Commitments and Contingencies

Operating Leases

Landec leases land, facilities, and equipment under operating lease agreements with various terms and conditions, which expire at various dates through fiscal year

2030.

Certain of these leases have renewal options.

The approximate future minimum lease payments under these operating leases at

May 27, 2018

are as follows (in thousands):

	Amount
Fiscal year 2019	$	3,737
Fiscal year 2020		2,894
Fiscal year 2021		2,258
Fiscal year 2022		1,839
Fiscal year 2023		1,719
Thereafter		8,589
Total	$	21,036

Rent expense for operating leases, including month to month arrangements was

$6.1

million,

$5.6

million and

$4.5

million for the fiscal years

2018,

2017

and

2016,

respectively.

Capital Leases

September 3, 2015,

Lifecore leased a

65,000

square foot building in Chaska, MN,

two

miles from its current facility. The initial term of the lease is

seven

years with

two five

-year renewal options. The lease contains a buyout option at any time after year

seven

with the purchase price equal to the mortgage balance on the lessor’s loan secured by the building. Included in property, plant and equipment as of

May 27, 2018

$3.6

million associated with this capital lease. The monthly lease payment was initially

$34,000

and increases by

2.4%

per year. Lifecore and the lessor made capital improvements prior to occupancy and thus the lease did

not

become effective until

January 1, 2016.

Lifecore is currently using the building for warehousing and final packaging. Apio has a capital lease for office equipment for which the value of

$79,000

is included in property, plant and equipment as of

May 27, 2018.

Future minimum lease payments under capital leases for each year presented as are follows (in thousands):

	Amount
Fiscal year 2019	$	473
Fiscal year 2020		484
Fiscal year 2021		487
Fiscal year 2022		460
Fiscal year 2023		3,490
Thereafter		—
Total minimum lease payment		5,394
Less: amounts representing interest and taxes		(1,668	)
Total		3,726
Less: current portion included in other accrued liabilities		(85	)
Long-term capital lease obligation	$	3,641

Purchase Commitments

May 27, 2018,

the Company was committed to purchase

$24.4

million of produce and other materials during fiscal year

2019

in accordance with contractual terms at market rates. Payments of

$35.8

million,

$32.2

million and

$30.5

million were made in fiscal years

2018,

2017

and

2016,

respectively, under similar arrangements.

Legal Contingencies

In the ordinary course of business, the Company is involved in various legal proceedings and claims.

The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least each fiscal quarter and adjusted to reflect the impacts of negotiations, estimate settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Legal fees are expensed in the period in which they are incurred.

Apio has been the target of a union organizing campaign which has included

two

unsuccessful attempts to unionize Apio's Guadalupe, California processing plant. The campaign has involved a union and over

100

former and current employees of Pacific Harvest, Inc. and Rancho Harvest, Inc. (collectively "Pacific Harvest"), Apio's labor contractors at its Guadalupe, California processing facility, bringing legal actions before various state and federal agencies, the California Superior Court, and initiating over

100

individual arbitrations against Apio and Pacific Harvest.

The legal actions consist of

three

main types of claims: (

) Unfair Labor Practice claims ("ULPs") before the National Labor Relations Board (“NLRB”), (

) discrimination/wrongful termination claims before state and federal agencies and in individual arbitrations, and (

) wage and hour claims as part of

two

Private Attorney General Act (“PAGA”) cases in state court and in over

100

individual arbitrations.

A settlement of the ULPs among the union, Apio, and Pacific Harvest that were pending before the NLRB was approved on

December 27, 2016

for

$310,000.

Apio was responsible for half of this settlement, or

$155,000.

May 5, 2017,

the parties to the remaining actions executed a Settlement Agreement concerning the discrimination/wrongful termination claims and the wage and hour claims which covers all non-exempt employees of Pacific Harvest working at Apio's Guadalupe, California processing facility from

September 2011

through the settlement date. Under the settlement agreement, the plaintiffs are to be paid

$6.0

million in

three

installments,

$2.4

million of which was paid on

July 3, 2017,

$1.8

million which was paid on

November 22, 2017

and

$1.8

million which was paid in

July 2018.

The Company and Pacific Harvest have each agreed to pay

one

half of the settlement payments. The Company paid the entire

first

two

installments of

$4.2

million and will be reimbursed by Pacific Harvest for its

$2.1

million portion, of which

$600,000

and

$1.5

million is included in Prepaid and other current assets and Other assets, respectively, in the accompanying Consolidated Balance Sheets. This receivable will be repaid through monthly payments until fully paid, which the Company expects to occur by

December 2020.

The Company and Pacific Harvest each paid their portion of the

third

installment in

July 2018.

The Company’s recourse against non-payment by Pacific Harvest is its security interest in assets owned by Pacific Harvest.

For fiscal years

2018,

2017

and

2016,

the Company incurred legal expenses of

$639,000,

$2.1

million and

$542,000,

respectively, related to these actions. During the

twelve

months ended

May 28, 2017,

the Company recorded a legal settlement charge of

$2.6

million related to these actions. As of

May 27, 2018,

the Company had accrued

$1.0

million related to these actions, which is included in Other accrued liabilities in the accompanying Consolidated Balance Sheets.