcontractor, consultant, independent contractor, or other Person claims any rights to any of Intellectual Property. Without limiting the generality of the foregoing, Debtors have used commercially reasonable efforts to cause any and all material Intellectual Property conceived, invented or developed for the benefit of any Debtor by any employee, subcontractor, consultant, independent contractor, or other Person to have been duly and validly assigned and transferred to Debtors pursuant to and in accordance with an assignment of inventions or similar agreements.
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4.11.6. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has taken reasonable measures to protect the confidentiality of its trade secrets included in the Purchased Assets and no trade secrets have been disclosed to any Person other than to employees, Representatives and agents of Debtors, or to third parties bound by confidentiality obligations.
4.11.7. The consummation of the Transaction and the Ancillary Documents will not alter, encumber, impair or extinguish any of the Intellectual Property included in the Purchased Assets.
4.12. Products Liability .
4.12.2. Debtors have no Liability and there is no basis for any present or future Proceeding against any Debtor giving rise to any Liability, arising out of any injury to Person or property as a result of the ownership, possession or use of a product grown, designed, manufactured, assembled, repaired, sold, leased, delivered, installed or otherwise distributed, or services rendered, by any Debtor.
4.13. Environmental Matters.
4.13.1. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has, with respect to the Business and the Purchased Assets, complied and is in compliance in all material respects with all Environmental Laws. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has not received any written notice, report or other information regarding any violation of, or liability under, Environmental Law with respect to the Business or the Purchased Assets. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, nor any of its predecessors or their respective Affiliates, has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, released, or exposed any Person to, any Hazardous Materials, or owned or operated the Business, the Purchased Assets or any property or facility (and no such property or facility is contaminated by any such Hazardous Materials) in a manner that has given or would give rise to any material Liabilities or investigative, corrective or remedial obligations pursuant to any CERCLA or any other Environmental Law. Neither Receiver nor any Debtor has received any written notice of any investigation, Proceeding or order concerning any Environmental Condition applicable to the conduct of the Business as currently conducted or the ownership and use by Receiver, solely in its capacity as receiver for the Debtors, and any Debtor of the Purchased Assets.
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4.13.2. Receiver has furnished to Purchaser all environmental audits, reports and other environmental documents relating to current operations or facilities of each Debtor.
4.13.3. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, with respect to the Business or the Purchased Assets, has manufactured, sold, marketed, installed, or distributed products or other items containing Hazardous Materials in a manner that has given or would give rise to any liabilities under any Environmental Law, and neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, has liability related to or arising out of the presence of Hazardous Materials in any product or article, or at any property or facility.
4.14. Employee Matters . Receiver has made available to Purchaser in the Data Room as of September 5, 2018 a complete and correct listing of (i) all employees of Debtors (redacted for the names of the employees), (ii) the position of each such individual and (iii) such individual's rate of compensation, including salary, bonus and other compensation, as of a recent date.
4.15. Employee Benefit Plans . Each "employee benefit plan" as defined in Section 3(3) of ERISA, and each other benefit plan, policy, program, arrangement or agreement which is sponsored or maintained by Debtors, or pursuant to which any Debtor is otherwise bound, for the benefit of its employees or other representatives is referred to herein as an "Employee Plan." Each Employee Plan (i) has been operated and administered in compliance with its terms and all applicable requirements of ERISA, the Code and other applicable Laws and (ii) intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS. Neither any Debtor nor any of its ERISA Affiliates maintains, sponsors or is required to contribute to, either currently or at any time in the past, or otherwise any Liability with respect to, any employee benefit plan that (i) is a "multiemployer plan" within the meaning of Section 3(37) of ERISA, (ii) is subject to the funding requirements of Section 412 of the Code or Title IV of ERISA, or (iii) provides for post-retirement medical, life insurance or other welfare-type benefits (other than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code or under a similar state Law).
4.16. Labor Matters . Except as set forth on Schedule 4.16, there is no material labor dispute, allegation, charge, grievance or complaint of unfair labor practice, employment discrimination or, to Receiver's Knowledge, union organizational activity; nor, to Receiver's Knowledge, is any such action threatened against any Debtor. No Debtor is a party to any collective bargaining agreement and no Debtor has received notice of any organizational effort presently being made on behalf of any labor union with respect to the Business. Each Debtor has complied in all respects with all applicable Laws relating to the employment of labor, including, but not limited to, provisions thereof relating to immigration status, wages, hours, equal opportunity, collective bargaining, disability and the payment of social security and employment Taxes.
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4.17. International Trade and Anti-Corruption .
4.17.2. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, nor any of its officers, directors or employees, nor to the Knowledge of Receiver, any agent or other third party representative acting on behalf of any Debtor, has at any time made any unlawful payment or given, offered, promised, or authorized or agreed to give, any money or thing of value, directly or indirectly, to any Government Official or other Person in violation of any applicable Anti-Corruption Laws. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor, has maintained complete and accurate records, including records of payments to any agents, consultants, representatives, third parties and Government Officials.
4.17.3. During the five years prior to the date hereof, Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has not, in connection with or relating to the Business, received from any Governmental Authority or any other Person any notice, inquiry, or internal or external allegation; made any voluntary or involuntary disclosure to a Governmental Authority; or conducted any internal investigation or audit concerning any actual or potential violation or wrongdoing related to Trade Control Laws or Anti-Corruption Laws.
4.18. Material Contracts . Receiver has made available to Purchaser in the Data Room a complete and correct copy (or, with respect to Contracts with any grower of any crop, seed, or other Product, representative forms of the Contracts and a summary of counterparties and key economic terms) of all material written Contracts of a type described below (such Contracts below are herein referred to as "Material Contracts") to which any Debtor is a party, together with all amendments, exhibits and attachments, in executed form. Except for those Contracts in the Data Room as of September 5, 2018, as of the Closing Date, no Debtor is a party to or bound by any Material Contract that affects the Purchased Assets of the following types:
4.18.1. any consulting agreement or employment agreement;
4.18.2. any collective bargaining arrangement with any labor union, any Contract or arrangement providing for any Debtor to indemnify any Person, and any such agreements currently in negotiation or proposed;
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4.18.3. any Contract for the furnishing of services, materials, or supplies, or the sale, purchase, lease, maintenance or acquisition of merchandise, equipment, parts or other property or services requiring remaining aggregate future payments in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum;
4.18.4. any Contract with any independent sales representative or distributor;
4.18.5. any Contract that restricts the right of any Debtor to engage in any line of business, compete with any Person, solicit any customers, suppliers, employees or contractors of any other Person, or sell or purchase any product;
4.18.6. any Contract relating to the acquisition or disposition, directly or indirectly, of any material business, Real Property or other assets, or the equity interests of any other Person;
4.18.7. any Contract relating to the borrowing of material Indebtedness;
4.18.8. any Contract granting any Person a material Encumbrance (other than a Permitted Encumbrance) on all or any of the assets of any Debtor;
4.18.9. any Contract or group of related Contracts with any Affiliate or group of Affiliates of any Debtor;
4.18.10. any lease, license, rental or occupancy agreement, installment and conditional sale agreement, and other Contract affecting the ownership of, leasing of, licensing of, title to, use of, or any leasehold or other interest in, any real or personal property, including Intellectual Property (other than any such agreement for personal property with remaining obligations of less than Twenty-Five Thousand Dollars ($25,000));
4.18.11. (i) any Contract regarding the development, improvement, enhancement, modification appropriation or the non-disclosure of any Intellectual Property; (ii) any Contract with an employee of any Debtor relating to confidentiality, non-disclosure, assignment of inventions or developments, non-solicitation, non-competition and/or similar matters; or (iii) any Contract with a Person relating to confidentiality, non-disclosure, assignment of inventions or developments, non-solicitation, non-competition and/or similar matters that is material to the conduct of the Business;
4.18.12. any Contract that requires any Debtor to purchase or sell a stated portion of the requirements or outputs of the Business or that contain "take or pay" provisions;
4.18.13. any joint venture, partnership or similar Contracts;
4.18.14. all powers of attorney with respect to the Business or any Purchased Asset;
4.18.15. any Contract with any grower of any crop, seed, or other Product; and
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4.18.16. any amendment, supplement, or modification (whether oral or written) in respect of any of the foregoing.
4.19. Licenses . Receiver has made available to Purchaser in the Data Room as of September 2, 2018 a complete and correct copy of all licenses, permits, consents, registrations, certificates and other material governmental or regulatory permits, authorizations, approvals or agreements issued by or with any Governmental Authority of any Debtor (the "Governmental Licenses"). Schedule 4.19 lists the location or locations in the Data Room where each Governmental License is deposited.
4.20. Disclaimer of Implied Warranties. EXCEPT ONLY FOR THE REPRESENTATIONS, WARRANTIES, AND COVENANTS OF RECEIVER SET FORTH IN THIS AGREEMENT, THE PURCHASED ASSETS ARE BEING SOLD IN THEIR "AS-IS, WHERE-IS" CONDITION, AND RECEIVER HEREBY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY OF THE PURCHASED ASSETS.
Without qualifying any representation or warranty, or affecting or limiting in any way Purchaser's right to make a claim for indemnification under Section 11 of this Agreement, Purchaser acknowledges that (a) each of the representations and warranties contained in this Section 4 is made based upon the Knowledge of Receiver, (b) without limiting the scope of Section 11 of this Agreement, any Losses (defined below) resulting from any inaccuracy in or breach of any representation or warranty contained in this Section 4 shall, if payable, be paid solely from the Indemnification Escrow, and in no event shall Purchaser have any claim against Receiver for any inaccuracy in or breach of any representation or warranty contained in this Section 4, and (c) certain Contracts and other documentation described in the foregoing representations and warranties were provided or made available to Purchaser in redacted form as of the date hereof, with the understanding that unredacted versions will be provided at a later date in accordance with Section 6.3.3.
SECTION 5 PURCHASER'S REPRESENTATIONS AND WARRANTIES.
As a material inducement to Receiver to enter into and perform its obligations under this Agreement, Purchaser represents and warrants that:
5.1. Authorization and Power . The execution, delivery, and performance by Purchaser of this Agreement and all other agreements contemplated hereby to which Purchaser is a party have been duly and validly authorized by all necessary corporate action of Purchaser, and except as set forth on Schedule 5.1, no approvals or consents of any other Person or Governmental Authority having jurisdiction are necessary in connection with it. This Agreement and each such other agreement, when executed and delivered by Purchaser, will constitute the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, and similar statutes affecting creditors' rights generally and judicial limits on equitable remedies.
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5.2. No Conflict with Other Instruments or Agreements . The consummation by Purchaser of the Transaction will not result in or constitute a default or an event that, with the giving of notice or lapse of time, or both, would constitute a default, breach, or violation of the organizational documents of Purchaser or any lease, license, promissory note, loan agreement, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument, or arrangement to which Purchaser is a party or by which Purchaser or any of its property may be bound and which would be material to Purchaser's performance of this Agreement.
5.3. Brokers or Finders . There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the Transaction based on any arrangement or agreement made by or on behalf of Purchaser.
5.4. Funding . Purchaser has sufficient liquid assets available to Purchaser to pay the Purchase Price on the Closing Date and to pay and perform the Assumed Liabilities.
SECTION 6 COVENANTS, AGREEMENTS PENDING CLOSING, AND OTHER AGREEMENTS.
6.1. Conduct of Debtors' Business Pending the Closing . From the date of this Agreement until Closing, and except as otherwise consented to or approved in advance in writing by Purchaser or as may be limited or modified as a result of the Receivership Action, and except for any actions or omissions that would not be expected to have a Material Adverse Effect, Receiver covenants and agrees with Purchaser as follows:
6.1.1. The Purchased Assets will be used, preserved and maintained in the Ordinary Course of Business, as the Purchased Assets are on the date of this Agreement, ordinary wear and tear and damage by casualty excepted. Without the prior written approval of Purchaser, Receiver will not materially encumber any of the Purchased Assets or make any material commitments relating to the Purchased Assets extending beyond the date of Closing, including, without limitation: (i) incurring any material obligations or liabilities, whether fixed or contingent; (ii) entering into any material contract, lease or other agreement; (iii) modifying or terminating any existing material contract, lease or other agreement; (iv) waiving any rights of material value to Debtors, including by agreeing to a material discount on the sale price of any Inventory or Products, or on the amount of any accounts receivable of any Debtor; (v) paying any material obligation or liability, whether fixed or contingent, other than current liabilities or those contemplated by this Agreement to be paid prior to Closing; or (vi) entering into any other transaction or arrangement which individually or in the aggregate with other transactions or arrangements would be material to Debtors.
6.1.2. Receiver will not cancel, lose or diminish the insurance now in effect on the Purchased Assets.
6.1.3. Receiver will not cause Debtors to violate in any material respects any statutes, laws, ordinances, rules, or regulations applicable to Debtors in the Ordinary Course of Business or otherwise.
6.2. Confidentiality; Non-Competition; Non-Solicitation.
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6.2.1. Confidentiality. From and after the Closing, Debtor shall not directly or indirectly, disclose or use at any time (and shall cause their respective Affiliates and Representatives not to use or disclose) any Confidential Information (whether or not such information is or was developed by Receiver or any Debtor), except to the extent that such disclosure or use is directly related to and required by the performance of Receiver's duties to Purchaser or as required by Law (including in connection with the Receivership Action) or as otherwise provided hereunder. In the event Debtor is required by Law to disclose any Confidential Information, such Debtor shall promptly notify Purchaser in writing, which notification shall include the nature of the legal requirement and the extent of the required disclosure, and shall cooperate, at Purchaser's sole cost and expense, with Purchaser's reasonable requests to preserve the confidentiality of such Confidential Information consistent with applicable Law; provided, that, to the any Debtor is required to make a disclosure hereunder as required by applicable Law, such Debtor shall (i) disclose only that portion of such Confidential Information which such Debtor is advised by its counsel in writing that it is legally required to disclose and (ii) use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such Confidential Information. For purposes of this Agreement, "Confidential Information" means all information of a confidential or proprietary nature (whether or not specifically labeled or identified as "confidential"), in any form or medium, that relates to the Business or its suppliers, distributors, customers, independent contractors or other business relations. Confidential Information includes the following as they relate to the Business and, in each case, to the extent the Business obtains a commercial benefit from the secret nature of such information: internal business information (including information relating to strategic and staffing plans and practices, business, training, marketing, promotional and sales plans and practices, cost, rate and pricing structures, accounting and business methods and potential acquisition candidates); identities of, individual requirements of, and specific contractual arrangements with, the Business's suppliers, distributors, customers, independent contractors or other business relations and their confidential information; trade secrets, know-how, compilations of data and analyses, techniques, systems, formulae, research, records, reports, manuals, documentation, models, data and data bases relating thereto; and inventions, innovations, improvements, developments, methods, designs, analyses, drawings, and reports. Notwithstanding the foregoing, Confidential Information does not include such information which: (i) at the time of disclosure is publicly available or thereafter becomes publicly available through no act or omission of Debtor in violation of this Section 6.2.1; (ii) is thereafter disclosed or furnished to Debtor by a third party who is not known by Debtor to have acquired the information under an obligation of confidentiality; (iii) is independently developed by Debtor without the use of or reference to Confidential Information after the Closing Date; or (iv) is disclosed by Debtor (subject to compliance with the applicable provisions of this Section 6.2.1) under compulsion of applicable Law. Confidential Information shall not include information required to be included by Receiver or Debtor in pleadings filed in the Receivership Action. For the avoidance of doubt, Confidential Information shall not include information that is required to be disclosed by Receiver or Debtors in relation to orders entered in the Receivership Action.
6.2.2. Non-Competition.
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(a) Each Debtor is familiar with the trade secrets related to the Business and with other Confidential Information concerning the Business, including all (A) inventions, technology and research and development related to the Business, (B) customers and clients and customer and client lists (and prospective customers and prospective clients) related to the Business, (C) products (including products under development) and services related to the Business and related costs and pricing structures and manufacturing techniques, (D) accounting and business methods and practices related to the Business and (E) similar and related confidential information and trade secrets related to the Business. Debtor acknowledges and agrees that the Business would be irreparably damaged if any Debtor were to directly or indirectly provide services to any Person competing with the Business or engaging in a similar business and that such direct or indirect competition by any Debtor would result in a significant loss of goodwill by the Business.
(a) request, induce or attempt to influence any distributor, supplier, vendor, sales representative or customer of goods or services of the Business to curtail, cancel or refrain from maintaining or increasing the amount or type of business such distributor, supplier or customer of goods or services is currently transacting, or may be transacting during the Non-Solicitation Period, with the Business or modify its pricing or other terms of sale with the Business;
(b) solicit or induce any individual who is or was an employee of any Debtor or Purchaser to terminate his or her employment or offer employment to or hire or otherwise engage any such individual, whether as an independent contractor, consultant or otherwise;
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(c) influence or attempt to influence any Person who is an employee of the Business during the Non-Solicitation Period to terminate his or her employment with Purchaser; or
(d) make any negative, derogatory or disparaging statements or communications regarding Purchaser, the Business, or the Affiliates or Representatives of Purchaser.
6.2.4. Severability. Notwithstanding anything to the contrary in this Agreement, if at any time, in any judicial or arbitration proceeding, any of the restrictions stated in this Section 6.2 are found by a final order of a court of competent jurisdiction or arbitrator to be unreasonable or otherwise unenforceable under circumstances then existing, the Parties each agree that the period, scope or geographical area, as the case may be, shall be reduced to the extent necessary to enable the court to enforce the restrictions to the extent such provisions are allowable under applicable Law, giving effect to the agreement and intent of the Parties that the restrictions contained herein shall be effective to the fullest extent permissible. Debtor agrees that the restrictions contained in this Agreement are reasonable in all respects and necessary to protect Purchaser's interest in, and the value of, the Business.
6.2.5. Specific Performance; Injunctive Relief. Receiver acknowledges and agrees that in the event of a breach by Debtor of any of the provisions of this Section 6.2, Purchaser would suffer irreparable harm, no adequate remedy at law would exist for Purchaser, and damages would be difficult to determine. Consequently, in the event of any such breach, Purchaser or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competent jurisdiction for specific performance or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages.
6.2.6. Tolling of Non-Competition Period and Non-Solicitation Period. The Non-Competition Period and the Non-Solicitation Period shall automatically be extended for any period of time during which Debtor is not in compliance with the covenants and agreements set forth in this Section 6.2.
6.3. Additional Covenants and Agreements of Receiver . From the date of this Agreement until Closing, Receiver further covenants and agrees with Purchaser as follows:
6.3.1. Receiver will use its commercially reasonable efforts to obtain as promptly as practicable the satisfaction of the conditions to Closing described in this Agreement and any necessary consents or waivers under or amendments to agreements by which Debtors are bound; provided that, notwithstanding anything in this Agreement to the contrary, in no event shall Receiver be obligated to pay any amounts to or for any third party in connection therewith.
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cure any inaccuracy of any representation or warranty made in this Agreement to the extent not constituting a material change to such Schedule as provided on or before the date of this Agreement. Purchaser shall have the sole right to supplement or amend Schedule 1.1.6(b), Schedule 1.2, or Schedule 3.1 and no supplement or amendment to Schedule 11.8.6 shall be effective without Purchaser's written consent.
6.3.4. At Purchaser's request, Receiver shall, at Purchaser's expense, cooperate with Purchaser with respect to preparation for, and commencement of, the audits of the financial statements of the Debtors for the calendar year 2017 and 2018 interim financial statements of all Debtors and their Affiliates.
6.3.5. If reasonably requested by Purchaser, whether before or after the Closing, Receiver shall promptly file all required motions and other pleadings with the Court and obtain a Final Order from the Court, in form and substance reasonably satisfactory to Purchaser, authorizing the assumption and assignment to Purchaser of any Assigned Contract designed by Purchaser.
6.3.6. Receiver agrees that Purchaser may engage in discussions with current or former employees of any Debtor with respect to Purchaser's potential hiring and employment of such current or former employees on or after the Closing, at such reasonable times and manner as Receiver authorizes.
6.4. Covenants and Agreements of Purchaser . From the date of this Agreement until Closing, Purchaser covenants and agrees with Receiver as follows:
6.4.1. Purchaser will use its commercially reasonable efforts, and will execute and deliver any documents and instruments that may reasonably be required to assist Receiver in obtaining any necessary consents or waivers under or amendments to agreements by which Debtors are bound and which are conditions to Closing described in this Agreement; provided,
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however, that, notwithstanding anything in this Agreement to the contrary, Purchaser shall not be obligated hereunder to execute any guaranty, assumption of liability or other document or instrument requiring Purchaser to assume obligations, or pay any amounts to or for any third party in connection therewith, not expressly provided for in or contemplated by this Agreement.
6.4.2. Promptly after the date of this Agreement, and in any event within the applicable time period prescribed by statute or regulations, Purchaser will make all filings and notifications required by Law to be made by it in connection with the Transaction. Purchaser will cooperate with Receiver and its representatives (a) with respect to all filings and notifications Receiver or Debtors elect to make or is required to make in connection with the Transaction, (b) in identifying and obtaining any governmental authorizations required by Purchaser to own and operate the Business from and after the Closing Date, and (c) in obtaining all consents identified in Schedule 5.1.
6.5. Court Approval and Competing Bids .
6.5.1. On August 23, 2018, Receiver filed a motion (the "Sale Motion") in the Receivership Action (Docket No. 40), requesting that the Court enter the Sale Order (as defined below) in accordance with the Receivership Order and applicable law. Receiver will provide Purchaser with a reasonable opportunity to review and comment upon the Sale Order prior to the filing thereof with the Court.
6.5.2. Purchaser acknowledges that this Agreement is expressly subject to all terms and conditions contained in the Court's order (1) Scheduling a Hearing on Sale of Assets, (2) Approving Bidding Procedures for Such Sale, (3) Approving the Form and Manner of Notice in Connection With Such Sale, and (4) Authorizing Receiver to Grant Buyer Protections (the "Bid Procedures Order") (Docket No. 50) and the sale procedures attached as Exhibit 1 thereto (the "Sale Procedures"). Without limiting the generality of the foregoing, Purchaser acknowledges that (a) this Agreement (and Receiver's obligations hereunder) are subject in all respects to approval by the Court, (b) Receiver may consider higher or better competing bids with respect to any transaction (or series of transactions) involving the direct or indirect sale, lease, transfer or other disposition of any assets of Debtors to a purchaser or purchasers other than Purchaser (each, a "Competing Bid"), and (c) nothing contained in this Agreement shall be construed to prohibit Receiver from soliciting, considering, negotiating, agreeing to, or otherwise taking action in furtherance of any Competing Bid. Receiver acknowledges and agrees that Purchaser shall be treated as the "Stalking Horse Bidder," that this Agreement shall be the "Stalking Horse Agreement" and constitutes a "Qualified Bid," and that Purchaser is a "Qualified Bidder," as each of those terms are defined and used in the Bid Procedures Order and the Sale Procedures. As Stalking Horse Bidder, Receiver acknowledges and agrees that Purchaser shall be entitled to credit bid the amount of its Approved Break-Up Fee if an auction ("Auction") is held and if Purchaser chooses to make a further bid at such Auction.
6.6. Books and Records . Purchaser shall make available to Receiver, at Receiver's sole expense, copies of all books, files, documents and records included as part of the Purchased Assets as Receiver may reasonably request for a period of eighteen (18) months post-Closing.
SECTION 7 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.
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The obligation of Purchaser to consummate the Transaction pursuant to this Agreement is subject to the satisfaction, prior to or at Closing, of each of the following conditions:
7.1. Representations and Warranties; Performance . Each of the representations and warranties made herein by Receiver will be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" or similar qualifications) as of the Closing Date, as if made as of such time (except to the extent that such representations and warranties expressly speak as of another date, in which case such representations and warranties shall be true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect; Receiver will have materially performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing; and Purchaser will have received, at the Closing, a certificate of Receiver, signed by an authorized officer, certifying as to the foregoing.
7.2. Court Approval .
7.2.2. No Stays or Injunctions. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Applicable Law that is in effect on the Closing Date and which prohibits consummation of the Closing, and no stay of the Sale Order has been entered.
7.3. Consents to the Transactions . Prior to Closing, Receiver (in consultation with Purchaser) shall obtain written consents to consummation of this Agreement and the Transaction, and to the sale and transfer of the Purchased Assets to Purchaser free and clear of all Encumbrances, in form and substance reasonably satisfactory to Purchaser, from (a) Lender and (b) all other holders of any lien, security interest, deed of trust, mortgage, or other Encumbrances (other than Permitted Encumbrances and Encumbrances paid in full at or prior to Closing) against any of the Purchased Assets. Prior to Closing, Receiver (in consultation with Purchaser), shall use commercially reasonable efforts to obtain all other necessary consents, waivers, and agreements to the consummation of the Transaction or otherwise pertaining to the matters covered by this Agreement; provided, that notwithstanding anything in this Agreement to the contrary, in no event shall Receiver be obligated to pay any amounts to or for any third party in connection with Receiver's obligations in this sentence.
7.4. Receivership Action/Bankruptcy . The Receivership Action shall remain pending and unstayed, no petition under the United States Bankruptcy Code shall have been filed by or against any of the Debtors, and no receivership, insolvency, administration, bankruptcy, or similar Proceeding shall have been commenced by or against any Subsidiary of any Debtor.
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7.5. Consents to Assignment of Assigned Contracts . Receiver (in consultation with Purchaser) shall have obtained executed written consents to assignment to Purchaser, each in form and substance reasonably satisfactory to Purchaser, of up to five (5) Assigned Contracts designated by Purchaser and communicated confidentially to Receiver within five (5) Business Days after Purchaser has been provided unredacted copies of all Material Contracts in the Data Room as of September 5, 2018, from each counterparty to such Assigned Contracts, including a waiver and release of any termination or other contract rights based upon or related to the commencement of the Receivership Action, the fact of the Debtors having been placed in receivership, or the financial condition or insolvency of any of the Debtors.
7.6. Satisfaction of Tax and Other Liens . Purchaser shall have been provided documentation or other evidence reasonably satisfactory to Purchaser that all real property taxes, personal property taxes, employment taxes, Tax liens, security interests, and other Encumbrances on or against the Purchased Assets (other than Permitted Encumbrances) have been paid or satisfied prior to the Closing or will be paid or satisfied at the Closing in accordance with Section 2.2.2 and Section 9.2.2.
7.7. No Material Adverse Effect . From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
SECTION 8 CONDITIONS PRECEDENT TO RECEIVER'S OBLIGATIONS.
The obligation of Receiver to consummate the Transaction pursuant to this Agreement is subject to the satisfaction, prior to or at Closing, of each of the following conditions:
8.1. Representations and Warranties; Performance . Each of the representations and warranties made herein by Purchaser will be true and correct in all material respects as of the Closing with the same effect as though made at that time except for changes contemplated, permitted or required by this Agreement; Purchaser will have materially performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing; and Receiver will have received, at the Closing, a certificate of Purchaser, signed by an authorized officer of Purchaser, stating that each of the representations and warranties made herein by Purchaser is true and correct in all material respects as of the Closing except for changes contemplated, permitted, or required by this Agreement and that Purchaser has materially performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing.
8.2. Consents to the Transactions . All necessary consents, waivers and agreements to the consummation of Transaction, or otherwise pertaining to the matters covered by it, as set forth on Schedule 5.1, will have been obtained by Purchaser and delivered to Receiver.
8.3. Court Approval . The Court shall have entered the Sale Order.
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SECTION 9 CLOSING.
9.1. Time, Place and Manner of Closing . Unless this Agreement has been terminated according to Section 10 hereof, and provided that the conditions to the Closing set forth in Section 7 and Section 8 are satisfied or waived, the closing of the Transaction will be held at the offices of Bryan Cave Leighton Paisner LLP at 161 N. Clark Street, Suite 4300, Chicago, IL 60601 at 10:00 a.m. prevailing local time on the second (2nd) Business Day after the satisfaction or waiver of all the conditions set forth in Section 7 and Section 8 (or as soon thereafter as practicable after the satisfaction or waiver of all such conditions), other than conditions that, by their nature, will be satisfied at the Closing, but in any event not later than thirty-one (31) days following the entry of the Sale Order ("Closing" or "Closing Date"). At the Closing, Receiver shall deliver to Purchaser such bills of sale, assignments, deeds, consents, endorsements, drafts or other instruments requested by Purchaser and acceptable to Receiver that are reasonably necessary to vest in Purchaser title to the Purchased Assets in accordance with the terms of this Agreement. At the Closing, Purchaser shall execute such documents identified in the previous sentence to which Purchaser is properly a party and shall deliver to Receiver the Purchase Price in accordance with Section 2.
9.2. Certain Transaction Costs . At the Closing:
9.2.1. Transfer Taxes. Purchaser and Receiver shall each pay one-half (1/2) all documentary Taxes or transfer Taxes which become due through the execution, delivery or recordation of the deeds, vehicle titles, and any other instruments of conveyance required to be executed or delivered by Receiver under this Agreement and, to the extent Receiver fails to pay its one-half share, Purchaser shall be reimbursed in full by the Indemnification Escrow Agent as a claim under the Indemnification Escrow and Escrow Agreement without regard to any Indemnity Threshold (as defined below).
9.2.2. Proration of Taxes and Charges. All Property Taxes, all public utility charges, rents, and like charges (which are not terminated and paid as of Closing by Receiver), if any, relating to the Real Property included in the Purchased Assets shall be prorated as of the Closing in accordance with regular accounting procedure. Settlement at Closing will be made on proration of estimates of such taxes and charges. If, as the result of such proration at Closing, a net balance is owed by Receiver to Purchaser, or by Purchaser to Receiver, the amount thereof shall be paid to such Party at or within thirty (30) days after receipt of the next succeeding payment notice.
9.3. Deliveries at Closing by Receiver . At Closing, Receiver shall furnish and deliver to Purchaser the following:
9.3.1. a bill of sale, in form and substance reasonably acceptable to Purchaser, duly executed by Receiver;
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9.3.5. the Escrow Agreement, duly executed by Receiver;
9.3.6. a non-foreign certification executed by Receiver in form and substance reasonably satisfactory to Purchaser and that satisfies the requirements of Treasury Regulation § 1.1445-2(b)(2);
9.3.7. a certificate, dated as of the Closing Date and signed by Receiver, certifying that each of the conditions set forth in Section 7.1 through Section 7.7 have been satisfied; and
9.3.8. all other certificates, instruments and documents required to be delivered by Receiver pursuant to this Agreement or any of the Ancillary Documents.
9.4. Deliveries at Closing by Purchaser . At Closing, Purchaser shall furnish and deliver to Receiver the following:
9.4.1. the Closing Payment, by wire transfer of immediately available funds to an account designated in writing by Receiver;
9.4.2. the Assignment and Assumption Agreement, duly executed by Purchaser;
9.4.3. the Assignment and Assumption of Leases, duly executed by Purchaser;
9.4.4. the Intellectual Property Assignment, duly executed by Purchaser;
9.4.5. the Escrow Agreement, duly executed by Purchaser;
9.4.6. a certificate, dated as of the Closing Date and signed by Purchaser, certifying that each of the conditions set forth in Section 8.1 through Section 8.3 have been satisfied; and
9.4.7. all other certificates, instruments and documents required to be delivered by Purchaser pursuant to this Agreement or any of the Ancillary Documents.
9.5. Consummation of Closing . All acts, deliveries, and confirmations comprising the Closing regardless of chronological sequence shall be deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery, or confirmation of the Closing and none of such acts, deliveries, or confirmations shall be effective unless and until the last of the same shall have occurred. Regardless of when the last act, delivery, or confirmation of the Closing shall take place, however, the transfer of the Purchased Assets shall be deemed to occur as of the start of business on the date of the Closing.
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SECTION 10 TERMINATION OF AGREEMENT.
10.1. Termination Events . By written notice given prior to the Closing, this Agreement may be terminated as follows:
(a) by mutual written agreement of Purchaser and Receiver;
(b) by Receiver in the event the Closing has not occurred (other than through failure of Receiver to comply fully with its obligations under this Agreement) on or before October 31, 2018 (the "Termination Date");
(c) by Purchaser in the event the Closing has not occurred (other than through failure of Purchaser to comply fully with its obligations under this Agreement) on or before the Termination Date;
(d) by Purchaser if Receiver accepts a Competing Bid from a third party for the purchase of all or part of the Purchased Assets and by Receiver if a transaction with respect to such Competing Bid is thereafter consummated, in which case Receiver shall pay Purchaser the Approved Break-Up Fee within one (1) Business Day after consummation of such Competing Bid from the proceeds of such transaction;
(e) by Purchaser, if any condition to the obligations of Purchaser set forth in Section 7.1 through Section 7.7 shall have become incapable of fulfillment other than as a result of a breach by Purchaser of any covenant or agreement contained in this Agreement, and such condition is not waived in writing by Purchaser; or
(f) by the non-breaching Party, if there shall be a material breach by the other Party of any representation or warranty, or any covenant or agreement contained in this Agreement which would result in a failure of a condition set forth in Section 7.1 through Section 7.7, and which breach has not been waived by the non-breaching Party and has not been cured by the earlier of (i) five (5) Business Days after the giving of written notice by the non-breaching Party to the breaching Party of such breach and (ii) the Termination Date.
10.2. Effect of Termination . Each Party's right of termination according to Section 10.1 of this Agreement is in addition to any other right it may have under this Agreement or otherwise, and the exercise of a Party's right of termination will not constitute an election of remedies. If this Agreement is terminated according to Section 10.1, this Agreement will be of no further force or effect other than the requirement under Section 10.1(d) for the Receiver to pay the Approved Break-Up Fee and the disposition of the Cash Deposit pursuant to Section 2.2; provided, however, that (i) this Section 10.2 will survive the termination of this Agreement and will remain in full force and effect, and (ii) the termination of this Agreement will not relieve any Party from any liability for any breach of this Agreement occurring prior to termination.
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10.3. Termination Procedure . Any Party desiring to exercise its right to terminate this Agreement shall deliver to the other Party written notice of termination stating with a reasonable degree of specificity the reason relied upon for such termination.
10.4. Remedies Cumulative . The rights and remedies of the Parties are cumulative and not alternative.
SECTION 11 INDEMNIFICATION
11.1. Indemnification by Receiver . Subject to this Section 11 and consummation of the Closing, Receiver shall, to the extent permitted by law, indemnify, defend and hold harmless Purchaser and Purchaser's officers, directors, trustees, members, employees, agents, Representatives and Affiliates (each, a "Purchaser Indemnified Party") against and in respect of any and all losses, costs, expenses (including, without limitation, costs of investigation and defense and attorneys' fees), claims, damages, obligations, liabilities or diminutions in value, whether or not involving a third party claim (collectively, "Losses"), (a) resulting from any Liability, obligation, duty or contingency of Receiver or Debtors, whether arising before, on or after the Closing Date, except for the Assumed Liabilities, or, without limiting the immediately preceding clause, (b) arising out of, based upon or otherwise in respect of: (i) any inaccuracy in or breach of any representation or warranty of Receiver made in or under this Agreement or any of the Schedules attached hereto, or in any of the certificates or other instruments or documents furnished to Purchaser by Receiver pursuant to this Agreement (determined in each case without regard to any qualification with respect to materiality, Material Adverse Effect or similar qualification), except to the extent that Purchaser had actual knowledge at the time of the execution of this Agreement that a representation or warranty was inaccurate or had been breached by Receiver; (ii) any nonfulfillment or breach of any covenant or agreement by Receiver under this Agreement or any of the Schedules attached hereto; (iii) any Liability or obligation of Receiver or Debtors which is an Excluded Liability; (iv) the ownership of any of the Excluded Assets by Receiver or Debtors after the Closing Date; and (v) any challenge made to the Transaction, including without limitation, any claims or causes of action under theories of fraudulent or voidable transfer or successor liability.
PURCHASER ACKNOWLEDGES THAT RECEIVER WAS APPOINTED BY THE COURT FOR THE LIMITED PURPOSES OF, AMONG OTHER THINGS, (A) TAKING POSSESSION, CUSTODY AND CONTROL OF ALL OF DEBTORS' BUSINESS OPERATIONS, ASSETS, AND PROPERTY, AND (B) MARKETING AND SELLING DEBTORS' BUSINESS OPERATIONS, ASSETS, AND PROPERTY, ALL SUBJECT TO THE CONDITIONS CONTAINED IN THE RECEIVERSHIP ORDER. AS A RESULT OF THIS LIMITED ROLE, RECEIVER WOULD NOT BE ENTERING INTO THIS AGREEMENT AND AGREEING TO PERFORM UNDER THIS AGREEMENT WITHOUT THE UNDERSTANDING THAT ITS LIABILITY ARISING OUT OF OR RELATING TO CLAIMS OF PURCHASER INDEMNIFIED PARTIES SHALL BE STRICTLY LIMITED AS PROVIDED IN THIS PARAGRAPH. IN CONNECTION THEREWITH, AND NOTWITHSTANDING ANYTHING CONTAINED IN THIS SECTION 11 OR OTHERWISE IN THIS AGREEMENT TO THE CONTRARY, THE SOLE REMEDY OF ANY PURCHASER INDEMNIFIED PARTY AGAINST RECEIVER FOR DAMAGES OR LOSSES UNDER THIS AGREEMENT, ANY ANCILLARY DOCUMENT OR OTHERWISE WITH
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RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (OTHER THAN NON-MONETARY RELIEF SUCH AS INJUNCTIVE OR OTHER EQUITABLE RELIEF), INCLUDING, WITHOUT LIMITATION, COSTS OF INVESTIGATION AND DEFENSE AND ATTORNEYS' FEES, SHALL BE A TIMELY CLAIM BY PURCHASER AGAINST THE INDEMNIFICATION ESCROW PURSUANT TO THE ESCROW AGREEMENT.
11.2. Indemnification by Purchaser . Subject to this Section 11 and consummation of the Closing, Purchaser shall indemnify, defend and hold harmless Receiver, Receiver's present, former, and future officers, directors, trustees, members, employees, agents, Representatives and Affiliates (each a, "Receiver Indemnified Party"), against and in respect of any and all Losses arising out of, based upon or otherwise in respect of: (a) any inaccuracy in or breach of any representation or warranty of Purchaser made in or under this Agreement or any of the Schedules attached hereto, or in any of the certificates or other instruments or documents furnished to Receiver by Purchaser pursuant to this Agreement; (b) any nonfulfillment or breach of any covenant or agreement by Purchaser under this Agreement or any of the Schedules attached hereto; and (c) any of the Assumed Liabilities pursuant to this Agreement.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS SECTION 11 OR OTHERWISE IN THIS AGREEMENT TO THE CONTRARY, THE SOLE REMEDY OF ANY RECEIVER INDEMNIFIED PARTY AGAINST PURCHASER FOR DAMAGES OR LOSSES UNDER THIS AGREEMENT, ANY ANCILLARY DOCUMENT OR OTHERWISE WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (OTHER THAN NON-MONETARY RELIEF SUCH AS INJUNCTIVE OR OTHER EQUITABLE RELIEF), INCLUDING, WITHOUT LIMITATION, COSTS OF INVESTIGATION AND DEFENSE AND ATTORNEYS' FEES, SHALL BE A TIMELY CLAIM BY RECEIVER AGAINST THE INDEMNIFICATION ESCROW PURSUANT TO THE ESCROW AGREEMENT.
11.3. Third Party Claims .
11.3.1. Within forty five (45) days after receipt by an indemnified party of written notice of the commencement of any Proceeding against it to which the indemnification in this Section 11 relates, such indemnified party shall, if a claim is to be made against an indemnifying party under this Section 11, give notice to the indemnifying party of the commencement of such Proceeding.
11.3.2. If any Proceeding referred to in Section 11.3.1. above is brought against a Receiver Indemnified Party and it gives notice to Purchaser of the commencement of such Proceeding, Purchaser will be entitled to participate in such Proceeding and, to the extent that it wishes, assume the defense of such Proceeding with counsel reasonably satisfactory to such Receiver Indemnified Party and, after notice from Purchaser to such Receiver Indemnified Party of its election to assume the defense of such Proceeding, Purchaser will not, as long as it diligently conducts such defense, be liable to such Receiver Indemnified Party under this Section 11 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by such Receiver Indemnified Party in connection with the defense of such Proceeding subject to the limitations contained in this Agreement, other than reasonable costs of investigation. If Purchaser assumes the defense of a
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Proceeding, (A) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; and (B) no compromise or settlement of such claims may be effected by Purchaser without such Receiver Indemnified Party's consent unless (1) there is no finding or admission of any violation of law by such Receiver Indemnified Party (or any Affiliate thereof) or any violation of the rights of any Person and no effect on any other claims that may be made against such Receiver Indemnified Party, and (2) the sole relief provided is monetary damages that are paid in full by Purchaser. Such Receiver Indemnified Party will have no liability with respect to any compromise or settlement of the claims underlying such Proceeding effected without its consent. If notice is given to Purchaser by a Receiver Indemnified Party of the commencement of any Proceeding for which such Receiver Indemnified Party seeks indemnification hereunder and Purchaser does not, within ten (10) days after such notice is received, give notice to such Receiver Indemnified Party of Purchaser's election to assume the defense of such Proceeding, Purchaser will be bound by any determination made in such Proceeding or any compromise or settlement effected by such Receiver Indemnified Party.
11.3.3. If any Proceeding referred to in Section 11.3.1. above is brought against a Purchaser Indemnified Party, Receiver shall be entitled to participate in such Proceeding at its own expense. However, such Purchaser Indemnified Party shall, in all respects, control the defense and settlement of such Proceeding and Receiver shall be liable for all fees and expenses incurred by such Purchaser Indemnified Party and for any liability established by any order of a Governmental Authority of competent jurisdiction and for any liability established by any settlement or compromise agreed to by such Purchaser Indemnified Party, in the exercise of its reasonable discretion.
11.4. Other Claims . A claim for any matter not involving a third party claim may be asserted by prompt written notice to the Party from whom indemnification is sought; provided, that the failure to give such prompt written notice shall not relieve the indemnifying party of its indemnification obligations, except and only to the extent that the indemnifying party is materially prejudiced by such failure. Such notice by the party seeking indemnification shall describe the claim in reasonable detail, shall include copies of written evidence thereof, and shall indicate the estimated amount, if reasonably practicable, of the Losses sustained by the party seeking indemnification.
11.5. Receiver Indemnification Claim Period . No claim for indemnification pursuant to Section 11.1 or otherwise arising under or relating to this Agreement or the Ancillary Documents shall be made unless a claim arises and written notice pursuant to Section 11.3 or Section 11.4 is delivered to Receiver on or before the first (1st) anniversary of the Closing Date (the "Claims Close Date") and the indemnity with respect thereto shall survive the Claims Close Date if valid notice of the inaccuracy or breach or potential inaccuracy or breach thereof giving rise to such right or alleged right of indemnity shall have been given to Receiver against whom such indemnity may be sought prior to the Claims Close Date. For the avoidance of doubt, nothing herein is intended to limit any rights to equitable relief to which the Purchaser or any Purchaser Indemnified Party may be entitled.
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11.6. Purchaser Indemnification Claim Period . Except as may otherwise expressly be provided in this Agreement and in the absence of fraud or knowing misrepresentation by Purchaser, no claim for indemnification pursuant to Section 11.2 or otherwise arising under or relating to this Agreement or the Ancillary Documents shall be made unless a claim arises and written notice pursuant to Section 11.3 or Section 11.4 is delivered to Purchaser on or before the Claims Close Date. For the avoidance of doubt, nothing herein is intended to limit any rights to equitable relief to which Receiver or any Receiver Indemnified Party may be entitled.
11.7. Payment from Indemnification Escrow . If a Purchaser Indemnified Party becomes entitled to indemnification from Receiver hereunder, such Purchaser Indemnified Party shall be entitled to receive the amount of Losses in cash from the Indemnification Escrow in accordance with the Escrow Agreement. The Indemnification Escrow shall be the sole and exclusive remedy for Purchaser's indemnification hereunder. For the avoidance of doubt, nothing herein is intended to limit any rights to equitable relief to which Purchaser or any Purchaser Indemnified Party may be entitled.
11.8. Miscellaneous Indemnification Provisions.
11.8.1. Except as provided for in Section 6.3.2, disclosures made by Receiver on the Schedules with respect to Section 4 hereto after the date hereof shall not in any manner affect rights to indemnification hereunder based on any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or compliance with any covenant or obligation, will not affect any right to indemnification based on such representations, warranties, covenants and obligations unless otherwise expressly agreed in writing by the party or parties entitled to the benefit thereto.
11.8.3. The provisions for indemnity under Section 11.1(b)(i) shall be effective only when the aggregate amount of all Losses for which indemnification is or has been sought from a Purchaser Indemnified Party under Section 11.1(b)(i) exceeds $150,000 (the "Indemnity Threshold"), at which point a Purchaser Indemnified Party shall be entitled to indemnification for all of the Purchaser Indemnified Party's Losses exceeding the Indemnity Threshold. No Purchaser Indemnified Party shall be entitled to indemnification for Losses with respect to any individual claim unless the Losses associated with such claim exceed $10,000 (and claims not exceeding such amount shall not be counted towards the Indemnity Threshold).
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11.8.5. A Purchaser Indemnified Party or Receiver Indemnified Party seeking indemnification hereunder shall use commercially reasonable efforts to mitigate the amount of any Losses. Losses indemnifiable hereunder shall be offset to the extent of any insurance or other third party recoveries received by a Purchaser Indemnified Party or Receiver Indemnified Party, as applicable, on or before the Claims Close Date, net of the costs of recovery.
11.8.6. No Purchaser Indemnified Party shall be entitled to indemnification under Section 11.1(b)(iii) for amounts listed on Schedule 11.8.6 in the form provided on the date of this Agreement to the extent that (i) such amounts are specifically identified on Schedule 11.8.6 as payable with respect to a particular Contract, and (ii) the Contract to which each applicable amount relates is an Assigned Contract.
SECTION 12 FURTHER ASSURANCES.
12.1. Separate Agreements Executed in Connection with Closing . The Parties shall abide by, and otherwise perform under the terms and conditions of each and every Ancillary Documents and agreement deemed executed and delivered contemporaneously with the Closing.
12.2. Cooperation of the Parties After Closing . Upon the reasonable request of any Party hereto after the Closing, any other Party will take all action and will execute all documents and instruments and provide any supplemental information and further assurances necessary or desirable to consummate and give effect to the Transaction or to facilitate the transition of the Business to Purchaser; provided, however, that Receiver's obligations under this paragraph shall continue only so long as the Receiver remains the Court-appointed receiver for any Debtor. From and after the Closing, if Receiver or Debtors receive or collect any funds constituting or relating to any accounts receivable or any other Purchased Asset, Receiver shall remit, or cause to be remitted, such funds to Purchaser promptly after its receipt thereof. From and after the Closing, if Purchaser or its Affiliates receives or collects any funds constituting an Excluded Asset, Purchaser or its Affiliates shall remit any such funds to Receiver promptly after its receipt thereof.
12.3. Payroll . Purchaser will furnish to Receiver such payroll and employee information as Receiver may reasonably require in connection with the preparation or examination of payroll tax returns, workers' compensation reports and audits, and qualified plan administration records.
SECTION 13 DEFINITIONS.
"Affiliate" means, with respect to a specified Person, any other Person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the specified Person; provided that such Person shall be deemed an Affiliate for only so long as such control exists. For purposes of this definition and the definition of Related Person, the term "control" includes, without limitation, the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
"Ancillary Documents" means all other agreements, documents and instruments to be executed and delivered by Purchaser and/or Receiver pursuant to this Agreement.
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"Anti-Corruption Laws" means all U.S. and non-U.S. laws relating to the prevention of corruption and bribery, including, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended.
"Applicable Law" means, with respect to any Person, any Law applicable to such Person or its business, properties or assets.
"Approved Break-Up Fee" has the meaning set forth in Section 6.3.7 of this Agreement.
"Assigned Contracts" has the meaning set forth in Section 1.1.6(b) of this Agreement.
"Assigned Licenses" has the meaning set forth in Section 1.1.6(a) of this Agreement.
"Assignment and Assumption Agreement" has the meaning set forth in Section 9.3.2 of this Agreement.
"Assignment and Assumption of Leases" has the meaning set forth in Section 9.3.3 of this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 1.2 of this Agreement
"Auction" has the meaning set forth in Section 6.5.2 of this Agreement.
"Bid Procedures Order" has the meaning set forth in Section 6.5.2 of this Agreement.
"Business" has the meaning set forth in the recitals of this Agreement.
"Business Day" means any day of the year, excluding Saturday, Sunday and any other day on which national banks are required or authorized to close in Chicago, Illinois.
"Cash Deposit" has the meaning set forth in Section 2.2.1 of this Agreement.
"Chromatin" has the meaning set forth in the preamble of this Agreement.
"Chromatin Farms" has the meaning set forth in the preamble of this Agreement.
"Claim" means any past, present or future claim, demand, action, request, cause of action, suit, Proceeding or Liability of any kind or nature whatsoever, whether at law or equity, known or unknown, actual or alleged, asserted or not asserted, suspected or not suspected, anticipated or unanticipated, accrued or not accrued, fixed or contingent, which has been or may be asserted by or on behalf of any Person, whether seeking damages (including compensatory, punitive or exemplary damages) or equitable, mandatory, injunctive, or any other type of relief, including cross-claims, counterclaims, third-party claims, suits, lawsuits, administrative proceedings, notices of liability or potential liability, arbitrations, actions, rights, or causes of action or orders.
"Claims Close Date" has the meaning set forth in Section 11.5 of this Agreement.
"Closing" has the meaning set forth in Section 9.1 of this Agreement.
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"Closing Date" has the meaning set forth in Section 9.1 of this Agreement.
"Closing Payment" has the meaning set forth in Section 2.2.2 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Bid" has the meaning set forth in Section 6.5.2 of this Agreement.
"Confidential Information" has the meaning set forth in Section 6.2.1 of this Agreement.
"Contracts" means any agreement, lease, or contract, whether written or oral, that has not expired or been terminated (except with respect to a termination based upon or related to the commencement of the Receivership Action, the fact of the Debtors having been placed in receivership, or the financial condition or insolvency of any of the Debtors, which termination has subsequently been rescinded).
"Court" has the meaning set forth in the recitals of this Agreement.
"Cure Amount" means, with respect to any Assigned Contract, the amount the Purchaser and the counterparty to such Assigned Contract agree as a condition to obtaining such counterparty's written consent to such assignment.
"Data Room" means the electronic data room established by Livingstone to which Purchaser has been granted access in connection with the transactions contemplated by this Agreement.
"Debtor Records" has the meaning set forth in Section 1.1.7 of this Agreement.
"Debtors" has the meaning set forth in the preamble of this Agreement.
"Deposit Escrow Agent" has the meaning set forth in Section 2.2.1 of this Agreement.
"Employee Plan" has the meaning set forth in Section 4.15 of this Agreement.
"Encumbrance" means any lien, mortgage, deed of trust, deed to secure debt, pledge, restriction on transfer, proxy and voting or other agreement, claim, charge, security interest, easement, right of way, encroachment, servitude, right of first option, right of first refusal, preemptive right or similar restriction, or other encumbrance, option or defect in title of every type and description, whether imposed by law, agreement, understanding or otherwise. Encumbrance shall expressly exclude the following if granted or imposed pursuant to an Assigned Contract or is otherwise specifically disclosed in writing to Purchaser on one or more Schedules hereto as of the date of this Agreement: (a) rights granted by Debtors to third parties for the use of property currently owned by Debtors; (b) restrictions or conditions imposed upon Debtors' right to use property currently owned by third parties; and (c) restrictions or conditions imposed Debtors' right to acquire title or possession to property currently owned or possessed by third parties.
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"Environment" has the meaning set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. 9601, et seq.
"Environmental Condition" means the presence or introduction into the Environment of any Hazardous Materials (and any resulting air, soil, groundwater or surface water contamination without regard to the location to which such resulting contamination has migrated or spread) as a result of which any Debtor has or may become materially liable to any Person in connection with the Business or by reason of which the Purchased Assets may materially suffer.
"Environmental Laws" means all Laws that (i) regulate or relate to the protection or clean-up of the Environment; the use, treatment, generation, storage, transportation, handling, disposal or release of Hazardous Materials; or the preservation or protection of waterways, groundwater, drinking water, air, wildlife, plants or other natural resources; or (ii) imposes liability with respect to any of the foregoing, including the CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; the Clean Air Act, 42 U.S.C. Section 7401, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.; or the Oil Pollution Act of 1990, 33 U.S.C. Section 2701, et seq.
"Equipment" means all "equipment" as that term is defined in the UCC.
"ERISA Affiliate" means a trade or business treated as a single employer with Debtors under Section 414(b) or (c) of the Code.
"Escrow Agreement" has the meaning set forth in Section 2.2.3 of this Agreement.
"Ex-Im Laws" means all U.S. and non-U.S. laws relating to export, re-export, transfer, and import controls, including, without limitation, the Export Administration Regulations, the International Traffic in Arms Regulations, and the customs and import laws administered by U.S. Customs and Border Protection.
"Excluded Assets" has the meaning set forth in Section 3.1 of this Agreement.
"Excluded Liabilities" has the meaning set forth in Section 1.2.2 of this Agreement.
"Final Order" means an order, judgment or other decree of any Governmental Authority as to which (a) the operation or effect has not been reversed, stayed, modified or amended, (b) no appeals, motions for reconsideration, petitions seeking the grant of certiorari or, if certiorari has been granted, grants of certiorari are pending, and (c) any and all appeal periods and periods to seek the grant of certiorari have expired.
"Germplasm" has the meaning set forth in the preamble of this Agreement.
"Global Sorghum" has the meaning set forth in the preamble of this Agreement.
"Goods" means any "goods," as that term is defined in the UCC.
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"Government Official" means any officer or employee of a Governmental Authority or a foreign government or any department, agency, or instrumentality thereof.
"Governmental Authority" means any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any United States or foreign federal, state or local government, including any governmental authority, agency, department, board, commission or instrumentality of such government or any political subdivision thereof, and any tribunal, court or arbitrator(s) of competent jurisdiction, and shall include the Court.
"Governmental Licenses" has the meaning set forth in Section 4.19 of this Agreement.
"Holding" has the meaning set forth in the preamble of this Agreement.
"Indebtedness" means, as of any date, without duplication, the outstanding principal amount of, accrued and unpaid interest on and other payment obligations (including any prepayment premiums payable as a result of the consummation of the transactions contemplated by this Agreement) arising under any obligations of the Debtors consisting of (i) indebtedness for borrowed money or indebtedness issued in substitution or exchange for borrowed money or for the deferred purchase price of property or services (other than trade payables and accrued expenses arising in the ordinary course of business), (ii) indebtedness evidenced by any note, bond, debenture or other debt security, in each case, as of such date, or (iii) obligations under any interest rate, currency or other hedging agreements, in each case, as of such date, excluding any undrawn letters of credit. Notwithstanding the foregoing, "Indebtedness" shall not include any obligations under operating leases or capitalized leases.
"Indemnification Escrow Agent" has the meaning set forth in Section 2.2.3 of this Agreement.
"Indemnification Escrow" has the meaning set forth in Section 2.2.3 of this Agreement.
"Indemnity Threshold" has the meaning set forth in Section 11.8.3 of this Agreement.
"Intellectual Property" means, collectively, any and all (i) inventions (whether or not patentable and whether or not reduced to practice), records of inventions, test information, developments, applications, improvements, formulae, concepts, ideas, methods or processes, research property rights and all improvements and modifications to any of the foregoing, (ii) patents, patent rights, patent applications and patent disclosures, together with all reissuances, continuations, continuations in part, revisions, extensions and reexaminations thereof, and all improvements and modifications to any of the foregoing ("Patents"), (iii) trademarks, trademark rights, service marks, service mark rights, trade dress, logos, slogans, trade names, trade name rights, assumed names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith ("Trademarks"), (iv) copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith, mask works and all applications, registrations and renewals in connection
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therewith ("Copyrights"), (v) trade secrets and confidential business information (including ideas, concepts, research and development, know-how, composition information and embodiments, technology, inventions, formulas, compositions, processes and techniques, technical and business data, designs, drawings, specifications, customer, distributor and supplier lists, pricing and cost information and business and marketing plans and proposals) ("Trade Secrets"), (vi) computer software (including source code, executable code, data, databases, and related software program documentation in computer-readable and hard-copy forms) ("Software"), (vii) computer hardware, firmware and applications (including source code, executable code, data, databases, and related programming documentation in computer-readable and hard-copy forms), (viii) web sites, web site domain names, web site sub domains, uniform resource locators and rights in telephone numbers, (ix) advertising and promotional materials, (x) all other proprietary rights, (xi) all germplasm and all marker-assisted and marker-aided selection ("MAS") and breeding know-how and related intellectual property, and all data, data sets, and other information and assets used in or related to the MAS process and other intellectual property and products (and all enhancements, modifications, improvements, developments and next generation products of the foregoing), (xii) all Plant Variety Certificates and Product registrations, and (xiii) copies and tangible embodiments of the foregoing in whatever form or medium, in each case, which are owned, licensed, or used by any Debtor in connection with the Business anywhere in the world.
"Intellectual Property Assignment" has the meaning set forth in Section 9.3.4 of this Agreement.
"Interests" means all (i) Encumbrances, (ii) Claims, (iii) conditional sale or other title retention agreements, (iv) judgments, and (v) rights or options to effect any forfeiture, modification, repurchase, or termination of the interest of Receiver, Debtors, or Purchaser in the Assigned Contracts and/or Purchased Assets, as applicable.
"Inventory" means any "inventory," as that term is defined in the UCC, pertaining to the Products and the Business, including, raw materials and components, work-in-process, growing crops, demonstration Products, finished goods, and other materials, spare parts, components, and supplies, as well as all packaging and labeling inventories, supplies, and materials.
"Knowledge of Receiver" or "Receiver's Knowledge" means the actual knowledge of the following individuals: Sandeep Gupta, Michael Ragano or Jordan Graham.
"Law" means any federal, state or local law (including common law), statute, code, ordinance, rule, regulation or other requirement enacted, promulgated, issued or entered by a Governmental Authority.
"Leased Real Property" has the meaning set forth in Section 4.10.2 of this Agreement.
"Lender" has the meaning set forth in Section 6.3.7 of this Agreement.
"Liabilities" means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise, including obligations and liabilities related to any Claim.
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"Losses" has the meaning set forth in Section 11.1 of this Agreement.
"Marathon" has the meaning set forth in the preamble of this Agreement.
"Material" or "material" means having a value, risk of financial loss or loss of use, or other financial impact, individually or in the aggregate, in an amount exceeding Twenty-Five Thousand Dollars ($25,000), or having sufficient importance to affect a decision regarding the matter or issue in question. For the avoidance of doubt, the foregoing definition of "Material" or "material" shall not apply to the phrase "Material Adverse Effect" or "material adverse effect".
"Material Adverse Effect" means (a) any event, change, or matter in respect of the Business that, individually or in the aggregate, results in or would be reasonably expected to result in a material adverse effect on the results of operations, assets or condition (financial or otherwise) of the Business or the Purchased Assets, taken as a whole, excluding any such event, change or matter to the extent resulting solely from the filing of the Receivership Action; or (b) any event, condition or matter, that would have a material adverse effect on the legality, validity or enforceability of this Agreement and the agreements and instruments to be entered into in connection herewith, the consummation of the Transaction, or the realization of the rights and remedies hereunder. For purposes of determining whether any event, change or matter constitutes a "Material Adverse Effect" under this definition, the Parties agree that (x) the analysis of materiality shall not be limited to a long-term perspective, and (y) the announcement, pendency or completion of the transactions contemplated by this Agreement or performance under this Agreement shall not constitute or be the basis for any determination or assertion of the occurrence of a Material Adverse Effect and furthermore that any event, change, or matter arising out of or attributable to the following, shall not constitute a Material Adverse Effect: (i) general economic or political conditions (except where the Business is disproportionately affected); (ii) conditions generally affecting the industries in which the Business operates (except where the Business is disproportionately affected); (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action taken (or omitted to be taken) with the written consent of or at the written request of Purchaser; (vi) any changes in applicable Laws or accounting rules (including GAAP); (vii) any natural or man-made disaster or acts of God; or (x) any failure by the Business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded).
"Material Contracts" has the meaning set forth in Section 4.18 of this Agreement.
"NDA Agreement" has the meaning set forth in Section 1.1.6(d) of this Agreement.
"Non-Competition Period" has the meaning set forth in Section 6.2.2(b) of this Agreement.
"Non-Solicitation Period" has the meaning set forth in Section 6.2.3 of this Agreement.
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"Ordinary Course of Business" means the ordinary course of Debtors' Business consistent with past practice (including with respect to quantity and frequency).
"Owned Real Property" has the meaning set forth in Section 4.10.1 of this Agreement.
"Parties" has the meaning set forth in the preamble to this Agreement.
"Permits" means all permits, if any, necessary to transfer the Purchased Assets to Purchaser.
"Permitted Encumbrances" means (a) liens relating to Taxes, assessments, fees, levies, duties or other governmental charges of any kind that are not due and payable or that are being contested in good faith in appropriate proceedings, provided, however, that if such contest later results in any liability therefor by Receiver or any Debtor that Purchaser is obligated to pay, Purchaser shall be entitled to be reimbursed in full by the Indemnification Escrow Agent as a claim under the Indemnification Escrow and Escrow Agreement without regard to any Indemnity Threshold, (b) any obligations or duties affecting the Business or any of the Purchased Assets to the extent created by any Governmental Authority under any Permit or Applicable Law, other than Taxes, (c) the Assumed Liabilities, (d) mechanic's, materialmen's, repairmen's and other statutory liens arising in the Ordinary Course of Business and securing obligations incurred prior to Closing, for which Debtors and/or Receiver are and will remain responsible for payment and removal of such liens at or after Closing, provided, however, that if any such lien results in any liability therefor by Purchaser, Purchaser shall be entitled to be reimbursed in full by the Indemnification Escrow Agent as a claim under the Indemnification Escrow and Escrow Agreement without regard to any Indemnity Threshold, (e) the terms, conditions, restrictions, obligations, exceptions, reservations, limitations and other matters contained in any rights of way or documents under which any Debtor obtained any rights of way or other property rights, in each case that do not, and will not, interfere materially with the ownership, use, operation or value of the Purchased Assets, (f) in the case of Real Property, the provisions of any Applicable Law (including but not limited to zoning, entitlement, building and other land use regulations) regulating the use or occupancy of the Real Property or the activities conducted thereon, none of which interfere with the use of the Real Property as currently utilized, (g) the rights of customers of Debtors with respect to inventory under orders or contracts entered into by Debtors or Receiver in the Ordinary Course of Business, (h) all Encumbrances which secure obligations in respect of or otherwise pertain to any Assumed Liabilities, and (i) other Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a material impact on the value of the Purchased Assets.
"Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations and Governmental Authorities, whether or not legal entities.
"Proceeding" means any action, demand, complaint, inquiry, suit, injunction, dispute, arbitration, audit, hearing, investigation, litigation, citation, notice of violation (or similar notice), or suit (whether civil or criminal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority.
40
"Production Plus Proceeding" means the Proceeding styled Production Seeds Plus, Inc. et al. v. Chromatin, Inc., AAA Cause No. 01-17-0000-2977, together with all subsequent Proceedings related to same.
"Products" means, collectively, all sorghum and sorghum hybrid products and germplasm, and all enhancements, modifications, improvements, developments and next-generation products of the foregoing, any accessories or ancillary products developed by Debtors in connection therewith, and any other product which has been developed and/or marketed by any Debtor, and "Product" means any one of the Products.
"Property Taxes" means all real estate, ad valorem, personal property and any other similar Taxes imposed by any Governmental Authority with respect to the Business or the Purchased Assets.
"Purchase Price" has the meaning set forth in Section 2.1 of this Agreement.
"Purchased Assets" has the meaning set forth in Section 1.1 of this Agreement.
"Purchaser" has the meaning set forth in the preamble of this Agreement.
"Purchaser Indemnified Party" has the meaning set forth in Section 11.1 of this Agreement.
"Real Property" has the meaning set forth in Section 1.1.1 of this Agreement.
"Receiver" has the meaning set forth in the preamble of this Agreement.
"Receiver Indemnified Party" has the meaning set forth in Section 11.2 of this Agreement.
"Receivership Action" has the meaning set forth in the recitals of this Agreement.
"Receivership Order" has the meaning set forth in the recitals of this Agreement.
"Related Person" (i) with respect to a Person who is an individual, means, (a) any other individual having a relationship with such specified individual (by blood, marriage or adoption) of grandparent, parent, child, grandchild, aunt, uncle, niece, nephew, sister, brother or first cousin (collectively, "Relatives"), (b) any Person that is controlled by such individual or any one or more members of such individual's Relatives; and (c) any Person with respect to which such individual or one or more members of such individual's Relatives serves as a director, officer, partner, or trustee (or in a similar capacity); and (ii) with respect to a specified Person other than an individual, means (a) any Affiliate of such specified Person; and (b) each Person that serves as a director, officer, partner, or trustee (or in a similar capacity) of such specified Person.
"Representative" means, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants and financial advisors.
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"Sale Motion" has the meaning set forth in Section 6.5.1 of this Agreement.
"Sale Order" has the meaning set forth in Section 7.2.1 of this Agreement.
"Sale Procedures" has the meaning set forth in Section 6.5.2 of this Agreement.
"Sanctioned Country" means any country or region that is the subject or target of a comprehensive embargo under Sanctions Laws (including, without limitation, Cuba, Iran, North Korea, Sudan, Syria, and the Crimea region of Ukraine).
"Sanctions Laws" means all U.S. and non-U.S. laws relating to economic or trade sanctions, including, without limitation, the laws administered or enforced by the United States (including by OFAC or the U.S. Department of State) and the United Nations Security Council.
"Sanctioned Person" means any individual or entity that is the subject or target of sanctions or restrictions under Sanctions Laws or Ex-Im Laws, including: (a) any individual or entity listed on any applicable U.S. or non-U.S. sanctions- or export-related restricted party list, including, without limitation, OFAC's Specially Designated Nationals and Blocked Persons List; (b) any entity that is, in the aggregate, fifty percent (50%) or greater owned, directly or indirectly, or otherwise controlled by a person or persons described in clause (a); or (c) any national of a Sanctioned Country.
"Subsidiary" has the meaning set forth in Section 4.9 of this Agreement.
"Tax" and "Taxes" mean, with respect to any Person, any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax, including any interest, penalty, or addition thereto, whether disputed or not for which such Person may be liable.
"Termination Date" has the meaning set forth in Section 10.1(b) of this Agreement.
"Trade Control Laws" has the meaning set forth in Section 4.17.1 of this Agreement.
"Transaction" has the meaning set forth in the recitals of this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the State of Delaware.
SECTION 14 MISCELLANEOUS PROVISIONS.
14.1. Nature and Survival of Representations and Warranties . The Parties agree that the representations and warranties of the Parties contained in this Agreement and in any certificate delivered pursuant hereto by any Party shall survive the Closing.
14.2. Exhibits and Schedules . The Exhibits and Schedules (and any supplements thereto) referred to in this Agreement are a part of this Agreement as if fully set forth herein. All references to this Agreement shall be deemed to include such Exhibits and Schedules, unless the context otherwise requires.
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14.3. Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Law or otherwise) without the prior written consent of the other Parties; provided that, Purchaser may assign some or all of its rights hereunder to one or more subsidiaries existing prior to Closing, provided that Purchaser remains liable for its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns.
14.4. Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assignees.
14.5. Governing Law and Jurisdiction .
14.5.1. The construction, interpretation and enforcement of this Agreement will be governed by the laws of the State of Delaware without regard to any conflicts of laws principles thereof.
14.5.2. Each of the Parties hereby submits to the exclusive jurisdiction of the Court for the determination of any dispute or claim arising out of or relating to this Agreement or, if the Court lacks jurisdiction, then to any federal court located in Chicago, Illinois.
14.6. Severability . If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
14.7. Notices . All notices, requests, demands and other communications under this Agreement shall be made in writing and will be deemed to have been duly given (i) when hand delivered (with written confirmation of receipt); (ii) when sent by facsimile (with written confirmation of receipt), provided that a copy thereof is sent by another method provided hereunder; or (iii) when received by the addressee, if sent by United States Certified Mail, Return Receipt Requested, postage prepaid, or by nationally recognized express delivery service guaranteeing next Business Day delivery, in each case to the appropriate address(es) and/or facsimile number(s) set forth below (or to such other address and facsimile number as a Party may hereafter designate by notice to the other Parties):
If intended for Receiver:
Novo Advisors
357 West Chicago Avenue
Suite 200
Chicago, IL 60654
Attn: Sandeep Gupta
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with a copy (which will not constitute notice) to:
Bryan Cave Leighton Paisner LLP
161 N. Clark Street
Suite 4300
Chicago, IL 60601
Attn: Eric Prezant
If to Purchaser:
S&W Seed Company
106 K Street, Suite 300
Sacramento CA 95814
Attn: Mark Wong, President and CEO
Email: markwong@swseedco.com
with a copy (which will not constitute notice) to:
Cooley LLP
101 California Street
5th Floor
San Francisco, CA 94111-5800
Attn: Robert L. Eisenbach III
Email: reisenbach@cooley.com
14.8. Public Announcements . Any public announcement, including any press release, communication to employees, customers, suppliers, or others having dealings with Debtors, Receiver, or Purchaser, or similar publicity with respect to this Agreement or the Transaction, will be issued at such time, in such manner, and containing such content as Receiver and Purchaser mutually determine.
14.9. Expenses . Except as otherwise provided in this Agreement, and expressly subject to payment by the Receiver of the Approved Break-Up Fee if it becomes payable, whether or not the Transaction is consummated, each of the Parties shall pay the fees and expenses of its respective counsel, accountants, and other professionals incident to the negotiation and preparation of this Agreement and the consummation of the Transaction.
14.10 Third Parties . Nothing in this Agreement, whether express or implied, shall confer any rights or remedies under or by reason of this Agreement on any person other than the Parties and their respective successors and permitted assignees, nor shall any provision in this Agreement relieve or discharge the obligation or liability of any third person to any Party, nor shall any provision give any third person any right of subrogation or action over or against any Party; provided, however, the Debtors are intended third-party beneficiaries of this Agreement and shall be entitled to enforce the rights of Receiver hereunder after the termination of the Receivership Action.
14.11. Time of the Essence . Time is of the essence in all dates and time periods set forth or referred to in this Agreement.
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14.12. Construction . The headings used in this Agreement are for convenience of reference only and are not a part of this Agreement and do not in any way control, define, limit, or add to the terms and conditions hereof. In the construction of this Agreement, the singular shall include the plural and the plural, the singular, unless the context otherwise requires. Further, the use of the masculine, feminine and/or neuter gender shall include each other gender where applicable. As used herein the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation." As used herein, the words "herein", "hereof", "hereunder" and similar terms shall refer to this Agreement unless the context requires otherwise.
14.13. Counterparts; Electronic Signatures; Effectiveness of this Agreement .
14.13.1. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
14.13.2. A manual signature on this Agreement or other documents to be delivered pursuant to this Agreement, an image of which shall have been transmitted electronically, will constitute an original signature for all purposes. The delivery of copies of this Agreement or other documents to be delivered pursuant to this Agreement, including executed signature pages where required, by electronic transmission will constitute effective delivery of this Agreement or such other document for all purposes.
14.13.3. This Agreement shall not be effective, and no Party shall have any rights or obligations hereunder, unless and until Purchaser and Receiver as identified above have executed and delivered this Agreement.
14.14 Entire Agreement; Amendment; Waiver .
14.14.1. This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the Parties, whether written or oral. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the Parties, except with regard to the Exhibits and Schedules to this Agreement which may be supplemented, modified or amended with the same formality as the initial corresponding Exhibit or Schedule attached hereto.
14.14.2. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the Party making the waiver.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties have duly executed this Agreement, as of the day and year first above written.
PURCHASER:
S&W SEED COMPANY
By: /s/ Mark W. Wong
Name: Mark W. Wong
Its: President and Chief Executive Officer
RECEIVER:
NOVO ADVISORS
By: /s/ Sandeep Gupta
Name: Sandeep Gupta
Its: Principal
Exhibit 2.9
BETWEEN
S&W SEED COMPANY
as Purchaser,
AND
NOVO ADVISORS
as Receiver
Dated as of September 14, 2018
TABLE OF CONTENTS
Page |
||||
SECTION 1 |
PURCHASE OF PURCHASED ASSETS. |
1 |
||
Purchase and Sale of Purchased Assets |
1 |
|||
Assumption and Exclusion of Liabilities |
4 |
|||
Assignment of Assigned Licenses |
6 |
|||
Assignment of Assigned Contracts |
6 |
|||
Non-Transferable Assets |
6 |
|||
Instruments of Conveyance |
6 |
|||
"AS IS" TRANSACTION |
7 |
|||
SECTION 2 |
PURCHASE PRICE. |
8 |
||
Purchase Price |
8 |
|||
Payment of the Purchase Price |
8 |
|||
Allocation of the Purchase Price |
9 |
|||
SECTION 3 |
EXCLUDED ASSETS. |
9 |
||
Excluded Assets |
9 |
|||
Purchaser Agreement |
10 |
|||
SECTION 4 |
RECEIVER'S REPRESENTATIONS AND WARRANTIES. |
10 |
||
Authorization and Power |
10 |
|||
Organization of Receiver |
10 |
|||
Title and Related Matters |
10 |
|||
Litigation |
11 |
|||
Compliance with Laws; Licenses |
11 |
|||
Brokers or Finders |
11 |
|||
Equipment |
11 |
|||
Inventory |
11 |
|||
Subsidiaries |
11 |
|||
Real Property |
11 |
|||
Intellectual Property |
12 |
|||
Products Liability |
13 |
|||
Environmental Matters |
14 |
|||
Employee Matters |
14 |
-i-
Table of Contents
(continued)
Page |
||||
Employee Benefit Plans |
14 |
|||
Labor Matters |
15 |
|||
International Trade and Anti-Corruption |
15 |
|||
Material Contracts |
16 |
|||
Licenses |
17 |
|||
Disclaimer of Implied Warranties |
17 |
|||
SECTION 5 |
PURCHASER'S REPRESENTATIONS AND WARRANTIES. |
18 |
||
Authorization and Power |
18 |
|||
No Conflict with Other Instruments or Agreements |
18 |
|||
Brokers or Finders |
18 |
|||
Funding |
18 |
|||
SECTION 6 |
COVENANTS, AGREEMENTS PENDING CLOSING, AND OTHER AGREEMENTS. |
18 |
||
Conduct of Debtors' Business Pending the Closing |
18 |
|||
Confidentiality; Non-Competition; Non-Solicitation |
19 |
|||
Additional Covenants and Agreements of Receiver |
22 |
|||
Covenants and Agreements of Purchaser |
24 |
|||
Court Approval and Competing Bids |
24 |
|||
Books and Records |
25 |
|||
SECTION 7 |
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. |
25 |
||
Representations and Warranties; Performance |
25 |
|||
Court Approval |
25 |
|||
Consents to the Transactions |
26 |
|||
Receivership Action/Bankruptcy |
26 |
|||
Consents to Assignment of Assigned Contracts |
25 |
|||
Satisfaction of Tax and Other Liens |
26 |
|||
No Material Adverse Effect |
26 |
|||
SECTION 8 |
CONDITIONS PRECEDENT TO RECEIVER'S OBLIGATIONS. |
27 |
||
Representations and Warranties; Performance |
27 |
|||
Consents to the Transactions |
27 |
-ii-
Table of Contents
(continued)
Page |
||||
Court Approval |
27 |
|||
SECTION 9 |
CLOSING. |
27 |
||
Time, Place and Manner of Closing |
27 |
|||
Certain Transaction Costs |
27 |
|||
Deliveries at Closing by Receiver |
28 |
|||
Deliveries at Closing by Purchaser |
29 |
|||
Consummation of Closing |
29 |
|||
SECTION 10 |
TERMINATION OF AGREEMENT. |
29 |
||
Termination Events |
29 |
|||
Effect of Termination |
30 |
|||
Termination Procedure |
30 |
|||
Remedies Cumulative |
30 |
|||
SECTION 11 |
FURTHER ASSURANCES |
30 |
||
Separate Agreements Executed in Connection with Closing |
30 |
|||
Cooperation of the Parties After Closing |
30 |
|||
Payroll |
31 |
|||
SECTION 12 |
DEFINITIONS. |
31 |
||
SECTION 13 |
MISCELLANEOUS PROVISIONS. |
40 |
||
Nature and Survival of Representations and Warranties |
40 |
|||
Exhibits and Schedules |
40 |
|||
Assignment |
40 |
|||
Binding Effect |
40 |
|||
Governing Law and Jurisdiction |
41 |
|||
Severability |
41 |
|||
Notices |
41 |
|||
Public Announcements |
42 |
|||
Expenses |
42 |
|||
Third Parties |
42 |
|||
Time of the Essence |
42 |
|||
Construction |
42 |
-iii-
Table of Contents
(continued)
Page |
||||
Counterparts; Electronic Signatures; Effectiveness of this Agreement |
43 |
|||
Entire Agreement; Amendment; Waiver |
43 |
-iv-
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and dated September 14, 2018, by and between S&W Seed Company, a Nevada corporation ("Purchaser") and Novo Advisors f/k/a Novo Turnaround Advisory Group Inc., a Colorado corporation, solely in its capacity as the receiver ("Receiver") for, and on behalf of, Chromatin, Inc., a Delaware corporation ("Chromatin"), Chromatin Germplasm, LLC, a Delaware limited liability company ("Germplasm LLC"), Chromatin Holding, LLC, a Delaware limited liability company ("Holding"), Marathon Ag Services, LLC, a Delaware limited liability company ("Marathon"), Chromatin Farms, LLC, a Delaware limited liability company ("Chromatin Farms"), and Global Sorghum Solutions, LLC, a Delaware limited liability company formerly known as Sorghum Partners, LLC ("Global Sorghum"; each of the foregoing being collectively referred to as "Debtors" and each, individually, a "Debtor"). Purchaser and Receiver are collectively referred to as the "Parties" and each, individually, a "Party".
RECITALS
A. Debtors own and operate certain assets associated with the development, production and distribution of sorghum hybrids (hereafter referred to as the "Business").
B. Pursuant to the Order Authorizing Appointment of Receiver, dated May 15, 2018, as amended by the Order Amending Order Authorizing Appointment of Receiver, dated June 4, 2018 (as amended, the "Receivership Order"), each entered by the United States District Court for the Northern District of Illinois (the "Court") in Case No. 18-sv-03417 (the "Receivership Action"), the Court appointed and authorized Receiver to, among other things, (a) take possession, custody and control of all of Debtors' business operations, assets, and property, and (b) market and sell Debtors' business operations, assets, and property, all subject to the conditions contained in the Receivership Order.
C. Purchaser desires to purchase all or substantially all of Debtors' assets (excluding the Excluded Assets), and Receiver desires to sell such assets to Purchaser for the consideration and upon the terms and subject to the conditions set forth herein (the "Transaction").
NOW THEREFORE, IN CONSIDERATION OF THE PROMISES MADE HEREIN, AND INTENDING TO BE LEGALLY BOUND HEREBY. THE PARTIES AGREE AS FOLLOWS:
SECTION 1 PURCHASE OF PURCHASED ASSETS.
1.1. Purchase and Sale of Purchased Assets.
Subject to the terms and conditions set forth in this Agreement, at the Closing, Receiver agrees to sell, convey, transfer, assign, and deliver to Purchaser, and Purchaser agrees to purchase, accept, and acquire from Receiver, for the Purchase Price hereinafter specified, all of Debtors' right, title and interest in and to all assets, properties, rights and interests, of any kind and description (whether real, personal or mixed, tangible or intangible, or -fixed, contingent or otherwise), wherever located and by whomever possessed, owned, licensed or leased by any of the Debtors, other than the Excluded Assets (collectively, the "Purchased Assets"), free and clear of all Interests to the maximum extent provided by the Sale Order or released by a party holding an Interest, other than Permitted Encumbrances and Assumed Liabilities, solely to the extent of Debtors' right, title and interest in and to such Purchased Assets on the Closing Date and otherwise to the fullest extent permitted by law, including, without limitation, the following:
1.1.1. All of Debtors' right, title and interest in and to real property, including, without limitation, land, buildings, manufacturing facilities, structures, improvements, fixtures, leaseholds and leasehold improvements, if any, together with all and singular the rights and appurtenances pertaining thereto, including, without limitation, all right, title and interest of Debtors in and to adjacent streets, roads, alleys, easements and rights-of-way, and all awards made or to be made in connection therewith, and further together with all other tangible and intangible personal property of every kind or character, now owned or hereafter acquired by Debtors prior to the Closing and affixed or attached to, or used or useful in connection with such real property or improvements thereon, including without limitation, any and all civil, engineering, mechanical, building, and architectural plans and drawings, and all contracts, certificates, licenses, permits, applications, authorizations, approvals, no action letters and similar assurances (including, without limitation, all environmental permits, zoning variances, plat approvals, site plan approvals, development permits and/or building permits) granted or issued by a private person or by any governmental or quasi-governmental authority and which relate thereto (collectively, the "Real Property"), other than as set forth on Schedule 3.1.
1.1.2. All of Debtors' right, title and interest in and to Biological Assets, Inventory, Products, Goods, similar materials, and any other raw materials, work-in-progress and finished goods, wherever located (including items in transit) owned by Debtors or used in the operation of the Business.
1.1.3. All of Debtor's right, title and interest in and to tangible personal property (including Equipment, machinery, computers, information technology systems, supplies, materials, furniture, furnishings, tools, dies and vehicles) owned or used or held for use by Debtors in relation to the Business, wherever located and whether or not carried on the Debtors' books.
1.1.4. All of Debtors' rights to payment, now or hereafter due or payable, for Goods sold, rights licensed, grants or similar amounts awarded, and services provided, including accounts receivable from customers, all prepaid assets, credits, and benefits, and any indemnification rights, escrows and deposits, Claims (including insurance benefits to the extent such benefits relate to a Purchased Asset or Assumed Liability), deposits, prepayments, refunds, vendor rebates, credits, causes of action, choses in action, rights of recovery, rights of recoupment and rights of set-off of any kind, except to the extent that such right to payment relates solely to Goods, rights, grants or services that constitute an Excluded Asset.
1.1.5. All of Debtors' right, title and interest in and to stock, partnership interests, joint venture interests and other equity ownership interests in any other Person, including all partially and wholly owned subsidiaries of any of the Debtors, unless Purchaser designates such as an Excluded Asset.
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1.1.6. All of Debtors' right, title, and interest in and to the following assets, to the extent transferrable with, or (where applicable) without, consent of a third party:
(a) all licenses, permits, consents, registrations, certificates and other material governmental or regulatory permits, authorizations, approvals or agreements issued by or with any Governmental Authority ("Assigned Permits");
(b) all leases, Contracts, purchase and sale orders, distributorships, and other agreements of the Debtors set forth as "Assigned Contracts" on Schedule 1.1.6(b) hereto ("Assigned Contracts"), subject to Purchaser's right, (i) at any time prior to the Closing, to remove Contracts from Schedule 1.1.6(b) and no longer designate such Contracts as Assigned Contracts and (ii) at any time prior to or after Closing (but in any event prior to the termination of the Receivership Action), to add to Schedule 1.1.6(b) any Contracts copies of which were not provided to Purchaser prior to the date of this Agreement;
(c) all Intellectual Property, including (i) all trademark rights, business identifiers, trade dress, service marks, trade names, brand names, domain names, and websites; (ii) all copyrights and all other rights associated therewith and the underlying works of authorship; (iii) all patents, patent applications and all proprietary rights associated therewith; (iv) all contracts or agreements granting any right, title, license or privilege under the intellectual property rights of any third party; (v) all inventions, mask works and mask work registrations, know-how, discoveries, improvements, designs, trade secrets, shop and royalty rights, employee covenants and agreements respecting intellectual property and non-competition, and all other types of intellectual property; and (vi) all registrations of any of the foregoing, all applications therefor (whether in draft or filed form), (vii) all goodwill associated with any of the foregoing, and (viii) all Claims for past, present, and future infringement or other violations thereof, including any of the foregoing set forth on Schedule 1.1.6(c);
(d) all of Receiver's and Debtors' rights, title and interests under (including its rights to enforce), but none of the duties, obligations and Liabilities, in, to and under (i) Contracts that are not Assigned Contracts and for which the Debtors do not have material duties, obligations or Liabilities remaining (each Contract described in subsection (i), a "Rights-Only Contract"), and (ii) all confidentiality, non-disclosure, non-solicitation, assignment of inventions or assignment of developments Contracts (each such agreement identified in subsection (ii), an "NDA Agreement"); and
(e) Debtors' customer lists, credit .files, payroll records, schedules of fixed assets, books of account, contracts, sales representation and sales agency agreements, -files, papers, books, records, designs, drawings, specifications and engineering data, and all other public or confidential business records, all to the extent reasonably required for the orderly continuation of the operations of the Business if such business was to otherwise continue without regard to the Transaction.
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1.1.7. All lists, records and other information pertaining to suppliers and customers (including customer lists, customer mailing lists and customer sales files), all of Debtors' advertising, marketing and promotional materials and all other printed or written materials, all lists, records and other information pertaining to accounts, Products, Intellectual Property, personnel and referral sources, and all drawings, plats, specifications, reports, studies, plans, books, ledgers, files, documents, correspondence and business and accounting records of every kind (including all financial, business and marketing plans and regulatory records, submissions, forms and other files, maintenance records, financial records and books of account), and all books, files, electronic financial records and any other records relating to the Purchased Assets, including without limitation, all books and records necessary to complete the 2017 audit and 2018 interim financial statements of all Debtors and their Affiliates (specifically including true and accurate versions of the general ledger and supporting accounting records for each of the Debtors and their Affiliates), in each case whether or not evidenced in writing, electronic data, computer software or otherwise (the "Debtor Records"), including Debtor Records that are part of Intellectual Property.
1.1.8. All of Debtors' rights under guarantees, warranties, indemnities and all similar rights against third parties to the extent related to any of the Purchased Assets or Assumed Liabilities.
1.1.9 All goodwill as a going concern and all other intangible property of the Business.
1.1.10. All rights with respect to any Proceeding of any nature available to or being pursued by Receiver or any Debtor to the extent related to the Business, the Purchased Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise, including, but not limited to, Proceedings or Claims related to any Intellectual Property, past present or future.
1.1.11. All prepaid expenses that are used or held for use in the operation or conduct of the Business.
1.1.12. All other assets, properties, rights and interests owned by any of the Debtors as of the Closing Date, or in which any Debtor has an interest, that are not referred to in Subsections 1.1.1 through 1.1.10, including all other assets, rights and interests necessary to operate the Business following the Closing Date and that are not otherwise Excluded Assets; provided, however, none of the Purchased Assets shall in any event be deemed to include any asset expressly designated as an Excluded Asset pursuant to Section 3.1 of this Agreement. Nothing in this Section 1.1 shall obligate Purchaser to assume any Liability, whether related to the Business, the Purchased Assets or otherwise, unless Purchaser expressly assumes such Liability pursuant to the terms and conditions of Section 1.2.1 hereof. Further, Purchaser shall have the right, upon written notice given to Receiver before Closing, to exclude any or all of the assets listed above from the definition of Purchased Assets and any assets so excluded shall be Excluded Assets and thereupon be deemed added to Schedule 3.1.
1.2. Assumption and Exclusion of Liabilities.
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1.2.1. As of the Closing Date, on the terms and subject to the conditions hereof, and as additional consideration for the Purchased Assets, Purchaser shall assume and pay, perform or otherwise discharge, in accordance with their respective terms and subject to their respective conditions, only: (i) any Liabilities of Debtor under Assigned Contracts and Assigned Permits; and (ii) any Liabilities of Debtors specifically identified and described on Schedule 1.2 (the "Assumed Liabilities"). With respect to any of the Assumed Liabilities, such assumption by Purchaser is for the benefit only of Receiver and Debtors and shall not expand, increase, broaden, or enlarge the rights or remedies of any other party, nor create in any other party any right against Purchaser or any of its Affiliates that such party would not have against Receiver or Debtors if this Agreement had not been consummated.
1.2.2. Notwithstanding anything to the contrary in this Agreement, Purchaser shall not assume or have any responsibility or liability for, any Debtor's Liabilities, whether or not related to the Business or the Purchased Assets, of whatever kind and nature, primary or secondary, direct or indirect, absolute or contingent, known or unknown, and whether or not accrued, not specifically identified as Assumed Liabilities pursuant to Section 1.2.1, including the following Liabilities (collectively, the "Excluded Liabilities"):
(a) any Liabilities to the extent arising out of or related to the Excluded Assets;
(b) obligations of any Debtor under this Agreement and the Ancillary Documents;
(c) any Liabilities (other than Cure Amounts) to the extent existing prior to the Closing Date or related to or arising out of any event, occurrence, state of facts, condition, act or omission prior to the Closing Date;
(d) any Liability (other than Cure Amounts) under any Assigned Contract, to the extent (A) arising in the first instance prior to the Closing Date, under any Assigned Contract or (B) arising after the Closing Date but due to a breach of an Assigned Contract by any Debtor prior to the Closing Date;
(e) any Liability under any Contract that is not an Assigned Contract, including under any Rights-Only Contract or any NDA Agreement that is not an Assigned Contract;
(f) any Indebtedness of any Debtor or Receiver;
(g) all Liabilities in respect of any employees of any Debtor and the beneficiaries of such employees arising prior to or accrued as of the Closing (including any severance payments, any exit bonuses, or any benefits to be provided under any Debtor benefit plan, whether in connection with the Closing of the Transaction or otherwise), whether or not any such individual enters into employment or other service with Purchaser or its Affiliates at or after Closing, and that arises out of or relates to the employment or service provider relationship between any Debtor or their Affiliates and any such individual or the termination of such relationship;
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(h) all Liabilities relating to any product Liability, breach of warranty or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representations, warranty, agreement or guaranty made by any Debtor, or by reason of the improper performance or malfunctioning of a product, improper design or manufacture, failure to adequately package label or warn of hazard or other related product defects of any products at any time manufactured or sold or any service performed by any Debtor before the Closing;
(i) all Liabilities for professional (including broker and advisory). Court fees, costs and expenses that have been incurred or that are incurred or owed by any Debtor or Receiver in connection with the preparation and administration of the Receivership Action; and
(j) all Liabilities for Taxes to the extent imposed with respect to the Business, the assets thereof, and/or any income or gains derived with respect thereto for any taxable period, or portion thereof, ending on or before the Closing Date.
1.3. Assignment of Assigned Permits . Subject to the terms and conditions set forth in this Agreement and the receipt of consents and/or waivers from third parties, where applicable, at the Closing, Purchaser shall succeed to the rights and privileges of Debtors, and shall assume the express obligations of Debtors which are to be performed after the Closing, pursuant to the Assigned Permits as and in the form of the copies thereof (or, if oral, as and in the form of the written statements of the terms thereof) furnished or made available to Purchaser.
1.4. Assignment of Assigned Contracts . Subject to the terms and conditions set forth in this Agreement and the receipt of consents and/or waivers from third parties, where applicable, at the Closing, Purchaser shall succeed to the rights and privileges of Debtors and, subject to the conditions hereof, shall assume the express obligations of Debtors which are to be performed only after the Closing, pursuant to the Assigned Contracts as and in the form of the copies thereof (or, if oral, as and in the form of the written statements of the terms thereof) furnished or made available to Purchaser. Purchaser shall be responsible for paying all Cure Amounts with respect to Assigned Contracts.
1.5. Non-Transferable Assets . Nothing in this Agreement shall be construed as an agreement to assign any Purchased Asset that, by its terms or pursuant to Applicable Law, is not capable of being sold, assigned, transferred or delivered without the consent or waiver of a third party or Governmental Authority unless and until such consent or waiver shall be given. Receiver shall use commercially reasonable efforts, and Purchaser shall cooperate reasonably with Receiver, to obtain such consents and waivers and to resolve the impediments to the sale, assignment, transfer or delivery contemplated by this Agreement and to obtain any other consents and waivers necessary to convey to Purchaser all of the Purchased Assets. Notwithstanding anything in this Agreement to the contrary, in no event shall Receiver be obligated to pay any amounts to or for any third party in connection with Receiver's obligations in this Section 1.5.
1.6. Instruments of Conveyance . The sale, conveyance, transfer, assignment and delivery of the Purchased Assets, and the assumption of the Assigned Contracts, the Assigned Permits and the Assumed Liabilities, as herein provided, shall be effected by bills of sale, assignments, deeds, consents, endorsements, drafts, stock powers or other instruments in such
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reasonable and customary form as shall be requested by Purchaser and acceptable to Receiver, and Receiver (or, following such time as the Receiver no longer is the Court-appointed receiver for Debtors, the Debtors) shall at any time and from time to time after the Closing execute, acknowledge, and deliver such additional bills of sale, endorsements, assignments, deeds, drafts, checks, stock powers or other instruments in such reasonable and customary form as shall be requested by Purchaser and take such other actions as may be reasonably required to vest, evidence or perfect title to the Purchased Assets in Purchaser and otherwise effectuate the Transaction.
1.7. "AS IS" TRANSACTION . PURCHASER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, RECEIVER MAKES NO (AND RECEIVER EXPRESSLY DISCLAIMS AND NEGATES ANY) REPRESENTATIONS OR WARRANTIES OF ANY KIND, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PURCHASED ASSETS OR ANY OTHER MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, INCOME TO BE DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE PURCHASED ASSETS, THE PHYSICAL CONDITION OF ANY PART OF THE PURCHASED ASSETS OR ANY OTHER ASSET WHICH IS THE SUBJECT OF ANY LEASE OR CONTRACT TO BE ASSUMED BY PURCHASER AT THE CLOSING, THE ENVIRONMENTAL CONDITION OR OTHER MATTER RELATING TO THE PHYSICAL CONDITION OF ANY REAL PROPERTY OWNED BY DEBTORS OR WHICH IS THE SUBJECT OF ANY REAL PROPERTY LEASE TO BE ASSUMED BY PURCHASER AT THE CLOSING, THE ZONING OF ANY SUCH REAL ESTATE, THE VALUE OF THE PURCHASED ASSETS (OR ANY PORTION THEREOF), THE TRANSFERABILITY OF THE PURCHASED ASSETS, THE TERMS, AMOUNT, VALIDITY OR ENFORCEABILITY OF ANY ASSUMED LIABILITIES, THE TITLE OF THE PURCHASED ASSETS (OR ANY PORTION THEREOF), THE MERCHANTABILITY OR FITNESS OF ANY OF THE PURCHASED ASSETS FOR ANY PARTICULAR PURPOSE, OR ANY OTHER MATTER OR THING RELATING TO THE PURCHASED ASSETS OR ANY PORTION THEREOF. WITHOUT IN ANY WAY LIMITING THE FOREGOING, RECEIVER HEREBY DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AS TO ANY PORTION OF THE PURCHASED ASSETS. PURCHASER FURTHER ACKNOWLEDGES THAT PURCHASER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF THE PURCHASED ASSETS AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE PURCHASED ASSETS AS PURCHASER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE PURCHASED ASSETS, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN, PURCHASER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. ACCORDINGLY. SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, PURCHASER WILL ACCEPT THE PURCHASED ASSETS AT THE CLOSING "AS IS," "WHERE IS.- AND "WITH ALL FAULTS."
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SECTION 2 PURCHASE PRICE.
2.1. Purchase Price . In consideration for the sale, conveyance, transfer, and delivery of the Purchased Assets, upon the terms and subject to the covenants and conditions set forth in this Agreement, Purchaser shall assume the Assigned Contracts, the Assigned Permits and the Assumed Liabilities and Purchaser shall pay to Receiver the amount of Twenty-Six Million Five Hundred Thousand Dollars and No Cents ($26,500,000.00) (the "Purchase Price"), payable as set forth in this Section 2.
2.2. Payment of the Purchase Price.
2.2.1. Simultaneous with the execution of this Agreement, Purchaser will deliver to an escrow agent mutually acceptable to Receiver and Purchaser (the "Deposit Escrow Agent"), an amount equal to ten percent (10%) of the Purchase Price in immediately available funds (the "Cash Deposit"). Any fees or costs payable to the Deposit Escrow Agent shall be divided evenly and payable one-half by Purchaser and one-half by Receiver. The Cash Deposit shall be held by the Deposit Escrow Agent in an interest-bearing account reasonably acceptable to Purchaser and Receiver. Other than the rights of the Deposit Escrow Agent pursuant to the joinder hereto executed by the Deposit Escrow Agent, the Cash Deposit shall not be subject to any lien, attachment, trustee process, or any other judicial process of any creditor of the Debtors and shall be held by the Deposit Escrow Agent and be released as follows:
(a) If the Closing shall occur, Receiver and Purchaser shall jointly
instruct the Deposit Escrow Agent to, on the Closing Date, deliver the Cash Deposit, together with all accrued investment income thereon, by wire transfer of immediately available funds, on behalf of
Receiver, as provided in Section 2.2.2 and the instructions provided to the Deposit Escrow Agent (and such amounts shall be applied toward the payment of the Purchase Price).
(b) If this Agreement is terminated by Receiver pursuant to
Section 10.1(f) and Receiver is not then in breach of Receiver's obligations pursuant to this Agreement, the Deposit Escrow Agent shall deliver the Cash Deposit, together with all accrued
investment income thereon, to Receiver. Because it would be impractical and extremely difficult to determine the extent of any damages that might result from a breach of, or default under, this Agreement
by Purchaser prior to the Closing, it is understood and agreed that such liquidated damages (in an amount equal to the Cash Deposit) represent Purchaser's and Receiver's reasonable estimate of actual
damages, such liquidated damages do not constitute a penalty and the Cash Deposit will constitute Receiver's sole and exclusive remedy for any breach of, or default under, this Agreement by Purchaser
prior to the Closing.
(c) If this Agreement is terminated prior to Closing for any reason other than as set forth in Section 2.2.1(b), the Deposit Escrow Agent shall deliver the Cash Deposit, together with all accrued investment income thereon, to Purchaser.
2.2.2. At the Closing, in consideration of the purchase and sale of the Purchased Assets, Purchaser shall, pay the following amounts from the Purchase Price to the following Persons, in cash, by wire transfer of immediately available funds: (i) to any Governmental Authority for which a Tax (other than Taxes payable pursuant to Section 9.2.1) is required to be
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paid to satisfy the condition that the Purchased Assets be transferred to Purchaser free and clear of any Encumbrances, and (ii) to Receiver, a net amount equal to the Purchase Price less the items identified in subparagraph (i) above, and less the Cash Deposit, including any accrued investment income on the Cash Deposit (such net amount, the "Closing Payment"). All payments described above shall be made pursuant to written wire transfer instructions delivered by Receiver to Purchaser at least two (2) Business Days prior to the Closing Date. At the Closing, the Deposit Escrow Agent shall transfer the Cash Deposit, including any accrued investment income on the Cash Deposit, to Receiver by wire transfer of immediately available funds to such account as Receiver shall designate.
2.3. Allocation of the Purchase Price . The Purchase Price and the Assumed Liabilities will be allocated in accordance with Section 1060 of the Internal Revenue Code by Purchaser and its accountants in good faith consistent in all respects with applicable Laws. The allocation shall be adjusted consistent with any post-Closing adjustment to the Purchase Price. The Parties shall utilize the agreed allocation in all statements and returns filed with any taxing authority (including on IRS Form 8594) and shall not take any position that is inconsistent with such allocation, and each Party will promptly notify the other Party if any challenge to such allocation is made by any taxing authority.
SECTION 3 EXCLUDED ASSETS.
3.1. Excluded Assets . The Purchased Assets to be acquired by Purchaser hereunder do not include the following (hereinafter referred to as the "Excluded Assets"):
3.1.1. any cash on hand, in banks, and any cash equivalents;
3.1.2. Receiver's rights under this Agreement and all cash and non-cash consideration payable or deliverable to Receiver pursuant to the terms and provisions hereof;
3.1.3. all insurance policies and proceeds, all unearned insurance premiums, and all accrued insurance refunds or rebates, but excepting casualty insurance proceeds or claims with respect to the Purchased Assets relating to casualty losses occurring whether before, on, or after the date of this Agreement;
3.1.4. all rights and Claims in or to any refunds or credits of or with respect to any Taxes, assessments or similar charges paid by or on behalf of any Debtor or Receiver, in each case to the extent applicable to any period prior to the Closing;
3.1.5. except as set forth in Section 1.1.7, Tax records and minute books of Debtors, and any other books and records relating solely to the Excluded Assets;
3.1.6. all claims arising on or prior to the Closing Date under any directors and officers liability insurance policies owned by Debtors;
3.1.7. all Claims and causes of action arising on or before the Closing Date that any Debtor or Receiver has against the holders of any Excluded Liabilities or obligations of Debtors that are not being assumed by Purchaser;
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3.1.8. professional retainers paid by Debtors or Receiver;
3.1.9. any letters of credit or similar financial accommodations issued to any third party(ies) for the account of Debtors or Receiver;
3.1.10. all rights of offset, rebates, credits and other rights of recovery against third parties, solely to the extent the foregoing rights relate to assets other than the Purchased Assets;
3.1.11. causes of action, rights of recovery, rights of recoupment and judgments (any proceeds thereof) relating to the Production Plus Proceeding;
3.1.12. all on-hand seed inventory of the Debtors acquired from the Kirkland Seed Company; and
3.1.13. the other assets, properties, rights and interests of Debtors set forth on Schedule 3.1.
3.2. Purchaser Agreement . Purchaser expressly agrees and understands that Receiver shall not sell, assign, transfer, convey or deliver to Purchaser any of the Excluded Assets.
SECTION 4 RECEIVER'S REPRESENTATIONS AND WARRANTIES.
As a material inducement to Purchaser to enter into this Agreement and purchase the Purchased Assets, Receiver represents and warrants as of the date of this Agreement and as of the Closing Date:
4.1. Authorization and Power . By virtue of the Receivership Order, and subject to entry of the Sale Order, Receiver has the right, power and authority to enter into this Agreement and each other agreement, instrument and other document required to be executed by it hereunder and to consummate the Transaction, and otherwise to comply with and perform its obligations under this Agreement. The execution, delivery, and performance by Receiver of this Agreement and all other agreements contemplated hereby to which Receiver or any Debtor is a party have been duly and validly authorized by all necessary corporate action of Receiver and the applicable Debtor, and subject to the Sale Order and except as set forth on Schedule 4.1, no approvals or consents of any other Person or Governmental Authority having jurisdiction are necessary in connection with it. This Agreement and each such other agreement, when executed and delivered by Receiver or the applicable Debtor, will constitute the legal, valid and binding obligation of Receiver or such applicable Debtor, enforceable against Receiver or such applicable Debtor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, and similar statutes affecting creditors' rights generally and judicial limits on equitable remedies.
4.2. Organization of Receiver . Receiver is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Colorado.
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4.3. Title and Related Matters . Except as set forth on Schedule 4.3, each Debtor owns and has good and marketable title to, or a valid leasehold interest in, all Purchased Assets, and will deliver the Purchased Assets free and clear of all Encumbrances, except for Permitted Encumbrances. To the extent that there are any mechanic's, materialmen's, repairman's or other statutory liens against any Purchased Assets that secure obligations incurred prior to Closing ("Mechanic's Liens"), such Mechanic's Liens shall attach to the proceeds of such Purchased Assets in accordance with the provisions of the Sale Order. There are no options to purchase, rights of first offer, rights of first refusal or other instruments, that affect or relate to the Real Property or other Purchased Assets and would require Debtors or any of them to convey all or a portion of the Real Property or other Purchased Assets to anyone other than Purchaser.
4.4. Litigation . Except as set forth on Schedule 4.4 and except for the Receivership Action, there are no actions, suits, Proceedings, orders, investigations or Claims pending, or to Receiver's Knowledge, threatened in writing, against any Debtor or any of the Purchased Assets, at Law or in equity, or before or by any Governmental Authority.
4.5. Compliance with Laws; Licenses . Except as set forth on Schedule 4.5, each Debtor, in the conduct of its business, is in material compliance with all laws, statutes, ordinances, regulations, orders, judgments, or decrees applicable to it or the Purchased Assets. All material licenses and permits of the Debtors issued by or with any Governmental Authority relating to the ownership, development or operation of the Business are in good standing.
4.6. Brokers or Finders . Except as set forth on Schedule 4.6, there are no claims for brokerage commissions, finders' fees or similar compensation payable in connection with the Transaction based on any arrangement or agreement made by or on behalf of Receiver or Debtors.
4.7. Equipment . All material Equipment, machinery, and vehicles of Debtors are (a) in good repair and good operating condition suitable for its current use, ordinary wear and tear excepted, (b) in material compliance with all applicable laws, statutes, ordinances, regulations, orders, judgments, and decrees, and (c) in the possession or control of Receiver, or of Debtors or their Affiliates.
4.8. Inventory . The Inventory is saleable in the Ordinary Course of Business.
4.9. Subsidiaries . Schedule 4.9 sets forth each subsidiary of any Debtor ("Subsidiary") and all stock or equity interests of any kind owned by any Debtor in such Subsidiaries or any other Person, together with the respective ownership share, or other equity interests held. Except as set forth on Schedule 4.9, each Subsidiary each Subsidiary (a) is wholly- owned by such identified Debtor and (b) has no Liabilities of any kind to any Person.
4.10. Real Property.
4.10.1. Schedule 4.10.1 indicates the address of all Real Property owned by any Debtor (the "Owned Real Property").
4.10.2. Schedule 4.10.2 indicates the address or other description of any Real Property leased to any Debtor or which any Debtor has been granted the right to use or occupy (the "Leased Real Property"). The Receiver has made available to Purchaser a complete and correct copy of each lease or similar agreement related to the Leased Real Property, all of which are identified on Schedule 4.10.2.
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4.10.3. Except as set forth on Schedule 4.10.3, the Owned Real Property and Leased Real Property constitutes all of the Real Property currently used or occupied by the Debtors in connection with or related to the Business. The Debtors enjoy peaceful and undisturbed possession of such Owned Real Property and Leased Real Property.
4.10.4. Except as set forth on Schedule 4.10.4, no portion of the Owned Real Property and Leased Real Property is subject to any pending eminent domain, condemnation or other similar proceeding or other Proceeding by any Governmental Authority, court or judicial authority adverse to the Owned Real Property or the Leased Real Property and, to Receiver's Knowledge, there are no threatened condemnation or other Proceedings with respect thereto adverse thereto, either of which would adversely and materially affect the current operations at the Owned Real Property or the Leased Real Property.
4.10.5. Except as set forth on Schedule 4.10.5, neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, is a party to any agreements with owners or users of properties adjacent to any facility located on any parcel of the Owned Real Property or the Leased Real Property relating to the use, operation or maintenance of such facility or any adjacent Real Property.
4.10.6. Except as set forth on Schedule 4.10.6, neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, is a lessor under, or otherwise a party to, any lease, license, assignment, encumbrance, hypothecation or concession pursuant to which any Debtor has granted to any Person the right to use or occupy all or any portion of the Owned Real Property or the Leased Real Property.
4.10.7. Except as set forth on Schedule 4.10.7, to the Receiver's Knowledge, there is no action, suit, arbitration, unsatisfied order or judgment, governmental investigation or Proceeding pending or, to Receiver's Knowledge, threatened, against any of the Owned Real Property or the Leased Real Property which, if adversely determined, would have a material adverse impact on the Debtors' interest in any Owned Real Property or any Leased Real Property, or which would interfere with the consummation of the Transaction.
4.11. Intellectual Property.
4.11.1. Schedule 1.1.6(c) identifies all Intellectual Property, including, but not limited to, all Patents, Trademarks and Copyrights owned by any Debtor, which has been registered with or issued by, or is the subject of an application for registration or issuance, any Governmental Authority anywhere in the world. All Intellectual Property that is currently registered with any Governmental Authority was done so in material compliance with applicable Laws regarding such registration. The Purchased Assets include all of the material Intellectual Property rights used, or held for use primarily, in the conduct of the Business as it is currently being conducted by Debtors.
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4.11.2. Receiver has made available to Purchaser in the Data Room as of September 5, 2018 a complete and correct copy of all licenses, sublicenses and other agreements pursuant to which a third party authorizes any Debtor to use, practice any rights under, or grant sublicenses with respect to, any Intellectual Property owned by such third party, other than licenses, sublicenses or other agreements that consist solely of "shrink-wrap", "click-to-accept" or similar commercially available or otherwise standard end-user licenses.
4.11.3. Receiver has made available to Purchaser in the Data Room as of September 5, 2018 a complete and correct copy of all licenses, sublicenses and other agreements pursuant to which any Debtor authorizes a third party to use, practice any rights under, or grant sublicenses with respect to, any Intellectual Property or pursuant to which any Debtor grants rights to use or practice any rights under any Intellectual Property owned by a third party.
4.11.4. No Intellectual Property identified on Schedule 1.1.6(c) has been infringed or challenged in any way, nor, to the Receiver's Knowledge, has any Proceeding been threatened with respect thereto, and except as set forth on Schedule 4.11.4, none of such Intellectual Property nor the Products has infringed or infringes upon the rights of any Person nor, to the Knowledge of Receiver, has been alleged to infringe upon the rights of any Person.
4.11.5. No Intellectual Property has been or has been alleged to have been, misappropriated from any Person, and no employee, subcontractor, consultant, independent contractor, or other Person claims any rights to any of Intellectual Property. Without limiting the generality of the foregoing, Debtors have used commercially reasonable efforts to cause any and all material Intellectual Property conceived, invented or developed for the benefit of any Debtor by any employee, subcontractor, consultant, independent contractor, or other Person to have been duly and validly assigned and transferred to Debtors pursuant to and in accordance with an assignment of inventions or similar agreements.
4.11.6. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has taken reasonable measures to protect the confidentiality of the Trade Secrets and other confidential Intellectual Property included in the Purchased Assets and no such Trade Secrets or Intellectual Property have been disclosed to any Person other than to employees, Representatives and agents of Debtors, or to third parties bound by confidentiality obligations.
4.11.7. The consummation of the Transaction and the Ancillary Documents will not alter, encumber, impair or extinguish any of the Intellectual Property included in the Purchased Assets.
4.12. Products Liability.
4.12.1. Each Product manufactured, sold or otherwise delivered by any Debtor has been in conformity with all applicable contractual commitments and all express and implied warranties, and no Debtor has any Liability (and there is no basis for any present or future Proceeding against any Debtor) for replacement or repair of any such products or other damages or other costs in connection therewith, subject only to the reserve for product warranty claims set forth in the most recent annual financial statements of the Debtors. There have been no product recalls by any Debtor. No product grown, manufactured, sold, leased or delivered by or on behalf of any Debtor is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, lease or service, which are set forth on Schedule 4.12.1.
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4.12.2. Debtors have no Liability and there is no basis for any present or future Proceeding against any Debtor giving rise to any Liability, arising out of any injury to Person or property as a result of the ownership, possession or use of a product grown, designed, manufactured, assembled, repaired, sold, leased, delivered, installed or otherwise distributed, or services rendered, by any Debtor.
4.13. Environmental Matters.
4.13.1. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has, with respect to the Business and the Purchased Assets, complied and is in compliance in all material respects with all Environmental Laws. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has not received any written notice, report or other information regarding any violation of, or liability under, Environmental Law with respect to the Business or the Purchased Assets. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, nor any of its predecessors or their respective Affiliates, has treated, stored, disposed of, arranged for or permitted the disposal of transported, handled, released, or exposed any Person to, any Hazardous Materials, or owned or operated the Business, the Purchased Assets or any property or facility (and no such property or facility is contaminated by any such Hazardous Materials) in a manner that has given or would give rise to any material Liabilities or investigative, corrective or remedial obligations pursuant to any CERCLA or any other Environmental Law. Neither Receiver nor any Debtor has received any written notice of any investigation, Proceeding or order concerning any Environmental Condition applicable to the conduct of the Business as currently conducted or the ownership and use by Receiver, solely in its capacity as receiver for the Debtors, and any Debtor of the Purchased Assets.
4.13.2. Receiver has furnished to Purchaser all environmental audits, reports and other environmental documents relating to current operations or facilities of each Debtor.
4.13.3. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, with respect to the Business or the Purchased Assets, has manufactured, sold, marketed, installed, or distributed products or other items containing Hazardous Materials in a manner that has given or would give rise to any liabilities under any Environmental Law, and neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, has liability related to or arising out of the presence of Hazardous Materials in any product or article, or at any property or facility.
4.14. Employee Matters . Receiver has made available to Purchaser in the Data Room as of September 5, 2018 a complete and correct listing of (i) all employees of Debtors (redacted for the names of the employees), (ii) the position of each such individual and (iii) such individual's rate of compensation, including salary, bonus and other compensation, as of a recent date.
4.15. Employee Benefit Plans . Each "employee benefit plan" as defined in Section 3(3) of ERISA, and each other benefit plan, policy, program, arrangement or agreement which is sponsored or maintained by Debtors, or pursuant to which any Debtor is otherwise bound, for the benefit of its employees or other representatives is referred to herein as an "Employee Plan." Each Employee Plan (i) has been operated and administered in compliance with its terms and all applicable requirements of ERISA, the Code and other applicable Laws and (ii) intended to be
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qualified under Section 401(a) of the Code has received a favorable determination letter from the IRS. Neither any Debtor nor any of its ERISA Affiliates maintains, sponsors or is required to contribute to, either currently or at any time in the past, or otherwise any Liability with respect to, any employee benefit plan that (i) is a "multiemployer plan" within the meaning of Section 3(37) of ERISA, (ii) is subject to the funding requirements of Section 412 of the Code or Title IV of ERISA, or (iii) provides for post-retirement medical, life insurance or other welfare-type benefits (other than as required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code or under a similar state Law).
4.16. Labor Matters . Except as set forth on Schedule 4.16, there is no material labor dispute, allegation, charge, grievance or complaint of unfair labor practice, employment discrimination or, to Receiver's Knowledge, union organizational activity; nor, to Receiver's Knowledge, is any such action threatened against any Debtor. No Debtor is a party to any collective bargaining agreement and no Debtor has received notice of any organizational effort presently being made on behalf of any labor union with respect to the Business. Each Debtor has complied in all respects with all applicable Laws relating to the employment of labor, including, but not limited to, provisions thereof relating to immigration status, wages, hours, equal opportunity, collective bargaining, disability and the payment of social security and employment Taxes.
4.17. International Trade and Anti-Corruption.
4.17.1. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, nor any of its officers, directors or employees, nor to the Knowledge of Receiver, any agent or other third party representative acting on behalf of Receiver or any Debtor, is currently, or has been in the last five years: (i) a Sanctioned Person; (ii) organized, resident or located in a Sanctioned Country; (iii) engaging in any dealings or transactions with any Sanctioned Person or in any Sanctioned Country, to the extent such activities violate applicable Sanctions Laws or Ex-Im Laws; (iv) engaging in any export, re-export, transfer or provision of any goods, software, technology, data or service without, or exceeding the scope of, any required or applicable licenses or authorizations under all applicable Ex-Im Laws; or (v) otherwise in violation of applicable Sanctions Laws, Ex-Im Laws, or the anti-boycott laws administered by the U.S. Department of Commerce and the U.S. Department of Treasury's Internal Revenue Service (collectively, "Trade Control Laws").
4.17.2. Neither Receiver, solely in its capacity as receiver for the Debtors, nor any Debtor, nor any of its officers, directors or employees, nor to the Knowledge of Receiver, any agent or other third party representative acting on behalf of any Debtor, has at any time made any unlawful payment or given, offered, promised, or authorized or agreed to give, any money or thing of value, directly or indirectly, to any Government Official or other Person in violation of any applicable Anti-Corruption Laws. Receiver, solely in its capacity as receiver for the Debtors, and each Debtor, has maintained complete and accurate records, including records of payments to any agents, consultants, representatives, third parties and Government Officials.
4.17.3. During the five years prior to the date hereof, Receiver, solely in its capacity as receiver for the Debtors, and each Debtor has not, in connection with or relating to the Business, received from any Governmental Authority or any other Person any notice, inquiry, or internal or external allegation; made any voluntary or involuntary disclosure to a Governmental Authority; or conducted any internal investigation or audit concerning any actual or potential violation or wrongdoing related to Trade Control Laws or Anti-Corruption Laws:
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4.18. Material Contracts . Receiver has made available to Purchaser in the Data Room a complete and correct copy (or, with respect to Contracts with any grower of any crop, seed, or other Product, representative forms of the Contracts and a summary of counterparties and key economic terms) of all material written Contracts of a type described below (such Contracts below are herein referred to as "Material Contracts") to which any Debtor is a party, together with all amendments, exhibits and attachments, in executed form. Except for those Contracts in the Data Room as of September 5, 2018, as of the Closing Date, no Debtor is a party to or bound by any Material Contract that affects the Purchased Assets of the following types: any consulting agreement or employment agreement;
4.18.2. any collective bargaining arrangement with any labor union, any Contract or arrangement providing for any Debtor to indemnify any Person, and any such agreements currently in negotiation or proposed;
4.18.3. any Contract for the furnishing of services, materials, or supplies, or the sale, purchase, lease, maintenance or acquisition of merchandise, equipment, parts or other property or services requiring remaining aggregate future payments in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum;
4.18.4. any Contract with any independent sales representative or distributor;
4.18.5. any Contract that restricts the right of any Debtor to engage in any line of business, compete with any Person, solicit any customers, suppliers, employees or contractors of any other Person, or sell or purchase any product;
4.18.6. any Contract relating to the acquisition or disposition, directly or indirectly, of any material business, Real Property or other assets, or the equity interests of any other Person;
4.18.7. any Contract relating to the borrowing of material Indebtedness;
4.18.8. any Contract granting any Person a material Encumbrance (other than a Permitted Encumbrance) on all or any of the assets of any Debtor;
4.18.9. any Contract or group of related Contracts with any Affiliate or group of Affiliates of any Debtor;
4.18.10. any lease, license, rental or occupancy agreement, installment and conditional sale agreement, and other Contract affecting the ownership of, leasing of, licensing of, title to, use of, or any leasehold or other interest in, any real or personal property, including Intellectual Property (other than any such agreement for personal property with remaining obligations of less than Twenty-Five Thousand Dollars ($25,000));
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4.18.11. (i) any Contract regarding the development, improvement, enhancement, modification appropriation or the non-disclosure of any Intellectual Property; (ii) any Contract with an employee of any Debtor relating to confidentiality, non-disclosure, assignment of inventions or developments, non-solicitation, non-competition and/or similar matters; or (iii) any Contract with a Person relating to confidentiality, non-disclosure, assignment of inventions or developments, non-solicitation, non-competition and/or similar matters that is material to the conduct of the Business;
4.18.12. any Contract that requires any Debtor to purchase or sell a stated portion of the requirements or outputs of the Business or that contain "take or pay" provisions;
4.18.13. any joint venture, partnership or similar Contracts;
4.18.14. all powers of attorney with respect to the Business or any Purchased Asset;
4.18.15. any Contract with any grower of any crop, seed, or other Product;
and
4.18.16. any amendment, supplement, or modification (whether oral or written) in respect of any of the foregoing.
4.19. Licenses . Receiver has made available to Purchaser in the Data Room as of September 5, 2018 a complete and correct copy of all licenses, permits, consents, registrations, certificates and other material governmental or regulatory permits, authorizations, approvals or agreements issued by or with any Governmental Authority of any Debtor (the "Governmental Licenses"). Schedule 4.19 lists the location or locations in the Data Room where each Governmental License is deposited.
4.20. Disclaimer of Implied Warranties . EXCEPT ONLY FOR THE REPRESENTATIONS, WARRANTIES, AND COVENANTS OF RECEIVER SET FORTH IN THIS AGREEMENT, THE PURCHASED ASSETS ARE BEING SOLD IN THEIR "AS-IS, WHERE-IS" CONDITION, AND RECEIVER HEREBY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY OF THE PURCHASED ASSETS.
Without qualifying any representation or warranty or Purchaser's rights with respect thereto, Purchaser acknowledges that (a) each of the representations and warranties contained in this Section 4 is made based upon the Knowledge of Receiver, and (b) certain Contracts and other documentation described in the foregoing representations and warranties were provided or made available to Purchaser in redacted form as of the date hereof, with the understanding that unredacted versions will be provided at a later date in accordance with Section 6.3.3.
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SECTION 5 PURCHASER'S REPRESENTATIONS AND WARRANTIES.
As a material inducement to Receiver to enter into and perform its obligations under this Agreement, Purchaser represents and warrants that:
5.1. Authorization and Power . The execution, delivery, and performance by Purchaser of this Agreement and all other agreements contemplated hereby to which Purchaser is a party have been duly and validly authorized by all necessary corporate action of Purchaser, and except as set forth on Schedule 5.1, no approvals or consents of any other Person or Governmental Authority having jurisdiction are necessary in connection with it. This Agreement and each such other agreement, when executed and delivered by Purchaser, will constitute the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, and similar statutes affecting creditors' rights generally and judicial limits on equitable remedies.
5.2. No Conflict with Other Instruments or Agreements . The consummation by Purchaser of the Transaction will not result in or constitute a default or an event that, with the giving of notice or lapse of time, or both, would constitute a default, breach, or violation of the organizational documents of Purchaser or any lease, license, promissory note, loan agreement, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument, or arrangement to which Purchaser is a party or by which Purchaser or any of its property may be bound and which would be material to Purchaser's performance of this Agreement.
5.3. Brokers or Finders . There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the Transaction based on any arrangement or agreement made by or on behalf of Purchaser.
5.4. Funding . Purchaser has sufficient liquid assets available to Purchaser to pay the Purchase Price on the Closing Date and to pay and perform the Assumed Liabilities.
SECTION 6 COVENANTS, AGREEMENTS PENDING CLOSING, AND OTHER AGREEMENTS.
6.1. Conduct of Debtors' Business Pending the Closing . From the date of this Agreement until Closing, and except as otherwise consented to or approved in advance in writing by Purchaser or as may be limited or modified as a result of the Receivership Action, Receiver covenants and agrees with Purchaser as follows:
6.1.1. Receiver will, and will cause the Debtors to, use, preserve and maintain the Purchased Assets in the Ordinary Course of Business, as the Purchased Assets are on the date of this Agreement, ordinary wear and tear and damage by casualty excepted, except for any actions or omissions that would not be expected to have a Material Adverse Effect.
6.1.2. Receiver will, and will cause each of the Debtors to, conduct the Business in the Ordinary Course of Business, consistent with past practice, and preserve the business relationships with customers, suppliers, distributors and others with whom each Debtor deals with in connection with the conduct of Business, except for any actions or omissions that would not be expected to have a Material Adverse Effect.
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6.1.3. Without the prior written approval of Purchaser, Receiver will not materially encumber any of the Purchased Assets or make any material commitments relating to the Purchased Assets extending beyond the date of Closing, including, without limitation: (i) incurring any material obligations or liabilities, whether fixed or contingent; (ii) entering into any material contract, lease or other agreement; (iii) modifying or terminating any existing material contract, lease or other agreement; (iv) waiving any rights of material value to Debtors, including by agreeing to a material discount on the sale price of any Inventory or Products, or on the amount of any accounts receivable of any Debtor; (v) paying any material obligation or liability, whether fixed or contingent, other than current liabilities or those contemplated by this Agreement to be paid prior to Closing; (vi) failing to maintain, abandoning or otherwise disposing of any Intellectual Property identified on Schedule 1.1.6(c), granting any Person any license thereto, or disclosing any confidential information included therein or (vii) entering into any other transaction or arrangement which individually or in the aggregate with other transactions or arrangements would be material to Debtors.
6.1.4. Without the prior written approval of Purchaser, Receiver will not, and will not cause any Debtor to, cancel, lose or diminish the insurance now in effect on the Purchased Assets.
6.1.5. Without the prior written approval of Purchaser, Receiver will not, and will not cause any Debtor to, violate in any material respects any statutes, laws, ordinances, rules, or regulations applicable to Debtors in the Ordinary Course of Business or otherwise.
6.1.6. Without the prior written approval of Purchaser, Receiver shall not agree, whether in writing or otherwise, to do any of the foregoing in Sections 6.1.3 to 6.1.5.
6.2. Confidentiality; Non-Competition; Non-Solicitation.
6.2.1. Confidentiality. From and after the Closing, Debtor shall not directly or indirectly, disclose or use at any time (and shall cause their respective Affiliates and Representatives not to use or disclose) any Confidential Information (whether or not such information is or was developed by Receiver or any Debtor), except to the extent that such disclosure or use is directly related to and required by the performance of Receiver's duties to Purchaser or as required by Law (including in connection with the Receivership Action) or as otherwise provided hereunder. In the event Debtor is required by Law to disclose any Confidential Information, such Debtor shall promptly notify Purchaser in writing, which notification shall include the nature of the legal requirement and the extent of the required disclosure, and shall cooperate, at Purchaser's sole cost and expense, with Purchaser's reasonable requests to preserve the confidentiality of such Confidential Information consistent with applicable Law; provided, that, to the any Debtor is required to make a disclosure hereunder as required by applicable Law, such Debtor shall (i) disclose only that portion of such Confidential Information which such Debtor is advised by its counsel in writing that it is legally required to disclose and (ii) use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such Confidential
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Information. For purposes of this Agreement. "Confidential Information" means all information of a confidential or proprietary nature (whether or not specifically labeled or identified as "confidential"), in any form or medium, that relates to the Business or its suppliers, distributors, customers, independent contractors or other business relations. Confidential Information includes the following as they relate to the Business and, in each case, to the extent the Business obtains a commercial benefit from the secret nature of such information: internal business information (including information relating to strategic and staffing plans and practices, business, training, marketing, promotional and sales plans and practices, cost, rate and pricing structures, accounting and business methods and potential acquisition candidates); identities of, individual requirements of, and specific contractual arrangements with, the Business's suppliers, distributors, customers, independent contractors or other business relations and their confidential information; Trade Secrets, know-how, compilations of data and analyses, techniques, systems, formulae, research, records, reports, manuals, documentation, models, data and data bases relating thereto; and inventions, innovations, improvements, developments, methods, designs, analyses, drawings, and reports. Notwithstanding the foregoing, Confidential Information does not include such information which: (i) at the time of disclosure is publicly available or thereafter becomes publicly available through no act or omission of Debtor in violation of this Section 6.2.1; (ii) is thereafter disclosed or furnished to Debtor by a third party who is not known by Debtor to have acquired the information under an obligation of confidentiality; (iii) is independently developed by Debtor without the use of or reference to Confidential Information after the Closing Date; or (iv) is disclosed by Debtor (subject to compliance with the applicable provisions of this Section 6.2.1) under compulsion of applicable Law. Confidential Information shall not include information required to be included by Receiver or Debtor in pleadings filed in the Receivership Action. For the avoidance of doubt, Confidential Information shall not include information that is required to be disclosed by Receiver or Debtors in relation to orders entered in the Receivership Action.
6.2.2. Non-Competition.
(a) Each Debtor is familiar with the trade secrets related to the Business and with other Confidential Information concerning the Business, including all (A) inventions, technology and research and development related to the Business, (B) customers and clients and customer and client lists (and prospective customers and prospective clients) related to the Business, (C) Products (including products under development) and services related to the Business and related costs and pricing structures and manufacturing techniques, (D) accounting and business methods and practices related to the Business and (E) similar and related confidential information and Trade Secrets related to the Business. Debtor acknowledges and agrees that the Business would be irreparably damaged if any Debtor were to directly or indirectly provide services to any Person competing with the Business or engaging in a similar business and that such direct or indirect competition by any Debtor would result in a significant loss of goodwill by the Business.
(b) In further consideration for the Purchaser's payment of the Purchase Price under this Agreement (in respect of which payment Debtors expressly acknowledge that each derives a substantial and direct benefit), and in order to protect the value of the Business acquired by the Purchaser hereunder (including the goodwill
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inherent in the Business as of the Closing Date), Receiver, on behalf of each Debtor (but not on behalf of Receiver), hereby agrees that during the period commencing on the Closing Date and ending on the five (5) year anniversary of the Closing Date (the "Non-Competition Period"), no Debtor shall acquire or hold any economic or financial interest in, act as a partner, member, stockholder, or Representative of, render any services to, or otherwise operate or hold an interest in any Person (other than Purchaser) having any location in the world which entity, enterprise or other Person primarily engages in, or engages in the management or operation of any Person that primarily engages in any business that competes with the Business; provided, however, that nothing contained herein shall be construed to prohibit Debtor from purchasing (1) up to an aggregate of one percent (1%) of any class of the outstanding voting securities of a publicly traded corporation (but only if such investment is held on a purely passive basis) or (2) any securities of Purchaser or any of its Affiliates.
6.2.3. Non-Solicitation; Non-Disparagement. During the period commencing on the Closing Date and ending on the five (5) year anniversary of the Closing Date (the "Non-Solicitation Period"), no Debtor shall, directly or indirectly, either individually or acting in concert with another Person or Persons:
(a) request, induce or attempt to influence any distributor, supplier, vendor, sales representative or customer of goods or services of the Business to curtail, cancel or refrain from maintaining or increasing the amount or type of business such distributor, supplier or customer of goods or services is currently transacting, or may be transacting during the Non-Solicitation Period, with the Business or modify its pricing or other terms of sale with the Business;
(b) solicit or induce any individual who is or was an employee of any Debtor or Purchaser to terminate his or her employment or offer employment to or hire or otherwise engage any such individual, whether as an independent contractor, consultant or otherwise;
(c) influence or attempt to influence any Person who is an employee of the Business during the Non-Solicitation Period to terminate his or her employment with Purchaser; or
(d) make any negative, derogatory or disparaging statements or communications regarding Purchaser, the Business, or the Affiliates or Representatives of Purchaser.
6.2.4. Severability. Notwithstanding anything to the contrary in this Agreement, if at any time, in any judicial or arbitration proceeding, any of the restrictions stated in this Section 6.2 are found by a final order of a court of competent jurisdiction or arbitrator to be unreasonable or otherwise unenforceable under circumstances then existing, the Parties each agree that the period, scope or geographical area, as the case may be, shall be reduced to the extent necessary to enable the court to enforce the restrictions to the extent such provisions are allowable under applicable Law, giving effect to the agreement and intent of the Parties that the restrictions contained herein shall be effective to the fullest extent permissible. Debtor agrees that the restrictions contained in this Agreement are reasonable in all respects and necessary to protect Purchaser's interest in, and the value of the Business.
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6.2.5. Specific Performance; Injunctive Relief. Receiver acknowledges and agrees that in the event of a breach by Debtor of any of the provisions of this Section 6.2. Purchaser would suffer irreparable harm, no adequate remedy at law would exist for Purchaser, and damages would be difficult to determine. Consequently, in the event of any such breach, Purchaser or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competent jurisdiction for specific performance or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages.
6.2.6. Tolling of Non-Competition Period and Non-Solicitation Period. The Non-Competition Period and the Non-Solicitation Period shall automatically be extended for any period of time during which Debtor is not in compliance with the covenants and agreements set forth in this Section 6.2.
6.3. Additional Covenants and Agreements of Receiver . From the date of this Agreement until Closing, Receiver further covenants and agrees with Purchaser as follows:
6.3.1. Receiver will use its commercially reasonable efforts to obtain as promptly as practicable the satisfaction of the conditions to Closing described in this Agreement and any necessary consents or waivers under or amendments to agreements by which Debtors are bound; provided that, notwithstanding anything in this Agreement to the contrary, in no event shall Receiver be obligated to pay any amounts to or for any third party in connection therewith.
6.3.2. Receiver will promptly supplement or amend the Schedules with respect to any matter hereafter arising that, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in any Schedule, and will promptly notify Purchaser of any breach of any of Receiver's representations, warranties or covenants contained in this Agreement. Each such supplement or amendment to the Schedules shall be deemed to cure any inaccuracy of any representation or warranty made in this Agreement to the extent not constituting a material change to such Schedule as provided on or before the date of this Agreement. Purchaser shall have the sole right to supplement or amend Schedule 1.1.6(b), Schedule 1.2, or Schedule 3.1.
6.3.3. Purchaser and its counsel, accountants and other representatives in connection with this Transaction shall have full access during normal business hours to all properties and other assets, books, accounts, records, Contracts and other documentation of or relating to, the Business, including, after entry of the Sale Order, all Contracts and other documentation that constitute Purchased Assets in unredacted form. Receiver shall promptly furnish or cause to be furnished to Purchaser, or the representatives of Purchaser hereunder, all data, documentation, processes and other information concerning the business, finances and properties of the Business that may reasonably be requested.
6.3.4. At Purchaser's request, Receiver shall, at Purchaser's expense, cooperate with Purchaser with respect to preparation for, and commencement of, the audits of the financial statements of the Debtors for the calendar year 2017 and 2018 interim financial statements of all Debtors and their Affiliates.
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6.3.5. If reasonably requested by Purchaser, whether before or after the Closing, Receiver shall promptly file all required motions and other pleadings with the Court and obtain a Final Order from the Court, in form and substance reasonably satisfactory to Purchaser, authorizing the assumption and assignment to Purchaser of any Assigned Contract designed by Purchaser.
6.3.6. Receiver agrees that Purchaser may engage in discussions with any current or former employee of the Debtors with respect to Purchaser's potential hiring and employment of such current or former employee on or after the Closing, at such reasonable times and manner as Receiver authorizes, and Receiver shall, and shall use reasonable efforts to cause the Debtors and their Affiliates to, use reasonable best efforts to assist Purchaser in securing acceptance of any offer of employment made or to be made by Purchaser to any employee. Without limiting the foregoing, the Debtors' receivership estates shall continue to be liable for any severance, change in control payment, transaction bonus, option or other benefits (whether contractual, customary or discretionary) that become due to any current or former employee, consultant or independent contractor by any Debtor or any of their Affiliates as a result, directly or indirectly, of the transactions contemplated by this Agreement. Receiver shall reasonably cooperate to provide information about the employment of each employee promptly following the date hereof to enable Purchaser to make or procure such an offer of employment. Following the date of this Agreement, Receiver and Purchaser shall reasonably cooperate in all matters reasonably necessary to effect the transactions contemplated by this Section 6.3.6, including exchanging information and data relating to workers' compensation, employee benefits and employee benefit plan coverages (whether contractual, customary or discretionary) (except to the extent prohibited by Applicable Law). Notwithstanding anything to the contrary in this Agreement, neither Purchaser nor any of its Affiliates shall be required to continue any specific employee benefit plans. The provisions in this Section 6.3.6 are for the sole benefit of the parties to this Agreement and nothing herein, expressed or implied, is intended to be construed to (i) constitute an amendment to any of the compensation and benefit plans maintained for or provided to any current or former employees of the Debtors prior to or following the Closing or (ii) confer upon or give to any person, other than the parties hereto and their respective permitted successors and assigns, any legal or equitable or other rights or remedies under or by reason of any provision of this Agreement. Prior to the Closing, Receiver shall be solely responsible for providing notice prior to termination of employment under WARN or any other Applicable Law requiring advance notice of a plant closing or mass layoff affecting the current or former employees of Debtors, to the extent required under WARN or any other Applicable Law.
6.3.7. If Receiver executes and closes one or more Competing Bids (as defined below) with any Person other than Purchaser as to any of the Purchased Assets (other than following a termination of this Agreement by Receiver pursuant to Section 10.1(f) of this Agreement), Receiver shall pay to Purchaser, from the proceeds at Closing of any such Competing Bid, the amount of Seven Hundred Forty-Seven Thousand Five Hundred Dollars and No Cents ($747,500.00) as a break-up fee (the "Approved Break-Up Fee"). Receiver represents and warrants to Purchaser that payment of the Approved Break-Up Fee has been approved by the Court pursuant to the Bid Procedures Order (as defined below) and consented to by CIBC Bank USA f/k/a The PrivateBank and Trust Company (the "Lender").
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6.3.8. If requested by Purchaser, the Parties shall use commercially reasonable efforts to cause the directors, officers, and agents of the Debtors' Subsidiaries constituting Purchased Assets to resign as of the Closing and be replaced by individuals appointed by Purchaser.
6.4. Covenants and Agreements of Purchaser . From the date of this Agreement until Closing, Purchaser covenants and agrees with Receiver as follows:
6.4.1. Purchaser will use its commercially reasonable efforts, and will execute and deliver any documents and instruments that may reasonably be required to assist Receiver in obtaining any necessary consents or waivers under or amendments to agreements by which Debtors are bound and which are conditions to Closing described in this Agreement; provided, however, that, notwithstanding anything in this Agreement to the contrary, Purchaser shall not be obligated hereunder to execute any guaranty, assumption of liability or other document or instrument requiring Purchaser to assume obligations, or pay any amounts to or for any third party in connection therewith, not expressly provided for in or contemplated by this Agreement.
6.4.2. Promptly after the date of this Agreement, and in any event within the applicable time period prescribed by statute or regulations, Purchaser will make all filings and notifications required by Law to be made by it in connection with the Transaction. Purchaser will cooperate with Receiver and its representatives (a) with respect to all filings and notifications Receiver or Debtors elect to make or is required to make in connection with the Transaction, (b) in identifying and obtaining any governmental authorizations required by Purchaser to own and operate the Business from and after the Closing Date, and (c) in obtaining all consents identified in Schedule 5.1.
6.5. Court Approval and Competing Bids.
6.5.1. On August 23, 2018, Receiver filed a motion (the "Sale Motion") in the Receivership Action (Docket No. 40), requesting that the Court enter the Sale Order (as defined below) in accordance with the Receivership Order and applicable law. Receiver will provide Purchaser with a reasonable opportunity to review and comment upon the Sale Order prior to the filing thereof with the Court.
6.5.2. Purchaser acknowledges that this Agreement is expressly subject to all terms and conditions contained in the Court's order (1) Scheduling a Hearing on Sale of Assets, (2) Approving Bidding Procedures for Such Sale, (3) Approving the Form and Manner of Notice in Connection With Such Sale, and (4) Authorizing Receiver to Grant Buyer Protections (the "Bid Procedures Order") (Docket No. 50) and the sale procedures attached as Exhibit 1 thereto (the "Sale Procedures"). Without limiting the generality of the foregoing, Purchaser acknowledges that (a) this Agreement (and Receiver's obligations hereunder) are subject in all respects to approval by the Court, (b) Receiver may consider higher or better competing bids with respect to any transaction (or series of transactions) involving the direct or indirect sale, lease, transfer or other disposition of any assets of Debtors to a purchaser or purchasers other
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than Purchaser (each, a "Competing Bid"), and (c) nothing contained in this Agreement shall be construed to prohibit Receiver from soliciting, considering, negotiating, agreeing to, or otherwise taking action in furtherance of any Competing Bid. Receiver acknowledges and agrees that Purchaser shall be treated as the "Stalking Horse Bidder," that this Agreement shall be the "Stalking Horse Agreement" and constitutes a "Qualified Bid," and that Purchaser is a "Qualified Bidder," as each of those terms are defined and used in the Bid Procedures Order and the Sale Procedures. As Stalking Horse Bidder, Receiver acknowledges and agrees that Purchaser shall be entitled to credit bid the amount of its Approved Break-Up Fee if an auction ("Auction") is held and if Purchaser chooses to make a further bid at such Auction. Receiver shall have complied with the notice requirements set forth under the Bid Procedures Order.
6.6. Books and Records . Purchaser shall make available to Receiver, at Receiver's sole expense, copies of all books, files, documents and records included as part of the Purchased Assets as Receiver may reasonably request in connection with the receivership for the Debtors for a period of eighteen (18) months post-Closing.
SECTION 7 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.
The obligation of Purchaser to consummate the Transaction pursuant to this Agreement is subject to the satisfaction, prior to or at Closing, of each of the following conditions:
7.1. Representations and Warranties; Performance . Each of the representations and warranties made herein by Receiver will be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" or similar qualifications) as of the date of this Agreement and as of the Closing Date, as if made as of the Closing Date (except to the extent that such representations and warranties expressly speak as of another date, in which case such representations and warranties shall be true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect; Receiver will have materially performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing; and Purchaser will have received, at the Closing, a certificate of Receiver, signed by an authorized officer, certifying as to the foregoing.
7.2. Court Approval.
7.2.1. Sale Order. The Bid Procedures Order shall not have been modified, amended, or superseded without Purchaser's prior written consent, and the Court shall have entered an order, in form and substance acceptable to Receiver and Purchaser and in accordance with the Receivership Order and applicable law, (i) approving this Agreement and the Transaction; and (ii) approving the sale and transfer of the Purchased Assets to Purchaser free and clear of all Encumbrances, except for Permitted Encumbrances, with the Encumbrances to attach to the sale proceeds in the same priority as of the Closing (the "Sale Order"), and such Sale Order shall have become a Final Order, unless the Final Order condition is waived in writing by Purchaser in its sole discretion.
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7.2.2. No Stays or Injunctions. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Applicable Law that is in effect on the Closing Date and which prohibits consummation of the Closing, and no stay of the Sale Order has been entered.
7.3. Consents to the Transactions . Prior to Closing, Receiver (in consultation with Purchaser) shall obtain written consents to consummation of this Agreement and the Transaction, and to the sale and transfer of the Purchased Assets to Purchaser free and clear of all Encumbrances, in form and substance reasonably satisfactory to Purchaser, from (a) Lender and (b) all other holders of any lien, security interest, deed of trust, mortgage, or other Encumbrances (other than Permitted Encumbrances, Mechanic's Liens, and Encumbrances paid in full at or prior to Closing) against any of the Purchased Assets. Prior to Closing, Receiver (in consultation with Purchaser), shall use commercially reasonable efforts to obtain all other necessary consents, waivers, and agreements to the consummation of the Transaction or otherwise pertaining to the matters covered by this Agreement; provided, that notwithstanding anything in this Agreement to the contrary, in no event shall Receiver be obligated to pay any amounts to or for any third party in connection with Receiver's obligations in this sentence.
7.4. Receivership Action/Bankruptcy . The Receivership Action shall remain pending and unstayed, no petition under the United States Bankruptcy Code shall have been filed by or against any of the Debtors, and no receivership, insolvency, administration, bankruptcy, or similar Proceeding shall have been commenced by or against any Subsidiary of any Debtor.
7.5. Consents to Assignment of Assigned Contracts . Receiver (in consultation with Purchaser) shall have obtained executed written consents to assignment to Purchaser, each in form and substance reasonably satisfactory to Purchaser, of up to five (5) Assigned Contracts designated by Purchaser and communicated confidentially to Receiver within five (5) Business Days after Purchaser has been provided unredacted copies of all Material Contracts in the Data Room as of September 5, 2018, from each counterparty to such Assigned Contracts, including a waiver and release of any termination or other contract rights based upon or related to the commencement of the Receivership Action, the fact of the Debtors having been placed in receivership, or the financial condition or insolvency of any of the Debtors.
7.6. Satisfaction of Tax and Other Liens . Purchaser shall have been provided documentation or other evidence reasonably satisfactory to Purchaser that all real property taxes, personal property taxes, employment taxes, Tax liens, security interests, and other Encumbrances on or against the Purchased Assets (other than Permitted Encumbrances and Mechanic's Liens) have been paid or satisfied prior to the Closing or will be paid or satisfied at the Closing in accordance with Section 2.2.2 and Section 9.2.2.
7.7. No Material Adverse Effect
. From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.26
SECTION 8 CONDITIONS PRECEDENT TO RECEIVER'S OBLIGATIONS.
The obligation of Receiver to consummate the Transaction pursuant to this Agreement is subject to the satisfaction, prior to or at Closing, of each of the following conditions:
8.1. Representations and Warranties; Performance . Each of the representations and warranties made herein by Purchaser will be true and correct in all material respects as of the Closing with the same effect as though made at that time except for changes contemplated, permitted or required by this Agreement; Purchaser will have materially performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing; and Receiver will have received, at the Closing, a certificate of Purchaser, signed by an authorized officer of Purchaser, stating that each of the representations and warranties made herein by Purchaser is true and correct in all material respects as of the Closing except for changes contemplated, permitted, or required by this Agreement and that Purchaser has materially performed and complied with all agreements, covenants, and conditions required by this Agreement to be performed and complied with by it prior to the Closing.
8.2. Consents to the Transactions . All necessary consents, waivers and agreements to the consummation of Transaction, or otherwise pertaining to the matters covered by it, as set forth on Schedule 5.1, will have been obtained by Purchaser and delivered to Receiver.
8.3. Court Approval . The Court shall have entered the Sale Order.
SECTION 9 CLOSING.
9.1. Time, Place and Manner of Closing . Unless this Agreement has been terminated according to Section 10 hereof, and provided that the conditions to the Closing set forth in Section 7 and Section 8 are satisfied or waived, the closing of the Transaction will be held at the offices of Bryan Cave Leighton Paisner LLP at 161 N. Clark Street, Suite 4300, Chicago, IL 60601 at 10:00 a.m. prevailing local time on the second (2nd) Business Day after the satisfaction or waiver of all the conditions set forth in Section 7 and Section 8 (or as soon thereafter as practicable after the satisfaction or waiver of all such conditions), other than conditions that, by their nature, will be satisfied at the Closing, but in any event not later than thirty-one (31) days following the entry of the Sale Order ("Closing" or "Closing Date"). At the Closing, Receiver shall deliver to Purchaser such bills of sale, assignments, deeds, consents, endorsements, drafts or other instruments requested by Purchaser and acceptable to Receiver that are reasonably necessary to vest in Purchaser title to the Purchased Assets in accordance with the terms of this Agreement. At the Closing, Purchaser shall execute such documents identified in the previous sentence to which Purchaser is properly a party and shall deliver to Receiver the Purchase Price in accordance with Section 2.
9.2. Certain Transaction Costs . At the Closing:
9.2.1. Transfer Taxes. Purchaser and Receiver shall each pay one-half (1/2) all documentary Taxes or Transfer Taxes which become due through the execution, delivery or recordation of the deeds, vehicle titles, and any other instruments of conveyance required to be executed or delivered by Receiver under this Agreement.
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9.2.2. Proration of Taxes and Charges. All Property Taxes, all public utility charges, rents, and like charges (which are not terminated and paid as of Closing by Receiver), if any, relating to the Real Property included in the Purchased Assets shall be prorated as of the Closing in accordance with regular accounting procedure. Settlement at Closing will be made on proration of estimates of such taxes and charges. If as the result of such proration at Closing, a net balance is owed by Receiver to Purchaser, or by Purchaser to Receiver, the amount thereof shall be paid to such Party at or within thirty (30) days after receipt of the next succeeding payment notice.
9.3. Deliveries at Closing by Receiver . At Closing, Receiver shall furnish and deliver to Purchaser the following:
9.3.1. a bill of sale, in form and substance reasonably acceptable to Purchaser, duly executed by Receiver;
9.3.2. an assignment and assumption agreement for the Assigned Contracts, if any, in form and substance reasonably acceptable to Purchaser (the "Assignment and Assumption Agreement"), duly executed by Receiver;
9.3.3. With respect to each Real Property, (A) a special warranty deed (together with a statement of tax due and request that tax declaration not be made a part of the permanent record) in form and substance reasonably satisfactory to Purchaser (each, a "Deed"), conveying the applicable Debtor's, right, title and interest in and to the Real Property to Purchaser, and duly executed by Receiver or any other party that is properly a party, and (B) a bill of sale and conveyance, assigning and conveying to Purchaser all of the items comprising the remainder of the Real Property not otherwise conveyed in the Deeds, and (C) any other closing documents required hereby or reasonably requested by Purchaser and/or the title company, including a so-called bills paid affidavit and affidavit of tenants in possession;
9.3.4. an assignment and assumption agreement for any leases with respect to Leased Real Property that are Assigned Contracts, in form and substance reasonably acceptable to Purchaser (the "Assignment and Assumption of Leases"), duly executed by Receiver;
9.3.5. an assignment agreement for Intellectual Property, in form and substance reasonably acceptable to Purchaser (the "Intellectual Property Assignment"), duly executed by Receiver;
9.3.6. one or more duly completed and executed certificates reasonably satisfactory to Purchaser pursuant to Section 1445 of the Code from each Debtor with respect to the sale of the Purchased Assets, certifying that such Debtor is not a foreign person within the meaning of Section 1445;
9.3.7. a certificate, dated as of the Closing Date and signed by Receiver, certifying that each of the conditions set forth in Section 7.1 through Section 7.7 have been satisfied;
9.3.8. a true, correct and complete electronic copy of the Data Room as it existed on September 5, 2018 and as it exists on the Closing Date; and
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9.3.9. all other certificates, instruments and documents required to be delivered by Receiver pursuant to this Agreement or any of the Ancillary Documents.
9.4. Deliveries at Closing by Purchaser . At Closing, Purchaser shall furnish and deliver to Receiver the following:
9.4.1. the Closing Payment, by wire transfer of immediately available funds to an account designated in writing by Receiver;
9.4.2. the Assignment and Assumption Agreement, duly executed by Purchaser;
9.4.3. the Assignment and Assumption of Leases, duly executed by Purchaser;
9.4.4. the Intellectual Property Assignment, duly executed by Purchaser;
9.4.5. a certificate, dated as of the Closing Date and signed by Purchaser, certifying that each of the conditions set forth in Section 8.1 through Section 8.3 have been satisfied; and
9.4.6. all other certificates, instruments and documents required to be delivered by Purchaser pursuant to this Agreement or any of the Ancillary Documents.
SECTION 10 TERMINATION OF AGREEMENT.
10.1. Termination Events . By written notice given prior to the Closing, this Agreement may be terminated as follows:
(a) by mutual written agreement of Purchaser and Receiver;
(b) by Receiver in the event the Closing has not occurred (other than through failure of Receiver to comply fully with its obligations under this Agreement) on or before October 31, 2018 (the "Termination Date");
(c) by Purchaser in the event the Closing has not occurred (other than through failure of Purchaser to comply fully with its obligations under this Agreement) on or before the Termination Date;
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(d) by Purchaser if Receiver accepts a Competing Bid from a third party for the purchase of all or part of the Purchased Assets and by Receiver if a transaction with respect to such Competing Bid is thereafter consummated, in which case Receiver shall pay Purchaser the Approved Break-Up Fee within one (I) Business Day after consummation of such Competing Bid from the proceeds of such transaction, but only in the event that the Approved Break-Up Fee is otherwise payable in accordance with Section 6.3.7 of this Agreement;
(e) by Purchaser, if any condition to the obligations of Purchaser set forth in Section 7.1 through Section 7.7 shall have become incapable of fulfillment other than as a result of a breach by Purchaser of any covenant or agreement contained in this Agreement, and such condition is not waived in writing by Purchaser; or
(f) by the non-breaching Party, if there shall be a material breach by the other Party of any representation or warranty, or any covenant or agreement contained in this Agreement which would result in a failure of a condition set forth in Section 7.1 through Section 7.7, and which breach has not been waived by the non-breaching Party and has not been cured by the earlier of (i) five (5) Business Days after the giving of written notice by the non-breaching Party to the breaching Party of such breach and (ii) the Termination Date.
10.2. Effect of Termination . Each Party's right of termination according to Section 10.1 of this Agreement is in addition to any other right it may have under this Agreement or otherwise, and the exercise of a Party's right of termination will not constitute an election of remedies. If this Agreement is terminated according to Section 10.1, this Agreement will be of no further force or effect other than the requirement for the Receiver to pay the Approved Break-Up Fee in accordance with Section 10.1(d) and the disposition of the Cash Deposit pursuant to Section 2.2; provided, however, that (i) this Section 10.2 will survive the termination of this Agreement and will remain in full force and effect, and (ii) the termination of this Agreement will not relieve any Party from any liability for any breach of this Agreement occurring prior to termination.
10.3. Termination Procedure . Any Party desiring to exercise its right to terminate this Agreement shall deliver to the other Party written notice of termination stating with a reasonable degree of specificity the reason relied upon for such termination.
10.4. Remedies Cumulative
. The rights and remedies of the Parties are cumulative and not alternative.SECTION 11 FURTHER ASSURANCES.
11.1. Separate Agreements Executed in Connection with Closing . The Parties shall abide by, and otherwise perform under the terms and conditions of each and every Ancillary Documents and agreement deemed executed and delivered contemporaneously with the Closing.
11.2. Cooperation of the Parties After Closing . Upon the reasonable request of any Party hereto after the Closing, any other Party will take all action and will execute all documents and instruments and provide any supplemental information and further assurances necessary or desirable to consummate and give effect to the Transaction or to facilitate the transition of the Business to Purchaser; provided, however, that Receiver's obligations under this paragraph shall continue only so long as the Receiver remains the Court-appointed receiver for any Debtor. From
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and after the Closing, if Receiver or Debtors receive or collect any funds constituting or relating to any accounts receivable or any other Purchased Asset. Receiver shall remit, or cause to be remitted, such funds to Purchaser promptly after its receipt thereof. From and after the Closing, if Purchaser or its Affiliates receives or collects any funds constituting an Excluded Asset, Purchaser or its Affiliates shall remit any such funds to Receiver promptly after its receipt thereof.
11.3. Payroll . Purchaser will furnish to Receiver such payroll and employee information as Receiver may reasonably require in connection with the preparation or examination of payroll tax returns, workers' compensation reports and audits, and qualified plan administration records.
SECTION 12 DEFINITIONS.
"Affiliate" means, with respect to a specified Person, any other Person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the specified Person; provided that such Person shall be deemed an Affiliate for only so long as such control exists. For purposes of this definition and the definition of Related Person, the term "control" includes, without limitation, the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
"Ancillary Documents" means all other agreements, documents and instruments to be executed and delivered by Purchaser and/or Receiver pursuant to this Agreement.
"Anti-Corruption Laws" means all U.S. and non-U.S. laws relating to the prevention of corruption and bribery, including, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended.
"Applicable Law" means, with respect to any Person, any Law applicable to such Person or its business, properties or assets.
"Approved Break-Up Fee" has the meaning set forth in Section 6.3.7 of this Agreement.
"Assigned Contracts" has the meaning set forth in Section 1.1.6(b) of this Agreement.
"Assigned Permits" has the meaning set forth in Section 1.1.6(a) of this Agreement.
"Assignment and Assumption Agreement" has the meaning set forth in Section 9.3.2 of this Agreement.
"Assignment and Assumption of Leases" has the meaning set forth in Section 9.3.3 of this Agreement.
"Assumed Liabilities" has the meaning set forth in Section 1.2 of this Agreement
"Auction" has the meaning set forth in Section 6.5.2 of this Agreement.
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"Bid Procedures Order" has the meaning set forth in Section 6.5.2 of this Agreement.
"Biological Assets" means all Germplasm, traits, mutations, genetic markers, and other genetic material in any form.
"Business" has the meaning set forth in the recitals of this Agreement.
"Business Day" means any day of the year, excluding Saturday, Sunday and any other day on which national banks are required or authorized to close in Chicago, Illinois.
"Cash Deposit" has the meaning set forth in Section 2.2.1 of this Agreement.
"Chromatin" has the meaning set forth in the preamble of this Agreement.
"Chromatin Farms" has the meaning set forth in the preamble of this Agreement.
"Claim" means any past, present or future claim, demand, action, request, cause of action, suit, Proceeding or Liability of any kind or nature whatsoever, whether at law or equity, known or unknown, actual or alleged, asserted or not asserted, suspected or not suspected, anticipated or unanticipated, accrued or not accrued, fixed or contingent, which has been or may be asserted by or on behalf of any Person, whether seeking damages (including compensatory, punitive or exemplary damages) or equitable, mandatory, injunctive, or any other type of relief, including cross-claims, counterclaims, third-party claims, suits, lawsuits, administrative proceedings, notices of liability or potential liability, arbitrations, actions, rights, or causes of action or orders.
"Closing" has the meaning set forth in Section 9.1 of this Agreement.
"Closing Date" has the meaning set forth in Section 9.1 of this Agreement.
"Closing Payment" has the meaning set forth in Section 2.2.2 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Bid" has the meaning set forth in Section 6.5.2 of this Agreement.
"Confidential Information" has the meaning set forth in Section 6.2.1 of this Agreement.
"Contracts" means any agreement, lease, or contract, whether written or oral, that has not expired or been terminated (except with respect to a termination based upon or related to the commencement of the Receivership Action, the fact of the Debtors having been placed in receivership, or the financial condition or insolvency of any of the Debtors, which termination has subsequently been rescinded).
"Court" has the meaning set forth in the recitals of this Agreement.
"Cure Amount" means, with respect to any Assigned Contract, the amount the Purchaser and the counterparty to such Assigned Contract agree as a condition to obtaining such counterparty's written consent to such assignment.
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"Data Room" means the electronic data room established by Livingstone to which Purchaser has been granted access in connection with the transactions contemplated by this Agreement.
"Debtor Records" has the meaning set forth in Section 1.1.7 of this Agreement.
"Debtors" has the meaning set forth in the preamble of this Agreement.
"Deposit Escrow Agent" has the meaning set forth in Section 2.2.1 of this Agreement.
"Employee Plan" has the meaning set forth in Section 4.15 of this Agreement.
"Encumbrance" means any lien, mortgage, deed of trust, deed to secure debt, pledge, restriction on transfer, proxy and voting or other agreement, claim, charge, security interest, easement, right of way, encroachment, servitude, right of first option, right of first refusal, preemptive right or similar restriction, or other encumbrance, option or defect in title of every type and description, whether imposed by law, agreement, understanding or otherwise. Encumbrance shall expressly exclude the following if granted or imposed pursuant to an Assigned Contract or is otherwise specifically disclosed in writing to Purchaser on one or more Schedules hereto as of the date of this Agreement: (a) rights granted by Debtors to third parties for the use of property currently owned by Debtors; (b) restrictions or conditions imposed upon Debtors' right to use property currently owned by third parties; and (c) restrictions or conditions imposed Debtors' right to acquire title or possession to property currently owned or possessed by third parties.
"Environment" has the meaning set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. 9601, et seq.
"Environmental Condition" means the presence or introduction into the Environment of any Hazardous Materials (and any resulting air, soil, groundwater or surface water contamination without regard to the location to which such resulting contamination has migrated or spread) as a result of which any Debtor has or may become materially liable to any Person in connection with the Business or by reason of which the Purchased Assets may materially suffer.
"Environmental Laws" means all Laws that (i) regulate or relate to the protection or clean-up of the Environment; the use, treatment, generation, storage, transportation, handling, disposal or release of Hazardous Materials; or the preservation or protection of waterways, groundwater, drinking water, air, wildlife, plants or other natural resources; or (ii) imposes liability with respect to any of the foregoing, including the CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; the Clean Air Act, 42 U.S.C. Section 7401, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.; or the Oil Pollution Act of 1990, 33 U.S.C. Section 2701, et seq.
"Equipment" means all "equipment" as that term is defined in the UCC.
"ERISA Affiliate" means a trade or business treated as a single employer with Debtors under Section 414(b) or (c) of the Code.
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"Ex-Im Laws" means all U.S. and non-U.S. laws relating to export, re-export, transfer, and import controls, including, without limitation, the Export Administration Regulations, the International Traffic in Arms Regulations, and the customs and import laws administered by U.S. Customs and Border Protection.
"Excluded Assets" has the meaning set forth in Section 3.1 of this Agreement.
"Excluded Liabilities" has the meaning set forth in Section 1.2.2 of this Agreement.
"Final Order" means an order, judgment or other decree of any Governmental Authority as to which (a) the operation or effect has not been reversed, stayed, modified or amended, (b) no appeals, motions for reconsideration, petitions seeking the grant of certiorari or, if certiorari has been granted, grants of certiorari are pending, and (c) any and all appeal periods and periods to seek the grant of certiorari have expired.
"Germplasm" means all sorghum plant materials, including parental, donor and breeding lines, hybrids, varieties, breeding populations, seeds, plants, cells, tissue, and any other materials used or developed in breeding programs.
"Germplasm LLC" has the meaning set forth in the preamble of this Agreement.
"Global Sorghum" has the meaning set forth in the preamble of this Agreement.
"Goods" means any "goods," as that term is defined in the UCC.
"Government Official" means any officer or employee of a Governmental Authority or a foreign government or any department, agency, or instrumentality thereof.
"Governmental Authority" means any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any United States or foreign federal, state or local government, including any governmental authority, agency, department, board, commission or instrumentality of such government or any political subdivision thereof, and any tribunal, court or arbitrator(s) of competent jurisdiction, and shall include the Court.
"Governmental Licenses" has the meaning set forth in Section 4.19 of this Agreement.
"Hazardous Materials" means all "hazardous substances" or "toxic substances" as those terms are defined by the CERCLA.
"Holding" has the meaning set forth in the preamble of this Agreement.
"Indebtedness" means, as of any date, without duplication, the outstanding principal amount of, accrued and unpaid interest on and other payment obligations (including any prepayment premiums payable as a result of the consummation of the transactions contemplated by this Agreement) arising under any obligations of the Debtors consisting of (i) indebtedness for borrowed money or indebtedness issued in substitution or exchange for borrowed money or for the deferred purchase price of property or services (other than trade payables and accrued expenses arising in the ordinary course of business), (ii) indebtedness evidenced by any note, bond, debenture or other debt security, in each case, as of such date, or (iii) obligations under any interest rate, currency or other hedging agreements, in each case, as of such date, excluding any undrawn letters of credit. Notwithstanding the foregoing, "Indebtedness" shall not include any obligations under operating leases or capitalized leases.
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"Intellectual Property" means, collectively, any and all (i) inventions (whether or not patentable and whether or not reduced to practice), records of inventions, test information, developments, applications, improvements, formulae, concepts, ideas, methods or processes, research property rights and all improvements and modifications to any of the foregoing, (ii) patents, patent rights, patent applications and patent disclosures, together with all reissuances, continuations, continuations in part, divisionals, revisions, extensions and reexaminations thereof, and all improvements and modifications to any of the foregoing ("Patents"), (iii) trademarks, trademark rights, service marks, service mark rights, trade dress, logos, slogans, trade names, trade name rights, assumed names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith ("Trademarks"), (iv) copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith, mask works and all applications, registrations and renewals in connection therewith ("Copyrights"), (v) trade secrets and confidential information (including ideas, concepts, research and development, know-how, composition information and embodiments, technology, inventions, formulas, compositions, processes and techniques, technical and business data, designs, drawings, specifications, customer, distributor, partner and supplier lists, pricing and cost information, information relating to breeding and molecular breeding, sequences, protocols, genetic and physical maps, pedigrees, sorghum traits (whether native or modified), sorghum seed production, agronomic practices, harvesting, pre-processing and sorghum crop production economics, and business, Product commercialization and marketing plans and proposals) ("Trade Secrets"), (vi) computer software (including source code, executable code, data, databases, and related software program documentation in computer-readable and hard-copy forms) ("Software"), (vii) computer hardware, firmware and applications (including source code, executable code, data, databases, and related programming documentation in computer-readable and hard-copy forms), (viii) web sites, web site domain names, web site sub domains, uniform resource locators and rights in telephone numbers, (ix) advertising and promotional materials, (x) all other proprietary rights, (xi) all Biological Assets and all marker-assisted and marker-aided selection ("MAS") and breeding know-how and related intellectual property, and all data, data sets, and other information and assets used in or related to the MAS process and other intellectual property and products (and all enhancements, modifications, improvements, developments and next generation products of the foregoing), (xii) all Plant Variety Certificates. Product registrations and any intellectual property rights or equivalent protection in or to Biological Assets, including plant variety protection rights, and (xiii) copies and tangible embodiments of the foregoing in whatever form or medium, in each case, which are owned, licensed, or used by any Debtor in connection with the Business anywhere in the world.
"Intellectual Property Assignment" has the meaning set forth in Section 9.3.5 of this Agreement.
"Interests" means all (i) Encumbrances, (ii) Claims, (iii) conditional sale or other title retention agreements, (iv) judgments, and (v) rights or options to effect any forfeiture, modification. repurchase, or termination of the interest of Receiver, Debtors, or Purchaser in the Assigned Contracts and/or Purchased Assets, as applicable.
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"Inventory" means any "inventory," as that term is defined in the UCC, pertaining to the Products and the Business, including, raw materials and components, work-in-process, growing crops, demonstration Products, finished goods, and other materials, spare parts, components, and supplies, as well as all packaging and labeling inventories, supplies, and materials.
"Knowledge of Receiver" or "Receiver's Knowledge" means the actual knowledge of the following individuals: Sandeep Gupta, Michael Ragano or Jordan Graham.
"Law" means any federal, state or local law (including common law), statute, code, ordinance, rule, regulation or other requirement enacted, promulgated, issued or entered by a Governmental Authority.
"Leased Real Property" has the meaning set forth in Section 4.10.2 of this Agreement.
"Lender" has the meaning set forth in Section 6.3.7 of this Agreement.
"Liabilities" means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise, including obligations and liabilities related to any Claim.
"Marathon" has the meaning set forth in the preamble of this Agreement.
"Material" or "material" means having a value, risk of financial loss or loss of use, or other financial impact, individually or in the aggregate, in an amount exceeding Twenty-Five Thousand Dollars ($25,000), or having sufficient importance to affect a decision regarding the matter or issue in question. For the avoidance of doubt, the foregoing definition of "Material" or "material" shall not apply to the phrase "Material Adverse Effect" or "material adverse effect".
"Material Adverse Effect" means (a) any event, change, or matter in respect of the Business that, individually or in the aggregate, results in or would be reasonably expected to result in a material adverse effect on the results of operations, assets or condition (financial or otherwise) of the Business or the Purchased Assets, taken as a whole, excluding any such event, change or matter to the extent resulting solely from the filing of the Receivership Action; or (b) any event, condition or matter, that would have a material adverse effect on the legality, validity or enforceability of this Agreement and the agreements and instruments to be entered into in connection herewith, the consummation of the Transaction, or the realization of the rights and remedies hereunder. For purposes of determining whether any event, change or matter constitutes a "Material Adverse Effect" under this definition, the Parties agree that (x) the analysis of materiality shall not be limited to a long-term perspective, and (y) the announcement, pendency or completion of the transactions contemplated by this Agreement or performance under this Agreement shall not constitute or be the basis for any determination or assertion of the occurrence of a Material Adverse Effect and furthermore that any event, change, or matter arising out of or attributable to the following, shall not constitute a Material Adverse Effect: (i) general economic or political conditions (except where the Business is disproportionately affected); (ii) conditions generally affecting the industries in which the Business operates (except where the Business is disproportionately affected); (iii) any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action taken (or omitted to be taken) with the written consent of or at the written request of Purchaser; (vi) any changes in applicable Laws or accounting rules (including GAAP); (vii) any natural or man-made disaster or acts of God; or (x) any failure by the Business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded).
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"Material Contracts" has the meaning set forth in Section 4.18 of this Agreement.
"NDA Agreement" has the meaning set forth in Section 1.1.6(d) of this Agreement.
"Non-Competition Period" has the meaning set forth in Section 6.2.2(b) of this Agreement.
"Non-Solicitation Period" has the meaning set forth in Section 6.2.3 of this Agreement.
"Ordinary Course of Business" means the ordinary course of Debtors' Business consistent with past practice (including with respect to quantity and frequency).
"Owned Real Property" has the meaning set forth in Section 4.10.1 of this Agreement.
"Parties" has the meaning set forth in the preamble to this Agreement.
"Permits" means all permits, if any, necessary to transfer the Purchased Assets to Purchaser.
"Permitted Encumbrances" means (a) liens relating to Taxes, assessments, fees, levies, duties or other governmental charges of any kind that are not due and payable, (b) any obligations or duties affecting the Business or any of the Purchased Assets to the extent created by any Governmental Authority under any Permit or Applicable Law, other than Taxes, (c) the Assumed Liabilities, (d) the terms, conditions, restrictions, obligations, exceptions, reservations, limitations and other matters contained in any rights of way or documents under which any Debtor obtained any rights of way or other property rights, in each case that do not, and will not, interfere materially with the ownership, use, operation or value of the Purchased Assets, (e) in the case of Real Property, the provisions of any Applicable Law (including but not limited to zoning, entitlement, building and other land use regulations) regulating the use or occupancy of the Real Property or the activities conducted thereon, none of which interfere with the use of the Real Property as currently utilized, (f) the rights of customers of Debtors with respect to inventory under orders or contracts entered into by Debtors or Receiver in the Ordinary Course of Business, (g) all Encumbrances which secure obligations in respect of or otherwise pertain to any Assumed Liabilities, and (h) other Encumbrances that would not, individually or in the aggregate, reasonably be expected to have a material impact on the value of the Purchased Assets.
"Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations and Governmental Authorities, whether or not legal entities.
37
"Proceeding" means any action, demand, complaint, inquiry, suit, injunction, dispute, arbitration, audit, hearing, investigation, litigation, citation, notice of violation (or similar notice), or suit (whether civil or criminal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority.
"Production Plus Proceeding" means the Proceeding styled Production Seeds Plus, Inc. et al. v. Chromatin, Inc., AAA Cause No. 01-17-0000-2977, together with all subsequent Proceedings related to same.
"Products" means, collectively, all sorghum and sorghum hybrid products and Germplasm, and all enhancements, modifications, improvements, developments and next-generation products of the foregoing, any accessories or ancillary products developed by Debtors in connection therewith, and any other product which has been developed and/or marketed by any Debtor, and "Product" means any one of the Products.
"Property Taxes" means all real estate, ad valorem, personal property and any other similar Taxes imposed by any Governmental Authority with respect to the Business or the Purchased Assets.
"Purchase Price" has the meaning set forth in Section 2.1 of this Agreement.
"Purchased Assets" has the meaning set forth in Section 1.1 of this Agreement.
"Purchaser" has the meaning set forth in the preamble of this Agreement.
"Real Property" has the meaning set forth in Section 1.1.1 of this Agreement.
"Receiver" has the meaning set forth in the preamble of this Agreement.
"Receivership Action" has the meaning set forth in the recitals of this Agreement.
"Receivership Order" has the meaning set forth in the recitals of this Agreement.
"Related Person" (i) with respect to a Person who is an individual, means, (a) any other individual having a relationship with such specified individual (by blood, marriage or adoption) of grandparent, parent, child, grandchild, aunt, uncle, niece, nephew, sister, brother or first cousin (collectively, "Relatives"), (b) any Person that is controlled by such individual or any one or more members of such individual's Relatives; and (c) any Person with respect to which such individual or one or more members of such individual's Relatives serves as a director, officer, partner, or trustee (or in a similar capacity); and (ii) with respect to a specified Person other than an individual, means (a) any Affiliate of such specified Person; and (b) each Person that serves as a director, officer, partner, or trustee (or in a similar capacity) of such specified Person.
38
"Representative" means, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants and financial advisors.
"Sale Motion" has the meaning set forth in Section 6.5.1 of this Agreement.
"Sale Order" has the meaning set forth in Section 7.2.1 of this Agreement.
"Sale Procedures" has the meaning set forth in Section 6.5.2 of this Agreement.
"Sanctioned Country" means any country or region that is the subject or target of a comprehensive embargo under Sanctions Laws (including, without limitation, Cuba, Iran, North Korea, Sudan, Syria, and the Crimea region of Ukraine).
"Sanctions Laws" means all U.S. and non-U.S. laws relating to economic or trade sanctions, including, without limitation, the laws administered or enforced by the United States (including by OFAC or the U.S. Department of State) and the United Nations Security Council.
"Sanctioned Person" means any individual or entity that is the subject or target of sanctions or restrictions under Sanctions Laws or Ex-Im Laws, including: (a) any individual or entity listed on any applicable U.S. or non-U.S. sanctions- or export-related restricted party list, including, without limitation, OFAC's Specially Designated Nationals and Blocked Persons List; (b) any entity that is, in the aggregate, fifty percent (50%) or greater owned, directly or indirectly, or otherwise controlled by a person or persons described in clause (a); or (c) any national of a Sanctioned Country.
"Subsidiary" has the meaning set forth in Section 4.9 of this Agreement.
"Tax" and "Taxes" mean, with respect to any Person, any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax, including any interest, penalty, or addition thereto, whether disputed or not for which such Person may be liable.
"Termination Date" has the meaning set forth in Section 10.1(b) of this Agreement.
"Trade Control Laws" has the meaning set forth in Section 4.17.1 of this Agreement.
"Transfer Taxes" shall mean all sales (including bulk sales), use, transfer, recording, ad valorem, privilege, documentary, gross receipts, registration, conveyance, excise, license, stamp or similar Taxes and fees arising out of, in connection with or attributable to the transactions effectuated pursuant to this Agreement.
39
"Transaction" has the meaning set forth in the recitals of this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the State of Delaware.
"WARN" means the United States Worker Adjustment and Retraining Notification Act, as amended.
SECTION 13 MISCELLANEOUS PROVISIONS.
13.1. Nature and Survival of Representations and Warranties; Other Claims . The Parties agree that the representations and warranties of the Parties contained in this Agreement and in any certificate delivered pursuant hereto by any Party shall not survive the Closing, and no Party shall be entitled to make any claim for breach or violation thereof if the Closing shall occur.
PURCHASER ACKNOWLEDGES THAT RECEIVER WAS APPOINTED BY THE COURT FOR THE LIMITED PURPOSES OF, AMONG OTHER THINGS, (A) TAKING POSSESSION, CUSTODY AND CONTROL OF ALL OF DEBTORS' BUSINESS OPERATIONS, ASSETS, AND PROPERTY, AND (B) MARKETING AND SELLING DEBTORS' BUSINESS OPERATIONS, ASSETS, AND PROPERTY, ALL SUBJECT TO THE CONDITIONS CONTAINED IN THE RECEIVERSHIP ORDER. AS A RESULT OF THIS LIMITED ROLE, RECEIVER WOULD NOT BE ENTERING INTO THIS AGREEMENT AND AGREEING TO PERFORM UNDER THIS AGREEMENT WITHOUT THE UNDERSTANDING THAT ITS LIABILITY ARISING OUT OF OR RELATING TO CLAIMS OF PURCHASER SHALL BE STRICTLY LIMITED AS PROVIDED IN THIS PARAGRAPH AND AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT. ANY MONETARY OBLIGATIONS OF THE RECEIVER UNDER OR IN CONNECTION WITH THE PURCHASE AGREEMENT SHALL CONSTITUTE OBLIGATIONS OF THE DEBTORS' RECEIVERSHIP ESTATES AND OF THE RECEIVER SOLELY IN ITS CAPACITY AS RECEIVER AND SHALL NOT CONSTITUTE OBLIGATIONS OF THE RECEIVER IN ITS PERSONAL CAPACITY.
13.2. Exhibits and Schedules . The Exhibits and Schedules (and any supplements thereto) referred to in this Agreement are a part of this Agreement as if fully set forth herein. All references to this Agreement shall be deemed to include such Exhibits and Schedules, unless the context otherwise requires.
13.3. Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Law or otherwise) without the prior written consent of the other Parties; provided that, Purchaser may assign some or all of its rights hereunder to one or more subsidiaries existing prior to Closing, provided that Purchaser remains liable for its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns.
13.4. Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assignees.
40
13.5. Governing Law and Jurisdiction.
13.5.1. The construction, interpretation and enforcement of this Agreement will be governed by the laws of the State of Delaware without regard to any conflicts of laws principles thereof.
13.5.2. Each of the Parties hereby submits to the exclusive jurisdiction of the Court for the determination of any dispute or claim arising out of or relating to this Agreement or, if the Court lacks jurisdiction, then to any federal court located in Chicago, Illinois.
13.6. Severability . If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
13.7. Notices . All notices, requests, demands and other communications under this Agreement shall be made in writing and will be deemed to have been duly given (i) when hand delivered (with written confirmation of receipt); (ii) when sent by facsimile (with written confirmation of receipt), provided that a copy thereof is sent by another method provided hereunder; or (iii) when received by the addressee, if sent by United States Certified Mail, Return Receipt Requested, postage prepaid, or by nationally recognized express delivery service guaranteeing next Business Day delivery, in each case to the appropriate address(es) and/or facsimile number(s) set forth below (or to such other address and facsimile number as a Party may hereafter designate by notice to the other Parties):
If intended for Receiver:
Novo Advisors
357 West Chicago Avenue
Suite 200
Chicago, IL 60654
Attn: Sandeep Gupta
with a copy (which will not constitute notice) to:
Bryan Cave Leighton Paisner LLP
161 N. Clark Street
Suite 4300
Chicago, IL 60601
Attn: Eric Prezant
If to Purchaser:
S&W Seed Company
106 K Street, Suite 300
Sacramento CA 95814
Attn: Mark Wong, President and CEO
Email: markwong@swseedco.com
41
with a copy (which will not constitute notice) to:
Cooley LLP
101 California Street
5th Floor San Francisco, CA 94111-5800
Attn: Robert L. Eisenbach III
Email: reisenbach@cooley.com
13.8. Public Announcements . Any public announcement, including any press release, communication to employees, customers, suppliers, or others having dealings with Debtors, Receiver, or Purchaser, or similar publicity with respect to this Agreement or the Transaction, will be issued at such time, in such manner, and containing such content as Receiver and Purchaser mutually determine.
13.9. Expenses . Except as otherwise provided in this Agreement, and expressly subject to payment by the Receiver of the Approved Break-Up Fee if it becomes payable, whether or not the Transaction is consummated, each of the Parties shall pay the fees and expenses of its respective counsel, accountants, and other professionals incident to the negotiation and preparation of this Agreement and the consummation of the Transaction.
13.10. Third Parties . Nothing in this Agreement, whether express or implied, shall confer any rights or remedies under or by reason of this Agreement on any person other than the Parties and their respective successors and permitted assignees, nor shall any provision in this Agreement relieve or discharge the obligation or liability of any third person to any Party, nor shall any provision give any third person any right of subrogation or action over or against any Party; provided, however, the Debtors are intended third-party beneficiaries of this Agreement and shall be entitled to enforce the rights of Receiver hereunder after the termination of the Receivership Action.
13.11. Time of the Essence . Time is of the essence in all dates and time periods set forth or referred to in this Agreement.
13.12. Construction . The headings used in this Agreement are for convenience of reference only and are not a part of this Agreement and do not in any way control, define, limit, or add to the terms and conditions hereof. In the construction of this Agreement, the singular shall include the plural and the plural, the singular, unless the context otherwise requires. Further, the use of the masculine, feminine and/or neuter gender shall include each other gender where applicable. As used herein the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation." As used herein, the words "herein", "hereof", "hereunder" and similar terms shall refer to this Agreement unless the context requires otherwise.
42
13.13. Counterparts; Electronic Signatures; Effectiveness of this Agreement.
13.13.1. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
13.13.2. A manual signature on this Agreement or other documents to be delivered pursuant to this Agreement, an image of which shall have been transmitted electronically, will constitute an original signature for all purposes. The delivery of copies of this Agreement or other documents to be delivered pursuant to this Agreement, including executed signature pages where required, by electronic transmission will constitute effective delivery of this Agreement or such other document for all purposes.
13.13.3. This Agreement shall not be effective, and no Party shall have any rights or obligations hereunder, unless and until Purchaser and Receiver as identified above have executed and delivered this Agreement.
13.4. Entire Agreement; Amendment; Waiver.
13.14.1. This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations and understandings of the Parties, whether written or oral. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all the Parties, except with regard to the Exhibits and Schedules to this Agreement which may be supplemented, modified or amended with the same formality as the initial corresponding Exhibit or Schedule attached hereto.
13.14.2. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the Party making the waiver.
[Signature Page Follows]
43
IN WITNESS WHEREOF, the Parties have duly executed this Agreement, as of the day and year first above written.
PURCHASER:
S&W SEED COMPANY
By: /s/ Mark W. Wong
Name: Mark W. Wong
Title: President and Chief Executive Officer
RECEIVER:
NOVO ADVISORS
By: /s/ Sandeep Gupta
Name: Sandeep Gupta
Its: Principal
Exhibit 10.10
[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT,
MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
FOURTH AMENDMENT TO
CONTRACT ALFALFA PRODUCTION SERVICES AGREEMENT
This Fourth Amendment to Contract Alfalfa Production Services Agreement (this "Amendment") is made this 2nd day of August, 2018, by and between Pioneer Hi-Bred International, Inc., an Iowa corporation ("Pioneer"), and S&W Seed Company, a Nevada corporation ("Contractor") Pioneer and Contractor are collectively referred to herein as the "Parties" and each individually as a "Party".
WHEREAS, the Parties entered into that certain Contract Alfalfa Production Services Agreement dated December 31, 2014 (as thereafter amended from time to time, the "Agreement").
WHEREAS, the Parties now wish to amend the Agreement as provided in this Amendment.
WHEREAS, the parties did not contemplate their failure to complete the prior intended transfer of Pioneer's transgenic germplasm to S&W when completing the Third Amendment to the Distribution Agreement dated June 23, 2017.
NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the Parties hereby agree as follows:
1. As used in this Amendment, capitalized terms not defined herein shall have the meanings ascribed to them in the Agreement.
2. Section 2(B) of the Agreement shall be amended by inserting a new sub-paragraph (iv):
(iv) For calendar year 2018, the Contracted Amount (the "2018 Contracted Amount") shall equal the number of Units of Alfalfa Varieties Meeting the Specifications and produced from the acres specified in Exhibit F.
3. Section 15(A) of the Agreement shall be amended by deleting the text therein in its entirety and inserting the following in lieu thereof:
This Agreement shall be effective as of the date first written above and, unless terminated as set forth below in Section 15 (B) or Section 15(C), shall continue until May 31, 2019. Notwithstanding anything herein to the contrary, the parties acknowledge and agree that from the first date written above through the expiration or earlier termination of this Agreement: (i) Contractor shall conduct activities to complete the Production Services (inclusive of Field Services) with respect to the 2018 Contracted Amounts; (ii) Contractor shall not further engage in any future production with respect to any Alfalfa Varieties; (iii) Contractor shall not enter into any new, or amend, modify or terminate any existing Grower Contract or New Grower Contract without the prior written consent of Pioneer; (iv) Compensation of $[***] per [***] (of [***]) shall be due and payable by Pioneer with respect to the performance by Contractor of the services under the Agreement during the period commencing the date first written above and ending on the expiration or earlier termination of this Agreement; and (v) Contractor shall, in all events, remain
[***] = CONFIDENTIAL TREATMENT REQUESTED
liable for, and shall satisfy, pay and discharge, all amounts due and payable to any grower under any Grower Contract. (vi) Contractor will add an additional $[***] per [***] (of [***]) to cover the [***] that [***] agreed to pay, on [***], in the ***]. Total cost per unit to [***] will be $[***]. The additional $[***] per unit is a [***] to the [***]. Furthermore, S&W and Pioneer agree that [***] is currently [***] in the amount of $[***] for the [***] of [***] delivered to [***] from crop year 2017; the total [***] amount will consist of the amount derived from the [***], plus $[***]. [***] will begin [***] to the [***] on [***], for [***] reported [***] sales of [***] and [***] commencing with [***] sales for calendar 2018. [***] will continue to [***] until the [***], after which time [***] will have no further obligation to [***] to the [***] on [***] for [***] products.
4. Exhibit F, shall be replaced with a new Exhibit F attached to this Amendment.
5. This Amendment shall be effective as of the date first written above.
6. In case of any inconsistencies between the terms and conditions contained in this Amendment and the terms and conditions contained in the Agreement, the terms and conditions of this Amendment shall control.
7. Except as set forth in this Amendment, (a) all provisions of the Agreement shall remain unmodified and in full force and effect and (b) nothing contained in this Amendment shall amend, modify or otherwise affect the Agreement or any Party's rights or obligations contained therein.
8. This Amendment shall be governed by the substantive laws of the State of Iowa, without regard to its conflicts of laws principles. Any controversy or claim arising out of or relating to this Amendment shall be handled in accordance with Section 16 of the Agreement.
9. This Amendment (along with the Agreement and the other Transaction Documents (as such term is defined in the APSA)) supersedes all prior agreements between the Parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the Patties with respect to its subject matter.
10. All of the terms and provisions of this Amendment shall inure to the benefit of and be binding upon the Patties and their respective successors and permitted assigns.
11. This Amendment may be executed in any number of counterparts (including via facsimile or portable document format (PDF)), each of which shall be deemed an original, but all of which, when taken together, shall constitute one and the same instrument.
Signature Page Follows
[***] = CONFIDENTIAL TREATMENT REQUESTED
2
IN WITNESS WHEREOF, the Parties have executed and delivered this Amendment as of the date first above written.
PIONEER HI-BRED INTERNATIONAL, INC. By: /s/ Curt Clausen Name: Curt Clausen Title: Director, Global Forages |
S&W SEED COMPANY By: /s/ Robin Newell Name: Robin Newell Title: V.P., N. America Sales |
3
Exhibit F
2018 Contracted Amounts
Variety Name |
Original |
Operator Name |
Field |
Est Acres |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] = CONFIDENTIAL TREATMENT REQUESTED
4
Exhibit 10.47
SIXTH AMENDMENT AGREEMENT
This SIXTH AMENDMENT AGREEMENT (this "Amendment") is made as of the 28th day of June, 2018 between:
(a) S&W SEED COMPANY, a Nevada corporation ("Borrower"); and
(b) KEYBANK NATIONAL ASSOCIATION, a national banking association ("Lender").
WHEREAS, Borrower and Lender are parties to that certain Credit and Security Agreement, dated as of September 22, 2015 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement");
WHEREAS, Borrower and Lender desire to amend the Credit Agreement to modify certain provisions thereof and add certain provisions thereto;
WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement; and
WHEREAS, unless otherwise specifically provided herein, the provisions of the Credit Agreement revised herein are amended effective as of the date of this Amendment;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower and Lender agree as follows:
"Fixed Charge Coverage Ratio" means, as of any date of determination, on a Consolidated basis, the ratio of (a) the total (determined for the most recently completed four fiscal quarters of Borrower) of (i) Consolidated EBITDA, minus (ii) Consolidated Unfunded Capital Expenditures, minus (iii) Consolidated Income Tax Expense paid in cash, minus (iv) Capital Distributions; to (b) Consolidated Fixed Charges as of such date of determination; provided that, for purposes of calculating the Fixed Charge Coverage Ratio for the period ending June 30, 2018, such calculation shall exclude the financials of S&W Australia and its Subsidiaries.
2.
[Remainder of page intentionally left blank.]
3.
JURY TRIAL WAIVER. BORROWER AND LENDER, TO THE EXTENT PERMITTED BY LAW, EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN BORROWER AND LENDER, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.
S&W SEED COMPANY
By: /s/ Matthew K. Szot
Matthew K .Szot
Executive Vice President of Finance and Administration and Chief Financial Officer
KEYBANK NATIONAL ASSOCIATION
By: /s/ Mark R. Bitter
Mark R. Bitter
Vice President
Signature Page to
Sixth Amendment Agreement
GUARANTOR ACKNOWLEDGMENT AND AGREEMENT
The undersigned consent and agree to and acknowledge the terms of the foregoing Sixth Amendment Agreement dated as of June 28, 2018. The undersigned further agree that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned are hereby ratified and shall remain in full force and effect and be unaffected hereby.
The undersigned hereby waive and release Lender and its directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of any kind or nature, absolute and contingent, of which the undersigned is aware or should be aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.
JURY TRIAL WAIVER. THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, LENDER AND THE UNDERSIGNED, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTOR ACKNOWLEDGMENT AND AGREEMENT, THE AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
SEED HOLDING, LLC
By: /s/ Matthew K. Szot
Matthew K .Szot
Manager
STEVIA CALIFORNIA, LLC
By: /s/ Matthew K. Szot
Matthew K .Szot
Manager
Signature Page to
Sixth Amendment Agreement
Exhibit 10.73
Dated as of: August 09, 2018
Lessee: S&W SEED COMPANY ("LESSEE")
106 K. Street, Suite 300
Sacramento, CA 95814
This Schedule A, when executed by both Lessee and Lessor shall be made a part of that Lease Agreement dated as of July 09, 2018 ("Lease"), between Lessee and Lessor.
In addition to authorities granted to Lessor under the Lease, Lessee further authorizes Lessor, as Lessee's attorney-in-fact, to correct any manifest errors in any of the information set forth on Page I of this Schedule A or any attachment thereto, including without limitation any amounts, percentages, options, terms, dates, and locations (collectively the "Information") as well as to make any other modifications to the Information resulting from changed circumstances occurring after the date hereof, provided, however, that Lessor shall give Lessee prompt written notice of any such modifications. Unless Lessee objects in writing within 5 business days after receipt of such notice, such modifications shall be deemed to be accepted and agreed by, and binding upon, Lessee.
EQUIPMENT AND LOCATIONS
# |
New/Used |
Equipment Description |
Serial Number |
Equipment Location |
Equipment Cost |
Tax |
|
1 |
Used |
6141 |
2008 CUSTOM 4'x4'x4' Steel Seed Bins |
NA |
9178 Lakeshore Drive |
$1,221,050.00 |
|
2 |
Used |
4150 |
1998 CUSTOM 4'x4'x4' Steel Seed Bins |
NA |
25552 South Butte Ave. |
$822,850.00 |
$0.00 |
3 |
Used |
2500 |
2016 CUSTOM Cardboard Seed Bins |
NA |
9178 Lakeshore Drive |
$56,100.00 |
|
Totals |
$2,100,000.00 |
$0.00 |
|||||
Total Equipment Cost |
$2,100,000.00 |
LEASE PRICING
Security Deposit |
Scheduled Lease Term |
Minimum Lease Term |
Lease Rate Factor |
Rental Amount * |
Rentals |
Rental Frequency |
Total Number of Rentals |
|
$0.00 |
60 Months |
N/A |
0.019058 |
$40,022.66 |
In Advance |
Monthly |
60 |
|
Daily Billing Option? Yes |
Floating Rate: No |
End of Term Type: $1 |
End of Lease Purchase Amount: $1.00 |
FMV Cap %: N/A |
Lessee agrees that (i) Lessor may provide Lessee's information on a confidential basis to its third-party service provider, which is an institution of the Farm Credit System, (ii) such third-party service provider may provide the information on a confidential basis to other Farm Credit System institutions, or entities controlled or owned by Farm Credit System Institutions, and (iii) the information may be used by such recipients for credit analysis and administration purposes as well as for direct marketing purposes or for any lawful purpose.
This Schedule A may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Schedule A by facsimile or email shall be as effective as delivery of a manually executed counterpart of this Schedule A.
Schedule A (07/30/2015) |
Contract Number 001-0096204-000 |
Page 1 of 4 |
ADDITIONAL TERMS AND CONDITIONS End-of Term Options:
1. PUT or Dollar-Out
Paragraph 22 of the Lease is deleted in its entirety for purposes of this Schedule A.
Paragraph 23 of the Lease, as applicable to this Schedule A, is hereby amended to read in its entirety as follows:
23. Purchase of Equipment. At the expiration of the Scheduled Lease Term, Lessee shall purchase all but not less than all of the Equipment from Lessor in an amount equal to the End of Term Purchase Amount specified in Schedule A (including any attached Equipment List), plus all applicable taxes. Upon receipt of the End of Term Purchase Amount, Lessor shall transfer to Lessee all of Lessor's right, title, and interest in the Equipment AS-IS, WHERE IS, without any warranties, expressed or implied, whatsoever.
Maintenance/Use, Return, Holdover Rent:
2. Plant, Manufacturing and Processing Equipment
(1) Maintenance and Use
The Equipment will at all times be operated and maintained by competent and qualified personnel only and in accordance with (i) applicable operating instructions, (ii) federal, state, and local laws and regulations (including but not limited to all safety standards and regulations of the Occupational Health and Safety Administration (OSHA), Food and Drug Administration (FDA) and United States Department of Agriculture (USDA). Lessee shall make the Equipment available for inspection by Lessor's representatives during Lessee's normal business hours. In addition to any specific requirements set forth herein, Lessee, at its own expense, shall at all times (i) keep the Equipment washed, cleaned (including steam cleaned if appropriate) and free of rust and corrosion, (ii) maintain the Equipment in good general repair and working order (ordinary wear and tear excepted), and (iii)in maintain the Equipment in warrantable condition, in full compliance with all applicable manufacturers' recommendations, and meeting all manufacturer specifications and rated capacities (the foregoing collectively constitution "Good Condition"). Lessee shall not misuse or abuse the Equipment. For purposes hereof, (i) all components, accessories and features furnished with the Equipment or Lessee installed shall constitute part of the Equipment, (ii) references to "ordinary wear and tear" shall under no circumstances include wear of any component in excess of 50% of its useful life, cracks, holes, gouges, bends, or impact damage, whether internal or external, and (iii) rust and corrosion shall be deemed present if any machined surface contains rust or corrosion, more than 10 percent of the non-machined surfaces contains more than light surface rust or corrosion.
(2) Return of Equipment
In connection with any return of the Equipment (whether as a result of Lessor's exercise of its default rights and remedies or in connection with the option, if any, of Lessee to return the Equipment at the expiration or other termination of the Lease), the following shall apply:
(a) General
Without limiting the more specific requirements set forth below, returned Equipment shall be in Good Condition as defined above.
(b) Mechanical, Exterior and Structural Condition
(i) The Equipment shall be mechanically, and structurally sound, and in conformance with the manufacturers' up-to-date level of computer operational controls, capable of performing the functions for which the Equipment was originally designed in accordance with the manufacturers published and recommended specifications at the speed and capacity;
(ii) Software shall be installed, current and up-to-date including any subsequent changes made to the micro code of the software shall be returned with the Equipment;
(iii) The Equipment shall be cleaned and/or steam-cleaned and sterilized as the Equipment shall be free of rust and corrosion, washed, cleaned and/or steam cleaned, where applicable, upon delivery to Lessor;
(iv) Each Item of Equipment will be in compliance with all applicable safety standards and regulations;
(v) Wear items such as bearings, pins, and bushings shall be within manufacturer's recommended tolerances;
(vi) The Equipment shall be free of damage requiring straightening and refinishing or replacement;
(vii) Lessee shall provide or cause vendor(s) or manufacturer(s) to provide Lessor the following documents: (i) service manuals, blue prints, process flow diagrams and operating manuals including replacements and/or additions thereto, such that all documentation is completely up-to-date; and (ii) documents, detailing equipment configuration, operating requirements, maintenance records, and other technical data concerning the set-up and operation of the Equipment, including replacements and/or additions thereto, such that all documentation is completely up-to-date; and
Schedule A (07/30/2015) |
Contract Number 001-0096204-000 |
Page 2 of 4 |
(viii) The Equipment shall have good clean overall appearance, and all decals or other Lessee installed identification and advertising markings which are not necessary for the operation, maintenance or repair of the Equipment shall be removed (not painted over) in a workmanlike manner without damage to the Equipment's finish.
(c) Inventory, Demonstration, and Storage
(i) Lessee shall provide a detailed inventory of the Equipment and all components thereof being returned, including a listing of model and serial number of all components and attachments comprising the Equipment;
(ii) Lessee will provide personnel, power, lighting, heat, water and other requirements necessary to demonstrate the Equipment under power to FCL agents and/or prospective buyers; and
(iii) Lessee agrees to permit Lessor to auction the Equipment on-site with Lessee's full cooperation and assistance; and
(iv) Lessee shall provide free, secure storage of the Equipment up to ninety (90) days following the expiration or other termination of the Lease.
(d) Inspection
(i) Lessee shall permit Lessor to make videotape or other recordings of the Equipment operating under power at a time during normal working hours mutually agreeable to the Lessor and Lessee prior to disassembly for shipment; and
(ii) Lessee agrees to pay Lessor a $300 inspection fee for returned Equipment. Lessee agrees to pay Lessor additional $300 inspection fees for each subsequent re-inspection if the Equipment failed to meet the requirements as set forth herein.
(e) Payment of Lessor's Costs
In addition to any specific charges stated above, if with respect to any Item of Equipment, Lessor, in its sole but reasonable discretion, determines that the existence of any of the conditions described above and determines that the aggregate cost to remedy such conditions equals or exceeds $250, Lessee shall be deemed to have failed to satisfy its obligations to return such Equipment in Good Condition and Lessee shall be required to pay Lessor an amount equal to 120% of any costs incurred by Lessor in excess of Two Hundred Fifty Dollars ($250.00) to repair, recondition, and/or restore returned Equipment to the foregoing requirements shall be paid to Lessor by Lessee immediately upon written demand by Lessor. Lessee's failure to remit to Lessor any payment required by this Addendum within 30 days of the invoice date shall constitute a default under the lease and shall entitle Lessor to pursue any and all rights and remedies available thereunder.
(f) Transportation
(i) The Equipment shall be disassembled and packed by qualified personnel acceptable to Lessor. All process fluids shall be removed from the Equipment and disposed in accordance with all applicable laws and regulations. At no time are materials which could be considered hazardous waste by any regulatory agency or authority to be shipped with the Equipment. The Equipment shall be packed in accordance with all manufacturer's recommendations including protective coatings to prevent rust and corrosion;
(ii) The Equipment will be transported in accordance with the manufacturer's recommendation and all applicable government laws, rules and restrictions. If shipment is delayed as a result of road or highway load limit restrictions applied by state or local governments Lessee shall provide free, secure storage until such restrictions are lifted and the Equipment can be transported.
(3) Holdover rent
In the event that, at the expiration of the initial Lease Term or, if applicable, any Renewal Term, Lessee has not purchased the Equipment or, if Lessee has the option to return the Equipment, has not so returned the Equipment, Lessor shall be entitled to monthly hold-over rentals each in an amount equal to 120% of the Rental Payment for the last Rental Period prior to such expiration (pro-rated to a monthly amount in the case of a quarterly, semi-annual, annual, or other Rental Period). The preceding sentence shall not in any way limit Lessor's right to exercise any default rights and remedies as applicable.
Other Terms and Conditions:
3. Daily Billing Option
In the event that Lessee has a previous Schedule A under the Daily Billing Option, Lessee hereby requests Lessor to adjust the regular payment date for this Schedule A to match the regular payment date of the previous Schedule A as a convenience to Lessee. In such case, a full rental payment shall be due on the Scheduled Lease Commencement Date, followed by another full rental payment on such adjusted regular payment date (even though such adjusted regular payment date may be less than a full rental period after the Scheduled Lease Commencement Date). The resulting excess rental amount paid will be credited against the final rental payment. As compensation for Lessor's willingness to provide this accommodation to the Lessee, no interest will be paid on such excess rental amount.
Schedule A (07/30/2015) |
Contract Number 001-0096204-000 |
Page 3 of 4 |
Lessor: FARM CREDIT LEASING SERVICES CORPORATION
/s/ Suzie Carlson |
Suzie Carlson |
Supervisor, Leasing Delivery Services |
Signature |
Name |
Title |
Lessee(s): S&W SEED COMPANY
/s/ Matthew K. Szot |
Matthew K. Szot |
Executive Vice Pres. & CFO |
Signature |
Name |
Title |
Lessee Address |
City, State, Zip |
Contact |
Phone |
106 K. Street, Suite 300 |
Sacramento CA 95814 |
Matthew Szot |
858-337-0766 |
Schedule A (07/30/2015) |
Contract Number 001-0096204-000 |
Page 4 of 4 |
Exhibit 21.1
SUBSIDIARIES OF
S&W SEED COMPANY,
Nevada corporation
Seed Holding, LLC, a Nevada limited liability company
Stevia California, LLC, a California limited liability company
S&W Holdings Australia Pty Ltd (ACN 162 715 326), an Australia corporation (f/k/a S&W Seed Australia Pty Ltd)
Seed Genetics International Pty Ltd (ACN 061 114 814), an Australia corporation (wholly-owned by S&W Holdings Australia Pty Ltd) (f/k/a Seed Genetics International Pty Ltd)
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements on Form S-3 (File Nos. 333-222916, 333-219726, 333-214883, 333-208679, and 333-201797) and Form S-8 (File Nos. 333-169742 and 333-196067) of S&W Seed Company of our report dated September 20, 2018 relating to the consolidated financial statements, appearing in this Annual Report on Form 10-K.
/s/ Crowe Horwath LLP
Crowe Horwath LLP
San Francisco, California
September 20, 2018
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Mark W. Wong, certify that:
1. I have reviewed this report on Form 10-K of S&W Seed Company (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: September 20, 2018 |
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/s/ Mark W. Wong |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Matthew K. Szot, certify that:
1. I have reviewed this report on Form 10-K of S&W Seed Company (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: September 20, 2018 |
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/s/ Matthew K. Szot |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Annual Report on Form 10-K of S&W Seed Company (the "Company") for the fiscal year ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Mark W. Wong, President and Chief Executive Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 20, 2018 |
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/s/ Mark W. Wong |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Annual Report on Form 10-K of S&W Seed Company (the "Company") for the fiscal year ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Matthew K. Szot, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 20, 2018 |
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/s/ Matthew K. Szot |
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