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Exhibit 10.77

ASSET PURCHASE AGREEMENT

NutraCea, a California corporation (“Seller”), and Kerry Inc., a Delaware
corporation (“Buyer”) agree, effective as of February 11, 2010 (“Effective
Date”), as follows:

1.             Background and Purpose

1.1           Bankruptcy.  Seller is the debtor and debtor-in-possession in
Chapter 11 Case No. 2:09-bk-28817-PHX-CGC (“Bankruptcy Case”), which is
presently pending in the United States Bankruptcy Court for the District of
Arizona (“Bankruptcy Court”).

1.2           Purchase and Sale.  Seller desires to sell, transfer and assign to
Buyer, and Buyer desires to purchase, acquire and assume from Seller, pursuant
to Sections 363 and/or 365 of the United States Bankruptcy Code, 11 U.S.C. §§
101 et. seq., all of the Purchased Assets and Assumed Liabilities, as those
terms are defined below, upon the terms and conditions set forth in this Asset
Purchase Agreement (“Agreement”).

1.3           Bankruptcy Court Approval.  This Agreement and Seller’s
obligations hereunder are subject to approval by the Bankruptcy Court in the
Bankruptcy Case.

2.             Purchase and Sale of Assets; Assumption of Obligations.

2.1.           Purchased Assets.  On the terms and subject to the conditions set
forth in this Agreement, at the Closing, Buyer shall purchase, acquire and
accept from Seller, and Seller shall sell, transfer, assign, convey and deliver
to Buyer all of Seller’s right title and interest in the Purchased Assets, free
and clear of all liens.  “Purchased Assets” shall mean, all of the following
assets of Seller used, or intended for use by Seller, in Seller’s infant cereal
business (“Business”), and excluding any of the Excluded Assets described in
Section 2.2:

(a)           Equipment.  The equipment, machinery, tools and assets used in the
Business including, but not limited to, those listed on Schedule 2.1(a)
(“Equipment”);

(b)           Inventory.  All inventory of the Business existing at the Closing,
including raw materials, work in progress inventory, packaging materials,
finished goods and goods held for resale, but excluding any inventory that is
(i) obsolete, (ii) in excess of the quantity that could be used in the normal
course of the business of the Business and (iii) has a shelf life of less than
one hundred twenty (120) days (“Inventory”);

(c)           Contract Rights.  All purchase orders for products of the Business
in existence at the Closing (other than purchase orders 3 and 4 from Biostime,
which purchase orders Buyer has reviewed) including, but not limited to, those
purchase orders described on Schedule 2.1(c) (“Assigned Contracts”);

(d)           Customer and Supplier Lists and Trading Data.  All customer and
supplier lists relating solely to the Business and all historical trading data
(customer and supplier) relating solely to the Business.  For purpose of this
Section 2.1(d), “historical trading data” shall mean data such as purchase
orders, quality data, production and service data, stacking information, and the
like (but not including routine e-mails between Seller and the customer or
supplier) relating to the manufacture and sale of products of the Business
during calendar years 2008 and 2009 and through the date of this Agreement;

 
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(e)           Intellectual Property.  All intellectual property, including
know-how, used by Seller in and which is specific to the Business.   With
respect to intellectual property of Seller used in the Business but which is not
specific to the Business and which Buyer shall reasonably need in order to
conduct the Business as conducted prior to the Closing, Seller shall grant Buyer
a nonexclusive, royalty-free license to use such intellectual property as
provided in a license agreement in the form of Exhibit A hereto; and

(f)            Fixtures.  The fixtures, if any, described in Schedule 2.1(f)
(the “Purchased Fixtures”).

2.2.           Excluded Assets.  Nothing herein contained shall be deemed to
sell, transfer, assign or convey Excluded Assets to Buyer, and Seller shall
retain all right, title and interest to, in and under the Excluded
Assets.  “Excluded Assets” shall mean any asset not specifically identified as a
Purchased Asset in Section 2.1.  Without limiting the generality of the
foregoing, Excluded Assets include the following assets of Seller:

(a)           This Agreement.  Any and all rights of Sellers in this Agreement
and any agreement or document entered into or delivered pursuant to this
Agreement;

(b)           Avoidance Claims.  All avoidance claims or causes of action
arising under the Bankruptcy Code or applicable state law;

(c)           Contracts.  All purchase orders or agreements of Seller that are
not Assigned Contracts;

(d)           Accounts Receivable.  All accounts receivable (including unbilled
receivables), prepaid assets and deposits, unbilled costs and fees, any rights
under any credit facilities or letters of credit, including, without limitation,
any such assets that relate to the Business and that arise prior to the Closing;

(e)           Insurance. All rights under Sellers’ insurance policies and any
right to refunds due with respect to such insurance policies and all rights of
Seller under or pursuant to all warranties, representations and guarantees made
by third parties relating to the Excluded Assets or liabilities of Seller to the
extent such liabilities are not Assumed Liabilities;

(f)            Benefit Plans.  Any rights to any employee benefit plans and any
records relating thereto;

(g)           Cash and Cash Equivalents.  All cash and cash equivalents
(including marketable securities and short-term investments);

(h)           Records.  Corporate seals, charter documents; minute books, stock
transfer records, or other records related to the corporation organization of
Seller;

 
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(i)            Taxes.  All claims for refund of taxes and other amounts and all
rights to tax loss carryforwards of Seller;

(j)            Director and Officer Claims.  Any claims against Seller’s
directors or officers;

 
(k)           Other Excluded Assets.  Other assets of Seller that are not used
in the Business;

(l)            Real Property and Fixtures.  Any real property (including the
plants of Seller located in Dillon, Montana and Phoenix, Arizona), real property
leases or fixtures other than the Purchased Fixtures;

(m)           Intellectual Property.  Subject to Buyer’s rights under the
license agreement referred to in Section 2.1 (e), all intellectual property
rights of Seller (1) relating to manufacturing or marketing stabilized rice bran
or rice bran oil, (2) not specific to the Business, or (3) consisting of
trademarks, trade names, copyrights, patents and applications therefor;

(n)           Other Equipment.  Any equipment, machinery, tools and assets of
like character used in Seller’s business in Dillon, Montana or other locations
other than at Seller’s facility in Phoenix, Arizona and the machinery,
equipment, tools and assets located in Seller’s Phoenix, Arizona plant described
on Schedule 2.2(n);

(o)           Employment Agreements.  Any employment agreements or personnel
records; and

(p)           Excluded Inventory.  Any inventory of the Business, which is not
included in the Inventory (the “Excluded Inventory”).

2.3           Assumption of Certain Obligations.  On the terms and subject to
the conditions set forth in this Agreement, at the Closing, Buyer shall assume,
effective as of the Closing, and shall timely perform and discharge in
accordance with their respective terms, the Assumed Obligations.  “Assumed
Obligations” shall mean the following obligations:

(a)           Assigned Contracts.  All obligations under the Assigned Contracts
to be performed after the Closing, including all warranty obligations for
products sold by Buyer after the Closing; and

(b)           Other Obligations.  Those obligations described on Schedule 2.3(b)
hereto.

2.4           Excluded Obligations.   Buyer shall not assume or be obligated to
pay, perform or otherwise discharge any obligation or liability of Seller
relating to the Business, direct or indirect, known or unknown, absolute or
contingent, not expressly assumed by Buyer pursuant to this Agreement or the
Assignment and Assumption Agreement (all such obligations and liabilities not
being assumed being herein called the “Excluded Obligations”).

 
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2.5           Purchase Price.

(a)           Purchase Price and Inventory.  Subject to automatic adjustment as
provided below in Section 6.1(e), in consideration of the transfer of the
Purchased Assets, Buyer shall pay to Seller an aggregate purchase price equal to
the sum of (i) Three Million, Nine Hundred Thousand Dollars ($3,900,000) and
(ii) Seller’s cost for the Inventory (not including the Excluded Inventory) (the
“Purchase Price”).

For purposes of this Agreement, Seller’s cost for the Inventory shall be based
on (i) a physical inventory taken by Seller approximately four (4) days before
the Closing, at which representatives of Buyer shall be permitted to be present
and (ii) the business records of the Business. Seller shall notify Buyer in
writing of the date and time for the taking of the inventory not less than five
(5) days in advance thereof.  Not less than three (3) days prior to the Closing,
Seller shall deliver to Buyer a written description of the Inventory and
Seller’s determination of the cost of the Inventory (“Inventory Notice”).  By
the end of the second day after the day on which Seller delivered the Inventory
Notice to Buyer, Buyer shall send written notice to Seller indicating whether or
not Buyer agrees with Seller’s determination of the items included in the
Inventory and/or the cost of the Inventory and the reasons why Buyer disagrees
with Seller’s determination of either the items included in or the cost of the
Inventory.  If Buyer does not timely deliver such notice, Buyer shall be deemed
to agree with Seller’s determination of the items included in and/or the cost of
the Inventory.  If Buyer disagrees with the Seller’s determination of the items
included in and/or the cost of the Inventory, Buyer and Seller shall meet by
telephone or as otherwise agree and attempt in good faith to resolve any such
disagreements.  In the event Buyer and Seller are not able to resolve such
disagreements, Buyer shall not be obligated to purchase or pay for that portion
of the Inventory which Buyer and Seller have been unable to agree should be
included in the Inventory or the cost thereof, and such items shall be included
in the Excluded Inventory.

(b)           Finder’s Fee.  At Closing, Two Hundred Thousand Dollars ($200,000)
of the Purchase Price shall be paid by Buyer on Seller’s behalf to Drum Drying
Resources, LLC in satisfaction of a finder’s fee owed by Seller to Drum Drying
Resources, LLC.

2.6.           Deposit.  On the date a Bid Procedures Order is issued by the
Bankruptcy Court, Buyer shall deliver to an escrow agent jointly selected by
Seller and Buyer (“Escrow Agent”) cash in the amount of Two Hundred Fifty
Thousand Dollars ($250,000) as an earnest money deposit (“Deposit”), to be held
in escrow pursuant to the terms and conditions of an escrow agreement mutually
acceptable to Seller and Buyer which shall provide for release of the Deposit as
provided in this Section 2.6 and Section 10.3.  If the Closing occurs, Escrow
Agent shall release the Deposit to Seller at the Closing as partial payment of
the Purchase Price.  If this Agreement is terminated before the Closing occurs,
then the Deposit shall be released as provided in Section 10.3.  Pending its
proper release pursuant to the provisions of this Section 2.6, the Deposit shall
be held by the Escrow Agent in an interest bearing escrow
account.  Notwithstanding anything contained herein to the contrary, any
interest which has accrued with respect to the Deposit, shall be released to the
Buyer from time to time in accordance with Buyer’s instructions to the Escrow
Agent.  Seller and Buyer agree to prepare, execute and deliver such written
instructions as the other party or the Escrow Agent may reasonably request to
ensure that the Deposit is released in accordance with this Section
2.6.  Nothing contained in this Section 2.6 shall be deemed to constitute a
limitation on damages or limit any remedies otherwise available to Buyer or
Seller.  Seller and Buyer shall each pay one half of the fees of the Escrow
Agent.  Seller shall acquire no rights in the Deposit other than as expressly
set forth herein, and the Deposit shall not become property of Seller’s
bankruptcy estate prior to the time that it is released, or should properly be
released, to Seller under the provisions of this Agreement.

 
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3.             Closing.  The closing of the purchase and sale contemplated by
this Agreement and the transfer of possession of the Purchased Assets shall be
given to Buyer (the “Closing”) at a closing to be held at the office of the
Escrow Agent on or before March 15,  2010, or on such other date as the parties
may agree, which date, however determined, is designated the "Closing Date."  At
the Closing:

3.1.           Deliveries by Seller.  Seller shall sign and deliver or cause to
be delivered to Buyer all documents and instruments necessary to carry out the
terms and provisions of this Agreement and to effectuate the purpose of the
transaction, including without limitation,

(a)           Officer’s Certificate.  A certificate of an authorized officer of
Seller dated the Closing Date, in form and substance reasonably satisfactory to
Buyer, certifying on behalf of Seller as to (i) the resolutions of the Board of
Directors of Seller authorizing the execution and performance of this Agreement
and the transactions contemplated hereby; and (ii) the incumbency and signatures
of the officers of Seller executing this Agreement and any other documents
delivered by Seller in connection with the Closing;

(b)           General Assignment and Bill of Sale.  A General Assignment and
Bill of Sale in form reasonably acceptable to Buyer and Seller covering all of
the applicable Purchased Assets (“General Assignment and Bill of Sale”);
 
(c)           Assignment and Assumption Agreement.  An Assignment and Assumption
Agreement in form reasonably acceptable to Buyer and Seller covering all of the
Assumed Liabilities (“Assignment and Assumption Agreement”);
 
(d)           Toll Processing Agreement.  A Toll Processing Agreement,
substantially in the form of Exhibit B to this Agreement (“Toll Processing
Agreement”);
 
(e)           Other Documents.  Such other certificates, assurances and
documents as may reasonably be requested by Buyer in connection with the
consummation of the transactions contemplated hereby;
 
(f)           Affidavit.  An affidavit, in appropriate form, that Seller is not
a “foreign person” within the meaning of Section 1445 of the Internal Revenue
Code; and
 
(g)           Funds Flow Memorandum.  A Funds Flow Memorandum in the form of
Exhibit C (“Funds Flow Memorandum”) duly executed by Seller.
 
3.2.           Deliveries by Buyer.  Buyer shall deliver or cause to be
delivered to Seller:

 
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(a)           Assignment and Assumption Agreement.  The Assignment and
Assumption Agreement duly executed by Buyer;
 
(b)           Toll Processing Agreement.  The Toll Processing Agreement duly
executed by Buyer;
 
(c)           Purchase Price.  An amount in immediately available funds equal to
the Purchase Price less the Deposit; and
 
(d)           Other Documents.  Such other certificates, assurances and
documents as may reasonably be requested by Seller in connection with the
consummation of the transactions contemplated hereby

3.3.           Instrument Date.  Unless otherwise provided herein, all such
documents and instruments so delivered shall be dated the Closing Date and be
satisfactory as to form and content to each party and their respective counsel.

4.           Representations and Warranties of Seller.  Seller hereby represents
and warrants to Buyer as follows:

4.1           Power and Authority.  Seller is a corporation, duly organized,
validly existing and in good standing under the laws of the State of
California.  Seller has the requisite corporate power and authority to enter
into this Agreement and, subject to the Bankruptcy Court’s entry of the Sale
Order and the Bidding Procedure Order, each as defined below, to perform its
obligations pursuant to this Agreement.  Seller's execution, delivery and
performance of this Agreement and all other agreements executed or to be
executed by Seller in connection with or pursuant to this Agreement have been
duly authorized by all requisite corporate authority of Seller.  Subject to the
Bankruptcy Court’s entry of the Sale Order, this Agreement and all other
agreements and instruments executed or to be executed by Seller in connection
with or pursuant to this Agreement constitute or will, when executed and
delivered, constitute the legal, valid and binding obligations of Seller and are
enforceable against Seller in accordance with their respective terms;

4.2           Due Execution and Delivery.  This Agreement has been duly executed
and delivered by Seller;

4.3           Title.  Subject to the entry of the Sale Order, at the Closing,
Seller has or will obtain good and marketable title to or valid and enforceable
right by contract to use the Purchase Assets, which shall be transferred to
Buyer free and clear of all liens, encumbrances and adverse claims.

4.4           Condition of Equipment.  As of the date hereof and as of the
Closing Date, to Seller’s knowledge, all of the Equipment, except as set forth
in Schedule 4.4, is in good and serviceable condition and suitable for the uses
intended, subject to normal wear and tear.

4.5           Inventory.  All of the items included in the Inventory shall be in
good, merchantable and useable condition and shall neither be (i) obsolete, (ii)
in excess of the quantity which could be used in the normal course of business
within three (3) months of the date of Closing, nor (iii) shall have a shelf
life of less than one hundred twenty (120) days.

 
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4.6           Assigned Contracts.  Except as set forth in Schedule 4.6 each of
the Assigned Contracts constitutes a valid and binding obligation of Seller and,
to the knowledge of Seller, all of the other parties thereto, and each such
contract is in full force and effect and, unless otherwise resulting from
actions of Buyer, will continue in full force and effect after the Closing Date
without breaching the terms thereof nor resulting in the forfeiture or
impairment of any rights thereof and without the consent or approval of any
other party.  Except as disclosed in writing to Buyer, as of the Closing Date,
Seller shall have fulfilled and performed all its obligations under each of the
Assigned Contracts that were to be performed as of such date, and Seller shall
not be in, nor shall Seller have received any notice that Seller is in, breach
or in default under any such contract.  Complete and correct copies of each of
the Assigned Contracts have been or will be delivered to Buyer prior to the
Closing Date.

4.7           Customers and Suppliers.  Set forth in Schedule 4.7 is the list of
the names and addresses of the five largest customers and the five largest
suppliers of Seller in respect of the Business and the percentage of the
Business which each such customer or supplier represents for each of the years
ended December 31, 2008 and 2009.

4.8           Warranties of Product.  The formal warranties provided under the
Assigned Contracts are contained in the terms of the Assigned
Contracts.  Schedule 4.8 sets forth a summary of the warranty expense incurred
by the Business during each of the years ended December 31, 2008, and 2009.

4.9           Pending Actions.  Except as set forth in Schedule 4.9, there
exists no pending nor, to the knowledge of Seller, threatened action, suit,
inquiry or investigation by any person or any governmental authority relating to
any product manufactured, distributed or sold by the Business to a third party
and which is alleged to have been defective or improperly manufactured or in
breach of any expressed or implied product warranty.

Schedules 4.4, 4.6, 4.7, 4.8 and 4.9 may be revised from time to time by Seller
prior to Closing to reflect any changes that occur from the Effective Date until
the Closing Date.  Seller shall promptly deliver such revised schedules to
Buyer.  Notwithstanding the foregoing, if any such revised Schedule or such
revised Schedules in the aggregate reflect changes that have an adverse effect
on the Business in an amount in excess of One Hundred Thousand Dollars
($100,000), Buyer, at its sole discretion, may terminate this Agreement.

5.             Representations and Warranties by Buyer.  Buyer hereby represents
and warrants to Seller as follows:

5.1           Corporate Organization.  Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own its properties and
assets and to conduct its businesses as now conducted.

 
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5.2           Authorization and Validity.  Buyer has all requisite corporate
power and authority to enter into this Agreement and has or will have all
requisite corporate power and authority to perform its obligations hereunder.
The execution, delivery and performance by Buyer of this Agreement and all other
agreements executed or to be executed by Buyer in connection with or pursuant to
this Agreement have been, or on the Closing Date will be, duly authorized by all
necessary corporate action by the Board of Directors of Buyer, and no other
corporate proceedings on the part of Buyer are necessary to authorize such
execution, delivery and performance. This Agreement has been duly executed by
Buyer and constitutes valid and binding obligations, enforceable against Buyer
in accordance with its terms.

5.3           No Conflict or Violation.  The execution, delivery and performance
by Buyer of this Agreement and any other agreements entered into by Buyer in
connection with this Agreement do not and will not (i) violate or conflict with
any provision of the certificate of incorporation or bylaws of Buyer, (ii)
violate any order, judgment or decree of any court or government applicable to
Buyer; or (iii) violate or result in a breach of or constitute (with due notice
or lapse of time or both) a default under any contract to which Buyer is party
or by which Buyer is bound or to which any of Buyer’s properties or assets is
subject.

5.4           Adequate Assurances Regarding Acquired Contracts. Buyer is capable
of satisfying the requirements of Section 365(f)(2)(B) of the Bankruptcy Code
with respect to the Assigned Contracts, and with respect to the Assigned
Contracts set forth in Schedule 2.1(c) is otherwise capable of performing all
obligations to be performed thereunder.

5.5           Adequacy of Funds.  Buyer has and on the Closing Date will have
access to sufficient resources to pay the Purchase Price and has provided Seller
reasonable assurances thereof prior to the date of this Agreement.

5.6           As Is, Where Is.  Buyer acknowledges that the representations and
warranties of Seller contained in Section 4 of this Agreement are the only
representations or warranties given by Seller and that all other express or
implied warranties are disclaimed. Without limiting the foregoing, Buyer
acknowledges that the Acquired Assets are conveyed “AS IS”, “WHERE IS” and “WITH
ALL FAULTS” and that all warranties of merchantability or fitness for a
particular purpose are disclaimed.  WITHOUT LIMITING THE FOREGOING, BUYER
ACKNOWLEDGES THAT NEITHER SELLER NOR ANY OF SELLER’S OFFICERS, DIRECTORS,
EMPLOYEES, REPRESENTATIVES OR AFFILIATES HAVE MADE ANY REPRESENTATION OR
WARRANTY CONCERNING ANY (A) USE TO WHICH THE ACQUIRED ASSETS MAY BE PUT; (B)
FUTURE REVENUES, COSTS, EXPENDITURES, CASH FLOW, RESULTS OF OPERATIONS,
FINANCIAL CONDITION OR PROSPECTS THAT MAY RESULT FROM THE OWNERSHIP, USE OR SALE
OF THE PURCHASED ASSETS OR THE ASSUMPTION OF THE ASSUMED LIABILITIES; OR (C)
OTHER INFORMATION OR DOCUMENTS MADE AVAILABLE TO BUYER OR ITS AFFILIATES OR
RELATED PERSONS.

6.             Bankruptcy Matters.

6.1           Bankruptcy Court Approval and Bid Procedures.

 
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(a)           This Agreement shall be subject to the consideration of higher or
better offers submitted in accordance with the procedures for the submission of
competing bids for the acquisition of the Purchased Assets as set forth on
Exhibit D hereto (the “Bid Procedures”).  Seller may provide information
concerning the Purchased Assets to prospective bidders who contact Seller, but
Seller may not consider, solicit, or negotiate the terms of any transaction
involving the sale or disposition of all or a material portion of the Business
or the Purchased Assets with any person or entity other than Buyer until the
Bankruptcy Court has entered an order that, among other things, approves the Due
Diligence Expense Reimbursement (as defined in the Bid Procedures) on the terms
set forth in this Agreement and approves the Bid Procedures and related matters
as set forth in Exhibit D (hereinafter referred to as the “Bid Procedures
Order”).  Thereafter, Seller may consider, solicit, engage in negotiations
regarding or accept an Alternative Transaction (as defined below) only as
permitted by the Bid Procedures Order.

(b)           Within not more than two (2) business days of the Effective Date,
Seller shall file (or shall have filed before the Effective Date) with the
Bankruptcy Court a motion (the “Bidding Procedures Motion”) that requests the
Bankruptcy Court’s entry of the Bid Procedures Order and a motion (the “Sale
Motion”) for entry of an order approving Seller’s execution and delivery of this
Agreement and the performance of its obligations hereunder pursuant to, inter
alia, Sections 105, 363 and 365 of the Bankruptcy Code and containing, among
other things, provisions substantially the same as those set forth in Exhibit E
and as Buyer otherwise may reasonably request (the “Sale Order”), as promptly as
practicable and in no event later than March 4, 2010 (the “Sale Order
Deadline”), and Seller shall consult with Buyer concerning all matters arising
in the Bankruptcy Case that relate to or may have a material effect on this
Agreement or the approval of the Bidding Procedures Motion or the Sale Motion.

(c)           Seller shall provide Buyer with copies of all motions,
applications, and supporting papers prepared by Seller (including forms of
orders and notices to interested parties) relating in any way to Buyer or the
transactions contemplated by this Agreement and shall obtain Buyer’s approval
thereof, which shall not be unreasonably withheld, prior to filing.

(d)           Seller shall give appropriate notice, and provide appropriate
opportunity for hearing, to all parties entitled thereto, of all motions,
orders, hearings or other proceedings relating to this Agreement or the
transactions contemplated hereby.  Without limiting the foregoing, the form,
substance and manner of giving of such notice, and the related opportunity for a
hearing, shall comply, to the extent applicable, with the Bankruptcy Code, the
Federal Rules of Bankruptcy Procedures, all applicable rules of the Bankruptcy
Court and any order of the Bankruptcy Court and such notice shall be reasonably
satisfactory to Buyer.

(e)           Seller acknowledges that Buyer has made (and will make) a
substantial investment of management time and has incurred (and (will incur)
substantial out-of-pocket expenses in connection with the negotiation of this
Agreement, its due diligence of the transaction and its efforts to consummate
the transactions contemplated by this Agreement.  Therefore, in consideration
thereof, Seller has agreed to seek as part of the Bid Procedures Order the
Bankruptcy Court’s approval of the provisions of this Agreement relating to the
Due Diligence Expense Reimbursement and Seller’s obligations in connection
therewith shall have the status of an administrative expense pursuant to Section
503(b)(1)(A) of the Bankruptcy Code.  Notwithstanding any other term or
provision in this Agreement to the contrary, to the extent the Bankruptcy Court
does not approve the Due Diligence Expense Reimbursement in the Bid Procedures
Order on the terms as set forth herein and Exhibit D as attached hereto, the
Purchase Price shall be deemed to be automatically reduced by an amount equal to
the difference between the amount of $150,000.00 and the actual amount, if any,
of the Due Diligence Expense Reimbursement that is approved by the Court in the
Bid Procedures Order.

 
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(f)            Seller will use its best efforts to obtain entry of the Bid
Procedures Order and Seller understands and acknowledges that without the
protection of the Due Diligence Expense Reimbursement or, alternatively, the
automatic adjustment to the Purchase Price as provided in Section 6.1(e) above,
Buyer would not have been willing to enter into this Agreement or consummate any
of the transactions as contemplated herein to acquire the Purchased Assets.  In
the event that Buyer becomes entitled to payment of the Due Diligence Expense
Reimbursement under the terms of the Bid Procedures, Buyer shall submit detailed
bills and invoices to Seller to establish the amount of its out-of-pocket
expenses, and any dispute in that regard shall be submitted to the Bankruptcy
Court for resolution.

(g)           Seller and Buyer each acknowledge that this Agreement is the
culmination of an extensive process undertaken by Seller to identify and
negotiate a transaction with a bidder who is prepared to pay the highest and
best purchase price for the Purchased Assets while assuming or otherwise
satisfying the Assumed Liabilities in order to maximize the value of those
assets to the estate. The overbid provisions and related bidder protections set
forth in the Bid Procedures attached hereto as Exhibit D and approved in the Bid
Procedures Order are designed to induce Buyer to enter into this Agreement and
to reimburse Buyer for its efforts and agreements to date and throughout the
sale process contemplated by the Bid Procedures Order as well as to facilitate a
full and fair process designed to maximize the value of the Purchased Assets for
the benefit of the creditors and stakeholders of Seller.

6.2           Buyer Actions.  In connection with Seller obtaining approval of
the Sale Order, Buyer agrees to furnish such information for filing with the
Bankruptcy Court for the purposes, among others, of providing necessary
assurances of performance by Buyer under this Agreement and demonstrating that
Buyer is a “good faith” purchaser under Section 363(m) of the Bankruptcy Code.

6.3           Adequate Assurance. With respect to each Assigned Contract, Buyer
shall provide adequate assurance of the future performance of such Assigned
Contract by Buyer.

6.4           Assignment of Contracts. At the Closing, pursuant to Sections 363
and/or 365 of the Bankruptcy Code, Seller shall assign to Buyer and Buyer shall
accept such assignment and assume the obligations to be performed after the
Closing under the Assigned Contracts. Notwithstanding such assignment, Seller
shall be responsible for curing at its cost and expense any defaults which exist
under the Assignment Contracts on or prior to the Closing Date.

6.5           Competing Transaction. Seller will promptly notify Buyer of, and
shall disclose to Buyer the terms of any competing proposal received by Seller
for the purchase of the Purchased Assets or the assignment of the Assigned
Contracts (each a “Competing Bid”).  Following entry of the Bid Procedures
Order, Seller shall be free to negotiate with prospective bidders who have
executed a confidentiality agreement with Seller. Seller will promptly provide
to Buyer any non-public information provided by Seller to any other party which
was not previously provided to Buyer. Seller shall comply in all respects with
its obligations under the Bid Procedures Order.

 
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7.             Tax Matters.

7.1           Transfer Taxes.  To the extent the sale of the Purchased Assets
hereunder are subject under applicable law to sales, transfer, use, stamp or
similar taxes that are not exempt under Bankruptcy Code section 1146, such taxes
shall be paid equally by Seller and Buyer.  At the Closing, Buyer shall provide
to Seller a sales tax resale certificate for the state(s) that are reasonably
requested by Seller.

7.2           Apportionment of the Purchase Price.    The Purchase Price shall
be allocated as provided on Exhibit F.  The parties agree that this Purchase
Price allocation is in accordance with Treasury Regulation Section 1.1060-1T
and, absent manifest error, such allocation shall apply for purposes of
completing IRS Form 8594 (as provided for below).  Neither Seller nor Buyer
shall file any return or take a position with any taxing authority that is
inconsistent with any allocation pursuant hereto.  “Treasury Regulations” means
the Treasury Regulations (including Temporary Regulations) promulgated by the
United States Department of Treasury with respect to the Internal Revenue Code
of 1986, as amended to the date hereof (the “Code”), or other federal tax
statutes.

7.3           Ad Valorem Obligations.  All personal property taxes and similar
ad valorem obligations levied with respect to the Purchased Assets for a taxable
period which includes (but does not end on) the Closing Date (collectively, the
“Apportioned Obligations”) shall be apportioned between Seller and Buyer based
on the number of days of such taxable period included in the Pre-Closing Tax
Period (as defined below) and the number of days of such taxable period after
the Closing Date (any such portion of such taxable period, the “Post-Closing Tax
Period”). Seller shall be liable for the proportionate amount of such taxes that
is attributable to the Pre-Closing Tax Period (defined below), and Buyer shall
be liable for the proportionate amount of such taxes that is attributable to the
Post-Closing Tax Period. For purposes of this Section “Pre-Closing Tax Period”
shall mean (i) any Tax Period ending on or before the Closing Date and (ii) with
respect to a Tax Period that commences before but ends after the Closing Date,
the portion of such period up to and including the Closing Date. All Apportioned
Obligations shall be timely paid and all applicable filings, reports and returns
shall be filed as required by applicable law.

8.             Additional Covenants.

8.1.           Investigation of Business; Access to Properties and
Records.  Prior to the Closing, Seller shall give to Buyer and its legal
counsel, accountants and other representatives, following reasonable notice and
as often as may reasonably be requested, full access during normal business
hours to all of the Purchased Assets for inspection, and shall permit them to
consult with management employees, and with key customers and suppliers as
mutually agreed by Seller and Buyer, to allow Buyer full opportunity to make
such investigations as are necessary to analyze the affairs of the Business and
the purchased assets.

 
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8.2            Confidentiality.

(a)            Prior to Closing; Termination.  The parties acknowledge that
Seller and Buyer have previously executed a Confidentiality Agreement, dated
November 4, 2009 (the “Confidentiality Agreement”), which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.

(b)            Post-Closing.  Except as otherwise required by law, after the
Closing, Seller shall, and shall cause its respective affiliates and
representatives to hold in confidence all customer lists included in the
Purchased Assets.

8.3           Non-Solicitation.

(a)           From the Effective Date until the second (2nd) anniversary of the
Effective Date, neither Buyer nor any affiliate, employee or agent of Buyer
shall encourage, induce, attempt to induce, solicit or attempt to solicit any
employee of Seller to terminate his or her employment with Seller or to take
employment with another person except with respect to the Buyer Candidates as
provided under Section 8.7; provided, however, that the foregoing limitation
will not prevent Buyer from hiring any such person (i) who contacts Buyer on his
or her own initiative without any direct or indirect solicitation by or
encouragement from or on behalf of Buyer or Buyer’s affiliates, employees or
agents, (ii) who contact Buyer as a result of placing general advertisements in
trade journals, newspapers or similar publications that are not directed at
Seller or its employees, or (iii) whose employment with Seller has been
terminated without any contact or inducement by Buyer or Buyer’s affiliates,
employees or agents; or

(b)           Unless and until the Closing occurs, from the Effective Date until
the first (1st) anniversary of the Effective Date, neither Buyer nor any
affiliate, employee or agent of Buyer shall solicit away, interfere with, or in
any manner persuade or attempt to persuade any person or entity that is a
client, customer or supplier of Seller or any of Seller’s subsidiaries, if Buyer
first learned about such client, customer or supplier from Seller, to
discontinue a business relationship with Seller or any of Seller’s subsidiaries.

8.4           Conduct of the Business Pending the Closing.

(a)           Affirmative Actions.  Prior to the Closing, except (1) as set
forth on Schedule 8.4(a), (2) as required by applicable law, (3) as otherwise
expressly contemplated by this Agreement, (4) with the prior written consent of
Buyer or (4) further order of the Bankruptcy Court, Seller shall:

(i)           Ordinary Course.  Conduct the Business in the ordinary course and
preserve and maintain the Purchased Assets in the condition in which they were
existing as of the date hereof, provided, that Seller may continue to sell
inventory in the ordinary course of business up to the Closing Date;

(ii)           Preservation of Business.  Use commercially reasonable efforts to
(A) preserve the present business operations and organization of the Business
and (B) preserve the present relationships with customers, suppliers and
distributors for the Business; and

 
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(iii)           Maintenance of Inventory Levels.  Allow the levels of raw
materials, supplies, work-in-process or other materials included in the
inventory of the Business to vary in any material respect from the levels
customarily maintained in the Business.

(b)           Negative Covenants.  Except (1) as set forth on Schedule 8.4(b),
(2) as required by  further order of the Bankruptcy Court or (3) with the prior
written consent of Buyer, Seller shall not:

(i)             Liens.  Subject any of the Purchased Assets to a lien or
security interest other than liens or security interests that will be discharged
in full prior to Closing in connection with the Sale Order or any other actions
of the Bankruptcy Court;

(ii)           Dispose of Purchased Assets.  Except for the sale of inventory in
the ordinary course of the Business, sell, lease, transfer or otherwise dispose
of any of the Purchased Assets;

(iii)           Modify Assigned Contracts.  Except as consented to by Buyer,
modify, amend or terminate any contract that is an Assigned Contract; provided
that Seller may  modify, amend or terminate any such contract in the ordinary
course of business so long as such change does not have more than incidental
adverse consequences on the Business;

(iv)           Waiver of Rights.  Except as consented to by Buyer, waive any
material rights included in the Purchased Assets;

(v)           Adverse Actions.   Take any action that would materially and
adversely affect the Business or the Purchased Assets;

(vi)           Prevent Transaction.  Take any action that would reasonably be
expected to prevent, or materially delay the ability of the parties to
consummate the transactions contemplated by this Agreement; or

(vii)          Agreements.  Agree to do anything prohibited by this Section 8.4.

8.5.           All Reasonable Efforts.  Subject to the terms and conditions
herein provided, Seller and Buyer agree to use all reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and to cooperate
with the other in connection with the foregoing.

8.6           Publicity. Neither Seller nor Buyer shall issue any press release
or public announcement concerning this Agreement or the transactions
contemplated hereby without obtaining the prior written approval of the other
party hereto, which approval will not be unreasonably withheld or delayed,
unless, in the sole judgment of Buyer or Seller, disclosure is otherwise
required by applicable law or by the Bankruptcy Court with respect to filings to
be made with the Bankruptcy Court in connection with this Agreement or by the
applicable rules of any market on which Seller’s securities trade, provided that
the party intending to make such release shall use commercially reasonable
efforts consistent with such applicable law or Bankruptcy Court requirement to
consult with the other party with respect to the text thereof.

 
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8.7.           Employee Matters.  Buyer shall have no obligation to offer
employment post-Closing to any employee of Seller who is primarily employed in
the Business.  Seller acknowledges that Buyer has identified to Seller in
writing two employees of the Business (the “Buyer Candidates”) to whom Buyer
contemplates discussing employment with and making employment offers on or after
the Closing and that Seller will not treat any post-closing offer of employment
by Buyer to such Buyer Candidates as a breach of any provision in this Section
8.7 or Section 8.3.  Prior to Closing and during the term of the Toll Processing
Agreement, solely in connection with the transition of the Business to Buyer,
Seller shall provide Buyer with reasonable access to employees of the Business
from time to time following reasonable requests so long as meetings between
Buyer and any such employee do not conflict with such employee’s employment
obligations to Seller; provided, however, that Buyer shall not induce or solicit
any such employee (other than a Buyer Candidate after the Closing) to terminate
his or her employment with Seller.  If this Agreement is terminated, neither
Buyer nor any of Buyer’s affiliates shall hire any of such employee of Seller
(as employee or independent contractor) for two (2)  years following the
Effective Date; provided, however, that the foregoing limitation will not
prevent Buyer from hiring any such person (i) who contacts Buyer on his or her
own initiative without any direct or indirect solicitation by or encouragement
from or on behalf of Buyer or Buyer’s affiliates, employees or agents, (ii) who
contact Buyer as a result of placing general advertisements in trade journals,
newspapers or similar publications that are not directed at Seller or its
employees, or (iii) whose employment with Seller has been terminated without any
contact or inducement by Buyer or Buyer’s affiliates, employees or agents.

8.8.           Further Assurances.  Seller and Buyer agree that, from time to
time, at or after the Closing Date, each of them will execute and deliver such
further instruments of conveyance and transfer and take such other action as may
be reasonably necessary to carry out the purpose and intent of this Agreement.

8.9           Post-Closing Removal of Equipment and Inventory.  The parties
understand and agree that the Purchased Assets comprised of Equipment as
described in Section 2.1(a) will be removed from Seller’s premises by Buyer
following the Closing and that the Purchased Assets comprised of Inventory as
described in Section 2.1(b) less any Excluded Inventory as described in Section
2.5, subject to the terms of the Toll Processing Agreement will be removed from
Seller’s premises by Buyer following the Closing.  On or prior to the Closing
Date, Seller shall notify Buyer in writing of the location of all the Equipment
and Inventory.  Seller shall provide to Buyer reasonable access to Seller’s
facilities at all reasonable times to facilitate the removal of the Equipment
and the Inventory from Seller’s facilities.  Buyer shall remove and take
possession of all Equipment no later than ninety (90) days following the Closing
Date.  Buyer, subject to terms of the Toll Processing Agreement, shall remove
and take possession of all the Inventory no later than ninety (90) days
following the Closing Date.  Buyer shall be responsible for all costs and
expenses relating to Buyer’s removal and taking possession of the Equipment and
Inventory.  Buyer shall assume the risk of and be responsible for (i) any damage
caused to the Equipment or Inventory following the Closing, other than damage
caused to the Equipment or Inventory by Seller and (ii) any damage to buildings,
improvements and fixtures caused by the negligence or misconduct of Buyer during
the removal of the Equipment and Inventory.  Buyer, for itself and its
contractors and subcontractors, agrees to use reasonable care and diligence in
the removal of the Equipment and Inventory.  Except as provided in the
immediately following paragraph, in no event will Buyer be responsible for any
damage to the buildings, improvements and fixtures of Seller which are the
result of the removal of the Equipment and Inventory and which could have been
reasonably expected to occur as part of the removal process using reasonable
care and diligence and which were not the result of any negligence or misconduct
by Buyer or Buyer’s contractors or subcontractors.

 
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Buyer acknowledges that included in the Equipment to be removed from the
Phoenix, Arizona plant of Seller are certain boilers and air handlers that have
been installed with vents or other openings to the roof of such plant and that
as the result of the removal of such Equipment there will be holes in the roof
of the plant.  Buyer shall promptly repair, at Buyer’s sole expense, all holes
in the roof caused by the removal of such Equipment sufficiently well to meet
safety and repair standards currently in effect in the Phoenix, Arizona area.

8.10          Processing Purchase Orders.  Following the Closing, Buyer shall be
responsible for and shall fulfill all obligations under the Assigned Contracts
to be performed after the Closing, including without limitation, the timely
satisfaction of all unfulfilled purchase orders constituting Purchased Assets.

8.11          Covenant Not to Compete.  Seller shall, and shall cause all of its
affiliates to, (each a “Restricted Person”) refrain directly or indirectly from
processing or selling infant cereal for a period of five (5) years from and
after the Closing Date; provided however, the foregoing covenant shall not be
deemed to prohibit Seller from (i) acquiring as an investment not more than one
(1%) percent of the capital stock of a company whose stock is traded on a
national securities exchange or (ii) engaging in such activities for the benefit
of Buyer or any of Buyer’s affiliates.  Seller on behalf of itself and each
Restricted Person acknowledges that (a) any violation of the provisions of this
Section 8.11 would cause irreparable harm to Buyer and that money damages would
not be an adequate remedy for any such violation and (b) accordingly, Buyer and
its affiliates shall be entitled to obtain injunctive or other equitable relief
to prevent any actual or threatened breach of any of such provisions and to
enforce such provisions specifically, without the necessity of posting a bond or
other security or of proving actual damages, by an appropriate court in the
appropriate jurisdiction.  The remedies provided in this Section 8.11 are
cumulative and shall not exclude any other remedies to which Buyer (or its
affiliates) may be entitled under this Agreement or applicable law, and the
exercise of a remedy under this Section 8.11 shall not be deemed an election
excluding any other remedy or any waiver thereof.  If any governmental body of
competent jurisdiction determines that the restrictions contained herein are too
broad or otherwise unreasonable under applicable law, including with respect to
time or geographical scope, such governmental body is hereby requested and
authorized by the parties to revise the foregoing restriction to include the
maximum restrictions allowable under applicable law.  Seller, on behalf of
itself and each other Restricted Person acknowledges, however, that this
Agreement has been negotiated by the Restricted Person and that the geographical
scope and time limitations, as well as the limitation on activities, contained
herein are reasonable in light of the circumstances pertaining to the Business,
Purchased Assets and the transactions contemplated by the Agreement
 
 
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9.             Conditions to Obligations.
 
9.1           Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is subject
to the satisfaction, on or prior to the Closing Date, of each of the following
conditions (any or all of which may be waived by Buyer in whole or in part to
the extent permitted by applicable law):

(a)           Representations and Warranties.  The representations and
warranties made by Seller in this Agreement shall have been true and correct in
all material respects when made, and shall be true and correct in all material
respects as if originally made on and as of the Closing Date, except for the
representations and warranties that are qualified by materiality or material
adverse effect, which shall be true and correct in all respects as of the
Agreement Date and as of the Closing Date;

(b)           Covenants.  Seller shall have performed and complied in all
material respects with all obligations and agreements required in this Agreement
to be performed or complied with by Seller prior to the Closing Date, and Buyer
shall have received a certificate signed by an authorized officer of Seller on
behalf of Seller, dated the Closing Date, to the foregoing effect;

(c)           Governmental Consents.  All consents, waivers, certificates,
authorizations, orders or approvals of, or filings or registration with, any
governmental authority that are required in order to consummate the transactions
contemplated hereby shall have been obtained;
 
(d)           Material Adverse Change.  Since the date of this Agreement there
shall not have occurred any material damage to the Equipment, Inventory or
Assigned Contracts (“Material Adverse Change”).  For purposes hereof Material
Adverse Change shall mean any physical damage to the Equipment, Inventory and/or
Assigned Contracts having the effect of reducing the value thereof by more than
Two Hundred Thousand Dollars ($200,000.00); and

(e)           Deliveries.  Seller shall have delivered, or caused to be
delivered, to Buyer all of the items set forth in Section 3.1.

(f)            Consents.  Seller shall have provided to Buyer (i) all consents
listed on Schedule 4.6 that Buyer reasonably requests Seller to obtain and (ii)
all consents from non-governmental third parties required to allow Seller to
sell the Equipment and Inventory to Buyer hereunder.

9.2           Conditions Precedent to Obligations of Seller. The obligations of
Seller to consummate the transactions contemplated by this Agreement are subject
to the satisfaction, prior to or on the Closing Date, of each of the following
conditions (any or all of which may be waived by Seller in whole or in part to
the extent permitted by applicable law):

(a)           Representations and Warranties.  Each of the representations and
warranties of Buyer set forth in this Agreement shall be true and correct
(disregarding all qualifications and exceptions contained therein relating to
materiality or similar qualifications) as of the date hereof and as of the
Closing Date (except to the extent such representations and warranties expressly
relate to an earlier date, in which case such representations and warranties
shall be true and correct on and as of such earlier date), and Seller shall have
received a certificate signed by an authorized officer of Buyer, dated the
Closing Date, to the foregoing effect;

 
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(b)           Covenants.  Buyer shall have performed and complied in all
material respects with all obligations and agreements required by this Agreement
to be performed or complied with by Buyer on or prior to the Closing Date, and
Seller shall have received a certificate signed by an authorized officer of
Buyer, dated the Closing Date, to the foregoing effect; and

(c)           Deliveries.  Buyer shall have delivered, or caused to be
delivered, to Seller all of the items set forth in Section 3.2.

9.3           Conditions Precedent to Obligations of Buyer and Seller. The
respective obligations of Buyer and Seller to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions (any or all of which may
be waived by Buyer and Seller in whole or in part to the extent permitted by
applicable law):

(a)           Governmental Orders.  There shall not be in effect any order by a
governmental body of competent jurisdiction restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby; and

(b)           Sale Order.  The Bankruptcy Court shall have entered the Sale
Order no later than the Sale Order Deadline and its effectiveness shall not have
been stayed as of the Closing Date.

(c)           No Legal Prohibitions.  No statute, rule, regulation, executive
order, decree, ruling or preliminary or permanent injunction shall have been
enacted, entered, promulgated or enforced by any Governmental Authority that
prohibits, restrains, enjoins or restricts the consummation of the transactions
contemplated by this Agreement that has not been withdrawn or terminated;

(d)           No Actions or Proceedings.  No action or proceeding shall have
been commenced before any governmental authority (by a party other than an
Affiliate of Buyer) against Buyer seeking to (i) nullify, restrict or modify the
rights and protections afforded Buyer in this Agreement and the Approval Order,
(ii) prevent or restrain, or materially and adversely alter, the carrying out of
this Agreement or any of the transactions contemplated hereby, (iii) declare
unlawful any of the transactions contemplated by this Agreement, (iv) cause any
of such transactions to be rescinded or (v) materially affect the right of Buyer
to own, operate or control the Business or the Purchased Assets following the
Closing;

(e)           Bid Procedure and Sale Orders.  The Bid Procedures Order and Sale
Order, each containing the terms and conditions as required by this Agreement
and Exhibit D and Exhibit E, respectively and otherwise being in form and
substance reasonably satisfactory to Buyer, shall have been entered by the
Bankruptcy Court as provided in this Agreement and neither the effectiveness nor
the terms of the Sale Order shall have been modified, reversed, vacated, stayed,
restrained or enjoined as of the Closing Date;

 
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10.           Termination

10.1          Termination of Agreement. This Agreement may be terminated prior
to the Closing as follows:

(a)           Mutual.  By mutual written consent of Seller and Buyer;

(b)           Termination Date.  By Buyer or Seller, if the Closing shall not
have occurred by the close of business on March 31, 2010 (the “Termination
Date”); provided, further, that if the Closing shall not have occurred on or
before the Termination Date due to a breach of any representations, warranties,
covenants or agreements contained in this Agreement by Buyer or Seller, then the
breaching party may not terminate this Agreement pursuant to this Section
10.1(b);

(c)           Buyer’s Conditions Impossible.  By Buyer, if any of the conditions
to the obligations of Buyer set forth in Section 9.1 or 9.3 shall have become
incapable of fulfillment other than as a result of a breach by Buyer of any
covenant or agreement contained in this Agreement, and such condition is not
waived by Buyer;

(d)           Seller’s Conditions Impossible.  By Seller, if any condition to
the obligations of Seller set forth in Section 9.2 or 9.3 shall have become
incapable of fulfillment other than as a result of a breach by Seller of any
covenant or agreement contained in this Agreement, and such condition is not
waived by Seller;

(e)           Seller’s Breach Affecting Buyer’s Condition.  By Buyer, if there
shall be a breach by Seller of any representation or warranty, or any covenant
or agreement contained in this Agreement, which would result in a failure of a
condition set forth in Section 9.1 or 9.3, and which breach cannot be cured or
has not been cured by the earlier of (i) twenty (20) business days after the
giving of written notice by Buyer to Seller of such breach and (ii) the
Termination Date;

(f)           Buyer’s Breach Affecting Seller’s Condition.  By Seller, if there
shall be a breach by Buyer of any representation or warranty, or any covenant or
agreement contained in this Agreement, which would result in a failure of a
condition set forth in Section 9.2 or 9.3, and which breach cannot be cured or
has not been cured by the earlier of (i) twenty (20) business days after the
giving of written notice by Seller to Buyer of such breach and (ii) the
Termination Date;

(g)           Governmental Order.  By Seller or Buyer if there shall be in
effect a final nonappealable order of a governmental body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation of
the transactions contemplated hereby;

(h)           Sale to Competing Bidder.  By Buyer or Seller if the Bankruptcy
Court shall enter an Order approving a Competing Bid and escrow closes on such
sale;

 
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(i)             By Buyer, if:

(i)            Damage to Purchased Assets.  By written notice to Seller
delivered within five (5) business days after Seller has provided written notice
to Buyer of the suffering of damage to the Equipment, Inventory and/or Assigned
Contracts which is in excess of Two Hundred Thousand Dollars ($200,000) occurs
prior to the Closing Date;

(ii)           Buyer’s Due Diligence.  By written notice delivered to Seller
before February 15, 2010, that Buyer is not satisfied with Buyer’s due diligence
of the Business and the Purchased Assets; or

(iii)           Material Breach of Representations and Warranties.  There has
been a material breach by Seller of any of its representations or warranties
contained in this Agreement, which breach is not curable or, if curable, is not
cured within ten (10) business days after the giving of written notice by Buyer
to Seller of such breach;

(iv)           Material Breach of Covenants.  There has been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
Seller, which breach is not curable or, if curable, is not cured within ten (10)
business days after the giving of written notice by Buyer to Seller of such
breach;

(v)           Alternative Transaction.  If (A) the Bankruptcy Court has entered
an order approving the sale of the Purchased Assets to a Competing Bidder and
escrow has closed on such sale, (B) the Bankruptcy Court has entered an order
denying approval of the Sale Motion or (C) the Sale Order shall not have been
entered by the Bankruptcy Court on or before the Sale Order Deadline;

(vi)           Bid Procedures Order.  If the Bid Procedures Order shall not have
been entered by the Bankruptcy Court on or before February 19, 2010, or if the
Bankruptcy Court has entered an order modifying, reversing, vacating, staying,
restraining or enjoining the Bid Procedures Order;

(vii)          Closing Date.  The Closing Date shall not have occurred on or
prior to March 31, 2010; provided however, that the right to terminate shall not
be available hereunder if the Closing shall not have occurred by such date as a
result of the failure of Buyer to fulfill any of its obligations under this
Agreement; or

(viii)          Lack of Bankruptcy Court Approval.  So long as Buyer is not then
in breach of its obligations under this Agreement, if the Sale Order has not
been entered by the Bankruptcy Court by the Sale Order Deadline.

10.2         Procedure Upon Termination. In the event of termination and
abandonment by Buyer or Seller, or both, pursuant to Section 10.1 hereof,
written notice thereof shall forthwith be given to the other party, and this
Agreement shall terminate, and the purchase of the Purchased Assets hereunder
shall be abandoned, without further action by Buyer or Seller.

 
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10.3         Effect of Termination.

(a)           Generally.  In the event that this Agreement is validly terminated
as provided herein and the transactions contemplated hereby are not consummated,
this Agreement shall become null and void and be of no further force and effect
and, except as otherwise provided in this Section 10.3, there shall be no
liability on the part of either party hereto (or any shareholder, director,
officer, partner, employee, agent, consultant or representative of such party).

(b)           Buyer’s Fault.  If the Closing does not occur and this Agreement
is terminated pursuant to Section 10.1(f), then Escrow Agent shall release the
Deposit to Seller, provided, however, that if Buyer, in good faith, timely
disputes the alleged breach in a written communication sent to the Seller, then
before Escrow Agent may release the Deposit to Seller, the Seller shall first
obtain entry of an order of the Bankruptcy Court authorizing and directing the
Escrow Agent to take such action.  Buyer acknowledges and agrees that: (i) the
Deposit is a reasonable estimate of, and bears a reasonable relationship to, the
damages that would be suffered by Seller as a result of Buyer’s failure to
perform; (ii) the actual damages suffered and costs incurred by Seller as a
result of such failure to perform would be extremely difficult and impractical
to determine; and, (iii) the Deposit constitutes valid liquidated damages.

(c)           Alternate Transaction.  In the event this Agreement is terminated
pursuant to Sections 10.1(h), 10.1(i)(v)(A) or 10.1(i)(v)(B),provided that any
termination under such subpart (B) occurs through no fault of Buyer or pursuant
to any willful breach by Seller, then Seller shall pay the Due Diligence Expense
Reimbursement to Buyer upon the (A) consummation of any transaction or series of
transactions in which Seller sells, transfers, leases or otherwise disposes of,
directly or indirectly, including through an asset sale, stock sale, merger or
other similar transaction, all or substantially all of the Business or the
Purchased Assets with one or more persons or entities other than Purchaser (or
its affiliates) in any circumstance, including in accordance with the Bid
Procedures, or (B) entry of an order confirming any plan of reorganization or
liquidation in the Bankruptcy Case.

(d)           Other Termination.  If the Closing does not occur and this
Agreement is terminated pursuant to Sections 10.1(a),(b),(c), (d), (e), (g), (h)
or (i), then Escrow Agent shall release the Deposit to Buyer, provided, however,
that if Seller, in good faith, timely disputes the alleged breach in a written
communication sent to the Buyer, then before Escrow Agent may release the
Deposit to Buyer, Buyer shall first obtain entry of an order of the Bankruptcy
Court authorizing and directing the Escrow Agent to take such action.

(e)           Survival.  The provisions of Sections 8.2(a), 8.3, 8.6, 10.3, 11
and the last sentence of Section 8.7 shall survive any termination of this
Agreement.

11.           Miscellaneous.

11.1.        Entire Agreement.  This document constitutes the entire agreement
between the parties, all oral agreements being merged herein, and supersedes all
prior representations.  There are no representations, agreements, arrangements,
or understandings, oral or written, between or among the parties relating to the
subject matter of this Agreement that are not fully expressed herein.

 
20

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11.2.        Survival.  All representations, warranties, covenants, and
agreements of the parties contained in this Agreement, or in any instrument,
certificate, opinion, or other writing provided for in it, shall survive the
closing.

11.3.        Amendment.  The provisions of this Agreement may be modified at any
time by agreement of the parties.  Any such agreement hereafter made shall be
ineffective to modify this Agreement in any respect unless in writing and signed
by each of the parties.

11.4.        Waiver.  Any of the terms or conditions of this Agreement may be
waived at any time by the party entitled to the benefit thereof, but no such
waiver shall affect or impair the right of the waiving party to require
observance, performance or satisfaction either of that term or condition as it
applies on a subsequent occasion or of any other term or condition.

11.5.        Nonassignability.  This Agreement shall not be assigned by any
party without the prior written consent of the other party.  Any assignment
contrary to the provisions of this Agreement shall be deemed a default under the
Agreement, allowing the nondefaulting party to exercise all remedies available
under law.

11.6.        Succession.  Subject to the provisions otherwise contained in this
Agreement, this Agreement shall inure to the benefit of and be binding on the
successors and assigns of the respective parties.

11.7.        Parties in Interest.  Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right of
subrogation or action against any party to this Agreement.

11.8.        Notices.  Any notice under this Agreement shall be in writing, and
any written notice or other document shall be deemed to have been duly given (i)
on the date of personal service on the parties, (ii) on the third business day
after mailing, if the document is mailed by registered or certified mail, (iii)
one day after being sent by professional or overnight courier or messenger
service guaranteeing one-day delivery, with receipt confirmed by the courier, or
(iv) on the date of transmission if sent by telegram, telex, telecopy or other
means of electronic transmission resulting in written copies, with receipt
confirmed.  Any such notice shall be delivered or addressed to the parties at
the addresses set forth on the signature page hereto or at the most recent
address specified by the addressee through written notice under this
provision.  Failure to give notice in accordance with any of the foregoing
methods shall not defeat the effectiveness of notice actually received by the
addressee.

11.9.        Counterparts.  This Agreement may be executed in any number of
counterparts with the same effect as if each of the parties had signed the same
document.  All counterparts shall be construed together and shall constitute one
agreement.

 
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11.10.      Captions.  All paragraph captions are for reference only and shall
not be considered in construing this Agreement.

11.11.      Severability.  If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of the
Agreement which can be given effect without the invalid provision shall continue
in full force and effect and shall in no way be impaired or invalidated.

11.12.      Governing Law.  This Agreement shall be governed by and construed in
accordance with the Bankruptcy Code and to the extent not consistent with the
Bankruptcy Code, the internal laws of the State of Arizona applicable to
contracts made and performed in such State (without regard to principles of
conflicts of laws).

11.13.      Cumulative Remedies.  No remedy or election hereunder shall be
deemed exclusive but shall whenever possible be cumulative with all other
remedies at law or in equity.

11.14.       Submission to Jurisdiction; Consent to Service of Process.

(a)           Submission to Jurisdiction.  Without limiting any party’s right to
appeal any order of the Bankruptcy Court, (i) the Bankruptcy Court shall retain
exclusive jurisdiction to enforce the terms of this Agreement and to decide any
claims or disputes which may arise or result from, or be connected with, this
Agreement, any breach or default hereunder, or the transactions contemplated
hereby, and (ii) any and all proceedings related to the foregoing shall be filed
and maintained only in the Bankruptcy Court, and the parties hereby consent to
and submit to the jurisdiction and venue of the Bankruptcy Court and shall
receive notices at such locations as indicated in Section 11.8 hereof; provided,
however, that if the Bankruptcy Case has closed, the parties agree to
unconditionally and irrevocably submit to the exclusive jurisdiction of any
state or federal court located in Maricopa County, Arizona and any appellate
court from any thereof, for the resolution of any such claim or dispute. The
parties hereby irrevocably waive, to the fullest extent permitted by applicable
law, any objection which they may now or hereafter have to the laying of venue
of any such dispute brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.

(b)           Consent to Service of Process.  Each of the parties hereby
consents to process being served by any party in any suit, action or proceeding
by delivery of a copy thereof in accordance with the provisions of Section 11.8.

11.15.      Ambiguities. The Agreement has been negotiated at arm's length
between persons sophisticated and knowledgeable in the matters dealt with
herein.  Each party has been represented by experienced and knowledgeable legal
counsel.  Accordingly, any rule of law or legal decision that would require
interpretation of any ambiguities in this Agreement against the drafting party
is not applicable and is waived.  The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purpose of the parties.

11.16.      Expenses.  Except as otherwise specifically set forth herein, all
fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the transactions contemplated hereby are consummated.

 
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11.17.       Survival.  The representations and warranties of Buyer and Seller
contained in this Agreement shall terminate at the Closing, and only the
covenants that by their terms survive the Closing shall survive the Closing.

11.18.       Construction.  The parties have participated jointly in the
negotiation and preparation of this Agreement.  In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
 
11.19.       Headings.  The division of this Agreement into articles, sections,
subsections, schedules and exhibits and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.  The article, section, subsection and exhibit
headings in this Agreement are not intended to be full or precise descriptions
of the text to which they refer and are not to be considered part of this
Agreement.
 
11.20.      “Including”, “Herein” and References.  The word “including” means
“including without limitation” and shall not be construed to limit any general
statement which it follows to the specific or similar items or matters
immediately following it.  All uses of the words “herein”, “hereto”, “hereof”,
“hereby” and “hereunder” and similar expressions refer to this Agreement and not
to any particular section or portion of it.  References to an article, section,
subsection, schedule or exhibit refer to the applicable article, section,
subsection, schedule or exhibit of this Agreement.
 
[Remainder of Page Intentionally Left Blank]

 
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Each of the parties has executed this Agreement as of the Effective Date

BUYER
 
SELLER
     
KERRY INC.
 
NUTRACEA
     
By:
 /s/ William R. Coole   
By:
/s/ W. John Short           
Name:  William R. Coole
 
Name:  W. John Short
         
Title:  Vice President and Secretary
 
Title:  President and Chief Executive Officer
         
Address:
3330 Millington Road
 
Address:
6720 North Scottsdale Road.,
 
Beloit, Wisconsin 53511
   
Suite 390
       
Scottsdale, Arizona 85253
         
Fax:
608-363-3759
 
Fax:
602-522-3001

[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]

 
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SCHEDULE 2.1(a)

Equipment

[logo1.jpg]
 
 
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[logo2.jpg]

 
 
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[logo3.jpg]

 
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[logo4.jpg]

 
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[logo5.jpg]
 
 
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SCHEDULE 2.1(c)

Assigned Contracts

 
1)
Healthy Times, Purchase Order #010510, Order Number 15302

 
2)
Nurture Inc., Happy Family Brands, Purchase Order #SM12150903P, Order Number
15314

 
3)
Tasty brand, Inc., Purchase Order #081309-02, Order Number 15554

 
4)
Rafferty’s Garden Austrailia, Purchase Order #645, Order Number 15475

 
 
30

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SCHEDULE 2.1(f)

Purchased Fixtures

None

 
31

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SCHEDULE 2.2(m)

Intellectual Property

None

 
32

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SCHEDULE 2.2(n)

Excluded Equipment

The following assets located at Seller’s Phoenix, Arizona facility shall
constitute Excluded Assets:

1.             Rice oil pressing plant machinery and equipment;
2.             Laboratory and testing equipment;
3.             Ribbon blender;
4.             Witte drier system;
5.             Bulk bag unloader (attached to ribbon blender); and
6.             Dry extrusion unit.

 
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SCHEDULE 2.3(b)

Other Assumed Liabilities

None

 
34

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SCHEDULE 4.4

Equipment

None

 
35

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SCHEDULE 4.6

Assigned Contracts

None

 
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SCHEDULE 4.7

Five Largest Customers and Suppliers

Customers:

 
 
2008
   
2009
 
Biostime
    0.0 %     43.73 %
Happy Baby
    73.2 %     15.54 %
Healthy Times
    26.8 %     7.64 %
Rafferty’s Garden
    0.0 %     2.78 %
Tasty Baby
    0.0 %     2.78 %
Safeway
    0.1 %     8.58 %

Suppliers:

   
2008
   
2009
 
Maple Island (co-packer)
    38.52 %     36.85 %
Certified Foods (rice flour)
    26.18 %     25.05 %
Grain Millers (oat flour)
    20.23 %     19.36 %
The Wright Group (vitamin pre-mix)
    10.20 %     9.76 %
Frieslamd Foods (ARA
    10.20 %     9.76 %

 
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SCHEDULE 4.8

Warranty Expense

Below is the aggregate warranty expense for the Business in 2008 and 2009:

2008

$50,000

2009

$18,528
 
 
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SCHEDULE 4.9

Pending Actions or Lawsuits

None

 
39

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SCHEDULE 8.4(a)

Exclusion from Positive Covenants

None

 
40

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SCHEDULE 8.4(b)

Exclusion from Negative Covenants

None

 
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Exhibit A

Intellectual Property License Agreement

 
42

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Exhibit B

Toll Processing Agreement

 
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Exhibit C

Funds Flow Memorandum

SALE BY NUTRACEA
OF CERTAIN ASSETS TO KERRY INC.

  February ___, 2010

This Funds Flow Memorandum outlines the distribution of funds in connection with
the consummation of the sale (the “Sale”) by NutraCea (“Seller”) of certain
assets related to Seller's business to Kerry Inc. (“Buyer”), pursuant to that
certain Asset Purchase Agreement, by and between Seller and Buyer dated as of
February ___, 2010 (the “Asset Purchase Agreement”).

Seller instructs Buyer to distribute the Purchase Price related to the Sale in
accordance with the instructions set forth in this Funds Flow Memorandum, and
Buyer agrees to distribute the Purchase Price related to the Sale in accordance
with the instructions set forth in this Funds Flow Memorandum.

Capitalized terms not otherwise defined in this Funds Flow Memorandum shall have
the meanings set forth in the Asset Purchase Agreement.

I.             SOURCE OF FUNDS

(A)           Buyer

(1)  
Cash Purchase Price
  $ 3,900,000                 (2)  
Deposit
  $ 250,000                 (3)  
Finders Fee
  $ 200,000                 (4)  
Inventory
  $                   (4)  
TOTAL
  $    

 
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II.           DISTRIBUTION OF FUNDS

(A)           Seller

(1)  
Amount:
  $                                 (2)  
Wire Instructions:
                         
Bank:
           
Bank Contact:
           
ABA:
           
Account Number:
           
Account Name:
           
Swift Code:
           
Notify:
   
 
 

 

The parties agree that the Estimated Purchase Price related to the Sale shall be
distributed in accordance with the instructions set forth in this Funds Flow
Memorandum.

SELLER:
 
BUYER:
         
NUTRACEA, INC.
 
KERRY INC
         
By
   
By
 
       
William R. Coole
         
Its
   
Its
Vice President & General Counsel

 
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Exhibit D

Bid Procedures

Set forth below are the bidding procedures (the “Bid Procedures”) to be employed
with respect to the proposed sale (the “Sale”) of the Purchased Assets pursuant
to that certain Asset Purchase Agreement dated February 11, 2010 (the
“Agreement”) between NutraCea, a California corporation (“Seller”) and Kerry
Inc., a Delaware corporation (“Buyer”). The transaction contemplated by the
Agreement is subject to competitive bidding as set forth herein and approval by
the Bankruptcy Court pursuant to Sections 363 and/or 365 of title 11 of the
United States Code, 11 U.S.C. §§ 101-1330 (the “Bankruptcy Code”).  All
capitalized terms used but not otherwise defined in these Bid Procedures have
the meanings ascribed to them in the Agreement.

The Bid Procedures set forth herein describe, among other things, the assets
available for sale, the manner in which bidders and bids become Qualified
Bidders and Qualified Bids (each as defined herein), respectively, the receipt
and negotiation of bids received, the conduct of any subsequent competitive
bidding process, the ultimate selection of the Successful Bidder(s) (as defined
herein), and the Bankruptcy Court’s approval thereof (collectively, the
“Competitive Bidding Process”).  The Seller intends to consult with, among
others, counsel for the official committee of unsecured creditors (the
“Committee”) throughout the Competitive Bidding Process.  In the event that the
Seller and any party disagree as to the interpretation or application of these
Bid Procedures, the Bankruptcy Court will hear and resolve such dispute.
 
Assets To Be Sold

The assets proposed to be sold include the equipment, inventory, purchase
orders, and customer and supplier lists relating solely to Seller’s infant
cereal business and certain related  intellectual property, all as more
particularly set forth and defined in Section 2.1 of the Agreement (the
“Purchased Assets”).

“As Is, Where Is”

The sale of the Purchased Assets, or any portion thereof, will be on an “as is,
where is” basis and without representations or warranties of any kind, nature,
or description by the Seller, its agents, or estate, except, with respect to the
Buyer, to the extent set forth in the Agreement and, with respect to a
Successful Bidder, to the extent set forth in the relevant purchase agreement of
such Successful Bidder approved by the Bankruptcy Court.

 
Free of Any and All Claims and Interests
 
Except to the extent otherwise set forth in the relevant purchase agreement of
such Successful Bidder or ordered by the Bankruptcy Court, all of the Seller’s
right, title, and interest in and to the Purchased Assets, or any portion
thereof, will be sold free and clear of all pledges, liens, security interests,
encumbrances, claims, charges, options, and interests on and/or against the
Purchased Assets (collectively, the “Claims and Interests”), such Claims and
Interests to attach to the net proceeds of the sale of such Purchased Assets.

 
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Participation Requirements

Unless otherwise ordered by the Bankruptcy Court or as otherwise determined by
Seller (in consultation with counsel for the Committee), in order to participate
in the Competitive Bidding Process, each person other than Buyer who wishes to
participate in the Competitive Bidding Process (each, a “Potential Bidder”) must
deliver to Seller, Seller’s counsel, and the Committee’s counsel (collectively,
the “Notice Parties”):

 
i)             an executed confidentiality agreement (to be delivered prior to
the distribution of any confidential information by Seller to a Potential
Bidder) that shall not be on terms that, in Seller’s reasonable judgment, are
more favorable to the Potential Bidder than the confidentiality agreement
executed by Buyer;

ii)            written evidence of a firm, irrevocable commitment for financing
and current financial statements of the Potential Bidder (audited, if
available), or, if the Potential Bidder is an entity formed for the purpose of
acquiring the Purchased Assets, such financial statements of the equity
holder(s) of the Potential Bidder, or such other form of financial disclosure
and credit-quality support or enhancement that will allow Seller and its
financial advisors, in consultation with the Committee, to make a reasonable
determination as to the Potential Bidder’s financial and other capabilities to
consummate the transactions contemplated by the Agreement; and

iii)           a written proposal setting forth (a) the purchase price, (b) any
Purchased Assets expected to be excluded or any additional assets desired to be
included, (c) the structure of the financing of the transactions contemplated by
the proposal (including the sources of the financing for the purchase price),
(d) any anticipated corporate, stockholder, internal or regulatory consents or
approvals required to close the transactions contemplated by the Agreement,
together with the anticipated time frame and any anticipated impediments for
obtaining such consents or approvals, (e) the proposed number of employees of
Seller who will become employees of the Potential Bidder, and any proposed
measures associated with their continued employment, and (f) any conditions to
closing that the Potential Bidder may wish to impose in addition to those set
forth in the Agreement.

A Potential Bidder that delivers the documents described above in substantial
compliance with the form and manner described above as determined by Seller in
its reasonable business judgment and whose financial information demonstrates to
Seller’s reasonable satisfaction (after consultation with the Committee and
Seller’s financial advisors) the financial capability of the Potential Bidder to
consummate the transactions contemplated by the Agreement, will be deemed a
“Qualified Bidder.”  Notwithstanding the foregoing, Seller may request such
additional information from a Potential Bidder as necessary in order to evaluate
the Potential Bidder’s ability to consummate a transaction and to fulfill its
obligations in connection therewith and such Potential Bidder shall be obligated
to provide such additional information as a precondition to becoming a Qualified
Bidder and participating in the Competitive Bidding Process.

 
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Seller shall deliver to Buyer copies of all proposals submitted by Potential
Bidders within one (1) business day after receipt thereof.

 
Due Diligence
 
No due diligence for any Person other than a Qualified Bidder who has submitted
a Qualified Bid will continue after the Bid Deadline.  Seller will provide to
Buyer prompt access to all due diligence materials and other information
provided to any Qualified Bidder that were not previously made available to
Buyer.

 
Bid Deadline
 
A Qualified Bidder that desires to make a bid will deliver written copies of its
bid to the Notice Parties in accordance with the notice provision set above so
as to be received no later than three (3) business days prior to the hearing on
the Sale Motion (the “Bid Deadline”).  Seller, after consultation with the
Committee, may extend the Bid Deadline once or successively; provided, that for
any such extension beyond one (1) business day, Seller will have obtained the
prior written consent of Buyer, which consent shall not be unreasonably
withheld.  Seller will promptly notify Buyer and all Qualified Bidders of any
extension of the Bid Deadline.

 
Qualified Bid
 
A bid submitted will be considered a “Qualified Bid” only if it is submitted by
a Qualified Bidder in accordance herewith and complies with all of the
following:

i)              it states that it is irrevocable until the selection of the
Successful Bidder; provided, that if such Qualified Bidder is selected as the
Successful Bidder, its offer will remain irrevocable until the closing of the
Sale to the Successful Bidder;

ii)            it includes a duly authorized and executed agreement proposed by
such Qualified Bidder (the “Marked Agreement”), including the purchase price of
the Purchased Assets expressed in U.S. Dollars (the “Offered Purchase Price”),
together with all exhibits and schedules thereto, as well as copies of such
materials marked to show those amendments and modifications to the Agreement,
which amendments and modifications shall, in Seller’s reasonable business
judgment, be no less favorable than the terms and conditions set forth in the
Agreement;

iii)           it is not conditioned on the outcome of unperformed due diligence
by such Qualified Bidder or any financing contingency;

iv)           it has a value to Seller, in Seller’s reasonable business judgment
(after consultation with its financial advisors and the Committee), that is
greater than or equal to the sum of (a) the Purchase Price (as defined in the
Agreement), plus (b) the amount of the Expense Reimbursement, plus (c) $25,000;

 
48

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vi)           it includes evidence, in form and substance reasonably
satisfactory to Seller, of authorization and approval from such Qualified
Bidder’s board of directors (or comparable governing body) with respect to the
submission, execution and delivery of, and closing under, the Marked Agreement;

vii)           it is accompanied by a good faith deposit in the form of a wire
transfer (to a bank account specified by Seller or to Escrow Agent) in an amount
equal to $250,000; and

viii)          it is received by the Bid Deadline.

Notwithstanding the foregoing, Buyer will be deemed a Qualified Bidder, and the
Agreement will be deemed a Qualified Bid, for all purposes in connection with
the Competitive Bidding Process and the Sale.

Due Diligence Expense Reimbursement

Recognizing the value and benefits that Buyer has provided to Seller by entering
into the Agreement, as well as Buyer’s expenditure of time, energy and
resources, Seller has agreed that if Buyer is not the Successful Bidder, Seller
will, in the circumstances set forth in the Agreement, pay to Buyer an amount
equal to the lesser of: (a) its actual fees, costs and expenses incurred in
connection with the Agreement, due diligence on the Purchased Assets and
Assigned Contracts (including financial, tax, legal, operations, accounting,
employee, customer and valuation due diligence), obtaining entry of the Bid
Procedures Order or Sale Order, participating in the Competitive Bidding Process
and any other transactions or actions relating thereto, including, without
limitation, attorneys’ fees, consulting fees and advisory fees; or (b) One
Hundred Fifty Thousand Dollars ($150,000) (hereinafter referred to as the “Due
Diligence Expense Reimbursement”), which shall constitute administrative expense
claims against Seller under Section 503(b) of the Bankruptcy Code, payable in
accordance with the terms of the Agreement, Bid Procedures Order and Sale Order.

 
Competitive Bidding Process

Copies of all Qualified Bids will be delivered to Buyer when they are determined
to be Qualified Bids but no later than two (2) calendar days prior to the
hearing on the Sale Motion.  At least one (1) calendar day prior to the hearing
on the Sale Motion, Seller will provide copies to Buyer and all other Qualified
Bidders of the Qualified Bid which Seller believes, in its reasonable business
judgment after consultation with the Committee, is the highest or otherwise best
offer (the “Starting Bid”).  The Competitive Bidding Process will run in
accordance with the following procedures:

 
49

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i)             only Buyer and other Qualified Bidders will be entitled to make
bids during the Competitive Bidding Process;

ii)             Buyer and each other Qualified Bidder will be required to
confirm that it has not engaged in any collusion with respect to the bidding or
the Sale;

iii)           bidding will begin with the Starting Bid and continue, in one or
more rounds of bidding, so long as during each round at least one subsequent bid
is submitted by a Qualified Bidder that improves upon such Qualified Bidder’s
immediately prior Qualified Bid, by an incremental value to the estate of at
least $25,000 over the prior bid (in each case net of the amount of any Due
Diligence Expense Reimbursement that would be payable if such Qualified Bid was
the Successful Bid);

iv)           Buyer shall be entitled to credit the amount of the Due Diligence
Expense Reimbursement in connection with making any subsequent bids during the
Competitive Bidding Process; and

v)            in the event a Qualified Bid is submitted containing non-cash
consideration, the assumption of any debt or liabilities of Seller (other than
to the extent already expressly set forth in the Agreement), a proposal to pay
any amounts to Seller based on future contingencies or otherwise provide Seller
with any form of consideration other than cash at closing (collectively,
“Alternative Consideration”), Seller, in consultation with the Committee and
Seller’s advisors, shall announce during the Competitive Bidding Process what
value Seller reasonably believes any such Alternative Consideration will have
for purposes of determining the actual, present value of any such bid.

Notwithstanding any of the foregoing, Seller, after consultation with Seller’s
advisors and the Committee, may adopt such other rules for the Competitive
Bidding Processes it reasonably anticipates will result in the highest or best
value for the estate and which are not inconsistent with any Bankruptcy Court
order, provided that such other rules are not inconsistent with these Bid
Procedures and are communicated to all participants during or prior to the
Competitive Bidding Process.

 
Selection of Successful Bid

Prior to the conclusion of the Competitive Bidding Process, Seller, in
consultation with the Committee, will (a) review and evaluate each Qualified Bid
and (b) identify the highest or otherwise best offer for the Purchased Assets
(the “Successful Bid” and the bidder(s) making such bid, the “Successful
Bidder”).  Such determination of the Successful Bid by Seller will be final
subject to approval by the Bankruptcy Court.  In the event that Buyer is not the
Successful Bidder, Buyer will serve as back-up bidder under the terms and
conditions set forth in the Agreement or such higher and better terms as Buyer
may designate on the record at the hearing on the Sale Motion; provided,
however, that Buyer shall not be obligated to hold itself out as a backup
bidder, without Buyer’s consent, later than March 31, 2010, and shall be
entitled to the return of its deposit upon the expiration of any such backup
bid.

 
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Exhibit E

Sale Motion; Approval Order

The Sale Motion to be filed by Seller with the Bankruptcy Court, as provided in
Section 6.1 of the Agreement, shall request entry of the Sale Order which, among
other things, shall:
 
(i)            approve in all respects the Sale Motion and the sale of the
Purchased Assets to Buyer on the terms and conditions set forth in the
Agreement, authorize and approve Seller’s execution, delivery and performance of
the Agreement and the transactions contemplated thereby, and order that Seller
is authorized to perform all acts necessary to consummate the transactions
contemplated by this Agreement;
 
(ii)           include a specific finding that Buyer is purchasing the Purchased
Assets in good faith and is a good faith purchaser of the Purchased Assets
pursuant to and within the meaning of the provisions of Bankruptcy Code Section
363(m) and is entitled to the protections provided thereby;
 
(iii)          provide that, pursuant to Sections 105 and 363 of the Bankruptcy
Code, the sale of the Purchased Assets to Buyer shall be free and clear of all
pledges, liens, security interests, encumbrances, claims (as claim is defined in
Section 101(5) of the Bankruptcy Code), charges, options, and interests on
and/or against the Purchased Assets;
 
(iv)          determine that, except as expressly provided in the Agreement with
respect to the Assumed Obligations, neither the Buyer nor any of the Purchased
Assets shall have any obligation or liability for any of the indebtedness,
liabilities or other obligations of Seller (including based on successor
liability or similar theory) or be subject to any tax liability of Seller except
for transfer tax liability that may be incurred as a result of the transfer of
the Purchased Assets to Buyer pursuant to that Sale Order;
 
(v)           determine that upon the Closing the Assigned Contracts shall have
been assigned to Buyer in accordance with Sections 363 and/or 365 of the
Bankruptcy Code;
 
(vi)          find that sufficient and adequate prior notice to all parties in
interest in the Bankruptcy Case was given;
 
(vii)         find that cause exists to permit closing under the Sale Order
immediately following the entry of the Sale Order notwithstanding Rules 6004(g)
and 6006(d), Federal Rules of Bankruptcy Procedure; and
 
(viii)        provide, to the extent applicable, that the Sale Order shall be
binding on Seller, its bankruptcy estate, all creditors and parties in interest,
and all counterparties to the Assigned Contracts.
 
The Sale Motion shall otherwise be in form and substance reasonably satisfactory
to the Buyer, and the Sale Order shall contain such other findings of fact,
conclusions of law and other provisions as Buyer may reasonably require.

 
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Exhibit F

Purchase Price Allocation

Machinery
  $ 1,600,000  
Know-How (trade secrets, processes and formulae)
  $ 1,000,000  
Remaining Intellectual Property and Good Will
  $ 1,300,000  

 
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