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As filed with the Securities and Exchange Commission on April 21, 2000
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ECO SOIL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0709577
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
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10740 Thornmint Road
San Diego, California 92127
(858) 675-1660
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Agent for Service: Copies to:
William B. Adams David A. Hahn, Esq.
Chairman and Chief Executive Officer Robert E. Burwell, Esq.
Eco Soil Systems, Inc. Latham & Watkins
10740 Thornmint Road 701 B Street, Suite 2100
San Diego, California 92127 San Diego, California 92101
(858) 675-1660 (619) 236-1234
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (1) PRICE FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, par value $.005 per share 4,814,909 $2.21 $10,640,949 $2,810
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(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457, and based on a per share price of
$2.21, the average of the high and low prices of the common stock as
reported on the Nasdaq National Market on April 14, 2000.
A portion of the shares covered by this Registration Statement are issuable
pursuant to outstanding warrants and outstanding shares of convertible
notes, the terms of which provide for a change in the number of shares
issuable thereunder in the event of a stock split and in certain other
events. Pursuant to Rule 416(b) under the Securities Act of 1933, any
greater or lesser number of shares resulting from any adjustment of the
number of shares issuable pursuant to such warrants are covered by this
Registration Statement.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the SEC is
effective. This prospectus is not an offer to sell these securities and it is
not a solicitation of an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION--DATED APRIL 21, 2000
PROSPECTUS
4,814,909 SHARES
ECO SOIL SYSTEMS, INC.
COMMON STOCK
----------------
This prospectus relates to up to 4,814,909 shares of our common stock,
par value $.005 per share, which may be offered for sale by the selling
shareholders listed in this prospectus. Shares of common stock may be sold from
time to time by the selling shareholders directly or through one or more
broker-dealers, in one or more transactions on the Nasdaq National Market, in
the over-the-counter market, in negotiated transactions or otherwise, at prices
related to the prevailing market prices or at negotiated prices. We will not
receive any of the proceeds from the sale of the shares of common stock. We will
bear all expenses of the offering of the common stock, except that the selling
shareholders will pay any applicable underwriting fees, discounts or commissions
and transfer taxes, as well as the fees and disbursements of their counsel and
experts.
Our common stock is listed on the Nasdaq National Market under the
symbol ESSI. On April 17, 2000 the last reported sale price for our common stock
as reported on the Nasdaq National Market was $2.13 per share.
SEE "RISK FACTORS" ON PAGES 4 TO 12 FOR FACTORS THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN SHARES OF OUR COMMON STOCK.
-----------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is __________, 2000.
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The terms "Eco Soil," "we," "our," and "us" refer to Eco Soil Systems,
Inc., a Nebraska corporation. All references in this prospectus to "common
stock" refer to our common stock, par value $.005 per share.
ECO SOIL SYSTEMS, INC.
We develop, market and sell proprietary biological and traditional
chemical products that provide solutions for a wide variety of turf and crop
problems in the golf and agricultural industries. We have developed a portfolio
of microbial programs to be applied via standard spray procedures in the case of
the FreshPack-TM- product line, or through our patented BioJect(R) system. These
naturally occurring microbes complement or reduce the need for many chemical
products currently used in golf and agricultural markets. The Environmental
Protection Agency (EPA) has approved the BioJect as a means of application for
biopesticides, and the BioJect is described as the application method under the
directions for use on our EPA registered exclusive microbial products. By
fermenting microbes at or near the customer's site and delivering them for
distribution through the customer's existing irrigation system via the BioJect,
or through standard application practices, customers can cost-effectively reap
the benefits associated with quality microbial products while mitigating the
adverse environmental effects associated with chemical products. We initially
focused our sales and marketing efforts on the golf market and in 1998 entered
the agricultural crop and horticultural markets.
By utilizing microbes that occur naturally in the environment, our
microbial solutions overcome many of the problems associated with traditional
chemical products. Traditional chemical products require repeated applications,
which can lead to pest resistance and/or adverse environmental effects. Our
microbial programs reduce the frequency rate of chemical product application,
resulting in lower overall product and labor cost and increasing the
effectiveness of traditional chemical products. In addition, we believe that the
use of microbes, either FreshPack or distributed through the BioJect system,
provide environmental benefits as compared to chemical product applications by
limiting the exposure of humans to chemical products, reducing residual
pesticide contaminants in plants and soil, and minimizing groundwater pollution.
Our FreshPack and BioJect programs overcome many of the obstacles that
historically have hindered widespread use of microbes in the golf and
agricultural industries. Biological products generally have been perceived as
economically infeasible because of their short shelf life, rapid deterioration
upon exposure to light or heat, specialized transportation requirements and need
for daily, manual treatments. For large-scale applications, the BioJect system
preserves and protects the potency of microbes, significantly reduces shipping
costs, controls the concentration of product and allows for automated daily
application by fermenting microbes at the customer's site and distributing them
through the customer's existing irrigation system. Our FreshPack products are
fermented and shipped overnight or by second day air to preserve their potency
and have no special transportation requirements.
Our FreshPack products are packaged and designed to deliver a
microbial-based program to the customer. The FreshPack products, which contain
certain microbes together with other soil amendments, are intended to address
several problems encountered by our golf course customers by enhancing the
development of the root systems, reducing the level of soil alkalinity,
increasing the level of oxygen in the soil and increasing the porosity of the
soil. The FreshPack products are fermented centrally and then shipped via
overnight or second day delivery to the customer to be immediately applied to
the problem area of the course. We view our FreshPack product line as an
additional method of delivering microbial solutions to the customer. Moreover,
if the economics are such that the BioJect system is of greater value,
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the FreshPack products serve as an introduction to the efficacy of the microbial
products prior to the customer's making the financial commitment to a BioJect
system. We intend to expand the usage of the FreshPack products into the
agricultural markets in the near future.
We generate recurring revenues both from the sale of our FreshPack
programs and by delivering programs through BioJect systems to customers. We
have entered into technology transfer agreements pursuant to which we have
obtained rights to certain microbes from leading biotechnology companies and
organizations such as Mycogen Corporation, Encore Technologies, Inc. and the
USDA and major universities such as Michigan State University, Rutgers
University and the University of California, Riverside. We currently offer
BioJect customers a menu of six microbial-based programs and will continue to
develop the library of approximately 2,500 microbes from the Agrium acquisition.
In addition to our FreshPack, BioJect and related microbial product
line, we have historically sold a complete line of traditional chemical
fertilizers and pesticides and other turf maintenance products through dealers
and distributors we own. These distributed products include branded pesticides,
fertilizers, seed, and other turf maintenance products from major agricultural
manufacturers.
We offer a complete program to the agriculture market consisting of
various soil analyses to establish a customized program regimen delivered
through our proprietary equipment, the BioJect and CalJect. The programs' goals
are to utilize soil remediation and microbial activity to move soil pH towards
neutral, improve soil structure and infiltrate and release nutrients through
increased mineralization and organic matter degradation. We perform the soil
analysis at the beginning of the season, develop a treatment regimen, install
and service the equipment at the customer's site and provide the microbials and
other soil additive products for the customer to use throughout the crop's
growing season. While we are redirecting our agricultural efforts to focus
primarily in the United States, approximately 50% of our agriculture business in
1999 was derived from sales outside the United States, primarily in Mexico.
We were incorporated in Nebraska in October 1987. Our principal
executive offices are located at 10740 Thornmint Road, San Diego, California
92127. Our telephone number is (858) 675-1660.
RECENT DEVELOPMENTS
We have entered into a definitive agreement to sell substantially all
of the assets of our Turf Partners subsidiary to the J.R. Simplot Company for a
purchase price equal to six times Turf Partners 2000 EBITDA (earnings before
interest, taxes, depreciation and amortization) from sales of distributed
products, subject to certain adjustments. Simplot also will assume liabilities
associated with existing vendor payables, contracts and leases, and will assume
amounts outstanding under Turf Partners' credit facility with Coast Business
Credit.
The transaction is expected to close during July 2000, subject to
certain customary closing conditions, including the approval of Eco Soil
shareholders, the receipt of various third party consents and the expiration of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
At the closing, Simplot will make a down payment of $20 million,
subject to an adjustment of up to $5 million if: (a) Turf Partners' net tangible
assets at June 30, 2000 are more or less than $3 million, (b) if Turf Partners
has not generated at least 75% of the EBITDA it has projected for the first six
months of 2000 or (c) if Turf Partners fails to satisfy other balance sheet
tests. The down payment also will be reduced by the amount, if any, by which the
amount outstanding on the Coast credit facility exceeds $17 million.
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Simplot will pay the balance of the purchase price in March 2001 based
on an audited balance sheet as of June 30, 2000 and statements of operations for
the year ended December 31, 2000. The final purchase price will be subject to
adjustment based on the same balance sheet factors that apply in July 2000 and
will be reduced by the an amount equal to the average amount outstanding under
the Coast credit facility during 2000.
The asset purchase agreement calls for Eco Soil and Simplot to enter
into separate agreements pursuant to which Simplot will sell Eco Soil
proprietary products into turf and agricultural markets and commence field
trials of Eco Soil's proprietary products on its potato fields. Under the
agreement relating to agricultural markets, Eco Soil's proprietary products
would be distributed through Simplot's Soil Builders organization, a nationwide
network of 85 agricultural retail stores.
RISK FACTORS
You should carefully consider the following risk factors, in addition
to the other information included in this prospectus, before purchasing shares
of common stock of Eco Soil. Each of these risks could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock.
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE. At December 31,
1999, we had an accumulated deficit of $42.4 million. Our loss before interest,
depreciation and amortization for the year ended December 31, 1999 was $10.7
million. We have historically experienced losses due to significant expenditures
for product development, sales, marketing, administrative and U.S. patent
protection expenses, as well as amortization costs associated with our
acquisitions of turf and agricultural products dealers.
IF WE ARE UNABLE TO SUCCESSFUL ENTER NEW MARKETS, OUR BUSINESS WILL BE
ADVERSELY AFFECTED. Sales of our proprietary products recently have declined in
both turf and agricultural markets. These products remain in the early stages of
market introduction and are subject to the risks inherent in the
commercialization of new product concepts, particularly with respect to
agricultural applications. There can be no assurance that our efforts to
increase sales of proprietary products to turf and agricultural crop and
ornamental markets will prove successful, that marketing partnerships will be
established and will become successful, or that our intended customers will
purchase our systems and products instead of competing products. In addition,
there can be no assurance that we will be able to obtain significant customer
satisfaction or market share with its proprietary products. Failure to reverse
the decline in sales of proprietary products would have a material adverse
effect on our business, financial condition and results of operations.
WE HAVE AN INDISPENSABLE NEED FOR CAPITAL, AND THE REPORT OF OUR
INDEPENDENT ACCOUNTANTS ACCOMPANYING OUR FINANCIAL STATEMENTS CONTAINS AN
EXPLANATORY PARAGRAPH REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Primarily because of our history of operating losses and because we may not be
able to satisfy financial covenants contained in our long-term debt instruments,
there is substantial doubt about our ability to continue as a going concern
unless we are able to obtain additional equity financing. We anticipate that
without additional financing we would likely run out of cash to fund our
operations during the third quarter of 2000. We and our wholly owned subsidiary
Turf Partners, Inc. have entered into an Amended and Restated Asset Purchase
Agreement pursuant to which Turf Partners will sell substantially all of its
assets to the J.R. Simplot Company, subject to various closing conditions
including approval of Eco Soil's shareholders, receipt of third-party consents
and expiration of the applicable Hart-
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Scott-Rodino Antitrust Act waiting period. At the closing, Simplot will make a
down payment of $20 million, subject to an adjustment of up to $5 million if:
(a) Turf Partners' net tangible assets at June 30, 2000 are more or less than $3
million, (b) if Turf Partners has not generated at least 75% of the EBITDA it
has projected for the first six months of 2000 or (c) if Turf Partners fails to
satisfy other balance sheet test. The down payment also will be reduced by the
amount, if any, by which the amount outstanding on the Coast Loan exceeds $17
million. Simplot will pay the balance of the purchase price in March 2001 based
on an audited balance sheet as of June 30, 2000 and statements of operations for
the year ended December 31, 2000. The final purchase price will be subject to
adjustment based on the same balance sheet factors that apply in July 2000 and
will be reduced by the an amount equal to the average amount outstanding under
the Coast Loan during 2000. In addition, we have entered into a Term Loan
Agreement dated as of April 12, 2000 with Simplot, under which Simplot will loan
us $3,000,000, subject to certain closing conditions, to provide working capital
to Turf Partners pending the closing of the asset sale.
We currently do not have any arrangements to obtain other sources of
financing. We also cannot give you any assurance that the sale of Turf Partners'
assets will be completed. In the event that the sale of Turf Partners assets to
Simplot is not consummated, we will need to obtain additional financing to repay
the loan from Simplot and other outstanding long-term debt and to finance
continuing operating losses. In such event, there can be no assurance that Eco
Soil will be successful in obtaining additional financing on acceptable terms or
at all, which would result in a material adverse effect on our ability to meet
our business objectives and continue as a going concern. If we were unable to
secure such financing, we would at a minimum be forced to revise our 2000
operating plan. The report of independent accountants on our financial
statements included herein includes an explanatory paragraph to this effect.
WE MAY NOT SATISFY ALL OF THE APPLICABLE FINANCIAL COVENANTS IN OUR
DEBT DOCUMENTS, AND IF WE DO NOT MEET THESE COVENANTS, WE WOULD BE IN DEFAULT
AND OUR OBLIGATIONS COULD BE DECLARED IMMEDIATELY DUE AND PAYABLE. We have
received a term loan and our subsidiaries have received lines of credit from
financial institutions, and we have received debt financing from institutional
investors through the issuance of convertible debentures and senior subordinated
notes. The loan documents to which we and our subsidiaries are parties,
including the senior subordinated notes, contain restrictions on our activities
and financial covenants with which we and our subsidiaries must comply. Among
other things, the financial covenants require us and our subsidiaries to satisfy
net worth requirements, debt service coverage ratios and other financial tests.
In the past, we have obtained waivers and an amendment of the senior
subordinated notes to remain in compliance with the financial covenants and
avoid default. For example, for the quarter ended September 30, 1999, our
failure to comply with these covenants resulted in a default under the senior
subordinated notes, which was subsequently waived by the note holders. There can
be no assurance that we and our subsidiaries will satisfy all of the applicable
financial covenants in future quarters. To the extent we or any of our
subsidiaries does not satisfy these requirements, we would be in default and our
obligations could be declared immediately due and payable. To avoid a default,
we may be required to obtain waivers from third parties, which might not be
granted. A default on indebtedness from one lender could result in the
acceleration of indebtedness from other lenders. In addition, we also can give
no assurance that our cash flow and capital resources will be sufficient to
repay our indebtedness or that we will be successful in obtaining alternate
financing. In the event we or any of our subsidiaries is unable to repay debts,
we may be forced to delay the expansion of its business, sell some of our
assets, obtain additional equity capital or refinance or restructure our debt,
any of which could have a material adverse effect on our the business, prospects
and financial condition.
RESTRICTIONS IN OUR CONVERTIBLE DEBENTURES AND WARRANTS PURCHASE
AGREEMENT MAY IMPAIR OUR ABILITY TO RAISE ADDITIONAL EQUITY CAPITAL. Our
agreement with the holders of our 7% Senior Convertible Debentures prohibits us
from selling any shares of our capital stock or securities convertible into
shares of
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our capital stock for a period of 180 days after January 24, 2000 except (i)
pursuant to the exercise of outstanding warrants, or options issued pursuant to
any shareholder-approved stock option plan, (ii) to any strategic partner, the
purpose of which is not primarily to raise money, or (iii) the sale of shares of
common stock at a price of not less than $2.50 per share with warrant coverage
of up to 40% for aggregate proceeds of up to $3,500,000. In addition, until 12
months after January 24, 2000, we must give such holders (i) a right of first
refusal to purchase shares of our capital stock or capital stock equivalents on
the same terms on which we are prepared to sell them to other investors and (ii)
if such holders do not exercise their right of first refusal, the further right
to exchange their convertible debentures and warrants for an equivalent dollar
amount of the new securities we offer. These restrictions may impair our ability
to raise equity capital on terms satisfactory to us, if at all--particularly
during the first 180 days after January 24, 2000. During such 180-day period, we
would be able to sell equity securities only pursuant to one of the exceptions
listed above or with the consent of the holders of our convertible debentures.
Our inability to raise needed funds would have a material adverse effect on our
business, financial condition and results of operations.
IF WE FAIL TO MANAGE GROWTH EFFECTIVELY, OUR BUSINESS MAY SUFFER. We
have experienced significant growth. This growth has placed, and will continue
to place, significant strains on our resources. Our ability to manage future
growth, should it occur, will require us to implement and continually expand
operational and financial systems, recruit additional employees and train and
manage both current and new employees. In particular, our success depends in
large part on our ability to attract and retain qualified technical, sales,
financial and management personnel. We face competition for these persons from
other companies, academic institutions, government entities and other
organizations. We can give you no assurance that we will be successful in
recruiting or retaining personnel of the requisite caliber or in adequate
numbers to enable us to conduct our business as we propose to conduct it.
IF WE FAIL TO SUCCESSFULLY IMPLEMENT AND MAINTAIN OUR SALES AND
DISTRIBUTION NETWORK, WE MAY BE UNABLE TO SELL SUFFICIENT PRODUCTS TO MAKE A
PROFIT. We distribute and sell our products through distributors and dealers we
have acquired and through independent dealers and distributors. Achieving the
anticipated benefits of such acquisitions will depend on a variety of factors,
including whether the integration of such dealers and distributors with our
organization can be accomplished in an efficient and effective manner and
whether the acquired sales force can effectively sell our proprietary products.
Any failure to identify future hires or acquisition candidates properly, any
large expenditures on acquisitions that prove to be unprofitable or any
difficulties we encounter in selling our proprietary products through the
existing distribution system could have a material adverse effect on our
business, financial condition and results of operations.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE WHEN
NEEDED. The continuing commercialization of our products requires the commitment
of significant capital expenditures. We anticipate that we will require
additional funds to support the rigorous testing of our products, other costs of
obtaining government approval and for marketing of our products for agricultural
applications. We anticipate that we will seek to obtain additional funds in the
future through public or private equity or debt financing, collaborative or
other arrangements with corporate partners or from other sources. We can give
you no assurance that we will be able to obtain this additional financing on
desirable terms, or at all. If additional funds are not available, we may be
required to curtail our operations and marketing efforts in certain geographic
areas or for one or more of our product lines.
PATENTS AND OTHER PROPRIETARY RIGHTS PROVIDE UNCERTAIN PROTECTION OF
OUR PROPRIETARY INFORMATION AND OUR INABILITY TO PROTECT A PATENT OR OTHER
PROPRIETARY RIGHT MAY IMPACT OUR BUSINESS AND OPERATING RESULTS. Our success
will depend in large measure upon our ability to obtain and enforce patent
protection
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for our proprietary products, maintain confidentiality of our trade secrets and
know-how and operate without infringing upon the proprietary rights of third
parties. We have been granted three U.S. patents for the technology relating to
the BioJect system. We do not have foreign patent protection with respect to the
claims covered by the two U.S. patents issued in 1993, and we are precluded from
obtaining these foreign rights due to the expiration of the period for filing
such claims. However, in connection with a U.S. patent granted in 1995, we
applied for foreign patent protection with respect to the BioJect system in
selected countries. To date, we have successfully patented the technology
relating to the BioJect system in several of these foreign countries. In
addition, we have registered a number of trademarks we use in our business,
including "BioJect" and "Fresh Pack" and have applied for registration of a
number of additional trademarks. We also rely on trade secrets and proprietary
know-how. We generally enter into confidentiality and nondisclosure agreements
with our employees and consultants and attempt to control access to and
distribution of our confidential documentation and other proprietary
information.
Despite the precautions described above, it may be possible for a third
party to copy or otherwise use our products or technology without authorization,
or to develop similar products or technology independently. We can give you no
assurance that our patent or trademark applications will be granted, that the
way we protect our proprietary rights will be adequate or that our competitors
will not independently develop similar or competing products. Furthermore, there
can be no assurance that we are not infringing other parties' rights. If any of
our patents are infringed upon or if a third party alleges that we are violating
their proprietary rights, we may not have sufficient resources to prosecute a
lawsuit to defend our rights. In addition, an adverse determination in any
litigation could subject us to significant liabilities to third parties, require
us to seek licenses from or pay royalties to third parties or prevent us from
manufacturing, selling or using our products, any of which could have a material
adverse effect on our business, financial condition and results of operations.
Even if we prevailed in litigation to protect our intellectual property rights,
this litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial condition and
results of operations.
WE DEPEND ON THIRD PARTY CONTRACT MANUFACTURERS AND SUPPLIERS. We
currently do not have any manufacturing capability and rely on third parties to
manufacture our products and components. We have more than one supplier for the
manufacture of most of our products and components; however, we obtain some
products or components from only one source. Although we believe that we will be
able to contract production with alternate suppliers, we can give you no
assurance that this will be the case or that the need to contract with
additional suppliers will not delay our ability to have our products and
components manufactured. We can give you no assurance that existing or future
manufacturers will meet our requirements for quality, quantity and timeliness,
and any such failure could have a material adverse effect on our business,
financial condition and results of operations.
WE MAY BE UNABLE TO ACQUIRE RIGHTS TO ADDITIONAL MICROBIAL PRODUCTS. We
plan to obtain the rights to additional microbial products. We currently do not
engage in our own research and development with respect to the discovery of
microbial products. As a result, we seek to license or acquire rights to
microbial products discovered by others. We can give you no assurance that we
will be successful in obtaining licenses for, or otherwise acquiring rights to,
additional microbial products on terms acceptable to us, or at all. If we fail
to acquire rights to additional products our business, financial condition and
results of operations could be materially adversely affected.
POTENTIAL PRODUCT LIABILITY OR ENVIRONMENTAL CLAIMS COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We may be exposed to
product liability or environmental liability resulting from the commercial use
of our products. We currently carry liability insurance, which covers, among
other things, product liability and environmental liability. A product
liability, environmental or other claim with
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respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on our business, financial condition and results of
operations.
We have obtained insurance of such types and in such amounts as we
believe is necessary, including casualty insurance and workers' compensation
insurance. However, we are exposed to certain risks that are not covered by our
insurance policies and our policies are subject to limits, exceptions and
qualifications. Consequently, we can give you no assurance that any losses will
be covered by insurance, that any covered losses will be fully insured against
or that any claim we make will be approved for payment by the insurer.
WE ARE SUBJECT TO ENVIRONMENTAL LIABILITY. The federal government and
some states have laws imposing liability for the release of fertilizers and
other agents into the environment in certain manners or concentrations. Such
liability could include, among other things, responsibility for cleaning up the
damage resulting from such a release. In addition, the federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), commonly known
as the "Superfund" law, and other applicable laws impose liability on certain
parties for the release into the environment of hazardous substances, which
might include fertilizers and water treatment chemicals. We also are subject to
certain other federal environmental laws, including the National Environmental
Policy Act, the Toxic Substance Control Act, the Resource Conservation and
Recovery Act, the Clean Air Act and the Clean Water Act and their state
equivalents and may be subject to other present and potential future federal,
state or local regulations. As noted above, we maintain insurance for
environmental claims which might result from the release of our products into
the environment, but there can be no assurance that any losses covered by
insurance will be adequately covered. Thus, a claim for environmental liability
could have a material adverse effect on the Company's business, financial
condition and results of operations.
OUR PRODUCTS ARE SUBJECT TO GOVERNMENTAL REGULATIONS AND APPROVALS. We
are subject to laws and regulations administered by federal, state and foreign
governments, including those requiring registration or approval of fertilizers,
pesticides, water treatment products and product labeling. Some of our current
products are subject to regulation by the EPA, the USDA and by certain state
environmental and agricultural departments. Prior to 1998, we had only one
registered pesticide with the EPA, BACILLUS THURINGIENSIS, and had marketed it
as well as other microbial products only as soil inoculants. In 1998, we
received two EPA approvals. First, we registered PSEUDOMONAS AUREOFACIENS TX-1
(Spot-less-TM-) with the EPA as a biofungicide for use in turf across the United
States and received EPA approval of the BioJect as a means of application of the
microbe. Second, we received EPA approval to use XANTHOMONAS CAMPESTRIS pv
poaannua (Xpo) as a bioherbicide in experimental use permit trials for use in
turf across the United States. We are in the final process of receiving EPA
approval on PSEUDOMONAS HORORAPHIS, STRAIN 63-28 (AtEze-TM-) for use as a
biofungicide on greenhouse and agricultural plants. We can give you no assurance
that we will obtain EPA approval for sales of additional microbial products as
biopesticides. In order to market a microbe as a pesticide, we must obtain EPA
approval of a particular product containing that microbe, including EPA approval
of the claims made in the product label and the method of application.
Registration of our microbial products as pesticides likely will be a lengthy
and expensive process that may or may not result in EPA approval. Without the
desired EPA approvals, we will not be able to market such unregistered microbes
as pesticides, and our sales efforts will be limited to discussions of the soil
inoculant features of the microbe. If the EPA determines that a microbial
product has no significant commercially valuable use other than use as a
pesticide, however, we will be precluded from selling the product entirely
unless it is approved by the EPA.
8
<PAGE>
In addition, if we intend to sell a microbe as a pesticide for use on
crops, we must also seek to have a tolerance level set by the EPA which would
define the acceptable limit on the amount of microbes that could be present on a
given raw agricultural commodity (food crop) at the time of harvest. We also may
petition the EPA for tolerance exemptions that would not limit the residues of
the microbial products on crops. If the EPA does not issue a tolerance
exemption, we would be required to obtain a separate tolerance for each food
product on which we intend to make our microbial pesticides available for use.
As a result, we would incur costly application fees for each tolerance. We can
give you no assurance that we will be successful in seeking such tolerances or
tolerance exemptions, and any failure to obtain such tolerances or exemptions
would prevent us from selling microbes as pesticides for use on crops.
We may be subject to regulation in foreign countries. Compliance with
such requirements likely would result in additional cost to us and delays in
introducing our products in such foreign countries.
Compliance with EPA and state environmental regulations as well as
other laws and regulations will increase our costs and time necessary to allow
us to operate successfully and may affect us in other ways not currently
foreseeable. In addition, more stringent requirements for regulation or
environmental controls may be imposed, which could have a material adverse
effect on our business, financial condition and results of operations.
THE INDUSTRY IN WHICH WE COMPETE IS EXTREMELY COMPETITIVE AND IF WE ARE
NOT ABLE TO COMPETE EFFECTIVELY OUR BUSINESS MAY SUFFER. The BioJect system and
our Fresh Pack products compete against traditional chemical insecticides and
fungicides, chemical soil penetrants, acid injection systems and the direct,
manual application of cultured microbial products. Many of our competitors have
substantially greater financial, technical and personnel resources than we do.
Our competitors include such well-established companies as Novartis Corporation,
Rhone-Poulenc AG Company, the Dow Chemical Company, O.M. Scotts & Sons, Inc.,
Lesco, Inc., and The Toro Company, as well as a number of smaller local and
regional competitors. We compete against traditional technologies on the basis
of our delivery mechanism and bioaugmentation expertise. We believe that the
long-term competitiveness of the BioJect system may be affected by the timing
and extent of our penetration into golf and agricultural markets compared to the
market penetration achieved by companies offering competing products for
microbial distribution. This timing, in turn, will be based on the effectiveness
with which we or the competition can complete product testing and approval
processes and supply products to the marketplace. Competition among microbial
distribution products is expected to be based on, among other things, product
effectiveness, safety, reliability, cost, market capability and patent
protection.
In markets for traditional chemical products, we compete against
well-established distributors of such products. Many of these competitors have
substantially greater financial, technical and personnel resources than us and
include such companies as Lesco, Inc., Terra Companies, Inc., Con-Agra, Inc. and
Wilbur-Ellis Company. We compete with distributors of traditional chemical
products on the basis of price, name recognition, convenience and customer
service.
OUR BUSINESS IS DEPENDENT IN LARGE PART UPON THE GROWTH AND CONTINUED
POPULARITY OF GOLF. Although we believe that golf markets will continue to grow,
a decrease in the number of golfers, reduced participation rates or reduced
consumer spending on golf could have a material adverse effect on our golf
course customers and, in turn, on us. Specifically, the success of efforts to
attract and retain members at private country clubs and the number of rounds
played at public golf courses historically have been dependent upon
discretionary spending by consumers, which may be adversely affected by general
and regional economic conditions. In addition, the construction of additional
golf courses is dependent upon growth in the number of golfers. If customer
tastes or economic conditions cause golf courses to reduce
9
<PAGE>
their budgets or slow the development of additional golf courses, we may see a
correlative decrease in sales of the BioJect system and our other products.
OUR EFFORTS TO SELL OUR PROPRIETARY PRODUCTS FOR USE IN MICRO
IRRIGATION AND GREENHOUSE APPLICATIONS MIGHT NOT PROVE SUCCESSFUL. We recently
have begun selling our proprietary products to growers who will apply them to
crops using micro irrigation methods. In addition, we have formed a strategic
relationship with Cebeco Seeds Group to sell our proprietary products in
European greenhouse markets. Our proprietary products have not been widely
applied using micro irrigation methods or in greenhouses and we may not achieve
significant market share in these markets. We cannot provide any assurances that
our revenues from sales of our proprietary products for application using micro
irrigation methods or in greenhouses will exceed the sales, marketing and
development costs we have incurred in an effort to penetrate these markets.
OUR EFFORTS TO SELL OUR PRODUCTS OUTSIDE THE UNITED STATES HAVE HAD
LIMITED SUCCESS TO DATE AND MAY NOT BE SUCCESSFUL IN THE FUTURE. We have devoted
substantial resources to developing markets for our products outside the United
States, particularly in Mexico. In addition, our strategic relationship with
Cebeco Seeds Group calls for us to sell our proprietary products to the European
greenhouse markets. To date, our operations outside the United States have
generated limited revenues, which have not been sufficient to cover our costs in
seeking to penetrate foreign markets. While we are continuing to explore
opportunities to sell our products outside the United States, we can give you no
assurance that we will be successful. Our international sales efforts are
subject to risks associated with operations in foreign countries that may
increase our costs, lengthen our sales cycle and require significant management
attention. These risks include:
- fluctuations in currency exchange rates, which may make our
products more expensive;
- general economic conditions in international markets;
- political risks;
- additional costs of compliance with local regulations,
including costs associated with unexpected changes in
regulatory requirements resulting in unanticipated costs and
delays;
- tariffs, export controls and other trade barriers; and
- longer accounts receivable payment cycles and difficulties in
collecting accounts receivable.
The costs related to our international operations could adversely
affect our operations and financial results in the future.
OUR STOCK PRICE HAS BEEN AND WILL CONTINUE TO BE VOLATILE. Our common
stock currently is quoted on the Nasdaq National Market. The market price of our
common stock could be subject to significant fluctuations in response to
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of our common stock. In addition, in the event the
listing of the common stock were discontinued for any reason, the liquidity and
price of our common stock would be adversely affected.
10
<PAGE>
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND ANY FAILURE TO
MEET FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND
RESULT IN A DECLINE IN OUR STOCK PRICE. Our operating results vary from quarter
to quarter as a result of seasonality and various factors. Virtually all of our
customers are located in the Northern Hemisphere and purchase greater quantities
of microbes and distributed products during the spring, summer and fall months.
As a result of low customer activity during the winter, we typically market the
BioJect system during the fourth and first quarters. As a result of these
marketing efforts, we typically receive orders during the first and second
quarters and install BioJect systems during the second and third quarters.
BioJect lease and installation revenues are recognized as payments come due
under the related contracts. Because of this sales cycle, we expect to recognize
a significant portion of our revenues during our second and third quarters.
Operating expenses have tended to be independent of the quarterly sales cycle.
As a result, operating expenses generally represent a higher percentage of sales
in the first and fourth quarters as compared to the second or third quarters,
and we may experience losses in the first and fourth quarters. Accordingly,
results for any quarter are not necessarily indicative of results for any future
period. The sales cycle for the BioJect system also makes it difficult to
predict the number of BioJect systems that will be leased and the quantity of
microbial product sales that will be sold until we receive orders during the
first half of the year. Sales of our products also depend to some extent on the
severity of weather patterns in the geographic areas we served. Given these
factors, it is difficult for us to accurately predict the level of demand for
our products.
It is likely that in one or more future quarters our financial results
will fall below the expectations of analysts and investors. If this happens, the
trading price of our common stock would likely decrease. Many of the factors
that cause our quarter to quarter financial results to be unpredictable are
largely beyond our control.
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS. We are dependent upon
the active participation of William B. Adams, the chairman of our board of
directors and our chief executive officer. The loss of the services of Mr. Adams
could have a material adverse effect upon our business, financial condition and
results of operations. We have entered into an employment agreement with Mr.
Adams, which provides for his continued employment with us through December 31,
2000. We do not have key person life insurance on any of our key employees.
A SMALL NUMBER OF SHAREHOLDERS MAY BE ABLE TO EXERCISE EFFECTIVE
CONTROL OVER US. As of December 31, 1999, our current principal shareholders and
management owned more than 20% of the outstanding shares of our common stock,
assuming the exercise of all outstanding options and warrants held by them and
no exercise of options or warrants held by others. Accordingly, even though we
currently have cumulative voting, the current principal shareholders and
management, if voting in concert, may have the ability to effectively control
the election of a majority of our directors or any other major decisions
involving us or our assets.
WE HAVE A LARGE NUMBER OF OUTSTANDING WARRANTS AND OPTIONS, WHICH COULD
HARM OUR ABILITY TO ACQUIRE ADDITIONAL CAPITAL. As of December 31, 1999, there
were 7,073,291 shares of common stock subject to issuance pursuant to options
and warrants we previously issued. Holders of warrants and options are likely to
exercise them when, in all likelihood, we could obtain additional capital on
terms more favorable than those provided by the warrants and options. While the
warrants and options are outstanding, they may adversely affect the terms on
which we can obtain additional capital.
ANTI-TAKEOVER PROVISIONS OF OUR CHARTER AND NEBRASKA LAW COULD LIMIT
THE ABILITY OF ANOTHER PARTY TO ACQUIRE US, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE. Certain provisions of our articles of
11
<PAGE>
incorporation, including provisions creating a staggered board of directors, and
certain provisions of Nebraska law, including the Nebraska Shareholders
Protection Act, could have the effect of deterring or delaying a takeover or
other change in control of Eco Soil, could deny shareholders the receipt of a
premium on their common stock and could result in a decline in the market price
of our common stock. In addition, our board of directors is authorized, without
any action by our shareholders, to issue up to 5,000,000 shares of authorized
but undesignated preferred stock and to fix the powers, preferences, rights and
limitations of this preferred stock or any class or series thereof. Persons
acquiring preferred stock could have preferential rights with respect to voting,
liquidation, dissolution or dividends over existing shareholders.
ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS. We
have never paid or declared any cash dividends on our common stock and we do not
intend to pay dividends on our common stock in the foreseeable future. We are
currently prohibited from paying dividends by the terms of a loan agreement we
have with Coast Business Credit. We intend to retain any earnings for use in the
operation and expansion of our business.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
Eco Soil, including:
- Our successful implementation of our growth strategy,
- Competition, including the introduction of new products or
services by our competitors,
- Anticipated trends in our business,
- Technological innovations,
- Fluctuations in our operating results,
- Future regulations affecting our business,
- Additions or departures of key personnel,
- General economic and business conditions, nationally, in our
markets and in our industry and
- Other risk factors described under "Risk Factors" in this
prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Eco Soil, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information or future
events. In light of these risks and uncertainties, the forward-looking
12
<PAGE>
events and circumstances discussed in this prospectus may not occur and actual
results could differ materially from those anticipated or implied in the
forward-looking statements.
USE OF PROCEEDS
We are registering the shares of our common stock offered by this
prospectus for the account of the selling shareholders identified in the section
of this prospectus entitled "Selling Shareholders." All of the net proceeds from
the sale of our common stock by this prospectus will go to the shareholders who
offer and sell their shares of common stock. We will not receive any part of the
proceeds from the sale of these securities.
CONVERTIBLE DEBENTURES
On January 24, 2000, we issued $4.5 million of principal amount of
Senior Secured Convertible Debentures and warrants to purchase 356,436 shares of
our common stock, $.005 par value per share, pursuant to a Convertible
Debentures and Warrants Purchase Agreement, dated as of January 17, 2000, by and
among Eco Soil, our subsidiaries, Agricultural Supply, Inc., Turf Partners,
Inc., Sistemas Y Equipos Agricolas, S.A. de C.V. and Agricultural Supply de
Mexico, S.A. de C.V., and four institutional investors who are selling
shareholders under this prospectus.
The Debentures are due January 24, 2001 and bear interest at a rate of
7% per annum, which is due quarterly beginning March 31, 2000, and is payable in
cash or common stock at our option. The Debentures are secured by all of our and
certain of our subsidiaries' tangible and intangible assets, which security
interest is subject to the prior liens of our and our subsidiaries' existing
secured lenders. The holder of each Debenture is entitled, at its option, to
convert at any time the principal amount of the Debenture or any portion
thereof, together with accrued but unpaid interest, into shares of our common
stock at a conversion price equal to the lowest of (a) $3.00 (adjusted for
subsequent stock splits and the like) or (b) 90% of the three lowest closing bid
prices on the principal market during the fifteen consecutive trading days
ending with the last trading day prior to the date of conversion. In no event
shall the conversion price be less than $1.89384, subject to adjustment for any
subsequent stock split or the like. We may redeem the Debentures upon at least
seven business days notice to the investors.
The warrants are exercisable until January 24, 2005. The warrants have
an initial exercise price of $4.488 per share; however, the initial exercise
price is subject to adjustment on the 180th day after the date the warrants were
issued if the five day average of the closing bid prices of our common stock
calculated on such date is lower than the initial exercise price. In connection
with the transaction, we agreed to prepare and file a registration statement
covering the resale of the shares of common stock issuable upon the conversion
of the Debentures and upon the exercise of the warrants with the Securities and
Exchange Commission. We intend to use the proceeds of the financing for working
capital purposes.
13
<PAGE>
SELLING SHAREHOLDERS
The following table provides the name of each selling shareholder and
the number of shares of our common stock offered by each selling shareholder
under this prospectus. Because the selling shareholders may sell all or part of
their shares of our common stock under this prospectus and since this offering
is not being underwritten on a firm commitment basis, we cannot estimate the
number and percentage of shares of our common stock that the selling
shareholders will hold at the end of the offering covered by this prospectus.
Of the 4,814,909 shares of common stock listed below,
- 2,542,453 shares are issuable upon the conversion of our 7%
Senior Secured Convertible Debentures;
- 356,436 shares are issuable upon the conversion of warrants we
issued in connection with our 7% Senior Secured Convertible
Debentures;
- 1,513,812 shares are issuable upon exercise of warrants held
by selling shareholders to whom Eco Soil issued warrants in
connection with various financing transactions;
- 402,208 shares were issued to Albion Alliance Mezzanine Fund,
L.P. and Paribas Capital Funding, LLC as consideration for
their entering into an amendment to the Note and Warrant
Purchase Agreement dated as of August 25, 1998.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERING AFTER THE OFFERING
----------------------- SHARES ----------------------
BEING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
BH Capital Investments, L.P.(1)(2) 1,046,821 5.6% 1,046,821 0 *
Excalibur Limited Partnership(1)(2) 1,046,821 5.6% 1,046,821 0 *
MB Capital Partners(1)(2) 331,339 1.8% 331,339 0 *
Gundyco in Trust for RSP 473,908 2.5% 473,908 0 *
550-98866-19(1)(2)
Ronald & Karen Ahlman 4,000 * 4,000 0 *
Curtis Amundson 10,000 * 10,000 0 *
Ernest Andberg 4,000 * 3,000 1,000 *
Duane Anderson 174 * 174 0 *
William E. Bauer REV Trust 50,303 * 20,000 30,303 *
dated 9/19/88
Thomas Benson 5,000 * 5,000 0 *
Constance Berman 348 * 348 0 *
Miles Braufman 174 * 174 0 *
Carol-Ann Brown 10,000 * 10,000 0 *
Joseph Buska 12,411 * 9,811 2,600 *
Bruce Chistensen 2,500 * 2,500 0 *
Sam Claasen 4,000 * 4,000 0 *
Arne Cook 5,000 * 5,000 0 *
John Dettlaff 5,000 * 5,000 0 *
John Doyle 35,000 * 15,000 20,000 *
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERING AFTER THE OFFERING
----------------------- SHARES ----------------------
BEING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Christopher Elliott 10,000 * 10,000 0 *
Sidney W. Emery, Jr. 173,706 * 40,000 133,706 *
Steven Faber 3,000 * 3,000 0 *
John E. Feltl 296,655 * 284,277 12,378 *
Edward C. & Joan Ford 733,738 3.9% 225,000 508,738 2.7%
Realty Center Inc., P/STT 33,484 * 10,000 23,484 *
517503-1 FBO
Michael J. Forkins
Timothy Friedrichs 3,913 * 3,913 0 *
FBO James Gayes 10,000 * 10,000 0 *
James Gearen 10,000 * 10,000 0 *
Max Gelwix IRA, First Trust 139,108 * 10,000 129,108 *
National Assn. Trustee
John Gjerde 50,303 * 20,000 30,303 *
Robert Gjerde 15,400 * 10,000 5,400 *
Douglas M. Gloff 898,389 4.8% 10,000 888,389 4.8%
Victor Greenstein 326 * 326 0 *
Donald Grissom 5,000 * 5,000 0 *
Donald F. Hagen, Trustee 55,302 * 35,151 20,151 *
Dennis Hanish 2,478 * 2,478 0 *
Heartland Capital Fund, Ltd. 680,493 3.7% 10,000 670,493 3.6%
Bradley Edwards
Fred & Susam Hedberg 5,000 * 5,000 0 *
Richard Heise 39,154 * 26,777 12,377 *
Stuart & Carol Holmer 5,000 * 5,000 0 *
Earl & Joan Holmes 5,000 * 5,000 0 *
Donald L. Illies 5,000 * 5,000 0 *
Michael Iverson 17,147 * 4,480 12,667 *
Robert D. & Karen L. Johnson 36,151 * 10,000 26,151 *
David Kapell 22,575 * 5,000 17,575 *
Steve Kellogg 5,000 * 5,000 0 *
William Kormanik 25,151 * 12,000 13,151 *
Richard L. & Judith L. 5,000 * 5,000 0 *
Kormanik
Russell Laitala 81,194 * 10,000 71,194 *
James D. Larson 21,433 * 5,000 16,433 *
Peter Linstroth 5,000 * 5,000 0 *
Dennis Loving 3,000 * 3,000 0 *
Bryant S. & Peggy J. Loving 5,000 * 5,000 0 *
Harry Marriott 10,000 * 10,000 0 *
James McBride 48,775 * 5,000 43,775 *
Thomas R. McGuire 5,000 * 5,000 0 *
Barry McLaughlin 38,800 * 20,900 17,900 *
Anthony R. Baraga, Trustee, 10,000 * 10,000 0 *
Medical Imaging North
Pension Plan
Randy T. Morgan 2,500 * 2,500 0 *
Dennis Nielson 2,400 * 2,400 0 *
John Nielson 600 * 600 0 *
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERING AFTER THE OFFERING
----------------------- SHARES ----------------------
BEING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Joseph Novogratz 30,000 * 30,000 0 *
Oban Capital Assets, Inc. 10,000 * 10,000 0 *
Douglas Pritchard 522 * 522 0 *
Ben & Sophie Reuben 40,000 * 40,000 0 *
John Ryden 2,478 * 2,478 0 *
Byron Shaffer 10,000 * 10,000 0 *
Richard Shaller 5,000 * 5,000 0 *
Patrick M. Sidders 19,800 * 19,800 0 *
David Dalvey 9,900 * 9,900 0 *
David Lantz 3,300 * 3,300 0 *
Thomas H. Stillman 5,000 * 5,000 0 *
P.L. Thomas Group 46,155 * 46,155 0 *
TMI (Turf Merchants Inc) 40,000 * 40,000 0 *
Steven Trotter 86,917 * 15,000 71,917 *
Robert Caturia, Trustee, 5,000 * 5,000 0 *
Caturia Funeral Home
Profit Sharing Trust
Joseph Valenti, Jr. Trust 5,000 * 5,000 0 *
dated 12/21/93
Barbara Verdoes 20,000 * 5,000 0 *
Galen G. Vetter 20,000 * 5,000 0 *
Vance Vinar 50,000 * 50,000 0 *
Bernard Weber 348 * 348 0 *
Donna Welsh 33,000 * 15,000 18,000 *
Scott & Dennis A. Welsh 5,000 * 5,000 0 *
Jeffery Werbalowsky 16,000 * 10,000 6,000 *
Gang Zhang 3,000 * 3,000 0 *
Imperial Bancorp. 40,000 * 40,000 0 *
Roth Capital Partners 167,500 * 167,500 0 *
(formerly Cruttenden Roth)
Albion Alliance Mezzanine 674,491 3.6% 214,511 459,980 2.4%
Fund, L.P.
Paribas Capital Funding, LLC 590,178 3.1% 187,697 402,481 2.1%
</TABLE>
* Ownership is less than 1%
(1) Consists of the maximum number of shares of common stock
issuable upon exercise of the convertible debentures and
warrants issued to the selling shareholder on January 24,
2000.
(2) Assumes all debentures held by the shareholder are converted
into common stock, and that all shares of common stock
acquired upon conversion of the debentures and upon exercise
of the warrant issued in connection with the debentures are
sold pursuant to this prospectus. The actual number of shares
to be issued to the holders of the convertible debentures will
depend on the market price of our common stock at the time of
a conversion.
Pursuant to the terms of agreements between Eco Soil and the selling
shareholders, Eco Soil agreed to file a registration statement covering the
shares held by the selling shareholders with the Commission.
16
<PAGE>
None of the selling shareholders has any position, office or other
material relationship with us or any of our affiliates, or has had any position,
office or material relationship with us or any of our affiliates within the past
three years, except that (1) William B. Adams is Eco Soil's Chairman and Chief
Executive Officer; (2) Douglas M. Gloff is a director of Eco Soil; (3) Max
Gelwix is Eco Soil's President and Chief Operating Officer; and (4) Edward C.
Ford is a former director of Eco Soil.
PLAN OF DISTRIBUTION
The selling shareholders may from time to time offer and sell their
shares of our common stock offered by this prospectus. We have registered their
shares for resale to provide them with freely tradable securities. However,
registration does not necessarily mean that they will offer and sell any of
their shares.
OFFER AND SALE OF SHARES. The selling shareholders, or their pledgees,
donees, transferees or other successors in interest, may offer and sell their
shares of our common stock in one or more of the following manners:
- on the Nasdaq Stock Market or other exchanges on which the
common stock is traded at the time of sale;
- in the over-the-counter market or otherwise at prices and at
terms then prevailing or at prices related to the then current
market price; or
- in privately negotiated transactions.
The selling shareholders, or their pledgees, donees, transferees or
other successors in interest, may sell their shares of our common stock in one
or more of the following transactions:
- a block trade in which the broker or dealer will attempt to
sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the
transaction;
- a broker or dealer may purchase as principal and resell the
shares for its own account under this prospectus; or
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
The selling shareholders may accept and, together with any agent of the
selling shareholders, reject in whole or in part any proposed purchase of the
shares of our common stock offered by this prospectus.
BROKERS AND DEALERS. The selling shareholders may select brokers or
dealers to sell their shares of our common stock. Brokers or dealers of the
selling shareholders may arrange for other brokers or dealers to participate in
selling the shares. The selling shareholders may give the brokers or dealers
commissions or discounts in amounts to be negotiated immediately before any
sale. In connection with these sales, these brokers or dealers, any other
participating brokers or dealers, and some pledgees, donees, transferees and
other successors in interest, may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. In addition, any
securities covered by this prospectus that qualify for sale pursuant to Rule 144
of the Securities Act of 1933 may be sold under Rule 144 rather than under this
prospectus.
COMMISSIONS. The selling shareholders will pay any sales commissions or
other sellers' compensation applicable to these transactions.
17
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited Eco Soil's
financial statements included in Eco Soil's Annual Report on Form 10-K for the
year ended December 31, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Eco Soil's financial statements are incorporated by reference in this
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
LEGAL MATTERS
The legality of Eco Soil's common stock offered by this prospectus will
be passed upon for Eco Soil by Fitzgerald, Schorr, Barmettler & Brennan, P.C.,
Omaha, Nebraska.
WHERE TO FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy materials we have filed
with the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its public reference room. Our SEC filings also
are available to the public on the SEC's Internet site at www.sec.gov. In
addition, you may obtain a copy of our SEC filings at no cost by writing or
telephoning our Corporate Secretary at:
Eco Soil Systems, Inc.
10740 Thornmint Road
San Diego, California 92127
(858) 675-1660
The SEC allows us to "incorporate by reference" in this prospectus
information we file with the SEC, which means that we may disclose important
information in this prospectus by referring you to the document that contains
the information. The information incorporated by reference is considered to be a
part of this prospectus, and later information filed with the SEC will update
and supersede this information. Eco Soil incorporates by reference the documents
listed below and any future filings it makes with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, until the offering of
securities covered by this prospectus is completed:
- The Annual Report on Form 10-K of Eco Soil for the fiscal year
ended December 31, 1999;
- The Current Report on Form 8-K of Eco Soil filed January 26,
2000; and
- The Registration Statement on Form 8-A of Eco Soil filed
January 14, 1997.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933, relating to the securities that may be offered by
this prospectus. This prospectus is a part of that registration statement, but
does not contain all of the information in the registration statement. For more
detail concerning Eco Soil and any securities offered by this prospectus, you
may examine the registration statement and the exhibits filed with it at the
offices of the SEC.
18
<PAGE>
You should rely only on the information provided or incorporated by
reference in this prospectus or in the applicable supplement to this prospectus.
You should not assume that the information in this prospectus and the applicable
supplement is accurate as of any date other than the date on the front cover of
the document.
19
<PAGE>
================================================================================
We have not authorized any person to make a statement that differs from
what is in this prospectus. If any person does make a statement that differs
from what is in this prospectus, you should not rely on it. This prospectus is
not an offer to sell, nor is it seeking an offer to buy, these securities in any
state where the offer or sale is not permitted. The information in this
prospectus is complete and accurate as of its date, but the information may
change after that date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Eco Soil Systems, Inc. 2
Recent Developments 3
Risk Factors 4
Note Regarding Forward Looking Statements 12
Use of Proceeds 13
Convertible Debentures 13
Selling Shareholders 14
Plan of Distribution 17
Experts 18
Legal Matters 18
Where to Find Additional Information 18
</TABLE>
ECO SOIL SYSTEMS, INC.
4,814,909 SHARES
COMMON STOCK
P R O S P E C T U S
__________, 2000
20
<PAGE>
================================================================================
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an itemized statement of expenses incurred in
connection with this Registration Statement. All such expenses will be paid by
Eco Soil Systems, Inc. (the "Company").
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 2,810
Nasdaq Listing Fee.......................................... 17,500
Legal Fees and Expenses..................................... 25,000
Accounting Fees and Expenses................................ 10,000
Printing.................................................... 5,000
Miscellaneous .............................................. 5,000
TOTAL.......................................... $ 65,310
</TABLE>
All of the above items except the registration fee are estimates.
Item 15. Indemnification of Directors and Officers.
Sections 21-20,103 through 21-20,111 of the Nebraska Business
Corporation Act provide, in summary, that the directors and officers of Eco Soil
may, under certain circumstances, be indemnified by Eco Soil against all
liability expenses incurred by or imposed upon them as a result of actions,
suits or proceedings brought against them as such directors and officers, or as
directors or officers of any other organization at the request of Eco Soil, if
they act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of Eco Soil, and with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful, except that no indemnification shall be made against expenses in
respect of any claim, issue or matter as to which they shall have been adjudged
to be liable to Eco Soil unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
they are fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper. Sections 21-20,104 and 21-20,108(a) of the
Nebraska Business Corporation Act also provide that directors and officers of
Eco Soil are entitled to such indemnification by Eco Soil to the extent that
such persons are successful on the merits or otherwise in defending any such
action, suit or proceeding to which he or she is a party because he or she was
serving a director or officer of Eco Soil.
Item 16. Exhibits.
5.1 Opinion of Fitzgerald, Schorr, Barmettler & Brennan, P.C.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Fitzgerald, Schorr, Barmettler & Brennan,
P.C.(included in Exhibit 5.1 hereto).
24.1 Power of Attorney (included on signature page hereto).
21
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to existing provisions or otherwise, the Registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for
22
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of San Diego, State of California, on the 18th day
of April, 2000.
ECO SOIL SYSTEMS, INC.
By: /s/ WILLIAM B. ADAMS
------------------------------------
William B. Adams
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below hereby constitutes and
appoints William B. Adams his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, or any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith or in connection with the registration of the common stock
offered hereby under the Securities Exchange Act of 1934, with the Commission,
granting unto such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary in connection with
such matters and hereby ratifying and confirming all that such attorney-in-fact
and agent or his substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ WILLIAM B. ADAMS Chairman of the Board and Chief Executive April 18, 2000
- ---------------------------- Officer (Principal Executive Officer)
William B. Adams
/s/ DENNIS SENTZ Chief Financial Officer and Secretary April 18, 2000
- ---------------------------- (Principal Financial Officer and Principal
Dennis Sentz Accounting Officer)
/s/ DOUGLAS M. GLOFF Director April 18, 2000
- ----------------------------
Douglas M. Gloff
/s/ S. BARTLEY OSBORN Director April 18, 2000
- -----------------------------
S. Bartley Osborn
/s/ WILLIAM S. POTTER Vice Chairman April 18, 2000
- -----------------------------
William S. Potter
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
/s/ FRIDOLIN E. FACKELMAYER Director April 18, 2000
- -------------------------------
Fridolin E. Facklemayer
/s/ ROBERT W. O'LEARY Director April 18, 2000
- -------------------------------
Robert W. O'Leary
/s/ EDWARD STEEL, JR. Director April 18, 2000
- -------------------------------
Edward Steel, Jr.
</TABLE>
25
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement on
Form S-3 or are incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
5.1 Opinion of Fitzgerald, Schorr, Barmettler & Brennan, P.C.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of Fitzgerald, Schorr, Barmettler & Brennan,
P.C. (included in Exhibit 5.1 hereto).
24.1 Power of Attorney (included on signature page hereto).
</TABLE>
- ----------
* Filed herewith.
26
<PAGE>
Exhibit 5.1
April 21, 2000
Eco Soil Systems, Inc.
10740 Thornmint Road
San Diego, California 92127
Re: Eco Soil Systems, Inc.:
Registration Statement On Form S-3
-------------------------------------------
Ladies and Gentlemen:
This firm has been engaged as special counsel to Eco Soil Systems, Inc. (the
"Company") for the limited purpose of providing an opinion as to the status of
the 4,814,909 shares of the common stock, $.005 par value of the Company (the
"Shares"), to be registered with the Securities and Exchange Commission on Form
S-3 (the "Registration Statement").
In rendering this opinion, we have examined the law and the following documents:
A. The Certificate of Existence issued by the Secretary of State
of the State of Nebraska and dated January 7, 2000.
B. A copy of the Amended and Restated Articles of Incorporation
as certified by the Secretary of State of the State of
Nebraska on January 7, 2000.
C. A telefaxed copy of the Secretary's Certificate, executed by
Dennis Sentz, as Secretary of the Company (the "Secretary's
Certificate"), with respect to the authorized, outstanding and
reserved shares of the common stock of the Company and the
resolutions of the Board of Directors authorizing the filing
of the Registration Statement.
<PAGE>
April 21, 2000
Page Two
D. A copy of the Registration Statement as proposed to be filed
with the Securities and Exchange Commission.
We have not been engaged nor have undertaken to review the accuracy,
completeness or sufficiency of the Registration Statement, nor with respect to
any other matter not specifically stated in this opinion, and we express no
opinion relating thereto.
As to questions of fact material to our opinion, we have relied upon the
foregoing documents, including the representations of officials of the Company
contained in the above specified documents. We have not undertaken to verify any
of the foregoing by independent investigation and have assumed the authenticity
of the original documents and the conformity of the copies submitted to us to
the authentic original documents. Moreover, we have assumed the legal capacity
for all purposes relevant hereto of all natural persons and that such persons
had the requisite power and authority to execute and deliver such documents and
that the signatures thereon are genuine.
Based upon the foregoing, we are of the opinion that under the Business
Corporation Act in effect on the date hereof in Nebraska, the Shares have been
duly authorized and, upon issuance, delivery and payment therefor in accordance
with the terms of the 7% Senior Secured Convertible Debentures and various
warrants, respectively, as applicable, will be validly issued and will be fully
paid and nonassessable. Similarly, the shares issued to holders of the Company's
Senior Subordinated Notes are validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the laws of the State of Nebraska and we
express no opinion as to matters governed by any laws other than those of the
State of Nebraska nor to any matter not expressly addressed herein.
Our opinion is further subject to the following qualifications and exceptions:
A. The effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar law of general
application governing creditors' rights; and
B. General principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair
dealing, and other similar doctrines affecting enforceability
of agreements generally.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.
Yours very truly,
FITZGERALD, SCHORR, BARMETTLER & BRENNAN, P.C.
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Eco Soil Systems,
Inc. for the registration of 4,814,909 shares of its common stock and to the
incorporation by reference therein of our report dated March 3, 2000, except for
the last five paragraphs of Note 11, as to which the date is April 12, 2000,
with respect to the consolidated financial statements of Eco Soil Systems, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1999,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
April 19, 2000
