10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number O-4136

Lifecore Biomedical, Inc.

(Exact name of Registrant as specified in its charter)

Minnesota	41-0948334
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

3515 Lyman Boulevard
Chaska, Minnesota	55318
(Address of principal executive	(Zip Code)
offices)

Registrant’s telephone number, including area code: 952-368-4300

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]   No  [  ]

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  [X]   No  [  ]

The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of October 30, 2003 was 12,890,917 shares.

1

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II – OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
		Exhibit Index
		Reports on Form 8-K
SIGNATURES
EX-10.1 Employment Agreement - James W. Bracke
EX-31.1 Certification of CEO - Section 302
EX-31.2 Certification of CFO - Section 302
EX-32.1 Certification of CEO - Section 906
EX-32.2 Certification of CFO - Section 906

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page
Part I.	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2003 and June 30, 2003		3
	Condensed Consolidated Statements of Operations for Three Months Ended September 30, 2003 and 2002		4
	Condensed Consolidated Statements of Cash Flows for Three Months Ended September 30, 2003 and 2002		5
	Notes to Condensed Consolidated Financial Statements		6-10
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition		11-14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15
Item 4.	Controls and Procedures		15
Part II.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
	a.     Exhibit Index		16
	b.     Reports on Form 8-K		16
Signatures			17

2

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

			September 30,			June 30,
			2003			2003
ASSETS
Current Assets
	Cash and cash equivalents		$	5,081,000		$	4,211,000
	Accounts receivable, less allowances			7,004,000			7,795,000
	Inventories			9,773,000			9,728,000
	Prepaid expenses			644,000			766,000
		Total current assets		22,502,000			22,500,000
Property, plant and equipment
	Land, building and equipment			44,834,000			44,732,000
	Less accumulated depreciation			(20,431,000	)		(19,820,000	)
				24,403,000			24,912,000
Other Assets
	Intangibles			4,601,000			4,643,000
	Security deposits			845,000			843,000
	Inventories			4,639,000			4,639,000
	Other			703,000			815,000
				10,788,000			10,940,000
			$	57,693,000		$	58,352,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Current maturities of long-term obligations		$	145,000		$	156,000
	Accounts payable			2,147,000			1,880,000
	Accrued compensation			1,305,000			1,113,000
	Accrued expenses			867,000			840,000
		Total current liabilities		4,464,000			3,989,000
Long-term obligations				5,938,000			5,969,000
Shareholders’ equity				47,291,000			48,394,000
			$	57,693,000		$	58,352,000

See accompanying notes to condensed consolidated financial statements.

3

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three months ended September 30,
		2003			2002
Net sales		$	9,947,000		$	8,972,000
Cost of goods sold			4,769,000			4,909,000
Gross profit			5,178,000			4,063,000
Operating expenses
	Research and development		1,259,000			957,000
	Marketing and sales		3,173,000			2,848,000
	General and administrative		1,561,000			1,159,000
			5,993,000			4,964,000
Operating loss			(815,000	)		(901,000	)
Other income (expense)
	Interest income		6,000			29,000
	Interest expense		(155,000	)		(166,000	)
	Other		121,000			(8,000	)
			(28,000	)		(145,000	)
Net loss		$	(843,000	)	$	(1,046,000	)
Net loss per share
	Basic and diluted	$	(0.07	)	$	(0.08	)
Weighted average shares outstanding
	Basic and diluted		12,889,113			12,874,628

See accompanying notes to condensed consolidated financial statements.

4

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Three months ended September 30,
			2003			2002
Cash flows from operating activities:
Net loss			$	(843,000	)	$	(1,046,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and amortization			654,000			738,000
	Allowance for doubtful accounts			29,000			(40,000	)
	Accumulated currency translation adjustment			(279,000	)		—
	Changes in operating assets and liabilities:
		Accounts receivable		762,000			371,000
		Inventories		(45,000	)		(145,000	)
		Prepaid expenses		122,000			(396,000	)
		Accounts payable		267,000			(1,150,000	)
		Accrued liabilities		219,000			(17,000	)
Net cash provided by (used in) operating activities				886,000			(1,685,000	)
Cash flows from investing activities:
	Purchases of property, plant and equipment			(101,000	)		(182,000	)
	Increase in security deposits			(2,000	)		(5,000	)
	Decrease in other assets			110,000			84,000
Net cash provided by (used in) investing activities				7,000			(103,000	)
Cash flows from financing activities:
	Payments on long-term obligations			(42,000	)		(22,000	)
	Proceeds from stock issuance			19,000			55,000
Net cash provided by (used in) financing activities				(23,000	)		33,000
Net increase (decrease) in cash and cash equivalents				870,000			(1,755,000	)
Cash and cash equivalents at beginning of period				4,211,000			2,528,000
Cash and cash equivalents at end of period			$	5,081,000		$	773,000
Supplemental disclosure of cash flow information:
	Cash paid during the period for:
		Interest	$	208,000		$	123,000

See accompanying notes to condensed consolidated financial statements.

5

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

NOTE A - FINANCIAL INFORMATION

Lifecore Biomedical, Inc. (the “Company”) develops, manufactures and markets biomaterials and medical devices for use in various surgical markets through two divisions, the Hyaluronan Division and the Oral Restorative Division. The Company’s manufacturing facility is located in Chaska, Minnesota. The Hyaluronan Division conducts its business through OEM and contract manufacturing alliances in the gynecologic, ophthalmic, orthopedic and veterinary surgery fields. The Oral Restorative Division conducts its dental surgery business through direct sales and marketing in the United States, Germany, Italy and Sweden and through 22 distributors in 35 countries.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2003, and the results of operations for the three month periods ended September 30, 2003 and 2002 and cash flows for the three month periods ended September 30, 2003 and 2002. The results of operations for the three months ended September 30, 2003 are not necessarily indicative of the results for the full year or of the results for any future periods. The unaudited condensed consolidated balance sheet as of June 30, 2003 has been derived from audited financial statements as of that date.

In preparation of the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. Actual results could differ from the estimates used by management.

NOTE B - INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market. The portion of finished hyaluronan powder inventory not expected to be consumed within the next twelve months is classified as a long-term asset. Finished good inventories include hyaluronan, packaged aseptic, and oral restorative products. Inventories consist of the following:

	September 30,		June 30,
	2003		2003
Raw materials	$	3,077,000	$	2,756,000
Work in progress		393,000		344,000
Finished goods		10,942,000		11,267,000
	$	14,412,000	$	14,367,000

6

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

September 30, 2003

NOTE C – INTANGIBLE ASSETS

Effective July 1, 2001, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets.” Under the provisions of SFAS No. 142 the Company ceased amortization of goodwill and technology and regulatory rights effective July 1, 2001, while the customer list continues to be amortized on the straight-line method over 5 years. On an ongoing basis the Company reviews the valuation of intangibles to determine possible impairment by comparing the carrying value to projected undiscounted future cash flows of the related assets. As a result of such review, there was no impairment recorded for the three month period ended September 30, 2003.

     Intangibles consisted of the following at:

	September 30,			June 30,
	2003			2003
Goodwill	$	4,301,000		$	4,301,000
Customer list		725,000			725,000
Patents		387,000			387,000
Accumulated amortization		(812,000	)		(770,000	)
	$	4,601,000		$	4,643,000

NOTE D - AGREEMENTS

Lifecore and ETHICON have entered into a Conveyance, License, Development and Supply Agreement (the “ETHICON Agreement”) whereby ETHICON transferred to Lifecore its ownership in certain technology related to research and development previously conducted on the Company’s sodium hyaluronan material. The technology transferred to Lifecore includes written technical documents related to ETHICON’s research and development of a product to inhibit the formation of postsurgical adhesions. These documents include product specifications, methods and techniques, technology, know-how and certain patents. Lifecore assumed responsibility for continuing the anti-adhesion development project including conducting a human gynecology clinical trial on GYNECARE INTERGEL * Adhesion Prevention Solution (“INTERGEL Solution”), a second-generation ferric hyaluronan-based product. Lifecore has granted ETHICON exclusive worldwide marketing rights through 2008 to the products developed by Lifecore within defined fields of use. On March 27, 2003, the Company announced that ETHICON voluntarily suspended global marketing and sales of INTERGEL Solution and has voluntarily withdrawn the product from the market in order to assess information obtained from postmarketing experience with the device. The assessment will include a review of technical issues, surgical techniques and circumstances associated with the postmarketing events, including reports from off-label use. Since the launch of the product in August of 1998 to February 2003, the worldwide complaint rate has been 0.29 percent of units sold. The contribution of the device to these events is unknown. The Company currently expects that the product will return to the market following completion of the review and implementation of any appropriate action. Management does not believe there has been an impairment of assets as of September 30, 2003.

*Trademark of ETHICON, INC.

7

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

September 30, 2003

NOTE E - LINE OF CREDIT

The Company has a $5,000,000 credit facility with a bank which has a maturity date of December 31, 2005. The agreement allows for advances against eligible accounts receivable, subject to a borrowing base certificate. Interest is accrued at the prime rate which was 4.00% at September 30, 2003. At September 30, 2003 and June 30, 2003, there were no balances outstanding under the line of credit. The terms of the agreement require the Company to comply with various financial covenants including minimum tangible net worth, liabilities to tangible net worth ratio and profitability. At September 30, 2003 and June 30, 2003, the Company was in compliance with all covenants.

NOTE F - STOCK PLAN INFORMATION

The Company has various stock option plans that provide for the granting of stock options to officers, key employees and directors. The Company accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25, “Accounting for Stock Issued to Employees,” whereby the options are granted at market price, and therefore no compensation costs are recognized. The Company has elected to retain its current method of accounting as described above and has adopted the disclosure requirements of SFAS Nos. 123 and 148. If compensation expense for the Company’s various stock option plans had been determined based upon the projected fair values at the grant dates for awards under those plans in accordance with SFAS No. 123, the Company’s pro-forma net loss, and basic and diluted loss per common share would have been as follows:

		Three months ended September 30,
		2003			2002
Net loss, as reported		$	(843,000	)	$	(1,046,000	)
Deduct: Total stock-based employee compensation expense determined under fair value method for awards, net of related tax effects			(90,000	)		(33,000	)
Pro forma net loss		$	(933,000	)	$	(1,079,000	)
Net loss per common equivalent share:
	Basic and diluted - as reported	$	(0.07	)	$	(0.08	)
	Basic and diluted - pro-forma	$	(0.07	)	$	(0.08	)

8

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

September 30, 2003

NOTE G – NET LOSS PER SHARE

The Company’s basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted average number of outstanding common shares. The Company’s diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. For the three month periods ended September 30, 2003 and 2002 the Company reported a net loss and as such, no common share equivalents were included in the computation of diluted net loss per share. However, if the Company would have reported net income in the three month periods ended September 30, 2003 and 2002, 32,614 and 158,830 common share equivalents, respectfully, would have been included in the computation of diluted net income per share.

Options to purchase 2,606,332 shares of common stock with a weighted average exercise price of $12.34 for the three-month period ended September 30, 2003 and options to purchase 1,887,168 shares of common stock with a weighted average exercise price of $14.30 for the three-month period ended September 30, 2002, respectively, were outstanding but were not included in the calculation of diluted net loss per share because the options’ exercise prices were greater than the average market price of the Company’s common stock during those periods. Although these options were antidilutive for the periods presented, they may be dilutive in future period calculations.

NOTE H – SEGMENT INFORMATION

The Company operates two business segments. The Hyaluronan Division develops, manufactures, and markets products containing hyaluronan. The Oral Restorative Division develops, manufactures and/or markets various oral restorative products to the area of implant dentistry. Currently, products containing hyaluronan are sold primarily to customers pursuant to ongoing supply agreements. The Company’s Oral Restorative Division markets products directly to clinicians and dental laboratories in the United States, Germany, Italy and Sweden and primarily through distributorship arrangements in other foreign locations. The operations of the Company’s subsidiaries, Lifecore Biomedical GmbH, Lifecore Biomedical SpA, and Lifecore Biomedical AB have not been material to the consolidated financial statements.

Segment assets and the basis of segmentation are consistent with that reported at June 30, 2003. Segment information for sales and loss from operations are as follows:

		Three months ended September 30,
		2003			2002
Net sales
	Hyaluronan products	$	3,558,000		$	3,698,000
	Oral restorative products		6,389,000			5,274,000
		$	9,947,000		$	8,972,000
Loss from operations
	Hyaluronan products	$	(574,000	)	$	(435,000	)
	Oral restorative products		(241,000	)		(466,000	)
		$	(815,000	)	$	(901,000	)

9

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

September 30, 2003

NOTE I – NEW ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 148, “Accounting for Stock-Based Compensation— Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of Accounting Principles Board (“APB”) Opinion No. 28, Interim Financial Reporting, to require pro-forma disclosure in interim financial statements by companies that elect to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25. The Company continues to use the intrinsic value method of accounting for stock-based compensation. As a result, the transition provisions will not have an effect on the Company’s consolidated financial statements.

In January 2003, FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities”. FIN 46 is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, and addresses consolidation by business enterprises of variable interest entities. FIN 46 applies immediately to variable interest entities created or obtained after January 31, 2003 and it applies in the first fiscal year or interim period beginning after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. This pronouncement is not expected to have a material impact on the Company’s consolidated financial position or results of operation.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 changes the classifications in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of SFAS No. 150 is not anticipated to have an impact on the Company’s consolidated financial position or results of operations.

10

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

Critical Accounting Policies:

The discussion and analysis of our financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions in certain circumstances that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the Company’s financial statements. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition:

The Company’s revenues are recognized when products are shipped to or otherwise accepted by unaffiliated customers. The Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition” provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.

Allowance for Uncollectible Accounts Receivable:

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company extends credit to customers in the normal course of business, but generally does not require collateral or any other security to support amounts due. Management performs on-going credit evaluations of its customers and bases the estimated allowance on these evaluations.

Inventories:

Inventories are stated at the lower of cost (first-in, first-out method) or market and have been reduced to lower of cost or market for obsolete, excess or unmarketable inventory. The lower of cost or market adjustment is based on management’s review of inventories on hand compared to estimated future usage and sales.

Goodwill, Intangible and Other Long-Lived Assets:

Intangible and certain other long-lived assets with a definite life are amortized over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue.

In July 2001, the Financial Accounting Standards Board issued SFAS No. 142 which deals with, among other things, amortization of goodwill. The Company adopted this new standard effective July 1, 2001 and ceased amortization of goodwill at that date and reviews goodwill for impairment on a regular basis, at least annually.

Management has reviewed goodwill and other intangibles for impairment and has concluded that such assets are appropriately valued at the financial statement date.

11

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (cont.)

Recently Issued Accounting Pronouncements:

The notes to the consolidated financial statements included in this Form 10-Q include a discussion regarding recently issued accounting pronouncements. The effects on the Company’s financial statements from these pronouncements are not expected to be material.

Results of Operations

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002:

		Hyaluronan						Oral Restorative
		Division						Division						Consolidated
		2003			2002			2003			2002			2003			2002
Net sales		$	3,558,000		$	3,698,000		$	6,389,000		$	5,274,000		$	9,947,000		$	8,972,000
Cost of goods sold			2,369,000			2,799,000			2,400,000			2,110,000			4,769,000			4,909,000
Gross profit			1,189,000			899,000			3,989,000			3,164,000			5,178,000			4,063,000
Operating expenses
	Research and development		1,019,000			709,000			240,000			248,000			1,259,000			957,000
	Marketing and sales		127,000			174,000			3,046,000			2,674,000			3,173,000			2,848,000
	General and administrative		617,000			451,000			944,000			708,000			1,561,000			1,159,000
			1,763,000			1,334,000			4,230,000			3,630,000			5,993,000			4,964,000
Operating loss		$	(574,000	)	$	(435,000	)	$	(241,000	)	$	(466,000	)	$	(815,000	)	$	(901,000	)

Net sales for the quarter ended September 30, 2003 increased $975,000 or 11% as compared to the same quarter of last fiscal year. Hyaluronan product sales for the current quarter decreased $140,000 or 4% as compared to the same quarter of last fiscal year. The sales decrease was due to lower gynecologic hyaluronan shipments resulting from the withdrawal of INTERGEL Solution from the market, offset by increased ophthalmic and veterinary sales. Oral restorative product sales for the current quarter increased $1,115,000 or 21% compared to the same quarter of last fiscal year. International sales of oral restorative products increased 28% and domestic sales increased 16% as compared to the same quarter of last fiscal year.

Consolidated gross margin increased to 52% for the current quarter from 45% for the same quarter of last fiscal year. The gross margin for the Hyaluronan Division increased to 33% from a gross margin of 24% due to product mix. The gross margin for the Oral Restorative Division increased to 62% for the current quarter from 60% for the same quarter of last fiscal year. The gross margin increase is due to sales mix and reduced material costs.

Research and development expenses increased $302,000 or 32% in the current quarter as compared to the same quarter of last fiscal year. The increase is due to consulting and professional fees associated with the market withdrawal of INTERGEL Solution.

Marketing and sales expenses increased $325,000 or 11% in the current quarter as compared to the same quarter of last fiscal year due to increased costs associated with expansion of oral restorative’s domestic sales force and international operations.

12

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (cont.)

General and administrative expenses increased $402,000 or 35% for the current quarter as compared to the same quarter of last fiscal year. The increase resulted from increased legal expenses, insurance premiums and higher personnel related expenses.

Other expense, net, decreased $117,000 or 81% for the current quarter as compared to the same quarter of last fiscal year. The decrease is primarily due to the $129,000 increase in other income from currency gains realized on Euro denominated intercompany transactions.

Liquidity and Capital Resources

The Company’s Annual Report on Form 10-K for the year ended June 30, 2003 contains a detailed discussion of Lifecore’s liquidity and capital resources. In conjunction with this Quarterly Report on Form 10-Q, investors should read the 2003 Form 10-K.

For the three month period ended September 30, 2003, the Company had positive cash flow from operations of $886,000. Cash flow from operations was positive in fiscal years 2003, 2002 and 2001. Charges for unused manufacturing capacity associated with the Company’s hyaluronan production and additional costs associated with the withdrawal of INTERGEL Solution from the market have negatively impacted operating results in the current fiscal year. Prior to the current fiscal year, charges for unused capacity were due to an unanticipated delay in receiving INTERGEL Solution marketing approval in the U.S. from the FDA. Further, the Company expects ongoing expenditures related to the process for assessment of information obtained from postmarketing experience with the device. Also, marketing and sales expenses for the oral restorative products are expected to continue at a high level with continued international expansion and increased personnel costs.

The loan agreement between the Company and the holder of the industrial development revenue bonds issued to finance the Company’s Chaska, Minnesota facility was amended in May 2003 to waive the fixed charge coverage ratio and the cash flow coverage ratio through June 30, 2004. With respect to certain of these covenants, the Company may be required to obtain further waivers for fiscal 2005. There can be no assurance that future waivers will be granted to the Company.

The Company has a $5,000,000 credit facility with a bank which has a maturity date of December 31, 2005. The agreement allows for advances against eligible accounts receivable, subject to a borrowing base certificate. Interest is accrued at the prime rate at September 30, 2003, which was 4.00%. At September 30, 2003 and June 30, 2003, there were no balances outstanding under the line of credit. The terms of the agreement require the Company to comply with various financial covenants including minimum tangible net worth, liabilities to tangible net worth ratio and profitability. At September 30, 2003 and June 30, 2003, the Company was in compliance with all covenants.

The Company’s ability to generate positive cash flow from operations and achieve ongoing profitability is dependent upon the continued expansion of revenue from its hyaluronan and oral restorative businesses. Growth in the Hyaluronan Division is unpredictable due to the uncertainty associated with the future market status of INTERGEL Solution, the complex governmental regulatory environment for new medical products and the early stage of certain of these markets. Similarly, expansion of the Company’s Oral Restorative Division sales is also dependent upon increased revenue from new and existing customers, as well as successfully competing in a more mature market. The Company expects its cash generated from anticipated operations and the availability under the line of credit to satisfy cash flow needs in the near term. No assurance can be given that the Company will maintain positive cash flow from operations. While the Company’s capital resources appear adequate today, the Company may seek additional financing in the future. If additional financing is necessary, no assurance can be given that such financing will be available and, if available, will be on terms favorable to the Company and its shareholders.

The Company does not have any “off-balance sheet” financing activities.

13

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (cont.)

Cautionary Statement

Certain statements in this Form 10-Q are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which refer to the likelihood of return of INTERGEL Solution to the market and the timing of such return; the extent of the impact on Hyaluronan Division margins from increased unused manufacturing capacity charges; the level of expenditures related to the process associated with the assessment of information obtained from postmarketing experience with the device; the likelihood of adequate cash flow and access to financial markets; expected production levels; and the future marketing and sales success of Oral Restorative Division products, are subject to change. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected, such as, unforeseen difficulties or delays in assessing information obtained from postmarketing experience with INTERGEL Solution, unforeseen difficulties or delays in interactions with the FDA, and lack of cooperation or marketing success from marketing partners for the hyaluronan products. Investors are referred to a more detailed discussion of those risks presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the Company’s Annual Report on Form 10-K for the year ended June 30, 2003 as well as Exhibit 99.1 to such Form 10-K.

14

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION

               ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company invests its excess cash in money market mutual funds and highly rated corporate debt securities. All investments are held-to-maturity. The market risk on such investments is minimal.

Receivables from sales to foreign customers are denominated in U.S. Dollars. Transactions at the Company’s foreign subsidiaries are denominated in European Euros at Lifecore Biomedical SpA and Lifecore Biomedical GmbH and are denominated in Swedish Krona at Lifecore Biomedical AB. The Company has historically had minimal exposure to changes in foreign currency exchange rates, and as such, has not used derivative financial instruments to manage foreign currency fluctuation risk.

The Company’s outstanding long-term debt carries interest at a fixed rate. There is no material market risk relating to the Company’s long-term debt.

               ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a – 15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are adequately designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms.

(b)  Changes in internal controls.

During the fiscal quarter covered by this report, there have not been any significant changes in the Company’s internal control over financial reporting (as defined in Rule 13a - 15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

15

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II – OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

a.		Exhibits and Exhibit Index
	3.1	Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 19(a) to Amendment No. 1 on Form 8, dated July 13, 1988, to Form 10-Q for the quarter ended December 31, 1987), as amended by Amendment No. 2, (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)
	3.2	Amended Bylaws, (incorporated by reference to Exhibit 3.2 to Form 10-K/A for the year ended June 30, 1995)
	3.3	Form of Rights Agreement, dated as of May 23, 1996, between the Company and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1 to the Company’s Form 8-A Registration Statement dated May 31, 1996)
	4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
	10.1	Employment agreement between the Company and James W. Bracke, dated October 16, 2003
	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002

b.	Reports on Form 8-K
	A report on Form 8-K was filed on August 12, 2003 to report under item 12 the Company’s Fiscal 2003 fourth quarter and year end financial results.
	A report on Form 8-K was filed on September 10, 2003 (dated September 9, 2003) to report under Item 9 the dismissal of The Straumann Company’s lawsuit against the Company.
	A report on Form 8-K was filed on October 15, 2003 (dated October 14, 2003) to report under Item 12 the Company’s Fiscal 2004 first quarter financial results.

16

LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II – OTHER INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIFECORE BIOMEDICAL, INC.
Dated: November 10, 2003	/s/ James W. Bracke
	James W. Bracke      President & Chief Executive Officer
Dated: November 10, 2003	/s/ Dennis J. Allingham
	Dennis J. Allingham      Executive Vice President      & Chief Financial Officer      (Principal Financial Officer)

17 EX-10.1 3 c80762exv10w1.txt EX-10.1 EMPLOYMENT AGREEMENT - JAMES W. BRACKE EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made effective as of October 16, 2003, by and between James W. Bracke ("Executive"), an individual resident of the State of Minnesota, and Lifecore Biomedical, Inc., ("Lifecore"), a corporation organized under the laws of the State of Minnesota. WHEREAS, Executive joined Lifecore in 1984; WHEREAS, in June 1991, the parties entered into an employment agreement (the "1991 Agreement"); WHEREAS, in August, 1995, the parties amended the 1991 Agreement (the "1995 Amendment"); WHEREAS, in November 1996, the parties again amended the 1991 Agreement (the "1996 Amendment"); WHEREAS, the parties have agreed to enter into this Agreement which the parties intend to supercede and replace the 1991 Agreement, the 1995 Amendment and the 1996 Amendment; NOW THEREFORE, in consideration of the mutual obligations incurred and benefits obtained hereunder, the sufficiency of which is admitted, Lifecore and Executive agree as follows: 1. Employment. Lifecore hereby employs Executive to serve Lifecore as President and Chief Executive Officer and to perform such duties as may be assigned to him from time to time by the Board of Directors of Lifecore. 2. Term. This Agreement shall take effect on the date set forth in the first paragraph hereof (for purposes of this Agreement such date will be the "Effective Date") and unless earlier terminated pursuant to Sections 5 or 8 of this Agreement, shall expire at the close of business on December 31, 2004 (the "Term"); however, any provision in this Agreement which by its terms survives expiration of this Agreement, shall so survive and Lifecore and Executive shall comply with the terms of each such provision. Lifecore and Executive agree to review the status of this Agreement after October 31, 2004 to determine whether to extend Executive's employment beyond the end of the Term according to a written agreement setting forth mutually agreeable terms and conditions of continued employment. 3. Duties. Executive agrees to serve Lifecore faithfully and to the best of Executive's ability and to devote Executive's full professional and business time, attention and efforts to the business and affairs of Lifecore during the Term. Executive hereby confirms that Executive is under no contractual commitments inconsistent with Executive's obligations set forth in this Agreement and that, during the Term, Executive will not render or perform any services for any other corporation, firm, entity or person which are inconsistent with the provisions of this Agreement or which would otherwise impair Executive's ability to perform Executive's duties hereunder. 4. Compensation. 4.01 Salary. As full compensation for Executive's services (including services as a director and officer of Lifecore and its subsidiaries) during the Term, Executive shall receive a monthly base salary of $25,000 annualized at $300,000 which salary shall be subject to all required withholdings and deductions and paid in accordance with Lifecore's normal payroll procedures and policies, as such procedures and policies may be modified from time to time. Nothing in this Agreement shall prevent Lifecore's Board of Directors from at any time increasing the compensation to be paid to Executive, if the Board elects to do so. 4.02 Incentive Compensation. Executive will participate in Lifecore's annual incentive bonus plan in accordance with which Executive may earn an annual incentive bonus. The terms of the annual incentive bonus plan, including the criteria upon which Executive can earn the maximum bonus, will be determined annually by the Board. Executive may also participate in other bonus or incentive plans adopted by Lifecore that are applicable to Executive's position, as they may be changed from time to time, but nothing herein shall require the adoption or maintenance of any such plan. 4.03 Participation in Benefits. Except as otherwise provided herein, during the Term Executive shall be entitled to participate in the executive benefit plans offered generally by Lifecore to its executives, to the extent that Executive's position, tenure, salary, health, and other qualifications make Executive eligible to participate. In addition, Lifecore agrees to pay 100% of the cost of Executive's health insurance coverage through Lifecore's broad-based employee health insurance plan. Executive's participation in such benefit plans shall be subject to the terms of the applicable plans, as the same may be amended from time to time. Lifecore does not guarantee the adoption or continuance of any particular benefit during the Term, and nothing in this Agreement is intended to or shall in any way restrict the right of Lifecore to amend, modify, or terminate any of its benefits during the Term. 4.04 Stock Options. Executive shall be eligible to receive stock options and other equity-based compensation granted under Lifecore's stock option and incentive plans as may be in effect from time to time. 4.05 Life Insurance. Lifecore shall provide Executive with life insurance in the amount of at least $250,000 payable to such beneficiary as Executive may designate. 4.06 Expenses. In accordance with Lifecore's normal policies for expense reimbursement, Lifecore will reimburse Executive for all reasonable and necessary expenses incurred by Executive in the performance of Executive's duties under this Agreement, subject to the presentment of receipts or other documentation acceptable to Lifecore. 4.07 Amendment of Outstanding Stock Options. Executive and Lifecore shall enter into a Stock Option Amendment Agreement on the date hereof pursuant to which (i) each stock option to purchase Lifecore's common stock held by Executive that is not "in-the-money" on the date of this Agreement will be amended to provide that in the event Executive's employment with Lifecore is terminated by Lifecore without cause (as defined in Section 5.03 hereof), all options that were unvested on the date of such termination shall become immediately vested and exercisable, and (ii) each non-qualified stock option to purchase Lifecore's common stock held by Executive that is not "in-the-money" on the date of this Agreement will be amended to 2 provide that in the event Executive's employment with Lifecore is terminated by Lifecore without cause (as defined in Section 5.03 hereof), the option may be exercised by Executive for a period of six months following termination of employment to the extent it was exercisable as of the date of such termination. 5. Termination. 5.01 Termination Due to Executive's Death. Executive's employment pursuant to this Agreement shall terminate automatically prior to the expiration of the Term in the event of Executive's death. 5.02 Termination Due to Executive's Disability. Executive's employment pursuant to this Agreement shall terminate automatically prior to the expiration of the Term in the event of Executive's total disability which results in Executive's inability to perform the essential functions of Executive's position, with or without reasonable accommodation, provided Executive has exhausted Executive's entitlement to any applicable leave, if Executive desires to take and satisfies all eligibility requirements for such leave. 5.03 Termination by Lifecore for Cause. Executive's employment pursuant to this Agreement shall terminate prior to the expiration of the Term in the event the Board of Directors shall determine, in its sole discretion, that there is "cause" to terminate Executive's employment, which shall include any of the following: (i) the gross neglect or willful failure or refusal of Executive to perform Executive's duties under this Agreement (other than as a result of total or partial incapacity due to physical or mental illness); (ii) Executive's material breach of any contractual obligation to Lifecore under the terms of this Agreement or any other agreement with Lifecore or of any fiduciary duty to Lifecore; (iii) Executive's willful failure or refusal to follow lawful instructions of the Board (other than as a result of total or partial incapacity due to physical or mental illness); (iv) any willful or intentional act that could reasonably be expected to injure the reputation, business or business relationships of Lifecore; (v) Executive's embezzlement or misappropriation of funds of Lifecore; or (vi) Executive's conviction (including conviction on a nolo contendere plea) of a felony or any crime involving fraud, dishonesty or moral turpitude. If Executive commits an act or omission which provides the Board with cause to terminate this Agreement and Executive's employment under parts (i), (ii), (iii) or (iv) above, Executive shall have 30 days to cure such act or omission after the Board provides Executive written notice of the act or omission, such notice to describe such failure to perform and identify what reasonable actions shall be required to cure such failure to perform and the Board's belief that cause exists to terminate under this Section 5.03 (i), (ii), (iii) or (iv); provided, however, that the Board has no obligation to provide Executive with notice of and an opportunity to cure an act or omission relating to the same or similar issue more than two times during the Term. Upon the 3 third occurrence of an act or omission relating to the same or similar issue or the Board's belief that cause exists under (iv) or (v), the Board may terminate Executive's employment under this Section 5.03 immediately and without prior notice or opportunity to cure. In the event that Lifecore terminates Executive's employment at any time prior to the expiration of the Term for cause under 5.03 (i), (ii), (iii) or (iv), Lifecore shall pay Executive as severance pay an amount equal to six (6) months of base salary as set forth in Section 4.01. Executive shall only be entitled to such severance pay if Executive signs (and does not rescind) a general release of claims in a form acceptable to Lifecore ("Release"). Such Release shall not waive claims to payments under Sections 6 or 8.01 of this Agreement. If Executive does not sign such a Release (or does sign and rescinds such Release), Executive shall not be entitled to receive any further compensation under the provisions of this Section 5.03 after the date of termination. Any severance payment made under this Section 5.03 will be paid according to Lifecore's normal payroll schedule and shall be subject to all required withholdings and deductions. With respect to any termination for any of the matters set forth in 5.03 (i), (ii), (iii) or (iv) above, should Executive object to the termination and not sign a Release, Executive and Lifecore shall submit the matter to a mutually agreed-upon neutral decision maker, who shall be an attorney with at least 10 years employment law experience, to decide whether cause (as defined in this Section) exists. If Executive and Lifecore cannot agree upon such a neutral decision maker, each shall appoint one neutral decision maker, who shall be an attorney with at least 10 years employment law experience, and the two neutral decision makers so chosen shall choose a third neutral decision maker, who also shall be an attorney with at least 10 years employment law experience. If cause is found by the neutral decision maker(s) not to exist, Lifecore shall pay the fee(s) of the decision maker(s); if cause is found to exist, Executive shall pay such fees. Each party shall pay its own costs and fees regardless of the finding of the decision makers. If cause is found not to exist, Executive's termination shall be considered as to have occurred pursuant to Section 5.04 of this Agreement. 5.04 Termination by Lifecore Without Cause. Except as otherwise set forth in Section 8.01, Lifecore may terminate Executive's employment at any time prior to the expiration of the Term without cause, and without prior notice, provided Lifecore pays to Executive as severance pay an amount equal to twelve (12) months of base salary as set forth in Section 4.01. Executive shall only be entitled to such severance pay if Executive signs (and does not rescind) a Release. If Executive does not sign such a Release (or does sign and rescinds such Release), Executive shall not be entitled to receive any further compensation under the provisions of this Section 5.04 after the date of termination. Such Release shall not waive claims to payments under Sections 6 or 8.01 of this Agreement. Any severance payment made under this Section 5.04 will be paid according to Lifecore's normal payroll schedule and shall be subject to all required withholdings and deductions. In the event that Executive's employment is terminated without cause following a Change In Control as set forth in Section 8.01, Executive shall only be eligible for compensation as set forth in Section 8.01 in lieu of any compensation under this Section 5.04. 5.05 Termination by Executive. Except as otherwise set forth in Section 8.01, Executive may terminate this Agreement at any time during its Term by giving 30-days written 4 notice thereof to the Board. Upon notice of termination by Executive under this Section 5.05, Lifecore may at its option elect to have Executive cease to provide services immediately, provided that during such 30-day notice period Executive shall be entitled to base salary pursuant to Section 4.01. 5.06 Effect of Termination. Notwithstanding any termination of Executive's employment with Lifecore, Executive, in consideration of Executive's employment hereunder to the date of such termination, shall remain bound by the provisions of this Agreement which specifically relate to periods, activities or obligations upon or subsequent to the termination of Executive's employment, including, but not limited to, the covenants contained in Sections 6 and 7. Except as set forth in Sections 5.03, 5.04, 6.03 and 8.01, Executive shall not be eligible to earn any further compensation under the provisions of this Agreement following termination. 5.07 Surrender of Records and Property. Upon termination of Executive's employment with Lifecore, Executive shall deliver promptly to Lifecore all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, computer disks, computer software, computer programs (including source code, object code, on-line files, documentation, testing materials and plans and reports) designs, drawings, formulae, data, tables or calculations or copies thereof, which are the property of Lifecore or which relate in any way to the business, products, practices or techniques of Lifecore, and all other property, Trade Secrets and Confidential Information of Lifecore as defined in Section 7, including, but not limited to, all tangible, written, graphical, machine readable and other materials (including all copies) which in whole or in part contain any Trade Secrets or Confidential Information of Lifecore which in any of these cases are in Executive's possession or under Executive's control. 6. Restrictive Covenants. Executive agrees that, due to Executive's employment with Lifecore, Executive will have access to Lifecore's Trade Secrets and Confidential Information as defined in Section 7, including but not limited to: Lifecore's current and proposed plans and strategies in sales, marketing, target customers, product development and pricing; customer-specific information generated and compiled by Lifecore; Lifecore's national customer management database (MarketForce) which contains an exhaustive compilation of information regarding Lifecore's customers and potential customers nationwide; and Lifecore's financial information. Executive acknowledges that Lifecore will only release these Trade Secrets and Confidential Information upon the receipt of assurances from Executive that Executive will not use the information to Lifecore's disadvantage and, accordingly, agrees to the following provisions: 6.01 Covenant Not To Compete. During Executive's employment by Lifecore, and for a period of twelve (12) consecutive months from the date of termination of such employment for whatever reason (whether occasioned by Executive or Lifecore), Executive will not, directly or indirectly, in any manner (e.g., as an executive, agent, consultant, partner, member, manager, officer, director, shareholder, or otherwise), render services, advice or assistance to any division, group or part of any corporation, person, organization or other entity which engages in the marketing, selling, production, design or development of any product, good, service or procedure which is or may be used as an alternative to, or which is or may be sold in competition with any product, good, service or procedure marketed, sold, produced, designed or developed by Lifecore (including products, goods, services, or procedures currently being researched or under 5 development by Lifecore) (the "Competitive Business"), in any geographic location, domestic or foreign, in which Executive performed services or had responsibility on behalf of Lifecore. It is understood that Executive may render services, advice or assistance to any separate division, group or part of any corporation, person, organization or other entity which is not engaged in a Competitive Business regardless of whether another separate division, group or part of such corporation, person, organization or other entity is engaged in a Competitive Business. 6.02 Covenant Not To Solicit Business and Customers. During Executive's employment by Lifecore, and for a period of twelve (12) consecutive months from the date of termination of such employment for whatever reason (whether occasioned by Executive or Lifecore), Executive shall not, directly or indirectly, divert, solicit, or accept business from any client or prospective client of Lifecore that was solicited or serviced by Lifecore or that Executive supervised, directly or indirectly, in whole or in part, the solicitation or services activities related to such clients or prospects or about whom Executive received or had access to Confidential Information. Executive shall not, directly or indirectly, in any way interfere, or attempt to interfere, with Lifecore's relationships with any of its actual or potential vendors or suppliers. 6.03 Extension of Covenant Not To Compete and Covenant Not To Solicit Business and Customers. Executive further acknowledges and agrees that the duration of the Covenant Not To Compete and Covenant Not To Solicit Business and Customers may be extended, at the sole discretion of Lifecore, for up to two, additional six-month periods upon written notice at least sixty (60) days prior to the date the Covenant Not To Compete and Covenant Not To Solicit Business and Customers otherwise would expire. Should Lifecore elect to extend these covenants, Lifecore agrees to pay to Executive his monthly base salary, as set forth in Section 4.01, for each month during the period of the extension unless Executive receives payment under Section 8.01(iv) which shall constitute payment for any extension of the Covenant Not To Compete under Section 6.01 and the Covenant Not to Solicit Business and Customers under Section 6.02. 6.04 Remedies for Breach of Covenant Not To Compete or Covenant Not To Solicit Business and Customers. In the event that Lifecore determines, in its sole discretion, that Executive has failed to comply with the Covenant Not To Compete or the Covenant Not To Solicit Business and Customers during either their original term or any extended duration, Lifecore may give notice of such determination to Executive and if Executive does not challenge such determination in good faith within 10 days of his receipt of such notification, Lifecore may terminate any further payments to Executive, including any severance for which Executive may be eligible. In the event Executive challenges such determination in good faith within such 10 day period, Lifecore shall continue to make such payments to Executive for a minimum of 60 days following Lifecore's notice to Executive, but thereafter may terminate any further such payments to Executive. In either case, Lifecore may seek injunctive relief pursuant to Section 9.07 immediately following notice to Executive. 6.05 Covenant Not To Solicit For Employment. During Executive's employment by Lifecore, and for a period of twelve (12) consecutive months from the date of termination of such employment for whatever reason (whether occasioned by Executive or Lifecore), Executive shall not, directly or indirectly, induce, solicit, endeavor to entice or attempt to induce any other 6 Executive, consultant or independent contractor of Lifecore to leave the employ of Lifecore, or to work for, render services or provide advice to, or supply Confidential Information of Lifecore to, any third person or entity, or to in any way adversely interfere with the relationship between any such Executive, consultant or independent contractor and Lifecore. 6.06. Notification of Employment. If at any time covered by the Covenants contained in this Section 6, Executive accepts new employment or becomes affiliated with a third party, Executive shall immediately notify Lifecore of the identity and business of the new employer or affiliation. Without limiting the foregoing, Executive's obligation to give notice under this Section 6.06 shall apply to any business ventures in which Executive proposes to engage, even if not with a third-party employer (such as, without limitation, a joint venture, partnership or sole proprietorship). Executive hereby consents to Lifecore notifying any such new employer or business venture of the terms of the covenants in this Section 6. 7. Inventions and Confidential Information. For purposes of this Agreement, the following terms shall mean: (i) "Confidential Information" includes Trade Secrets, Business Information, Personnel Information, and Customer Information. (ii) "Trade Secrets" means any information (including any compilation, device, method, technique or process) that: (A) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The existence of a Trade Secret will not be negated merely because a person has acquired a Trade Secret without express or specific notice that it is a Trade Secret if, under all the circumstances, such person knows or has reason to know that the party who owns the information or has disclosed it intends or expects the secrecy of the type of information comprising the Trade Secret to be maintained. Trade Secret information includes information of the Corporation, its customers, suppliers, joint ventures, licensors, licensees, distributors and other entities with which the Corporation does business. (iii) "Business Information" means any and all Confidential Information pertaining to: proposed products; proposed technologies; current or proposed product tests; current or proposed manufacturing costs, marketing plans, and product or service pricing; and financial projections in any way relating to the foregoing. (iv) "Personnel Information" means information about the names, addresses, duties or other personal characteristics of employees of Lifecore, and includes, without limitation, information in any way relating to diagnosis or treatment services provided by any health care provider. (v) "Customer Information" means the names, addresses and other information relating to any current or proposed customer of Lifecore, and 7 the contractual terms and conditions, including prices, that Lifecore has established with any of its customers. (vi) "Invention" means any discovery, improvement, idea, process, development, design, know-how, data, and formula, whether patentable or unpatentable, or protectable by copyright or other intellectual property law. 7.01 Disclosure and Assignment of Inventions. Executive agrees that he will promptly disclose to Lifecore all Inventions and Confidential Information generated, conceived, or reduced to practice by him alone or in conjunction with others, during or after working hours, while Executive has been employed by Lifecore or within 24 months thereafter; and all such inventions and Confidential Information shall be the exclusive property of Lifecore and are hereby assigned to Lifecore Further, Executive agrees, at Lifecore's expense, to give Lifecore all assistance it reasonably requires to perfect, protect, and use its right to Executive's Inventions and Confidential Information. Pursuant to Minnesota Statutes Section 181.78, the provisions of this section do not apply to any Invention of Executive if it (1) was developed entirely on his own time; (2) was not made with the use of Confidential Information or any equipment, supplies, or facilities of Lifecore; (3) is unrelated, directly or indirectly, to the business of Lifecore or to Lifecore's actual or demonstrably anticipated research or development; and (4) did not result from any work performed by him for Lifecore. Attached as Exhibit A is a list of Inventions Executive believes falls under this provision. 7.02 Nondisclosure of Trade Secrets and Confidential Information. During and after Executive's employment with Lifecore, Executive will (1) use Trade Secrets and Confidential Information only as may be necessary and proper to perform Executive's duties for Lifecore; (2) keep in strictest confidence and trust all Trade Secrets and Confidential Information that is disclosed to Executive or to which Executive has access; (3) comply with all applicable policies and standard procedures established by Lifecore to maintain the secrecy and confidentiality of Trade Secrets and Confidential Information; (4) not, directly or indirectly, without the prior written consent of Lifecore, copy, disseminate or otherwise disclose Trade Secrets and Confidential Information to any person or entity; and (5) other than in the proper performance of Executive's duties, remove any tangible Trade Secrets and Confidential Information from the premises where such information is kept. Executive will provide all necessary assistance that Lifecore requests to maintain the secrecy and confidentiality of Trade Secrets and Confidential Information. 7.03 Lifecore's Rights over Publication by Executive. Executive further acknowledges and agrees that Lifecore will have the right to refuse publication of any papers prepared by Executive as a result of Executive's employment, consultation, work or services, with, for, on behalf of or in conjunction with Lifecore. Proposed publications referring to Executive's employment, consultation, work, services and activities with, for, on behalf of or in conjunction with Lifecore, or referring to any information developed therefrom, will be submitted by Executive to Lifecore or the Board for review, prior to publication, to insure that Lifecore's position with respect to Confidential Information is not adversely affected by publication disclosures. Executive agrees to abide by Lifecore's or the Board's reasonable decisions in these matters. 8 7.04 Return of Documents and Tangible Property. Executive acknowledges and agrees that all documents and other tangible property relating in any way to the business of Lifecore which are conceived or generated by Executive or come into his possession during Executive's employment shall be and remain the exclusive property of Lifecore, and Executive agrees to return all such documents and tangible property to Lifecore on termination of employment or at such earlier time as Lifecore or the Board may request Executive to do so. 8. Effect of Change in Control. For purposes of this Section 8, the following terms shall have the following meanings: (i) "Change in Control" shall mean any of the following which may occur after the Effective Date of this Agreement: (a) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or successor provision thereto, whether or not Lifecore is then subject to such reporting requirement; (b) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Lifecore representing 35% or more of the combined voting power of Lifecore's then outstanding securities; (c) the sale, lease, exchange or other transfer, directly or indirectly, of all or substantially all of the assets of Lifecore, in one transaction or in a series of related transactions; (d) a merger or consolidation to which Lifecore is a party if the shareholders of Lifecore immediately prior to the effective date of such merger or consolidation have "beneficial ownership" (as defined in Rule 13d-3 promulgated under the Exchange Act) immediately following the effective date of such merger or consolidation of securities of the surviving Lifecore representing less than 50 percent of the combined voting power of the surviving corporation's then outstanding securities; (e) the Continuing Directors cease to constitute a majority of Lifecore's Board of Directors; provided that such change is the direct or indirect result of a proxy fight and contested election or elections for positions on the Board of Directors; or (f) the Board of Directors of Lifecore determines, it its sole and absolute discretion, that there has been a change in control of Lifecore. provided, however, that notwithstanding the foregoing, Lifecore and 9 Executive agree that in no event shall a sale, lease, exchange, merger, consolidation or any other transaction involving only one of Lifecore's Hyaluronan Division or Oral Restorative Division, without the other, constitute a Change in Control for purposes of this Agreement. (ii) "Continuing Director" shall mean only those directors of Lifecore on the date of this Agreement and those directors, as of a date 30 days prior to an event that would otherwise be considered a "Change in Control," who were nominated by Continuing Directors and duly elected by shareholders at a meeting thereof or nominated and elected by directors who were "Continuing Directors." (iii) "Good Reason" shall mean: (a) Lifecore effects a material diminution of Executive's title or duties; (b) any requirement that Executive report to other than the Board or its successor or Parent Corporation, if any; (c) any requirement that Executive move his regular office to a location more than 50 miles from Lifecore's Executive offices; (d) the failure by Lifecore, or its successor or Parent Corporation, if any, to pay compensation or provide benefits or perquisites to Executive as and when required by the terms of this Agreement; (e) a reduction by Lifecore in Executive's base salary as in effect immediately prior to a Change in Control; or (f) any material breach by Lifecore of this Agreement; provided, however, that a termination pursuant to this Section shall not become effective unless Lifecore fails to cure such event within thirty (30) days after written notice from Executive, such notice to describe such failure to perform and identify what reasonable actions shall be required to cure such failure to perform. 8.01 Termination by Executive for Good Reason Following A Change in Control; Termination by Lifecore Without Cause Following A Change in Control. In the event that Executive's employment is terminated either by Lifecore without cause or by Executive for Good Reason within three (3) months prior to or nine (9) months following a Change in Control, Lifecore shall pay the following amounts to Executive provided that Executive signs (and does not rescind) a Release: (i) any accrued but unpaid salary (as determined pursuant to Section 4.01) for services rendered through the date of termination; (ii) any accrued but unpaid expenses required to be reimbursed pursuant to Section 4.06; (iii) any amount earned by Executive as a bonus with respect to the fiscal year of Lifecore preceding the fiscal year in which such termination of 10 employment occurs if such bonus has not theretofore been paid to Executive; and (iv) in lieu of and not in addition to, any further base salary payments to Executive for periods subsequent to the date that the termination of Executive's employment becomes effective (as provided under 5.03, 5.04 or 8.01), Lifecore shall pay as severance pay to Executive a lump-sum cash amount equal to three (3) times the annualized base salary (as in effect in the month preceding the month in which the termination becomes effective or as in effect in the month preceding a Change in Control, whichever is higher). In the event that Executive does not sign a Release or signs and rescinds such Release, Executive shall receive only the amounts set forth in Section 8.01(i)-(iii). In the event that any payment or benefit received or to be received by Executive in connection with a change in control of Lifecore or termination of Executive's employment (whether payable pursuant to the terms of this Agreement or any other plan, contract, agreement or arrangement with Lifecore, with any person whose actions result in a change in control of Lifecore or with any person constituting a member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), with Lifecore or with any person whose actions result in a change in control of Lifecore) (collectively, the "Total Payments") would not be deductible (in whole or in part) by Lifecore or such other person making such payment or providing such benefit solely as a result of Section 280G of the Code, the amount payable to Executive pursuant to Section 8.01(iv) hereof shall be reduced until no portion of the Total Payments is not deductible solely as a result of Section 280G of the Code or such amount payable to Executive pursuant to Section 8.01(iv) is reduced to zero. For purposes of this limitation, (a) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by Lifecore does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code (such as payments payable pursuant to Lifecore's standard or general severance policies); (b) the payment pursuant to Section 8.01(iv) shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in the immediately preceding clause (a)) in their entirety constitute reasonable compensation within the meaning of Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to in the immediately preceding clause (a); and (c) the value of any other non-cash benefit or of any deferred cash payment included in the Total Payments shall be determined by Lifecore's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as to whether all or some portion of a payment is or is not payable to Executive under this Agreement, Lifecore shall initially make the payment to the Executive, and Executive agrees to refund to Lifecore any amounts ultimately determined not to have been payable under the terms hereof. 9. Miscellaneous. 11 9.01 Governing Law and Venue Selection. This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of Minnesota, without regard to its conflicts of laws principles or those of any other State. 9.02 Entire Agreement. This Agreement (including other agreements specifically mentioned in this Agreement except as terminated herein) contains the entire agreement of the parties relating to the employment of Executive by Lifecore and the other matters discussed herein and supersedes, terminates and replaces all prior promises, contracts, agreements (including, but not limited to, the 1991 Agreement, the 1995 Amendment and the 1996 Amendment) and understandings of any kind, whether express or implied, oral or written, with respect to such subject matter (including, but not limited to, any promise, contract or understanding, whether express or implied, oral or written, by and between Lifecore and Executive), and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein or in the other agreements mentioned herein. 9.03 Withholding Taxes. Lifecore may take such action as it deems appropriate to insure that all applicable federal, state, city and other payroll, withholding, income or other taxes arising from any compensation, benefits or any other payments made pursuant to this Agreement, or any other contract, agreement or understanding which relates, in whole or in part, to Executive's employment with Lifecore, are withheld or collected from Executive. 9.04 Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing and signed by Executive and Lifecore. 9.05 No Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any act other than as specifically set forth in the waiver. 9.06 Assignment. This Agreement shall not be assignable, in whole or in part, by any party without the written consent of the other party, except that Lifecore may, without the consent of Executive, assign its rights and obligations under this Agreement to any Lifecore affiliate or to any corporation, firm or other business entity with or into which Lifecore may merge or consolidate, or to which Lifecore may sell or transfer all or substantially all of its assets, or of which 50% or more of the equity investment and of the voting control is owned, directly or indirectly, by, or is under common ownership with, Lifecore. After any such assignment by Lifecore, Lifecore shall be discharged from all further liability hereunder and such assignee shall thereafter be deemed to be Lifecore for the purposes of all provisions of this Agreement including this Section 9.06. 9.07 Injunctive Relief. Executive acknowledges and agrees that the services to be rendered by Executive hereunder are of a special, unique and extraordinary character, that it would be difficult to replace such services and that any violation of Sections 5.06, 6, or 7 hereof would be highly injurious to Lifecore, and that it would be extremely difficult to compensate 12 Lifecore fully for damages for any such violation. Accordingly, Executive specifically agrees that Lifecore shall be entitled to temporary and permanent injunctive relief to enforce the provisions of Sections 5.06, 6, or 7 hereof, and that such relief may be granted without the necessity of proving actual damages and without necessity of posting any bond. This provision with respect to injunctive relief shall not, however, diminish the right of Lifecore to claim and recover damages, or to seek and obtain any other relief available to it at law or in equity, in addition to injunctive relief. 9.08 Arbitration. Any dispute arising out of or relating to this Agreement or the alleged breach of it, or the making of this Agreement, including claims of fraud in the inducement, or any dispute arising from or related in any way to Executive's employment, including any statutory or tort claims, shall be discussed between the disputing parties in a good faith effort to arrive at a mutual settlement of any such controversy. If such dispute cannot be resolved, such dispute shall be settled by binding arbitration, except that Lifecore may elect to seek such temporary or preliminary injunctive relief from an appropriate court pursuant to Section 9.07 as may be necessary to protect its interest prior to arbitration. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be a retired state or federal judge or an attorney who has practiced business or employment litigation for at least 10 years. If the parties cannot agree on an arbitrator within 20 days, either party may request that the chief judge of the district court for Hennepin County, Minnesota, select an arbitrator. If the chief judge does not select an arbitrator within 30 days of such request, either party may request that the American Arbitration Association (AAA) designate a panel of five proposed arbitrators meeting the criteria set forth in this Section, and the parties shall alternate striking members of the panel, with Executive having the first strike, until an arbitrator is thereby selected. Arbitration will be conducted pursuant to the provisions of this Agreement, and the applicable arbitration rules of the AAA, unless such rules are inconsistent with the provisions of this Agreement, but, unless an arbitrator is selected through the AAA, without submission of the dispute to the AAA. Each party shall be permitted reasonable discovery, including the production of relevant documents by the other party, exchange of witness lists, and a limited number of depositions, including depositions of any experts who will testify at the arbitration. The summary judgment procedure applicable in Hennepin County, Minnesota, District Court shall be available and apply to any arbitration conducted pursuant to this Agreement. The arbitrator shall have the authority to award to the prevailing party any remedy or relief that a court of the State of Minnesota could order or grant, including costs and attorneys' fees. Unless otherwise agreed by the parties, the place of any arbitration proceedings shall be Minneapolis, Minnesota. 9.09 Severability. To the extent any provision of this Agreement shall be determined to be invalid or unenforceable in any jurisdiction, such provision shall be deemed to be deleted from this Agreement as to that jurisdiction only, and the validity and enforceability of the remainder of such provision and of this Agreement shall be unaffected. In furtherance of and not in limitation of the foregoing, Executive expressly agrees that should the duration of, geographical extent of, or business activities covered by, any provision of this Agreement be in excess of that which is valid or enforceable under applicable law in a given jurisdiction, then such provision, as to such jurisdiction only, shall be construed to cover only that duration, extent or activities that may validly or enforceably be covered. Executive acknowledges the uncertainty 13 of the law in this respect and expressly stipulates that this Agreement shall be construed in a manner that renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law in each applicable jurisdiction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth in the first paragraph. LIFECORE BIOMEDICAL, INC. By /s/ John C. Heinmiller -------------------------------- Name: John C. Heinmiller Title: Director EXECUTIVE /s/ James W. Bracke ---------------------------------- James W. Bracke 14 EXHIBIT A None 15 EX-31.1 4 c80762exv31w1.txt EX-31.1 CERTIFICATION OF CEO - SECTION 302 EXHIBIT 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James W. Bracke, Ph.D., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lifecore Biomedical, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer 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)) for the registrant and we have: - 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 quarterly report is being prepared; - evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and - disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. 5. The registrant's other certifying officer 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 registrant's board of directors (or persons performing the equivalent function): - all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and - 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: November 10, 2003 By /s/ JAMES W. BRACKE ------------------------------- James W. Bracke, Ph.D. President, Chief Executive Officer (principal executive officer), Secretary and Director EX-31.2 5 c80762exv31w2.txt EX-31.2 CERTIFICATION OF CFO - SECTION 302 EXHIBIT 31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis J. Allingham, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lifecore Biomedical, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer 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)) for the registrant and we have: - 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 quarterly report is being prepared; - evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and - disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. 5. The registrant's other certifying officer 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 registrant's board of directors (or persons performing the equivalent function): - all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and - 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: November 10, 2003 By /s/ DENNIS J. ALLINGHAM ------------------------------- Dennis J. Allingham Executive Vice President and Chief Financial Officer (principal financial officer) EX-32.1 6 c80762exv32w1.txt EX-32.1 CERTIFICATION OF CEO - SECTION 906 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lifecore Biomedical, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James W. Bracke, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act oF 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. By /s/ JAMES W. BRACKE --------------------------------------- James W. Bracke, Ph.D. President, Chief Executive Officer (principal executive officer), Secretary and Director November 10, 2003 EX-32.2 7 c80762exv32w2.txt EX-32.2 CERTIFICATION OF CFO - SECTION 906 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lifecore Biomedical, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis J. Allingham, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (4) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. By /s/ DENNIS J. ALLINGHAM ------------------------------------------- Dennis J. Allingham Executive Vice President and Chief Financial Officer (principal financial officer) November 10, 2003 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         This Employment Agreement ("Agreement") is made effective as of October
16, 2003, by and between James W. Bracke ("Executive"), an individual resident
of the State of Minnesota, and Lifecore Biomedical, Inc., ("Lifecore"), a
corporation organized under the laws of the State of Minnesota.

         WHEREAS, Executive joined Lifecore in 1984;

         WHEREAS, in June 1991, the parties entered into an employment agreement
(the "1991 Agreement");

         WHEREAS, in August, 1995, the parties amended the 1991 Agreement (the
"1995 Amendment");

         WHEREAS, in November 1996, the parties again amended the 1991 Agreement
(the "1996 Amendment");

         WHEREAS, the parties have agreed to enter into this Agreement which the
parties intend to supercede and replace the 1991 Agreement, the 1995 Amendment
and the 1996 Amendment;

         NOW THEREFORE, in consideration of the mutual obligations incurred and
benefits obtained hereunder, the sufficiency of which is admitted, Lifecore and
Executive agree as follows:

1.       Employment. Lifecore hereby employs Executive to serve Lifecore as
President and Chief Executive Officer and to perform such duties as may be
assigned to him from time to time by the Board of Directors of Lifecore.

2.       Term. This Agreement shall take effect on the date set forth in the
first paragraph hereof (for purposes of this Agreement such date will be the
"Effective Date") and unless earlier terminated pursuant to Sections 5 or 8 of
this Agreement, shall expire at the close of business on December 31, 2004 (the
"Term"); however, any provision in this Agreement which by its terms survives
expiration of this Agreement, shall so survive and Lifecore and Executive shall
comply with the terms of each such provision. Lifecore and Executive agree to
review the status of this Agreement after October 31, 2004 to determine whether
to extend Executive's employment beyond the end of the Term according to a
written agreement setting forth mutually agreeable terms and conditions of
continued employment.

3.       Duties. Executive agrees to serve Lifecore faithfully and to the best
of Executive's ability and to devote Executive's full professional and business
time, attention and efforts to the business and affairs of Lifecore during the
Term. Executive hereby confirms that Executive is under no contractual
commitments inconsistent with Executive's obligations set forth in this
Agreement and that, during the Term, Executive will not render or perform any
services for any other corporation, firm, entity or person which are
inconsistent with the provisions of this Agreement or which would otherwise
impair Executive's ability to perform Executive's duties hereunder.



4.       Compensation.

         4.01     Salary. As full compensation for Executive's services
(including services as a director and officer of Lifecore and its subsidiaries)
during the Term, Executive shall receive a monthly base salary of $25,000
annualized at $300,000 which salary shall be subject to all required
withholdings and deductions and paid in accordance with Lifecore's normal
payroll procedures and policies, as such procedures and policies may be modified
from time to time. Nothing in this Agreement shall prevent Lifecore's Board of
Directors from at any time increasing the compensation to be paid to Executive,
if the Board elects to do so.

         4.02     Incentive Compensation. Executive will participate in
Lifecore's annual incentive bonus plan in accordance with which Executive may
earn an annual incentive bonus. The terms of the annual incentive bonus plan,
including the criteria upon which Executive can earn the maximum bonus, will be
determined annually by the Board. Executive may also participate in other bonus
or incentive plans adopted by Lifecore that are applicable to Executive's
position, as they may be changed from time to time, but nothing herein shall
require the adoption or maintenance of any such plan.

         4.03     Participation in Benefits. Except as otherwise provided
herein, during the Term Executive shall be entitled to participate in the
executive benefit plans offered generally by Lifecore to its executives, to the
extent that Executive's position, tenure, salary, health, and other
qualifications make Executive eligible to participate. In addition, Lifecore
agrees to pay 100% of the cost of Executive's health insurance coverage through
Lifecore's broad-based employee health insurance plan. Executive's participation
in such benefit plans shall be subject to the terms of the applicable plans, as
the same may be amended from time to time. Lifecore does not guarantee the
adoption or continuance of any particular benefit during the Term, and nothing
in this Agreement is intended to or shall in any way restrict the right of
Lifecore to amend, modify, or terminate any of its benefits during the Term.

         4.04     Stock Options. Executive shall be eligible to receive stock
options and other equity-based compensation granted under Lifecore's stock
option and incentive plans as may be in effect from time to time.

         4.05     Life Insurance. Lifecore shall provide Executive with life
insurance in the amount of at least $250,000 payable to such beneficiary as
Executive may designate.

         4.06     Expenses. In accordance with Lifecore's normal policies for
expense reimbursement, Lifecore will reimburse Executive for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties under this Agreement, subject to the presentment of receipts or other
documentation acceptable to Lifecore.

         4.07     Amendment of Outstanding Stock Options. Executive and Lifecore
shall enter into a Stock Option Amendment Agreement on the date hereof pursuant
to which (i) each stock option to purchase Lifecore's common stock held by
Executive that is not "in-the-money" on the date of this Agreement will be
amended to provide that in the event Executive's employment with Lifecore is
terminated by Lifecore without cause (as defined in Section 5.03 hereof), all
options that were unvested on the date of such termination shall become
immediately vested and exercisable, and (ii) each non-qualified stock option to
purchase Lifecore's common stock held by Executive that is not "in-the-money" on
the date of this Agreement will be amended to

                                       2


provide that in the event Executive's employment with Lifecore is terminated by
Lifecore without cause (as defined in Section 5.03 hereof), the option may be
exercised by Executive for a period of six months following termination of
employment to the extent it was exercisable as of the date of such termination.

5.       Termination.

         5.01     Termination Due to Executive's Death. Executive's employment
pursuant to this Agreement shall terminate automatically prior to the expiration
of the Term in the event of Executive's death.

         5.02     Termination Due to Executive's Disability. Executive's
employment pursuant to this Agreement shall terminate automatically prior to the
expiration of the Term in the event of Executive's total disability which
results in Executive's inability to perform the essential functions of
Executive's position, with or without reasonable accommodation, provided
Executive has exhausted Executive's entitlement to any applicable leave, if
Executive desires to take and satisfies all eligibility requirements for such
leave.

         5.03     Termination by Lifecore for Cause. Executive's employment
pursuant to this Agreement shall terminate prior to the expiration of the Term
in the event the Board of Directors shall determine, in its sole discretion,
that there is "cause" to terminate Executive's employment, which shall include
any of the following:

                  (i)      the gross neglect or willful failure or refusal of
                           Executive to perform Executive's duties under this
                           Agreement (other than as a result of total or partial
                           incapacity due to physical or mental illness);

                  (ii)     Executive's material breach of any contractual
                           obligation to Lifecore under the terms of this
                           Agreement or any other agreement with Lifecore or of
                           any fiduciary duty to Lifecore;

                  (iii)    Executive's willful failure or refusal to follow
                           lawful instructions of the Board (other than as a
                           result of total or partial incapacity due to physical
                           or mental illness);

                  (iv)     any willful or intentional act that could reasonably
                           be expected to injure the reputation, business or
                           business relationships of Lifecore;

                  (v)      Executive's embezzlement or misappropriation of funds
                           of Lifecore; or

                  (vi)     Executive's conviction (including conviction on a
                           nolo contendere plea) of a felony or any crime
                           involving fraud, dishonesty or moral turpitude.

         If Executive commits an act or omission which provides the Board with
cause to terminate this Agreement and Executive's employment under parts (i),
(ii), (iii) or (iv) above, Executive shall have 30 days to cure such act or
omission after the Board provides Executive written notice of the act or
omission, such notice to describe such failure to perform and identify what
reasonable actions shall be required to cure such failure to perform and the
Board's belief that cause exists to terminate under this Section 5.03 (i), (ii),
(iii) or (iv); provided, however, that the Board has no obligation to provide
Executive with notice of and an opportunity to cure an act or omission relating
to the same or similar issue more than two times during the Term. Upon the

                                       3


third occurrence of an act or omission relating to the same or similar issue or
the Board's belief that cause exists under (iv) or (v), the Board may terminate
Executive's employment under this Section 5.03 immediately and without prior
notice or opportunity to cure.

         In the event that Lifecore terminates Executive's employment at any
time prior to the expiration of the Term for cause under 5.03 (i), (ii), (iii)
or (iv), Lifecore shall pay Executive as severance pay an amount equal to six
(6) months of base salary as set forth in Section 4.01. Executive shall only be
entitled to such severance pay if Executive signs (and does not rescind) a
general release of claims in a form acceptable to Lifecore ("Release"). Such
Release shall not waive claims to payments under Sections 6 or 8.01 of this
Agreement. If Executive does not sign such a Release (or does sign and rescinds
such Release), Executive shall not be entitled to receive any further
compensation under the provisions of this Section 5.03 after the date of
termination. Any severance payment made under this Section 5.03 will be paid
according to Lifecore's normal payroll schedule and shall be subject to all
required withholdings and deductions.

         With respect to any termination for any of the matters set forth in
5.03 (i), (ii), (iii) or (iv) above, should Executive object to the termination
and not sign a Release, Executive and Lifecore shall submit the matter to a
mutually agreed-upon neutral decision maker, who shall be an attorney with at
least 10 years employment law experience, to decide whether cause (as defined in
this Section) exists. If Executive and Lifecore cannot agree upon such a neutral
decision maker, each shall appoint one neutral decision maker, who shall be an
attorney with at least 10 years employment law experience, and the two neutral
decision makers so chosen shall choose a third neutral decision maker, who also
shall be an attorney with at least 10 years employment law experience. If cause
is found by the neutral decision maker(s) not to exist, Lifecore shall pay the
fee(s) of the decision maker(s); if cause is found to exist, Executive shall pay
such fees. Each party shall pay its own costs and fees regardless of the finding
of the decision makers. If cause is found not to exist, Executive's termination
shall be considered as to have occurred pursuant to Section 5.04 of this
Agreement.

         5.04     Termination by Lifecore Without Cause. Except as otherwise set
forth in Section 8.01, Lifecore may terminate Executive's employment at any time
prior to the expiration of the Term without cause, and without prior notice,
provided Lifecore pays to Executive as severance pay an amount equal to twelve
(12) months of base salary as set forth in Section 4.01. Executive shall only be
entitled to such severance pay if Executive signs (and does not rescind) a
Release. If Executive does not sign such a Release (or does sign and rescinds
such Release), Executive shall not be entitled to receive any further
compensation under the provisions of this Section 5.04 after the date of
termination. Such Release shall not waive claims to payments under Sections 6 or
8.01 of this Agreement. Any severance payment made under this Section 5.04 will
be paid according to Lifecore's normal payroll schedule and shall be subject to
all required withholdings and deductions. In the event that Executive's
employment is terminated without cause following a Change In Control as set
forth in Section 8.01, Executive shall only be eligible for compensation as set
forth in Section 8.01 in lieu of any compensation under this Section 5.04.

         5.05     Termination by Executive. Except as otherwise set forth in
Section 8.01, Executive may terminate this Agreement at any time during its Term
by giving 30-days written

                                       4


notice thereof to the Board. Upon notice of termination by Executive under this
Section 5.05, Lifecore may at its option elect to have Executive cease to
provide services immediately, provided that during such 30-day notice period
Executive shall be entitled to base salary pursuant to Section 4.01.

         5.06     Effect of Termination. Notwithstanding any termination of
Executive's employment with Lifecore, Executive, in consideration of Executive's
employment hereunder to the date of such termination, shall remain bound by the
provisions of this Agreement which specifically relate to periods, activities or
obligations upon or subsequent to the termination of Executive's employment,
including, but not limited to, the covenants contained in Sections 6 and 7.
Except as set forth in Sections 5.03, 5.04, 6.03 and 8.01, Executive shall not
be eligible to earn any further compensation under the provisions of this
Agreement following termination.

         5.07     Surrender of Records and Property. Upon termination of
Executive's employment with Lifecore, Executive shall deliver promptly to
Lifecore all records, manuals, books, blank forms, documents, letters,
memoranda, notes, notebooks, reports, computer disks, computer software,
computer programs (including source code, object code, on-line files,
documentation, testing materials and plans and reports) designs, drawings,
formulae, data, tables or calculations or copies thereof, which are the property
of Lifecore or which relate in any way to the business, products, practices or
techniques of Lifecore, and all other property, Trade Secrets and Confidential
Information of Lifecore as defined in Section 7, including, but not limited to,
all tangible, written, graphical, machine readable and other materials
(including all copies) which in whole or in part contain any Trade Secrets or
Confidential Information of Lifecore which in any of these cases are in
Executive's possession or under Executive's control.

6.       Restrictive Covenants. Executive agrees that, due to Executive's
employment with Lifecore, Executive will have access to Lifecore's Trade Secrets
and Confidential Information as defined in Section 7, including but not limited
to: Lifecore's current and proposed plans and strategies in sales, marketing,
target customers, product development and pricing; customer-specific information
generated and compiled by Lifecore; Lifecore's national customer management
database (MarketForce) which contains an exhaustive compilation of information
regarding Lifecore's customers and potential customers nationwide; and
Lifecore's financial information. Executive acknowledges that Lifecore will only
release these Trade Secrets and Confidential Information upon the receipt of
assurances from Executive that Executive will not use the information to
Lifecore's disadvantage and, accordingly, agrees to the following provisions:

         6.01     Covenant Not To Compete. During Executive's employment by
Lifecore, and for a period of twelve (12) consecutive months from the date of
termination of such employment for whatever reason (whether occasioned by
Executive or Lifecore), Executive will not, directly or indirectly, in any
manner (e.g., as an executive, agent, consultant, partner, member, manager,
officer, director, shareholder, or otherwise), render services, advice or
assistance to any division, group or part of any corporation, person,
organization or other entity which engages in the marketing, selling,
production, design or development of any product, good, service or procedure
which is or may be used as an alternative to, or which is or may be sold in
competition with any product, good, service or procedure marketed, sold,
produced, designed or developed by Lifecore (including products, goods,
services, or procedures currently being researched or under

                                       5


development by Lifecore) (the "Competitive Business"), in any geographic
location, domestic or foreign, in which Executive performed services or had
responsibility on behalf of Lifecore. It is understood that Executive may render
services, advice or assistance to any separate division, group or part of any
corporation, person, organization or other entity which is not engaged in a
Competitive Business regardless of whether another separate division, group or
part of such corporation, person, organization or other entity is engaged in a
Competitive Business.

         6.02     Covenant Not To Solicit Business and Customers. During
Executive's employment by Lifecore, and for a period of twelve (12) consecutive
months from the date of termination of such employment for whatever reason
(whether occasioned by Executive or Lifecore), Executive shall not, directly or
indirectly, divert, solicit, or accept business from any client or prospective
client of Lifecore that was solicited or serviced by Lifecore or that Executive
supervised, directly or indirectly, in whole or in part, the solicitation or
services activities related to such clients or prospects or about whom Executive
received or had access to Confidential Information. Executive shall not,
directly or indirectly, in any way interfere, or attempt to interfere, with
Lifecore's relationships with any of its actual or potential vendors or
suppliers.

         6.03     Extension of Covenant Not To Compete and Covenant Not To
Solicit Business and Customers. Executive further acknowledges and agrees that
the duration of the Covenant Not To Compete and Covenant Not To Solicit Business
and Customers may be extended, at the sole discretion of Lifecore, for up to
two, additional six-month periods upon written notice at least sixty (60) days
prior to the date the Covenant Not To Compete and Covenant Not To Solicit
Business and Customers otherwise would expire. Should Lifecore elect to extend
these covenants, Lifecore agrees to pay to Executive his monthly base salary, as
set forth in Section 4.01, for each month during the period of the extension
unless Executive receives payment under Section 8.01(iv) which shall constitute
payment for any extension of the Covenant Not To Compete under Section 6.01 and
the Covenant Not to Solicit Business and Customers under Section 6.02.

         6.04     Remedies for Breach of Covenant Not To Compete or Covenant Not
To Solicit Business and Customers. In the event that Lifecore determines, in its
sole discretion, that Executive has failed to comply with the Covenant Not To
Compete or the Covenant Not To Solicit Business and Customers during either
their original term or any extended duration, Lifecore may give notice of such
determination to Executive and if Executive does not challenge such
determination in good faith within 10 days of his receipt of such notification,
Lifecore may terminate any further payments to Executive, including any
severance for which Executive may be eligible. In the event Executive challenges
such determination in good faith within such 10 day period, Lifecore shall
continue to make such payments to Executive for a minimum of 60 days following
Lifecore's notice to Executive, but thereafter may terminate any further such
payments to Executive. In either case, Lifecore may seek injunctive relief
pursuant to Section 9.07 immediately following notice to Executive.

         6.05     Covenant Not To Solicit For Employment. During Executive's
employment by Lifecore, and for a period of twelve (12) consecutive months from
the date of termination of such employment for whatever reason (whether
occasioned by Executive or Lifecore), Executive shall not, directly or
indirectly, induce, solicit, endeavor to entice or attempt to induce any other

                                       6


Executive, consultant or independent contractor of Lifecore to leave the employ
of Lifecore, or to work for, render services or provide advice to, or supply
Confidential Information of Lifecore to, any third person or entity, or to in
any way adversely interfere with the relationship between any such Executive,
consultant or independent contractor and Lifecore.

         6.06.    Notification of Employment. If at any time covered by the
Covenants contained in this Section 6, Executive accepts new employment or
becomes affiliated with a third party, Executive shall immediately notify
Lifecore of the identity and business of the new employer or affiliation.
Without limiting the foregoing, Executive's obligation to give notice under this
Section 6.06 shall apply to any business ventures in which Executive proposes to
engage, even if not with a third-party employer (such as, without limitation, a
joint venture, partnership or sole proprietorship). Executive hereby consents to
Lifecore notifying any such new employer or business venture of the terms of the
covenants in this Section 6.

7.       Inventions and Confidential Information. For purposes of this
Agreement, the following terms shall mean:

                  (i)      "Confidential Information" includes Trade Secrets,
                           Business Information, Personnel Information, and
                           Customer Information.

                  (ii)     "Trade Secrets" means any information (including any
                           compilation, device, method, technique or process)
                           that: (A) derives independent economic value, actual
                           or potential, from not being generally known to, and
                           not being readily ascertainable by proper means by,
                           other persons who can obtain economic value from its
                           disclosure or use, and (B) is the subject of efforts
                           that are reasonable under the circumstances to
                           maintain its secrecy. The existence of a Trade Secret
                           will not be negated merely because a person has
                           acquired a Trade Secret without express or specific
                           notice that it is a Trade Secret if, under all the
                           circumstances, such person knows or has reason to
                           know that the party who owns the information or has
                           disclosed it intends or expects the secrecy of the
                           type of information comprising the Trade Secret to be
                           maintained. Trade Secret information includes
                           information of the Corporation, its customers,
                           suppliers, joint ventures, licensors, licensees,
                           distributors and other entities with which the
                           Corporation does business.

                  (iii)    "Business Information" means any and all Confidential
                           Information pertaining to: proposed products;
                           proposed technologies; current or proposed product
                           tests; current or proposed manufacturing costs,
                           marketing plans, and product or service pricing; and
                           financial projections in any way relating to the
                           foregoing.

                  (iv)     "Personnel Information" means information about the
                           names, addresses, duties or other personal
                           characteristics of employees of Lifecore, and
                           includes, without limitation, information in any way
                           relating to diagnosis or treatment services provided
                           by any health care provider.

                  (v)      "Customer Information" means the names, addresses and
                           other information relating to any current or proposed
                           customer of Lifecore, and

                                       7


                           the contractual terms and conditions, including
                           prices, that Lifecore has established with any of its
                           customers.

                  (vi)     "Invention" means any discovery, improvement, idea,
                           process, development, design, know-how, data, and
                           formula, whether patentable or unpatentable, or
                           protectable by copyright or other intellectual
                           property law.

         7.01     Disclosure and Assignment of Inventions. Executive agrees that
he will promptly disclose to Lifecore all Inventions and Confidential
Information generated, conceived, or reduced to practice by him alone or in
conjunction with others, during or after working hours, while Executive has been
employed by Lifecore or within 24 months thereafter; and all such inventions and
Confidential Information shall be the exclusive property of Lifecore and are
hereby assigned to Lifecore Further, Executive agrees, at Lifecore's expense, to
give Lifecore all assistance it reasonably requires to perfect, protect, and use
its right to Executive's Inventions and Confidential Information. Pursuant to
Minnesota Statutes Section 181.78, the provisions of this section do not apply
to any Invention of Executive if it (1) was developed entirely on his own time;
(2) was not made with the use of Confidential Information or any equipment,
supplies, or facilities of Lifecore; (3) is unrelated, directly or indirectly,
to the business of Lifecore or to Lifecore's actual or demonstrably anticipated
research or development; and (4) did not result from any work performed by him
for Lifecore. Attached as Exhibit A is a list of Inventions Executive believes
falls under this provision.

         7.02     Nondisclosure of Trade Secrets and Confidential Information.
During and after Executive's employment with Lifecore, Executive will (1) use
Trade Secrets and Confidential Information only as may be necessary and proper
to perform Executive's duties for Lifecore; (2) keep in strictest confidence and
trust all Trade Secrets and Confidential Information that is disclosed to
Executive or to which Executive has access; (3) comply with all applicable
policies and standard procedures established by Lifecore to maintain the secrecy
and confidentiality of Trade Secrets and Confidential Information; (4) not,
directly or indirectly, without the prior written consent of Lifecore, copy,
disseminate or otherwise disclose Trade Secrets and Confidential Information to
any person or entity; and (5) other than in the proper performance of
Executive's duties, remove any tangible Trade Secrets and Confidential
Information from the premises where such information is kept. Executive will
provide all necessary assistance that Lifecore requests to maintain the secrecy
and confidentiality of Trade Secrets and Confidential Information.

         7.03     Lifecore's Rights over Publication by Executive. Executive
further acknowledges and agrees that Lifecore will have the right to refuse
publication of any papers prepared by Executive as a result of Executive's
employment, consultation, work or services, with, for, on behalf of or in
conjunction with Lifecore. Proposed publications referring to Executive's
employment, consultation, work, services and activities with, for, on behalf of
or in conjunction with Lifecore, or referring to any information developed
therefrom, will be submitted by Executive to Lifecore or the Board for review,
prior to publication, to insure that Lifecore's position with respect to
Confidential Information is not adversely affected by publication disclosures.
Executive agrees to abide by Lifecore's or the Board's reasonable decisions in
these matters.

                                       8


         7.04     Return of Documents and Tangible Property. Executive
acknowledges and agrees that all documents and other tangible property relating
in any way to the business of Lifecore which are conceived or generated by
Executive or come into his possession during Executive's employment shall be and
remain the exclusive property of Lifecore, and Executive agrees to return all
such documents and tangible property to Lifecore on termination of employment or
at such earlier time as Lifecore or the Board may request Executive to do so.

8.       Effect of Change in Control. For purposes of this Section 8, the
following terms shall have the following meanings:

                  (i)      "Change in Control" shall mean any of the following
                           which may occur after the Effective Date of this
                           Agreement:

                           (a)      a change in control of a nature that would
                                    be required to be reported in response to
                                    Item 6(e) of Schedule 14A of Regulation 14A
                                    promulgated under the Securities Exchange
                                    Act of 1934, as amended (the "Exchange
                                    Act"), or successor provision thereto,
                                    whether or not Lifecore is then subject to
                                    such reporting requirement;

                           (b)      any "person" (as such term is used in
                                    Sections 13(d) and 14(d) of the Exchange
                                    Act) is or becomes the "beneficial owner"
                                    (as defined in Rule 13d-3 promulgated under
                                    the Exchange Act), directly or indirectly,
                                    of securities of Lifecore representing 35%
                                    or more of the combined voting power of
                                    Lifecore's then outstanding securities;

                           (c)      the sale, lease, exchange or other transfer,
                                    directly or indirectly, of all or
                                    substantially all of the assets of Lifecore,
                                    in one transaction or in a series of related
                                    transactions;

                           (d)      a merger or consolidation to which Lifecore
                                    is a party if the shareholders of Lifecore
                                    immediately prior to the effective date of
                                    such merger or consolidation have
                                    "beneficial ownership" (as defined in Rule
                                    13d-3 promulgated under the Exchange Act)
                                    immediately following the effective date of
                                    such merger or consolidation of securities
                                    of the surviving Lifecore representing less
                                    than 50 percent of the combined voting power
                                    of the surviving corporation's then
                                    outstanding securities;

                           (e)      the Continuing Directors cease to constitute
                                    a majority of Lifecore's Board of Directors;
                                    provided that such change is the direct or
                                    indirect result of a proxy fight and
                                    contested election or elections for
                                    positions on the Board of Directors; or

                           (f)      the Board of Directors of Lifecore
                                    determines, it its sole and absolute
                                    discretion, that there has been a change in
                                    control of Lifecore.

                           provided, however, that notwithstanding the
                           foregoing, Lifecore and

                                       9


                           Executive agree that in no event shall a sale, lease,
                           exchange, merger, consolidation or any other
                           transaction involving only one of Lifecore's
                           Hyaluronan Division or Oral Restorative Division,
                           without the other, constitute a Change in Control for
                           purposes of this Agreement.

                  (ii)     "Continuing Director" shall mean only those directors
                           of Lifecore on the date of this Agreement and those
                           directors, as of a date 30 days prior to an event
                           that would otherwise be considered a "Change in
                           Control," who were nominated by Continuing Directors
                           and duly elected by shareholders at a meeting thereof
                           or nominated and elected by directors who were
                           "Continuing Directors."

                  (iii)    "Good Reason" shall mean:

                           (a)      Lifecore effects a material diminution of
                                    Executive's title or duties;

                           (b)      any requirement that Executive report to
                                    other than the Board or its successor or
                                    Parent Corporation, if any;

                           (c)      any requirement that Executive move his
                                    regular office to a location more than 50
                                    miles from Lifecore's Executive offices;

                           (d)      the failure by Lifecore, or its successor or
                                    Parent Corporation, if any, to pay
                                    compensation or provide benefits or
                                    perquisites to Executive as and when
                                    required by the terms of this Agreement;

                           (e)      a reduction by Lifecore in Executive's base
                                    salary as in effect immediately prior to a
                                    Change in Control; or

                           (f)      any material breach by Lifecore of this
                                    Agreement; provided, however, that a
                                    termination pursuant to this Section shall
                                    not become effective unless Lifecore fails
                                    to cure such event within thirty (30) days
                                    after written notice from Executive, such
                                    notice to describe such failure to perform
                                    and identify what reasonable actions shall
                                    be required to cure such failure to perform.

         8.01     Termination by Executive for Good Reason Following A Change in
Control; Termination by Lifecore Without Cause Following A Change in Control. In
the event that Executive's employment is terminated either by Lifecore without
cause or by Executive for Good Reason within three (3) months prior to or nine
(9) months following a Change in Control, Lifecore shall pay the following
amounts to Executive provided that Executive signs (and does not rescind) a
Release:

                  (i)      any accrued but unpaid salary (as determined pursuant
                           to Section 4.01) for services rendered through the
                           date of termination;

                  (ii)     any accrued but unpaid expenses required to be
                           reimbursed pursuant to Section 4.06;

                  (iii)    any amount earned by Executive as a bonus with
                           respect to the fiscal year of Lifecore preceding the
                           fiscal year in which such termination of

                                       10


                           employment occurs if such bonus has not theretofore
                           been paid to Executive; and

                  (iv)     in lieu of and not in addition to, any further base
                           salary payments to Executive for periods subsequent
                           to the date that the termination of Executive's
                           employment becomes effective (as provided under 5.03,
                           5.04 or 8.01), Lifecore shall pay as severance pay to
                           Executive a lump-sum cash amount equal to three (3)
                           times the annualized base salary (as in effect in the
                           month preceding the month in which the termination
                           becomes effective or as in effect in the month
                           preceding a Change in Control, whichever is higher).

In the event that Executive does not sign a Release or signs and rescinds such
Release, Executive shall receive only the amounts set forth in Section
8.01(i)-(iii).

In the event that any payment or benefit received or to be received by Executive
in connection with a change in control of Lifecore or termination of Executive's
employment (whether payable pursuant to the terms of this Agreement or any other
plan, contract, agreement or arrangement with Lifecore, with any person whose
actions result in a change in control of Lifecore or with any person
constituting a member of an "affiliated group" as defined in Section 280G(d)(5)
of the Internal Revenue Code of 1986, as amended (the "Code"), with Lifecore or
with any person whose actions result in a change in control of Lifecore)
(collectively, the "Total Payments") would not be deductible (in whole or in
part) by Lifecore or such other person making such payment or providing such
benefit solely as a result of Section 280G of the Code, the amount payable to
Executive pursuant to Section 8.01(iv) hereof shall be reduced until no portion
of the Total Payments is not deductible solely as a result of Section 280G of
the Code or such amount payable to Executive pursuant to Section 8.01(iv) is
reduced to zero. For purposes of this limitation, (a) no portion of the Total
Payments shall be taken into account which in the opinion of tax counsel
selected by Lifecore does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code (such as payments payable pursuant to
Lifecore's standard or general severance policies); (b) the payment pursuant to
Section 8.01(iv) shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in the immediately preceding clause (a))
in their entirety constitute reasonable compensation within the meaning of
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (a); and (c) the value of any other non-cash
benefit or of any deferred cash payment included in the Total Payments shall be
determined by Lifecore's independent auditors in accordance with the principles
of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty as to whether
all or some portion of a payment is or is not payable to Executive under this
Agreement, Lifecore shall initially make the payment to the Executive, and
Executive agrees to refund to Lifecore any amounts ultimately determined not to
have been payable under the terms hereof.

9.       Miscellaneous.

                                       11


         9.01     Governing Law and Venue Selection. This Agreement is made
under and shall be governed by and construed in accordance with the laws of the
State of Minnesota, without regard to its conflicts of laws principles or those
of any other State.

         9.02     Entire Agreement. This Agreement (including other agreements
specifically mentioned in this Agreement except as terminated herein) contains
the entire agreement of the parties relating to the employment of Executive by
Lifecore and the other matters discussed herein and supersedes, terminates and
replaces all prior promises, contracts, agreements (including, but not limited
to, the 1991 Agreement, the 1995 Amendment and the 1996 Amendment) and
understandings of any kind, whether express or implied, oral or written, with
respect to such subject matter (including, but not limited to, any promise,
contract or understanding, whether express or implied, oral or written, by and
between Lifecore and Executive), and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein or in the other agreements mentioned herein.

         9.03     Withholding Taxes. Lifecore may take such action as it deems
appropriate to insure that all applicable federal, state, city and other
payroll, withholding, income or other taxes arising from any compensation,
benefits or any other payments made pursuant to this Agreement, or any other
contract, agreement or understanding which relates, in whole or in part, to
Executive's employment with Lifecore, are withheld or collected from Executive.

         9.04     Amendments. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by Executive and
Lifecore.

         9.05     No Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived, and shall not
constitute a waiver of such term or condition for the future or as to any act
other than as specifically set forth in the waiver.

         9.06     Assignment. This Agreement shall not be assignable, in whole
or in part, by any party without the written consent of the other party, except
that Lifecore may, without the consent of Executive, assign its rights and
obligations under this Agreement to any Lifecore affiliate or to any
corporation, firm or other business entity with or into which Lifecore may merge
or consolidate, or to which Lifecore may sell or transfer all or substantially
all of its assets, or of which 50% or more of the equity investment and of the
voting control is owned, directly or indirectly, by, or is under common
ownership with, Lifecore. After any such assignment by Lifecore, Lifecore shall
be discharged from all further liability hereunder and such assignee shall
thereafter be deemed to be Lifecore for the purposes of all provisions of this
Agreement including this Section 9.06.

         9.07     Injunctive Relief. Executive acknowledges and agrees that the
services to be rendered by Executive hereunder are of a special, unique and
extraordinary character, that it would be difficult to replace such services and
that any violation of Sections 5.06, 6, or 7 hereof would be highly injurious to
Lifecore, and that it would be extremely difficult to compensate

                                       12


Lifecore fully for damages for any such violation. Accordingly, Executive
specifically agrees that Lifecore shall be entitled to temporary and permanent
injunctive relief to enforce the provisions of Sections 5.06, 6, or 7 hereof,
and that such relief may be granted without the necessity of proving actual
damages and without necessity of posting any bond. This provision with respect
to injunctive relief shall not, however, diminish the right of Lifecore to claim
and recover damages, or to seek and obtain any other relief available to it at
law or in equity, in addition to injunctive relief.

         9.08     Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, or any dispute arising from or
related in any way to Executive's employment, including any statutory or tort
claims, shall be discussed between the disputing parties in a good faith effort
to arrive at a mutual settlement of any such controversy. If such dispute cannot
be resolved, such dispute shall be settled by binding arbitration, except that
Lifecore may elect to seek such temporary or preliminary injunctive relief from
an appropriate court pursuant to Section 9.07 as may be necessary to protect its
interest prior to arbitration.

Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or federal
judge or an attorney who has practiced business or employment litigation for at
least 10 years. If the parties cannot agree on an arbitrator within 20 days,
either party may request that the chief judge of the district court for Hennepin
County, Minnesota, select an arbitrator. If the chief judge does not select an
arbitrator within 30 days of such request, either party may request that the
American Arbitration Association (AAA) designate a panel of five proposed
arbitrators meeting the criteria set forth in this Section, and the parties
shall alternate striking members of the panel, with Executive having the first
strike, until an arbitrator is thereby selected. Arbitration will be conducted
pursuant to the provisions of this Agreement, and the applicable arbitration
rules of the AAA, unless such rules are inconsistent with the provisions of this
Agreement, but, unless an arbitrator is selected through the AAA, without
submission of the dispute to the AAA. Each party shall be permitted reasonable
discovery, including the production of relevant documents by the other party,
exchange of witness lists, and a limited number of depositions, including
depositions of any experts who will testify at the arbitration. The summary
judgment procedure applicable in Hennepin County, Minnesota, District Court
shall be available and apply to any arbitration conducted pursuant to this
Agreement. The arbitrator shall have the authority to award to the prevailing
party any remedy or relief that a court of the State of Minnesota could order or
grant, including costs and attorneys' fees. Unless otherwise agreed by the
parties, the place of any arbitration proceedings shall be Minneapolis,
Minnesota.

         9.09     Severability. To the extent any provision of this Agreement
shall be determined to be invalid or unenforceable in any jurisdiction, such
provision shall be deemed to be deleted from this Agreement as to that
jurisdiction only, and the validity and enforceability of the remainder of such
provision and of this Agreement shall be unaffected. In furtherance of and not
in limitation of the foregoing, Executive expressly agrees that should the
duration of, geographical extent of, or business activities covered by, any
provision of this Agreement be in excess of that which is valid or enforceable
under applicable law in a given jurisdiction, then such provision, as to such
jurisdiction only, shall be construed to cover only that duration, extent or
activities that may validly or enforceably be covered. Executive acknowledges
the uncertainty

                                       13


of the law in this respect and expressly stipulates that this Agreement shall be
construed in a manner that renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law
in each applicable jurisdiction.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in the first paragraph.

                                              LIFECORE BIOMEDICAL, INC.

                                              By /s/ John C. Heinmiller
                                                --------------------------------

                                              Name: John C. Heinmiller

                                              Title: Director

                                              EXECUTIVE

                                              /s/ James W. Bracke
                                              ----------------------------------
                                              James W. Bracke

                                       14


                                    EXHIBIT A

None

                                       15

EX-31.1

                                                                    EXHIBIT 31.1

            CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

         I, James W. Bracke, Ph.D., certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Lifecore Biomedical,
     Inc.;

2.   Based on my knowledge, this quarterly 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 quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly 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
     quarterly report;

4.   The registrant's other certifying officer 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)) for the registrant and we
     have:

     -    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 quarterly report is being prepared;

     -    evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this quarterly report our conclusions
          about the effectiveness of the disclosure controls and procedures as
          of the end of the period covered by this quarterly report based on
          such evaluation; and

     -    disclosed in this quarterly report any change in the registrant's
          internal control over financial reporting that occurred during the
          registrants most recent fiscal quarter that has materially affected,
          or is reasonably likely to materially affect, the registrants internal
          control over financial reporting.

5.   The registrant's other certifying officer 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 registrant's board of
     directors (or persons performing the equivalent function):

     -    all significant deficiencies and material weaknesses in the design or
          operation of internal controls over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     -    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: November 10, 2003       By /s/ JAMES W. BRACKE
                                                 -------------------------------
                                              James W. Bracke, Ph.D.
                                              President, Chief Executive Officer
                                              (principal executive officer),
                                              Secretary and Director

EX-31.2

                                                                    EXHIBIT 31.2

            CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

         I, Dennis J. Allingham, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Lifecore Biomedical,
     Inc.;

2.   Based on my knowledge, this quarterly 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 quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly 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
     quarterly report;

4.   The registrant's other certifying officer 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)) for the registrant and we
     have:

     -    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 quarterly report is being prepared;

     -    evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this quarterly report our conclusions
          about the effectiveness of the disclosure controls and procedures as
          of the end of the period covered by this quarterly report based on
          such evaluation; and

     -    disclosed in this quarterly report any change in the registrant's
          internal control over financial reporting that occurred during the
          registrants most recent fiscal quarter that has materially affected,
          or is reasonably likely to materially affect, the registrants internal
          control over financial reporting.

5.   The registrant's other certifying officer 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 registrant's board of
     directors (or persons performing the equivalent function):

     -    all significant deficiencies and material weaknesses in the design or
          operation of internal controls over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     -    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: November 10, 2003       By /s/ DENNIS J. ALLINGHAM
                                                 -------------------------------
                                              Dennis J. Allingham
                                              Executive Vice President and Chief
                                              Financial Officer
                                              (principal financial officer)

EX-32.1

                                                                    EXHIBIT 32.1

              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Lifecore Biomedical, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James W. Bracke, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act oF 2002, that:

(1)  The Report fully complies with the requirements of section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material
     respects, the financial condition and result of operations of the Company.

By /s/ JAMES W. BRACKE
   ---------------------------------------
James W. Bracke, Ph.D.
President, Chief Executive Officer
(principal executive officer), Secretary and Director
November 10, 2003

EX-32.2

                                                                    EXHIBIT 32.2

              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Lifecore Biomedical, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Dennis J. Allingham, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

(3)  The Report fully complies with the requirements of section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

(4)  The information contained in the Report fairly presents, in all material
     respects, the financial condition and result of operations of the Company.

By /s/ DENNIS J. ALLINGHAM
   -------------------------------------------
Dennis J. Allingham
Executive Vice President and Chief Financial Officer
(principal financial officer)
November 10, 2003