SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |X|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 204.14a-12
ECOSCIENCE CORPORATION
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01, of the Registrant
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2) Aggregate number of securities to which transaction applies:
47,602,436 shares of Common Stock (prior to giving effect to the proposed
1-for-5 reverse stock split)
---------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
$1.546875 per share (average of high and low prices reported for May 7,
1998)
---------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$73,635,018.19
---------------------------------------------------------------------------
5) Total fee paid:
$14,727.00
---------------------------------------------------------------------------
|X| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
ECOSCIENCE CORPORATION
10 Alvin Court
East Brunswick, NJ 08816
732-432-8200
__________, 1998
Dear Stockholders:
A Special Meeting of Stockholders in lieu of the 1997 Annual Meeting of
EcoScience Corporation ("ECOSCIENCE") will be held at [_____________________] on
[__________], 1998 at [________], Eastern Daylight Time.
At the Special Meeting, you will be asked to consider and vote upon the
approval of the issuance of an aggregate of 9,520,487 shares (after giving
effect to the proposed reverse stock split described below) of ECOSCIENCE's
Common Stock to the holders of the Class A Common Stock, par value $1.00 per
share, of Agro Power Development, Inc., a New York corporation ("APD"), pursuant
to an Agreement and Plan of Merger (the "Merger Agreement") which provides for
the merger (the "Merger") of APD with and into Agro Acquisition Corp., a
Delaware corporation ("Agro Acquisition") and a newly formed, wholly owned
subsidiary of ECOSCIENCE. Subsequent to the issuance of these shares, and after
giving effect to the proposed one for five reverse stock split as described
below, there will be 11,619,278 shares of EcoScience Common Stock issued and
outstanding. After careful consideration, the Board of Directors of ECOSCIENCE
has approved the issuance of ECOSCIENCE Common Stock to the APD stockholders
pursuant to the Merger Agreement and recommends that you vote FOR the proposal
relating thereto.
As required by the Merger Agreement you will also be asked at the Special
Meeting to consider and vote upon each of the following proposals: (i) an
amendment to ECOSCIENCE's Certificate of Incorporation to effect a one for five
reverse stock split of ECOSCIENCE's Common Stock and (ii) an amendment to
ECOSCIENCE's Certificate of Incorporation to increase the number of authorized
shares of ECOSCIENCE Common Stock from 25,000,000 shares to 100,000,000 shares
and to increase the number of authorized shares of ECOSCIENCE Preferred Stock
from 1,000,000 shares to 10,000,000 shares. The approval of each of these
amendments to ECOSCIENCE's Certificate of Incorporation is a condition precedent
to the Merger. After careful consideration, the Board of Directors of ECOSCIENCE
has approved and recommends that you vote in favor of each of these proposals.
Please note, however, that if the proposal to issue shares of Common Stock
pursuant to the Merger Agreement is not approved by stockholders, the proposed
amendments to the Certificate of Incorporation will not be made, even if
approved by stockholders.
At the Special Meeting you will further be asked to consider and vote to:
(i) elect two nominees to the Board of Directors, (ii) amend ECOSCIENCE's 1991
Stock Option Plan and (iii) ratify the selection of Arthur Andersen, LLP as the
independent public accountants of ECOSCIENCE for the current fiscal year. After
careful consideration, the Board of Directors of
<PAGE>
ECOSCIENCE recommends votes in favor of the election of the two nominees named
in the Proxy Statement for the election of Directors, in favor of the amendment
to ECOSCIENCE's 1991 Stock Option Plan and in favor of ratifying the selection
of Arthur Andersen, LLP as independent public accountants.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Proxy Statement relating to the actions to be taken
by ECOSCIENCE stockholders at the Special Meeting and a proxy card. The Proxy
Statement more fully describes the proposed matters discussed herein and other
matters to be considered at the Special Meeting and includes certain information
concerning ECOSCIENCE and APD.
In considering the recommendation of the ECOSCIENCE Board of Directors with
respect to the Merger, stockholders should be aware that as a stockholder,
director and Chief Executive Officer of APD, I have certain interests in the
merger that are in addition to the interests of stockholders of ECOSCIENCE
generally. As a result, I abstained from voting on the proposed issuance of
Common Stock in my capacity as a director of ECOSCIENCE.
All stockholders are cordially invited to attend the Special Meeting in
person. However, to assure your representation at the Special Meeting, you are
urged to vote, sign and return the enclosed proxy card, as promptly as possible,
in the postage prepaid envelope enclosed for that purpose. Any stockholder
attending the Special Meeting may revoke his or her proxy and vote in person,
even if he or she has returned a proxy card. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
MICHAEL A. DEGIGLIO
President and Chief Executive Officer
East Brunswick, New Jersey
______________, 1998
2
<PAGE>
ECOSCIENCE CORPORATION
10 Alvin Court
East Brunswick, NJ 08816
732-432-8200
-------------
NOTICE OF SPECIAL MEETING IN LIEU OF
THE 1997 ANNUAL MEETING OF STOCKHOLDERS
________________, 1998
--------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of EcoScience
Corporation, a Delaware corporation (herein called "ECOSCIENCE"), will be held
at [____________] on [_________], 1998, at [_______], Eastern Daylight Time, to
consider and act upon the following matters:
1. Approval of the issuance of an aggregate of nine million five hundred
twenty thousand four hundred eighty seven (9,520,487) shares (after giving
effect to the proposed Reverse Split, as defined below) of ECOSCIENCE's Common
Stock to the holders of the Class A Common Stock, par value $1.00 per share, of
Agro Power Development, Inc., a New York corporation ("APD"), pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") providing for the merger
of APD with and into Agro Acquisition Corp., a Delaware corporation ("Agro
Acquisition") and a newly formed, wholly owned subsidiary of ECOSCIENCE, after
which merger the stockholders of APD will own approximately 80% of the
outstanding shares of ECOSCIENCE Common Stock on a fully diluted basis (ITEM I
in the attached Proxy Statement).
2. Election of two nominees as Directors of ECOSCIENCE to serve as members
of that class of Directors whose terms shall expire at the 2000 Annual Meeting
of Stockholders and until their successors are elected (ITEM II in the attached
Proxy Statement).
3. Approval of an amendment to ECOSCIENCE's Certificate of Incorporation to
effect a one for five reverse stock split (the "Reverse Split") of the Company's
Common Stock (ITEM III in the attached Proxy Statement).
4. Approval of an amendment to ECOSCIENCE's Certificate of Incorporation to
increase the number of authorized shares of ECOSCIENCE Common Stock from
25,000,000 shares to 100,000,000 shares and to increase the number of authorized
shares of ECOSCIENCE Preferred Stock from 1,000,000 shares to 10,000,000 shares,
in each case prior to giving effect to the proposed Reverse Split (ITEM IV in
the attached Proxy Statement).
5. Approval of an amendment to ECOSCIENCE's 1991 Stock Option Plan to
increase the number of shares of ECOSCIENCE Common Stock which may be granted
thereunder from 1,300,000 to 1,800,000 shares (prior to giving effect to the
proposed Reverse Split) (ITEM V in the attached Proxy Statement).
6. Ratification of the selection of Arthur Andersen, LLP as the independent
public accountants of ECOSCIENCE for the current fiscal year (ITEM VI in the
attached Proxy Statement).
7. Transaction of such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
<PAGE>
Only stockholders of record as of the close of business on July 31, 1998
are entitled to notice of, and to vote at, the Meeting and at any adjournments
thereof. The transfer books will not be closed.
Dated: [__________], 1998 ECOSCIENCE CORPORATION
By: Harold A. Joannidi
Secretary
2
<PAGE>
ECOSCIENCE CORPORATION
PROXY STATEMENT
GENERAL INFORMATION............................................................1
Purpose of the Meeting......................................................1
Vote Required and Ownership.................................................2
Proxies.....................................................................3
ECOSCIENCE, APD and Agro Acquisition Information;
Forward-Looking Statements................................................4
SUMMARY OF PROXY STATEMENT.....................................................5
I. PROPOSAL TO ISSUE COMMON STOCK/THE MERGER...................................8
Introduction................................................................8
The Merger..................................................................8
Parties to the Merger.......................................................8
Risk Factors Relating to the Merger.........................................9
Background of the Merger...................................................11
Reasons for the Merger; Recommendation of the Board of Directors...........12
Interests of Michael A. DeGiglio In the Merger.............................14
Management of Ecoscience Following the Merger..............................14
Effective Date and Time of the Merger; Applicable
Federal and State Regulatory Requirements................................15
No Appraisal Rights........................................................15
Accounting Treatment of the Merger.........................................15
Federal Income Tax Consequences of the Merger..............................16
Recent and Historic Prices of ECOSCIENCE Common Stock .....................16
Effect of Merger on Outstanding Securities.................................16
Resales of Merger Shares; Lock-up Agreements and Registration Rights.......17
The Merger and Fulfillment of Nasdaq Listing Requirements .................17
Agreement to Acquire Village Farms of Morocco..............................18
Certain Representations and Warranties.....................................18
Certain Covenants..........................................................18
Acquisition Proposals......................................................21
Conditions to the Merger...................................................22
Amendment and Waiver.......................................................23
Termination of the Merger Agreement........................................23
OPINION OF FINANCIAL ADVISOR..................................................25
Contribution Analysis......................................................27
Discounted Cash Flow Analysis..............................................28
Analyses of Comparable Companies...........................................28
Analysis of Comparable Transactions........................................29
Common Stock Price Analysis................................................30
Other Factors..............................................................31
i
<PAGE>
MATERIAL TRANSACTIONS BETWEEN ECOSCIENCE AND APD..............................32
Product Sales..............................................................32
Material Contracts and Purchase Orders.....................................32
Apportioned Costs of Certain Facilities and Personnel......................32
MARKET PRICES FOR ECOSCIENCE COMMON STOCK.....................................33
INFORMATION CONCERNING ECOSCIENCE.............................................34
Description of Business....................................................34
Products...................................................................35
Sales and Distribution.....................................................38
Manufacturing..............................................................38
Collaborative Agreements...................................................39
Technology.................................................................40
Technology Licensing.......................................................42
Competition................................................................42
Government Regulation and Product Registration.............................43
Patents and Trade Secrets..................................................44
Personnel..................................................................45
Description of Properties..................................................46
Legal Proceedings..........................................................46
Year 2000..................................................................46
SELECTED FINANCIAL DATA OF ECOSCIENCE.........................................47
INFORMATION CONCERNING AGRO ACQUISITION.......................................49
INFORMATION CONCERNING APD....................................................49
Description of Business....................................................49
The Greenhouse Vegetable Industry..........................................51
Greenhouse Operations......................................................52
Pending Transactions.......................................................57
Right of Cogentrix to Participate in Future Greenhouse Projects............59
Marketing Arrangements with Other Growers..................................59
Packaging and Distribution.................................................60
Sales and Marketing of Village Farm Products...............................60
Design and Construction Management.........................................60
Village Farm International Finance Association.............................61
Properties.................................................................63
Environmental and Regulatory Matters.......................................63
Competition................................................................64
Personnel..................................................................65
Management of APD..........................................................65
Risks Relating to APD......................................................67
ii
<PAGE>
SELECTED APD HISTORICAL CONSOLIDATED FINANCIAL INFORMATION....................70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF APD'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF APD..................................71
General....................................................................71
Results of Operations......................................................72
Liquidity and Capital Resources............................................75
Seasonality; Impact of Tomato Price Changes and Operating Costs............78
Year 2000..................................................................79
Inflation..................................................................79
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS...................80
II. ELECTION OF DIRECTORS.....................................................90
Nominees for Election for a Three Year Term Expiring
at the 2000 Annual Meeting...............................................90
Director Continuing in Office Until the 1998 Annual Meeting................91
Other Executive Officers...................................................92
Meetings and Committees of the Board of Directors..........................93
Board Recommendation.......................................................93
III. PROPOSAL TO APPROVE AN AMENDMENT TO ECOSCIENCE'S CERTIFICATE
OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF
ECOSCIENCE'S COMMON STOCK.....................................................94
Board Recommendation.......................................................94
IV. PROPOSAL TO APPROVE AN AMENDMENT TO ECOSCIENCE'S CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
ECOSCIENCE COMMON STOCK FROM 25,000,000 SHARES TO 100,000,000 SHARES,
AND TO INCREASE THE...........................................................95
NUMBER OF AUTHORIZED SHARES OF ECOSCIENCE PREFERRED STOCK FROM
1,000,000 SHARES TO 10,000,000 SHARES.........................................95
Purpose and Effects of Increasing the Number of Authorized
Shares of Common Stock and Preferred Stock...............................95
Board Recommendation.......................................................96
V. PROPOSAL TO APPROVE AN AMENDMENT TO THE 1991 STOCK OPTION PLAN.............96
Board Recommendation.......................................................97
VI. PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN, LLP AS
ECOSCIENCE'S INDEPENDENT PUBLIC ACCOUNTANTS...................................97
Board Recommendation.......................................................98
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............98
iii
<PAGE>
SUMMARY SECURITY OWNERSHIP TABLE..............................................98
EXECUTIVE COMPENSATION.......................................................100
Compensation of Directors.................................................104
Certain Transactions......................................................104
REPORT OF THE COMPENSATION COMMITTEE.........................................104
Summary of Philosophy and Overall Objectives of
Executive Compensation..................................................105
Internal Revenue Code Limitation on Deductibility of
Executive Compensation..................................................106
PERFORMANCE GRAPH............................................................107
INDEPENDENT PUBLIC ACCOUNTANTS...............................................108
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING............................108
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......................108
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................108
OTHER MATTERS................................................................109
APPENDIX A - AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER...............................................................A-1
APPENDIX B - ECOSCIENCE'S ANNUAL/QUARTERLY REPORTS..........................B-1
APPENDIX C - OPINION OF FINANCIAL ADVISOR...................................C-1
APPENDIX D - APD FINANCIAL STATEMENTS.......................................D-1
APPENDIX E - ECOSCIENCE CORPORATION 1991 STOCK OPTION PLAN.................E-1
APPENDIX F - FORM OF PROXY...................................................F-1
<PAGE>
ECOSCIENCE CORPORATION
10 Alvin Court
East Brunswick, New Jersey 08816
732-432-8200
PROXY STATEMENT FOR A SPECIAL MEETING
IN LIEU OF THE 1997 ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD
______________________, 1998
This Proxy Statement and the enclosed proxy card are being furnished to
stockholders of EcoScience Corporation ("ECOSCIENCE" or the "Company"), a
Delaware corporation, in connection with the solicitation by the Company's Board
of Directors (the "Board") of proxies to be voted at the Company's Special
Meeting in lieu of the 1997 Annual Meeting of Stockholders to be held on
[___________], 1998 at [_____], Eastern Daylight Time at
[_________________________________], and at any adjournments thereof (the
"Meeting").
GENERAL INFORMATION
Purpose of the Meeting
The purpose of the Meeting is to consider and vote upon proposals to: (i)
approve the issuance of an aggregate of nine million five hundred twenty
thousand four hundred eighty seven (9,520,487) shares (after giving effect to
the proposed reverse stock split described below) of the Common Stock, par value
$.01 per share, of ECOSCIENCE (the "ECOSCIENCE Common Stock") to holders of
shares of the Class A Common Stock, par value $1.00 per share (the "APD Stock"),
of Agro Power Development, Inc., a New York corporation ("APD") pursuant to an
Amended and Restated Agreement and Plan of Merger dated as of July __, 1998 (the
"Merger Agreement"), which provides for the merger (the "Merger") of APD with
and into Agro Acquisition Corp., a Delaware corporation and a newly formed,
wholly owned subsidiary of ECOSCIENCE ("Agro Acquisition"); (ii) elect two
nominees as Directors; (iii) approve an amendment to ECOSCIENCE's Certificate of
Incorporation to effect a one for five reverse stock split (the "Reverse Split")
of the Common Stock; (iv) approve an amendment to the Certificate of
Incorporation to increase the number of authorized shares of ECOSCIENCE Common
Stock from 25,000,000 shares to 100,000,000 shares and to increase the number of
authorized shares of ECOSCIENCE Preferred Stock from 1,000,000 shares to
10,000,000 shares; (v) approve the amendment of the 1991 Stock Option Plan; (vi)
ratify the selection of Arthur Andersen, LLP as ECOSCIENCE's independent public
accountants for the current fiscal year; and (vii) approve any other proposals
which, although not known to the Directors at the date of printing hereof, may
properly come before the Meeting.
The proposed amendments to ECOSCIENCE's Certificate of Incorporation,
including the authorization and issuance of additional shares of Common Stock,
are conditions precedent to the Merger contemplated between Agro Acquisition and
APD, whereby each outstanding share of
<PAGE>
APD Stock shall be converted into the right to receive 30,619.067 shares of
ECOSCIENCE Common Stock. As a result of the Merger, APD will be a wholly owned
subsidiary of ECOSCIENCE and the stockholders of APD will own 80% of the issued
and outstanding capital stock of ECOSCIENCE on a fully diluted basis.
Consummation of the Merger is contingent upon approval by ECOSCIENCE's
stockholders of the matters set forth in clauses (i), (iii) and (iv) above. If
the proposal to issue shares of ECOSCIENCE Common Stock set forth in clause (i)
above is not approved, the proposed amendments to the Certificate of
Incorporation will not be made, even if such amendments are otherwise approved
by the stockholders.
Vote Required and Ownership
Only record holders of the Common Stock on July 31, 1998 (the "Record
Date") are entitled to notice of and to vote at the Meeting and any adjournments
thereof. An affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required for: (i) the approval of the issuance of
ECOSCIENCE Common Stock to stockholders of APD pursuant to the Merger; (ii) the
approval of the Reverse Split; and (iii) the approval of an amendment to
ECOSCIENCE's Certificate of Incorporation to increase the number of authorized
shares of ECOSCIENCE Common Stock from 25,000,000 shares to 100,000,000 shares
and to increase the number of authorized shares of ECOSCIENCE Preferred Stock
from 1,000,000 shares to 10,000,000 shares. A plurality of the votes cast in
person or represented by proxy at the Meeting is required for the election of
Directors. An affirmative vote of a majority of the votes cast in person or
represented by proxy is required for: (i) approval of the amendment to the 1991
Stock Option Plan; (ii) ratification of the selection of independent public
accountants; and (iii) approval of all other items submitted to the stockholders
for their consideration.
On the Record Date, 10,493,955 shares of the Common Stock were issued and
outstanding and entitled to vote at the Meeting. Each share of Common Stock is
entitled to one vote on the proposals discussed herein.
On the Record Date, the directors and executive officers of the Company
benefically owned an aggregate of 1,611,670 shares of ECOSCIENCE Common Stock
(including shares which may be acquired within 60 days upon exercise of stock
options) or approximately [14.3]% of the shares of ECOSCIENCE Common Stock
outstanding on such date. The directors and executive officers of the Company
have indicated their intention to vote their shares of ECOSCIENCE Common Stock
in favor of approval of the Merger and the transactions contemplated in
connection therewith, including (i) the proposed issuance of shares of
ECOSCIENCE Common Stock to holders of shares of APD Common Stock; (ii) the
Reverse Split; and (iii) the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of ECOSCIENCE Common
Stock from 25,000,000 shares to 100,000,000 shares and to increase the number of
authorized shares of ECOSCIENCE Preferred Stock from 1,000,000 shares to
10,000,000 shares. The directors and executive officers of the Company have also
indicated their intention to vote their shares of ECOSCIENCE Common Stock in
favor of the proposed amendment to the 1991 Stock Option Plan and the
ratification of selection of independent accountants.
2
<PAGE>
Proxies
The enclosed proxy is being solicited by the Board to be voted at the
Meeting. Proxies may be solicited by Directors, officers and employees of the
Company by mail, by telephone, in person or otherwise. No such persons will
receive additional compensation for such solicitation. In addition, the Company
may engage a solicitation agent, which agent shall be entitled to customary
compensation and fees. ECOSCIENCE will also request banks, brokers, and other
custodians, nominees and fiduciaries to forward proxy materials to the
beneficial owners of the Common Stock. ECOSCIENCE will reimburse those firms for
their reasonable expenses in forwarding proxy materials and obtaining voting
instructions. Shares represented by each properly executed proxy received by
ECOSCIENCE will be voted at the Meeting (or at any adjournment thereof) as
directed by the stockholder on the proxy, and, if no direction is made, will be
voted FOR: (i) approving the issuance of nine million five hundred twenty
thousand four hundred eighty seven (9,520,487) shares (after giving effect to
the Reverse Split) of the Common Stock to the stockholders of APD; (ii) electing
the nominees named herein as Directors; (iii) approving the amendment to the
Certificate of Incorporation to effect the Reverse Split; (iv) approving an
amendment to ECOSCIENCE's Certificate of Incorporation to increase the number of
authorized shares of ECOSCIENCE Common Stock from 25,000,000 shares to
100,000,000 shares and to increase the number of authorized shares of ECOSCIENCE
Preferred Stock from 1,000,000 shares to 10,000,000 shares; (v) approving the
amendment to the 1991 Stock Option Plan; (vi) ratifying the selection of Arthur
Andersen, LLP as ECOSCIENCE's independent public accountants; and (vii)
approving any other proposals which may properly come before the Meeting.
ECOSCIENCE's Board is not currently aware of any business to be acted upon
at the Special Meeting, other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. Such adjournment may be
for the purpose of soliciting additional proxies. Shares represented by proxies
voting against any of the proposals described herein will be voted against a
proposal to adjourn the Special Meeting for the purpose of soliciting additional
proxies. The Company does not currently intend to seek an adjournment of the
Special Meeting.
Stockholders may revoke their proxies at any time prior to any vote at the
Meeting by written notice to the Secretary of the Company at or before the
Meeting, by submission of a duly executed proxy card bearing a later date or by
voting in person by ballot at the Meeting. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: ECOSCIENCE Corporation, 10 Alvin Court, East Brunswick, New Jersey
08816, Attention: Harold Joannidi, Secretary. Shares owned by a stockholder
submitting a proxy card but abstaining from voting on any proposal are counted
in the number of shares present in person or represented by proxy for purposes
of determining whether that proposal has been approved. Shares held but not
voted by brokers are counted only for purposes of determining whether a quorum
is present at the Meeting.
3
<PAGE>
ECOSCIENCE, APD and Agro Acquisition Information; Forward-Looking Statements
Each of ECOSCIENCE, APD and Agro Acquisition, respectively, provided all
information contained in this Proxy Statement concerning itself and its
subsidiaries, if any. This Proxy Statement contains forward-looking statements
about, among other things, the possible effects of the Merger on the constituent
corporations. The proposed Merger involves risks and uncertainties. The actual
effects of the Merger and the actual future operations of ECOSCIENCE and APD
could differ materially from those described in any forward-looking statements
contained herein, among other reasons, because of a number of risk factors to
which such companies are subject, including but not limited to, in the case of
ECOSCIENCE, continuing operating losses, uncertainties involving EPA product
registration, limited commercial sales and uncertainty as to market acceptance
of the Company's products, significant competition, rapid technological change,
risk of product liability and the possibility that the Company will not meet
maintenance criteria for listing of its Common Stock on the Nasdaq SmallCap
Market. Risk factors which could affect the operating results of APD include
market fluctuations, crop disease and pestilence, weather and climatic events,
competition and the uncertainty associated with obtaining future financing. See
also "Risk Factors Relating to the Merger" and "Information Concerning APD Risks
Relating to APD," below.
4
<PAGE>
SUMMARY OF PROXY STATEMENT
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is necessarily incomplete and is qualified
in its entirety by reference to the full text of, and to the documents referred
to in, this Proxy Statement and its appendices. The descriptions in the
following summary and in the full text of this Proxy Statement of the terms and
conditions of the Merger Agreement are qualified in their entirety by reference
to the full text of the Merger Agreement attached to this Proxy Statement as
Appendix A.
Date, Time, and Place of Meeting: [_________]
Purpose: To consider and vote upon proposals to:
(i) approve the issuance of 9,520,487
shares (after giving effect to the
Reverse Split) of Common Stock to the
stockholders of APD pursuant to the
Merger Agreement; (ii) elect two
nominees as Directors; (iii) approve the
Reverse Split; (iv) approve an amendment
to ECOSCIENCE's Certificate of
Incorporation to increase the number of
authorized shares of ECOSCIENCE Common
Stock from 25,000,000 shares to
100,000,000 shares and to increase the
number of authorized shares of
ECOSCIENCE Preferred Stock from
1,000,000 shares to 10,000,000 shares;
(v) approve an amendment to the 1991
Stock Option Plan and (vi) ratify the
selection of the Company's independent
public accountants.
The Parties to the Proposed Merger: ECOSCIENCE, Agro Acquisition, and APD.
Record Date: July 31, 1998
Vote Required: An affirmative vote of the holders of a
majority of the outstanding shares of
Common Stock is required for: (i)
approval of the issuance of Common Stock
to stockholders of APD pursuant to the
Merger; (ii) approval of the Reverse
Split; and (iii) approval of an
amendment to ECOSCIENCE's Certificate of
Incorporation to increase the number of
authorized shares of ECOSCIENCE
5
<PAGE>
Common Stock from 25,000,000 shares to
100,000,000 shares and to increase the
number of authorized shares of
ECOSCIENCE Preferred Stock from
1,000,000 shares to 10,000,000 shares.
A plurality of the votes cast in person
or represented by proxy at the Meeting
is required for the election of two
nominees as Directors.
An affirmative vote of a majority of the
votes cast in person or represented by
proxy is required for (i) approval of
the amendment to the 1991 Stock Option
Plan; (ii) ratification of the selection
of the Company's independent public
accountants; and (iii) approval of all
other items submitted to the
stockholders for their consideration.
Effect of the Merger: At the effective time of the Merger, and
after giving effect to the Reverse
Split, the stockholders of APD will
receive in the aggregate 9,520,487
shares of ECOSCIENCE Common Stock,
representing 80% of the total number of
shares of ECOSCIENCE Common Stock then
outstanding on a fully diluted basis. As
a result, the completion of the Merger
will result in substantial dilution to
ECOSCIENCE's stockholders.
Conflicts of Interest: In considering the recommendation of the
ECOSCIENCE Board with respect to the
Merger, stockholders of the Company
should be aware that Michael A.
DeGiglio, who is President, Chief
Executive Officer and a director of
ECOSCIENCE, is also Chief Executive
Officer and a director of APD and owns
beneficially 32.5% of APD'S outstanding
capital stock. As a result, Mr. DeGiglio
has certain interests in the Merger that
are in addition to the interests of the
stockholders of ECOSCIENCE generally.
Management The Merger Agreement requires ECOSCIENCE
of ECOSCIENCE to procure the resignation of each of
Following the Merger: E.A. Grinstead, Larry M. Nouvel and
Kenneth S. Boger as directors prior to
the effective time of the Merger. In
addition, the Merger Agreement requires
the Board to elect Albert Vanzeyst and
Thomas Montanti, each of whom is a
director, officer and stockholder of
APD, to fill the vacancies created by
the resignation of Mr. Grinstead and Mr.
Nouvel, respectively. The Merger
Agreement also requires the ECOSCIENCE
Board to appoint Mr.
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Vanzeyst as an Executive Vice President
of ECOSCIENCE, J. Kevin Cobb, an officer
and stockholder of APD, as Senior Vice
President-Corporate Development of
ECOSCIENCE and David M. Suchniak, an
officer of APD, as Senior Vice President
and Chief Financial Officer of
ECOSCIENCE at or about the effective
time of the Merger.
Fairness Opinion: Chestnut Partners, Inc. has delivered
its written opinion to the Board of
Directors of ECOSCIENCE that, as of the
date of the opinion, the terms of the
transactions contemplated by the Merger
Agreement are fair to its stockholders
from a financial point of view. A copy
of the opinion is attached to this Proxy
Statement as Appendix C and it should be
read carefully in its entirety for a
description of the procedures followed,
assumptions made, matters considered and
scope and limitations on the review
undertaken by Chestnut Partners, Inc. in
connection with rendering such opinion.
Recommendation: The Board has approved the Merger
Agreement, having determined that the
Merger pursuant to its terms is fair and
in the best interests of ECOSCIENCE and
its stockholders. Accordingly, the Board
recommends a vote in favor of approving
the issuance of an aggregate of
9,520,487 shares (after giving effect to
the Reverse Split) of Common Stock to
the stockholders of APD, pursuant to the
terms of the Merger Agreement.
The Board further recommends a vote in
favor of approving the following
conditions precedent to the Merger: (i)
amendment of ECOSCIENCE'S Certificate of
Incorporation to effect the Reverse
Split and (ii) amendment of ECOSCIENCE'S
Certificate of Incorporation to increase
the number of authorized shares of
ECOSCIENCE Common Stock from 25,000,000
shares to 100,000,000 shares and to
increase the number of authorized shares
of ECOSCIENCE Preferred Stock from
1,000,000 shares to 10,000,000 shares.
The Board also recommends a vote in
favor of: (i) electing as Directors the
nominees named herein; (ii) amendment of
the 1991 Stock Option Plan; and (iii)
ratification of the selection of Arthur
Andersen, LLP as the Company's
independent public accountants.
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I. PROPOSAL TO ISSUE COMMON STOCK/THE MERGER
Introduction
The following discussion, which contains summary information about the
Merger Agreement, is expressly qualified by reference to the full text of the
Merger Agreement set forth in Appendix A. The following summary presents and
discusses all material terms of the Merger Agreement; however, it is not a
substitute for a careful reading of the Merger Agreement.
The Merger
Pursuant to the Merger Agreement and subject to the terms and conditions
thereof, APD will merge with and into Agro Acquisition, which is a wholly owned
subsidiary of ECOSCIENCE. As a result of the Merger, APD will become a wholly
owned subsidiary of ECOSCIENCE. As part of the Merger and after giving effect to
the proposed Reverse Split, stockholders of APD will receive as consideration
30,619.067 shares of ECOSCIENCE Common Stock for each share of APD Stock held.
In addition, the Merger Agreement contemplates that at the effective time of the
Merger, Agro Acquisition will acquire from certain shareholders of APD their
entire 50% interest in Village Farms of Morocco, S.A., a Moroccan company, in
exchange for 99,000 shares of ECOSCIENCE Common Stock (the "Morocco
Transaction"). As a result, an aggregate 9,520,487 shares of ECOSCIENCE Common
Stock will be issued to APD's stockholders pursuant to the Merger Agreement (the
"Merger Shares"). The Board of Directors of Ecoscience recommends that
stockholders vote in favor of the proposal to issue shares of Ecoscience Common
Stock pursuant to the Merger Agreement.
Parties to the Merger
ECOSCIENCE. EcoScience Corporation is a Delaware corporation which was
incorporated under the laws of the State of Florida in August 1982 and was
reincorporated in the State of Delaware in June 1988. ECOSCIENCE is engaged in
the technical marketing, sales, development and commercialization of products
and services for the following major markets: (i) specialty agriculture; (ii)
postharvest fruits and vegetables; and (iii) biological insect control for
consumer and industrial applications. The Company provides: (i) sophisticated
growing systems to greenhouse operators; (ii) technologically advanced sorting,
grading and packing systems to produce packers; (iii) equipment, coatings and
disease control products, including natural biologicals for protecting fruits,
vegetables and ornamentals in storage and transit to market; and (iv) biological
pest control products to consumers and industry.
The executive offices of ECOSCIENCE are located at 10 Alvin Court, East
Brunswick, New Jersey 08816, and its telephone number is 732-432-8200.
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APD. Agro Power Development, Inc. is a New York corporation which was
incorporated under the laws of the State of New York in 1990. In terms of total
acreage controlled by a single entity, APD is the largest producer of premium
quality, greenhouse grown tomatoes in the United States. APD develops,
constructs and operates highly intensive agricultural greenhouse projects and
markets and sells the vegetable production of these facilities, as well as fresh
vegetables produced by other greenhouse growers, primarily as a consumer product
under its Village Farm(R) brandname to retail supermarkets and dedicated
wholesale distribution companies that serve smaller retail chains and the food
service industry.
The executive offices of APD are located at One Kimberly Road, East
Brunswick, New Jersey 08816, and its telephone number is 732-254-0606.
AGRO ACQUISITION CORP. Agro Acquisition Corp. is a Delaware corporation
organized as a wholly owned subsidiary of ECOSCIENCE for the purposes of
effecting the Merger.
The executive offices of Agro Acquisition are located at 10 Alvin Court,
East Brunswick, New Jersey 08816, and its telephone number is 732-432-8200.
Risk Factors Relating to the Merger
Integration of Operations
ECOSCIENCE and APD have entered into the Merger Agreement with the
expectation that the Merger will result in benefits to the combined company.
There can be no assurance that the integration of the two companies' businesses
can be accomplished in an efficient and effective manner. The integration of
certain operations following the Merger will require the dedication of
management resources which may temporarily distract attention from the day to
day business of the combined company. The inability of management to integrate
the operations of the two companies successfully could have a material adverse
effect on the business and the results of operations of ECOSCIENCE following the
Merger. See "Reasons for the Merger" and "Recommendations of the Board," above.
Effect on Control; Dilution
Upon the consummation of the Merger and after giving effect to the proposed
Reverse Split, the APD stockholders will receive an aggregate of 9,520,487
shares of ECOSCIENCE Common Stock (or approximately 80% of the shares of
ECOSCIENCE Common Stock issued and outstanding on a fully diluted basis
immediately after the Merger). Accordingly, the APD stockholders will be able to
significantly affect the policies and operations of ECOSCIENCE and the equity
interest of current ECOSCIENCE stockholders in the Company will be significantly
diluted.
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Fixed Exchange Ratio
Upon the consummation of the Merger, each outstanding share of APD Stock
will be converted into the right to receive 30,619.067 shares of ECOSCIENCE
Common Stock and ECOSCIENCE will issue an aggregate of 99,000 shares of
ECOSCIENCE Common Stock in connection with the Morocco Transaction. The Merger
Agreement does not provide for adjustment of the exchange ratio based on
fluctuations in the price of the ECOSCIENCE Common Stock. Accordingly, the value
of the consideration to be received by the APD stockholders upon consummation of
the Merger will increase or decrease based on the market price of the ECOSCIENCE
Common Stock at the Effective Time. The closing price for the ECOSCIENCE Common
Stock on Nasdaq on November 19, 1997, the last trading day prior to the public
announcement of the signing of a letter of intent to merge, was $1 3/16 and on
July 29, 1998, the latest trading day for which a share price could practicably
be determined before the mailing of this Proxy Statement, was $1 7/32. There can
be no assurance that the market price of the ECOSCIENCE Common Stock on and
after the Effective Date will not be materially different from such prices.
Future Sales of Merger Stock
The Merger Shares will be restricted securities under the Securities Act
and as a result, may not be sold unless registered under the Securities Act or
pursuant to an applicable exemption from registration, such as Rule 144. In
addition, APD stockholders will be restricted from selling the Merger Shares
pursuant to the lock-up agreements which prohibit sales until ECOSCIENCE
publishes results covering at least 30 days of combined post Merger operations.
ECOSCIENCE has, however, agreed to grant to the APD stockholders certain rights
to have the Merger Shares registered under the Securities Act. See "Resales of
Merger Shares; Lock-up Agreements and Registration Rights."
No predictions can be made as to the effect, if any, that sales of Merger
Shares or the availability of Merger Shares for sale will have on the market
price of ECOSCIENCE Common Stock prevailing from time to time. Moreover,
ECOSCIENCE cannot predict the number of Merger Shares which may be sold in the
future pursuant to registrations or under Rule 144 since such sales will depend
upon the market price of the Common Stock, the individual circumstances of the
holders thereof and other factors. Nevertheless, any sales of substantial
amounts of the Merger Shares in the public market could have a significant
adverse effect on the market price of the ECOSCIENCE Common Stock.
Change in Debt to Equity Ratio
The proposed Merger will change ECOSCIENCE's debt to equity ratio from
minor to significant, which could expose ECOSCIENCE to, among other things,
risks associated with interest rate fluctuations. Based on the Unaudited Pro
Forma Condensed Combined Balance Sheet as of March 31, 1998 contained elsewhere
in this Proxy Statement, the debt to equity ratio of ECOSCIENCE before
combination is 0.2 to 1; and after combination 21.2 to 1 including minority
interest in debt and 3.1 to 1 including minority interest in equity.
10
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Transaction and Restructuring Charges
ECOSCIENCE and APD expect to incur charges to operations currently
estimated to be $750,000 and $500,000, respectively, primarily in the quarter in
which the Merger is consummated, to reflect non-recurring costs resulting
directly from the Merger. Such costs include investment banking, legal,
accounting, printing, and other related charges. These amounts are preliminary
estimates and are subject to change. Additional and unanticipated expenses may
be incurred relating to the integration of the businesses of ECOSCIENCE and APD,
including sales and marketing, and administrative functions. Although ECOSCIENCE
and APD expect that the elimination of duplicative expenses, as well as other
efficiencies related to the integration of their respective businesses, may
offset additional expenses over time, there can be no assurance that such net
benefit will be achieved in the near term or at all.
Background of the Merger
The terms of the Merger Agreement and the related agreements are the result
of arm's length negotiations between representatives, legal advisers and
financial advisers of ECOSCIENCE and APD. The following is a brief discussion of
the background of these negotiations.
At a meeting of the ECOSCIENCE Board on November 7, 1996, the Board
initiated discussions of strategic options for the Company. Michael A. DeGiglio,
ECOSCIENCE's President and a Director, was requested by the Board to provide his
evaluation of a potential transaction between APD and the Company. Mr. DeGiglio
discussed briefly the potential advantages and disadvantages of such a
transaction. After Mr. DeGiglio, who is also President of APD, was excused from
the Board meeting, the other Directors discussed the matter in detail. It was
determined that a special committee, the Strategic Alternatives Committee, would
be established, consisting of Kenneth S. Boger, E. Andrew Grinstead, David J.
Ryan and Heinz Wehner, to review, among other things, a potential transaction
with APD. The Board authorized the Strategic Alternatives Committee to retain a
financial adviser to assist it in its efforts to evaluate potential
transactions. Mr. Ryan and Mr. Boger were directed by the Board to meet with
potential financial advisers in Boston.
At a meeting of the ECOSCIENCE Board on February 27, 1997, the Board again
discussed strategic options for the Company and, after Mr. DeGiglio excused
himself from the meeting, reviewed potential advantages and disadvantages of a
potential transaction with APD. Mr. Ryan and Mr. Boger discussed their findings
regarding the selection of a financial adviser to work with the Company
evaluating strategic options, including a potential merger with APD. After
discussing various qualified financial advisers, the Board approved negotiations
to retain Chestnut Partners, Inc. ("Chestnut Partners").
Chestnut Partners was formally retained as a financial adviser to the
Company pursuant to the terms of a letter agreement with the Company dated as of
March 17, 1997. Chestnut Partners was directed to assist the Strategic
Alternatives Committee in evaluating potential merger partners, including APD,
and in assessing their relative values to ECOSCIENCE. The
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<PAGE>
ECOSCIENCE Board approved the terms of the letter agreement with Chestnut
Partners at its regularly scheduled April 10, 1997, meeting.
In June 1997, the ECOSCIENCE Board heard and considered a presentation by
senior management of APD, including Mr. DeGiglio, as to the possible immediate
and long-term benefits of a merger between the Company and APD.
Throughout the summer and early fall of 1997, there were numerous meetings
of the Strategic Alternatives Committee and discussions between the senior
management of APD and ECOSCIENCE as to a possible merger of the two entities.
Messrs. Ryan and Boger usually participated on behalf of ECOSCIENCE and Albert
Vanzeyst and Kevin Cobb, executive officers of APD, participated on its behalf.
Mr. DeGiglio also made presentations to the ECOSCIENCE Board with respect to the
proposed Merger. However, because of his relationship to both companies, Mr.
DeGiglio was excluded from ECOSCIENCE's internal discussions of the proposed
transaction.
APD is a significant customer of ECOSCIENCE and the two companies share
certain facilities and costs. See "Material Transactions Between ECOSCIENCE and
APD," below. In his capacity as a major shareholder of APD, Mr. DeGiglio was
necessarily involved in negotiating with the Strategic Alternatives Committee
the exchange ratio governing the number of shares of ECOSCIENCE Common Stock
each holder of APD Shares would receive as a result of the Merger (see "Effect
of Merger on Outstanding Securities," below). However, given his conflict of
interests, Mr. DeGiglio was excluded by the Strategic Alternatives Committee and
by the ECOSCIENCE Board as a whole from deliberations regarding the proposed
Merger, consideration of other alternative strategies, and the Board's ultimate
approval of the Merger. Except with respect to the exchange ratio, Mr. DeGiglio
did not participate in negotiation of the Merger terms; in order to ensure that
such terms would be negotiated zealously in the Company's interest, negotiations
were left in the hands of the Strategic Alternatives Committee, other officers
of ECOSCIENCE lacking conflicts of interest, the representatives of Chestnut
Partners, and the Company's legal counsel.
As a further means of ensuring that the transaction would be conducted at
arm's length, a majority of the directors on the Strategic Alternatives
Committee are independent directors. Messrs. Boger and Grinstead are independent
directors. The Company also considers Mr. Ryan, the third member of the
Strategic Alternatives Committee and the Board's Chairman, to be an independent
director; however, the rules of the National Association of Securities Dealers
may deem the Chairman of the Board technically to be an officer of the Company
and therefore not independent. None of the directors on the Strategic
Alternatives Committee and none of the directors who participated in
negotiations with respect to the proposed Merger have conflicts of interest with
respect to the proposed Merger.
Chestnut Partners, Inc., made detailed presentations to the independent
Directors of ECOSCIENCE on September 26, 1997, and to the entire Board on
October 7, 1997, which evaluated pros and cons of the proposed merger and
considered various models for arriving at comparable valuations of the two
companies.
On November 20, 1997, ECOSCIENCE and APD entered into a letter of intent
with respect to the proposed terms of a merger between them.
From the end of November 1997 through May 1998, the members of senior
management of ECOSCIENCE and APD, together with representatives of the parties'
respective financial and legal advisers, conducted due diligence investigations
and engaged in extensive discussions and negotiations to resolve open issues and
to agree on the terms of a definitive Merger Agreement to present to the boards
of directors of both companies.
On April 27, 1998, at a special telephonic meeting, the ECOSCIENCE Board
voted to approve the Merger Agreement. Due to his relationship with each of
ECOSCIENCE and APD, Mr. DeGiglio abstained from voting. On April 27, 1998, the
Board of Directors of APD voted to approve the Merger Agreement. On April 28,
1998, ECOSCIENCE, APD and Agro Acquisition executed the Merger Agreement.
At a regularly scheduled ECOSCIENCE Board meeting held on May 4, 1998 and
at a special telephonic meeting held on May 11, 1998, the ECOSCIENCE Directors
considered matters relating to the Special Meeting and approved the filing of
the Proxy Statement with respect thereto.
Reasons for the Merger; Recommendation of the Board of Directors
The Board of Directors of ECOSCIENCE has determined that the terms of the
Merger Agreement and the transactions contemplated thereby are fair to, and in
the best interests of, its stockholders. In reaching this determination, the
Board considered the business, financial condition and results of operations of
ECOSCIENCE, as well as ECOSCIENCE's prospects for growth in view of industry and
market conditions. The Board identified and took into account a number of
potentially negative aspects of the Merger:
(i) Mr. DeGiglio's conflicts of interest (see "Interests of Michael A.
DeGiglio in the Merger");
(ii) the fact that the Merger would result in a few stockholders owning a
large percentage of the ECOSCIENCE Common Stock and dilution of the
current investors' holdings (see "Risk Factors Relating to the Merger
- Effect on Control; Dilution");
(iii) the fixed exchange ratio of shares of APD Stock for shares of
ECOSCIENCE Common Stock regardless of fluctuations in market price
(see "Risk Factors Relating to the Merger - Fixed Exchange Ratio");
(iv) the increase in debt-to-equity ratio likely to be experienced by
ECOSCIENCE upon consummation of the Merger (see "Risk Factors Relating
to the Merger - Change in Debt to Equity Ratio"); and
(v) the costs of the Merger (see "Risk Factors Relating to the Merger -
Transaction and Restructuring Charges").
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The Board concluded that the opportunities created by the Merger to
increase stockholder value more than offset the risks inherent in the Merger. In
reaching this conclusion, the Board considered a number of factors, including
those summarized below:
(i) APD's recent growth, prospects for future growth, consumer demand for
high quality greenhouse vegetables and the outlook for the greenhouse
vegetable and food technology industries in general;
(ii) APD's ability to obtain third party financing, as demonstrated by the
$14.3 million of equity financing and $85.3 million of debt financing
made available to APD since 1996;
(iii) the expectation that the increased size of ECOSCIENCE following the
Merger will enhance its ability to access the capital markets and
pursue other acquisition and joint venture opportunities in all of its
business segments;
(iv) the prospect of creating, over the long term, an integrated
international agri-business;
(v) the increased visibility in the agricultural industry which will
result from a business combination with APD;
(vi) the opportunities to test new biorational agricultural products for
control of plant disease and insect infestation which will be provided
by access to APD's extensive greenhouse operations;
(vii) the diversification in terms of lines of business that would be
provided by the Merger;
(viii) the willingness of APD stockholders to accept ECOSCIENCE Common Stock
as the total Merger consideration;
(ix) the recent and historical prices of ECOSCIENCE Common Stock, and the
fact that ECOSCIENCE Common Stock has decreased since its initial
public offering (see "Recent and Historical Prices of ECOSCIENCE
Common Stock," below);
(x) the risk that if the Merger or an alternative transaction is not
completed, the ECOSCIENCE Common Stock could be delisted from the
Nasdaq Stock Market for failing to meet certain continued listing
requirements with respect to net tangible assets (see "The Merger and
Fulfillment of Nasdaq Listing Requirements," below); and
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(xi) the expected ability to cohesively integrate the operations of APD and
ECOSCIENCE as a result of the familiarity with APD's operations and
management based upon past transactions between the parties and Mr.
DeGiglio's position as Chief Executive Officer of both companies.
The above listed factors considered by the Board are not intended to
include all matters considered, but are believed to include the material factors
considered by the Board. In determining that the Merger was in the best
interests of the stockholders of ECOSCIENCE, the Board considered the factors
above, and all other information available to it, as a whole. No specific or
relative weights were assigned by the Board to such factors, it being generally
impractical to do so because the decision to approve the Merger was the product
of the collective judgment of the members of the Board. Accordingly, individual
directors may have given different weights to the factors considered.
The Board has concluded that the Merger is in the best interests of the
ECOSCIENCE stockholders and, accordingly, recommends that ECOSCIENCE
stockholders VOTE FOR the approval of the issuance of Common Stock to
stockholders of APD pursuant to the terms of the Merger Agreement.
Interests of Michael A. DeGiglio In the Merger
In considering the recommendations of the Board with respect to the Merger,
stockholders of the Company should be aware that Michael A. DeGiglio, President,
Chief Executive Officer and a director of ECOSCIENCE, has interests in the
Merger that are different from or in addition to the interests of ECOSCIENCE
stockholders generally.
Mr. DeGiglio owns beneficially (or may be deemed to own beneficially)
347,658 shares of Common Stock representing 3.2% of the outstanding capital
stock of the Company. Mr. DeGiglio is also Chief Executive Officer and a
Director of APD; he served as its President until January 1997. He owns
beneficially 100 shares of the common stock of APD, representing 32.5% of the
outstanding capital stock thereof. Upon consummation of the proposed Merger and
after giving effect to the Reverse Split, Mr. DeGiglio will own beneficially (or
may be deemed to own beneficially) 3,164,439 shares of ECOSCIENCE Common Stock,
representing 27.1% of the outstanding ECOSCIENCE Common Stock. As a stockholder,
director and executive officer of each of APD and ECOSCIENCE, Mr. DeGiglio's
interests may conflict.
Management of Ecoscience Following the Merger
The Merger Agreement requires the Company to procure the resignation of E.
Andrews Grinstead III, Larry M. Nouvel and Kenneth S. Boger as Directors prior
to the consummation of the Merger. In addition, the Merger Agreement requires
the Board to appoint Albert Vanzeyst, a stockholder, director and executive
officer of APD, to fill the vacancy created by the resignation
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of Mr. Grinstead and Thomas Montanti to fill the vacancy created by the
resignation of Mr. Nouvel, in each case contingent upon the Merger. Upon
consummation of the Merger, Albert Vanzeyst will also become an Executive Vice
President of ECOSCIENCE. Mr. Vanzeyst and Mr. Montanti each own approximately 80
shares of the common stock of APD, representing 26% of the outstanding capital
stock thereof.
Also upon consummation of the Merger, J. Kevin Cobb will become Senior Vice
President-Corporate Development of ECOSCIENCE. Mr. Cobb is Senior Vice
President-Corporate Development of APD. He owns 7 7/10 shares of the common
stock of APD, representing 2.5% of the outstanding capital stock thereof. In
addition, David Suchniak, Senior Vice President and Chief Financial Officer of
APD, will become Senior Vice President and Chief Financial Officer of
ECOSCIENCE.
Effective Date and Time of the Merger;
Applicable Federal and State Regulatory Requirements
The Merger Agreement provides that upon compliance with all applicable laws
and upon receipt of any required approval of by the shareholders of each party,
a copy of the statutory Certificate of Merger: (i) shall be filed in the office
of the Secretary of State of the State of Delaware as required by Section 251(c)
of the Delaware General Corporation Law, and (ii) shall be filed in the office
of the Department of State of the State of New York as required by Section
907(e)(2) of the New York Business Corporation Law. The Merger shall become
effective when the statutory Certificate of Merger is filed and declared
effective by the Secretary of State of the State of Delaware. The Merger
Agreement provides that the "Effective Time" means the Delaware local time at
which the statutory Certificate of Merger is filed with the Secretary of State
of the State of Delaware and is effective. Apart from the foregoing, there are
no other federal or state regulatory requirements to be complied with in order
to effect the Merger.
No Appraisal Rights
Holders of ECOSCIENCE Common Stock will not be entitled to any dissenters'
or appraisal rights under Section 262 of the Delaware General Corporation Law.
Accounting Treatment of the Merger
The Company will account for the Merger as a pooling of interests. Under
this method of accounting, the assets and liabilities of ECOSCIENCE and APD will
be combined based on the respective carrying values of the accounts in the
historical financial statements of each entity. Results of operations of the
combined company will include income or loss of ECOSCIENCE and APD for the
entire fiscal period in which the combination occurs, and the historical results
of operations of the separate companies for fiscal years prior to the Merger
will be combined and reported as the results of operations of the combined
company. Consummation of the Merger is conditioned upon ECOSCIENCE receiving an
opinion from Arthur Andersen, LLP, its independent public accountant, that the
Merger will qualify as a pooling of interests. See "Conditions to the Merger,"
below.
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Federal Income Tax Consequences of the Merger
The Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The
following federal income tax consequences will occur upon a reorganization under
Section 368(a) of the Code:
(a) No gain or loss will be recognized by the Company in connection with
the Merger;
(b) The aggregate basis of the Merger Shares received by an APD
stockholder (including any fractional shares deemed received) will be
the same as the aggregate basis of the shares of APD Stock surrendered
in exchange therefor;
(c) The holding period, for tax purposes, of the Merger Shares received by
an APD stockholder in the Merger will include the holding period of
the shares of APD Stock surrendered in exchange therefor; and
(d) A stockholder of APD who receives cash in lieu of a fractional share
will recognize gain or loss equal to the difference, if any, between
such stockholder's basis in the fractional share (as described in
paragraph (b) above) and the amount of cash received; such gain or
loss will be a capital gain or loss if the shares of APD Stock held by
such APD stockholder are held as a capital asset at the Effective
Time.
Consummation of the Merger is conditioned upon APD's receiving at the closing an
opinion of Warner & Stackpole LLP, counsel to ECOSCIENCE and Agro Acquisition,
that the Merger will qualify as a reorganization under Section 368(a) of the
Code.
Recent and Historic Prices of ECOSCIENCE Common Stock
The following table sets forth recent and historic prices for ECOSCIENCE
Common Stock since its initial public offering:
Recent Price
- ------------
Most recent practicable date: 7/29/98 $1 7/32
FISCAL YEAR ENDED High Low
- ----------------- ---- ---
6/30/98 $ 2 $1
6/30/97 2 1/2 27/32
6/30/96 1 5/8 7/16
6/30/95 4 7/8 1 1/4
6/30/94 10 3/8 4 5/8
6/30/93 10 1/4 5
6/30/92 12 1/2 4 3/4
SECONDARY OFFERING - 12/93 $ 6.00
INITIAL PUBLIC OFFERING - 2/92 $11.00
Effect of Merger on Outstanding Securities
Pursuant and subject to the terms and conditions of the Merger Agreement,
at the Effective Time of the Merger and after giving effect to the proposed
Reverse Split, the shares of APD Stock shall be converted into the right to
receive in the aggregate nine million four hundred twenty-one thousand four
hundred eighty-seven (9,421,487) shares of ECOSCIENCE Common Stock, based on an
exchange ratio of 30,619.067 shares of ECOSCIENCE shares for each issued and
outstanding share of APD Common Stock (the "Exchange Ratio"). In addition, an
aggregate of 99,000 shares of ECOSCIENCE Common Stock will be issued in
connection with the Morocco Transaction. The Exchange Ratio was determined such
that the APD stockholders would own in the aggregate approximately 80%, and the
ECOSCIENCE stockholders would own in the aggregate approximately 20%, of the
total number of shares of ECOSCIENCE Common Stock expected to be issued and
outstanding on a fully diluted basis at the Effective Time. As a result, the
completion of the Merger will result in substantial dilution of the ECOSCIENCE
stockholders.
The following table sets forth information, as of July 31, 1998, with
respect to beneficial ownership of ECOSCIENCE Common Stock by each person who is
expected to be the beneficial
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<PAGE>
owner of more than five percent of ECOSCIENCE's outstanding Common Stock after
giving effect to the Merger and the Reverse Stock Split.
Shares Beneficially
Name Owned Percentage
---- ----- ----------
Michael A. DeGiglio 3,164,439 (1) 27.1%
Albert Vanzeyst 2,497,835 21.5%
Thomas A. Montanti 2,486,756 (2) 21.4%
- ----------
(1) Includes 3,485 shares held by Mr. DeGiglio's wife, as to which Mr. DeGiglio
disclaims beneficial ownership, 490,000 shares held in trust for the
benefit of Mr. DeGiglio's children that Mr. DeGiglio has no right to vote
and as to which he disclaims beneficial ownership, and 58,167 shares
issuable upon the exercise of stock options.
(2) Includes 4,231 shares held by Mr. Montanti's wife, as to which Mr. Montanti
disclaims beneficial ownership.
Resales of Merger Shares; Lock-up Agreements and Registration Rights
The Merger Shares will not be registered under the Securities Act of 1933,
as amended (the "Securities Act"). As a result, such shares will be "restricted
securities" (as such term is defined in Rule 144 promulgated under the
Securities Act) and may not be sold unless registered under the Securities Act
or sold pursuant to an applicable exemption from registration, such as Rule 144.
APD stockholders receiving Merger Shares will be required to enter into a
lock-up agreement (the "Lock-up Agreement") to the effect that such persons will
not (i) offer or sell or otherwise dispose of any shares of ECOSCIENCE Common
Stock in violation of the Securities Act of 1933, as amended (the "Securities
Act") or the rules and regulations of the Securities and Exchange Commission
("SEC") thereunder or (ii) sell, transfer or otherwise dispose of any shares of
ECOSCIENCE Common Stock until ECOSCIENCE publishes financial statements covering
at least 30 days of combined post Merger operations of ECOSCIENCE and APD.
As a condition to the consummation of the Merger, ECOSCIENCE is required to
enter into a registration rights agreement (the "Registration Rights Agreement")
with the APD stockholders which provides that holders of the Merger Shares will
have the right to (i) demand registration of the Merger Shares on three
occasions on Form S-3 if ECOSCIENCE qualifies for the use of such form and (ii)
request inclusion of Merger Shares in any registration by ECOSCIENCE, whether
for its own account, the account of other security holders or both. Registration
rights become effective on the second anniversary of the effective date of the
Merger (the "Effective Date"); provided, however, that 25% of the Merger Shares
will be accorded registration rights on the twelve-month (six-month in the case
of Mr. Montanti) anniversary date of the Effective Date and an additional 25% of
such shares will be accorded registration rights on the 18-month anniversary
date of the Effective Date. Customary expenses of such registrations will be
borne by ECOSCIENCE pursuant to the terms of the Registration Rights Agreement.
The Merger and Fulfillment of Nasdaq Listing Requirements
If the Merger or an alternative transaction is not completed, the
ECOSCIENCE Common Stock could be delisted from the Nasdaq Small Cap Market for
failing to meet certain continued listing requirements with respect to net
tangible assets.
The National Association of Securities Dealers, Inc., has among its
continued listing requirements three criteria, fulfillment of any one of which
qualifies an issuer for continued listing on the Nasdaq SmallCap Market. An
issuer must have (i) net tangible assets of at least $2,000,000; (ii) a market
capitalization of at least $35,000,000; or (iii) net income (for the last fiscal
year or for two of the last three fiscal years) of at least $500,000.
For the fiscal quarter ended March 31, 1998, the Company met the NASD net
tangible assets test. However, preliminary results for the months ended May 31,
1998 and June 30, 1998 indicate that the Company no longer meets the net
tangible assets test. Furthermore, given the current low stock price per share
of ECOSCIENCE Common Stock (a closing price of $1 7/32 on July 29, 1998),
ECOSCIENCE currently does not meet the market capitalization test. As of July
31, 1998, the Company had 10,493,955 shares of Common Stock outstanding,
resulting in a market capitalization of approximately $12.8 million. ECOSCIENCE
also does not meet the minimum net income test.
However, if the Merger were to occur, the Company expects that it could
continue to qualify for listing on the Nasdaq SmallCap Market by virtue of
meeting the market capitalization test. Upon completion of the Merger, and prior
to giving effect to the Reverse Split, the Company will issue 47,602,436 shares
of Common Stock to the APD Stockholders. Total shares of ECOSCIENCE Common Stock
then outstanding would be 58,096,391, and if valued at the closing price of
ECOSCIENCE Common Stock on the Nasdaq SmallCap Market on July 29, 1998 ($1
7/32), the total market capitalization of the merged entity would be
approximately $70.8 million, thereby meeting the market capitalization
alternative continued listing criterion for the Nasdaq SmallCap Market. There
is, however, no assurance that such a market price will be achieved and
correspondingly that the alternative market capitalization listing criterion
will be met. Thus, even if the Merger is consummated, there is a risk that
ECOSCIENCE may be delisted from Nasdaq.
Agreement to Acquire Village Farms of Morocco
The Merger Agreement provides that immediately prior to or contemporaneous
with the Effective Time of the Merger, Michael DeGiglio, Thomas Montanti and
Albert Vanzeyst, each of
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whom is a director and shareholder of APD, will sell, and Agro Acquisition will
purchase, the entire 50% ownership interest of such individuals in Village Farms
of Morocco, S.A., a Moroccan company ("VF Morocco"), for 99,000 shares of
ECOSCIENCE Common Stock. The obligation of each of ECOSCIENCE and APD to
consummate the Merger is conditioned upon the consummation of the Morocco
Transaction.
VF Morocco was established in 1994 by APD's directors and a group of
investors based in Morocco to export tomatoes grown in Morocco to Canada during
the winter. In 1997, VF Morocco began to export clementines from Morocco to
Canada. VF Morocco plans to export tomatoes and other fresh vegetables and
fruits from Morocco to the United States and Europe; however, the United States
has currently banned tomato imports from Morocco due to concerns over the
Mediterranean fruit fly. APD has advised ECOSCIENCE that the Moroccan government
has been active in efforts to have the ban repealed within the next two years.
Although the acquisition of VF Morocco is not expected to have a material effect
on APD's financial condition and operating results after the Merger, APD
believes that efforts made by VF Morocco and its shareholders to promote
additional business activities in Morocco and Europe could facilitate APD's
expansion plans.
Certain Representations and Warranties
The Merger Agreement contains customary representations and warranties by
both ECOSCIENCE and APD as to, among other things: (i) existence, good standing
and corporate authority to enter into the Merger Agreement and related
agreements; (ii) enforceability, validity and effect of the Merger Agreement and
related agreements; (iii) capitalization; (iv) ownership of subsidiaries; (v)
the compliance of the Merger Agreement and related agreements with charters,
bylaws and the law; (vi) the absence of certain material defaults or violations;
(vii) the filing of all required documents with the Securities Exchange
Commission ("SEC") and other governmental bodies; (viii) the accuracy of
financial statements; (ix) environmental matters; (x) material litigation; (xi)
material adverse changes in each party's business, results of operations,
financial condition or prospects; (xii) accounting and tax matters; (xiii)
employee benefit plans; (xiv) labor matters; (xv) intellectual property; (xvi)
real and personal property, other assets and liabilities; (xvii) material
contracts; (xviii) related party transactions; (xix) brokers; and (xx) pooling
of interests accounting treatment.
Certain Covenants
Pursuant to the Merger Agreement, ECOSCIENCE and APD have made various
customary covenants. Each of ECOSCIENCE and APD has agreed that, prior to the
Effective Time, it will conduct its operations according to its usual, regular
and ordinary course of business. Specifically, each of ECOSCIENCE and APD has
agreed, among other things:
(a) To preserve intact its business organization, relationships and
goodwill, to keep available the services of its officers and
employees, and to preserve its relationships with customers and
suppliers;
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(b) Except as contemplated by the Merger Agreement, not to (i) declare or
pay any dividends on or make distributions in respect of any of its
capital stock or other outstanding securities or interests or (ii)
repurchase capital stock;
(c) Except as contemplated in the Merger Agreement, not to issue, deliver,
sell, or authorize or propose the issuance, delivery or sale of any
shares of its equity, voting debt or other securities, nor any rights,
warrants, calls, subscriptions or options to acquire any such
securities, other than: (i) the issuance of shares of ECOSCIENCE
Common Stock upon the exercise of certain identified warrants and
stock options and (ii) the sale of shares of ECOSCIENCE Common Stock
pursuant to trading on Nasdaq;
(d) Except as contemplated by the Merger Agreement, not to amend its
certificate of incorporation or bylaws;
(e) Not to dispose of any of its assets except in the ordinary course of
business; nor to acquire or lease any additional real or personal
property, including without limitation capital equipment or
inventories, valued in the aggregate at more than $250,000; nor to
acquire any business or assets of any other entity except, in the case
of APD, as disclosed to ECOSCIENCE and in accordance with the terms of
the Merger Agreement;
(f) Except for borrowings in the ordinary course of business under credit
arrangements existing on the date of the Merger Agreement, not to
incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any
debt securities of others (provided that (i) APD may issue or
guarantee debt securities in connection with certain acquisition
transactions and may increase borrowing availability under certain
loan agreements by $60,000,000 and have issued on its behalf certain
letters of credit and (ii) ECOSCIENCE may enter into asset-based
financing arrangements not to exceed $500,000 with a specified
lender);
(g) Not to take any action that would result or would be reasonably likely
to result in: (i) the inaccuracy or untruth of any of its
representations and warranties under the Merger Agreement, (ii) its
failure to perform any covenants or satisfy any obligations thereunder
or (iii) any conditions of the Merger not being satisfied;
(h) Except as prohibited by the terms of any confidentiality agreement to
which it is a party, to confer regularly on operational matters; to
advise promptly on material adverse changes; to provide promptly
copies of all material governmental filings; and to advise promptly
prior to its filing if this Proxy Statement contains any untrue
statement of a material fact or omits to state any material fact
required to be stated herein or necessary to make the statements
contained herein, in light of the circumstances under which they were
made, not misleading;
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(i) Without the prior written consent of the other party, not to enter
into, adopt, amend (except as required by law or otherwise
contemplated by the Merger Agreement), or terminate any employee
benefit plan, arrangement, plan, policy or agreement between it and
any of its directors, officers or employees; nor, except as
contemplated by the Merger Agreement, to increase in any manner the
compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan or arrangement in effect
as of the date of the Merger Agreement;
(j) Without the written approval of the other party, not to make any
agreement or reach any understanding as a condition for obtaining any
consent, authorization, approval, order, license, certificate or
permit required for the consummation of the transactions contemplated
by the Merger Agreement;
(k) Not to become party to any contract, lease, agreement or transaction
with any member of its board of directors, any of its officers or
management employees or any of its subsidiaries or with any business
organization owned or controlled by any of them;
(l) Not to acquire any securities of the other party nor to take any
action that would prevent ECOSCIENCE from accounting for the
transaction as a "pooling of interests";
(m) To take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on it with respect to the
Merger;
(n) Upon reasonable notice and subject to restrictions contained in any
confidentiality agreements to which it may be a party, to afford to
the officers, employees and agents of the other party: (i) access
during normal business hours during the period prior to the Effective
Time to all of its properties, books, contracts, commitments and
records; (ii) copies of all documents filed or received by it pursuant
to the requirements of federal securities laws and (iii) any other
information concerning its business, properties and personnel as the
other party may reasonably request;
(o) To call and hold a stockholder meeting for the purpose of voting on
the Merger Agreement and related matters; and to cause its board of
directors to recommend stockholder approval of the same; and
(p) To use best efforts to take or cause to be taken all actions
necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by the
Merger Agreement.
Additionally, ECOSCIENCE has agreed to the following covenants:
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(a) To use best efforts to cause the Merger Shares to be listed or quoted
on Nasdaq;
(b) To deliver the Registration Rights Agreement (see "Risk Factors
Relating to the Merger");
(c) To duly and timely file all reports and documents required to be filed
by it by the SEC and to provide copies of the same to APD; such
reports and documents will not contain any untrue statement of a
material fact nor will they omit to state any material fact required
to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading;
(d) To amend its Certificate of Incorporation to (i) effect the Reverse
Split and (ii) increase its authorized shares of Common Stock to
100,000,000 and its authorized shares of Preferred Stock to
10,000,000;
(e) To procure prior to the Effective Time the resignation of each of E.
Andrews Grinstead, Larry M. Nouvel and Kenneth S. Boger as Directors
of ECOSCIENCE, and to appoint, effective as of the Effective Time,
each of Albert Vanzeyst (to fill the vacancy created by the
resignation of E. Andrew Grinstead) and Thomas Montanti (to fill the
vacancy created by the resignation of Larry M. Nouvel) as directors of
ECOSCIENCE;
(f) At or about the Effective Time, to appoint Albert Vanzeyst as an
Executive Vice President of ECOSCIENCE, J. Kevin Cobb as Senior Vice
President - Corporate Development of ECOSCIENCE and David M. Suchniak
as Senior Vice President and Chief Financial Officer of ECOSCIENCE;
and
(g) At or about the Effective Time, to take such actions as are necessary
to change ECOSCIENCE's fiscal year to a year that ends on or about
December 31.
Acquisition Proposals
The Merger Agreement requires that from and after the date of its execution
each of the parties will not, directly or indirectly, and will instruct its
respective officers, directors, employees, agents and advisers and other
representatives and consultants not to, directly or indirectly, solicit or
initiate any proposals or offers from any person relating to any acquisition or
purchase of all or a material amount of its assets or any of its securities, or
any merger, consolidation or business combination with it (any such proposal or
offer being referred to as an "Acquisition Proposal"), and shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any persons previously conducted with respect to an
Acquisition Proposal.
However, each of the parties may furnish information and may engage in
discussions or negotiations with any person if, following the receipt of an
unsolicited bona fide written Acquisition Proposal from any such person, the
party's directors believe in good faith, after consultation with its financial
advisers, that such person may make a bona fide Acquisition
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Proposal more favorable to that party's stockholders than the transactions
contemplated by the Merger. In ECOSCIENCE's case, counsel must also have advised
the Board of Directors that failure to furnish such information or engage in
such discussions could involve the Directors in a breach of their fiduciary
duties. ECOSCIENCE may make such disclosure to its stockholders which, in the
judgment of its Board of Directors with the advice of counsel, may be required
under applicable law.
ECOSCIENCE and APD have each represented and warranted to the other in the
Merger Agreement that it is not currently negotiating or having discussions with
respect to any Acquisition Proposal other than the transactions contemplated by
the Merger Agreement.
Expressly excluded from the above prohibition are any transactions in which
APD is to: (i) acquire a controlling interest in another entity or any assets of
another entity; (ii) make an equity investment in another entity; (iii) enter
into a partnership roll-up transaction; or (iv) enter into a business
combination with another entity which results in the stockholders of APD
immediately prior to such business combination owning a controlling interest in
the surviving entity.
Conditions to the Merger
The obligations of ECOSCIENCE and APD to consummate the Merger are
dependent on the fulfillment of the following conditions: (i) approval of the
transactions contemplated by the Merger Agreement by the holders of a majority
of the outstanding shares of ECOSCIENCE Common Stock and APD Stock; (ii) receipt
by ECOSCIENCE of all state securities or "Blue Sky" permits and other
authorizations necessary to issue the Merger Shares; (iii) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; (iv) all consents
identified as necessary to the transaction having been obtained; (v) receipt by
ECOSCIENCE from Arthur Andersen, LLP, of its opinion that the Merger will
qualify as a "pooling of interests"; and (vi) the consummation, immediately
prior to or contemporaneous with the Effective Time of the Merger, of the
Morocco Transaction.
The obligations of ECOSCIENCE and Agro Acquisition to consummate the Merger
are also conditioned upon fulfillment of the following conditions: (i) truth and
accuracy of all of APD's representations and warranties as of the date of the
Merger Agreement and as of the Closing Date (as defined in the Merger
Agreement); (ii) performance by APD in all material respects of all obligations,
covenants and agreements required to be performed by it under the Merger
Agreement; (c) receipt by the Board of a written opinion (the "Fairness
Opinion") of Chestnut Partners, Inc., as to the fairness of the Merger taken as
a whole to ECOSCIENCE's stockholders from a financial point of view as of the
date this Proxy Statement is first distributed to stockholders; (d) execution
and delivery by each of APD's stockholders of a lockup agreement (see "Resales
of Merger Shares; Lock-up Agreements and Registration Rights"); and (e) issuance
by Giordano, Halleran & Ciesla, counsel for APD, of its legal opinion in a form
reasonably acceptable to ECOSCIENCE and its counsel.
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The obligation of APD to consummate the Merger is also conditioned upon
fulfillment of the following conditions: (i) truth and accuracy of all of
ECOSCIENCE's and Agro Acquisition's representations and warranties as of the
date of the Merger Agreement and as of the Closing Date; (ii) performance by
ECOSCIENCE and Agro Acquisition in all material respects of all obligations,
covenants and agreements required to be performed by each of them under the
Merger Agreement; (c) issuance by Warner & Stackpole LLP, counsel for ECOSCIENCE
and Agro Acquisition, of its legal opinion in a form reasonably acceptable to
APD and its counsel; (d) issuance by Warner & Stackpole LLP of its opinion that
the exchange of shares of ECOSCIENCE Common Stock for shares of APD Common Stock
shall be a tax free exchange; (e) due filing by ECOSCIENCE of the Notification
Form for the listing on Nasdaq of the Merger Shares; (f) execution and delivery
by ECOSCIENCE of the Registration Rights Agreement (see "Resales of Merger
Shares; Lock-up Agreements and Registration Rights") and (g) due approval by the
stockholders of ECOSCIENCE of the following amendments to its Certificate of
Incorporation: (i) the Reverse Split and (ii) the increase of its authorized
shares of Common Stock to 100,000,000 and its authorized shares of Preferred
Stock to 10,000,000.
Amendment and Waiver
The Merger Agreement may be amended at any time by a written instrument by
the parties to the Merger Agreement, by actions taken or authorized by their
respective boards of directors, at any time before or after ECOSCIENCE or APD
stockholder approval of the matters presented to them in connection with the
Merger. After stockholder approval of the Merger Agreement, however, no
amendment may be made which by law would require the further approval of the
stockholders of ECOSCIENCE or APD, as the case may be.
At any time prior to the Effective Time, by means of a written instrument,
the parties to the Merger Agreement may, by action taken or authorized by their
boards of directors, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
thereto; (ii) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto; and (iii) waive
compliance with any of the agreements or conditions set forth therein.
Neither ECOSCIENCE nor the Agro Acquisition currently has any intention to
allow for such extension or make any such waiver.
Termination of the Merger Agreement
The Merger Agreement is subject to termination by mutual consent of
ECOSCIENCE and APD. The Merger Agreement may also be terminated by either party:
(i) if there shall have been a material breach of any representation, warranty,
covenant, obligation or agreement on the part of the other party set forth
therein which breach shall not have been cured, in the case of a representation
or warranty, prior to the Closing Date, or in the case of a covenant, obligation
or agreement, within two business days following receipt by the breaching party
of notice of such breach; (ii) if any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and non-appealable; or (iii) if the stockholders of
ECOSCIENCE do not approve the Merger.
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The Merger Agreement may be terminated by the board of directors of
ECOSCIENCE if ECOSCIENCE is not in material breach thereof and: (i) an entity
other than APD shall have made an unsolicited bona fide proposal for a
transaction which the ECOSCIENCE Board believes, in good faith, after
consultation with ECOSCIENCE's financial advisers, is more favorable to
ECOSCIENCE's stockholders than the transactions contemplated in the Merger
Agreement or (ii) APD's board of directors shall have: (A) withdrawn its
recommendation that the APD stockholders vote in favor of the transactions
contemplated thereby or (B) recommended or approved the acceptance or approval
by APD stockholders of any proposal for the acquisition of APD by any party
other than ECOSCIENCE.
The Merger Agreement may be terminated by the board of directors of APD if
APD is not in material breach thereof and: (i) an entity other than ECOSCIENCE
shall have made an unsolicited bona fide proposal for a transaction which the
APD board of directors believes, in good faith, is more favorable to APD's
stockholders than the transactions contemplated in the Merger Agreement or (ii)
ECOSCIENCE's Board shall have (A) withdrawn its recommendation that the
ECOSCIENCE stockholders vote in favor of the transactions contemplated thereby
or (B) recommended or approved the acceptance or approval by ECOSCIENCE
stockholders of any proposal for the acquisition of ECOSCIENCE by any other
party.
In the event the Merger Agreement is terminated by ECOSCIENCE because an
entity other than APD has made an unsolicited bona fide proposal for a
transaction which the ECOSCIENCE Board believes, in good faith, after
consultation with ECOSCIENCE's financial advisers, is more favorable to
ECOSCIENCE's stockholders than the transactions contemplated in the Merger
Agreement; or in the event the Merger Agreement is terminated by APD because
ECOSCIENCE's Board shall have withdrawn its recommendation that the ECOSCIENCE
stockholders vote in favor of the transactions contemplated thereby or
recommended or approved the acceptance or approval by ECOSCIENCE stockholders of
any proposal for the acquisition of ECOSCIENCE by any other party, ECOSCIENCE is
required to pay APD a breakup fee of $750,000.
In the event the Merger Agreement is terminated by APD because an entity
other than ECOSCIENCE has made an unsolicited bona fide proposal for a
transaction which the APD board of directors believes, in good faith, is more
favorable to APD's stockholders than the transactions contemplated in the Merger
Agreement; or in the event the Merger Agreement is terminated by ECOSCIENCE
because APD's board of directors shall have withdrawn its recommendation that
the APD stockholders vote in favor of the transactions contemplated thereby or
recommended or approved the acceptance or approval by APD stockholders of any
proposal for the acquisition of APD by any other party, APD is required to pay
ECOSCIENCE a breakup fee of $750,000.
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OPINION OF FINANCIAL ADVISOR
Chestnut Partners, Inc. ("Chestnut Partners") has acted as exclusive
financial advisor to the Strategic Alternatives Committee (the "Strategic
Alternatives Committee") of ECOSCIENCE's Board of Directors in connection with
the proposed Merger, whereby a wholly owned subsidiary of the Company, Agro
Acquisition, will merge with APD in an exchange of stock resulting in current
stockholders of APD owning 80% of the Company on a fully-diluted basis following
the Merger. Chestnut Partners has assisted the Company in its examination of the
fairness of the Merger, from a financial point of view, to the stockholders of
the Company.
The full text of Chestnut Partners' written opinion to the Board dated as
of the date of this proxy statement is attached hereto as Appendix C and is
incorporated herein by reference. The following summary of Chestnut Partners'
opinion is qualified in its entirety by reference to the full text of the
opinion. Chestnut Partners' opinion is directed to the Strategic Alternatives
Committee and does not constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the merger.
Chestnut Partners' opinion addresses only the financial fairness of the Merger
and does not address the relative merits of the Merger or any alternatives to
the Merger, the Company's underlying decision to proceed with or effect the
Merger or any other aspect of the Merger.
On April 27, 1998, Chestnut Partners delivered its oral opinion to the
Strategic Alternatives Committee to the effect that, as of the date of such
opinion, the Merger is fair to the stockholders of the Company from a financial
point of view. Chestnut Partners has subsequently rendered a written opinion to
the effect that, as of May 11, 1998, the Merger is fair, from a financial point
of view, to such stockholders. The full text of the written opinion, which sets
forth the assumptions made, procedures followed, matters considered and scope of
review by Chestnut Partners in rendering its opinion, is attached as Appendix C
to this Proxy Statement and is incorporated herein by reference. Stockholders
are urged to read the Chestnut Partners opinion in its entirety. The summary set
forth below does not purport to be a complete description of such materials or
presentations by Chestnut Partners.
In arriving at its opinion, Chestnut Partners (i) reviewed the Agreement
and Plan of Merger (the "Merger Agreement"); (ii) reviewed publicly available
financial information of ECOSCIENCE for recent years and interim periods to
date; (iii) reviewed certain internal financial and operating data of
ECOSCIENCE; (iv) compared certain financial and securities trading data of
ECOSCIENCE with data for certain other publicly traded companies deemed
comparable; (v) reviewed historical market prices and trading volumes of
ECOSCIENCE's shares; (vi) reviewed prices and premiums offered in other similar
transactions'; (vii) reviewed APD's financial statements and certain other
relevant operating data provided by APD management; (viii) held meetings and
discussions with management and senior personnel of ECOSCIENCE and APD to
discuss the business, operations, historical financial results and future
prospects of ECOSCIENCE, APD and the combined company; (ix) reviewed financial
projections for both ECOSCIENCE and APD prepared by ECOSCIENCE and APD,
respectively; (x) analyzed the respective contributions of revenues, operating
income and net income of ECOSCIENCE and APD to the combined company based upon
the historical and projected results of ECOSCIENCE and APD provided by
management of ECOSCIENCE and APD, respectively, excluding the possible effects
of cost savings, synergies and the elimination of inter-company sales resulting
from the Merger; (xi) reviewed the valuation of APD in
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comparison to other similar publicly traded companies; (xii) reviewed this Proxy
Statement of the Company dated May 11, 1998; and (xiii) conducted such other
financial studies, analyses and investigations as Chestnut Partners deemed
appropriate for purposes of its opinion. In addition, Chestnut Partners relied,
without independent verification, on the accuracy and completeness of all
financial and other information that was publicly available or furnished to it
by the Company. Chestnut Partners further assumed that financial projections
examined by Chestnut Partners were reasonably prepared on bases reflecting the
best currently available estimates and good faith judgments of ECOSCIENCE's
management and APD's management as to the future performance of ECOSCIENCE and
APD, respectively. In rendering its opinion, Chestnut Partners did not make or
obtain appraisals of the Company's assets or liabilities (contingent or
otherwise). In addition, in accordance with the Strategic Alternatives
Committee's instructions regarding Chestnut Partners' review of the Merger,
Chestnut Partners did not solicit third party indications of interest in
acquiring all or any part of the Company in connection with its investigation or
advise the Strategic Alternatives Committee with respect to alternatives to the
Merger. No other limitations were imposed by the Strategic Alternatives
Committee upon Chestnut Partners with respect to the investigations made or
procedures followed by Chestnut Partners in rendering its opinion.
Chestnut Partners believes that its analyses must be considered as a whole,
and that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the processes underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Chestnut Partners' opinion is necessarily based on general
economic, market, financial and other conditions as they exist on, and can be
evaluated as of, the date hereof, as well as the information currently available
to it. It should be understood that, although subsequent developments may affect
Chestnut Partners' opinion, it does not have any obligation to update, revise or
reaffirm its opinion. Chestnut Partners' opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Chestnut Partners' opinion does not imply any conclusion as to
the likely trading range for the combined company's Common Stock following
consummation of the Merger or otherwise, which may vary depending on numerous
factors that generally influence the price of securities. Chestnut Partners'
opinion is limited to the fairness, from a financial point of view, of the terms
of the Merger to the stockholders of the Company. Chestnut Partners expresses no
opinion with respect to any other reasons, legal, business or otherwise, that
may support the decision of the Board of Directors of the Company or the
stockholders to approve the Merger Agreement.
For purposes of rendering its opinion, Chestnut Partners assumed in all
respects material to its analysis that the representations and warranties of
each party contained in the Merger Agreement are true and correct, that each
party will perform all of the covenants and agreements required to be performed
by it under the Merger Agreement and that all conditions to the consummation of
the Merger will be satisfied without waiver thereof. In addition, Chestnut
Partners has assumed that all governmental, regulatory or other consents and
approvals contemplated by the Merger Agreement will be obtained, and that in the
course of obtaining any
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of those consents, no restrictions will be imposed nor waivers will be made that
would have an adverse effect on the contemplated benefits of the Merger.
Chestnut Partners has also assumed, with the Company's permission, that (i)
the Merger will be treated as "pooling of interests" for accounting purposes,
and (ii) the Company will receive all issued and outstanding APD Common Stock in
exchange for the issuance of Common Stock of the Company representing 80% of the
outstanding shares of Common Stock on a fully-diluted basis following the
Merger. Chestnut Partners expresses no opinion, nor has it conducted any
analysis, with respect to a transaction that does not contemplate the
aforementioned accounting treatment and structure.
Chestnut Partners, in delivering its opinion and making its presentations
to the Strategic Alternatives Committee, considered and presented the following
financial and comparative analyses of various indicators of value of the Company
and fairness from a financial point of view of the proposed Merger:
Contribution Analysis
Chestnut Partners analyzed the respective contributions of actual revenues,
earnings before interest and taxes ("EBIT") and net income of ECOSCIENCE and APD
to those of the combined company based upon the historical financial results of
ECOSCIENCE (based on a December 31 calendar year end) and APD (based on a
December 31 fiscal year end) provided by management of ECOSCIENCE and APD,
respectively, excluding the possible effect of cost savings, synergies and
elimination of inter-company sales resulting from the Merger. This analysis
showed that for calendar years December 31, 1996 and December 31, 1997,
ECOSCIENCE would have contributed to the combined company 61.9% and 48.2% of
revenues, 0.0% and 0.0% of EBIT, and 0.0% and 0.0% of net income, respectively.
Chestnut Partners also noted that ECOSCIENCE reported EBIT and net income losses
for both calendar years ending December 31, 1996 and 1997.
Chestnut Partners also analyzed the respective contributions of estimated
revenues, EBIT and net income of ECOSCIENCE and APD to the combined company
based upon the projected financial results of ECOSCIENCE and APD (based on a
December 31 fiscal year end for both ECOSCIENCE and APD), excluding the possible
effect of cost savings, synergies and elimination of inter-company sales
resulting from the Merger. This analysis showed that ECOSCIENCE would contribute
to the combined company 32.0% and 28.4% of revenues, 0.0% and 5.1% of EBIT, and
0.0% and 17.7% of net income for fiscal years ending December 31, 1998 and 1999,
respectively. Chestnut Partners analyzed the respective contribution to
estimated revenues, operating income and net income based on: (i) projections
for ECOSCIENCE prepared by ECOSCIENCE's management (the "Management
Projections") (for the years ended December 31, 1998 and 1999); and (ii) APD's
projections provided by APD's management (for the years ended December 31, 1998
and 1999).
Chestnut Partners noted that the contribution analysis suggested that APD
is projected to contribute a significant percentage of the revenue growth of the
combined company. More importantly, APD is projected to be the significant
contributor of profitability based upon EBITDA, EBIT and net income.
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Discounted Cash Flow Analysis
Chestnut Partners estimated a potential range of values of ECOSCIENCE based
on the present value of future cash flows and residual equity value projected by
management of ECOSCIENCE from January 1, 1998 through December 31, 2001. Using
the information set forth in the Management Projections, Chestnut Partners
calculated an estimated "free cash flow" of the Company in the aggregate based
on projected unleveraged net income (earnings before interest and after taxes)
adjusted for (i) certain projected non-cash items (i.e., deferred taxes,
depreciation and amortization); (ii) projected capital expenditures; and (iii)
projected changes in non-cash working capital investment. ECOSCIENCE's free cash
flows were then discounted to present values as of January 1, 1998 using
discount rates ranging from 12.4% to 14.4%. To estimate the residual equity
value of the Company at the end of the time period covered by the Management
Projections, Chestnut Partners applied terminal multiples of 7.0 to 9.0 times
ECOSCIENCE's estimated EBIT for December 31, 2002 and discounted these estimates
to January 1, 1998 present values using the same discount rates as described
above. Chestnut Partners then summed the present values of the free cash flows
and residual equity values described above, which, after adjusting for total
debt (including capital lease obligations), excess cash, notes receivable, and
option proceeds (collectively, the "Corporate Adjustments"), implied a fully
diluted share value for ECOSCIENCE of (i) $1.50 per share at a 12.4% discount
rate and 9.0 times terminal EBIT multiple; (ii) $1.30 per share at a 13.4%
discount rate and 8.0 times terminal EBIT multiple; and (iii) $1.12 per share at
a 14.4% discount rate and 7.0 times terminal EBIT multiple.
Chestnut Partners further noted that the discounted cash flow analysis
indicated a per share value for the common stock of ECOSCIENCE that was not
significantly different from ECOSCIENCE's trading range both prior to and after
the announcement of the proposed merger with APD.
Analyses of Comparable Companies
In connection with its comparable company analyses, Chestnut Partners
indicated that it was difficult to identify public companies that were directly
comparable to ECOSCIENCE and APD. Chestnut Partners stated that the principal
reasons for this difficulty concerned the fact that, among other things, the
Company's principal competitors were not stand-alone public companies, but in
many cases divisions of significantly larger companies or private companies, for
which little or no significant financial information was available. The six
publicly traded companies that were ultimately chosen for Chestnut Partners'
analysis were confirmed in discussions with the Company's management as
representing the best available universe of comparable companies. These
companies were Consep Inc., Eco Soil Systems Inc., Ecogen Inc., Mycogen Corp.,
Ringer Corp., and Terra Industries Inc.
Chestnut Partners presented a range of multiples based on the current
market prices (as of April 22, 1998) and the latest four-quarter operating
results of the six companies and derived implied equity valuations of the
Company calculated by applying the median multiples so presented to the
appropriate latest four-quarter operating statistics of ECOSCIENCE (as of
December 31, 1997). The information presented included the following: (i) the
median multiple for the Market Capitalization (defined as total common shares
and common shares equivalents outstanding multiplied by market price per share,
minus total cash and cash equivalents) to the
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latest four-quarter sales of the six companies was 0.93x, which when applied to
the Company's latest four-quarter sales indicated a value of $1.72 per share;
(ii) the median multiple for Market Capitalization to the latest four-quarter
gross margin of the six companies was 2.11x, which when applied to the Company's
latest four-quarter gross margin indicated a value of $0.94 per share; (iii) the
median multiple for Market Capitalization to the latest four-quarter EBITDA
(defined as earnings before interest, taxes, depreciation and amortization ),
EBIT and net income was not applied to ECOSCIENCE's negative EBITDA, EBIT and
net income; (iv) the median multiple for the Market Capitalization to the latest
four-quarter book value of the six companies was 2.43x which when applied to the
Company's latest four-quarter book value indicated a value of $0.82 per share;
and (v) the median multiple for the projected calendar year 1998 P/E Ratio
(current market price divided by projected earnings per share) of the six
companies was 29.15x, which was not applied to ECOSCIENCE's projected negative
net income for calendar year 1998.
Chestnut Partners pointed out that the above analysis in general should be
accorded less weight in light of the difficulties associated with defining a
directly comparable company universe and the resulting differences in the
businesses as indicated by the Company's financial performance relative to the
financial performance of the six companies used in the above analysis. Based on
the operating results for the six companies for the latest four-quarter period,
and the operating results of the Company for the latest four-quarter period
ended December 31, 1997, such analysis further demonstrated the following: (i)
the median gross margin for the six companies was approximately 36.3% compared
to a gross margin of approximately 24.0% for the Company; (ii) the median EBITDA
margin for the six companies was approximately 2.3% compared to an EBITDA margin
of approximately -1.0% for the Company; (iii) the median EBIT margin for the six
companies was approximately 10.0% compared to an EBIT margin of approximately
- -2.0% for the Company; (iv) the median net income margin for the six companies
was approximately 1.7% compared to a net income margin of approximately -3.0%
for the Company. Chestnut Partners also noted that this analysis should be
accorded less weight due to the fact that only one of the six companies had
positive net income, only one of the six companies had positive EBIT earnings,
and only three of the six companies had positive EBITDA earnings over the latest
four-quarter period ending December 31, 1997. On the other hand, Chestnut
Partners noted that APD had been profitable for the previous three calendar
years (December 31, 1995, 1996 and 1997).
Analysis of Comparable Transactions
Chestnut Partners presented a range of multiples paid in selected
comparable mergers and acquisitions (the "Comparable Transactions") dating from
January 1, 1995 through April 22, 1998, based upon the transaction's purchase
price and the operating results of the acquired companies for the latest
available four-quarter period prior to being acquired. Chestnut Partners derived
implied equity valuations of the Company calculated by (i) applying the median
multiples of Comparable Transactions to the appropriate latest four-quarter
operating statistics of the Company; and (ii) making the appropriate Corporate
Adjustments. Again, Chestnut Partners indicated that it was not able to identify
a significant number of directly comparable public transactions within the
Company's industry. Most of the transactions selected involved companies in
closely related, but not directly comparable, businesses. The information
presented included the following: (i) the median multiple for the Adjusted
Purchase Price (defined as the purchase price plus total debt and capitalized
leases, less total cash and cash equivalents) to the latest four-quarter sales
of the acquired companies in the Comparable Transactions was 1.2x, which when
applied to the Company's latest four-quarter sales as of December 31, 1997,
indicated a value of $2.15 per share; (ii) the median multiple of Adjusted
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Purchase Price to the latest four-quarter gross margin of the acquired companies
in the Comparable Transactions was 4.5x, which when applied to the Company's
latest four-quarter gross margin indicated a value of $2.00 per share; (iii) the
median multiple of Adjusted Purchase Price to the latest four-quarter EBITDA of
the acquired companies in the Comparable Transactions was 13.7x, which was not
applied to the Company's negative latest four-quarter EBITDA; (iv) the median
multiple for the Adjusted Purchase Price to the latest four-quarter EBIT of the
acquired companies in the Comparable Transactions was 12.9x, which was not
applied to the Company's negative latest four-quarter EBIT; and (v) the median
multiple for the Adjusted Purchase Price to the latest four-quarter net income
of the acquired companies in the Comparable Transactions was 75.5x, which was
not applied to the Company's negative latest four-quarter net income.
Chestnut Partners pointed out that the above analysis in general should be
accorded less weight in light of the difficulties associated with finding
directly Comparable Transactions and the resulting differences in the businesses
as indicated by the Company's financial performance relative to the financial
performance of the acquired companies used in the above multiple analyses. Based
on operating results of the acquired companies for the latest four-quarter
period prior to being acquired, and operating results of the Company for the
latest four-quarter period ending December 31, 1997, such analysis further
demonstrated the following: (i) the median gross margin for the acquired
companies in the selected Comparable Transactions was approximately 20.3%,
compared to the gross margin of approximately 24.0% for the Company; (ii) the
median EBITDA margin for the acquired companies in the Comparable Transactions
was approximately 15.7%, compared to the EBITDA margin of approximately -1.0%
for the Company; (iii) the median EBIT margin for the acquired companies in the
Comparable Transactions was approximately 16.8%, compared to the EBIT margin of
approximately -2.0% for the Company; and (iv) the median net income margin for
the acquired companies in the Comparable Transactions was approximately 7.0%
compared to the net income margin of approximately -3.0% for the Company.
Common Stock Price Analysis
Chestnut Partners also analyzed the historical performance of the common
stock of ECOSCIENCE. On November 19, 1997, the day before the announcement of
the Merger (November 20, 1997), the closing market stock price was $1.19. The
average closing market price of the Company's stock for the period January 2,
1997 to November 19, 1997 (the "year-to-date period") was $1.35, with a $2.50
high and a $0.84 low. The average closing market price of the Company's stock
for the period November 19, 1996 to November 19, 1997 (the "last-twelve months
period") was $1.31, with a $2.50 high and a $0.84 low. Based upon the closing
market price, Chestnut Partners further noted that during the year-to-date
period, 42.2% of the Company's trading volume occurred between $1.00 and $1.25,
and 36.9% of the Company's trading volume occurred between $1.26 and $1.50.
Chestnut Partners also compared the historical total return of the Company's
stock to four comparable companies. Over the time period of December 31, 1992 to
April 30, 1998, the Company realized a decrease in value of (74.0)%. In
comparison, the Nasdaq composite index realized a total return of 176.0%, Consep
Inc.(CSEP) decreased (76.0)%, Ecogen Inc. (EECN) decreased (93.8)%, Eco Soil
Systems, Inc. (ESSI) appreciated 120.0%, Mycogen Corp. (MYCO) appreciated 46.4%,
Ringer Corp. (RING) decreased (23.8)% and Terra Industries, Inc. (TRA)
appreciated 126.3%.
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Other Factors
The Chestnut Partners materials presented to the Strategic Alternatives
Committee noted certain other significant factors for the consideration of the
Strategic Alternatives Committee in evaluating the Merger. Included in these
factors were, among other things, (i) the timing of the transaction in relation
to current market and industry trends; (ii) the Company instructing Chestnut
Partners not to solicit alternative transactions or to advise the Company with
respect to alternatives to the Merger; (iii) the general growth and
profitability prospects of both the Company and APD; and (iv) the current and
projected market conditions for both the Company's and APD's products.
The summary set forth above includes all material aspects of, but does not
purport to be a complete description of, the analyses performed by Chestnut
Partners. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Chestnut Partners did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
notwithstanding the separate factors summarized above, Chestnut Partners
believes, and has advised ECOSCIENCE's Strategic Alternatives Committee, that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the process underlying its opinion.
In performing its analyses, Chestnut Partners made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of ECOSCIENCE and APD. These
analyses performed by Chestnut Partners are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses or securities may actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty and none of
ECOSCIENCE, APD, Chestnut Partners or any other person assumes responsibility
for their accuracy. As mentioned above, the analyses supplied by Chestnut
Partners and its opinion were among several factors taken into consideration by
ECOSCIENCE in making its determination to enter into the Merger Agreement. The
analyses of Chestnut Partners and its opinion should not be considered as
determinative of such decision.
Chestnut Partners, as part of its investment banking business, is engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings by other investment banks, private
placements and valuations for corporate and other purposes. Chestnut Partners
has not previously furnished any financial advisory services to the Company or
its affiliates.
In connection with its financial advisory services, Chestnut Partners
received a fee of $250,000, which fee was not contingent upon a favorable
opinion or the consummation of the proposed transaction. In addition, the
Company has agreed to reimburse Chestnut Partners for its reasonable
out-of-pocket expenses incurred during its engagement and to indemnify Chestnut
Partners and hold it harmless against any losses, claims, damages or
liabilities, joint or several, arising out of or in connection with its
rendering of services under its engagement. As
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of May 11, 1998, Chestnut Partners owned no ECOSCIENCE or APD shares for its own
account.
MATERIAL TRANSACTIONS BETWEEN ECOSCIENCE AND APD
Product Sales
ECOSCIENCE sold products to APD, its largest customer, in the amount of
$4,128,000 or 23% of products sales for the nine months ended March 31, 1998 and
$2,954,000 or 14% of products sales for the fiscal year ended June 30, 1997.
ECOSCIENCE primarily sold the following products to APD during the nine months
ended March 31, 1998 and the fiscal year ended June 30, 1997:
1) Fixed assets - Sorting, Grading and Packing systems, ISYS systems,
cart systems and a water transport system.
2) Growing systems based on Grodania A/S's Stonewool(R) inert growing
medium and seed.
3) Multiple greenhouse consumable products, including clips, hooks, twine
and covering material.
Material Contracts and Purchase Orders
Product purchases by APD frequently occur under standard purchase orders
issued for each shipment; certain larger dollar purchases of systems and
equipment may occur under individual contract. Material contracts and purchase
orders between APD and ECOSCIENCE fall into the following categories:
Irrigation Systems Contracts: Five contracts provide for delivery of
irrigation systems to the Buffalo, Fort Davis, Marfa, Virginia and Wheatfield
facilities. Aggregate consideration is approximately $1.6 million. Terms of
payment generally provide for a deposit upon signing of the sales contract and
additional installment payments upon completion of certain specified milestones.
Several of the contracts also provide for training of personnel on computer
systems related to the irrigation systems.
Sorting, Grading & Packing Systems Purchase Orders: Four purchase orders
provide for delivery of Sorting, Grading & Packing systems to the Fort Davis,
Keystone, Marfa and Virginia facilities for aggregate consideration of
approximately $1.3 million. The purchase orders specify payment of a deposit
prior to shipping and additional installment payments upon delivery,
installation, and other specified milestones.
Apportioned Costs of Certain Facilities and Personnel
ECOSCIENCE and APD share certain facilities and other costs for which
ECOSCIENCE charged APD $39,000 for the fiscal year ended June 30, 1997. The
shared facilities currently consist of two facilities ECOSCIENCE leases in New
Jersey. APD is charged occupancy costs,
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including facility lease, utilities and other costs, based on their
proportionate occupancy and usage. In addition, certain employees of each
company perform shared duties. Each of ECOSCIENCE and APD contributes that
portion of each such employee's salary that reflects the proportionate amount of
work done for that entity.
ECOSCIENCE management believes that prices and fees charged to APD for
products, facilities, and costs have been consistent with what would be charged
in arm's length transactions.
MARKET PRICES FOR ECOSCIENCE COMMON STOCK
The Company's Common Stock is traded on the National Association of
Securities Dealers Automatic Quotation System ("Nasdaq") Small Capitalization
Market System under the Nasdaq symbol "ECSC". As of June 30, 1998, there were
approximately 268 holders of record of ECOSCIENCE Common Stock. The Company has
never declared or paid any cash dividends on the ECOSCIENCE 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 ECOSCIENCE Common Stock as reported by
Nasdaq based on published financial sources.
1998 High Low
-------------------------- ------------- ------------
Fourth Quarter ........................ $ 1 26/32 $ 1
Third Quarter ......................... 1 30/32 1 7/32
Second Quarter ........................ 2 1 3/16
First Quarter ......................... 1 9/16 1 1/16
1997 High Low
-------------------------- ------------- ------------
Fourth Quarter ........................ $ 1 3/4 $ 27/32
Third Quarter ......................... 2 1/2 1
Second Quarter ........................ 1 3/8 7/8
First Quarter ......................... 1 5/8 1
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
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INFORMATION CONCERNING ECOSCIENCE
Description of Business
ECOSCIENCE is engaged in the technical marketing, sales, development and
commercialization of products and services for the following major markets: (i)
specialty agriculture; (ii) postharvest fruits and vegetables; and (iii)
biological insect control for consumer and industrial applications. The Company
provides: (i) sophisticated growing systems to greenhouse operators; (ii)
technologically advanced sorting, grading and packing systems to produce
packers; (iii) equipment, coatings and disease control products, including
natural biologicals for protecting fruits, vegetables and ornamentals in storage
and transit to market; and (iv) biological pest control products to consumers
and industry.
ECOSCIENCE serves the specialty agriculture market through its three
subsidiaries: Agro Dynamics, Inc. and Agro Dynamics Canada Inc. (collectively,
"AGRO") and EcoScience Produce Systems Corp. ("EPSC"). 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 engineers, designs, markets and
distributes advanced technologies, products, growing systems and services for
the North American intensive farming, horticulture, nursery and produce packing
industries. On May 24, 1994, ECOSCIENCE acquired certain assets and liabilities
of American Machinery Corporation ("AMC"), an Orlando, Florida based business
that provided 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 certain assets and
liabilities of AMC, ECOSCIENCE formed EPSC to combine the AMC product line and
operating unit with ECOSCIENCE 's existing activities in those markets.
ECOSCIENCE sells termite control products for use in consumer and industrial
applications through a marketing collaboration with Terminix International
Company L.P. ("Terminix"). Additionally, ECOSCIENCE has initiated an extensive
testing, development and marketing program with Maruwa Biochemical Co., Ltd.
("Maruwa Biochemical") for termite control products in Japan (see "Collaborative
Agreements").
ECOSCIENCE's primary products are (i) advanced growing systems based on
Stonewool(R), manufactured by Grodania A/S, (ii) sophisticated sorting, grading
and packing systems manufactured by Aweta, B.V., (iii) computerized
environmental and irrigation control systems manufactured by H. Hoogendorn
Automation B.V., (iv) PacRite(R) and Indian River Gold(TM) coatings manufactured
by EPSC, (v) Bio-Save(R) PostHarvest BioProtectant line of products and (vi)
Bio-Blast(R) Biological Termiticide manufactured by ECOSCIENCE. In addition,
ECOSCIENCE distributes a broad array of specialty products used in greenhouses
and in fruit, vegetable and ornamental packing.
ECOSCIENCE 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/or customer service
offices in Visalia, California; Ventura, California;
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Littleton, Colorado; Union Gap, Washington; Milton, Ontario, Canada and Mexico;
and a technical product sourcing office in the Netherlands.
ECOSCIENCE's technology encompasses the development and application of
natural microbial pest control agents. ECOSCIENCE 's technology enables it to
provide products and technical support for consumer and industrial insect
control applications, and growers and packers of specialty crops. ECOSCIENCE
also conducts research on the use of microbial agents to control plant diseases,
post-harvest diseases on fruits and vegetables and insect pests, as well as on
new applications for natural coatings to sustain nutrition and overall quality
in fresh fruits and vegetables.
In fiscal year ended June 30, 1997, ECOSCIENCE (i) expanded marketing of
its Bio-Save line of products for the control of postharvest fruit diseases in a
wide range of commercial applications, (ii) initiated the U.S. commercial launch
of its Bio-Blast Biological Termiticide ("Bio-Blast") and (iii) began research
on a USDA funded Phase-2 Small Business Innovation Research ("SBIR") program on
the prevention of postharvest diseases of bananas, which will continue through
fiscal years 1998 and 1999. In addition, ECOSCIENCE expects to conduct tests to
extend the range of performance and applicability for both its Bio-Save line of
products and for its Bio-Blast insect control product.
Products
ECOSCIENCE '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 consumer and
industrial applications.
Specialty Agriculture
ECOSCIENCE, through AGRO, engineers, designs, markets and distributes
commercial products and provides services to the greenhouse, horticulture and
nursery markets in the United States, Canada and Mexico.
Commercial Products
Growing Systems. ECOSCIENCE is the exclusive distributor in the United
States, Canada, Mexico and the Carribbean of the Grodan brand of stonewool, an
inert growing medium supplied by Grodania A/S, a Denmark based wholly owned
subsidiary of Rockwool International A/S. Stonewool is made by melting rock,
processing it to a fibrous material which can be flocculent or formed into solid
structures. It is both solid and porous and designed to support the hydroponic
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 distribution agreement expires on December
31, 2000. The sale of products under the distribution agreement with Grodania
A/S accounted for 42%, 45% and 43% of the Company's total product sales in
fiscal 1997, 1996 and 1995, respectively. ECOSCIENCE believes that
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revenues under this distribution agreement will account for more than 10% of
ECOSCIENCE 's consolidated product sales in fiscal 1998.
Automated Irrigation and Environmental Control Systems. ECOSCIENCE through
its ISYS(R) Division engineers, designs, fabricates, assembles and distributes
greenhouse irrigation and fertilization systems, computerized environmental
control systems and application products. In addition, to these products and
systems, ECOSCIENCE provides customers with technical support, product service,
turnkey installation, product marketing and other supplementary services.
ECOSCIENCE is the exclusive distributor in the United States, Canada and Mexico
of computerized environmental control systems and accessories produced by H.
Hoogendoorn Automation B.V, a Netherlands based company. ECOSCIENCE also
distributes various accessories and other product lines for use in the intensive
farming, horticulture and nursery industries in the North American market on
both an exclusive and non-exclusive basis.
Postharvest Industry
The fruit and vegetable production industry requires specialized services,
equipment and products for the harvesting, processing and storage of produce.
Through AGRO and EPSC, ECOSCIENCE provides equipment, coatings and disease
control products to the fruit, vegetable and ornamental packing markets.
Commercial Products
Sorting, Grading and Packing. Once harvested, produce must be sorted,
graded and packaged for shipment and storage. ECOSCIENCE is the exclusive
distributor in the United States, Canada, Mexico and the Caribbean of
computerized color, weight and size sorting, grading and packing automated
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 26% and 20% of ECOSCIENCE 's total product sales in fiscal 1997
and 1996, respectively. ECOSCIENCE believes that revenues under this
distribution agreement will account for more than 10% of the ECOSCIENCE 's
consolidated product sales in fiscal 1998.
Traditional Coating Products. Prior to shipping or storage, fruits and
vegetables are typically treated with a variety of processing and storage aids.
These are designed to enhance the appearance and preserve the quality of stored
produce. ECOSCIENCE 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(R) and DURA-FRESH(R). 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 ECOSCIENCE 's Bio-Save 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)
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maintaining firmness of the fruit or vegetable. ECOSCIENCE's traditional coating
products contain materials that are U.S. Food and Drug Administration ("FDA")
approved additives or have been listed by the FDA as "Generally Recognized As
Safe" ("GRAS") and accordingly, these coatings do not require FDA approval or
registration. PacRite, SEALBRITE, and Indian River Gold currently are sold by
ECOSCIENCE in the United States, the Caribbean, Central America and South
America.
Bio-Save PostHarvest BioProtectant. The Bio-Save line of biological disease
inhibitors 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. ECOSCIENCE has developed and
registered with the U.S. Environmental Protection Agency ("EPA") biological
products for sale using the naturally occurring microorganism, Pseudomonas
syringae, 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. ECOSCIENCE has conducted successful field
trials over the last five years utilizing these microbial disease inhibiting
agents in Florida, California, Oregon, West Virginia, Massachusetts, Michigan
and Washington; and in Chile. ECOSCIENCE initiated commercial product launch of
its Bio-Save products in fiscal 1997 and plans for wider product marketing and
development in fiscal 1998. In 1997, ECOSCIENCE received EPA registration for
the use of Bio-Save on cherries and continues to investigate the application of
Bio-Save to control other postharvest diseases on fruits and vegetables, such as
on potatoes.
Biological Insect Control
In the biological insect control market, ECOSCIENCE, 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. ECOSCIENCE, together with its
collaborator, Terminix, has developed a natural fungal product to control
termites, Bio-Blast Biological Termiticide (see "Collaborative Agreements").
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, a naturally occurring insect killing fungus. The product is a dry,
wettable powder, packaged and portioned for ease of storage and use; and used as
a water suspension. Through commercial trials, ECOSCIENCE has demonstrated that
Bio-Blast is an effective method for the control of termite infestations.
ECOSCIENCE 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(R) effect. ECOSCIENCE received EPA product registration for
the termiticide in October 1994, and subsequently received approval for
registration from 48 states. In fiscal 1996, ECOSCIENCE
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made its initial sales to both Terminix and Maruwa Biochemical. In fiscal 1997,
ECOSCIENCE initiated the U.S. commercial launch of Bio-Blast in collaboration
with Terminix.
Sales and Distribution
Specialty Agriculture Products. ECOSCIENCE sells directly into this market
through AGRO. AGRO has a force of 28 people involved in sales, marketing and
distribution, engineering and design, and system installation and service at its
distribution and service centers in East Brunswick, New Jersey; Milton, Ontario,
Canada; and Ventura, California, and in its sales/service office in Littleton,
Colorado.
Postharvest Packing. ECOSCIENCE uses its AGRO and EPSC direct sales
operations to market and sell its sorting, grading and packing equipment, and
its traditional 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 nine people located in its distribution and service centers in Orlando,
Florida and Visalia, California. AGRO has a force of eight people involved in
sales and marketing, engineering and design, and system installation and service
in this market at its sales and service centers in Union Gap, Washington;
Milton, Ontario, Canada; East Brunswick, New Jersey and Littleton, Colorado.
Biological Pest Control. In June 1992, ECOSCIENCE 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 fiscal 1996, ECOSCIENCE initiated
sales to Terminix for its Bio-Blast termiticide product and in fiscal 1997
initiated the U.S. commercial launch of the product in collaboration with
Terminix.
International Sales. ECOSCIENCE expects to market products internationally
primarily through local and regional distributors and partners. ECOSCIENCE has a
development and distribution agreement with Maruwa Biochemical for distribution
of its initial biological insect control product and is in the process of
extending this agreement to its Bio-Blast Biological Termiticide in Japan upon
registration there (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, incorporated by reference to this Proxy Statement.
Manufacturing
ECOSCIENCE has established supply arrangements for the production of fungal
conidia, the active ingredient in the Bio-Blast product. Upon receipt of the raw
active ingredient, ECOSCIENCE processes, formulates and packages this material
using proprietary processes to produce the Bio-Blast product in its Orlando,
Florida manufacturing facility.
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Traditional coating products are manufactured at the EPSC facility in
Orlando, Florida. Production of ECOSCIENCE's biological postharvest fruit
disease control product, Bio-Save, requires large-scale fermentation and
formulation capacity. Currently, a single sub-contractor manufactures the
Bio-Save products for ECOSCIENCE. However, ECOSCIENCE believes other entities
would be capable of manufacturing these products. Although, to date, ECOSCIENCE
has been able to acquire a sufficient supply of the Bio-Save product for its
commercial sales; the inability of the sub-contractor to meet ECOSCIENCE's needs
for the Bio-Save products or a change in supplier could cause a delay in filling
orders, as well as a possible loss of sales, which would affect operating
results adversely.
Collaborative Agreements
U.S. Department of Agriculture. Lyme disease has become, in recent years, a
disease of significant public and medical concern through the US, particularly
in the Northeast. The disease is spread to people through the bite of several
species of ticks. ECOSCIENCE has signed a Material Transfer Agreement with the
United States Department of Agriculture's Agricultural Research Service ("ARS"),
whereby ECOSCIENCE provides formulated Metarhizium anisopliae to the ARS to
support their field trials against tick larvae. Laboratory trials conducted with
this fungus indicated good killing activity towards the tick larvae. Should
these trials be successful, ECOSCIENCE will consider further commercial
development of a product for the control of ticks capable of spreading Lyme
disease.
Maruwa Biochemical Co., Ltd. In June 1993, ECOSCIENCE entered into a
Development and Distribution Agreement with Maruwa Biochemical (the "Maruwa
Agreement") to commercialize ECOSCIENCE's initial biological insect control
product in Japan. In addition, ECOSCIENCE has shipped product to and is working
with Maruwa on commercialization of its Bio-Blast product in Japan. Under the
Maruwa Agreement and a proposed extension thereto, Maruwa Biochemical will
pursue at its own expense the registration and commercialization of ECOSCIENCE's
biological termite control product in Japan, including the initiation of field
trials and, if required, the commencement of toxicology studies. At this time
emphasis has shifted to the Bio-Blast product and ECOSCIENCE anticipates
entering into a formal agreement with Maruwa for the Bio-Blast product.
Following receipt of all required approvals, Maruwa Biochemical is obligated to
distribute certain products sold to Maruwa Biochemical by ECOSCIENCE at prices
to be determined by agreement.
The Terminix International Company, L.P. In June 1992, ECOSCIENCE 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
ECOSCIENCE 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. ECOSCIENCE has retained all rights elsewhere.
ECOSCIENCE manufactures and sells products to Terminix at an agreed markup over
ECOSCIENCE's manufacturing cost. ECOSCIENCE will share in 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 ECOSCIENCE's
biological termite control technology, subject to Terminix's right to terminate
the agreement at any time. ECOSCIENCE
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received EPA product registration for the termite control product in October
1994, and subsequently received approval for registration from 48 states. In
October 1996, ECOSCIENCE and Terminix initiated the U.S. commercial launch of
Bio-Blast.
Technology
ECOSCIENCE's technology has application in three broad areas: (i) the
development of natural microbial biological pesticides; (ii) the development of
fresh fruit and vegetable coatings; and (iii) providing assistance and advice to
customers on technical production methods for high value and specialty crops and
ornamentals, 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. These microorganisms
are packaged alive and perform their function through proliferation in the pest
environment. Much of the formulation and delivery technology developed for
synthetic chemical pesticides is inappropriate for microbial products which
employ and preserve living organisms. 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 list describes ECOSCIENCE'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").
Identification of Active Ingredients. ECOSCIENCE 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. ECOSCIENCE 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. ECOSCIENCE 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 ECOSCIENCE's products.
Development of Formulation Systems. ECOSCIENCE has access to or has
developed proprietary processing systems to stabilize and extend the shelf life
of fungal and bacterial agents and ensure their 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 and Bio-Blast products. EcoScience
has been
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awarded U.S. patents which cover certain of its advances in this area.
Additionally, it serves as the basis for the contract formulation business
EcoScience is developing.
Development of Delivery Systems. ECOSCIENCE has developed proprietary
delivery systems including insect infection chambers, sprays, dusts and gels,
optimizing performance of microbial agents by facilitating accurate delivery of
concentrated doses. EcoScience has been awarded U.S. patents which cover certain
of its advances in this area.
Development of Packaging Systems. ECOSCIENCE believes that to be
commercially successful, biopesticide products must remain viable in
conventional distribution channels and have a minimum shelf life of 18 to 24
months. ECOSCIENCE has developed and patented certain proprietary packaging
systems to extend the shelf life of microbial agents during storage and
transportation for such a shelf life period.
Fresh Fruit Coatings
ECOSCIENCE's coating technology utilizes FDA food grade and/or GRAS listed
products to improve the appearance of and maintain the quality of fruits after
harvest, and during storage and transit to market. The technology focuses on
controlling respiration (oxygen transport) and water loss of fruit. Restricting
respiration and reducing water loss improves delivery of fresher products to the
consumer. The key to ECOSCIENCE's approach is to design the appropriate coating
for each type of fruit, since different types of fruit respond differently to
respiration and water loss. In May 1994, the Company acquired a line of
traditional coating products from AMC, all of which utilize conventional shellac
and carnauba as their main ingredients that have been used successfully in the
citrus and pome (primarily apples and pears) fruit markets.
Technical Advice and Service
ECOSCIENCE, as an adjunct to its sales and service efforts, advises its
customers on improved technical growing methods and systems, and packing
techniques and systems. To successfully service its 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.
Research and Development
ECOSCIENCE'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 ECOSCIENCE's prior restructuring program, and
current cost control programs, certain research and product development programs
and the funding thereof have been suspended, curtailed or deferred. Future
development and funding of these and other select 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,
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commercial potential of resultant end products, governmental regulations, and
other relevant matters which may confront ECOSCIENCE in the future.
ECOSCIENCE'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 ECOSCIENCE under third party
funded research and development programs totaled approximately $7,000, $0 and
$155,000 in fiscal 1997, 1996 and 1995, respectively. Expenses incurred under
Company funded research and development programs totaled approximately $501,000,
$1,018,000 and $4,328,000 in fiscal 1997, 1996 and 1995, respectively.
Technology Licensing
United States Department of Agriculture ("USDA"). ECOSCIENCE has an
agreement with the USDA granting ECOSCIENCE exclusive rights to the use of a
microbial strain developed at the USDA for the control of postharvest diseases
of pome fruits. This organism is the basis for one of the Bio-Save products and
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 ECOSCIENCE of
products incorporating the licensed microbial strain. The Company has also
licensed the worldwide rights to develop and commercialize additional biological
disease control organisms patented by the USDA. The organisms are naturally
occurring yeasts which effectively control the development of Blue Mold
(Penicillium expansum), Gray Mold (Botrytis cinerea) and Mucor Rot (Mucor
pyriformis) 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 sub-license to use the
technology underlying the Nature Seal coatings, the rights to which J.R. Brooks
and Seald-Sweet licensed 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 sub-license with J.R. Brooks and Seald-Sweet, ECOSCIENCE agreed
to pay a royalty or, in certain circumstances, a percentage of profits on sales
of products incorporating the Nature Seal technology and certain minimum annual
licensing fees payable to the USDA. While the sub-license agreement extends
until expiration of the last to expire patents covering the Nature Seal
technology, ECOSCIENCE has elected to no longer pursue this technology.
Competition
ECOSCIENCE faces substantial competition from a few large companies and
several smaller companies in the sale of certain products and growing systems to
greenhouses and nurseries in North America. ECOSCIENCE believes that its range
of products and services, and product quality, will allow it to compete
effectively in North America.
Competition in the fruit coatings market is also intense. Fruit coating
products are developed and marketed primarily by several large companies which
offer a full range of products. In addition, several smaller companies offer a
limited range of fruit coating products.
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ECOSCIENCE believes that it can compete effectively in this market with its
Bio-Save PostHarvest BioProtectant and traditional coating products based on the
cost effectiveness and the quality of its coating formulations and services.
In the pesticide industry, ECOSCIENCE 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. ECOSCIENCE believes that its commercial success in the pesticide
market will depend upon the continuing development of cost effective products
which compete with synthetic chemical pesticides on the basis of effectiveness,
safety and ecological benefit, as well as establishment of strong sales and
distribution networks for ECOSCIENCE'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, ECOSCIENCE 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 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 the 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 increasingly difficult testing requirements of subsequent tiers.
Additional tests may be required, however, in response to any questions which
may arise during Tier 1 testing. ECOSCIENCE'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.
In October 1994, ECOSCIENCE received EPA registration for its Bio-Blast
termiticide. ECOSCIENCE subsequently received registration from 48 states. In
March 1995, ECOSCIENCE received EPA registration for Bio-Save 10 and Bio-Save 11
biofungicides in all
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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. In addition, in May
1997, ECOSCIENCE received approval from the EPA for a label extension for the
use of Bio-Save 1000 on cherries.
Certain of ECOSCIENCE'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. ECOSCIENCE 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
ECOSCIENCE's manufacturing or laboratory operations has had an immaterial effect
upon ECOSCIENCE's capital expenditures, results of operations and competitive
position.
Patents and Trade Secrets
ECOSCIENCE owns or has rights to certain proprietary information, including
patents and patent applications, which relate to its technology and products.
ECOSCIENCE actively seeks protection, when appropriate, for its products and
propriety information by means of United States and foreign patents. In
addition, ECOSCIENCE may rely upon confidentiality agreements and other
contractual arrangements to protect certain proprietary information.
ECOSCIENCE has issued and pending patent applications that address its core
technological strengths, with emphasis on fungal and bacterial formulation, and
storage technologies. These patents have been principally pursued in the U.S.
and in some cases internationally. The technology described in these patents is
useful in the development of fungal and bacterial active ingredient microbial
pesticides. The following U.S. patents have been allowed: (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, the further development and sale of which the
Company has suspended, (vi) Device Containing Fungus for Biological Control of
Insects, (vii) Maintenance and Long Term Stabilization of Fungal Conidia Using
Surfactants and (viii) Packaged Fungal Culture Stable to Long-Term Storage.
Together, these patents describe a set of technologies applicable to the
use of fungi for the control of insect pests, and are central to the Bio-Path(R)
chamber technology which covers cockroaches, the further development and sale of
which the Company has suspended; however, this technology can be extended to any
other insect that can be controlled via a chamber system.
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An additional patent, Method for Storing Fungal Cultures and Conidia, describing
further fungal formulation technology is pending.
ECOSCIENCE has been issued two additional U.S. patents which relate to the
use of bacteria, chiefly as biofungicides in the treatment of plant fungal
disease: (i) Pseudomonas Syringae ATCC 55389 and Use Thereof for Inhibiting
Microbial Decay on Fruit covering a microorganism that is the active ingredient
in Bio-Save 10, 100 and 1000, and (ii) Method and Composition for Producing
Stable Bacteria and Bacterial Formulations.
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.
ECOSCIENCE has an additional pending patent application relating to a method of
extending microbial shelf life. There can be no assurance that any patents will
issue from any ECOSCIENCE's patent applications or that issued patents will
provide adequate protection for the Company.
ECOSCIENCE has exclusive sub-licenses to two U.S. patents covering the
Nature Seal technology from J.R. Brooks and Seald-Sweet, which licensed the
patents from the USDA. This sub-license is under active re-evaluation by
ECOSCIENCE. See "Technology Licensing." The patents were issued to the USDA in
March 1993 and December 1994.
In addition to its own active ingredients, ECOSCIENCE has acquired the
exclusive rights to the use of microbial strains developed by the USDA for the
control of postharvest diseases of pome fruits. The USDA has been granted one
patent covering this technology and has filed a patent application covering
additional coatings. See "Technology Licensing."
Much of ECOSCIENCE'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,
ECOSCIENCE requires all employees, consultants, advisors and collaborators to
enter into confidentiality agreements which prohibit the disclosure of
confidential information to persons unaffiliated with ECOSCIENCE and which
require disclosure of and assignment to ECOSCIENCE ideas, developments,
discoveries and inventions made by such persons. There can be no assurance that
these agreements will prevent disclosure of ECOSCIENCE's confidential
information or will provide meaningful protection for ECOSCIENCE's confidential
information. Additionally, in the absence of patent protection, ECOSCIENCE's
business may be adversely affected by competitors who develop substantially
equivalent technology.
Personnel
As of June 30, 1998, ECOSCIENCE had 63 full time employees. A total of two
persons are employed full time in manufacturing and production; 33 in sales,
marketing and distribution; three in engineering and design; nine in system
installation and service; three in research and development; and 13 in
management and administration.
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None of ECOSCIENCE's employees is covered by a collective bargaining
agreement. ECOSCIENCE considers its relations with its employees to be good.
Description of Properties
ECOSCIENCE's corporate headquarters and research and development
operations, and AGRO's New Jersey operations are located in two facilities in
East Brunswick, New Jersey. These facilities consist of 23,000 and 10,000 square
foot spaces and are under leases that expire in July 1999, and which provide 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, Canada under a three year lease which expires in
June 2001. AGRO also leases a 12,000 square foot facility for its sales/service
and warehouse center located in Ventura, California; as well as a 5,000 square
foot facility for its sales/service and warehouse center in Union Gap,
Washington, under various lease terms.
ECOSCIENCE'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.
ECOSCIENCE 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.
Legal Proceedings
The Company is not a party to any material legal proceedings. No Director,
officer, or affiliate of the Company, nor any owner beneficially or of record of
more than 5% of the Common Stock, nor any associate of any of the foregoing, is
a party to legal proceedings adverse to the Company or any of its subsidiaries,
nor does any such person have a material interest in any such proceeding.
Year 2000
The Company has completed an initial assessment of its Year 2000 status. A
plan has been developed that is expected to address the Company's exposure to
the Year 2000 issue. As a part of that plan, the Company will inventory and test
its hardware and software. Major customers and vendors will be contacted in
order to assess their status as to Year 2000 compliance. The Year 2000 plan is
expected to be implemented and completed by approximately the end of calendar
year 1998. While some of the Company's hardware and software will need to be
upgraded or replaced, the financial impact of making the required system changes
is not expected to be material to the Company's financial position, results of
operations or cash flow.
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SELECTED FINANCIAL DATA OF ECOSCIENCE
The selected financial data presented below has been derived from the
Company's audited consolidated financial statements for each year in the five
year period ended June 30, 1997 incorporated by reference to this Proxy
Statement. The selected statement of operations data for the nine months ended
March 31, 1998 and 1997, and the selected balance sheet data at March 31, 1998
have been derived from the unaudited interim financial statements of the Company
incorporated by reference to this Proxy Statement, which includes all
adjustments, consisting of normal and recurring adjustments that Management
considers necessary for a fair presentation of the data. The interim results are
not necessarily indicative of the results of operations for an entire fiscal
year. 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 in the
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q attached to this
Proxy Statement as Appendix B.
<TABLE>
<CAPTION>
Consolidated Statements of Operations Nine Month Periods
Data Ended March 31, Years Ended June 30,
-------------------- --------------------------------------------------------
In thousands, except per share amounts 1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
Unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
Product sales .................................. $ 18,223 $ 15,894 $ 20,853 $ 14,151 $ 12,335 $ 9,246 $ 3,802
Cost of goods sold ............................. 14,285 12,062 15,702 10,394 10,153 7,875 3,288
-------- -------- -------- -------- -------- -------- --------
Gross profit ................................... 3,938 3,832 5,151 3,757 2,182 1,371 514
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development .................... 307 409 508 1,018 4,483 8,156 6,294
Acquired research and development
-- -- -- -- -- -- 750
Selling and marketing ....................... 2,216 1,867 2,463 2,594 3,672 3,043 1,690
General and administrative .................. 1,691 1,627 2,107 2,244 2,631 3,382 3,159
Asset valuation and restructuring
(reversal) charges ....................... -- (77) (377) (1,550) 6,000 5,800 --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses ................. 4,214 3,826 4,701 4,306 16,786 20,381 11,893
-------- -------- -------- -------- -------- -------- --------
Operating (loss) income ........................ (276) 6 450 (549) (14,604) (19,010) (11,379)
-------- -------- -------- -------- -------- -------- --------
Other income (expense):
Research, development,
licensing fees and other
income .............................. 9 7 7 125 155 812 545
Investment income ........................ 49 80 105 199 590 853 1,525
Interest and other expense ............... (109) (154) (177) (603) (1,235) (208) (95)
-------- -------- -------- -------- -------- -------- --------
Total other (expense)
income ........................... (51) (67) (65) (279) (490) 1,457 1,975
-------- -------- -------- -------- -------- -------- --------
(Loss) income before extraordinary
gain ..................................... (327) (61) 385 (828) (15,094) (17,553) (9,404)
Extraordinary gain on early
extinguishment of debt ................... -- -- -- 241 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income .............................. ($ 327) ($ 61) $ 385 ($ 587) ($15,094) ($17,553) ($ 9,404)
======== ======== ======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Statements of Operations Nine Month Periods
Data: (Continued) Ended March 31, Years Ended June 30,
-------------------- --------------------------------------------------------
In thousands, except per share amounts 1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
Unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
(Loss) earnings per share
Basic
(Loss) income before
extraordinary gain ....................... ($ 0.03) ($ 0.01) $ 0.04 ($ 0.09) ($ 1.71) ($ 2.27) ($ 1.41)
Extraordinary gain ......................... -- -- -- 0.03 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income .......................... ($ 0.03) ($ 0.01) $ 0.04 ($ 0.06) ($ 1.71) ($ 2.27) ($ 1.41)
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding .............................. 10,446 10,049 10,137 9,070 8,839 7,748 6,664
======== ======== ======== ======== ======== ======== ========
Diluted
(Loss) income before
extraordinary gain ....................... ($ 0.03) ($ 0.01) $ 0.04 ($ 0.09) ($ 1.71) ($ 2.27) ($ 1.41)
Extraordinary gain ......................... -- -- -- 0.03 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income .......................... ($ 0.03) ($ 0.01) $ 0.04 ($ 0.06) ($ 1.71) ($ 2.27) ($ 1.41)
======== ======== ======== ======== ======== ======== ========
Aggregate diluted shares ................... 10,446 10,049 10,313 9,070 8,839 7,748 6,664
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
June 30,
In thousands March 31, -----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------
Unaudited
<S> <C> <C> <C> <C> <C> <C>
Unrestricted and restricted cash, cash
equivalents, short-term investments
and marketable securities ......................... $ 877 $ 1,775 $ 2,639 $ 7,831 $20,141 $24,576
Total assets ......................................... 9,630 8,875 10,111 18,769 33,990 31,843
Debt and capital leases .............................. 800 11 2,452 8,290 7,933 3,156
Stockholders' investment ............................. 3,772 4,014 2,473 2,492 18,110 25,123
</TABLE>
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INFORMATION CONCERNING AGRO ACQUISITION
Agro Acquisition is a newly formed wholly owned subsidiary of ECOSCIENCE.
Agro Acquisition was formed to effectuate the Merger whereby APD will be merged
directly into Agro Acquisition.
INFORMATION CONCERNING APD
Description of Business
APD is, in terms of total acreage controlled by a single entity, the
largest producer of premium quality, greenhouse grown tomatoes in the United
States. APD develops, constructs and operates highly intensive agricultural
greenhouse projects and markets and sells the vegetable production of these
facilities, as well as fresh vegetables produced by other greenhouse growers,
under its Village Farms(R) brandname as a consumer product, primarily to retail
supermarkets and dedicated wholesale distribution companies. In 1997, APD sold
approximately 28.2 million pounds of tomatoes grown at APD greenhouses and sold
an additional 3.8 million pounds of tomatoes under APD's Village Farms(R)
brandname pursuant to marketing arrangements with third party producers. The
tomatoes sold by APD represented approximately 0.70% of the fresh tomatoes sold
in the United States in 1997.
APD currently operates eight greenhouse facilities in the United States,
including one facility which is currently under construction and is
approximately sixty percent (60%) complete. If the construction of the new
facility is completed according to plan, APD's greenhouse facilities will
represent approximately 217 acres (9,387,180 square feet) of growing capacity
and four of these facilities, each of which has or is expected to have
approximately forty-one (41) acres of growing capacity, will be among the
largest greenhouses in North America. By producing, harvesting, packaging and
directly marketing all of its products, APD eliminates numerous intermediaries
(i.e. repackers, brokers and wholesalers) utilized by traditional field
producers of fresh vegetables. In order to develop additional sources of supply
and revenue, APD has entered into agreements to market and sell fresh vegetables
produced by two other greenhouse operations which currently comprise a total of
approximately 26 acres. If these marketing arrangements remain in effect, and if
its new greenhouse is completed according to plan, APD will control the
marketing of approximately 243 acres (10,574,419 square feet) of greenhouse
vegetable production.
In addition to produce sales, APD generates revenues from management and
marketing fees paid to APD by the owners of greenhouse facilities operated by
APD. In certain instances, additional revenues are generated by designing and
managing the construction of these facilities for the greenhouse owner.
In 1997, APD increased its greenhouse production capacity by 112.5 acres,
more than doubling the acreage controlled by APD during the prior year. APD's
goals are to:
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o continue to significantly expand its greenhouse and logistical
operations by developing new growing and distribution facilities in
the United States and acquiring existing facilities from third parties
to provide a basis for greater national market penetration and
profitability;
o produce and/or source premium greenhouse grown products to meet the
increasing demand of its customers on a year round basis;
o increase marketing alliances with other greenhouse growers to leverage
distribution capabilities and continue building brand equity;
o expand and diversify the number of greenhouse grown products produced,
marketed and sold by APD to strengthen relationships with retailers;
o establish "Village Farms(R)" brands as a nationally recognized and
sought after brand of premium greenhouse grown produce both at the
retail and consumer level; and
o expand internationally through alliances and joint ventures in
production, marketing, technology transfer and import/export
arrangements with potential partners.
Pursuant to its expansion strategy, APD:
o entered into an agreement in January 1998 to lease and operate a 20
acre greenhouse facility to be built in Calhan, Colorado;
o entered into a Memorandum of Understanding which contemplates that APD
will operate, maintain and provide marketing and sales services for a
20 acre greenhouse to be constructed by a third party near Pittsburgh,
Pennsylvania;
o completed construction of approximately 60% of a 41 acre greenhouse
expected to produce premium quality red, yellow and orange bell
peppers that it is currently building on property adjacent to its
existing tomato production greenhouse facility in Marfa, Texas;
o entered into a strategic alliance with SunBlush Technologies
Corporation to facilitate the development of technology for the
packaging of fresh cut tomatoes; and
o entered into a marketing alliance for premium quality bell peppers
with The Greenery International, a leading European marketer of fresh
vegetables.
No assurance can be given that any of the transactions and arrangements
contemplated by the agreement, letters of intent, memorandum of understanding
and plans described above will be consummated. See "Pending Transactions."
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APD, which was incorporated under the laws of New York in 1990, maintains
its corporate headquarters at One Kimberly Road, East Brunswick, New Jersey. Its
telephone number is 732-254-0606. As used herein, the term "APD" means APD and
its subsidiaries and wholly owned affiliates, unless the context otherwise
indicates.
The Greenhouse Vegetable Industry
Approximately $5.6 billion at the retail level, or 4.6 billion pounds, of
fresh tomatoes were sold in the United States in 1997. According to industry
estimates, greenhouse grown tomatoes currently represent only 4% to 7% of the
fresh tomatoes sold in the United States. Although the United States greenhouses
vegetable industry is growing rapidly (as evidenced by an increase in greenhouse
tomato acreage from 1996 to 1997 of approximately 30% according to Dr. Richard
Snyder, Vegetable Specialist at Mississippi State University), APD estimates
that there are only 700 to 900 acres devoted to greenhouse vegetable production
in the United States. APD believes that a significant opportunity exists for
greenhouse growers to capture a sizable share of the market for certain fresh
vegetables, including tomatoes and colored bell peppers.
The ability to control climatic conditions within a greenhouse enables
greenhouse growers to produce tomatoes that are superior to field grown tomatoes
in terms of taste, color, appearance and shelf life. This is particularly
notable during periods when local production is not available. In many markets,
the only fresh tomatoes which are consistently available during "off season
periods" are picked while green and treated with ethylene gas during shipment
from California, Florida or Mexico to turn the tomatoes red. APD believes that
due to inferior flavor, many consumers avoid tomatoes during off season periods
and generally consume only tomatoes grown in their gardens or purchased from
nearby farm stands during a limited period of seasonal availability. When
greenhouse grown tomatoes are available, consumers have demonstrated a
willingness to pay a premium price for superior quality and taste. A 1996 study
conducted by Information Resources, Inc., an independent research firm, at APD's
request indicated that in certain areas of the United States (western New York;
Denver, Colorado; Detroit, Michigan; and New England), where local production
has been available to certain retail chains from nearby greenhouses with
consistent quality and volume, the percentage of greenhouse grown tomatoes sold
by the retail chains has averaged 40% to 70% of fresh tomato sales by the
retailers. According to information provided to APD by two of these retail
chains which are currently APD customers, in 1990 sales of greenhouse grown
tomatoes did not exceed 15% of fresh tomato sales.
Greenhouse vegetable production has been a thriving industry in Europe,
particularly the Netherlands, since the 1940s. The acreage devoted to greenhouse
vegetable production in Europe is substantially greater than greenhouse acreage
in the United States. Imported greenhouse grown tomatoes from Europe, Israel and
Canada are available at certain times of the year in major United States markets
but, with the exception of Canadian tomatoes, are rarely distributed throughout
the United States due to the additional freight, distribution costs and
distribution channels necessary to reach central and western markets. Due to
insufficient domestic greenhouse production, imports currently represent the
only option for many large volume United States supermarkets. The supply of
imported tomatoes is, however, limited and
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often erratic because foreign market exporters generally sell first to their
domestic markets to avoid the increased distribution costs associated with
distributing tomatoes in the United States.
As in the case of tomatoes, the controlled environment of a greenhouse
enables greenhouse growers to produce bell peppers which possess several
superior quality characteristics over field grown peppers, including flavor,
appearance, shape, wall thickness and shelf life. These characteristics enable
greenhouse grown "Holland" bell peppers to command premium prices compared to
field grown peppers. According to the USDA, per capital consumption of bell
peppers in the United States has increased to 7.2 pounds annually compared to an
average of 2.6 pounds per capital during the 1970s and 3.7 pounds in the 1980s.
This rapid growth in consumption is being driven by increased inclusion of fresh
bell peppers as an ingredient in salad bars, pizza, fresh salsa, and in various
ethnic dishes and salads consumed at home and in food service locations.
APD believes that the market for greenhouse grown produce has significant
growth potential due to: (i) the superior quality and flavor of greenhouse grown
vegetables; (ii) an increase in the demand for fresh fruit and vegetables,
including greenhouse grown tomatoes, peppers and other vegetables; (iii) the
health and food safety benefits of greenhouse grown produce and (iv) a growing
but limited supply of greenhouse grown produce. The successful production of
greenhouse vegetables on a large scale basis, however, requires specialized
operating skills, know-how, technology, complex logistics support, market
knowledge and capital. As the developer and operator of four of the largest
vegetable greenhouses in the United States, APD believes that the experience it
has gained, the technological innovations it has made and the success it has
achieved to date as an industry leader makes it uniquely and strategically
positioned and qualified to take advantage of promising market opportunities.
Greenhouse Operations
APD currently owns or has an ownership interest in five greenhouse
facilities, including one facility currently under construction, and leases
three additional greenhouse facilities. APD uses inert media culture systems to
grow tomatoes in these glass panelled greenhouse structures which currently
range from 10 to 42 acres. Using these sophisticated systems, tomatoes are grown
not in soil but in "rockwool," a porous, artificial substrate made out of
volcanic based rock. Through drip irrigation, each plant is fed nutrients
directly from a computer-controlled irrigation system. Hot water is circulated
through pipes running next to the plants to keep the plants at optimal
temperature, which varies throughout each 24 hour period and crop lifecycle. The
water is heated by cogeneration sources and/or natural gas boilers which capture
carbon dioxide that is recycled back to the greenhouse for plant consumption.
APD's computer systems enable it to regulate substantially all environmental and
climate parameters to optimize growing conditions. APD believes that greenhouses
generally yield approximately 10 to 20 times the yield of comparable outdoor
farm acreage, depending on the crop. APD's production methods incorporate
technology and growing systems substantially similar to those used throughout
the well established European greenhouse growing industry.
APD tomatoes are naturally pollinated by bumblebees released into the
greenhouse. Integrated pest management practices such as predator insects are
used to control pests such as white fly.
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Three of the greenhouse facilities operated by APD were developed in
conjunction with electric cogeneration plants. Federal laws enacted in the 1970s
encouraged the establishment of cogeneration plants and the use of their waste
steam to provide heat for other industries, including greenhouse vegetable
production. The use of this waste steam enables APD to heat greenhouses located
near cogeneration plants. Cogentrix Energy, Inc. ("Cogentrix") is a developer
and operator of two cogeneration energy facilities with which APD has associated
greenhouse operations. In addition, Cogentrix owns a 50% interest in four
greenhouse facilities in which APD has a 50% ownership interest, through one or
more of its subsidiaries or wholly owned affiliates. Cogentrix has certain
rights to participate in future greenhouse projects undertaken by APD. See
"Right of Cogentrix to Participate in Future Greenhouse Projects." As used
herein, the term "Cogentrix" means Cogentrix and its subsidiaries and wholly
owned affiliates.
APD forms separate operating companies to own and/or lease and manage each
of the greenhouse facilities it operates. The greenhouses currently operated by
APD are described below.
Keystone Village Farms. Keystone Village Farms, L.L.C. ("Keystone"), a
Delaware limited liability company wholly owned by APD, operates a ten acre
greenhouse vegetable production facility located in Ringgold, Pennsylvania which
it leases pursuant to a ten year lease agreement with Cogentrix which expires in
December 2003. Construction of the facility was completed in 1990 in conjunction
with a 15 megawatt gas fuel cogeneration facility. Keystone assumed control of
the greenhouse operations in late 1993. Under the terms of its lease agreement
with Cogentrix, Keystone is required to pay a fixed monthly lease payment and a
supplemental payment based on a specified percentage of Cash Flow (as defined)
of the facility. For purposes of determining the supplemental lease payment, an
annual fee payable by Keystone to APD for management services is deducted, along
with other permitted expenses, from Cash Flow. The fee payable to APD (and the
corresponding deduction from Cash Flow) is subject to annual increases based
upon changes in the gross national product. The lease requires Cogentrix to
furnish Keystone's requirements of gas heat and water during the term of the
lease at a price which may not exceed a specified amount. APD believes that this
arrangement results in a significant reduction in utility costs. Cogentrix
arranges for the supply of heat and water to Keystone through the operation of
the cogeneration facility which supplies electrical power to a local utility.
APD has been notified that Cogentrix and the utility have reached an agreement
to close the cogeneration facility in 1998; however, Cogentrix is required to
supply heat to the Keystone greenhouse notwithstanding any such closing. As a
result, APD anticipates that Keystone and Cogentrix will renegotiate their lease
to account for the changes in the operations of the cogeneration facility and
that the terms of any such renegotiated lease will not be less favorable to
Keystone than the current lease arrangement.
Village Farms of Wheatfield. Village Farms of Wheatfield, L.L.C.
("Wheatfield"), a Delaware limited liability company wholly owned by APD,
operates a 12.5 acre greenhouse vegetable production facility located in
Wheatfield, New York which it leases pursuant to a 15 year Operating and Lease
Agreement with Oxbow Power Corporation of North Tonawanda, New
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York, Inc. ("Oxbow") which expires in 2008. APD began developing and designing
the facility with Oxbow in 1991 in connection with a 55 megawatt gas fired
cogeneration facility owned and developed by Oxbow. Under the terms of the
Operating and Lease Agreement, Wheatfield is required to pay Oxbow a fixed
monthly lease payment and a supplemental lease payment based upon a percentage
of the net operating income of the greenhouse facility. For purposes of
determining the supplemental lease payment, a fixed monthly overhead charge
which covers, among other things, personnel and overhead costs associated with
the management and operation of the greenhouse, is deducted, along with other
permitted expenses, from greenhouse revenues. The Operating Agreement requires
Oxbow to supply steam heat and hot water to the greenhouse from the cogeneration
plant operated by Oxbow.
Village Farms of Texas. Village Farms of Texas, L.P. ("VF Texas"), a
Delaware limited partnership in which APD owns a 50% interest (comprised of a
49% limited partnership interest and a 1% general partnership interest), owns
and operates a 41 acre greenhouse facility located in Fort Davis, Texas. The
facility, which was designed and constructed by APD, was completed in December
1996 and currently produces beefsteak tomatoes. Cogentrix has made aggregate
equity contributions of approximately $4,657,000 to VF Texas and owns the
remaining 50% interest (comprised of a 49% limited partnership interest and a 1%
general partnership interest) in the partnership. APD assigned to VF Texas its
rights under certain agreements related to the development of the greenhouse
project in exchange for its interest in the partnership. Under the terms of the
VF Texas partnership agreement, Cogentrix is entitled to 90% of the profits and
cash distributions of VF Texas until it realizes a specified after tax internal
rate of return on its investment in VF Texas. After it realizes such rate of
return, Cogentrix is entitled to 65.7% of the profits and cash distributions
until the cumulative after tax internal rate of return on its investment reaches
a specified threshold. After such time, profits and cash distributions will be
shared equally by APD and Cogentrix. Pursuant to an agreement with VF Texas, APD
manages, operates and maintains the VF Texas greenhouse for a specified annual
fee. In addition, APD provides marketing, promotional, packaging, distribution,
billing and collection services to VF Texas for which it receives a specified
annual fee. Each of such fees is subject to annual increases based upon changes
in the Consumer Price Index and can be deferred or eliminated if VF Texas fails
to meet certain debt service coverage tests. APD is entitled to earn certain
bonuses under its marketing and sales agreement with VF Texas if the debt
service coverage ratio of VF Texas exceeds certain thresholds. The marketing and
management agreements between APD and VF Texas each have an initial term of 15
years and may be extended for additional periods on terms acceptable to the
parties. Subject to the terms of certain loan agreements to which VF Texas is a
party, VF Texas may terminate these agreements with APD at any time upon 90 days
written notice; provided, however, that it must pay APD liquidated damages equal
to 25% of the annual fee then payable to APD under the agreement terminated if
the termination is without cause.
Pocono Village Farms. Pocono Village Farms, L.P. ("PVF"), a Delaware
limited partnership in which APD has a 50% interest (comprised of a 49% limited
partnership interest and a 1% general partnership interest), was formed in 1997
to acquire, own and operate a 30 acre vegetable production greenhouse in Mount
Carmel, Pennsylvania. PVF currently operates a ten acre greenhouse and a 1.5
acre nursery for plant propagation. PVF sold the remaining acres of
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greenhouse structure to Village Farms of Buffalo, L.P. which relocated,
modernized and reconstructed the structure in Buffalo, New York. Cogentrix owns
the remaining 50% interest (comprised of a 49% limited partnership interest and
a 1% general partnership interest) in PVF. Each of Cogentrix and APD have
contributed approximately $276,000 to PVF. Under the terms of the PVF
partnership agreement, APD is entitled to 85% of the profits and cash
distributions of PVF until December 31, 2000. After such time, profits and cash
distributions will be shared equally by APD and Cogentrix. Pursuant to an
agreement with PVF, APD manages, operates and maintains the PVF facility, and
provides marketing, promotional, packaging, distribution, billing and collection
services to PVF for which it receives a specified annual fee, subject to annual
increases based upon changes in the Consumer Price Index. The agreement has an
initial term of 15 years and is subject to automatic five year extensions upon
the expiration of the initial and any extended term. PVF may terminate the
agreement at any time upon 60 days written notice; provided, however, if PVF
terminates the agreement without cause it must pay APD liquidated damages equal
to 25% of the annual fee then payable to APD under the agreement.
In June 1998, a tornado damaged approximately 10% of the ten acre PVF
greenhouse resulting in an estimated $500,000 of property damage. The property
damage is covered by insurance, and APD is currently negotiating with the
insurance carrier to reach an agreement as to the amount of damages sustained;
however, PVF is not insured for crop damage resulting from the damage to the
greenhouse structure. In order to minimize the financial impact of the damage,
APD is currently negotiating the sale of the PVF greenhouse to a third party.
APD expects that if such a sale is completed, the proceeds of the sale, together
with insurance proceeds, will offset the adverse financial impact arising from
the damage. No assurance can be given that the proposed sale will be completed.
If the sale is not completed, APD expects to terminate operations at the PVF
greenhouse in August 1998 and, as a result, PVF would incur a loss of
approximately $200,000 to $300,000 for fiscal 1998. APD does not believe that
the closing or sale of the facility will have any material adverse effect on the
long-term operating results or financial condition of APD.
Village Farms of Buffalo. Village Farms of Buffalo, L.P. ("VFB"), a
Delaware limited partnership in which APD has a 50% interest (comprised of a 49%
limited partnership interest and a 1% general partnership interest), commenced
operation of an 18 acre greenhouse facility in Buffalo, New York in February
1998. APD management believes that this facility, which is dedicated to the
production of cluster (on the vine) tomatoes, complements APD's 12.5 acre
Wheatfield facility in nearby North Tonawanda, New York and will enable APD to
supply the expanding markets in the western New York, Pennsylvania and
Cleveland, Ohio regions. Pursuant to an agreement with VFB, APD served as
general contractor for the construction of the Buffalo facility which was
acquired from Pocono and reassembled at the Buffalo site. See "Design and
Construction Management." The land on which the VFB facility is located is
leased by APD from the Buffalo Enterprise Development Corporation pursuant to a
lease which expires in 2012. APD has the option to purchase the property for a
price which varies depending on the time of purchase. All base rent paid by APD
during the term of the lease will be applied against the purchase price.
Cogentrix has made aggregate equity contributions of approximately $2,741,000 to
VFB and owns the remaining 50% interest in VFB (comprised of a 49% limited
partnership interest and a 1% general partnership interest). APD assigned to VFB
its rights under certain agreements related to the development of the greenhouse
project in exchange for its interest in the partnership. Under the terms of the
VFB partnership agreement, Cogentrix is
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entitled to 90% of the profits and cash distributions of VFB until it realizes a
specified after tax internal rate of return on its investment in VFB. After it
realizes such internal rate of return, Cogentrix is entitled to 65% of the
profits and cash distributions until its cumulative after tax internal rate of
return reaches a specified threshold. After such time, profits and cash
distributions will be shared equally by Cogentrix and APD. Pursuant to an
agreement with VFB, APD manages, operates and maintains the Buffalo greenhouse
for a specified annual fee. In addition, pursuant to a separate agreement, APD
provides marketing, promotional, packaging, distribution, billing and collection
services to VFB for which it receives a specified annual fee. Each of such fees
is subject to annual increases based upon changes in the Consumer Price Index
(as defined) and can be deferred or eliminated if VFB fails to meet certain debt
service coverage tests. Each of such agreements has an initial term of 15 years
and is subject to automatic five year extensions upon the expiration of the
initial and any extended term. Subject to the terms of certain loan agreements
to which it is a party, VFB may terminate these agreements with APD at any time
upon 60 days written notice; provided, however, that it must pay APD liquidated
damages equal to 25% of the annual fee then payable to APD under the agreement
terminated if the termination is without cause.
Village Farms of Marfa. Village Farms of Marfa, L.P. ("VFM"), a Delaware
limited partnership in which APD has a 50% interest (comprised of a 49% limited
partnership interest and a 1% general partnership interest), was formed in 1997
to develop, own and operate a 41 acre greenhouse facility in Marfa, Texas. This
facility, which was designed and constructed by APD, was completed and commenced
operations in February 1998. The land on which the greenhouse is located is
leased by APD from the County of Presidio, Texas pursuant to a lease which
expires in 2022 (subject to APD's option to extend the term for an additional 10
years). Cogentrix has made aggregate equity contributions of approximately
$6,650,000 to VFM and owns the remaining 50% interest (comprised of a 49%
limited partnership interest and a 1% general partnership interest) in VFM. APD
assigned to VFM its rights under certain agreements related to the development
of the greenhouse project in exchange for its interest in the Partnership. Under
the terms of the VFM partnership agreement, Cogentrix is entitled to 90% of the
profits and cash distributions of VFM until it realizes a specified after tax
internal rate of return on its investment in VFM. After it realizes such
internal rate of return, Cogentrix is entitled to 65.7% of all profits and cash
distributions until the cumulative after tax internal rate of return on its
investment reaches a specified threshold. After such time, profits and cash
distributions will be shared equally by APD and Cogentrix. Pursuant to an
agreement with VFM, APD manages, operates and maintains the VFM greenhouse for a
specified annual fee. In addition, pursuant to a separate agreement, APD
provides marketing, promotional, packaging, distribution, billing and collection
services to VFM for which it receives a specified annual fee. Each of such fees
is subject to annual increases based upon changes in the Consumer Price Index
and can be deferred or eliminated if VFM fails to meet certain debt service
coverage tests. APD is entitled to earn certain bonuses under its marketing and
sales agreement with VFM if the debt service coverage ratio of VFM exceeds
certain amounts. Each of such agreements has an initial term of 15 years and is
subject to automatic five year extensions upon the expiration of the initial and
any extended term. Subject to the terms of certain loan agreements to which it
is a party, VFM may terminate these agreements with APD at any time upon 60 days
notice; provided, however, that it
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must pay APD liquidated damages equal to 25% of the annual fee then payable to
APD under the agreement terminated if the termination is without cause.
Village Farms of Virginia. In November 1997, Village Farms of Virginia,
Inc. ("VFV"), a Delaware corporation and a wholly owned subsidiary of APD,
entered into an agreement with Greenhost, Inc. ("Greenhost"), a subsidiary of
Birchwood Power Partners and an affiliate of each of Cogentrix and Southern
Company, to lease and operate a 36 acre greenhouse facility in King George
County, Virginia for a term of ten years. Pursuant to a separate agreement,
Greenhost engaged APD as general contractor to expand the facility from 36 to 42
acres and convert the original 36 acres from bedding plant and potted plant
production to beefsteak tomato production. See "Design and Construction
Management." The conversion of the facility and the planting of beefsteak
tomatoes was completed in February 1998. APD began harvesting tomatoes in the
VFV facility in May 1998. Under the terms of its lease agreement with Greenhost,
VFV is required to pay Greenhost a fixed quarterly payment and a supplemental
payment equal to a specified percentage of the Cash Flow (as defined) of the
facility. For purposes of determining the supplemental lease payment, an annual
fee payable by VFV to APD for marketing, sales and management services is
deducted from Cash Flow. The fee payable to APD (and the corresponding deduction
from Cash Flow) is subject to annual increases based upon changes in the
Consumer Price Index and may be increased during each year in which VFV meets
certain rent coverage tests.
Pending Transactions
Lease of Colorado Facility. In January 1998, Village Farms of Colorado,
Inc. ("VFC"), a wholly owned subsidiary of APD, entered into an agreement with
Ripe Touch Greenhouses, Inc. ("Ripe Touch") of Castlerock, Colorado to lease a
20 acre greenhouse to be built and located in Calhan, Colorado. APD plans to
produce beefsteak tomatoes during the winter pricing period at this greenhouse
and to establish a distribution center adjacent to the facility. The term of the
lease will commence 30 days after substantial completion of the construction of
the facility and will continue for ten years. The terms of the lease require APD
to pay a fixed monthly lease payment and a supplemental lease payment equal to a
specified percentage of Cash Flow (as defined in the lease) of the facility.
Ripe Touch is required to supply all of the energy needs to the greenhouse
including electricity, water, carbon dioxide and heat.
Memorandum of Understanding. APD has entered into a Memorandum of
Understanding (the "MOU") with another company (the "Owner") which contemplates
that APD will design and manage the construction of a 20 acre greenhouse
facility to be built by the Owner near Pittsburgh, Pennsylvania. The MOU
provides that after completion of the greenhouse, APD will operate, maintain,
manage and provide marketing services for the facility. APD plans to market
produce from the facility primarily in the midwestern United States. The MOU
will terminate automatically in the event the Owner fails to obtain financing
for the facility on reasonable and acceptable terms. Either party may terminate
the MOU, under certain circumstances if the projected rate of return from the
proposed facility is not sufficient or if the other party breaches its
obligations under the MOU. No assurance can be given that APD and the Owner will
be successful in negotiating the terms of the final agreements contemplated by
the MOU or that the Owner will be able to obtain the requisite financing for the
project.
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Greenery International Agreement. APD has entered into an agreement with
The Greenery International, a leading marketer of greenhouse vegetables,
including bell peppers, in the Netherlands and the United States, which provides
that APD will have the exclusive right to market bell peppers produced at the
greenhouse facility APD is currently constructing in Marfa, Texas under "The
Greenery" brand name and the right to market bell peppers exported by The
Greenery International from Europe to North America. The agreement provides that
APD will pay a quarterly marketing fee to The Greenery International with
respect to peppers produced by APD and sold under "The Greenery" name and The
Greenery International will assist APD in its marketing efforts. APD and The
Greenery International have agreed that the arrangement will have an initial
trial period of one year. After the initial nine month period, the arrangement
will be evaluated and, if successful, will be continued for five years. APD has
agreed that it will not enter into agreements with respect to the production of
fresh produce in the United States under the product names of other European
growers, or in cooperation with other European marketing and/or supplier
organizations. In the event that market conditions require an extension of the
production of bell peppers in North America which can be marketed under "The
Greenery" name, APD will have the first option to provide such production.
Proposed Greenhouse in Marfa, Texas. APD has commenced construction of a 41
acre greenhouse facility to produce red, yellow and orange bell peppers on
property adjacent to its existing tomato production facility in Marfa, Texas
(the "Presidio Greenhouse"). Construction of the facility, which is
approximately 60% complete, commenced in January 1998. APD is currently
endeavoring to finalize arrangements to finance the completion of the project.
No assurance can be given that financing can be obtained on terms acceptable to
APD. If third party financing cannot be obtained, APD expects to reduce the size
of the proposed Presidio Greenhouse to approximately 26 acres and fund the
entire greenhouse development project from its cash reserves and existing credit
arrangements.
Strategic Allicance with SunBlush. In May 1998, APD entered into an
agreement with SunBlush Technologies Corp. ("SunBlush"), a publicly traded
corporation, which creates a strategic alliance for the development of
technology for the packaging of fresh cut tomatoes. SunBlush, a Canadian
company, owns rights to certain technologies which purportedly extend the shelf
life of fresh produce and flowers. Under the terms of the agreement (the
"SunBlush Agreement"), APD has agreed to provide up to $50,000 of funding to
SunBlush to develop the application of the SunBlush technology to greenhouse
tomatoes. If such technology can be successfully developed, it is anticipated
that it would be used so that salad products containing fresh cut tomatoes could
be prepackaged for sale to consumers. APD has agreed to supply the greenhouse
tomatoes required for the SunBlush development project and has been granted the
right to supply tomatoes for inclusion in any product successfully developed by
SunBlush pursuant to the SunBlush Agreement that is subsequently marketed in the
United States or Mexico.
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Right of Cogentrix to Participate in Future Greenhouse Projects
At the time of the formation of VF Texas, and as an inducement to Cogentrix
to invest in the VF Texas project, APD granted to Cogentrix certain rights to
participate in future projects involving the development, acquisition, owning of
or operation by APD of any greenhouse facility at which fruit or vegetables are
grown ("Future Projects"), subject to certain exceptions as described below.
Under the terms of its agreement with Cogentrix (the "Option Agreement"), APD is
required: (i) if it determines to sell an interest in a Future Project to a
third party (a "Non-APD Investment"), to first offer such Non-APD Interest to
Cogentrix and (ii) to offer Cogentrix an interest of at least 50% in all Future
Projects regardless of whether APD desires or intends to permit a Non-APD
Investment in such Future Project.
Under the terms of the Option Agreement, Cogentrix is entitled to 90% of
all cash distributions from each Future Project in which it invests (other than
Future Projects involving solely the purchase of an existing Greenhouse, in
which case Cogentrix is not entitled to any preferred cash distribution) until
it realizes a specified after tax internal rate of return on its investment.
After it achieves such after tax internal rate of return, Cogentrix is entitled
to 65% of all cash distributions until its cumulative after tax internal rate of
return reaches a specified threshold. If any third party investors make a cash
investment in a Future Project, Cogentrix is required to share its preferred
return with such investors on a pro rata basis.
The option granted to Cogentrix pursuant to the Option Agreement does not
apply to: (i) projects developed by a third party in which participation by APD
is solely as a lessee, a management operator or a marketing agent, and which do
not involve any equity investment by APD, (ii) any operating greenhouse project
acquired by APD which involves no equity investment by APD, (iii) any greenhouse
project identified and developed by a third party developer in which APD has
been invited to participate without having to make an equity investment and in
which development was initiated by a third party and (iv) nine other greenhouse
developments and projects specifically identified in the Option Agreement.
The Option Agreement terminates: (i) if Cogentrix declines a proposed
investment in a Future Project in which the projected after tax internal rate of
return on its investment is not less than the rate of return specified in the
Option Agreement within five years and a third party thereafter makes such
investment on the same or less favorable terms as were offered to Cogentrix or
(ii) at such time as Cogentrix has made equity investments in an initial
aggregate amount of $20 million in Future Projects. As of the date of this Proxy
Statement, Cogentrix had made an aggregate of $9.67 million of such investments.
Marketing Arrangements with Other Growers
Through marketing arrangements, APD markets and distributes fresh
vegetables produced by other greenhouse operators under the Village Farms(R)
trademark. Under the terms of these arrangements, APD is generally entitled to a
commission based on a percentage of product revenues and a fixed amount for each
box of produce sold. APD currently participates in marketing arrangements with
the following growers: Foster Farms, Inc., a wholly owned subsidiary of Foster
Wheeler Corporation which operates a 10 acre greenhouse located in Marion
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Heights, Pennsylvania; and Agros, S.A., which operates a 16 acre greenhouse in
Queratoro, Mexico. The Foster Farms facility produces beefsteak tomatoes from
March through November. Agros, S.A. produces beefsteak tomatoes from October to
May. APD generated approximately $2,237,000 and $3,154,000 of revenues from
various marketing arrangements in 1996 and 1997, respectively.
Packaging and Distribution
APD's greenhouse grown beefsteak and cluster tomatoes are picked at
approximately the same stage of vine ripeness and sorted into grades based upon
size, color, weight and quality. Premium grade beefsteak tomatoes are handpacked
into 15-pound single layer display boxes containing dividers which separate each
tomato. To increase consumer recognition of the Village Farms(R) brand, each
"premium" tomato sold by APD is affixed with the Village Farms(R) label and
logo. Tomatoes not considered "premium" are handpacked into various other
packaging and sold generically. Vines of cluster tomatoes are packed loose or in
net bags and placed into 11 pound boxes.
After packing, APD ships its tomatoes by truck using contract carriers and
leased vehicles to locations specified by APD's customers. APD leases and
operates a 170,000 square foot storage and distribution center adjacent to its
King George County, Virginia greenhouse facility, which it utilizes for sales in
the mid-Atlantic region of the United States, and a 24,000 square foot storage
and distribution center in Buffalo, New York to support its Northeast greenhouse
facilities.
Sales and Marketing of Village Farm Products
APD currently sells approximately 75% of its Village Farms(R) brand
products to retail supermarket chains and dedicated wholesalers. The remainder
is sold to distributors and food service clients. APD has no formal agreements
with its customers. At the beginning of each year, APD generally negotiates
approximate volume and price levels for the upcoming year with its customers.
These arrangements provide APD with the flexibility to account for significant
changes in market conditions and quality/price competition.
APD currently employs 12 sales, marketing and quality assurance personnel
who are responsible for developing and servicing APD customers, developing and
maintaining industry and consumer awareness of Village Farms(R) brand consumer
products and building national recognition of the Village Farms (R) brandname.
Design and Construction Management
APD has designed and managed the construction of five of the greenhouse
facilities it currently operates. These facilities represent a total of 154.5
acres of greenhouse production and include the facilities located in Fort Davis,
Texas; Marfa, Texas; Wheatfield, New York; Buffalo, New York and King George
County, Virginia.
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In providing its construction management services, APD generally enters
into construction and design agreements with the owner of the facility to be
constructed and is paid a construction management fee. In certain instances, APD
agrees to indemnify the owner for cost overruns and costs associated with delays
in construction. APD earned construction management fees of $260,000 and
$740,000 in 1996 and 1997, respectively. All fees received by APD in 1996 were
paid by APD subsidiaries. Of the amounts received in 1997, $370,000 was paid by
third party owners. Payments for these services to APD from its subsidiaries
eliminate for financial reporting purposes in consolidation; however, such
payments are funded by subsidiary borrowings and third party equity
contributions and provide APD with increased working capital during the start-up
phase of the facilities it develops and operates. APD believes the fees charged
for such services are reasonable in consideration of the services performed by
APD.
APD, whose personnel collectively have in excess of 250 years of cumulative
experience in the greenhouse industry, is seeking to expand the greenhouse
construction segment of its business. The design and construction of large-scale
high quality, intensive greenhouse facilities requires special skills and
expertise that cannot be provided by most construction contractors. APD believes
that approximately six European companies currently build substantially all of
the large-scale greenhouse operations in the world. APD believes that its
experience in designing and constructing greenhouses for its own operation makes
it uniquely qualified to perform these services for other growers.
Village Farm International Finance Association
Village Farms International Finance Association ("VFIFA") is a non-profit
cooperative formed by APD to obtain and provide construction, term and working
capital financing for its members. The current members of VFIFA are APD, VF
Texas, VFB, Keystone, Wheatfield, VFV, VFM and PVF.
VFIFA has entered into each of a line of credit agreement (the "Line of
Credit Agreement"), a term loan agreement (the "Term Loan Agreement") and a
construction loan agreement (the "Construction Loan Agreement") with CoBank, ACB
("CoBank"), a quasi-governmental agency as lender and as agent for other lenders
which may become a party to such agreements (collectively, the "Loan
Agreements"). The Loan Agreements collectively provide up to $60 million
aggregate amount of borrowing availability to VFIFA. The proceeds of borrowings
under the Loan Agreements are loaned by VFIFA to its members and eligible
affiliates of APD (such loans to be referred to herein as "Underlying Loans" and
the recipients of such loans to be referred to herein as "Underlying
Borrowers").
Under the terms of the Line of Credit Agreement, CoBank has agreed to lend
VFIFA up to $10 million on a revolving basis. Borrowings under the Line of
Credit Agreement may be used by VFIFA only to: (i) fund loans by VFIFA to APD
for working capital needs and (ii) fund certain permitted loans by VFIFA to
recipients of Underlying Loans made pursuant to the Term Loan Agreement,
including loans made to enable such Underlying Borrowers to meet their needs
during the planting cycle each year and satisfy payment requirements under the
Term Loan Agreement. Borrowings under the Line of Credit Agreement become due on
September 30,
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1998; provided, however, that such date will be automatically extended for
successive 12 month periods unless on or before July 31, either CoBank or VFIFA
elects to terminate the agreement as of the following September 30.
The Line of Credit Agreement grants VFIFA the right to request up to
$5,000,000 of letters of credit to support certain commitments of VFIFA, APD,
the other members of VFIFA and recipients of Underlying Loans made under the
Term Loan Agreement.
CoBank has agreed to loan VFIFA up to $50 million under the Term Loan
Agreement; provided, however, that CoBank's commitment under the Term Loan
Agreement is effectively reduced by the amount of borrowings outstanding under
the Construction Loan Agreement. The proceeds of these loans may be used only to
(i) refinance a portion of one or more of the construction loans made under the
Construction Loan Agreement, (ii) fund the purchase of fully constructed
greenhouse facilities by Underlying Borrowers and (iii) fund the refinancing of
a term loan previously made by CoBank to VFT. Borrowings under the Term Loan
Agreement must be repaid by VFIFA within one business day after it receives any
amounts in repayment of an Underlying Loan. All borrowings under the Term Loan
Agreement become due on July 31, 2010.
CoBank has agreed to make up to $30 million of loans to VFIFA under the
Construction Loan Agreement. The proceeds of these loans may be used by VFIFA to
make loans to Underlying Borrowers to fund a portion of the cost of constructing
greenhouse facilities designed for the production of fruits and vegetables. Upon
receipt of principal payments made by an Underlying Borrower, VFIFA must repay
an equal amount of principal to CoBank. In addition, each advance made under the
Construction Loan Agreement with respect to an Underlying Loan becomes due
within 16 months from the date of the first advance made with respect to such
Underlying Loan; provided, however, that the due date may be extended for a
period of approximately 10 years if a commitment to issue permanent financing
with respect to the Underlying Loan is issued under the Term Loan Agreement but
the lenders under the Term Loan Agreement refuse to provide such financing. The
Construction Loan Agreement provides that CoBank will issue letters of credit
for the benefit of Underlying Borrowers to support obligations to purchase
materials, equipment and/or services related to a greenhouse facility being
financed by an Underlying Loan made under the Construction Loan Agreement. The
undrawn face amount of such letters of credit may not exceed CoBank's lending
commitment less the principal amount of Underlying Loans then outstanding under
the Construction Agreement.
APD has guaranteed all of VFIFA's obligations under the Loan Agreements.
Advances under the Loan Documents are secured by a first lien and security
interest in all of the assets of VFIFA (including the agreements and instruments
which evidence the Underlying Loans) and APD. All Underlying Loans must be made
subject to documents satisfactory to CoBank and secured by assets of the
Underlying Borrower.
Interest on amounts advanced under the Line of Credit Agreement accrues at
a rate based upon the prime rate. Interest on amounts advanced under the Term
Loan Agreement and the Construction Loan Agreement accrues at a rate based upon
the prime rate unless VFIFA chooses
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a "Fixed Rate Option" (which is based upon a LIBOR rate) or a "Quoted Rate
Option" (which is based upon a rate quoted by CoBank). To determine the actual
interest rate associated with a borrowing under the Loan Documents, the
applicable interest rate is adjusted by a formula which is based in part upon a
debt service coverage ratio, the ratio of APD's equity to net fixed investments
(total assets less current assets) and the ratio of outstanding VFIFA debt to
APD cash flow. Interest is payable monthly under all of the Loan Agreements.
The Loan Agreements and the documents evidencing the Underlying Loans made
by VFIFA contain covenants, including, among others, covenants which limit the
ability of VFIFA, APD and the Underlying Borrowers to incur other indebtedness,
pay dividends, make distributions, sell assets and participate in mergers and
other acquisition transactions. The Loan Agreements require VFIFA to pay certain
customary fees to CoBank.
As of March 29, 1998, $3,900,000 of borrowings were outstanding under the
Line of Credit Facility, $18,971,000 of borrowings were outstanding under the
Construction Loan Agreement and no amount was outstanding under the Term Loan
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Properties
APD's principal properties consist of its greenhouse facilities in Ringgold
and Mount Carmel, Pennsylvania; Buffalo and Wheatfield, New York; Fort Davis and
Marfa, Texas; and King George, Virginia. APD has an ownership interest in the
facilities located in Buffalo, New York; Fort Davis, Texas; Mount Carmel,
Pennsylvania; and Marfa, Texas. The remaining facilities, and the land upon
which the Buffalo and Marfa facilities are located, are leased. Each of the
greenhouses operated by APD has adjacent packing and support facilities ranging
in size from approximately 11,300 square feet at the Ringgold, Pennsylvania
facility to the approximately 170,000 square foot storage and distribution
center adjacent to the Virginia greenhouse facility. Collectively, these
facilities provide an aggregate of approximately 512,778 square feet of packing
and support space to APD. See "Greenhouse Operations." APD also leases
approximately 7,500 square feet of executive office space in two locations in
East Brunswick, New Jersey from ECOSCIENCE. In addition, APD leases
approximately 850 square feet of office space in Charlotte, North Carolina and
500 square feet of office space in Naples, Florida.
Environmental and Regulatory Matters
APD's operations are subject to numerous environmental laws and
regulations, including the Food Quality Protection Act of 1996, the Clean Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Toxic Substances Control
Act and the Comprehensive Environmental Response, Compensation and Liability
Act. Compliance with these laws and regulations is an ongoing process which is
not currently expected to have a material effect on APD's capital expenditures,
earnings or competitive position. Environmental concerns are, however, inherent
in most major agricultural operations, including those conducted by APD, and
there can be no assurance that the cost of compliance with environmental laws
and regulations will not be material in the future. The
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environmental laws which have the greatest impact on APD's operations are those
that govern the handling of fertilizers and pesticides. To help ensure
compliance with environmental laws and regulations, all APD personnel who handle
fertilizers and pesticides must first be trained by a licensed private
applicator on APD's staff certified to provide training in the handling of
hazardous materials. In addition, APD has adopted certain written policies and
procedures which are designed to prevent accidents and set forth the appropriate
course of action in the event that a spill or other accident occurs. APD has
also contracted with third parties to assist in cleanup efforts in the event
that an accident having environmental implications occurs at certain of its
facilities. APD is currently seeking to hire an individual who will be
responsible for overseeing safety and environmental compliance at all of APD's
greenhouses.
APD's operations are subject to regulations enforced by, among others, the
FDA and the USDA. The FDA enforces statutory standards regarding the branding
and safety of food products and determines the safety of food substances in the
United States.
The USDA sets standards for raw produce and governs its inspection and
certification. Under the Perishable Agricultural and Commodities Act ("PACA"),
the USDA exercises broad control over the marketing of produce in domestic and
foreign commerce, sets standards of fair conduct as to representations, sales,
delivery, shipment and payment for goods, and regulates the licensing of produce
merchants and brokers. APD's growing operations are also subject to oversight by
the EPA regarding the use of fertilizers and pesticides protection.
Through its extensive use of labor in its growing operations, APD is
subject to supervision by the United States Department of Labor, under both the
Fair Labor Standards Act and the Occupational Safety and Health Act; and the
prevalence of foreign workers in this sector of APD's work force necessarily
involves oversight by the Immigration and Naturalization Service.
Almost every aspect of federal regulation is accompanied by regulation on
the state level, in each jurisdiction where APD has greenhouse operations.
Competition
The tomato and other vegetable markets in which APD competes or intends to
compete are highly competitive. In addition to other greenhouse producers, APD
must compete with U.S. producers of field grown tomatoes which generally have
prices substantially below those of greenhouse tomatoes. In addition, due to
increased environmental compliance costs in the United States, competition from
producers in Mexico has increased. Certain of the producers of field tomatoes
may have greater resources than APD. APD's greenhouse competitors are located
primarily in the United States, Canada, Israel, Spain and Holland.
Personnel
As of July 1, 1998, APD had approximately 908 full time employees,
including 15 in sales, marketing and distribution, 3 in construction and design
services, 17 in management and administration and approximately 873 in
greenhouse operations.
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The success of each greenhouse operated by APD depends, to a large degree,
on APD's ability to attract and retain qualified growers and assistant growers
to staff the facility. APD has established a training program with a state
university to educate and train students interested in a career in greenhouse
vegetable production. The first participants began working in APD greenhouses in
January 1998. In addition, APD has entered into a joint venture with a
Netherlands company for the purpose of identifying prospective employees who can
fill specialized positions in the agricultural industry. This training will be
provided through temporary work opportunities offered to the students.
None of APD's employees is covered by a collective bargaining agreement.
APD considers its relations with its employees to be good.
Management of APD
The directors and executive officers of APD as of July 1, 1998, as well as
a consultant who provides key services to APD, are as follows:
Name Age Position
- ---- --- --------
Thomas Montanti 73 Chairman of the Board and Director
Michael A. DeGiglio 43 Chief Executive Officer and Director
Albert Vanzeyst 52 President and Director
J. Kevin Cobb 37 Senior Vice President-Corporate Development
David M. Suchniak 47 Senior Vice President-Chief Financial Officer
Donald T. Aiello 46 Senior Vice President-Sales and Marketing
David Holewinski 57 Senior Vice President-Business Development
Laurence Howard 53 Vice President and Treasurer
Gregg Biada 45 Vice President, Marketing
Thomas Ball 55 Greenhouse Consultant
Thomas Montanti, co-founder of APD, has been Chairman of the Board and
Director since its inception in 1990. Mr. Montanti co-founded Agro Dynamics,
Inc. in 1984. Currently, Mr. Montanti is President of NYPCO Industries, Inc.,
and New York Protective Coverings Industry, Inc., each of which is located in
New York and distributes building products and provides specialized insulation
contracting to the marine and power generating industries.
Michael A. DeGiglio, co-founder of APD, has been Chief Executive Officer
and a Director of APD since its inception in 1990. In addition, he served as
President of APD from 1990 to January 1997. See "Election of Directors" for
additional biographical information with respect to Mr. DeGiglio.
Albert Vanzeyst, co-founder of APD, has been Chief Operating Officer and a
Director since its inception in 1990. In January, 1997, he also assumed the role
of President of APD. Mr. Vanzeyst has 30 years of greenhouse design, engineering
and construction experience spanning several countries, crops and climates
throughout the world. Between 1984 and 1990, Mr.
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Vanzeyst was President of Dace U.S.A., Inc., a subsidiary of Dace International,
Inc., an international turn-key greenhouse construction company. Prior thereto,
he participated in the development, design and construction of numerous
greenhouse operations in several countries throughout the world. Mr. Vanzeyst
holds a degree in Foreign Trade and International Commerce from Handelavond
College in the Netherlands.
J. Kevin Cobb joined APD in January 1995 as Senior Vice President and Chief
Financial Officer and served in such capacities until July 1998 when he was
appointed Senior Vice President - Corporate Development. Mr. Cobb came to APD
after five years experience with Cogentrix Energy, Inc. of Charlotte, North
Carolina. While at Cogentrix, he served as Treasurer and Director of Project
Finance. From 1988 to 1990, he served as Vice President of Finance of The
Lexington Group, Inc., a real estate investment and management firm. Prior
thereto, Mr. Cobb was employed as a Certified Public Accountant with Arthur
Andersen, LLP. Mr. Cobb holds a B.S. degree in accounting from the University of
North Carolina -Charlotte.
David M. Suchniak joined APD in July 1998 as Senior Vice President and
Chief Financial Officer. Prior to joining APD, Mr. Suchniak served as Senior
Vice President and CFO with AMC Corporation from 1995 to 1998, and Vice
President/CFO with Hanover Foods Corporation from 1992 to 1995. Mr. Suchniak is
a Certified Public Accountant.
Donald T. Aiello joined APD in March 1997 as Senior Vice President-Sales
and Marketing. Mr. Aiello previously served as Chief Operating Officer and
Executive Vice President of ECOSCIENCE and Vice President of Marketing for
Ecogen, Inc. From 1978 to 1992 he served in various capacities with FMC
Corporation's Agricultural Chemical Group, including Manager of Planning and
Commercial Development, Manager of Domestic Marketing, Marketing
Director-Brazil, and Marketing Manager-Argentina. Mr. Aiello received an M.B.A
degree in marketing and finance from Stanford University and a B.A. degree in
biochemistry from the University of California, Berkeley.
David Holewinski joined APD as Senior Vice President-Business Development
in 1996. From 1989 to 1996, Mr. Holewinski was a self-employed management
consultant to early-stage growth companies, representing investors' interests as
a consultant and a director to various consulting clients. During this period,
Mr. Holewinski was also co-founder and Director of Licensing for two startup
pharmaceutical biotechnology companies. From 1988 to 1989 Mr. Holewinski was
Director of Licensing for Squibb Pharmaceutical Animal Health Business. From
1983 to 1988 he served as Manager of Corporate Development for ConAgra, Inc. Mr.
Holewinski received a B.A. in liberal arts from Pennsylvania State University
and an M.B.A. degree from Harvard Business School.
Laurence Howard joined APD in November 1995 as Vice President and
Controller and was appointed Treasurer in June 1997. Prior to his employment
with APD, Mr. Howard was employed as a Senior Manager at the certified public
accounting firm of Anchin Block and Anchin. Mr. Howard is a Certified Public
Accountant and holds a B.B.A. degree from Baruch College of the City University
of New York.
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Gregg Biada joined APD as Vice President of Marketing in July 1997. A
twenty year veteran of the produce industry, Mr. Biada most recently served as
Vice President of Retail Sales at Tom Lange Company, Inc., and as Vice President
of Sales for NT Gargiulo, LP for ten years. Prior thereto he served as District
Sales Manager for Dole Fresh Foods. Mr. Biada holds a B.A. in Business from John
Carroll University.
Thomas Ball, Greenhouse Consultant, began performing consulting services to
APD, on substantially a full time basis, in July 1998 and has agreed to become a
regular full time employee of APD upon receipt of the required visas and work
permits. Mr. Ball, who has over 40 years experience in the greenhouse industry,
previously owned North-West Growers Ltd. and Marathon Fresh Foods Ltd., a
greenhouse producer of lettuce and tomatoes and marketer of salad products, each
of which he founded in 1990. In 1992 he became a shareholder and managing
director of Arkville Ltd., a tomato producing company that also marketed salad
products. In 1995 he became a shareholder and managing director of English
Village Nurseries Ltd., Europe's largest specialty tomato producer and the
second largest United Kingdom round tomato producer. He took the position of
special projects manager at Geest plc in 1997. Past appointments include board
member of Grower Magazine, chairman of the Fairfield Experimental Station,
governing body of the Glasshouse Crops Research Institute, and member of the
Joint Consultative Body of Her Majesty's Government.
Risks Relating to APD
Supply and Demand
The fresh produce business is particularly sensitive to fluctuations in
supply and demand. When the supply of tomatoes and other produce in the market
exceeds the demand for such products, the market price for fresh produce may be
driven down significantly, in some instances below the cost of harvesting and
packing. In such situations it may be uneconomical to harvest a crop, resulting
in a total loss of the costs incurred in growing such crop. Even when market
prices are sufficient to permit recovery of direct harvesting and packing costs,
prices may not be high enough to permit recovery of growing costs and/or
overhead and other indirect costs. In addition, oversupply can also affect the
prices obtained for premium quality produce.
Crop Disease and Pestilence
Crop disease and pestilence can be unpredictable and can have a devastating
effect on crops, rendering them unsalable and resulting in the loss of all or a
major portion of the crop for that harvest season. Even when only a portion of
the crop is damaged, the profits a grower could have made on the crop will be
severely diminished because the costs to plant and cultivate the entire crop
will have been incurred although only a portion of it can be sold. While some
crop diseases and pestilence are preventable or treatable, the costs of
prevention or treatment may be high which can result in reduced profitability.
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Weather and Other Events
Although APD grows its produce in protected, climate controlled
environments, the quality and level of production of each of its greenhouses can
be affected by low light levels. In addition, other weather related events, such
as hail, severe storms, tornadoes and earthquakes could damage greenhouse
structures and adversely affect production.
In June 1998, a tornado damaged approximately 10% of the APD greenhouse
located in Mt. Carmel, Pennslyvania, resulting in an estimated $500,000 of
structural damages. Although damage to the structure is covered by insurance,
APD is not insured for the related crop damage. As a result, if a proposed sale
of the greenhouse that is currently being negotiated is not completed, the
damage to the Mt. Carmel greenhouse will result in a loss to PVF of
approximately $200,000 to $300,000 in fiscal 1998. See "Greenhouse Operations -
Pocono Village Farms."
Competition
The tomato and other vegetable markets in which APD competes or intends to
compete are highly competitive. In addition to competition from other domestic
growers, certain of which may have greater resources and may be able to produce
at lower costs than APD, there is increasing competition from foreign producers.
If APD's expansion strategy is successful, it can be expected that other
competitors will enter the greenhouse tomato market and existing competitors
will expand their operations. This increased competition could affect the market
price for tomatoes and other vegetables.
Dependence on Key Personnel
The success of APD's business operations will be materially dependent upon
the continued services of executive officers and other key employees, including
grower/managers. The loss of any such personnel due to death, disability or
termination of employment could have a material adverse impact on the operations
or financial condition of APD.
Because of the nature of APD's business, APD will be dependent upon its
ability to attract and retain qualified personnel to operate its various
greenhouse operations, including grower/managers. There is significant
competition for such qualified personnel, and there is no assurance that APD
will be successful in recruiting and retaining such personnel. An inability to
attract and retain qualified personnel, and in the event of labor unrest, an
inability to find qualified replacement personnel rapidly, could adversely
affect the production of APD's existing greenhouses and its plans to expand its
greenhouse operations. See "Personnel."
Dependence on Certain Corporate Relationships; Customer Concentration
APD enjoys relationships with other companies which have contributed, and
in some cases continue to contribute, to its success. APD's future success will
depend, in part, on developing new relationships and continuing the existing
relationships with these companies following the Merger. None of APD's customers
is required under contract or other
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arrangements to continue to purchase produce from APD. For the 52 week period
ended December 28, 1997, approximately 74% of APD's net revenues was derived
from tomato sales to its ten largest customers. Individually, sales to Ahold
USA, Inc., Wegman's Markets and JD Marketing accounted for approximately 16%,
14% and 12% respectively of APD's net revenues for the 52 week period ended
December 28, 1997. If any of such customers elected to terminate its
relationship with APD, such termination could have a material adverse effect on
APD. See "Marketing Arrangements."
Future Capital Requirements
The Company's plan to expand its greenhouse operations will require
substantial capital investment. Additional financing will be required to fund
such investment. No assurances can be given that APD will be able to obtain
financing on acceptable terms.
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SELECTED APD HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected statement of operations data and balance sheet data have been
derived from APD's audited and unaudited consolidated financial statements
included in Appendix D to this Proxy Statement. The selected historical
consolidated financial data should be read in conjunction with, and is qualified
in its entirety by "Management's Discussion and Analysis of APD's Financial
Condition and Results of Operations" and the consolidated financial statements
of APD and related notes included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Consolidated Statements of Operations Data:
In thousands 13 Week Periods Ended 52 Week Periods Ended Years Ended December 31,
--------------------- ------------------------- --------------------------------
March 29, March 30, December 28, December 29,
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
Unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ............................... $ 7,489 $ 4,265 $ 21,963 $ 11,090 $ 8,338 $ 6,708 $ --
Cost of revenues ........................... 4,287 2,620 19,310 8,762 6,854 5,183 --
-------- -------- -------- -------- -------- -------- --------
Gross profit ............................... 3,202 1,645 2,653 2,328 1,484 1,525 --
Selling, general and
administrative expenses .................. 1,231 752 2,358 1,584 1,047 877 485
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) .................... 1,971 893 295 744 437 648 (485)
Interest expense, net ...................... (1,080) (511) (1,851) (207) (37) (46) (20)
Other income (expense), net ................ 3 (7) 5 11 3 (16) 297
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest ...................... 894 375 (1,551) 548 403 586 (208)
Income taxes ............................... -- 5 29 87 58 48 2
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest ..... 894 370 (1,580) 461 345 538 (210)
Minority interest in net (income) losses of
limited partnerships .................... (655) (321) 1,936 274 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) .......................... $ 239 $ 49 $ 356 $ 735 $ 345 $ 538 ($ 210)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
December 31,
In thousands March 29, December 28, December 29, --------------------------------
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------
Unaudited
<S> <C> <C> <C> <C> <C> <C>
Unrestricted and restricted cash
and cash equivalents .............................. $ 5,572 $ 5,012 $ 3,512 $ 205 $ 401 $ 139
Working capital ...................................... 3,002 238 967 602 398 21
Total assets ......................................... 67,815 62,344 26,279 1,766 1,275 908
Total current liabilities ............................ 16,045 11,167 4,041 625 600 752
Long-term debt and capital leases, less current
portion ........................................... 36,371 35,594 14,904 105 350 452
Stockholders' equity (deficit) ....................... 434 305 589 164 (136) (374)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF APD'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF APD
General
APD acquires, develops, owns and operates commercial vegetable greenhouses
and sells the products, primarily beefsteak and cluster on the vine tomatoes,
throughout the United States to both retail supermarkets and wholesale
distribution companies. APD owns or has interests in four (4) active greenhouses
and leases an additional three (3) greenhouses representing approximately 175
acres of production capacity. A new 41 acre greenhouse is currently under
construction by APD. In addition, APD sells produce for third party
owner/operators of an additional 30 acres pursuant to negotiated marketing
arrangements. APD's consolidated revenues are derived and costs are incurred
primarily from the growing and selling of tomatoes. Other revenues and costs
arise from fees earned and costs incurred in connection with design, development
and construction related activities. In addition, revenues are generated from
management and marketing fees paid to APD by the owners of greenhouse facilities
operated by APD. During fiscal 1997, three customers accounted for approximately
42% of APD's consolidated revenues.
Beginning in February 1996, APD initiated a significant expansion strategy
with the start of construction on a 41 acre greenhouse located in Fort Davis,
Texas. Expansion continued throughout fiscal 1997 with additional greenhouses
constructed, acquired and leased resulting in an approximate 112.5 acre increase
over fiscal 1996 production capacity of 63.5 acres. The expansion activity has
been predicated by customer demand, the need to balance summer and winter
product availability and strategic market positioning. Expansion efforts have
been financed primarily through equity contributions from Cogentrix, borrowings
through VFIFA, APD's finance company affiliate, and internally generated funds.
The expansion activity has resulted in significant revenue growth as well as
significant increases in operating costs and overhead to manage such growth on a
continuing basis.
Of the seven greenhouses currently operated by APD, two facilities (the Mt.
Carmel, Pennsylvania and Fort Davis, Texas greenhouses) commenced sales activity
in 1997 and three facilities (the Buffalo, New York; Marfa, Texas and King
George County, Virginia greenhouses) commenced sales activity in 1998. Due to
the timing of their completion, none of these facilities (i) has operated at
full capacity for a complete fiscal year or (ii) was able to sell tomatoes
during the most favorable pricing period in its initial year of operations. As a
result no assurance can be given that APD will be profitable in fiscal 1998;
however, APD believes that operating results in 1996, 1997, and 1998 are not
indicative of results expected in future fiscal years.
APD plans to continue to expand its marketing services for third party
growers on an opportunistic basis with the goal to increase its overall market
share of greenhouse vegetable sales in selected markets. These activities will
require investments in infrastructure, administration and distribution
capabilities that may not result in higher revenues and earnings until future
periods.
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<PAGE>
Results of Operations
Thirteen Weeks Ended March 29, 1998 as compared to Thirteen Weeks Ended
March 30, 1997. Total operating revenues increased 76% to $7,489,000 for the
first quarter of 1998 as compared to $4,265,000 for the first quarter of 1997.
This increase was primarily attributable to the additional sales from the
greenhouses constructed in Texas during 1996 and 1997. These two greenhouses,
located in Fort Davis, Texas and Marfa, Texas are able to produce tomatoes
during the winter months (December through February) due to favorable sunlight
conditions associated with their southern locations. The Fort Davis greenhouse
was in complete operation and production on its entire 41 acres during the first
quarter of 1998 as compared to only 20 acres in production during the comparable
period of 1997. The Marfa greenhouse began operations in the first quarter of
1998 on 20 of the 41 acres comprising the facility. As a result, the total
acreage in production at these two facilities in the first quarter of 1998
increased to 60 acres as compared to 20 acres for the same period in 1997.
Cost of revenues increased 64% to $4,287,000 for the first quarter of 1998
as compared to $2,620,000 for the first quarter of 1997. This increase resulted
primarily from the increase in operating activity associated with the initial
start of operations of the first 20 acres of the Marfa greenhouse. In addition,
cost of revenues increased due to the increase in operating activity associated
with the greenhouses located in Fort Davis, Texas; Mt. Carmel, Pennsylvania;
King George County, Virginia and Buffalo, New York; all of which were
substantially constructed or purchased during 1997 and began initial operations
in the first quarter of 1998. With the exception of the Fort Davis greenhouse,
none of these greenhouses were in operation during the first quarter of 1997.
Selling, general and administrative expenses increased 64% to $1,231,000
for the first quarter of 1998 as compared to $752,000 for the first quarter of
1997. The increase is primarily attributable to the increase in the sales staff
and management added during the last three fiscal quarters of 1997. In addition,
APD increased expenditures associated with package design, labeling and
advertising efforts in the first quarter of 1998 as compared to the first
quarter of 1997 as warranted by the significant increase in production and
revenues that also contributed to the increase in selling expenses. Further, APD
increased its administrative staff during the 52 week period ended March 29,
1998.
Net interest expense increased 111% to $1,080,000 in the first quarter of
1998 as compared to $511,000 for the first quarter of 1997. This increase is
primarily due to the increase in related indebtedness and working capital lines
of credit added in fiscal 1997 in connection with the greenhouses constructed,
purchased or leased during 1997 and the first quarter of 1998.
The increase in minority interest in net income of limited partnerships in
the first quarter of 1998 as compared with the first quarter of 1997 is
attributable to the combined increase in net income of the Fort Davis and Marfa
greenhouses, which was offset by the combined net loss of the Buffalo and Mt.
Carmel greenhouses. The Mt. Carmel greenhouse is a summer producing greenhouse
that had limited revenues during the first quarter of 1998 resulting in a loss
for such period. The Mt. Carmel greenhouse was acquired during the first quarter
of 1997 and had very little operating activity during that period. The Buffalo
greenhouse began initial operations in
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<PAGE>
January 1998 and generated no revenues during the first quarter of 1998
resulting in a loss for such period. Construction of the Buffalo greenhouse
commenced in July 1997 and as a result, this facility had no effect on operating
results during the first quarter of 1997.
The provision for income taxes in the first quarter of 1998 represents an
effective rate of 0% on income before income taxes as compared to an effective
rate of 9.25% of income before income taxes in the first quarter of 1997. The
provision for both periods represents the various state income tax liabilities
resulting from APD's operations. Historically, APD has elected to be taxed as a
Subchapter S corporation and therefore has not paid Federal income taxes.
In June 1998, a tornado damaged approximately 10% of the APD greenhouse
located in Mt. Carmel, Pennslyvania, resulting in an estimated $500,000 of
structural damage. Although damage to the structure is covered by insurance, APD
is not insured for the related crop damage. As a result, if a proposed sale of
the greenhouse that is currently being negotiated is not completed, the damage
to the Mt. Carmel greenhouse will result in a loss to PVF of approximately
$200,000 to $300,000 in fiscal 1998. APD does not believe that the closing or
sale of the facility will have any material adverse effect on the long-term
operating results or financial condition of APD. See "Greenhouse Operations -
Pocono Village Farms."
Fiscal 1997 as compared to Fiscal 1996. Total operating revenues increased
98% to $21,963,000 for fiscal 1997 as compared to $11,090,000 for fiscal 1996.
This increase was primarily attributable to the addition of sales from the
greenhouses located in Fort Davis, Texas and Mt. Carmel, Pennsylvania, each of
which commenced operations in 1997. In addition, in 1997 APD increased third
party grower sales pursuant to marketing arrangements with growers in Mexico and
Canada and added production facilities in Marfa, Texas; Buffalo, New York and
King George County, Virginia, totaling an additional 111 acres. APD expects that
these three facilities will begin generating revenues in 1998.
Cost of revenues increased 120% to $19,310,000 for fiscal 1997 as compared
to $8,762,000 for fiscal 1996. This increase resulted primarily from the
significant increase in production capacity added during 1997 with the new
greenhouse facilities in Fort Davis, Texas, and Mt. Carmel, Pennsylvania. The
operating results at the Keystone and Wheatfield facilities were adversely
impacted by harvesting for a longer period in 1996 and thereby delaying the
commencement of production in 1997. These two facilities are back in the normal
operating cycle for the 1998 operating year.
Selling, general and administrative expenses increased 49% to $2,358,000
for fiscal 1997 as compared to $1,584,000 for fiscal 1996. The increase in
selling, general and administrative expenses was primarily due to an increase in
personnel costs to accommodate the growth in productive capacity during 1997 and
anticipated growth in sales and operations in 1998 resulting from additional
development opportunities as well as the start up of facilities constructed
during 1997.
Net interest expense increased 794% to $1,851,000 in fiscal 1997 as
compared to $207,000 for fiscal 1996. This increase is primarily due to the
increase in related indebtedness
73
<PAGE>
and working capital lines of credit added in fiscal 1997 to build and operate
the additional greenhouses.
The increase in minority interest in net loss of limited partnerships in
fiscal 1997 as compared to fiscal 1996 related to the increase in net loss of
the Fort Davis and Mt. Carmel greenhouses. The Fort Davis greenhouse began
initial operations in November of 1996 and had limited revenues which resulted
in a loss for fiscal 1996. The greenhouse became fully operational during the
second quarter of 1997 and operated at full capacity for the remainder of fiscal
1997. The Fort Davis greenhouse net loss in 1997 is attributed to initial delays
in the facility becoming fully operational, as well as certain nonrecurring
costs associated with operating complexities resulting from the startup of a
facility of this size. Harvesting at the Mt. Carmel facility began in May 1997
and as a result, produce from the facility was not available for sale during the
higher price periods of February through June, resulting in a loss for the year.
The provision for income taxes in fiscal 1997 represents an effective rate
of 8% on income before income taxes as compared to an effective rate of 11% of
income before income taxes in fiscal 1996. The provisions for both years
represent the various state income tax liabilities resulting from APD's
operations. Historically, APD has elected to be taxed as a Subchapter S
corporation and therefore has not paid Federal income taxes.
Fiscal 1996 as compared to Fiscal 1995. Total operating revenues increased
33% to $11,090,000 for fiscal 1996 as compared to $8,338,000 for fiscal 1995.
This increase was primarily attributable to increased production at the Keystone
and Wheatfield greenhouses, as well as the additional sales from marketing
relationships with Agros and Foster Farms.
Costs of revenues increased 28% to $8,762,000 for fiscal 1996 as compared
to $6,854,000 for fiscal 1995. This increase coincided with increase in volume
resulting from the additional production and marketing relationships described
above. In addition, certain operating costs were incurred to ready the Fort
Davis greenhouse for planting during 1996 and are included in the total
operating cost for the period.
Selling, general and administrative expenses increased 51% to $1,584,000
for fiscal 1996 as compared to $1,047,000 for fiscal 1995. The increase was
primarily the result of the increase in personnel costs to support the increase
in volume during 1996 and anticipated growth in sales and operations in 1997
resulting from additional development opportunities, as well as the start up of
the Fort Davis facility constructed during 1996.
Net interest expense increased 459% to $207,000 in fiscal 1996 as compared
to $37,000 for fiscal 1995. This increase is primarily due to the increase in
related indebtedness and working capital lines of credit added in fiscal 1996 to
build and operate the Fort Davis greenhouse.
The increase in minority interest in net loss of limited partnerships in
fiscal 1996 as compared to fiscal 1995 related to the increase in net loss of
the Fort Davis greenhouse. This greenhouse began initial operations in November
1996 and had limited revenues which resulted
74
<PAGE>
in a loss for fiscal 1996. The greenhouse became fully operational during the
second quarter of 1997 and operated at full capacity for the remainder of fiscal
1997.
The provision for income taxes in fiscal 1996 represents an effective rate
of 11% on income before income taxes as compared to an effective rate of 14% of
income before income taxes in fiscal 1995. The provisions for both years
represents the various State income tax liabilities resulting from APD's
operations.
Liquidity and Capital Resources
APD has financed its operations primarily from funds generated through the
sale of tomatoes, fees generated from the management and development of
greenhouses and borrowings from third parties. In addition, Cogentrix has made
equity investments in certain of APD's greenhouse projects.
In April 1997, APD formed VFIFA to obtain and provide construction, term
and working capital financing for its members. In June 1997, VFIFA entered into
each of the Line of Credit Agreement, the Term Loan Agreement and the
Construction Loan Agreement with CoBank which, collectively, are intended to
provide financing for APD's greenhouse development projects, acquisitions and
working capital needs. These agreements collectively provide up to $60,000,000
aggregate amount of borrowing availability. Amounts advanced under these Loan
Agreements are loaned by VFIFA to its members and other eligible affiliates of
APD. APD has guaranteed all obligations of VFIFA under the Loan Agreements and
granted a first lien and security interest in all of its assets to CoBank to
secure its guarantee. See "Village Farms International Finance Association." As
of March 29, 1998, borrowings outstanding under the Line of Credit Agreement,
the Term Loan Agreement and the Construction Loan Agreement were $3,900,000, $0
and $18,971,000, respectively.
In 1996, VFT entered into a loan agreement ("VFT Facility") with CoBank and
Farm Credit Bank of Texas (which is independent of the VFIFA loan facility)
pursuant to which it obtained financing to develop the VFT greenhouse facility
in Fort Davis, Texas. The VFT Facility provided up to approximately $18.6
million of construction and term loan financing, a $2,500,000 revolving credit
facility and a commitment to issue letters of credit. Construction and term loan
advances bear interest at a variable prime rate unless VFT chooses a fixed rate
(which is based upon a LIBOR rate) or a treasury loan rate as defined in the VFT
facility. Revolving credit advances bear interest at a variable prime rate.
As of March 29, 1998, all construction loans made under the VFT Facility
had been converted into term loans. The VFT Facility requires term loan advances
to be paid in equal quarterly installments during the 10 year period ending June
30, 2007. As of March 29, 1998, $18,413,000 was outstanding under the term loan
portion of the VFT Facility. VFT is required to reduce the line of credit
balance to less than $100 and maintain this level for 30 consecutive days during
each year that the VFT Facility is in effect. At March 29, 1998, $1,700,000 was
outstanding under the revolving credit commitment of the VFT Facility. The VFT
Facility requires VFT to establish a "Debt Service Reserve" and an "Additional
Debt Service Reserve" in the amounts of $1.5 million and $1 million,
respectively. These funds are to be used to support
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<PAGE>
debt service payments in the event VFT's cash flow from operations is
insufficient. The Debt Service Reserve will remain in effect during the term of
the VFT Facility and the additional Debt Service Reserve will be released upon
the achievement of certain debt coverage levels. Amounts advanced under the VFT
Facility are secured by substantially all of the assets of VFT.
VFIFA is currently negotiating to acquire the interests of VFT's lenders in
the VFT Facility. In anticipation of this transaction, APD exercised its right
to terminate the revolving credit portion of the VFT Facility in 1998. If VFIFA
is successful in acquiring the interests of the VFT lenders in the VFT Facility,
it is anticipated that the VFT Facility will be restructured to have terms
similar to the Term Loan Agreement and Line of Credit Agreement provided under
the VFIFA loan facility. No assurance can be given that VFIFA will consummate
the acquisition of the interests of VFT's lenders in the VFT Facility. If the
acquisition is not completed, VFT will seek to renew the line of credit
commitment provided under the VFT Facility.
In March 1997, PVF borrowed $2,200,000 under a loan agreement with a
commercial lender which was used to purchase and improve the Mount Carmel
greenhouse property. The loan is required to be repaid in 60 quarterly
installments commencing July 1, 1997 and bears interest at a variable rate (9.0%
at December 27, 1997). The loan is secured by a real estate mortgage on the PVF
property and a first lien on all assets, excluding certain inventory and
accounts receivable, of PVF. PVF is required to maintain $750,000 of cash as
replacement collateral to replace the PVF greenhouse assets sold to VFB. PVF is
currently in default of a covenant to maintain a specified level of net worth
that is contained in the PVF loan facility. PVF, which repaid $750,000 of
borrowings to its lender in June 1998 (reducing the indebtedness to the lender
to $1,350,000), is seeking to obtain a waiver of the default while negotiating
to sell the PVF greenhouse. Such negotiations are currently ongoing. See
"Greenhouse -Pocono Village Farms."
In consideration of Cogentrix completing construction work at the Fort
Davis facility under budget, VFT loaned $1,838,000 to Cogentrix on an unsecured
basis in February 1997. This loan bears interest at a rate of 6% per annum and
is payable on demand. In recognition of the contribution made by APD to
achieving such cost savings, Cogentrix loaned approximately $643,000 of the
proceeds of the loan made by VFT to APD on comparable terms and conditions.
In March 1997, Cogentrix, as an inducement to APD to permit Cogentrix to
invest in the Mt. Carmel greenhouse project, loaned $1,375,000 to APD. The note
representing this loan bears interest at a rate of 6% per annum with equal
quarterly principal payments of approximately $69,000 which began in September
1997. The note matures on March 31, 2002 and is secured by the cash
distributions available to APD from its ownership interest in PVF. See
"Greenhouse Operations - Pocono Village Farms."
The ability of APD's operating subsidiaries to make distributions and pay
dividends and management and marketing fees to APD is subject to certain
limitations in their respective credit documents and partnership agreements.
Such limitations generally require that: (i) project debt service payments be
current; (ii) project debt service coverage ratios be met; (iii) all project
debt service reserve accounts be funded at required levels and (iv) there be no
default or event of
76
<PAGE>
default under the relevant project credit documents. There are also additional
limitations that are adapted to the particular characteristics of each project
subsidiary. See "Greenhouse Operations."
APD believes that internally generated funds and borrowings under the Loan
Agreements will provide sufficient capital to support its current operations;
however, as part of APD's business strategy, it is actively seeking to expand
its greenhouse operations by developing new facilities in the United States,
including the proposed Presidio Greenhouse in Marfa, Texas, and acquiring
existing facilities from third parties. Any such activities will likely require
substantial capital investment. APD expects to use funds borrowed by VFIFA under
the Loan Agreements to finance such activities; however, APD will be required to
seek other sources of capital to finance its expansion activities, including
additional debt financing and/or public or private equity financing. In order to
obtain access to debt capital in the future, APD may be required to obtain
additional equity financing. No assurance can be given that any such financing
can be obtained on terms acceptable to APD.
Net cash used in operating activities was $2,143,000 in the first quarter
of 1998 as compared to $3,720,000 for the first quarter of 1997. The decrease in
cash used in the first quarter of 1998 is primarily attributable to increased
revenues offset, in part, by the startup of the Buffalo, Marfa, and Virginia
greenhouses as well as the non-revenue cycle of the Wheatfield, Keystone and
Pocono greenhouses. The Fort Davis greenhouse was the only greenhouse in full
operation during the first quarter of 1998. In the first quarter of 1997 only
one-half of the Fort Davis greenhouse was in operation.
Net cash used in operating activities was $1,908,000 in 1997 compared to
$634,000 and $208,000 of cash provided by operating activities in 1996 and 1995,
respectively. The increase in cash used in 1997 is attributable in part to the
startup of the Fort Davis and Mt. Carmel facilities which contributed to a
$2,538,000 increase in inventories during the year. In addition, accounts
receivable increased by $1,032,000 in 1997 as a result of the increase in
production and related sales from these facilities. Inventories and receivables
increased by $1,755,000 and $946,000, respectively, in 1996 as a result of
increased production related sales from the Keystone and Wheatfield facilities.
With the continued expansion of APD, purchases of property and equipment
increased by $1,199,000 in the first quarter of 1998 as compared to an increase
of $2,333,000 during the comparable period of 1997. The increase during the
first quarter of 1998 is attributable primarily to the commencement of
construction of the Presidio Greenhouse. The increases in property and equipment
during the first quarter of 1997 represent the activity associated with the
completion of the construction of the Fort Davis greenhouse as well as the
acquisition of the Mount Carmel greenhouse.
As a result of the significant increase in APD's production capacity,
purchases of property and equipment increased by $28,334,000 in 1997 compared to
a $17,381,000 increase in 1996 and $108,000 of purchases in 1995. The increase
in 1997 reflects the acquisition and development of the Mt. Carmel and Buffalo
facilities and the substantial completion of the Marfa
77
<PAGE>
facility. Purchases of property and equipment in 1996 reflect the acquisition
and development of the Fort Davis facility and related equipment.
Restricted cash increased by $750,000 in 1997 as a result of collateral
requirements imposed in connection with the financing of the Mt. Carmel
greenhouse facility. APD used $2,500,000 of cash as collateral for financing
obtained in connection with the construction of the Fort Davis facility in 1996.
In the first quarter of 1998 APD borrowed $4,136,000 as compared to
$8,245,000 in the comparable period of 1997. The borrowings in the first quarter
of 1998 were used to finance the purchase of operating supplies associated with
the startup of operations in the Buffalo, Virginia, and Marfa greenhouses as
well as general working capital needs for the remaining greenhouses and APD
corporate operations. The borrowings in the first quarter of 1997 were primarily
used to finance the completion of the Fort Davis greenhouse and the purchase of
the Pocono greenhouse as well as increases in working capital lines of credit
for these greenhouses and the other APD greenhouses operating at that time.
In 1997, APD borrowed $30.2 million compared to $18.1 million in 1996 and
$1.1 million in 1995. The 1997 borrowings were primarily used to finance the
acquisition and development of the Mt. Carmel facility, the development of the
Marfa and Buffalo facilities, the completion of the Fort Davis facility and for
working capital. Borrowings in 1996 were used primarily to develop the Fort
Davis facility and for working capital.
During the first quarter of 1998 there were no increases in minority
interest contributions to limited partnerships. The minority interest
contributions to limited partnerships during the first quarter of 1997 represent
equity investments in PVF made by Cogentrix to fund the acquisition of the
Pocono greenhouse and the commencement of its operations.
The minority interest contribution to limited partnerships of $9.67 million
in 1997 reflects equity investments made by Cogentrix to the entities that
operate the Mt. Carmel, Marfa and Buffalo facilities, net of operating losses
allocated to Cogentrix. The minority interest contribution to limited
partnerships in 1996 represents equity investments in VFT made by Cogentrix to
fund the Fort Davis project, net of operating losses allocated to Cogentrix.
Seasonality; Impact of Tomato Price Changes and Operating Costs
The nature of the cycle from crop planting to harvesting creates a period
where no revenues are generated by a particular greenhouse. Each of the
greenhouses operated by APD generally produces tomatoes during a nine month
period each year. The facilities located in the northeastern United States and
Virginia cease production during the winter months. The APD facilities in Texas
cease production during the summer months. During these periods, APD utilizes
borrowings under its credit arrangements to support the greenhouse operations.
Tomato prices, as well as prices for produce in general, are influenced by
changes in supply and demand as well as economic conditions generally and tend
to fluctuate significantly throughout the year. By developing a diverse customer
base and possessing the ability to deliver
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<PAGE>
product on a year round basis, APD has been able to mitigate the effects of
these price variations. Sustainable, significant downward movement in general
tomato price levels will adversely impact the earnings of APD and its
subsidiaries.
Operating costs consist primarily of labor, fertilizers, and energy costs.
Sustainable, significant increases in these costs will adversely impact the
earnings of APD and its subsidiaries. APD has identified competitive suppliers
for all of its fertilizer needs in order to obtain the best pricing possible for
these items. APD has also entered into various long term (10 years) agreements
with its various utility providers to ensure a stable supply and predictable
price level for the energy needs of its projects.
Year 2000
APD has completed an initial assessment of its Year 2000 status. A plan has
been developed that is expected to address APD's exposure to the Year 2000
issue. As a part of that plan, APD will inventory and test its hardware and
software. Major customers and vendors will be contacted in order to assess their
status as to Year 2000 compliance. The Year 2000 plan is expected to be
implemented and completed by approximately the end of calendar year 1998. While
some of APD's hardware and software will need to be upgraded or replaced, the
financial impact of making the required system changes is not expected to be
material to APD's financial position, results of operations or cash flow.
Inflation
Inflation has not had a significant effect on APD.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger of ECOSCIENCE and APD under the "pooling of interests"
method of accounting. These pro forma financial statements are presented for
illustrative purposes only, and therefore are not necessarily indicative of the
operating results and financial position that might have been achieved had the
merger occurred on an earlier date, nor are they necessarily indicative of
operating results and financial position which may occur in the future.
The condensed historical statements of operations for periods presented are
derived from the historical financial statements of ECOSCIENCE and APD. These
proforma statements should be read in conjunction with the ECOSCIENCE 1997
Annual Report on Form 10-K and quarterly reports on Form 10-Q incorporated by
reference to this Proxy Statement, and the APD financial statements included in
Appendix D to this Proxy Statement. The historical financial statements as of
and for the nine months ended March 31, 1998 have been prepared in accordance
with generally accepted accounting principles applicable to interim financial
information and, in the opinions of ECOSCIENCE's and APD's respective
managements, include all adjustments necessary for a fair presentation of
information for such periods.
A pro forma condensed combined balance sheet is provided as of March 31,
1998 giving effect to the merger as though it had been consummated on that date.
Pro forma condensed combined statements of operations are provided for the nine
months ended March 31, 1998, and the years ended June 30, 1997, 1996 and 1995,
giving effect to the merger as though it had occurred at the beginning of the
earliest period presented.
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ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1998
In thousands
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------- -----------------------------------
EcoScience APD Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 348 $ 2,322 $ -- $ 2,670
Restricted cash ................................................. -- 2,500 -- 2,500
Accounts receivable, net ........................................ 2,946 2,102 (435)(d) 4,613
Inventories ..................................................... 1,928 8,999 (182)(b) 10,745
Other current assets ............................................ 1,931 1,286 (200)(e) 3,017
Note receivable from related party .............................. -- 1,838 -- 1,838
-------- -------- -------- --------
Total current assets ........................................ 7,153 19,047 (817) 25,383
Property and equipment, net ........................................ 829 45,230 (621)(a)(b)(c) 45,438
Restricted cash .................................................... -- 750 -- 750
Intangible assets, net ............................................. 1,568 -- -- 1,568
Other non-current assets ........................................... 80 2,788 360(g) 3,228
-------- -------- -------- --------
Total assets ............................................ $ 9,630 $ 67,815 ($ 1,078) $ 76,367
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ................................................. $ 785 $ 5,600 $ -- $ 6,385
Current portion of long-term debt and capital leases ............ 6 5,512 -- 5,518
Accounts payable ................................................ 2,435 2,029 -- 4,464
Accrued expenses and other current liabilities .................. 2,473 2,469 320(a)(e) 5,262
Due to affiliates ............................................... -- 435 (435)(d) --
-------- -------- -------- --------
Total current liabilities ................................... 5,699 16,045 (115) 21,629
-------- -------- -------- --------
Non-current liabilities:
Long-term debt and capital leases, less current portion ......... 9 36,371 -- 36,380
Other non-current liabilities ................................... 150 2,195 360(g) 2,705
-------- -------- -------- --------
Total non-current liabilities ............................... 159 38,566 360 39,085
-------- -------- -------- --------
Minority interest in limited partnerships .......................... -- 12,770 -- 12,770
Commitments and contingencies
Stockholders' equity:
Preferred stock ................................................. -- -- -- --
Common stock .................................................... 105 1 475(h1) 581
Additional paid-in capital ...................................... 57,304 215 (257)(h2) 57,262
Retained earnings (accumulated deficit) ......................... (53,639) 218 (1,541)(b)(c)(e)(h3) (54,962)
Unrealized gain on short-term investments ....................... 2 -- -- 2
-------- -------- -------- --------
Total stockholders' equity .................................. 3,772 434 (1,323) 2,883
-------- -------- -------- --------
Total liabilities and stockholders' equity .............. $ 9,630 $ 67,815 ($ 1,078) $ 76,367
======== ======== ======== ========
</TABLE>
81
<PAGE>
ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended March 31, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ----------------------------
EcoScience APD Adjustments Combined
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues .................................................... $ 18,223 $ 16,031 ($ 4,128)(b) $ 30,126
Cost of revenues ............................................ 14,285 12,117 (3,734)(b) 22,668
-------- -------- -------- --------
Gross profit ................................................ 3,938 3,914 (394) 7,458
-------- -------- -------- --------
Operating expenses:
Research and development ................................. 307 -- -- 307
Selling, general and administrative ...................... 3,905 2,761 -- 6,666
-------- -------- -------- ---------
Total operating expenses ........................... 4,212 2,761 -- 6,973
-------- -------- -------- --------
Operating (loss) income ..................................... (274) 1,153 (394) 485
Interest and other income (expense), net .................... (51) (1,885) -- (1,936)
-------- -------- -------- --------
Loss before income taxes .................................... (325) (732) (394) (1,451)
Provision for (benefit from) income taxes ................... 2 19 (158)(f) (137)
-------- -------- -------- --------
Loss before minority interest ............................... (327) (751) (236) (1,314)
Minority interest ........................................... -- 890 -- 890
-------- -------- -------- --------
(Loss) income from continuing operations .................... (327) 139 (236) (424)
Pro forma income tax provision of APD ....................... -- 44 -- 44
-------- -------- -------- --------
Pro forma (loss) income from continuing
operations .............................................. ($ 327) $ 95 ($ 236) ($ 468)
======== ======== ======== ========
Basic and diluted loss per share
Loss from continuing operations ............................. ($ 0.03) ($ 0.04)
======== ========
Weighted average common shares outstanding
10,446 11,610
======== ========
</TABLE>
82
<PAGE>
ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended June 30, 1997
In thousands, except per share data
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- ---------------------------
EcoScience APD Adjustments Combined
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues ........................................................ $ 20,853 $ 18,596 ($ 2,954)(b) $ 36,495
Cost of revenues ................................................ 15,702 14,535 (2,693)(b) 27,544
-------- -------- -------- --------
Gross profit .................................................... 5,151 4,061 (261) 8,951
-------- -------- -------- --------
Operating expenses:
Research and development ..................................... 508 -- -- 508
Selling, general and administrative .......................... 4,521 2,995 -- 7,516
Asset valuation and restructuring reversal ................... (377) -- -- (377)
-------- -------- -------- --------
Total operating expenses ............................... 4,652 2,995 -- 7,647
-------- -------- -------- --------
Operating income ................................................ 499 1,066 (261) 1,304
Interest and other income (expense), net ........................ (65) (1,220) -- (1,285)
-------- -------- -------- --------
Income (loss) before income taxes ............................... 434 (154) (261) 19
Provision for (benefit from) income taxes ....................... 49 17 (104)(f) (38)
-------- -------- -------- --------
Income (loss) before minority interest .......................... 385 (171) (157) 57
Minority interest ............................................... -- 664 -- 664
-------- -------- -------- --------
Income (loss) from continuing operations ........................ 385 493 (157) 721
Pro forma income tax provision of APD ........................... -- 187 -- 187
-------- -------- -------- --------
Pro forma income (loss) from continuing operations .............. $ 385 $ 306 ($ 157) $ 534
======== ======== ======== ========
Earnings per share
Basic
Income from continuing operations ............................... $ 0.04 $ 0.05
======== ========
Weighted average common shares outstanding ...................... 10,137 11,548
======== ========
Diluted
Income from continuing operations ............................... $ 0.04 $ 0.05
======== ========
Aggregate diluted shares ........................................ 10,313 11,583
======== ========
</TABLE>
83
<PAGE>
ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended June 30, 1996
In thousands, except per share data
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- ---------------------------
EcoScience APD Adjustments Combined
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues ........................................................ $ 14,151 $ 11,090 ($ 573)(b) $ 24,668
Cost of revenues ................................................ 10,394 8,762 (526)(b) 18,630
-------- -------- -------- --------
Gross profit .................................................... 3,757 2,328 (47) 6,038
-------- -------- -------- --------
Operating expenses:
Research and development ..................................... 1,018 -- -- 1,018
Selling, general and administrative .......................... 4,810 1,584 -- 6,394
Asset valuation and restructuring reversal ................... (1,550) -- -- (1,550)
-------- -------- -------- --------
Total operating expenses ............................... 4,278 1,584 -- 5,862
-------- -------- -------- --------
Operating income (loss) ......................................... (521) 744 (47) 176
Interest and other income (expense), net ........................ (279) (196) -- (475)
-------- -------- -------- --------
Income (loss) before income taxes ............................... (800) 548 (47) (299)
Provision for (benefit from) income taxes ....................... 28 87 (19)(f) 96
-------- -------- -------- --------
Income (loss) before minority interest .......................... (828) 461 (28) (395)
Minority interest ............................................... -- 274 -- 274
-------- -------- -------- --------
Income (loss) from continuing operations ........................ (828) 735 (28) (121)
Pro forma income tax provision of APD ........................... -- 242 -- 242
-------- -------- -------- --------
Pro forma income (loss) from continuing operations .............. ($ 828) $ 493 ($ 28) ($ 363)
======== ======== ======== ========
Basic and diluted loss per share
Loss from continuing operations ................................. ($ 0.09) ($ 0.03)
======== ========
Weighted average common shares outstanding ...................... 9,070 11,334
======== ========
</TABLE>
84
<PAGE>
ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended June 30, 1995
In thousands, except per share data
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- ----------------------------
EcoScience APD Adjustments Combined
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues ........................................................ $ 12,335 $ 8,338 ($ 422)(b) $ 20,251
Cost of revenues ................................................ 10,153 6,854 (390)(b) 16,617
-------- -------- -------- --------
Gross profit .................................................... 2,182 1,484 (32) 3,634
-------- -------- -------- --------
Operating expenses:
Research and development ..................................... 4,483 -- -- 4,483
Selling, general and administrative .......................... 6,270 1,047 -- 7,317
Asset valuation and restructuring charges .................... 6,000 -- -- 6,000
-------- -------- -------- --------
Total operating expenses ............................... 16,753 1,047 -- 17,800
-------- -------- -------- --------
Operating income (loss) ......................................... (14,571) 437 (32) (14,166)
Interest and other income (expense), net ........................ (490) (34) -- (524)
-------- -------- -------- --------
Income (loss) before income taxes ............................... (15,061) 403 (32) (14,690)
Provision for (benefit from) income taxes ....................... 33 58 (13)(f) 78
-------- -------- -------- --------
Income (loss) from continuing operations ........................ (15,094) 345 (19) (14,768)
Pro forma income tax provision of APD ........................... -- 103 -- 103
-------- -------- -------- --------
Pro forma income (loss) from continuing operations .............. ($15,094) $ 242 ($ 19) ($14,871)
======== ======== ======== ========
Basic and diluted loss per share
Loss from continuing operations ................................. ($ 1.71) ($ 1.32)
======== ========
Weighted average common shares outstanding ...................... 8,839 11,288
======== ========
</TABLE>
85
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only, giving effect to the Merger of
ECOSCIENCE and APD accounted for by the "pooling of interests" method. In
accordance with SEC reporting rules, the pro forma condensed combined statements
of operations, and the historical statements from which they are derived,
present only income from continuing operations and, therefore, do not include
discontinued operations, extraordinary items and the cumulative effects of
accounting changes, as applicable.
APD anticipates "S Corporation" distributions to its stockholders prior to
the consummation of the Merger. These distributions will be made based upon the
tax to be paid on APD's taxable income for the period December 30, 1996 up to
and including the date of the consummation of the Merger. For the purposes of
the pro forma balance sheet, these distributions are based upon the tax to be
paid on taxable income from December 30, 1996 through March 29, 1998.
The pro forma condensed combined balance sheet as of March 31, 1998
includes, in accordance with SEC reporting rules, the impact of all
transactions, whether of a recurring or nonrecurring nature, that can be
reasonably estimated and should be reflected as of that date. Therefore, accrued
expenses reflects a pro forma adjustment, of $1,250,000 net of related taxes of
$500,000, or a net amount of $750,000, for the transaction costs related to the
Merger.
In connection with the Merger, ECOSCIENCE will issue 99,000 shares of
ECOSCIENCE Common Stock to certain APD shareholders who currently own a 50%
interest in Village Farms of Morocco, S.A. The acqusition is deemed immaterial
to the combined companies and, as a result, the pro forma financial information
has not been adjusted to reflect this minority interest purchase.
2. Accounting Period
The pro forma periods are dated in terms of ECOSCIENCE's historical
financial reporting periods. ECOSCIENCE's historical financial data are
presented for the years ended June 30, 1997, 1996 and 1995. In addition, since
APD's historical fiscal years end on the last Sunday of December, the
accompanying June 30, 1997 unaudited pro forma statement of operations required
APD to recast its 1997 historical statement of operations to conform to
ECOSCIENCE's fiscal year. The APD financial data presented in the accompanying
unaudited statements of operations for the years ended June 30, 1996 and 1995
represent the historical statements of operations for APD for the 52 week period
ended December 29, 1996 and the year ended December 31, 1995, respectively. The
statement of operations for the nine month period represents ECOSCIENCE's and
APD's interim reporting periods ended on March 31, 1998 and March 29, 1998,
respectively.
Due to the periods being combined, the 26 week period ended December 29,
1996 for APD is included in the combined pro forma statement of operations for
both periods ended June 30, 1997 and 1996. Revenues for the 26 week period ended
December 29, 1996 totaled $5,178,000 and both income before extraordinary item,
of which there were none, and net income amounted to $31,000.
3. Pro Forma Adjustments
(a) Intercompany deposits - To reverse deposits on equipment paid by APD
to ECOSCIENCE, which is not yet in service.
(b) Intercompany profit - To eliminate revenues, cost of revenues, and
intercompany profit in inventory and fixed assets sold by ECOSCIENCE
to APD during the applicable period presented.
(c) Intercompany profit on depreciable assets sold in a previous period -
To eliminate intercompany profit against retained earnings and fixed
assets for fixed assets sold by ECOSCIENCE to APD prior to July 1,
1997.
(d) Due from / to affiliate - To eliminate intercompany balances as of the
balance sheet date.
(e) Merger costs - To accrue for additional Merger costs not yet recorded
and to writeoff assets related to Merger costs incurred as of March
31, 1998.
(f) Income taxes - All pro forma adjustments have been tax effected at a
40% effective tax rate.
(g) Deferred income taxes - To record deferred tax assets of $778,000 and
liabilities of $360,000, which were created by APD's termination of
its "S Corporation" and assumption of "C Corporation" status upon
consummation of the merger. A valuation allowance of $418,000 has been
provided against the net deferred tax asset due to the uncertainty of
its realizability in future periods.
86
<PAGE>
(h) Common stockholders' equity - Common stockholders' equity as of March
31, 1998 has been adjusted to reflect the following:
(1) Common stock is adjusted for the anticipated issuance of
approximately 9,520,487 shares of ECOSCIENCE common stock, after
giving effect to the one for five Reverse Split, in exchange for
307.7 shares of APD common stock and all of its partnership
interests as of March 31, 1998. Included in the 9,520,487 share
issuance is a provision for the issuance of 99,000 shares of
ECOSCIENCE Common Stock for the purchase of the 50% interest in
Village Farms of Morocco, S.A. currently owned by APD
shareholders. The resulting exchange ratio of 30,619.067 for the
APD Common Stock or 9,421,487 shares, which excludes the 99,000
shares being issued for Village Farms of Morocco, S.A., will not
be adjusted for fluctuations in the market price of ECOSCIENCE
common stock. The effect of the Reverse Split will also result in
an increase in the par value of ECOSCIENCE common stock to $0.05
per share from $0.01 per share.
(2) Additional paid-in capital is adjusted for: (i) the effects of
the aforementioned issuance of shares of ECOSCIENCE common stock
having a par value of $0.05 per share in exchange for APD common
stock having a par value of $1 per share; and (ii) APD's
undistributed "S Corporation" earnings which have been
reclassified to additional paid-in capital on APD's tax status
change to a "C Corporation" from an "S Corporation."
(3) Retained earnings / accumulated deficit is adjusted for: (i) the
intercompany profit discussed in (b) and (c) above; (ii)
$1,250,000 net of related taxes of $500,000, or a net amount of
$750,000, representing the minimum of the estimated range of
Merger costs, as previously discussed; and (iii) undistributed "S
Corporation" earnings of APD that have been reclassified to
additional paid-in capital.
87
<PAGE>
ACTUAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table sets forth per share data relating to income (loss) and
net book value based on ECOSCIENCE Common Stock and APD Common Stock, both on an
actual historical basis and on a pro forma combined basis, as adjusted for the
Reverse Split. The actual per share data has been derived from the consolidated
financial statements of ECOSCIENCE incorporated by reference herein and the
financial statements of APD presented elsewhere herein. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "APPENDIX D - CONSOLIDATED FINANCIAL
STATEMENTS OF APD".
The pro forma net book value per share data and the pro forma income (loss)
per share data for the nine months ended March 31, 1998 and the years ended June
30, 1997, 1996 and 1995 have been derived from the pro forma combined condensed
financial statements appearing elsewhere herein of ECOSCIENCE and APD, and after
giving effect to the Merger, accounted for as a "pooling of interests." Pro
forma per share amounts have been determined based on the assumptions set forth
in the unaudited pro forma combined condensed financial statements presented
elsewhere herein, including the anticipation that approximately 9,520,487 shares
of ECOSCIENCE Common Stock will be issued pursuant to the Merger.
The actual, pro forma and pro forma equivalent per share data included in
the table below should be read in conjunction with the financial statements of
ECOSCIENCE and APD, the pro forma combined condensed financial statements of
ECOSCIENCE and APD, and the related notes accompanying such financial
statements, all of which are either incorporated by reference herein or appear
elsewhere herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE,"
"APPENDIX D - CONSOLIDATED FINANCIAL STATEMENTS OF APD" and "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS". The pro forma data presented below are
not necessarily indicative of the results that would actually have been attained
if the Merger had been consummated as of the first day of the periods described
below or results that may be attained in the future.
<TABLE>
<CAPTION>
For the Nine
Months Ended For the Years Ended June 30,
March 31, -------------------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (Loss) per Common Share:
ECOSCIENCE (1) - Actual:
Basic ......................... ($ 0.03) $ 0.04 ($ 0.06) ($ 1.71)
Diluted ....................... (0.03) 0.04 (0.06) (1.71)
APD - Actual ....................................... 451.74 1,156.97 2,388.69 1,150.00
ECOSCIENCE and APD - Pro Forma:
Basic (2) ..................... (0.04) 0.05 (0.03) (1.32)
Diluted (3) ................... (0.04) 0.05 (0.03) (1.32)
APD - Pro Forma Equivalent:
Basic (4) ..................... (1,234.31) 1,415.92 (980.63) (40,337.84)
Diluted (5) ................... (1,234.31) 1,411.59 (980.63) (40,337.84)
<CAPTION>
March 31, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Net Book Value per Common Share:
ECOSCIENCE - Actual ............................... $ 0.36 $ 0.39
APD - Actual ...................................... 1,410.46 1,306.47
ECOSCIENCE and APD - Pro Forma (6) ................ 0.25 0.29
APD - Pro Forma Equivalent (7) .................... 7,597.99 9,013.59
</TABLE>
- -----------------
(1) For information regarding ECOSCIENCE's dividends, and the market price of
ECOSCIENCE Common Stock, see "MARKET PRICES FOR ECOSCIENCE COMMON STOCK".
88
<PAGE>
(2) Represents basic income (loss) per common share on a pro forma combined
basis. Such amounts have been determined by dividing pro forma income
(loss) amounts by the sum of: (i) the weighted average number of shares of
ECOSCIENCE Common Stock outstanding during each period, adjusted to reflect
the one for five Reverse Split and (ii) approximately 9,520,487 shares of
ECOSCIENCE Common Stock anticipated to be issued pursuant to the Merger.
(3) Represents diluted income (loss) per common share on a pro forma combined
basis. Such amounts have been determined by dividing pro forma income
(loss) amounts by the sum of: (i) the weighted average number of shares or
aggregate diluted shares, as applicable, of ECOSCIENCE Common Stock
outstanding during each period, adjusted to reflect the one for five
Reverse Split and (ii) approximately 9,520,487 shares of ECOSCIENCE Common
Stock anticipated to be issued pursuant to the Merger.
(4) Represents the amount computed pursuant to Note 2 above multiplied by the
anticipated 30,619.067 to 1 Exchange Ratio.
(5) Represents the amount computed pursuant to Note 3 above multiplied by the
anticipated 30,619.067 to 1 Exchange Ratio.
(6) Represents the pro forma combined net book value of ECOSCIENCE and APD
attributable to common shares, divided by the sum of: (i) the number of
shares of ECOSCEINCE Common Stock outstanding, adjusted to reflect the one
for five Reverse Split and (ii) approximately 9,520,487 shares of Common
Stock anticipated to be issued pursuant to the Merger.
(7) Represents the amount computed pursuant to Note 6 above multiplied by the
anticipated 30,619.067 to 1 Exchange Ratio.
89
<PAGE>
II. ELECTION OF DIRECTORS
The Bylaws of the Company provide for a Board consisting of such number of
Directors, not fewer than three, as shall be fixed from time to time by the
Board. The Board is divided into three classes, with each class to hold office
for a term of three years and the term of office of one class to expire each
year. The Board has fixed the number of Directors to constitute the full Board
for the ensuing year at six, two of whom are to be elected at this year's
Special Meeting in lieu of the 1997 Annual Meeting of Stockholders, one whose
term expires at the 1998 Annual Meeting and three whose terms expire at the 1999
Annual Meeting.
Michael A. DeGiglio and David J. Ryan represent the class of Directors
whose terms expire at this year's Special Meeting in lieu of the 1997 Annual
Meeting of Stockholders. The Board has nominated Messrs. DeGiglio and Ryan for
election to the class of Directors whose terms expire at the 2000 Annual
Meeting.
Shares represented by proxies will be voted FOR the election as Director of
the foregoing nominees unless otherwise specified in the proxy. If any of the
nominees for election to the Board should, for any reason not now anticipated,
not be available to serve, proxies will be voted FOR such other candidate as may
be designated by the Board, unless the Board reduces the number of Directors.
The Board has no reason to believe that any of the nominees will be unable to
serve if elected.
The Merger Agreement requires that prior to the Effective Time the Company
shall procure the resignation of each of E. Andrew Grinstead, Larry M. Nouvel
and Kenneth S. Boger as directors of the Company. Prior to the effectiveness of
such resignations and prior to the Effective Time, the Board of Directors shall
elect to the Board of Directors, effective as of the Effective Time, Albert
Vanzeyst to fill the vacancy created by the resignation of E. Andrew Grinstead,
and Thomas Montanti to fill the vacancy created by the resignation of Larry M.
Nouvel.
Set forth below is certain information with respect to the nominees for
election to the Board, those Directors whose terms of office will continue after
the Meeting, and the executive officers of the Company.
Nominees for Election for a Three Year Term Expiring at the 2000 Annual Meeting
Michael A. DeGiglio
Mr. DeGiglio, age 43, has served as Director of the Company since November
1996, when he was elected to serve as a Director by the Board. Mr. DeGiglio
joined the Company upon its acquisition of Agro Dynamics, Inc. ("AGRO Dynamics")
in November 1992, and has served as President of AGRO Dynamics since that time.
In July 1995, Mr. DeGiglio assumed the offices of President and Chief Executive
Officer of the Company. From 1984 until joining the Company, Mr. DeGiglio was
employed by AGRO Dynamics, where he served as President. Prior to co-founding
AGRO, Mr. DeGiglio was Vice President of International Sales for NYPCO
90
<PAGE>
International Inc. Mr. DeGiglio served on active duty in the United States Navy
as an Officer and Jet Aviator from July 1976 through January 1983, and the Naval
Air Reserves from 1983 to present, currently holding the rank of Captain with
the United States Naval Reserve. Throughout his Naval career, he has held
various department head positions, completed a tour as Commanding Officer of a
Jet Aviation Squadron, performed multiple tours overseas, and has completed
numerous Senior Advanced Management courses. Mr. DeGiglio also serves as Chief
Executive Officer and Director of APD. Mr. DeGiglio received a B.S. in
Aeronautical Science and Aviation Management from Embry Riddle Aeronautical
University.
David J. Ryan (1) (2) (3)
Mr. Ryan, age 43, has served as a Director of the Company since 1988. Since
1983, Mr. Ryan has been a General Partner of Copley Venture Partners, an
affiliate of Copley Partners 2, L.P., a venture capital investor in ECOSCIENCE.
Mr. Ryan also is a Managing Partner of Mission Ventures, L.P. Prior to his
involvement in venture capital, Mr. Ryan spent five years with Medusa
Corporation, a midwest based manufacturer of industrial and building products,
in several financial and operating capacities. Mr. Ryan also serves as a
director of Mulberry Child Care Centers. Mr. Ryan holds a B.S. from Northeastern
University and an M.B.A. from Case Western Reserve University.
Director Continuing in Office Until the 1998 Annual Meeting
Larry M. Nouvel (1) (2)
Mr. Nouvel, age 54, has served as a Director of the Company since March
1993. Mr. Nouvel is currently President of Speer Products, Inc., a company that
is primarily engaged in the development, manufacturing and marketing of
insecticide products to the non-agricultural markets. From January 1986 to May
1992, he served as President of Roussel BioCorporation, a company that
manufactures and markets insecticide products to the non-agricultural markets.
Previously, Mr. Nouvel held several senior marketing and sales positions,
including Vice President of Marketing and Sales, for Zoecon Industries, Inc., a
manufacturer and marketer of insecticide products to the professional pest
control markets. Mr. Nouvel holds a B.A. degree in Chemistry from the University
of Texas at El Paso.
Directors Continuing in Office Until the 1999 Annual Meeting
Kenneth S. Boger (3)
Mr. Boger, age 51, has served as a Director of the Company since July 1993.
Mr. Boger is currently a partner in the Boston law firm of Warner & Stackpole
LLP, the Company's general counsel, where he has practiced corporate law since
1976. Mr. Boger holds an A.B. from Duke University, an M.B.A. from the
University of Chicago and a J.D. from Boston College Law School.
91
<PAGE>
E. Andrews Grinstead, III (2) (3)
Mr. Grinstead, age 52, has served as a Director of the Company since May
1991. Mr. Grinstead is currently Chairman and Chief Executive Officer of
Hybridon, Inc., a pharmaceutical company, and serves as a director of Pharmos
Corporation, Meridien Medical Technologies and BioCapital. From October 1990 to
June 1991, he acted as a consultant and financial advisor to emerging growth
companies in the medical field, particularly bio-pharmaceutical companies. From
February 1984 through September 1990, he was a Managing Director and head of
PaineWebber Incorporated's Healthcare/Life Sciences Group, Managing Director of
the Life Sciences Group at Drexel Burnham Lambert Incorporated and a Vice
President of Kidder, Peabody & Co., where he developed the Life Sciences
Corporate Finance Speciality Group. Mr. Grinstead graduated from Harvard
University, the University of Virginia School of Law and Harvard Business
School.
Heinz K. Wehner (1)
Mr. Wehner, age 67, has served as a Director of the Company since March
1993. From March 1976 to June 1992, Mr. Wehner served in several management
positions with Chemagro Corporation and Mobay Corporation, both subsidiaries of
Bayer A.G. in Germany and, most recently, Bayer Corporation, where he served as
President of the Agricultural, Animal Health and Consumer Products Divisions.
Previously, he held several management positions with Bayer Quimicas Unidas S.A.
in Peru, including Vice President of the Agricultural Chemicals and Animal
Health Division, and with Bayer de Mexico S.A., including Vice President of the
Crop Protection and Consumer Products Division. Mr. Wehner is an advisory
director for the Commerce Bank of Kansas City, N.A. in Kansas City, Missouri.
Mr. Wehner attended Escuelas Americanas in Peru where he studied business
administration.
- -------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Strategic Alternatives Committee.
Other Executive Officers
Harold A. Joannidi
Mr. Joannidi, age 46, 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 in 1992, 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 LLP. He attended Tufts University and
Northeastern University, receiving a B.S. degree in Accounting and Economics
from Northeastern University.
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David W. Miller, Ph.D.
Dr. Miller, age 46, joined the Company in May 1988 and serves as Vice
President-Technology. Dr. Miller's current responsibilities include technology
development and management, intellectual property oversight and product
development 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. 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. Throughout his
professional career, Dr. Miller has focused on the development and
commercialization of microbial pesticides with involvement from the discovery
stage to product sales.
Meetings and Committees of the Board of Directors
The Board held six meetings during the fiscal year ended June 30, 1997.
Each of the Directors attended at least 75% of the Board meetings and meetings
of committees of the Board of which he was a member.
The Audit Committee consists of Messrs. Grinstead, Nouvel and Ryan. During
fiscal 1997, the full Board performed the functions of the Audit Committee which
included interactions with the Company's independent accountants to review the
scope of the annual audit, to discuss the adequacy of internal accounting
controls and procedures, and to perform general oversight with respect to the
accounting principles applied in the financial reporting of the Company.
The Compensation Committee's functions are to recommend to the full Board
the amount, character and method of payment of compensation to all executive
officers and certain other key employees of the Company and to administer the
Company's 1991 Stock Option Plan. The Compensation Committee consists of Messrs.
Nouvel, Ryan and Wehner. The Compensation Committee held three meetings during
fiscal 1997.
In fiscal 1995, the Company appointed Messrs. Boger, Grinstead and Ryan to
serve on a Strategic Alternatives Committee to investigate strategic
alternatives available to the Company, including mergers, acquisitions and
technology licensing opportunities. The Strategic Alternatives Committee held
one meeting during fiscal 1997.
Board Recommendation
The Board recommends that the stockholders VOTE FOR the election of the
nominees to the Board. A plurality of the votes cast in person or represented by
proxy at the Meeting is required to elect each nominee as Director.
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III. PROPOSAL TO APPROVE AN AMENDMENT TO ECOSCIENCE'S CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF ECOSCIENCE'S COMMON STOCK
As a condition to the consummation of the Merger, ECOSCIENCE is to effect a
one for five reverse stock split of the Common Stock prior to the issuance of
shares of Common Stock to holders of APD Stock so that, after such issuance,
ECOSCIENCE will have a sufficient number of shares authorized but unissued to
allow ECOSCIENCE to meet its needs for the foreseeable future. In addition, the
Board of Directors believes that the Reverse Split should result in a
proportionate increase in the trading price of ECOSCIENCE's Common Stock ($1
9/16 per share at the close of trading on the Nasdaq Stock Market on May 8,
1998). The expected increase in the trading price will reduce the risk that the
trading price of ECOSCIENCE Common Stock will fall below the $1.00 minimum price
per share which is one of the criteria for continued listing on the Nasdaq Stock
Market. In addition, the higher trading price could avoid ECOSCIENCE Common
Stock being considered a "penny stock" under certain SEC regulations which
govern trading in low priced securities. The Reverse Split, if approved by the
stockholders, will occur as follows: (i) every five shares of ECOSCIENCE Common
Stock outstanding on the Effective Date will automatically and without any
further action by the holder be converted into one share of ECOSCIENCE Common
Stock and (ii) the par value of each share of ECOSCIENCE Common Stock will be
increased from $.01 per share to $.05 per share. All certificates evidencing
outstanding shares of ECOSCIENCE Common Stock will, upon surrender by the holder
thereof to ECOSCIENCE's Transfer Agent, be exchanged for new certificates
representing the number of post Reverse Split shares to which such holder shall
then be entitled. No stockholder will, as a result of the Reverse Split, receive
any fractional shares of ECOSCIENCE Common Stock. Any holder of ECOSCIENCE
Common Stock who would otherwise be entitled to receive a fractional share of
ECOSCIENCE Common Stock shall be entitled to receive a cash payment in lieu
thereof equal to the product of (i) such fraction muliplied by (ii) the average
of the closing bid and asked prices of a share of ECOSCIENCE Common Stock as
reported by the Nasdaq Stock Market on the Record Date. If the proposal to issue
shares of ECOSCIENCE Common Stock in connection with the Merger is not approved,
the amendment to ECOSCIENCE's Certificate of Incorporation to effect the Reverse
Split will not be made.
Board Recommendation
The Board recommends that the stockholders VOTE FOR the amendment to the
Certificate of Incorporation to effect a reverse stock split of the Common
Stock. An affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock is required to approve this proposal.
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<PAGE>
IV. PROPOSAL TO APPROVE AN AMENDMENT TO ECOSCIENCE'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF ECOSCIENCE
COMMON STOCK FROM 25,000,000 SHARES TO 100,000,000 SHARES, AND TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF ECOSCIENCE PREFERRED STOCK FROM
1,000,000 SHARES TO 10,000,000 SHARES
Purpose and Effects of Increasing the Number of Authorized Shares of Common
Stock and Preferred Stock
Purpose to the Merger Agreement, ECOSCIENCE has agreed to present at the
special Meeting a proposal to amend its Certificate of Incorporation to increase
its authorized shares of Common Stock from 25,000,000 to 100,000,000 shares and
to increase its authorized shares of Preferred Stock from 1,000,000 to
10,000,000 shares ("Proposal IV"). If the proposed increase in the number of
shares of Common Stock authorized for issuance under ECOSCIENCE's Certificate of
Incorporation is not approved at the Special Meeting, ECOSCIENCE will not have a
sufficient number of authorized shares of Common Stock to consummate the Merger.
As a result, the consummation of the Merger is conditioned upon the approval of
Proposal IV.
If Proposal IV is approved by the stockholders of ECOSCIENCE, the
additional 75,000,000 shares of Common Stock authorized would be part of the
existing class of Common Stock and, if and when issued, would have the same
rights and privileges as the shares of Common Stock currently issued and
outstanding. The additional 9,000,000 shares of Preferred Stock would be part of
the existing class of Preferred Stock. As is the case with the 1,000,000
Preferred Stock currently authorized by ECOSCIENCE's Certificate of
Incorporation, the ECOSCIENCE Board of Directors would be authorized to issue
the newly authorized shares of Preferred Stock in one or more series with such
dividend, liquidation, conversion, voting, redemption and other rights as the
Board may establish.
The ECOSCIENCE Board believes that the proposed increase in the number of
authorized shares of Common Stock and Preferred Stock is advisable so that
ECOSCIENCE will have sufficient authorized capital to permit (i) future equity
financings and (ii) potential acquisitions of products and businesses for
capital stock. There are no present plans, understandings, arrangements or
discussions for the issuance of any shares of Common Stock or Preferred Stock in
connection with equity financings or acquisitions of products or businesses. If
Proposal IV is adopted, the ECOSCIENCE Board of Directors, without further
stockholder approval, could issue Preferred Stock in one or more series with
such dividend, liquidation, conversation, voting, redemption or other rights as
would discourage possible acquirers of ECOSCIENCE from making a tender offer or
other attempt to gain control of the Company. To the extent that the additional
shares of Preferred Stock impede any such takeover attempts, the additional
shares of Preferred Stock could serve to perpetuate management.
If the proposal to issue shares of ECOSCIENCE Common Stock in connection
with the Merger is not approved, the amendment to ECOSCIENCE's Certificate of
Incorporation to increase the number of authorized shares will not be made.
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Board Recommendation
The Board recommends that the stockholders VOTE FOR the amendment to the
Certificate of Incorporation to increase the number of authorized shares of
ECOSCIENCE Common Stock from 25,000,000 shares to 100,000,000 shares and to
increase the number of authorized shares of ECOSCIENCE Preferred Stock from
1,000,000 shares to 10,000,000 shares. An affirmative vote of the holders of a
majority of the outstanding shares of the Common Stock is required to approve
this proposal.
V. PROPOSAL TO APPROVE AN AMENDMENT TO THE 1991 STOCK OPTION PLAN
In a meeting of the Board held November 7, 1996, the Board voted, subject
to stockholder approval, to approve an amendment to the 1991 Stock Option Plan.
The amendment provides that the number of shares of Common Stock which may be
granted under the 1991 Stock Option Plan shall be increased from 1,300,000 to
1,800,000 shares (without giving effect to the proposed Reverse Split). The
Board authorized this increase to ensure a sufficient number of option shares
would be available for future grants.
The following summary of the 1991 Stock Option Plan is qualified by
reference to the full 1991 Stock Option Plan attached as Appendix E to this
Proxy Statement.
Description of the Plan
The Company's 1991 Stock Option Plan was established to provide all
employees of the Company with an opportunity to share in the growth of the
Company along with its stockholders, and to encourage employees to remain with
the Company and work toward its long-term success. Incentive stock options
granted under the 1991 Stock Option Plan are priced at not less than the fair
market value of the Company's Common Stock on the date of grant, usually vest
over a four year period and expire after ten years. The closing price on the
Nasdaq Small Capitalization System per share of the underlying Common Stock on
July 29, 1998 was $1 7/32.
Stock option grants are typically made to all employees upon commencement
of employment and, when appropriate, following a promotion or to recognize
superior job performance. Approximately 60 persons were eligible to participate
in the Plan as of the Record Date.
Federal Income Tax Consequences Relating to Stock Options
The Company has been advised by Warner & Stackpole LLP, counsel to the
Company, that, under the federal tax laws, options granted under the 1991 Stock
Option Plan will be treated as follows:
Incentive Stock Options. An optionee does not realize taxable income upon
the grant or exercise of an incentive stock option (an "ISO") under the 1991
Stock Option Plan. If no disposition of shares issued to an optionee pursuant to
the exercise of an ISO is made by the
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optionee within two years from the date of grant or within one year from the
date of exercise, then (a) upon sale of such shares, any amount realized in
excess of the option price (the amount paid for the shares) is taxed to the
optionee as long-term capital gain and any loss sustained will be a long-term
capital loss and (b) no deduction is allowed to the Company for federal income
tax purposes. The exercise of ISOs gives rise to an adjustment in computing
alternative minimum taxable income that may result in alternative minimum tax
liability for the optionee. If shares of Common Stock acquired upon the exercise
of an ISO are disposed of prior to the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition") then (a) the
optionee realizes ordinary income in the year of disposition in an amount equal
to the excess (if any) of the fair market value of the shares at exercise (or,
if less, the amount realized on a sale of such shares) over the option price
thereof and (b) the Company is entitled to deduct such amount. Any further gain
realized is taxed as a short- or long-term capital gain and does not result in
any deduction to the Company. A disqualifying disposition in the year of
exercise will generally avoid the alternative minimum tax consequences of the
exercise of an ISO.
Non-Statutory Stock Options. No income is realized by the optionee at the
time a non-statutory option is granted. Upon exercise, (a) ordinary income is
realized by the optionee in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise and (b)
the Company receives a tax deduction for the same amount. Upon disposition of
the shares, appreciation or depreciation after the date of exercise is treated
as a short- or long-term capital gain or loss and will not result in any
deduction by the Company.
Registration of Shares Underlying Options
To date, the Company has registered on Form S-8 802,025 shares of Common
Stock underlying options granted or to be granted under the 1991 Stock Option
Plan.
Board Recommendation
ECOSCIENCE believes granting such options is necessary to attract and
retain high quality employees, officers and consultants. For this reason, the
Board recommends the stockholders VOTE FOR the proposal to ratify and approve
the amendment to the 1991 Stock Option Plan. The affirmative vote of a majority
of the votes cast in person or represented by proxy at the Meeting is required
to approve this proposal.
VI. PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN, LLP AS ECOSCIENCE'S
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected the firm of Arthur Andersen, LLP, independent
accountants, to serve as auditors of the Company for the fiscal year ending June
30, 1998. Arthur Andersen, LLP has been the Company's independent public
accountants since 1988.
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Board Recommendation
The Board recommends that the stockholders vote FOR the ratification of the
selection of Arthur Andersen, LLP as the Company's independent public
accountants for the current fiscal year.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership
of the Common Stock as of July 31, 1998 by: (i) each person known to ECOSCIENCE
to be the beneficial owner of more than 5% of the Common Stock on that date,
(ii) each Director, (iii) each executive officer listed in the Summary
Compensation Table below and (iv) all Directors and executive officers as a
group.
SUMMARY SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
Shares Beneficially Percentage of
Name and Address Owned(1) Total Shares
- ---------------- ------------------- ------------
<S> <C> <C>
Palo Alto Investors (2) ................................... 1,407,000 13.4%
470 University Avenue
Palo Alto, California 94301
Copley Partners 2, L.P (3) ................................ 822,932 7.8%
600 Atlantic Avenue
Boston, Massachusetts 02110
Kenneth S. Boger (4)....................................... 40,000 *
E. Andrews Grinstead, III (4).............................. 88,888 *
Larry M. Nouvel (4)........................................ 40,000 *
David J. Ryan (5).......................................... 862,932 8.1%
Heinz K. Wehner (4)........................................ 40,000 *
Michael A. DeGiglio (6).................................... 347,658 3.2%
Richard A. Andrews (7)..................................... 1,228 *
David W. Miller (8)........................................ 111,359 1.1%
All Directors and executive officers as a group
(8 persons) (9)....................................... 1,611,670 14.3%
</TABLE>
- ----------
*Less than 1%.
(1) Information with respect to beneficial ownership is based upon information
furnished to the Company by each stockholder included in this table. Except
as indicated in the notes to the table, each stockholder included in the
table has sole voting and investment power with respect to the shares shown
to be beneficially owned by him. Pursuant to the rules of the Securities
and Exchange Commission, shares of Common Stock which an individual or
member of a group has a right to acquire within 60 days of July 31, 1998
pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of
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such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in
the table.
(2) According to a Schedule 13G/A-2 dated February 13, 1998, filed by Palo Alto
Investors, consists solely of shares of Common Stock as to which such
entity has shared voting and investment power.
(3) Includes 66,666 shares of Common Stock issuable upon exercise of a warrant.
(4) Consists solely of shares of Common Stock issuable upon exercise of
warrants.
(5) Includes 40,000 shares of Common Stock issuable upon exercise of warrants,
and 756,266 and 66,666 shares of Common Stock held and issuable upon
exercise of a warrant, respectively, by Copley Partners 2, L.P. Copley
Venture Partners L.P., a limited partnership of which Mr. Ryan is a general
partner, is a general partner of Copley Partners 2, L.P.
(6) Includes 17,427 shares of Common Stock held by Mr. DeGiglio's wife, Susan
A. DeGiglio, as to which Mr. DeGiglio disclaims beneficial ownership, and
290,833 shares of Common Stock issuable upon exercise of stock options.
(7) As of August 29, 1997, Mr. Andrews resigned from the Company; therefore his
share total of 1,228 is excluded from the group total of all directors and
executive officers.
(8) Includes 87,500 shares of Common Stock issuable upon exercise of stock
options.
(9) Includes an aggregate of 774,720 shares of Common Stock issuable upon
exercise of stock options and warrants. Share amount includes 756,266 and
66,666 shares of Common Stock held and issuable upon exercise of a warrant,
respectively, by Copley Partners 2, L.P., for a total of 822,932 shares or
7.8% of total shares of Common Stock outstanding. Copley Venture Partners
L.P., a limited partnership of which Mr. Ryan is a general partner, is a
general partner of Copley Partners 2, L.P.
The mailing address for each of the persons listed above whose address was
not supplied in the table is c/o EcoScience Corporation, 10 Alvin Court, East
Brunswick, New Jersey 08816.
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EXECUTIVE COMPENSATION
The following table provides certain summary information regarding
compensation paid by the Company during the fiscal years ended June 30, 1997,
1996 and 1995 to the Company's Chief Executive Officer and to each of the other
executive officers of the Company, whose annual compensation and bonus for the
fiscal year ended June 30, 1997 exceeded $100,000 (together with the Chief
Executive Officer, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation --------------------------------
-------------------------------- Restricted Number of Shares
Name and Stock Underlying
Principal Position Year Salary Bonus Awards Stock Options
------------------ ---- ------ ----- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Michael A. DeGiglio (1) 1997 $140,000 $25,000 -- 100,000
President and Chief 1996 123,391 25,000 -- 200,000
Executive Officer 1995 111,522 16,077 -- --
Richard A. Andrews (2) 1997 113,542 -- -- 58,778
Vice President 1996 117,083 -- -- 50,000
1995 131,250 -- -- --
David W. Miller (3) 1997 106,167 -- -- 55,000
Vice President -Technology 1996 108,250 -- -- 50,000
1995 120,750 -- -- --
</TABLE>
- ----------
(1) Mr. DeGiglio joined the Company in November 1992 as the President of
AgroDynamics, Inc. and was appointed President and Chief Executive Officer
of the Company in July 1995.
(2) As of August 29, 1997, Mr. Andrews resigned from the Company. In January
1997, the Company repriced an option to Mr. Andrews to purchase up to
58,778 shares of common stock at an exercise price of $1.00 per share with
a new expiration date of January 7, 2007.
(3) During fiscal year 1997, the Company repriced options to Dr. Miller to
purchase up to 35,000 and 20,000 shares of common stock at exercise prices
of $1.50 and $1.00 per share with new expiration dates of August 12, 2006
and January 7, 2007, respectively.
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The following table provides certain information with respect to options
granted under the Company's 1991 Stock Option Plan to each of the Named
Executive Officers during the fiscal year ended June 30, 1997.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Percentage
of Total Potential Realizable Value
Number of Options at Assumed Rates of Stock
Shares Granted to Price Appreciation for
Underlying Employees in Option Term (1)
Options Fiscal Exercise Expiration ----------------------
Name Granted Year Price Date 5% 10%
- ------------------------ ---------- ------------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael A. DeGiglio (2) 100,000 29.4% $1.00 01/07/02 $ 27,628 $ 61,051
Richard A. Andrews (3) 58,778 17.3% 1.00 01/07/07 1,225 2,449
David W. Miller (4) 35,000 10.3% 1.50 08/12/06 $ 33,017 $ 83,671
20,000 5.9% 1.00 01/07/07 12,578 31,875
-------- -------- -------- --------
55,000 16.2% $ 45,595 $115,546
======== ======== ======== ========
</TABLE>
(1) As required by the rules of the Securities and Exchange Commission,
potential values stated are on the prescribed assumption that the Company's
Common Stock will appreciate in value from the date of grant to the end of
the option term at annualized rates of 5% and 10%. The actual value, if
any, an executive officer may realize will depend on the excess of the
market price of the Company's Common Stock over the exercise price on the
date the option is exercised; however, there is no assurance that the value
realized by an executive officer will be near the value show in the table.
(2) The option vests 25% on the date of grant and the balance vests in equal
monthly installments of 3,125 shares beginning February 1, 1997 and ending
January 1, 1999.
(3) In January 1997, the Company repriced an option to Mr. Andrews to purchase
up to 58,778 shares of Common Stock at an exercise price of $1.00 per share
with a new expiration date of January 7, 2007. This option vested in full
on the reissuance date. The potential realizable values reflected above
represent appreciation values limited to three months after Mr. Andrews'
resignation from the Company, the exercise period limit as provided in the
Plan.
(4) During fiscal year 1997, the Company repriced options to Dr. Miller to
purchase up to 35,000 and 20,000 shares of Common Stock at exercise prices
of $1.50 and $1.00 per share with new expiration dates of August 12, 2006
and January 7, 2007, respectively. The 35,000 share option vests in two
equal annual installments beginning one year from the date of grant. The
20,000 share option vested in full on the date of grant.
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The following table provides certain information with respect to
options to purchase Common Stock held by the Named Executive Officers at June
30, 1997.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997 AND
1997 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In the Money
Unexercised Options at Fiscal Year End Options at Fiscal Year End
----------------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael A. DeGiglio 164,792 155,208 $28,906 $33,594
Richard A. Andrews 83,778 25,000 24,070 9,375
David W. Miller 45,000 60,000 14,375 9,375
</TABLE>
No options were exercised by the Named Executive Officers in fiscal year
1997.
The following table provides certain information with respect to option
repricings under the Company's 1991 Stock Option Plan and Stock Appreciation
Rights ("SARs") repricings for each of the executive officers of the Company for
the last ten fiscal years in the period ended June 30, 1997.
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<PAGE>
TEN YEAR OPTION AND STOCK APPRECIATION RIGHTS REPRICINGS
<TABLE>
<CAPTION>
Number of Length of
Shares of Original
Securities Number of Option/SARs
Underlying Market Price Shares Original Term
Options/ of Stock at Underlying Exercise Remaining at
SARs Time of New Canceled Price at Time Date of
Repriced Repricing or Exercise or Amended of Repricing Repricing or
Name Date or Amended Amendment Price Option or Amendment Amendment
---- ---- ---------- --------- ----- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. Andrews 01/08/97 58,778 $1.000 $1.00 23,333 $ 0.450 Expired
Vice President (1)
10,000 0.375 Expired
15,000 9.500 6 years, 7
months
15,000 5.750 5 years, 8
months
10,000 11.375 5 years, 1
month
David W. Miller 08/12/96 35,000 1.125 1.50 10,000 11.375 5 years, 6
Vice President- months
Technology
25,000 9.500 7 years
01/08/97 20,000 1.000 1.00 10,000 0.375 Expired
(2)
20,000 5.750 5 years, 8
months
</TABLE>
(1) The reissuance share amount to Mr. Andrews was based on a calculation
intended to preserve a certain potential realizable value from Mr. Andrews'
options dated September 1, 1990 and April 22, 1991, which were issued under
the Company's 1988 Stock Option Plan in the amounts of 23,333 and 10,000
shares, respectively, ("the 1988 Andrews Options") based on a certain
market reference price of $1.75 per share. The 1988 Andrews Options were
inadvertently allowed to expire due to confusion over their expiration
dates. The potential realizable value to Mr. Andrews was determined based
on the $1.75 reference price for the 1988 Andrews Options and the
equivalent number of shares at the reissuance exercise price of $1.00 per
share was then determined so as to preserve Mr. Andrews' original potential
realizable value, such reissuance share amount was determined to be 58,778.
In addition, Mr. Andrews surrendered three other options to purchase up to
an aggregate of 40,000 shares, as reflected in the above table, as
additional consideration for the repricing.
(2) The reissuance share amount to Dr. Miller was primarily based on a
calculation intended to preserve a certain potential realizable value from
Dr. Miller's option dated April 22, 1991, which was issued under the
Company's 1988 Stock Option Plan in the amount of 10,000 shares ("the 1988
Miller Option") based on a certain market reference price of $1.75 per
share. The 1988 Miller Option was inadvertently allowed to expire due to
confusion over its expiration date. The potential realizable value to Dr.
Miller was determined based on the $1.75 reference price for the 1988
Miller Option and the equivalent number of shares at the reissuance
exercise price of $1.00 per share was then determined so as to preserve Dr.
Miller's original potential realizable values, such reissuance share amount
was determined to be 18,334 shares. Due to Dr. Miller's additional
surrender of an option dated September 24, 1992, issued under the 1991
Stock Option Plan for 20,000 shares, the reissued share amount was
increased to 20,000 shares.
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Compensation of Directors
Each Director who is not an employee of the Company receives an annual
retainer of $5,000 for Board service, plus $750 for each Board meeting attended,
$375 for each telephone Board meeting which lasts more than one hour and $500
for each Committee meeting attended, plus expenses. Those Directors who are
employees of the Company do not receive any compensation for their services as
Directors.
Each non-employee Director when first elected or appointed to the Board
receives a warrant to purchase 20,000 shares of Common Stock at an exercise
price equal to the fair market value on the grant date. These warrants vest at
the rate of 20 percent on the grant date and on the first anniversary of the
grant date and 30 percent on the second and third anniversaries of the grant
date. Warrants granted to Directors of the Company expire five years after the
date of grant.
In February 1997, the Company reissued a warrant to Copley Partners 2, L.P.
to purchase up to 66,666 shares of Common Stock at an exercise price of $3.75
per share with a new expiration date of May 1, 2001. The Company also reissued a
warrant to Mr. Grinstead to purchase up to 48,888 shares of Common Stock at an
exercise price of $1.00 per share with a new expiration date of May 1, 2001 and
a warrant to purchase up to 10,000 shares of Common Stock at an exercise price
of $3.75 per share with a new expiration date of May 1, 2001. The Company also
extended the expiration date to May 1, 2001 on warrants held by the Directors to
purchase collectively up to 90,000 shares of Common Stock at exercise prices
between $6.875 and $9.75 per share.
Certain Transactions
Kenneth S. Boger, a Director of the Company, is a partner in the law firm
of Warner & Stackpole LLP, which performed legal services for the Company during
fiscal 1997 and is expected to perform such services in the current fiscal year.
Legal fees paid to Warner & Stackpole LLP in fiscal year 1997 totalled $152,000,
net of disbursements. Legal fees paid to Warner & Stackpole LLP during fiscal
year 1998 totalled $120,000, net of disbursements.
The Company sold products to APD in the amount of $2,954,000 or 14% of
product sales in 1997 and $556,000 or 4% of product sales in 1996. Mr. DeGiglio
serves as Chief Executive Officer and a Director of APD and owns 32.5% of the
outstanding capital stock of APD. Net amount due from APD was $348,000 and
$89,000 at June 30, 1997 and 1996, respectively. APD also paid a monthly fee to
the Company for facilities and other costs totaling in the aggregate $39,000 and
$55,000 for 1997 and 1996, respectively.
See also "Interest of Michael A. DeGiglio in the Merger" and "Material
Transactions Between ECOSCIENCE and APD," above.
REPORT OF THE COMPENSATION COMMITTEE
The Board of Directors delegated to its Compensation Committee (the
"Committee") the responsibility and authority to administer executive
compensation policies for all executive officers of the Company, including the
Chief Executive Officer. The Committee's
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recommendations as to compensation for executive officers of the Company are
subject to approval by the full Board of Directors of the Company. The Committee
currently includes two independent Directors, Larry M. Nouvel and Heinz K.
Wehner, as well as the Chairman of the Board, David J. Ryan.
This report sets forth the policies used by the Committee in determining
the compensation paid by the Company for fiscal 1997 to its executive officers,
including the Named Executive Officers.
Summary of Philosophy and Overall Objectives of Executive Compensation
ECOSCIENCE seeks to encourage and reward executives' efforts for the
achievement of corporate objectives and performance goals by blending base
salary, bonuses and long-term incentive compensation in the form of stock
options. ECOSCIENCE's executive compensation program seeks to accomplish several
major goals:
o Recruit and retain highly qualified executive officers
o Motivate executive officers to achieve specified individual
performance objectives and Company wide goals, and to reward them when
these objectives and goals are achieved
o Align the financial interests of executive officers with the long-term
interests of the Company's stockholders
Base Salary
The Committee set base salaries for the executive officers during fiscal
1997. Base salaries for the executive officers were increased between 8% and 20%
in fiscal 1997 to reflect their contributions to the Company's operational and
financial advancements during fiscal 1997 and 1996, and to bring their base
salaries more in line with those salaries paid by companies with whom ECOSCIENCE
competes for recruitment and retention of such executive officers. The increases
to Messrs. Andrews' and Miller's base salaries partially restored their base
salary reductions during fiscal 1996, which had been part of the Company's cost
cutting measures.
Bonuses
In fiscal 1993, the Company established an executive officer incentive
bonus program (the "Bonus Program"), payable in cash and in Common Stock, to
reward executive officers when the Company achieves certain objectives and when
an executive officer's area of responsibility meets its predetermined goals. All
executive officers, including the Chief Executive Officer, are eligible to
receive bonuses under the Bonus Program. No bonuses were awarded under the Bonus
Program in fiscal 1997.
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Long-Term Incentive Compensation
The Company's 1991 Stock Option Plan (the "Plan") was established to
provide all employees of the Company with an opportunity to share in the growth
of the Company along with its stockholders, and to encourage employees to remain
with the Company and work toward its long-term success. Senior executives of the
Company, including the Named Executive Officers, will be considered for
eligibility to receive stock option grants in the future, subject to individual
performance and the performance of the Company as a whole.
In fiscal 1997, the Compensation Committee repriced options to purchase up
to 58,778 and 55,000 shares of Common Stock to Richard A. Andrews and David W.
Miller, respectively, as further discussed in the Ten Year Option and Stock
Appreciation Rights Repricings table, and granted an option to purchase up to
50,000 shares of Common Stock to Harold A. Joannidi, the Company's Treasurer and
Secretary, in recognition of their loyalty and contributions to the Company. The
Committee believes these option repricings and grant will also act as incentives
for those executives to remain with the Company and continue to devote their
best efforts to its progress.
Chief Executive Officer Compensation
Mr. DeGiglio's base salary increased 15% during fiscal 1997 to $150,000.
The Committee believes this increase reflects Mr. DeGiglio's contributions to
the Company's operational and financial advancements during fiscal 1997 and
1996, and brings his base salary more in line with those salaries paid by
companies with whom ECOSCIENCE competes for recruitment and retention of chief
executive officers. The Committee also granted Mr. DeGiglio options to purchase
up to 100,000 shares of Common Stock. The Committee felt it was necessary to
increase Mr. DeGiglio's option position with the Company in order to encourage
him to remain with the Company, and in recognition of his leadership of the
Company. The Committee awarded Mr. DeGiglio a $25,000 cash merit bonus in
recognition of his efforts in improving the operating performance of the Company
during fiscal 1996 and the first six months of fiscal 1997.
Internal Revenue Code Limitation on Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation in excess of
$1,000,000 paid during any fiscal year to the company's chief executive officer
or four other most highly compensated executive officers. Qualified performance
based compensation is not included in the $1,000,000 limit. The Committee
believes that the Company's 1991 Stock Option Plan would qualify as a
performance based compensation plan.
Submitted by the
Compensation Committee
Larry M. Nouvel
David J. Ryan
Heinz K. Wehner
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PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ECOSCIENCE CORPORATION, THE NEW PEER GROUP, THE OLD
PEER GROUP AND THE NASDAQ STOCK MARKET U.S. INDEX
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
EcoScience New Peer Old Peer NASDAQ Stock
Date Corporation Group (1) Group (2) Market U.S. Index
---- ----------- --------- --------- -----------------
<S> <C> <C> <C> <C>
June 1992 100 100 100 100
June 1993 146 92 92 126
June 1994 71 81 81 127
June 1995 21 49 47 169
June 1996 21 69 69 218
June 1997 18 84 86 265
</TABLE>
* $100 invested on June 30, 1992 in stock or index including reinvestment of
dividends for fiscal years ended June 30.
(1) The Company selected New Peer Group consists of Consep Inc., Ecogen Inc.,
Mycogen Corporation and Ringer Corporation.
(2) In addition to Ecogen, Inc., Mycogen Corporation and Ringer Corporation,
the companies comprising part of the New Peer Group, the Old Peer Group
included Biosys Inc., Calgene Inc. and DNA Plant Technology Corporation,
all of whom ceased listing on the NASDAQ Stock Market during fiscal 1997.
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INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP, the independent public accountants for the Company,
will have representatives at the Meeting who will be available to respond to
appropriate questions and who will be given the opportunity to make a statement
should they desire to do so.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
In order to be considered for inclusion in the Proxy Statement for the
Company's 1998 Annual Meeting of Stockholders, stockholder proposals must be
received by the Company no later than [120 days in advance of the anniversary of
the mailing date of this proxy]. Proposals should be sent to the attention of
the Secretary at the Company's principal offices at 10 Alvin Court, East
Brunswick, New Jersey 08816.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors, executive officers and persons who are beneficial owners of more than
ten percent of the Company's Common Stock to file with the Securities and
Exchange Commission (the "Commission") reports of their ownership of the
Company's securities and of changes in that ownership. To the Company's
knowledge, based on a review of copies of reports filed with the Commission and
written representations by certain reporting persons that no reports on Form 5
were required from those persons, all reports that were required to be filed
under Section 16(a) were timely filed, except that Messrs. Andrews, DeGiglio,
Grinstead, Joannidi, Miller and Ryan each in a single instance did not file a
timely report on Form 4, and Mr. Grinstead in two instances did not file a
timely report on Form 4, reflecting changes in beneficial ownership of the
Company's Common Stock.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, filed by ECOSCIENCE with the Securities and
Exchange Commission ("SEC"), are incorporated by reference in and made a part of
this Proxy Statement as of their respective dates:
1. ECOSCIENCE's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, a copy of which is attached as part of Appendix B.
2. ECOSCIENCE's Quarterly Reports on Forms 10-Q for the quarters ended
September 30, 1997, December 31, 1997 and March 31, 1998. A copy of the
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1998 is attached
as part of Appendix B.
3. ECOSCIENCE's Forms 8-K dated November 20, 1997 and April 29, 1998.
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All documents filed by ECOSCIENCE pursuant to Sections 13(a), 14 or 15(d)
of the Securities Exchange Act of 1934 ("Exchange Act") after the date of this
Proxy Statement and before the date of the Meeting will be deemed to be
incorporated by reference in, and to be a part of, this Proxy Statement from the
date such documents are filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Proxy Statement will be deemed to be modified
or superseded for purposes of this Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document, that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
Copies of any document incorporated by reference in and not attached as an
appendix to this Proxy Statement will be provided, by first class mail or
equally prompt means, without cost within one day of receipt of the written or
oral request of any person to whom a Proxy Statement has been delivered.
Requests should be directed to ECOSCIENCE (telephone number 732-432-8200) at 10
Alvin Court, East Brunswick, New Jersey 08816, Attention: Harold A. Joannidi,
Secretary.
OTHER MATTERS
The Special Meeting in lieu of the 1997 Annual Meeting of Stockholders is
called for the purposes set forth in the notice. The Board does not know of any
matter for action by the stockholders at the Meeting other than the matters
described in the notice. However, the enclosed proxy confers discretionary
authority on the persons named therein with respect to matters which are not
known to the Directors at the date of printing hereof and which may properly
come before the Meeting. The intention of the persons named in the proxy is to
vote in accordance with their best judgment on any such matter.
By order of the Board of Directors
Harold A. Joannidi
Secretary
East Brunswick, New Jersey
[__________], 1998
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APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated
as of July __, 1998, by and among EcoScience Corporation, a Delaware corporation
("ECO"), Agro Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of ECO ("Acquisition Sub"), Agro Power Development, Inc., a New York
corporation ("APD") and certain stockholders of APD identified on the signature
pages to this Agreement who are parties hereto solely for purposes of Section
5.05.
WHEREAS, the Boards of Directors of ECO, Acquisition Sub and APD deem it
advisable and in the best interests of their respective stockholders to
consummate, and approve, the business combination transaction provided for
herein in which APD would merge with and into Acquisition Sub (the "Merger");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a "pooling of interests"; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01. Effective Time of the Merger. Subject to the provisions of
this Agreement, certificates of merger shall be duly prepared, executed and
acknowledged by APD and Acquisition Sub and thereafter delivered to the
Secretary of State of Delaware and the Secretary of State of the State of New
York for filing, as provided in the Delaware General Corporation Law (the
"DGCL") and the Business Corporation Law of the State of New York (the "NYBCL"),
respectively, as soon as practicable on or after the Closing Date (as defined in
Section 1.02). The Merger shall become effective upon the filing of a
certificate of merger with the Secretary of State of the State of Delaware (the
"Effective Time").
Section 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Eastern Daylight Time, on a date to be specified by the
parties, which shall be no later than the fifth business day after satisfaction
of the latest to occur of the conditions set forth in Sections 6.01, 6.02 (other
than the delivery of the officers' certificate referred to therein) and 6.03
(other
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than the delivery of the officers' certificate referred to therein) or waiver of
all such conditions as shall then remain unsatisfied as provided in Article VI
at or prior to the Closing (the "Closing Date"), at the offices of Giordano,
Halleran & Ciesla, P.C., 125 Half Mile Road, Middletown, New Jersey unless
another date or place is agreed to in writing by the parties hereto. The parties
hereto acknowledge that they will, respectively, use their best efforts to
consummate the Merger prior to June 30, 1998.
Section 1.03. Effects of the Merger. At the Effective Time (i) the separate
existence of APD shall cease and APD shall be merged with and into the
Acquisition Sub (Acquisition Sub and APD are sometimes referred to herein as the
"Constituent Corporations" and Acquisition Sub is sometimes referred to herein
as the "Surviving Corporation"), (ii) the Certificate of Incorporation of
Acquisition Sub, as in effect at the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, except that the name of the
Surviving Corporation shall be Agro Power Development, Inc., and (iii) the
Bylaws of Acquisition Sub as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation.
Section 1.04. Directors and Officers of the Surviving Corporation. The
directors of APD at the Effective Time shall, from and after the Effective Time,
be the directors of the Surviving Corporation until their successors shall have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws. The officers of APD at the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.
Section 1.05. Reverse Stock Split. Immediately prior to or contemporaneous
with the Effective Time, ECO shall effect a 1-for-5 reverse split of the
outstanding ECO Common Stock (the "Reverse Split").
ARTICLE II
CONVERSION OF SECURITIES
Section 2.01. Conversion of Securities. As of the Effective Time, by virtue
of the Merger and without any action on the part of holders of any shares of the
Class A common stock, $1.00 par value, of APD (the "APD Common Stock"), the
outstanding shares of APD Common Stock will be treated in the manner set forth
below:
(a) Exchange Ratio for APD Common Stock. Each share of APD Common
Stock outstanding immediately prior to the Effective Time (other than
shares of APD Common Stock referred to in Section 2.01(b)) shall by virtue
of the Merger, and after giving effect to the Reverse Split, be converted
into the right to receive 30,619.067 shares of the common stock, par value
$.01 per share, of ECO (the "ECO Common Stock"); and
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(b) Cancellation of Treasury Stock. At the Effective Time all shares
of APD Common Stock held in treasury shall be cancelled and retired and
shall cease to exist and no consideration shall be delivered in exchange
therefor.
(c) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of ECO Common Stock will be issued and any
holder of APD Common Stock who would otherwise be entitled to receive a
fractional share of ECO Common Stock shall be entitled to receive a cash
payment in lieu thereof equal to the product of (i) such fraction
multiplied by (ii) the average of the closing bid and asked prices of a
share of ECO Common Stock as reported by the Nasdaq Stock Market on the
trading day immediately preceding the Closing Date.
Section 2.02. Exchange of Certificates. At the Closing, each holder of a
certificate or certificates representing shares of APD Common Stock issued and
outstanding at the Effective Time shall surrender such certificate(s) to ECO, or
any agent or agent which may be appointed by ECO, together with a letter of
transmittal duly completed and validly executed in accordance with the
instructions thereto, and shall receive in exchange therefore duly authorized
and validly issued shares of ECO Common Stock in accordance with Section 2.01.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of APD, ECO and Acquisition
Sub. Except as set forth in the corresponding sections or subsections of each of
the ECO Disclosure Schedule annexed hereto as Appendix I (the "ECO Disclosure
Schedule") or the APD Disclosure Schedule annexed hereto as Appendix II (the
"APD Disclosure Schedule"; each of the ECO Disclosure Schedule and the APD
Disclosure Schedule to be sometimes referred to herein as a "Disclosure
Schedule"), as the case may be, APD (except for subparagraphs (b)(ii), (b)(iii),
(c)(ii), (e)(ii) and (x)(ii), references in subparagraph (a) below to documents
made available by ECO to APD and references to ECO Financial Statements in
subparagraph (g)), hereby represents and warrants to ECO and Acquisition Sub,
and ECO (except for subparagraphs (b)(i), (c)(i), (e)(i) and (x)(i), references
in subparagraph (a) below to documents made available by APD to ECO and
references to APD Financial Statements in subparagraph (g)), on behalf of itself
and Acquisition Sub, hereby represents and warrants to APD, that:
(a) Organization, Good Standing and Qualification. Each of it and its
Subsidiaries (as defined below) is a corporation, limited liability company
or limited partnership. It and each Subsidiary that is a corporation is
duly organized, validly existing as a corporation and in good standing
under the laws of its respective jurisdiction of incorporation. Each of its
Subsidiaries that is a limited liability company is duly organized, validly
existing as a limited liability company and in good standing under the laws
of its respective jurisdiction of organization. Each of its Subsidiaries
that is a limited partnership is duly organized, validly existing as a
limited partnership and in good standing under the laws of its respective
jurisdiction of organization. It and each of its Subsidiaries has all
requisite power and authority to own and operate its properties and assets
and to carry on its business as presently conducted and is qualified to do
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business and is in good standing in each jurisdiction where the ownership
or operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in good
standing is not, when taken together with all other such failures,
reasonably likely to have a material adverse effect on it. It has made
available to ECO, in the case of APD, and to APD, in the case of ECO, a
complete and correct copy of its certificate of incorporation, by-laws,
certificate of formation, operating agreement, certificate of limited
partnership and agreement of limited partnership (the "Organizational
Documents"), in each case to the extent applicable, each as amended to
date. Such Organizational Documents as so made available are in full force
and effect.
As used in this Agreement, (i) the term "Subsidiary" means, with respect to
APD, ECO or Acquisition Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which at least fifty percent of the
securities or ownership interests having by their terms ordinary voting power to
elect at least fifty percent of the board of directors or other persons
performing similar functions is directly or indirectly owned by such party or by
one or more of its respective Subsidiaries or by such party and any one or more
of its respective Subsidiaries, (ii) reference to "the other party" means, with
respect to APD, ECO and means with respect to ECO, APD, and (iii) the term
"Person" means an association, corporation, estate, general partnership,
governmental entity (or any agency, department or political subdivision
thereof), individual, joint stock company, joint venture, limited liability
company, limited partnership, trust, or any other organization or entity.
(b) Capital Structure.
(i) The authorized capital stock of APD consists of 20,000 shares
of APD Common Stock of which 307.7 shares were issued and outstanding
and no shares were held in treasury as of the date of this Agreement,
and 10,000 shares of Class B common stock, par value $1.00 per share
(the "APD Class B Stock"), of which no shares were issued or
outstanding as of the date of this Agreement. All of the outstanding
shares of APD Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable. APD has no shares reserved for
issuance. Each of the outstanding shares of capital stock or other
securities of each of APD's Subsidiaries is owned by APD or a direct
or indirect wholly-owned Subsidiary of APD, free and clear of any
lien, pledge, security interest, claim or other encumbrance. Except as
set forth in Section 3(b) of the APD Disclosure Schedule, APD has no
shares of APD Common Stock or APD Class B Stock reserved for issuance
and there are no preemptive or other outstanding rights, options,
warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements or commitments to
issue or sell any shares of capital stock or other securities of APD
or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of APD or
any of its Subsidiaries, and no securities or obligations evidencing
such rights are authorized, issued or outstanding. APD does not have
outstanding any bonds, debentures, notes or other obligations the
holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with its
stockholders on any matter ("Voting Debt").
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(ii) The authorized capital stock of ECO consists of 25,000,000
shares of ECO Common Stock, of which 10,488,455 shares were issued and
outstanding and no shares were held in treasury as of the date of this
Agreement, and 1,000,000 shares of Preferred Stock, par value $.01 per
share (the "ECO Preferred Stock"), of which no shares were issued or
outstanding as of the date of this Agreement. All of the outstanding
shares of ECO Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable. Each of the outstanding shares
of capital stock of each of ECO's Subsidiaries is owned by ECO or a
direct or indirect wholly-owned subsidiary of ECO, free and clear of
any lien, pledge, security interest, claim or other encumbrance.
Except as set forth in Section 3(b) of the ECO Disclosure Schedule,
ECO has no shares of ECO Common Stock or ECO Preferred Stock reserved
for issuance and there are no preemptive or other outstanding rights,
options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or to sell any shares of capital stock or other
securities of ECO or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or
giving any Person a right to subscribe for or acquire, any securities
of ECO or any of its Subsidiaries, and no securities or obligation
evidencing such rights are authorized, issued or outstanding. ECO does
not have outstanding any Voting Debt. Holders of ECO Common Stock will
not be entitled to exercise appraisal rights in connection with the
Merger.
(iii) The authorized capital stock of Acquisition Sub consists of
3,000 shares of Common Stock, par value $.01 per share, all of which
are validly issued and outstanding. All of the issued and outstanding
capital stock of Acquisition Sub is, and at the Effective Time will
be, owned by ECO, and there are (i) no other shares of capital stock
or other voting securities of Acquisition Sub, (ii) no securities of
Acquisition Sub convertible into or exchangeable for shares of capital
stock or other voting securities of Acquisition Sub and (iii) there
are no options or other rights to acquire from Acquisition Sub, and no
obligations of Acquisition Sub to issue, any capital stock, other
voting securities or securities convertible into or exchangeable for
capital stock or other voting securities of Acquisition Sub.
Acquisition Sub has not conducted any business prior to the date
hereof and has no, and prior to the Effective Time will have no,
assets, liabilities or obligations of any nature other than those
incident to its formation and pursuant to this Agreement and the
Merger and the other transactions contemplated by this Agreement.
(c) Corporate Authority; Approval.
(i) APD has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and to consummate the
Merger, subject only to approval of this Agreement by the holders of a
majority of the outstanding shares of APD Common Stock (the "APD
Requisite Vote") and the APD Required Consents (as defined in Section
3.01(d)(i)). This Agreement is a valid and binding agreement of APD
enforceable against APD in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles (the "Bankruptcy and Equity Exception"). The Board of
Directors of APD has unanimously approved this Agreement and the
Merger and the other transactions contemplated hereby.
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(ii) ECO and Acquisition Sub each has all requisite corporate
power and authority and each has taken all corporate action necessary
in order to execute, deliver and perform its obligations under this
Agreement and to consummate the Merger, subject only to approval of
this Agreement and certain transactions contemplated by this Agreement
(including the issuance of ECO Common Stock in connection with the
Merger, the Charter Amendment and the Reverse Split) by the holders of
a majority of the outstanding shares of ECO Common Stock (the "ECO
Requisite Vote") and the ECO Required Consents (as defined in Section
3.01(d)(i)). This Agreement is a valid and binding agreement of ECO
and Acquisition Sub, enforceable against each of ECO and Acquisition
Sub in accordance with its terms, subject to the Bankruptcy and Equity
Exception. The shares of ECO Common Stock, when issued pursuant to
this Agreement, will be validly issued, fully paid and nonassessable,
and no stockholder of ECO will have any preemptive right of
subscription or purchase in respect thereof. The shares of ECO Common
Stock issued to APD stockholders pursuant to this Agreement shall
represent 80% of the outstanding shares of ECO Common Stock
outstanding, on a Fully Diluted Basis, immediately after the Effective
Time. For purposes of this Agreement, the phrase "Fully Diluted Basis"
shall mean after giving effect to the assumed exercise of all
outstanding warrants, options and other rights to acquire ECO Common
Stock and securities convertible into ECO Common Stock, and the
assumed conversion of all securities convertible into ECO Common
Stock.
(d) Governmental Filings; No Violations.
(i) Other than the filings and/or notices (A) described in
Section 1.01, (B) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or the filing of a Form D under the
Securities Act of 1933, as amended (the "Securities Act"), (C) to
comply with state securities or "blue-sky" laws, (such filings and/or
notices of ECO being the "ECO Governmental Consents" and of APD being
the "APD Governmental Consents"), no notices, reports or other filings
are required to be made by it with, nor are any consents,
registrations, approvals, permits or authorizations required to be
obtained by it from, any governmental or regulatory authority, court,
agency, commission, body or other governmental entity ("Governmental
Entity"), in connection with the execution and delivery of this
Agreement by it and the consummation by it of the Merger and the other
transactions contemplated hereby, except those that the failure to
make or obtain are not, individually or in the aggregate, reasonably
likely to have a material adverse effect on it or prevent, materially
delay or materially impair its ability to consummate the transactions
contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by
it do not, and the consummation by it of the Merger and the other
transactions contemplated hereby will not, constitute or result in (A)
a breach or violation of, or a default under, its Organizational
Documents or the Organizational Documents governing any of its
Subsidiaries, (B) a breach or violation of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge,
security interest or other encumbrance on its assets or the assets of
any of its Subsidiaries (with or without notice, lapse of time or
both) pursuant to, any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation ("Contracts") binding upon
it or any of its Subsidiaries or any Law (as defined in Section
3.01(i)) or governmental or non-governmental permit or license to
which it or any of its Subsidiaries is subject or (C) any change in
the rights or obligations of any party under any of its Contracts,
except, in the case of clause (B) or (C) above,
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for any breach, violation, default, acceleration, creation or change
that, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect on it or prevent, materially delay or
materially impair its ability to consummate the transactions
contemplated by this Agreement. Section 3.01(d)(ii) of its Disclosure
Schedule, sets forth a correct and complete list of its Contracts and
Contracts of its Subsidiaries pursuant to which consents or waivers
are or may be required prior to consummation of the transactions
contemplated by this Agreement other than those where the failure to
obtain such consents or waivers is not reasonably likely to have a
Material Adverse Effect on it or prevent or materially impair its
ability to consummate the transactions contemplated by this Agreement.
(e) Financial Statements; SEC Reports.
(i) APD has delivered to ECO copies of the following financial
statements: consolidated balance sheets of APD at December 28, 1997,
December 29, 1996 and December 31, 1995, consolidated statements of
income of APD for the 52 weeks ended December 28, 1997, December 29,
1996 and December 31, 1995, consolidated statements of stockholders'
equity for the 52 weeks ended December 28, 1997, December 29, 1996 and
December 31, 1995 and consolidated statements of cash flows of APD for
the 52 weeks ended December 28, 1997, December 29, 1996 and December
31, 1995 in each case accompanied by the report of Arthur Andersen,
LLP, independent certified public accountants (the "APD Financial
Statements"). The APD Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present the
financial position of APD as of the dates thereof and the results of
its operations and cash flows for the periods indicated.
(ii) Since December 31, 1993, ECO has filed with the Securities
and Exchange Commission (the "SEC") all forms, reports, schedules,
statements and other documents required to be filed by it under the
Exchange Act or the Securities Act (as such documents have been
amended since the time of their filing, collectively, the "SEC
Documents"). The SEC Documents, including without limitation any
financial statements and schedules included therein, at the time filed
or, if subsequently amended, as so amended, (i) did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading and (ii) complied in all material respects
with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. The financial statements of ECO
(the "ECO Financial Statements") included in the SEC Documents comply
as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited
statements, to customary year-end audit adjustments) the financial
position of ECO as at the dates thereof and the results of its
operations and cash flows for the periods indicated.
(f) Absence of Certain Changes. Except as expressly contemplated by
this Agreement or set forth in Section 3.01(f) of its Disclosure Schedule,
since December 31, 1997,
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there has not been (i) any change in the financial condition, properties,
prospects, business or results of operations of it and its Subsidiaries,
except those changes that are not, individually or in the aggregate,
reasonably likely to have a material adverse effect on it; (ii) any damage,
destruction or other casualty loss with respect to any asset or property
owned, leased or otherwise used by it or any of its Subsidiaries, whether
or not covered by insurance, which damage, destruction or loss is
reasonably likely, individually or in the aggregate, to have a material
adverse effect on it; or (iii) any change by it in accounting principles,
practices or methods. Since December 31, 1997, except as provided in
Section 3.01(f) of its Disclosure Schedule, there has not been any increase
in the compensation payable or that could become payable by it or any of
its Subsidiaries to officers or key employees or any amendment of any of
its Benefit Plans (as defined in Section 3.01(h)) other than increases or
amendments in the ordinary course.
(g) Litigation and Liabilities. Except as set forth in Section 3.01(g)
of its Disclosure Schedule or reflected on the APD Financial Statements or
in the notes thereto (in the case of APD) or the ECO Financial Statements
or in the notes thereto (in the case of ECO), there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations
or proceedings pending or, to the knowledge of its executive officers,
threatened against it or any of its Affiliates (which term, as used in this
Agreement, shall be as defined in Rule 12b-2 under the Exchange Act) or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise, including those relating to matters involving any Environmental
Law (as defined in Section 3.01(j)), or any other facts or circumstances,
in either such case, of which its executive officers have actual knowledge
that are reasonably likely to result in any claims against or obligations
or liabilities of it or any of its Affiliates, except for those that are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on it or prevent or materially impair its ability to
consummate the transactions contemplated by this Agreement.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock option,
employment, termination, severance, compensation, medical, health or
other plan, agreement, policy or arrangement that covers employees,
officers, directors, former employees, former officers or former
directors of its and its Subsidiaries (its "Benefit Plans") and any
trust agreements or insurance contracts forming a part of such Benefit
Plans has been made available by it to the other party prior to the
date hereof and each such Benefit Plan is listed in Section 3.01(h) of
its respective Disclosure Schedule.
(ii) All of its Benefit Plans are in substantial compliance with
all applicable law, including the Code and the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). None of its Benefit
Plans is a defined benefit plan (as defined in Section 3(35) of ERISA)
or a mutli-employer plan (as defined in Section 3(37) of ERISA). Each
of its Benefit Plans that is an "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA (a "Pension Plan") and that is
intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter from the Internal Revenue Service
(the "IRS"), and it is not aware of any circumstances likely to result
in revocation of any such favorable determination letter. There is no
pending or, to the actual knowledge of its executive officers,
threatened
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litigation relating to its Benefit Plans. Neither it nor any
Subsidiary has engaged in a transaction with respect to any of its
Benefit Plans that, assuming the taxable period of such transaction
expired as of the date hereof, would subject it or any of its
Subsidiaries to a material tax or penalty imposed by either Section
4975 of the Code or Section 502 of ERISA.
(iii) As of the date hereof, no liability under Subtitle C or D
of Title IV of ERISA (other than the payment of prospective premium
amounts to the Pension Benefit Guaranty Corporation in the normal
course) has been or is expected to be incurred by it or any Subsidiary
with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently
or formerly maintained by any of them, or the single-employer plan of
any entity which is considered one employer with it under Section 4001
of ERISA or Section 414 of the Code (its "ERISA Affiliate") (each such
single-employer plan, its "ERISA Affiliate Plan"). It and its
Subsidiaries and ERISA Affiliates have not contributed, or been
obligated to contribute, to a multiemployer plan under Subtitle E of
Title IV of ERISA. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
of its Pension Plans or any of its ERISA Affiliate Plans within the
12-month period ending on the date hereof or will be required to be
filed in connection with the transactions contemplated by this
Agreement.
(iv) All contributions required to be made under the terms of any
of its Benefit Plans as of the date hereof have been timely made or
have been reflected on its most recent balance sheet delivered by it
to the other party. Neither any of its Pension Plans nor any of any of
its ERISA Affiliate Plans has an "accumulated funding deficiency"
(whether or not waived) within the meaning of Section 412 of the Code
or Section 302 of ERISA. Neither it nor its Subsidiaries has provided,
or is required to provide, security to any of its Pension Plans or to
any of its ERISA Affiliate Plans pursuant to Section 401(a)(29) of the
Code.
(v) Under each of its Pension Plans which is a single-employer
plan and each of its ERISA Affiliate Plans, as of the last day of the
most recent plan year ended prior to the date hereof, the actuarily
determined present value of all "benefit liabilities", within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial valuation), did not exceed the then current value of the
assets of such Pension Plan or ERISA Affiliate Plan and there has been
no material change in the financial condition of such Pension Plan or
ERISA Affiliate Plan since the last day of the most recent plan year.
(vi) Neither it nor its Subsidiaries have any obligations for
retiree health and life insurance benefits under any of its Benefit
Plans, except as required by applicable law.
(vii) The consummation of the Merger (or its approval by its
stockholders) and the other transactions contemplated by this
Agreement will not (x) entitle any of its employees, officers or
directors or any employees of its Subsidiaries to severance pay,
directly or indirectly, upon termination of employment, (y) accelerate
the time of payment or vesting or trigger any payment of compensation
or benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any of its Benefit Plans or (z)
result in any breach or violation of, or a default under, any of its
Benefit Plans.
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(i) Compliance with Laws. Except as set forth in Section 3.01(i) of
its Disclosure Schedule, the businesses of each of it and its Subsidiaries
have not been, and are not being, conducted in violation of any law,
statute, ordinance, regulation, judgment, order, decree, injunction,
arbitration award, license, authorization, opinion, agency requirement or
permit of any Governmental Entity or common law (collectively, "Laws"),
except for violations or possible violations that are not, individually or
in the aggregate, reasonably likely to have a material adverse effect on it
or prevent or materially impair its ability to consummate the transactions
contemplated by this Agreement. No investigation or review by any
Governmental Entity with respect to it or any of its Subsidiaries is
pending or, to the actual knowledge of its executive officers, threatened,
nor has any Governmental Entity indicated an intention to conduct the same,
except for those the outcome of which are not, individually or in the
aggregate, reasonably likely to have a material adverse effect on it or
prevent or materially impair its ability to consummate the transactions
contemplated by this Agreement. To the actual knowledge of its executive
officers, no material change is required in its or any of its Subsidiaries'
processes, properties or procedures in connection with any such Laws, and
it has not received any notice or communication of any material
noncompliance with any such Laws that has not been cured as of the date
hereof, except for such changes and noncompliance that are not,
individually or in the aggregate, reasonably likely to have a material
adverse effect on it or prevent or materially impair its ability to
consummate the transactions contemplated by this Agreement. Each of it and
its Subsidiaries has all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals (collectively, "Permits"), necessary to conduct their business as
presently conducted, except for those the absence of which are
not,individually or in the aggregate, reasonably likely to have a material
adverse effect on it or prevent or materially impair its ability to
consummate the transactions contemplated by this Agreement. Each of such
Permits is listed in Section 3.01(i) of its Disclosure Schedule.
(j) Environmental Matters. Except as disclosed in Section 3.01(j) of
its Disclosure Schedule and except for such matters that, alone or in the
aggregate, are not reasonably likely to have a material adverse effect on
it: (i) each of it and its Subsidiaries has complied with all applicable
Environmental Laws (as defined below); (ii) the properties currently owned
or operated by it or any of its Subsidiaries (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances (as defined below); (iii) the properties formerly
owned or operated by it or any of its Subsidiaries were not contaminated
with Hazardous Substances during the period of ownership or operation by it
or any of its Subsidiaries; (iv) neither it nor any of its Subsidiaries is
subject to liability for any Hazardous Substance disposal or contamination
on any third party property; (v) neither it nor any Subsidiary has been
associated with any release or threat of release of any Hazardous
Substance; (vi) neither it nor any Subsidiary has received any notice,
demand, letter, claim or request for information alleging that it or any of
its Subsidiaries may be in violation of or liable under any Environmental
Law; (vii) neither it nor any of its Subsidiaries is subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
is subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; and (viii) there are no circumstances or conditions involving
it or any of its Subsidiaries that could reasonably be expected to result
in any claims, liability,
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investigations, costs or restrictions on the ownership, use, or transfer of
any of its properties pursuant to any Environmental Law.
As used herein, the term "Environmental Law" means any Law relating to
pollution (or the clean up of the environment), or the protection of air,
surface water, groundwater, drinking water, land (surface or subsurface),
human health, the environment or any other natural resource or the use,
storage, recycling, treatment, generation, processing, handling, production
or disposal of Hazardous Materials, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
42 USC ss.ss.9601 et seq. and 40 CFR ss.ss.302.1 et seq., and regulations
thereunder; the Federal Clean Air Act, as amended, 42 USC ss.ss.7401 et
seq., and regulations thereunder; the Resource Conservation and Recovery
Act, 42 USC ss.ss.6901 et seq., as amended, and regulations thereunder; and
the Federal Water Pollution Control Act, 33 USC ss.ss.1251 et seq., as
amended, and regulations thereunder.
As used herein, the term "Hazardous Substance" means any asbestos
containing materials, mono-and polychlorinated biphenyls, urea formaldehyde
products, radon, radioactive materials, any "hazardous substance",
"hazardous waste", "pollutant", "Toxic Pollutant", "oil" or "contaminant"
as used in, or defined pursuant to any Environmental Law, and any other
substance, waste, pollutant, contaminant or material, including petroleum
products and derivatives, the use, transport, disposal, storage, treatment,
recycling, handling, discharge, release, threatened release, discharge or
emission of which is regulated or governed by any Environmental Law.
(k) Accounting and Tax Matters. As of the date hereof, neither it nor
any of its Affiliates has taken or agreed to take any action, nor do its
executive officers have any actual knowledge of any fact or circumstance,
that would prevent ECO from accounting for the business combination to be
effected by the Merger as a "pooling-of-interests" or prevent the Merger
and the other transactions contemplated by this Agreement from qualifying
as a "reorganization" within the meaning of Section 368(a) of the Code.
(l) Taxes. It and each of its Subsidiaries have prepared in good faith
and duly and timely filed (taking into account any extension of time within
which to file) all material Tax Returns (as defined below) required to be
filed by any of them and all such filed tax returns are complete and
accurate in all material respects and: (i) it and each of its Subsidiaries
have paid all Taxes (as defined below) that are shown as due on such filed
Tax Returns or that it or any of its Subsidiaries is obligated to withhold
from amounts owing to any employee, creditor or third party, except with
respect to matters contested in good faith or for such amounts that, alone
or in the aggregate, are not reasonably likely to have a material adverse
effect on it; (ii) as of the date hereof, there are not pending or, to the
actual knowledge of its executive officers threatened in writing, any
audits, examinations, investigations or other proceedings in respect of
Taxes or Tax matters; and (iii) there are not, to the actual knowledge of
its executive officers, any unresolved questions or claims concerning its
or any of its Subsidiaries' Tax liability that are reasonably likely to
have a material adverse effect on it. Neither it nor any of its
Subsidiaries has any liability with respect to Taxes in excess of the
amounts accrued in respect thereof that are reflected in its consolidated
balance sheet as of December 31, 1997, except such excess liabilities that
are not, individually or in the aggregate, reasonably likely to have a
material adverse effect
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on it. No payments to be made to any of the officers and employees of it or
its Subsidiaries will as a result of consummation of the Merger be subject
to the deduction limitations under Section 280G of the Code.
As used in this Agreement, (i) the term "Tax" (including, with
correlative meaning, the terms "Taxes", and "Taxable") includes all
federal, state, local and foreign income, profits, franchise, gross
receipts, environmental, customs duty, capital stock, severance, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts and any
interest with respect to such penalties and additions, and (ii) the term
"Tax Return" includes all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
(m) Labor Matters. Except as set forth in Section 3.01(m) of its
Disclosure Schedule, neither it nor any of its Subsidiaries is the subject
of any proceeding asserting that it or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain
with any labor union or labor organization nor is there pending or, to the
knowledge of its executive officers, threatened, nor has there been for the
past five years, any labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving it or any of its Subsidiaries, except in
each case as is not, individually or in the aggregate, reasonably likely to
have a material adverse effect on it.
(n) Securities Law Compliance. Each outstanding share of its capital
stock and each outstanding option and right to acquire its capital stock,
if any, have been registered under the Securities Act and all applicable
state "blue sky" laws or issued pursuant to applicable exemptions from
registration under the Securities Act or such "blue sky" laws.
(o) No Default. Except as set forth in Section 3.01(o) of its
Disclosure Schedule, neither it nor any of its Subsidiaries is or currently
expects to be in the future, in violation or breach of or in default under,
and no conditions exist that, with the giving of notice or the lapse of
time or both, would constitute a default under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which it or any of
its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound except for such violations, breaches or
defaults as are not, individually or in the aggregate, reasonably likely to
have a material adverse effect on it.
(p) Related Party Transactions. Except as set forth in Section 3.01(p)
of its Disclosure Schedule, since December 31, 1996, neither it nor any of
its Subsidiaries has (a) incurred any obligation to pay commissions or
other amounts to any firm of which any of its directors, officers or
stockholders which beneficially own 5% or more of its outstanding common
stock (each a "5% Stockholder") is a partner or stockholder; (b) cancelled,
without payment in full, any notes, loans or other obligations receivable
from any employee, officer, director or 5% Stockholder, or any member of
the families of any thereof, or from any corporation, partnership or other
entity in which any officer, director or 5% Stockholder, or any member of
their families, then has any direct or indirect interest; (c) sold,
assigned or transferred any of its assets to or
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from any of its employees, officers, directors, 5% Stockholders or members
of their families for less than fair market value.
(q) Property. Section 3.01(q) of its Disclosure Schedule lists all
leases of real and personal property to which it or any of its Subsidiaries
is a party, except for leases of personal property which are not material
to its operations. It and each of its Subsidiaries (i) has good and
marketable title in fee simple to, or valid existing leases for, all real
property used in the operation or conduct of its business and (ii) owns,
leases or rents all the machinery, equipment, furniture, fixtures and all
other capital assets used in the conduct of its business and has good and
marketable title or valid existing leases for all such machinery,
equipment, furniture and fixtures. Except as disclosed in Section 3.01(q)
of its Disclosure Schedule, all real and personal properties owned by
Company or any of its Subsidiaries are owned by it free and clear of all
mortgages, liens, charges or encumbrances of any nature whatsoever. All
leases to which it or any of its Subsidiaries is a party are valid and
effective in accordance with their terms and except as set forth in Section
3.01(q) of its Disclosure Schedule or defaults not reasonably likely to
have a material adverse effect on it, there is not, under any leases for
real or personal property, any existing default by it or any of its
Subsidiaries or, to the best of its knowledge, by any other party, nor to
the best of its knowledge, is there any event which with notice or lapse of
time or both would constitute such a default. To its knowledge, each such
parcel of real property owned or leased by it or by any Subsidiary is in
compliance with all applicable zoning, building, health and safety laws,
ordinances, and regulations and all applicable Environmental Laws, except
where non-compliance would not have a material adverse effect on it. All
real property and fixtures and all personal property and assets, excluding
inventory, used by it or any of its Subsidiaries in its operations and
business are and at the Effective Time will be sufficient to operate the
business of it or its Susidiaries, as the case may be, as conducted on the
date hereof, and, except for normal wear and tear, will be in as good
condition and repair as they were on the date hereof.
(r) Intellectual Property Rights. Section 3.01(r) of its Disclosure
Schedule contains an accurate and complete description of all domestic and
foreign patents, trademarks, trademark registration, service marks, service
marks registration, logos, trade names, assumed names, copyrights and
copyright registrations and all applications therefor, presently owned or
held by it or any of its Subsidiaries or under which it or any of its
Subsidiaries owns or holds any license, or in which it or any of its
Subsidiaries owns or holds any direct or indirect interest, and no others
are necessary for the conduct of the present business of it or any of its
Subsidiaries. To the best of its knowledge, no products, sold by it or any
of its Subsidiaries, nor any patents, formulae, know-how, secrets,
trademarks, trademark registrations, service marks, service marks
registration, logos, trade names, assumed names, copyrights, copyright
registrations, or designation used or licensed for use in its business or
the business of any of its Subsidiaries, infringe on any patents,
trademarks, licenses, or copyrights, or any other rights, of any Person. It
and each of its Subsidiaries is the sole owner of, has the sole and
exclusive right to use, has the right and power to sell, and has taken all
reasonable measures to maintain and protect, the patents, trademarks,
trademark registrations, logos, trade names, assumed names, copyrights,
copyright registrations, service marks and service mark registrations
listed in Section 3.01(r) of its Disclosure Schedule. Except as set forth
in Section 3.01(r) of its Disclosure Schedule, no claims have been asserted
against it or any of its Subsidiaries in writing by any person and
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received by it challenging the use of any such patents, trademarks,
trademark registrations, service marks, service mark registrations, logos,
trade names, assumed names, copyrights and copyright registrations or
challenging or questioning the validity or effectiveness of any such
license or agreement, or the use of any formula, know-how or secrets used
in its business or the business of its Subsidiaries and, to the best of its
knowledge, there is no valid basis for any such claims. Except as set forth
in Section 3.01(r) of its Disclosure Schedule, no other party is infringing
on the patents, trademarks, trademark registrations, logos, tradenames,
assumed names, copyrights copyright registrations, service marks and
service mark registrations listed in Section 3.01(r) of its Disclosure
Schedule.
(s) Receivables. All of the accounts receivable reflected on its
consolidated balance sheet as of December 31, 1997 and all accounts
receivable of it arising since December 31, 1997, other than accounts
receivable collected since then in the ordinary course of business (a)
arose from bona fide transactions, (b) represent bona fide indebtedness of
the respective debtors, (c) except as set forth in Section 3.01(s) of its
Disclosure Schedule are valid and do not have original payment terms in
excess of 45 days, and (d) to the best of its knowledge, are not subject to
any defense or offset.
(t) Insurance Policies. Section 3.01(t) of its Disclosure Schedule
contains a true and complete list of all policies of fire, liability,
workers' compensation and other forms of insurance owned by or held by it
and its Subsidiaries, and it has made available for inspection by the other
party true and complete copies of all of such policies. All such policies
are in full force and effect, all premiums with respect thereto covering
all periods to the date of this Agreement have been paid, and no notice of
cancellation or termination has been received with respect to any such
policy. Such policies (a) are sufficient for compliance with all
requirements of law and all agreements to which it is a party, (b) are
valid, outstanding and enforceable policies, (c) will remain in full force
and effect through the Effective Time and (d) will not in any way be
affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Except as set forth in Section 3.01(f) of
its Disclosure Schedule, neither it nor any of its Subsidiaries had made
any material claims under such insurance policies.
(u) Contracts. (A) Except as set forth in Section 3.01(u) of its
Disclosure Schedule, neither it nor any of its Subsidiaries is a party to
or bound by any written or oral Contract, (i) for the employment of any
officer or individual employee; (ii) with any labor union; (iii) for the
purchase of materials, supplies or equipment involving more than $25,000;
(iv) for the provision of services by it or any of its Subsidiaries
involving more than $25,000; (v) in the nature of a confidentiality
agreement, royalty or license or an agreement for the acquisition of
intangible property rights; (vi) with a governmental agency; (vii) for the
purchase of products for which there is no alternative source of supply;
(viii) in the nature of a non-competition agreement which in any way
restricts the right of it or any of its Subsidiaries to conduct business;
(ix) in the nature of a management agreement; (x) for any quantity
discount, volume purchase, rebate or billback sales arrangement that will
continue after the Effective Time and involves more than $25,000; (xi)
which provides for the provision of services by it or any of its
Subsidiaries, (xii) in the nature of a note, bond, mortgage, indenture or
loan agreement, or (xiii) relating to any matter which is material to it.
Except as set forth in Section 3.01(u) of its Disclosure Schedule, neither
it nor any of its Subsidiaries, as of the date hereof, is a party to or
bound by any contract or
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contracts which, in its judgment as of the date hereof, either separately
or in the aggregate are contracts which are, or will, adversely affect the
business, operations or financial condition of it or any of its
Subsidiaries.
(v) Bank Accounts. Information pertaining to the names and locations
of all banks in which it or any Subsidiary has an account or safe deposit
box and the names of all authorized signatories with respect thereto has
been provided to the other party.
(w) Subsidiaries. Section 3.01(w) of its Disclosure Schedule lists
each of its Subsidiaries. Set forth in Section 3.01(w) of its Disclosure
Schedule is a capital stock schedule for all of its Subsidiaries, setting
forth the designation of each class or series, the number of authorized
shares, issued shares, and treasury shares, and the par value, or if
applicable, percentages of partnership or membership interests therein.
Except as set forth in Section 3.01(w) of its Disclosure Schedule, it owns
of record and beneficially 100% of each class of the outstanding capital
stock of or other interest in each of its Subsidiaries.
(x) Broker and Finders. Neither it nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability
for any brokerage fees, commissions or finders fees in connection with the
Merger or other transactions contemplated by this Agreement except that (i)
APD has employed First Union Capital Markets Corp. as its financial
advisor, the arrangements with which have been disclosed to ECO prior to
the date hereof, and (ii) ECO has employed Chestnut Partners, Inc. as its
financial advisor, the arrangements with which have been disclosed to APD
prior to the date hereof.
(y) Inventory. All inventories of raw materials, supplies, work in
progress and finished goods of it and its Subsidiaries are of good, usable
and merchantable quality. In addition, (i) all such inventories are of such
quality as to meet its quality control standards and any applicable
governmental quality control standards, (ii) all such finished goods are
saleable as current inventories at its or its Subsidiaries' current prices
in the ordinary course of business, (iii) all such inventories are recorded
on the books at the lower of cost or market value determined in accordance
with GAAP and (iv) except as set forth in Section 3.01(y) of its Disclosure
Schedule, no write-down in inventory has been made or should have been made
pursuant to GAAP during the past two years.
ARTICLE IV
COVENANTS
Section 4.01. Mutual Covenants. Except as set forth in the corresponding
sections or subsections of each of the ECO Covenant Exceptions annexed hereto as
Appendix III (the "ECO Covenant Exceptions") or the APD Covenant Exceptions
annexed hereto as Appendix IV (the "APD Covenant Exceptions") (each of the ECO
Covenant Exceptions and the APD Covenant Exceptions to be sometimes referred to
as "Covenant Exceptions"), as the case may be, and except as expressly
contemplated or permitted by this Agreement, or to the extent that the other
party shall otherwise consent in writing, during the period from the date of
this Agreement and
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continuing until the Effective Time, each of APD and ECO agrees as to itself and
its Subsidiaries that:
(a) Ordinary Course. It and its Subsidiaries shall carry on their
businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and use all reasonable efforts to
preserve intact their present business organizations, keep available the
services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business dealings
with them so that their goodwill and ongoing business shall not be impaired
in any respect at the Effective Time; provided, however that (A) nothing
contained in this Agreement (including Section 5.02(b)) shall prohibit APD
from negotiating or entering into (i) any transaction in which it acquires
a controlling interest in another entity or any assets of another entity or
agrees to lease and/or manage a greenhouse owned by another entity; (ii) a
transaction in which it makes an equity investment in another entity; (iii)
a partnership roll-up transaction; (iv) a business combination with another
entity which results in the stockholders of APD immediately prior to such
business combination owning a controlling interest in the surviving entity;
or (v) any transaction described in Section 4.01(a) of the APD Covenant
Exceptions (each an "Acquisition Transaction"); provided, however, that APD
will provide to the ECO Board of Directors a written description of any
such proposed Acquisition Transaction not described in Section 4.01(a) of
the APD Covenant Exceptions prior to entering into a binding agreement with
respect to same, and the ECO Board of Directors shall not distribute such
written description to any other persons or entities without the consent of
APD.
(b) Dividends; Changes in Stock. Except to the extent contemplated by
this Agreement it shall not, nor shall any of its Subsidiaries, nor shall
it or any of its Subsidiaries propose to, (i) declare or pay any dividends
on or make other distributions in respect of any of its capital stock or
other outstanding securities or interests, except for (A) dividends or
distributions to APD or ECO or a Subsidiary that is wholly owned (directly
or indirectly) by a Subsidiary that is wholly owned (directly or
indirectly) by APD or ECO and (B) distributions by APD described in Section
4.01(b) of the APD Covenant Exceptions, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of
any other securities in replacement of, in lieu of or in substitution for
shares of its capital stock, or (iii) repurchase, redeem or otherwise
acquire, or permit any Subsidiary to repurchase, redeem or otherwise
acquire, any shares of its capital stock.
(c) Issuance of Securities. Neither it nor any of its Subsidiaries,
shall issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class, any
Voting Debt or any securities convertible into, or any rights, warrants,
calls, subscriptions or options to acquire, any such shares, Voting Debt or
convertible securities, other than (i) the issuance of stock options in
accordance with Section 4.01(k)(ii) of the ECO Covenant Exceptions, (ii)
the issuance of shares of ECO Common Stock upon the exercise of warrants
and stock options identified in Section 3.01(b)(ii) of the ECO Disclosure
Schedule and in accordance with the terms of such warrants and stock
options or (iii) the sale of shares of ECO Common Stock pursuant to trading
on NASDAQ.
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(d) Governing Documents. Except as contemplated by this Agreement, it
and its Subsidiaries shall not amend or propose to amend their
Organizational Documents.
(e) No Acquisitions. Except as permitted by Section 5.02, neither it
nor any of its Subsidiaries shall, acquire or agree to acquire by merging
or consolidating with, or by purchasing an equity interest in or portion of
the assets of, or by any manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets; provided, however,
that APD shall be permitted to effect an Acquisition Transaction in
accordance with the terms set forth in Section 4.01(a) hereof.
(f) No Dispositions. It shall not, nor shall any of its Subsidiaries
sell, lease, license, encumber or otherwise dispose of, or agree to sell,
lease, license, encumber or otherwise dispose of any of its assets, except
in the ordinary course of business or as otherwise permitted pursuant to
Section 5.02.
(g) Indebtedness. Except for borrowings in the ordinary course of
business under credit arrangements existing on the date of this Agreement,
it shall not, nor shall any of its Subsidiaries, incur (which shall be
deemed to include entering into credit agreements, lines of credit or
similar arrangements) any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of it or any of its Subsidiaries or
guarantee any debt securities of others; provided, however, that (i) APD
shall be permitted to issue debt securities or guarantee debt securities of
others in connection with Acquisition Transactions, (ii) APD may increase
borrowing availability under the loan agreements between Village Farms
International Financing Association and CoBank, ACB by $60,000,000, (iii)
APD may have issued on its behalf letters of credit in connection with
marketing arrangements and financial commitments permitted under this
Agreement, and (iv) ECO and its Subsidiaries shall be permitted to enter
into asset-based financing arrangements not to exceed $500,000 with General
Electric Capital Corporation.
(h) Other Actions. It shall not, nor shall any of its Subsidiaries,
take any action that would or is reasonably likely to result in any of its
representations and warranties set forth in this Agreement being untrue or
in its failure to perform covenants it is obliged to perform hereunder or
in any of the conditions to the Merger set forth in Article VI not being
satisfied.
(i) Advice of Changes; Filings. Except as prohibited by the terms of
any confidentiality agreement to which it is a party, it shall confer on a
regular and frequent basis with the other party, report on operational
matters and promptly advise the other party in writing of any change or
event having (in either case), or which, insofar as can reasonably be
foreseen could have (in either case), a material adverse effect on it and
its Subsidiaries (financial or otherwise) or their respective businesses,
properties, prospective results of operations or net worth. It shall
promptly provide the other party (or its counsel) copies of all filings
made by it or any of its Subsidiaries with any Federal, state or foreign
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby or which are material to the operation of the business
conducted by it or any such Subsidiary.
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(j) Notice of Untrue Facts. It will promptly advise the other party
if, at any time before the Proxy Statement (as defined in Section 5.01(a))
is mailed to the stockholders of ECO or before the meeting of ECO's
stockholders (the "ECO Meeting") held pursuant to Section 4.01(q) hereof,
the Proxy Statement as the same relates to it, contains any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements contained therein,
in light of the circumstances under which they were made, not misleading.
(k) Employee Benefit Plans. It and its Subsidiaries will not, without
the prior written consent of the other, (i) enter into, adopt, amend
(except as may be required by law or otherwise permitted or contemplated by
this Agreement) or terminate any Benefit Plan or other employee benefit
plan or any agreement, arrangement, plan or policy between it or a
Subsidiary of it and one or more of its directors, officers or employees;
or (ii) increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any plan
and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock options, stock appreciation rights or
performance units) or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing; provided, however that (i) APD may
pay the dividends described in Section 4.01(b) of the APD Covenant
Exceptions, and (ii) each of ECO and APD may make adjustments in employee
compensation as set forth in Section 4.01(k)(ii) of its Covenant
Exceptions.
(l) Acquisitions of Property. During the period from the date of this
Agreement until the Effective Time, it agrees as to itself and its
Subsidiaries that it will not, without the prior written consent of the
other party, acquire or lease any additional real or personal property,
including, without limitation, capital equipment or inventories, except for
real or personal property which will not exceed $250,000 in the aggregate
and that inventory may be acquired in the ordinary course of the business
as conducted on the date hereof; provided, however, that this Section
4.01(l) shall not prohibit APD from consummating Acquisition Transactions
in accordance with Section 3.01(a).
(m) Consents Without Any Condition. It shall not make any agreement or
reach any understanding not approved in writing by the other party as a
condition for obtaining any consent, authorization, approval, order,
license, certificate, or permit required for the consummation of any of the
transactions contemplated by this Agreement.
(n) No Related Transaction. Neither it nor any of its Subsidiaries
shall enter into or become a party to any contract, lease, agreement or
transaction with any member of its board of directors, any of its officers
or management employees or any of its Subsidiaries or with any business
organization owned or controlled by any of them, from the date of the
execution of this Agreement to the Closing Date except (i) in the ordinary
course of business, and (ii) as contemplated by Section 4.01(n) of the APD
Covenant Exceptions.
(o) Legal Requirements. It will take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on
itself with respect to the Merger (which actions shall include, without
limitation, furnishing all information required in connection with
approvals of or filings with any other Governmental Entity and filing
initial notices and
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obtaining an administrative consent order or otherwise satisfying the
requirements of any state or federal environmental laws with respect to
properties owned, leased, or operated by it or any of its Subsidiaries on
or before the date of this Agreement and through the Closing Date, to the
extent such properties are subject to such laws) and will promptly
cooperate with and furnish information to each other in connection with any
such requirements imposed upon any of them or any of their Subsidiaries in
connection with the Merger. It will, and will cause its Subsidiaries to,
take all reasonable actions necessary to obtain (and will cooperate with
the other party obtaining) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity or other public or private
third party, required to be obtained or made by ECO, APD or any of their
Subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement; provided, that except as
otherwise provided to the contrary in this Agreement, neither ECO or any of
its Subsidiaries nor APD or any of its Subsidiaries shall be obliged to
expend funds or commit to expend funds or undertake any other obligation to
obtain any consent, authorization, order, approval or exemption, required
to be obtained by any other person or entity not its parent or Subsidiary,
as the case may be.
(p) Access to Information. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which it is
subject, it shall (and shall cause each of its Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of
the other party, access, during normal business hours during the period
prior to the Effective Time, to all of its properties, books, contracts,
commitments and records and during such period, it shall (and shall cause
each of its Subsidiaries to) furnish promptly to the other (a) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law, it will hold any such information which is
nonpublic in confidence in accordance with the terms of the Confidentiality
Agreement dated November 23, 1997 between APD and ECO, and in the event of
termination of this Agreement for any reason it shall promptly return all
nonpublic documents obtained from the other party, and any copies made of
such documents, to such other party.
(q) Stockholder Meetings. To the extent required by applicable law, it
shall call a meeting of its stockholders to be held as promptly as
practicable after the Proxy Statement is cleared by the SEC for mailing to
the stockholders of ECO for the purpose of voting upon this Agreement and
related matters. It will, through its Board of Directors, recommend that
its stockholders vote in favor of the Merger and the transactions
contemplated hereby (including the Charter Amendment described in Section
4.02(d)), and will coordinate and cooperate with the other with respect to
the timing of such meetings.
(r) Additional Agreements; Best Efforts. It will use its best efforts
to take, or cause to be taken, all action and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by this Agreement, subject to the appropriate vote of the stockholders of
ECO and APD described in Section 6.01(a), including cooperating fully with
the other party. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
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properties, assets, rights, approvals, immunities and franchises of either
of the Constituent Corporations, the proper officers and directors of each
party to this Agreement shall take all such necessary action.
(s) Pooling Treatment. It shall not acquire any securities of the
other party and shall not take any action that would prevent ECO from
accounting for the business combination to be effected by the Merger as a
"pooling of interests."
Section 4.02. Additional Covenants of ECO. During the period from the date
of this Agreement and continuing until the Effective Time, ECO agrees that
(except as expressly contemplated or permitted by this Agreement or to the
extent that APD shall otherwise consent in writing):
(a) Nasdaq Listing. ECO shall use its best efforts to cause the shares
of ECO Common Stock to be issued to the stockholders of APD pursuant to
this Agreement to be listed or quoted on the Nasdaq Stock Market.
(b) Registration Rights Agreement. At the Closing, ECO shall execute
and deliver a Registration Rights Agreement between ECO and the
stockholders of APD in substantially the form as is annexed hereto as
Exhibit 1.
(c) SEC Reports. ECO shall duly and timely file all reports and other
documents required to be filed by it with the SEC and will deliver complete
and accurate copies thereof to APD at the time of filing. None of such
reports and other documents will contain at the time of filing any untrue
statement of a material fact or omit to state any material fact (excluding
any such misstatement or omission made in reliance upon information
provided by APD) required to be stated therein or necessary to make the
statements therein not misleading, and all of such reports shall comply as
to form in all material respects with all of the applicable rules and
regulations promulgated under the Exchange Act and the Securities Act, as
the case may be.
(d) Charter Amendment. Consistent with applicable law, ECO shall cause
to be presented to its stockholders and shall cause to be voted upon at the
ECO Meeting, in addition to the consideration of and action upon this
Agreement and the Merger, to become effective at the Effective Time a
proposed amendment to the Certificate of Incorporation of ECO which shall
(i) effect the Reverse Split and (ii) increase its authorized shares of
common stock to 100,000,000 shares and increase its authorized shares of
Preferred Stock to 10,000,000 shares (the "Charter Amendment"). The form of
such Charter Amendment is annexed hereto as Exhibit 2.
(e) Resignation of Directors. Consistent with applicable law, ECO
shall procure prior to the Effective Time, resignations of each of E.A.
Grinstead, Larry M. Nouvel and Kenneth S. Boger as directors of ECO and
shall cause ECO's Board of Directors, prior to the effectiveness of such
resignations and prior to the Effective Time, to elect to the Board of
Directors of ECO, effective as of the Effective Time, each of Albert
Vanzeyst (to fill the vacancy created by the resignation of E.A. Grinstead)
and Thomas Montanti (to fill the vacancy created by the resignation of
Larry M. Nouvel).
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ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Proxy Statement.
(a) Preparation. Subject to the terms and conditions of this
Agreement, at the earliest practicable date after the date hereof, ECO
shall prepare and, subject to the review and, approval of APD (which review
and approval shall not be unreasonably withheld or delayed), file with the
SEC a Proxy Statement of ECO for the ECO Meeting. Subject to the terms and
conditions of this Agreement, ECO shall use all reasonable efforts to have
the Proxy Statement cleared for mailing by the SEC. Subject to the terms
and conditions of this Agreement, promptly after the SEC has approved the
Proxy Statement for distribution to the stockholders of ECO, ECO will mail
the Proxy Statement to the stockholders of ECO entitled to receive it, and
will otherwise comply in all material respects with applicable legal
requirements in connection with the vote of the ECO stockholders at the ECO
Meeting. The term "Proxy Statement" as used herein shall mean the proxy
statement of ECO for the ECO Meeting at the time it is initially mailed,
and all amendments or supplements thereto, if any, similarly filed and
mailed. Subject to the fiduciary duties of the ECO Board of Directors under
applicable law as advised by counsel to ECO, the Proxy Statement shall
contain the recommendation of the ECO Board of Directors in favor of this
Agreement and the Merger and the recommendation that the stockholders of
ECO vote for the adoption and approval of this Agreement and the Merger.
Subject to the terms and conditions of this Agreement, ECO shall use all
reasonable efforts to solicit proxies in connection with the vote of
stockholders with respect to the Merger and ECO shall solicit such proxies
in favor of the adoption and approval of this Agreement and the Merger.
(b) APD Cooperation. APD shall promptly furnish all information, and
take such other actions, as may be reasonably requested by ECO in
connection with the actions contemplated by this Section 5.01. ECO
represents and warrants that the Proxy Statement, on the date filed with
the SEC and on the date first published, sent or given to stockholders,
shall not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that ECO makes no
representation or warranty as to any information supplied by APD for
inclusion in the Proxy Statement; provided, further, however, that APD
makes no representation or warranty as to any information not supplied by
it or approved by it for inclusion in the Proxy Statement. APD represents
and warrants that the information to be supplied and approved by it for
inclusion in the Proxy Statement shall not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. ECO (and APD,
with respect to information supplied by it for use in the Proxy Statement)
agrees to promptly correct the Proxy Statement if and to the extent that it
shall have become false or misleading in any material respect and ECO shall
take all steps necessary to cause the Proxy Statement as so corrected to be
filed with the SEC and mailed to ECO's stockholders to the extent required
by applicable federal securities laws.
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(c) SEC Comments. ECO shall notify APD promptly of the receipt by ECO
of any comments of the SEC and of any request by the SEC for amendments or
supplements to the Proxy Statement or by the SEC or any other Governmental
Entity with respect to any other filing made in connection with the
transactions contemplated by this Agreement (an "Other Filing") or for
additional information and will supply APD with copies of all
correspondence between ECO and its representatives, on the one hand, and
the SEC or the members of its staff or any other appropriate Governmental
Entity, on the other hand, with respect to the Proxy Statement and any
Other Filings. ECO shall use all reasonable efforts to obtain and furnish
the information required to be included in the Proxy Statement and any
Other Filings. After the review and, with respect to information relating
to APD, approval of APD (which review and approval shall not be
unreasonably withheld or delayed), ECO shall use all reasonable efforts to
respond promptly to any comments made by the SEC or any other Governmental
Entity with respect to the Proxy Statement and any preliminary version
thereof and cause the Proxy Statement and related form of proxy to be
mailed to its stockholders at the earliest practicable date after clearance
of the Proxy Statement by the SEC.
Section 5.02. Acquisition Proposals.
(a) ECO Proposals. From and after the date hereof, ECO will not,
directly or indirectly, and will instruct its officers, directors,
employees, agents or advisors or other representatives or consultants not
to, directly or indirectly, solicit or initiate any proposals or offers
from any person relating to any acquisition or purchase of all or a
material amount of the assets of, or any securities of, or any merger,
consolidation or business combination with, ECO (any such proposal or offer
being referred to herein as an "ECO Acquisition Proposal"), and shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any persons conducted heretofore with
respect to any such ECO Acquisition Proposal; provided, however, that ECO
may furnish information and may engage in discussions or negotiations with
any person if, following the receipt of an unsolicited bona fide written
ECO Acquisition Proposal from any such person (i) counsel advises ECO's
directors that failure to furnish such information or engage in such
discussions or negotiations could involve ECO's directors in a breach of
their fiduciary duties and (ii) ECO's directors believe, in good faith,
after consultation with ECO's financial advisors, that such person may make
a bona fide proposal for a transaction more favorable to ECO's stockholders
than the transactions contemplated by the Merger; provided further,
however, that nothing contained in this Section 5.02(a) shall prohibit ECO
or its Board of Directors from making such disclosure to ECO's stockholders
which, in the judgment of the Board of Directors with the advice of
counsel, may be required under applicable law. ECO represents and warrants
that it is not currently negotiating or having discussions with respect to
any ECO Acquisition Proposal except the transactions contemplated by this
Agreement. ECO will promptly notify APD of the receipt of any ECO
Acquisition Proposal and, subject to the fiduciary duties of ECO's board of
directors, keep APD informed of the status theeof.
(b) APD Proposals. From and after the date hereof, APD will not,
directly or indirectly, and will instruct its officers, directors,
employees, agents or advisors or other representatives or consultants not
to, directly or indirectly, solicit or initiate any proposals or offers
from any person relating to any acquisition or purchase of all or a
material amount of the
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assets of, or any securities of, or any merger, consolidation or business
combination with, APD (any such proposal or offer being referred to herein
as an "APD Acquisition Proposal"), and shall immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
persons conducted heretofore with respect to any such APD Acquisition
Proposal; provided, however, that (i) nothing contained herein shall
prohibit APD from negotiating or entering into any transaction described in
clause A of Section 4.01(a) hereof in accordance with the provision of
Section 4.01(a) and (ii) APD may furnish information and may engage in
discussions or negotiations with any person if, following the receipt of an
unsolicited bona fide written APD Acquisition Proposal from any such person
APD's directors believe, in good faith, that such person may make a bona
fide proposal for a transaction more favorable to APD's stockholders than
the transactions contemplated by the Merger. APD represents and warrants
that it is not currently negotiating or having discussions with respect to
any APD Acquisition Proposal except the transactions contemplated by this
Agreement. APD will promptly notify ECO of the receipt of any APD
Acquisition Proposal and, subject to the fiduciary duties of APD's board of
directors, keep ECO informed of the status thereof.
Section 5.03. Change of Fiscal Year. At or about the Effective Time, ECO
shall take such actions as are necessary to change its fiscal year to a year
which ends on or about December 31.
Section 5.04. Appointment of Officers. At or about the Effective Time,
EcoScience shall take such actions as are necessary to appoint (i) Albert
Vanzeyst as an Executive Vice President of ECO and (ii) J. Kevin Cobb as Senior
Vice President-Corporate Development of ECO and (iii) David M. Suchniak as
Senior Vice President and Chief Financial Officer of ECO.
Section 5.05. Morocco Transaction. Each of Michael A. DeGiglio, Thomas A.
Montanti and Albert W. Vanzeyst (each a "Morocco Seller" and, collectively, the
"Morocco Sellers") hereby agrees to sell, and Agro Acquisition hereby agrees to
purchase, immediately prior to or contemporaneous with the Effective Time, all
of the shares (the "Morocco Shares") of Village Farms of Morocco, S.A., a
Moroccan company ("VF Morocco"), owned by him in exchange for 33,000 shares of
ECO's Common Stock (99,000 shares in the aggregate). ECO hereby agrees to issue
such shares to the Morocco Sellers upon the consummation of such transaction
(the "Morocco Transaction"). The Moroccan Sellers hereby represent that the
Morocco Shares represent 50% of the issued and outstanding capital stock of VF
Morocco and that such Morocco Seller has good and clear title to the Morocco
Shares owned by him, free and clear of all liens, mortgages, security interests
and other encumbrances.
ARTICLE VI
CONDITIONS
Section 6.01. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction prior to the Closing Date of the following conditions:
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(a) Stockholder Approval. This Agreement and the transactions
contemplated thereby shall have been approved and adopted by the
affirmative vote of (i) the holders of a majority of the outstanding shares
of APD Common Stock and (ii) the holders of a majority of the outstanding
shares of ECO Common Stock.
(b) Other Approvals. ECO shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue the ECO
Common Stock pursuant to this Agreement.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect.
(d) Consents. The consents set forth in Section 3.01(d) of each of the
Disclosure Schedules shall have been obtained.
(e) Pooling Opinion. ECO shall have received a letter from Authur
Andersen, LLP, dated as of the date of this Agreement and updated as of the
Closing Date, to the effect that the Merger will qualify for "pooling of
interests" accounting treatment.
(f) Morocco Transaction. Immediately prior to or contemporaneous with
the Effective Time, the Morocco Transaction shall have been consummated.
Section 6.02. Conditions of Obligations of ECO and Acquisition Sub. The
obligations of ECO and Acquisition Sub to effect the Merger are subject to the
satisfaction of the following conditions unless, to the extent permitted below,
waived by ECO and Acquisition Sub:
(a) Representations and Warranties. The representations and warranties
of APD set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement, and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement, and ECO shall have received a
certificate signed on behalf of APD by the President and the Chief
Financial Officer of APD to such effect.
(b) Performance of Obligations of APD. APD shall have performed in all
material respects all obligations, covenants and agreements required to be
performed by it under this Agreement at or prior to the Closing Date, and
ECO shall have received a certificate signed on behalf of APD by the
president and the Chief Financial Officer of APD to such effect.
(c) Fairness Opinion. The Board of Directors of ECO shall have
received the written opinion (the "Fairness Opinion") of Chestnut Partners,
Inc., as to the fairness of the Merger taken as a whole to ECO's
stockholders from a financial point of view at and as of the date that the
Proxy Statement is first mailed to the stockholders of ECO; provided
however, that the condition set forth in this Section 6.02(c) shall be
deemed satisfied if ECO fails to use all commercially reasonable efforts to
obtain such fairness opinion.
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(d) Lock-up Letters. Each of the stockholders of APD shall have
delivered to ECO a letter agreement in the form annexed hereto as Exhibit
3.
(e) Opinion of Counsel. APD shall have delivered to ECO the opinion as
to certain legal matters of Giordano, Halleran & Ciesla, counsel for APD,
dated as of the Closing Date, in a form reasonably acceptable to ECO and
its counsel.
Section 6.03. Conditions of Obligations of APD. The obligation of APD to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by APD:
(a) Representations and Warranties. The representations and warranties
of ECO and Acquisition Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and
(except to the extent such representations speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by this Agreement and APD shall have received a
certificate signed on behalf of ECO by the President and the Chief
Financial Officer of ECO and on behalf of Acquisition Sub by the President
and the Chief Financial Officer of Acquisition Sub to such effect.
(b) Performance of Obligations of ECO and Acquisition Sub. ECO and
Acquisition Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Closing Date, and APD shall have received a certificate signed
on behalf of ECO by the President and the Chief Financial Officer of ECO
and on behalf of Acquisition Sub by the President and the Chief Financial
Officer of Acquisition Sub to such effect.
(c) Opinions of Counsel. ECO and Acquisition Sub shall have delivered
to APD (i) the opinion as to certain legal matters of Warner & Stackpole,
LLP, counsel for ECO and Acquisition Sub, dated as of the Closing Date, in
a form reasonably acceptable to APD and its counsel, and (ii) the opinion
of Warner Stackpole LLP, counsel for ECO and Acquisition Sub, dated as of
the Closing Date, to the effect that, based upon appropriate
representations of ECO, Acquisition Sub, APD and other persons, the
exchange of the shares of ECO Common Stock for the shares of APD Common
Stock shall be a tax free exchange.
(d) Nasdaq Listing. The Notification Form for the listing on the
Nasdaq Stock market of the shares of ECO Common Stock to be issued to the
stockholders of APD pursuant to this Agreement shall have been duly filed
with the applicable filing fee.
(e) Registration Rights. ECO shall have executed and delivered a
Registration Rights Agreement in substantially the form annexed hereto as
Exhibit 1.
(f) Charter Amendment. The amendments to ECO's certificate of
incorporation contemplated by the Charter Amendment shall have been duly
approved by the stockholders of ECO.
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ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of ECO and APD:
(a) By mutual consent of ECO and APD;
(b) (i) by either ECO or APD if there shall have been a material
breach of any representation, warranty, covenant, obligation or agreement
on the part of the other party set forth in this Agreement which breach
shall not have been cured, in the case of a representation or warranty,
prior to the Closing, or in the case of a covenant, obligation or
agreement, within two (2) business days following receipt by the breaching
party of notice of such breach; or (ii) by either ECO or APD if any
permanent injunction or other order of a court or other competent authority
preventing the consummation of the Merger shall have become final and
non-appealable;
(c) by either ECO or APD if the stockholders of ECO do not approve the
Merger;
(d) by ECO, if ECO is not in material breach of this Agreement and
APD's Board of Directors shall have (i) withdrawn its recommendation that
the stockholders of APD vote in favor of the approval and adoption of this
Agreement or (ii) recommended or approved the acceptance or approval by
stockholders of APD of any APD Acquisition Proposal (other than one by
ECO);
(e) by ECO, if, prior to the Effective Time, ECO is not in material
breach of its obligations under Section 5.02(a) and a Person other than APD
shall have made an unsolicited bona fide proposal for a transaction, which
ECO's Board of Directors believes, in good faith, after consultation with
ECO's financial advisors, is more favorable to ECO's stockholders than the
transactions contemplated by this Agreement;
(f) by APD, if APD is not in material breach of this Agreement and
ECO's Board of Directors shall have (i) withdrawn its recommendation that
the stockholders of ECO vote in favor of the approval and adoption of this
Agreement or (ii) recommended or approved the acceptance or approval by
stockholders of ECO of any ECO Acquisition Proposal (other than one by
APD);
(g) by APD, if, prior to the Effective Time, APD is not in material
breach of its obligations under Section 5.02(b) and a Person other than ECO
shall have made an unsolicited bona fide proposal for a transaction, which
APD's Board of Directors believes, in good faith, is more favorable to
APD's stockholders than the transactions contemplated by this Agreement.
Section 7.02. Effect of Termination. In event of a termination of this
Agreement by either APD or ECO as provided in Section 7.01, this Agreement shall
forthwith become void,
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except with respect to (a) the obligations under Section 8.02 and (b) the last
sentence of Section 4.01(p); provided, however that no such termination shall
relieve any party hereto from any liability for breach of this Agreement.
Section 7.03. Remedies Not Exclusive; Limitations. Except as set forth in
Section 8.02, prior to the Closing Date, no remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given under this Agreement or now or hereafter existing at
law or in equity or by statute or otherwise, including, without limitation, the
remedy of specific performance. The election of any one or more remedies by ECO,
Acquisition Sub or APD shall not constitute a waiver of the right to pursue
other available remedies.
Section 7.04. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval by the stockholders of APD and ECO of the
matters presented in connection with the Merger but, after such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 7.05. Extension and Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Non-Survival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants, conditions and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the covenants contained in Sections 2.01
and 2.02.
Section 8.02. Expenses. Except as otherwise provided in this Section 8.02,
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses, whether or
not such transactions shall be consummated. If this Agreement is terminated by
ECO pursuant to Section 7.01(e), or by APD pursuant to Section 7.01(f), then ECO
shall pay to APD, on demand, as the sole remedy of APD under this Agreement, in
full reimbursement and compensation for APD's time and effort in negotiating and
entering into this Agreement and taking actions pursuant hereto, a fee of
$750,000. If this Agreement is terminated by APD pursuant to Section 7.01(g), or
by ECO pursuant to Section 7.01(d), then APD shall pay to ECO, on demand, as the
sole remedy of ECO
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under this Agreement, in full reimbursement and compensation for ECO's time and
effort in negotiating and entering into this Agreement and taking actions
pursuant hereto, a fee of $750,000.
Section 8.03. Notices. All notices and other communications to be given
hereunder shall be in writing and shall be deemed given if delivered personally,
mailed by registered or certified mail return receipt requested with proper
postage prepaid, by facsimile electronically confirmed, or by overnight courier
on the actual receipt of such notice to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to ECO or Acquisition Sub, to
EcoScience Corporation
10 Alvin Court
East Brunswick, New Jersey 08816
(Telecopy No. (732) 432-0770)
Attention: Harold Joannidi
with a copy to
Kenneth S. Boger, Esq.
Warner & Stackpole LLP
75 State Street
Boston, Massachusetts 02109
Telecopy No. (617) 951-9151
and
(b) if to APD, to
Agro Power Development, Inc.
One Kimberly Court
East Brunswick, New Jersey 08816
(Telecopy No. (732) 254-1710)
Attention: Michael A. DeGiglio
with a copy to
John A. Aiello, Esq.
Giordano, Halleran & Ciesla, P.C.
270 State Highway 35
Middletown, New Jersey 07748
Telecopy No.: (732) 224-6599
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Section 8.04. Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement they shall be deemed to be followed by the words "without
limitation". Whenever the term "knowledge" and the phrases "to the knowledge
of," "to the best knowledge of," "to the actual knowledge of" and words of
similar import are used in this Agreement with respect to a party, they shall be
deemend to mean to the knowledge of an executive officer of such party;
provided, however, that when any such term or phrase is used with respect to ECO
it shall not encompass matters which are to the knowledge of only Michael A.
DeGiglio and no other executive officer of ECO.
Section 8.05. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. The parties agree to accept and be
bound by signature pages delivered by the parties hereto by means of facsimile
transactions, with original signatures to follow.
Section 8.06. Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
Section 8.07. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 8.08. Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein unless the effect thereof would materially alter the benefits
or burdens hereof to the parties.
Section 8.09. Publicity. Except as otherwise required by law or the rules
of the Nasdaq Stock Market, ECO shall not issue or cause the publication of any
press release or other public announcement with respect to the transactions
contemplated by this Agreement without the prior written consent of APD, which
consent shall not be unreasonably withheld. Except as otherwise required by law,
APD shall not issue or cause the publication of any press release or other
public announcement with respect to the transactions contemplated by this
Agreement without the prior written consent of ECO, which consent shall not be
unreasonably withheld.
Section 8.10. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law
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or otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
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IN WITNESS WHEREOF, ECO, Acquisition Sub, APD and the stockholders of APD
identified below have signed this Agreement or have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
ECOSCIENCE CORPORATION
By:______________________________
Name: David J. Ryan
Title: Chairman
AGRO ACQUISITION CORP.
By:______________________________
Name: Harold A. Joannidi
Title: President
AGRO POWER DEVELOPMENT, INC.
By:______________________________
Name: Albert W. Vanzeyst
Title: President
_________________________________
Michael A. DeGiglio
_________________________________
Thomas A. Montanti
_________________________________
Albert W. Vanzeyst
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EXHIBIT 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") made and entered into
as of __________, 1998 by and among EcoScience Corporation, a Delaware
corporation (the "Company"), and the shareholders identified on Schedule I
hereto (each a "shareholder" and collectively, the "Stockholders").
WHEREAS, pursuant to the Merger Agreement dated as of April 28, 1998, the
Company issued an aggregate of _____ shares of its common stock, $.01 par value
(the "Common Stock") to the Stockholders; and
WHEREAS, the parties hereto wish to set forth their agreement with respect
to certain matters relating to the registration of the Common Stock issued to
the Shareholders under federal and state securities laws;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto hereby agree as follows:
1. Certain Definitions. As used herein, the following terms shall have the
following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity, of whatever nature.
"Registrable Securities" shall mean the shares of Common Stock issued to
the Shareholders pursuant to the Merger Agreement; provided, however, that
Registrable Securities shall cease to be Registrable Securities upon any sale
pursuant to a registration statement under the Securities Act or upon any sale
to the public under Rule 144, or any successor rule, promulgated by the
Commission under the Securities Act.
"Registration Expenses" shall mean the expenses so described in Section 7
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 7
hereof.
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2. Restricted Legend. Each certificate representing Registrable Securities
and, except for certificates evidencing Registrable Securities which have been
sold pursuant to an effective registration statement under the Securities Act or
which may be publicly sold under Rule 144(k) promulgated under the Securities
Act, each certificate representing Registrable Securities issued upon a
subsequent exchange or transfer thereof shall be stamped or otherwise imprinted
with a legend substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES
LAWS OR THE SECURITIES ACT OF 1933. THEY MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT
OR ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THESE SECURITIES ARE ALSO SUBJECT TO THE
TERMS AND PROVISIONS SET FORTH IN A CERTAIN REGISTRATION RIGHTS
AGREEMENT DATED __________ __, 1998, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE OFFICES OF ECOSCIENCE CORPORATION.
3. Requested Registration on Form S-3.
(a) Request for Registration. If the Company shall receive from
holders who in the aggregate hold not less than twenty percent (20%) of the
Registrable Securities then outstanding (the "Requesting Holders") a
written request that the Company effect registration on Form S-3 with
respect to all or a part of the Registrable Securities, the Company will:
(i) promptly give written notice of the requested registration to
all other holders of the Registrable Securities; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate
qualification under a reasonable number of jurisdictions' applicable
blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) of (a)
the Registrable Securities which the Company has been so registered to
include in such registration by the Requesting Holders and (b) all
other Registrable Securities which the Company has been requested to
include in the registration by the holders thereof within 15 days
after the giving of such written notice by the Company, and as would
permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such requests;
provided that the Company shall not be obligated to effect, or to take
any action to effect, any such registration pursuant to this Section
3:
(A) On more than three occasions; provided, however, that if
the
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holders of Registrable Securities are unable to complete the sale
of 75% or more of the Registrable Securities for which
registration has been requested in an underwritten offering then
such requested registration shall be deemed not to have been
effected.
(B) If the Company does not qualify for use of Form S-3 (or
any successor to such form); provided, however, that at all times
during the term of this Agreement, the Company shall use its best
efforts to qualify for the use of Form S-3 (or any successor to
such form).
(C) If the Company, within ten (10) days of the receipt of
the request of the Requesting Holders, gives notice of its bona
fide intention to effect the filing of a registration statement
with the Commission within ninety (90) days of receipt of such
request (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for
the registration of Registrable Securities).
(D) During the period starting with the date thirty (30)
days prior to the Company's estimated date of filing of, and
ending on the date three (3) months immediately following the
effective date of, any registration statement pertaining to an
underwritten offering of securities by the Company (other than a
registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan), provided that the Company
is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective.
(E) If the Company shall furnish to the Requesting Holders a
certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors, the filing
of a registration statement by the Company in the near future
would substantially interfere with a significant transaction in
which the Company is then presently engaged or in which the
Company proposes to engage, then the Company's obligation to use
its best efforts to file a registration statement shall be
deferred for a period not to exceed 120 days from the receipt of
the request to file such registration by such Requesting Holder
or Holders, provided that the Company may not exercise this
deferral right more than once per twelve month period.
(F) With respect to Registrable Securities as to which
registration rights have not yet become available, as set forth
in Section 10 hereof.
Subject to the foregoing clauses (A) through (F), the Company shall file a
registration statement on Form S-3 covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request.
(b) Underwriting. If the Requesting Holders intend to distribute the
Registrable Securities covered by its request by means of an underwriting,
they shall so advise the Company as a part of the request made pursuant to
Section 3. In the case of an underwritten offering to which this Section 3
shall apply, no securities other than the Registrable Securities shall be
included among the securities covered by such registration unless (i) the
managing underwriter of such offering shall have advised the Company in
writing that the inclusion of such other securities would not adversely
affect such offering or (ii) the holders of more than 50% of the
Registrable Securities for which registration has been requested shall have
consented in writing
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<PAGE>
to the inclusion of such other securities. The Company shall enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the
Registrable Holder.
(c) Priority in Demand Registration. If (i) a registration pursuant to
this Section 3 involves an underwritten offering of the securities so being
registered, (ii) the managing underwriter(s) of such underwritten offering
shall advise the Requesting Holders and/or the Company that, in its
opinion, the number of shares of Common Stock proposed to be sold in (or
during the time of) such offering would adversely affect the success of
such offering, then there shall be included in such registration only such
number of shares of Common Stock recommended by such managing underwriter
and (iii) the number of shares so included shall be allocated to the
holders of Registrable Securities requesting registration in proportion, as
nearly as practicable, to the total number of shares of Registrable
Securities held by such holders at the time of the filing of the
registration statement.
4. Incidental Registration.
(a) Request for Registration. If the Company at any time proposes to
register any of its securities under the Securities Act for sale, whether
for its own account or for the account of other security holders or both
(except with respect to (x) registration statements on Form S-8 or Form S-4
or their then equivalent forms, or another form not available for
registering the Registrable Securities for sale to the public, (y) a
registration relating solely to employee benefit plans, or (z) a
registration relating solely to a Rule 145 transaction), it will each such
time: (i) promptly give to the holders of the Registrable Securities
(hereinafter "holders") written notice thereof (which shall include a list
of the jurisdictions in which the Company intends to attempt to qualify
such securities under the applicable blue sky or other state securities
laws); and (ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request made
by a holder within fifteen (15) days after receipt of the written notice
from the Company described in clause (i) above, except the number of shares
included in such registration on behalf of a holder of Registrable
Securities, if any, shall be subject to the provisions set forth in Section
4(c) below. Such written request may specify all or a part of a holder's
Registrable Securities.
The Company shall not be obligated to effect, or to take any action to
effect, any registration of Registrable Securities as to which registration
rights have not yet become available, as set forth in Section 10 hereof.
(b) Underwritten Offerings. If the registration of which the Company
gives notice is for an underwritten offering of Common Stock, the Company
shall so advise the holders as a part of the written notice given pursuant
to Section 4(a). In such event, the right of such holders to registration
pursuant to Section 4(a) above shall be conditioned upon such holders'
participation in such underwriting. Each holder shall, if it proposes to
distribute Registrable Securities through such underwriting, (together with
the Company and other parties distributing securities through such
underwriting) enter into an underwriting agreement in customary form with
the managing underwriter(s) selected by the Company.
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<PAGE>
(c) Priority in Incidental Registrations. If (i) a registration
pursuant to this Section 4 involves an underwritten offering of the
securities so being registered, whether or not for sale for the account of
the Company, and (ii) the managing underwriters of such underwritten
offering shall advise the Company in writing that, in its opinion, the
number of shares of Common Stock (including Registrable Securities)
proposed to be sold in (or during the time of) such offering would
adversely affect the success of such offering, then the Company shall
include in such registration only such number of shares of Common Stock
(including Registrable Securities) recommended by such managing
underwriter, selected in the following order or priority: (i) first, all of
the shares of Common Stock that the Company proposes to sell for its own
account, if any, and (ii) second, the Registrable Securities requested to
be included in such registration by the holders of Registrable Securities
(in proportion, as nearly as practicable, to the total number of shares of
Registrable Securities held by such holders at the time of the filing of
the registration statement); provided, however, that (x) if any equity
securities are proposed to be included in such offering for the account of
any person or persons other than the Company pursuant to rights to demand
registration the amount of Registrable Securities to be included therein
shall be pro rata with all other equity securities that have requested to
be included by the holder of such demand registration rights and (y) if any
equity securities are proposed to be included in such offering for the
account of any person or persons other than the Company pursuant to rights
of incidental registration similar to those provided in this Section 4, all
Registrable Securities to be included therein shall be included prior to
the inclusion of any other registrable equity securities that have
requested to be included.
5. Grant of Additional Rights. The Company may grant subsequent investors
rights of registration upon request (such as those provided in Section 3) and
rights of incidental registration (such as those provided in Section 4) provided
that (i) such rights are not inconsistent with the rights granted pursuant to
this Agreement, and (ii) the instrument granting such rights specifically
confirms the rights of the holders of the Registrable Securities.
6. Registration Procedures. In the case of each registration effected by
the Company pursuant to Section 3 or 4, the Company will:
(a) keep such registration effective for a period of two hundred
seventy (270) days or until the sellers have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) furnish to each holder of Registrable Securities whose shares have
been included in the registration (each a "seller") and to each underwriter
such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus), as such persons
may reasonably request in order to facilitate the public sale or other
disposition of the securities covered by such registration statement;
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(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers or, in the case of an
underwritten public offering, the managing underwriter(s), shall reasonably
request provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified, to amend its
by-laws or to consent to general service of process in any such
jurisdiction;
(e) immediately notify each seller and each underwriter at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus contained 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 at the request of the sellers, prepare and furnish to the
sellers a reasonable number of copies of a supplement to or amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, 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 or incomplete in the light of the circumstances then existing;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed;
(g) make available for inspection by sellers, any underwriter
participating in any disposition pursuant to such registration statement,
and any attorney, accountant or other agent retained by any such seller or
any such underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by
sellers, underwriter, attorney, accountant or agent in connection with such
registration statement;
(h) furnish to sellers a signed counterpart, addressed to sellers, of
(i) an opinion of counsel for the Company, dated the effective date of the
registration statement, and (ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the
Company's financial statements included in the registration statement, to
the extent permitted by the standards of the AICPA;
(i) furnish to sellers a copy of all documents filed with and all
correspondence from or to the Commission in connection with any such
offering;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than
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eighteen months, beginning with the first month after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(k) in connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 3 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions including, without limitation,
such provisions regarding opinions of counsel for the Company as are
reasonably satisfactory to such counsel and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions.
7. Expenses. All expenses incurred by the Company in complying with Section
4 and 5 hereof, including without limitation all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company and
independent public accountants for the Company, blue sky fees and expenses, fees
of the National Association of Securities Dealers, Inc., reasonable fees and
disbursements of one (1) counsel to sellers, fees and expenses of transfer
agents and registrars, but excluding any Selling Expenses (as hereinafter
defined), are herein called "Registration Expenses". All underwriting discounts
and selling commissions and expense allowances payable to an underwriter
applicable to the sale of Registrable Securities are herein called "Selling
Expenses". The Company will pay all Registration Expenses in connection with
each registration statement pursuant to Section 4 hereof. All Selling Expenses
in connection with any registration statement filed pursuant to Section 3 or
Section 4 hereof shall be borne by the sellers (pro rata, based on the number of
shares included in the registration for the account of the sellers).
8. Indemnification.
(a) The Company will indemnify each seller with respect to which
registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each Person who controls
any underwriter, against all claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of the Securities Act or
the Exchange Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and
will reimburse each seller for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any
such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by a seller or underwriter and stated to be specifically for use
therein.
A-38
<PAGE>
(b) Each seller will, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors,
officers and employees and each underwriter, if any, of the Company's
securities covered by such a registration statement, and each Person who
controls the Company or such underwriter, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or any violation by such seller of
the Securities Act or the Exchange Act or any rule or regulation thereunder
applicable to such seller and relating to action or inaction required of
seller in connection with any such registration, qualification or
compliance, and will reimburse the Company, each of its officers, directors
and employees, and each Person who controls the Company, each such
underwriter and each Person controls any such underwriter for any legal or
any other expenses reasonably incurred in connection with investigating and
defending or setting such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such seller and stated to be specifically for use therein;
provided, however, that the obligations of seller hereunder shall be
limited to an amount equal to the proceeds to seller of securities sold as
contemplated herein.
(c) Each party entitled to indemnification under this Section 8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any such claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8 provided that such failure does not
prejudice the Indemnifying Party. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. Each Indemnified
Party shall furnish such information regarding itself or the claim in
question as an Indemnifying Party may require in connection with defense of
such claim and litigation resulting therefrom.
(d) Contribution. If recovery is not available under the foregoing
indemnification provisions of Section 8, for any reason other than as
specified therein, the parties entitled to indemnification by the terms
thereof shall be entitled to contribution to liabilities and expenses. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the relative benefits received by each
party from the offering of the
A-39
<PAGE>
securities (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission
and any other equitable considerations appropriate under the circumstances.
Notwithstanding the provisions of this Section 8, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act), shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.
9. Information by Sellers. Each seller shall furnish to the Company such
information regarding such seller and the distribution proposed by such seller
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement.
10. Effectiveness of Registration Rights. Holders of Registrable Securities
shall have the right to request registration of any of the Registrable
Securities pursuant to the terms of this Agreement as follows:
(a) 25% of the Registrable Securities issued to Thomas Montanti on or
after [SIX MONTH ANNIVERSARY DATE OF MERGER];
(b) 25% of the Registrable Securities issued to each of the
Stockholders other than Thomas Montanti on or after [ONE YEAR ANNIVERSARY
DATE OF MERGER];
(c) An additional 25% of the Registrable Securities issued to each of
the Stockholders on or after [EIGHTEEN MONTH ANNIVERSARY DATE OF MERGER];
(d) All other Registrable Securities on or after [TWO YEAR ANNIVERSARY
DATE OF MERGER].
11. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) Furnish to each holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144, and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any such securities without
registration.
A-40
<PAGE>
12. Changes in Common Stock. If, and as often as, there are any changes in
the Common Stock by way of stock split, combination, reclassification, stock
dividend or through merger, consolidation, reorganization or recapitalization,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock as
so changed.
13. Transfer or Assignment of Registration Rights. The rights to cause the
Company to register securities granted to Stockholders by the Company hereunder
may be transferred or assigned by each Stockholder to a transferee or assignee
of any Registrable Securities, provided that:
(a) The Company is given written notice at the time of or within a
reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or
assigned; and
(b) The transferee or assignee of such rights assumes, in writing, the
obligations of the assigning Stockholder under this Agreement.
14. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so
expressed or not. Without limiting the generality of the foregoing and
subject to Section 13 hereof, the registration rights conferred herein on
the Stockholders shall inure to the benefit of the holders from time to
time of the Registrable Securities.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by first class registered or
certified mail, postage prepaid, or by overnight courier guaranteeing next
day delivery and requiring a signature upon delivery, addressed as follows:
if to the Company, to it at its office at 10 Alvin Court, East Brunswick,
New Jersey 08816; if to a Stockholder at his address set forth on Schedule
I hereto; if to any subsequent holder of Registrable Securities, to it at
such address as may have been furnished to the Company in writing by such
holder; or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a holder of
Registrable Securities) or to the holders of Registrable Securities (in the
case of the Company). All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
overnight courier, on the business day following the date of dispatch and
(b) in the case of mailing, on the third business day following such
mailing.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
A-41
<PAGE>
(d) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified or
amended except by an instrument in writing signed by the Company and each
holder of Registrable Securities.
(e) 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 instrument.
(f) This Agreement contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior
arrangements or understandings with respect hereto.
(g) The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
(h) It is the desire and intent of the parties that the provisions of
this Agreement be enforced to the fullest extent permissible under the law
and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason,
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction.
A-42
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: ECOSCIENCE CORPORATION
_________________________ By:_________________________
WITNESS:
____________________________
Michael A. DeGiglio
____________________________
Albert Vanzeyst
____________________________
J. Kevin Cobb
____________________________
Thomas Montanti
A-43
<PAGE>
Schedule I
Michael A. DeGiglio
[Address]
Thomas Montanti
[Address]
Albert Vanzeyst
[Address]
J. Kevin Cobb
[Address]
A-44
<PAGE>
EXHIBIT 2
CERTIFICATE OF AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
ECOSCIENCE CORPORATION
TO: SECRETARY OF STATE
STATE OF DELAWARE
Pursuant to the provisions of Section 242 of the General Corporation Law of
the State of Delaware, EcoScience Corporation, a corporation organized under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), executes this Certificate of Amendment to its Restated
Certificate of Incorporation. The Corporation's Certificate of Incorporation was
filed and recorded in the Office of the Secretary of State of the State of
Delaware on October 28, 1988, a Restated Certificate of Incorporation was filed
with the Office of the Secretary of State of the State of Delaware on January
18, 1990 and a Restated Certificate of Incorporation was filed with the Office
of the Secretary of State of the State of Delaware on February 12, 1992.
1. Name of Corporation. The name of the Corporation is EcoScience Corporation
2. Date of Adoption and Text of Amendments. The following amendments to the
Certificate of Incorporation of the Corporation (the "Amendment") were adopted
by the Corporation's shareholders (the "Shareholders") at a meeting of
shareholders duly held on __________, 1998.
(a) Upon the filing of this Certificate of Amendment with the Office of the
Secretary of State, State of Delaware (a) each five (5) shares of the
Corporation's outstanding common stock shall automatically and without any
further action by the holder be combined into one (1) share of common stock, (b)
no fractional shares shall be issued; any stockholder who would othewise be
entitled to receive a fractional share shall be entitled to receive a cash
payment in lieu thereof; (c) the par value per share shall be increased from at
$.01 to $.05 per share and (d) no changes will be made in the capital or surplus
account of the Corporation.
(b) Section 4.1 of Article IV of the Restated Certificate of Incorporation
of the Corporation is amended to provide in its entirety as follows: Section
4.1. Total Number of Shares of Stock. The total number of shares of all classes
of stock which the Corporation has the authority to issue is One Hundred Ten
Million (110,000,000) shares consisting of One Hundred Million (100,000,000)
shares of common stock, $.01 par value per share (the "Common Stock"), and Ten
Million (10,000,000) shares of preferred stock, $.01 par value per share (the
"Preferred Stock").
3. Approval of Amendments. The foregoing amendments were duly adopted in
accordance with Section 242(b) of the Delaware General Corporation Law on
__________, 1998.
A-45
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment has been duly executed by
an authorized officer of the Corporation as of the __________ day of ____, 1998.
ECOSCIENCE CORPORATION
By:____________________________
Attest:
By: ___________________________
A-46
<PAGE>
EXHIBIT 3
_____________, 1998
EcoScience Corporation
10 Alvin Court
East Brunswick, NJ 08816
Gentlemen:
As a stockholder of Agro Power Development, Inc. ("APD"), I understand that
pursuant to that certain Merger Agreement dated as of April 28, 1998 among
EcoScience Corporation ("EcoScience"), Agro Acquisition Corp. and APD (the
"Merger Agreement"), the shares of APD Class A Common Stock that I own will be
converted into shares of EcoScience Common Stock. I have been advised that the
shares (the "Shares") of EcoScience Common Stock that will be issued to me
pursuant to the Merger Agreement will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"). I agree that:
1. I shall not make any sale, transfer or other disposition of the Shares I
receive in violation of the Securities Act or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
2. I shall not make any sale, transfer or other disposition of the Shares I
receive until EcoScience publishes results covering at least 30 days of combined
post merger operations of EcoScience and APD.
In order to enable EcoScience to enforce the terms of this letter, I hereby
consent to placing stop-transfer orders with the transfer agent of EcoScience's
Common Stock with respect to any of the Shares. I understand that an appropriate
legend may be marked on the face of the stock certificates representing the
Shares.
Very truly yours,
[Name of APD Stockholder]
A-47
<PAGE>
APPENDIX B
ECOSCIENCE'S ANNUAL/QUARTERLY REPORTS
[To be provided to stockholders]
B-1
<PAGE>
APPENDIX C
OPINION OF FINANCIAL ADVISOR
May 11, 1998
Board of Directors
EcoScience Corporation
10 Alvin Court
East Brunswick, New Jersey 08816
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of EcoScience Corporation ("ECOSCIENCE" or the
"Company") of the proposed transaction (the "Merger") whereby Agro Acquisition
Corp. ("Agro Acquisition"), a wholly owned subsidiary of the Company, will merge
with Agro Power Development, Inc. ("APD") in an exchange of stock resulting in
APD's current stockholders owning 80% of the Company on a fully-diluted basis
following the Merger. The terms of the Merger are more fully set forth in the
Agreement and Plan of Merger dated April 28, 1998 ("Merger Agreement").
Chestnut Partners, Inc. ("Chestnut Partners"), as part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings by other
investment banks, private placements and valuations for corporate and other
purposes. We are currently acting as financial advisor to the Strategic
Alternatives Committee of the Company's Board of Directors (the "Strategic
Alternatives Committee") and will receive a fee for rendering this opinion.
In arriving at our opinion, Chestnut Partners has, among other things:
(1) reviewed the Merger Agreement;
(2) reviewed publicly available financial information of the Company for
recent years and interim periods to date;
(3) reviewed certain internal financial and operating data of the Company;
(4) compared certain financial and securities trading data of the Company
with data for certain other publicly traded companies deemed
comparable;
(5) reviewed historical market prices and trading volumes of the Company's
shares;
(6) reviewed prices and premiums offered in other similar transactions;
(7) reviewed APD's financial statements and certain other relevant
operating data provided by APD management;
C-1
<PAGE>
(8) held meetings and discussions with management and senior personnel of
the Company and APD to discuss the business, operations, historical
financial results and future prospects of the Company, APD and the
combined company;
(9) reviewed financial projections for both the Company and APD prepared
by the Company and APD, respectively;
(10) analyzed the respective contributions of revenues, operating income
and net income of the Company and APD to the combined company based
upon the historical and projected results of the Company and APD
provided by management of the Company and APD, respectively, excluding
the possible effects of cost savings, synergies and the elimination of
inter-company sales resulting from the Merger;
(11) reviewed the valuation of APD in comparison to other similar publicly
traded companies;
(12) reviewed the Proxy Statement of the Company dated May 11, 1998; and
(13) conducted such other financial studies, analyses and investigations as
we deemed appropriate for purposes of our opinion.
In rendering our opinion, we relied upon the management of the Company and
APD with respect to the accuracy and completeness of the financial and other
information furnished to us as described above. We assumed that financial
forecasts, projections and estimates of operating efficiencies and potential
synergies reflected the best currently available estimates and judgments of the
Company's management and APD as to the expected future financial performance of
their respective entities. We have not assumed any responsibility for
independent verification of such information, including financial information,
nor have we made an independent evaluation or appraisal of any of the properties
or assets of the Company or APD. With respect to all legal matters relating to
the Company and APD, we have relied on the advice of legal counsel to the
Company.
Our opinion is necessarily based on general economic, market, financial and
other conditions as they exist on, and can be evaluated as of, the date hereof,
as well as the information currently available to us. It should be understood
that, although subsequent developments may affect our opinion, we do not have
any obligation to update, revise or reaffirm our opinion. Our opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the Merger Agreement. Our opinion does not imply any conclusion as to
the likely trading range for the ECOSCIENCE Common Stock following consummation
of the Merger or otherwise, which may vary depending on numerous factors that
generally influence the price of securities. Our opinion is limited to the
fairness, from a financial point of view, of the terms of the Merger to the
stockholders of the Company. We express no opinion with respect to any other
reasons, legal, business or otherwise, that may support the decision of the
Board of Directors or the stockholders to approve the Merger Agreement.
C-2
<PAGE>
For purposes of rendering our opinion, we have assumed in all respects
material to our analysis that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and that all conditions to the consummation of the Merger
will be satisfied without waiver thereof. We have also assumed that all
governmental, regulatory or other consents and approvals contemplated by the
Merger Agreement will be obtained, and that in the course of obtaining any of
those consents, no restrictions will be imposed nor waivers will be made that
would have an adverse effect on the contemplated benefits of the Merger.
We have also assumed, with your permission, that (i) the Merger will be
treated as "pooling of interests" for accounting purposes, and (ii) the Company
will receive all issued and outstanding APD Common Stock in exchange for the
issuance of Common Stock of the Company representing 80% of the outstanding
shares of Common Stock on a fully-diluted basis following the Merger. We express
no opinion, nor have we conducted any analysis, with respect to a transaction
that does not contemplate the aforementioned accounting treatment and structure.
We have not made an independent evaluation or appraisal of the assets of
the Company or APD nor have we been furnished with any such evaluations or
appraisals. We have not been requested to, and did not, solicit any third party
indications of interest in acquiring all or any part of the Company.
In the ordinary course of our business, we do not actively trade the
securities of the Company or APD and do not hold any such shares in our own
account.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be relied upon or used for any other
purpose without our prior written consent, provided, however, this letter may be
reproduced in full in the Proxy Statement of the Company relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger is fair, from a financial point of view, to the
stockholders of the Company.
Very truly yours,
CHESTNUT PARTNERS, INC.
By:_____________________
C-3
<PAGE>
APPENDIX - D
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS D-2
Consolidated Balance Sheets as of December 29, 1996 and December 28,
1997, and March 29, 1998 (Unaudited) D-3
Consolidated Statements of Income for The Year Ended December 31, 1995
and the 52-Week Periods Ended December 29, 1996 and December 28, 1997,
and the 13-Week Periods Ended March 30, 1997 and March 29, 1998
(Unaudited) D-4
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 1995 and the 52-Week Periods Ended December 29, 1996 and
December 28, 1997, and the 13-Week Period Ended March 29, 1998
(Unaudited) D-5
Consolidated Statements of Cash Flows for the Year Ended December 31,
1995 and the 52-Week Periods Ended December 29, 1996 and December 28,
1997, and the 13-Week Periods Ended March 30, 1997 and March 29, 1998
(Unaudited) D-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D-8
D-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Agro Power Development, Inc.:
We have audited the accompanying consolidated balance sheets of Agro Power
Development, Inc. (a New York Corporation) and subsidiaries as of December 29,
1996 and December 28, 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for the year ended December 31, 1995 and the
52-week periods ended December 29, 1996 and December 28, 1997. 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 Agro Power Development, Inc.
and subsidiaries as of December 29, 1996 and December 28, 1997, and the results
of their operations and cash flows for the year ended December 31, 1995 and the
52-week periods ended December 29, 1996 and December 28, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 6, 1998 (except
for the matters discussed
in Note 16, as to which the
date is June 2, 1998)
D-2
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 29, December 28, March 29,
ASSETS 1996 1997 1998
------------ ------------ ---------
Unaudited
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 1,012 $ 1,762 $ 2,322
Restricted cash 0 0 2,500
Accounts receivable, less allowance for doubtful accounts of
$8, $28 and $103 in 1996, 1997 and 1998, respectively 991 2,023 2,102
Inventories (Note 2) 2,329 4,868 8,999
Prepaid expenses and other current assets 376 914 1,286
Note receivable from related party (Note 6) 0 1,838 1,838
Due from related party (Note 4) 300 0 0
------- ------- -------
Total current assets 5,008 11,405 19,047
PROPERTY AND EQUIPMENT, NET (Notes 2 and 7) 17,487 44,843 45,230
RESTRICTED CASH (Note 10) 2,500 3,250 750
OTHER ASSETS (Note 8) 1,284 2,846 2,788
------- ------- -------
Total assets $26,279 $62,344 $67,815
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit (Note 10) $ 1,906 $ 3,950 $ 5,600
Current portion of long-term debt (Note 10) 170 3,868 5,460
Current obligations under capital leases (Note 11) 28 59 52
Accounts payable 754 1,275 2,029
Accrued expenses and other current liabilities (Notes 9 and 14) 1,020 1,123 2,469
Due to affiliate (Note 13) 163 892 435
------- ------- -------
Total current liabilities 4,041 11,167 16,045
LONG TERM DEBT (Note 10) 14,871 35,188 35,971
OBLIGATIONS UNDER CAPITAL LEASES (Note 11) 33 406 400
NONCURRENT LIABILITIES (Notes 12 and 14 ) 2,362 3,163 2,195
MINORITY INTERESTS IN LIMITED PARTNERSHIPS (Note 4) 4,383 12,115 12,770
COMMITMENTS (Notes 10, 14 and 15)
STOCKHOLDERS' EQUITY (Notes 3 and 4):
Common stock - Class A $1.00 par value; 20,000 shares
authorized; 308 shares issued and outstanding 1 1 1
Common stock - Class B $1.00 par value; 10,000 shares
authorized none issued and outstanding 0 0 0
Additional paid-in capital 215 215 215
Retained earnings 373 89 218
------- ------- -------
Total stockholders' equity 589 305 434
------- ------- -------
Total liabilities and stockholders' equity $26,279 $62,344 $67,815
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
</TABLE>
D-3
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
52 Weeks Ended 13 Week Periods Ended
Year Ended -------------------------- -----------------------
December 31, December 29, December 28, March 30, March 29,
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
Unaudited
<S> <C> <C> <C> <C> <C>
NET REVENUES (Note 2) $ 8,338 $ 11,090 $ 21,963 $ 4,265 $ 7,489
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of revenues (Note 14) 6,854 8,762 19,310 2,620 4,287
Selling, general and administrative expenses 1,047 1,584 2,358 752 1,231
-------- -------- -------- -------- --------
Total costs and expenses 7,901 10,346 21,668 3,372 5,518
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS 437 744 295 893 1,971
INTEREST EXPENSE, NET (37) (207) (1,851) (511) (1,080)
OTHER INCOME (EXPENSE), NET 3 11 5 (7) 3
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR STATE
INCOME TAXES AND MINORITY INTERESTS 403 548 (1,551) 375 894
PROVISION FOR STATE INCOME TAXES (Note 2) (58) (87) (29) (5) 0
MINORITY INTERESTS IN NET LOSSES (INCOME) OF
LIMITED PARTNERSHIPS (Note 4) 0 274 1,936 (321) (655)
-------- -------- -------- -------- --------
NET INCOME $ 345 $ 735 $ 356 $ 49 $ 239
======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
D-4
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
------------------------
Shares Additional Retained Earnings
Issued Amount Paid-in Capital (Deficit) Total
------ ------ --------------- ----------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 300 $1 $ 76 ($213) ($136)
Net income 0 0 0 345 345
Capital contribution 0 0 135 0 135
Distributions 0 0 0 (180) (180)
----- ----- ----- ----- -----
BALANCE, December 31, 1995 300 1 211 (48) 164
Net income 0 0 0 735 735
Issuance of common stock 8 0 4 0 4
Distributions 0 0 0 (314) (314)
----- ----- ----- ----- -----
BALANCE, December 29, 1996 308 1 215 373 589
Net income 0 0 0 356 356
Distributions 0 0 0 (640) (640)
----- ----- ----- ----- -----
BALANCE, December 28, 1997 308 1 215 89 305
Net income 0 0 0 239 239
Distributions 0 0 0 (110) (110)
----- ----- ----- ----- -----
BALANCE, March 29, 1998
(Unaudited) 308 $1 $215 $218 $434
===== ===== ===== ===== =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
D-5
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
52 Weeks Ended 13 Week Periods Ended
Year Ended ---------------------------- ---------------------------
December 31, December 29, December 28, March 30, March 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- ---------
Unaudited
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 345 $ 735 $ 356 $ 49 $ 239
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities-
Depreciation 61 264 1,380 294 813
Amortization 21 21 135 63 123
Minority interests in net
income (losses) of limited 0 (274) (1,936) 321 655
partnerships
Net changes in operating assets
and liabilities-
Accounts receivable, net 70 (946) (1,032) (1,046) (79)
Inventories (119) (1,755) (2,538) (1,468) (4,131)
Due from related party (431) 130 301 (19) 0
Prepaid expenses and other
current assets 4 (353) (537) 94 (372)
Other assets 0 (175) (190) (404) (65)
Accounts payable (10) 706 521 (214) 754
Accrued expenses and other
current liabilities (96) 656 102 215 1,345
Due to affiliate 107 (21) 729 (66) (457)
Noncurrent liabilities 256 1,646 801 (1,539) (968)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities 208 634 (1,908) (3,720) (2,143)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (108) (17,381) (28,334) (2,333) (1,199)
Proceeds from sale of property and
equipment 0 0 49 0 0
Increases in debt service restricted
cash funds 0 (2,500) (750) 0 0
Issuance of note receivable from
related party 0 0 (1,838) (1,838) 0
-------- -------- -------- -------- --------
Net cash used in
investing activities (108) (19,881) (30,873) (4,171) (1,199)
-------- -------- -------- -------- --------
</TABLE>
D-6
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(In thousands)
<TABLE>
<CAPTION>
52 Weeks Ended 13 Week Periods Ended
Year Ended ---------------------------- ---------------------------
December 31, December 29, December 28, March 30, March 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- ---------
Unaudited
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,065 18,138 30,168 8,245 4,136
Repayments of debt and capital leases (1,316) (1,419) (4,156) (10) (124)
Debt issuance costs 0 (1,012) (1,508) 0 0
Distributions (180) (314) (640) (200) (110)
Issuance of common stock 0 4 0 0 0
Capital contribution 135 0 0 0 0
Minority interests' contributions to
limited partnerships 0 4,657 9,667 276 0
-------- -------- -------- -------- --------
Net cash (used in) provided
by financing activities (296) 20,054 33,531 8,311 3,902
-------- -------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH (196) 807 750 420 560
CASH AND CASH EQUIVALENTS, beginning of
period 401 205 1,012 1,012 1,762
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 205 $ 1,012 $ 1,762 $ 1,432 $ 2,322
======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 77 $ 396 $ 2,565 $ 60 $ 843
Taxes 117 55 160 25 0
Interest capitalized 0 285 384 0 0
Assets acquired under capital lease
obligations 92 0 451 132 0
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
D-7
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION:
Agro Power Development, Inc. ("APD") was organized in 1990 for the purpose
of developing and operating greenhouse facilities which produce and market
high yield, high quality, premium vine-ripened, greenhouse-grown
vegetables. Tomatoes are grown in greenhouse facilities operated by
subsidiaries of APD (See Notes 3 and 4). The tomatoes are marketed under
the trademark name "Village Farms" to customers located throughout the
United States. APD develops, constructs, manages and operates highly
intensive agricultural greenhouse projects and markets and sells the
vegetable production of these facilities as well as fresh vegetables
produced by other greenhouse growers primarily to retail supermarkets and
wholesale distribution companies.
APD currently operates seven greenhouse facilities in the United States
comprising a total of approximately 176 acres. In addition, APD has entered
into agreements to market and sell fresh vegetables produced by two other
greenhouse operations which comprise a total of approximately 26 acres (see
Note 15).
In addition to produce sales, APD generates revenues from designing and
managing the construction of greenhouse facilities for other parties.
Additional revenues are generated from management and marketing fees paid
to APD by the owners of greenhouse facilities operated by APD (see Note 2).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation-
The accompanying consolidated financial statements include the accounts of
Agro Power Development, Inc., its subsidiary companies and its 50% owned
partnership interests (due to the direction of power and control exerted by
APD management in the normal course of business over the daily operations
and policies of these entities), collectively "the Company". All
significant intercompany amounts and transactions have been eliminated in
the preparation of the consolidated financial statements. This includes the
elimination of development revenue (see Note 4) earned on greenhouse
facility projects against corresponding selling, general and administrative
expenses incurred for the cost component of the development fee earned and
as a reduction in the basis of the applicable greenhouse facility for the
profit component (if any) of the development fee earned.
Management Estimates-
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 liabilities and
disclosure 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.
D-8
<PAGE>
Cash and Cash Equivalents-
Cash and cash equivalents represent all highly liquid investments with
maturities of three months or less when acquired.
Inventories-
Inventories represent direct and indirect production costs incurred before
harvesting the annual tomato crop and growing crops. Growing crops are
valued at the lower of cost or estimated market.
Property and Equipment-
Property and equipment are stated at cost. Depreciation is provided under
both accelerated and straight-line methods based on the estimated useful
lives (3 to 20 years).
Long-Lived Assets-
The provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets" ("SFAS 121") requires,
among other things, that an entity review its long-lived assets and certain
related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
The Company does not believe that any such changes have occurred and no
impairment exists in the recoverability of its long-lived assets.
Income Taxes-
APD has elected, by consent of their stockholders, to be treated under the
provisions of Subchapter S of the Internal Revenue Code, Section 1372.
Under such provisions, earnings and losses of APD are passed through to the
stockholders in proportion to their ownership interest and reported on
their individual income tax returns. Accordingly, no provision for Federal
income taxes has been made in the accompanying consolidated financial
statements. All distributions paid to stockholders during 1995, 1996 and
1997 were paid in part to fund Federal and state income tax obligations of
the stockholders arising from the income generated by the Company. APD
accounts for state taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." This statement requires the Company to recognize deferred
tax assets and liabilities for expected future tax consequences of events
that have been recognized in APD's financial statements or tax returns.
All APD subsidiaries are classified as partnerships for Federal income tax
purposes. Therefore, no provision for Federal income taxes has been
recorded since income or losses are allocated to their members (or
partners) and are reportable by their members (or partners) for Federal
income tax purposes. In addition, certain subsidiaries are classified as
partnerships for state income tax purposes, whereas certain other
subsidiaries, similar to APD, account for state taxes in accordance with
SFAS No. 109 as these subsidiaries are subject to those state's income
taxes. Deferred income taxes were not material at December 29, 1996 and
December 28, 1997.
Concentrations-
For the year ended December 31, 1995, the 52 week periods ended December
29, 1996 and December 28, 1997 and the 13 week periods ended March 30, 1997
and March 29, 1998, approximately 79%, 78%, 74%, 83% and 61% of net
revenues, respectively, was derived from product sales to the Company's top
ten customers. The Company had three customers for the year ended December
31, 1995 which accounted for approximately 20%, 16% and 12% of the
Company's
D-9
<PAGE>
net revenues. For the 52 week period ended December 29, 1996 the Company
had three customers which accounted for approximately 20%, 19% and 13% of
the Company's net revenues. For the 52 week period ended December 28, 1997
the Company had three customers which accounted for approximately 16%, 14%
and 12% of the Company's net revenues. For the 13 week period ended March
30, 1997 the Company had three customers which accounted for approximately
19%, 16% and 14% of the Company's net revenues. For the 13 week period
ended March 29, 1998 the Company had one customer which accounted for
approximately 11% of the Company's net revenues.
Net Revenues-
Net revenues for the periods presented consists of the following-
<TABLE>
<CAPTION>
52 Weeks Ended 13 Weeks Ended
Year Ended ---------------------------- ------------------------
December 31, December 29, December 28, March 30, March 29,
(In thousands) 1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
Unaudited
<S> <C> <C> <C> <C> <C>
Tomato product sales $ 6,923 $ 8,799 $18,431 $ 3,576 $ 6,474
Sales and marketing 1,415 2,237 3,154 659 885
Construction management (Note 3) 0 0 370 0 130
Other revenue, net 0 54 8 30 0
------- ------- ------- ------- -------
$ 8,338 $11,090 $21,963 $ 4,265 $ 7,489
======= ======= ======= ======= =======
</TABLE>
Revenue Recognition-
Revenue from tomato product sales is recognized upon shipment by the
Company. Under the terms of its marketing agreements (see Note 15) the
Company recognizes sales and marketing revenue upon shipment of product by
the Company.
Recently Issued Accounting Standards-
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
comprehensive income and its components, and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
revised reporting and disclosure requirements for operating segments. These
standards increase financial reporting disclosures and will not have a
material impact on the Company's financial position or results from
operations.
Financial Instruments-
The Company's financial instruments consists mainly of cash, accounts
receivable, accounts payable and long-term debt. The carrying amount of
these financial instruments approximates fair value due to their short-term
nature. The carrying amount of long-term debt is estimated by management to
approximate its fair value as the stated rates approximate current rates.
Reclassifications-
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
D-10
<PAGE>
Fiscal Year-
Beginning in 1996, the Company operates on a 52 to 53 week fiscal year.
Fiscal years for the financial statements presented ended on December 31,
1995, December 29, 1996 and December 28, 1997.
(3) LIMITED LIABILITY AND S CORPORATIONS:
Effective December 31, 1995, Village Farms of Wheatfield, Inc. and Keystone
Village Farms, Inc. sold their net assets to two separate newly formed
entities, Village Farms of Wheatfield, LLC ("VFW") and Keystone Village
Farms, LLC ("KVF"), respectively in return for 99% ownership of VFW and
KVF. Concurrently, Village Farms of Wheatfield, Inc. and Keystone Village
Farms, Inc. were merged into APD through a tax free merger. Also in 1995,
APD formed two additional operating subsidiaries, Village Farms of
Delaware, LLC ("VFD") and Village Farms, LLC ("VF"). The terms of all LLC
membership agreements is through December 31, 2045. Members are not liable
for the debts, liabilities or obligations of the applicable LLC
organization and beyond their respective capital contributions. There are
two series of members' interest in each LLC organization, Series A and
Series B. At all times, 21% of members' interest shall be Series B issued.
The voting rights, allocation of operating results and management
participation are of equal rank among the two series of interest.
In November 1997, Village Farms of Virginia, Inc. ("VFV") was formed for
the expansion and operation of a 42 acre greenhouse located in King George
County, Virginia for the purpose of producing and selling tomatoes. VFV is
a Delaware S Corporation 100% owned by APD. VFV entered into a ten year
lease. Under the lease agreement, APD is to provide a variety of services
for the VFV greenhouse facility including full management of operations and
responsibility for the sale and marketing of all products of the VFV
greenhouse facility. In addition, the lessor has engaged APD to expand the
facility from a 36 acre greenhouse to a 42 acre greenhouse by mid-1998. As
of December 28, 1997, APD had recognized $370,000 of the $500,000
construction fee relating to this expansion on a percentage of completion
basis and such amount is included in net revenues in the accompanying
statement of income for the 52 week period ended December 28, 1997.
(4) LIMITED PARTNERSHIPS:
In February 1996, Village Farms of Texas, L.P. ("VFT") was formed for the
development and operation of a 41 acre greenhouse located in Fort Davis,
Texas for the purpose of producing and selling tomatoes. The VFT
Partnership Agreement defines APD as a 50% owner of the partnership which
consists of a 49% limited partner interest and a 1% general partner
interest. The remaining 50% partnership interest is held by two
wholly-owned subsidiaries of Cogentrix Energy, Inc. (herein after
"Cogentrix," which shall mean Cogentrix and its subsidiaries and
wholly-owned affiliates - see Note 15). The VFT Partnership Agreement also
provides for APD to provide a variety of services for the VFT greenhouse
facility including full management of operations and responsibility for the
sale and marketing of all products of the VFT greenhouse facility. Prior to
equity and debt financing closing in February 1996, APD provided direct
funding for project start up costs of approximately $290,000. In addition,
APD earned a $250,000 development fee, which approximated the costs
incurred for its development and financing efforts related to the VFT
D-11
<PAGE>
greenhouse facility project. On February 14, 1996 APD was reimbursed
approximately $540,000 upon the signing of the VFT Partnership Agreement.
To fulfill the terms of the VFT Partnership Agreement, Cogentrix and APD
were required to provide capital contributions of $4,657,000 and $1,000,
respectively, which proceeds were used to fund the initial construction of
the VFT greenhouse facility. Certain other provisions of the VFT
Partnership Agreement govern profit and loss allocations along with
partnership distributions. Included in these provisions is the allocation
of initial losses to the partners based on their respective capital
contributions.
In March 1997, Pocono Village Farms, L.P. ("PVF") was formed for the
acquisition, renovation and operation of an approximate 30 acre greenhouse
located in Mt. Carmel, Pennsylvania for the purpose of producing and
selling tomatoes. The PVF Partnership Agreement defines APD as a 50% owner
of the partnership which consists of a 49% limited partner interest and a
1% general partner interest. The remaining 50% partnership interest is held
by Cogentrix. To fulfill the terms of the PVF Partnership Agreement, APD
and Cogentrix each contributed $276,000 in capital, which proceeds were
used to fund the renovation of the PVF greenhouse facility. Certain other
provisions of the PVF Partnership Agreement govern profit and loss
allocations along with partnership distributions. Included in these
provisions is the allocation of initial losses to the partners based on
their respective capital contributions. The PVF Partnership Agreement also
provides for APD to provide a variety of services for the PVF greenhouse
facility, including full management of operations and responsibility for
the sale and marketing of all products of the PVF greenhouse facility. In
addition in 1996, APD earned a $75,000 development fee, which approximated
the costs incurred for its development and financing efforts related to the
PVF greenhouse facility project. As a result of PVF not being formed until
March 1997, APD funded certain project costs of approximately $650,000
directly associated with the PVF facility. The development fee and the
project costs incurred as of December 29, 1996 are reflected as due from
related party in the accompanying December 29, 1996 consolidated balance
sheet. During 1997, APD was repaid with proceeds from the PVF debt
financing. (See Note 10).
In June 1997, Village Farms of Marfa, L.P. ("VFM") was formed for the
development and operation of a 41 acre greenhouse located in Marfa, Texas
for the purpose of producing and selling tomatoes. The VFM Partnership
Agreement defines APD as a 50% owner of the partnership which consists of a
49% limited partner interest and a 1% general partner interest. The
remaining 50% partnership interest is held by Cogentrix. The VFM
Partnership Agreement also provides for APD to provide a variety of
services for the VFM greenhouse facility including full management of
operations and responsibility for the sale and marketing of all products of
the VFM greenhouse facility. In addition, APD earned a $750,000 development
fee for its development and financing efforts related to the VFM greenhouse
facility project. The cost component of the development fee earned is
reflected in the accompanying December 28, 1997 financial statements as a
reduction in selling, general and administrative expenses and the profit
component of the development fee earned is reflected as a reduction in the
basis of the VFM greenhouse facility.
To fulfill the terms of the VFM Partnership Agreement, Cogentrix and APD
were required to provide capital contributions of $6,650,000 and $1,000,
respectively, which proceeds were used to fund the initial construction of
the VFM greenhouse facility. In addition, Cogentrix provided bridge loan
financing of $3,500,000 to APD prior to the closing of the VFIFA Facility
(see Note 10). In June of 1997, subsequent to the closing of the VFIFA
facility, APD repaid the bridge loan in full,
D-12
<PAGE>
including all accrued interest. Certain other provisions of the VFM
Partnership Agreement govern profit and loss allocations along with
partnership distributions. Included in these provisions is the allocation
of initial losses to the partners based on their respective capital
contributions.
In June 1997, Village Farms of Buffalo, L.P. ("VFB") was formed for the
development and operation of an 18 acre greenhouse located in Buffalo, New
York for the purpose of producing and selling tomatoes. The VFB Partnership
Agreement defines APD as a 50% owner of the partnership which consists of a
49% limited partner interest and a 1% general partner interest. The
remaining 50% partnership interest is held by Cogentrix. The VFB
Partnership Agreement also provides for APD to provide a variety of
services for the VFB greenhouse facility including full management of
operations and responsibility for the sale and marketing of all products of
the VFB greenhouse facility. In addition, APD earned a $500,000 development
fee for its development and financing efforts related to the VFB greenhouse
facility project. The cost component of the development fee earned is
reflected in the accompanying December 28, 1997 financial statements as a
reduction in selling, general and administrative expenses and the profit
component of the development fee earned is reflected as a reduction in the
basis of the VFB greenhouse facility.
To fulfill the terms of the VFB Partnership Agreement Cogentrix and APD
were required to provide capital contributions of $2,741,000 and $1,000,
respectively, which proceeds were used to fund the initial construction of
the VFB greenhouse facility. Certain other provisions of the VFB
Partnership Agreement govern profit and loss allocations along with
partnership distributions. Included in these provisions is the allocation
of initial losses to the partners based on their respective capital
contributions.
(5) VILLAGE FARMS INTERNATIONAL FINANCE ASSOCIATION:
Village Farms International Finance Association ("VFIFA") was organized in
April 1997 for the purpose of providing financing to the Company. VFIFA is
organized as a not-for-profit cooperative formed by APD for the benefit of
the member owners. VFIFA obtains financing from third party lenders and in
turn, provides funding to its members for the purposes of developing and
constructing greenhouse facilities and working capital needs by means of
construction loans, term loans and lines of credit. As of December 28,
1997, there were eight members (all subsidiaries of APD) in VFIFA, each
having contributed $5,000 in capital.
(6) NOTE RECEIVABLE DUE FROM RELATED PARTY:
In March 1997, VFT loaned $1,838,000 to Cogentrix. The note is unsecured,
bears interest at 6.0% and principal and interest are due on demand. See
Note 10 for a description of a related note payable from APD to Cogentrix.
D-13
<PAGE>
(7) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following-
December 29, December 28, March 29,
(In thousands) 1996 1997 1998
-------- -------- --------
Unaudited
Land $ 681 $ 1,102 $ 1,102
Land improvements 144 1,326 1,326
Greenhouses 13,518 35,109 35,459
Greenhouse improvements 36 717 717
Greenhouse equipment 3,382 8,104 8,889
Computer and office equipment 96 228 293
-------- -------- --------
17,857 46,586 47,786
Less- Accumulated depreciation (370) (1,743) (2,556)
-------- -------- --------
$ 17,487 $ 44,843 $ 45,230
======== ======== ========
Included in the amounts above are $112,000 and $563,000 in assets held under
capital leases at December 29, 1996 and December 28, 1997, respectively.
(8) OTHER ASSETS:
Other assets consist of the following-
December 29, December 28, March 29,
(In thousands) 1996 1997 1998
------------ ------------ ---------
Unaudited
Trademarks $ 8 $ 10 $ 10
Security deposits 15 16 17
Tools and spare parts 97 97 97
Other 0 48 107
Notes receivable - stockholders (A) 96 149 149
Debt issue costs (B) 1,012 2,519 2,469
Organization expenses (C) 77 164 164
------- ------- -------
1,305 3,003 3,013
Less- Accumulated amortization (21) (157) (225)
------- ------- -------
$ 1,284 $ 2,846 $ 2,788
======= ======= =======
(A) The notes receivable from stockholders bear interest at the prime rate
(8.50% at December 28, 1997) and are due and payable on January
1,1999.
(B) These amounts represent costs incurred in obtaining the financing for
the various greenhouse construction projects. Included in these costs
is the unamortized premiums paid for the
D-14
<PAGE>
purchase of interest rate cap agreements (see Note 10). The premiums
paid are being amortized to interest expense over the terms of the cap
agreements.
(C) Organization expenses represent initial costs incurred in establishing
new greenhouse facilities. The costs are amortized over a period not
to exceed 60 months.
(9) ACCRUED EXPENSES:
Accrued expenses consist of the following-
December 29, December 28, March 29,
(In thousands) 1996 1997 1998
------------ ------------ ---------
Unaudited
Payroll $ 66 $ 173 $ 339
Insurance 6 174 196
Other 26 2 54
Interest 16 265 513
Rent 403 38 196
Third party grower 0 398 126
Income taxes 95 0 0
Utilities 116 33 272
Inventory 137 0 667
Professional fees 26 40 76
Property taxes 0 0 30
Repairs and maintenance costs 129 0 0
------ ------ ------
$1,020 $1,123 $2,469
====== ====== ======
D-15
<PAGE>
(10) DEBT:
Long-term debt consists of the following-
December 29, December 28, March 29,
(In thousands) 1996 1997 1998
------------ ------------ --------
Unaudited
VFT line of credit (A) $ 2,200 $ 2,000 $ 1,700
VFT term loan credit facility (A) 14,698 18,414 18,413
VFIFA line of credit (B) 0 1,950 3,900
VFIFA construction and term loan
facility (B) 0 16,485 18,971
PVF nonrevolving line of credit (C) 0 2,125 2,088
Notes payable to Cogentrix (D) 0 1,949 1,881
Other loans 49 83 78
-------- -------- --------
16,947 43,006 47,031
Less- Current portion (2,076) (7,818) (11,060)
-------- -------- --------
$ 14,871 $ 35,188 $ 35,971
======== ======== ========
(A) In February 1996, VFT negotiated a $21,123,000 nonrecourse combined
credit facility (the "VFT Facility") with two banks (the "Lenders").
The VFT Facility is secured only by the assets and cash flow of VFT
without any recourse to APD or any of the individual partners of VFT.
The combined VFT Facility consists of a construction and term loan
commitment of $18,623,000 (the "Term Loan") and a $2,500,000 revolving
credit agreement to be used for working capital by VFT. Included in
the construction and term commitment was a letter of credit feature
issued to a significant contractor for work provided during
construction. The letter of credit combined with the outstanding
construction borrowings could not exceed the total construction
commitment.
On March 7, 1997, VFT completed the final advance under the
construction commitment and term out of the construction loan. The
Term Loan is being repaid in 40 quarterly installments which commenced
on June 30, 1997. Interest rate options are selected by VFT on all or
any portion of the borrowings at a variable prime rate, a fixed
(LIBOR) rate or a treasury loan rate as defined in the VFT Facility.
Each interest rate option has an applicable margin over such rate in
determining the total interest rate associated with each borrowing.
The applicable margin for each interest rate option is based upon the
relationship between annual debt service (principal and interest
payments) and total cash flow, as defined, with cash flow as the
numerator and debt service as the denominator. As the aforementioned
relationship increases, the applicable margin for each interest rate
election decreases. At December 28, 1997, the Term Loan borrowings
were at various LIBOR rate elections which combined with the
applicable margin, resulted in interest rates between 9.4% and 10.9%.
The various LIBOR rate elections are reset periodically throughout the
year.
The line of credit commitment to VFT expires on June 30, 2001. VFT is
required to repay the line of credit balance and not draw on the line
of credit for the following 30 consecutive days
D-16
<PAGE>
during each year. A commitment fee of 1% per annum is charged on the
unused line of credit commitment. At December 28, 1997, $500,000 was
available under the line of credit commitment. Interest is payable at
the variable prime rate, as defined (9.5% at December 28, 1997).
In addition, under the terms of the VFT Facility, VFT was required to
establish a Debt Service Reserve and an Additional Debt Service
Reserve in the amounts of $1,500,000 and $1,000,000, respectively. The
Debt Service Reserve will remain in effect throughout the term of the
VFT Facility and the Additional Debt Service Reserve will be released
upon the achievement of certain debt coverage levels measured at the
end of the first calendar quarter following the first complete 12
month period of operations subsequent to the final construction
advance. These funds are to be used to support debt service payments
in the event VFT's cash flow from operations is insufficient. These
amounts have been classified as restricted cash in the accompanying
financial statements. VFT is subject to other various financial and
operating covenants as defined in the VFT Facility. Substantially all
of VFT's assets have been pledged as security under the VFT Facility.
In October 1996, VFT purchased an interest rate cap ("Rate Cap") from
a bank for $307,000. The Rate Cap protects VFT from increases in
interest rates above 6.5% (excluding the applicable margin) for a
period of five years on $10,000,000 of senior debt under the VFT
Facility construction commitment. The purchase is reflected in other
assets in the accompanying consolidated balance sheets (see Note 8)
and will be amortized to interest expense on a straight line basis
over the life of the Rate Cap.
(B) In June 1997, VFIFA negotiated a $60,000,000 combined credit facility
(the "VFIFA Facility") with a bank (the "Lender"). The combined VFIFA
Facility consists of a term loan, construction loan and revolving line
of credit commitment. The proceeds from the borrowings under the VFIFA
Facility are loaned by VFIFA to its members (see Note 5). APD has
guaranteed all obligations incurred under the VFIFA Facility. Advances
under the VFIFA Facility are secured by the assets of APD, VFIFA and
any underlying borrower. The maturity date of the VFIFA Facility is
July 31, 2010.
Under the term loan commitment, up to $50,000,000 may be borrowed to
refinance amounts under the construction loan commitment, fund the
purchase of fully constructed greenhouse facilities or to refinance
the VFT Facility. Under the construction loan commitment, up to
$30,000,000 may be borrowed to fund a portion of the cost of
constructing greenhouse facilities. The construction loan commitment
provides that the Lender will issue letters of credit to contractors
for work provided during construction. Approximately $327,000 of
letters of credit were outstanding as of December 28, 1997. The
letters of credit combined with the outstanding construction
borrowings cannot exceed the total construction loan commitment.
Under the revolving line of credit commitment, up to $10,000,000 may
be borrowed to fund loans by VFIFA to APD and to provide working
capital funding to any subsidiary of APD. Borrowings under the
revolving line of credit are due and payable on September 30 of each
year and automatically renew for an additional year unless either
VFIFA or the Lender provides notice to terminate on or before July 31
each year. At December 28, 1997,
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$8,050,000 was available under the line of credit commitment. Interest
is payable at the variable prime rate, as defined (9.375% at December
28, 1997). The revolving line of credit commitment provides that VFIFA
can request up to $5,000,000 ($80,000 outstanding at December 28,
1997) of letters of credit to support certain commitments of VFIFA and
its members.
Interest on amounts outstanding under the construction loan and term
loan commitments accrues at the prime rate unless VFIFA elects a fixed
rate option (LIBOR) or a quoted rate option, as defined. Interest on
amounts outstanding under the revolving line of credit commitment
accrues at the prime rate. Interest is payable monthly or at the
maturity of an applicable LIBOR rate election period under all
commitments outstanding under the VFIFA Facility. At December 28,
1997, the construction loan borrowings were at various LIBOR rate
elections ranging between 9.0% and 9.3%. The various LIBOR rate
elections are reset periodically during the term of the construction
borrowings up to the term out of the borrowings. Term loan borrowings
will be repaid in 40 quarterly installments commencing on the last day
of the calendar quarter following the term out of the construction
loan.
As of December 28, 1997, $16,485,000 of borrowings were outstanding
under the construction loan commitment and $1,950,000 of borrowings
were outstanding under the revolving line of credit commitment. The
borrowings under the construction loan commitment were used to fund
costs relating to the construction of the VFM and VFB greenhouse
facilities. The VFIFA Facility contains certain restrictive covenants.
In October 1997, VFIFA purchased two interest rate caps ("Rate Caps")
from a bank for $436,000. The Rate Caps protect VFIFA from increases
in interest rates above 6.5% for a period of five years commencing on
December 31, 1997 on up to approximately $26,500,000 of debt under the
VFIFA Facility. The purchases are reflected in other assets in the
accompanying December 28, 1997 consolidated balance sheet (see Note 8)
and will be amortized to interest expense on a straight-line basis
over the life of the Rate Caps.
(C) In March 1997, PVF entered into a $2,200,000 loan agreement. The
proceeds of this loan were used to purchase the PVF greenhouse
property and to make planned improvements to this property. As of
December 28, 1997, there were no additional borrowings available under
this loan. The loan is required to be repaid in sixty quarterly
installments of $37,000 relating to interest and principal beginning
on July 1, 1997, plus a final installment of any amount necessary to
pay the indebtedness in full. The loan bears interest at a variable
rate, as defined (9.0% at December 28, 1997), subject to the lender's
applicable interest rate tier. The interest rate tier may be changed
at any time by the lender. The loan is secured by a real estate
mortgage in the PVF property and a first lien on all assets, excluding
inventory and accounts receivable, as defined. PVF is required to
maintain certain financial ratios relating to this loan and has agreed
to certain restrictions regarding partnership distributions, as
defined. As of December 28, 1997, PVF was in violation of a financial
covenant of the loan agreement. APD is currently negotiating
strategies with Cogentrix to cure the violation. As such the entire
amount outstanding under the loan agreement, $2,125,000, has been
reflected in the current portion of long-term debt in the accompanying
December 28, 1997 balance sheet. PVF is also required to maintain
$750,000 of cash as replacement collateral for the portion of the PVF
greenhouse assets sold to VFB. This amount has been classified as
restricted cash in the accompanying financial statements.
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(D) In March 1997, APD borrowed $643,000 from Cogentrix. The note bears
interest at 6.0% and is due on demand. Interest on the note is payable
annually on December 31. In March, 1997, APD borrowed $1,375,000 from
Cogentrix. The note matures on June 2, 2002 with quarterly principal
and interest payments of $69,000. Borrowings under the note bear
interest at 6.0%. The aggregate maturities of debt as of December 28,
1997 are as follows-
(In thousands)
1998 $ 7,818
1999 1,874
2000 2,686
2001 3,234
2002 3,655
Thereafter 23,739
---------
$43,006
=========
(11) OBLIGATIONS UNDER CAPITAL LEASES:
The Company leases certain equipment under capital leases. Future minimum
lease payments are as follows-
(In thousands)
1998 $99
1999 65
2000 64
2001 64
2002 48
Thereafter 300
---------
Total minimum lease payments 640
Less - Amount representing interest (175)
---------
465
Less - Current maturities (59)
---------
$406
=========
(12) NONCURRENT LIABILITIES:
Included in noncurrent liabilities are construction cost accruals which
represent amounts due at December 29, 1996 and December 28, 1997 on certain
billings relating to the construction of the various greenhouse facilities.
During 1997 and 1998, these amounts were paid with proceeds from the
construction and term loan commitments (see Note 10).
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(13) TRANSACTIONS WITH AFFILIATES:
The Company purchased a substantial portion of its materials and greenhouse
equipment from EcoScience Corporation ("EcoScience"), amounting to
$503,000, $2,240,000 and $4,234,000 in 1995, 1996 and 1997, respectively,
and $204,000 and $943,000 for the 13 week periods ended March 30, 1997 and
March 29, 1998, respectively. The Chief Executive Officer of APD is also
the CEO and President of EcoScience. Net amounts due to EcoScience at
December 29, 1996, December 28, 1997 and March 29, 1998 were $163,000,
$892,000 and $435,000, respectively.
APD pays a monthly administration fee to EcoScience for the use of its
employees and facilities. These fees amounted to approximately $92,000,
$36,000 and $42,000 in 1995, 1996 and 1997, respectively, and $11,000 and
$28,000 for the 13 week periods ended March 30, 1997 and March 29, 1998,
respectively. Management believes the management fee paid to EcoScience is
reasonable based upon the services provided.
(14) OPERATING LEASES:
In July 1992, September 1993 and November 1997, VFW, KVF and VFV,
respectively, entered into commercial greenhouse leases and operating
agreements (the "Lease Agreements"). Both the VFW and KVF Lease Agreements
became effective as of December 1, 1993 for periods of fifteen and ten
years, respectively. The VFV lease agreement became effective on January 1,
1998 for a period of ten years. In June 1997 VFM entered into a land lease
agreement that became effective on July 1, 1997 for a period of 25 years.
The KVF lease is with Cogentrix and the VFV lease is with an affiliate of
Cogentrix. The future minimum lease payments at December 28, 1997 are as
follows-
(In thousands)
1998 $ 3,623
1999 3,642
2000 3,661
2001 3,680
2002 3,701
Thereafter 17,706
-------
$36,013
=======
Rent expense under the Company's various lease agreements totaled
approximately $1,429,000, $1,429,000 and $1,438,000 for the year ended
December 31, 1995 and the 52-week periods ended December 29, 1996 and
December 28, 1997, respectively, and $290,000 and $796,000 for the 13 week
periods ended March 30, 1997 and March 29, 1998, respectively.
Included in noncurrent liabilities in the accompanying consolidated balance
sheet is $808,000, $860,000 and $870,000 at December 29, 1996, December 28,
1997 and March 29, 1998, respectively, related to the effect of accounting
for the scheduled rent increases on a straight-line basis over the VFW and
KVF lease terms.
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In addition to the minimum lease payments stated above, VFW, KVF and VFV
are also required under the Lease Agreements to share "Net Proceeds" or
"Cash Flow" (as defined in the respective Lease Agreements) with their
respective lessor.
KVF and VFW, respectively, incurred additional rent expense based upon the
defined calculations in the amounts of $331,000, $644,000 and $335,000, and
$505,000, $643,000 and $103,000 in 1995, 1996 and 1997, respectively. No
additional rent expense was incurred for the 13 week periods ended March
30, 1997 and March 29, 1998. The additional rent is included in cost of
revenues in the accompanying statements of income.
At December 29, 1996 and December 28, 1997 accrued expenses and other
current liabilities included approximately $404,000 and $38,000,
respectively, related to the additional rent.
(15) COMMITMENTS:
Option Agreement-
In February 1996, and as an inducement to Cogentrix to invest in the VFT
Partnership, the Company granted to Cogentrix certain rights to participate
in future projects involving the development, acquisition, owning of or
operation by the Company of any greenhouse facility at which fruit or
vegetables are grown ("Future Projects"). Under this agreement ("Option
Agreement") with Cogentrix, the Company is required to offer Cogentrix an
interest of at least 50% in all Future Projects regardless of whether the
Company desires or intends to permit a third party interest and if the
Company determines to sell an interest in a Future Project to a third
party, it must first offer this interest to Cogentrix. In Future Projects,
which Cogentrix provides cash equity Cogentrix shall receive preferential
return treatment, as defined.
This option is not applicable to Future Projects in which (1) the Company
is a lessee, (2) any operating greenhouse project acquired by the Company
without any equity investment, (3) any greenhouse project identified and
developed by a third party in which APD is invited to participate without
having to make an equity investment and (4) nine specific greenhouse
developments and projects specifically identified in the Option Agreement.
The Option Agreement terminates at the earlier of Cogentrix investing
$20,000,000 in Future Projects or if Cogentrix declines a proposed
investment in a Future Project with certain projected rates of return and a
third party thereafter makes an equity investment at the same or less
favorable terms as were offered to Cogentrix. The additional capital
contributions of Cogentrix in PVF, VFM and VFB (approximately $9,667,000
see Note 4) were made under the terms of this Option Agreement.
Marketing Agreements-
Through marketing agreements, APD markets and distributes fresh vegetables
produced by other greenhouse operators under the Village Farms(R)
trademark. Under the terms of these arrangements, APD is entitled to a
commission based on a percentage of product revenues and a fixed amount for
each box of produce sold. APD currently participates in marketing
arrangements with the following
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growers: Foster Farms, a wholly owned subsidiary of Foster Wheeler
Corporation which operates a 10 acre greenhouse located in Marion Heights,
Pennsylvania; and Agros, S.A., which operates a 16 acre greenhouse in
Queratoro, Mexico. APD generated approximately $1,414,000, $2,237,000 and
$2,839,000 in net revenues under these two agreements in 1995, 1996 and
1997, respectively.
Village Farms of Colorado, Inc.-
In January 1998, Village Farms of Colorado, Inc. ("VFC"), a newly formed
wholly owned subsidiary of APD, entered into an agreement with Ripetouch
Greenhouses, Inc. to lease a 20 acre greenhouse to be built and located in
Calhan, Colorado. The lease term of ten years will commence 30 days
following substantial completion of the construction of the facility. No
assurance can be given that the construction of the greenhouse and APD's
subsequent occupation of the space will occur.
Greenery International Agreement-
In 1998, APD entered into an agreement with The Greenery International, a
leading marketer of greenhouse vegetables including bell peppers in the
Netherlands, to market bell peppers produced at the greenhouse facility APD
is constructing in Marfa, Texas (see below) under "The Greenery" brand name
and has been granted the right to market in North America bell peppers
grown by The Greenery International in Europe. The agreement provides that
APD will pay a quarterly marketing fee to The Greenery International. The
initial term of the agreement will be one year and if successful the
agreement will be continued for five more years.
Marfa, Texas Greenhouse-
APD plans to complete construction (at an approximate aggregate cost of
$20,000,000) and operate a 41 acre greenhouse facility to produce red,
orange and yellow bell peppers on property adjacent to the VFM greenhouse
facility. APD commenced construction in January 1998 and is currently
endeavoring to finalize arrangements to finance the completion of the
project. No assurance can be given that financing can be obtained on terms
acceptable to APD. If third party financing cannot be obtained, APD expects
to reduce the size of the proposed greenhouse to approximately 26 acres and
fund the entire greenhouse development project from its cash reserves and
existing credit arrangements.
(16) SUBSEQUENT EVENTS:
Proposed Merger-
On April 29, 1998, APD executed an Agreement and Plan of Merger with
EcoScience Corporation, whereby each share of common stock of APD would be
exchanged for 30,619.067 shares of EcoScience. In addition, the Agreement
and Plan of Merger contemplates that at the Effective Time of the Merger,
EcoScience will acquire from certain shareholders of APD their entire 50%
interest in Villager Farms of Morocco, S.A., a Moroccan company, in
exchange for 99,000 shares of EcoScience. Consummation of the transactions
is subject to EcoScience stockholder approval and certain other conditions.
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<PAGE>
Pocono Village Farms, L.P.-
In June 1998, a tornado damaged approximately 10% of the 10 acre PVF
greenhouse resulting in an estimated $500,000 of property damage. The
property damage is covered by insurance, and APD is currently negotiating
with the insurance carrier to reach an agreement as to the amount of
damages sustained; however, PVF is not insured for crop damage resulting
from the damage to the greenhouse structure. In order to minimize the
financial impact of the damage, APD is currently negotiating the sale of
the PVF greenhouse to a third party. APD expects that if such a sale is
completed, the proceeds of the sale, together with insurance proceeds, will
offset the adverse financial impact arising from the damage. No assurance
can be given that the proposed sale will be completed. If the sale is not
completed, APD expects to terminate operations at the PVF greenhouse in
August 1998 and, as a result, PVF would incur a loss of approximately
$200,000 to $300,000 for fiscal 1998. APD does not believe that the closing
or sale of the facility will have any material adverse effect on the
long-term operating results or financial condition of APD.
Village Farms of Texas, L.P. Credit Facility -
In anticipation of refinancing the combined senior debt and related
revolving line of credit facility of VFT with VFIFA, VFT, at its option,
and in accordance with the terms of the aforementioned credit facility,
elected to terminate the revolving line of credit on June 30, 1998. The
anticipated terms of the refinance with VFIFA contemplate a new line of
credit facility in the amount of $1,500,000 substantially on the same terms
as the facility terminated by VFT on June 30, 1998. Until such refinancing,
VFT currently has no revolving line of credit capacity.
D-23
<PAGE>
APPENDIX E
ECOSCIENCE CORPORATION
1991 STOCK OPTION PLAN
1. Purpose of Plan.
The purpose of this 1991 Stock Option Plan (the "Plan") is to promote the
interests of EcoScience Corporation, a Delaware corporation (the "Company",
including for the purposes of this paragraph any affiliated companies), by
providing a method whereby employees of the Company, and others providing
material assistance to the Company may be given compensation or additional
compensation for their efforts on behalf of or assistance to the Company, and to
aid the Company in attracting and retaining capable personnel.
2. Scope and Duration of the Plan.
Options granted under this Plan may contain such terms as will qualify the
options as incentive stock options ("ISO's") within the meaning of section
422A(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or in the
form of non-statutory stock options ("NSO's"). Unless otherwise indicated,
references in this Plan to "options" include ISO's and NSO's. Subject to
adjustment as provided in Section 11 hereof, the maximum number and kind of
shares of the Company's capital stock with respect to which options may be
granted under this Plan shall be 502,025 shares of Common Stock, $.01 par value
per share ("Common Stock"). Until termination of this Plan, the Company shall at
all times reserve a sufficient number of shares to meet the requirements of the
Plan. Such shares may be authorized and unissued shares or shares held in the
Company's treasury.
There shall become available for subsequent grants under this Plan any
shares of Common Stock underlying an option which cease for any reason to be
subject to purchase under such option. No ISO shall be granted under this Plan
more than 10 years after its adoption by the Board of Directors.
3. Administration of Plan.
The Compensation Committee or any successor thereto (the "Committee")
appointed by the Company's Board of Directors shall administer this Plan. The
Committee shall be qualified as required by Rule 16b-3, as amended, and other
applicable rules under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), at such time as the provisions thereof may become
binding on the Company. Any member of such Committee shall be eligible to
receive options while serving on the Committee, subject to applicable provisions
of the Exchange Act and the rules promulgated thereunder. The Committee shall
have full power and authority to: (i) designate the employees and other persons
to whom options shall be granted; (ii) designate options or any portion thereof
as ISO's; (iii) determine the number of shares of Common Stock for which options
may be granted and the option price or prices; (iv)
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<PAGE>
determine the other terms and provisions of option agreements (which need not be
identical) including, but not limited to, provisions concerning the time or
times when and the extent to which the options may be exercised and the nature
and duration of restrictions as to transferability or constituting substantial
risks of forfeiture, provided that with respect to ISO's such time or times
shall not occur before approval of this Plan by the stockholders of the Company
in the manner provided under Section 15 below; (v) amend or modify any option,
with the consent of the holder thereof; (vi) accelerate the right of an optionee
to exercise in whole or in part any previously granted option; and (vii)
interpret the provisions and supervise the administration of this Plan.
Options may be granted singly or in combination. The Committee shall have
the authority to grant in its discretion to the holder of an outstanding option
in exchange for the surrender and cancellation of such option, a new option in
the same or a different form and containing such terms as the Committee may deem
appropriate, including without limitation a price which is different (either
higher or lower) than any price provided in the option so surrendered and
canceled.
In connection with the grant of an NSO, the Committee may in its
discretion, concurrently or after grant of the NSO, grant or agree to grant a
tax offset bonus to the optionee to offset in whole or in part the tax liability
of the optionee realized upon exercise of the NSO, provided that any such grant
or agreement to grant a tax offset bonus shall be authorized only if the
Committee anticipates in good faith that the Company would receive a net
after-tax economic benefit from the grant of such bonus and NSO instead of the
grant of an ISO of similar tenor.
All decisions and selections made by the Committee pursuant to the
provisions of this Plan shall be made by a majority of its members except that
any decision with respect to the grant of an option to a member of the Committee
shall be made by a majority of the other members of the Committee who are not
the holders of options issued pursuant to this Plan, and if there be no such
members, pursuant to vote of a majority of the members of the Board of Directors
who are not the holders of options issued pursuant to this Plan. Any decision
reduced to writing and signed by all of the members of the Committee who are
authorized to make such decision shall be as fully effective as if it had been
made by a majority at a duly held meeting of the Committee.
The Committee may employ attorneys, consultants, accountants or other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of such persons. All
actions taken and all interpretations and determinations made by the Committee
in good faith shall be final and binding upon the Company, all persons who
receive grants of options, and all other interested persons. No member or agent
of the Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to this Plan or grants hereunder.
Each member of the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including counsel fees) reasonably incurred
by him or liability (including any sum paid in settlement of a claim with the
approval of the Company) arising out of any act or omission to act in connection
with this Plan unless arising out of such member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members of the
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Committee may have as directors or otherwise under the by-laws of the Company,
or any agreement, vote of stockholders or disinterested directors, or otherwise.
4. Designation of Participants.
Options may be granted only to employees, including officers who are
employees, of the Company or any parent or subsidiary of the Company, and other
individuals, including consultants but excluding Directors who are not employees
of the Company or any parent or subsidiary, who are determined by the Committee
to contribute, or have the potential to contribute, materially to the success of
the Company or any parent or subsidiary, provided that ISO's shall be granted
only to persons who are employees of the Company or any parent or subsidiary of
the Company.
5. Option Price.
(a) The purchase price of each share of Common Stock subject to an
option or any portion thereof which has been designated as an ISO shall not
be less than 100% (or 110%, if at the time of grant the optionee owns more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation) of the fair market value
of such share on the date the option is granted, determined without regard
to any restriction other than a restriction which, by its terms, will never
lapse. The purchase price of each share of Common Stock subject to an NSO
shall be such price as the Committee shall determine in its sole
discretion.
(b) The fair market value of a share of Common Stock on a particular
date shall be the mean between the highest and lowest quoted selling prices
on such date (the "valuation date") on the securities market where the
Common Stock of the Company is traded, or if there were no sales on the
valuation date, on the next preceding date within a reasonable period (as
determined in the sole discretion of the Committee) on which there were
sales. In the event that there were no sales in such a market within a
reasonable period, the fair market value shall be as determined in good
faith by the Board of Directors in its sole discretion.
6. Term and Exercise of Options.
(a) The term of each ISO granted under this Plan shall be not more
than ten years from the date of grant, or five years from the date of grant
if at the time of grant the optionee owns more than 10% of the total
combined voting power of all classes of stock of the Company or any parent
or subsidiary corporation. The term of each NSO granted under this Plan
shall be such period of time as the Committee shall determine in its sole
discretion.
(b) An option may be exercised only by written notice of intent to
exercise such option with respect to a specified number of shares of Common
Stock and payment to the Company of the amount of the option price for the
number of shares of Common Stock as to which such notice applies. Payment
for such shares shall be paid at the time of purchase (i) in cash, (ii)
with shares of Common Stock to be valued at the fair market value thereof
on the date of such exercise, determined as provided in Section 5(b), (iii)
by written notice to the Company
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<PAGE>
to withhold from those shares of Common Stock that would otherwise be
obtained on the exercise of such option, the number of shares having a fair
market value on the date of exercise equal to the option exercise price,
(iv) by any other means, including the promissory note of the holder of the
option, which the Committee determines to be consistent with the purpose of
this Plan and applicable law, or (v) a combination of the foregoing. Upon
receipt of payment, the Company shall deliver to the person exercising such
option a certificate or certificates for such shares. It shall be a
condition of the Company's obligation to issue Common Stock upon exercise
of an option that the person exercising the option pay, or make provision
satisfactory to the Company for the payment of, any taxes which the Company
is obligated to collect with respect to the issue of Common Stock upon such
exercise.
The Committee may establish a program through which optionees can
borrow funds with which to purchase Common Stock pursuant to exercise of an
option.
(c) The proceeds of the sale of Common Stock subject to options are to
be added to the general funds of the Company and used for its general
corporate purposes.
7. Incentive Stock Options.
(a) The aggregate fair market value (determined at the time of grant)
of stock with respect to which ISO's are exercisable for the first time by
an optionee during any calendar year (under this Plan and under all other
plans of the Company and any parent and subsidiary corporations), shall not
exceed $100,000.
(b) In the event of amendments to the Code or applicable rules and
regulations thereunder relating to incentive stock options subsequent to
the date hereof, the Company may amend the provisions of this Plan, and the
Company and the employees holding options may agree to amend outstanding
option agreements, to reflect such amendments.
8. Transfer of Options.
An option or portion thereof designated as an ISO shall not be transferable
by an optionee otherwise than by will or the laws of descent and distribution,
and shall be exercisable during his lifetime only by him. An NSO shall not be
transferable by an optionee otherwise than by will or the laws of descent and
distribution, except that an optionee who is not subject to Section 16(b) of the
Exchange Act may transfer, assign or otherwise dispose of an option (i) to his
spouse, parents, siblings and lineal descendents, (ii) to a trust for the
benefit of the optionee and any of the foregoing, (iii) to any corporation or
partnership controlled by the optionee, or (iv) pursuant to a "qualified
domestic relations order" as defined in the Code, provided that no such
disposition shall affect any conditions for vesting of rights granted pursuant
to such option.
9. Termination of Employment.
(a) If the employment of an optionee terminates for any reason other
than for cause, or his death, disability (as may be determined by the
Committee under Section 9(c) below), retirement at age 65 or over, or
retirement at less than age 65 with the consent of the Company or
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<PAGE>
any parent or subsidiary company by which he was employed, he may for a
period of three months after the date of termination of his employment
(unless a longer period is allowed by the Committee) exercise options held
by him to the extent he was entitled to exercise such options on the date
when his employment terminated. In no event, however, may such optionee
exercise an option at a time when the option would not be exercisable had
the optionee remained an employee. For purposes of this Section 9, an
optionee's employment will not be considered terminated (i) if the
Committee in the exercise of its discretion shall so determine in the case
of sick leave or other bona fide leave of absence approved by the Company
or any parent or subsidiary company or (ii) in the case of a transfer by
such optionee to the employment of an affiliated company of the employing
company.
(b) If an optionee dies at a time when he is entitled to exercise an
option, then at any time or times within one year after his death, such
option may be exercised, as to all or any of the shares which the optionee
was entitled to purchase immediately prior to his death, by his executor or
administrator or the person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution. In no event,
however, may any option be exercised after the expiration of such option by
its terms, except as the Committee may otherwise allow, for a period up to
one year after such optionee's death.
(c) If an optionee retires from the service of the Company or any
parent or subsidiary company by which he was employed at age 65 or older or
retires at less than age 65 with the consent of the Company or such parent
or subsidiary, or becomes disabled at a time when he is entitled to
exercise an option, then (i) with respect to each NSO, at any time or times
within three years of the date of such retirement or disability, and (ii)
with respect to each ISO, at any time or times within three months after
the date of such retirement or within one year after the date of such
disability, he may exercise such option as to all or any of the shares
which he was entitled to purchase under such option immediately prior to
his retirement or disability. In no event, however, may any option be
exercised after the expiration of such option by its terms. The Committee
shall have authority to determine whether or not an optionee has retired
from the service of the Company or any parent or subsidiary company by
which he was employed with the consent of the Company or such parent or
subsidiary, and whether or not an optionee has become disabled (as such
term may be used in the Code); and its determination shall be binding on
all concerned.
(d) If termination of employment of an optionee shall be for cause or
in violation of an agreement by the optionee to remain in the employ of the
Company or any parent or subsidiary company, the options held by such
optionee shall terminate forthwith. If an optionee shall breach in a
material respect an agreement to refrain from competition with the Company
or any parent or subsidiary company, or to refrain from solicitation of the
Company's customers, suppliers or employees of the Company or any parent or
subsidiary company, the options, and any shares of Common Stock issued
pursuant to the exercise of options, held by such optionee shall at the
option of the Company be forfeited by the optionee and deemed not to be
outstanding.
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<PAGE>
10. Rights of Stockholders.
The holders of options shall not be or have any of the rights or privileges
of stockholders of the Company in respect of any shares of Common Stock
purchasable upon the exercise of any option until such option shall have been
validly exercised.
11. Adjustments.
Notwithstanding any other provision of this Plan, the Committee may at any
time make or provide for such adjustments to this Plan, to the number and class
of shares available hereunder or to any outstanding options, as it shall deem
appropriate to prevent dilution or enlargement of rights, including adjustments
in the event of distributions to holders of Common Stock of other than a normal
cash dividend, changes in the outstanding Common Stock by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations
or exchanges of shares, separations, reorganizations, liquidations and the like.
In the event of any general offer to holders of Common Stock relating to the
acquisition of their shares, the Committee may make such adjustment as it deems
equitable in respect of outstanding options, including in the Committee's
discretion revision of outstanding options, so that they may be exercisable for
the consideration payable in the acquisition transaction. Any such determination
by the Committee shall be conclusive.
12. Amendments or Termination.
The Company's Board of Directors may amend, alter, or discontinue this
Plan, except that no amendment or alteration requiring stockholder approval
pursuant to the Code's provisions with respect to ISO's or applicable provisions
of the Exchange Act shall be made without the approval of the Company's
stockholders.
13. Foreign Nationals.
The Committee may in order to fulfill the purposes of this Plan modify
grants to participants who are foreign nationals or employed outside the United
States to accommodate differences in applicable law, tax policy, or custom.
14. Governing Law.
This Plan shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Massachusetts to the extent that such laws,
as applicable to the Plan, are not superseded by or inconsistent with Federal
law.
15. Effective Date.
This Plan was effective initially as of May 22, 1991 and, as amended, is
effective December 13, 1991, the date of its adoption by the Company's Board of
Directors and Shareholders.
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APPENDIX F
FORM OF PROXY
ECOSCIENCE CORPORATION
SPECIAL MEETING IN LIEU OF
1997 ANNUAL MEETING OF STOCKHOLDERS
_________ ___, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints David J. Ryan
and Harold A. Joannidi, and each of them, with full power of substitution to
each, proxies to represent the undersigned at the Special Meeting in Lieu of the
1997 Annual Meeting of Stockholders of ECOSCIENCE Corporation ("ECOSCIENCE") to
be held at ______________________________________ at ______ __.M. on
____________, 1998, and at any adjournment thereof, and to vote as designated
herein all shares of stock of ECOSCIENCE that the undersigned would be entitled
to vote at said meeting. A majority of said proxies present and acting at the
meeting (or, if only one shall be present and acting, then that one) may
exercise all the powers granted hereby. Said proxies are authorized to vote in
their discretion upon any other matters which may come before the meeting.
Each stockholder should specify by a mark in the appropriate box how he,
she or it wishes shares voted. If no vote is specified, shares will be voted FOR
all the following proposals.
ITEM I: Approval of the issuance of an aggregate of nine million
five hundred twenty thousand four hundred eighty seven
(9,520,487) shares (after giving effect to the proposed
Reverse Split, as defined below) of ECOSCIENCE's Common
Stock to the holders of the Class A Common Stock, par
value $1.00 per share, of Agro Power Development, Inc.,
a New York corporation ("APD"), pursuant to an Agreement
and Plan of Merger (the "Merger Agreement") providing
for the merger of APD with and into Agro Acquisition
Corp., a Delaware corporation ("Agro Acquisition") and a
newly formed, wholly owned subsidiary of ECOSCIENCE.
[____] FOR [____] AGAINST [____] ABSTAIN
ITEM II: Election of Michael A. DeGiglio and David J. Ryan as
Directors of ECOSCIENCE to serve as members of that
class of Directors whose terms shall expire at the 2000
Annual Meeting of Stockholders and until their
successors are elected.
[____] FOR WITHHELD
all nominees [____] from all nominees
For, except vote withheld from the following nominee(s):
[____] _______________________________________________
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
F-1
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ITEM III: Approval of an amendment to ECOSCIENCE's Certificate of
Incorporation to effect a one for five reverse stock
split of ECOSCIENCE's Common Stock.
[____] FOR [____] AGAINST [____] ABSTAIN
ITEM IV: Approval of an amendment to ECOSCIENCE's Certificate of
Incorporation to increase the number of authorized
shares of ECOSCIENCE Common Stock from 25,000,000 shares
to 100,000,000 shares and to increase the number of
authorized shares of ECOSCIENCE Preferred Stock from
1,000,000 shares to 10,000,000 shares.
[____] FOR [____] AGAINST [____] ABSTAIN
ITEM V: Approval of an amendment to ECOSCIENCE's 1991 Stock
Option Plan to increase the number of shares of
ECOSCIENCE Common Stock which may be granted thereunder
from 1,300,000 to 1,800,000 shares (prior to giving
effect to the proposed reverse stock split).
[____] FOR [____] AGAINST [____] ABSTAIN
ITEM VI: Ratification of the selection of Arthur Andersen, LLP as
the independent public accountants of ECOSCIENCE for the
current fiscal year.
[____] FOR [____] AGAINST [____] ABSTAIN
Mark here if you plan to attend the meeting. [____]
Mark here for address change and note at left. [____]
Please sign exactly as name appears on ownership record, date, and return by
_________, 1998. If signing as attorney or for an estate, trust or corporation,
title or capacity should be stated. Co-fiduciaries and joint owners should each
sign.
Signature _____________________ Title____________ Date ______________
Signature _____________________ Title____________ Date ______________
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