UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ to ________.
Commission File Number
0-19746
-------
ECOSCIENCE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2912632
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10 Alvin Court, East Brunswick, New Jersey 08816
------------------------------------------------
(Address of principal executive offices)
(732) 432-8200
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 17, 1999, the
issuer had outstanding 12,619,278 shares of common stock, par value $.01 per
share.
ECOSCIENCE CORPORATION AND SUBSIDIARIES
<PAGE>
PART I. FINANCIAL INFORMATION
EcoScience Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
October 3, 1999 January 3, 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 878 $ 1,095
Short-term investments -- 127
Accounts receivable, less reserves of $642
at October 3, 1999 and $551 at January 3, 1999 2,674 7,271
Assets held for sale 1,329 1,911
Inventories 7,310 9,209
Other current assets 498 1,212
--------- ---------
Total current assets 12,689 20,825
--------- ---------
Property and equipment, net 60,874 65,200
Intangible assets, net 11,945 13,550
Other noncurrent assets 1,789 2,289
--------- ---------
Total assets $ 87,297 $ 101,864
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Short-term borrowings $ 43,870 $ 37,080
Current maturities of long-term debt 46,139 47,557
Current obligations under capital leases 47 42
Accounts payable 10,516 11,102
Accrued expenses and other current liabilities 7,412 7,705
--------- ---------
Total current liabilities 107,984 103,486
--------- ---------
Noncurrent liabilities:
Long-term debt, less current maturities 524 780
Obligations under capital leases 321 338
Other long-term liabilities 1,642 1,689
--------- ---------
Total liabilities 110,471 106,293
--------- ---------
Minority interest 306 665
Commitments and contingencies -- --
Stockholders' deficit:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.01 par value, 100,000,000 shares authorized; 12,619,278
issued and outstanding at October 3, 1999 and January 3, 1999 126 126
Additional paid-in-capital 55,574 55,574
Accumulated deficit (79,149) (60,706)
Accumulated other comprehensive loss (31) (88)
--------- ---------
Total stockholders' deficit (23,480) (5,094)
--------- ---------
Total liabilities and stockholders' deficit $ 87,297 $ 101,864
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
EcoScience Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Three Thirty-nine Nine
Weeks Ended Months Ended Weeks Ended Months Ended
October 3, 1999 September 30, 1998 October 3, 1999 September 30, 1998
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Net revenues $ 6,982 $ 8,708 $ 39,678 $ 37,050
Cost of revenues 9,392 10,032 40,749 37,206
-------- -------- -------- --------
Gross profit (2,410) (1,324) (1,071) (156)
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 3,648 3,671 10,216 9,783
Research and development 108 128 316 391
Impairment charge -- -- 654 --
-------- -------- -------- --------
Total operating expenses 3,756 3,799 11,186 10,174
-------- -------- -------- --------
Operating loss (6,166) (5,123) (12,257) (10,330)
-------- -------- -------- --------
Other (expense) income:
Interest, net (2,333) (946) (7,425) (3,394)
Other, net 531 26 881 (223)
-------- -------- -------- --------
Total other expense, net (1,802) (920) (6,544) (3,617)
-------- -------- -------- --------
Loss before taxes and minority interest (7,968) (6,043) (18,801) (13,947)
(Benefits) provision for income taxes (4) -- 1 --
-------- -------- -------- --------
Loss before minority interest (7,964) (6,043) (18,802) (13,947)
Minority interest 207 2,151 359 6,498
-------- -------- -------- --------
Net loss ($ 7,757) ($ 3,892) ($18,443) ($ 7,449)
======== ======== ======== ========
Loss per share:
Basic:
Loss per share ($ 0.61) ($ 0.33) ($ 1.46) ($ 0.64)
======== ======== ======== ========
Weighted average basic shares outstanding 12,619 11,618 12,619 11,618
======== ======== ======== ========
Diluted:
Loss per share ($ 0.61) ($ 0.33) ($ 1.46) ($ 0.64)
======== ======== ======== ========
Weighted average diluted shares outstanding 12,619 11,618 12,619 11,618
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
EcoScience Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Nine
Weeks Ended Months Ended
October 3, 1999 September 30, 1998
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($18,443) ($ 7,449)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,676 3,389
Minority interest in limited partnerships (359) (6,498)
Foreign exchange (gain) loss (13) 168
Gain on sales of assets (44) (5)
Impairment charge 654 --
Changes in current assets and liabilities:
Accounts receivable, net 4,597 2,411
Inventories 1,569 (1,463)
Other current assets 714 702
Other noncurrent assets 211 547
Accounts payable and accrued expenses (865) 3,576
Other noncurrent liabilities (47) (1,005)
-------- --------
Net cash used in operating activities: (7,350) (5,627)
-------- --------
Cash flows from investment activities:
Purchases of property and equipment (731) (14,592)
Proceeds from sale of assets 2,576 160
Release of restricted cash -- 3,250
Proceeds from sale of short-term investments 127 --
-------- --------
Net cash provided by (used in) investing activities 1,972 (11,182)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock -- 6
Proceeds from long-term debt -- 13,290
Net borrowings under line of credit 6,790 6,363
Payments on long-term debt and capital leases (1,686) (3,394)
Debt issue cost -- (133)
Minority interest contributions to limited partnerships -- 1,000
S Corp stockholder distributions -- (510)
-------- --------
Net cash provided by financing activities 5,104 16,622
-------- --------
Effects of exchange rates on cash balances 57 --
Decrease in cash and cash equivalents (217) (187)
Cash and cash equivalents at beginning of period 1,095 2,443
======== ========
Cash and cash equivalents at end of period $ 878 $ 2,256
======== ========
Total unrestricted and restricted cash, cash equivalents and short-term
investments at end of period $ 878 $ 2,641
======== ========
Supplemental cash flow information
Cash paid for:
Interest 6,472 3,013
Income taxes 1 3
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 3, 1999 and September 30, 1998
(in thousands, except share data)
(UNAUDITED)
1. Operations
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its subsidiaries
and consolidated limited partnerships (collectively "APD"), Agro Dynamics, Inc.
and Agro Dynamics Canada Inc. (collectively, "AGRO") and EcoScience Produce
Systems Corp. ("EPSC") are primarily engaged in the production, marketing and
sale of premium grade tomatoes grown in intensive greenhouse facilities. In
addition, the Company markets, sells, develops and commercializes products for
the agricultural and biological industries.
The Company has suffered losses resulting in an accumulated deficit of $79,149
as of October 3, 1999. The Company continues to be in violation of certain
technical financial covenants under various debt agreements as of October 3,
1999, which has resulted in approximately $42,077 of debt being classified as
current in the accompanying October 3, 1999 balance sheet which otherwise would
have been classified as long-term. This along with the note issued on December
30, 1998, in connection with the acquisition of certain minority interests in
consolidated limited partnerships, has resulted in significant negative working
capital. Management's plan is focused on improving the gross profit of all
greenhouse operations as a result of greater production and sales volumes,
sizing and efficiency through a full cropping cycle at each greenhouse facility.
The Company believes that its $878 of cash and cash equivalents as of October 3,
1999, along with borrowings and revenues from product sales, will be sufficient
to fund the Company's working capital needs, planned capital expenditures,
current acquisitions and to service its indebtedness through October 4, 2000,
provided that the Company can resolve its near term cash flow problems and
refinance its $21,600 aggregate principal amount of promissory notes issued on
December 30, 1998 and March 15, 1999 that are due on December 15, 1999. On
June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation for borrowings of up to $4,000 secured by
eligible accounts receivable and inventory, as defined. This agreement, which
has an initial two-year term, replaces a $3,000 revolving credit facility with
Silicon Valley Bank.
In July 1999, the Company entered into a commitment letter with its senior
lender, CoBank, ACB ("CoBank"), which contemplates that CoBank will restructure
the Company's existing $58,900 term facility and provide a new $8,400 working
capital line of credit, subject to certain conditions, including the
restructuring of the $21,600 of indebtedness that becomes due on December 15,
1999. In October, 1999, the Company signed a commitment letter with CoBank for
an additional $5,000 working capital line of credit and for the deferral of all
interest payments on the existing term facility, the $8,400 and $5,000 working
capital lines. In August 1999, the Company entered into a letter of intent to
exchange the notes representing the $21,600 of indebtedness for preferred stock.
CoBank has funded all of the proposed $8,400 working capital line and $2,670 of
the proposed $5,000 working capital line in advance of the proposed
restructuring. See note 3 below.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company and reflect all adjustments, consisting of only normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of financial results for the thirty-nine weeks ended October 3,
1999 and the nine months ended September 30, 1998, in accordance with generally
accepted accounting principles for interim financial reporting and pursuant to
Article 10 of Regulation S-X. Certain information and footnote disclosures
normally included in the Company's annual audited consolidated financial
statements have been condensed or omitted pursuant to such rules and
regulations.
5
<PAGE>
The results of operations for the thirty-nine weeks ended October 3, 1999 and
the nine months ended September 30, 1998 are not necessarily indicative of the
results of operations to be expected for a full fiscal year. These interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements for the transition period ended January 3,
1999, which are included in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
The consolidated financial statements give retroactive effect to the merger with
APD that occurred on September 30, 1998, which was accounted for as a pooling of
interests, and a one for five reverse stock split, effective September 30, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and disclosures of contingent assets and
liabilities as of the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
3. Debt
On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation for borrowings of up to $4,000 secured by
eligible accounts receivable and inventory, as defined. Borrowings under the
facility bear interest at a rate per annum equal to the greater of (1) 7% or (2)
the prime rate plus 2.75%. This agreement, which has an initial two-year term,
replaces a $3,000 revolving credit facility with Silicon Valley Bank.
In July 1999, the Company signed a commitment letter with its senior lender,
CoBank which contemplates that CoBank will restructure the Company's existing
$58,900 term facility and provide a new $8,400 working capital line of credit,
subject to certain conditions, including the restructuring of the Company's
$21,600 of indebtedness to Cogentrix Energy, Inc. ("Cogentrix") and the
negotiation and execution of final loan documents. As of October 3, 1999, $7,700
of the proposed working capital line has been funded. Approximately $2,400 of
the proposed line of credit was used to pay past due interest to CoBank and the
balance has been used for working capital purposes. The maturity date of the
proposed term facility is two years with a two year extension if certain
conditions are satisfied. The commitment letter provides that the line of credit
will mature in one year with the option to request a one year extension. The
interest rate is the CoBank National Variable Rate plus 2%. The commitment
letter provides that principal under the term facility will be payable quarterly
in the amount of $5,000 per year.
On August 13, 1999, the Company entered into a letter of intent ("LOI") with
Cogentrix which provides that the $21,600 of notes plus all accrued and unpaid
interest thereon and a promissory note of APD payable to Cogentrix dated May 10,
1997 in the amount of $894 will be exchanged for shares of Class A Convertible
Preferred Stock of EcoScience ("Class A") and Class B Convertible Preferred
Stock of EcoScience ("Class B").
The LOI provides that Cogentrix will be issued 7,950,000 shares of Class A with
a liquidation preference of $2.00 per share and a cumulative dividend of 5% per
year, payable annually to the extent of the Company exceeding a specified level
of earnings before interest, taxes and depreciation ("EBITDA"). The shares will
be mandatorily redeemed at liquidation preference plus accumulated and unpaid
dividends on each anniversary of the date of issuance in an amount exceeding a
specified level of EBITDA. The Class A shares may also be redeemed at the option
of Cogentrix at liquidation preference plus accumulated and unpaid dividends
beginning on each anniversary of the date of issuance commencing in 2003 and
ending in 2007. The maximum number of Class A shares that may be so redeemed in
any one year shall not exceed 1,590,000 minus the number of Class A shares the
Company must and has redeemed in the preceding year (or since issuance in the
case of 2003). If the Company fails to redeem the Class A shares, Cogentrix may
convert any or all of the Class A shares to common stock of the Company at a
conversion rate equal to $2 divided by the average closing price for EcoScience
Common Stock for the 15 business days prior to the date of issuance of the Class
A shares, excluding the highest and lowest closing price.
The LOI provides that Cogentrix will be issued 333,333 shares of Class B with a
liquidation preference of $20.00 per share. The shares will not be redeemable
and will not pay or accrue a dividend. The Class B shares are convertible on a
one for one share basis to shares of common stock of the Company on payment of a
conversion price of $5 per share on June 1, 2008.
Both Class A and Class B will be senior to all classes of capital stock of the
Company with respect to dividends, liquidation preference and redemption rights,
have no voting rights except in certain limited events and may not be
transferred, except
6
<PAGE>
with the written consent of the Company. The Common Stock issuable upon the
conversion of the Class B will be subject to certain resale restrictions.
No assurance can be given that the proposed restructurings of the Company's
indebtedness to CoBank and Cogentrix will be completed.
In October, 1999, the Company signed a commitment letter with CoBank for an
additional $5,000 working capital line of credit to be repaid no later than
March 31, 2000 and for the deferral of all interest payments on the existing
term facility, the $8,400 and $5,000 working capital lines until March 31, 2000.
4. Sale of assets
On February 1, 1999, the Company's postharvest equipment division of its wholly
owned subsidiary AGRO, which was the exclusive distributor in North America for
Aweta B.V.'s sorting and grading equipment, was sold to Autoline, Inc. Autoline
Inc. and Aweta B.V. are both wholly owned subsidiaries of FPS Food Processing
Systems of Holland. Sales of this division were $3,532 in the period ended
January 3, 1999 and $3,557, $4,967 and $2,830 in the fiscal years ended June 30,
1998, 1997 and 1996, respectively. The Company concluded that the long term
outlook of the postharvest equipment distribution business was no longer
consistent with its future strategic direction. This transaction did not result
in a material gain or loss and will not have a material impact on the Company's
financial position or results of operations.
On June 10, 1999 the Company's 12 acre greenhouse facility in Mount Carmel,
Pennsylvania was sold to Mount Carmel Greenhouses, LLC. The Company received
$2,000, of which $731 was used to pay off all debt related to the facility. The
transaction resulted in a gain on sale of $150, which has been included in other
income.
On November 8, 1999 the Company sold substantially all of the assets of EPSC,
excluding EPSC's BioSave(R) biofungicide product. EPSC conducted the Company's
postharvest coating products business. The Company received $1,272 which
represents the purchase price of $1,000 plus $272 for the sale of inventory (net
of $100 of escrow to be released upon satisfactory completion of an independent
audit). EPSC's $1,329 of inventory and fixed assets are reflected as assets held
for sale on the Company's consolidated balance sheet dated as of October 3,
1999. The Company's goodwill was written down to the proposed sales price,
resulting in an impairment charge of $654 which was recorded in the thirty-nine
weeks ended October 3, 1999. Net revenues of EPSC for the thirteen weeks and
thirty-nine weeks ended October 3, 1999 were $437 and $1,328, respectively, and
for the three and nine months ended September 30, 1998 were $502 and $2,216,
respectively.
5. Net loss per share
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which requires presentation of both basic and diluted
earnings per share in the Consolidated Statements of Operations. Basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the period.
The following table sets forth a reconciliation of weighted average common
shares outstanding to the weighted average common shares assuming dilution:
<TABLE>
<CAPTION>
Thirteen Three Thirty-nine Nine
Weeks Ended Months Ended Weeks Ended Months Ended
October 3, September 30, October 3, September 30,
1999 1998 1999 1998
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 12,619 11,618 12,619 11,618
Dilutive effect of common shares issuable(1) -- -- -- --
------ ------ ------ ------
Weighted average common shares outstanding
assuming dilution 12,619 11,618 12,619 11,618
====== ====== ====== ======
</TABLE>
- ----------
(1) Common stock purchase warrants and stock options at October 3, 1999 and
September 30, 1998 to purchase 1,154,221 and 275,511 shares, respectively,
were not included in the computation of earnings per share assuming
dilution as their effect would be anti-dilutive.
7
<PAGE>
6. Comprehensive income
Effective January 3, 1999, the Company adopted the provisions of Statement
No. 130, "Reporting Comprehensive Income", which modifies the financial
statement presentation of comprehensive income and its components.
Comprehensive income, representing all changes in stockholders' equity during
the period other than changes resulting from the Company's stock and dividends.
Comprehensive income is as follows:
<TABLE>
<CAPTION>
Thirteen Three Thirty-nine Nine
Weeks Ended Months Ended Weeks Ended Months Ended
October 3, September 30, October 3, September 30,
1999 1998 1999 1998
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net loss ($7,757) ($3,892) ($18,443) ($7,449)
Other comprehensive gain, net of taxes
Foreign currency translation adjustments (19) -- 57 --
Net unrealized loss on securities available for sale -- 3 -- 4
------- ------- -------- -------
Other comprehensive gain (19) 3 57 4
------- ------- -------- -------
Comprehensive loss ($7,776) ($3,889) ($18,386) ($7,445)
======= ======= ======== =======
</TABLE>
7. Segment and geographic information
The Company has two reportable segments: greenhouse tomatoes and biological and
agricultural products. The greenhouse tomatoes segment operates six greenhouse
facilities in the United States, representing approximately 178 acres of growing
capacity. Through these facilities, the Company produces, harvests, packages and
distributes premium hydroponic vine-ripened tomatoes. The tomatoes are marketed
under the Village Farms(R) and Home Choice(TM) brandnames and sold to retail
supermarket chains, dedicated wholesalers, distributors and food service clients
throughout the United States.
The biological and agricultural products segment distributes various products
under written distribution agreements and relations with specific vendors. The
Company's biological and agricultural products include (1) growing medium
products and computerized environmental and irrigational control systems; (2)
postharvest coating products and (3) biological pest control products. The
Company sold its postharvest coating products business in November, 1999.
The Company's reportable segments are strategic business units that offer
different products. The Company is not dependent on any single customer for its
net revenues.
<TABLE>
<CAPTION>
Thirteen Three Thirty-nine Nine
Weeks Ended Months Ended Weeks Ended Months Ended
October 3, September 30, October 3, September 30,
Company data by operating segment 1999 1998 1999 1998
- --------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenues
Greenhouse tomatoes $ 4,075 $ 4,557 $ 31,167 $ 24,772
Biological and agricultural products 2,907 4,151 8,511 12,278
------- ------- -------- --------
Total $ 6,982 $ 8,708 $ 39,678 $ 37,050
======= ======= ======== ========
Operating loss
Greenhouse tomatoes ($5,621) ($3,833) ($10,640) ($ 8,406)
Biological and agricultural products (545) (1,290) (1,617) (1,924)
------- ------- -------- --------
Total ($6,166) ($5,123) ($12,257) ($10,330)
======= ======= ======== ========
Company data by geographic segments
Net revenues
United States $ 5,777 $ 7,667 $ 36,578 $ 32,717
Canada 1,205 1,041 3,100 4,333
------- ------- -------- --------
Total $ 6,982 $ 8,708 $ 39,678 $ 37,050
======= ======= ======== ========
</TABLE>
8
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands, except share data)
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its subsidiaries
and consolidated limited partnerships (collectively "APD"), Agro Dynamics, Inc.
and Agro Dynamics Canada Inc. (collectively, "AGRO") and EcoScience Produce
Systems Corp. ("EPSC") are primarily engaged in the production, marketing and
sale of premium grade tomatoes grown in intensive greenhouse facilities. In
addition, the Company markets, sells, develops and commercializes products for
the agricultural and biological industries.
Results of Operations for the thirteen weeks ended October 3, 1999 and the three
months ended September 30, 1998
The Company's two reportable segments are comprised of (1) greenhouse tomatoes
and (2) biological and agricultural products.
The Company's net revenues decreased by $1,726 or 20% to $6,982 for the thirteen
weeks ended October 3, 1999 from $8,708 for the three months ended September 30,
1998. This decrease was due to decreases in product sales in the greenhouse
tomato market of $482 and decreases in the biological and agricultural products
market of $1,244.
The following table sets forth the Company's net revenues by segment for the
thirteen weeks ended October 3, 1999 and the three months ended September 30,
1998:
<TABLE>
<CAPTION>
Thirteen Three
Weeks Ended Months Ended
October 3, September 30,
1999 1998 Change
----------- -------------- --------
<S> <C> <C> <C>
Greenhouse tomatoes $4,075 $4,557 $ (482)
Biological and agricultural products 2,907 4,151 (1,244)
------ ------ -------
Total $6,982 $8,708 $(1,726)
====== ====== =======
</TABLE>
Net revenue decreases for the greenhouse tomato market were primarily due to the
closure of the Company's twelve acre greenhouse facility in Wheatfield, NY in
September, 1999 and the earlier termination of the crop at the Company's
forty-two acre Virginia greenhouse facility than in the previous year. These
decreases were partially offset by the Company's twenty-six acre Presidio
greenhouse facility being in production for the thirteen weeks ended October 3,
1999 . The facility was completed in the second half of 1998 and did not start
producing until the fourth quarter of 1998.
Product sale decreases for the biological and agricultural products market were
primarily due to the sale of its postharvest equipment division. Sales of
postharvest equipment were $0 for the thirteen weeks ended October 3, 1999 and
$1,072 for the three months ended September 30, 1998.
Cost of revenues decreased $640 or 6% to $9,392 for the thirteen weeks ended
October 3, 1999 from $10,032 for the three months ended September 30, 1998,
primarily due to a decrease in net revenues.
Gross profit on net revenues decreased $1,086 or 82% to ($2,410) for the
thirteen weeks ended October 3, 1999 from a gross profit of ($1,324) for the
three months ended September 30, 1998. Gross profit percentage on net revenues
decreased 20% to (35%) for the thirteen weeks ended October 3, 1999 from (15%)
for the three months ended September 30, 1998. Both gross profit on net revenues
and gross profit percentage on net revenues decreased primarily as a result of
less than anticipated production yields in the tomato segment resulting in fixed
production costs being allocated over fewer units.
Selling, general and administrative expenses decreased $23 or 1% to $3,648 for
the thirteen weeks ended October 3, 1999 from $3,671 for the three months ended
September 30, 1998, primarily due to decreased administrative costs, partially
offset by increased amortization of goodwill of $150, resulting from the
Company's acquisition in December 1998 of Cogentrix's 50% ownership in four of
the Company's greenhouse facilities.
9
<PAGE>
Research and development expenses decreased $20 or 16% to $108 for the thirteen
weeks ended October 3, 1999 from $128 for the three months ended September 30,
1998, due primarily to a decrease in personnel expenses.
Operating loss increased $1,043 or 20% to $6,166 for the thirteen weeks ended
October 3, 1999 compared to $5,123 for the three months ended September 30,
1998. The decrease in operating income resulted primarily from a decrease of
$1,086 in gross profit for the thirteen weeks ended October 3, 1999, partially
offset by a $43 decrease in operating expenses.
Other expenses increased by $882 to $1,802 for the thirteen weeks ended
October 3, 1999, compared to $920 the three months ended September 30, 1998,
primarily due to increased interest expenses. Interest expense, net, increased
by $1,387 for the thirteen weeks ended October 3, 1999 compared to the three
months ended September 30, 1998 due to $608 in interest incurred on the $21,600
in promissory notes issued in connection with the acquisition of all of the
outstanding capital stock of certain corporations which were partners in four of
the Company's greenhouse operations, $59 in default interest recorded on the
CoBank facility due to certain technical defaults and increased indebtedness
incurred in connection with the development of the greenhouse facilities added
in 1998.
The Company's net loss increased $3,865 or $0.28 per basic and diluted share to
a net loss of $7,757 or $0.61 per diluted share for the thirteen weeks ended
October 3, 1999 compared to net loss of $3,892 or $0.33 per diluted share for
the three months ended September 30, 1998.
The Company's EBITDA decreased $2,042 to ($3,924) for the thirteen weeks ended
October 3, 1999 from ($1,882) for the three months ended September 30, 1998.
EBITDA is net income (loss) excluding interest income, interest expense, income
taxes, depreciation and amortization expense. While EBITDA should not be
construed as a substitute for income (loss) from operations, net income (loss)
or cash flows from operating activities in analyzing the Company's operating
performance, financial condition or cash flows, the Company is reporting EBITDA
because it is commonly used by certain users of the Company's financial
statements to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability to
service debt.
Results of Operations for the thirty-nine weeks ended October 3, 1999 and the
nine months ended September 30, 1998
The Company's net revenues increased by $2,628 or 7% to $39,678 for the
thirty-nine weeks ended October 3, 1999 from $37,050 for the nine months ended
September 30, 1998. This increase was primarily due to the increases in product
sales in the greenhouse tomato market of $6,395, partially offset by decreases
in the biological and agricultural products market of $3,767.
The following table sets forth the Company's net revenues by segment for the
thirty-nine weeks ended October 3, 1999 and the nine months ended September 30,
1998:
<TABLE>
<CAPTION>
Thirty-nine Nine
Weeks Ended Months Ended
October 3, September 30,
1999 1998 Change
----------- ------------- -------
<S> <C> <C> <C>
Tomatoes $31,167 $24,772 $ 6,395
Biological and Agricultural Products 8,511 12,278 (3,767)
======= ======= =======
Total $39,678 $37,050 $ 2,628
======= ======= =======
</TABLE>
Net revenue increases for the greenhouse tomato market were primarily due to
increased capacity and production, offset by weak market pricing. Two of the
Company's greenhouse facilities representing 60 acres were not in full
production for the nine months ended September 30, 1998.
Net revenue decreases for the biological and agricultural products market were
primarily due to the sale of its postharvest equipment division on February 2,
1999, the discontinuance of its packing insert sales in Canada and decreased
coating sales. Sales of the postharvest equipment division decreased $2,181 or
86% to $344 for the thirty-nine weeks ended October 3, 1999 from $2,525 for the
nine months ended September 30, 1998. Sales of packing inserts decreased $572 to
$0 for the thirty-nine weeks ended October 3, 1999 compared to $572 for the nine
months ended September 30, 1998. The Company's sales of coating products
decreased $888 or 40% to $1,328 for the thirty-nine weeks ended October 3, 1999
from $2,216 for the nine months ended September 30, 1998. These coating products
are primarily sold to citrus growers in California which were adversely affected
by a winter freeze.
10
<PAGE>
Cost of revenues increased $3,543 or 10% to $40,749 for the thirty-nine weeks
ended October 3, 1999 from $37,206 for the nine months ended September 30, 1998,
primarily due to net revenue increases.
Gross profit on net revenues decreased $915 to ($1,071) for the thirty-nine
weeks ended October 3, 1999 from a gross profit of ($156) for the nine months
ended September 30, 1998, primarily as a result of lower market prices and less
than anticipated production yields in the tomato segment resulting in fixed
production costs being allocated over fewer units. Gross profit percentage on
net revenues decreased 3% to (3%) for the thirty-nine weeks ended October 3,
1999 from a gross profit percentage of 0% the nine months ended September 30,
1998 for the reasons stated above.
Selling, general and administrative expenses increased $433 or 4% to $10,216 for
the thirty-nine weeks ended October 3, 1999 from $9,783 for the nine months
ended September 30, 1998, primarily due to increased amortization of goodwill of
$450, resulting from the Company's acquisition of Cogentrix's 50% ownership of
four of the Company's greenhouse facilities and increased expenses attributable
to the Company's four new greenhouse facilities, and the expansion of the
Company's sales, marketing, finance and greenhouse management operations.
Research and development expenses decreased $75 or 19% to $316 for the
thirty-nine weeks ended October 3, 1999 from $391 for the nine months ended
September 30, 1998, due primarily to a decrease in personnel expenses.
An impairment charge of $654 was recorded in the thirty-nine weeks ended
October 3, 1999, related to the Company's sale of substantially all of the
assets of EPSC. The Company's long term assets, principally property and
equipment and goodwill, were written down to the proposed sales price.
Operating loss increased $1,927 or 19% to $12,257 for the thirty-nine weeks
ended October 3, 1999 compared to $10,330 for the nine months ended September
30, 1998. The decrease in operating income resulted primarily from an increase
of $1,012 in operating expenses for the thirty-nine weeks ended October 3, 1999,
and by a $915 decrease in gross profit.
Other expenses increased by $2,927 to $6,544 for the thirty-nine weeks ended
October 3, 1999, compared to $3,617 for the nine months ended September 30,
1998, primarily due to increased interest expenses. Interest expense, net,
increased by $4,031 for the thirty-nine weeks ended October 3, 1999 compared to
the nine months ended September 30, 1998 due to $1,823 in interest incurred on
the $21,600 of promissory notes issued in connection with the acquisition of all
of the outstanding capital stock of certain corporations that were partners in
four of the Company's greenhouse operations, $1,251 in default interest recorded
on the CoBank facility due to certain technical defaults and increased
indebtedness incurred in connection with the development of the greenhouse
facilities added in 1998.
The Company's net loss increased $10,994 or $0.82 per basic and diluted share to
a net loss of $18,443 or $1.46 per diluted share for the thirty-nine weeks ended
October 3, 1999 compared to net loss of $7,449 or $0.64 per diluted share for
the nine months ended September 30, 1998.
The Company's EBITDA decreased $5,675 to ($6,341) for the thirty-nine weeks
ended October 3, 1999 from ($666) for the nine months ended September 30, 1998.
EBITDA is net income (loss) excluding interest income, interest expense,
depreciation and amortization expense.
Liquidity and Capital Resources
The Company's operations have been funded through revenues from product sales,
public and private placements of its equity securities, bank loans and lease
financings, licensing, collaborative research and development arrangements,
investment income and the sale of certain assets.
The Company continues to experience a significant liquidity shortfall primarily
due to (i) the production start-up issues encountered at and crop cycle
adjustments of the approximate 127 acres of additional greenhouse production
capacity in its greenhouse tomato segment added during 1998 and (ii) the need to
refinance its $21,600 aggregate principal amount of promissory notes issued to
Cogentrix Energy, Inc. ("Cogentrix") that becomes due on December 15, 1999 as a
result of an extension provided by Cogentrix in August, 1999. In addition, the
Company is in default of certain technical financial covenants with its lender
CoBank, ACB ("CoBank").
As a result of the Company's non-compliance with a financial covenant contained
in its $58,900 credit facility with CoBank and certain payment defaults which
were subsequently cured, CoBank imposed a default rate of interest equal to 4%
above the base rate. As of October 3, 1999, $58,900 of indebtedness was
outstanding under the Company's credit facility with CoBank. On July 14, 1999
the Company signed a commitment letter with CoBank wherein CoBank has agreed to
11
<PAGE>
restructure the current $58,900 credit facility as well as to provide a new
$8,400 working capital line of credit, subject to certain conditions including a
restructuring of the $21,600 debt to Cogentrix, discussions of which have been
previously disclosed. In October, 1999, the Company signed a commitment letter
with CoBank for an additional $5,000 working capital line of credit to be repaid
no later than March 31, 2000 and for the deferral of all interest payments on
the existing term facility, the $8,400 and $5,000 working capital lines until
March 31, 2000. CoBank has funded all of the proposed $8,400 working capital
line and $2,670 of the proposed $5,000 working capital line in advance of the
proposed restructuring.
On August 13, 1999, the Company signed a letter of intent ("LOI") with Cogentrix
which provides that the $21,600 of notes plus all accrued and unpaid interest
thereon and a promissory note of APD payable to Cogentrix dated May 10, 1997 in
the amount of $894 will be exchanged for shares of Class A Convertible Preferred
Stock of EcoScience ("Class A") and Class B Convertible Preferred Stock of
EcoScience ("Class B').
The LOI provides that Cogentrix will be issued 7,950,000 shares of Class A with
a liquidation preference of $2.00 per share and a cumulative dividend of 5% per
year, payable annually to the extent of the Company exceeding a specified level
of EBITDA. The shares will be mandatorily redeemed at liquidation preference
plus accumulated and unpaid dividends on each anniversary of the date of
issuance in an amount exceeding a specified level of EBITDA. The Class A shares
may also be redeemed at the option of Cogentrix at liquidation preference plus
accumulated and unpaid dividends beginning on each anniversary of the date of
issuance commencing in 2003 and ending in 2007. The maximum number of Class A
shares that may be so redeemed in any one year shall not exceed 1,590,000 minus
the number of Class A shares the Company must and has redeemed in the preceding
year (or since issuance in the case of 2003). If the Company fails to redeem the
Class A shares, Cogentrix may convert any or all of the Class A shares to common
stock of the Company at a conversion rate equal to $2 divided by the average
closing price for EcoScience Common Stock for the 15 business days prior to the
date of issuance of the Class A shares, excluding the highest and lowest closing
price.
The LOI provides that Cogentrix will be issued 333,333 shares of Class B at a
liquidation preference of $20.00 per share. The shares will not be redeemable
and do not pay or accrue a dividend. The Class B shares are convertible on a one
for one share basis to shares of common stock of the Company on payment of a
conversion price of $5 per share on June 1, 2008.
Both Class A and Class B will be senior to all classes of capital stock of the
Company with respect to dividends, liquidation preference and redemption rights,
have no voting rights except in certain limited events and may not be
transferred, except with the written consent of the Company. The Common Stock
issuable upon the closing of the Class A and Class B will be subject to certain
resale restrictions.
The Company's management has been in close contact with its lenders and major
suppliers, and the parties are working cooperatively together to manage the
Company's cash flow shortfall. In July 1999, the Company renegotiated one of its
greenhouse lease agreements which will result in an estimated annual savings of
$600. Although the Company's liquidity position is currently manageable, the
cash shortfall will remain until the completion of the proposed exchange of the
$21,600 aggregate principal amount of promissory notes issued to Cogentrix for
preferred stock and the restructure of the $58,900 credit facility with CoBank.
No assurance can be given that the Company will be able to complete the
restructuring of the CoBank credit facility or the exchange of notes for
preferred stock or that the Company's creditors will not attempt to enforce
legal remedies available to them.
On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation for borrowings of up to $4,000 secured by
eligible accounts receivable and inventory, as defined. Borrowings under the
facility bear interest at a rate per annum equal to the greater of (1) 7% or (2)
the prime rate plus 2.75%. This agreement, which has an initial two-year term,
replaces a $3,000 revolving credit facility with Silicon Valley Bank. As of
October 3, 1999, $1,297 was outstanding under this facility.
Cash and cash equivalents were $878 at October 3, 1999 compared to $1,095 at
January 3, 1999. Cash used by operating activities totaled ($7,350) for the
thirty-nine weeks ended October 3, 1999 and principally consisted of a net loss
of $18,443, partially offset by a decrease in inventory of $1,569, accounts
receivable of $4,597 and depreciation and amortization of $4,676. Cash provided
by financing activities totaled $5,104 for the thirty-nine weeks ended October
3, 1999, which consisted of net borrowings under lines of credit of $6,790
offset by payments of long-term debt of $1,686. Cash provided by investment
activities for the thirty-nine weeks ended October 3, 1999 totaled $1,972, which
consisted principally of the proceeds from sale of assets of $2,576, including
the Company's greenhouse facility in Mount Carmel, Pennsylvania. The Company's
current liabilities exceeded its current assets by $95,295 (which includes
$42,077 of senior debt classified as current, which otherwise would have been
classified as long-term had the Company not had certain
12
<PAGE>
technical defaults under its $58,900 credit facility) and its current ratio was
0.12 to 1, at October 3, 1999 compared to 0.20 to 1, respectively, at January 3,
1999.
Debt and capital leases increased by $5,104 to $90,901 at October 3, 1999
compared to $85,797 at January 3, 1999. The increase was attributable to
borrowings under the Company's new $8,400 working capital line of credit.
The Company believes that its $878 of cash and cash equivalents as of October 3,
1999, along with borrowings and revenues from product sales, will be sufficient
to fund the Company's working capital needs, planned capital expenditures, and
to service its indebtedness through July 5, 2000, provided that the Company can
resolve its short term cash flow shortfall by issuing preferred stock in
exchange for the $21,600 aggregate principal amount of promissory notes held by
Cogentrix and restructuring the $58,900 credit facility with CoBank. No
assurance can be given that the Company will be able to complete the
restructuring of its indebtedness or that the Company's creditors will not
attempt to enforce legal remedies available to them.
Year 2000 Compliance
The following disclosure is a Year 2000-readiness disclosure statement pursuant
to the Year 2000 Readiness and Disclosure Act.
The Year 2000 presents the risk that information systems will be unable to
recognize and process date-sensitive information properly from and after
January 1, 2000. To minimize or eliminate the effect of the Year 2000 risk on
our business systems and applications, we are continually identifying,
evaluating, implementing and testing changes to our computer systems,
applications and software necessary to achieve Year 2000 compliance. We
implemented a Year 2000 initiative in May 1998 that has now been adopted
throughout the Company. As part of such initiative, we have selected a team of
managers to identify, evaluate and implement a plan to bring all of our critical
business systems and applications into Year 2000 compliance prior to December
31, 1999. The Year 2000 initiative consists of four phases: (i) identification
of all critical business and greenhouse systems (including irrigation systems
and sorting, grading and packing equipment) subject to Year 2000 risk (the
"Identification Phase"); (ii) assessment of such business systems and
applications to determine the method of correcting any Year 2000 problems (the
"Assessment Phase"); (iii) implementing the corrective measures (the
"Implementation Phase"); and (iv) testing and maintaining system compliance (the
"Testing Phase"). We have substantially completed the Identification and
Assessment Phases and have identified and assessed four areas of risk: (i) third
party vendor software, such as business and greenhouse applications (including
irrigation systems and sorting, grading and packing equipment), operating
systems and special function software; (ii) computer hardware components; (iii)
electronic data transfer systems between us and our customers; and (iv) embedded
systems, such as phone switches, check writers and alarm systems. Although no
assurances can be made, we believe that we have identified substantially all of
our systems, applications and related software that are subject to Year 2000
compliance risk and have either implemented or initiated the implementation of a
plan to correct such systems that are not Year 2000 compliant. In addition, as
part of our assessment process we are developing contingency plans as necessary.
However, we cannot directly control the timing of certain Year 2000 compliant
vendor products. Although we have begun the Testing Phase, we do not anticipate
completion of the Testing Phase until sometime prior to December 1999.
We rely on third party service providers for services such as
telecommunications, internet service, utilities, components for our embedded and
other systems and other key services. Interruption of those services due to Year
2000 issues could have a material adverse impact on our operations. We have
initiated an evaluation of the status of such third party service providers'
efforts and to determine alternative and contingency requirements. While
approaches to reducing risks of interruption of business operations vary by
business unit, options include identification of alternative service providers
available to provide such services if a service provider fails to become
Year 2000 compliant within an acceptable timeframe prior to December 31, 1999.
The total cost of our Year 2000 compliance plan is anticipated to be $20.
Approximately $10 of these costs had been incurred through October 3, 1999, and
we expect to incur the balance of such costs to complete the compliance plan. We
have been expensing the costs to complete the compliance plan in accordance with
appropriate accounting policies. Variations from anticipated expenditures and
the effect on our future results of operations are not anticipated to be
material in any given year. However, if Year 2000 modifications and conversions
are not made including modifications by our third party service providers, or
are not completed in time, the Year 2000 problem could have a material impact on
our operations, cash flows and financial condition. At this time we believe the
most likely "worst case" scenario involves potential disruptions in our
operations as a result of the failure of services provided by third parties.
13
<PAGE>
The estimates and conclusions herein are forward-looking statements and are
based on our best estimates of future events. Risks of completing the plan
include the availability of resources, the ability to discover and correct the
potential Year 2000 sensitive problems which could have a serious impact on
certain operations and the ability of our service providers to bring their
systems into Year 2000 compliance.
Quantitative and Qualitative Disclosure about Market Risk
There has been no material change in market risk since January 3, 1999.
Forward-looking Statements
This report contains "forward-looking statements" which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that known and unknown risks, uncertainties and other
factors may cause actual results, performance or achievements of EcoScience to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such differences include EcoScience's risks and uncertainties related to
EcoScience's future profitability, ability to meet its capital needs, government
regulation, continued cooperation of the Company's creditors, competition,
market acceptance, Year 2000 compliance and other factors described in Item 7A
and elsewhere in EcoScience's annual report on Form 10-K filed with the
Securities and Exchange Commission.
14
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
The Company's wholly owned subsidiary, Agro Power Development, Inc. remains in
default of a covenant contained in its guaranty of a $58,900 credit facility
which required it to maintain a ratio of equity to senior debt of at least 25%.
As a result of this default, the lender has the right to accelerate the payment
of all amounts outstanding under the facility. The lender has rescinded a
default rate of interest equal to 4% above the base rate.
Item 5. Other Information
On November 8, 1999, the Company sold substantially all of the assets of EPSC,
excluding EPSC's BioSave(R) biofungicide product, to Pace International LLC
("PACE"). EPSC conducted the Company's postharvest coating products business.
The purchase price for the assets was $1,000 plus the book value of inventory,
which was estimated to be $272 as of the closing date. The parties deposited
$100 of the purchase price in escrow pending an audit of the inventory. The
Company has entered into a distribution agreement with Pace pursuant to which
Pace has been granted the exclusive rights to distribute BioSave in the United
States for the citrus, pome fruit and cherry markets.
In September, 1999, the Company closed its Wheatfield, NY greenhouse facility as
a result of unsatisfactory operating results.
Item 6. Exhibits and Reports on Form 8-K
(i) Exhibits
10.124 Asset Purchase and Sale Agreement between EcoScience Corporation,
EcoScience Produce Systems Corporation and Pace International, LLC dated
November 4, 1999
27 Financial Data Schedule as of and for the Nine Months Ended
October 3, 1999
(ii) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ECOSCIENCE CORPORATION
Registrant
November 17, 1999 /s/ Kenneth S. Hollander
-------------------------------
Kenneth S. Hollander
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
16
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
10.124 Asset Purchase and Sale Agreement between EcoScience Corporation,
EcoScience Produce Systems Corporation and Pace International, LLC
dated November 4, 1999
27 Financial Data Schedule as of and for the Nine Months Ended
October 3, 1999
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered
into this 4th day of November, 1999, by and among ECOSCIENCE PRODUCE SYSTEMS
CORP., a Delaware corporation ("Seller"), ECOSCIENCE CORPORATION, a Delaware
corporation ("EcoScience"), and PACE INTERNATIONAL, LLC, a Washington limited
liability company (the "Buyer").
RECITALS
A. Seller owns and operates the worldwide EcoScience Produce Systems Corp.
agricultural coatings and fruit cleaning business, including distribution
activities for related products but excluding (i) the BioSave biofungicide
business and (ii) the BioBlast bioinsecticide business (the "Business"). Seller
is a wholly-owned subsidiary of EcoScience.
B. Pursuant to the terms and conditions set forth below, Buyer desires to
purchase, and Seller desire to sell, the assets of the Business.
NOW, THEREFORE, for and in consideration of the mutual promises herein
made, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchased Assets. Subject to the terms and conditions herein set forth,
Buyer shall purchase on the Closing Date (as hereinafter defined), and Seller
shall sell and transfer to Buyer, the Business and all of Seller's assets and
properties of every kind and description which are used or held for use in the
Business, whether real, personal or mixed, tangible and intangible, and wherever
situated, except only the assets excluded pursuant to Section 1.2 hereof, all as
the foregoing may exist as of the Closing Date (hereinafter, all of such assets
and properties are referred to as the "Purchased Assets"). The Purchased Assets
shall include, without limitation, the following (except to the extent that any
of the following assets relate to an Excluded Asset described in Section 1.2
below):
(a) All inventories of whatever kind, including without limitation,
finished goods, work-in-process, raw materials, drums, jugs, totes,
pallets, shrink-wrap and other packaging materials (the "Inventories");
(b) All prepaid expenses, advance payments and deposits (the "Prepaid
Expenses");
(c) All improvements, fixtures and appurtenances attached to the
Orlando Facility and the Visalia Facility (defined herein), including
without limitation, those items listed in Schedule 1.1(c) attached hereto;
<PAGE>
(d) All equipment (building or office), machinery, tooling, dies,
molds, patterns, stampings, prototypes, parts, components, projects in
process, furniture, fixtures and fixed assets, including without
limitation, those items listed in Schedule 1.1(d) attached hereto;
(e) All motor vehicles, including without limitation, those listed on
Schedule 1.1(e) attached hereto (the "Vehicles");
(f) All rights of the Seller pursuant to leases, contracts, purchase
orders, sales orders, customer equipment lease agreements (the "Customer
Leases"), license agreements (including without limitation license
agreements with Novartis Crop Protection, International ("Novartis") and
Janssen Pharmaceutica ("Janssen") (the "Novartis License Agreement" and the
"Janssen License Agreement"), and other agreements whatsoever and rights to
refunds, including without limitation the Facility Leases (defined herein)
and those items identified in Schedule 1.1(f) attached hereto (the
"Contracts");
(g) All right, title and interest (including the right to sue for past
infringements) in and to intellectual property, including, without
limitation, all patents and applications therefor, unpatented inventions,
trademarks, trade names, service marks, copyrights, applications for and
registrations of any of the foregoing, know-how, trade secrets, formulas,
processes, and technical information and the goodwill associated with any
and all of the foregoing throughout the world;
(h) All governmental and non-governmental licenses, permits,
authorizations, registrations, certifications, accreditations, consents and
indulgences;
(i) All manufacturing, delivery, office and other supplies;
(j) All product labels, packaging and artwork;
(k) All warranty rights, guaranty rights, causes of actions, judgments
and claims and similar rights of the Seller against customers, vendors,
suppliers, designers, architects, engineers or other third parties; and
(l) All lists of customers, suppliers, vendors and sources; all books,
records, journals, computer software and files; all information,
blueprints, engineering data, drawings, sales and promotional materials,
and telephone and telecopier numbers and listings; provided, however, that
Seller shall retain the right to have access to the books and records of
the Business after the Closing, including the right to make copies thereof,
in order to be able to comply with any requirements it may have after the
Closing.
1.2 Excluded Assets. The Purchased Assets shall not include, and the Seller
shall retain, the following assets:
(a) Cash and cash equivalents;
2
<PAGE>
(b) All accounts receivable, including any amounts owed to Seller
under notes issued to Seller by third parties as listed in Schedule 1.2(b)
attached hereto;
(c) Any assets which have never been used in the Business;
(d) Seller's rights under this Agreement;
(e) Seller's corporate minute books;
(f) Any assets used solely in connection with the BioSave biofungicide
business and the BioBlast bioinsecticide business listed in Schedule 1.2(f)
attached hereto; and
(g) Rights to the name "EcoScience Produce Systems Corp."
1.3 Closing. The closing (the "Closing") of the purchase and sale of the
Business and the Purchased Assets shall take place at 10:00 a.m., local time, on
the Closing Date, at the offices of S/L Partners, 700 Fifth Avenue, Suite 6100,
Seattle, Washington 98104, or at such other time and place as may be mutually
agreed to by Buyer and Seller. The "Closing Date" means the earlier of (a) the
next business date following the date on which Novartis either signs a new
distribution agreement with Buyer or consents to the assignment of the Novartis
License Agreement to Buyer, or (b) November 12, 1999, or such other date as may
be mutually agreed to by Buyer and Seller. The Closing shall be effective as of
12:01 a.m. on the Closing Date.
1.4 Assets Not Assignable.
(a) To the extent that any interest in any of the Purchased Assets is
not capable of being assigned, transferred, conveyed or registered without
the consent, waiver or authorization of, or registration with, a third
person (including, but not limited to, a governmental, regulatory or
administrative authority), or if such assignment, transfer, conveyance,
registration or attempted assignment, transfer, conveyance or registration
would constitute a breach of any Purchased Asset, or a violation of any
law, statute, decree, rule, regulation or other governmental edict or is
not immediately practicable, this Agreement shall not constitute an
assignment, transfer or conveyance of such interest, or an attempted
assignment, transfer or conveyance of such interest (such interests being
hereinafter collectively referred to as "Restricted Interests"). The entire
beneficial interest in any Purchased Assets subject to a restriction as
described above, and any other interest in such Purchased Assets which are
transferable notwithstanding such restriction, shall be transferred from
the Seller to the Buyer as provided in this Section 1.4.
(b) Anything in this Agreement to the contrary notwithstanding, Seller
shall not be obligated to transfer to Buyer any Restricted Interests
without Seller first having obtained all consents, waivers, authorizations
and registrations necessary for such transfers. In consultation with Buyer
as to the practicalities of proposed actions, Seller shall use its best
efforts to promptly obtain such consents, waivers, authorizations and
registrations at its own expense and to resolve any impracticalities of
assignment referred to in Section 1.4(a) hereof.
3
<PAGE>
(c) To the extent that the consents, waivers, authorizations and
registrations referred to in Section 1.4(a) hereof are not obtained, or
until the impracticalities of transfer referred to therein are resolved,
Seller shall (i) provide to Buyer, at the request of Buyer and at Seller's
expense, the benefits of any Restricted Interests, (ii) cooperate in
reasonable and lawful arrangements designed to provide such benefits to
Buyer and (iii) enforce, at the request of Buyer for the account of Buyer,
any rights of Seller arising from any Restricted Interests (including the
right to elect to terminate in accordance with the terms thereof upon the
advice of Buyer). If any such consents, waivers, authorizations and
registrations are not obtained by the date which is sixty (60) days after
the Closing Date, Seller shall indemnify Buyer as provided in Article X
hereof.
ARTICLE II
CONSIDERATION FOR TRANSFER
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
Purchased Assets shall be the sum of "Inventory Book Value" (hereinafter
defined) plus $1,000,000. For purposes of this Agreement, "Inventory Book Value"
shall mean the book value of the Inventories as of the Closing Date based upon
generally accepted accounting principles and those agreed upon valuation
principles set forth on Schedule 2.1 attached hereto and incorporated herein.
Solely for purposes of estimating the Inventory Book Value to be paid at
Closing, Inventory Book Value shall be estimated by the parties (the "Estimated
Inventory Book Value") based upon the book value included in Seller's perpetual
inventory system as of the first business day immediately proceeding the Closing
Date, and paid on the Closing Date pursuant to Section 2.2(a) hereof, subject to
adjustment as set forth in Section 2.2(c) hereof.
2.2 Payment of the Purchase Price. The Purchase Price shall be paid at the
Closing as follows:
(a) The Buyer shall pay an amount equal to the Purchase Price minus
the Holdback Amount (hereinafter defined) by wire transfer of same day
funds to an account designated by the Seller at least two (2) business days
prior to the Closing Date, plus or minus, as appropriate, any prorations
pursuant to Section 2.4 hereof.
(b) The Buyer shall pay the Holdback Amount to Account 54593546 at
Bank of America (the "Bank"), Seattle, Washington (the "Joint Account") by
wire transfer of same day funds. For purposes of this Agreement, "Holdback
Amount" shall mean an amount equal to $100,000. The Joint Account shall be
jointly held by Buyer and Seller; funds may only be released from the Joint
Account upon the receipt by the Bank of written instructions signed on
behalf of both Buyer and Seller.
(c) The Buyer shall cause Deloitte & Touche (the "Buyer's
Accountants") to audit Seller's Inventories on the last business day prior
to the Closing Date, to determine Inventory Book Value as of the close of
business on the Closing Date and to deliver to Seller its calculation of
the Inventory Book Value within 30 days after the Closing. Seller may
select an independent public accounting firm (the "Seller's Accountants")
who may audit the work papers used in the calculation of the Inventory Book
Value, and
4
<PAGE>
Seller shall make available to Buyer's Accountants all work papers or
other documents and information as may be reasonably requested to calculate
Inventory Book Value. Seller may object to the calculation of Inventory
Book Value by Buyer's Accountants within 30 days after Seller receives such
calculation, and if a written objection in not received by Buyer within
such 30-day period, Seller shall conclusively be deemed to agree to the
calculation of Inventory Book Value by Buyer's Accountants. If Seller so
objects, Buyer and Seller shall attempt to meet within 15 days after Buyer
receives Seller's objection in an attempt to stipulate to the Inventory
Book Value. If Seller and Buyer cannot so stipulate, the matter with
respect to which no stipulation can be reached shall be submitted to and
resolved by arbitration as provided in Section 11.7 hereof. Upon receipt of
the arbitrator's determination, Seller and Buyer shall comply therewith.
After the Inventory Book Value has been finally determined: (i) if the
Inventory Book Value exceeds the Estimated Inventory Book Value (the amount
of such excess hereinafter referred to as the "Buyer's Excess"), Buyer and
Seller shall execute joint written instructions to the Bank to distribute
the Holdback Amount (plus income thereon earned) from the Joint Account to
Seller, and Buyer shall pay to Seller, on demand and in cash, an amount
equal to Buyer's Excess, together with interest at the rate of eight
percent (8.0%) per annum computed from the Closing Date until paid; and
(ii) if the Estimated Inventory Book Value exceeds the Inventory Book Value
(the amount of such excess hereinafter referred to as the "Seller's
Excess"), Buyer and Seller shall execute joint written instructions to the
Bank to distribute a principal amount equal to Seller's Excess from the
Holdback Amount (plus income thereon earned) and the remaining funds to
Seller, and to the extent that the Holdback Amount is less than Seller's
Excess, Seller shall pay to Buyer, on demand and in cash, an additional
amount equal to Seller's Excess minus the Holdback Amount, in either case
with interest at the rate of eight percent (8.0%) per annum computed from
the Closing Date until paid.
2.3 Purchase Price Allocation. The parties acknowledge and agree that the
Purchase Price was negotiated and concluded on the basis of the component prices
set forth on Schedule 2.3 attached hereto in accordance with the respective fair
market values of the Purchased Assets. The parties agree to report and allocate,
for all federal, state and local tax purposes (including IRS Form 8594), the
Purchase Price as so allocated and will not take any inconsistent or contrary
position therewith for any other purpose.
2.4 Prorations. Real estate and personal property taxes for the Purchased
Assets for 1999 shall be prorated on the Closing Date based upon the taxes
assessed for 1999; but if the taxes assessed for 1999 are not known on the
Closing Date, such taxes shall be prorated based upon the taxes assessed for
1998 and shall be re-prorated within five (5) days after the 1999 tax assessment
and rates shall become available with appropriate payment made. If obtainable,
final readings shall be obtained for utility services, such as gas, electricity,
water and sewer. If a final reading is not obtained for any utility service, the
charges therefor shall be prorated on a daily basis based upon the most recently
available periodic utility bill.
5
<PAGE>
ARTICLE III
LIABILITIES
3.1 Assumption of Executory Contracts. At the Closing, Buyer shall assume
and agree, by execution and delivery to Seller of an Assumption Agreement in the
form attached hereto as Exhibit A (the "Assumption Agreement"), to perform and
discharge, on a timely basis, the written obligations of Seller under the
agreements listed on Schedule 3.1 attached hereto, which are to be performed or
discharged, under the terms of such agreements, on or after the Closing Date,
but as to any payment obligation, only to the extent that the payment is for
goods, services or other types of consideration that are delivered, performed or
provided on or after the Closing Date, and further provided that Buyer shall not
assume any such obligation to the extent the existence thereof violates or is in
breach of any of the representations, warranties and covenants of Seller in this
Agreement.
3.2 Non-Assumption of Liabilities. Except only as provided in Section 3.1
hereof, Buyer shall not assume, pay, perform, discharge, or accept any
liabilities, debts or obligations of Seller or the Business of any kind
whatsoever, whether actual, contingent, accrued, known or unknown, including,
without limitation, any relating to accounts payable, taxes, employee
compensation, pension, profit-sharing, vacation, health insurance, disability
insurance or other employee benefit plans and programs, worker's compensation,
breach or negligent performance of any contract, or breach of warranty relating
thereto, liabilities resulting from breach of contract, torts, illegal activity,
unlawful employment or business practice, or any other liability or obligation
whatsoever. All such non-assumed liabilities, debts and obligations shall remain
the responsibility of Seller, and Seller covenants and agrees to pay and
discharge the same when and as due. Buyer shall not assume, honor or accept any
collective bargaining agreement relating to Seller's employees, or any employee
pension benefit plan of Seller. Seller shall be solely responsible for
satisfying all obligations (whether arising under federal, state or local law,
or pursuant to contract) which may arise or which may have arisen, prior to the
Closing, in connection with the employment of Seller's employees, the creation,
funding or operation of any employee pension benefit plan, or which may arise in
connection with the transactions described in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND ECOSCIENCE
In order to induce Buyer to enter into this Agreement, each of Seller and
EcoScience, jointly and severally, makes the following representations and
warranties to Buyer, each of which shall survive the Closing and be deemed to be
independently material and relied upon by Buyer, regardless of any investigation
made by, or information known to, Buyer. Any matter described on the disclosure
schedule attached hereto and incorporated herein (the "Disclosure Schedule")
shall be set forth with reference to each separate Section of this Agreement to
which the matter relates. In the event of any inconsistency between the
statements in this Agreement and those in the Disclosure Schedule (other than an
exception permitted by this Agreement to be expressly set forth as such in the
6
<PAGE>
Disclosure Schedule with respect to a specifically identified Section of this
Agreement) the statements in this Agreement will control.
4.1 Organization and Qualification. Each of Seller and EcoScience is a
corporation duly incorporated and validly existing under the laws of the State
of Delaware Seller, as a consequence of owning the Purchased Assets and
conducting the Business, is qualified to transact business as a corporation in
the jurisdictions set forth on the Disclosure Schedule, and is not otherwise
required, as a consequence of owning the Purchased Assets and conducting the
Business, to be so qualified in any other jurisdiction.
4.2 Conflicting Obligations. The execution and delivery of this Agreement
do not, and the consummation of the sale and purchase of the Purchased Assets
and the Business contemplated hereby will not: (a) conflict with or violate any
provisions of the articles of incorporation and by-laws of either Seller or
EcoScience; (b) conflict with or violate any provisions of, or result in the
maturation or acceleration of, any obligations under any contract, agreement,
instrument, document, lease, license, permit, indenture, or obligation, or any
law, statute, ordinance, rule, regulation, code, guideline, order, arbitration
award, judgment or decree, to which either Seller or EcoScience is subject or to
which either Seller or EcoScience is a party; or (c) violate any restriction or
limitation, or result in the termination or loss of any right (or give any third
party the right to cause such termination or loss), of any kind to which either
Seller or EcoScience is bound.
4.3 Third Party Consents. The Disclosure Schedule lists each Contract,
License, right, document or other agreement which requires the consent of a
third party in order for the same to be assigned to the Buyer. Except as set
forth on the Disclosure Schedule, no third party consents, approvals or
authorizations are necessary for the execution and consummation of the
transactions contemplated hereby, nor are any such consents, approvals or
authorizations required in order for any of the Purchased Assets, including
without limitation, the Contracts, Licenses (as hereinafter defined) or any
other rights of Seller, to be assigned to Buyer in accordance with their
existing terms.
4.4 Enforceability. This Agreement and all other agreements of Seller and
EcoScience contemplated hereby are or, upon the execution and delivery thereof
will be, the valid and binding obligations of Seller and EcoScience,
respectively, enforceable against each in accordance with their terms.
4.5 Authorization. Each of Seller and EcoScience has all necessary power
and authority to enter into and perform the transactions contemplated hereby in
accordance with the terms and conditions hereof. The execution and delivery of
this Agreement, and the performance by Seller of its obligations contained
herein, have been duly approved by all necessary corporate action by the
Seller's board of directors and shareholders.
4.6 Financial Statements.
(a) Attached to the Disclosure Schedule are complete copies of the
unaudited divisional balance sheet, statement of operations and statement
of income and expenses for the Business for each of the 12-month periods
ending June 30, 1999, 1998 and 1997,
7
<PAGE>
and the two-month period ending August 31, 1999 (collectively the
"Financial Statements"). Seller's books and records of accounts for the
Business accurately reflect in all material respects all of the
transactions and results of operations of Seller which relate to the
Business, and the Financial Statements have been prepared based upon and in
conformity therewith. Except as set forth on the Disclosure Schedule, the
Financial Statements have been prepared in accordance with generally
accepted accounting principles maintained and applied on a consistent basis
throughout the indicated periods, and fairly present the assets, income and
operations of the Business at the dates and for the relevant periods
indicated, subject, in the case of the financial statements as of and for
the periods ended June 30, 1999 and August 31, 1999, to normal year end
audit adjustments.
4.7 Leases of Real Property.
(a) Good Title; Condition. The Disclosure Schedule sets forth a
summary description of Seller's lease of the production facility located in
Orlando, Florida (the "Orlando Facility"), and Seller's lease of the
warehouse located in Visalia, California (the "Visalia Facility") (each a
"Facility" and jointly the "Facilities") that are true and complete in all
material respects. Seller has a valid leasehold title to each of the
Facilities (including buildings, structures and fixtures thereon or affixed
thereto), free and clear of all mortgages, liens, judgments, security
interests, easements, covenants, rights-of-way and other encumbrances or
restrictions of any nature whatsoever, except Permitted Encumbrances
(hereinafter defined) and the encumbrances set forth on the Disclosure
Schedule. "Permitted Encumbrances" means municipal and zoning ordinances;
recorded easements, covenants and restrictions provided the same do not
prohibit or materially interfere with the present use of either Facility;
and general taxes levied on or after January 1, 1999 and not yet due or
payable. Each Facility is the subject of a written lease agreement (each a
"Facility Lease"), and there are no oral terms or past practice
inconsistent in any material respect with the written terms thereof. Each
of the Facility Leases is a valid and binding agreement, enforceable in
accordance with its terms, and is in full force and effect. Seller has
performed in all material respects all obligations required to be performed
by it to date under each Facility Lease and is not in breach or default in
any material respect thereunder, and there has been no event which, with
the giving of notice or the lapse of time or both, would become a breach or
default thereunder. To the knowledge of Seller, the lessor of each Facility
Lease is not in breach or default thereunder. Except as set forth on the
Disclosure Schedule, to the knowledge of Seller all buildings, structures
and other improvements at the Facilities are in good condition and repair
(normal wear and tear excepted), are within the lot lines and do not
encroach on the properties of any other person. The use and operation of
each of the Facilities conform in all material respects to all applicable
building, zoning, safety, and other laws, statutes, ordinances, rules,
regulations, codes, licenses, permits, and all other restrictions and
conditions. Neither of the Facilities is located in a flood plain, flood
hazard area or designated wetlands area. Seller has not received any
written or oral notice of, and has no knowledge of, any assessments for
public improvements against either Facility or any written or oral notice
or order by any governmental, regulatory or administrative authority, any
insurance company which has issued a policy with respect to any of such
property or any board of fire underwriters or other body exercising similar
8
<PAGE>
functions that: (i) relates to violations of building, safety or fire
ordinances or regulations; (ii) claims any defect or deficiency with
respect to such property; or (iii) requests the performance of any repairs,
alterations or other work to or in such property or in the streets bounding
the same. There is no condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of either Facility pending
or, to Seller's knowledge, threatened. Except as set forth on the
Disclosure Schedule, those - public utilities (including water, gas,
electric, storm and sanitary sewage, and telephone utilities) required to
operate each Facility are available to such Facility, and to the knowledge
of Seller such utilities enter the boundaries of such Facility through
adjoining public streets or easement rights-of-way. Such public utilities
are all connected pursuant to valid licenses or permits, and are all in
good working order and are adequate to service the operations of such
facility as currently conducted and permit compliance in all material
respects with all requirements of law.
4.8 Personal Property. Except for such personal property as has been
disposed of in the ordinary course of the Business since June 30, 1999, Seller
owns all property purported to be owned by the Business as well as all property
acquired by Seller and used or held for use in the Business since June 30, 1999.
All tangible personal property of Seller which is used or held for use in the
Business is located at either the Orlando Facility or the Visalia Facility,
except as otherwise set forth on the Disclosure Schedule. All of such personal
property is actually on hand, increased and decreased by acquisitions and
dispositions of such property in the ordinary course of business since June 30,
1999. All such property is in reasonably good condition and repair (normal wear
and tear excepted). Seller owns good and marketable title to all items of
personal property that are part of the Purchased Assets, free and clear of all
security interests, including any conditional sale or other title retention
agreements, liens, judgments, claims, charges, pledges, exceptions, and defects
of title and other encumbrances of any kind, except Permitted Encumbrances and
except as otherwise set forth on the Disclosure Schedule.
4.9 All Necessary Assets. Except as set forth on the Disclosure Schedule,
the Purchased Assets constitute all of the assets which are used in, and all of
the assets which are necessary for, the conduct of the Business, as presently
and historically conducted and as presently planned to be conducted in the
future.
4.10 Capital Expenditures. Except as set forth on the Disclosure Schedule,
Seller has no present plan to purchase or lease any other real estate or
tangible personal property so as to be able to continue the Business as
presently conducted or presently planned to be conducted in the future. No
capital expenditures relating to either Facility (excluding only normal
maintenance and repairs made consistently with past practice) or remediations
suggested or required by any applicable Governmental Authority or insurer, in
the next twelve (12) months in an amount exceeding $5,000 in the aggregate, are
necessary to carry on the Business as it is presently conducted, nor are any
such expenditures planned.
4.11 Inventories. The Inventories consist solely of raw materials,
supplies, work-in-process and finished goods and have been valued at the lower
of cost or market. The Inventories consists of a quantity and quality which are
usable and salable at normal profit margins and within customary time periods in
the ordinary course of the Business and contain no material amount of
slow-moving, obsolete or damaged items. The Inventories which consist of
9
<PAGE>
work-in-process are being completed on schedule and there are no forfeitures,
chargebacks or penalties which have been or to Seller's knowledge will be
incurred due to the failure of Seller to complete the work-in-progress in a
timely manner. The values at which inventory is reflected on the Financial
Statements have been determined on a FIFO basis in accordance with generally
accepted accounting principles consistently applied for all periods, with
appropriate writedowns for slow-moving, obsolete and damaged merchandise. None
of the Inventories have been consigned to others, nor is any inventory consigned
to Seller. Except as set forth in the Disclosure Schedule, all of the
Inventories are located at the Orlando Facility and the Visalia Facility. The
Inventories are sufficient and adequate for, but are not in excess of, the level
appropriate to the customary conduct of the Business as it previously has been
conducted.
4.12 Intellectual Property. The Disclosure Schedule lists (or, in the case
of trade secrets and secret processes, generally describes) all of the following
which are owned by Seller and used or held for use in the Business and which are
included within the Purchased Assets: (i) patents and patent applications, (ii)
trademarks, trade names, service marks and registrations and applications for
registrations thereof, (iii) copyrights and copyright registrations, and (iv)
trade secrets (including formulas) and secret processes (the "Intellectual
Property"). The Disclosure Schedule lists for each item of Intellectual Property
owned by the Seller and which is patented or registered with the United States
or any foreign or state agency or office, the patent or registration number
thereof, the date of patent issuance or registration and the agency or office
where so patented or registered. The Intellectual Property is all of the
intellectual property that is used in or necessary for the conduct of the
Business, as presently conducted. Except as otherwise described on the
Disclosure Schedule, the Seller is the sole owner of all right, title and
interest in and to the Intellectual Property. With respect to any Intellectual
Property which is not owned by the Seller, the Seller has valid, binding and
enforceable rights to use such Intellectual Property. There are no interference,
opposition or cancellation proceedings pending or, to Seller's knowledge
threatened, against Seller or any of the Intellectual Property. Seller's use of
the Intellectual Property does not infringe upon the rights of any third party.
No claim, suit or action is pending or, to Seller's knowledge threatened,
alleging that Seller is infringing upon the intellectual property rights of
others. Except as set forth on the Disclosure Schedule, Seller has not licensed
or permitted any third party to use any of the Intellectual Property.
4.13 Insurance.
(a) General. The Disclosure Schedule lists and contains a description
of each policy of insurance owned or held by Seller for the Business
currently in effect (including without limitation, policies for fire and
casualty, liability, worker's compensation, business interruption, umbrella
coverage, products liability, medical, disability and other forms of
insurance) specifying the insurer, amount of coverage, type of insurance,
policy number, deductible limits and any pending claim in excess of $1,000,
whether or not covered by insurance (the "Insurance"). The Insurance is in
full force and effect, all premiums with respect thereto covering all
periods up to and including the date hereof have been paid, and no notice
of cancellation or termination has been received by Seller with respect to
any such policy. The Insurance is sufficient for compliance with all
requirements of law and with all agreements to which Seller is a party. The
policies evidencing the Insurance are valid, outstanding and enforceable
policies subject to the terms and conditions contained therein, and there
has not occurred any act or omission of
10
<PAGE>
Seller which could result in cancellation of any such policy prior to
its scheduled expiration date. Seller has not received any notice from or
on behalf of any insurance carrier issuing any such policy that: (i)
insurance rates will hereafter be substantially increased with respect to
the Business; (ii) there will hereafter be no renewal of any such policy;
or (iii) alteration of any personal or real property or purchase of
additional equipment, or modification of any method of conducting the
Business, is required or suggested.
(b) Denials of Coverage. Except as set forth on the Disclosure
Schedule, Seller has not been refused any insurance with respect to the
Business, nor has Seller's coverage been limited by any insurance carrier
to which it has applied for or with which it has carried insurance.
(c) Claims. Except as set forth on the Disclosure Schedule, there have
been no claims (other than workers compensation claims) of property damage
and personal injury or death against Seller which relate to the Business
and are currently pending or were made since January 1, 1996. Except as set
forth on the Disclosure Schedule, all of such claims are fully satisfied or
are being defended by an insurance carrier and involve no material exposure
to Seller.
4.14 Licenses. Seller possesses all material governmental, regulatory,
administrative and non-governmental licenses, permits, approvals, registrations,
certifications, accreditations and other authorizations (including, without
limitation, occupancy permits for real estate and permits required pursuant to
Environmental Laws) (collectively, the "Licenses") as are necessary, appropriate
or desirable for the conduct of the Business and ownership and use of the
Purchased Assets, and, except as set forth on the Disclosure Schedule, each
License is assignable to Buyer in accordance with its present terms. The
Disclosure Schedule sets forth a list of all of the Licenses and true and
complete copies of each written document evidencing or affecting any of the
Licenses have been previously delivered to Buyer. Seller is in compliance in all
material respects with the terms and conditions of all of the Licenses. Neither
the execution of this Agreement nor the consummation of the transactions
contemplated hereby will result in the revocation, or an adverse change in the
terms or conditions, of any of the Licenses, and all Licenses shall continue in
full force and effect in accordance with their present terms unaffected by the
consummation of the transactions contemplated hereby.
4.15 Material Contracts and Other Descriptions and Lists. The Disclosure
Schedule identifies and briefly describes the following which relate to the
Business:
(a) Leases. All leases or rentals of personal property;
(b) Owned Personal Property. All items of personal property owned by
the Seller which have a book value or estimated current market value in
excess of $2,000;
(c) Purchase and Sale Orders. A list of written or oral agreements
relating to the purchase or sale of products, services or supplies by
Seller, other than individual purchase or sales orders issued in the
ordinary course of business for amounts in each
11
<PAGE>
case not in excess of $10,000 individually or $25,000 in the aggregate
of all such orders with the same or related parties;
(d) Certain Agreements. A list of the following described types of
agreements or documents: (i) dealership, distributorship, sales
representative or similar agreements; (ii) license, royalty or similar
agreements; (iii) service or maintenance; (iv) protective services or
security; (v) railroad track or spur track; and (vi) commission or other
contingent agreements pursuant to which Seller's obligation to make
payments is in excess of $10,000 per year, or pursuant to which Seller's
obligation to make contingent payments is dependent upon sales, revenues,
income, success or other performance standard;
(e) Other Financial Obligations. A list of any other written or oral
agreements or commitment which requires Seller to pay or expend, or which
may require Buyer after the Closing to pay or expend, more than $10,000 in
any single instance or $25,000 in the aggregate of all such instances with
the same or related parties;
(f) Personnel. A copy of an employee handbook and/or policy manual for
the employees of the Business, as well as a list of: (i) all officers of
the Business; (ii) the names, current annual salary rates (and bonus,
incentive or commission arrangements, and any other compensation paid or
promised), current positions, current geographical locations and current
employment status (e.g., active, inactive-layoff, inactive-disability
leave, etc.), (iii) all loans made by Seller to any employee of the
Business and a statement of the terms thereof; and (iv) all employees of
the Business who are currently laid-off or on parental, disability or other
leave;
(g) Employment Contracts. A list of all written or oral employment,
bonus, incentive compensation, profit sharing, retirement, pension,
salary-continuation, post-retirement benefit, death benefit, vacation or
other fringe benefit agreements in effect, or under which any amounts
remain unpaid, on the date of this Agreement or to become payable or
effective after the date of this Agreement;
(h) Accrued Vacation Pay. A list of all employees who are expected, as
of the Closing Date, to have earned but unused vacation days (or earned but
unpaid vacation pay in lieu thereof), together with an estimate of the
dollar amount thereof;
(i) Terminated Employees. A list of all employees earning base salary
at an annual rate of $35,000 or more who have terminated employment since
January 1, 1999 (and the reason for such termination), who have announced
their intention to terminate employment or who Seller has reason to believe
will terminate (or will not accept) employment with Buyer;
(j) Capital Expenditures. A list of all outstanding written or oral
commitments by Seller to make a capital expenditure, capital addition or
capital improvement;
12
<PAGE>
(k) Non-Compete Covenants. A list of any written or oral covenants not
to compete, non-solicitation covenants and non-disclosure covenants in
favor of Seller, or binding upon or against Seller;
(l) Powers of Attorney. The names of all persons holding powers of
attorney from the Seller and a summary statement of the terms thereof; and
(m) Non-Ordinary Course Agreements. A list and description of any
contract, agreement or arrangement binding upon Seller and which was made
or entered into other than in the ordinary course of the Business.
Accurate and complete copies of each agreement or document described in this
Section heretofore have been previously furnished to Buyer or are attached to
the Disclosure Schedule.
4.16 Litigation. Except as set forth on the Disclosure Schedule, there is
not now, and there has not been since January 1, 1996, any litigation, claim,
proceeding or investigation pending, or, to Seller's knowledge, threatened
against or relating to the Business, or the transactions contemplated herein.
The Disclosure Schedule discloses, with respect to each item described thereon,
the name or title of the action (and parties or potential parties thereto), a
description of the nature of the action or claim, and an estimate of the maximum
liability of Seller in the event of an adverse result. Except as so described,
Seller knows of no state of facts or circumstances which reasonably could be
expected to ripen into litigation, proceeding or investigation or adversely
affect the properties, business or prospects of the Business. Except as
described on the Disclosure Schedule, there is no outstanding order, decree or
stipulation issued by any federal, state or local authority to which Seller is a
party or is subject, and in either case which adversely affects or may adversely
affect the properties, business or prospects of the Business.
4.17 Compliance With Law. Except as set forth on the Disclosure Schedule,
the conduct of the Business does not violate in any material respect, nor is
Seller in material default under, any law, statute, ordinance, rule, regulation,
code, license, permit, guideline, order, arbitration award, judgment or decree,
and Buyer will not after the Closing incur any liability or obligation as a
result of any such violation or default existing at the Closing or arising or
accruing thereafter but based upon conditions extant at the Closing. Except as
set forth on the Disclosure Schedule, no material expenditures are anticipated
which are necessary or appropriate for the continuation of the Business in
compliance with any such law, statute, rule, regulation, code, license, permit,
guidelines, order, arbitration award, judgment or decree.
4.18 Environmental Concerns.
(a) No Violations. Except as set forth on the Disclosure Schedule,
Seller has never violated or received, or to its knowledge been threatened
with a written notice, directive or violation report asserting any
violation of any Environmental Law with respect to the Business or the
Purchased Assets.
(b) No Proceedings. Except as set forth on the Disclosure Schedule, no
suit, proceeding or other administrative or legal action has ever been
instituted against Seller, by any federal, state or local governmental
13
<PAGE>
department or agency or any other person or entity concerning any
Environmental Laws with respect to the Business or the Purchased Assets.
(c) Claims for Remediation. Except as set forth on the Disclosure
Schedule, Seller has never received, from any federal, state or local
governmental department or agency or arbitrator or any other person or
entity, any claim, demand, directive, injunction, writ, guideline, order
decree or request to investigate, restore, repair, clean up or otherwise
remediate, or to contribute to the costs of investigating, restoring,
repairing, cleaning up or otherwise remediating the real property on which
either Facility is located.
(d) Compliance. Except as set forth on the Disclosure Schedule: (i)
Seller is, and at all times in the past has been, in compliance in all
material respects with all Environmental Laws; (ii) Seller has obtained all
permits, authorizations, licenses, or approvals which are necessary or
required under Environmental Laws in connection with operation of the
Business, and Seller is in compliance in all material respects with such
permits, authorizations, licenses, and approvals; (iii) no asbestos, urea
formaldehyde or polychlorinated biphenyls are present on, at, in or under
either Facility; and (iv) none of the assets or operations of the Business
is required to be upgraded, modified, or replaced in order to be in
compliance in all material respects with Environmental Laws.
(e) No Releases. Except as set forth on the Disclosure Schedule: (i)
except in accordance with applicable Environmental Laws, Seller has not
disposed of, spilled, discharged, released or otherwise placed any
Environmental Materials, on, at, in or under the either Facility; (ii)
except in accordance with applicable Environmental Laws, to the knowledge
of Seller, no third party has disposed of, spilled, discharged, released or
otherwise placed any Environmental Materials on, at, in or under either
Facility or any real property adjacent to either Facility; and (iii) other
than the information provided in (i) and (ii), there has been no release,
discharge, leakage, seepage or migration of any Environmental Materials
from any aboveground or, to the knowledge of Seller, underground storage
tank or any other structure currently or, to the knowledge of Seller,
previously located on, at, in or under either Facility.
(f) Certain Uses. Except as set forth on the Disclosure Schedule: (i)
no septic systems or wells exist on, at, in or to Sellers' knowledge under
either Facility; (ii) to Sellers' knowledge neither Facility has been used
as a landfill, dump site or any other use which involves the disposal of
Environmental Materials in a manner which may subject Seller, Buyer or the
Business to any claim for investigation, remediation or damages, and (iii)
except with respect to the storage, use, generation, handling or removal
from the Facilities of Environmental Materials in the ordinary course of
business and in compliance with all Environmental Laws, no Environmental
Materials are currently located at or to Sellers' knowledge have ever been
used, generated, treated, stored, disposed of, handled on or removed from
the Facilities.
(g) Storage Tanks. Except as set forth on the Disclosure Schedule to
Sellers' knowledge, no aboveground or underground storage tanks have ever
been located on, at, in or under either Facility.
14
<PAGE>
(h) List of Reports and Disposal Sites. The Disclosure Schedule
includes a list of: (i) all environmental investigative reports, studies or
assessments (including, but not limited to, Phase I and Phase II
assessments), compliance audits, laboratory analytical data, technical
reviews, or the like with respect to Seller, the Facilities, the Business
or any of the Purchased Assets; that have been prepared since January 1,
1997 and (ii) all past and present locations where Environmental Materials,
which currently are or have been controlled by the Seller have been sent,
spilled, released, discharged or disposed during the period of control by
Seller.
(i) Assumption of Liability. Except as set forth on the Disclosure
Schedule, the Seller has not assumed and will not assume any liability of
any person or entity under any Environmental Laws.
(j) Definitions. For purposes of this Section, the following terms
shall have the following meanings:
(i) "Environmental Laws" shall mean, collectively, the federal
Clean Air Act, the federal Clean Water Act, the federal Resource
Conservation and Recovery Act, the federal Comprehensive Environmental
Response, Compensation and Liability Act, the federal Toxic Substances
Control Act, principles of common law and any other federal, state or
local laws, including rules and regulations thereunder, regulating or
otherwise affecting or relating to human health or the environment.
(ii) "Environmental Materials" shall mean, collectively, any
substance, chemical, waste, contaminant or pollutant which is
regulated, listed, defined as or determined to be hazardous, extremely
hazardous, toxic, dangerous or restricted under any Environmental
Laws.
4.19 Contingent and Undisclosed Liabilities. Seller has no material debts,
obligations or liabilities affecting or relating to the Business or the
Purchased Assets, nor are the Business or Purchased Assets subject to the
imposition of any valid governmental or third-party claim arising from the
conduct of the Business or the ownership or use of the Purchased Assets on or
prior to the date hereof, whether such obligation, liabilities or claims are now
known or unknown, fixed or contingent, of any nature whatsoever, except: (i)
those fully disclosed on the Disclosure Schedule (including all sections
thereof), or (ii) those contractual and tax liabilities which have arisen in the
ordinary course of the Business and consistent with past practice from June 30,
1999 through the date hereof and which are not, singly or in the aggregate,
materially adverse to the Business.
4.20 Taxes. The Disclosure Schedule lists the jurisdictions in which Seller
files or is required to file any state or local tax return with respect to the
Business. Other than from such states, no correspondence has been received by
Seller from any state taxing authority requesting information concerning the
extent of Seller's nexus with such state or asserting that Seller has such nexus
so as to impose such state's taxing jurisdiction on Seller, and Seller does not
have a nexus with any state not listed on the Disclosure Schedule with reference
to this Section which would allow such state to impose its taxing jurisdiction
on Seller. All taxes and assessments
15
<PAGE>
which Seller was or is required by law to withhold or collect have been and are
being withheld or collected by it and have been paid over to the proper
governmental authorities or, if not yet due, are being held by Seller for such
payment. All such taxes and assessments which are not yet due will be paid as
they become due.
4.21 Labor Contracts. Seller is not a party to any collective bargaining
agreement or bound to any other agreement with a labor union affecting or
relating to the Business or its employees. The labor relations of the Business
are satisfactory in that there has not been since January 1, 1996, nor is there
currently, any strike, walkout or work stoppage; nor, to Seller's knowledge, is
any such action threatened. There are no proceedings pending for certification
or representation before the National Labor Relations Board nor has there been
any attempt since January 1, 1996 to organize the employees of the Business into
a collective bargaining unit. With respect to the Business, there is no
investigation pending, nor is there any uncorrected or unresolved citation,
complaint or charge issued, by any agency responsible for administering or
enforcing laws relating to labor relations, employee safety or health, fair
labor standards and equal employment opportunity nor, to Seller's knowledge, is
any such proceeding threatened.
4.22 Performance of Contracts, Etc. Except as set forth on the Disclosure
Schedule, Seller is not in default, in any material respect, under, nor has it
breached any provision of, any Contract, instrument, document, insurance policy
or other obligation of the Business or which is included in the Purchased
Assets, and there is no material oral modification or past practice inconsistent
with the written terms of any of the foregoing. All such Contracts, instruments,
documents, policies and other obligations are currently in full force and
effect, and to Seller's knowledge the other parties to such Contracts,
instruments, documents, policies and other obligations have complied, in all
material respects, with their obligations thereunder and are not in any material
breach thereof. In all material respects, Seller fully has performed each such
term, condition and covenant of each such Contract, instrument, document, policy
or other obligation required to be performed on or prior to the date hereof.
Seller knows of no state of facts which, with the giving of notice or the
passing of time, or both, would give rise to any material default under any such
Contract, instrument, document, policy or other obligation.
4.23 Employee Benefit Plans.
(a) General. The Disclosure Schedule sets forth a true and complete
list and brief description of each "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) and all other employee benefit plans maintained, or
contributed to, or required to be contributed to, by Seller for the benefit
of any officers or employees, current or former, active or inactive, of the
Business, whether on an active or frozen basis (all the foregoing being
herein called "Benefit Plans"). Seller does not have any formal plan or
commitment, whether legally binding or not, to modify or change any
existing Benefit Plan that would affect any employee or former employee of
Seller.
(b) PBGC. No employee pension benefit plan as defined in Section 3(2)
of ERISA (hereinafter "Pension Plan") is subject to Title IV of ERISA and
there are no facts which might give rise to any liability of Seller under
Title IV of ERISA and which
16
<PAGE>
could reasonably be anticipated to result in any claims being made
against Seller by the Pension Benefit Guaranty Corporation with respect to
any Pension Plan. For purposes of the preceding sentence and Section
4.23(e) hereof, the term "Seller" shall be used to refer also to any entity
which is under common control or affiliated with Seller, within the meaning
of Section 4001(b)(1) of ERISA, and the rules and regulations promulgated
thereunder and/or Sections 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations
promulgated thereunder.
(c) Post-Retirement Benefits. No Benefit Plan provides benefits,
including without limitation, death, disability, or medical benefits
(whether or not insured), with respect to current or former employees of
the Business beyond their retirement or other termination of service other
than (i) coverage mandated by applicable law, or (ii) death benefits or
retirement benefits under any Pension Plan.
(d) COBRA. Each "group health plan" (within the meaning of Section
5000(b)(1) of the Code) maintained by Seller as of the first day of each
group health plan's first plan year beginning on or after July 1, 1986, has
been administered in compliance with the continuation coverage requirements
initially enacted as a part of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and as formerly provided under Section
162(k) of the Code and as currently provided under Sections 601 through 609
of ERISA and Section 4980B of the Code and any regulations promulgated or
proposed under any of those Code or ERISA sections.
(e) Multiemployer Plans. At no time has Seller been required to
contribute to, or incurred any withdrawal liability (within the meaning of
Section 4201 of ERISA) to any Benefit Plan which is a multiemployer plan as
defined in ERISA Section 3(37).
(f) Foreign Employees. There are no officers or employees, current or
former, active or inactive, of the Business working outside the United
States.
4.24 Products Liability; Warranties.
(a) Except as otherwise set forth on the Disclosure Schedule: (i)
there exists no (A) material defect in the design or manufacture of any
product of the Business designed, manufactured or sold by Seller or to
Sellers' knowledge any predecessor in interest to Seller, or (B) pending
or, to Seller's knowledge, threatened action, suit, inquiry, proceeding or
investigation by or before any governmental authority or commission
relating to any product of the Business alleged to have been manufactured,
distributed or sold by Seller to others, and alleged to have been defective
or improperly designed or manufactured or in breach of any express or
implied product warranty ("Products Liability"); (ii) there exists no
pending or, to Seller's knowledge, threatened Products Liability claims;
and (iii) to Sellers' knowledge there is no valid basis for any such suit,
inquiry, action, proceeding, investigation or claim. Seller is insured, and
has been insured continuously since January 1, 1996, against Product
Liabilities, in accordance with the insurance policies identified on the
Disclosure Schedule (which includes a statement of the name of the insurer,
the type of policy [i.e., a "claims made" or "occurrence" policy], the
amounts of coverage and the applicable deductible limits).
17
<PAGE>
The Financial Statements contain adequate reserves (calculated in
accordance with Financial Accounting Standards Board Statements of
Financial Accounting Standards No. 5) for all Products Liability claims
which are probable or reasonably possible to be asserted.
(b) The Disclosure Schedule sets forth the material terms and
conditions of all express product warranties under which Seller may have
liability with respect to the Business after the Closing.
4.25 Changes in Financial Position. Since June 30, 1999, the Business has
been conducted in the ordinary course thereof and consistent with past practice,
and except as described on the Disclosure Schedule, there has not been:
(a) Financial Conditions. Any material and adverse change in the
business, assets, condition (financial or otherwise) or prospects of the
Business;
(b) Business or Property Damage. Any material damage, destruction or
loss (whether or not covered by insurance) adversely affecting the
business, properties or prospects of the Business; or
(c) Extraordinary Events. Any transaction outside the ordinary course
of the Business.
4.26 Events Subsequent to June 30, 1999. Except as described on the
Disclosure Schedule, Seller has not, since June 30, 1999, taken any of the
following actions with respect to the Business:
(a) Incurred Liabilities. Incurred any obligation or liability
(absolute, contingent, accrued or otherwise), or guaranteed or become a
surety of any debt, except in connection with the performance of this
Agreement or in the ordinary course of business;
(b) Discharged Debt. Discharged or satisfied any lien or encumbrance,
or paid or satisfied any obligation or liability (absolute, contingent,
accrued or otherwise) other than liabilities incurred since June 30, 1999
in the ordinary course of business;
(c) Reserves. Increased or established any reserve for taxes or bad
accounts or any other liability on its books or otherwise provided
therefor;
(d) Encumbrances. Mortgaged, pledged or subjected to any lien, charge,
security interest or other encumbrance any of the Purchased Assets,
tangible or intangible;
(e) Disposition of Assets. Sold or transferred any of its assets, or
canceled any debts or claims or waived any rights, except sales of
inventory in the ordinary course of business;
18
<PAGE>
(f) Equity Issuance. Issued any shares, bonds, debentures, options,
warrants or other securities;
(g) Sale of Business. Entered into any contract for the sale of the
Business, or any part thereof or for the purchase of another business,
whether by merger, consolidation, exchange of capital stock, partnership
interests or otherwise (other than negotiations with respect to this
Agreement);
(h) Increase Compensation. Increased or promised to increase the
compensation or fringe benefits of any employee or officer of the Business
who will be a Terminated Employee (as defined in Section 6.7), or
instituted any general wage increase applicable to the Terminated
Employees, or any specified sub-group of Terminated Employees;
(i) Working Capital. Accelerated the collection of any accounts or
other amount receivable, deferred the payment of its accounts payable or
accrued expenses, accelerated the conversion of Inventories to account
receivable or taken any other action outside the ordinary course of
business;
(j) Accounting Procedure. Changed or modified its accounting methods
or practices;
(k) Capital Expenditure. Purchased or made a commitment for the
purchase of capital assets in an amount exceeding $5,000;
(l) Settle Litigation. Settled, or agreed to settle, any litigation,
arbitration or other proceeding, pending or threatened;
(m) Employment and Labor Contracts. Entered into, amended, renewed or
extended any employment Contract or collective bargaining agreement;
(n) Other Contracts. Entered into (or amended) any other written or
oral contract with any other person or entity which is either (i) disclosed
on the Disclosure Schedule, or (ii) involves total payments or expenditures
to any single person or entity of more than $5,000 on any single contract,
or $10,000 in the aggregate of all such contracts with the same or related
parties, or which was not entered into (or amended) in the ordinary course
of business;
(o) Breach of Contract. Performed any act, or attempted to do any act,
or permitted any act or omission to act, which would cause a breach of any
Contract or License;
(p) Related Party Transaction. Engaged in any transaction of the types
described in Section 4.29 with a Related Party (as defined herein); or
(q) Certain Agreements. Agreed, orally or in writing, to do any of the
foregoing.
19
<PAGE>
4.27 Customers and Suppliers. The Disclosure Schedule lists, in descending
order, all customers of the Business accounting for at least 1.0% of annual
sales revenue in Seller's most recently completed fiscal year and the ten
suppliers of raw materials or supplies accounting for the largest annual expense
to Seller with respect to the Business. Seller has received no notice that (a)
any customer of the Business who accounted for more than 1.0% of sales during
its immediately preceding fiscal year or (b) any supplier to the Business (if
such supplier could not be replaced by the Business with no material adverse
effect to it), has terminated, curtailed, reduced, deferred, delayed or
otherwise adversely impacted its business relations with the Business or is
expected to or will take any such actions after the Closing.
4.28 Brokerage. Neither Seller nor EcoScience has incurred, or made
commitments for, any brokerage, finders' or similar fee in connection with the
transaction contemplated by this Agreement.
4.29 Related Party Transactions. The Business has not since January 1, 1996
required any goods or services to be provided by, or to, any Related Party,
except as set forth on the Disclosure Schedule. Except as specifically described
on the Disclosure Schedule, the Business: (a) has not had any financial
transactions or arrangements (other than payment of regular salary to Related
Parties who are employees) with any Related Party with respect to the Business
since January 1, 1996, and (b) does not have and will not have any present or
future obligation to enter into any transaction or arrangement with any Related
Party with respect to the Business. For purposes hereof, the term "Related
Party", shall mean: (i) any shareholder, officer or director of Seller, (ii) any
spouse, in-law or lineal descendant of any Related Party, and (iii) any person
who, directly or indirectly, controls or is controlled by or is under common
control with Seller. For purposes of this definition, "person" shall mean an
individual, partnership, corporation, limited liability company, trust,
unincorporated organization or other entity; and "control," as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities, by contract or otherwise.
4.30 Bulk Transfer Laws. No bulk transfer, bulk sale or similar laws are
applicable to the purchase and sale of the Purchased Assets and the Business and
neither Seller nor Buyer is required to make any filing with any governmental
authority or provide any bulk sale, bulk transfer or similar notice to creditors
of Seller in connection with any such law.
4.31 Representations and Warranties True and Correct. The representations
and warranties contained herein, all other agreements, documents and
certifications delivered by Seller to Buyer pursuant to this Agreement, and the
Disclosure Schedule, do not include any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein in order
to make the statements herein or therein, in light of the circumstances under
which they are made, not misleading.
4.32 No Unusual Matters. Except as set forth on the Disclosure Schedule,
Seller knows of no matter of an unusual nature exists which is applicable
specifically to the Business and which has or may have a materially adverse
effect upon the Business.
20
<PAGE>
ARTICLE V
BUYER'S REPRESENTATIONS
In order to induce Seller to enter into this Agreement, Buyer makes the
following representations and warranties to Seller, each of which shall be
deemed to be independently material and relied upon by Seller, regardless of any
investigation made by, or information known to, the Seller.
5.1 Organization. Buyer is a limited liability company duly organized and
validly existing under the laws of the State of Washington.
5.2 Enforceability; Conflicting Obligations. This Agreement and all other
agreements of Buyer contemplated hereby are or, upon the execution thereof, will
be the valid and binding obligations of Buyer enforceable against it in
accordance with their terms. The execution and delivery of this Agreement do
not, and the consummation of the purchase of the Purchased Assets will not,
conflict with or violate any provision of Buyer's certificate of formation or
LLC agreement, nor any provisions of, or result in the acceleration of, any
obligation of Buyer.
5.3 Authorization. Buyer has all necessary power and authority to enter
into and perform the transactions contemplated herein in accordance with the
terms and conditions hereof. The execution and delivery of this Agreement, and
the performance by Buyer of its obligations contained herein, have been duly
approved by Buyer's Board of Managers.
5.4 Brokerage. Buyer has not incurred, nor made commitment for, any
brokerage, finders or similar fee in connection with the transactions
contemplated by this Agreement.
5.5 Litigation. There is no litigation, proceeding or governmental
investigation pending, or to Buyer's knowledge, threatened against or relating
to the transactions contemplated herein.
ARTICLE VI
COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
6.1 Access. From the date hereof and until the Closing Date, Buyer and its
authorized officers, agents and representatives shall have reasonable access
during normal business hours to all properties, books, records, contracts, tax
returns and documents of Seller which are related to the Business; provided,
however, that Buyer shall inform Seller of its intention to seek access and the
matters sought to be reviewed at least twenty-four (24) hours in advance and,
further, that the access requested shall not interfere unreasonably with the
Business. Seller shall cooperate with Buyer by using its best efforts to cause
the major customers and suppliers of the Business to meet with and respond to
all questions posed by Buyer concerning the Business and promptly responding to,
and causing Seller's officers and employees promptly to respond to, all
questions posed by Buyer concerning the Business.
21
<PAGE>
6.2 Operation of Business. From the date hereof and until the Closing Date,
without the express prior written consent of Buyer, Seller shall operate the
Business in the ordinary course .
6.3 Preservation of Business. From the date hereof and until the Closing
Date, Seller shall carry on the Business diligently and substantially in the
ordinary course of business consistent with past practice and shall use its best
efforts to keep the Business organization intact, including its present
relationships with employees, suppliers and customers and others having business
relations with it except where the failure to maintain such relationship would
not have a material adverse effect on the Business. Seller shall maintain at all
times in inventory quantities of raw materials, finished goods, spare parts and
other supplies and materials sufficient to allow Buyer to continue to operate
the Business, after the Closing Date, free from any shortage of such items.
6.4 Insurance and Maintenance of Property. From the date hereof and until
the Closing Date, Seller shall cause the Facilities and the Purchased Assets to
be insured against all ordinary insurable risks and shall maintain in effect all
the Insurance, and shall operate, maintain and repair all of its property in a
manner consistent with past practice.
6.5 Compliance with Laws. From the date hereof and until the Closing Date,
Seller shall comply with all applicable laws, statutes, ordinances, rules,
regulations, guidelines, orders, arbitration awards, judgments and decrees
applicable to, or binding upon, Seller or its business or properties. At its own
expense, Seller will provide timely and complete notices (which shall be
reasonably acceptable to Buyer) to Governmental Authorities of all matters which
occurred prior to the Closing Date (whether or not referenced on the Disclosure
Schedule) required to be disclosed to such authorities pursuant to Environmental
Laws.
6.6 Fulfill Conditions. Seller shall use its best efforts to cause to be
fulfilled on or prior to the Closing each of the conditions set forth in Article
VIII hereof.
6.7 Employment Matters.
(a) Employees. Effective on the Closing Date, Seller shall terminate
the employment of all employees engaged in the Business (the "Terminated
Employees"), except Lucie Grant and Douglas McDowell and shall terminate
any employment agreements with such Terminated Employees.
(b) McDowell Arrangement. Buyer and Seller agree that Douglas McDowell
shall remain an employee of Seller following the Closing Date; however,
during the six month period following the Closing Date, Seller will furnish
to Buyer the services of Douglas McDowell for approximately 50% of the
hours worked by Douglas McDowell, and Buyer agrees to reimburse Seller for
50% of the cost of Douglas McDowell's salary, other employee benefits, and
reimbursable expenses during such six month period. Such reimbursement
shall be made on a monthly basis and shall be paid within 30 days of the
delivery of an invoice by Seller to Buyer for such services. After the
expiration of the six month period following the Closing Date, Seller and
Buyer agree to review the
22
<PAGE>
arrangement pursuant to which the services of Douglas McDowell are
provided and negotiate mutually agreeable changes to such arrangement, as
required.
6.8 Release of Security Interests. Except as set forth in Section 8.8,
Seller shall on or prior to the Closing Date deliver to Buyer such documents as
are necessary to terminate and release all security interests and other
encumbrances on the Purchased Assets, including those listed on the Disclosure
Schedule, which documents shall be in form and substance acceptable to the Buyer
and shall include without limitation, all documents necessary to terminate of
record any such security interest or encumbrance.
6.9 Documents of Transfer. On the Closing Date, Seller shall duly execute
and deliver to Buyer (i) an Assignment and Bill of Sale in form and substance as
Exhibit B attached hereto, (ii) certificates of title sufficiently endorsed to
transfer the Vehicles to Buyer (to be delivered within 10 days following
Closing, as set forth in Section 8.8), and (iii) assignments which assign to
Buyer the following (in form and substance reasonably satisfactory to counsel
for Buyer):
(a) All intellectual property rights, including trademarks, trade
names, slogans, patents, inventions, patent applications, copyrights and
copyright applications
(b) All Contracts; and
(c) All assignable Licenses.
6.10 Noncompetition Agreement. On the Closing Date, each of Seller and
EcoScience shall execute and deliver to Buyer the Noncompetition Agreement, in
the form attached hereto as Exhibit C (the "Noncompetition Agreement").
6.11 Exclusive Supply Agreement. On the Closing Date, Seller shall execute
and deliver to Buyer an agreement whereby Buyer becomes the exclusive
distributor in the United States for Seller's BioSave biofungicide products, in
the form attached hereto as Exhibit D (the "Exclusive Supply Agreement").
6.12 Trademark Assignment Agreement. On the Closing Date, Seller shall
execute and deliver to Buyer the Trademark Assignment Agreement in the form
attached hereto as Exhibit E (the "Trademark Assignment Agreement").
6.13 Facility Leases. On the Closing Date, EcoScience shall execute and
deliver to Buyer an Assignment and Assumption Agreement (one with respect to
each Facility Lease) (jointly the "Facility Lease Assignment and Assumption
Agreements") including the consent to assignment of the lessor (with respect to
the Orlando Facility), in the forms attached hereto as Exhibit F and Exhibit G,
and Seller shall pay all fees, charges and other costs that are required or
imposed in connection with obtaining such consents;
6.14 Orlando Facility Sublease. On the Closing Date, Seller shall execute
and deliver to Buyer a sublease agreement, pursuant to which Buyer will grant
Seller the right to use certain space within the Orlando Facility, for a term
ending March 31, 2000, in the form of Exhibit H (the "Orlando Facility
Sublease") together with the consent of the lessor to such sublease.
23
<PAGE>
6.15 Other Deliveries. On the Closing Date, Seller shall deliver to Buyer
the following:
(a) All consents for the assignment of Contracts and Licenses, which
are necessary in order for said Contracts and Licenses to be assigned to
Buyer upon their present terms and Seller shall pay all fees, charges and
other costs that are required or imposed in connection with obtaining any
such consents; and
(b) All other documents reasonably requested by counsel for Buyer to
consummate the transactions herein contemplated.
6.16 Transfer Taxes. Seller shall pay all sales and other transfer taxes,
resulting from the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS OF BUYER
Buyer covenants and agrees with Seller as follows:
7.1 Employees. As of the Closing Date, Buyer shall offer employment to all
of the Terminated Employees except John Hunter, who will be offered a consulting
arrangement by Buyer (such hired persons being the "Hired Employees"), at
initial salaries and with initial benefits comparable to those immediately prior
to the termination. For the purposes of determining and measuring benefits
provided to any given Hired Employee by Buyer, each Hired Employee will be given
credit for the Hired Employee's term of service to Seller (except with respect
to the vesting rules for Buyer's 401(k) plan.).
7.2 Noncompetition Agreement. On the Closing Date, Buyer shall execute and
deliver to Seller and EcoScience the Noncompetition Agreement.
7.3 Distribution Agreement. On the Closing Date, Buyer shall execute and
deliver to Seller the Distribution Agreement.
7.4 Facilities Leases. On the Closing Date, Buyer shall execute and deliver
to Seller a Facility Lease Assignment and Assumption Agreement with respect to
each Facility Lease.
7.5 Orlando Facility Sublease. On the Closing Date, Buyer shall execute and
deliver to Seller the Orlando Facility Sublease.
7.6 Trademark Assignment Agreement. On the Closing Date, Buyer shall
execute and deliver to Seller the Trademark Assignment Agreement.
24
<PAGE>
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction and fulfillment, prior to and on
the Closing Date, of the following express conditions precedent:
8.1 Representation and Warranties. The representations and warranties in
this Agreement made by Seller and EcoScience shall be true and correct in all
material respects as of and at the Closing Date.
8.2 Performance of Covenants and Obligations. Seller shall have performed
and complied in all material respects with all of its covenants and obligations
under this Agreement which are to be performed or complied with by them prior to
or on the Closing Date.
8.3 Proceedings and Instruments Satisfactory. All proceedings, corporate or
otherwise, to be taken in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall be satisfactory in form and
substance to Buyer; and, Seller shall have made available to Buyer for
examination the originals or true and correct copies of all documents which
Buyer reasonably may request in connection with the transaction contemplated by
this Agreement.
8.4 Adverse Change. From and after the date of this Agreement and until the
Closing Date, Buyer (in its sole and absolute discretion) shall have determined
that there has been no material adverse change in the Business, the Purchased
Assets, or the Business prospects from those disclosed to Buyer in this
Agreement, nor shall there have been any material casualty to the Purchased
Assets, in an amount exceeding $25,000, as a result of any loss, taking,
destruction or physical damage, whether or not covered by insurance, occasioned
by fire, flood, explosion, earthquake, act of God or the public enemy, or
otherwise.
8.5 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency (a) in which it
is sought to restrain, prohibit or obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated hereby,
or (b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with the transactions contemplated hereby.
8.6 Consents, Approvals, Certifications, Licenses and Permits. All
necessary consents, approvals, certifications, licenses and permits with respect
to the transaction contemplated hereby, including, without limitation, the
transfer of the Purchased Assets to Buyer, the absence of which would have a
material adverse effect on Buyer's rights under this Agreement, or which would
constitute a breach pursuant to the provision of, or which would result in the
termination or loss of any right under, any contract, agreement, instrument,
document, lease, license, certification, permit, indenture or other obligation,
or without which Buyer would be precluded or materially impeded from conducting
the Business or obtaining the
25
<PAGE>
benefit of the Purchased Assets, shall have been received by Buyer on or before
the Closing Date.
8.7 Consent to Assignment of Certain Agreements. Seller shall have obtained
all required consents to the assignment of each of the Novartis License
Agreement or Novartis shall have entered into a new distribution agreement with
Buyer, including substantially the same terms and conditions as are included in
the Novartis License Agreement), the Janssen License Agreement and the Customer
Leases.
8.8 Title. Seller shall convey and transfer to Buyer free and clear title
to all the Purchased Assets, and shall present a release from Century Business
Credit Corporation and from any other party with a security interest in the
Purchased Assets, except that clear title to the Vehicles may be delivered
within ten (10) days following Closing. In the event that clear title to the
Vehicles is not delivered within this time period, Seller agrees to immediately
upon demand pay Buyer $72,000.00, upon such payment, equitable title to the
Vehicles shall be transferred to Seller.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
The obligation of Seller to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction and fulfillment, prior to
and on the Closing Date, of the following express conditions precedent:
9.1 Representations and Warranties. The representations and warranties in
this Agreement made by Buyer shall be true and correct in all material respects
as of and at the Closing Date.
9.2 Performance of Covenants and Obligations. Buyer shall have performed
and complied in all material respects with all of its covenants and obligations
under this Agreement which are to be performed or complied with by it prior to
or on the Closing Date.
9.3 Proceedings and Instruments Satisfactory. All proceedings, corporate or
otherwise, to be taken in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall be reasonably satisfactory
in form and substance to Seller; and, Buyer shall have made available to Seller
for examination the originals or true and correct copies of all documents which
Buyer reasonably may request in connection with the transactions contemplated by
this Agreement.
9.4 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency (a) in which it
is sought to restrain, prohibit or obtain damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated hereby
or (b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with the transactions contemplated hereby.
26
<PAGE>
9.5 Novartis. Novartis shall have either consented to the assignment of the
Novartis License Agreement to Buyer or shall have entered into a new
distribution agreement with Buyer, having substantially the same terms and
conditions as the Novartis License Agreement.
9.6 Century Business Credit Corporation. Century Business Credit
Corporation shall have released its security interest in the Purchased Assets.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification of Buyer. Notwithstanding the Closing, and regardless
of any investigation made by, or on behalf of, Buyer, or any information known
to Buyer (other than valid exceptions to representations and warranties
expressly set forth in the Disclosure Schedule), each of Seller and EcoScience,
subject to the terms and conditions of this Article X, jointly and severally
indemnifies and saves Buyer, its members, officers, managers or employees
(collectively, "Buyer" as used in this Article X) harmless from and against any
and all losses, claims, damages, liabilities, costs, expenses or deficiencies
including, but not limited to, reasonable attorneys' fees and other costs and
expenses reasonably incident to proceedings or investigations or the defense or
settlement of any claim or claims, incurred by or asserted against Buyer or the
Purchased Assets due to or resulting from any of the following: (i) the
inaccuracy or breach of any representation or warranty of Seller or EcoScience
given in or pursuant to this Agreement, without giving effect to: (A) any update
to the Disclosure Schedule, (B) any reference to the knowledge of Seller
contained in Sections 4.7, 4.18, 4.22 and 4.24, and (C) any reference to
materiality or the like contained in Sections 4.7 and 4.18; (ii) any breach or
default in the performance by Seller of any of its covenants, obligations or
agreements in or pursuant to this Agreement; (iii) the failure of Seller to
obtain any consent, waiver, authorization or registration necessary for all of
the Purchased Assets to be sold, assigned, transferred, conveyed to or
registered (if such registration is required) in the name of Buyer, or Seller's
failure to provide the benefits of any Restricted Interest as provided in
Section 1.4 hereof and/or otherwise comply with Seller's obligations contained
in said Section 1.4; (iv) any liability or obligation of Seller or EcoScience
not expressly assumed by Buyer pursuant to this Agreement; and (v) the ownership
or conduct of the Business or the ownership or use of the Purchased Assets at
any time prior to the Closing, or any incident, occurrence, condition or claim
existing, arising or accruing prior to the Closing and relating to the operation
or conduct of the Business or the ownership or use of the Purchased Assets other
than any liability or obligation of Seller expressly assumed by Buyer pursuant
to this Agreement. The foregoing are collectively referred to as "Indemnifiable
Damages."
10.2 Indemnification of Seller. Buyer, subject to the terms and conditions
of this Article X, indemnifies and saves Seller, its members, officers,
directors or employees (collectively, "Seller" as used in this Article X)
harmless from and against any and all Indemnifiable Damages incurred by or
asserted against Seller due to or resulting from any of the following: (i) the
inaccuracy or breach of any representation or warranty of Buyer given in or
pursuant to this Agreement; (ii) any breach or default in the performance by
Buyer of any of its covenants, obligations or agreements in or pursuant to this
Agreement; (iii) any liability or obligation of Seller assumed by Buyer pursuant
to this Agreement; and (iv) the ownership or
27
<PAGE>
conduct of the Business or the ownership or use of the Purchased Assets at any
time after the Closing, or any incident, occurrence, condition or claim arising
or accruing after the Closing and relating to the operation or conduct of the
Business or the ownership or use of Purchased Assets.
10.3 Procedures for Making Claims; Defense of Claims.
(a) If and when a party entitled to an indemnification hereunder (an
"Indemnitee") desires to assert a claim for Indemnifiable Damages against a
party required to provide indemnification (an "Indemnitor") pursuant to the
provisions of this Article X, the Indemnitee shall deliver to the
Indemnitor, reasonably promptly after the Indemnitee's receipt of a claim
or specific and affirmative awareness of a potential claim, a certificate
signed by its president (the "Notice of Claim"): (i) stating that the
Indemnitee has paid or accrued (or intends to pay or accrue) Indemnifiable
Damages to which it is entitled to indemnification pursuant to this Article
X and the amount thereof (to the extent then known); and, (ii) specifying
to the extent possible (A) the individual items of loss, damage, liability,
cost, expense or deficiency included in the amount so stated, (B) the date
each such item was or will be paid or accrued, and (C) the basis upon which
Indemnifiable Damages are claimed. If the Indemnitor shall object to such
Notice of Claim, the Indemnitor shall deliver written notice of objection
(the "Notice of Objection") to the Indemnitee within fifteen (15) days
after the Indemnitee's delivery of the Notice of Claim. The Notice of
Objection shall set forth the grounds upon which the objection is based and
state whether the Indemnitor objects to all or only a portion of the matter
described in the Notice of Claim. If the Notice of Objection shall not have
been so delivered within such fifteen (15) day period, the Indemnitor shall
be conclusively deemed to have acknowledged the correctness of the claim or
claims specified in the Notice of Claim for the full amount thereof, and
the Indemnifiable Damages set forth in the Notice of Claim shall be
promptly paid to the Indemnitee by the Indemnitor. If the Indemnitor shall
make timely objection to a claim or claims set forth in any Notice of
Claim, and if such claim or claims shall not have been resolved or
compromised within sixty (60) days from the date of delivery of the Notice
of Objection, then such claims shall be settled by arbitration pursuant to
Section 11.5 hereof. The arbitrator shall promptly obtain such information
regarding the matter the arbitrator deems necessary and shall decide the
matter and render a written award which shall be delivered to Buyer and the
Seller. Any award shall be a conclusive determination of the matter and
shall be binding upon Buyer and Seller. If, by arbitration, it shall be
determined that the Indemnitee shall be entitled to any Indemnifiable
Damages by reason of its claim or claims, the Indemnifiable Damages so
determined shall be paid to the Indemnitee by the Indemnitor in the same
manner as if the Indemnitor had not delivered a Notice of Objection.
(b) If any third party shall assert any claim against an Indemnitee
which, if successful, might result in an obligation of the Indemnitor to
pay Indemnifiable Damages and which can be remedied to the sole
satisfaction of the Indemnitee by the payment of money damages without
further adverse consequence to the Indemnitee (a "Cash Payment Claim"), the
Indemnitor, at its expense, may assume the primary defense thereof with
counsel reasonably acceptable to the Indemnitee. If any third party shall
assert any claim against the Indemnitee which, if successful, might result
in an obligation of the
28
<PAGE>
Indemnitor to pay Indemnifiable Damages and which cannot be remedied
to the sole satisfaction of the Indemnitee by the payment of money damages
without further adverse consequence to the Indemnitee (a "Mixed Claim"),
the Indemnitee shall be entitled to (but shall not be required to) assume
and control the defense of such claims and the Indemnitor, at its expense,
may participate with the Indemnitee in defense thereof with counsel
reasonably acceptable to the Indemnitee. Notwithstanding the foregoing,
Indemnitor may only control the defense of a Cash Payment Claim or
participate in the defense of a Mixed Claim only if and so long as: (i) the
Indemnitor diligently pursues (or, as applicable, participates in) the
defense of such claim; (ii) the Indemnitor acknowledges to the Indemnitee
in writing that the claim, if resolved or settled adversely to the
Indemnitee, is one for which the Indemnitor is obligated to indemnify the
Indemnitee hereunder; and (iii) the Indemnitor demonstrates its financial
capacity to pay the costs of such defense and the amount of Indemnifiable
Damages which may result from an unsuccessful defense of such claim. If the
Indemnitor fails or is unable to so elect to control the defense of a Cash
Payment Claim or participate in the defense of a Mixed Claim, the
Indemnitee may (but need not) do so; in which event the Indemnitee may
defend, settle or compromise the claim, at the expense and cost of the
Indemnitor, in any such manner as the Indemnitee reasonably deems
appropriate. If the Indemnitee elects to assume the defense of any such
claim, the Indemnitee shall keep the Indemnitor informed of all material
developments and shall provide, when requested, copies of all available
information, data and studies relevant to such claim and its defense. If
such claim involves Environmental Laws, the Indemnitor shall be afforded
the opportunity (at its cost) to attend and participate in all meetings
with any regulatory authority. If the Indemnitee proposes a settlement of a
Mixed Claim, the Indemnitee shall use its reasonable efforts to consult
with the Indemnitor regarding such settlement only to the extent the
proposed settlement would involve the payment of Indemnifiable Damages by
the Indemnitor to the Indemnitee and shall obtain the written consent of
Indemnitor before entering into any such settlement; provided, however,
that the Indemnitee shall not be required to consult with the Indemnitor to
the extent that the proposed settlement would not involve the payment of
Indemnifiable Damages by the Indemnitor to the Indemnitee. The Indemnitee
shall not be required to obtain the consent of the Indemnitor to any
proposed settlement of a Mixed Claim if the proposed settlement would not
involve the payment of Indemnifiable Damages by the Indemnitor.
10.4 Survival of Indemnification. The obligations of Seller and EcoScience
to pay Indemnifiable Damages arising out of claims described in Sections
10.1(ii), (iii), (iv), (v) and (vi) hereof and the Buyer's obligation to pay
Indemnifiable Damages arising out of claims described in Sections 10.2(ii),
(iii) and (iv) shall survive the Closing of this transaction for a period
commencing on the date hereof and ending four (4) years after the Closing Date.
Seller's obligation to pay Indemnifiable Damages arising out of Section 10.1(i)
hereof and Buyer's obligation to pay Indemnifiable Damages arising out of
Section 10.2(i) shall survive the Closing Date as follows:
(a) Fraudulent Breach of Representations; Certain Representations. In
the case of a claim based upon the inaccuracy or breach of a representation
or warranty which was made fraudulently or with respect to any
representation or warranty contained in Sections 4.2, 4.3, 4.4, 4.5, 4.28,
5.2, 5.3 and 5.4 hereof and any representation or
29
<PAGE>
warranty which relates to Seller's ownership of or title to the
Purchased Assets, for a period equal to the applicable statute of
limitations;
(b) Taxes. In the case of a claim based upon the inaccuracy or breach
of a representation or warranty pertaining to taxes, for a period equal to
the applicable statute of limitations; and
(c) All Other Claims. In the case of all other claims based upon the
inaccuracy or breach of a representation or warranty, for a period
commencing on the date hereof and ending three (3) years after the Closing
Date.
No claim for recovery of Indemnifiable Damages arising out of Section
10.1(i) or Section 10.2(i) hereof may be asserted by Buyer after the expiration
of the applicable time period described in the foregoing Sections 10.3(a)-(c);
provided, however, that any claim first asserted by the giving of a Notice of
Claim within the applicable survival period shall neither be abated nor barred.
10.5 Limitations of Indemnification. The indemnification provided for in
this Article X shall be subject to the following limitations: (i) Seller and
EcoScience shall not be obligated to pay any amounts for indemnification under
this Article X in excess of the Purchase Price paid by the Buyer pursuant to
Section 2.1 hereof, and (ii) an Indemnitor shall not be obligated to pay any
amounts for indemnification hereunder relating to a claim to the extent of (A)
any tax benefit to the Indemnitee therefrom, (B) any insurance proceeds and any
indemnity, contribution or similar payment paid to the Indemnitee or any
affiliate from any third party with respect thereto; and (iii) the Indemnitee
shall not be entitled to make any claim for indemnification hereunder until the
sum of indemnifiable claims is equal to or greater than $25,000.00 (the
"Indemnification Threshold"), provided, however, that (a) this limitation shall
not apply to a claim for breach of a representation or warranty contained in
Sections 4.1 through 4.5, 4.8 and 4.28, and (b) this limitation shall not affect
any payment required pursuant to Section 2.2(c), and (c) if indemnifiable claims
equal or exceed the Indemnification Threshold, the Buyer shall be entitled to
seek indemnification in respect of all indemnifiable claims.
ARTICLE XI
MISCELLANEOUS
11.1 Collection of Receivables. In the event that after the Closing Date,
cash or other payments are received by Buyer in respect of receivables or other
amounts due Seller, all such cash and payments shall be promptly remitted to
Seller. In the event that, after the Closing Date, cash or other payments are
received by Seller in respect of receivables or other amounts due to Buyer, all
such cash and payments shall be promptly remitted to Buyer. Buyer agrees to
cooperate with and to take reasonable actions to assist Seller in collecting any
receivables due to Seller.
11.2 Further Assurances. Each party hereto from time to time hereafter, and
upon request, shall execute, acknowledge and deliver such other instruments as
reasonably may be required to more effectively transfer and vest in the Buyer
the Purchased Assets or to otherwise carry out the terms and conditions of this
Agreement.
30
<PAGE>
11.3 Post-Closing Cooperation. For a period of twelve (12) months following
the Closing Date, Seller shall make Lucie Grant (provided she is employed by
Seller at such time) available to Buyer, at no cost to Buyer, in order to answer
questions and otherwise assist in the technology transfer from Seller to Buyer.
In addition, Seller shall also make Lucie Grant available to Buyer, at no cost
to Buyer, to assist with the manufacturing process and quality control
management for a period during which Buyer occupies and conducts manufacturing
operations at the Orlando Facility, (a) not to exceed a period of six (6) months
following the Closing Date, and (b) not to exceed 25% of Lucie Grant's total
work hours during such period. Buyer agrees to indemnify and hold Seller and its
officers, directors, employees and agents harmless from and against any claim,
losses, damages or liabilities arising out of Buyer's manufacturing and/or
quality control activities at the Orlando Facility.
11.4 Benefit and Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, their successors, assignees, and
beneficiaries in interest; provided, however, that this Agreement may not be
assigned by Seller.
11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Washington (without regard to
such State's conflict of laws principles), and without reference to any rules of
construction regarding the party responsible for the drafting hereof.
11.6 Expenses. Except as otherwise herein provided, all expenses incurred
in connection with this Agreement or the transactions herein provided for shall
be paid by the party incurring such expenses and costs.
11.7 Arbitration. Except only for claims arising out of the Noncompetition
Agreement, any controversy, dispute or claim arising out of or relating to this
Agreement or the agreements entered pursuant hereto (including, but not limited
to, any claim regarding the scope or effect of this Section and any claim that
this Section is invalid or unenforceable), or the breach hereof or thereof,
shall be settled by a single arbitrator in binding arbitration conducted in
Seattle, Washington in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") (or such other arbitration service as
the parties may agree upon), and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator's decision shall be in writing. In addition to the Commercial
Arbitration Rules of the AAA and unless otherwise agreed to by the parties, the
following rules shall apply:
(a) Each party shall be entitled to discovery exclusively by the
following means: (i) requests for admission, (ii) requests for production
of documents, (iii) up to 15 written interrogatories (with any subpart to
be counted as a separate interrogatory), and (iv) depositions of no more
than six individuals.
(b) Unless the arbitrator finds that delay is reasonably justified or
as otherwise agreed to by the parties, all discovery shall be completed,
and the arbitration hearing shall commence within five months after the
appointment of the arbitrator.
31
<PAGE>
(c) Unless the arbitrator finds that delay is reasonably justified,
the hearing will be completed, and an award rendered within 30 days of
commencement of the hearing.
The arbitrator's authority shall include the ability to render equitable types
of relief and, in such event, any aforesaid court may enter an order enjoining
and/or compelling such actions or relief ordered or as found by the arbitrator.
The arbitrator also shall make a determination regarding whether the legal
position of Seller or Buyer in any such controversy or claim is the more
substantially correct (the "Prevailing Party") and the arbitrator shall require
the other party to pay the legal and other professional fees and costs incurred
by the Prevailing Party in connection with such arbitration proceeding and any
necessary court action. However, notwithstanding the foregoing, the parties
expressly agree that a court of competent jurisdiction may enter a temporary
restraining order or an order enjoining a breach of this Agreement pending a
final award or further order by the arbitrator. Such remedy, however, shall be
cumulative and nonexclusive, and shall be in addition to any other remedy to
which the parties may be entitled.
11.8 Notices. Any and all notices, demands, and communications provided for
herein or made hereunder shall be given in writing and shall be deemed given to
a party at the earlier of (i) when actually delivered to such party, (ii) when
facsimile transmitted to such party to the facsimile number indicated for such
party below (or to such other facsimile number for a party as such party may
have substituted by notice pursuant to this Section) or (iii) when mailed to
such party by registered or certified U.S. Mail (return receipt requested) or
sent by overnight courier, confirmed by receipt, and addressed to such party at
the address designated below for such party (or to such other address for such
party as such party may have substituted by notice pursuant to this Section):
(a) If to Seller or EcoScience: EcoScience Produce Systems Corp.
10 Alvin Court
East Brunswick, NJ 08816
Attention: President
Facsimile No. (732) 432-0770
With copy to: Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road, P.O. box 190
Middletown, NJ 07748
Attention: Philip D. Forlenza
Facsimile No. (732) 224-6599
(b) If to Buyer: Pace International, LLC
1011 Western Avenue, Suite 505
Seattle, WA 98104
Attention: President
Facsimile No. (206) 436-5808
32
<PAGE>
With a copy to: Louis Treiger, Esq.
700 Fifth Avenue, Suite 6100
Seattle, WA 98104
Facsimile Number: (206) 623-1406
11.9 Knowledge. As used herein, any reference to the "knowledge" of Seller
shall include the knowledge of Michael DeGiglio, Lucie Grant, Dirk Story and Tom
Gnesda after making a reasonable inquiry concerning such fact or other matter
and, if such persons fail to make such inquiry, shall include constructive
knowledge of such facts as would have been learned had such an inquiry been
made.
11.10 Counterparts. This Agreement may be executed simultaneously 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, provided that all such
counterparts, in the aggregate, shall contain the signatures of all parties
hereto.
11.11 Headings. All Section headings herein are inserted for convenience
only and shall not modify or affect the construction or interpretation of any
provision of this Agreement.
11.12 Amendment, Modification and Waiver. This Agreement may not be
modified, amended or supplemented except by mutual written agreement of all the
parties hereto. Any party may waive in writing any term or condition contained
in this Agreement and intended to be for its benefit; provided, however, that no
waiver by any party, whether by conduct or otherwise, in any one or more
instances, shall be deemed or construed as a further or continuing waiver of any
such term or condition. Each amendment, modification, supplement or waiver shall
be in writing signed by the party or the parties to be charged.
11.13 Entire Agreement. This Agreement, the Exhibits and Schedules attached
hereto and the Disclosure Schedule delivered herewith represent the full and
complete agreement of the parties with respect to the subject matter hereof and
supersede and replace any prior understandings and agreements among the parties
with respect to the subject matter hereof and no provision or document of any
kind shall be included in or form a part of such agreement unless signed and
delivered to the other party by the parties to be charged.
11.14 Third-Party Beneficiaries. No third parties are intended to benefit
from this Agreement, and no third-party beneficiary rights shall be implied from
anything contained in this Agreement.
11.15 Publicity. Buyer and Seller agree that no publicity announcements or
disclosures of any kind concerning the terms of this Agreement or concerning the
transactions contemplated hereby shall be made without the mutual consent of
Buyer and Seller, except (a) to the extent that disclosure is required by legal
process or to accountants, counsel, other professionals and to lenders on a
"need to know" basis who similarly agree to maintain the confidentiality of the
Agreement and its terms, and (b) that Seller and Buyer, may after the Closing,
individually or jointly, generally identify this transaction and the parties
hereto in publicity materials.
33
<PAGE>
11.16 Use of Credit Cards. During the thirty (30) day period following the
Closing Date, Seller shall permit each of John Arias, Jerald Achterberg, Jeff
Jones, Norman Taylor, Dirk Story, Xiuhua Chen and Kirk Storms to make reasonable
use, in connection with the Business, of the credit cards issued to such
individuals by Seller. Buyer agrees to reimburse Seller for any charges on such
credit cards during such period within ten (10) business days of the delivery to
Buyer of a bill for such charges.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
Buyer:
PACE INTERNATIONAL, LLC
By:
-------------------------------------
Gerald Frazee, Manager
Seller:
ECOSCIENCE PRODUCE SYSTEMS CORP.
By:
-------------------------------------
Michael DeGiglio, President
ECOSCIENCE CORPORATION
By:
-------------------------------------
Michael DeGiglio, President
34
<PAGE>
Schedule of Exhibits
Exhibit A Assumption Agreement
Exhibit B Assignment and Bill of Sale
Exhibit C Noncompetition Agreement
Exhibit D Exclusive Supply Agreement
Exhibit E Trademark Assignment Agreement
Exhibit F Orlando Facility Lease Assignment and Assumption Agreement
Exhibit G Visalia Facility Assignment and Assumption Agreement
Exhibit H Orlando Facility Sublease
35
<PAGE>
PACE INTERNATIONAL, LLC and ECOSCIENCE PRODUCE SYSTEMS CORP.
ASSET PURCHASE AGREEMENT
SCHEDULE 2.1 - INVENTORY VALUATION PRINCIPLES
Raw Materials and Unused Packaging Materials
Overall
Valued at the lower of cost or market.
Cost
Cost determined on a first-in, first-out basis as listed on vendor invoices.
Current replacement cost, except replacement cost shall:
o not exceed net realizable value (i.e., estimated selling price in the
ordinary course of business less reasonably predictable costs of completion
and disposal); and
o not be less than net realizable value reduced by an allowance for an
approximately normal profit margin
Replacement cost will be analyzed on an individual item basis.
Finished Goods and Work-in-Process
Overall
Valued at the lower of cost or market.
Cost
Cost determined on a first-in, first-out basis. Raw material cost component
determined by vendor invoices. Labor and overhead cost components composed of
actual production costs since January 1, 1999 spread over gallons produced for
the same period and applied to ending inventory of produced goods.
Market (A)
Current replacement cost, except replacement cost shall:
o not exceed net realizable value (i.e., estimated selling price in the
ordinary course of business less reasonably predictable costs of completion
and disposal); and
o not be less than net realizable value reduced by an allowance for an
approximately normal profit margin
Replacement cost will be analyzed on an individual item basis.
(A) Terms used above are defined as:
Current Replacement Cost: vendor catalog price in effect at the Closing Date or,
where catalog price is not available, replacement cost will be:
o raw material component determined by the most recent vendor invoice received
by the Seller prior to the Closing Date
o labor and overhead components determined by most recent actual production
costs Selling Price: the lowest price the item was sold for to the highest
volume customer during the six months immediately preceding the Closing Date.
36
<PAGE>
Predictable Costs of Completion: standard costs to complete the item as listed
on the Seller's current bill of material.
Predictable Costs of Disposal: Seller's average freight expense and selling
expense and any other predictable costs of disposal, expressed as a percentage
of total sales of the Business for the preceding complete fiscal year as
reflected on the financial statements of the Business.
37
<PAGE>
Schedule 2.3
To
Asset Purchase and Sale Agreement
Purchase Price Allocation
1. Inventory - The amount actually paid for such Inventory pursuant to
Section 2.1.
2. Intangibles - Intangibles shall be valued at one million ($1,000,000) dollars
less the book value of the following assets:
Prepaid Expenses as defined in Section 1.1(b)
Improvements and Fixtures as defined in Section 1.1(c)
Equipment as defined in Section 1.1(d)
Motor Vehicles as defined in Section 1.1(e)
38
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> OCT-03-1999
<CASH> 878
<SECURITIES> 0
<RECEIVABLES> 3,316
<ALLOWANCES> (642)
<INVENTORY> 7,310
<CURRENT-ASSETS> 12,689
<PP&E> 69,470
<DEPRECIATION> (8,596)
<TOTAL-ASSETS> 87,297
<CURRENT-LIABILITIES> 107,984
<BONDS> 90,901
0
0
<COMMON> 126
<OTHER-SE> (23,606)
<TOTAL-LIABILITY-AND-EQUITY> 87,297
<SALES> 39,678
<TOTAL-REVENUES> 39,678
<CGS> 40,749
<TOTAL-COSTS> 40,749
<OTHER-EXPENSES> 11,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,472)
<INCOME-PRETAX> (18,801)
<INCOME-TAX> 1
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,443)
<EPS-BASIC> (1.46)
<EPS-DILUTED> (1.46)
</TABLE>
