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.
|X| 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
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
|_| 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>
DRAFT OF 5/7/98
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 11,618,178 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.
<PAGE>
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 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>
DRAFT OF 5/7/98
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 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).
<PAGE>
7. Transaction of such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Only stockholders of record as of the close of business on
[______________], 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>
DRAFT OF 5/7/98
ECOSCIENCE CORPORATION
PROXY STATEMENT
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
GENERAL INFORMATION.....................................................................
Purpose of the Meeting.............................................................
Vote Required and Ownership........................................................
Proxies............................................................................
EcoScience, APD and Agro Acquisition Information; Forward-Looking Statements.......
SUMMARY OF PROXY STATEMENT..............................................................
I. PROPOSAL TO ISSUE COMMON STOCK/THE MERGER...............................................
Introduction.......................................................................
The Merger.........................................................................
Parties to the Merger..............................................................
Background of the Merger...........................................................
Reasons for the Merger; Recommendation of the Board of Directors...................
Interest of Michael A. DeGiglio In The Merger......................................
Effective Date and Time of the Merger; Applicable Federal and State
Regulatory Requirements.........................................................
Accounting Treatment of the Merger.................................................
Certain Federal Income Tax Consequences of the Merger
Effect of Merger on Outstanding Securities.........................................
Certain Representations and Warranties.............................................
Certain Covenants..................................................................
Conditions to the Merger...........................................................
Amendment and Waiver...............................................................
Termination........................................................................
Certain Risk Factors Relating to the Merger........................................
OPINION OF FINANCIAL ADVISOR............................................................
MATERIAL TRANSACTIONS BETWEEN ECOSCIENCE AND APD........................................
MARKET PRICES...........................................................................
INFORMATION CONCERNING ECOSCIENCE.......................................................
Description of Business............................................................
Products...........................................................................
Sales and Distribution.............................................................
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Manufacturing......................................................................
Collaborative Agreements...........................................................
Technology.........................................................................
Technology Licensing...............................................................
Competition........................................................................
Government Regulation and Product Registration.....................................
Patents and Trade Secrets..........................................................
Personnel..........................................................................
Description of Properties..........................................................
Legal Proceedings..................................................................
SELECTED FINANCIAL DATA OF ECOSCIENCE...................................................
INFORMATION CONCERNING AGRO ACQUISITION.................................................
INFORMATION CONCERNING APD..............................................................
Business of APD - General..........................................................
The Greenhouse Vegetable Industry..................................................
Greenhouse Operations..............................................................
Pending Transactions...............................................................
Right of Cogentrix to Participate in Future Greenhouse Projects....................
Marketing Arrangements with Other Growers..........................................
Packaging and Distribution.........................................................
Sales and Marketing of Village Farm Products.......................................
Design and Construction Management.................................................
Village Farm International Finance Association.....................................
Properties.........................................................................
Environmental and Regulatory Matters...............................................
Competition........................................................................
Personnel..........................................................................
Management of APD..................................................................
Risks Relating to APD..............................................................
SELECTED APD HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..............................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF APD..............................................
SELECTED FINANCIAL DATA OF APD..........................................................
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.............................
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SELECTED FINANCIAL INFORMATION WITH RESPECT TO THE MERGER...............................
Recommendation of Board of Directors...............................................
II. ELECTION OF DIRECTORS...................................................................
Nominees for Election for a Three Year Term Expiring at the 2000
Annual Meeting...................................................................
Other Directors and Executive Officers.............................................
Meetings and Committees of the Board of Directors..................................
Board Recommendation...............................................................
III. PROPOSAL TO APPROVE AN AMENDMENT TO ECOSCIENCE'S CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF ECOSCIENCE'S COMMON STOCK..............
Board Recommendation...............................................................
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 PREFERRED STOCK FROM 1,000,000 SHARES
TO 10,000,000 SHARES....................................................................
Board Recommendation...............................................................
V. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT TO THE 1991 STOCK OPTION PLAN...............
Description of the Plan............................................................
Federal Income Tax Consequences Relating to Stock Options..........................
Registration of Shares Underlying Options..........................................
Board Recommendation...............................................................
VI. PROPOSAL TO RATIFY SELECTION OF ARTHUR ANDERSEN, LLP AS ECOSCIENCE'S
INDEPENDENT PUBLIC ACCOUNTANTS..........................................................
Board Recommendation...............................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
EXECUTIVE COMPENSATION..................................................................
Compensation of Directors..........................................................
Certain Transactions...............................................................
REPORT OF THE COMPENSATION COMMITTEE....................................................
PERFORMANCE GRAPH.......................................................................
INDEPENDENT PUBLIC ACCOUNTANTS..........................................................
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING.......................................
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE............................................................................
OTHER MATTERS...........................................................................
APPENDIX A - AGREEMENT AND PLAN OF MERGER...............................................
APPENDIX B - ECOSCIENCE'S ANNUAL/QUARTERLY REPORTS......................................
APPENDIX C - OPINION OF FINANCIAL ADVISOR...............................................
APPENDIX D - CONSOLIDATED FINANCIAL STATEMENTS OF APD...................................
APPENDIX E - 1991 STOCK OPTION PLAN.....................................................
</TABLE>
iv
<PAGE>
DRAFT OF 5/7/98
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
Agreement and Plan of Merger, dated as of April 28, 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.
<PAGE>
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 APD Stock shall be converted into the
right to receive 30,940.81 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 _________, 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, [10,488,455] 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.
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
2
<PAGE>
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.
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. 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.
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 "Certain Risk Factors Relating to the Merger," and "Information Concerning
APD - Risks Relating to APD," below.
3
<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: ___________, 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 Common Stock
from 25,000,000 shares to 100,000,000 shares
and to increase the number of authorized
shares of ECOSCIENCE
4
<PAGE>
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 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 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 to
of ECOSCIENCE procure the resignation of each of E.A.
Following the Merger: 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. Vanzeyst as an
Executive Vice President of
5
<PAGE>
ECOSCIENCE and J. Kevin Cobb, an officer and
stockholder of APD, as 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 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 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
30,940.81 shares of ECOSCIENCE Common Stock for each share of APD Stock held,
totaling in the aggregate 9,520,487 shares of ECOSCIENCE Common Stock (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 a marketing,
sales and product development company, servicing the needs of the agricultural
specialties markets and professional pest control operators.
The executive offices of ECOSCIENCE are located at 10 Alvin Court, East
Brunswick, New Jersey 08816, and its telephone number is 732-432-8200.
APD. Agro Power Development, Inc. is a New York corporation which was
incorporated under the laws of the State of New York in 1990. 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.
The executive offices of APD are located at One Kimberly Road, East
Brunswick, New Jersey 08816, and its telephone number is 732-254-0606.
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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.
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 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 as to the possible immediate and long-term benefits of
a merger between the Company and APD.
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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.
Because of his relationship to both companies, Mr. DeGiglio was excluded from
ECOSCIENCE's internal discussions of the proposed transaction.
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 reltionship 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, after considering 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, 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 and the outlook for
the greenhouse vegetable industry in general;
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(ii) APD's ability to access capital;
(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;
(iv) the prospect of creating an integrated global 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 agricultural products 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;
(x) the risk that the ECOSCIENCE Common Stock could be delisted from the
Nasdaq Stock Market if the Merger or an alternative transaction is not
completed; and
(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 and largely subjective 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.
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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)
329,117 shares of Common Stock representing 3.1% 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 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) 3,159,904 shares of ECOSCIENCE Common Stock, representing
27.1% of the outstanding ECOSCIENCE Comon 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, 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 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 100 shares of the common stock of APD, representing
32.5% of the outstanding capital stock thereof.
Also upon consummation of the Merger, J. Kevin Cobb will become Vice
President and Chief Financial Officer of ECOSCIENCE. Mr. Cobb is Senior Vice
President and Chief Financial Officer of APD. He owns 7 7/10 shares of the
common stock of APD, representing 2.5% of the outstanding capital stock thereof.
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 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 by the Shareholders 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.
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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 Merger is anticipated to be accounted for 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.
Certain Federal Income Tax Consequences of the Merger
The Merger is anticipated to qualify as 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.
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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 five hundred twenty thousand four hundred
eighty-seven (9,520,487) shares of ECOSCIENCE Common Stock, based on an exchange
ratio of 30,940.81 shares of ECOSCIENCE shares for each issued and outstanding
share of APD Common Stock (the "Exchange Ratio"). This 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 May 7, 1998, with respect to beneficial ownership of
ECOSCIENCE COMMON STOCK by each person who is expected to be the beneficial
owner of more than five percent of ECOSCIENCE'S outstanding Common Stock after
giving effect to the Merger and the Reverse Split.
Name Shares Beneficially Owned Percentage
- - - ---- ------------------------- ----------
Michael A. DiGiglio 3,159,904(1) 27.1%
Thomas Montanti 3,094,081 26.6%
Albert Vanzeyst 3,094,081 26.6%
- - - ----------
(1) Includes 3,485 shares held by Mr. DeGiglio's wife, as to which Mr. DeGiglio
disclaims beneficial ownereship, and 55,458 shares issuable upon the
exercise of stock options.
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;
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 of the Merger (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.
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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;
(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
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$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 APD may issue or guarantee
debt securities in connection with certain acquisition transactions
and may increase borrowing availability (i) under certain loan
agreements by $60,000,000, and have issued on its behalf certain
letters of credit and (ii) ECOSCIENCE may enter into assets-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;
(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;
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(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:
(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 "Certain Risk
Factors Relating to the Merger," below);
(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 Van Zeyst (to fill
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the vacancy created by the resignation of E. Andrews 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 Van Zeyst as an
Executive Vice President of ECOSCIENCE and J. Kevin Cobb as 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 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.
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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; and (v) receipt
by ECOSCIENCE from Arthur Andersen, LLP, of its opinion that the Merger will
qualify as a "pooling of interests."
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 "Interests
of Certain Persons in the Merger," above); and (e) issuance by Giordano,
Halleran & Ciesla, counsel for APD, of its legal opinion in a form reasonably
acceptable to ECOSCIENCE and its counsel.
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 "Interests of Certain
Persons in the Merger," above) 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.
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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.
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
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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, 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.
Certain 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
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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.
Fixed Exchange Ratio
Upon the consummation of the Merger, each outstanding share of APD Stock
will be converted into the right to receive 30,940.81 shares of ECOSCIENCE
Common Stock. 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 Merger, was $1 3/16 and on [May 6, 1998], the latest trading day
for which a share price could practicably be determined before the mailing of
this Proxy Statement, was [$1 19/32]. 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 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-Equity Ratio
The proposed Merger will change ECOSCIENCE's debt-equity ratio from minor
to significant, which could expose ECOSCIENCE to, among other things, risks
associated with interest rate fluctuations.
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
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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.
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 Corporation's ("ECOSCIENCE" or the "Company") Board of
Directors in connection with 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. 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 the date of this Proxy Statement, 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
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possible effects of cost savings, synergies and the elimination of inter-company
sales resulting from the Merger; (xi) reviewed the valuation of APD in
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 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
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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).
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
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(collectively, the "Corporate Adjustments"), implied a fully diluted share value
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.
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 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
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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.
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 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 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
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"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%.
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; and (ii) the
Company instructing Chestnut Partners not to solicit alternative transactions or
to advise the Company with respect to alternatives to the Merger.
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.
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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
of May 11, 1998, Chestnut Partners owned no ECOSCIENCE or APD shares for its own
account.
MATERIAL TRANSACTIONS BETWEEN ECOSCIENCE AND APD
ECOSCIENCE sold products to APD in the amount of $3,184,000 or 27% of
product sales for the six months ended December 31, 1997 and $2,893,000 or 14%
of products sales for the fiscal year ended June 30, 1997.
In addition, ECOSCIENCE and APD share certain facilities and other costs
for which ECOSCIENCE charged APD $39,000 for the fiscal year ended June 30,
1997. ECOSCIENCE management believes that prices and fees charged to APD were
consistent with what would be charged in arm's length transactions. Product
purchases by APD frequently occur under standard purchase orders; certain larger
dollar purchases of Sorting, Grading and Packing or ISYS systems may occur under
contract.
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 _________, 1998, there were
approximately ____ holders of record of ECOSCIENCE Common Stock. The Company has
never declared or paid any cash
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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
---------------- ----------- ---------
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
INFORMATION CONCERNING ECOSCIENCE
Description of Business
ECOSCIENCE is a marketing, sales and product development company, servicing
the needs of the agricultural specialties markets and professional pest control
operators ("PCOs"). ECOSCIENCE 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) a unique biological
termite control product to PCOs. ECOSCIENCE focuses on the technical marketing
of agricultural specialties products and services, and the development of
biological pest control products.
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 and produce packing
industries. On May 24, 1994,
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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 to PCOs 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.
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 customer service
offices in Visalia, California; Ventura, California; Littleton, Colorado; Union
Gap, Washington; and Milton, Ontario, Canada.
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 PCOs, growers and packers of
specialty crops. ECOSCIENCE also conducts research on the use of microbial
agents to control plant diseases and insect pests, as well as on new
applications for natural coatings to sustain nutrition and overall quality in
fresh 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.
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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 the professional
pest control operator.
Specialty Agriculture
ECOSCIENCE, through AGRO, engineers, designs, markets and distributes
commercial products and provides services to the greenhouse and nursery market
in the United States, Canada and Mexico.
Commercial Products
Growing Systems. ECOSCIENCE is the exclusive distributor in the United
States and Canada of the Grodan brand of stonewool, an inert growing medium
supplied by Grodania A/S, a 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 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 and horticulture 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.
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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) 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
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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. 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 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 25 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 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 seven people
located in its distribution and service centers in Orlando, Florida and Visalia,
California. AGRO has a force of 10 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; East Brunswick, New
Jersey and Littleton, Colorado.
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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. 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 Bio-Path(R) Cockroach Control Chamber and Bio-Blast Biological
Termiticide in Japan upon registration there.
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 herewith.
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.
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
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 Bio-Path Cockroach Control Chamber 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, Maruwa Biochemical will pursue at its own expense the registration
and commercialization of ECOSCIENCE's cockroach and termite control products 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
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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 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.
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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 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.
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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 our customers requires knowledge
of the customers' challenges and problems, and technical solutions available to
solve those problems. Customers frequently depend on the Company for such
service and advice.
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, commercial viability
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 recently 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-
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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 and vegetable coating products. ECOSCIENCE believes that
it can compete effectively in this market with its Bio-Save PostHarvest
BioProtectant and other 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.
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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. The 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 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
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seeks protection, when appropriate, for its products and proprietary 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.
Seven of ECOSCIENCE's nine U.S. patents cover its fungal technology, and
principally relate to the control of insects, with corresponding foreign patents
and patent applications. The six patents are: (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 and
(vii) Packaged Fungal Culture Stabile to Long-Term Storage. These patents are
central to the Bio-Path chamber technology which covers cockroaches. In
addition, this technology can be extended to any other insect that can be
controlled via a chamber system. An additional patent, Maintenance and Long-Term
Stabilization of Fungal Conidia Using Surfactants, describes methods utilizing a
unique class of surfactants for fungal formulation.
Two additional U.S. patents held by ECOSCIENCE relate to bacterial
biofungicide technology. The patent Pseudomonas syringae ATCC 55389 and Use
Thereof for Inhibiting Microbial Decay on Fruit, has been awarded covering a
microorganism that is the active ingredient in Bio-Save 10, 100, and 1000. In
addition, the patent Method and Composition for Producing Stabile Bacteria and
Bacterial Formulation has received a notice of allowance. 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 of
ECOSCIENCE's patent applications or that issued patents will provide adequate
protection for the Company.
ECOSCIENCE has exclusive sub-licenses to two issued 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.
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.
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
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require disclosure of and assignment to ECOSCIENCE of 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 April 30, 1998, ECOSCIENCE had 63 full time employees. A total of
three persons are employed full time in manufacturing and production; 32 in
sales, marketing and distribution; three in engineering and design; nine in
system installation and service; two in research and development; and 14 in
management and administration.
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 one year lease which expires in June
1998, and which provides an option to renew for an additional four year term.
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 Englewood, Colorado; and
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
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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.
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 for this proxy
statement. The selected statment of operations data for the six months ended
December 31, 1997 and the selected balance sheet data at December 31, 1997, have
been derived form the unaudited interim financial statements of the Comany
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 the 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 Data: Six Months Years
Ended Ended
December 31, June 30,
----------- ----------------------------------------------------
(In thousands, except per share amounts) 1997 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Product sales ........................................ $11,852 $20,853 $14,151 $12,335 $9,246 $3,802
Cost of goods sold ................................... 9,336 15,702 10,394 10,153 7,875 3,288
-------- -------- -------- -------- -------- ------
Gross profit ......................................... 2,516 5,151 3,757 2,182 1,371 514
-------- -------- -------- -------- -------- ------
Operating expenses:
Research and development .......................... 202 508 1,018 4,483 8,156 6,294
Acquired research and development ................. -- -- -- -- -- 750
Selling and marketing ............................. 1,523 2,463 2,594 3,672 3,043 1,690
General and administrative ........................ 1,179 2,107 2,244 2,631 3,382 3,159
Asset valuation and restructuring
(reversal) charges ............................. -- (377) (1,550) 6,000 5,800 --
-------- -------- -------- -------- -------- ------
Total operating expenses ....................... 2,904 4,701 4,306 16,786 20,381 11,893
-------- -------- -------- -------- -------- ------
Operating income (loss) .............................. (388) 450 (549) (14,604) (19,010) (11,379)
-------- -------- -------- -------- -------- ------
Other income (expense):
Research, development, licensing
fees and other income .................... -- 7 125 155 812 545
Investment income .............................. 30 105 199 590 853 1,525
Interest and other expense ..................... (52) (177) (603) (1,235) (208) (95)
-------- -------- -------- -------- -------- ------
Total other (expense) income ............. (22) (65) (279) (490) 1,457 1,975
-------- -------- -------- -------- -------- ------
Income (loss) before extraordinary gain .............. (410) 385 (828) (15,094) (17,553) (9,404)
Extraordinary gain on early extinguishment of debt ... -- -- 241 -- -- --
-------- -------- -------- -------- -------- ------
Net income (loss) .................................... ($410) $385 ($587) ($15,094) ($17,553) ($9,404)
======== ======== ======== ======== ======== ======
Earnings Per Share
- - - ------------------
Basic
- - - -----
Income (loss) before extraordinary gain ......... ($0.04) $0.04 ($0.09) ($1.71) ($2.27) ($1.41)
Extraordinary gain .............................. -- -- 0.03 -- -- --
-------- -------- -------- -------- -------- ------
Net income (loss) ............................... ($0.04) $0.04 ($0.06) ($1.71) ($2.27) ($1.41)
======== ======== ======== ======== ======== ======
Weighted average number of common and
common equivalent shares outstanding ........... 10,425 10,137 9,070 8,839 7,748 6,664
======== ======== ======== ======== ======== ========
Diluted
- - - -------
Income (loss) before extraordinary gain ......... ($0.04) $0.04 ($0.09) ($1.71) ($2.27) ($1.41)
Extraordinary gain .............................. -- -- 0.03 -- -- --
-------- -------- -------- -------- -------- ------
Net income (loss) ............................... ($0.04) $0.04 ($0.06) ($1.71) ($2.27) ($1.41)
======== ======== ======== ======== ======== ========
Aggregate diluted shares ........................ 10,425 10,313 9,070 8,839 7,748 6,664
======== ======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: December 31 June 30,
---------- -----------------------------------------------------------
(In thousands) 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Unrestricted and restricted cash, cash
equivalents, short-term investments
and marketable securities ......................... $1,214 $1,775 $2,639 $7,831 $20,141 $24,576
Total assets ......................................... 11,073 8,875 10,111 18,769 33,990 31,843
Debt and capital leases .............................. 1,462 11 2,452 8,290 7,933 3,156
Stockholders' investment ............................. 3,691 4,014 2,473 2,492 18,110 25,123
</TABLE>
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 develops, constructs, manages and operates highly intensive
agricultural greenhouse projects and markets and sells the vegetable production
from these facilities as well as fresh vegetables produced by other greenhouse
growers primarily to retail supermarkets and dedicated distribution companies.
In terms of total acreage owned and controlled by a single entity, APD is the
largest producer and marketer of premium quality, greenhouse grown tomato
varieties, its principal product, in North America. 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 0.65% of the fresh tomatoes sold
in the United States in 1997.
APD currently operates seven greenhouse facilities in the United States
comprising a total of approximately 175 acres. Three of the facilities operated
by APD, each of which has approximately 41 acres of growing capacity, are 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 25 acres.
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.
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In 1997, APD increased its production capacity by 111 acres, more than
doubling the acreage controlled by APD during the prior year. APD's goals are
to:
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 in order to
supply its customers on a year round basis;
o increase marketing alliances with other growers to leverage
distribution capabilities and build 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 recognized and sought after
brand of premium 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 signed a letter of intent in January 1998 with respect to the
acquisition of 28 acres of existing greenhouse operations in Fort
Pierce, Florida which, if acquired, will be used to grow bell peppers
and/or seedless cucumbers;
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 commenced construction of a 41 acre greenhouse to produce red and
yellow bell peppers on property adjacent to its existing tomato
production greenhouse facility in Marfa, Texas; and
o signed a letter of intent to enter into a marketing alliance for bell
peppers with The Greenery International, the 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."
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
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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 $6 billion at the retail level, or 4.9 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, 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 seasonable 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 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. In the case of two of these
retail chains which are currently APD customers, sales of greenhouse grown
tomatoes did not exceed 15% of fresh tomato sales in 1990.
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 a
lack of 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 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
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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 consumed at home and in food service locations.
APD believes that the market for greeenhouse 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 three 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 positioned and
qualified to take advantage of promising market opportunities.
Greenhouse Operations
APD currently owns or has an ownership interest in four greenhouse
facilities 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 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.
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
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<PAGE>
greenhouses located near cogeneration plants. Cogentrix Energy, Inc.
("Cogentrix"), is a developer and operator of two cogeneration energy facilities
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 a
15 megawatt 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 ("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,
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<PAGE>
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 $4,658,000 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 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,
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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.
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 LLC 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 $2.74 million
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 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
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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 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 expects to begin 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.
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Pending Transactions
Burnac, Inc. Letter of Intent. In January 1998, APD entered into a
non-binding letter of intent which contemplates that APD will enter into an
agreement to purchase approximately 28 acres of existing greenhouse operations
in Ft. Pierce, Florida from Burnac, Inc. ("Burnac"). Burnac has operated these
facilities for approximately 16 years, producing both colored peppers and/or
seedless cucumbers. If the acquisition is completed, APD plans to continue the
production of peppers and/or cucumbers at these facilities in order to diversify
its product line and broaden its customer base. No assurances can be given that
this transaction will be completed.
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 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. 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.
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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 Builder will be able to obtain the requisite financing for the project.
Greenery International Letter of Intent. APD has entered into a letter of
intent with The Greenery International, a leading marketer of bell peppers in
the Netherlands and the United States, which contemplates that APD will have the
exclusive right to market bell peppers produced at the greenhouse facility it
plans to construct in Marfa, Texas under "The Greenery" brand name and will be
granted the right to market bell peppers exported by The Greenery International
from Europe to North America. The Letter of Intent 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 proposed 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.
APD, which commenced construction of the facility in January 1998 by clearing
the site and erecting foundation poles, is currently reviewing alternatives to
finance the completion of the project (the "Marfa Pepper Project"). No assurance
can be given that financing can be obtained on terms acceptable to APD or that
APD will be able to obtain the development approvals necessary to complete the
project.
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
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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
Heights, Pennsylvania; and Agros, S.A., which operates a 15 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 $3,109,400 of revenues from
various marketing arrangements in 1996 and 1997, respectively.
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Packaging and Distribution
APD's beefsteak tomatoes are picked at 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 110,000 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.
Sales and Marketing of Village Farm Products
APD currently sells approximately 75% of its Village Farms 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 charged with developing and servicing APD customers and developing and
maintaining industry/consumer awareness of Village Farms products.
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 155.5
acres of greenhouse production and include the facilities located in Fort Davis,
Texas; Marfa, Texas; Wheatfield, New York, Buffalo, New York and King George,
Virginia.
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
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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 100 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 available 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, 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.
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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 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.
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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 31, 1998, $4,650,000 of borrowings were outstanding under the
Line of Credit Facility, $19,697,000 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. See "Greenhouse
Operations." APD also leases approximately 7,500 square fee of executive office
space in two locations in East Brunswick, New Jersey from ECOSCIENCE. In
addition, APD leases approximately 1,200 square feet of office space in
Charlotte, North Carolina.
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 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.
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.
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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 and Central American and South American countries 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 May 1, 1998, APD had approximately 816 full time employees, including
12 in sales, marketing and distribution, 3 in construction and design services,
11 in management and administration and approximately 790 in greenhouse
operations.
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 May 1, 1998 are as
follows:
Name Age Position
Thomas Montanti 73 Chairman of the Board and Director
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<TABLE>
<S> <C> <C>
Michael A. DeGiglio 43 Chief Executive Officer and Director
Albert Vanzeyst 52 President and Director
J. Kevin Cobb 37 Senior Vice President and Chief Financial Officer
Donald T. Aiello 46 Senior Vice President-Sales, Marketing and Production
David Holewinski 57 Senior Vice President-Corporate Planning
Laurence Howard 53 Vice President and Treasurer
</TABLE>
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 International, Inc.,
and New York Protective Coverings Industry, Inc., each of which is an exporter
of building materials and located in New York.
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. Mr. DeGiglio also co-founded, along
with Mr. Montanti, Agro Dynamics, Inc. in 1984. Mr. DeGiglio is currently
President, CEO and a Director of ECOSCIENCE. Prior to co-founding Agro Dynamics,
Mr. DeGiglio was Sales and Marketing Manager for NYPCO International, Inc. Prior
thereto, he served on active duty in the United States Navy as a Naval Jet
Aviator from 1976 to 1983. Mr. DeGiglio continues to serve in the United States
Naval Reserve holding the rank of Captain.
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. 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.
J. Kevin Cobb joined APD in January 1995 as Senior Vice President and Chief
Financial Officer. 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.
Donald T. Aiello joined APD in March 1997 as Senior Vice President-Sales,
Marketing and Production. 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 1991 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.
59
<PAGE>
David Holewinski joined APD as Senior Vice President-Corporate Planning 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.
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.
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.
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.
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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 whom 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 arrangements to continue to purchase produce
from APD. In 1997, three supermarket customers of APD accounted for
approximately 42% of its revenues. 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 Consolidated Financial Statements included in Exhibit
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:
52 Week Period Ended
--------------------------- Years Ended December 31,
(In thousands, except share and December 28, December 29, ---------------------------------------
per share amounts) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues ......................... $ 21,963 $ 11,090 $ 8,338 $ 6,708 --
Cost of revenues ..................... 19,310 8,762 6,854 5,183 --
----------- ----------- ----------- ----------- -----------
Gross profit ......................... 2,653 2,328 1,484 1,525 --
Selling, general and administrative
expenses .......................... 2,358 1,584 1,047 877 $ 485
----------- ----------- ----------- ----------- -----------
Operating income (loss) .............. 295 744 437 648 (485)
Interest expense, net ................ (1,851) (207) (37) (46) (20)
Other income (expense), net .......... 5 11 3 (16) 297
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes and
minority interest ................. (1,551) 548 403 586 (208)
Income taxes ......................... 29 87 58 48 2
----------- ----------- ----------- ----------- -----------
(Loss) income before minority interest (1,580) 461 345 538 (210)
Minority interest in net losses of
limited partnerships .............. 1,933 274 -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) .................... $ 353 $ 735 $ 345 $ 538 ($210)
=========== =========== =========== =========== ===========
Consolidated Balance Sheet Data:
December 31,
December 28, December 29, -----------------------------------------
(In thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Unrestricted and restricted cash
and cash equivalents ............. $ 5,012 $ 3,512 $ 205 $ 401 $ 139
Working capital ..................... 238 967 602 398 21
Total assets ........................ 62,344 26,279 1,766 1,275 908
Total current liabilities ........... 11,167 4,041 625 600 752
Long-term debt, less current portion 35,594 14,904 105 350 452
Stockholders' equity (deficit) ...... 302 589 164 (136) (374)
</TABLE>
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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) greenhouses and
leases an additional three (3) greenhouses representing approximately 175 acres
of production capacity. In addition, APD sells produce for third party owner
operators of an additional 25 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 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 111 acre increase
over fiscal 1996 production capacity of 62.5 acres. The expansion activity has
been predicated by customer demand, the need to balance summer and winter
product availability and strategic market positioning. As such, the 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.
APD plans to continue to expand its marketing services for third party
growers on an opportunistic basis with the goal to increase the 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.
Results of Operations
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.
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<PAGE>
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 two facilities were negatively impacted by harvesting
longer 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 during 1997 and anticipated growth in
sales and operation 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 senior debt 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 taxes shown 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.
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<PAGE>
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 33% to $8,762,000 for fiscal 1996 as compared
to $6,854,000 for fiscal 1995. This increase coincided with the additional
production and marketing relationships referred to 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 accommodate the
growth 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 senior debt 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, Texas greenhouse. This greenhouse began initial operations in
November 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 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 taxes shown 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
65
<PAGE>
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 31, 1998, borrowings outstanding under the Line of Credit Agreement,
the Term Loan Agreement and the Construction Loan Agreement were $4,650,000, $0
and $19,697,000, 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. Interest on 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 31, 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 31, 1998, $18,343,779 was outstanding under the term loan
portion of the VFT Facility. The revolving credit commitment to VFT expires on
June 30, 2001. 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 31, 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 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.
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 28, 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.
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 million 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."
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<PAGE>
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 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 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 by operating activities was $1,909,000 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
$2,397,000 increase in inventories during the year. In addition, accounts
receivable increased by $1,032,000 in 1997 as these facilities commenced sales
activities. Inventories and receivables increased by $1,755,000 and $946,000,
respectively, in 1996 as a result of increased production and related sales from
the Keystone and Wheatfield facilities.
As a result of APD's expansion strategy, 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 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 1997, APD borrowed $30.3 million compared to $18.1 million in 1996 and
$1 million in 1995. The 1997 borrowings were 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
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<PAGE>
Davis facility and for working capital. Borrowings in 1996 were used to develop
the Fort Davis facility and for working capital.
The minority interest contribution to limited partnerships of $9.7 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 harvest 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 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 negatively 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.
Inflation
Inflation has not had a significant effect on APD.
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.
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<PAGE>
The condensed historical statements of operations for periods presented are
derived from the historical financial statements of ECOSCIENCE and APD. These
pro forma statements should be read in conjunction with the ECOSCIENCE 1997
Annual Report on Form 10-K incorporated by reference to this proxy statement and
the APD financial statements included in Exhibit D to this proxy statement. The
historical financial statements as of and for the six months ended December 31,
1997 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 presentaion of information for such periods.
A pro forma condensed combined balance sheet is provided as of December 31,
1997 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 six
months ended December 31, 1997, 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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<PAGE>
ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1997
In thousands
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------- -----------------------------------
EcoScience APD Adjustments Combined
---------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 681 $ 1,762 $ -- $ 2,443
Accounts receivable, net .................................... 3,777 2,023 (892)(d) 4,908
Inventories ................................................. 2,063 4,868 (164)(b) 6,767
Other current assets ........................................ 2,005 914 (145)(e) 2,774
Note receivable due from related party ...................... -- 1,838 -- 1,838
-------- -------- -------- --------
Total current assets .................................... 8,526 11,405 (1,201) 18,730
Property and equipment, net .................................... 858 44,843 (429)(a)(b)(c) 45,272
Restricted cash ................................................ -- 3,250 -- 3,250
Intangible assets, net ......................................... 1,593 -- -- 1,593
Other non-current assets ....................................... 96 2,846 -- 2,942
-------- -------- -------- --------
Total assets ........................................ $ 11,073 $ 62,344 $ (1,630) $ 71,787
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit ............................................. $ 1,444 $ 3,950 $ -- $ 5,394
Current portion of long-term debt and capital leases ....... 8 3,927 -- 3,935
Accounts payable ............................................ 3,581 1,275 -- 4,856
Accrued expenses and other current liabilities .............. 2,189 1,123 460(a)(e) 3,772
Due to affiliates ........................................... -- 892 (892)(d) --
-------- -------- -------- --------
Total current liabilities ............................... 7,222 11,167 (432) 17,957
-------- -------- -------- --------
Non-current liabilities:
Long-term debt and capital leases, less
current portion ........................................... 10 35,594 -- 35,604
Other non-current liabilities ............................... 150 3,163 -- 3,313
-------- -------- -------- --------
Total non-current liabilities ........................... 160 38,757 -- 38,917
-------- -------- -------- --------
Minority interest in limited partnerships ...................... -- 12,118 -- 12,118
Commitments and contingencies
Stockholders' equity:
Preferred stock ................................................ -- -- -- --
Common stock ................................................... 105 1 475(g1) 581
Additional paid-in capital ..................................... 57,303 215 (389)(g2) 57,129
Retained earnings (accumulated deficit) ........................ (53,722) 86 (1,284)(b)(c)(e)(g3) (54,920)
Unrealized gain on short-term investments ...................... 5 -- -- 5
-------- -------- -------- --------
Total stockholders' equity .............................. 3,691 302 (1,198) 2,795
-------- -------- -------- --------
Total liabilities and stockholders' equity ............. $ 11,073 $ 62,344 $ (1,630) $ 71,787
======== ======== ======== ========
</TABLE>
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ECOSCIENCE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Six Months Ended December 31, 1997
In thousands, except per share data
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- --------------------------
EcoScience APD Adjustments Combined
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues ................................................... $ 11,852 $ 8,542 $ (2,673)(b) $ 17,721
Cost of revenues ........................................... 9,336 7,830 (2,405)(b) 14,761
-------- -------- -------- --------
Gross profit ............................................... 2,516 712 (268) 2,960
-------- -------- -------- --------
Operating expenses:
Research and development ................................ 202 -- -- 202
Selling, general and administrative ..................... 2,700 1,530 -- 4,230
-------- -------- -------- --------
Total operating expenses .......................... 2,902 1,530 -- 4,432
-------- -------- -------- --------
Operating loss ............................................. (386) (818) (268) (1,472)
-------- -------- -------- --------
Interest and other income (expense), net ................... (22) (808) -- (830)
-------- -------- -------- --------
Loss before income taxes ................................... (408) (1,626) (268) (2,302)
Provision for (benefit from) income taxes .................. 2 19 (107)(f) (86)
-------- -------- -------- --------
Loss before minority interest .............................. (410) (1,645) (161) (2,216)
Minority interest .......................................... -- 1,545 -- 1,545
-------- -------- -------- --------
Loss from continuing operations ............................ (410) (100) (161) (671)
Pro forma income tax benefit of APD ........................ -- 51 -- 51
-------- -------- -------- --------
Pro forma loss from continuing operations .................. $ (410) $ (49) $ (161) $ (620)
======== ======== ======== ========
Basic and diluted loss per share
Loss from continuing operations ......................... $ (0.04) $ (0.05)
======== ========
Weighted average common shares
outstanding ............................................. 10,425 11,605
======== ========
</TABLE>
71
<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>
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<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>
73
<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>
74
<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" earnings 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 December 28, 1997.
The pro forma condensed combined balance sheet as of December 31, 1997
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.
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 six month period represents ECOSCIENCE's and
APD's interim reporting periods ended on December 31, 1997 and December 28,
1997, respectively.
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 December
31, 1997.
(f) Income taxes - All pro forma adjustments have been tax effected at a
40% effective tax rate.
(g) Common stockholders' equity - Common stockholders' equity as of
December 31, 1997 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 December 31, 1997. The resulting exchange ratio
of 30,940.81 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 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."
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<PAGE>
(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.
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<PAGE>
ACTUAL AND 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 have 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 six months ended December 31, 1997 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 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 Six For the Years Ended
Months Ended June 30,
December 31, -------------------------------------------
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (Loss) per Common Share:
ECOSCIENCE(1) - Actual:
Basic ............. $ (0.04) $ 0.04 $ (0.06) $ (1.71)
Diluted ........... (0.04) 0.04 (0.06) (1.71)
APD - Actual ...................... (324.99) 1,147.22 2,388.69 1,150.00
ECOSCIENCE and APD - Pro Forma:
Basic (2) ......... (0.05) 0.05 (0.03) (1.32)
Diluted (3) ....... (0.05) 0.05 (0.03) (1.32)
APD - Pro Forma Equivalent:
Basic (4) ......... (1,652.95) 1,430.77 (990.92) (40,760.90)
Diluted (5) ....... (1,652.95) 1,426.42 (990.92) (40,760.90)
</TABLE>
December 31, June 30,
1997 1997
------------ --------
Net Book Value per Common Share:
ECOSCIENCE - Actual ............................ $ 0.35 $ 0.39
APD - Actual ................................... 981.48 1,306.47
ECOSCIENCE and APD - Pro Forma (6) ............. 0.24 0.29
APD - Pro Forma Equivalent (7) ................. 7,443.60 9,108.30
- - - ----------
(1) For information regarding ECOSCIENCE's dividends, and the market price of
ECOSCIENCE Common Stock, see "MARKET PRICES FOR ECOSCIENCE COMMON STOCK."
77
<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 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 30,940.81 to 1 Exchange Ratio.
(5) Represents the amount computed pursuant to Note 3 above multiplied by the
anticipated 30,940.81 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 ECOSCIENCE 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 30,940.81 to 1 Exchange Ratio.
78
<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 Van
Zeyst 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") in
November 1992, and has served as President of AGRO 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, where he served as President. Prior to co-founding AGRO, Mr. DeGiglio
was Vice President of International Sales for NYPCO International Inc. Mr.
79
<PAGE>
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.
80
<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 and Survival Technologies, Inc. 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. 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, Inc., where he
served as Executive 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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<PAGE>
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
Devolopement 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 postdoctoral 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 involement 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.
82
<PAGE>
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. 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 from 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. No stockholder will, as a result of the Reverse Split,
receive any fractional shares of ECOSCIENCE Common Stock. Any fractional share
to which such stockholder would otherwise be entitled will be rounded up (if
greater than or equal to .50 share) or down (if smaller than .50 share) to the
next whole number of shares.
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.
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
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<PAGE>
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.
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.
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<PAGE>
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
[May 6, 1998] was [$1 19/32].
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 [70] 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 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.
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<PAGE>
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.
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 May 7, 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%
431 Florence Street, Suite 200
Palo Alto, California 94301
Copley Partners 2, L.P (3) ................................ 822,932 7.8%
600 Atlantic Avenue
Boston, Massachusetts 02110
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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).................................... 329,117 3.1%
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)....................................... 1,586,879 14.1%
</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 May 7, 1998
pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of 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
277,292 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 754,929 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.
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<PAGE>
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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<PAGE>
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
Annual Compensation Compensation Awards
------------------- -------------------
Number of
Restricted 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.
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.
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<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Rates of Stock Price
Individual Grants Appreciation for Option Term(1)
-------------------------------------------- -------------------------------
Percentage of
Number of Total Options
Shares Granted to
Underlying Employees in
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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<PAGE>
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.
TEN YEAR OPTION AND STOCK APPRECIATION RIGHTS REPRICINGS
<TABLE>
<CAPTION>
Number of
Shares of Length of
Securities Market Number of Original
Underlying Price of Shares Original Option/SARs
Options/ Stock at Underlying Exercise Term Remaining
SARs Time of New Canceled or Price at Time at Date of
Repriced or Repricing or Exercise Amended of Repricing Repricing or
Name Date Amended Amendment Price Option or Amendment Amendment
- - - ---- ---- ----------- ------------ -------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. 01/08/97 58,778 $1.000 $1.00 23,333 $0.450 Expired
Andrews, (1)
Vice President
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 (2) months
Technology
25,000 9.500 7 years
</TABLE>
91
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
01/08/97 20,000 1.00 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.
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
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<PAGE>
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.
The Company sold products to APD in the amount of $2,893,000 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. 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" at page 11 hereof.
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 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
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<PAGE>
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 Messer. 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.
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
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<PAGE>
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
95
<PAGE>
PERFORMANCE CHART
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
EcoScience New Peer Old Peer NASDAQ Stock
Date Corporation Group (1) Group (2) Market U.S. Index
- - - --------- ----------- --------- --------- -----------------
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
* $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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<PAGE>
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 Appendix B.
2. ECOSCIENCE's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1997 and December 31, 1997, copies of which are attached as
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
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 28, 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") and Agro Power Development, Inc., a New York corporation
("APD").
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 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,
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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 30,940.81 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
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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
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
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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").
(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.
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(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.
(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
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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, 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.
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(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, 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
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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 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
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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.
(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
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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, 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,
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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 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,
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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 from any of its employees,
officers, directors, 5% Stockholders or members of their families for less
than fair market value.
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(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,
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no claims have been asserted against it or any of its Subsidiaries in
writing by any person and 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
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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 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.
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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 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
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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.
(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.
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(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.
(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
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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 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
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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
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.
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(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).
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
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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.
(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
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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 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
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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 Vice
President and Chief Financial Officer of ECO.
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:
(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.
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(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.
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.
(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,
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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.
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
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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, 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,
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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 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.
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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
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.
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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.
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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 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.
IN WITNESS WHEREOF, ECO, Acquisition Sub and APD 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
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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.
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"Selling Expenses" shall mean the expenses so described in Section 7
hereof.
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
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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
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) With respect to shares of Common Stock that continue to be
subject to the restrictions on transfer set forth in these
certain letter agreements dated as of ___________, 1998
between the Company and each of the Stockholders (the
"Lock-up Agreements").
(C) 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).
(D) 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).
(E) 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.
(F) If the Company shall furnish to the Requesting Holders a
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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.
(G) 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 (G), 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
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
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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 (a) that the Company shall have no
obligation to include in any registration shares of Common Stock
that continue to be subject to the restrictions on transfer set
forth in the Lock-up Agreements and (b) 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.
(c) Priority in Incidental Registrations. If (i) a registration pursuant
to this Section
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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
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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;
(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;
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(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
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
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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.
(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 in
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 who
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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
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
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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.
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
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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.
(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
A-44
<PAGE>
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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: ECOSCIENCE CORPORATION
_________________________ By:_________________________
WITNESS:
_________________________ _________________________
Michael A. DeGiglio
A-45
<PAGE>
_________________________ _________________________
Albert Vanzeyst
_________________________ _________________________
J. Kevin Cobb
_________________________ _________________________
Thomas Montanti
A-46
<PAGE>
Schedule I
Michael A. DeGiglio
[Address]
Thomas Montanti
[Address]
Albert Vanzeyst
[Address]
J. Kevin Cobb
[Address]
A-47
<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
fractional share to which a stockholder would otherwise be entitled
will be rounded up (if greater than or equal to .50 share) or down (if
smaller than .50 share) to the next whole number of shares, (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 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").
A-48
<PAGE>
3. Approval of Amendments. The foregoing amendments were duly adopted in
accordance with Section 242(b) of the Delaware General Corporation Law on
__________, 1998.
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-49
<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.
A-50
<PAGE>
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-51
<PAGE>
APPENDIX B - ECOSCIENCE'S ANNUAL/QUARTERLY REPORTS
[To be provided]
<PAGE>
APPENDIX C
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>
EcoScience Corporation
May 11, 1998
Page 2
(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>
EcoScience Corporation
May 11, 1998
Page 3
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 only 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS D-2
Consolidated Balance Sheets as of December 29, 1996 and December 28, 1997 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 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 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 D-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D-8
</TABLE>
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 and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 17,
as to which the date is April 29, 1998)
D-2
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December December
ASSETS 29, 1996 28, 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 1,012 $ 1,762
Accounts receivable, less allowance for doubtful accounts
of $8 and $28 in 1996 and 1997, respectively 991 2,023
Inventories (Note 2) 2,329 4,868
Prepaid expenses and other current assets 376 914
Note receivable due from related party (Note 6) 0 1,838
Due from related party (Note 4) 300 0
------- -------
Total current assets 5,008 11,405
PROPERTY AND EQUIPMENT, net (Notes 2 and 7) 17,487 44,843
RESTRICTED CASH (Note 10) 2,500 3,250
OTHER ASSETS (Note 8) 1,284 2,846
------- -------
Total assets $26,279 $62,344
======= =======
CURRENT LIABILITIES:
Lines of credit (Note 10) $ 1,906 $ 3,950
Current portion of long-term debt (Note 10) 170 3,868
Current obligations under capital leases (Note 11) 28 59
Accounts payable 754 1,275
Accrued expenses and other current liabilities (Notes 9 and 14) 1,020 1,123
Due to affiliate (Note 13) 163 892
------- -------
Total current liabilities 4,041 11,167
------- -------
LONG TERM DEBT (Note 10) 14,871 35,188
------- -------
OBLIGATIONS UNDER CAPITAL LEASES (Note 11) 33 406
------- -------
NONCURRENT LIABILITIES (Notes 12 and 14 ) 2,362 3,163
------- -------
MINORITY INTERESTS IN LIMITED PARTNERSHIPS (Note 4) 4,383 12,118
------- -------
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
Common stock - Class B $1.00 par value; 10,000 shares authorized
none issued and outstanding 0 0
Additional paid-in capital 215 215
Retained earnings 373 86
------- -------
Total stockholders' equity 589 302
------- -------
Total liabilities and stockholders' equity $26,279 $62,344
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
D-3
<PAGE>
AGRO POWER DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
52 weeks ended
Year Ended ---------------------------
December 31, December 29, December 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES (Note 2) $ 8,338 $ 11,090 $ 21,963
-------- -------- --------
COSTS AND EXPENSES:
Cost of revenues (Note 14) 6,854 8,762 19,310
Selling, general and administrative expenses 1,047 1,584 2,358
-------- -------- --------
Total costs and expenses 7,901 10,346 21,668
-------- -------- --------
Income from operations 437 744 295
INTEREST EXPENSE, net (37) (207) (1,851)
OTHER INCOME, net 3 11 5
-------- -------- --------
(Loss) income before provision for state
income taxes and minority interests 403 548 (1,551)
PROVISION FOR STATE INCOME TAXES (Note 2) (58) (87) (29)
MINORITY INTERESTS IN NET LOSSES OF
LIMITED PARTNERSHIPS (Note 4) 0 274 1,933
-------- -------- --------
Net income $ 345 $ 735 $ 353
======== ======== ========
</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
---------------------- Additional Retained
Shares Paid-in Earnings
Issued Amount 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 0 353 353
Distributions 0 0 0 (640) (640)
--- -- ---- ----- -----
BALANCE, December 28, 1997 308 $1 $215 $ 86 $ 302
=== == ==== ===== =====
</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
Year Ended ---------------------------
December 31, December 29, December 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 345 $ 735 $ 353
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation 61 264 1,380
Amortization 21 21 135
Minority interests in net losses of limited partnerships 0 (274) (1,933)
Net changes in operating assets and liabilities-
Accounts receivable, net 70 (946) (1,032)
Inventories (119) (1,755) (2,397)
Due from related party (431) 130 301
Prepaid expenses and other current assets 4 (353) (537)
Other assets 0 (175) (190)
Accounts payable (10) 706 521
Accrued expenses and other current liabilities (96) 656 102
Due to affiliate 107 (21) 412
Noncurrent liabilities 256 1,646 976
------- -------- --------
Net cash provided by (used in)
operating activities 208 634 (1,909)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (108) (17,381) (28,334)
Proceeds from sale of property and equipment 0 0 49
Debt service restricted cash funds 0 (2,500) (750)
Issuance of note receivable due from related party 0 0 (1,838)
------- -------- --------
Net cash used in investing activities (108) (19,881) (30,873)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,065 18,138 30,257
Repayments of debt (1,316) (1,419) (4,244)
Debt issue costs 0 (1,012) (1,508)
Distributions (180) (314) (640)
Issuance of common stock 0 4 0
Capital contribution 135 0 0
Minority interests contribution to limited partnerships 0 4,657 9,667
------- -------- --------
Net cash (used in) provided by
financing activities (296) 20,054 33,532
------- -------- --------
Net (decrease) increase in cash (196) 807 750
CASH AND CASH EQUIVALENTS, beginning of period 401 205 1,012
------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 205 $ 1,012 $ 1,762
======= ======== ========
</TABLE>
D-6
<PAGE>
<TABLE>
<CAPTION>
52 Weeks Ended
Year Ended ---------------------------
December 31, December 29, December 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 77 $ 396 $ 2,565
Taxes 117 55 160
======= ======== ========
Interest capitalized $ 0 $ 285 $ 384
======= ======== ========
Assets acquired under capital lease obligations $ 92 $ 0 $ 451
======= ======== ========
</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
(in thousands)
(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 175 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 25 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
limited 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.
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. Deferred income taxes were not material at December 29, 1996
and December 28, 1997.
D-9
<PAGE>
Concentrations-
For the year ended December 31, 1995 and the 52 week periods ended December
29, 1996 and December 28, 1997, approximately 79%, 78% and 74% of net
revenues, respectively, was derived from product sales to the Company's top
ten customers. In addition, sales to the Company's three largest customers
represented 48%, 52% and 42% of total revenues for the year ended December
31, 1995 and the 52 week periods ended December 29, 1996 and December 28,
1997, respectively. Individually, each of the three largest customers'
sales exceeded 10% of the Company's net revenues for each period.
Net Revenues-
Net revenues for the periods presented consists of the following-
52 Weeks Ended
Year Ended ----------------------
December December December
31, 1995 29, 1996 28, 1997
---------- -------- --------
Tomato product sales $6,923 $ 8,799 $18,431
Sales and marketing 1,415 2,237 3,154
Construction management (Note 3) 0 0 370
Other revenue, net 0 54 8
------ ------- -------
$8,338 $11,090 $21,963
====== ======= =======
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 Birchwood,
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 of the $500 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. 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
D-11
<PAGE>
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. In addition, APD earned a $250 development fee, which
approximated the costs incurred for its development and financing efforts
related to the VFT greenhouse facility project. On February 14, 1996 APD
was reimbursed approximately $540 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 and $1, 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 capital respective 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. The remaining 50% partnership interest is held by
Cogentrix. To fulfill the terms of the PVF Partnership Agreement, APD and
Cogentrix each contributed $276 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 capital respective 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 development fee, which approximated the
costs incurred for its development and financing efforts related to the PVF
greenhouse facility project. Prior to equity and debt financing closing on
March 10, 1997, APD incurred project costs of approximately $650 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. On March 10,
1997, APD was reimbursed approximately $320 for some of the project costs
incurred.
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. 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 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.
D-12
<PAGE>
To fulfill the terms of the VFM Partnership Agreement, Cogentrix and APD
were required to provide capital contributions of $6,650 and $1, which
proceeds were used to fund the initial construction of the VFM greenhouse
facility. In addition, Cogentrix provided bridge loan financing of $3,500
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, 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 capital respective 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. 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 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 and $1, 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 capital respective 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 in capital.
(6) NOTE RECEIVABLE DUE
FROM RELATED PARTY:
In March 1997, VFT loaned $1,838 to Cogentrix. The note is unsecured, bears
interest at 6.0% and principal and interest are due on demand. See Note 10
for 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,
1996 1997
------------ ------------
Land $ 681 $ 1,102
Land improvements 144 1,326
Greenhouses 13,518 35,109
Greenhouse improvements 36 717
Greenhouse equipment 3,382 8,104
Computer and office equipment 96 228
------- -------
17,857 46,586
Less- Accumulated depreciation (370) (1,743)
------- -------
$17,487 $44,843
======= =======
Included in the amounts above are $112 and $563 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,
1996 1997
------------ ------------
Trademarks $ 8 $ 10
Security deposits 15 16
Tools and spare parts 97 97
Other 0 48
Notes receivable - stockholders (A) 96 149
Debt issue costs (B) 1,012 2,519
Organization expenses 77 164
------ ------
1,305 3,003
Less- Accumulated amortization (21) (157)
------ ------
$1,284 $2,846
====== ======
(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 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.
D-14
<PAGE>
(9) ACCRUED EXPENSES:
Accrued expenses consist of the following-
December 29, December 28,
1996 1997
------------ ------------
Payroll $ 66 $ 173
Insurance 6 174
Other 26 2
Interest 16 265
Supplemental rent 403 38
Third party grower 0 398
Income taxes 95 0
Utilities 116 33
Inventory 137 0
Professional fees 26 40
Repairs and maintenance costs 129 0
------- -------
$ 1,020 $ 1,123
======= =======
(10) DEBT:
Long-term debt consists of the following-
December 29, December 28,
1996 1997
----------- ------------
VFT line of credit (A) $ 2,200 $ 2,000
VFT term loan credit facility (A) 14,698 18,414
VFIFA line of credit (B) 0 1,950
VFIFA construction and term loan facility (B) 0 16,485
PVF nonrevolving line of credit (C) 0 2,125
Notes payable to Cogentrix (D) 0 1,949
Other loans 49 83
------- -------
16,947 43,006
Less- Current portion (2,076) (7,818)
------- -------
$14,871 $35,188
======= =======
(A) In February 1996, VFT negotiated a $21,123 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 (the "Term Loan") and a $2,500 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.
D-15
<PAGE>
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 during each year. A
commitment fee of 1% per annum is charged on the unused line of credit
commitment. At December 28, 1997, $500 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 and $1,000 , 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. 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 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 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.
D-16
<PAGE>
Under the term loan commitment, up to $50,000 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 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 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 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, $8,050 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 ($80 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 of borrowings were outstanding under
the construction loan commitment and $1,950 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. 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 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.
D-17
<PAGE>
(C) In March, 1997, PVF entered into a $2,200 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
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, 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 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.
(D) In March 1997 APD borrowed $643 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 from
Cogentrix. The note matures on June 2, 2002 with quarterly principal
and interest payments of $69. Borrowings under the note bear interest
at 6.0%. The aggregate maturities of debt as of December 28, 1997 are
as follows-
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-
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
====
D-18
<PAGE>
(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).
(13) TRANSACTIONS WITH AFFILIATES:
The Company purchased a substantial portion of its materials and greenhouse
equipment from Agro Dynamics, Inc. ("ADI"), amounting to $503 , $2,240 and
$4,234 in 1995, 1996 and 1997, respectively. The president of APD is also
the president of ADI. Net amounts due to ADI at December 29, 1996 and
December 28, 1997 were $163 and $892, respectively.
APD pays a monthly administration fee to ADI for the use of its employees
and facilities. These fees amounted to approximately $92, $36 and $42 in
1995, 1996 and 1997, respectively. Management believes the management fee
paid to ADI 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-
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, $1,429 and $1,438 for the year ended December 31,
1995 and the 52-week periods ended December 29, 1996 and December 28, 1997,
respectively.
Included in noncurrent liabilities in the accompanying consolidated balance
sheet is $808 and $860 at December 29, 1996 and December 28, 1997,
respectively, related to the effect of accounting for the scheduled rent
increases on a straight-line basis over the VFW and KVF lease terms.
D-19
<PAGE>
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).
KVF and VFW incurred additional rent expense based upon the defined
calculation in the amounts of $331, $644 and $335 and $505, $643 and $103
in 1995, 1996 and 1997, respectively. 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 and $38, 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 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 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(TM)
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 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 15 acre greenhouse in Queratoro, Mexico. APD generated
approximately $1,414, $2,237 and 2,839 in net revenues under these two
agreements in 1995, 1996 and 1997, respectively.
D-20
<PAGE>
(16) SUBSEQUENT EVENTS:
Burnac, Inc. Letter of Intent-
In January 1998, APD entered into a non-binding letter of intent to
purchase approximately 28 acres of existing greenhouse operations in Fort
Pierce, Florida from Burnac, Inc. for $4,785. No assurance can be given
that this transaction will be completed.
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 Letter of Intent-
In 1998, APD entered into a non-binding letter of intent with The Greenery
International, a leading marketer of bell peppers in the Netherlands, to
market bell peppers produced at the greenhouse facility APD plans to
construct in Marfa, Texas (see below) under "The Greenery" brand name and
will be granted the right to market in North America bell peppers grown by
The Greenery International in Europe. The letter of intent 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 construct (at an approximate cost of $20,000) 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 reviewing financing
alternatives for the project. No assurance can be given that financing can
be obtained on terms acceptable to APD or that APD will be able to obtain
the development approvals necessary to complete the project.
(17) PROPOSED MERGER:
On April 29, 1998 APD executed an Agreement and Plan of Merger with
EcoScience Corporation ("EcoScience"), parent company of ADI, whereby each
share of common stock of APD would be exchanged for 30,940.81 shares of
EcoScience. Consummation of the transaction is subject to EcoScience
stockholder approval and certain other conditions.
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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
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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) 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
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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 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
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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 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.
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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 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
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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.
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.
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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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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 on the reverse 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)
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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 (in each
case, prior to the proposed reverse stock split).
|_| 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
Please sign, date, and return by _________, 1998. If signing as attorney or for
an estate, trust or corporation, title or capacity should be stated.
Signature_________________________ Title____________ Date ______________
Signature_________________________ Title____________ Date ______________
