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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 0-19746
ECOSCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2912632
(State of incorporation) (I.R.S. Employer Identification No.)
10 ALVIN COURT 08816
EAST BRUNSWICK, NEW JERSEY (Zip Code)
(Address of principal executive offices)
908-432-8200
(Registrant's telephone number, including area code).
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No_____
_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
As of September 19, 1996, there were outstanding 9,342,177 shares of Common
Stock, $.01 par value per share. The aggregate market value of shares of Common
Stock held by non-affiliates of the registrant, based upon the last sales price
for such stock on that date as reported by NASDAQ, was approximately
$10,104,436.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders held on November 7, 1996 are incorporated by reference into
Part III.
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Number of Pages: Exhibit Index on Page: 54
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PART I
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ITEM 1. BUSINESS
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GENERAL
EcoScience Corporation ("EcoScience") is a marketing, sales and product
development company servicing the needs of the agricultural specialties markets
and professional pest control operators ("PCO"). The Company provides (i)
sophisticated growing systems to greenhouse operators, (ii) technologically
advanced sorting and grading equipment to produce packers, (iii) equipment,
coatings and disease control products, including all natural biologicals for
protecting fruits, vegetables and ornamentals in storage and transit to market,
and (iv) unique biological pest control products to PCO. The Company focuses on
the technical marketing of agricultural specialties products and services, and
the development of biological pest control products.
The Company serves the specialty agriculture market through its three
subsidiaries: Agro Dynamics, Inc. and Agro Dynamics Canada Inc. (collectively,
"AGRO") and the EcoScience Produce Systems Corp. ("EPSC") which are hereinafter
referred to collectively with EcoScience as the "Company." EcoScience was
incorporated under the laws of the State of Florida on August 27, 1982, and was
reincorporated in the State of Delaware on June 29, 1988. On November 18, 1992,
EcoScience acquired all of the outstanding capital stock of AGRO, an East
Brunswick, New Jersey based company that designs and markets products and
growing systems for the North American horticulture industry. The Company sells
technologically advanced products and services for intensive farming. On May
24, 1994, the Company acquired certain assets and liabilities of American
Machinery Corporation ("AMC"), an Orlando, Florida based business that provides
postharvest coating products and services to the fresh fruit and vegetable
markets throughout the United States, the Caribbean, Central America and South
America. Concurrent with the acquisition of AMC, the Company formed EPSC to
combine the AMC product line and operating unit with its existing activities.
EcoScience sells to PCO through marketing collaborations with Terminix
International Company L.P. ("Terminix") and Maruwa Biochemical Co., Ltd.
("Maruwa Biochemical"). See "Collaborative Agreements."
The Company's primary products are (i) advanced growing systems based
on Stonewool-Registered Trademark-, manufactured by Grodania A/S, (ii)
sophisticated Aweta, B.V. sorting and grading equipment, (iii) computerized
irrigation systems from H. Hoogendorn Automation B.V., (iv)
PacRite-Registered Trademark- and Indian River Gold-TM- coatings
manufactured by EPSC, (v) the Bio-Save-TM- PostHarvest BioProtectant line of
products and (vi) the Bio-Blast-TM- Biological Termiticide. In addition, the
Company distributes a broad array of specialty products used in greenhouses
and in fruit, vegetable and ornamental packing.
In fiscal 1996, the Company continued to implement an extensive
restructuring program to complete its shift from a research and development
based organization to one focused on commercial product sales. The
restructuring involved the elimination of the Company's Massachusetts based
research and manufacturing operations. The Company operates from its
headquarters in East Brunswick, New Jersey, where it maintains sales, marketing
and warehousing operations, and its Orlando, Florida facility which contains the
Company's major coatings and biologicals production facility. The Company also
maintains sales and customer service offices in Visalia, California; Ventura,
California; Englewood, Colorado; Yakima, Washington; Milton, Canada and Surrey,
British Columbia, Canada.
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The Company's current technology base is in the development and
application of natural microbial pest control agents and of coatings to sustain
the freshness of fruits and vegetables. The Company's technology base allows it
to provide technical support for growers and packers of specialty crops. The
Company conducts research on the use of microbial agents to control plant
diseases and insect pests as well as on new applications for natural coatings to
sustain nutrition and overall quality in fresh cut fruits and vegetables.
In fiscal 1996, the Company (i) demonstrated the performance of its Bio-
Save line of products for the control of postharvest fruit diseases in a broad
range of commercial programs, (ii) successfully completed commercial tests of
its Bio-Blast Biological Termiticide and (iii) concluded a Phase-1 Small
Business Innovation Research ("SBIR") program on the prevention of postharvest
diseases of bananas. This SBIR program will be continued in fiscal 1997 and
1998 under a fully funded Phase-2 SBIR grant. In addition, the Company expects
to conduct tests to determine the range of performance and applicability for
both its Bio-Save line of products as well as for the Bio-Blast insect control
product.
The fiscal 1996 restructuring program focused on reducing research and
development expenses and long term liabilities associated with the Bio-Path-TM-
Cockroach Control Chamber manufacturing facility formerly located in
Northborough, Massachusetts. The program led to expanded sales and marketing
efforts for the Company's core products in growing and packing systems and
emphasized the introduction of the Company's Bio-Save and Bio-Blast lines of all
natural biological pest control products.
PRODUCTS
The Company's focus is on development and commercialization of
products for the following major markets: (i) specialty agriculture; (ii)
postharvest packing of fruits and vegetables; and (iii) biological pest control
for the professional pest control operator.
SPECIALTY AGRICULTURE
The Company, through AGRO, markets and distributes commercial products
and provides services to the greenhouse and nursery market in North America and
Mexico.
COMMERCIAL PRODUCTS
GROWING SYSTEMS. The Company is the exclusive distributor in the
United States and Canada of the Grodan brand of stonewool, an inert growing
medium supplied by Grodania A/S, a Danish based company that is headquartered in
Denmark and which is a wholly owned subsidiary of Rockwool International A/S.
Stonewool is made by melting and spinning rock. It is designed to support the
growth of high value crops and to improve plant root distribution and plant
yields through more efficient use of oxygen, water and fertilizer. Stonewool is
used worldwide for cultivation of a variety of plants in controlled growing
environments such as greenhouses. The sale of products under the distribution
agreement with Grodania A/S accounted for 45%, 43%, and 59% of the Company's
total product sales in fiscal 1996, 1995, and 1994, respectively. The Company
believes that revenues under this distribution agreement will account for more
than 10% of the Company's consolidated product sales in fiscal 1997.
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AUTOMATED IRRIGATION AND ENVIRONMENTAL CONTROL SYSTEMS. The Company
through its ISYS-TM- Division, designs, fabricates, assembles and distributes
greenhouse irrigation and fertilization systems, computerized environmental
control systems, pest control testing and application products. In addition, the
Company provides customers with technical support, product service, turnkey
installation, product marketing and other supplementary services. The Company
is also the exclusive distributor in the United States, Canada and Mexico of
computerized environmental control systems and accessories produced by a
Netherlands based company, H. Hoogendoorn Automation B.V.
The Company also distributes additional products in the North American market on
both an exclusive and non-exclusive basis. These products include accessories
and other product lines for the use in the intensive farming and horticulture
industries.
POSTHARVEST PACKING OF FRUITS AND VEGETABLES
Through AGRO and EPSC, the Company provides equipment, coatings and disease
control products to the fruit, vegetable and ornamental packing markets.
COMMERCIAL PRODUCTS
SORTING AND GRADING. The Company is the exclusive distributor in the
United States, Canada, Mexico and the Caribbean of advanced automated
computerized color, weight and size sorting and grading systems and ancillary
equipment produced by Aweta, B.V., a Netherlands based company. The sale of
products under the distribution agreement with Aweta, B.V. accounted for 20% of
the Company's total product sales in fiscal 1996. The Company believes that
revenues under this distribution agreement will account for more than 10% of the
Company's consolidated product sales in fiscal 1997.
TRADITIONAL COATING PRODUCTS. The Company manufactures, markets and
provides a broad spectrum of postharvest coating and cleaning products and
services. Its traditional protective coating and storage products include
Indian River Gold, PacRite, SEALBRITE-Registered Trademark- and
DURA-FRESH-Registered Trademark-. These products were originally acquired in
May 1994 with the asset purchase of AMC. These traditional coating products
are conventional shellac and carnauba based coatings which have been used
successfully in the citrus and pome fruit markets. These traditional coating
products, together with the Company's Nature Seal coating products, maintain
the quality and extend the shelf life of produce by (i) providing a barrier
to free gas exchange, (ii) providing a barrier against abrasion, scuffing,
bruising and other injuries, (iii) providing a carrier for decay preventing
agents, (iv) providing a glossy appearance that is aesthetically appealing to
consumers, (v) reducing shrinkage caused by water loss and (vi) maintaining
firmness of the fruit or vegetable. The Company's traditional coating
products contain materials that are Food and Drug Administration ("FDA")
approved additives or have been listed by the FDA as "Generally Recognized As
Safe" and accordingly, these coatings do not require FDA approval or
registration. PacRite, SEALBRITE, and Indian River Gold currently are sold
by the Company in the United States, the Caribbean, Central America and South
America.
NATURE SEAL. In June 1993, the Company acquired exclusive, worldwide
rights to Nature Seal, a naturally derived cellulose based protective coating
for harvested fruits and vegetables. Nature Seal coatings provide a protective
preservative film to maintain quality, control ripening and enhance overall
appearance of fruits and vegetables. The components of the coatings are
"Generally Recognized As Safe" by the FDA and, accordingly, Nature Seal does not
require regulatory approval for marketing. In August 1993, the Company
commenced sales of its first Nature Seal product. Since then, the Company's
efforts have been focused on developing and refining formulations for a variety
of fruits and
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vegetables. Throughout fiscal 1996, the Company conducted field tests on these
formulations and is currently focused on targeted marketing and distribution of
the Nature Seal product.
BIO-SAVE POSTHARVEST BIOPROTECTANT. The newest products to be sold by the
Company are its Bio-Save line of biological disease inhibitors. These products
are sold through EPSC to the pear, apple and citrus markets. Postharvest
diseases and damage during storage and shipment can account for losses ranging
from 10% to 25% of total annual production of fruits and vegetables, depending
on the crop and climate. The Company has developed and registered natural
PSEUDOMONAS SYRINGAE microorganisms which can control the development of Blue
Mold (PENICILLIUM EXPANSUM), Gray Mold (BOTRYTIS CINEREA) and Mucor Rot (MUCOR
PYRIFORMIS) on apples and pears, and Blue Mold (P. ITALIUM), Green Mold (P.
DIGITATUM) and Sour Rot (GEOTRICHUM CANDIDUM) on citrus fruit. The Company has
conducted successful field trials over the last five years utilizing selected
microbial agents in Florida, California, Oregon, West Virginia, Massachusetts,
Michigan, and Washington and Chile. In March 1996, the Company received EPA
registration and state registrations in its primary markets for its Bio-Save
100, Bio-Save 1000, and Bio-Save 110 biofungicides for the control of
postharvest diseases on apples, pears and citrus fruit. These registrations
were for revised formulations of the original Bio-Save active ingredient first
approved in March 1995. The Company, through EPSC, conducted initial focused
sales of the product in fiscal 1996 and is planning a major product launch in
fiscal 1997.
BIOLOGICAL INSECT CONTROL
In the biological insect control market, the Company, with
collaborative partners, has been focused on developing and selling cost
effective bioinsecticide alternatives to synthetic chemical insecticides for use
in specific applications, including sensitive use environments such as homes,
restaurants, schools and food processing facilities.
COMMERCIAL PRODUCTS
BIO-BLAST BIOLOGICAL TERMITICIDE. The Company, together with its
collaborator, Terminix, has developed a natural fungal product to control
termites, the Bio-Blast Biological Termiticide. See "Collaborative
Arrangements." This product contains a fungus selected for its ability to
infect and kill termites which has been formulated for application utilizing
conventional equipment in a termite infested structure. The product uses
METARHIZIUM ANISOPLIAE, the naturally occurring insect killing fungus. The
product is a dry powder packaged and portioned for ease of storage and use. It
is used as a water suspension. The Company commenced commercial trials of Bio-
Blast in the first quarter of fiscal 1995 under the terms of its development
agreement with Terminix, and trials continued throughout fiscal 1996. These
trials have demonstrated that Bio-Blast is an effective tool for the control of
termite infestations. The Company has demonstrated that termites exposed to the
fungus in the product can spread the fungus by contact to nest mates that have
not directly contacted the fungal agent, thereby infecting and killing other
termites through the Horizontal Transfer-Registered Trademark- effect. The
Company received Environmental Protection Agency ("EPA") product registration
for the termiticide in October 1994,and subsequently received approval for
registration from 47 states. In fiscal 1996, the Company made its initial
sales to both Terminix and Maruwa Biochemical.
BIO-PATH COCKROACH CONTROL CHAMBER. In June 1993, the Company
commenced sales to PCO of its first biological insect control product, the
Bio-Path Cockroach Control Chamber, the first biological cockroach control
product registered by the EPA. This product uses the Company's patented
Bio-Path Cockroach Chamber technology to house a naturally occurring insect
killing fungus, METARHIZIUM ANISOPLIAE, the same fungal ingredient utilized in
the Bio-Blast Biological Termiticide. The fungus, when delivered to the
cockroach through the chamber, adheres to the cockroach's body
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causing infection and ultimate death of the insect. Cockroaches that have
touched the fungus spread the fungus through contact with other cockroaches
which have not passed through the chamber. Despite the technical success of
the product, the Company has not been able to generate the expected positive
margins for this first generation product due to high production costs. As a
result, the Company has ceased production of the first generation Bio-Path
Cockroach Control Chamber. The Company has completed formulation of a second
generation product, which has not yet received EPA approval, and is seeking
contractors for reduced cost toll manufacturing. The Company is currently
seeking partners to market the second generation product.
SALES AND DISTRIBUTION
SPECIALTY AGRICULTURE PRODUCTS. The Company sells directly into this
market through AGRO. AGRO has a marketing/sales force of 19 people located in
its distribution and service centers in East Brunswick, New Jersey; Milton,
Ontario, Canada; and Ventura, California, and in its sales/service offices in
Englewood, Colorado; Orlando, Florida; Yakima, Washington and Langley, British
Columbia, Canada.
POSTHARVEST PACKING. The Company uses its AGRO and EPSC direct sales
forces to market and sell its packing equipment and its traditional and
naturally derived coatings and Bio-Save BioProtectants to fruit and vegetable
growers, packers and processors in the United States, the Caribbean, Central
America and South America. EPSC has a sales and technical support services
force of 9 people located in its distribution and service centers in Orlando,
Florida and Visalia, California. AGRO has sales/service offices handling and
supporting this market in Yakima, Washington; East Brunswick, New Jersey and
Englewood, Colorado.
BIOLOGICAL PEST CONTROL. In June 1992, the Company entered into a product
development and license agreement with Terminix for collaboration on the
development and marketing of termite control products in the United States and
Canada. See "Collaborative Agreements." In July 1995, the Company received its
first purchase order from Terminix for the sale of its Bio-Blast termiticide
product. In March 1996, the Company received its second order from Terminix.
The Company's sales and distribution agreement with Bengal Chemical, Inc. for
the non-exclusive retail distribution of the Company's Bio-Path Cockroach
Control Chamber in certain retail markets in the United States expired in fiscal
1996. The Company will seek additional retail distribution arrangements for
its Bio-Path product pending successful development of cost effective
manufacturing.
INTERNATIONAL SALES. The Company expects to market products
internationally primarily through local and regional distributors and partners.
The Company has established a development and distribution agreement with Maruwa
Biochemical for distribution of its Bio-Path Cockroach Control Chamber and Bio-
Blast Biological Termiticide in Japan upon registration there. In addition, the
Company has entered into a marketing and distribution agreement with Dong Sung
Pharmaceutical Co., Ltd. ("Dong Sung"), for distribution of its Bio-Path
Cockroach Control Chamber in South Korea upon its registration there. In May
1995, the Company entered into a marketing and distribution agreement with
Rhone-Poulenc Agrochimie ("Rhone-Poulenc") for distribution of its Bio-Path
Cockroach Control Chamber to PCO in 16 countries in Europe upon registration in
each of those countries. See "Collaborative Agreements."
Financial information segregated by major geographic area (United
States and Canada) is set forth in Note 10 to the Company's Consolidated
Financial Statements, which appears elsewhere in this Annual Report on
Form 10-K.
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MANUFACTURING
As part of the fiscal 1995 restructuring program, the Company ceased
production of the first generation Bio-Path Cockroach Control Chamber. The
Company has completed formulation of a second generation product, which has not
yet received EPA approval, and is seeking contractors for reduced cost toll
manufacturing. The Company is currently seeking partners to market the second
generation product.
In fiscal 1995, the active ingredient (fungal conidia) for the Bio-Blast
termiticide product was produced at the Northborough, Massachusetts facility.
Subsequent processing and packaging were conducted by third party subcontractors
with specialized equipment. During fiscal 1995, the Company identified and
engaged in discussions with a select number of companies with a proven ability
to produce the fungal active ingredient for the Bio-Blast product on a cost-
effective basis. Commensurate with the closing of its Northborough facility,
the Company established supply arrangements for manufacture of the active
ingredient in the Bio-Blast product. Upon receipt of the raw active
ingredient, the Company now processes, formulates and packages this material
to produce the Bio-Blast product in its Orlando, Florida manufacturing facility.
Traditional coating products and Nature Seal coatings are currently being
manufactured at the EPSC facility in Orlando, Florida. Production of the
Company's postharvest fruit disease control products (Bio-Save) require
large-scale fermentation and formulation capacity. The Company has established
relationships with third party subcontractors to manufacture these products. To
date, the Company has been able to acquire a sufficient supply of the Bio-Save
product for its commercial sales.
COLLABORATIVE AGREEMENTS
MARUWA BIOCHEMICAL CO., LTD. In June 1993, the Company entered into a
Development and Distribution Agreement with Maruwa Biochemical (the "Maruwa
Agreement") to commercialize the Company's Bio-Path Cockroach Control Chamber in
Japan. In addition, the Company is currently working with Maruwa on
commercialization of its Bio-Blast product. Under the Maruwa Agreement, Maruwa
Biochemical will pursue at its own expense the registration and
commercialization of the Company's cockroach and termite control products in
Japan, including the initiation of field trials and, if required, the
commencement of toxicology studies. Following receipt of all required approvals,
Maruwa Biochemical is obligated to distribute products supplied by the Company
and sold to Maruwa Biochemical at prices to be determined by agreement. Maruwa
Biochemical paid an initial licensing fee to the Company upon execution of the
Maruwa Agreement.
DONG SUNG PHARMACEUTICAL CO., LTD. In May 1994, the Company entered into a
Marketing and Distribution Agreement with Dong Sung (the "Dong Sung Agreement")
for the exclusive rights to market and distribute the Company's Bio-Path
Cockroach Control Chamber product in South Korea. Under the Dong Sung
Agreement, Dong Sung will pursue at its own expense the registration and
commercialization of this product in South Korea, including minimum amounts for
advertising and promotion during the first two calendar years once registration
has occurred as provided for in the agreement. The Dong Sung Agreement expires
on December 31, 1999, unless extended by the parties. Dong Sung has the right
to terminate the Dong Sung Agreement without cause upon 90 days notice to the
Company.
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RHONE-POULENC AGROCHIMIE. In May 1995, the Company entered into a
Marketing and Distribution Agreement with Rhone-Poulenc (the "Rhone-Poulenc
Agreement") for the exclusive rights to market and distribute the Company's Bio-
Path Cockroach Control Chamber product to PCO in 16 countries in Europe subject
to registration in each of those countries. The term of the Rhone-Poulenc
registration is for a period of five years from the date of execution or the
date product registration is received in the particular country, whichever is
later, and may be renewed for successive one year periods thereafter by mutual
agreement of the parties.
THE TERMINIX INTERNATIONAL COMPANY, L.P. In June 1992, the Company entered
into a Product Development and License Agreement with Terminix (the "Terminix
Agreement") for collaboration on the development and marketing of termite
control products. Under the Terminix Agreement, Terminix provided funding to
the Company for the development of biological termite control products and
received exclusive rights to use and distribute any resulting products in the
United States and Canada. The Company has retained all rights elsewhere. The
Company managed product development, manufactures and sells products to Terminix
at an agreed markup over the Company's manufacturing cost. The Company will also
share any profit realized by Terminix over specified levels. The Terminix
Agreement extends until expiration of the last to expire of any patents which
may issue covering the Company's biological termite control technology, subject
to Terminix's right to terminate the agreement at any time. The Company
received EPA product registration for the termite control product in October
1994, and subsequently received approval for registration from 47 states.
TECHNOLOGY
The Company's technology is applied in three broad areas: (i) the
development of natural microbial biological pesticides; (ii) the development of
fresh fruit and vegetable coatings; and (iii) service to our customers on
postharvest disease control, production of agricultural specialties and the
proper handling and packing of produce after harvest.
MICROBIAL PEST CONTROL
Microbial pesticide products are based on microorganisms isolated from the
environment, formulated and delivered to a target pest so that they kill the
pest or control or inhibit its proliferation on the target. The agents form the
foundation of true biological pest control products. They are packaged alive and
perform their function through proliferation in the pest environment. They are
distinct from other biological pest control products such as BACILLUS
THURINGIENSIS ("Bt") which do not require growth in the environment. Bt is
lethal to insects because of its production of a toxin during the manufacturing
process. Much of the formulation and delivery technology developed for synthetic
chemical pesticides or microbial products such as Bt is inappropriate for
microbial products which employ and preserve living organisms. The EcoScience
microbial technology uses live microorganisms which either attack and kill a
target pest (e.g. Bio-Blast) or through natural growth inhibit the ability of a
target pest to proliferate (e.g. Bio-Save).
The following is a list describing the Company's proprietary microbial pest
control technologies including methods to (i) identify and isolate active
microbial agents, (ii) manufacture commercial quantities of those microbial
agents, (iii) formulate and package them as products with commercially
acceptable stability and shelf life and (iv) deliver them to the target pest.
See "Patents and Trade Secrets."
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IDENTIFICATION OF ACTIVE INGREDIENTS. The Company has developed proprietary
assays for the screening and identification of microbial agents which are
effective in the prevention of certain plant diseases or which are lethal to
certain pests. The Company has been awarded a patent for the use of a
microbial agent identified through these proprietary assays and may file
additional patent applications.
DEVELOPMENT OF MANUFACTURING METHODS. The Company has access to or has
developed a variety of proprietary methods for growing, processing and
harvesting microbial agents which it believes can be used to produce
commercial quantities of active ingredients for the Company's products.
DEVELOPMENT OF FORMULATION SYSTEMS. The Company has access to or has
developed proprietary processing systems to stabilize and extend the shelf
life of fungal and bacterial agents and ensure stability, longevity and
activity in use. These systems lead to formulations which allow living fungi
and bacteria to remain viable in dry, aqueous or oil-based formulations until
use. This technology is the basis for the Bio-Save, Bio-Blast and Bio-Path
products. Additionally, it serves as the basis for the contract formulation
business EcoScience will develop in the future.
DEVELOPMENT OF DELIVERY SYSTEMS. The Company has developed proprietary
delivery systems including Bio-Path Cockroach Chambers, sprays, dusts and
gels, optimizing performance of microbial agents by facilitating accurate
delivery of concentrated doses.
DEVELOPMENT OF PACKAGING SYSTEMS. The Company has developed proprietary
packaging systems to extend the shelf life of microbial agents during storage
and transportation. The Company believes that, in order to be commercially
successful, biopesticide products must remain viable in conventional
distribution channels and have a minimum shelf life of 18 to 24 months.
FRESH FRUIT AND VEGETABLE COATINGS
The Company's coating technology utilizes FDA food grade and/or GRAS listed
products to protect fruits and vegetables after harvest and during storage and
during transit to market. The technology focuses on controlling respiration
(oxygen transport) and water loss on fruits and vegetables. Restricting
respiration and reducing water loss ensures delivery of fresher products to the
consumer. The key to the Company's approach is to design the appropriate
coating for each type of produce. Different types of produce respond
differently to respiration and water loss and therefore different coatings are
required for different classes of produce. In June 1993, the Company acquired
commercial rights to Nature Seal, a naturally derived, cellulose based
protective coating for harvested fruits and vegetables. In May 1994, the
Company acquired a line of traditional coating products which utilizes
conventional shellac and carnauba as their main ingredients that have been used
successfully in the citrus and pome fruit markets. The Company's coating
products provide a protective preservative film on fruits and vegetables to
maintain quality, control ripening and enhance overall appearance.
TECHNICAL ADVICE AND SERVICE
The Company advises its customers on improved technical growing and packing
techniques and systems. The key to successfully servicing our customers
requires knowledge of the customers challenges and problems and technical
solutions available to solve those problems. Customers frequently depend on the
Company for such service and advice.
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TECHNOLOGY SUMMARY
The Company's technology has applicability to a variety of potential
products and product systems. These include various insect spray and chamber
products, plant and root fungal disease control systems, and preharvest and
postharvest coatings and disease control systems which are currently in varying
stages of development. As part of the Company's restructuring program, certain
research and product development programs and the funding thereof have been
suspended, curtailed, or deferred. Future development and funding of these
research and product development programs will depend on a number of factors,
including market conditions, availability of financial, technical, and other
resources, technological advancements, manufacturing capabilities, governmental
regulations, and other relevant matters which may confront the Company in the
future.
The Company's operating costs and expenses to date have related to a
large extent to the research and development of products and product systems for
future commercialization. Expenses incurred by the Company under third party
funded research and development programs totaled approximately $0, $155,000, and
$603,000 in fiscal 1996, 1995, and 1994, respectively. Expenses incurred under
Company funded research and development programs totaled approximately
$1,018,000, $4,328,000, and $7,553,000 in fiscal 1996, 1995, and 1994,
respectively.
TECHNOLOGY LICENSING
UNITED STATES DEPARTMENT OF AGRICULTURE ("USDA"). The Company has an
agreement with the USDA granting the Company exclusive rights to the use of a
microbial strain developed at the USDA for the control of postharvest diseases
of pome fruits. This use is the subject of a pending U.S. patent application by
the USDA. The license agreement provides for a royalty to the USDA based on
sales by the Company of products incorporating the licensed microbial strain.
The Company has also licensed the worldwide rights to develop and commercialize
additional biological disease control organisms recently patented by the USDA.
The organisms licensed to the Company under the patent are naturally occurring
yeasts which effectively control the development of blue mold (PENICILLIUM
EXPANSUM), gray mold (BOTRYTIS CINEREA) and Mucor rot on apples and pears.
J.R. BROOKS & SON, INC. AND SEALD-SWEET GROWERS, INC. In June 1993, the
Company acquired from J.R. Brooks & Son, Inc. ("J.R. Brooks") and Seald-Sweet
Growers, Inc. ("Seald-Sweet") an exclusive, worldwide sublicense to use the
technology underlying the Nature Seal coatings, the rights to which J.R. Brooks
and Seald-Sweet obtained under license from the USDA, subject to the rights of
the USDA to use the technology on a royalty free, non-exclusive basis for
governmental purposes only. Under its sublicense with J.R. Brooks and
Seald-Sweet, the Company agreed to pay a royalty or, in certain circumstances, a
percentage of profits, on sales of products incorporating the Nature Seal
technology. The sublicense agreement extends until expiration of the last to
expire patents covering the Nature Seal technology.
COMPETITION
The Company faces substantial competition in the sale of certain products
and growing systems to greenhouses and nurseries in North America. The Company
believes that its range of products and services, and product quality, will
allow it to compete effectively in North America.
Competition in the fruit and vegetable coatings market is similarly
intense. Fruit and vegetable coating products are developed and marketed
primarily to several large companies which offer a full
9
<PAGE>
range of products. In addition, several smaller companies offer a limited range
of fruit and vegetable coating products. The Company believes that it can
compete effectively in this market with its Nature Seal coating and Bio-Save
PostHarvest BioProtectant and other traditional coating products based on the
cost effectiveness and the quality of its coating formulations and services.
Competition is also intense in the pesticide industry. The Company
competes with large manufacturers of synthetic chemical pesticides, and
established biopesticide companies. The pesticide industry is dominated by
large chemical companies located in the United States, Japan and Europe. These
companies have substantial financial and technical resources, extensive sales
and distribution capabilities, varied product registration experience and the
ability to manufacture products efficiently. The Company believes that its
commercial success will depend upon the development of cost effective products
which compete with synthetic chemical pesticides on the basis of effectiveness,
safety and ecological benefit. In addition, product line profitability will
depend upon cost effective products and strong sales and distribution networks
for the Company's products.
GOVERNMENT REGULATION AND PRODUCT REGISTRATION
In most countries throughout the world, governmental authorities require
registration of pesticides before sales are allowed. In the United States, the
EPA regulates pesticides under the Federal Insecticide, Fungicide and
Rodenticide Act ("FIFRA"). Pesticides are also regulated by the individual
states. Some states, such as California, Florida and New York, have their own
extensive registration requirements. In order to market products outside the
United States, the Company must receive regulatory approval from the authorities
of each applicable jurisdiction. In addition, the FDA administers the Federal
Food, Drug and Cosmetic Act ("FFDCA") and establishes standards for pesticide
residues in food to protect public health.
Detailed and complex procedures must be followed in order to obtain
approvals under FIFRA to develop and commercialize a pesticide product. A
registration application must be submitted to the EPA for each product and must
list each pest for which the product will be used. Evaluation data for
registration includes, but may not be limited to, non-target organism testing,
environmental data, product analysis and residue studies, product performance,
and toxicology (hazards to human beings and domestic animals).
The EPA has established specific testing requirements for registration of
microbial pesticides, which are set out in Subdivision M of the EPA's Pesticide
Assessment Guidelines. Chemical pesticides are currently subject to a three
tier toxicology testing procedure, and a four tier environmental evaluation
process. A microbial pesticide product which satisfactorily completes both the
toxicology Tier 1 tests and environmental evaluation is not required to go
through the testing requirements of subsequent tiers. Additional tests may be
required, however, in response to any questions which may arise during Tier 1
testing. The Company's product development cycle typically anticipates two to
three years of field evaluation and up to two years for product registration,
which can run concurrently with the last year of field trials. The cost of
registration is typically less than $500,000. In contrast, synthetic chemical
pesticides require toxicology and environmental testing to verify product safety
prior to receiving registration, which the Company estimates can take a up to
seven years or longer and can cost up to approximately $10 million or more.
Already registered chemical pesticides are also being subjected to additional
testing requirements. In 1988, the United States Congress mandated that the EPA
re-register by 1997 all pesticide products containing active ingredients
registered prior to 1984, using the current testing protocols.
10
<PAGE>
In July 1992, the EPA announced its "Reduced Risk Pesticide Policy"
initiative which streamlined the regulatory process for qualified products. In
June 1993, the federal government announced its commitment to reduce the use of
pesticides and promote sustainable agriculture in the United States. The EPA,
the USDA and the FDA are all considering regulatory reforms which may require
amendments to both major pesticide regulatory laws: FIFRA and FFDCA. In
testimony before Congress on September 21, 1993, the administrators of the USDA,
the FDA and the EPA stated their intentions to work jointly to reduce risk
associated with pesticides and to facilitate the availability of alternative
effective pest control products. The new Biopesticide and Pollution Prevention
Division of the EPA is intended to accelerate the registration of these "Reduced
Risk" products, but there can be no assurance of the impact or timing of these
initiatives.
The Company received EPA approval for registration of its cockroach
control product on May 13, 1993. To date, the Company has received approvals
for registration of the cockroach control product from every state except
Hawaii and Alaska, and Puerto Rico and Mexico. In October 1994, the Company
received EPA registration for its Bio-Blast termiticide. The Company
subsequently received registration from 47 states. In March 1995, the
Company received EPA registration for Bio-Save 10 and Bio-Save 11
biofungicides in all states requested. In March 1996, the Company received
EPA registration for Bio-Save 1000, Bio-Save 100 and Bio-Save 110. These
registrations are for new formulations of the original Bio-Save 10 and 11
products.
The Company's Nature Seal and traditional coating products are
formulated in water and are based on vegetable or resin materials that are FDA
approved food additives or have been listed by the FDA as "Generally Recognized
As Safe" for their intended use. As such, the Company's Nature Seal and
traditional coating products currently do not require FDA approval or
registration. Nature Seal and the traditional coating products are not
pesticides and are therefore not subject to EPA registration.
Certain of the Company's activities, including the operation of its
laboratories and manufacturing facilities, have been, or may be, subject to
regulation (i) under various other state and federal laws and regulations
including the Occupational Safety and Health Act, the National Environmental
Policy Act, the Clean Air Act, the Clean Water Act, the Emergency Planning and
Community Right-To-Know Act and other state and federal statutes regulating
environmental quality and (ii) by state and federal agencies, including the USDA
and the FDA. From time to time, governmental authorities review the need for
additional laws and regulations for biotechnology and pesticide products that
could, if adopted, apply to the business of the Company. The Company is unable
to predict whether any such new regulations will be adopted or whether, if
adopted, they will adversely affect its business. Historically, compliance with
applicable federal, state, and local provisions which have been enacted or
adopted regulating the discharge of materials into the environment by the
Company's manufacturing or laboratory operations has had an immaterial effect
upon the Company's capital expenditures, results of operations and competitive
position.
PATENTS AND TRADE SECRETS
The Company owns or has rights to certain proprietary information,
including patents and patent applications, which relate to its technology and
its products. The Company actively seeks protection, when appropriate, for its
products and proprietary information by means of United States and foreign
patents. In addition, the Company may rely upon confidentiality agreements and
other contractual arrangements to protect certain of its proprietary
information. The Company has a total of eight U.S. patents covering its
microbial biological insecticide technology.
11
<PAGE>
The Company has six U.S. patents covering its Bio-Path chamber
technology, with corresponding foreign patents and patent applications: (i)
METHOD AND DEVICE FOR THE BIOLOGICAL CONTROL OF COCKROACHES, (ii) METHOD AND
DEVICE FOR THE BIOLOGICAL CONTROL OF INSECTS, (iii) INSECT CONTAMINATION
CHAMBER, (iv) METHOD AND DEVICE FOR THE BIOLOGICAL CONTROL OF FLYING INSECTS,
(v) DEVICE FOR BIOLOGICAL CONTROL OF COCKROACHES, and (vi) DEVICE CONTAINING
FUNGUS FOR BIOLOGICAL CONTROL OF INSECTS. The Insect Contamination Chamber
patent contains claims relating to the design of the Company's Bio-Path
Cockroach Control Chambers. The Company's other issued patents claim methods of
increasing the mortality rate of target species of insects by providing an
effective dose of a pathogenic fungus in a chamber designed to attract and
lethally infect the targeted insect, and the chambers.
The Company has an additional patent, MAINTENANCE AND LONG-TERM STABILIZATION OF
FUNGAL CONIDIA USING SURFACTANTS, describing methods utilizing a uniqueness of
surfactants for fungal formulation.
An additional patent, PSEUDOMONAS SYRINGAE ATCC 55389 AND USE THEREOF
FOR INHIBITING MICROBIAL DECAY ON FRUIT, has been awarded covering a
microorganism that is the active ingredient in Bio-Save 10, 100, and 1000.
Provided maintenance fees are paid, U.S. design patents have a term of 14 years
from the date of issue; and U.S. utility patents that are based on applications
filed before June 8, 1995, and that have not expired as of June 8, 1995, have a
term that is the longer of 20 years from the earliest effective filing date or
17 years from issuance. In certain instances, however, the term may be limited
to the term of a related patent claiming similar technology. The Company's
patents were issued in 1991, 1992, 1993, 1994, and 1995. The Company has
pending three patent applications relating to methods of extending microbial
shelf life. There can be no assurance that any patents will issue from any of
the Company's patent applications or that issued patents will provide adequate
protection for the Company.
The Company has two exclusive licenses to the issued patents covering
the Nature Seal technology from J.R. Brooks and Seald-Sweet, which licensed the
patents from the USDA. The patents were issued to the USDA in March 1993 and
December 1994.
The Company has acquired the exclusive rights to the use of microbial
strains developed at the USDA for the control of postharvest diseases of pome
fruits. These rights are the subject of pending and issued USDA patents.
Much of the Company's technology and many of its processes are
dependent upon the knowledge, experience and skills of certain scientific and
technical personnel. To protect its rights to its proprietary information and
technology, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements which prohibit the
disclosure of confidential information to persons unaffiliated with the Company
and require disclosure and assignment to the Company of ideas, developments,
discoveries and inventions made by such persons. There can be no assurance that
these agreements will prevent disclosure of the Company's confidential
information or will provide meaningful protection for the Company's confidential
information if there is unauthorized use or disclosure. In the absence of
patent protection, the Company's business may be adversely affected by
competitors who develop substantially equivalent technology.
12
<PAGE>
PERSONNEL
As of September 20, 1996, the Company had 64 full-time employees. A total
of 3 persons are employed full-time in manufacturing and production; 41 in
sales, marketing and distribution; 5 in research and development; and 15 in
management and administration.
None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
As part of the Company's restructuring program, the Company's corporate
headquarters and research and development operations were relocated in the
second quarter of fiscal 1996 to AGRO's facility in East Brunswick, New Jersey.
This facility consists of 23,375 square feet of space at under a five-year lease
which expires in July 1999, and which provides an option to renew for an
additional five-year term. In addition, AGRO leases 10,000 square feet of space
for its sales/service center and warehouse facility located in Milton, Ontario,
under a five-year lease which expires in September 1997, and which provides an
option to renew for an additional five-year term. AGRO also leases space for
its other sales/service centers located in Ventura, California; Englewood,
Colorado; and Yakima, Washington under various lease terms.
The Company's wholly-owned subsidiary, EPSC, leases approximately 24,000
square feet of space for its headquarters, production and warehouse facilities
located in Orlando, Florida, under a five-year lease which expires in May 1999,
and which provides an option to renew for an additional five-year term. In
addition, EPSC leases on a month-to-month basis approximately 4,000 square feet
of space for its sales/service center and warehouse located in Visalia,
California.
The Company believes that its existing facilities are adequate to meet
current requirements and that suitable additional or substitute space will be
available as needed to accommodate any expansion of operations and additional
offices.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1996.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of September 19, 1996, are listed
below:
Executive
Name Age Position Officer Since
- ---- --- -------- -------------
Michael A. DeGiglio 42 President and Chief Executive Officer 1993
Richard A. Andrews 44 Vice President 1990
Harold A. Joannidi 45 Treasurer, Corporate Controller and Secretary 1995
David W. Miller 44 Vice President-Technology 1988
William B. Silk 69 Vice President 1996
MR. DEGIGLIO joined the Company upon its acquisition of AGRO in November
1992, and has served as President of the AGRO Division since that time. In July
1995, Mr. DeGiglio assumed the offices of President and Chief Executive Officer
of the Company. Prior to joining the Company, Mr. DeGiglio was employed with
AGRO since 1984, where he served as President. Prior to co-founding AGRO, Mr.
DeGiglio was Vice President of International Sales for NYPCO International Inc.
Mr. DeGiglio served on active duty in the United States Navy as an Officer and
Jet Aviator from July 1976 through December 1982, presently holds the rank of
Commander and is the Commanding Officer of a Jet Aviation Squadron with the
United States Naval Reserve. Throughout his Naval career, he has held various
department head positions and has completed numerous Senior Advanced Management
and Total Quality Leadership courses. Mr. DeGiglio also serves as Chief
Executive Officer and Director of Agro Power Development, Inc. Mr. DeGiglio
received a B.S. in Aeronautical Science and Aviation Management from Embry
Riddle Aeronautical University.
MR. ANDREWS joined the Company in September 1990 and served as its Vice
President of Business Development until April 1994, when he assumed the position
of President of EPSC. In 1996, Mr. Andrews became Vice President of the
Company. Prior to joining the Company, Mr. Andrews was employed from 1986 to
1990 with BioTechnica International in Cambridge, Massachusetts, where he served
as President of the Diagnostics Division and Vice President of Commercial
Development. Mr. Andrews received a B.S. in Chemistry from Hobart College, a
M.S. in Chemistry from Purdue University and a S.M. in Technology and Policy
from the Massachusetts Institute of Technology.
MR. JOANNIDI joined the Company in 1995 as Corporate Controller. In March
1996, Mr. Joannidi became Treasurer and Secretary of the Company. In 1992 and
from 1994 until joining the Company, Mr. Joannidi also served as a Financial and
Systems Consultant to the Company. Prior to joining and in addition to being a
consultant to the Company, Mr. Joannidi operated a manufacturing company from
1992 to 1994, served as a Financial and Systems Consultant to various companies
from 1988 to 1992, and held financial management positions at Tel Plus
International, Inc./Siemens AG, Johnson Matthey Jewelry Corporation and
Refinemet International Company from 1980 to 1988. Mr. Joannidi attained
Certified Public Accountant designation while employed at the public accounting
firm of Coopers & Lybrand. He attended Tufts University and Northeastern
University, receiving a B.S. degree in Accounting and Economics from
Northeastern University.
14
<PAGE>
DR. MILLER joined the Company in May 1988 and currently serves as Vice
President-Technology. Prior to joining the Company, Dr. Miller was employed
from 1983 to 1988 as Staff Scientist and Project Leader at Genetics Institute,
Inc., in Cambridge, Massachusetts. Dr. Miller received a B.S. in Biochemistry
from the University of California, Davis, and a Ph.D. in Biochemistry and
Molecular Biology from Harvard University, where he studied the molecular
biology of insects. Dr. Miller also was a National Institutes of Health
post-doctoral Fellow studying insect viruses at the University of Idaho.
MR. SILK joined EcoScience upon its acquisition of Agro Dynamics, Inc. in
November 1992. Since that time, Mr. Silk has served as Executive Vice President
and General Sales Manager at AGRO. In March 1996, Mr. Silk became a Vice
President of the Company. Prior to joining the Company, Mr. Silk served as Vice
President of Sales and Marketing of Agro Dynamics since its inception in 1984.
Previously, Mr. Silk was with Johns-Manville Corp. for 33 years in various
sales-engineering and market management positions in both domestic and
international operations. Mr. Silk holds a Bachelor of Science degree from
Polytechnic Institute of Brooklyn, New York.
15
<PAGE>
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Common Stock was admitted for trading on the National Association
of Securities Dealers Automatic Quotation System ("NASDAQ"), National Market
System under the NASDAQ symbol "ECSC" since the date of the Company's initial
public offering on February 5, 1992 until November 26, 1995. On November 27,
1995, the Company's Common Stock was transferred from the NASDAQ, National
Market System to the NASDAQ, Small-Capitalization Market System. As of
September 19, 1996, there were approximately 303 holders of record of the Common
Stock. The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future.
The table below sets forth, for the fiscal quarters indicated, the reported
high and low closing sales prices of the Common Stock as reported by NASDAQ
based on published financial sources.
1996 High Low
------------------- ---------- --------
Fourth Quarter . . . . . . . . . 1 5/8 1 1/4
Third Quarter. . . . . . . . . . 1 3/8 1 1/16
Second Quarter . . . . . . . . . 1 7/16
First Quarter. . . . . . . . . . 1 1/2 13/16
1995 High Low
----------------- ---------- --------
Fourth Quarter . . . . . . . . . 1 11/16 1 1/4
Third Quarter. . . . . . . . . . 2 3/8 1 1/4
Second Quarter . . . . . . . . . 3 1/2 1 3/4
First Quarter. . . . . . . . . . 4 7/8 2 3/8
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The selected financial data presented below have been derived from the
Company's audited consolidated financial statements for each year in the five-
year period ended June 30, 1996. The information below should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and related
notes which appear elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: ------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales . . . . . . . . . . . . . . . . . . . . . $14,151 $12,335 $ 9,246 $ 3,802 $ -
Research, development, licensing fees and other . . . . 8 155 812 545 147
Investment income . . . . . . . . . . . . . . . . . . . 199 590 853 1,525 869
------- ------- ------- ------- ------
Total revenues . . . . . . . . . . . . . . . . . . . 14,358 13,080 10,911 5,872 1,016
------- ------- ------- ------- ------
Costs and expenses:
Cost of goods sold. . . . . . . . . . . . . . . . . . . 10,394 10,153 7,875 3,288 -
Research and development. . . . . . . . . . . . . . . . 1,018 4,483 8,156 6,294 4,485
Acquired research and development . . . . . . . . . . . - -- -- 750 --
Asset valuation and restructuring charges (reversal). . (1,550) 6,000 5,800 - -
Selling and marketing . . . . . . . . . . . . . . . . . 2,594 3,672 3,043 1,690 412
General and administrative. . . . . . . . . . . . . . . 2,216 2,441 3,382 3,159 1,428
Interest and other. . . . . . . . . . . . . . . . . . . 514 1,425 208 95 6
------- ------- ------- ------- ------
Total costs and expenses . . . . . . . . . . . . . . 15,186 28,174 28,464 15,276 6,331
------- ------- ------- ------- ------
Loss before extraordinary gain . . . . . . . . . . . . . . (828) (15,094) (17,553) (9,404) (5,315)
Extraordinary gain on early extinguishment of debt . . . . 241 - - - -
------- ------- ------- ------- ------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($587) ( $15,094) ($17,553) ($9,404) ($5,315)
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Net income (loss) per share:
Loss before extraordinary gain. . . . . . . . . . . . . ($0.09) ($1.71) ($2.27) ($1.41) ($1.30)
Extraordinary gain. . . . . . . . . . . . . . . . . . . 0.03 - - - -
------- ------- ------- ------- ------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($0.06) ($1.71) ($2.27) ($1.41) ($1.30)
------- ------- ------- ------- ------
------- ------- ------- ------- ------
Weighted average number
of common shares outstanding. . . . . . . . . . . . . . 9,070 8,839 7,748 6,664 4,086
------- ------- ------- ------- ------
------- ------- ------- ------- ------
CONSOLIDATED BALANCE SHEET DATA: JUNE 30,
------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
------- ------- ------- ------- ------
Unrestricted and restricted cash, cash equivalents,
short-term investments and marketable securities . . . $2,639 $ 7,831 $20,141 $24,576 $,32,121
Total assets . . . . . . . . . . . . . . . . . . . . . . . 10,111 18,769 33,990 31,843 33,741
Noncurrent liabilities, less current maturities. . . . . . 311 8,425 8,119 2,012 126
Stockholders' investment . . . . . . . . . . . . . . . . . 2,473 2,492 18,110 25,123 32,785
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Since its inception and until its 1995 restructuring program which is now
substantially completed and which is discussed below, the Company has been
engaged in research to develop new biological pest control products and in
raising capital to support its development and commercial programs. Beginning
in 1992, the Company accelerated its commercialization activities, including
the establishment of manufacturing capabilities and premarketing for the Bio-
Path Cockroach Control Chamber, which received marketing approval from the EPA
in May 1993. In June 1993, the Company commenced sales of Bio-Path Cockroach
Control Chambers to the professional pest control market. As part of the
restructuring program discussed below, the Company has ceased production of the
first generation Bio-Path Cockroach Control Chamber. The Company has completed
formulation of a second generation product, which has not yet received EPA
approval, and is seeking contractors for reduced cost toll manufacturing. The
Company is currently seeking partners to market the second generation product.
In June 1992, the Company entered into the Terminix Agreement for the
joint development of biopesticides for termite control. In October 1994, the
Company was granted EPA registration for the Company's Bio-Blast Biological
Termiticide. The Company commenced commercial trials of its Bio-Blast
termiticide in the first quarter of 1995 in 11 states under the terms of its
development agreement with Terminix. In July 1995, the Company initiated sales
of the Bio-Blast termiticide to Terminix.
In November 1992, the Company acquired AGRO, an East Brunswick, New Jersey
based company which designs, markets and distributes advanced technologies,
products, growing systems and services for the North American intensive
farming, horticulture and produce packing industries.
In June 1993, the Company entered into licensing agreements with two
companies for rights to develop, manufacture and distribute Nature Seal, a
patented, naturally derived coating product to protect the quality of fruits
and vegetables after harvest. In May 1994, the Company acquired certain net
assets of AMC, an Orlando, Florida based company which provides postharvest
coating products and services to the fresh fruit and vegetable markets
throughout the United States, the Caribbean, Central America and South America.
Concurrent with the acquisition of AMC, the Company formed EPSC to combine the
AMC product line and operating unit with its existing coatings activities,
which include the distribution of its Nature Seal coating products.
On January 11, 1996, the Company entered into a lease termination
agreement for its Worcester corporate headquarters and research and development
under which the Company paid the landlord $125,000 and issued 500,000 shares of
the Company's common stock with a market value of $500,000 in exchange for an
immediate termination of the lease. Additionally, the Company incurred
approximately $25,000 for expenses related to the completion of the
transaction. After accounting for these settlement provisions, which totaled
$650,000, the Company reversed $1,550,000 of accrued restructuring costs in the
third quarter of fiscal 1996 that related to the accrued restructuring costs
which were originally recorded in fiscal 1995 ($2,000,000) and the remaining
accrued restructuring costs which were originally recorded in fiscal 1994
($200,000).
18
<PAGE>
In 1995, the Company recorded asset valuation and restructuring charges of
$6,000,000 or $0.68 per share to write down the value of certain assets and to
provide for the costs associated with the closure of the Company's facilities
located in Worcester, Northborough, and Shrewsbury, Massachusetts, and for
reductions in the Massachusetts based work force. The write down of assets in
1995 included a $1,946,000 non-cash charge against the Company's investment in
its manufacturing, laboratory, and office property and equipment located in
Massachusetts and approximately a $354,000 non-cash charge for certain other
assets to their respective net realizable values. The remaining $3,700,000 of
the 1995 charge consisted of accruals to provide for the costs associated with
the planned facility lease settlements ($2,000,000), manufacturing plant shut
down ($497,000), employee severance benefits ($1,035,000), and other
contractual obligations ($168,000) related to the restructuring program adopted
in 1995.
At the end of fiscal 1995, the Company began the implementation of the
restructuring program which is now substantially completed. The program was
designed to shift the corporate focus from research and development to
commercial operations in an effort to reduce operating losses and conserve cash
resources. As part of the restructuring program, the Company eliminated
substantially all of its Massachusetts based work force (33 positions) in the
first quarter of fiscal 1996. In addition, during fiscal 1995, certain
functions were moved to the Company's manufacturing facility in Northborough,
Massachusetts, and the Company's space at its corporate headquarters and
research and development facility in Worcester, Massachusetts, was decreased
from approximately 41,000 square feet to approximately 15,000 square feet. In
the first quarter of fiscal 1996, the Company closed the Worcester facility and
all functions were moved to the Northborough facility. During the second
quarter of fiscal 1996, the Company relocated all of its Massachusetts based
operations to its East Brunswick, New Jersey facility. The Company charged
costs and expenses totaling $1,674,000 against the restructuring accruals
during 1996. In addition, the Company reversed $1,550,000 in accrued
restructuring costs after accounting for the termination of its Worcester
corporate headquarters and research and development facility lease in the third
quarter of fiscal 1996. The Company has completed a major portion of its
restructuring activities in fiscal 1996.
In August 1994, the Company implemented a restructuring program to focus
the Company's resources on product development programs with the greatest near
to intermediate market potential, and to significantly reduce expense levels.
As part of this restructuring program, the Company reduced its Massachusetts
based work force by 29% (24 positions) and curtailed and deferred research and
development activities for certain product programs. In 1994, the Company
recorded asset valuation and restructuring charges of $5,800,000 or $0.75 per
share to write down the value of certain assets, primarily related to its
investment in the Northborough manufacturing facility, and to provide for the
costs associated with the Company's consolidation of its facilities and for
reductions in research and development programs and staff. The write down of
assets included a $3,000,000 non-cash charge against the Company's investment
in its manufacturing facility and related equipment and a $500,000 non-cash
charge for certain other assets. The remaining $2,300,000 of the 1994 charge
consisted of accruals to provide for the costs associated with the
consolidation of the Company's corporate headquarters, research and
development, and manufacturing facilities ($1,300,000) and employee severance
benefits ($1,000,000). The Company paid and charged expenses totaling
$1,746,000 against such restructuring accruals during 1995. The Company
completed all of the employee terminations related to the 1994 restructuring
program in the first half of fiscal 1995 and a portion of the facility
consolidation activities in fiscal 1995.
19
<PAGE>
The Company believes that inflation and changing prices have not had a
material effect on its operations to date.
1996 COMPARED TO 1995
The Company's total revenues increased $1,278,000 or 10% to $14,358,000 in
1996 from $13,080,000 in 1995, due primarily to the Company's product sales
increase of $1,816,000 or 15% to $14,151,000 in 1996 from $12,335,000 in 1995.
Product sales increased at AGRO by $2,302,000, while EPSC and EcoScience had
product sales decreases. The following table sets forth the Company's product
sales by operating company for 1996 and 1995:
<TABLE>
(IN THOUSANDS) 1996 1995 Increase
------- ------- ---------
<S> <C> <C> <C>
AGRO ................ $11,094 $ 8,792 $2,302
EPSC ................ 2,882 3,018 (136)
EcoScience .......... 175 525 (350)
------- ------- -------
Consolidated ........ $14,151 $12,335 $1,816
------- ------- -------
------- ------- -------
</TABLE>
AGRO is the exclusive distributor in the United States and Canada of the
Grodan brand of stonewool, which is an inert growing medium supplied by
Grodania A/S, a Danish company. The sale of products under the distribution
agreement with Grodania A/S accounted for 45%, 43%, and 59% of the Company's
total product sales in 1996, 1995, and 1994, respectively. Although there are
a limited number of sources of the particular growing medium products that are
sold under this distribution agreement, the Company's management believes that
other suppliers could provide similar products on comparable terms. A change
in suppliers, however, could cause a delay in filling orders as well as a
possible loss of sales, which would affect operating results adversely. In
August 1995, AGRO entered into a distribution agreement with Aweta B.V., a
Netherlands based company, for the exclusive right to sell Aweta B.V.'s sorting
and grading products and equipment to the fruit, vegetable, and flower markets
in North America, Mexico, and the Caribbean. The sale of products under the
distribution agreement with Aweta B.V. accounted for 20% of the Company's total
product sales in 1996. Although there are a limited number of sorting and
grading equipment manufacturers in the world, the Company's management believes
that other suppliers could provide equipment on comparable terms. A change in
supplier, however could cause a delay in filling orders as well as a possible
loss of sales which would affect operating results adversely. The Company
believes that revenues under these distribution agreements will each account
for more than 10% of the Company's consolidated product sales in 1997.
The increase in the Company's total product sales in 1996 was offset by a
decrease in research, development, and licensing fee income of $147,000 and
lower investment income of $391,000. The decrease in research, development,
and licensing fee income in 1996 primarily resulted from a reduction of
$112,000 in license fees and product support payments received from Terminix as
its contractual payment obligations were fulfilled. The decrease in investment
income in 1996 resulted from a corresponding decline in the average funds
available for investment during the 1996 period.
20
<PAGE>
Cost of goods sold increased $241,000 or 2% to $10,394,000 in 1996 from
$10,153,000 in 1995. In 1996, cost of goods sold at AGRO increased by
$1,947,000 due to product sales increases, while cost of goods sold at
EcoScience decreased $1,716,000 due to the cessation of manufacturing of the
first generation Bio-Path Cockroach Control Chamber. Gross margin on product
sales increased $1,575,000 or 72% to $3,757,000 in 1996 from $2,182,000 in
1995, while gross margin percentage on product sales increased to 27% in 1996
from 18% in 1995. Gross margin increased due primarily to the cessation of
manufacturing of Bio-Path and related cost savings at EcoScience; and, AGRO's
increase in gross margin from product sales increases, offset by a gross margin
decrease at EPSC from product sales decreases.
Research and development expenses decreased $3,465,000 or 77% to
$1,018,000 in 1996 from $4,483,000 in 1995, due primarily to a decrease at
EcoScience of $3,783,000 from the implementation of the Company's restructuring
program at the close of fiscal 1995, which curtailed and deferred research and
development activities for certain product programs, as well as reduced
personnel and facility costs. The Company has and will continue to incur
ongoing research and development expenses for its Bio-Save PostHarvest
BioProtectant, Bio-Blast termiticide and other near term revenue generating
opportunities. EPSC research and development expenses increased $318,000 in
1996, due primarily to additional personnel and related support expenses for
the Bio-Save PostHarvest BioProtectant and other product programs.
Selling and marketing expenses decreased $1,078,000 or 29% to $2,594,000
in 1996 from $3,672,000 in 1995, due primarily to the decreases in EcoScience's
and EPSC's selling and marketing expenses of $860,000 and $418,000,
respectively and an increase of $200,000 at AGRO. The decrease in EcoScience's
selling and marketing expenses for 1996 was primarily attributable to the
restructuring program initiatives discussed above. The decrease in EPSC's
selling and marketing expenses for 1996 was primarily attributable to the
reduction of selling and marketing department personnel and related costs
during the latter part of fiscal 1995. The increase in AGRO's selling and
marketing expenses was primarily due to additional personnel and related costs
to support new product sales and sales increases discussed above.
General and administrative expenses decreased $225,000 or 9% to $2,216,000
in 1996 from $2,441,000 in 1995, due primarily to the decreases in EcoScience's
and EPSC's general and administrative expenses of $208,000 and $107,000,
respectively, which was offset by an increase in such expenses for AGRO of
$90,000. The decrease in EcoScience's general and administrative expenses for
1996 was primarily attributable to the restructuring program initiatives
discussed above. The decrease in EPSC's general and administrative expenses
for 1996 was due primarily to personnel and related cost reductions. The
increase in AGRO's general and administrative expenses was primarily due to
increased business activity and related support costs.
Interest and other expenses decreased $911,000 or 64% to $514,000 in 1996
from $1,425,000 in 1995 due primarily to the decrease in interest expense which
resulted from the lower average level of long-term debt and capital lease
obligations outstanding during 1996. During 1995, the Company had also
incurred approximately $211,000 of expenses in connection with the exploration
and evaluation of its various strategic alternatives which included potential
mergers, acquisitions, divestitures, joint ventures, and other transactions.
In connection with the acquisition of AMC in May 1994, the Company issued
a promissory note in the principal amount of $430,000 to the shareholder of
AMC. In February 1996, the Company settled the remaining balance of the
promissory note and other acquisition related
21
<PAGE>
liabilities totaling $501,000 for $251,000, excluding $9,000 of related
transaction expenses, which resulted in an extraordinary gain on the early
extinguishment of debt of $241,000 or $0.03 per share with no related income
tax effect.
The Company incurred a loss before extraordinary gain of $828,000 or $0.09
per share in 1996. The Company incurred a net loss of $587,000 or $0.06 per
share in 1996 compared to a net loss of $15,094,000 or $1.71 per share in 1995.
Excluding the reversal of the accrued restructuring costs and the extraordinary
gain on early extinguishment of debt, the Company incurred a loss of $2,378,000
or $0.26 per share in 1996. Excluding the asset valuation and restructuring
charges, the Company incurred a loss of $9,094,000 or $1.03 per share in 1995.
1995 COMPARED TO 1994
The Company's total revenues increased $2,169,000 or 20% to $13,080,000 in
1995 from $10,911,000 in 1994, due primarily to the inclusion of a full year of
operating results of EPSC in the 1995 period. The Company's product sales
increased $3,089,000 or 33% to $12,335,000 in 1995 from $9,246,000 in 1994 due
primarily to the increases in sales by EPSC and AGRO of $2,841,000 and
$229,000, respectively. The following table sets forth the Company's product
sales by operating company for 1995 and 1994:
<TABLE>
(IN THOUSANDS 1995 1994 Increase
------- ------- ---------
<S> <C> <C> <C>
AGRO ................ $ 8,792 $8,563 $ 229
EPSC ................ 3,018 177 2,841
EcoScience .......... 525 506 19
------- ------ ------
Consolidated ........ $12,335 $9,246 $3,089
------- ------ ------
------- ------ ------
</TABLE>
The increase in the Company's total product sales in 1995 was offset by a
decrease in research, development, and licensing fee income of $657,000 and
lower investment income of $263,000. The decrease in research, development,
and licensing fee income in 1995 primarily resulted from a reduction of
$363,000 in license fees and product support payments received from Terminix as
its contractual payment obligations were fulfilled. The decrease in investment
income in 1995 resulted from a corresponding decline in the average funds
available for investment during the 1995 period.
Cost of goods sold increased $2,278,000 or 29% to $10,153,000 in 1995 from
$7,875,000 in 1994 due primarily to the inclusion of a full year of operating
results of EPSC which accounted for $1,519,000 of this increase. In addition,
the Company incurred higher than expected production costs for its Bio-Path
Cockroach Control Chamber in 1995 which accounted for $719,000 of this increase
in cost of goods sold. Gross margin on product sales increased $811,000 or 59%
to $2,182,000 in 1995 from $1,371,000 in 1994, while gross margin percentage on
product sales increased to 18% in 1995 from 15% in 1994 due primarily to the
inclusion of a full year of operating results of EPSC in the 1995 period. As
previously discussed, the Company has ceased any further development and
production of its first generation Bio-Path Cockroach Chamber as of June 30,
1995.
22
<PAGE>
Research and development expenses decreased $3,673,000 or 45% to
$4,483,000 in 1995 from $8,156,000 in 1994. Approximately $1,631,000 of the
decrease in research and development expenses was due to the closure of the
Company's process development facility, and the termination of related
activities at the Company's Amherst, Massachusetts pilot plant in June 1994.
The remaining portion of the decrease was primarily due to the major reductions
in research and development activities and personnel as part of the Company's
restructuring program implemented in August 1994.
Selling and marketing expenses increased $629,000 or 21% to $3,672,000 in
1995 from $3,043,000 in 1994. The increase in selling and marketing expenses
was primarily attributable to the inclusion of a full year of operating results
of EPSC in the 1995 period, which accounted for $1,299,000 of this increase,
and to additional personnel costs incurred by AGRO of $103,000, which were
offset by reductions in personnel, travel, consulting, and other expenses of
$773,000 at EcoScience.
General and administrative expenses decreased $941,000 or 28% to
$2,441,000 in 1995 from $3,382,000 in 1994. The decrease in general and
administrative expenses was primarily due to reductions in personnel and
facility related costs of approximately $1,069,000, which resulted primarily
from the restructuring program implemented in August 1994, and to a decrease in
professional service fees of approximately $343,000 at EcoScience. The
decrease in general and administrative expenses in 1995 was offset by the
inclusion of a full year of operating results of EPSC which added approximately
$496,000 to general and administrative costs.
Interest and other expenses increased $1,217,000 to $1,425,000 in 1995
from $208,000 in 1994 due primarily to the increase in interest expense which
resulted from the higher level of long term debt and capital lease obligations
outstanding during 1995 and because certain interest costs were capitalized as
part of the Company's construction activities at the Northborough manufacturing
facility in 1994. The Company also incurred approximately $238,000 of expenses
during 1995 in connection with the exploration and evaluation of its various
strategic alternatives which included potential mergers, acquisitions,
divestitures, joint ventures, and other transactions. In addition, the Company
recorded a gain of $150,000 for the settlement of certain debt obligations at
less than their carrying values in 1994.
The Company incurred a net loss of $15,094,000 or $1.71 per share in 1995
compared to a net loss of $17,553,000 or $2.27 per share in 1994. Excluding
the asset valuation and restructuring charges, the Company incurred a loss of
$9,094,000 or $1.03 per share in 1995 compared to a loss of $11,753,000 or
$1.52 per share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have exceeded its
revenues. The Company's operations have been funded through public and private
placements of its equity securities, bank loans and lease financings, revenues
from product sales, licensing, collaborative research and development
arrangements, and investment income. In conjunction with the asset valuation
and restructuring charges recorded in 1995, the Company implemented and
substantially completed in fiscal 1996 a program to reduce its operating losses
and to conserve its cash resources for use in the Company's operating
businesses. This restructuring program has significantly reduced research and
development and general and administrative costs from historical levels. In
1995, the Company funded $1,174,000
23
<PAGE>
of accrued restructuring costs that had been recorded in 1994 and 1995.
Additionally, accrued restructuring costs were reduced by changes related to
the operating lease termination, discussed above, in the amount of
$2,050,000, consisting of a $1,550,000 restructuring cost reversal and
$500,000 for the issuance of common stock. The balance of accrued
restructuring costs, $1,030,000 (total current and noncurrent portions), as
of June 30, 1996, is expected to be funded in 1997 and beyond. The Company
expects to incur administrative, business development and commercialization
expenditures in the future as it advances the development, manufacturing,
and marketing of its Bio-Blast and Bio-Save products. In addition, the
Company expects to incur incremental costs associated with its plans to
expand product lines at AGRO. The Company may also use cash to acquire
technology, products or companies that support the strategy of the Company.
Cash and cash equivalents were $734,000 at June 30, 1996, compared to
$481,000 at June 30, 1995. Unrestricted and restricted cash, cash equivalents,
and short-term investments totaled $2,639,000, compared to $7,831,000 at June
30, 1995. Cash flows used for operating activities totaled $2,651,000 and
principally represented the $1,174,000 expended for costs accrued as part of
the Company's restructuring program adopted in 1995. Cash flows used by
financing activities totaled $2,892,000 in 1996, which consisted principally of
payments of $2,900,000 on debt and capital leases. Cash flows provided by
investment activities in 1996 totaled $5,790,000 and included the proceeds from
the sales of short-term investments of $6,159,000 and property and equipment of
$368,000, and a decrease in other noncurrent assets of $95,000, which were
offset by purchases of short-term investments of $705,000 and property and
equipment of $127,000. The Company's working capital and current ratio were
($308,000) and 0.9 to 1, respectively, at June 30, 1996, compared to $3,347,000
and 1.4 to 1, respectively, at June 30, 1995. The Company's working capital
has increased significantly since June 30, 1996, as a result of the subsequent
equity offering and lease settlement transactions which occurred on September
27, 1996, and are discussed further below and in Notes 4 and 11 to the Notes
to the Consolidated Financial Statement. Giving effect to the subsequent
equity offering and lease settlement transactions, the working capital and
current ratio would have been $1,119,000 and 1.2 to 1 (unaudited),
respectively, if these transactions had occured on June 30, 1996.
On June 30, 1994, the Company sold certain manufacturing equipment and
leasehold improvements with an original cost of approximately $3,800,000 to a
financing company. The Company, in turn, leased the equipment and improvements
back from the financing company. The lease was accounted for as a capitalized
lease obligation. The lease bore interest at an effective rate of
approximately 14% and has been payable in monthly installments of principal and
interest of approximately $88,000 over 50 months. On October 11, 1995, the
Company and the financing company entered into an agreement which modified the
lease pursuant to which the financing company waived a payment default which
occurred in September 1995, in exchange for the Company's advance payment of
approximately $1,135,000 which was applied to satisfy the total amount of the
obligation outstanding under rental schedule No. 2 to the lease. In addition,
the Company issued to the financing company a warrant to purchase 100,000
shares of common stock at an exercise price of $3.00 per share. The Company
continued to make the remaining monthly payments of approximately $55,000 under
rental schedule No. 1. In August 1996, the Company entered into a lease
settlement agreement with the financing company pursuant to which the Company
paid $880,000, from the proceeds of an equity offering discussed below, to
satisfy the remaining capital lease obligation under rental schedule No. 1 of
approximately $1,248,000 on September 27, 1996. Accordingly, the Company
reclassified $880,000 from "long-term debt and capital leases" to "current
maturities of noncurrent liabilities" in the consolidated balance sheet to
reflect the impact of this agreement as of June 30, 1996. The present value of
the minimum lease payments under this capital lease obligation was $1,390,000
as of June 30, 1996.
In May 1993, the Company entered into a 15 year lease agreement for a
manufacturing facility in Northborough, Massachusetts. This lease was
accounted for as a capital lease, had borne interest at
24
<PAGE>
an effective annual rate of approximately 13% and had been payable in monthly
installments of principal and interest of approximately $44,000. The present
value of the minimum lease payments under this capital lease obligation was
$3,525,000 at September 29, 1995. On September 29, 1995, the Company and the
lessor entered into a lease termination agreement under which the Company
paid the lessor, on October 31, 1995, approximately $195,000; released to the
lessor approximately $305,000 held in an escrow account; and agreed to make
an advance lease payment for the period October 1995 through December 1995 to
the lessor in exchange for an early termination and release from the
remaining lease obligations effective December 31, 1995. The effect of this
lease termination on the consolidated financial statements during fiscal 1996
was to reduce assets under capital leases by $2,936,000 and capital lease
obligations by $3,500,000, and to increase accrued restructuring costs by
$73,000. These transactions had a non-cash effect on the Company's
consolidated financial statements for 1996.
The Company issued a promissory note in the amount of $430,000 in
connection with the acquisition of AMC in May 1994. This promissory note was
payable in 16 equal quarterly installments plus accrued interest calculated at
the prime rate (8.25% at June 30, 1996) plus 1%, not to exceed 9%. This
promissory note was part of the EPSC debt settlement discussed above in the
Results of Operations section.
In October 1994, the Company established a $250,000 line of credit with a
bank for the purchase of equipment. Funds borrowed under that line had been
payable over 36 months commencing February 5, 1995 at an interest rate of prime
plus 2%. In addition, the Company established a $1,500,000 revolving line of
credit with the same bank for AGRO under which borrowings had borne interest at
a rate of prime plus 1% and is secured by all the assets of AGRO and the
outstanding common stock of AGRO owned by the Company. The loan proceeds from
the revolving line of credit have been used to finance the working capital
needs of AGRO and any principal amounts outstanding were originally due on
January 5, 1996. As of June 30, 1996, the Company had principal obligations of
$1,041,000 under the revolving line of credit. Under the terms of the credit
agreements, the Company was required to maintain a minimum consolidated
tangible net worth of $5,000,000 ("Net Worth Covenant"), a consolidated quick
asset to current liabilities ratio of 1.50 to 1 through June 30, 1995 and 1.25
to 1 thereafter ("Quick Ratio Covenant"), and a minimum aggregate cash, cash
equivalents and short-term investment balance of $5,000,000 ("Cash Covenant").
As of June 30, 1995 and through October 5, 1995, the Company was in violation
of the Net Worth Covenant and Quick Ratio Covenant. On October 5, 1995, the
Company and the bank entered into an amendment to the revolving and equipment
lines of credit agreements pursuant to which the bank waived the violations of
Net Worth and Quick Ratio Covenants at June 30, 1995 and through October 5,
1995, eliminated the Net Worth and Quick Ratio Covenants for compliance periods
commencing after June 30, 1995, and reduced the Cash Covenant from $5,000,000
to $1,000,000 for compliance periods commencing after June 30, 1995. In
addition, the amendment to the credit agreements required repayment of all
outstanding obligations under the equipment line of credit (approximately
$194,000 as of October 5, 1995); increased the interest rate on borrowings
under the revolving line of credit to prime (8.25% at June 30, 1996) plus 1.5%
effective October 1, 1995; and expanded the collateral requirements to include
a certificate of deposit in the amount of $700,000 to be held by the bank as
partial cash collateral for the borrowings currently outstanding under the
revolving line of credit. Any additional borrowings under the revolving line
of credit will require 67% cash collateral coverage in the form of a
certificate of deposit to be held by the bank. The amendment also extended the
expiration date of the credit agreement from January 5, 1996 to July 5, 1996
and any principal amounts outstanding, together with accrued interest thereon
were due on such date.
25
<PAGE>
On July 5, 1996, September 5, 1996 and October 5, 1996, the Company and
the bank entered into three amendments to the revolving line of credit
agreement pursuant to which the bank extended the expiration date of the credit
agreement from July 5, 1996 to December 15, 1996 on the same terms, and any
principal amounts outstanding, together with accrued interest thereon, are due
on December 15, 1996. The Company is currently negotiating with the bank
certain modifications to the terms of the revolving line of credit which
include, but are not limited to, an increase in the borrowing capacity,
elimination of the cash collateral coverage requirement, financial covenants,
and extension of the repayment and expiration dates of the credit agreement.
In addition, the Company has received a term sheet from a financial institution
to replace the existing revolving line of credit with a proposed credit
facility structure that meets the Company's requirements for the foreseeable
future. The Company believes that it will obtain either a modification and
extension to the existing revolving line of credit agreement or secure another
financing arrangement which has terms no less favorable than those contained in
the current revolving line of credit agreement in fiscal 1997.
On January 11, 1996, the Company entered into a lease termination
agreement for its Worcester corporate headquarters and research and development
facility, under which the Company paid the landlord $125,000 and issued 500,000
shares of the Company's common stock with a market value of $500,000 on January
22, 1996, in exchange for an immediate termination of the lease. Additionally,
the Company incurred approximately $25,000 for expenses related to the
completion of the transaction. After accounting for these settlement
provisions, which totaled $650,000, the Company reversed $1,550,000 of accrued
restructuring costs in the third quarter of fiscal 1996 that related to accrued
restructuring costs, which were originally recorded in fiscal 1995 ($2,000,000)
and the remaining accrued restructuring costs which were originally recorded in
fiscal 1994 ($200,000).
On September 27, 1996, the Company sold 1,040,000 unregistered shares of
common stock in a Regulation D and Company offering. Net proceeds realized
from the equity offering totaled $1,119,000 after placement agent fees and
expenses and Company expenses totaling $181,000. On September 27, 1996,
pursuant to a lease settlement agreement dated August 8, 1996, between the
Company and its financing company, the Company paid $880,000 and returned
certain leased equipment with a net book value of $328,000 to the financing
Company as final satisfaction of its capital lease obligation under rental
schedule No. 1, as discussed in Note 4(b) to the Company's consolidated
financial statements.
The Company plans to finance the cash needs discussed above principally
with existing cash reserves, represented by approximately $734,000 of
unrestricted cash and cash equivalents, $700,000 of short-term investments and
$1,205,000 of restricted cash and short-term investments as of June 30, 1996.
The Company believes that such cash reserves, along with revenues from product
sales, and funds available under the extended or potentially modified revolving
line of credit or replacement financing arrangement, as discussed above, will
be sufficient throughout the next 12 months to finance the Company's working
capital needs, planned capital expenditures, restructuring program initiatives
and related obligations, and to service its indebtedness. The Company believes
it may need to raise additional funds to finance its ongoing operations after
June 30, 1997, although there can be no assurances that such funds will be
available on terms favorable to the Company, if at all. The Company is
continuing to explore potential mergers, joint ventures, and various other
strategic options, which are aimed at enhancing stockholder value and the long-
term commercial viability of the Company.
26
<PAGE>
SEASONALITY
The timing of the Company's operating revenues may vary as a result of the
seasonal nature of its businesses. In addition, operating revenues may be
affected by the timing of new product launches, acquisitions, sales orders, and
other economic factors. Operating revenues may be concentrated in the
Company's second and third quarters as a result of the North American growing
season. Although the Company believes that the historical trend in quarterly
revenues for the second and third quarters of each year are generally higher
than the first and fourth quarters, there can be no assurance that this will
occur in future periods. Accordingly, quarterly or other interim results
should not be considered indicative of results to be expected for any other
quarter or for the full fiscal year.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements that describe the
Company's business prospects. These statements involve risks and uncertainties
including, but not limited to, regulatory uncertainty, level of demand for the
Company's products and services, product acceptance, industry wide competitive
factors, seasonality factors, timing of completion of major equipment projects
and political, economic or other conditions. Furthermore, market trends are
subject to changes which could adversely affect future results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and supplementary
consolidated quarterly financial data for the years ended June 30, 1996, 1995,
and 1994, are set forth on pages 28 through 53.
27
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
June 30,
--------------------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............... $ 734 $ 481
Short-term investments .................. 700 6,150
Restricted cash and short-term
investment ............................. 1,205 500
Accounts receivable, less reserves of
$118 and $186 at June 30, 1996 and 1995,
respectively ........................... 1,552 1,961
Interest receivable ..................... 32 84
Inventories ............................. 2,001 1,525
Other current assets .................... 795 498
-------- --------
Total current assets ................. 7,019 11,199
-------- --------
Property and equipment, net ................. 998 4,478
Restricted cash equivalents ................. - 700
Intangible assets, net ...................... 1,949 2,152
Other noncurrent assets ..................... 145 240
-------- --------
Total assets ......................... $ 10,111 $ 18,769
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of noncurrent
liabilities .......................... $ 2,441 $ 2,597
Accounts payable ...................... 2,347 1,946
Accrued restructuring costs ........... 730 1,754
Accrued expenses and other current
liabilities .......................... 1,809 1,555
-------- --------
Total current liabilities ......... 7,327 7,852
-------- --------
Noncurrent liabilities:
Long-term debt and capital leases,
less current maturities .............. 11 5,693
Other long-term liabilities ........... 300 2,732
-------- --------
Total noncurrent liabilities ...... 311 8,425
-------- --------
Commitments and contingencies ............. - -
Stockholders' investment:
Preferred stock, $.01 par value,
1,000,000 shares authorized;
none issued and outstanding ......... - -
Common stock, $.01 par value,
25,000,000 shares authorized;
9,342,177 and 8,840,511 shares
issued and outstanding at June 30,
1996 and 1995, respectively ......... 93 88
Additional paid-in capital ................ 56,077 55,581
Accumulated deficit ....................... (53,697) (53,110)
Unrealized loss on short-term investments . - (67)
-------- --------
Total stockholders' investment .... 2,473 2,492
-------- --------
Total liabilities and stockholders'
investment ....................... $ 10,111 $ 18,769
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
28
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
Years Ended June 30,
---------------------------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Product sales ........................................ $ 14,151 $ 12,335 $ 9,246
Research, development, licensing fees and other ...... 8 155 812
Investment income .................................... 199 590 853
-------- -------- -------
Total revenues ................................. 14,358 13,080 10,911
-------- -------- -------
Costs and expenses:
Cost of goods sold ................................... 10,394 10,153 7,875
Research and development ............................. 1,018 4,483 8,156
Asset valuation and restructuring charges (reversal) . (1,550) 6,000 5,800
Selling and marketing ................................ 2,594 3,672 3,043
General and administrative ........................... 2,216 2,441 3,382
Interest and other ................................... 514 1,425 208
-------- -------- -------
Total costs and expenses ....................... 15,186 28,174 28,464
-------- -------- -------
Loss before extraordinary gain ........................ (828) (15,094) (17,553)
Extraordinary gain on early extinguishment of debt .... 241 - -
-------- -------- -------
Net loss .............................................. ($587) ($15,094) ($17,553)
-------- -------- -------
-------- -------- -------
Net income (loss) per share:
Loss before extraordinary gain .................... ($0.09) ($1.71) ($2.27)
Extraordinary gain ................................ 0.03 - -
-------- -------- -------
Net loss .......................................... ($0.06) ($1.71) ($2.27)
-------- -------- -------
-------- -------- -------
Weighted average number of
common shares outstanding ........................ 9,070 8,839 7,748
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE IN AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
29
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(In thousands, except share amounts)
<TABLE>
COMMON STOCK UNREALIZED
----------------------- ADDITIONAL LOSS ON TOTAL
NUMBER OF $.01 PAID-IN ACCUMULATED SHORT-TERM STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT INVESTMENTS INVESTMENT
--------- --------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 .................... 6,786,291 $68 $45,518 ($20,463) $ - $ 25,123
Exercise of stock options ................... 44,798 - 201 - - 201
Compensation associated with common
stock grants ............................... 5,790 - 48 - - 48
Exercise of common stock warrants ........... 39,354 - 11 - - 11
Sale of common stock, net of issuance
costs of $440 .............................. 1,763,050 18 9,485 - - 9,503
Issuance of common stock for purchase
of American Machinery Corporation .......... 202,553 2 1,024 - - 1,026
Change in unrealized loss on
short-term investments ..................... - - - - (249) (249)
Net loss .................................... - - - (17,553) - (17,553)
--------- --- ------- ------- ---- --------
Balance at June 30, 1994 .................... 8,841,836 88 56,287 (38,016) (249) 18,110
Exercise of stock options ................... 6,082 - 1 - - 1
Retirement of common stock .................. (7,407) - - - - -
Cash settlement of price guarantee for
common stock issued for purchase of
American Machinery Corporation ............. - - (707) - - (707)
Change in unrealized loss on
short-term investments ..................... - - - - 182 182
Net loss .................................... - - - (15,094) - (15,094)
--------- --- ------- ------- ---- --------
Balance at June 30, 1995 .................... 8,840,511 88 55,581 (53,110) (67) 2,492
Exercise of stock options ................... 1,666 - 1 - - 1
Issuance of common stock in
settlement of lease obligation ............ 500,000 5 495 - - 500
Change in unrealized loss on
short-term investments .................... - - - - 67 67
Net loss .................................... - - - (587) - (587)
--------- --- ------- ------- ---- --------
Balance at June 30, 1996 .................... 9,342,177 $93 $56,077 ($53,697) $ - $ 2,473
--------- --- ------- ------- ---- --------
--------- --- ------- ------- ---- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
30
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
Years Ended June 30,
-----------------------------------------
1996 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... ($587) ($15,094) ($17,553)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization ............................ 580 1,125 1,059
Gain on sale of property and equipment ................... (74) - -
Gain on settlement of accounts payable ................... (51) - -
Loss on sale of investments .............................. 58 23 21
Non-cash gain on settlement of debt ...................... (241) - (150)
Asset valuation and restructuring charges (reversal) ..... (1,550) 6,000 5,800
Deferred and other non-cash compensation ................. - - 48
Foreign exchange loss (gain) ............................. (13) 58 71
Deferred rent ............................................ - (38) 177
Changes in current assets and liabilities,
net of effect of companies acquired:
Accounts and interest receivable ..................... 461 478 (779)
Inventories .......................................... (476) (39) (363)
Other current assets ................................. (297) 82 (72)
Accounts payable and accrued expenses ................ 713 (1,808) 1,329
Accrued restructuring costs .......................... (1,174) (1,746) -
------- -------- --------
Net cash used for operating activities ................... (2,651) (10,959) (10,412)
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment, net ..................... (127) (725) (3,918)
Proceeds from sales of property and equipment ................ 368 56 192
Payments for purchases of companies,
net of cash acquired ....................................... - (707) (488)
Purchases of short-term investments
and marketable securities .................................. (705) (1,494) (23,960)
Proceeds from sales of short-term investments
and marketable securities .................................. 6,159 5,265 34,113
Decrease (increase) in other noncurrent assets ............... 95 (1,066) (296)
------- -------- --------
Net cash provided by investing activities ................ 5,790 1,329 5,643
------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock and
exercise of stock options .................................. 1 1 9,704
Proceeds from long-term debt ................................. 7 2,567 5,800
Payments on long-term debt and capital leases ............... (2,900) (2,278) (4,978)
------- -------- --------
Net cash (used for) provided by financing activities ....... (2,892) 290 10,526
------- -------- --------
Increase (decrease) in cash and cash equivalents before
effect of exchange rate changes on cash ...................... 247 (9,340) 5,757
Effect of exchange rate changes on cash ........................ 6 (65) (18)
------- -------- --------
Increase (decrease) in cash and cash equivalents ............... 253 (9,405) 5,739
Cash and cash equivalents at beginning of period ............... 481 9,886 4,147
------- -------- --------
Cash and cash equivalents at end of period ..................... $ 734 $ 481 $ 9,886
------- -------- --------
------- -------- --------
Total unrestricted and restricted cash, cash equivalents and
short-term investments at end of period ...................... $ 2,639 $7,831 $20,141
------- -------- --------
------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
31
<PAGE>
ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. OPERATIONS
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Dynamics, Inc. and Agro Dynamics Canada
Inc. (collectively, "AGRO") and EcoScience Produce Systems Corp. ("EPSC") are
engaged in the development and commercialization of natural pest control
products, naturally derived coatings to preserve food quality and extend the
shelf life of fruits and vegetables, and the marketing and distribution of
advanced technologies, products, growing systems and services for the
intensive farming, horticulture and produce packing industries. The Company
derives a major portion of its revenues from the sale of growing medium
products to the North American intensive farming and horticulture industries,
and sorting and grading equipment to the produce packing industries, and to a
lesser extent from the sale of postharvest coating products to the fresh
fruit and vegetable markets throughout the western hemisphere.
The Company historically has devoted substantially all of its efforts
toward new product research and development, and the manufacture, marketing and
distribution of products developed, acquired or licensed. Substantially all
revenues generated by the Company prior to the acquisition of AGRO were from
collaborative research and development arrangements and investment income. The
Company introduced its first two products, the Bio-Path Cockroach Control
Chamber and Nature Seal, in June 1993. In March 1995, the Company began
marketing its third product, Bio-Save PostHarvest BioProtectant. In August
1995, the Company introduced its fourth product, Bio-Blast termiticide. The
Company is subject to a number of risks similar to those of other companies in
similar stages of development, including dependence on key individuals,
competition from other products and companies, the necessity to develop,
register, and manufacture commercially usable products, the ability to achieve
profitable operations and the need to raise additional funds through public or
private debt or equity financing.
At the close of fiscal 1995, the Company adopted and began implementation
of a restructuring program to shift the corporate focus from research and
development activities to commercial operations in an effort to reduce
operating losses and conserve cash reserves. Under the restructuring program,
the Company eliminated substantially all of its Massachusetts based work force,
closed its manufacturing facility located in Northborough, Massachusetts, and
relocated its corporate headquarters and operations to AGRO's East Brunswick,
New Jersey facility during the second quarter of fiscal 1996. As part of the
restructuring program, the Company has ceased production of the first
generation Bio-Path Cockroach Control Chamber. The Company has completed
formulation of a second generation product, which has yet received EPA
approval, and is seeking contractors for reduced cost toll manufacturing. The
Company is currently seeking partners to market the second generation product.
The Company believes that the impact of the restructuring program has
significantly reduced its working capital needs such that its cash and short-
term investments as of June 30, 1996, together with the proceeds from the
equity offering subsequent to June 30, 1996, funds available under its existing
or potential replacement revolving line of credit, along with revenues from
product sales will be sufficient to finance the Company's working capital needs
for at least the next twelve months. At such time, the Company believes that
it may need to raise additional funds through public or private debt or equity
financings. Although there can be no assurances that such funds will be
available on terms favorable to the Company, if at all. The
32
<PAGE>
Company is continuing to explore potential mergers, joint ventures, and
various other strategic options, which are aimed at enhancing stockholder
value and the long-term commercial viability of the Company. See Notes 4, 8
and 11 for further discussion of the Company's restructuring program and
subsequent events.
2. ACQUISITIONS
(A) AMERICAN MACHINERY CORPORATION
In May 1994, the Company acquired certain assets and assumed certain
liabilities of American Machinery Corporation ("AMC"), an Orlando, Florida
based company which provides postharvest coating products and services to the
fresh fruit and vegetable markets throughout the United States, the Caribbean,
Central America and South America. Concurrent with the acquisition of AMC, the
Company formed EPSC to combine the AMC product line and operating unit with its
coating activities, which included the distribution of Nature Seal coating
products. The initial purchase price for AMC consisted of $419,000 in cash
(including acquisition related costs), a promissory note in the principal
amount of $430,000 and 202,553 shares of the Company's common stock with a
market value of $1,026,000, as well as the assumption of liabilities totaling
$304,000. The acquisition agreement provided for additional payments of up to
$300,000 based upon the attainment of certain annual and cumulative revenue
milestones through December 31, 1997. The Company accrued such additional
consideration and increased goodwill by the same amount at the acquisition
date. The initial financial performance milestone was achieved as of December
31, 1994, and $68,000 was paid to AMC and charged against the purchase accrual
in June 1995. In addition, the acquisition agreement provided that at the end
of a four month period following the effective date (December 2, 1994) of a
registration statement filed with the Securities and Exchange Commission (the
"Commission") registering the 202,553 shares of common stock issued in
connection with the purchase of AMC, the Company was obligated to pay AMC in
cash the amount by which the fair market value of the 202,553 shares of common
stock as of the date of the acquisition ($1,026,000) exceeded the sum of the
net proceeds received by AMC from the sale of such shares during the four month
period ($319,000). In April 1995, the Company paid $707,000 to AMC in
satisfaction of this obligation and reduced "additional paid-in capital" by the
same amount. The acquisition has been accounted for as a purchase in
accordance with Accounting Principles Board Opinion ("APBO") No. 16, "Business
Combinations." Accordingly, the results of operations have been included in
the accompanying consolidated financial statements from the date of
acquisition. The Company allocated approximately $1,082,000 of the total
purchase price to certain assets acquired. In February 1996, the Company
settled the remaining outstanding balance under the promissory note and
additional consideration liabilities related to the acquisition which together
totaled $501,000 for $251,000. As part of this settlement, the Company also
issued a warrant to purchase 50,000 shares of its common stock at $2.00 per
share to the shareholder of AMC. See Note 4 for further discussion of the AMC
settlement.
(B) AGRO DYNAMICS, INC.
In November 1992, the Company acquired all of the outstanding capital
stock of AGRO, an East Brunswick, New Jersey based company which markets and
distributes advanced technologies, products, growing systems and services to
the North American intensive farming, horticulture and produce packing
industries. The initial purchase price for AGRO consisted of cash and shares
of the Company's common stock which totaled $2,184,000. The acquisition
agreement also provided for additional payments of up to $900,000 based upon
the attainment by AGRO of certain cumulative
33
<PAGE>
earnings milestones ranging from $1,250,000 (at which level no additional
payments are due) to $1,700,000 (at which level the entire additional payment
is due) over a 39 month period from October 1, 1992 to December 31, 1995.
The initial financial performance milestone was achieved as of December 31,
1993, and correspondingly, the Company recorded additional consideration of
$68,000 for the acquisition, as reflected in the consolidated financial
statements for the year ended June 30, 1994. The second and third financial
performance milestones were not achieved as of December 31, 1994 and 1995,
respectively. The acquisition was accounted for as a purchase in accordance
with APBO No. 16.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of EcoScience
and its wholly-owned subsidiaries, AGRO and EPSC. All material intercompany
transactions and balances have been eliminated in consolidation.
(B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(C) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments consist of highly liquid
investments and are stated at the lower of cost or market value. Cash and cash
equivalents consist of investments with original maturities of less than 90
days. Short-term investments have maturities greater than 90 days and such
securities are classified as available for sale in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company uses the specific
identification method in determining the cost basis of short-term investments
and marketable securities, and in computing any realized gains or losses from
the sale of such securities. Short-term investments are stated at fair market
value, net of unrealized holding losses of $0 and $67,000 at June 30, 1996 and
1995, respectively. Net realized losses on short-term investments and
marketable securities were $58,000, $23,000, and $21,000 in 1996, 1995, and
1994, respectively.
34
<PAGE>
The balances of cash and cash equivalents, and short-term investments
consist of the following:
<TABLE>
(IN THOUSANDS) June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash ................................... $ 508 $ 471
Bond mutual funds ...................... - 3
Money market funds ..................... 226 -
United States Government obligations ... - 7
------ ------
$ 734 $ 481
------ ------
------ ------
SHORT-TERM INVESTMENTS:
United States Government obligations ... $ 700 $6,150
------ ------
------ ------
RESTRICTED CASH AND SHORT-TERM INVESTMENT:
Cash in money market account .......... $ 80 $ 80
Certificate of deposits ............... 1,125 420
------ ------
$1,205 $ 500
------ ------
------ ------
</TABLE>
The aggregate fair value, gross unrealized holding gain and loss,
amortized cost, and average maturity for the Company's short-term investments
held at June 30, 1996 and 1995, are presented below:
<TABLE>
(IN THOUSANDS) Fair Gross Unrealized Amortized
Value Holding Gain and (Loss) Cost
------ ----------------------- ---------
<S> <C> <C> <C> <C>
AT JUNE 30, 1996:
United States Government obligations ... $ 700 $ - $ - $ 700
------ ---- ---- ------
------ ---- ---- ------
(Matures June 30, 1996)
AT JUNE 30, 1995:
United States Government obligations ... $6,150 $ 6 $ (73) $6,217
(Average maturity of 9.6 months) ------ ---- ---- ------
------ ---- ---- ------
Certificate of Deposit ................. $ 420 $ - $ - $ 420
(Matured December 31, 1995) ------ ---- ---- ------
------ ---- ---- ------
</TABLE>
The Company has a certificate of deposit in the amount of $425,000 which
has been pledged as security to the issuing bank for the payment or performance
of any or all obligations that may arise under the terms of an outstanding
standby letter of credit in the amount of $400,000. In addition, the Company
is required to maintain a minimum cash balance of $80,000 in a money market
account under the terms of its revolving line of credit agreement with a bank.
(D) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents, short-term
investments, accounts receivable, and other receivables. The Company primarily
invests its available funds into United States Government securities as well as
investments with high quality financial institutions. The Company performs
35
<PAGE>
ongoing evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains reserves and
allowances for potential credit losses; which to date, such credit losses have
been insignificant and within management's expectations. As of June 30, 1996,
the Company had cash and term deposits with certain banks which exceeded the
United States Federal Deposit Insurance Corporation ("FDIC") insurance limit
for such deposits by approximately $1,210,000, and cash and cash equivalents in
the amount of $251,000 in a bank in Canada, where there is no deposit
insurance.
(E) INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market and consist of the following:
<TABLE>
(IN THOUSANDS) June 30,
-------------------------
1996 1995
--------- --------
<S> <C> <C>
Raw materials ........................... $ 226 $ 43
Work-in-process ......................... - 160
Finished goods .......................... 1,775 1,322
------ ------
$2,001 $1,525
------ ------
------ ------
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead.
(F) OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) June 30,
------------------
1996 1995
------ ------
<S> <C> <C>
Prepaid insurance .................. $ 34 $ 82
Prepaid equipment project costs .... 639 -
Facility lease deposit in escrow ... - 296
Non-trade receivables .............. 25 49
Other .............................. 97 71
---- ----
$795 $498
---- ----
---- ----
</TABLE>
36
<PAGE>
(G) PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
(IN THOUSANDS) June 30,
---------------------
1996 1995
-------- ----------
Laboratory equipment . . . . . . . . . . . . . . $ 990 $ 951
Furniture, fixtures and equipment. . . . . . . . 1,543 1,471
Leasehold improvements . . . . . . . . . . . . . 61 564
Assets under capital leases. . . . . . . . . . . 585 4,115
------- -------
3,179 7,101
Less accumulated depreciation and amortization . (2,181) (2,623)
------- -------
$ 998 $ 4,478
------- -------
------- -------
The Company provides for depreciation and amortization using the declining
balance and straight-line methods by charges to operations in amounts estimated
to allocate the cost of these assets over their useful lives as follows:
Classification Estimated Useful Life
- -------------- ----------------------
Laboratory equipment . . . . . . . . . . . 5 Years
Furniture, fixtures and equipment. . . . . 5-7 Years
Leasehold improvements . . . . . . . . . . Life of Lease
Assets under capital leases. . . . . . . . 3-25 Years
Leasehold improvements are amortized over the term of the lease or the
useful life of the asset, whichever is shorter. The Company leases certain
production and laboratory equipment under a capital lease agreement.
Accumulated amortization for assets under capital leases totaled $257,000 and
$760,000 at June 30, 1996 and 1995, respectively.
The property and equipment costs stated above are net of asset valuation
charges of $1,946,000 and $3,000,000 in 1995 and 1994, respectively, relating
to the Company's restructuring programs described in Notes 1, 4 and 8. As of
June 30, 1996, the Company had certain property and equipment with a net book
value of approximately $328,000 which is intended to be disposed of as part of
the restructuring program adopted in fiscal 1995.
(H) INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and other intangible
assets resulting from acquisitions accounted for using the purchase method of
accounting. Goodwill is amortized using the straight-line method over 20 years.
Other intangible assets relating to acquired businesses consist principally of
amounts attributable to distribution agreements and other deferred costs. The
amortization for distribution agreements and other assets is on a straight-line
basis over five years.
Goodwill, net of accumulated amortization, was $1,815,000 and $1,919,000
at June 30, 1996 and 1995, respectively. The accumulated amortization of
goodwill and other intangible assets totaled $819,000 and $715,000 at June 30,
1996 and 1995, respectively. Amortization of goodwill and other intangible
assets included in the accompanying consolidated statements of operations was
$204,000, $195,000 and $331,000 in 1996, 1995, and 1994, respectively.
37
<PAGE>
The carrying values and amortization periods for goodwill and other
intangible assets are reviewed on an ongoing basis by the Company's management
based on several factors including, among others, the Company's future
operations and their impact on cash flows. If impairment to the carrying
values or the estimated useful lives of such intangible assets are indicated by
this review, the Company will adjust the carrying values of such assets to
their respective estimated fair values or revise the amortization period for
such assets to their estimated remaining useful lives.
(I) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
(IN THOUSANDS) June 30,
--------------------
1996 1995
-------- -------
Payroll related costs . . . . . . . . . . $ 107 $ 109
Professional fees . . . . . . . . . . . . 152 218
Deferred rent . . . . . . . . . . . . . . -- 304
Accrued inventory purchases . . . . . . . 202 163
Customer deposits . . . . . . . . . . . . 986 311
Other . . . . . . . . . . . . . . . . . . 362 450
-------- -------
$1,809 $1,555
(J) REVENUE RECOGNITION
Product sales revenue is recognized upon shipment or equipment
installation, as applicable.
The Company recognizes revenue under research and development agreements
in accordance with the terms of the respective contracts which typically
stipulate as the work is performed and costs are incurred. The Company
recognizes license fees under sales and license agreements, as certain
milestones are achieved and related nonrefundable license fees are received.
(K) RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses to operations as
incurred.
(L) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's Canadian subsidiary are translated
into U.S. dollars at year-end exchange rates. Revenue and expense items are
translated at average rates prevailing during the year. Cumulative translation
adjustments have been immaterial. Transaction gains and losses are included in
the results of operations as incurred.
(M) NET LOSS PER SHARE
Net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not included
in the per share calculations for each of the years presented as the effect of
their inclusion would be antidilutive.
38
<PAGE>
(N) FAIR VALUE OF FINANCIAL INSTRUMENTS
Except as disclosed in Note 3(c), no class of financial instrument has a
material difference between its carrying value and estimated fair value based
on market quotations, projected cash flows and other estimating methods.
(O) SUPPLEMENTAL CASH FLOW INFORMATION
The Company made certain cash payments and consummated certain non-cash
investing and financing transactions as summarized below:
(IN THOUSANDS) Years Ended June 30,
-----------------------------
1996 1995 1994
------ ------ -------
CASH PAID FOR:
Interest. . . . . . . . . . . . . . . . . . $ 608 $ 930 $ 585
Income taxes. . . . . . . . . . . . . . . . 18 60 9
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets under capital leases . -- -- (3,675)
Capital lease financing for assets
acquired. . . . . . . . . . . . . . . . . . -- -- 3,675
Disposition of assets under capital lease. . 2,936 -- --
Termination of capital lease obligation. . . (3,500) -- --
Termination of operating lease obligation
and related reduction of accrued
restructuring . . . . . . . . . . . . . . . (2,050) -- --
Issuance of common stock for companies
acquired . . . . . . . . . . . . . . . . . -- -- 1,026
Issuance of common stock in exchange for
termination of operating lease obligation . 500 -- --
(P) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" in March 1995, which is effective January 1, 1996 and must
be adopted by no later than the fiscal year ending June 30, 1997. SFAS No. 121
requires that an impairment loss be recognized when circumstances indicate that
the carrying amount of the asset may not be recoverable. Historically, the
Company has used a methodology similar to SFAS No. 121 in determining the
amount of any potential impairment. Accordingly, the Company does not believe
that the adoption of SFAS No. 121 will have a significant impact on its
consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). SFAS 123 requires that an entity account for
employee stock compensation under a fair value based method. However, SFAS 123
also allows an entity to continue to measure compensation costs for employee
stock based compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Effective for fiscal years beginning after December 15,
1995, entities electing to remain with accounting under APB 25 are required to
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting under SFAS 123 had been applied. The Company
will continue to account for employee stock based compensation under APB 25 and
will make the pro forma disclosures required under SFAS 123 beginning in fiscal
1997.
39
<PAGE>
Accordingly, the Company does not believe that the adoption of SFAS
No. 123 will have a significant impact on its consolidated financial
statements.
4. DEBT AND LEASES
(A) LONG-TERM DEBT
Long-term debt consists of the following:
(IN THOUSANDS)
June 30,
--------------------------
1996 1995
-------- --------
Revolving line of credit . . . . . . . . . $1,041 $1,050
Equipment line of credit . . . . . . . . . -- 216
Promissory note for AMC acquisition. . . . -- 322
Installment notes. . . . . . . . . . . . . 21 16
------- -------
1,062 1,604
Less current maturities. . . . . . . . . . (1,051) (328)
------- -------
$ 11 $ 1,276
------- -------
------- -------
As of June 30, 1996, the future maturities of long-term debt are as
follows:
Year Ending Amount
----------- -------
1997 . . . . . . . . . . $1,051
1998 . . . . . . . . . . 10
1999 . . . . . . . . . . 1
2000 . . . . . . . . . . --
2001 . . . . . . . . . . --
In connection with the acquisition of AMC in May 1994, the Company issued
a promissory note in the principal amount of $430,000 to the shareholder of
AMC. In February 1996, the Company settled the remaining balance of the
promissory note and other acquisition related liabilities totaling $501,000 for
$251,000, excluding $9,000 of related transaction expenses, which resulted in
an extraordinary gain on the early extinguishment of debt of $241,000 or $0.03
per share with no related income tax effect. As part of this settlement, the
Company also issued a warrant to purchase 50,000 shares of its common stock at
$2.00 per share to the shareholder of AMC.
On October 28, 1994, the Company and AGRO entered into equipment and
revolving lines of credit with a bank, under which the Company borrowed
$250,000 to finance the purchases of capital equipment and AGRO may borrow up
to the lesser of $1,500,000 or the sum of 75% of eligible accounts receivable
and 25% of eligible inventories up to a maximum of $250,000 on a revolving
basis for working capital needs. Funds borrowed under the equipment line of
credit were payable in equal principal installments of $6,944 plus accrued
interest over 36 months commencing February 5, 1995, at an interest rate of
prime plus 2% and were secured by the first lien on all fixed assets financed
under this line of credit. Funds borrowed under the revolving line of credit
have borne interest at a rate of prime plus 1% and are secured by all the
assets of AGRO and all the outstanding common stock of AGRO owned by the
Company. Interest on funds borrowed under the
40
<PAGE>
revolving line of credit is payable monthly in arrears and repayment of
principal was originally due on January 5, 1996.
As of June 30, 1995, the equipment and revolving lines of credit agreement
imposed certain covenants including a minimum consolidated tangible net worth
of $5,000,000 ("Net Worth Covenant"), a consolidated quick asset to current
liabilities ratio of 1.50 to 1 through June 30, 1995, and 1.25 to 1 thereafter
("Quick Ratio Covenant"), a minimum cash, cash equivalents, and short-term
investments balance of $5,000,000 ("Cash Covenant"), and a restriction on the
declaration and payment of any cash dividends. As of June 30, 1995 and through
October 5, 1995, the Company was in violation of the Net Worth and Quick Ratio
Covenants. On October 5, 1995, the Company and the bank entered into an
amendment to the equipment and revolving lines of credit agreement pursuant to
which the bank waived the violations of the Net Worth and Quick Ratio Covenants
at June 30, 1995 and through October 5, 1995; eliminated the Net Worth and
Quick Ratio Covenants for compliance periods after June 30, 1995; and reduced
the Cash Covenant from $5,000,000 to $1,000,000 for compliance periods after
June 30, 1995. In addition, the amendment to the credit agreement required
repayment of all outstanding obligations under the equipment line of credit
(approximately $194,000 at September 29, 1995); increased the interest rate on
borrowings under the revolving line of credit to prime (8.25% at June 30, 1996)
plus 1.5% effective October 1, 1995; and expanded the collateral requirements
to include a certificate of deposit in the amount of $700,000 to be held by the
bank as partial cash security for the borrowings outstanding under the
revolving line of credit at October 5, 1995. Any additional borrowings under
the revolving line of credit will require 67% cash collateral coverage in the
form of a certificate of deposit to be held by the bank. The amendment also
extended the expiration date of the credit agreement from January 5, 1996 to
July 5, 1996, and any principal amounts outstanding, together with accrued
interest thereon, were due on such date.
On July 5, 1996, September 5, 1996 and October 5, 1996, the Company and
the bank entered into three amendments to the revolving line of credit
agreement pursuant to which the bank extended the expiration date of the credit
agreement from July 5, 1996 to December 15, 1996 on the same terms, and any
principal amounts outstanding, together with accrued interest thereon, are due
on December 15, 1996. The Company is currently negotiating with the bank
certain modifications to the terms of the revolving line of credit which
include, but are not limited to, an increase in the borrowing capacity,
elimination of the cash collateral coverage requirement, financial covenants
and extension of the repayment and expiration dates of the credit agreement.
In addition, the Company has received a term sheet from a financial institution
to replace the existing revolving line of credit with a proposed credit
facility structure that meets the Company's requirements for the foreseeable
future. The Company believes that it will obtain either a modification and
extension to the existing revolving line of credit agreement or secure another
financing arrangement which has terms no less favorable than those contained in
the current revolving line of credit agreement in fiscal 1997.
In June 1995, the Company entered into an installment note with a bank to
finance the purchase of a truck. The installment note is payable in monthly
installments of $548, bears interest at 9.55%, and is secured by that truck.
In September 1995, the Company entered into an installment note with a bank to
finance the purchase of another truck. This installment note is payable in
monthly installments of $401, bears interest at 8.75% and is secured by that
truck.
41
<PAGE>
(B) LEASES
In November 1991, the Company entered into a 10 year lease for one of its
facilities in Worcester, Massachusetts. The lease granted the Company five
months of free rent which was amortized on a straight line basis over the total
expected lease payments and which served to reduce rent expense recorded by the
Company.
In September 1992, the Company entered into a 10-year facility lease with
its landlord for expanded space in a new facility in Worcester, Massachusetts.
The new lease canceled the Company's obligations under its prior lease,
discussed above, upon occupancy in April 1994. The new lease granted the
Company three months of free rent which was amortized on a straight line basis
over the total expected lease payments and which served to reduce rent expense
recorded by the Company. On November 1, 1994, the Company and Hybridon, Inc.
(the "Subtenant") entered into a sublease agreement under which the Company
sublet certain space at its corporate headquarters and research and development
facility to the Subtenant for a term of 21 months ending July 1996. On October
11, 1995, the Company and the Subtenant entered into an amendment to the
sublease agreement under which the Company sublet a significant amount of
additional space at this facility to the Subtenant and extended the term of the
sublease agreement through December 31, 1996. The basic rental rate charged to
the Subtenant is approximately the same as the Company's rental rate under its
lease. In addition, on September 19, 1995, the Company and its landlord
entered into a partial lease termination agreement with respect to certain
space at its corporate headquarters and research and development facility.
On January 11, 1996, the Company and its landlord entered into a lease
termination agreement, under which the Company paid the landlord $125,000 on
January 18, 1996 and issued 500,000 shares of the Company's common stock with a
market value of $500,000 on January 22, 1996 in exchange for an immediate
termination of the lease. Additionally, the Company incurred approximately
$25,000 for expenses related to the completion of the transaction. See Note 8
for a discussion of these transactions and their impact on restructuring
accounting in fiscal 1996.
In May 1993, the Company entered into a 15 year lease agreement for a
manufacturing facility in Northborough, Massachusetts. This lease was
accounted for as a capital lease, had borne interest at an effective annual
rate of approximately 13% and had been payable in monthly installments of
principal and interest of approximately $44,000. The present value of the
minimum lease payments under this capital lease obligation was $3,525,000 at
September 29, 1995. On September 29, 1995, the Company and the lessor entered
into a lease termination agreement under which the Company paid the lessor on
October 31, 1995 approximately $195,000; released to the lessor approximately
$305,000 held in an escrow account; and agreed to make an advance lease payment
for the period October 1995 through December 1995 to the lessor in exchange for
an early termination and release from the remaining lease obligations effective
December 31, 1995. Accordingly, the Company reclassified $500,000 from "long-
term debt and capital leases" to "current maturities of noncurrent liabilities"
in the consolidated balance sheet and adjusted the present value of the
remaining minimum lease payments under this capital lease obligation to reflect
the impact of the lease termination agreement as of June 30, 1995. The effect
of this lease termination on the consolidated financial statements during
fiscal 1996 was to reduce assets under capital leases by $2,936,000 and capital
lease obligations by $3,500,000, and to increase accrued restructuring costs by
$73,000.
42
<PAGE>
On June 30, 1994, the Company sold certain manufacturing equipment and
leasehold improvements with an original cost of approximately $3,800,000 to a
financing company. The Company, in turn, leased the equipment and improvements
back from the financing company. The lease was accounted for as a capitalized
lease obligation. The lease bore interest at an effective rate of
approximately 14% and had been payable in monthly installments of principal and
interest of approximately $88,000 over 50 months. On October 11, 1995, the
Company and the financing company entered into an agreement which modified the
lease pursuant to which the financing company waived a payment default which
occurred in September 1995, in exchange for the Company's advance payment of
approximately $1,135,000, which resulted in a decrease to accrued restructuring
costs of $45,000 in fiscal 1996. This payment satisfied the total amount of
the obligation outstanding under rental schedule No. 2 to the lease. In
addition, the Company issued to the financing company a warrant to purchase
100,000 shares of common stock for $3.00 per share pursuant to the terms of
this agreement. Accordingly, the Company reclassified $886,000 from "long-term
debt and capital leases" to "current maturities of noncurrent liabilities" in
the consolidated balance sheet to reflect the impact of this agreement as of
June 30, 1995. The Company continued to make the remaining monthly payments
of approximately $55,000 under rental schedule No. 1 to the lease until the
remaining obligation was fully satisfied on September 27, 1996, with the
proceeds from an equity offering described in Note 11. Pursuant to a lease
settlement agreement dated August 8, 1996, between the Company and the
financing company, the Company paid $880,000 to satisfy the remaining capital
lease obligation under rental schedule No. 1 of approximately $1,248,000 on
September 27, 1996, which resulted in an increase to accrued restructuring
costs of $60,000. Accordingly the Company reclassified $880,000 from "long-
term debt and capital leases" to "current maturities of noncurrent liabilities"
in the consolidated balance sheet to reflect the impact of this agreement as of
June 30, 1996. See Note 11 for further discussion of the pro forma impact of
this settlement. The present value of the minimum lease payments under this
capital lease obligation was $1,390,000 as of June 30, 1996.
Future minimum lease payments under noncancellable operating leases,
future minimum sublease payments under noncancellable operating leases, and the
present value of future minimum capital lease payments after reflecting the
impact of the subsequent settlement to the lease described above, are as
follows:
(IN THOUSANDS) Capital Operating Operating
Leases Leases Subleases
------- --------- -----------
Years ending June 30,
1997 . . . . . . . . . . . . . . $1,445 $ 319 ($29)
1998 . . . . . . . . . . . . . . -- 293 (3)
1999 . . . . . . . . . . . . . . -- 275 (3)
2000 . . . . . . . . . . . . . . -- 63 (3)
2001 . . . . . . . . . . . . . . -- 56 (3)
Thereafter . . . . . . . . . . . -- 9 --
------- ------- -----
Total minimum lease payments. . . . . 1,445 $1,015 ($41)
Amount representing interest. . . . . (55) ------- -----
------- ------- -----
Present value of minimum lease
payments . . . . . . . . . . . . . . 1,390
Less current maturities . . . . . . . (1,390)
-------
$ --
-------
-------
43
<PAGE>
Rental expense included in the accompanying consolidated statements of
operations was $833,000, $1,064,000, and $1,051,000 for 1996, 1995 and 1994,
respectively. Sublease rental income was ($346,000) and ($302,000) for 1996
and 1995, respectively.
5. STOCKHOLDERS' INVESTMENT
(A) PUBLIC OFFERINGS
In February 1992, the Company sold 2,990,000 shares of common stock in an
initial public offering. Net proceeds of the offering were $29,958,000.
In connection with the initial public offering of its common stock,
2,306,174 outstanding shares of Series A convertible redeemable preferred stock
and 2,050,000 outstanding shares of Series B convertible redeemable preferred
stock were converted into 2,904,087 shares of common stock.
In December 1993, the Company sold 1,763,050 shares of common stock in a
public offering. Net proceeds of the offering were $9,503,000.
(B) COMMON STOCK PURCHASE WARRANTS
The Company has issued warrants to purchase shares of its common stock to
certain stockholders, directors and consultants to the Company. Outstanding
warrants expire through 2002. The following table summarizes warrant activity
for the three years ended June 30, 1996:
Number of Price Per
Warrants Share
---------- ----------------
Outstanding at June 30, 1993 . . . . . . 408,712 $0.38 - $11.00
Granted. . . . . . . . . . . . . . . . 20,000 9.75
Exercised. . . . . . . . . . . . . . . (68,665) 3.75
-------- ----------------
Outstanding at June 30, 1994 . . . . . . 360,047 0.38 - 11.00
Granted. . . . . . . . . . . . . . . . -- --
-------- ----------------
Outstanding at June 30, 1995 . . . . . . 360,047 0.38 - 11.00
Granted. . . . . . . . . . . . . . . . 250,000 1.3 - 3.00
Expired. . . . . . . . . . . . . . . . (151,087) 0.38 - 9.55
-------- ----------------
Outstanding at June 30, 1996 . . . . . . 458,960 1.38 - 11.00
-------- ----------------
-------- ----------------
Exercisable at June 30, 1996 . . . . . . 391,850 $1.38 - $11.00
-------- ----------------
-------- ----------------
(C) STOCK OPTION PLANS
On December 14, 1988, the Company's Board of Directors approved the 1988
stock option plan (the "1988 Plan") which provided for the grant of incentive
stock options and nonqualified stock options. The Board of Directors has
agreed not to issue future options under the 1988 Plan.
In May 1991, the Board of Directors approved a stock option plan (the
"1991 Plan") to grant options to acquire up to 1,300,000 shares of common stock
to employees and consultants. Options granted under the 1991 Plan vest over
various periods and expire no later than 10 years from the date of grant. The
difference, if any, between the fair value of the Company's common stock on the
date
44
<PAGE>
of grant and the exercise price of the option has been recognized as
compensation expense in the accompanying consolidated statements of
operations.
On December 13, 1994, the Compensation Committee of the Board of
Directors authorized the Company to offer an exchange with each holder (who
was then an employee but not an executive officer or director of the Company)
of stock options granted under the 1991 Plan, a new stock option for a number
of shares equal to the number of shares remaining unexercised under the old
stock option at the time of exchange subject to certain conditions. The
option price of each new stock option granted under this offer was equal to
the fair market value ($2.125 per share) of the Company's common stock on the
date of authorization. A total of 169,483 stock options were exchanged under
this offer during 1995.
Option activity for the three years ended June 30, 1996, is summarized
as follows:
<TABLE>
<CAPTION>
Number of Price Per
Shares Share
--------- ---------
<S> <C> <C>
Outstanding at June 30, 1993 ........... 572,794 $0.38 - $11.38
Granted .............................. 395,334 4.88 - 11.00
Exercised ............................ (44,798) 0.38 - 6.98
Terminated ........................... (67,483) 0.45 - 11.38
-------- --------------
Outstanding at June 30, 1994 ........... 855,847 0.38 - 11.38
Granted .............................. 18,250 1.84 - 4.88
Exercised ............................ (6,082) 0.45 - 0.45
Terminated ........................... (406,982) 0.45 - 11.38
-------- --------------
Outstanding at June 30, 1995 ........... 461,033 0.38 - 11.38
Granted .............................. 551,500 0.56 - 1.63
Exercised ............................ (1,666) 0.45
Terminated ........................... (174,851) 0.60 - 11.38
-------- --------------
Outstanding at June 30, 1996 ........... 836,016 $0.38 - $11.38
-------- --------------
-------- --------------
Exercisable at June 30, 1996 ........... 257,708 $0.38 - $11.38
-------- --------------
-------- --------------
</TABLE>
6. INCOME TAXES
As of June 30, 1996, the Company had available net operating loss
carryforwards of approximately $46,000,000 and research and development tax
credit carryforwards of approximately $900,000 to reduce future federal
income taxes, if any. These carryforwards expire through 2010 and are
subject to review and possible adjustment by the Internal Revenue Service.
The Tax Reform Act of 1986 limits a Company's ability to utilize certain net
operating loss and tax carryforwards in the event of a cumulative change in
ownership in excess of 50%, as defined. The Company has completed numerous
financings which may have resulted in a change in ownership in excess of 50%,
as defined. The utilization of net operating loss and tax credit
carryforwards may be limited due to ownership changes.
The Company adopted the provisions of SFAS No. 109 in 1994 which had no
impact upon the consolidated financial statements. There was no effect on
net loss or financial position from adopting the provisions of SFAS No. 109
for any period presented.
45
<PAGE>
The components of the net deferred tax amount recognized in the
accompanying consolidated balance sheets are set forth below:
<TABLE>
<CAPTION>
June 30,
---------------------------
(IN THOUSANDS) 1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets ...................... $16,500,000 $14,200,000
Valuation allowance ...................... (16,500,000) (14,200,000)
----------- ------------
$ - $ -
----------- ------------
----------- ------------
</TABLE>
The approximate tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is summarized as
follows:
<TABLE>
<CAPTION>
June 30,
---------------------------
(IN THOUSANDS) 1996 1995
----------- -----------
<S> <C> <C>
Net operating losses .................... $15,600,000 $12,920,000
Other temporary differences ............. - 180,000
Research and development credits ........ 900,000 1,100,000
----------- ------------
$16,500,000 $14,200,000
----------- ------------
----------- ------------
</TABLE>
Due to the uncertainty surrounding the timing of realizing the potential
benefits of its favorable tax attributes in future income tax returns, the
Company has placed a valuation allowance against its otherwise recognizable
deferred tax assets.
7. SALES, LICENSE AND DEVELOPMENT AGREEMENTS
In June 1992, the Company entered into a Product Development and License
Agreement (the "License Agreement") with The Terminix International Company,
L.P. ("Terminix") to license certain technology and provide for the joint
development of biopesticides for termite control. The License Agreement
provides for license fees and product development support to be paid to the
Company over a three-year period plus reimbursement for certain outside
development costs. The License Agreement grants Terminix exclusive sales
rights in the United States and Canada for the termite control product
developed under the Agreement. The Company will retain manufacturing rights
and will receive royalties on sales of the termite control product by
Terminix.
AGRO has a distribution agreement with an unrelated company for a term
of five years ending in December 1997, with automatic one-year extensions
unless either party elects to terminate the agreement. The agreement grants
AGRO the exclusive right to sell the unrelated company's product in the
United States and Canada. The agreement requires AGRO to maintain minimum
annual sales which, if not met, would allow the unrelated company to modify
the exclusivity of the agreement. The sale of products under this agreement
accounted for 45%, 43%, and 59% of the Company's total product sales for the
years ended June 30, 1996, 1995, and 1994, respectively. Although there are
a limited number of sources of the particular growing medium products that
are sold under this distribution agreement, the Company's management believes
that other suppliers could provide similar products on comparable terms. A
change in suppliers, however, could cause a delay in filling orders as well
as a possible loss of sales, which would affect operating results adversely.
46
<PAGE>
In June 1993, the Company entered into an agreement to license certain
technology and patents for the manufacture and sale of vegetable and fruit
coating products under the name Nature Seal. In consideration for this
license, the Company issued common stock and a warrant for the purchase of
common stock to the licensers and is required to pay certain minimum future
royalties and royalties based upon future sales of products which incorporate
the licensed technology. The value of the stock and warrant consideration
was recorded as research and development expense in 1993.
In June 1993, the Company entered into a Sales and License Agreement
(the "Maruwa Agreement") with Maruwa BioChemical Co., Ltd. to license certain
biopesticide technology for control of cockroaches. The Maruwa Agreement
provides for license fees to be paid to the Company in accordance with the
achievement of certain registration and development milestones. The Maruwa
Agreement grants the licensee exclusive sales rights in Japan for Bio-Path
cockroach control technology. The Company will retain manufacturing rights
and will receive royalties on sales of the Bio-Path Cockroach Control Chamber
by the licensee.
In January 1994, the Company entered into a Development and Distribution
Agreement with Bengal Chemical, Inc. (the "Bengal Agreement") for the
nonexclusive distribution rights to the Company's Bio-Path Cockroach Control
Chamber. The term of the Bengal Agreement is for calendar years 1994 and
1995 with year to year extensions permitted upon the attainment of minimum
product sales for the year preceding the extension. The Bengal Agreement
expired during fiscal 1996.
In May 1994, the Company entered into a Marketing and Distribution
Agreement with Dong Sung Pharmaceutical Co., Ltd. (the "Dong Sung Agreement")
for the exclusive rights to market and distribute the Company's Bio-Path
Cockroach Control Chamber in South Korea. The term of the Dong Sung
Agreement commences on May 24, 1994, and continues in effect through December
31, 1999, and may be renewed for an additional two calendar years thereafter.
In May 1995, the Company entered into a Marketing and Distribution
Agreement with Rhone-Poulenc Agrichimie (the "Rhone-Poulenc Agreement") for
the exclusive rights to market and distribute the Company's Bio-Path
Cockroach Control Chamber to professional pest control operators in 16
countries in Europe. The term of the Rhone-Poulenc Agreement is for a period
of three years for each country named therein, except for the United Kingdom
which is for a period of five years from the date of execution or the date
product registration is received in the particular country, whichever is
later, and may be renewed for successive one year periods thereafter by
mutual agreement of the parties.
In August 1995, AGRO entered into a distribution agreement with an
unrelated company for an initial term of three years for the North American
fruit, vegetable, and flower markets ending in September 1998, and in the
fruit, vegetable, and flower markets in the Caribbean Islands and Mexico
ending in August 1997. This agreement will be automatically extended for
each of the respective terms set forth above unless either party elects to
terminate the agreement upon ninety days prior written notice. The agreement
grants AGRO the exclusive right to sell the unrelated company's sorting and
grading products and equipment in most of the United States, Canada, Mexico,
and the Caribbean. The agreement requires AGRO to secure annually a certain
minimum market share percentage of the available market for sorting and
grading machines. The sale of products under this agreement accounted for
20% of total product sales for the fiscal year ended June 30, 1996. Although
there are a limited number of sorting and grading equipment manufacturers in
the world,
47
<PAGE>
the Company's management believes that other suppliers could provide similar
equipment on comparable terms. A change in supplier, however, could cause a
delay in filling orders as well as a possible loss of sales, which would
affect operating results adversely.
In September 1995, AGRO entered into a distribution agreement with an
unrelated company for a term commencing on July 1, 1995 and ending on June
30, 1997, with automatic one year extensions unless either party elects to
terminate the agreement with three months' advanced notice in writing. The
agreement grants AGRO the exclusive right to sell the unrelated company's
environment control products and accessories in the United States, Canada and
Mexico.
8. ASSET VALUATION AND RESTRUCTURING CHARGES
The Company's consolidated statement of operations for 1995 included a
$6,000,000 or $0.68 per share charge to write down the value of certain
assets and to provide for the costs associated with the closure of the
Company's facilities located in Worcester, Northborough, and Shrewsbury,
Massachusetts, and for reductions in the Massachusetts based work force. The
write-down of assets in 1995 included a $1,946,000 non-cash charge against
the Company's investment in manufacturing, laboratory, and office property
and equipment located in Massachusetts and approximately a $354,000 non-cash
charge for certain other assets to their respective net realizable values.
As of June 30, 1996 and 1995, these assets had a net book value of
approximately $328,000 and $3,835,000, respectively, and were intended to be
disposed of in fiscal 1997 and 1996, respectively. The remaining $3,700,000
consisted of accrued charges, of which $2,500,000 was classified in other
long-term liabilities at June 30, 1995, for the costs of facility lease
settlements ($2,000,000), manufacturing plant shut-down ($497,000), severance
benefits for 33 employees primarily in the research and development and
manufacturing areas ($1,035,000), and other contractual obligations,
including the termination of certain inventory supply and distribution
agreements ($168,000), related to the restructuring program adopted in fiscal
1995. The Company completed a major portion of its 1995 restructuring
program activities in the first half of fiscal 1996 and the remaining
restructuring program initiatives are expected to be completed in fiscal 1997
and beyond.
The Company's consolidated statement of operations for 1994 included a
$5,800,000 or $0.75 per share charge to write down the value of certain
assets and to provide for the costs associated with the consolidation of the
Company's facilities and for reductions in research and development programs.
The write down of assets in 1994 included a $3,000,000 non-cash charge
against the Company's investment in its manufacturing facility and related
equipment in Northborough, Massachusetts and approximately a $500,000
non-cash charge for certain other assets to reduce their carrying value to
their respective net realizable values. The remaining $2,300,000 consisted
of accrued charges, of which $800,000 was classified in other long-term
liabilities at June 30, 1994, for the consolidation of the Company's
corporate headquarters, research and development, and manufacturing
facilities ($1,300,000), and for reductions in research and development
activities and 24 related employees ($1,000,000). The Company completed all
of the employee terminations related to the 1994 restructuring program in the
first half of 1995 and a portion of the facility consolidation activities in
1995.
At the close of fiscal 1995, the Company began the implementation of the
restructuring program which was designed to shift the corporate focus from
research and development to commercial operations, in an effort to reduce
operating losses and conserve cash resources. As part of the restructuring
program, the Company eliminated substantially all of its Massachusetts based
work
48
<PAGE>
force (33 positions) in the first quarter of fiscal 1996. In addition,
during fiscal 1995 certain functions were moved to the Company's
manufacturing facility in Northborough, Massachusetts, and the Company's
space at its corporate headquarters and research and development facility
located in Worcester, Massachusetts, was decreased from approximately 41,000
square feet to approximately 13,000 square feet. In the first quarter of
fiscal 1996, the Company closed the Worcester facility and all remaining
functions were moved to the Northborough facility. During the second quarter
of fiscal 1996, the Company relocated its Massachusetts based operations
including corporate headquarters to AGRO's East Brunswick, New Jersey
facility.
On January 11, 1996, the Company and its landlord for its Worcester corporate
headquarters and research and development facility entered into a lease
termination agreement, under which the Company paid the landlord $125,000 on
January 18, 1996 and issued 500,000 shares of the Company's common stock with
a market value of $500,000 on January 22, 1996, in exchange for an immediate
termination of the lease. Additionally, the Company incurred approximately
$25,000 for expenses related to the completion of the transaction. After
accounting for these settlement provisions which totaled $650,000, the
Company reversed $1,550,000 of accrued restructuring costs in the third
quarter of fiscal 1996 that related to accrued restructuring costs which were
originally recorded in fiscal 1995 ($2,000,000) and the remaining accrued
restructuring costs which were originally recorded in fiscal 1994 ($200,000).
During fiscal 1996, the Company incurred $1,674,000 of costs related to the
1995 restructuring program of which $860,000 related to facility lease
settlements and manufacturing plant shut down, $725,000 related to employee
severance benefits, and $89,000 related to other contracted liabilities. As
of June 30, 1996, accrued restructuring costs of $1,030,000 (total current
and noncurrent portions) consisted of $641,000 for facility lease
settlements, $310,000 for employee severance benefits and $79,000 for other
contractual liabilities.
9. GEOGRAPHIC SEGMENT INFORMATION
Financial information segregated by major geographic area is summarized
as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
(IN THOUSANDS) 1996 1995 1994
-------- --------- -----
<S> <C> <C> <C>
Revenues:
United States ................... $9,937 $9,516 $ 8,126
Canada .......................... 4,421 3,564 2,785
------- ------- -------
Consolidated ................. $14,358 $13,080 $10,911
------- ------- -------
------- ------- -------
Net income (loss):
United States ................... ($587) ($15,122) ($17,494)
Canada .......................... - 28 (59)
------- ------- -------
Consolidated ................. ($587) ($15,094) ($17,553)
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------------------------
(IN THOUSANDS) 1996 1995 1994
-------- --------- -----
<S> <C> <C> <C>
Identifiable assets:
United States .................... $ 9,316 $ 18,143 $ 33,316
Canada ........................... 1,412 1,364 1,004
Intercompany eliminations ........ (617) (738) (330)
------- ------- -------
Consolidated .................. $ 10,111 $ 18,769 $ 33,990
------- ------- -------
------- ------- -------
</TABLE>
49
<PAGE>
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is an analysis of certain items in the consolidated
statements of operations by quarter for 1996 and 1995:
<TABLE>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA: 1996
-------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) First Quarter Second Quarter Third Quarter Fourth Quarter
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues ................................... $4,194 $ 4,295 $ 3,139 $ 2,730
Cost of goods sold ......................... 3,147 2,933 2,097 2,217
Research and development ................... 312 274 197 235
Asset valuation and restructuring
charges (reversal) ...................... - - (1,550) -
Selling, general, administrative and other . 1,351 1,363 1,285 1,325
------ ------- ------- -------
Income (loss) before extraordinary gain .... (616) (275) 1,110 (1,047)
Extraordinary gain on early extinguishment
of debt ................................. - - 241 -
------ ------- ------- -------
Net income (loss) .......................... ($616) ($275) $1,351 ($1,047)
------ ------- ------- -------
------ ------- ------- -------
Net income (loss) per share:
Before extraordinary gain ............... ($0.07) ($0.03) $0.12 ($0.11)
Extraordinary gain ...................... - - 0.03 -
------ ------- ------- -------
Net income (loss) ....................... ($0.07) ($0.03) $0.15 ($0.11)
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues .................................. $ 2,861 $ 3,265 $ 3,938 $ 3,016
Cost of goods sold ........................ 2,313 2,442 3,021 2,377
Research and development .................. 1,183 1,141 1,086 1,073
Asset valuation and restructuring charges . - - - 6,000
Selling, general, administrative and other. 1,822 1,725 1,983 2,008
------ ------- ------- -----
Net loss .................................. ($2,457) ($2,043) ($2,152) ($8,442)
------ ------- ------- -----
------ ------- ------- -----
Net loss per common share ................. ($0.28) ($0.23) ($0.24) ($0.96)
------ ------- ------- -----
------ ------- ------- -----
</TABLE>
50
<PAGE>
11. SUBSEQUENT EVENTS
On September 27, 1996, the Company sold 1,040,000 unregistered shares of
common stock in a Regulation D offering. Net proceeds realized from the
equity offering totaled $1,119,000 after placement agent fees and expenses
and Company expenses totaling $181,000. In connection with the offering, the
Company also issued a warrant to purchase 156,000 shares of its common stock
at $2.00 per share to the placement agent. The Company agreed to register
the shares of the offering and warrant within nine months under the
Securities Act of 1933. On September 27, 1996, pursuant to a lease
settlement agreement dated August 8, 1996, between the Company and its
financing company, the Company paid $880,000 and returned certain leased
equipment with a net book value of $308,000 to the financing company as final
satisfaction of its capital lease obligation under rental schedule No. 1, as
discussed in Note 4(b).
The following table sets forth the unaudited consolidated pro forma summary
balance sheet giving effect to the transactions described above, as if they
had occurred on June 30, 1996:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Consolidated Pro Forma Consolidated
(IN THOUSANDS) Historical Adjustments Pro Forma
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets ......................... $ 7,019 $ 289 $ 7,308
Property and equipment, net ............ 998 (308) 690
Other noncurrent assets ................ 2,094 - 2,094
------- ------- --------
Total assets ........................ $10,111 ($19) $10,092
------- ------- --------
------- ------- --------
LIABILITIES AND STOCKHOLDERS' INVESTMENT:
Current liabilities .................... $ 7,327 ($1,138) $ 6,189
Noncurrent liabilities ................. 311 - 311
Stockholders' investment ............... 2,473 1,119 3,592
------- ------- --------
Total liabilities and stockholders'
investment ......................... $10,111 ($19) $10,092
------- ------- --------
------- ------- --------
</TABLE>
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
of EcoScience Corporation:
We have audited the accompanying balance sheets of EcoScience
Corporation (a Delaware corporation) and subsidiaries as of June 30, 1996 and
1995, and the related consolidated statements of operations, stockholders'
investment and cash flows for each of the three years in the period ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of EcoScience
Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Roseland, New Jersey
September 6, 1996 (except for
the matters discussed in Notes 4 and 11,
as to which the date is October 5, 1996)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
- -------------------------------------------------------------------------------
Not applicable.
52
<PAGE>
PART III
- -------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------------------------
The information required by this item, in addition to that set forth above
in Part I under the caption "Executive Officers of the Registrant" is set forth
in the section entitled "Election of Directors" contained in the Company's
definitive proxy statement filed with the Securities and Exchange Commission
pursuant to Regulation 14A (the "Proxy Statement") in connection with the
Company's 1996 Annual Meeting of Stockholders to be held on November 7, 1996,
and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
Remuneration of directors and officers and information related thereto is
included in the section entitled "Executive Compensation" contained in the
Proxy Statement and such information is incorporated herein by reference,
except for information contained under the captions "Report of the Compensation
Committee" and "Performance Graph", which shall not be deemed incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------------
Security ownership of management and certain beneficial owners and
information related thereto is included in the section entitled "Security
Ownership of Beneficial Owners and Management" contained in the Proxy Statement
and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------------------------
Transactions with management and related parties and information related
thereto is included in the section entitled "Certain Transactions" contained in
the Proxy Statement and such information is incorporated herein by reference.
53
<PAGE>
PART IV
- -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------------
(a)(1) The following consolidated financial statements of the Company and its
subsidiaries for the years ended June 30, 1996, 1995 and 1994, are
included at the pages indicated below:
Page
----
Consolidated Balance Sheets.......................................... 28
-As of June 30, 1996 and 1995
Consolidated Statements of Operations................................ 29
-For the Years Ended June 30, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Investment....... 30
-For the Years Ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows................................ 31
-For the Years Ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements........................... 32
Report of Independent Accountants.................................... 52
(a)(2) There are no consolidated financial statement schedules required to be
presented herein:
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or
------------------------------------
are not applicable, and therefore have been omitted.
(a)(3) The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit Exhibit
Number Description
- ------- ---------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Registrant dated June
29, 1988 [incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1992].
3.2 By-Laws of the Registrant [incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
4.1 Specimen Common Stock Certificate of the Registrant [incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1, Registration Statement No. 33-44664].
54
<PAGE>
Exhibit Exhibit
Number Description
- ------- --------------------------------------------------------------------
10.1* Registrant's 1991 Stock Option Plan, As Amended [incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement
on Form S-1, Registration Statement No. 33-44664].
10.2* Registrant's 1988 Stock Option Plan [incorporated by reference
to Exhibit 10.2 to the Registrant's Registration Statement on Form S-
1, Registration Statement No. 33-44664].
10.3* Form of Non-Statutory Stock Option Agreement [incorporated by
reference to Exhibit 10.3 to the Registrant's Registration Statement
on Form S-1, Registration Statement No. 33-44664].
10.4 Common Stock Purchase Warrant between the Registrant and Copley
Partners 2, L.P., dated December 6, 1989, as amended [incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993].
10.5 8% Convertible Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated June 29, 1988,
amended and restated on December 6, 1989, and amended June 7, 1991
and July 30, 1991[incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1, Registration
Statement No. 33-44664].
10.6 Preferred Stock Purchase Agreement between the Registrant and
the other parties named therein, dated June 7, 1991, and amended as
of July 30, 1991 [incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1, Registration
Statement No. 33-44664].
10.7 Series B Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated July 30, 1991,
and amended on October 31, 1991 [incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
10.8 Common Stock Warrant between the Registrant and E. Andrews
Grinstead III, dated May 22, 1991, as amended [incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993].
10.9 Common Stock Purchase Warrant between the Registrant and Burns
McClellan, Inc., dated May 28, 1991 [incorporated by reference to
Exhibit 10.14 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
* Indicates a management contract or compensatory plan or arrangement required
to be filed pursuant to Item 14(c) of Form 10-K.
55
<PAGE>
Exhibit Exhibit
Number Description
- ------- --------------------------------------------------------------------
10.10 Common Stock Purchase Warrant between the Registrant and E.
Andrews Grinstead, III, dated June 7, 1991, as amended [incorporated
by reference to Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993].
10.11 Common Stock Purchase Warrant between the Registrant and
Ray A. Goldberg, dated June 7, 1991, as amended [incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993].
10.12 Common Stock Purchase Warrant between the Registrant and
Richard E. Lyng, dated June 7, 1991, as amended [incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993].
10.13 Warrant to Purchase Shares of Common Stock by and between the
Registrant and Oppenheimer & Co., Inc., dated October 31, 1991
[incorporated by reference to Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1, Registration Statement No. 33-
44664].
10.14 Letter Agreement between the Registrant and Dr. and Mrs. Meir
Broza, dated November 4, 1991 [incorporated by reference to Exhibit
10.19 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
10.15 Assignment of Patent Rights, dated November 7, 1991
[incorporated by reference to Exhibit 10.20 to the Registrant's
Registration Statement on Form S-1, Registration Statement No. 33-
44664].
10.16 Option to Purchase Common Stock between the Registrant and Dr.
Meir Broza, dated November 4, 1991 [incorporated by reference to
Exhibit 10.21 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
10.17 Warrant Purchase Agreement between the Registrant and Dominion
Ventures, Inc., dated November 26, 1991 [incorporated by reference to
Exhibit 10.23 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
10.18 Master Lease Agreement between the Registrant and Dominion
Ventures, Inc., dated November 26, 1991 [incorporated by reference to
Exhibit 10.24 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
56
<PAGE>
Exhibit Exhibit
Number Description
- ------- ---------------------------------------------------------------------
10.19* Non-Statutory Stock Option Agreement between the Registrant and
Haim B. Gunner, dated as of July 25, 1991 [incorporated by reference
to Exhibit 10.25 to the Registrant's Registration Statement on Form S-
1, Registration Statement No. 33-44664].
10.20 Cooperative Research and Development Agreement between the
Registrant and the United States Department of Agriculture, dated
July 10, 1990 [incorporated by reference to Exhibit 10.26 to the
Registrant's Registration Statement on Form S-1, Registration
Statement No. 33-44664].
10.21 Product Development and License Agreement between the Registrant
and The Terminix International Company, L.P., dated as of June 3,
1992, with certain confidential material omitted [incorporated by
reference to Exhibit 10.38 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1992].
10.22 Agreement and Plan of Reorganization dated as of November 18,
1992, among the Registrant, Agro Dynamics, Inc., Eco Acquisition
Corporation and the Stockholders named therein [incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement
on Form S-3, Registration Statement No. 33-58540].
10.23 Sublicense Agreement between the Registrant, J.R. Brooks &
Sons., Inc. and Seald-Sweet Growers, Inc., dated as of June 23, 1993,
with certain confidential material omitted [incorporated by reference
to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993].
10.24 Agreement between Agro Dynamics, Inc. and Grodania A/S with
certain confidential material omitted [incorporated by reference to
Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993].
10.25 Lease between the Registrant and Worcester Business
Development Corporation, dated as of May 28, 1993 [incorporated by
reference to Exhibit 10.36 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993].
10.26 Form of Warrant issued to Directors of the Registrant
[incorporated by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1993].
10.27 Massachusetts Biotechnology Research Park Space Lease
between the Registrant and Worcester Business Development
Corporation, dated as of September 25, 1992 [incorporated by
reference to Exhibit 10.37 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1993].
* Indicates a management contract or compensatory plan or arrangement required
to be filed pursuant to Item 14(c) of Form 10-K.
57
<PAGE>
Exhibit Exhibit
Number Description
- ------- -------------------------------------------------------------------
10.28 Asset Purchase Agreement, dated as of March 2, 1994, by and
among the Registrant, American Machinery Corporation and Aeroglide
Corporation [incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3, Registration
Statement No. 33-83184].
10.29 Master Equipment Lease Agreement, dated as of June 7, 1994,
between the Registrant and Financing For Science International, Inc.
[incorporated by reference to Exhibit 10.34 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994].
10.30 Loan Agreement dated as of October 28, 1994 by and among
the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc. and
Silicon Valley Bank [incorporated by reference to Exhibit 10.35 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994].
10.31 Sublease Agreement dated as of November 1, 1994, between
the Registrant and Hybridon, Inc. [incorporated by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K/A-2 for
the fiscal year ended June 30, 1995].
10.32 Marketing and Distribution Agreement dated as of May 15,
1995 between Registrant and Rhone-Poulenc Agrichimie. [incorporated
by reference to Exhibit 10.33 to the Registrant's Annual Report on
Form 10-K/A-2 for the fiscal year ended June 30, 1995].
10.33 Distribution Agreement dated as of August 1, 1995, by and
among Agro Dynamics, Inc., Aweta, BV and Autoline. [incorporated by
reference to Exhibit 10.34 to the Registrant's Annual Report on Form
10-K/A-2 for the fiscal year ended June 30, 1995].
10.34 Distributorship Agreement dated as of September 25, 1995,
between Agro Dynamics, Inc. and H. Hoogendoorn Automation B.V.
[incorporated by reference to Exhibit 10.35 to the Registrant's
Annual Report on Form 10-K/A-2 for the fiscal year ended June 30,
1995].
10.35 Partial Lease Termination Agreement for Massachusetts
Biotechnology Research Park Space dated as of September 19, 1995,
between the Registrant and Worcester Business Development
Corporation. [incorporated by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended
June 30, 1995].
10.36 Lease Termination Agreement dated as of September 29, 1995,
between the Registrant and Worcester Business Development
Corporation. [incorporated by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended
June 30, 1995].
58
<PAGE>
Exhibit Exhibit
Number Description
- ------- ---------------------------------------------------------------------
10.37 Amendment of Sublease dated as of October 11, 1995, between
the Registrant and Hybridon, Inc. [incorporated by reference to
Exhibit 10.38 to the Registrant's Annual Report on Form 10-K/A-2 for
the fiscal year ended June 30, 1995].
10.38 Loan Modification Agreement dated as of October 5, 1995, by
and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada
Inc., and Silicon Valley Bank. [incorporated by reference to Exhibit
10.39 to the Registrant's Annual Report on Form 10-K/A-2 for the
fiscal year ended June 30, 1995].
10.39 Agreement dated as of October 11, 1995 modifying the Master
Equipment Lease between the Registrant and Financing For Science
International, Inc. [incorporated by reference to Exhibit 10.40 to
the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year
ended June 30, 1995].
10.40 Lease Termination Agreement dated as of January 11, 1996 between
the Registrant and Worcester Business Development Corporation
[incorporated by reference to Exhibit 10.41 to the Registrant's
Current Report on Form 8-K dated January 16, 1996].
10.41 Debt Settlement Agreement dated as of February 20, 1996, by and
among the Registrant, EcoScience Produce Systems Corp., Aeroglide
Corporation of Florida and Aeroglide Corporation [incorporated by
reference to Exhibit 10.42 to the Registrant's Current Report on Form
8-K dated March 20, 1996].
10.42 Loan Modification Agreement dated as of July 5, 1996, by and
among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc.,
and Silicon Valley Bank [filed herewith].
10.43 Loan Modification Agreement dated as of September 5, 1996, by
and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada
Inc., and Silicon Valley Bank [filed herewith].
10.44 Loan Modification Agreement dated as of October 5, 1996, by and
among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc.,
and Silicon Valley Bank [filed herewith].
10.45 Private Placement Memorandum dated September 20, 1996 for
Offering of Registrants's Common Stock [filed herewith].
10.46 Common Stock Warrant between the Registrant and Taglich
Brothers, D'Amadeo, Wagner & Company, Incorporated [filed herewith].
10.47 Master Equipment Lease Settlement Agreement dated as of August
8, 1996, between the Registrant and Financing For Science
International, Inc. [filed herewith].
59
<PAGE>
Exhibit Exhibit
Number Description
- ------- -------------------------------------------------------------------
10.48 Common Stock Warrant between the Registrant and Aeroglide
Corporation [filed herewith].
10.49 Form of Stock Purchase Agreement dated September 25, 1996, by and
among EcoScience Corporation, Taglich Brothers, D'Amadeo, Wagner &
Company, Incorporated, and other entities [filed herewith].
21 Subsidiaries of the Registrant [filed herewith].
23 Consent of Arthur Andersen LLP [filed herewith].
24 Powers of Attorney of officers and directors of the Company
[included in the signature page filed on October 14, 1996].
27 Financial Data Schedule for the Fiscal Year Ended June 30, 1996
[filed herewith]
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fourth quarter of the fiscal year ended June 30,
1996.
Note: [NONE OF THE EXHIBITS LISTED IN THE FOREGOING INDEX IS INCLUDED WITH
THIS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30,
1996. A COPY OF THESE EXHIBITS MAY BE OBTAINED WITHOUT CHARGE BY
WRITING TO HAROLD A. JOANNIDI, ECOSCIENCE CORPORATION, 10 ALVIN
COURT, EAST BRUNSWICK, NEW JERSEY 08816.]
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of East
Brunswick, the State of New Jersey, on October 14, 1996.
ECOSCIENCE CORPORATION
By: /s/ Michael A. DeGiglio
----------------------------
Michael A. DeGiglio
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below on this report hereby constitutes and appoints Michael A.
DeGiglio and Kenneth S. Boger, and each of them with full power to act without
the other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this report, and to
file the same, with all exhibits hereto, and other documents in connection
herewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that
said attorneys-in-fact and agents or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Michael A. DeGiglio President and Chief Executive October 14, 1996
- --------------------------- Officer
Michael A. DeGiglio
/s/ Harold A. Joannidi Treasurer, Secretary and October 14, 1996
- --------------------------- Corporate Controller
Harold A. Joannidi
/s/ Kenneth S. Boger Director October 14, 1996
- ---------------------------
Kenneth S. Boger
61
<PAGE>
/s/ E. Andrews Grinstead III Director October 14, 1996
- ----------------------------
E. Andrews Grinstead III
/s/ Larry M. Nouvel Director October 14, 1996
- ------------------------
Larry M. Nouvel
/s/ David J. Ryan Chairman of the Board October 14, 1996
- ------------------------
David J. Ryan
/s/ Heinz K. Wehner Director October 14, 1996
- ------------------------
Heinz K. Wehner
62
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of July 5, 1996, by and
between Agro Dynamics, Inc. ("Agro Dynamics") and Agro Dyanmics Canada Inc.
("Agro Canada") (each, a "Borrower" and collectively, the "Borrowers") and
Silicon Valley Bank, a California-chartered bank ("Lender"), with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name of "Silicon Valley
East."
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrowers to Lender, Borrower's are indebted to Lender pursuant to,
among other documents, a Revolving Credit Note, dated October 28, 1994 in the
original principal amount of up to One Million Five Hundred Thousand and 00/100
Dollars ($1,500,000.00) (the "Revolving Note"). The Revolving Note has been
modified pursuant to Loan Modification Agreement dated October 5, 1995. The
Revolving Note, together with other promissory notes from Borrowers to Lender,
is governed by the terms of a Loan Agreement, dated October 28, 1994, between
Borrowers and Lender, as such agreement may be amended from time to time (the
"Loan Agreement").
Hereinafter, all indebtedness owing by Borrowers to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the indebtedness is secured by
three Security Agreements, each, dated October 28, 1994 (each, the "Security
Agreement"), executed by Agro Dynamics and Agro Canada and EcoScience
Corporation (the "Pledgor"); two Stock Pledge Agreements, each dated October 28,
1994 (each, the "Pledge Agreement"), one executed by Pledgor and one executed by
Agro Dynamics and an Assignment of Deposit Account dated October 5, 1995 (the
"Assignment"), executed by Pledgor. Additionally, repayment of the Indebtedness
is guaranteed by EcoScience Corporation (the "Guarantor") pursuant to an
EcoScience Guaranty dated October 28, 1994 (the "Guaranty").
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents." Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO REVOLVING NOTE.
1. Payable in one payment of all outstanding principal plus all accrued unpaid
interest on September 5, 1996. In addition, Borrowers will pay one regular
monthly payment of all accrued unpaid interest due on August 5, 1996.
4. PAYMENT OF LOAN FEE. Borrowers shall pay Lender a fee in the amount of One
Thousand and 00/100 Dollars ($1,000.00) (the "Loan Fee") plus all out-of-pocket
expenses.
<PAGE>
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
6. NO DEFENSES OF BORROWER. Each Borrower agrees that, as of this date, it
has no defenses against the obligations to pay any amounts under the
Indebtedness.
7. CONTINUING VALIDITY. Borrowers understand and agree that in modifying the
existing Indebtedness, Lender is relying upon Borrowers' representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrowers to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the partly is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
8. JURISDICTION/VENUE. Each Borrower accepts for itself and in connection
with its properties, unconditionally, the non-exclusive jurisdiction of any
state or federal court of competent jurisdiction in the Commonwealth of
Massachusetts in any action, suit or proceeding of any kind against it which
arises out of or by reason of this Loan Modification Agreement, provided,
however, that if for any reason Lender cannot avail itself of the courts of the
Commonwealth of Massachusetts, then venue shall lie in Santa Clara County,
California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrowers and Lender (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Lender in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
<PAGE>
BORROWERS: LENDER:
AGRO DYNAMICS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ Harold A. Joannidi By: /s/ Joan S. Parsons
-------------------------- -----------------------------
Name: Harold A. Joannidi Name: Joan S. Parsons
------------------------ ---------------------------
Title: Treasurer Title: Senior Vice President
----------------------- --------------------------
By: /s/ Michael DeGiglio
--------------------------
Name: Michael DeGiglio
------------------------
Title: President
-----------------------
AGRO DYNAMICS CANADA INC. SILICON VALLEY BANK
By: /s/ Harold A. Joannidi By: /s/ Christine Ware
-------------------------- -----------------------------
Name: Harold A. Joannidi Name: Christine Ware
------------------------ ---------------------------
Title: Treasurer Title: Vice President
----------------------- -------------------------
Signed at San Jose, CA
By: /s/ Michael DeGiglio
--------------------------
Name: Michael DeGiglio
------------------------
Title: President
-----------------------
The undersigned hereby consents and confirms the modifications to the
Indebtedness pursuant to this Loan Modification Agreement and the Existing Loan
Documents (including such provisions which apply specifically to EcoScience),
hereby ratifies all the provisions of the Guaranty, Security Agreement, Pledge
Agreement and Assignment, and confirms that all provisions of those document are
in full force and effect.
GUARANTOR/PLEDGOR:
ECOSCIENCE CORPORATION
By: /s/ Harold A. Joannidi
--------------------------
Name: Harold A. Joannidi
------------------------
Title: Treasurer
-----------------------
By: /s/ Michael DeGiglio
--------------------------
Name: Michael DeGiglio
------------------------
Title: President
-----------------------
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of September 5, 1996,
by and between Agro Dynamics, Inc. ("Agro Dynamics") and Agro Dyanmics Canada
Inc. ("Agro Canada") (each, a "Borrower" and collectively, the "Borrowers")
and Silicon Valley Bank, a California-chartered bank ("Lender"), with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and
with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, MA 02181, doing business under the name of
"Silicon Valley East."
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrowers to Lender, Borrower's are indebted to Lender pursuant
to, among other documents, a Revolving Credit Note, dated October 28, 1994 in
the original principal amount of up to One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) (the "Revolving Note"). The Revolving Note
has been modified pursuant to Loan Modification Agreement dated October 5,
1995 and July 5, 1996. The Revolving Note, together with other promissory
notes from Borrowers to Lender, is governed by the terms of a Loan Agreement,
dated October 28, 1994, between Borrowers and Lender, as such agreement may
be amended from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrowers to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the indebtedness is secured by
three Security Agreements, each, dated October 28, 1994 (each, the "Security
Agreement"), executed by Agro Dynamics and Agro Canada and EcoScience
Corporation (the "Pledgor"); two Stock Pledge Agreements, each dated October 28,
1994 (each, the "Pledge Agreement"), one executed by Pledgor and one executed by
Agro Dynamics and an Assignment of Deposit Account dated October 5, 1995 (the
"Assignment"), executed by Pledgor. Additionally, repayment of the Indebtedness
is guaranteed by EcoScience Corporation (the "Guarantor") pursuant to an
EcoScience Guaranty dated October 28, 1994 (the "Guaranty").
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents." Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO REVOLVING NOTE.
1. Payable in one payment of all outstanding principal plus all accrued
unpaid interest on October 5, 1996.
4. PAYMENT OF LOAN FEE. Borrowers shall pay Lender a fee in the amount of
Five hundred and 00/100 Dollars ($500.00) (the "Loan Fee") plus all
out-of-pocket expenses.
<PAGE>
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
6. NO DEFENSES OF BORROWER. Each Borrower agrees that, as of this date, it
has no defenses against the obligations to pay any amounts under the
Indebtedness.
7. CONTINUING VALIDITY. Borrowers understand and agree that in modifying the
existing Indebtedness, Lender is relying upon Borrowers' representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrowers to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the partly is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
8. JURISDICTION/VENUE. Each Borrower accepts for itself and in connection
with its properties, unconditionally, the non-exclusive jurisdiction of any
state or federal court of competent jurisdiction in the Commonwealth of
Massachusetts in any action, suit or proceeding of any kind against it which
arises out of or by reason of this Loan Modification Agreement, provided,
however, that if for any reason Lender cannot avail itself of the courts of the
Commonwealth of Massachusetts, then venue shall lie in Santa Clara County,
California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrowers and Lender (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Lender in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
<PAGE>
BORROWERS: LENDER:
AGRO DYNAMICS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ Harold A. Joannidi By:/s/ Joan S. Parsons
------------------------ -----------------------------
Name: Harold A. Joannidi Name: Joan S. Parsons
----------------------- ---------------------------
Title: Treasurer Title: Senior Vice President
---------------------- -------------------------
AGRO DYNAMICS CANADA INC. SILICON VALLEY BANK
By:/s/ Harold A. Joannidi By:/s/ Christine Ware
------------------------- ------------------------------
Name: Harold A. Joannidi Name: Christine Ware
----------------------- ---------------------------
Title: Treasurer Title: Vice President
---------------------- --------------------------
Signed at San Jose, CA
The undersigned hereby consents and confirms the modifications to the
Indebtedness pursuant to this Loan Modification Agreement and the Existing Loan
Documents (including such provisions which apply specifically to EcoScience),
hereby ratifies all the provisions of the Guaranty, Security Agreement, Pledge
Agreement and Assignment, and confirms that all provisions of those document are
in full force and effect.
GUARANTOR/PLEDGOR:
ECOSCIENCE CORPORATION
By: /s/ Harold A. Joannidi
---------------------------
Name: Harold A. Joannidi
-------------------------
Title: Treasurer
------------------------
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of October 5, 1996,
by and between Agro Dynamics, Inc. ("Agro Dynamics") and Agro Dyanmics Canada
Inc. ("Agro Canada") (each, a "Borrower" and collectively, the "Borrowers")
and Silicon Valley Bank, a California-chartered bank ("Lender"), with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and
with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, MA 02181, doing business under the name of
"Silicon Valley East."
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrowers to Lender, Borrower's are indebted to Lender pursuant
to, among other documents, a Revolving Credit Note, dated October 28, 1994 in
the original principal amount of up to One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) (the "Revolving Note"). The Revolving Note
has been modified pursuant to Loan Modification Agreement dated October 5,
1995, July 5, 1996 and September 5, 1996. The Revolving Note, together with
other promissory notes from Borrowers to Lender, is governed by the terms of
a Loan Agreement, dated October 28, 1994, between Borrowers and Lender, as
such agreement may be amended from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrowers to Lender shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the indebtedness is secured by
three Security Agreements, each, dated October 28, 1994 (each, the "Security
Agreement"), executed by Agro Dynamics and Agro Canada and EcoScience
Corporation (the "Pledgor"); two Stock Pledge Agreements, each dated October 28,
1994 (each, the "Pledge Agreement"), one executed by Pledgor and one executed by
Agro Dynamics and an Assignment of Deposit Account dated October 5, 1995 (the
"Assignment"), executed by Pledgor. Additionally, repayment of the Indebtedness
is guaranteed by EcoScience Corporation (the "Guarantor") pursuant to an
EcoScience Guaranty dated October 28, 1994 (the "Guaranty").
Hereinafter, the above-described security documents, together with all other
documents securing payment of the Indebtedness shall be referred to as the
"Security Documents." Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO REVOLVING NOTE.
1. Payable in one payment of all outstanding principal plus all accrued
unpaid interest on December 15, 1996. In addition, Borrowers will pay one
regular monthly payment of all accrued unpaid interest due on November 15, 1996.
<PAGE>
4. PAYMENT OF LOAN FEE. Borrowers shall pay Lender a fee in the amount of Two
Thousand and 00/100 Dollars ($2,000.00) (the "Loan Fee") plus all out-of-pocket
expenses.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
6. NO DEFENSES OF BORROWER. Each Borrower agrees that, as of this date, it
has no defenses against the obligations to pay any amounts under the
Indebtedness.
7. CONTINUING VALIDITY. Borrowers understand and agree that in modifying the
existing Indebtedness, Lender is relying upon Borrowers' representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing Indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Indebtedness. It is the
intention of Lender and Borrowers to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the partly is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
8. JURISDICTION/VENUE. Each Borrower accepts for itself and in connection
with its properties, unconditionally, the non-exclusive jurisdiction of any
state or federal court of competent jurisdiction in the Commonwealth of
Massachusetts in any action, suit or proceeding of any kind against it which
arises out of or by reason of this Loan Modification Agreement, provided,
however, that if for any reason Lender cannot avail itself of the courts of the
Commonwealth of Massachusetts, then venue shall lie in Santa Clara County,
California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrowers and Lender (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Lender in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
<PAGE>
BORROWERS: LENDER:
AGRO DYNAMICS, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ Harold A. Joannidi By: /s/ Jane Braun
------------------------ -----------------------------
Name: Harold A. Joannidi Name: Jane Braun
----------------------- ---------------------------
Title: Treasurer Title: Senior Vice President
---------------------- -------------------------
AGRO DYNAMICS CANADA INC. SILICON VALLEY BANK
By:/s/ Harold A. Joannidi By:/s/ Christine Ware
------------------------- ------------------------------
Name: Harold A. Joannidi Name: Christine Ware
----------------------- ---------------------------
Title: Treasurer Title: Vice President
---------------------- --------------------------
Signed at San Jose, CA
The undersigned hereby consents and confirms the modifications to the
Indebtedness pursuant to this Loan Modification Agreement and the Existing Loan
Documents (including such provisions which apply specifically to EcoScience),
hereby ratifies all the provisions of the Guaranty, Security Agreement, Pledge
Agreement and Assignment, and confirms that all provisions of those document are
in full force and effect.
GUARANTOR/PLEDGOR:
ECOSCIENCE CORPORATION
By: /s/ Harold A. Joannidi
---------------------------
Name: Harold A. Joannidi
-------------------------
Title: Treasurer
------------------------
<PAGE>
COPY NUMBER:
RECIPIENT'S NAME:
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
ECOSCIENCE CORPORATION
A DELAWARE CORPORATION
-----------------------
PRIVATE PLACEMENT OF 1,040,000 SHARES OF
COMMON STOCK, $0.01 PAR VALUE
AT
$1.25 PER SHARE
-----------------------
FOR ACCREDITED INVESTORS ONLY
-----------------------
THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK AND RESTRICTED TRANSFERABILITY.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH OR APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC") OR THE
SECURITIES REGULATORY AUTHORITY OF ANY STATE NOR HAS THE SEC OR ANY STATE
REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND THE EXHIBITS HERETO
(COLLECTIVELY, "MEMORANDUM"). ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION IN WHICH AN OFFER IS NOT AUTHORIZED.
THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CONFIDENTIAL, CONTAINS NON-
PUBLIC INFORMATION, AND IS INTENDED ONLY FOR THE PERSON WHOSE NAME APPEARS ABOVE
AND SUCH PERSON'S ADVISORS, IF ANY.
<PAGE>
TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED
REPRODUCTION OF ANY PORTION OF THIS
MEMORANDUM
IS STRICTLY PROHIBITED
----------------------------
SEPTEMBER 20, 1996
<PAGE>
ECOSCIENCE CORPORATION
TERMS OF OFFERING OF
COMMON STOCK
THE FOLLOWING ARE THE TERMS OF THE OFFERING OF COMMON STOCK OF ECOSCIENCE
CORPORATION (THE "COMPANY') WHICH SHOULD BE READ TOGETHER WITH THE
ATTACHED OVERVIEW AND THE EXHIBITS ANNEXED THERETO.
Securities Offered............... The Offering consists of 1,040,000
shares of the Company's Common Stock,
par value $.01 per share ("Common Stock"),
having an offering price of $1,300,000
in the aggregate.
Offering Price................... $1.25 per share of Common Stock.
Common Stock Outstanding......... 9,342,177 shares of Common Stock issued
and outstanding as of September 19,
1996.
Use of Proceeds.................. The net proceeds from this Offering are
estimated to be approximately $1,150,000
after deducting offering expenses. The
proceeds will be used to repay certain
indebtedness and for general corporate
purposes.
Purchaser Requirements........... Purchase of the Common Stock offered
hereby is limited to accredited
investors ("Accredited Investors") as that
term is defined in Regulation D under
the Securities Act of 1933 as amended
("the Securities Act") who make certain
representations concerning their assets
or income, investment intention and
sophistication
Placement Agent.................. The Company has retained Taglich
Brothers, D'Amadeo, Wagner & Company,
Inc. to act as placement agent ("the
Placement Agent") in connection with this
offering and will pay Placement Agent
$25,000, plus a 7.0% commission for all
equity funds raised. In addition, the
Placement Agent shall receive five (5)
year Warrants to purchase 156,000 shares
of the Company's common stock, at an
exercise price of $2.00 per share. The
Company will reimburse the Placement
Agent for all of its expenses in
connection with the offering up to a
maximum of $15,000. Shares may be
offered by certain other broker/dealers
and the Placement Agent may allot a
portion of its compensation to such
other broker/dealers.
<PAGE>
Offering Period.................. The Offering will continue through
September 25, 1996 subject to an
extension for a period of up to 30 days
on the terms set forth in the agreement
between the Company and the Placement
Agent. There will not be any closing
unless the entire offering is sold.
Subscription Procedure.......... To subscribe for the shares offered
hereby, prospective investors are to
complete the Subscription Agreement
which accompanies the Private Placement
Memorandum and return it to the
Placement Agent in the self-addressed
envelope. The execution and delivery of
the Subscription Agreement will
constitute a prospective investor's
irrevocable subscription for the shares
indicated. All executed Subscription
Agreements shall be accompanied by check
or wire transfer to the Escrow Agent.
The Company has the right, in its sole
discretion, to accept or reject any
subscription, in whole or in part.
Escrow Account.................. All subscription payments received prior
to the closing of this Offering will be
deposited with the Escrow Agent in an
Escrow Account. No interest will be
earned by subscribers on subscription
payments held in the Escrow Account. If
less than all the shares being offered
are sold prior to termination of the
Offering Period, or if for any reason
the closing of the purchase and sale of
the shares does not take place, all
payments will be returned to subscribers
without interest or deduction.
Restrictions on Transfer........ The Common Stock issued at closing may
not be offered, sold or resold unless
they are registered under the Securities
Act or an exemption from the
registration requirements of the
Recurities Act is available. None of
such securities has been registered
under the Securities Act.
Registration of Shares.......... The Company has agreed to prepare and
file with the SEC a registration
statement ("Registration Statement") on
the appropriate form under the 1933 Act,
with respect to the Shares and the
shares of Common Stock issuable upon the
exercise of the Placement Agent Warrants
collectively, the ("Registrable
Securities"), within nine (9) months
after the Closing and use its best
efforts to have the Registration
Statement become effective and to keep
such registration statement effective
and current for three (3) years. If
such Registration Statement is not
declared effective within nine (9)
months after the Closing, the holders of
such
<PAGE>
Registrable Securities (including
transferees authorized under applicable
securities laws) shall be entitled to
additional Shares of Common Stock equal
to, and the number of shares issuable
under the Placement Agent Warrants shall
be increased by, the lesser of (i) the
product of (x) four (4%) percent of the
number of Registrable Securities owned
by each such holder, and (y) the number
of months, or any part thereof, beyond
said nine (9) month period until the
Registration Statement is declared
effective or (ii) 35%. In addition,
holders of the Registrable Securities
will be entitled to piggyback
registration rights, which subject to
certain restrictions, would permit the
holders to include their Registrable
Securities in a Registration Statement
filed by the Company covering securities
to be offered by the Company or other
selling security holders.
<PAGE>
EXHIBIT 10.46
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT") OR ANY STATE SECURITIES
LAWS AND HAVE BEEN ACQUIRED PURSUANT TO AN INVESTMENT REPRESENTATION ON THE
PART OF THE PURCHASER HEREOF AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, BY THE
PURCHASER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
ITS COUNSEL OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY
BE SATISFACTORY TO COUNSEL FOR THE COMPANY, IN EITHER CASE, TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933 ACT, AND
APPLICABLE STATE SECURITIES LAWS.
ECOSCIENCE CORPORATION
Common Stock Purchase Warrant
to
Purchase 156,000 Shares
of
Common Stock
This Common Stock Purchase Warrant is issued to:
TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED
100 Wall Street
10th Floor
New York, NY 10005
by ECOSCIENCE CORPORATION, a Delaware corporation (hereinafter called the
"Company", which term shall include its successors and assigns).
FOR VALUE RECEIVED and subject to the terms and conditions hereinafter set
out, the registered holder of this Warrant is entitled upon surrender of this
Warrant to purchase from the Company One Hundred Fifty-Six Thousand (156,000)
fully paid and nonassessable shares of Common Stock, no par value (the "Common
Stock"), at the price of $2.00 per share.
This Warrant shall expire at the close of business on September 24, 2001.
1. (a) The right to purchase shares of Common Stock represented by this
Warrant may be exercised by the registered holder hereof, in whole or in part by
the surrender of this Warrant (properly endorsed if required) at the principal
office of the Company at 10 Alvin Court, East Brunswick, New Jersey 08816, (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company), and upon payment to the Company, by cash or by
certified check or bank draft, of the Warrant Purchase Price (as hereinafter
defined) for such shares. The Company agrees that the shares so purchased shall
be deemed to be issued to the registered holder hereof as the record
<PAGE>
owner of such shares as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares as
aforesaid. Certificates for the shares so purchased (together with a cash
adjustment in lieu of any fraction of a share) shall be delivered to the
registered holder hereof within a reasonable time, not exceeding five (5)
business days, after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then have
been exercised, in all other respects identical with this Warrant, shall also be
issued and delivered to the registered holder hereof within such time, or, at
the request of such registered holder, appropriate notation may be made on his
Warrant and the same returned to such registered holder.
(b) This Warrant may be exercised to acquire, from and after the date
hereof, the number of shares of Common Stock set forth on the first page hereof;
provided, however, the right hereunder to purchase such shares of Common Stock
shall expire at the close of business on September 24, 2001.
2. This Warrant is being issued by the Company to Taglich Brothers,
D'Amadeo, Wagner & Company, Incorporated ("Taglich Brothers") pursuant to a
Placement Agreement between the Company and Taglich Brothers dated September 12,
1996, whereby the Company agreed to issue a five (5) year warrant exercisable at
$2.00 per share to Taglich Brothers equal to fifteen (15%) percent of the total
number of shares of Common Stock sold by Taglich Brothers in a Private Placement
pursuant to a Confidential Private Placement Memorandum dated September 20, 1996
("Memorandum").
3. The Company covenants and agrees that all Common Stock upon issuance
against payment of the exercise price pursuant to this Warrant will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof; and, without limiting the generality of the
foregoing, the Company covenants and agrees that it will take from time to time
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the then effective
Warrant Purchase Price. The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may be exercised,
the Company will have at all times authorized, and reserved for the purpose of
issue or transfer upon exercise of the rights evidenced by this Warrant, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant, and will procure at its sole expense upon
each such reservation of shares the listing thereof (subject to issuance or
notice of issuance) on all stock exchanges on which the Common Stock is then
listed or inter-dealer trading systems on which the Common Stock is then traded.
The Company will take all such action as may be necessary to assure that such
shares of Common Stock may be so issued without violation of any applicable law
or regulation, or of any requirements of any national securities exchange upon
which the Common Stock may be listed or inter-dealer trading system on which the
Common Stock is then traded. The Company will not take any action which would
result in any adjustment in the number of shares of Common Stock purchasable
hereunder if the total number of shares of Common Stock issuable pursuant to the
terms of this Warrant after such action upon full exercise of this Warrant and,
together with all shares of Common Stock then outstanding and all shares of
Common Stock then issuable upon exercise of all options and other
-2-
<PAGE>
rights to purchase shares of Common Stock then outstanding, would exceed the
total number of shares of Common Stock then authorized by the Company's Articles
of Incorporation, as then amended.
4. The above provisions are, however, subject to the following:
(a) The Initial Warrant Purchase Price shall be $2.00 per share. Such
purchase price shall be subject to an adjustment from time to time as
hereinafter provided (such price or price as last adjusted, as the case may be,
being herein called the "Warrant Purchase Price"). Upon each adjustment of the
Warrant Purchase Price, the registered holder of this Warrant shall thereafter
be entitled to purchase, at the Warrant Purchase Price resulting from such
adjustment, the number of shares of Common Stock obtained by (i) multiplying the
Warrant Purchase Price in effect immediately prior to such adjustment by the
number of shares of Common Stock purchasable hereunder immediately prior to such
adjustment and (ii) dividing the product thereof by the Warrant Purchase Price
resulting from such adjustment.
(b) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the Warrant Purchase
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares, the Warrant Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale (except as otherwise provided
below in this paragraph 4(c)), lawful and adequate provisions shall be made
whereby the registered holder hereof shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified in this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the registered holder of this Warrant to
the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Warrant Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof (including
an immediate adjustment, by reason of such consolidation or merger, of the
Warrant Purchase Price to the value for the Common Stock reflected by the terms
of such consolidation or merger if the value so reflected is less than the
Warrant Purchase Price in effect immediately prior to such consolidation or
merger). In the event of a merger or consolidation of the Company with or into
another corporation as a result of which a number of shares of common stock of
the surviving
-3-
<PAGE>
corporation greater or lesser than the number of shares of Common Stock of the
Company outstanding immediately prior to such merger or consolidation are
issuable to holders of Common Stock of the Company, then the Warrant Purchase
Price in effect immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock of the Company. The Company will not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed or delivered to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase or otherwise acquire. If a purchase, tender
or exchange offer is made to and accepted by the holders of more than fifty
(50%) percent of the outstanding shares of Common Stock of the Company, the
Company shall not effect any consolidation, merger or sale with the Person
having made such offer or with any Affiliate of such Person, unless prior to the
consummation of such consolidation, merger or sale the registered holder of this
Warrant shall have been given a reasonable opportunity to then elect to receive
upon the exercise of this Warrant either the amount of stock, securities or
assets then issuable with respect to the number of shares of Common Stock of the
Company in accordance with such offer. The term "Person" as used in this
paragraph 4(c) shall mean and include an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof. For the purposes of this
paragraph 4(c), an Affiliate of any Person shall mean any Person directly or
indirectly controlling, controlled by or under direct or indirect preferred
control with, such other Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
(d) In case the Company shall sell or issue (i) Common Stock (except
upon exercise or conversion of options, warrants or convertible or exchangeable
securities either issued prior to the date hereof or as to which there has
already been adjustment pursuant to subdivision (ii)) or (ii) rights, options,
warrants or convertible or exchangeable securities exchangeable or exercisable
into Common Stock (collectively, "Rights") of the Company at a price per share
which is lower (at the record date for such issuance) than the then Warrant
Purchase Price per share of Common Stock, the number of shares of Common Stock
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of shares of Common Stock theretofore purchasable upon
exercise of each Warrant by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such Common Stock or Rights, plus the number of additional shares of Common
Stock offered for subscription or purchase, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to the
issuance of such Common Stock or Rights plus the number of shares which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the then Warrant Purchase Price per share of Common
Stock. Such adjustment shall be made whenever such Common Stock or Rights are
issued, and shall become effective retroactively immediately after the record
date for the determination of shareholders entitled to receive such Rights.
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<PAGE>
(e) Whenever the Warrant Purchase Price and the number of shares of
Common Stock shall be adjusted as herein provided, the Company shall compute the
adjusted Warrant Purchase Price and the adjusted number of shares of Common
Stock in accordance with such provisions and shall prepare a certificate signed
by its President, any Vice President, Treasurer or Secretary setting forth the
adjusted Warrant Purchase Price and the adjusted number of shares of Common
Stock which may be acquired and showing in reasonable detail the facts upon
which such adjustments are based, and the Company shall cause to be mailed to
the registered holder of this Warrant a notice stating that the Warrant Purchase
Price and the number of shares of Common Stock have been adjusted and setting
forth the adjusted Warrant Purchase Price and the adjusted number of shares of
Common Stock.
(f) In case at any time:
(i) the Company shall declare any cash dividend upon its Common
Stock payable at a rate in excess of the rate of the last cash dividend
theretofore paid;
(ii) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution (other
than regular cash dividends) to the holders of its Common Stock;
(iii) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its
assets to, another corporation; or
(v) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company (A) at least twenty
(20) days prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least twenty (20) days prior written notice of the date when the
same shall take place. Any notice required by clause (A) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and any notice
required by clause (B) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property
-5-
<PAGE>
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(g) If any event occurs as to which in the reasonable and good faith
opinion of the Board of Directors of the Company the other provisions of this
paragraph 4 are not strictly applicable or if strict application would not
fairly protect the purchase rights of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
of the Company shall make an adjustment in the application of such provisions,
in accordance with such essential intent and principles, so as to protect such
purchase rights as aforesaid, but in no event shall any such adjustment have the
effect of increasing the Warrant Purchase Price as otherwise determined pursuant
to this paragraph 4 except in the event of a combination of shares of the type
contemplated in paragraph 4(b) and then in no event to an amount larger than the
Warrant Purchase Price as adjusted pursuant to paragraph 4(b).
5. In the event the Company grants rights to all shareholders to purchase
Common Stock, the registered holder of this Warrant shall have the same rights
as if this Warrant had been exercised immediately prior to such grant.
6. The registered holder of this Warrant shall, with respect to the shares
of Common Stock issuable upon the exercise of this Warrant, have the
registration rights and "piggy back" registration rights set forth in the Stock
Purchase Agreement (the form of which is attached to the Memorandum) by and
among the Company, Taglich Brothers and the Investors purchasing shares pursuant
to the Memorandum. Such registration rights and "piggy back" registration
rights are incorporated herein by this reference as if such provisions had been
set forth herein in full.
7. This Warrant need not be changed because of any change in the Warrant
Purchase Price or in the number of shares of Common Stock purchased hereunder.
8. The terms defined in this paragraph, whenever used in this Warrant,
shall, unless the context otherwise requires, have the respective meanings
hereinafter specified. The term "Common Stock shall mean and include the
Company's Common Stock, $0.01 par value, authorized on the date of the original
issue of this Warrant and shall also include in case of any reorganization,
reclassification, consolidation, merger or sale of assets of the character
referred to in paragraph 4 hereof, the stock, securities or assets provided for
in such paragraph. The term "Company" shall also include any successor
corporation to ECOSCIENCE CORPORATION by merger, consolidation or otherwise.
The term "outstanding" when used with reference to Common Stock shall mean at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company. The term "Securities Act" shall mean the Securities Act
of 1933, or any similar Federal statute, and the rules and regulations of the
Securities and Exchange Commission, or any other Federal agency then
administering such Securities Act, thereunder, all as the same shall be in
effect at the time.
9. This Warrant is exchangeable, upon the surrender hereby by the
registered holder hereof at the office or agency of the Company, for new
Warrants of like tenor representing in the
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<PAGE>
aggregate the right to subscribe for and purchase the number of shares which may
be subscribed for and purchased hereunder, each of such new Warrants to
represent the right to subscribe for and purchase such number of shares as shall
be designated by such registered holder hereof at the time of such surrender.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant or any such new Warrants and, in the
case of any such loss, theft, or destruction, upon delivery of a bond of
indemnity, reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender or cancellation of this Warrant or such new Warrants,
the Company will issue to the registered holder hereof a new Warrant of like
tenor, in lieu of this Warrant or such new Warrants, representing the right to
subscribe for and purchase the number of shares which may be subscribed for and
purchased hereunder.
10. The Company agrees to use its best efforts to file timely all reports
required to be filed by it pursuant to Section 13 or 15 of the Securities
Exchange Act of 1934, as amended, and to provide such information as will permit
the registered holder to sell this Warrant or any stock acquired upon exercise
of this Warrant in accordance with Rule 144 under the Securities Act.
11. The Company will at no time close its transfer books against the
transfer of this Warrant or of any shares of Common Stock issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. This Warrant shall not entitle the registered holder
hereof to any voting rights or any rights as a stockholder of the Company. The
rights and obligations of the Company, of the registered holder of this Warrant,
and of any holder of shares of Common Stock issuable hereunder, shall survive
the exercise of this Warrant.
12. This Warrant sets forth the entire agreement of the Company and the
registered holder of this Warrant and the Common Stock issuable upon the
exercise of this Warrant with respect to the rights of the registered holder of
this Warrant and the Common Stock issuable upon the exercise of this Warrant,
notwithstanding the knowledge of such registered holder of any other agreement
or the provisions of any agreement, whether or not known to such registered
holder and the Company represents that there are no agreements inconsistent with
the terms hereof or which purport in any way to bind the registered holder of
this Warrant or the Common Stock.
13. The validity, interpretation and performance of this Warrant and each
of its terms and provisions shall be governed by the laws of the State of New
York.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer under its corporate seal and to be dated September 25,
1996.
ECOSCIENCE CORPORATION
By: /s/ HAROLD A. JOANNIDI
----------------------
Name: Harold A. Joannidi
Title: Treasurer and Secretary
[CORPORATE SEAL]
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<PAGE>
[LETTERHEAD]
August 8, 1996
Michael DeGiglio
President
EcoScience Corporation
10 Alvin Court
East Brunswick, NJ 08816
Dear Mike:
Financing for Science International, Inc. (FSI) accepts EcoScience
Corporation's (EcoScience) offer to prepay its obligations and return the
surplus equipment under the Master Equipment Lease Agreement dated June 7, 1994
under the following terms and conditions:
1) EcoScience shall pay the August rental of $55,073.60 no later than
August 9,1996 and shall pay $930,000.00 no later than September 6, 1996. In the
event that the September 6th date is not met, then EcoScience shall pay the
September rental of $55,073.60 no later than September 9, 1996 and a payment of
$880,000.00 no later than September 30, 1996.
2) The $92,632.00 held by FSI as proceeds of prior equipment sales shall
be retained by FSI.
3) The surplus equipment presently on consignment sale at Aaron Equipment
Company (Aaron), 735 E. Green St., Bensenville, IL 60106 shall be returned to
FSI's control and all expenses due and owing Aaron through the date of the lump
sum payment to FSI shall be paid by EcoScience directly to Aaron.
4) Copies of all agreements between EcoScience and Aaron shall be
delivered to FSI no later than August 12, 1996 for review, along with the name
of the contact person at Aaron.
5) Title to the equipment retained by EcoScience with an original cost
totaling $47,613.65 shall be transferred to EcoScience following the payments
described in paragraph one above.
If this outlines the business agreement, please acknowledge with a signed
copy faxed back to me and I will proceed to have the legal documents prepared to
reflect this agreement. If you have any questions I can be reached directly at
(866) 674-7532.
Sincerely, Acknowledged:
/s/ Duane E. Starr EcoScience Corporation
- ------------------ by /s/ Michael DeGiglio
Duane E. Starr ------------------------
Senior Vice President Michael DeGiglio, President
Asset Management
cc: Robert W. Maxwell
<PAGE>
EXHIBIT 10.48
THIS WARRANT HAS BEEN ISSUED PURSUANT TO AN INVESTMENT REPRESENTATION
ON THE PART OF THE HOLDER HEREOF AND SHALL NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED BY THE HOLDER EXCEPT
UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF COUNSEL TO
THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY OR THE SUBMISSION TO
THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE
COMPANY, IN EITHER CASE TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT
BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE STOCK ISSUABLE
UPON ITS EXERCISE ARE FURTHER SUBJECT TO THE RESTRICTIONS ON TRANSFER
REFERRED TO IN SECTION 3 OF THIS WARRANT.
Warrant No. 21 50,000 Shares
COMMON STOCK PURCHASE WARRANT
TO SUBSCRIBE FOR SHARES OF
COMMON STOCK
OF
ECOSCIENCE CORPORATION
THIS CERTIFIES THAT, for value received, Aeroglide Corporation of Florida
or its permitted assigns (the "Registered Holder") is entitled to subscribe for
and purchase from EcoScience Corporation, a Delaware corporation (the
"Company"), at any time prior to February 28, 1999, Fifty Thousand (50,000)
shares of the Common Stock, par value $.01 per share (as defined in Section 7(a)
herein, the "Stock"), for a purchase price of Two Dollars ($2.00) per share
(with adjustments provided for herein, hereinafter called the "Warrant Price").
1. EXERCISE OF WARRANT.
The rights represented by this Warrant may be exercised by the Registered
Holder hereof in whole or in part (but not as to fractional shares of Stock) by
the surrender of this Warrant and delivery of an executed Notice of Exercise in
the form appended hereto to the Company at its principal office at 10 Alvin
Court, East Brunswick, New Jersey 08816, Attention: President, at any time or
times within the period specified above, accompanied by payment for the Stock as
to
<PAGE>
which this Warrant is being exercised by wire transfer to an account designated
by the Company or by certified or bank check.
In the event of a partial exercise of the rights represented by this
Warrant, this Warrant shall be canceled and the Company shall deliver a new
Warrant of like tenor representing the balance of the shares of Stock
purchasable hereunder. A certificate or certificates for the Stock purchased
upon exercise of this Warrant and, in the event of a partial exercise of this
Warrant, a
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<PAGE>
new Warrant, shall be delivered by the Company to the Registered Holder not
later than ten days after payment is made for the purchased Stock.
Any exercise of the rights represented by this Warrant shall be deemed to
have been effected immediately prior to the close of business on the date on
which the Notice of Exercise and accompanying payment shall have been received
by the Company and this Warrant shall have been surrendered. If the last day for
the exercise of this Warrant shall be a Sunday or a legal holiday or a day on
which banking institutions in the Commonwealth of Massachusetts are authorized
by law to close, then this Warrant may be exercised on the next succeeding day
which is not a Sunday, legal holiday or a day on which banking institutions in
the Commonwealth of Massachusetts are authorized by law to close. No payment or
adjustment shall be made upon any exercise on account of any dividends on the
Stock issued upon such exercise.
2. VALIDITY OF ISSUE.
The Company warrants that all shares of Stock which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issue thereof (other than taxes in respect of any transfer involved in
the issuance and delivery of any certificate for shares of Stock in a name other
than that of the Registered Holder hereof). The Company further warrants that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Stock to provide for the exercise of the rights
represented by this Warrant.
3. INVESTMENT REPRESENTATION.
The Registered Holder by accepting this Warrant represents that the Warrant
is acquired for the Registered Holder's own account for investment purposes and
not with a view to any offering or distribution thereof and that the Registered
Holder has no present intention of selling or otherwise disposing of the Warrant
or the underlying shares of Stock upon exercise, and the Registered Holder will
confirm, in respect of securities obtained upon such exercise, that it is
acquiring such securities for its own account and not with a view to any
offering or distribution in violation of applicable securities laws. The
Registered Holder further represents that it will not sell or otherwise dispose
of the Warrant or the underlying shares of Stock in the absence of an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering such securities, or an opinion of counsel for the
Registered Holder hereof reasonably acceptable to the Company, or such other
evidence as may be reasonably acceptable to the Company, that no such
registration is required. The Registered Holder further agrees that the Company
may affix to the certificate(s) evidencing the Stock of the Company which may be
issued upon the exercise of this Warrant a legend in the form set forth below:
THE SHARE OR SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT (i) PURSUANT TO A REGISTRATION THEREOF
UNDER THE SECURITIES ACT OF 1933, OR (ii) UPON DELIVERY TO THE COMPANY
OF THE WRITTEN OPINION
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<PAGE>
OF COUNSEL FOR THE HEREON-NAMED OWNER, WHICH OPINION IS REASONABLY
ACCEPTABLE TO THE COMPANY, OR SUCH OTHER EVIDENCE AS MAY BE REASONABLY
ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED TRANSFER MAY BE EFFECTED
WITHOUT SUCH REGISTRATION.
4. ADJUSTMENTS TO PREVENT DILUTION.
(a) In case the Company shall at any time subdivide its outstanding shares
of Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced, and the
number of shares issuable upon exercise of this Warrant shall be proportionately
increased; and conversely, in case the outstanding shares of Stock of the
Company shall be combined into a smaller number of shares, the Warrant Price in
effect immediately prior to such combination shall be proportionately increased
and the number of shares issuable upon exercise of this Warrant shall be
proportionately reduced.
(b) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets or
those of any successor corporation shall be effected, then, as a condition of
such capital reorganization, reclassification, consolidation, merger, or sale,
lawful and adequate provision shall be made whereby the Registered Holder hereof
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant, in lieu of shares of Stock
of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, those shares of stock, securities or
assets which would have been issued or payable with respect to or in exchange
for the Stock issuable upon exercise of this Warrant had this Warrant been
exercised immediately prior to the record date (or the effective date, as the
case may be) for such capital reorganization, reclassification, consolidation,
merger or sale; and in any such case appropriate provision shall be made with
respect to the rights and interests of the Registered Holder of this Warrant to
the end that the provisions hereof (including without limitation provisions for
adjustment of the Warrant Price and of the number of shares purchasable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as may be
possible, in relation to any shares of stock, securities, or assets thereafter
deliverable upon the exercise hereof. The Company shall not effect any
consolidation or merger unless prior to the consummation thereof the successor
corporation shall assume by written instrument executed and mailed to the
Registered Holder hereof at its address registered on the books of the Company
the obligation to deliver to the Registered Holder hereof such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Registered Holder may be entitled to purchase.
(c) Upon any adjustment of the Warrant Price, the Company shall give
written notice thereof, by first class mail, postage prepaid, addressed to the
Registered Holder of this Warrant at its address registered on the books of the
Company, which notice shall
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<PAGE>
state the Warrant Price resulting from such adjustment and the increased or
decreased number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
5. NOTICE OF REORGANIZATIONS, ETC.
In case at any time:
(a) the Company shall declare any dividend upon its Stock whether
payable in cash, property, Stock or other assets, or make any distribution to
the Registered Holders of its Stock; or
(b) there shall be any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another entity; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company,
then, in each one or more of such cases, the Company shall give at least 10
days' prior written notice, by first class mail, postage prepaid, addressed to
the Registered Holder at its address registered on the books of the Company, of
the date on which the books of the Company shall close or a record shall be
taken for purposes of ascertaining which shareholders will be entitled to
participate in such dividend or distribution or will be entitled to vote on such
capital reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up, as the case may be.
6. "PIGGY-BACK" REGISTRATIONS.
If at any time the Company shall determine to register any of its
securities under the Securities Act on Form S-1 or its then equivalent, it shall
send to the Registered Holder hereof written notice of such determination and,
if within 10 days after receipt of such notice, the Registered Holder shall so
request in writing, the Company shall use its best efforts to include in such
registration statement all or any part of the shares of Stock purchasable
hereunder the Registered Holder requests to be registered therein, except that
if, in connection with any offering involving an underwriting of Common Stock to
be issued by the Company, the managing underwriter shall impose a limitation on
the number of shares of such Stock which may be included in any such
registration statement because, in its judgment, such limitation is necessary to
effect an orderly public distribution, and such limitation is imposed pro rata
with respect to all securities whose holders have a contractual, incidental
("piggy-back") right to include such securities in the registration statement
and as to which inclusion has been requested pursuant to such right, then the
Company shall be obligated to include in such registration statement only such
limited portion (which may be none) of the Stock with respect to which the
Registered Holder has requested inclusion hereunder. Notwithstanding the
foregoing, the Registered Holder
-5-
<PAGE>
shall not have any right to request inclusion in such registration statement of
any Stock which is available for sale and can be sold (whether or not sold)
pursuant to Rule 144A or Rule 144 under the Securities Act, or any similar rule
promulgated by the Securities and Exchange Commission permitting the resale of
restricted securities without the necessity of a registration statement under
the Securities Act.
7. MISCELLANEOUS.
(a) As used herein the term "Stock" shall mean and include the Company's
presently authorized Common Stock, par value $.01 per share, and stock of any
other series or class into which such presently authorized Stock may hereafter
be changed.
(b) This Warrant shall not entitle the Registered Holder hereof to voting
rights or any other rights whatsoever as a stockholder of the Company or, except
as set forth in Section 5 above, to any notice of meetings of stockholders or
any other proceedings of the Company.
(c) This Warrant is exchangeable, upon the surrender hereof at the office
or agency of the Company, for new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the number of shares of Stock
which may be subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of shares of
Stock as shall be designated by said Registered Holder hereof at the time of
such surrender.
8. TRANSFER AND REGISTERED HOLDER.
Subject to the foregoing, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
Registered Holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed, together with a written assignment
of this Warrant duly executed by the Registered Holder hereof or its duly
authorized attorney. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed in blank,
shall be deemed negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the Registered Holder hereof as the owner for all purposes.
9. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the Commonwealth of Massachusetts.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by an
officer thereunto duly authorized and its corporate seal to be hereunto affixed,
on this 20 day of February, 1996.
ECOSCIENCE CORPORATION
By: /s/ MICHAEL A. DEGIGLIO
--------------------------
Name: Michael A. DeGiglio
Title: President & CEO
(SEAL)
Attest:
/s/ HAROLD A. JOANNIDI
- ----------------------
Name: Harold A. Joannidi
Title: Corporate Controller
-7-
<PAGE>
NOTICE OF EXERCISE
(To be Executed by
the Registered Holder
in Order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
______________________________ (_________) shares of Common Stock, $.01 par
value, of EcoScience Corporation covered by Warrant No. W-[_] according to the
conditions thereof and herewith makes payment of the Warrant Price of such
shares in full.
I. Specify method of exercise by check mark:
______ 1. Such payment is hereby tendered in the form of $________ by wire
transfer or by certified or bank check.
______ 2. The holder elects to receive shares for the value (as determined
pursuant to paragraph 1 of the Warrant and as calculated in the attached
schedule) of the Warrant.
II. The undersigned hereby confirms the representations and warranties
contained in Section 3 of the Warrant.
Printed Name
of Warrant Holder: ____________________________
Signature: ____________________________
Title (if signing
on behalf of a
Warrant Holder: ____________________________
Address: ____________________________
____________________________
____________________________
Dated:_______________________
-8-
<PAGE>
EXHIBIT 10.49
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") dated as of the day of
September, 1996, by and among ECOSCIENCE CORPORATION, a Delaware corporation
(the "Company"), TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED
("Placement Agent"), either on its own behalf or on behalf of other investors,
and the persons and entities listed on EXHIBIT A to this Agreement (Placement
Agent and the persons and entities listed on EXHIBIT A annexed hereto being
referred to individually as an "Investor" and collectively as the "Investors").
W I T N E S S E T H :
WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, the Investors desire to purchase from the
Company, and the Company desires to sell to the Investors, one million forty
thousand (1,040,000) shares of the Company's common stock, $0.01 par value (each
a "Share" and collectively, the "Shares") subject to the terms hereof; and
WHEREAS, the Shares are being issued pursuant to the Company's Confidential
Private Placement Memorandum and Exhibits thereto dated September 25,1996
(collectively, the "Memorandum"); and
WHEREAS, the Shares are being issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act").
NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Investors hereby agree as
follows:
1. SALE AND PURCHASE OF SHARES.
(a) Subject to the terms and conditions of this Agreement, the
Company shall sell to the Investors one million forty thousand (1,040,000)
Shares, and each Investor shall purchase from the Company the number of Shares
as is set forth after the Investor's name on EXHIBIT A annexed hereto for a
consideration of One Dollar and 25/100 ($1.25) per Share provided that no
Shares will be sold unless all Shares are subscribed and paid for by September
25,1996.
(b) The sale and purchase described in Paragraph 1(a) of this
Agreement shall take place at a closing (the "Closing") at the offices of
SPITZER & FELDMAN P.C., 405 Park Avenue, New York, New
<PAGE>
York 10022-4405 or such other place as shall be acceptable to the Company and
Placement Agent on September 25, 1996.
2. PAYMENT. At Closing, the Company shall deliver to Placement Agent, on
behalf of the Investors, the original executed and sealed certificates for the
Shares being purchased by the Investors pursuant to Paragraph 1 of this
Agreement, against its receipt of payment therefor by certified or bank check
drawn on a bank located in the United States or by wire transfer in federal
funds in the amount of the aggregate purchase price for such Shares as provided
in Paragraph 1 of this Agreement, less the amount of fees payable to Placement
Agent pursuant to Paragraph 10(a) of this Agreement. All certificates for
Shares being purchased by the Investors shall be issued in the respective names
of the Investors in accordance with instructions provided by Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to and covenants and agrees with each Investor as of the
date hereof and as of the date of the Closing, as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is qualified and in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted by the Company or the property owned or leased by the
Company requires such qualification. Except as set forth in the Memorandum, the
Company has no subsidiaries and does not own any equity interest and has not
made any loans or advances to or guarantees of indebtedness to any person,
corporation, partnership or other entity.
(b) The authorized capital of the Company consists of twenty-five
million (25,000,000) shares of common stock, $0.01 par value (the "Common
Stock") of which, as of the date of this Agreement, 9,342,177 shares of Common
Stock are issued and outstanding and 1,294,976 Shares of Common Stock are
reserved for issuance. Except as set forth in the Memorandum, the Company is
not a party to any agreement to issue, nor has it issued, any warrants, options
or rights or debentures, notes or other evidence of indebtedness or other
securities, instruments or agreements upon the exercise or conversion of which
or pursuant to the terms of which additional shares of capital stock of the
Company may become issuable. No holder of any of the Company's securities has
preemptive rights or contractual rights of first refusal.
(c) The Company has the full right, power and authority to execute,
deliver and perform under this Agreement, the Shares
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and the Placement Agent Warrants (as defined below). This Agreement has been
duly executed by the Company and, at Closing, the Shares and the Placement Agent
Warrants being issued will have been duly executed by the Company, and this
Agreement, the Shares, the Placement Agent Warrants and the transactions
contemplated by this Agreement, the Shares and the Placement Agent Warrants have
been duly authorized by all necessary corporate action and each constitute, the
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms.
(d) All of the issued and outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable, with no personal liability attaching to the holders thereof, and
such shares of Common Stock have not been issued in violation of the preemptive
rights or rights of first refusal of any holder of securities of the Company.
All of the issued and outstanding shares of Common Stock have been issued
pursuant to either a registration statement under the 1933 Act or an exemption
from the registration requirements of the 1933 Act and were issued in accordance
with all applicable Federal and state securities laws.
(e) The Company has delivered to each Investor a copy of the
following financial statements of the Company (hereinafter collectively, the
"Financial Statements"): (1) (i) its balance sheet as at June 30, 1995 and 1994,
and (ii) the statements of income, shareholders' equity (deficiency) and cash
flows for the fiscal years ended June 30, 1995 and 1994, and the related notes
thereto, which have been audited by Arthur Andersen LLP, independent certified
public accountants, and (2) the unaudited balance sheet at March 31, 1996 and
unaudited statements of operations and cash flows for the nine (9) month period
ended March 31, 1996, and the notes related thereto. The Financial Statements,
which are included in the Company's Form 10-K Annual Report for the year ended
June 30, 1995 and the Company's Form 10-Q Quarterly Report for the quarter ended
March 31, 1996, were prepared in accordance with generally accepted accounting
principles consistently applied and present and reflect fairly the financial
position of the Company at the respective balance sheet dates and the results of
its operations, changes in shareholders' equity and cash flows for the periods
then ended.
(f) The Shares of Common Stock issuable upon the exercise of the
Placement Agent Warrants have been validly authorized for issuance and, when
issued against payment of the exercise price pursuant to this Agreement and the
terms of the Placement Agent Warrants, as the case may be, will be duly and
validly authorized and issued, fully paid and nonassessable and
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free from preemptive rights or rights of first refusal held by any person.
(g) The Company has good and marketable title to all of its property
and assets and, except as set forth in the Memorandum, none of the property or
assets of the Company is subject to any lien, mortgage, pledge, encumbrance or
other security interest.
(h) Since March 31, 1995, except as set forth in the Memorandum,
there has not been any material adverse change in the financial condition or in
the operations, business or prospects of the Company from that shown in the
Financial Statements or any damage or destruction, whether covered by insurance
or not, which affects the business, property or assets of the Company.
(i) The Company has delivered to each Investor (i) a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995,
(ii) a copy of the Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1996, December 31, 1995 and September 30, 1995 (iii) a
copy of the Company's annual report and proxy statement relating to the
Company's 1996 annual meeting of stockholders, (iv) any Current Reports on Form
8-K or other reports filed with the Securities and Exchange Commission (the
"SEC") subsequent to April 30, 1996, (v) a copy of each Schedule 13D or 13G
which has been filed with the Company within the past year; provided, that no
representation is made by the Company with respect to the contents of any
Schedule 13D or 13G; and (vi) any additional documents referred to in EXHIBIT B
annexed hereto.
(j) Neither the execution or delivery of this Agreement or the Shares
or the Placement Agent Warrants by the Company nor the performance by the
Company of the transactions contemplated by this Agreement, the Shares or the
Placement Agent Warrants: (i) requires the consent, waiver, approval, license or
authorization of or filing with or notice to any person, entity or public
authority (except any filings required by Federal or state securities laws,
which filings have been or will be made on a timely basis); (ii) violates or
constitutes a default under or breach of any law, rule or regulation applicable
to the Company; (iii) conflicts with or results in a breach or termination of
any provision of, or constitutes a default under, or will result in the creation
of any lien, charge or encumbrance upon any of the property or assets of the
Company with or without the giving of notice, the passage of time or both,
pursuant to (A) the Company's certificate of incorporation or by-laws, (B) any
mortgage, deed of trust, indenture, note, loan agreement, security agreement,
contract, lease, license, alliance agreement, joint venture agreement, or
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other agreement or instrument, or (C) any order, judgment, decree, statute,
regulation or any other restriction of any kind or character to which the
Company is a party or by which any of the assets of the Company may be bound.
(k) The Company has no material indebtedness to any officer,
director, 5% stockholder or other Affiliate (as defined in the Rules and
Regulations of the SEC under the 1933 Act) of the Company.
(l) The Company is in compliance in all material respect with all
laws, rules and regulations of all Federal, state and local government agencies
having jurisdiction over it or affecting its business, assets or properties, and
the Corporation possesses all licenses, permits, consents, approvals and
agreements which are required to be issued by any and all applicable Federal,
state or local authorities necessary for the operation of its business and/or in
connection with its assets or properties.
(m) The Company is not in default in any material respects under any
note, loan agreement, security agreement, mortgage, contract, lease, alliance
agreement, joint venture agreement, agreement, license, permit, consent,
approval or instrument to which it is a party, and no event has occurred which,
with or without the lapse of time or giving of notice, or both, would constitute
such default thereof by the Company or would cause acceleration of any
obligation of the Company or would adversely affect the business, operations,
financial condition or prospects of the Company.
(n) Except as set forth in the Memorandum, to the best of the
Company's knowledge, no officer, director or 5% stockholder of the Company and
no Affiliate of any such person either (i) holds any interest in any
corporation, partnership, business, trust, sole proprietorship or any other
entity which is engaged in a business similar to that conducted by the Company
(other than a five (5%) percent or less interest in a public company engaged in
any such business) or (ii) engages in any material related-party transaction
with the Company .
(o) There are no material (i.e., involving an asserted liability in
excess of ten thousand dollars ($10,000)) claims, actions, suits, proceedings or
labor disputes, inquiries or investigations (whether or not purportedly on
behalf of the Company), pending or, to the best of the Company's knowledge,
threatened, against the Company, at law or in equity or by or before any
Federal, state, county, municipal or other governmental department, SEC, NASDAQ,
board, bureau, agency or instrumentality,
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domestic or foreign, whether legal or administrative or in arbitration or
mediation, nor, to the Company's knowledge, is there any basis for any such
action or proceeding. Neither the Company nor any of its assets are subject to,
nor is the Company in default with respect to, any order, writ, injunction,
judgment or decree that could materially adversely affect the financial
condition, business, assets or prospects of the Company.
(p) The accounts receivable of the Company represent receivables
generated from the sale of goods and services in the ordinary course of
business. The Company knows of no material disputes concerning accounts
receivable not disclosed in the Memorandum, and the accounts receivable are
collectible in the ordinary course of business, subject to reserves reflected on
the Financial Statements.
(q) Except as set forth in the Memorandum, the Company has (i) no
written employment contracts and no oral employment contracts not terminable at
will by the Company, with any officer, director or other employee of the Company
or any five (5%) percent shareholder of the Company, (ii) no consulting
agreement or other compensation agreement with any officer, director or other
employee of the Company or any five (5%) percent shareholder of the Company, and
(iii) no agreement or contract with any party that will result in the payment by
the Company, or the creation of any commitment or obligation (absolute or
contingent), of the Company to pay any severance, termination, "golden
parachute", or similar payment to any present or former personnel of the Company
following termination of employment. To the Company's knowledge, no director,
executive officer or other key employee of the Company has indicated that he or
she intends to resign as director and/or executive officer of the Company or to
terminate his or her employment with the Company.
(r) The accounts payable of the Company represent bona fide payables
to third parties incurred in the ordinary course of business and represent bona
fide debts for services and/or goods provided to the Company.
(s) The Company is not a party to a labor agreement with respect to
its employees with any labor organization, union, group or association and there
are no employee unions (nor any similar labor or employee organizations). In
the last five (5) years, the Company has not experienced any attempt by
organized labor or its representatives to make the Company conform to demands of
organized labor relating to its employees or to enter into a binding agreement
with organization labor that would cover any of the Company's employees. There
is no labor strike or labor stoppage or
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slowdown pending, or, to the knowledge of the Company, threatened against the
Company nor has the Company experienced in the last five (5) years any work
stoppage or other material labor difficulty. The Company is in compliance in
all material respects with all applicable laws, rules and regulations regarding
employment practices, employee documentation, terms or conditions of employment
and wage and hours and the Company is not engaged in any unfair labor practices.
There are no unfair labor practices, charges or complaints against the Company
pending before the National Labor Relations Board or any other governmental
agency.
(t) Except as set forth in the Memorandum, there are no employee
pension, retirement or other benefit plans, maintained, contributed to or
required to be contributed to by the Company covering any employee or former
employee of the Company. The Company has no material liability or obligation of
any kind or nature, whether accrued or contingent, matured or unmatured, known
or unknown, under any provision of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") or any provision of the Internal Revenue Code of
1986, as amended, specifically relating to persons subject to ERISA.
(u) The Company has timely filed with the appropriate taxing
authorities all returns in respect of taxes required to be filed through the
date hereof and has timely paid all taxes it is required to pay or has
established an adequate reserve therefor, except where the Company has timely
filed for extensions. There are no pending or, to the knowledge of the Company,
threatened audits, investigations or claims for or relating to any liability of
the Company in respect of taxes.
(v) The Company has no liabilities of any kind or nature whether
accrued or contingent, matured or unmatured, known or unknown, except (i) as
set forth in the Financial Statements, (ii) as set forth in the Memorandum and
(iii) those liabilities incurred by the Company in the ordinary course of
business since March 31, 1996.
(w) Except as set forth in the Memorandum, no customer of the Company
during fiscal year 1996 accounted for more than five (5%) percent of the
revenues of the Company, except for one customer which accounted for 7% and to
the best of the Company's knowledge, no customer will account for more than five
(5%) percent of the Company's revenues during fiscal year 1997.
(x) There are no finder's fees or brokerage commissions payable with
respect to the transactions contemplated by this Agreement, except as provided
in Paragraph 10 of this Agreement,
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and the Company agrees to indemnify and hold harmless each of the Investors from
and against any and all cost, damage, liability, judgment and expense (including
reasonable fees and expenses of counsel) arising out of or relating to claims
for such fees or commissions (and to pay Placement Agent pursuant to a separate
agreement between the Company and Placement Agent), except to the extent that
any such fees or commissions have been incurred by an Investor as a result of
the actions of that Investor.
(y) The Company is not currently and has not during the past six (6)
months been engaged in negotiations with respect to any merger, consolidation,
acquisition, disposition or other material business transaction.
(z) The Company has the right to conduct its business in the manner
in which its business has been heretofore conducted. The conduct of such
business by the Company does not violate or infringe upon the patent, copyright,
trade secret or other proprietary rights of any third party, and the Company has
received no notice of any claim of any such violation or infringement.
(aa) The Company has delivered to each Investor a copy of the
Memorandum. The information contained in the Financial Statements and the
Memorandum, taken together, describe in all material respects the business and
financial condition of the Company, and such material, taken together, does not
contain any misstatement of a material fact or omit to state a material fact
necessary to make the information not misleading. The Investors shall be
entitled to rely on such material notwithstanding any investigation they or any
of them may have made, provided that the Investor does not have knowledge of a
misrepresentation or omission as a result of such investigation .
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor hereby
represents and warrants to and covenants and agrees with the Company and
Placement Agent, as of the date hereof and as of the Closing Date, as follows:
(a) Investor has the full right, power and authority to enter into
this Agreement and to carry out and consummate the transactions contemplated
herein. The execution, delivery and performance of this Agreement and the
transaction contemplated hereby have been authorized by all necessary action of
the Investor. This Agreement constitutes the legal, valid and binding
obligation of the Investor.
(b) Investor acknowledges that Investor has received and reviewed the
Financial Statements and the Memorandum and has had an
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opportunity to meet with and ask questions of the management of the Company. In
evaluating the suitability of making this investment, the Investor has not
relied upon any representations or warranties made by the Company or its agents
or any of the other Investors except as set forth in this Agreement, and each
Investor acknowledges that no such other representations or warranties have been
made to it, or to its advisors (if applicable), by the Company or its agents or
by any of the other Investors and it has relied only on its review of this
Agreement and its own advisors in deciding to make this investment.
(c) Investor is an Accredited Investor (as defined in Rule 501
promulgated by SEC under the 1933 Act), has the financial ability to bear the
economic risk of the Investor's investment, can afford to sustain a complete
loss of such investment and has adequate means of providing for the Investor's
current needs and personal contingencies, and has no need for liquidity in the
Investor's investment in the Company; and the amount invested in the Company by
the Investor does not constitute a substantial portion of the Investor's net
worth. The Investor has delivered to the Company and Placement Agent a
confidential investor questionnaire, and all of the information set forth in the
confidential investor questionnaire is true and correct in all material
respects.
(d) Investor is acquiring the Shares being purchased for investment
and not with a view to the sale or distribution thereof, for such Investor's own
account and without any present intention of selling and not on behalf of
others and the Investor has not granted any other person any right or option or
any participation or beneficial interest in any of the Shares, except that
Placement Agent may acquire Shares (but Placement Agent has no obligation to
acquire Shares) and thereafter transfer such Shares to persons who qualify as
Investors pursuant to this Agreement and execute this Agreement as an Investor,
provided that Placement Agent shall have delivered the Shares being transferred
to the Company or its transfer agent prior to the effective date of the
registration statement to be filed by the Company pursuant to Paragraph 7(a) of
this Agreement. Investor acknowledges that the Common Stock comprising the
Shares constitute restricted securities within the meaning of Rule 144 of the
SEC under the 1933 Act, and that such securities may not be sold except pursuant
to an effective registration statement under the 1933 Act or in a transaction
exempt from registration under the 1933 Act, and the Investor acknowledges that
the Investor understands the meaning and effect of such restriction. The
Investor will only transfer Shares or shares issued upon exercise of the
Placement Agent Warrant in accordance with the provisions of applicable federal
and state
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securities laws. The Investor has sufficient knowledge and experience in
financial and business matters so that the Investor is capable of evaluating the
risks and merits of the purchase of the Shares. The Investor is aware that no
Federal or state regulatory agency or authority has passed upon the sale of the
Shares or the terms of the sale or the accuracy or adequacy of any material
being provided to the Investor and that the price of the Shares was negotiated
between the Company and Placement Agent and does not necessarily bear any
relationship to the underlying assets or value of the Company. INVESTOR
UNDERSTANDS THAT AN INVESTMENT IN THE SHARES BEING PURCHASED INVOLVES A HIGH
DEGREE OF RISK.
(e) INVESTOR UNDERSTANDS THAT, IN CONNECTION WITH INVESTOR'S
EVALUATION OF THE COMPANY, INVESTOR HAS BEEN OR MAY HAVE BEEN PROVIDED WITH
ACCESS TO CERTAIN INFORMATION CONCERNING THE COMPANY WHICH HAS NOT BEEN PUBLICLY
DISCLOSED. INVESTOR FURTHER UNDERSTANDS THAT ANY TRADING BY THE INVESTOR IN
SECURITIES OF THE COMPANY USING NON-PUBLIC INFORMATION COULD CONSTITUTE A
VIOLATION OF FEDERAL AND STATE SECURITIES LAWS AND OTHER LAWS AND MAY SUBJECT
THE INVESTOR TO CRIMINAL AND/OR CIVIL PENALTIES AND/OR LIABILITY. In view of
the foregoing, Investor agrees not to (i) purchase or sell, including a short
sale, any of the Company's securities or rights to purchase or sell such
securities as long as the Investor is in possession of material non-public
information or (ii) disclose any non-public information to any other person.
(f) There are no finder's fees or brokerage commissions payable with
respect to the purchase by the Investor of the Shares, except as provided in
Paragraph 10 of this Agreement.
(g) For purposes hereof, Placement Agent is only included in the term
"Investor" in its capacity as acquiror of the Placement Agent Warrant.
5. USE OF PROCEEDS. The net proceeds from the sale of the Shares will be
used by the Company to prepay at a discount certain indebtedness of the Company,
for expenses related to the transactions contemplated hereby and other general
corporate purposes, as disclosed in the Memorandum.
6. UNREGISTERED SECURITIES. The Shares have not been registered under
the 1933 Act, in reliance upon the applicability of Section 3(b), 4(2), 4(6)
and/or Regulation D of the 1933 Act to the transactions contemplated hereby.
The Investor acknowledges that the Company is relying in part on such Investor's
representations in Paragraph 4 of this Agreement and in the confidential
investor questionnaire to establish such exemption. In furtherance of such
reliance, the certificates representing the
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Shares will bear an investment legend prominently stamped or printed thereon,
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") OR UNDER ANY STATE SECURITIES LAW AND MAY NOT
BE SOLD, TRANSFERRED, OR ASSIGNED EXCEPT: (i) PURSUANT TO AN
EFFECTIVE REGISTRATION THEREOF UNDER THE ACT OR (ii) IF IN THE OPINION
OF COUNSEL FOR THE REGISTERED OWNER HEREOF, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE COMPANY, THE PROPOSED SALE, TRANSFER OR
ASSIGNMENT MAY BE EFFECTED WITHOUT SUCH REGISTRATION AND WILL NOT BE
IN VIOLATION OF APPLICABLE STATE SECURITIES LAWS.
7. REGISTRATION RIGHTS AND "PIGGY-BACK" REGISTRATION RIGHTS.
(a) As soon as possible after the closing hereunder, the Company
shall at its sole cost and expense file a registration statement on the
appropriate form with the SEC covering all of the Shares and all of the shares
of Common Stock issuable upon the exercise of the Placement Agent Warrants
(collectively, the "Registrable Securities"), time being of the essence. The
Company will use its best efforts to have such registration statement declared
effective as soon as possible thereafter, and shall keep such registration
statement current and effective for at least three (3) years from the effective
date thereof or until such earlier date as all of the Registrable Securities
registered pursuant to such registration statement shall have been sold or
otherwise transferred. Notwithstanding anything to the contrary contained
herein, if such registration statement shall not be declared effective within
nine (9) months after the Closing hereunder, then (i) the Company shall issue to
each Investor, additional Shares of Common Stock equal to the lesser of (x) the
product of (1) four (4%) percent of the number of Shares then owned by the
Investor (and transferences authorized under applicable securities laws) and
purchased hereunder, and (2) the number of months, or any part thereof, beyond
said nine (9) month period until the initial registration statement described
herein covering the Registrable Securities is declared effective or (y) thirty-
five (35%) percent of the number of Shares being purchased by each Investor
hereunder and (ii) the number of shares issuable under Placement Agent Warrants
will be increased by the lesser of (1) four (4%) percent multiplied by the
number of months, or any part thereof, beyond said nine (9) month period until
the initial registration statement described herein covering the Registrable
Securities is declared effective or (2) thirty-five (35%) percent
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of the number of shares issuable under the Placement Agent Warrants issued to
Placement Agent at Closing.
(b) In the event the Company effects any registration under the 1933
Act of any Registrable Securities pursuant to Paragraphs 7(a) above or 7(g)
below, the Company shall indemnify and hold harmless, to the extent permitted by
law, any registered holder whose Registrable Securities are included in such
registration statement (each, a "Seller"), any underwriter, any officer,
director, employee or agent of any Seller or underwriter, and each other person,
if any, who controls any Seller or underwriter within the meaning of Section 15
of the 1933 Act, against any losses, claims, damages or liabilities, judgment,
fines, penalties, costs and expenses, joint or several, or actions in respect
thereof (collectively, the "Claims"), to which each such indemnified party
becomes subject, under the 1933 Act or otherwise, insofar as such Claims arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or prospectus or any
amendment or supplement thereto or any document filed under a state securities
or blue sky law (collectively, the "Registration Documents") or insofar as such
Claims arise out of or are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such Claim; provided
that the Company shall not be liable in any such case to the extent such Claim
is based upon an untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact made in any Registration
Document in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any indemnified party specifically for use in
the preparation of such Registration Document.
(c) In connection with any registration statement in which any Seller
is participating, each Seller, severally and not jointly, shall indemnify, and
hold harmless, to the extent permitted by law, the Company, each of its
directors, each of its officers who have signed the registration statement, each
other person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act, each other Seller and each underwriter, any officer, director,
employee or agent of any such other Seller or underwriter and each other person,
if any, who controls such other Seller or underwriter within the meaning of
Section 15 of the 1933 Act against any Claims to which each such indemnified
party may become subject under the 1933 Act or otherwise, insofar as such
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Claims (or actions in respect thereof) are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Document, or insofar as any Claims are based upon the omission or alleged
omission to state in any Registration Document a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
and will reimburse any such indemnified party for any legal or other expenses
reasonably incurred by such indemnified party in investigating or defending any
such claim; provided, however, that such indemnification or reimbursement shall
be payable only if, and to the extent that, any such Claim arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Registration Document in reliance upon and in
conformity with written information furnished to the Company by the Seller
specifically for use in the preparation thereof.
(d) Any person entitled to indemnification under Paragraphs 7(b) or
7(c) above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Paragraph 7(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Paragraph 7(b) or 7(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified
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parties in each jurisdiction, except to the extent any indemnified party or
parties reasonably shall have concluded that there are legal defenses available
to such party or parties which are not available to the other indemnified
parties or to the extent representation of all indemnified parties by the same
counsel is otherwise inappropriate under applicable standards of professional
conduct) and the indemnifying party shall be liable for any reasonable expenses
therefor; provided, that no indemnifying party shall be subject to any liability
for any settlement of a Claim made without its consent (which may not be
unreasonably withheld, delayed or conditioned). If the indemnifying party
assumes the defense of any Claim hereunder, such indemnifying party shall not
enter into any settlement without the consent of the indemnified party if such
settlement attributes liability to the indemnified party (which consent may not
be unreasonably withheld, delayed or conditioned).
(e) If for any reason the indemnity provided in Paragraphs 7(b) or
7(c) above is unavailable, or is insufficient to hold harmless, an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the
transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, or if the indemnified party failed to give the notice required by Paragraph
7(d) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid
or payable in respect of any Claim shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
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(f) The provisions of Paragraphs 7(b) through 7(e) of this Agreement
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party and shall survive the
transfer of the Registrable Securities by any such party.
(g) Investor shall have certain "piggy-back" registration rights with
respect to the Registrable Securities as hereinafter provided:
A. If at any time after the Closing, the Company shall file
with the SEC a registration statement under the 1933 Act registering any shares
of Common Stock owned by any person or entity, the Company shall give written
notice to Investor thereof prior to such filing.
B. Within twenty (20) days after such notice from the Company,
Investor shall give written notice to the Company whether or not the Investor
desires to have all of the Investor's Registrable Securities included in the
registration statement. If Investor fails to give such notice within such
period, Investor shall not have the right to have Investor's Registrable
Securities registered pursuant to such registration statement. If Investor
gives such notice, then the Company shall use its best efforts to include the
Registrable Securities in the registration statement, at the Company's sole cost
and expense, subject to the remaining terms of this Paragraph 7(g).
C. If the registration statement relates to an underwritten
offering, and the underwriter shall determine in writing that the total number
of shares of Common Stock to be included in the offering, including the
Registrable Securities, shall exceed the amount which the underwriter deems to
be appropriate for the offering, the number of shares of the Registrable
Securities shall be reduced in the same proportion as the remainder of the
shares in the offering and each Investor's Registrable Securities included in
such registration statement will be reduced proportionately. For this purpose,
if other securities in the registration statement are derivative securities,
their underlying shares shall be included in the computation.
D. Investor shall have two (2) opportunities to have the
Registrable Securities registered under this Paragraph 7(g).
-15-
<PAGE>
E. Investor shall furnish in writing to the Company such
information as the Company shall reasonably require in connection with a
registration statement.
F. In connection with any offering involving an underwriting of
Common Stock to be issued by the Company, the Company shall not be required to
include a Selling Shareholder's Registrable Shares in such underwriting unless
such Selling Shareholder accepts the terms of the underwriting as agreed upon by
the Company and the underwriters selected by the Company.
(h) If and whenever the Company is required by the provisions of this
Paragraph 7 to use its best efforts to register any Registrable Securities under
the 1933 Act, the Company shall, as expeditiously as possible under the
circumstances:
A. Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective as soon as possible and remain
effective.
B. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement current and to
comply with the provisions of the 1933 Act, and any regulations promulgated
thereunder, with respect to the sale or disposition of all Registrable
Securities covered by the registration statement required to effect the
distribution of the securities, but in no event shall the Company be required to
do so for a period of more than three (3) years following the effective date of
the registration statement.
C. Furnish to the Sellers participating in the offering, copies
(in reasonable quantities) of summary, preliminary, final, amended or
supplemented prospectuses, in conformity with the requirements of the 1933 Act
and any regulations promulgated thereunder, and other documents as reasonably
may be required in order to facilitate the disposition of the securities, but
only while the Company is required under the provisions hereof to keep the
registration statement current.
D. Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions of the United States as the Sellers
participating in the offering shall reasonably request, and do any and all other
acts and things which may be reasonably necessary to enable each participating
Seller to
-16-
<PAGE>
consummate the disposition of the Registrable Securities in such jurisdictions.
E. Notify each Seller selling Registrable Securities, at any
time when a prospectus relating to any such Registrable Securities covered by
such registration statement is required to be delivered under the 1933 Act, of
the Company's becoming aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and promptly prepare and furnish to each such Seller selling
Registrable Securities a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
F. As soon as practicable after the effective date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally available to Sellers participating in the offering an earnings
statement (which need not be audited) covering a period of at least twelve (12)
consecutive months beginning after the effective date of the registration
statement which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act, including, at the Company's option, Rule 158 thereunder. To
the extent that the Company files such information with the SEC in satisfaction
of the foregoing, the Company need not deliver the above referenced earnings
statement to Seller.
G. Upon request, deliver promptly to counsel of each Seller
participating in the offering copies of all correspondence between the SEC and
the Company, its counsel or auditors and all memoranda relating to discussions
with the SEC or its staff with respect to the registration statement and permit
each such Seller to do such investigation at such Seller's sole cost and
expense, upon reasonable advance notice, with respect to information contained
in or omitted from the registration statement as it deems reasonably necessary.
Each Seller agrees that it will use its best efforts not to interfere
unreasonably with the Company's business when conducting any such investigation.
H. Provide a transfer agent and registrar located in the United
States for all such Registrable Securities covered by
-17-
<PAGE>
such registration statement not later than the effective date of such
registration statement.
I. List the Registrable Securities covered by such registration
statement on such exchanges and/or on the NASDAQ as the Common Stock is then
currently listed upon.
J. Pay all Registration Expenses incurred in connection with a
registration of Registrable Securities, whether or not such registration
statement shall become effective; provided that each Seller shall pay all
underwriting discounts, commissions and transfer taxes, if any, relating to the
sale or disposition of such Seller's Registrable Securities pursuant to a
registration statement. As used herein, "Registration Expenses" means any and
all reasonable and customary expenses incident to performance of or compliance
with the registration rights set forth herein, including, without limitation,
(i) all SEC and stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (ii) all fees and expenses of complying with
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for the underwriters in connection with blue sky qualifications of
the Registrable Securities but no other expenses of the underwriters or their
counsel), (iii) all printing, messenger and delivery expenses, and (iv) the
reasonable fees and disbursements of counsel for the Company and the Company's
independent public accountants.
(i) The Company acknowledges that there is no adequate remedy at law
for failure by it to comply with the provisions of this Paragraph 7 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Paragraph 7 may be specifically
enforced. In the event that the Company shall fail to file such registration
statement when required pursuant to Paragraph 7(a) above or to keep any
registration statement effective as provided in this Paragraph or otherwise
fails to comply with its obligations and agreements in this Paragraph 7, then,
in addition to any other rights or remedies Investors may have at law or in
equity, including without limitation, the right of rescission, the Company shall
indemnify and hold harmless the Investors from and against any and all manner or
loss which they may incur as a result of such failure. In addition, the Company
shall also reimburse the Investors for any and all reasonable legal fees and
expenses incurred by them in enforcing their rights pursuant to this Paragraph
7, regardless of whether any litigation was commenced; provided, however, that
the Company shall not be liable for the fees and expenses of more than one law
firm, which firm shall be designated by Placement Agent.
-18-
<PAGE>
(j) The word Investor as used in this Paragraph 7 includes all
transferees of Registrable Securities authorized under applicable securities
laws.
8. CONDITIONS. The obligations of the Investors to purchase the Shares
are subject to the satisfaction or fulfillment, as of the date of Closing, of
each of the following conditions:
(a) The Company shall have delivered to Placement Agent, on behalf of
the Investors, (i) a currently-dated long-form good standing certificate or
telegram from the Secretary of State of Delaware and each other jurisdiction in
which the Company is incorporated or qualified to do business as a foreign
corporation; (ii) the certificate of incorporation of the Company, as currently
in effect, certified by the Secretary of State of the State of Delaware (iii)
by-laws of the Company certified by the secretary of the Company; and (iv)
certified resolutions of the Company's Board of Directors approving this
Agreement, the issuance of the Shares and Placement Agent Warrants, the
registration of the Common Stock and the other transactions contemplated by this
Agreement.
(b) There shall have occurred no material adverse event affecting the
Company its business, assets, prospects or the Company's securities since the
date of this Agreement.
(c) No litigation or administrative proceeding shall have been
threatened or commenced against the Company which (i) seeks to enjoin or
otherwise prohibit or restrict the consummation of the transactions contemplated
by this Agreement or (ii) if adversely determined, would have an adverse effect
upon the Company's business, assets or prospects or the Company's securities.
(d) The Company shall have delivered to Placement Agent, on behalf of
the Investors, a certificate of its principal executive and financial officers
as to the matters set forth in Paragraphs 8(a), (b) and (c) of this Agreement
and to the further effect that (i) the Company is not in default, in any
respect, under any note, loan agreement, security agreement, mortgage, deed of
trust, indenture, contract, alliance agreement, lease, license, joint venture
agreement, agreement or other instrument to which it is a party, except as
disclosed in the Financial Statements or the Memorandum; (ii) the Company's
representations and warranties contained in this Agreement are true and correct
in all respects on such date with the same force and effect as if made on such
date; (iii) there has been no amendment or changes to the Company's certificate
of incorporation or by-laws or authorizing resolutions from those delivered
pursuant to Paragraph 8(a) of this Agreement;
-19-
<PAGE>
and (iv) no event has occurred which, with or without the lapse of time or
giving of notice, or both, would constitute a material breach or default thereof
by the Company or would cause acceleration of any obligation of the Company, or
could materially adversely affect the business, operations, financial condition
or prospects of the Company.
(e) Placement Agent, on behalf of the Investors, shall have received
the opinion of Warner & Stackpole LLP, counsel for the Company, dated as of the
closing date in form and substance satisfactory to counsel to Placement Agent.
(f) The Company shall have prepared and filed or delivered to counsel
for filing with the SEC and any states in which such filing is required, a Form
D relating to the sale of the Shares and such other documents and certificates
as are required.
(g) In addition to the right of Placement Agent to terminate this
Agreement and not consummate the transaction contemplated by this Agreement as a
result of the failure of the Company to comply with any of its obligations set
forth in this Agreement, this Agreement may be terminated by Placement Agent by
written notice to the Company at any time prior to the Closing if, in Placement
Agent' sole judgment, (i) the Company shall have sustained a loss that is
material to the Company, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or court or
government action, order or decree; (ii) trading in securities on any exchange
or system shall have been suspended or limited either generally or specifically
with respect to the Company's Common Stock; (iii) material governmental
restrictions have been imposed on trading in securities generally or
specifically with respect to the Company's Common Stock (not in force and effect
on the date of this Agreement); (iv) a banking moratorium shall have been
declared by Federal or New York State authorities; (v) an outbreak of major
international hostilities or other national or international calamity shall have
occurred; (vi) the Congress of the United States or any state legislative body
shall have passed or taken any action or measure, or such bodies or any
governmental body or any authoritative accounting institute, or board, or any
governmental executive shall have adopted any orders, rules or regulations,
which Placement Agent believes is likely to have an adverse effect on the
business, financial condition or financial statements of the Company or the
market for the Shares; (vii) the Common Stock shall have been delisted from
NASDAQ or the Company shall have received notice from NASDAQ advising the
Company of its intention to have the Common Stock delisted from NASDAQ, whether
conditional or otherwise, or the Company shall fail to meet the requirements for
-20-
<PAGE>
continued listing on NASDAQ; unless in any such case, receipt of the aggregate
purchase price for Shares under this Agreement and other Agreements closing
contemporaneously herewith satisfies the condition to continuing the Company's
listing therewith, (viii) there shall have been, in Placement Agent's judgment,
a material decline in the Dow Jones Industrial Index or the market price of the
Common Stock at any time subsequent to the date of this Agreement.
9. COVENANTS OF THE COMPANY. The Company agrees at all times as long as
the securities comprising the Placement Agent Warrants may be exercised, to keep
reserved from the authorized and unissued Common Stock, such number of shares of
Common Stock as may be, from time to time, issuable upon the exercise of the
Placement Agent Warrants.
10. FEES.
(a) Upon the receipt by the Company of the payments from the
Investors provided for in Paragraph l of this Agreement, the Company shall pay
to Placement Agent a fee equal to Twenty-Five Thousand ($25,000) Dollars plus
seven (7.0%) percent of the gross proceeds paid to the Company for all Shares
sold pursuant to this Agreement, a portion of which may be paid by Placement
Agent to other registered broker-dealers. Such amount may be deducted by
Placement Agent from the payment being made to the Company pursuant to Paragraph
2 of this Agreement. In addition, the Company shall issue to the Placement
Agent at the Closing, five (5) year warrants ("Placement Agent Warrants") to
purchase 156,000 shares of Common Stock at an exercise price of Two Dollars
($2.00) per share. The Company shall reimburse Placement Agent for up to
Fifteen Thousand Dollars ($15,000) of expenses, including legal fees of counsel
to Placement Agent .
.
(b) The Company shall pay any fees required in connection with the
qualification of the sale of the Shares under the state securities or blue sky
laws of any state which Placement Agent reasonably deems necessary.
11. NOTICES. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight courier or messenger against receipt thereof or sent by registered
or certified mail (air mail if overseas), return receipt requested, or by
facsimile transmission, if confirmed by mail as provided in this Paragraph 11.
Notices shall be deemed to have been received on the date of personal delivery
or facsimile or, if sent by certified or registered mail, return receipt
requested, shall be deemed to be
-21-
<PAGE>
delivered on the third business day after the date of mailing. Notices shall be
sent to the following addresses:
TO THE COMPANY:
ECOSCIENCE CORPORATION
10 Alvin Court
East Brunswick, New Jersey 08816
TELECOPIER: (908) 257-9770
Attention: Michael DeGiglio
President and Chief Executive Officer
WITH A COPY TO:
WARNER & STACKPOLE LLP
75 State Street
Boston, Massachusetts 02109
TELECOPIER: (617) 951-9151
Attention: Kenneth S. Boger, Esq.
TO THE INVESTORS:
at the addresses set forth in Exhibit A to this Agreement
WITH COPIES TO:
TAGLICH BROTHERS, D'AMADEO, WAGNER
& COMPANY, INCORPORATED
100 Wall Street, 10th Floor
New York, New York 10005
TELECOPIER: (212) 509-6587
Attention: Mr. Michael N. Taglich, President
and
SPITZER & FELDMAN P.C.
405 Park Avenue
New York, New York 10022-4405
TELECOPIER: (212) 838-7472
Attention: Robert G. Leonard, Esq.
or to such other address as any party shall designate in the manner provided in
this Paragraph 11.
-22-
<PAGE>
12. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof, superceding any and all prior or
contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State. Each party hereby consents to the
exclusive jurisdiction of the Federal and state courts situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transactions contemplated by this Agreement.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective personal representatives, successors
and permitted assigns.
(d) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional consideration
by any other party, at any time on or after the date of any Closing take such
further action and execute such other and further documents and instruments as
the other party may request in order to provide the other party with the
benefits of this Agreement.
(f) The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural and
the plural shall include the singular.
-23-
<PAGE>
(h) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same document.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first aforesaid.
ECOSCIENCE CORPORATION TAGLICH BROTHERS, D'AMADEO,
WAGNER & COMPANY,
INCORPORATED
By:
-----------------------------------------
By:
---------------------------
Michael DeGiglio, President and Michael N.Taglich,President
Chief Executive Officer
TO BE COMPLETED BY INVESTOR
----------------------------------------
Print Name
Signature for Individual Investor Signature of Investor
Other than Individual
- ------------------------------ By:
Signature ------------------------------------
Name:
Title:
----------------------------------------
Address
----------------------------------------
City State Zip Code
----------------------------------------
Number of Shares
----------------------------------------
Social Security or Employer Identification
Number
-25-
<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
JUNE 30, 1996
Legal Name of Subsidiary State/Providence of Incorporation
---------------------------- ---------------------------------
Agro Dynamics, Inc. Delaware
Agro Dynamics Canada Inc. Ontario
EcoScience Produce Systems Corp. Delaware
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE INCORPORATION OF OUR
REPORT DATED SEPTEMBER 6, 1996 (EXCEPT WITH RESPECT TO THE MATTER DISCUSSED IN
NOTES 4 AND 11 AS TO WHICH THE DATE IS OCTOBER 5, 1996), INCLUDED IN THIS FORM
10-K INTO ECOSCIENCE CORPORATION'S PREVIOUSLY FILED REGISTRATION STATEMENTS FILE
NOS. 33-55206, 33-83184 AND 33-31144.
ARTHUR ANDERSEN LLP
ROSELAND, NEW JERSEY
OCTOBER 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of June 30, 1996 and Consolidated Statement of
Operations for the Year Ended June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> $1,939
<SECURITIES> 700
<RECEIVABLES> 1,584
<ALLOWANCES> 118
<INVENTORY> 2,001
<CURRENT-ASSETS> 7,019
<PP&E> 3,179
<DEPRECIATION> 2,181
<TOTAL-ASSETS> 10,111
<CURRENT-LIABILITIES> 7,327
<BONDS> 11
0
0
<COMMON> 93
<OTHER-SE> 2,380
<TOTAL-LIABILITY-AND-EQUITY> 10,111
<SALES> 14,151
<TOTAL-REVENUES> 14,358
<CGS> 10,394
<TOTAL-COSTS> 10,394
<OTHER-EXPENSES> (1,550)
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 514
<INCOME-PRETAX> (828)
<INCOME-TAX> 0
<INCOME-CONTINUING> (828)
<DISCONTINUED> 0
<EXTRAORDINARY> 241
<CHANGES> 0
<NET-INCOME> ($587)
<EPS-PRIMARY> ($0.06)
<EPS-DILUTED> ($0.06)
</TABLE>
