SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from July 1, 1998 to January 3, 1999
Commission File No. 0-19746
ECOSCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2912632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Alvin Court
East Brunswick, New Jersey 08816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
Including area code: (732) 432-8200
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-8 is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value (based upon the last sales price reported by the
Nasdaq Stock Market) of voting shares held by non-affiliates of the registrant
as of April 15, 1999 was $8,552,884.
As of April 15, 1999, 12,619,264 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference to portions of the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 24, 1999.
<PAGE>
This report contains forward looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are not historical facts but rather are
based on current expectations, estimates and projections about the Company's
industry, its beliefs, and assumptions. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond the Company's control, that are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in such
forward-looking statements. Such risks and uncertainties include those described
in Item 7A and elsewhere in this report. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
review only as of the date of this report. The Company undertakes no obligation
to update such statements or publicly release the result of any revisions to
these forward-looking statements that the Company may make to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Item 1. BUSINESS
General
EcoScience Corporation ("EcoScience" or the "Company") and its subsidiaries
are primarily engaged in the production, marketing and sale of branded
premium grade tomatoes grown in intensive greenhouse facilities. In
addition, the Company markets, sells, develops and commercializes products
for the agricultural and biological insect and disease control industries.
The Company is, in terms of total acreage controlled by a single entity,
the largest producer and marketer of premium quality, greenhouse grown
tomatoes in the United States. The Company conducts its greenhouse
operations through Agro Power Development, Inc. ("APD"), a wholly owned
subsidiary which was acquired by the Company pursuant to a merger
transaction which became effective on September 30, 1998. See "Recent
Developments--Merger Transaction." APD develops, constructs and operates
sophisticated, highly intensive agricultural greenhouse projects and
markets and sells the premium tomatoes produced at these facilities, as
well as tomatoes produced by other greenhouse growers, under its Village
Farms(R) and Home Choice(TM) brand names as a consumer product, primarily
to retail supermarkets and dedicated fresh food distribution companies. In
1998, APD sold approximately 47.8 million pounds of tomatoes grown at APD
greenhouses, and sold an additional 4.3 million pounds of tomatoes under
APD's Village Farms(R) and Home Choice(TM) brand names pursuant to
marketing arrangements with third party producers.
The Company serves the biological and agricultural product markets
primarily through three subsidiaries: Agro Dynamics, Inc. and Agro Dynamics
Canada Inc. (collectively, "AGRO") and EcoScience Produce Systems Corp.
("EPSC").
EcoScience was incorporated under the laws of the State of Florida on
August 27, 1982, and was reincorporated in the State of Delaware on June
29, 1988. On November 18, 1992, EcoScience acquired all of the outstanding
capital stock of AGRO, an East Brunswick, New Jersey based company that
engineers, designs, markets and distributes advanced technologies,
products, growing systems and services for the North American intensive
farming, horticulture, nursery and produce packing industries. On May 24,
1994, the Company acquired certain assets and liabilities of American
Machinery Corporation ("AMC"), an Orlando, Florida based business that
provided postharvest coating products and services to the fresh fruit and
vegetable markets throughout the United States, the Caribbean, Central
America and South America. Concurrent with the
2
<PAGE>
acquisition of certain assets and liabilities of AMC, the Company formed
EPSC to combine the AMC product line and operating unit with the Company's
existing activities in those markets.
In February 1999, the Company sold its postharvest equipment distribution
business, which engaged primarily in the sale of sorting, grading and
packing systems manufactured by Aweta, B.V., to Autoline, Inc. See "Recent
Developments--Sale of PostHarvest Equipment Division."
The Company's primary products are (i) premium greenhouse grown tomatoes
which it sells to retail supermarkets and dedicated fresh food distribution
companies, (ii) advanced growing systems based on Stonewool(R),
manufactured by Grodania A/S, (iii) computerized environmental and
irrigation control systems manufactured by H. Hoogendoorn Automation B.V.,
(iv) PacRite(R) and Indian River Gold(TM) coatings manufactured by EPSC,
(v) Bio-Save(R) PostHarvest BioProtectant line of products and (vi)
Bio-Blast(R) Biological Termiticide manufactured by EcoScience. In
addition, the Company distributes a broad array of specialty products used
in greenhouses and in fruit, vegetable and ornamental packing.
Financial information for each of the Company's business segments is set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 15 to the Company's Consolidated Financial
Statements. Financial information segregated by major geographic area
(United States and Canada) are set forth in Note 15 to the Company's
Consolidated Financial Statements.
Dollar amounts contained in this report are presented in thousands (except
per share data). References contained herein to "the period ended January
3, 1999" mean the period commencing July 1, 1998 and ending January 3,
1999.
As used herein, the term "Company" refers to EcoScience and its
subsidiaries, unless the context indicates otherwise.
Recent Developments
Merger with Agro Power Development, Inc. On September 30, 1998, the Company
issued 9,421,487 shares of Common Stock to the holders of the common stock
of Agro Power Development, Inc., a privately held New York corporation
("APDNY"), pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") that provided for the merger of APDNY with and into a newly
formed, wholly owned subsidiary of the Company which, at the effective time
of the merger, changed its name to Agro Power Development, Inc. Pursuant to
the Merger Agreement, the stockholders of APDNY received 30,619.067 shares
of the Company's Common Stock for each outstanding share of common stock of
APDNY. In addition, on September 30, 1998, the Company issued 99,000 shares
of Common Stock to certain stockholders of APDNY for their entire 50%
interest in Village Farms of Morocco, S.A., a Moroccan company, as provided
for in the Merger Agreement (the "Morocco Transaction"). The shares of
Common Stock issued to the stockholders of APDNY pursuant to the Merger
Agreement represented
3
<PAGE>
approximately 80% of the outstanding shares of the Company, on a fully
diluted basis, at the effective time of the Merger.
EcoScience and APDNY combined to form an integrated, environmentally
focused, consumer products driven agri-business, capitalizing on expertise
in naturally derived food technologies, intensive production and marketing
of high value, quality fresh produce, innovative bio-rational pest and
disease control technologies, and sophisticated growing and postharvest
systems and products. The Company is committed to improving the quality of
its products by bridging nature, technology and knowledge, utilizing the
highest standards. EcoScience believes APD will provide the combined entity
greater international presence, increased marketing capability, management
depth and the operating level needed to accelerate revenue growth and
increase shareholder value.
Acquisition of Cogentrix's Interest in Greenhouses. The Company entered
into a Stock Purchase Agreement dated as of December 7, 1998 (the "Stock
Purchase Agreement") with Cogentrix Delaware Holdings, Inc. ("Cogentrix")
to acquire all of the outstanding stock of certain corporations that are
partners with subsidiaries of the Company in limited partnerships that
operate four of the Company's greenhouse facilities. In addition, the Stock
Purchase Agreement provided for the termination of Cogentrix's right to
participate in future greenhouse development projects pursuant to an
Agreement Regarding Future Projects that APD and Cogentrix entered into in
February 1996. On December 30, 1998, the Company completed the acquisition
of all of the outstanding capital stock of each of the entities that owned
an interest in the four greenhouse operations in exchange for 1,000,000
shares of the Company's Common Stock and a $20,600 promissory note bearing
interest at a rate of 11.25% per annum which was originally due and payable
on March 15, 1999. On March 12, 1999, Cogentrix agreed to extend the
maturity date of the note to June 30, 1999. In connection with the
extension, the Company issued Cogentrix an additional note in the principal
amount of $1,000 which has terms similar to the original note and becomes
due on June 30, 1999. The note, and certain other obligations to Cogentrix,
are secured by the outstanding shares of APD and the capital stock of the
entities acquired from Cogentrix. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company has agreed to register the 1,000,000 shares of Common Stock
issued to Cogentrix for public sale. In the event that the stock is not
registered for public sale by June 15, 1999, the Company may be required,
at the election of Cogentrix, to repurchase the 1,000,000 shares from
Cogentrix at a price equal to the greater of $4.00 or the market price of
the stock on the day prior to the repurchase demand. Cogentrix is
restricted from selling more than (i) 250,000 shares of Common Stock during
the period ending June 30, 1999 and (ii) 500,000 shares of Common Stock
prior to September 30, 1999; provided, however, that Cogentrix will not be
subject to the restrictions described above during any period in which the
$20,600 note issued to it remains unpaid after its maturity date.
Sale of Postharvest Equipment Division. In February 1999, the Company sold
its postharvest equipment division to Autoline, Inc. Prior to its sale,
this division was engaged primarily in the sale of sorting, grading and
packing systems manufactured by
4
<PAGE>
Aweta, B.V. The Company acquired the division from Aweta, B.V. at no cost
in 1996. Sales for this division were $3,532 for 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 sale of the postharvest division
will result in no material gain or loss and will have no material impact on
the Company's financial condition or results of operations.
Potential Delisting. The Company has been notified by NASDAQ that due to
the merger transaction with APD, the Company is required to meet the
requirements for a new listing and that NASDAQ intends to delist the
Company's Common Stock. The Company has requested a hearing with NASDAQ
representatives to appeal the delisting determination. The delisting has
been stayed pending the appeal. No assurance can be given that the
Company's appeal will be successful. If the Common Stock is delisted by
NASDAQ, it would trade on the OTC Bulletin Board or the "pink sheets"
maintained by the National Quotation Bureau, Inc., which are generally
considered to be less efficient markets.
Greenhouse Tomatoes
General
Through APD, the Company currently operates seven greenhouse facilities in
the United States, representing approximately 190 acres of growing
capacity. Three of these facilities, each of which has approximately
forty-one (41) acres of growing capacity, are among the largest greenhouses
in the United States. By producing, harvesting, packaging and directly
marketing all of its products, APD eliminates numerous intermediaries (i.e.
repackers, brokers and wholesalers) utilized by traditional field producers
of fresh vegetables. In order to develop additional sources of supply, APD
has entered into agreements to market and sell fresh tomatoes produced,
under Village Farms(R) specifications, by two other greenhouse operations,
which currently comprise a total of approximately 30 acres. If these
marketing arrangements remain in effect, APD will control the marketing of
approximately 216 acres of greenhouse vegetable production.
The Greenhouse Vegetable Industry
Approximately $7 billion at the retail level, or over 5 billion pounds, of
fresh tomatoes were sold in the United States in 1998. According to
industry estimates, greenhouse grown tomatoes currently represent only
approximately 10% to 12% of the fresh tomatoes sold in the United States.
Although the United States greenhouses vegetable industry is growing
rapidly (as evidenced by an increase in greenhouse tomato acreage from 1996
to 1997 of approximately 30% according to Dr. Richard Snyder, Vegetable
Specialist at Mississippi State University), the Company estimates that
there are only 700 to 900 acres devoted to greenhouse vegetable production
in the United States and approximately 55% of the greenhouse grown tomatoes
sold in the United States are imported from other countries. The Company
believes that a significant opportunity exists for greenhouse growers to
capture a sizable share of the market for certain fresh vegetables,
including tomatoes.
5
<PAGE>
The ability to control climatic conditions within a greenhouse enables
greenhouse growers to produce varieties of tomatoes that are superior to
field grown tomatoes in terms of taste, color, appearance and shelf life.
This is particularly notable during periods when local production is not
available. In many markets, the only fresh tomatoes that are consistently
available during "off season periods" are picked while green and treated
with ethylene gas during shipment from California, Florida or Mexico to
turn the tomatoes red. The Company believes that due to inferior flavor,
many consumers avoid tomatoes during off season periods and generally
consume only tomatoes grown in their gardens or purchased from nearby farm
stands during a limited period of seasonal availability. When greenhouse
grown tomatoes are available, consumers have demonstrated a willingness to
pay a premium price for superior quality and taste. A 1996 study conducted
by Information Resources, Inc., an independent research firm, at APD's
request indicated that in certain areas of the United States (western New
York; Denver, Colorado; Detroit, Michigan; and New England), where local
production has been available to certain retail chains from nearby
greenhouses with consistent quality and volume, the percentage of
greenhouse grown tomatoes sold by the retail chains has averaged 40% to 70%
of total fresh tomato sales by the retailers. According to information
provided to APD by two of these retail chains which are currently APD
customers, in 1990 sales of greenhouse grown tomatoes did not exceed 15% of
fresh tomato sales.
Greenhouse vegetable production has been a thriving industry in Europe,
particularly the Netherlands, since the 1940s. The acreage devoted to
greenhouse vegetable production in Europe is substantially greater than
greenhouse acreage in the United States. Imported greenhouse grown tomatoes
from Europe, Israel and Canada are available at certain times of the year
in major United States markets but, with the exception of Canadian
tomatoes, are rarely distributed throughout the United States due to the
additional freight, distribution costs and distribution channels necessary
to reach central and western markets. Due to insufficient domestic
greenhouse production, imports currently represent the only option for many
large volume United States supermarkets. The supply of imported tomatoes
is, however, limited and often erratic because foreign market exporters
generally sell first to their domestic markets to avoid the increased
distribution costs associated with distributing tomatoes in the United
States.
The Company believes that the market for greenhouse grown produce has
significant growth potential due to: (i) the superior quality and flavor of
greenhouse grown vegetables; (ii) an increase in the demand for fresh fruit
and vegetables, including greenhouse grown tomatoes and other vegetables;
(iii) the health and food safety benefits of U.S. produced greenhouse grown
produce and (iv) a growing but limited supply of greenhouse grown produce.
The successful production of greenhouse vegetables on a large scale basis,
however, requires specialized operating skills, know-how, technology,
complex logistics support, market knowledge and capital. As the developer
and operator of three of the largest tomato greenhouses in the United
States, the Company believes that the experience it has gained, the
technological innovations it has made and the success it has achieved to
date as an industry leader makes it uniquely and strategically positioned
and qualified to take advantage of promising market opportunities.
6
<PAGE>
Greenhouse Operations
The Company currently owns four of the seven greenhouse facilities
currently in operation. The other three facilities are leased. The Company
uses inert media culture systems to grow tomatoes in these glass paneled
greenhouse structures which currently range from 10 to 42 acres. Using
these sophisticated systems, tomatoes are grown not in soil but in
"rockwool," a porous, artificial substrate made out of volcanic based rock.
Through drip irrigation, each plant is fed nutrients directly from a
computer-controlled irrigation system. Hot water is circulated through
pipes running next to the plants to keep the plants at optimal temperature,
which varies throughout each 24 hour period and crop lifecycle. The water
is heated by cogeneration sources and/or natural gas boilers which capture
carbon dioxide that is recycled back to the greenhouse for plant
consumption. The Company's computer systems enable it to regulate
substantially all environmental and climate parameters to optimize growing
conditions. The Company believes that greenhouses generally yield
approximately 10 to 20 times the yield of comparable outdoor farm acreage,
depending on the crop. The Company's production methods incorporate
technology and growing systems substantially similar to those used
throughout the well established European greenhouse growing industry.
The Company's tomatoes are naturally pollinated by bumblebees released into
the greenhouse. Integrated pest management practices such as predator
insects are used to control pests such as white fly.
Three of the greenhouse facilities operated by the Company were developed
in conjunction with electric cogeneration plants. Federal laws enacted in
the 1970s encouraged the establishment of cogeneration plants and the use
of their waste steam to provide heat for other industries, including
greenhouse vegetable production. The use of this waste steam enables the
Company to heat greenhouses located near cogeneration plants. Cogentrix is
a developer and operator of two cogeneration energy facilities with which
the Company has associated greenhouse operations.
The Company forms separate operating companies to own and/or lease and
manage each of the greenhouse facilities it operates. The following table
provides information with respect to the Company's greenhouse facilities:
<TABLE>
<CAPTION>
Date
Operations
Greenhouse Facility Commenced Acreage Location Leased/ Owned
------------------- ---------- ------- -------- -------------
<S> <C> <C> <C> <C>
Keystone Village Farms 3/1/94 10 Ringgold, PA Leased(1)
Village Farms of Wheatfield 3/1/94 12 Wheatfield, NY Leased(2)
Village Farms of Texas 12/1/96 41 Fort Davis, TX Owned
Village Farms of Marfa 12/1/97 41 Marfa, TX Owned
Village Farms of Buffalo 4/1/98 18 Buffalo, NY Owned
Village Farms of Virginia 4/1/98 42 King George Cty, VA Leased(3)
Village Farms of Presidio 10/1/98 26 Marfa, TX Owned(4)
---
Total Acreage 190
</TABLE>
7
<PAGE>
- ----------
(1) This facility is leased pursuant to a ten year lease agreement with
Cogentrix which expires in 2003 and requires the Company to pay a fixed
monthly lease payment and an annual supplemental lease payment based on a
specified percentage of Cash Flow (as defined) of the facility.
(2) This facility is leased pursuant to a 15 year operating and lease agreement
which expires in 2008 and requires the Company to pay a fixed monthly lease
payment and an annual supplemental lease payment based upon a percentage of
the net operating income (as defined) of the facility.
(3) This facility is leased pursuant to a ten year lease and operating
agreement which expires in 2007 and requires a fixed quarterly rental
payment and an annual supplemental payment equal to a specified percentage
of the Cash Flow (as defined) of the facility.
(4) The Company has an 85.25% limited partnership interest and a 1% general
partnership interest in the limited partnership which owns this facility.
Third party investors own a 12.75% limited partnership interest and a 1%
general partnership interest in the limited partnership.
In addition to the greenhouse facilities identified above, the Company owns
a 12 acre facility in Mt. Carmel, Pennsylvania which is currently
inoperative and held for sale.
In January 1998, Village Farms of Colorado, Inc. ("VFC"), a wholly owned
subsidiary of the Company, entered into an agreement with Ripe Touch
Greenhouses, Inc. ("Ripe Touch") of Castlerock, Colorado to lease a 20 acre
greenhouse to be built and located in Calhan, Colorado. The Company plans
to produce beefsteak tomatoes during the winter pricing period at this
greenhouse and to establish a distribution center adjacent to the facility.
The term of the lease will commence 30 days after substantial completion of
the construction of the facility and will continue for ten years. The terms
of the lease require the Company to pay a fixed monthly lease payment and
an annual supplemental lease payment equal to a specified percentage of
Cash Flow (as defined in the lease) of the facility. Ripetouch has not
obtained financing for the construction of this facility and no assurance
can be given that this facility will be completed.
Greenhouse Products
The Company's current product line consists of beefsteak tomatoes and
cluster or "on-the-vine" tomatoes. These products are distinguished by
their consistently superior taste and appearance over field grown tomatoes.
The Company believes that by growing in modern greenhouses using state of
the art technology in various locations in the United States it can produce
high quality produce on a year round basis. The Company's premium tomatoes
are sold in high quality packaging designed to protect the product as well
as allow the retail supermarket to readily display and replenish the
product.
The Company's premium beefsteak tomatoes are packed into single layer 15
pound boxes with inserts. Hand picked tomatoes are transported by water
flume and then sorted and weighed using advanced color sorting and grading
equipment coupled with a skilled worker to assure each package is packed to
the highest quality standards. Village Farms(R) premium beefsteak tomatoes
are packed in five sizes, Jumbo, Extra Large, Large, Medium and Small with
18-52 tomatoes per flat depending on the size. Each
8
<PAGE>
tomato is labeled with a Price Look Up sticker (PLU) which has the company
name and logo as well as the industry standard product code number.
The Company's Home Choice(TM) tomatoes are packed in the same manner as the
Village Farms(R) Premium tomatoes but do not meet the Company's standards
for premium tomatoes. Tomatoes which do not meet Village Farms(R) or Home
Choice(TM) quality standards but grade a US#2 are packed into boxes with a
net weight of 20 or 25 pounds and marketed to local customers which include
restaurants, produce distributors and farm stands.
Cluster or "on-the-vine" tomatoes are packed into 11 pound boxes loose with
stem tags, or with each tomato labeled with a PLU or in mesh bags. Each
cluster contains between 3 to 5 blemish free tomatoes attached to vine.
Prepacked tomatoes are marketed in three package sizes. Village Farms(R)
premium tomatoes are packed 3 tomatoes into a plastic tray with a net
weight of 14 oz or into a 4 cell clamshell container with a net weight of
16 or 20 oz. The later product is marketed under the label Village Farms
Baby Beefstm . High quality tomatoes without calyxes which have dislodged
from the cluster tomatoes are packed into 4 count clamshell containers with
a net weight of 16 or 20 oz and marketed under the Red Splendor(TM) label.
The Company is engaged in ongoing testing of new technologies and systems
and various varieties of tomatoes to determine if they could improve the
Company's production yields. The Company tests these tomato varieties for
their maturation period, resistance to disease, the size and quality of the
tomatoes and the tomatoes' shelf life, taste and adaptability to seasonal
changes in light. The Company's growers conduct these tests initially as
varietal trials, where a few plants of several different varieties are
placed throughout a greenhouse and observed. If a new variety shows
promising characteristics, the Company conducts a commercial trial where
the new variety is planted on a larger scale, with performance results
compared to the Company's existing tomato varieties. To date, the Company
has selected two of these new varieties of tomatoes for regular production
on a seasonal basis, a Grace variety for winter production and an as yet
unnamed variety for summer production. All tomato varieties tested and
grown are of Dutch origin.
Marketing Arrangements with Others
Through marketing arrangements, APD markets and distributes fresh tomatoes
produced by other greenhouse operators under the Village Farms(R)
trademark. Under the terms of these arrangements, APD is generally entitled
to a commission based on a percentage of product revenues and a fixed
amount for each box of produce sold. APD currently participates in
marketing arrangements with the following growers: Fosters Farms, Inc., a
wholly owned subsidiary of Foster Wheeler Corporation which operates a 10
acre greenhouse located in Marion Heights, Pennsylvania; and Agros, S.A.
which operates a 20 acre greenhouse in Queretaro, Mexico. The Foster Farms
facility produces beefsteak tomatoes from March through November. Agros,
S.A. produces beefsteak tomatoes from
9
<PAGE>
October to May. APD generated approximately $3,053 and $3,154 of revenues
from various marketing arrangements in calendar 1998 and 1997,
respectively.
In May 1998, APD entered into an agreement with SunBlush Technologies Corp.
("SunBlush"), a publicly traded corporation, which creates a strategic
alliance for the development of technology for the packaging of fresh cut
tomatoes. SunBlush, a Canadian company, owns rights to certain technologies
which purportedly extend the shelf life of fresh produce and flowers. Under
the terms of the agreement (the "SunBlush Agreement"), APD has agreed to
provide up to $50 of funding to SunBlush to develop the application of the
SunBlush technology to greenhouse tomatoes. If such technology can be
successfully developed, it is anticipated that it would be used so that
salad products containing fresh cut tomatoes could be prepackaged for sale
to consumers. APD has agreed to supply the greenhouse tomatoes required for
the SunBlush development project and has been granted the right to supply
tomatoes for inclusion in any product successfully developed by SunBlush
pursuant to the SunBlush Agreement that is subsequently marketed in the
United States or Mexico. Test marketing of a salad containing fresh cut
tomatoes is expected to commence in Boston, Massachusetts in May 1999.
Sales and Distribution of Tomato Products
APD currently sells approximately 90% of its Village Farms(R), Home
Choice(TM) brand products to retail supermarket chains and dedicated
wholesalers. The remainder is sold to distributors and food service
clients. APD has no formal agreements with its customers. At the beginning
of each year, APD generally negotiates approximate volume and price levels
for the upcoming year with its customers. These arrangements provide APD
with the flexibility to account for significant changes in market
conditions and quality/price competition. APD currently employs 12 sales,
marketing and quality assurance personnel who are responsible for
developing and servicing APD customers, developing and maintaining industry
and consumer awareness of Village Farms(R) brand consumer products and
building national recognition of the Village Farms(R) brandname. The
Company's supermarket and fresh food distribution customers in 1998 were
concentrated in the Northeastern United States and Texas. The Company has
recently initiated a plan to expand its customer base to the midwestern,
western and southeastern regions of the United States due to the increased
production capacity added in 1998.
Village Farms of Morocco
Village Farms of Morocco SA ("VF Morocco") was established in 1994 by three
of the Company's directors and a group of investors based in Morocco to
export tomatoes grown in Morocco to Canada during the winter. VF Morocco
began to export tomatoes in 1998
10
<PAGE>
from certain regions of Morocco to the United States. Due to concerns
regarding the Mediterranean fruit fly, the United States has banned the
importation of certain products, including tomatoes, from other regions of
Morocco. Although the acquisition of VF Morocco is not expected to have a
material effect on the Company's financial condition and operating results
going forward, the Company believes that efforts made by VF Morocco and its
shareholders to promote additional business activities in Morocco and
Europe could facilitate the Company's expansion plans.
Biological and Agricultural Products Business
Biological and Agricultural Products
The Company's biological and agricultural products include (i)
sophisticated growing systems which it sells to greenhouse operators; (ii)
automated irrigation and environmental control systems for greenhouses;
(iii) coatings and disease control products, including natural biologicals
for protecting fruits and vegetables in storage and transit to market and
(iv) a unique biological pest control product which it sells for use in
consumer and industrial applications. These products are described below.
Growing Systems. The Company is the exclusive distributor in the United
States, Canada, Mexico and the Caribbean of the Grodan(R) brand of
stonewool, an inert growing medium supplied by Grodania A/S, a Denmark
based wholly owned subsidiary of Rockwood International A/S. Stonewool is
made by melting rock, processing it to a fibrous material which can be
flocculent or formed into solid structures. It is both solid and porous,
and designed to support the hydroponic growth of high value crops and to
improve plant root distribution and plant yields through more efficient use
of oxygen, water and fertilizer. Stonewool is used worldwide for
cultivation of a variety of plants in controlled growing environments such
as greenhouses. The distribution agreement with Grodania A/S expires on
December 31, 2000. The sale of products under the distribution agreement
accounted for 18%, 17%, 20% and 25% of the Company's total product sales in
the period ended January 3, 1999 and the fiscal years ended June 30, 1998,
1997 and 1996, respectively. The Company believes that revenues under this
distribution agreement will account for more than 10% of the Company's
consolidated product sales during the year ending January 2, 2000.
Automated Irrigation and Environmental Control Systems. The Company through
its ISYS(R) Division engineers, designs, fabricates, assembles and
distributes greenhouse irrigation and fertilization systems, computerized
environmental control systems and application products. In addition to
these products and systems, the Company provides customers with technical
support, product service, turnkey installation, product marketing and other
supplementary services. The Company is the exclusive distributor in the
United States, Canada and Mexico of computerized environmental control
systems and accessories produced by H. Hoogendoorn Automation B.V., a
Netherlands based company.
Coatings and Disease Control Products. The fruits and vegetable production
industry requires specialized services, equipment and products for the
harvesting, processing and
11
<PAGE>
storage of produce. Through AGRO and EPSC, the Company provides coatings
and disease control products to the fruit, vegetable and ornamental packing
markets. The Company's coating and disease control products consist of
traditional coating products and its BioSave(R) Post Harvest BioProtectant
line of Products.
Prior to shipping or storage, fruits and vegetables are typically treated
with a variety of processing and storage aids. These are designed to
enhance the appearance and preserve the quality of stored produce. The
Company manufactures, markets and provides a broad spectrum of postharvest
coating and cleaning products and services. Its traditional protective
coating and storage products include Indian River Gold, Pacrite,
SEALBRITE(R) and DURA-FRESH(R). These products were originally acquired in
May 1994 with the asset purchase of AMC. These traditional coating products
are conventional shellac and carnauba based coatings which have been used
successfully in the citrus and pome fruit markets. These traditional
coating products, together with the Company's Bio-Save coating products,
maintain the quality and extend the shelf life of produce by (i) providing
a barrier to free gas exchange, (ii) providing a barrier against abrasion,
scuffing, bruising and other injuries, (iii) providing a carrier for decay
preventing agents, (iv) providing a glossy appearance that is aesthetically
appealing to consumers, (v) reducing shrinkage caused by water loss and
(vi) maintaining firmness of the fruit or vegetable. The Company's
traditional coating products contain materials that are U.S. Food and Drug
Administration ("FDA") approved additives or have been listed by the FDA as
"Generally Recognized As Safe" ("GRAS") and accordingly, these coatings do
not require FDA approval or registration. PacRite, SEALBRITE, and Indian
River Gold currently are sold by the Company in the United States, the
Caribbean, Central America and South America.
The Company's Bio-Save line of biological disease inhibitors are based on
the Company's microbial technology which uses live organisms that, through
natural growth, inhibit the ability of a target disease to proliferate. The
Bio-Save line of biological disease inhibitors are sold through EPSC to the
pear, apple and citrus markets. Postharvest diseases and damage during
storage and shipment can account for losses ranging from 10% to 25% of
total annual production of fruits and vegetables, depending on the crop and
climate. The Company has developed and registered with the U.S.
Environmental Protection Agency ("EPA") biological products for sale using
the naturally occurring microorganism, Pseudomonas syringae, which can
control the development of Blue Mold (Penicillium expansum), Gray Mold
(Botrytis cinerea) and Mucor Rot (Mucor pyriformis) on apples and pears,
and Blue Mold (P. italium), Green Mold (P. digitatum) and Sour Rot
(Geotrichum candidum) on citrus fruit. The Company has conducted successful
field trials over the last five years utilizing these microbial disease
inhibiting agents in Florida, California, Oregon, West Virginia,
Massachusetts, Michigan and Washington; and in Chile. The Company initiated
commercial product launch of its Bio-Save products in fiscal 1997 and plans
for continued expansion of product marketing and development in fiscal
1999. In 1997, the Company received EPA registration for the use of
Bio-Save on cherries and continues to investigate the application of
Bio-Save to control other postharvest diseases on fruits and vegetables,
such as on potatoes.
12
<PAGE>
Biological Insect Control Products. In the biological insect control
market, the Company, with collaborative partners, has been focused on
developing and selling cost effective bioinsecticide alternatives to
synthetic chemical insecticides for use in specific applications, including
sensitive use environments such as homes, restaurants, schools and food
processing facilities.
The Company, together with its collaborator, Terminix International Company
L.P. ("Terminix"), has developed a natural fungal product to control
termites, the Bio-Blast Biological Termiticide. This product contains a
fungus selected for its ability to infect and kill termites, which has been
formulated for application utilizing conventional equipment in a termite
infested structure. The product is a dry wettable powder, packaged and
portioned for ease of storage and use; and used as a water suspension.
Through commercial trials, the Company has demonstrated that Bio-Blast is
an effective method for the control of termite infestations. The Company
has demonstrated that termites exposed to the fungus in the product can
spread the fungus by contact to nest mates that have not directly contacted
the fungal agent, thereby infecting and killing other termites through the
Horizontal Transfer(R) effect. The Company received EPA product
registration for the termiticide in October 1994, and subsequently received
approval for registration from 48 states. In fiscal 1996, the Company made
its initial sales to both Terminix and Maruwa Biochemical. In fiscal 1997,
the Company initiated the U.S. commercial launch of Bio-Blast in
collaboration with Terminix.
Sales and Distribution of Biological and Agricultural Products
Growing and Control Systems. The Company sells its growing systems and
automated irrigation and environmental control systems directly through
AGRO. AGRO has a force of 27 people involved in sales, marketing and
distribution, engineering and design, and system installation and service
at its distribution and service centers in East Brunswick, New Jersey;
Milton, Ontario, Canada; and Ventura, California.
Coating Products. The Company uses its AGRO and EPSC direct sales
operations to market and sell its traditional coatings and Bio-Save
BioProtectants to fruit and vegetable growers, packers and processors in
the United States, the Caribbean, Central America and South America. EPSC
has a sales and technical support services force of eight people located in
its distribution and service centers in Orlando, Florida and Visalia,
California.
Biological Insect Control. In February 1999, the Company entered into a
Marketing and Distribution Agreement with Terminix pursuant to which
Terminix was appointed as a non-exclusive distributor of Bio-Blast in the
United States, its territories and Canada. Pursuant to this agreement, the
Company has agreed to manufacture and sell Bio-Blast to Terminix at a
specified price. Terminix has certain rights to return certain product
previously purchased; however, the Company's maximum repurchase obligation
is approximately $278. This agreement, which expires in August 2000
(subject to extension for successive one year periods by mutual agreement
of the parties) replaces the Product Development and License Agreement
between the parties which granted Terminix exclusive rights to use and
distribute Bio-Blast in the United States.
13
<PAGE>
In March 1999, the Company entered into an agreement with Prentiss
Incorporated pursuant to which Prentiss Incorporated ("Prentiss") was
appointed as a non-exclusive distributor of Bio-Blast Biological
Termiticide in the United States and Puerto Rico. Under this agreement,
Prentiss has agreed to purchase a specified quantity of Bio-Blast at a
specified price. The agreement expires on December 31, 1999, subject to
earlier termination by either party upon 60 days written notice. If
EcoScience terminates the agreement, it will be obliged to repurchase all
of Prentiss' unsold inventory.
The Company expects to market its Bio-Blast Biological Termiticide
internationally primarily through local and regional distributors and
partners. The Company has entered into a marketing and distribution
agreement with Maruwa Biochemical Co. Ltd. ("Maruwa") pursuant to which it
has appointed Maruwa as the exclusive distributor of Bio-Blast in Japan.
Pursuant to this agreement, the Company has agreed to manufacture and sell
Bio-Blast to Maruwa at a specified price. The agreement, which replaces a
prior Development and Distribution Agreement between the parties, expires
on September 30, 1999 and may be renewed for successive one year periods by
mutual agreement of the parties.
Manufacturing
The Company has established supply arrangements for the production of
fungal conidia, the active ingredient in the Bio-Blast product. Upon
receipt of the raw active ingredient, the Company processes, formulates and
packages this material using proprietary processes to produce the Bio-Blast
product in its Orlando, Florida manufacturing facility.
Traditional coating products are manufactured at the EPSC facility in
Orlando, Florida. Production of the Company's biological postharvest fruit
disease control product, Bio-Save, requires large scale fermentation and
formulation capacity. Currently, a single sub-contractor manufactures the
Bio-Save products for the Company. However, the Company believes other
entities would be capable of manufacturing these products. Although, to
date, the Company has been able to acquire a sufficient supply of the
Bio-Save product for its commercial sales; the inability of the
sub-contractor to meet the Company's needs for the Bio-Save products or a
change in supplier could cause a delay in filling orders, as well as a
possible loss of sales, which would affect operating results adversely.
Research and Development
The Company's technology for the postharvest and pest control industries
has applicability to a variety of potential products and product systems.
These include various insect spray and chamber products, plant and root
fungal disease control systems, and preharvest and postharvest coatings and
disease control systems which are currently in varying stages of
development. As part of the Company's prior restructuring program, and
current cost control programs, certain research and product development
programs, and the funding thereof, have been suspended, curtailed or
deferred. Future development and funding of these and other select research
and product development programs will depend on a number of factors,
including market conditions, availability of financial,
14
<PAGE>
technical and other resources, joint ventures, alliances, technological
advancements, manufacturing capabilities, commercial potential of resultant
end products, governmental regulations, and other relevant matters which
may confront the Company in the future.
Lyme disease has become, in recent years, a disease of significant public
and medical concern throughout the U.S., particularly in the Northeast. The
disease is spread to people through the bite of several species of ticks.
The Company has signed a Material Transfer Agreement with the United States
Department of Agriculture's Agricultural Research Service ("ARS"), whereby
the Company provides formulated Metarhizium anisopliae to the ARS to
support their field trials against tick larvae. Laboratory trials conducted
with this fungus indicated good killing activity towards the tick larvae.
Should these trials be successful, the Company will consider further
commercial development of a product for the control of ticks capable of
spreading Lyme disease.
The Company's operating costs and expenses to date for the biological and
agricultural products segment have, to a large extent, related to the
research and development of products and product systems for future
commercialization. Expenses incurred by the Company under third party
funded research and development programs totaled approximately $43 in the
period ended January 3, 1999 and $53, $7 and $0 in the fiscal years ended
June 30, 1998, 1997 and 1996, respectively. Expenses incurred under Company
funded research and development programs totaled approximately $196 in the
period ended January 3, 1999 and $412, $501 and $1,018 in the fiscal years
ended June 30, 1998, 1997 and 1996, respectively.
Competition
The tomato market in which the Company competes is highly competitive. In
addition to other greenhouse producers, the Company must compete with U.S.
producers of field grown tomatoes, which generally have prices
substantially below those of greenhouse tomatoes. In addition, due to
increased environmental compliance costs in the United States, competition
from producers in Mexico has increased due to the North American Free Trade
Agreement. Certain of the producers of field tomatoes may have greater
resources than APD. APD's greenhouse competitors are located primarily in
the United States, Canada, Israel, Spain and Holland.
The Company faces substantial competition from a few large companies and
several smaller companies in the sale of certain products and growing
systems to greenhouses and nurseries in North America. The Company believes
that its range of products and services, and product quality, will allow it
to compete effectively in North America.
Competition in the fruit coatings market is also intense. Fruit coating
products are developed and marketed primarily by several large companies
which offer a full range of products. In addition, several smaller
companies offer a limited range of fruit coating products. The Company
believes that it can compete effectively in this market with its Bio-Save
PostHarvest BioProtectant and traditional coating products based on the
cost effectiveness and the quality of its coating formulations and
services.
15
<PAGE>
In the pesticide industry, the Company competes with large manufacturers of
synthetic chemical pesticides and established biopesticide companies. The
pesticide industry is dominated by large chemical companies located in the
United States, Japan and Europe. These companies have substantial financial
and technical resources, extensive sales and distribution capabilities,
varied product registration experience and the ability to manufacture
products efficiently.
Environmental and Regulatory Matters
The Company's operations are subject to numerous environmental laws and
regulations, including the Food Quality Protection Act of 1996, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), the Toxic
Substances Control Act and the Comprehensive Environmental Response,
Compensation and Liability Act. Compliance with these laws and regulations
is an ongoing process which is not currently expected to have a material
effect on the Company's capital expenditures, earnings or competitive
position. Environmental concerns are, however, inherent in most major
agricultural operations, including those conducted by the Company, and
there can be no assurance that the cost of compliance with environmental
laws and regulations will not be material in the future. The environmental
laws which have the greatest impact on the Company's operations are those
that govern the handling of fertilizers and pesticides. To help ensure
compliance with environmental laws and regulations, all Company personnel
who handle fertilizers and pesticides must first be trained by a licensed
private applicator on the Company's staff certified to provide training in
the handling of hazardous materials. In addition, the Company has adopted
certain written policies and procedures which are designed to prevent
accidents and set forth the appropriate course of action in the event that
a spill or other accident occurs. The Company has also contracted with
third parties to assist in cleanup efforts in the event that an accident
having environmental implications occurs at certain of its facilities.
The Company's greenhouse operations are subject to regulations enforced by,
among others, the FDA and the USDA. The FDA enforces statutory standards
regarding the branding and safety of food products and determines the
safety of food substances in the United States.
The USDA sets standards for raw produce and governs its inspection and
certification. Under the Perishable Agricultural and Commodities Act
("PACA"), the USDA exercises broad control over the marketing of produce in
domestic and foreign commerce, sets standards of fair conduct as to
representations, sales, delivery, shipment and payment for goods, and
regulates the licensing of produce merchants and brokers. The Company's
growing operations are also subject to oversight by the EPA regarding the
use of fertilizers and pesticides protection.
Through its extensive use of labor in its growing operations, the Company
is subject to supervision by the United States Department of Labor, under
both the Fair Labor Standards Act and the Occupational Safety and Health
Act; and the prevalence of foreign
16
<PAGE>
workers in this sector of the Company's work force necessarily involves
oversight by the Immigration and Naturalization Service.
Almost every aspect of federal regulation is accompanied by regulation on
the state level, in each jurisdiction where the Company conducts greenhouse
operations.
In most countries throughout the world, governmental authorities require
registration of pesticides before sales are allowed. In the United States,
the EPA regulates pesticides under FIFRA. Pesticides are also regulated by
the individual states. Some states, such as California, Florida and New
York, have their own extensive registration requirements. In order to
market products outside the United States, the company must receive
regulatory approval from the authorities of each applicable jurisdiction.
In addition, the FDA administers the Federal Food, Drug and Cosmetic Act
("FFDCA") and establishes standards for pesticide residues in food to
protect public health.
Detailed and complex procedures must be followed in order to obtain
approvals under FIFRA to commercialize a pesticide product. A registration
application must be submitted to the EPA for each product and must list
each pest for which the product will be used. Evaluation data for
registration includes, but may not be limited to, non-target organism
testing, environmental data, product analysis and residue studies, product
performance, and toxicology (hazards to human beings and domestic animals).
The EPA has established specific testing requirements for the registration
of microbial pesticides, which are set out in Subdivision M of the EPA's
Pesticide Assessment Guidelines. Chemical pesticides are currently subject
to a three tier toxicology testing procedure, and a four tier environmental
evaluation process. A microbial pesticide product which satisfactorily
completes both the toxicology Tier 1 tests and environmental evaluation is
not required to go through the increasingly difficult testing requirements
of subsequent tiers. Additional tests may be required, however, in response
to any questions which may arise during Tier 1 testing. The Company's
product development cycle typically anticipates two to three years of field
evaluation and up to two years for product registration, which can run
concurrently with the last year of field trials.
In October 1994, the Company received EPA registration for its Bio-Blast
termiticide. The Company subsequently received registration from 48 states.
In March 1995, the company received EPA registration for Bio-Save 10 and
Bio-Save 11 biofungicides in all states requested. In March 1996, the
Company received EPA registration for Bio-Save 1000, Bio-Save 100 and
Bio-Save 110. These registrations are for new formulations of the original
Bio-Save 10 and 11 products. In addition, in May 1997, the Company received
approval from the EPA for a label extension for the use of Bio-Save 1000 on
cherries.
Certain of the Company's activities, including the operation of its
laboratories, manufacturing facilities and greenhouse facilities, have
been, or maybe, subject to regulation under various other state and federal
laws and regulations including the Occupational Safety and Health Act, the
National Environmental Policy Act, the Emergency Planning and Community
Right-To-Know Act, the Food Quality Protection
17
<PAGE>
Act of 1996, the Resource Conservation and Recovery Act, and other state
and federal statutes regulating environmental quality. From time to time,
governmental authorities review the need for additional laws and
regulations that could, if adopted, apply to the business of the Company.
The Company is unable to predict whether any such new regulations will be
adopted or whether, if adopted, they will adversely affect its business.
Historically, compliance with applicable federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment by the Company's greenhouse, manufacturing
or laboratory operations has had an immaterial effect upon the Company's
capital expenditures, results of operations and competitive position.
Patents, Proprietary Rights and Trade Secrets
The Company owns or has rights to certain proprietary information,
including patents and patent applications, which relate to its technology
and products. The Company actively seeks protection, when appropriate, for
its products and proprietary information by means of United States and
foreign patents. In addition, the Company may rely upon confidentiality
agreements and other contractual arrangements to protect certain
proprietary information.
The Company has been issued patents and has pending patent applications
that address its core technological strengths, with emphasis on fungal and
bacterial formulation, and storage technologies. These patents and patent
applications have been principally pursued in the U.S. and in some cases
internationally. The technology described in these patents and patent
applications is useful in the development of fungal and bacterial active
ingredient microbial pesticides. Microbial pesticide products are based on
microorganisms isolated from the environment, formulated and delivered to a
target pest so that they kill the pest, or control or inhibit its
proliferation on the target. These microorganisms are packaged alive and
perform their function through proliferation in the pest environment. Much
of the formulation and delivery technology developed for synthetic chemical
pesticides is inappropriate for microbial products which employ and
preserve living organisms. EcoScience microbial technology uses live
microorganisms which either attack and kill a target pest (e.g. Bio-Blast)
or through natural growth inhibit the ability of a target pest to
proliferate (e.g. Bio-Save).
Together, the Company's patents describe a set of technologies applicable
to the use of fungi for the control of insect pests, and are central to the
Bio-Path(R) chamber technology which covers cockroaches, the further
development and sale of which the Company has suspended; however, this
technology can be extended to any other insect that can be controlled via a
chamber system. An additional patent describing further fungal formulation
technology is pending.
The Company has been issued two additional U.S. Patents which relate to the
use of bacteria, chiefly as biofungicides in the treatment of plant fungal
disease.
Provided maintenance fees are paid, U.S. design patents have a term of 14
years from the date of issue; and U.S. utility patents that are based on
applications filed before June 8, 1995,
18
<PAGE>
and that have not expired as of June 8, 1995, have a term that is the
longer of 20 years from the earliest effective filing date or 17 years from
issuance. In certain instances, however, the term may be limited to the
term of a related patent claiming similar technology. The Company has an
additional pending patent application relating to a method of extending
microbial shelf life. None of the Company's current patents expire prior to
2006. There can be no assurance that any patents will issue from any of the
Company's patent applications or that issued patents will provide adequate
protection for the Company.
In addition to its own active ingredients, the Company has acquired the
exclusive rights to the use of microbial strains developed by the USDA for
the control of postharvest diseases of pome fruits. The USDA has been
granted one patent covering this technology and has filed a patent
application covering additional postharvest disease control agents.
Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of certain scientific and
technical personnel. To protect its rights to its proprietary information
and technology, the Company requires certain employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to persons unaffiliated
with the Company, and which require disclosure of and assignment to the
Company ideas, developments, discoveries and inventions made by such
persons. There can be no assurance that these agreements will prevent
disclosure of the Company's confidential information or will provide
meaningful protection for the Company's confidential information.
Additionally, in the absence of patent protection, the Company's biological
and agricultural business may be adversely affected by competitors who
develop substantially equivalent technology.
Employees
As of April 1, 1999 the Company had approximately 950 employees. The
majority of these workers are employed in the Company's greenhouse
operations. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relations with employees to
be good.
Item 2. Properties
The Company's corporate headquarters and research and development
operations, and AGRO's New Jersey operations are currently located in two
facilities in East Brunswick, New Jersey. These facilities consist of
23,000 and 10,000 square foot spaces and are under leases that expire in
July 1999. The Company recently entered into a ten year lease agreement
with respect to 20,000 square feet of office/warehouse space in Eatontown,
New Jersey and expects to move its corporate headquarters and research and
development operations to this location in September 1999.
AGRO leases 10,000 square feet of space for its sales, service and
warehouse center located in Milton, Ontario, Canada under a three year
lease which expires in June 2001. AGRO
19
<PAGE>
also leases a 12,000 square foot facility for its sales, service and
warehouse center in Ventura, California.
APD's principal properties consist of its greenhouse facilities in
Ringgold, Pennsylvania; Buffalo and Wheatfield, New York; Fort Davis and
Marfa, Texas; and King George County, Virginia. APD has an ownership
interest in the facilities located in Buffalo, New York; Fort Davis, Texas;
and the two facilities in Marfa, Texas. The remaining facilities, and the
land upon which the Buffalo and Marfa facilities are located, are leased.
Each of the greenhouses operated by APD has adjacent packing and support
facilities ranging in size from approximately 11,300 square feet at the
Ringgold, Pennsylvania facility to the approximately 170,000 square foot
storage and distribution center adjacent to the Virginia greenhouse
facility. Collectively, these facilities provide an aggregate of
approximately 512,778 square feet of packing and support space to APD. In
addition, APD leases a 4,000 square foot distribution center in Buffalo,
New York and approximately 500 square feet of office space in Naples,
Florida.
The Company's wholly owned subsidiary, EPSC, leases approximately 24,000
square feet of space for its headquarters, production and warehouse
facilities located in Orlando, Florida, under a five year lease which
expires in May 1999, and which provides an option to renew for an
additional five year term. In addition, EPSC leases on a month to month
basis approximately 4,000 square feet of space for its sales, service and
warehouse center located in Visalia, California.
The Company believes that its existing facilities are adequate to meet
current requirements and that suitable additional or substitute space will
be available as needed to accommodate any expansion of operations and
additional offices.
Item 3. Legal Proceedings
The Company currently is not a party to any material legal proceedings, nor
is it currently aware of any threatened material legal proceedings. From
time to time, the Company may become involved in litigation relating to
claims arising out of its operations in the normal course of its business.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fiscal quarter ended January 3, 1999.
Item 4A. Executive Officers of the Registrant
The executive officers of the Registrant are listed in the table below, and
brief summaries of their business experience and certain other information
is set forth in the information which follows the table:
Name Age Position
---- --- --------
Michael A. DeGiglio 44 President and Chief Executive Officer
Albert VanZeyst 53 Executive Vice President
J. Kevin Cobb 38 Senior Vice President--Corporate Development,
Interim Chief Financial Officer
and Treasurer
David W. Miller 47 Senior Vice President and Chief Technology
Officer
Kurt Hoffman 38 Secretary and Corporate Controller
20
<PAGE>
Michael A. DeGiglio, age 44, has served as a Director of the Company since
November 1996, when he was elected to serve as a Director by the Board. Mr.
DeGiglio joined the Company upon its acquisition of Agro Dynamics, Inc.
("AGRO Dynamics") in November 1992, and served as Chief Executive Officer
of AGRO Dynamics until November 1998. In July 1995, Mr. DeGiglio assumed
the offices of President and Chief Executive Officer of the Company. From
1984 until joining the Company, Mr. DeGiglio was employed by AGRO Dynamics,
where he served as Chief Executive Officer. Prior to co-founding AGRO, Mr.
DeGiglio was Vice President of International Sales for NYPCO International
Inc. Mr. DeGiglio served on active duty in the United States Navy as an
Officer and Jet Aviator from July 1976 through January 1983, and the Naval
Air Reserves from 1983 to present, currently holding the rank of Captain
with the United States Naval Reserve. Throughout his Naval career, he has
held various department head positions, completed a tour as Commanding
Officer of a Jet Aviation Squadron, performed multiple tours overseas, and
has completed numerous Senior Advanced Management courses. Mr. DeGiglio is
a co-founder of APD and has served as Chief Executive Officer of APD since
its inception in 1990. He served as President of APD until January 1997.
Mr. DeGiglio received a B.S. in Aeronautical Science and Aviation
Management from Embry Riddle Aeronautical University. Mr. DeGiglio's term
as a director of the Company will expire at the 2000 Annual Meeting of
Stockholders.
Albert W. Vanzeyst has served as a Director of the Company since September
1998, when he was elected to serve as a Director and Executive Vice
President by the Board pursuant to certain covenants related to the Merger
pursuant to which the Company acquired APD. Mr. Vanzeyst, a co-founder of
APD, has been Chief Operating Officer and a Director of APD since its
inception in 1990. In January, 1997, he also assumed the role of President
of APD. Mr. Vanzeyst has 30 years of greenhouse design, engineering and
construction experience spanning several countries, crops and climates
throughout the world. Between 1984 and 1990, Mr. Vanzeyst was President of
Dace U.S.A., Inc., a subsidiary of Dace International, Inc., an
international turn-key greenhouse construction company. Prior thereto, he
participated in the development, design and construction of numerous
greenhouse operations in several countries throughout the world. Mr.
Vanzeyst holds a degree in Foreign Trade and International Commerce from
Handelavond College in the Netherlands. Mr. Vanzeyst's term as a director
will expire at the 1999 Annual Meeting of Stockholders.
J. Kevin Cobb joined the Company in September 1998, as Senior Vice
President-Corporate Development pursuant to certain covenants related to
the Merger pursuant to which the Company acquired APD. In February 1999, he
was named interim Chief Financial Officer and Treasurer of the Company.
Prior to joining the Company, Mr. Cobb served as Senior Vice President and
Chief Financial Officer of APD from January 1995 until July 1998, when he
was appointed Senior Vice President - Corporate Development of APD. Mr.
Cobb
21
<PAGE>
came to APD after five years experience with Cogentrix Energy, Inc. of
Charlotte, North Carolina. While at Cogentrix, he served as Treasurer and
Director of Project Finance. From 1988 to 1990, he served as Vice President
of Finance of The Lexington Group, Inc., a real estate investment and
management firm. Prior thereto, Mr. Cobb was employed as a Certified Public
Accountant with Arthur Andersen, LLP. Mr. Cobb holds a B.S. degree in
accounting from the University of North Carolina - Charlotte.
David W. Miller joined the Company in May 1988 and serves as Senior Vice
President and Chief Technology Officer. Dr. Miller's current
responsibilities include technology development and management,
intellectual property oversight and product development Dr. Miller received
a B.S. in Biochemistry from the University of California, Davis, and a
Ph.D. in Biochemistry and Molecular Biology from Harvard University, where
he studied the molecular biology of insects. Dr. Miller also was a National
Institutes of Health post-doctoral Fellow studying insect viruses at the
University of Idaho. Prior to joining the Company, Dr. Miller was employed
from 1983 to 1988 as Staff Scientist and Project Leader at Genetics
Institute, Inc., in Cambridge, Massachusetts. Throughout his professional
career, Dr. Miller has focused on the development and commercialization of
microbial pesticides with involvement from the discovery stage to product
sales.
Kurt Hoffman was appointed Secretary of the Company in April 1999. He was
appointed Corporate Controller in March 1999, having served as Division
Controller from November 1997 through February 1999 and Assistant
Controller from December 1995 through October 1997. From April 1991 through
August 1995, Mr. Hoffman served as an Assistant Controller for Infomed,
Inc. He is a Certified Public Accountant and received a Bachelor of Arts
Degree in Accounting from the University of Maryland.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholders
Matters
The Company's Common Stock trades on NASDAQ under the symbol "ECSC". As of
April 15, 1999, there were approximately 269 holders of record of the
Company's Common Stock. The Company effectuated a one-for-five reverse
stock split effective at the close of business on September 30, 1998 (the
"Reverse Split"). On April 15, 1999, the reported closing price of the
Common Stock was $2-3/8 per share. The Company has been notified by NASDAQ
that due to the merger transaction with APD, the Company is required to
meet the requirements for a new listing and that NASDAQ intends to delist
the Common Stock. The Company has requested a hearing with NASDAQ
representatives to appeal the delisting determination. No assurance can be
given that the Company's appeal will be successful. If the Common Stock is
delisted by NASDAQ, it would trade on the OTC Bulletin Board or in the
"pink sheets" maintained by the National Quotation Bureau, Inc., which are
generally considered to be less efficient markets.
The table below sets forth, for the fiscal quarters indicated, the reported
high and low closing sales prices (as adjusted for the Reverse Split) of
the Common Stock as reported by NASDAQ based on published financial
sources.
22
<PAGE>
High Low
---- ---
1998
Fiscal Quarter ended January 3, 1999 $9 1/16 $5
Fiscal Quarter ended September 30, 1998 9 11/16 6 3/32
Fiscal Quarter ended June 30, 1998 9 1/16 5
Fiscal Quarter ended March 31, 1998 9 11/16 6 3/32
1997
Fiscal Quarter ended December 31, 1997 10 5
Fiscal Quarter ended September 30, 1997 7 3/16 5 5/16
Fiscal Quarter ended June 30, 1997 8 3/4 4 7/32
Fiscal Quarter ended March 31, 1997 12 1/2 5
The Company has not paid any dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. Certain provisions of the
Company's loan agreements prohibit the payment of dividends.
23
<PAGE>
Item 6. Selected Financial Data
The selected financial data presented below has been derived from (i) the
Company's audited consolidated financial statements for the transition
period ended January 3, 1999 and for each year in the five year period
ended June 30, 1998 and (ii) the Company's unaudited consolidated financial
statements for the six months ended December 31, 1997. The information
below should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and related notes which appear elsewhere
in this document.
<TABLE>
<CAPTION>
Consolidated Statements of Operations Data Transition Six Months
(in thousands, except per share amounts) Period Ended Ended Years Ended June 30,
January 3, December 31, --------------------------------------------------
1999 1997 1998 1997 1996 1995 1994
------------ ------------ -------- -------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ................................. $ 26,194 $ 17,835 $ 46,177 $ 39,862 $ 24,668 $ 20,251 $ 15,535
Cost of revenues ............................. 25,237 14,675 41,847 32,279 18,603 16,617 12,639
-------- -------- -------- -------- -------- -------- --------
Gross profit ................................. 957 3,160 4,330 7,583 6,065 3,634 2,896
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative ....... 8,307 3,987 10,336 6,879 6,394 7,317 7,302
Research and development .................. 239 202 465 508 1,018 4,483 8,156
Asset valuation and restructuring
(reversal)
charges ................................. -- -- -- (377) (1,550) 6,000 5,800
-------- -------- -------- -------- -------- -------- --------
Total operating expenses .................. 8,546 4,189 10,801 7,010 5,862 17,800 21,258
-------- -------- -------- -------- -------- -------- --------
Operating (loss) income ...................... (7,589) (1,029) (6,471) 573 203 (14,166) (18,362)
-------- -------- -------- -------- -------- -------- --------
Other (expense) income:
Interest, net ............................. (2,928) (841) (3,289) (1,923) (611) (682) 599
Other, net ................................ (158) (100) (115) 12 136 158 796
-------- -------- -------- -------- -------- -------- --------
Total other (expense) income .......... (3,086) (941) (3,404) (1,911) (475) (524) 1,395
-------- -------- -------- -------- -------- -------- --------
Loss before taxes, minority
interest and extraordinary item. ............. (10,675) (1,970) (9,875) (1,338) (272) (14,690) (16,967)
Provision for income taxes ................... 67 21 21 78 116 91 48
-------- -------- -------- -------- -------- -------- --------
Loss before minority interest and ........... (10,742) (1,991) (9,896) (1,416) (388) (14,781) (17,015)
extraordinary item
Minority interest ............................ 2,255 1,311 5,659 1,936 274 -- --
-------- -------- -------- -------- -------- -------- --------
(Loss) income before extraordinary item ...... (8,487) (680) (4,237) 520 (114) (14,781) (17,015)
Extraordinary item ........................... -- -- -- -- 241 -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income ............................ ($ 8,487) ($ 680) ($ 4,237) $ 520 $ 127 ($14,781) ($17,015)
======== ======== ======== ======== ======== ======== ========
(Loss) earnings per share:
Basic
Income (loss) before extraordinary
item ......................................... ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 ($ 0.01) ($ 1.31) ($ 1.54)
Extraordinary item ........................ -- -- -- -- 0.02 -- --
-------- -------- -------- -------- -------- -------- --------
Net (loss) income ........................ ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 $ 0.01 ($ 1.31) ($ 1.54)
======== ======== ======== ======== ======== ======== ========
Weighted average basic shares
outstanding ............................. 11,641 11,605 11,619 11,548 11,334 11,288 11,070
======== ======== ======== ======== ======== ======== ========
Diluted
Income (loss) before extraordinary ........ ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 ($ 0.01) ($ 1.31) ($ 1.54)
item
Extraordinary item ........................ -- -- -- -- 0.02 -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ........................ ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 $ 0.01 ($ 1.31) ($ 1.54)
======== ======== ======== ======== ======== ======== ========
Weighted average diluted shares
outstanding ............................. 11,641 11,605 11,619 11,583 11,381 11,288 11,070
-------- -------- -------- -------- -------- -------- --------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet (in thousands) January 3, June 30,
---------- --------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
Unrestricted and restricted cash, cash
equivalents,
short-term investments and marketable
<S> <C> <C> <C> <C> <C> <C>
securities ...................................... $ 1,222 $ 4,222 $ 6,787 $ 6,151 $ 8,036 $ 20,542
Total assets ....................................... 101,864 79,508 70,592 36,249 20,465 35,251
Debt and capital leases ............................ 85,797 55,274 43,483 19,460 8,580 8,287
Stockholder's equity (deficit) ..................... ($ 5,094) ($ 118) $ 4,046 $ 3,010 $ 2,625 $ 17,974
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's two reportable segments are comprised of (i) greenhouse
tomatoes and (ii) biological and agricultural products.
The Company experienced significant and unprecedented growth during
the first six months of calendar year 1998, particularly in the
greenhouse tomato segment represented by APD. See "Merger with Agro
Power Development, Inc." below. During this period, APD completed
construction and started up approximately 101 additional acres of
greenhouse production in beefsteak (42 acres) and cluster on-the-vine
(59 acres) tomatoes. This increase in acreage represented an
approximate 135% increase in production capacity over the 75 acres of
production capacity for calendar year 1997. In addition, APD began
construction on an additional 41 acre greenhouse to grow and sell
colored bell peppers (the "Presidio Phase I Project"). The first 26
acres of this greenhouse went into operation in October 1998, thereby
increasing production capacity by approximately 169% for calendar 1998
as compared to calendar 1997. To accommodate this growth, the Company
also expanded its sales and marketing organization and its financial
and greenhouse management operations. Increases in sales and revenues
and the achievement of economies of scale generally lag increases in
production capacity, but expenses for startup, infrastructure and
personnel occur in advance of revenues. The operating results for the
period ended January 3, 1999 reflect a significant portion of these
expenses in advance of anticipated revenues from the three new
greenhouse projects.
As described below under "Results of Operations," operating results
for the period ended January 3, 1999 were adversely affected by
abbreviated growing cycles and delays in crop planting at certain of
the Company's greenhouse facilities. In addition, in April 1999,
management determined that in view of unfavorable pricing trends in
the pepper market, it would convert the Presidio Phase I Project from
peppers to tomatoes, thereby shortening the harvest period for the
then current pepper crop by approximately three months. As a result,
certain significant expenditures made by the Company to plant the
pepper crop will not be recoverable and were charged to earnings in
the three month period ending January 3, 1999. The Company believes
that, with the exception of the Presidio facility, its greenhouse
operations are now approaching their optimal production schedules for
the first time in its history, compared with results in calendar 1998
when three of seven operations (101 of the 176 acres in operation)
were out of the harvest cycle necessary to achieve optimal production
and pricing due to start-up factors. The
25
<PAGE>
Company has begun to realize the benefits of the increased production
capacity added during 1998, through its increased production and
sales, in the quarter ended January 3, 1999 and expects this trend to
continue during 1999.
During the period ended January 3, 1999, the Company incurred
non-recurring expenses of approximately $1,500 as a result of the
merger transaction with APD.
Change of Fiscal Year
The Company has amended its by-laws to change its fiscal year from the
twelve month period ended June 30 to a 52-53 week fiscal year ending
on the Sunday nearest December 31 of each year. For the transition
period, the fiscal year end date will be January 3, 1999.
Merger with Agro Power Development, Inc.
On September 30, 1998, the Company issued 9,421,487 shares of Common
Stock to the holders of the common stock of APDNY, a privately held
New York corporation pursuant to the Merger Agreement, which provided
for the merger of APDNY with and into a newly formed, wholly owned
subsidiary of the Company which, at the effective time of the merger,
changed its name to Agro Power Development, Inc. The Merger was
structured as a tax free reorganization under Section 368(a) of the
Internal Revenue Code. Pursuant to the Merger Agreement, the
stockholders of APDNY received 30,619.067 shares of the Company's
Common Stock for each outstanding share of common stock of APDNY. In
addition, on September 30, 1998, the Company issued 99,000 shares of
Common Stock to certain stockholders of APDNY for their entire 50%
interest in Village Farms of Morocco, S.A., a Moroccan company, as
provided for in the Merger Agreement. The shares of Common Stock
issued to the stockholders of APDNY pursuant to the Merger Agreement
represented approximately 80% of the outstanding shares of the
Company, on a fully diluted basis, at the effective time of the
Merger. The Merger has been accounted for as a pooling of interests
and accordingly, the historical consolidated financial statements have
been restated to reflect the business combination as if it had
occurred at the beginning of the earliest period presented.
Acquisition
On December 30, 1998, the Company acquired from Cogentrix all of the
outstanding capital stock of each of Cogentrix Greenhouse Investments,
Inc.; Cogentrix of Fort Davis I, Inc.; Cogentrix of Pocono, Inc.;
Cogentrix of Marfa, Inc. and Cogentrix of Buffalo, Inc. (collectively
the "Acquired Companies") which were 50% partners with the Company in
limited partnerships that operate four of the Company's greenhouse
operations. The purchase price of the Acquired Companies consisted of
1,000,000 shares of EcoScience common stock and a $20,600 note bearing
interest at a rate of 11.25% per annum, which was originally due and
payable on March 15, 1999. On March 12, 1999, Cogentrix agreed to
extend the maturity date of the note to June 30, 1999. In connection
with the extension, the Company issued Cogentrix an additional note in
the principal amount of $1,000 which has terms similar to the original
note and becomes due on June 30, 1999.
26
<PAGE>
The notes are secured by all of the outstanding capital stock of APD
and the Acquired Companies. EcoScience is currently seeking additional
debt and equity financing to fulfill this obligation. If the Company
is not successful in refinancing the $21,600 aggregate principal
amount of notes, it will seek an extension of the due date or a
restructuring of the notes. There can be no assurances that EcoScience
will be successful in these efforts.
As a condition to the acquisition, EcoScience agreed to register the
1,000,000 shares of common stock for public sale. In the event the
stock is not registered by June 15, 1999, EcoScience may be required,
at the election of Cogentrix, to repurchase the 1,000,000 shares from
Cogentrix at a price equal to the greater of $4.00 or the market price
on the day prior to the repurchase demand, as provided.
Additional consideration given in the transaction is as follows: (i)
termination of an option agreement with Cogentrix, pursuant to which
APD granted to Cogentrix certain rights to participate in future
projects involving the development, acquisition, owning of or
operating by APD of any greenhouse facility at which fruit or
vegetables are to be grown, as defined; (ii) Cogentrix assigned and
contributed its note receivable of $643 along with accrued interest
($65), due from APD to Cogentrix Greenhouse Investment, Inc. and (iii)
one of the greenhouse limited partnerships cancelled its note
receivable due from Cogentrix in the amount of $1,838, along with
accrued interest ($191). Following the cancellation and the
acquisition of the Acquired Companies by EcoScience, Cogentrix
Greenhouse Investment, Inc. issued a promissory note payable to that
greenhouse limited partnership in the same amount.
Sale of Postharvest Equipment Division
On February 1, 1999, the Company's postharvest equipment division of
its wholly owned subsidiary Agro Dynamics, Inc., 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 will 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.
Results of Operations
Transition Ended January 3, 1999 vs.
Six Months Ended December 31, 1997
The Company's net revenues increased by $8,359 or 47% to $26,194 for
the period ended January 3, 1999 from $17,835 for the same period in
1997. This increase was primarily
27
<PAGE>
due to the increases in product sales in the greenhouse tomato market
of $6,797, and the biological and agricultural products market of
$1,562.
The following table sets forth the Company's net revenues by market
for the period ended January 3, 1999 and the six months ended December
31, 1997:
January 3, December 31,
1999 1997 Increase
--=---- ------- --------
Tomatoes ................................ $15,453 $ 8,656 $ 6,797
Biological and Agricultural Products .... 10,741 9,179 1,562
--=---- ------- --------
Consolidated ............................ $26,194 $17,835 $ 8,359
======= ======= ========
Net revenues increases for the greenhouse tomato market were primarily
due to increased capacity. The Company's Buffalo, New York, Virginia
and Marfa, Texas facilities (representing 101 acres) became
operational in the first half of 1998 and recorded product sales in
the period ended January 3, 1999. The Company's Presidio facility
(representing 26 acres) became operational in the six month period
ended January 3, 1999.
Product sale increases for the biological and agricultural products
market were primarily due to approximately $1,236 in Postharvest
equipment sold in the period ended January 3, 1999 that was delayed
from the first half of 1998 due to a fire damage sustained at the
manufacturer's facility. The remaining increases related to increased
selling efforts.
Cost of revenues increased $10,562 or 72% to $25,237 for the period
ended January 3, 1999 from $14,675 for the same period in 1997,
primarily due to net revenues increases. For tomatoes, cost of
revenues sold increased $9,067 or 116% to $16,903 for the period ended
January 3, 1999 from $7,836 for the same period in 1997, primarily due
to the significant growth in production (169%) during 1998 associated
with the three new facilities in Virginia, Marfa, Texas and Buffalo,
New York, which combined for substantially all of the increase in cost
of revenues.
Gross profit on net revenues decreased $2,203 to $957 for the period
ended January 3, 1999 from a gross profit of $3,160 for the same
period in 1997, while gross profit percentage on net revenues
decreased to 4% for the period ended January 3, 1999 from 18% for the
same period in 1997. Gross profit on net revenues decreased $2,270 for
the tomato greenhouse market to a gross loss of $1,450 from a gross
profit of $820 for the period ended January 3, 1999, while gross
profit percentage decreased to (9%) from 9% in the same period. The
decrease was primarily due to start-up costs and delays at the
Company's Buffalo, New York and Virginia greenhouse facilities and the
poor results of its pepper crop at the Presidio greenhouse facility.
The facilities in Buffalo, New York and Virginia recorded $2,285 in
gross losses because the timing of the construction completion and
startup did not coincide with the optimal cropping cycle (seed, plant,
grow, harvest) of these facilities during the first year of
operations. The costs incurred at these facilities were naturally
spread across lower
28
<PAGE>
production and sales due to the abbreviated growing cycle and,
therefore, significantly lowered gross profits of these facilities.
The timing of the 101 additional acres that started up between January
and April of 1998 came at a time when market prices were on a seasonal
decline going into the summer season and the crop cycle was coming to
an end (to ready greenhouses for the next and normal starting cycle),
thereby preventing the Company from recovering the up front crop
expenditures in an abbreviated crop cycle or harvest period. In
addition, the crop cycle of the Company's 42 acre Virginia greenhouse
was adversely impacted by the delay of the lessor of the facility in
obtaining the approval of its lenders required for the conversion and
expansion of the facility. As a result, the Company was not able to
begin planting in the Virginia greenhouse until late in the growing
cycle which delayed tomato production beyond the favorable spring
pricing period. As a result, this facility was unable to produce
sufficient yield to cover costs. In addition, the Company subsequently
determined that light levels in Virginia were sufficient to produce
tomatoes in the winter and thus elected to cut short the already
abbreviated growing cycle at the Virginia greenhouse and begin a new
crop that would come into initial harvest in December 1998 when the
higher winter pricing is available in the marketplace. Also, the
Buffalo, New York greenhouse had construction delays and was late in
installing infrastructure and required systems, thereby delaying the
start of the normal crop cycle and further impacting operating
performance. These delays increased operating costs during the period
ended January 3, 1999.
The Company's Presidio facility in Texas began pepper production in
the second half of 1998. Management decided, subsequent to January
3,1999, to end the crop prematurely in April 1999 due to unfavorable
market prices. This resulted in a write down of inventory resulting in
$1,784 of negative gross margin. The Company is currently converting
the facility for tomato production and plans to begin harvesting these
tomatoes in June 1999.
Selling, general and administrative expenses increased $4,320 or 108%
to $8,307 for the period ended January 3, 1999 from $3,987 for the
same period in 1997, primarily due to non-recurring merger costs of
$1,500, increased expenses attributable to the Company's four new
greenhouse facilities, the expansion of the Company's sales,
marketing, finance and greenhouse management operations, and
post-merger transaction costs, including severance compensation to
former officers and professional fees.
Research and development expenses increased $37 or 18% to $239 for the
period ended January 3, 1999 from $202 for the same period in 1997,
due primarily to increases in personnel and related costs.
Operating loss increased $6,560 to $7,589 for the period ended January
3, 1999 compared to a $1,029 operating loss for the same period in
1997. The increase in operating loss resulted primarily from a $2,203
decrease in gross profit for the period ended January 3, 1999 compared
to the same period in 1997, and a $4,357 increase in operating
expenses.
29
<PAGE>
Other expenses increased by $2,145 to $3,086 for the period ended
January 3, 1999, compared to $941 for the same period in 1997,
primarily due to increased interest expenses attributable to
indebtedness incurred in connection with the development of the new
greenhouse facilities. Interest expense, net, increased by $2,087
reflecting the higher level of debt outstanding during the period
ended January 3, 1999 compared to the same period in 1997.
The Company's net loss increased $7,807 or $0.67 per diluted share to
$8,487 or $0.73 per diluted share for the period ended January 3, 1999
compared to a net loss of $680 or $0.06 per diluted share for the same
period in 1997.
Year Ended June 30, 1998 vs.
Year Ended June 30, 1997
The Company's net revenues increased $6,315 or 16% to $46,177 in 1998
from $39,862 in 1997 primarily due to increases in tomatoes product
sales of $6,908, partially offset by a decrease in biological and
agricultural product sales of $593. The following table sets forth the
Company's net revenues by market for 1998 and 1997:
Years Ended
June 30,
------------------- Increase
1998 1997 (Decrease)
------- ------- ---------
Tomatoes .................................. $28,871 $21,963 $ 6,908
Biological and Agricultural Products ...... 17,306 17,899 (593)
------- ------- ---------
Consolidated .............................. $46,177 $39,862 $ 6,315
======= ======= =========
Net revenues increases for the greenhouse tomato market were primarily
due to increased capacity. The Company's Buffalo, Virginia and Marfa,
Texas facilities (representing 101 acres) became operational in the
first half of 1998 and recorded net revenues in 1998.
Net revenues decreases for the biological and agricultural products
market were primarily due to the delayed shipment and installation of
equipment orders as a result of fire damage sustained at the
manufacturer's facility. This decrease was partially offset by
increases in the sales of other product lines. The result of the
postponement of shipments caused by the fire had an adverse effect on
the Company's operating results for the fourth quarter of fiscal 1998.
Cost of revenues increased $9,568 or 30% to $41,847 in 1998 from
$32,279 in 1997, primarily due to product sales increases. For
tomatoes, cost of revenues increased $9,705, or 50% to $29,015 in 1998
from $19,310 in 1997, primarily due to the growth in production during
1998 associated with the three new facilities in Buffalo, Virginia and
Marfa, Texas.
Gross profit on net revenues decreased $3,253 or 43% to $4,330 in 1998
from $7,583 in 1997, while gross margin percentage on product sales
decreased to 9% in 1998 from 19%
30
<PAGE>
in 1997. For tomatoes, gross profit decreased $2,797 to a gross loss
of $144 in 1998 from a gross profit of $2,653 in 1997, while gross
margin percentage decreased to 0% in 1998 from 12% in 1997 due to the
abbreviated crop cycles, resulting in production costs being spread
over lower sales, in the Buffalo and Virginia facilities and growing
system problems at the Company's Fort Davis, Texas facility which have
subsequently been corrected. For biological and agricultural products,
gross profit decreased $456 or to $4,474 in 1998 from $4,930 in 1997,
while gross margin percentage decreased to 26% in 1998 from 28% in
1997, due to decreased sales and a shift in product mix towards
certain typically lower margin product lines.
The facilities in Buffalo, New York and Virginia recorded $1,567 in
combined gross losses because the timing of the construction
completion and startup did not coincide with the optimal cropping
cycle (seed, plant, grow, harvest) of these facilities during the
first year of operations. The costs incurred at these facilities were
naturally spread across lower production and sales due to the
abbreviated growing cycle and, therefore, significantly lowered gross
profits of these facilities.
The timing of the 101 additional acres that started up between January
and April of 1998 came at a time when market prices were on a seasonal
decline going into the summer season and the crop cycle was coming to
an end (to ready greenhouses for the next and normal starting cycle),
thereby preventing the Company from recovering the up front crop
expenditures in an abbreviated crop cycle or harvest period. In
addition, the crop cycle of the Company's 42 acre Virginia greenhouse
was adversely impacted by the delay of lessor of the facility in
obtaining the approval of its lenders required for the conversion and
expansion of the facility. As a result, the Company was not able to
begin planting in the Virginia greenhouse until late in the growing
cycle which delayed tomato production beyond the favorable spring
pricing period. As a result, this facility was unable to produce
sufficient yield to cover costs. In addition, the Company subsequently
determined that light levels in Virginia were sufficient to produce
tomatoes in the winter and thus elected to cut short the already
abbreviated growing cycle at the Virginia greenhouse and begin a new
crop that would come into initial harvest in December 1998 when the
higher winter pricing is available in the marketplace. Also, the
Buffalo, New York greenhouse had construction delays and was late in
installing infrastructure and required systems, thereby delaying the
start of the normal crop cycle and further impacting operating
performance. These delays increased operating costs during the quarter
ended June 30, 1998.
The facility at Fort Davis, Texas experienced significant production
problems, resulting in lower production, thereby raising costs
relative to sales. This resulted in the recording of $558 in negative
gross profit.
Selling, general and administrative expenses increased $3,457 or 50%
to $10,336 in 1998 from $6,879 in 1997, primarily due to start-up
costs attributable to the Company's three
31
<PAGE>
new greenhouse facilities and the expansion of the Company's sales,
marketing, finance and greenhouse management operations.
Research and development expenses decreased $43 or 8% to $465 in 1998
from $508 in 1997, primarily due to reductions in personnel and
related costs.
In June 1997, the Company reversed $300 of accrued restructuring costs
no longer deemed necessary for facilities consolidation and
relocation, which relate to accrued restructuring costs originally
recorded in 1995. In August 1996, the Company and a finance company
reached a lease settlement agreement under which the Company paid $880
to satisfy the remaining lease obligation of approximately $1,248 of
principal and $17 of accrued interest, and returned certain leased
equipment with a net book value of $308 to the finance company, which
resulted in a reversal of a restructuring charge of $77 in 1997. The
Company charged costs and expenses totaling $109 and $273 against the
restructuring accruals during 1998 and 1997, respectively.
Operating income decreased $7,044 to an operating loss of $6,471 for
1998 compared to operating income of $573 for 1997. The decrease in
operating income resulted from a $3,791 increase of total operating
expenses in 1998 compared to 1997, in addition to a $3,253 decrease in
gross profit. The operating loss for 1998 was $6,471, a decrease in
operating income of $6,667, compared to operating income of $196 for
1997, when the $377 in restructuring reversals are excluded. Operating
expenses increased $3,414 or 46% to $10,801 for 1998 compared to
$7,387 for 1997 when the restructuring reversals are excluded.
Other income (expense) increased $1,493 or 78% to $3,404 net expense
in 1998 compared to $1,911 net expense in 1997. The increase in other,
net was primarily attributable to increased interest expense. Interest
expense increased by $1,366 reflecting the higher level of debt
incurred in connection with the development of the new greenhouse
facilities.
The Company's net loss increased $4,757 or $0.41 per share basic and
diluted to a net loss of $4,237 or $0.36 per share basic and diluted
for 1998 compared to net income of $520 or $0.05 per share basic and
diluted for 1997. Excluding the $377 reversal of restructuring charges
in 1997, the net income for 1997 was $143 or $0.01 per share basic and
diluted.
Year Ended June 30, 1997
Compared to Year Ended June 30, 1996
The Company's net revenues increased $15,194 or 62% to $39,862 in 1997
from $24,668 in 1996 primarily due to increases in tomato sales of
$10,873, and biological and agricultural product sales of $4,321. The
following table sets forth the Company's net revenues by market for
1997 and 1996:
Years Ended
June
1997 1996 Increase
------- ------- --------
Tomatoes ................................... $21,963 $11,090 $10,873
Biological and agricultural products ....... 17,899 13,578 4,321
------- ------- --------
Consolidated ............................... $39,862 $24,668 $15,194
------- ------- --------
32
<PAGE>
Net revenues increases for the greenhouse tomato market were primarily
due to increased capacity. The Company's Fort Davis, Texas and Pocono,
Pennsylvania facilities (representing 53 acres) became operational in
1997 and recorded product sales in 1997.
Product sale increases for the biological and agricultural products
market were primarily due to increased selling efforts and market
penetration for its substrate, postharvest equipment and irrigation
systems product lines.
Cost of revenues increased $13,676 or 74% to $32,279 in 1997 from
$18,603 in 1996, primarily due to product sales increases. For
tomatoes, cost of revenues increased $10,548 or 120% to $19,310 in
1997 from $8,762 in 1996, primarily due to the growth in production
during 1997 associated with the two new facilities in Fort Davis,
Texas and Pocono, Pennsylvania.
Gross profit on net revenues increased $1,518 or 25% to $7,583 in 1997
from $6,065 in 1996, while gross margin percentage on product sales
decreased to 19% in 1997 from 25% in 1996. Gross margin percentage
decrease was primarily due to startup costs in the greenhouse tomatoes
segment and a shift in product mix towards typically lower margin
equipment product sales in the biological and agricultural products
market, partially offset by increased sales of typically higher margin
Biologicals, Bio-Blast and Bio-Save.
Selling, general and administrative expenses increased $485 or 8% to
$6,879 in 1997 from $6,394 in 1996, primarily due to increases in
personnel and related costs.
Research and development expenses decreased $510 or 50% to $508 in
1997 from $1,018 in 1996, primarily due to reductions in personnel and
related costs and certain professional fees.
In June 1997, the Company reversed $300 of accrued restructuring costs
no longer deemed necessary for facilities consolidation and
relocation, which relate to accrued restructuring costs originally
recorded in 1995. In August 1996, the Company and a finance company
reached a lease settlement agreement under which the Company paid $880
to satisfy the remaining lease obligation of approximately $1,248 of
principal and $17 of accrued interest, and returned certain leased
equipment with a net book value of $308 to the finance company, which
resulted in a reversal of a restructuring charge of $77 in 1997. In
1996, the Company reversed $1,550 of accrued restructuring costs that
related to a termination of a lease for its Worcester corporate
headquarters and research and development facility.
Operating income increased $370 to $573 for 1997 compared to an
operating profit of $203 for 1996. The increase in operating income
resulted from a $1,518 increase in gross profit, partially offset by
an increase of $1,148 in total operating expenses in 1997 compared to
1996. Operating income for 1997 was $196, an increase of $1,543,
compared to an operating loss of $1,347 for 1996, when the
restructuring reversals are
33
<PAGE>
excluded. Operating expenses decreased $25 to $7,387 for 1997 compared
to $7,412 for 1996 when the restructuring reversals are excluded.
Other income (expense) increased $1,436 or 302% to $1,911 net expenses
in 1997 compared to $475 net expense in 1996. The increase was
primarily attributable to an increase in interest expense of $1,312 or
215%, resulting primarily from the higher average levels of long-term
debt and capital lease obligations outstanding during 1997 compared to
1996.
In 1996, the Company realized an extraordinary gain on the early
extinguishment of debt of $241 or $0.02 per share basic and diluted
with no related income tax effect.
The Company's net income increased $393 or $0.04 per share basic and
diluted to net income of $520 or $0.05 per share basic and diluted for
1997 compared to net income of $127 or $0.01 per share basic and
diluted for 1996. Excluding amounts for the reversals of accrued
restructuring costs and extraordinary gain, net income for 1997 was
$143 or $0.01 per share basic and diluted, a $1,807 or $0.16 per share
basic and diluted improvement, compared to the net loss of $1,664 or
$0.15 per share basic and diluted for 1996. The excluded amounts for
the reversals and extraordinary gain of accrued restructuring costs
are: (i) for 1997: the $377 reversals of restructuring charges; and
(ii) for 1996: (a) the $1,550 reversal of accrued restructuring costs,
and (b) the $241 extraordinary gain on early extinguishment of debt.
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, and investment income.
The Company is experiencing 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 during
1998, discussed above, and (ii) the need to refinance its $21,600
aggregate principal amount of promissory notes issued to Cogentrix
that becomes due on June 30, 1999 and its $3,000 line of credit, the
extended due date of which is April 28, 1999. In addition, the Company
did not make certain interest and principal payments due to its
primary lender beginning on October 20, 1998, which constituted
default, and is in default of financial covenants with its lenders. In
February 1999, the Company cured its payment defaults with its primary
lender. The Company has also delayed payments to vendors; however, the
Company has structured extended terms with certain vendors and has
substantially paid most other vendors whose payments were delayed.
Production and sales, and correspondingly, cash flow has improved in
the first quarter of calendar 1999 and the Company expects these
improvements to generally continue through 1999. The Company's
management has been in close contact with major suppliers and its
lenders, and the parties are working cooperatively together to manage
this cash flow shortfall. Although the Company's liquidity position is
currently manageable, the
34
<PAGE>
cash shortfall will remain until additional capital is raised. The
Company is, as well, actively seeking the refinancing of its $21,600
aggregate principal amount of promissory notes and its $3,000
revolving line of credit related to its agricultural and biological
products division. If the Company is not successful in refinancing the
notes, it will seek a further extension of the due date or a
restructuring of the terms of the notes. The Company has received a
term sheet from a financial institution in the amount of $4,000 to
replace its expiring revolving line of credit. The Company believes
that it will finalize the replacement financing arrangement in April
or May 1999. No assurance can be given that the Company will be able
to complete the refinancings, obtain an extension or restructuring of
the notes or that the Company's creditors will not attempt to enforce
legal remedies available to them.
Village Farms International Finance Association ("VFIFA") is a
non-profit cooperative formed by APD to obtain and provide
construction, term and working capital financing for its members.
VFIFA has entered into each of a line of credit agreement (the "Line
of Credit Agreement"), a term loan agreement (the "Term Loan
Agreement") and a construction loan agreement (the "Construction Loan
Agreement") with CoBank, ACB ("CoBank"), as lender and as agent for
other lenders which may become a party to such agreements
(collectively, the "VFIFA Loan Agreements"). The VFIFA Loan Agreements
collectively provide up to $60 million aggregate amount of borrowings
availability to VFIFA. The proceeds of borrowings under the Loan
Agreements are loaned by VFIFA to its members and eligible affiliates
of APD (such loans to be referred to herein as "Underlying Loans" and
the recipients of such loans to be referred to herein as "Underlying
Borrowers").
APD has guaranteed all of VFIFA's obligations under the VFIFA Loan
Agreements. Advances under the VFIFA Loan Documents are secured by a
first lien and security interest in all of the assets of VFIFA
(including the agreements and instruments which evidence the
Underlying Loans) and APD. APD is in default of a covenant contained
in the VFIFA Loan Documents which requires it to maintain a 25% ratio
of equity to long term debt. As a result of this default and the
payment defaults that were subsequently cured, CoBank has notified the
Company that until the default is cured, it will not advance funds
under the VFIFA Loan Agreements.
Under the terms of the Line of Credit Agreement, CoBank has agreed to
lend VFIFA up to $13,319 on a revolving basis. Subject to CoBank's
right to accelerate due to the existing default, borrowings under the
Line of Credit Agreement become due on September 30, 1999; provided,
however, that such date will be automatically extended for successive
12 month periods unless on or before July 31, either CoBank or VFIFA
elects to terminate the agreement as of the following September 30.
CoBank has agreed to loan VFIFA up to $46,681 under the Term Loan
Agreement; provided, however, that CoBank's commitment under the Term
Loan Agreement is effectively reduced by the amount of borrowings
outstanding under the Construction Loan Agreement. Subject to CoBank's
right to accelerate due to the existing default, all borrowings under
the Term Loan Agreement become due on July 31, 2010.
35
<PAGE>
CoBank has agreed to make up to $30 million of loans to VFIFA under
the Construction Loan Agreement. Subject to CoBank's right to
accelerate due to the existing default, each advance made under the
Construction Loan Agreement with respect to an Underlying Loan becomes
due within 16 months from the date of the first advance made with
respect to such Underlying Loan; provided, however, that the due date
may be extended for a period of approximately 10 years if a commitment
to issue permanent financing with respect to the Underlying Loan is
issued under the Term Loan Agreement but the lenders under the Term
Loan Agreement refuse to provide such refinancing.
In the absence of a default, interest on amounts advanced under the
Line of Credit Agreement accrues at a rate based upon the prime rate.
Interest on amounts advanced under the Term Loan Agreement and the
Construction Loan Agreement accrues at a rate based upon the prime
rate unless VFIFA chooses a "Fixed Rate Option" (which is based upon a
LIBOR rate) or a "Quoted Rate Option" (which is based upon a rated
quoted by CoBank). Interest is payable monthly under all of the Loan
Agreements. Due to the existing defaults under the VFIFA Loan
Agreements, CoBank has imposed a default rate of interest which is
equal to 4% above the base rate and notified VFIFA that the option to
select an alternative interest rate is not currently available.
The VFIFA Loan Agreements and the documents evidencing the Underlying
Loans made by VFIFA contain covenants, including, among others,
covenants which limit the ability of VFIFA, APD and the Underlying
Borrowers to incur other indebtedness, pay dividends, make
distributions, sell assets and participate in mergers and other
acquisition transactions.
As of January 3, 1999, $13,226 of borrowings were outstanding under
the Line of Credit Facility, $42,798 of borrowings were outstanding
under the Term Loan Agreement and $3,421 was outstanding under the
Construction Loan Agreement.
In April 1997, the Company and a lender entered into a $3,000
revolving line of credit agreement (the "Revolving Credit Agreement")
for its biological and agricultural products division. In the absence
of a default, funds borrowed under the Revolving Agreement bear
interest at a rate of prime (7.75% at January 3, 1999) plus 2% and are
secured by all the assets of the Company and all of the outstanding
common stock of AGRO owned by the Company. The Revolving Credit
Agreement imposes a financial covenant on the Company that requires a
minimum tangible net worth of $750, as defined. The Company is
currently not in compliance with this covenant. On November 24, 1998,
the lender notified the Company of its intention to terminate the
Revolving Credit Agreement on December 28, 1998. The Company and the
lender have agreed to four extensions which extend the maturity date
to April 28, 1999. The Company and the lender have agreed to certain
other modifications of the Revolving Credit Agreement, including a
reduction of the $1,200 inventory based borrowing limit by $40 each
week which commenced on January 28, 1999 and an increase in the
interest rate to prime plus 5%. As of January 3, 1999, approximately
$2,253 of borrowings were outstanding under the Revolving Credit
Agreement.
36
<PAGE>
In January 1999, the Company received a term sheet from an
institutional lender for a $4,000 revolving line of credit which the
Company intends to utilize to replace the Revolving Credit Agreement.
The commitment letter provides that (i) the lender's obligation to
advance funds will be subject to certain formulas based upon accounts
receivable and inventory, (ii) interest will accrue at a rate per
annum equal to the prime rate plus 2.75%, (iii) advances will be
secured by all of the assets of EcoScience and (iv) the facility will
have a two year term. The lender's obligation to provide the facility
is subject to various conditions, including a satisfactory examination
of the Company and the collateral, the approval of its credit
committee and the absence of any material change in the condition of
the Company. No assurance can be given that the Company and the lender
will be able to finalize the proposed loan facility.
A limited partnership owned by the Company owes a lender $804 plus
accrued interest under a loan agreement entered into in connection
with the acquisition and improvement of a greenhouse facility in
Pennsylvania. This loan is secured by a mortgage on the greenhouse
property and a first lien on all assets, excluding certain inventory
and accounts receivable, of the limited partnership. The limited
partnership is in default of a net worth covenant contained in the
loan agreement. As a result, the lender has the right to accelerate
the limited partnership's obligation to repay the outstanding
indebtedness which is otherwise required to be repaid in quarterly
installments during a 15 year period ending in June 2012. With the
cooperation of the lender, the Company is currently in negotiations to
sell the greenhouse (which is currently inoperative) and plans to use
a portion of the proceeds to satisfy the loan made to the limited
partnership.
In March 1997, APD borrowed $1,375 from Cogentrix. The note
representing this loan becomes due on June 2, 2000 and provides for
quarterly interest and principal payments of $69. Borrowings under the
note bear interest at the rate of 6% per annum.
Cash and cash equivalents were $1,095 at January 3, 1999 compared to
$1,189 at June 30, 1998. Cash used in operating activities totaled
$6,015 for the period ended January 3, 1999 and principally consisted
of a net loss of $8,487, minority interest in the net loss of the
consolidated limited partnerships of $2,255 and an increase in
inventory of $4,159; partially offset by an increase in accounts
payable and accrued expenses of $6,094, and depreciation and
amortization of $2,146. Cash provided by financing activities totaled
$10,037 for the period ended January 3, 1999, which consisted
principally of net borrowings under lines of credit of $8,332,
proceeds from long-term debt of $3,602 and minority interest
contributions of $1,000 partially offset by payments of long-term debt
of $2,312, and S Corporation stockholder distributions of $400 (prior
to the merger, APD was taxed as a S Corporation, which required this
distribution for payment of related taxes by the APD shareholders).
Cash used in investment activities for the period ended January 3,
1999 totaled $4,026, which consisted principally of purchases of
property and equipment of $4,632, associated with the construction of
an additional 26 acre greenhouse facility, and a decrease in
non-current liabilities of $2,548; partially offset by a release of
restricted cash of $2,500, which partially paid down debt in the
amount of $1,500. The Company's current liabilities exceeded its
current assets by $82,661 (which includes $44,756 of senior debt
classified as current, which otherwise would have been classified as
long-term had the Company not had certain technical
37
<PAGE>
defaults under the VFIFA Loan Documents) and its current ratio was
0.20 to 1, at January 3, 1999 compared to 0.91 to 1, respectively, at
June 30, 1998.
Debt and capital leases increased by $30,523 to $85,797 at January 3,
1999 compared to $55,274 at June 30, 1998. The increase was
attributable to borrowings under the Company's lines of credit,
construction loans and the $21,600 of indebtedness in connection with
the acquisition transaction with Cogentrix.
The Company believes that its $1,095 of cash and cash equivalents and
$127 of short-term investments as of January 3, 1999, along with
revenues from product sales, will be sufficient to fund the Company's
working capital needs, planned capital expenditures, and to service
its indebtedness through January 4, 2000, provided that the Company
can resolve its short term cash flow shortfall by raising additional
capital and refinance its $21,600 aggregate principal amount of
promissory notes due on June 30, 1999 and its $3,000 Revolving Credit
Agreement due April 28, 1999. The Company has engaged a financial
advisor to assist it in raising additional funds to finance its
ongoing operations in 1999, current debt obligations and expected
growth after January 4, 2000. The Company is currently attempting to
raise debt and/or equity financing. In addition, the Company will
attempt to restructure the VFIFA loan arrangement. If the Company is
not successful in refinancing the $21,600 of notes, it will seek an
extension of the due date or a restructuring of the terms of the
notes. No assurance can be given that the Company will be able to
complete the refinancings, restructure the VFIFA loan facility, obtain
an extension or restructuring of the notes, or that the Company's
creditors will not attempt to enforce legal remedies available to
them.
Seasonality
The timing of the Company's operating revenues may vary as a result of
the seasonal nature of its businesses. In addition, operating revenues
may be affected by the timing of new product launches, acquisitions,
sales orders, sales product mix, addition of growing capacity,
cropping cycles, crop production and other economic factors.
Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any other quarter
or for the full fiscal year.
Year 2000
The Company has initiated an in-house assessment of Year 2000 ("Y2K")
issues as they relate to the Company's information technology ("IT")
and non-IT systems. The Company has completed its assessment of all
computer hardware. The Company has determined that 95% of the
Company's hardware is free of Year 2000 problems. The Company
estimates that the replacement cost of non-compliant computer hardware
will be approximately $10, which amount is budgeted for the second
quarter of 1999. The Company expects that all computer hardware will
be fully compliant by September 1, 1999.
The Company has identified six software applications critical to the
Company's operations. All such packages were purchased from
third-party vendors. Four software
38
<PAGE>
applications constitute the Company's accounting applications. The
software vendors for two of these applications have certified the
packages to be Y2K compliant. The other two applications shall be Y2K
compliant by the end of the second quarter of 1999. The Company is in
the process of creating test plans for all accounting applications.
The Company expects to complete such compliance testing by July 31,
1999.
The Company's assessment of software applications relating to
communications with business partners is 50% complete. All such
applications assessed to date are Y2K compliant. The Company expects
to complete its assessment of such applications by the end of the
second quarter of 1999. The Company's remaining critical software
applications relate to the operations of the Company's greenhouse
facilities. The Company is awaiting a Y2K assessment and certification
from the third-party vendors who maintain such software. Such
assessment and the resulting certification or maintenance is scheduled
for completion by the end of the second quarter of 1999.
In addition to the above-referenced IT systems, the Company is
currently assessing its non-IT systems including its
telecommunications and security systems. This assessment of non-IT
systems is 85% complete. To date, the Company has discovered no Y2K
problems. The Company expects that all non-IT systems shall be Y2K
compliant by the end of the second quarter of 1999.
The Company has contacted all of its critical vendors and customers,
and has provided each such vendor and customer with a questionnaire
relating to its respective Y2K compliance. To date, the Company has
received completed questionnaires relating to approximately 15% of
such vendors and customers. Vendors or customers that have not
returned a completed questionnaire will be pursued for a response.
Upon its receipt of the remaining questionnaires, the Company, with
appropriate participation by each of its divisions, shall create a Y2K
contingency plan which will provide for vendor supply and customer
base adaptations necessitated by Y2K non-compliance by such parties.
To date, the only anticipated Y2K costs to the Company will relate to
the replacement of non-compliant computer hardware and upgrades of
software. The cost of upgrading current software to become Y2K
compliant is expected to be less than $10. The Company does not expect
to incur Y2K assessment and compliance costs, as such assessments and
compliance are performed by Company personnel.
The Company's primary risks relating to Y2K non-compliance consist of
its dependence upon computer hardware and software, its highly
computerized greenhouse facilities, and its dependence upon various
transportation vendors to move the Company's products to market. As
discussed previously, the Company believes that the risks associated
with computer hardware and software will be minimal. The Company's
potential risks associated with its computerized greenhouse operations
are extensive. The greenhouse facilities utilize computers to control
water, sunlight, carbon dioxide and temperature. The costs of
non-compliant control systems would be considerable. The Company is
currently working with the vendors of such control systems to assess
and correct any possible Y2K related problems. The Company expects
that the costs to the Company of such assessment and correction will
be minimal, as the Company's vendors are expected to provide any
necessary Y2K corrections at minimal cost to the Company. Finally, the
Company's trucking contractors
39
<PAGE>
are among those surveyed for Y2K compliance. The Company will assess
the risks associated with noncompliance among those contractors and
will provide for the use of alternative transportation sources in its
Y2K contingency plan as necessary.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist of accounts receivable and other
receivables. The Company primarily invests its available funds into
United States Government securities as well as investments with high
quality financial institutions. The Company performs ongoing
evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains
reserves and allowances for potential credit losses; which to date,
such credit losses have been insignificant and within management's
expectations. The merged entity is subject to a higher level of risk
of this nature due to the higher level of business activity and a
higher level of customer concentration.
The Company is a party to certain loan arrangements which provide for
variable interest rates. As a result, the Company is subject to
increases in interest expense resulting from an increase in interest
rates. The Merger, which changed the Company's debt to equity ratio
from minor to significant, has increased this risk. The Company, from
time to time, attempts to manage this risk through the purchase of
interest rate cap agreements. The Company does not believe that it
currently faces any material exposure to market risk relating to
foreign currency exchange risk, commodity price risk or equity price
risk.
The Company is subject to a number of risks similar to those of other
companies in similar stages of development, including but not limited
to (i) a history of losses, (ii) a need for additional financing,
(iii) substantial debt, (iv) risks related to defaults under certain
loan agreements, (v) the markets in which it competes are highly
competitive, (vi) the share price of its common stock may be volatile,
(vii) its operations are subject to extensive government regulation,
(viii) its patent position is uncertain and its success depends, in
part, on its proprietary rights, (ix) it depends on key personnel, (x)
its Common Stock may be delisted by NASDAQ, (xi) its operating results
may fluctuate significantly, (xii) its greenhouse operations may be
adversely affected by crop disease and pestilence, and the
perishability of its produce, (xiii) weather and other events could
effect crop yields and damage greenhouse structures, (xiv) it is
sensitive to price increases and raw materials, (xv) it depends on
certain corporate relationships, (xvi) a significant percentage of its
sales are made to a limited number of customers, (xvii) its directors
and officers own a significant percentage of its capital stock (xiii)
unanticipated expenses may be incurred relating to the integration of
the businesses of the Company and APD as a result of the merger and
(xiv) a sale of substantial number of shares may adversely impact the
market price of its common stock. These factors could adversely affect
future results and shareholder value.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements for the transition
period ended January 3, 1999 and the six month period ended December
40
<PAGE>
31, 1997 and the years ended June 30, 1998, 1997 and 1996 are set
forth on pages F-1 through F-28.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item, in addition to that set forth
above in Part I under the caption "Executive Officers of the
Registrant" is set forth in the section entitled "Election of
Directors" contained in the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to
Regulation 14A (the "Proxy Statement") in connection with the
Company's 1999 Annual Meeting of Stockholders to be held on May 24,
1999, and such information is incorporated herein by reference.
Item 11. Executive Compensation
Remuneration of directors and officers and information related thereto
is included in the section entitled "Executive Compensation" contained
in the Proxy Statement and such information is incorporated herein by
reference, except for information contained under the captions "Report
of the Compensation Committee" and "Performance Graph", which shall
not be deemed incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of management and certain beneficial owners
information related thereto is included in the section entitled
"Security Ownership of Beneficial Owners and Management" contained in
the Proxy Statement and such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Transactions with management and related parties and information
related thereto is included in the section entitled "Certain
Transactions" contained in the Proxy Statement and such information is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
41
<PAGE>
Page
----
(a) 1 and 2 Financial statements and schedules:
Reference is made to the Index of Financial Statements and
Financial Statement Schedules hereinafter contained....... F-1
3 Exhibits:
Reference is made to the Index of Exhibits hereinafter
contained................................................. E-1
(b) Reports on Form 8-K:
(1) Report dated September 30, 1998, describing changes
in control of Registrant as a result of issuance of
Common Stock pursuant to the Merger with Agro Power
Development, Inc.
(2) Report dated December 7, 1998 announcing execution
of Stock Purchase Agreement with Cogentrix Energy,
Inc.
(3) Report dated January 8, 1999 announcing acquisition
of interests in greenhouse operations from Cogentrix
Energy, Inc. (as amended by Form 8-K/A, filed on
March 15, 1999)
(4) Report dated February 1, 1999 announcing sale of
Post-Harvest Division
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing and has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of East Brunswick, the State of New Jersey, on April 19, 1999.
ECOSCIENCE CORPORATION
By:/s/ Michael A. DeGiglio
----------------------------
Michael A. DeGiglio
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Michael A.
DeGiglio and J. Kevin Cobb, and each of them with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this Registration
Statement (including post-effective amendments and amendments thereto) and any
registration statement relating to the same offering as this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Michael A. DeGiglio
- ------------------------ President, Chief Executive Officer (Principal April 19, 1999
Michael A. DeGiglio Executive Officer) and Director
/s/ J. Kevin Cobb
- ------------------------ Senior Vice President and Interm Chief Financial April 19, 1999
J. Kevin Cobb Officer (Principal Financial Officer)
/s/ Kurt Hoffman
- ------------------------ Secretary and Corporate Controller (Principal April 19, 1999
Kurt Hoffman Accounting Officer)
/s/ Thomas A. Montanti
- ------------------------ Director April 19, 1999
Thomas A. Montanti
/s/ David J. Ryan
- ------------------------ Director April 19, 1999
David J. Ryan
/s/ Albert W. Vanzeyst
- ------------------------ Executive Vice President and April 19, 1999
Albert W. Vanzeyst Director
/s/ Heinz K. Wehner
- ------------------------ Director April 19, 1999
Heinz K. Wehner
</TABLE>
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants ................................. F-2
Consolidated Balance Sheets as of January 3, 1999, June 30, 1998
and 1997 ............................................................ F-3
Consolidated Statements of Operations for the fiscal years ended
June 30, 1998, 1997, 1996 and the transition periods (see
Note 2) ended January 3, 1999 and December 31, 1997
(unaudited) ......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years ended June 30, 1998, 1997 and 1996 and the
transition period (see Note 2) ended January 3, 1999................. F-5
Consolidated Statements of Cash Flows for the fiscal years ended
June 30, 1998, 1997 and 1996 and the transition periods (see
Note 2) ended January 3, 1999 and December 31, 1997
(unaudited) ......................................................... F-6
Notes to Consolidated Financial Statements ............................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of EcoScience Corporation:
We have audited the accompanying consolidated balance sheets of EcoScience
Corporation (a Delaware corporation) and subsidiaries as of January 3, 1999,
June 30, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the transition period (see
Note 2) ended January 3, 1999 and each of the three years in the period ended
June 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EcoScience Corporation and
subsidiaries as of January 3, 1999, June 30, 1998 and 1997, and the results of
their operations and their cash flows for the transition period (see Note 2)
ended January 3, 1999 and each of the three years in the period ended June 30,
1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations, an accumulated deficit, negative working capital and was
in default of certain covenants under its various debt agreements. These factors
raise substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 2, 1999
F-2
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
January 3, June 30,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 1,095 $ 1,189 $ 3,009
Restricted cash ............................................................... -- 2,500 --
Short-term investments ........................................................ 127 533 528
Accounts receivable, less reserves of $551, $660 and $178 at January 3,
1999, June 30, 1998 and 1997, respectively .................................. 7,271 6,809 3,456
Assets held for sale .......................................................... 1,911 1,911 --
Note receivable due from related party ........................................ -- 1,838 1,838
Inventories ................................................................... 9,209 5,050 6,716
Other current assets .......................................................... 1,212 2,411 1,756
--------- --------- ---------
Total current assets ........................................................ 20,825 22,241 17,303
--------- --------- ---------
Property, plant and equipment, net ............................................ 65,200 53,136 45,225
Restricted cash ............................................................... -- -- 3,250
Intangible assets, net ........................................................ 13,550 1,542 1,745
Other noncurrent assets ....................................................... 2,289 2,589 3,069
--------- --------- ---------
Total assets ......................................................... $ 101,864 $ 79,508 $ 70,592
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings ......................................................... $ 37,080 $ 7,148 $ 3,950
Current maturities of long-term debt .......................................... 47,557 5,043 3,878
Current obligations under capital leases ...................................... 42 55 59
Accounts payable .............................................................. 11,102 5,080 3,916
Accrued expenses and other current liabilities ................................ 7,705 7,118 3,719
--------- --------- ---------
Total current liabilities ................................................... 103,486 24,444 15,522
--------- --------- ---------
Noncurrent liabilities:
Long-term debt, less current maturities ....................................... 780 42,648 35,190
Obligations under capital leases .............................................. 338 380 406
Other long-term liabilities ................................................... 1,689 4,387 3,313
--------- --------- ---------
Total noncurrent liabilities ................................................ 2,807 47,415 38,909
--------- --------- ---------
Minority interest in limited partnerships .......................................... 665 7,767 12,115
Commitments and contingencies
Stockholders' equity (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, 11,618,178 and 11,600,722 shares issued and outstanding
at January 3, 1999, June 30, 1998 and 1997, respectively .................... 126 116 116
Additional paid-in capital ......................................................... 55,574 57,509 57,426
Accumulated deficit ................................................................ (60,706) (57,749) (53,496)
Accumulated other comprehensive income (loss) ...................................... (88) 6 --
--------- --------- ---------
Total stockholders' equity (deficit) ........................................ (5,094) (118) 4,046
--------- --------- ---------
Total liabilities and stockholders' equity (deficit) ................. $ 101,864 $ 79,508 $ 70,592
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Transition Period Years Ended
(see Note 2) Ended June 30,
---------------------- ------------------------------------
(Unaudited)
January 3, December 31,
1999 1997 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues ................................................. $ 26,194 $ 17,835 $ 46,177 $ 39,862 $ 24,668
Cost of revenues ............................................. 25,237 14,675 41,847 32,279 18,603
-------- -------- -------- -------- --------
Gross profit ................................................. 957 3,160 4,330 7,583 6,065
-------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative ..................... 8,307 3,987 10,336 6,879 6,394
Research and development ................................ 239 202 465 508 1,018
Asset valuation and restructuring reversal .............. -- -- -- (377) (1,550)
-------- -------- -------- -------- --------
Total operating expenses .............................. 8,546 4,189 10,801 7,010 5,862
-------- -------- -------- -------- --------
Operating (loss) income ...................................... (7,589) (1,029) (6,471) 573 203
-------- -------- -------- -------- --------
Other income (expense):
Interest, net ........................................... (2,928) (841) (3,289) (1,923) (611)
Other, net .............................................. (158) (100) (115) 12 136
-------- -------- -------- -------- --------
Total other expense ................................... (3,086) (941) (3,404) (1,911) (475)
-------- -------- -------- -------- --------
Loss before taxes, minority interest and extraordinary
item .................................................... (10,675) (1,970) (9,875) (1,338) (272)
Provision for income taxes ................................... 67 21 21 78 116
-------- -------- -------- -------- --------
Loss before minority interest and extraordinary item ......... (10,742) (1,991) (9,896) (1,416) (388)
Minority interest ............................................ 2,255 1,311 5,659 1,936 274
-------- -------- -------- -------- --------
(Loss) income before extraordinary item ...................... (8,487) (680) (4,237) 520 (114)
-------- -------- -------- -------- --------
Extraordinary item ........................................... -- -- -- -- 241
-------- -------- -------- -------- --------
Net (loss) income ............................................ ($ 8,487) ($ 680) ($ 4,237) $ 520 $ 127
======== ======== ======== ======== ========
(Loss) earnings per share
Basic
(Loss) income before extraordinary item ................. ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 ($ 0.01)
Extraordinary item ...................................... -- -- -- -- 0.02
-------- -------- -------- -------- --------
Net (loss) income ....................................... ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 $ 0.01
======== ======== ======== ======== ========
Weighted average basic shares outstanding ............... 11,641 11,605 11,619 11,548 11,334
======== ======== ======== ======== ========
Diluted
(Loss) income before extraordinary item ................. ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 ($ 0.01)
Extraordinary item ...................................... -- -- -- -- 0.02
-------- -------- -------- -------- --------
Net (loss) income ....................................... ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05 $ 0.01
======== ======== ======== ======== ========
Weighted average diluted shares outstanding ............. 11,641 11,605 11,619 11,583 11,381
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
----------------------- Accumulated Total
Additional Other Stockholders'
Number of $0.01 Par Paid-in Accumulated Comprehensive Equity Comprehensive
Shares Value Capital Deficit Income (loss) (deficit) Income (loss)
---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 .... 11,288,589 $ 113 $ 55,768 ($ 53,189) ($ 67) $ 2,625 $ --
Exercise of stock options ... 333 -- 5 -- -- 5 --
Issuance of common stock in
settlement of WBDC lease .. 100,000 1 499 -- -- 500 --
Unrealized gain on short-term
investments ............... -- -- -- -- 67 67 67
S Corp Distributions ........ -- -- -- (314) -- (314) --
Net income .................. -- -- -- 127 -- 127 127
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 .... 11,388,922 114 56,272 (53,376) -- 3,010 194
==========
Exercise of stock options ... 3,800 -- 17 -- -- 17 --
Issuance of common stock .... 208,000 2 1,137 -- -- 1,139 --
S Corp Distributions ........ -- -- -- (640) -- (640) --
Net income .................. -- -- -- 520 -- 520 520
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 .... 11,600,722 116 57,426 (53,496) -- 4,046 520
==========
Exercise of stock options ... 17,456 -- 83 -- -- 83 --
Unrealized gain on short-term
investments ............... -- -- -- -- 6 6 6
Pooling adjustment .......... -- -- -- 314 -- 314 --
S Corp Distributions ........ -- -- -- (330) -- (330) --
Net loss .................... -- -- -- (4,237) -- (4,237) (4,237)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 .... 11,618,178 116 57,509 (57,749) 6 (118) (4,231)
==========
Exercise of stock options ... 1,100 -- 5 -- -- 5 --
Unrealized loss on short-term
investments ............... -- -- -- -- (4) (4) (4)
Cumulative translation
adjustments ............... -- -- -- -- (90) (90) (90)
S Corp conversion ........... -- -- (5,930) 5,930 -- -- --
S Corp Distributions ........ -- -- -- (400) -- (400) --
Issuance of common stock .... 1,000,000 10 3,990 -- -- 4,000 --
Net loss .................... -- -- -- (8,487) -- (8,487) (8,487)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at January 3, 1999 .. 12,619,278 $ 126 $ 55,574 (60,706) ($ 88) ($ 5,094) ($ 8,581)
========== ========== ========== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Transition Period
(See Note 2) Ended Years Ended June 30,
---------------------- ------------------------------------
(Unaudited)
January 3, December 31,
1999 1997 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ....................................... ($ 8,487) ($ 680) ($ 4,237) $ 520 $ 127
Adjustments to reconcile net (loss) income to net
cash used in by operating activities:
Extraordinary Item .................................. -- -- -- -- (241)
Depreciation and amortization ....................... 2,146 1,301 3,223 1,906 863
Minority interest in limited partnership ............ (2,255) (1,311) (5,659) (1,935) (274)
(Gain) loss on sale of investments .................. (6) -- -- (2) 58
Loss (Gain) on sale of property, plant and
equipment ......................................... 1 (3) (3) -- (74)
Gain on settlement of accounts payable .............. -- -- -- -- (51)
Reversal of restructuring charge .................... -- -- -- (377) (1,550)
Changes in current assets and liabilities:
Accounts receivable, net ........................ (462) (917) (2,818) (1,002) (488)
Inventories ..................................... (4,159) (3,704) (1,987) (2,427) (2,216)
Other current assets ............................ 1,008 (1,015) (1,040) (553) (598)
Other ........................................... 105 3 73 (30) (7)
Accounts payable and accrued expenses ........... 6,094 908 5,015 1,081 831
-------- -------- -------- -------- --------
Net cash used in operating activities ............... (6,015) (5,418) (7,433) (2,819) (3,620)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .............. (4,632) (14,306) (26,099) (28,244) (17,499)
Proceeds from sale of property, plant and equipment ..... 2 343 628 50 368
Purchases of short-term investments ..................... -- -- -- (503) --
Proceeds from sale of short-term investments ............ 409 -- -- 677 6,079
Changes in restricted cash .............................. 2,500 -- 750 455 (3,205)
Decrease (increase) in other noncurrent assets .......... 243 (356) (141) (268) (80)
Decrease in other noncurrent liabilities ................ (2,548) (4,606) (3,532) -- --
Decrease (increase) in loan receivable .................. -- (643) (643) (1,538) 131
Proceeds from long-term construction liabilities ........ -- -- -- 801 1,645
-------- -------- -------- -------- --------
Net cash used in investing activities ............... (4,026) (19,568) (29,037) (28,570) (12,561)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Issuance of common stock ................................ -- -- -- 1,139 4
Proceeds from exercise of stock options ................. 5 83 83 17 1
Debt issue costs ........................................ (134) (601) (601) (1,507) (1,012)
Minority interest contribution .......................... 1,000 2,741 2,741 9,667 4,657
Cash dividends .......................................... (400) (220) (330) (640) (314)
Proceeds from long-term debt ............................ 3,602 14,306 24,299 28,123 16,239
Net borrowings under line of credit ..................... 8,332 5,394 7,148 2,045 1,905
Payments on capital leases .............................. (56) (24) (54) (46) (25)
Payments on long-term debt .............................. (2,312) (3,849) (5,225) (6,146) (4,294)
-------- -------- -------- -------- --------
Net cash provided by financing
activities ........................................ 10,037 17,830 28,061 32,652 17,161
-------- -------- -------- -------- --------
Effects of exchange rates on cash balances .............. (90) -- -- -- --
-------- -------- -------- -------- --------
Net change in cash and cash equivalents ...................... (94) (7,156) (8,409) 1,263 980
Cash and cash equivalents at beginning of period ............. 1,189 $ 9,598 $ 9,598 1,746 766
======== ======== ======== ======== ========
Cash and cash equivalents at end of period ................... $ 1,095 $ 2,442 $ 1,189 $ 3,009 $ 1,746
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
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 derives most of its revenues from the sale of: (i) greenhouse
tomatoes to retail supermarkets and dedicated fresh food distribution companies;
(ii) growing medium products and computerized environmental and irrigation
control systems to the intensive farming and horticulture industries; and (iii)
postharvest coating products to the fresh fruit market throughout the western
hemisphere. Prior to the sale of the Company's postharvest equipment division to
Aweta, B.V., in February 1999 (see Note 14), the Company had also derived
revenues from the sale of sorting, grading and packing systems to the produce
packing industry.
In 1988, EcoScience began full scale research and development operations,
which continued through its fiscal year ended June 30, 1996. The Company
incurred in excess of $30,000 in research and development costs during this
phase of its growth and development. During fiscal 1994 and 1995, the Company
incurred approximately $12,000 in restructuring charges to transition the
Company from research and development to a commercial operation. This was
enhanced through the beginning of greenhouse operations in 1994 by APD and the
acquisitions of AGRO in November 1992 and EPSC in May 1994. In addition, the
Company has also funded the construction and initial start-up operations of
approximately 180 acres of greenhouse production capacity since mid-1996.
EcoScience and APD completed a merger on September 30, 1998 (see Note 3), which
resulted in approximately $1,500 in transaction costs. The above activities have
been principally funded by the Company's initial private capitalization, public
equity offerings in February 1992 and December 1993 and the combined $60,000
credit facility discussed in Note 10.
As a result of the above, the Company has suffered significant recurring
losses resulting in an accumulated deficit of $60,706 as of January 3, 1999. The
Company is in violation of certain covenants under various debt agreements as of
January 3, 1999, which has resulted in approximately $44,756 of debt being
classified as current in the accompanying January 3, 1999 balance sheet which
otherwise would have been classified as long-term. See Note 10 for further
information regarding the Company's various defaults. This along with the note
issued on December 30, 1998, in connection with the acquisition of certain
minority interests in consolidated limited partnerships (see Note 4), has
resulted in significant negative working
F-7
<PAGE>
capital; however, the Company's greenhouse operations are now believed by
management to be approaching their optimal cropping cycles for the first time
since the large 180 acreage expansion that began in mid-1996, with the exception
of Village Farms of Presidio, L.P. ("VFP") (see Note 2a). Management's plan is
focused on improving the gross profit of all greenhouse operations as a result
of greater production volumes, sizing and efficiency through a full cropping
cycle at each greenhouse facility.
The Company believes that its $1,095 of cash and cash equivalents and $127
of short-term investments as of January 3, 1999, along with 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 January 4, 2000, provided that the Company can resolve its
near term cash flow problems by raising additional capital and refinance its
$21,600 aggregate principal amount of promissory notes issued on December 30,
1998 and March 15, 1999 that are due on June 30, 1999, restructure its $60
million credit facility and refinance its $3,000 line of credit, for which the
due date is April 28, 1999. The Company has engaged a financial advisor, who is
assisting in the raising of additional funds to finance its ongoing operations
during 1999 and expected growth after January 4, 2000. There can be no
assurances that such efforts will be successful or that additional debt or
equity financing can be obtained to meet working capital needs. These factors
raise substantial doubt about the ability of the Company to continue as a going
concern.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
EcoScience and its wholly owned subsidiaries, APD, AGRO and EPSC.
Through December 30, 1998, the Company consolidated four 50% owned limited
partnerships due to the direction of power and control exerted by the Company's
management in the normal course of business over the daily operations of Village
Farms of Texas, L.P. ("VFT"), Pocono Village Farms, L.P. ("PVF"), Village Farms
of Marfa, L.P. ("VFM") and Village Farms of Buffalo, L.P. ("VFB"). The remaining
minority interests in these four limited partnerships were purchased from
Cogentrix Delaware Holdings, Inc. ("Cogentrix") on December 30, 1998 (see Note
4).
On August 31, 1998, the Company entered into an agreement with two
wholly-owned subsidiaries of Agro Rent B.V. ("Agro Rent") to form a limited
partnership in Presidio County, Texas (the "VFP Agreement"). The purpose of the
VFP Agreement was to develop and operate a 41 acre greenhouse for the purpose of
producing and selling peppers. Due to the inability to attain the desired level
of financing only 26 acres of the greenhouse has been constructed. The VFP
Agreement defined the Company and Agro Rent as approximate 86% and 14% owners,
respectively. Therefore, the 86% interest in VFP is included in the accompanying
consolidated financial statements. All material intercompany transactions and
balances have been eliminated in consolidation.
F-8
<PAGE>
(b) Fiscal Year-End and Transition Period
The Company has elected to change its fiscal year-end from the twelve month
period ended June 30 to a 52-53 week fiscal year. The year-end date of such
fiscal year shall be on the Sunday nearest December 31 of each year. The audited
transition period financial statements will be as of January 3, 1999 and for the
period from July 1, 1998 through January 3, 1999 (the "transition period").
The unaudited consolidated financial information included herein for the
six months ended December 31, 1997 have been included for comparative purposes
to the audited transition period and have been prepared in accordance with
generally accepted accounting principles for interim financial statements. In
the opinion of the Company, these unaudited consolidated financial statements
reflect all adjustments necessary, consisting of normal recurring adjustments,
for a fair presentation of such data on a basis consistent with that of the
audited data presented herein.
(c) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents and short-term investments consist of highly
liquid investments and are stated at the lower of cost or market value. Cash and
cash equivalents consist of investments with original maturities of less than 90
days. Short-term investments have original maturities greater than 90 days and
such securities are classified as available for sale in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company uses the
specific identification method in determining the cost basis of short-term
investments, and in computing any realized gains or losses from the sale of such
securities.
Cash and cash equivalents consist of cash and highly liquid money market
funds, the balance of which was $1,095, $1,189 and $3,009 at January 3, 1999,
and June 30, 1998 and 1997, respectively. Short-term investments consist of
United States government obligations with an original maturity date of greater
than 90 days, the balance of which was $127, $533 and $528 at January 3, 1999,
and June 30, 1998 and 1997, respectively.
(e) Restricted Cash
The Company had restricted cash of $2,500 and $3,250 at June 30, 1998 and
1997, respectively. The amounts were held as collateral for certain outstanding
debt. (See Notes 5 and 10).
(f) Inventories
F-9
<PAGE>
January 3, June 30,
------ ----------------------
1999 1998 1997
------ ------ ------
Raw materials .................. $ 77 $ 74 $ 17
Crop inventory ................. 6,582 2,724 4,776
Finished goods ................. 2,550 2,252 1,923
------ ------ ------
$9,209 $5,050 $6,716
====== ====== ======
Crop inventories represent direct and indirect production costs incurred
before harvesting the annual tomato and growing crops. Growing crops are valued
at the lower of cost or estimated market. Finished goods inventories include
material, labor and overhead. Raw materials and finished goods are stated at the
lower of first-in, first-out ("FIFO") cost or market.
(g) Property, plant and equipment.
Property, pant and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method by charges to
operations in amounts estimated to allocate the cost of these assets over their
useful lives as follows:
Classification Estimated Useful Life
-------------- ---------------------
Land........................................ --
Land improvements........................... 5-20 years
Greenhouses................................. 20 years
Greenhouse improvements..................... 10-20 years
Greenhouse equipment........................ 5-10 years
Computer and office equipment............... 5-7 years
Laboratory equipment........................ 5 years
Leasehold improvements and assets held under capital leases are amortized
over the term of the lease or the useful life of the asset, whichever is
shorter.
(h) Intangible Assets
Intangible assets consist primarily of goodwill and other intangible assets
resulting from acquisitions accounted for using the purchase method of
accounting. Goodwill is amortized using the straight-line method over 20 years.
Other intangible assets relating to acquired businesses consist principally of
amounts attributable to distribution agreements. The amortization for
distribution agreements is on a straight line basis over five years. On December
30, 1998, the Company acquired the minority interests in certain limited
partnerships. The goodwill resulting from this transaction was $12,058 (see Note
4).
Goodwill, net of accumulated amortization, was $13,550, $1,542 and $1,745
at January 3, 1999, June 30, 1998 and 1997, respectively. The accumulated
amortization of goodwill and other intangible assets totaled $509, $459, and
$823 at January 3, 1999, June 30, 1998 and 1997, respectively. Amortization of
goodwill and other intangible assets included in the accompanying consolidated
statements of operations was $50, $136, $204 and $204 in the transition period
ended January 3, 1999 and fiscal years 1998, 1997 and 1996, respectively.
(i) Revenue Recognition
F-10
<PAGE>
<PAGE>
Revenue from tomato product sales is recognized upon shipment by the
Company. Certain equipment sales are recognized upon installation and include
certain warranty provisions.
(j) Research and Development Expenses
The Company charges research and development expenses to operations as
incurred. Expenses incurred by EcoScience under third party funded research and
development programs totaled approximately $43, $53, $7, and $0 in transition
period ended January 3, 1999 and fiscal years 1998, 1997 and 1996, respectively.
Expenses incurred under Company funded research and development programs totaled
approximately $196, $412, $501 and $1,018 in the transition period ended January
3, 1999 and fiscal years 1998, 1997 and 1996.
(k) Foreign Currency Translation
The assets and liabilities of the Company's Canadian subsidiary are
translated into U.S. dollars at current exchange rates and the related revenue
and expense items are translated at average annual exchange rates. The aggregate
effect of translation losses is reflected as a component of accumulated other
comprehensive loss in the accompanying financial statements until the sale or
liquidation of the underlying foreign investment.
(l) Earnings (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 Statement 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>
Transition
Period Ended
January 3, Years ended June 30,
------------ ----------------------------
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding .... 11,641 11,619 11,548 11,334
Dilutive effect of common shares
issuable (1) ............................. -- -- 35 47
------ ------ ------ ------
Weighted average common shares outstanding
assuming dilution ........................ 11,641 11,619 11,583 11,381
====== ====== ====== ======
</TABLE>
(1) Issuable under common stock purchase warrants and stock option plans.
Common stock purchase warrants and stock options at January 3, 1999, June
30, 1998, 1997 and 1996 to purchase 259,209, 281,491, 185,673 and 119,829
shares, respectively, of common stock were not included in the computation of
earnings per common share assuming dilution because their effect would be
anti-dilutive.
F-11
<PAGE>
(m) Fair Value of Financial Instruments
No class of financial instrument had a material difference between its
carrying value and estimated fair value based on market quotations, projected
cash flows or other estimating methods. See Note 10 for the estimated fair value
of certain debt agreements.
(n) Supplemental Cash Flow Information
The Company made certain cash payments and consummated certain non-cash
investing and financing transactions as summarized below:
<TABLE>
<CAPTION>
Transition
Period Ended
January 3, Years ended June 30,
------------ -------------------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for:
Interest ............................................... $ 1,828 $ 3,320 $ 2,761 $ 1,004
Income taxes ........................................... 2 5 175 73
Non-cash investing and financing activities:
Disposition of assets under capital
lease ................................................ -- -- 308 2,936
Termination of capital lease obligation ................ -- -- (405) (3,500)
Termination of operating lease
obligation and related reduction of
accrued restructuring costs .......................... -- -- -- (2,050)
Issuance of common stock in exchange
for termination of operating lease
obligation ........................................... -- -- -- 500
Assets acquired under capital leases ................... -- 319 451 --
Interest capitalized ................................... 165 384 384 285
Acquisition of minority interests ...................... (26,921) -- -- --
Cancellation of notes and related
interest, net ........................................ 1,321 -- -- --
Issuance of acquisition notes payable .................. 21,600 -- -- --
Issuance of common stock ............................... 4,000 -- -- --
</TABLE>
(o) Long-Lived Assets
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of
" ("SFAS 121"). SFAS 121 requires, among other things, that an entity review its
long lived assets and certain related intangibles for impairment from changes in
circumstances that would indicate the carrying amount of an asset may not be
fully recoverable. As a result of its review during the transition period, the
Company does not believe any impairment exists in the recoverability of its long
lived assets.
(p) Stock Based Compensation
F-12
<PAGE>
The Company has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), which encourages, but does not require, an entity to
account for employee stock based compensation under a fair value based method.
SFAS 123 allows an entity to continue to measure compensation cost for employee
stock based compensation plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company continues to account for employee stock based
compensation using the intrinsic value based method and is required to make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting under SFAS 123 had been applied (see Note 12).
(q) Income Taxes
The Company accounts for income taxes under the provisions of SFAS 109,
"Accounting for Income Taxes". This statement requires the Company to recognize
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. Under this method, deferred tax assets and liabilities are determined
based on the estimated future tax effects of differences between the financial
statements, carrying amounts and the tax basis of assets and liabilities at
currently enacted tax laws and rates. Prior to the merger on September 30, 1998,
APD elected, by consent of their stockholders, to be treated under the
provisions of Subchapter S of the Internal Revenue Code, Section 1372. Under
such provisions, earnings and losses of APD were passed through to the
stockholders in proportion to their ownership interest and reported on their
individual income tax returns. Accordingly, no provision for Federal income
taxes had been made in the APD financial statements. All distributions paid to
stockholders through September 30, 1998 were paid in part to fund Federal and
state income tax obligations of the stockholders arising from the income
generated by APD (see Note 13).
(r) Accumulated Other Comprehensive Income (Loss)
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and presenting information on
comprehensive income and its components in annual and interim financial
statements. The Company adopted SFAS 130 as of July 1, 1998. Comprehensive
income (loss) includes net income, unrealized gains on available-for-sale
securities and foreign currency translation adjustments. The Company has
disclosed comprehensive income (loss) in the Consolidated Statement of
Stockholders' Equity (Deficit).
(s) Reclassifications
Certain amounts in the previous years consolidated financial statements
have been reclassified to conform to the transition period presentations.
3. MERGER WITH AGRO POWER DEVELOPMENT, INC.
On September 30, 1998, the Company issued 9,421,487 shares of the Company's
common stock, $0.01 par value, to the holders of the common stock of APD, a
privately held corporation, pursuant to an Agreement and Plan of Merger, in
which APD was merged with and into a newly formed, wholly owned subsidiary of
the Company (the "Merger"). The
F-13
<PAGE>
stockholders of APD received 30,619.067 shares of the Company's common stock for
each outstanding share of common stock of APD. In addition, on September 30,
1998, the Company issued 99,000 shares of common stock to certain stockholders
of APD for their entire 50% interest in Village Farms of Morocco, S.A., a
Moroccan company, as provided for in the Agreement and Plan of Merger. After the
Merger, the stockholders of APD owned approximately 80% of the outstanding
shares of the Company, on a fully diluted basis.
The merger has been accounted for as a pooling of interests. Accordingly,
the consolidated financial statements give retroactive effect to the merger with
APD, accounted for as a pooling of interests, as if the merger had occurred at
the beginning of the earliest period presented.
The effective date of the merger, September 30, 1998, was during the
transition period ended on January 3, 1999. The following table summarizes the
results of operations of EcoScience and APD on a separate company basis for the
period (July 1, 1998-September 30, 1998) before the combination was consummated
that is included within the consolidated statement of operations for the
transition period ended January 3, 1999.
(Unaudited)
EcoScience APD
------------- ------
Net revenues........................... $6,028 (1) $4,557
====== ======
Net loss............................... ($1,088) (1) ($2,593)
====== ======
S Corporation distributions............ N/A $400
======
(1) The net revenues and net loss amounts for EcoScience above include
transactions with APD during the period that resulted in approximately
$1,877 in net revenues and $211 in gross profit, respectively.
The following sets forth the reconciliations of net revenue and net income
(loss) previously reported by the Company to the combined amounts presented in
the accompanying historical consolidated statements of operations:
Years Ended June 30,
1998 1997 1996
-------- -------- --------
Net revenues:
EcoScience ............... $ 22,317 $ 20,853 $ 14,151
APD ...................... 28,871 21,963 11,090
Eliminations ................ (5,011) (2,954) (573)
-------- -------- --------
Total .................... $ 46,177 $ 39,862 $ 24,668
================================================================================
Net (loss) income:
EcoScience ............... ($ 967) $ 385 ($ 587)
APD ...................... (3,010) 356 734
Eliminations ................ (260) (221) (20)
-------- -------- --------
Total .................... ($ 4,237) $ 520 $ 127
================================================================================
On September 30, 1998, APD's S Corporation tax status was terminated as it
became a wholly-owned subsidiary of a C Corporation. The accumulated deficit of
$5,930 on the merger
F-14
<PAGE>
date was reclassified to additional paid-in-capital in the accompanying
consolidated statement of stockholders' equity (deficit).
The Company incurred approximately $1,500 of transaction costs in
connection with the merger, which were charged to operations during the
transition period.
The financial statements, for periods prior to the September 30, 1998
merger are reported using EcoScience's historical financial reporting periods.
EcoScience's historical financial statements are presented for the years ended
June 30, 1998, 1997 and 1996. In addition, since APD's historical fiscal year,
for periods prior to the September 30, 1998 merger, ended on the Sunday nearest
December 31, the accompanying June 30, 1998 financial statements required APD to
recast its 1998 historical financial statements to conform to and be combined
with EcoScience's fiscal year ended June 30, 1998. The APD financial data
combined into the accompanying financial statements for the years ended June 30,
1997 and 1996 represent the historical financial statements for APD for the 52
week periods ended December 28, 1997 and December 29, 1996, respectively.
Due to the periods being combined, the 26 week period ended December 28,
1997 for APD is included in the combined financial statements for both periods
ended June 30, 1998 and 1997. Revenues for the 26 week period ended December 28,
1997 totaled $8,656 and both loss before extraordinary item, of which there were
none, and net loss amounted to $94. S Corporation distributions of $220, which
occurred during the 26 week period ended December 28, 1997, were included for
both periods ended June 30, 1998 and 1997. Accordingly, the accompanying
consolidated statements of Stockholders' Equity (Deficit) for the year ended
June 30, 1998, reflects a $314 pooling adjustment to the accumulated deficit to
reverse the impact of including this historical activity twice.
4. ACQUISITION
On December 30, 1998, the Company acquired, through the acquisition of four
entities, the Cogentrix minority interests in certain investments of APD that
operate four of the Company's greenhouse operations. The purchase price of the
minority interests consisted of 1,000,000 shares of EcoScience common stock
valued at $4.00 per share, the market value at the time of the acquisition, and
a $20,600 note bearing interest at a rate of 11.25% per annum, which was
originally due and payable on March 15, 1999. On March 12, 1999, Cogentrix
agreed to extend the maturity date of the note to June 30, 1999. In connection
with the extension, the Company issued Cogentrix an additional note in the
principal amount of $1,000 which has terms similar to the original note and
becomes due on June 30, 1999. The notes are secured by all of the outstanding
capital stock of APD and the Acquired Companies. EcoScience is currently seeking
additional debt and equity financing to fulfill this obligation. If the Company
is not successful in refinancing the $21,600 aggregate principal amount of
notes, it will seek an extension of the due date or a restructuring of the terms
of the notes. There can be no assurances that EcoScience will be successful in
these efforts.
As a condition to the acquisition, EcoScience agreed to register the
1,000,000 shares of common stock for public sale. In the event the stock is not
registered by June 15, 1999, EcoScience may be required, at the election of
Cogentrix, to repurchase the 1,000,000 shares
F-15
<PAGE>
from Cogentrix at a price equal to the greater of $4.00 or the market price the
day prior to the repurchase demand, as provided.
Additional consideration given in the transaction is as follows: (i)
termination of an option agreement with Cogentrix, pursuant to which APD granted
to Cogentrix certain rights to participate in future projects involving the
development, acquisition, owning of or operating by APD of any greenhouse
facility at which fruit or vegetables are to be grown, as defined; (ii)
Cogentrix assigned and contributed its note receivable of $643 along with its
accrued interest ($65), due from APD to Cogentrix Greenhouse Investment, Inc.
(one of the entities acquired) and (iii) one of the greenhouse limited
partnerships cancelled its note receivable due from Cogentrix in the amount of
$1,838, along with its accrued interest ($191). Following the cancellation and
the acquisition of the minority interests by EcoScience, Cogentrix Greenhouse
Investment, Inc. issued a promissory note payable to that greenhouse limited
partnership in the same amount. The Company has estimated $325 in transaction
costs will be incurred in connection with this acquisition.
The financial statements reflect the preliminary allocation of the $27,246
purchase price, which includes a $9,340 fair value increase of certain minority
interest assets acquired. The allocation has not been finalized due to ongoing
negotiations relating to the notes issued in connection with this acquisition
and all of the finalized appraisals regarding the fair values of the assets
acquired have not been received by the Company. Accordingly, in 1999 goodwill
associated with the acquisition may change. The excess of the purchase price
over the fair value of the net assets acquired is estimated to be approximately
$12,058 and is being amortized on a straight-line basis over 20 years (see also
Note 2h).
The $1,838 note was previously issued in March 1997 by a subsidiary of APD.
The note was unsecured, interest was payable at 6.0% per annum and principal and
interest were due on demand and it was reflected in the accompanying financial
statements as a note receivable due from related party. See Note 10 for a
description of the note payable from APD to Cogentrix also affected by this
acquisition.
The acquisition of minority interests described above was accounted for by
the purchase method of accounting for business combinations. Accordingly, the
accompanying consolidated statements of operations continued to reflect minority
interests through the December 30, 1998 closing date. The following unaudited
pro forma information presents the results of operations of the Company as if
the acquisition had taken place on July 1, 1997:
Transition period ended Year ended
January 3, 1999 June 30, 1998
----------------------- -------------
Net revenues .................... $ 26,194 $ 46,177
Net loss ........................ $(12,526) $(13,467)
Net loss per share .............. $ (0.99) $ (1.07)
5. ASSETS HELD FOR SALE
The Company is attempting to sell a greenhouse property that was
damaged by a tornado. Estimated costs of approximately $500 to be incurred
through the estimated sale date (May
F-16
<PAGE>
1999) were accrued by the Company. The assets, totaling $1,911, have been
disclosed as held for sale in the accompanying January 3, 1999 and June 30, 1998
Consolidated Balance Sheets.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
January 3, June 30,
---------- --------------------
1999 1998 1997
------ ------ ------
Government grant ..................... $ 400 $ -- $ --
Prepaid equipment project costs ...... 322 838 653
Non-trade receivables ................ 237 207 504
Interest receivable .................. -- 214 93
Merger costs ......................... -- 653 --
Other ................................ 253 499 506
------ ------ ------
$1,212 $2,411 $1,756
====== ====== ======
The $653 in merger costs (see Note 3) as of June 30, 1998, along with other
merger costs incurred during the period July 1, 1998 through the effective date
of the merger for a total of approximately $1,500, were expensed in the
transition period.
7. PROPERTY, PLANT AND EQUIPMENT
Propert, plant and equipment consist of the following:
January 3, June 30,
---------- ----------------------
1999 1998 1997
-------- -------- --------
Land ................................ $ 973 $ 986 $ 1,102
Land improvements ................... 2,266 1,236 1,326
Greenhouses ......................... 54,062 33,540 35,109
Greenhouse improvements ............. 239 203 717
Greenhouse equipment ................ 11,250 9,111 7,908
Computer and office equipment ....... 1,808 1,779 1,154
Laboratory equipment ................ 65 65 65
Leasehold improvements .............. 62 62 62
Construction in progress ............ -- 9,837 --
-------- -------- --------
70,725 56,819 47,443
-------- -------- --------
Less accumulated depreciation
and amortization ................... (5,525) (3,683) (2,218)
-------- -------- --------
$ 65,200 $ 53,136 $ 45,225
======== ======== ========
Included in the amounts above are $435, $547 and $563 in assets held under
capital leases at January 3, 1999, June 30, 1998 and 1997, respectively.
8. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
January 3, June 30,
---------- ----------------------
1999 1998 1997
------- ------- -------
Debt issuance costs (1) ........... $ 2,517 $ 2,558 $ 2,520
Security deposits ................. 77 65 57
Notes receivable .................. 106 270 229
Other ............................. 28 355 420
------- ------- -------
2,728 3,248 3,226
Less accumulated amortization ..... (439) (659) (157)
------- ------- -------
$ 2,289 $ 2,589 $ 3,069
======= ======= =======
F-17
<PAGE>
(1) Debt issuance costs represent amounts incurred in obtaining financing for
various greenhouse construction facilities. Included in these costs are the
unamortized premiums paid for the purchase of interest rate cap agreements
(see Note 10). The premiums paid are being amortized to interest expense
over the terms of the cap agreements (5 years).
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
In Thousands
January 3, June 30,
---------- --------------------
1999 1998 1997
------ ------ ------
Payroll related costs ................ $ 540 $ 622 $ 309
Professional fees .................... 833 187 186
Accrued warranty costs ............... 50 72 59
Accrued inventory purchases .......... 546 344 620
Customer deposits .................... 415 1,209 971
Interest ............................. 2,707 1,239 265
Rent ................................. -- 651 --
Third party grower ................... 46 42 398
Insurance ............................ 199 245 174
Utilities ............................ 401 241 33
Restructuring ........................ 344 198 307
Severance ............................ 127 -- --
Repairs and maintenance .............. 257 -- --
Sales tax ............................ 201 -- --
Greenhouse costs ..................... -- 797 --
Other ................................ 1,039 1,271 397
------ ------ ------
$7,705 $7,118 $3,719
====== ====== ======
10. DEBT
(a) Short-term borrowings
Short-term borrowings consists of the following:
January 3, June 30,
---------- ---------------------
1999 1998 1997
------- ------- -------
Revolving line of credit(1) .......... $ 2,254 $ 1,091 $ --
VFT revolving line of credit(2) ...... -- -- 2,000
VFIFA line of credit(3) .............. 13,226 6,057 1,950
Note payable to Cogentrix(4) ......... 21,600 -- --
------- ------- -------
$37,080 $ 7,148 $ 3,950
======= ======= =======
F-18
<PAGE>
(b) Long-term debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 3, June 30,
---------- ----------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
VFT term loan credit facility(2) ................... $ -- $ 18,181 $ 18,414
VFIFA construction and term loan credit facility (3) 46,219 26,478 16,486
PVF non-revolving line of credit(5) ................ 804 1,201 2,125
Notes payable to Cogentrix(6) ...................... 1,071 1,743 1,949
Other long-term debt ............................... 243 88 94
-------- -------- --------
48,337 47,691 39,068
-------- -------- --------
Less-current maturities ............................ (47,557) (5,043) (3,878)
-------- -------- --------
$ 780 $ 42,648 $ 35,190
======== ======== ========
</TABLE>
(1) On November 24, 1998, the lender to the biological and agricultural
products segment notified the Company of its intention to terminate the
revolving line of credit on December 24, 1998. The Company and the Bank
have agreed to four extensions to the revolving line of credit, since
November 24, 1998, which make the maturity date April 28, 1999.
The Company and the Bank have also agreed to the following modifications of
the revolving line of credit pursuant to the extensions of the maturity
date and forbearance period; (i) reduction of the $1,200 inventory based
borrowing limit by $40 each week commencing the week of January 28, 1999
and (ii) an increase to the interest rate to prime plus 5.0%. As of January
3, 1999, the Company had $747 of additional borrowing availability under
the revolving line of credit. The Company has received a term sheet from a
financial institution in the amount of $4,000 to replace this existing
revolving line of credit. Although no assurance can be given, the Company
believes that it will finalize the replacement financing arrangement in
April or May 1999.
(2) On August 14, 1998, the VFT revolving line of credit was terminated, the
Debt Service Reserve (restricted cash) was released and applied to
outstanding principal under the Term loan, the Additional Debt Service
Reserve (restricted cash) was released to VFT for working capital purposes
and the remaining outstanding principal under the Term Loan ($16,681) was
assigned by the lenders to Village Farms International Finance Association
("VFIFA"), a wholly-owned subsidiary of the Company. VFIFA repaid the
$16,681 utilizing availability under the VFIFA construction and term loan
credit facility (see below). A new repayment schedule for the $16,681, to
reflect the $1,500 paydown, was provided to VFIFA by the Lenders. The final
quarterly installment is due and payable on March 31, 2007.
In October 1996, VFT purchased an interest rate cap ("Rate Cap") from a
bank for $307. The Rate Cap protected VFT from increases in interest rates
above 6.5% (excluding the applicable margin) for a period of five years on
$10,000 of outstanding debt. The purchase is reflected in other noncurrent
assets in the accompanying consolidated balance
F-19
<PAGE>
sheets (see Note 8) and is being amortized to interest expense on a
straight-line basis over the life of the Rate Cap (sixty months).
(3) In June 1997, VFIFA negotiated a $60,000 combined credit facility (the
"VFIFA Facility") with a bank (the "Lender"). The combined VFIFA Facility
consists of a term loan, construction loan ($50,000, with construction
borrowings not to exceed $30,000) and revolving line of credit commitment
($10,000). The proceeds from the borrowings under the VFIFA Facility are
loaned by VFIFA to its members, which are all wholly-owned subsidiaries of
the Company. APD has guaranteed all obligations incurred under the VFIFA
Facility. Advances under the VFIFA Facility are secured by the assets of
APD, VFIFA and any underlying borrower. The maturity date of the VFIFA
Facility is July 31, 2010.
In April 1998, VFIFA completed the final advances under the construction
loans for the VFM and VFB greenhouse facilities and converted the $26,478
in aggregate construction financing into a term loan (the "VFIFA Term
Loan"). The VFIFA Term Loan is being repaid in 40 quarterly installments
which commenced on June 30, 1998. As previously discussed, the VFIFA Term
Loan borrowings were increased by $16,681, when VFIFA purchased the VFT
Term Loan on August 14, 1998. On August 31, 1998 and in connection with the
formation of VFP, the remaining construction loan availability of $3,522
was allocated for financing of the VFP greenhouse facility. On September
29, 1998, the VFIFA Facility was amended to approve APD's merger with
EcoScience and to change the availability under the revolving line of
credit and term loan from $10,000 and $50,000, respectively, to $13,319 and
$46,681, respectively. The aggregate commitment under the VFIFA Facility of
$60,000 remained unchanged.
Prior to December 1, 1998, interest rate options were selected by VFIFA on
all or any portion of the borrowings at a base rate (prime), a fixed
(LIBOR) rate or a quoted rate, as defined in the VFIFA Facility.
Originally, interest was payable monthly at the maturity of an applicable
LIBOR rate election period under all commitments outstanding under the
VFIFA Facility. Each interest rate option has an applicable margin over
such rate in determining the total interest rate associated with each
borrowing. The applicable margin for each interest rate option is based
upon the relationship between annual debt service (principal and interest
payments) and total cash flow, as defined, with cash flow as the numerator
and debt service as the denominator. As the aforementioned relationship
increases, the applicable margin for each interest rate election decreases.
At January 3, 1999, the term loan borrowings were at various fixed rate
elections, which combined with the applicable margin and 4% default
interest (see below), resulted in interest rates between 11.75% and 13.23%
At January 3, 1999, the construction loan borrowings were at various fixed
rate elections, which combined with the applicable margin and 4% default
interest (see below), resulted in interest rates between 12.26% and 12.63%.
The various LIBOR rate elections were to be reset periodically during the
term of the construction and term loan borrowings. Interest on the
revolving line of credit is payable at the variable prime rate, as defined,
12.625% at January 3, 1999.
As of January 3, 1999, $42,798, $3,421 and $13,226 of borrowings were
outstanding under the VFIFA Term Loan, construction loan commitment and
revolving line of credit commitment, respectively. The fair value of the
VFIFA Facility was $59,347 as of
F-20
<PAGE>
January 3, 1999. The value of the VFIFA Facility at June 30, 1998 and 1997
approximated its book value. On December 1, 1998, the VFIFA Facility
lenders informed VFIFA and the "Underlying Borrowers" (including VFT, PVF,
VFM, VFB, VFP and APD) through written correspondence that they were not in
compliance with certain terms and conditions of the VFIFA Facility. The
events of default included (1) VFIFA's default of certain interest payments
due (2) the Underlying Borrower's principal and interest payment default
with VFIFA and (3) APD's default on the financial covenant contained in the
guaranty to the VFIFA Facility relating to equity to senior long-term debt.
The letter of default referred to interest defaults totaling approximately
$1,000. Following the receipt of the letter, further debt service payment
defaults occurred including additional interest defaults and principal
payment defaults on the December 31, 1998 VFIFA Term Loan installments. In
December 1998, VFIFA began to make debt service payments against the
defaults identified in the December 1, 1998 letter. The final installment
of the series of payments, totaling approximately $2,005 in the aggregate,
for approximately $460, was made on February 12, 1999, which brought VFIFA
and the Underlying Borrowers into full principal and interest compliance
under the VFIFA Facility. However, APD and the Underlying Borrowers still
remain in violation of certain financial covenants. The VFIFA Facility
lenders expressly stated in the December 1, 1998 letter of default that
they were not exercising their right under the VFIFA Facility to accelerate
payment of all outstanding amounts, however, they were reserving their
right to do so. As a result, the entire amount outstanding under the VFIFA
Facility, $46,219, has been reflected in the current portion of long-term
debt in the accompanying balance sheet, which includes $44,756 in debt that
would otherwise have been classified as long-term. The VFIFA Facility
lenders have informed VFIFA and the Underlying Borrowers that no further
advances will be made under the VFIFA Facility and all outstanding VFIFA
Facility balances will, as of December 1, 1998, bear interest at the
default rate (4% in addition to the stated rates), until the violations of
the financial covenants are cured.
APD and VFIFA will be negotiating new terms to the existing VFIFA Facility
in connection with the planned restructuring of the VFIFA Facility and the
Company's capital raising efforts that are intended to bring VFIFA and the
Underlying Borrowers into compliance with all defaults. There can be no
assurance that APD and VFIFA will be able to renegotiate more favorable
terms.
In October 1997, VFIFA purchased two interest rate caps ("Rate Caps") from
a bank for $436. The Rate Caps protect VFIFA from increases in interest
rates above 6.5% for a period of five years commencing on December 31, 1997
on up to approximately $26,500 of debt under the VFIFA Facility. The
purchases are reflected in other noncurrent assets in the accompanying
consolidated balance sheets (see Note 8), and are being amortized to
interest expense on a straight-line basis over the life of the Rate Caps
(sixty months).
(4) On December 30, 1998, the Company entered into a promissory note payable to
Cogentrix in the amount of $20,600 bearing an interest rate of 11.25%,
originally payable at maturity on March 15, 1999. The financing was a
result of the acquisition discussed in Note 4. On March 12, 1999, Cogentrix
agreed to extend the maturity date of the note to June 30, 1999 for $1,000.
The notes are secured by all of the outstanding capital stock of APD and
VFM, VFT, VFB and PVF. The Company is currently seeking additional debt
F-21
<PAGE>
and equity financing to fulfill this obligation, or alternatively will seek
to renegotiate the terms of the notes. There can be no assurance that the
Company will be successful in these efforts.
(5) In March 1997, PVF entered into a $2,200 loan agreement with a bank. As of
January 3, 1999, there were no additional borrowings available under this
loan. The loan was required to be repaid in sixty quarterly installments of
$37 of interest and principal beginning on July 1, 1997, plus a final
installment of any amount necessary to pay the indebtedness in full. The
loan bears interest at a variable rate, as defined 9.25% at January 3,
1999, subject to the lender's applicable interest rate tier. The loan is
secured by a real estate mortgage in the PVF property and a first lien on
all assets, excluding inventory and accounts receivable, as defined. As of
January 3, 1999, PVF was in violation of a financial covenant of the loan
agreement. As such the entire amount outstanding under the loan agreement,
$804 has been reflected in the current portion of long-term debt in the
accompanying January 3, 1999 balance sheet. PVF was also required to
maintain $750 of cash as replacement collateral for the portion of the PVF
greenhouse assets sold to VFB during 1997. This amount was classified as
restricted cash in the accompanying financial statements.
As discussed in Note 5, the assets of PVF are held for sale as of January
3, 1999. The proceeds from the sale will be utilized to repay the remaining
outstanding amounts under this loan agreement. PVF has already prepaid $750
and $425 of the outstanding borrowings with the replacement collateral and
insurance proceeds, respectively.
(6) In March 1997, APD borrowed $643 from Cogentrix. The note was unsecured,
interest was payable at 6.0% per annum and principal and interest were due
on demand. On December 30, 1998, in connection with the acquisition of
certain minority interests (see Note 4) by the Company, this note, and its
accrued interest, of approximately $65, became payable to one of the
entities acquired. Thus the amount is no longer payable to Cogentrix and
all related amounts to this note eliminate in consolidation beginning on
December 30, 1998. In March, 1997, APD borrowed $1,375 from Cogentrix. The
note matures on June 2, 2002 with quarterly principal and interest payments
of $69. Borrowings under the note bear interest at 6.0%.
The aggregate maturities of debt as of January 3, 1999 are as follows:
1999 $47,557
2000 321
2001 302
2002 157
-------
$48,337
=======
11. LEASES
(a) Capital Leases
The Company leases certain equipment under capital leases. Future minimum
lease payments are as follows:
F-22
<PAGE>
1999 $ 67
2000 64
2001 64
2002 49
2003 30
Thereafter 255
-----
Total minimum lease payments 529
Less amount representing interest (149)
-----
380
Less current maturities (42)
-----
$ 338
=====
(b) Operating Leases
The future minimum lease payments as of January 3, 1999 are as follows:
1999 $ 3,986
2000 3,976
2001 3,944
2002 3,911
2003 3,944
Thereafter 15,301
-------
$35,062
=======
The above amounts reflect future minimum lease payments under an agreement
executed on March 23, 1999, for the Company's new corporate office and warehouse
space (approximately 20,000 square feet). The expected commencement date of the
ten year lease is September 1, 1999.
Rent expense under the Company's various lease agreements totaled
approximately $2,114, $4,061, $1,830 and $2,262 for the transition period ended
January 3, 1999 and the years ended June 30, 1998, 1997 and 1996, respectively.
Included in noncurrent liabilities in the accompanying consolidated balance
sheet is $876, $868 and $860 at January 3, 1999, June 30, 1998 and June 30,
1997, respectively, related to the effect of accounting for the scheduled rent
increases on a straight-line basis over the applicable lease terms.
12. STOCKHOLDERS' EQUITY (DEFICIT)
(a) Amendment of Certificate of Incorporation for Reverse Stock Split and
Increase in Authorized Capital Stock
On September 30, 1998 the Company's certificate of incorporation was
amended to effect a one for five reverse stock split of the Company's common
stock, to increase the number of authorized shares of the Company's common stock
from 25,000,000 shares to 100,000,000 shares and to increase the number of
authorized preferred stock from 1,000,000 shares to
F-23
<PAGE>
<PAGE>
10,000,000 shares. The accompanying financial statements give retroactive effect
to the one for five reverse stock split for all periods presented.
(b) Private Placement
In September 1996, the Company sold 208,000 shares of common stock in a
private placement. Net proceeds realized from the equity offering totaled
$1,139,000 after fees and expenses totaling $161. In connection with the
offering, the Company also issued a warrant to purchase 31,200 shares of its
common stock at $10.00 per share to the placement agent.
(c) Common Stock Purchase Warrants
The Company has issued warrants to purchase shares of its common stock to
certain stockholders, directors and consultants of the Company. Outstanding
warrants expire through 2002. The following table summarizes warrant activity
for the three years ended June 30, 1998 and the transition period ended January
3, 1999:
<TABLE>
<CAPTION>
Weighted Average
Number of Warrants Price Per Share Range Exercise Price
------------------ --------------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1995 .................... 72,009 $ 1.88 - $55.00 $33.01
Granted ...................................... 50,000 6.88 - 15.00 10.76
Cancelled .................................... (30,217) 1.88 - 47.75 20.35
------- ----------------- ------
Outstanding at June 30, 1996 .................... 91,792 6.88 - $55.00 25.06
Granted ...................................... 56,311 5.00 - 18.75 11.51
Cancelled .................................... (15,792) 30.00 - 55.00 51.51
------- ----------------- ------
Outstanding at June 30, 1997 .................... 132,311 5.00 - 48.75 16.18
Granted ...................................... -- -- - -- --
Cancelled .................................... (8,000) 34.38 - 35.00 34.53
------- ------
Outstanding at June 30, 1998 .................... 124,311 5.00 - 48.75 $15.00
======= ======
Outstanding at January 3, 1999 .................. 124,311 5.00 - 48.75 $15.00
======= ================= ======
Exercisable at January 3, 1999 .................. 124,311 $ 5.00 - $48.75 $15.00
======= ================= ======
</TABLE>
(d) Stock Option Plans
In December 1998, the Board of Directors approved a stock option plan (the
"1999 Plan") to grant options to acquire up to 1,800,000 shares of common stock,
less the number of option shares issued under the Company's 1991 stock option
plan (1991 plan), outstanding to employees and consultants. Options granted
under the 1999 Plan vest over various periods and expire no later than 10 years
from the date of grant. Options are to be granted at the fair value of the
Company's common stock on the date of grant. The Board of Directors has agreed
not to issue future options under the 1991 plan.
Option activity for the three years ended June 30, 1998 and the transition
period ended January 3, 1999, is summarized as follows:
F-24
<PAGE>
<TABLE>
<CAPTION>
Weighted Average
Number of Options Price Per Share Range Exercise Price
----------------- --------------------- --------------
<S> <C> <C> <C>
Outstanding at June 30, 1995 ....................... 92,207 $1.88 - $56.88 $22.41
Granted ......................................... 110,100 2.81 - 8.13 4.87
Exercised ....................................... (333) 2.25 2.25
Cancelled ....................................... (34,771) 3.00 - 56.88 22.67
------- --------------- ------
Outstanding at June 30, 1996 ....................... 167,203 1.88 - 56.88 10.84
Granted ......................................... 68,036 4.69 - 12.50 6.07
Exercised ....................................... (3,800) 4.38 4.38
Cancelled ....................................... (54,363) 1.88 - 56.88 19.93
------- --------------- ------
Outstanding at June 30, 1997 ....................... 177,076 2.81 - 35.00 6.35
Granted ......................................... 6,680 4.06 - 8.13 6.51
Exercised ....................................... (17,456) 4.38 - 5.00 4.80
Cancelled ....................................... (9,120) 4.38 - 10.63 5.30
------- --------------- ------
Outstanding at June 30, 1998 ....................... 157,180 $2.81 - $35.00 6.60
======= =============== ======
Exercised ....................................... (1,100) 4.38 - 4.38 4.38
Cancelled ....................................... (4,880) 4.38 - 12.50 2.13
------- --------------- ------
Outstanding at January 3, 1999 ..................... 151,200 $2.81 - $35.00 $ 6.57
======= =============== ======
Exercisable at January 3, 1999 ..................... 134,898 $2.81 - $35.00 $ 6.55
======= =============== ======
</TABLE>
All stock options and warrants granted by the Company were granted at
exercise prices not less than the fair market value of the Company's common
stock on the date of grant.
The Company accounts for its common stock purchase warrants and options
plans based upon the "intrinsic value" method set forth in APB 25. Had
compensation costs for the Company's stock option plans been determined
consistent with SFAS 123, the Company's pro-forma net loss and net loss per
share for the transition period ended January 3, 1999 and the fiscal years ended
June 30, 1998, 1997 and 1996 would have been as follows:
<TABLE>
<CAPTION>
Transition
Period Ended
January 3, Years ended June 30,
------------ -----------------------------
1999 1998 1997 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
Net income (loss) ........................... (8,574) ($4,462) $ 29 ($ 13)
------ ------- ------ ------
Net loss per share, basic and diluted ....... ($0.74) ($ 0.38) ($0.00) ($0.00)
------ ------- ------ ------
</TABLE>
Because SFAS 123 has not been applied to warrants and options granted prior
to July 1, 1995, the resulting pro-forma compensation cost may not be
representative of that to be expected in future periods.
Under SFAS 123, the fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the weighted
average assumptions for the fiscal years ended June 30, 1998, 1997, and 1996,
respectively as follows: (i) risk free interest rate of 6% for all years; (ii)
expected life of approximately eight years for all years; and (iii) expected
volatility of 67%, 70%, and 70% for the fiscal years ended June 30, 1998, 1997,
and 1996, respectively. The weighted average fair value of the options granted
during the fiscal years ended June 30, 1998, 1997, and 1996 was $0.85, $0.86,
and $0.69, respectively. No options were granted during the transition period
ended January 3, 1999.
F-25
<PAGE>
13. INCOME TAXES
As of January 3, 1999, the Company had available net operating loss
carryforwards of approximately $10,700 and research and development tax credit
carryforwards of approximately $900 to reduce future federal income taxes, if
any. These carryforwards expire through 2013 and are subject to review and
possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986
limits a Company's ability to utilize certain net operating loss and tax credit
carryforwards in the event of a cumulative change in ownership in excess of 50%,
as defined. The Company has recently completed a merger with APD which has
resulted in a change in ownership in excess of 50%, as defined. Therefore,
utilization of net operating loss and tax credit carryforwards will be limited
due to ownership changes. As discussed in Note 2, APD was taxed as an S
Corporation prior to the merger on September 30, 1998 and as such no Federal
income taxes were paid by APD. Therefore, APD recorded no deferred tax assets or
liabilities prior to September 30, 1998. State deferred income taxes were not
material.
The components of the net deferred tax amount recognized in the
accompanying consolidated balance sheets are set forth below:
January 3, June 30,
---------- -------------------------
1999 1998 1997
-------- -------- --------
Deferred tax assets ......... $ 5,400 $ 16,500 $ 16,000
Valuation allowance ......... (5,400) (16,500) (16,000)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
The approximate tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is summarized as
follows:
January 3, June 30,
---------- ---------------------
1999 1998 1997
------- ------- -------
Net operating losses ................. $ 4,300 $15,400 $15,000
Other temporary differences .......... 200 200 100
Research and development credits ..... 900 900 900
------- ------- -------
$ 5,400 $16,500 $16,000
======= ======= =======
Due to the uncertainty surrounding the timing of realizing the potential
benefits of its favorable tax attributes in future income tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets.
A reconciliation of the provision for (benefit from) income taxes for the
transition period ended January 3, 1999 and the fiscal year ended June 30, 1998,
1997 and 1996 with the statutory federal income tax rate follows:
F-26
<PAGE>
<TABLE>
<CAPTION>
Transition
Period Ended Years Ended June 30,
January 3, -------------------------------
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Benefit) provision at nominal rate ........... (34.0%) (34.0%) 34.0% (34.0%)
Increases (reductions) in taxes resulting from:
Net operating loss carryforward .......... -- -- (34.0) --
Valuation allowance ...................... 34.0 34.0 -- 34.0
Foreign income taxes ..................... -- -- 10.8 22.0
State income taxes ....................... 0.1 0.1 4.2 69.3
------ ------ ------ ------
Provision for income taxes-% .................. 0.1% 0.1% 15.0% 91.3%
------ ------ ------ ------
Provision for income taxes-$ .................. $ 67 $ 21 $ 78 $ 116
------ ------ ------ ------
</TABLE>
The provision for (benefit from) income taxes for the transition period
ended January 3, 1999 and the fiscal year ended June 30, 1998, 1997 and 1996 is
primarily composed of foreign and state income taxes.
14. SALES, LICENSE AND DEVELOPMENT AGREEMENTS
AGRO has a distribution agreement with an unrelated company for a term of
three years ending in December 2000, with automatic one-year extensions unless
either party elects to terminate the agreement. The agreement grants AGRO the
exclusive right to sell the unrelated company's product in the United States,
Canada, Mexico, and the Caribbean. The agreement requires AGRO to maintain
minimum annual sales which, if not met, would allow the unrelated company to
modify the exclusivity of the agreement. The sale of products under this
agreement accounted for 18%, 17%, 20% and 25% of the Company's total net
revenues for the transition period ended January 3, 1999 and the fiscal years
ended June 30, 1998, 1997 and 1996, respectively. Although there are a limited
number of sources of the particular growing medium products that are sold under
this distribution agreement, the Company's management believes that other
suppliers could provide similar products on comparable terms. A change in
suppliers, however, could cause a delay in filling orders as well as a possible
loss of sales, which would affect operating results adversely.
In August 1995, AGRO entered into a distribution agreement with an
unrelated company, which granted AGRO the exclusive right to sell the unrelated
company's sorting, grading and packing products and equipment in the United
States, Canada, Mexico and the Caribbean through September 1999. The sale of
products under this agreement accounted for 14%, 8%, 12% and 11% of total net
revenues for the transition period ended January 3, 1999 and the fiscal years
ended June 30, 1998, 1997 and 1996, respectively.
On February 1, 1999, the Company's postharvest equipment division of Agro
Dynamics, Inc., which was the exclusive distributor in North America for Aweta
B.V.'s sorting and grading equipment, was sold to Autoline, Inc.
15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: greenhouse tomatoes and biological
and agricultural products. The greenhouse tomatoes segment operates seven
greenhouse facilities in the United States, representing approximately 190 acres
of growing capacity. Through these facilities, the Company produces, harvests,
packages and distributes premium vine-ripened tomatoes. The tomatoes are
marketed under the Village Farms(R) brandname and sold to retail supermarket
chains, dedicated wholesalers, distributors and food service clients throughout
the United States.
F-27
<PAGE>
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 accounting policies of the segments described above are the same as
those described in the summary of significant accounting policies. 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>
Transition
period ended Year ended June 30,
Company data by operating segment (1) January 3, 1999 1998 1997 1996
- ------------------------------------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues
Greenhouse tomatoes ................................ $ 15,453 $ 28,871 $ 21,963 $ 11,090
Biological and agricultural products ............... $ 10,741 $ 17,306 $ 17,899 $ 13,578
--------- --------- --------- ---------
Total .............................................. $ 26,194 $ 46,177 $ 39,862 $ 24,668
========= ========= ========= =========
Total Assets
Greenhouse tomatoes ................................ $ 93,539 $ 69,971 $ 62,072 $ 26,279
Biological and agricultural products ............... $ 8,325 $ 9,537 $ 8,520 $ 9,970
--------- --------- --------- ---------
Total .............................................. $ 101,864 $ 79,508 $ 70,592 $ 36,249
========= ========= ========= =========
Capital Expenditures
Greenhouse tomatoes ................................ $ 4,568 $ 25,554 $ 28,154 $ 17,372
Biological and agricultural products ............... 64 545 90 127
--------- --------- --------- ---------
Total .............................................. $ 4,632 $ 26,099 $ 28,244 $ 17,499
========= ========= ========= =========
Operating (loss) income
Greenhouse tomatoes ................................ ($ 6,272) ($ 5,276) $ 295 ($ 541)
Biological and agricultural products ............... (1,317) (1,195) 278 744
--------- --------- --------- ---------
Total .............................................. ($ 7,589) ($ 6,471) $ 573 $ 203
========= ========= ========= =========
Depreciation and amortization expense
Greenhouse tomatoes ................................ $ 1,979 $ 2,891 $ 1,504 $ 283
Biological and agricultural products ............... 167 332 402 580
--------- --------- --------- ---------
Total .............................................. $ 2,146 $ 3,223 $ 1,906 $ 863
========= ========= ========= =========
Company data by geographic segments (2)
Net revenues
United States .................................. $ 23,135 $ 39,243 $ 34,219 $ 20,247
Canada ......................................... 3,059 6,934 5,643 4,421
--------- --------- --------- ---------
Total .............................................. $ 26,194 $ 46,177 $ 39,862 $ 24,668
========= ========= ========= =========
</TABLE>
(1) All research and development expenses and restructuring reversals were a
result from operations of the biological and agricultural products segment.
(2) The long-lived assets in Canada are immaterial for all periods presented.
F-28
<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit
Number Exhibit Description
2.1 Amended and Restated Agreement and Plan of Merger dated as of
July 31, 1998 among EcoScience Corporation, Agro Acquisition
Corporation and Agro Power Development, Inc. [incorporated herein
by reference to the Registrant's Proxy Statement dated August 10,
1998 - Appendix A].
3.1 Restated Certificate of Incorporation of the Registrant dated
June 29, 1988 [incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1992].
3.2 By-Laws of the Registrant [incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1,
Registration Statement No. 33-44664].
3.3 Certificate of Amendment of Restated Certificate of Incorporation
of the Registrant dated September 28, 1998. [incorporated by
reference to Exhibit 10.60 to the Registrant's September 30, 1998
quarterly report on form 10-Q].
4.1 Specimen Common Stock Certificate of the Registrant [incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1, Registration Statement No. 33-44664].
4.2 Registration Rights Agreement between EcoScience Corporation and
the Shareholders identified on Schedule I thereto dated September
30, 1998. [incorporated by reference to Exhibit 10.60 to the
registrant's September 30, 1998 quarterly report on form 10-Q].
10.1* Registrant's 1991 Stock Option Plan, As Amended [incorporated by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, Registration Statement No. 33-44664].
10.2* Registrant's 1999 Stock Option Plan. [filed herewith]
10.3* Form of Non-Statutory Stock Option Agreement [incorporated by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1, Registration Statement No. 33-44664].
10.4 Common Stock Purchase Warrant between the Registrant and Copley
Partners 2, L.P., dated December 6, 1989, as amended
[incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
E-1
<PAGE>
June 30, 1993].
10.7 Series B Preferred Stock Purchase Agreement between the
Registrant and the other parties named therein, dated July 30,
1991, and amended on October 31, 1991 [incorporated by reference
to Exhibit 10.7 to the Registrant's Registration Statement on
Form S-1, Registration Statement No. 33-44664].
10.8 Common Stock Warrant between the Registrant and E. Andrews
Grinstead III, dated May 22, 1991, as amended [incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993].
10.10 Common Stock Purchase Warrant between the Registrant and E.
Andrews Grinstead, III, dated June 7, 1991, as amended
[incorporated by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993].
10.15 Assignment of Patent Rights, dated November 7, 1991 [incorporated
by reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form S-1, Registration Statement No. 33-44664].
10.20 Cooperative Research and Development Agreement between the
Registrant and the United States Department of Agriculture, dated
July 10, 1990 [incorporated by reference to Exhibit 10.26 to the
Registrant's Registration Statement on Form S-1, Registration
Statement No. 33-44664].
10.24 Agreement between Agro Dynamics, Inc. and Grodania A/S
[incorporated by reference to Exhibit 10.35 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993]. **
10.26 Form of Warrant issued to Directors of the Registrant
[incorporated by reference to Exhibit 10.38 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993].
10.49 Form of Stock Purchase Agreement dated September 25, 1996, by and
among EcoScience Corporation, Taglich Brothers, D'Amadeo, Wagner
& Company, Incorporated, and other entities [Incorporated by
reference to Exhibit 10.49 to Registrant's Annual Report on Form
10-K for fiscal year ended June 30, 1996].
10.50 Loan and Security Agreement dated as of April 28, 1997 by and
among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada
Inc. and EcoScience Produce Systems Corp. and Silicon Valley
Bank. [incorporated by reference to Exhibit 10.50 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1997].
10.51 Schedule to Loan and Security Agreement dated as of April 28,
1997 by among the Registrant, Agro Dynamics, Inc., Agro Dynamics
Canada Inc. and EcoScience Produce Systems Corp. and Silicon
Valley Bank. [incorporated by
E-2
<PAGE>
reference to Exhibit 10.51 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter Ended March 31, 1997].
10.52 Continuing Guaranty by each of the Registrant, EcoScience Produce
Systems Corp. and Agro Dynamics, Inc. guaranteeing the
obligations of the Registrant, EcoScience Produce Systems Corp.,
Agro Dynamics, Inc. and Agro Dynamics Canada Inc. in favor of
Silicon Valley Bank. [incorporated by reference to Exhibit 10.52
to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1997].
10.53 Continuing Guarantee by Agro Dynamics Canada Inc. guaranteeing
the obligations of the Registrant in favor of Silicon Valley
Bank. [incorporated by reference to Exhibit 10.53 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1997].
10.54 Collateral Assignment, Patent Mortgage and Security Agreement by
and between EcoScience Corporation (Assignor) and Silicon Valley
Bank (Assignee). [incorporated by reference to Exhibit 10.54 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1997].
10.55 Collateral Assignment, Patent Mortgage and Security Agreement by
and between EcoScience Produce Systems Corp. (Assignor) and
Silicon Valley Bank (Assignee). [incorporated by reference to
Exhibit 10.55 to the Registrant's Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1997].
10.56 Collateral Assignment, Patent Mortgage and Security Agreement by
and between Agro Dynamics, Inc. (Assignor) and Silicon Valley
Bank (Assignee). [incorporated by reference to Exhibit 10.56 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1997].
10.57 Agreement between Agro Dynamics, Inc. and Grodania A/S, dated
September 29, 1997. [incorporated by reference to Exhibit 10.57
to the Registrant's Form 10-Q for the Quarter Ended September 30,
1997]. **
10.59 Amendment to Loan Documents dated September 25, 1998, by and
among the Registrant, EcoScience Produce Systems Corp., Agro
Dynamics, Inc., Agro Dynamics Canada Inc. and Silicon Valley
Bank. [ filed herewith].
10.61 Ground Lease dated September 4, 1997 between the Buffalo
Enterprise Development Corporation and Agro Power Development,
Inc. [incorporated by reference to Exhibit 10.61 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.62 Commercial Greenhouse Lease and Operating Agreement dated July
22, 1992 between Oxbow Power of North Tonawanda, New York, Inc.
and Village Farms of Wheatfield, Inc. [incorporated by reference
to Exhibit 10.62 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
E-3
<PAGE>
10.63 Operating Agreement dated as of November 14, 1997 between
Greenhost, Inc. and Village Farms of Virginia, Inc for Birchwood,
Virginia greenhouse facility. [incorporated by reference to
Exhibit 10.63 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
10.64 Lease Agreement dated as of September 21, 1993 between Cogentrix
of Pennsylvania, Inc. and Keystone Village Farms, Inc. for
Ringgold, Pennsylvania greenhouse facility. [incorporated by
reference to Exhibit 10.64 to the registrant's September 30, 1998
quarterly report on form 10-Q] **
10.65 Amended Ground Lease effective March 14, 1997 between the
Presidio County Commissioners Court and Agro Power Development,
Inc. [incorporated by reference to Exhibit 10.65 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.66 Lease Agreement dated as of January 29, 1998 between Ripe Touch
Greenhouses, Inc., and Village Farms of Colorado, Inc.
[incorporated by reference to Exhibit 10.66 to the registrant's
September 30, 1998 quarterly report on form 10-Q] **
10.71 Agreement of Limited Partnership of Village Farms of Marfa, L.P.,
dated as of June 4, 1997. [incorporated by reference to Exhibit
10.71 to the registrant's September 30, 1998 quarterly report on
form 10-Q] **
10.72 Management, Operating and Maintenance Contract between Village
Farms of Marfa and Village Farms of Delaware, LLC, dated June 4,
1997. [incorporated by reference to Exhibit 10.72 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.73 Marketing and Sales Agreement between Village Farms of Marfa,
L.P. and Village Farms of Delaware dated June 4, 1997.
[incorporated by reference to Exhibit 10.73 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.74 Amended and Restated Agreement of Limited Partnership of Village
Farms of Buffalo, L.P., dated as of September 4, 1997.
[incorporated by reference to Exhibit 10.74 to the registrant's
September 30, 1998 quarterly report on form 10-Q] **
10.75 Management, Operating and Maintenance Contract between Village
Farms of Delaware and Village Farms of Buffalo, dated September
4, 1997 and amendment thereto dated as of April 17, 1998.
[incorporated by _reference to Exhibit 10.75 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.76 Marketing and Sales Agreement between Village Farms of Delaware
and Village Farms of Buffalo, L.P. dated September 4, 1997.
[incorporated by reference to Exhibit 10.76 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
E-4
<PAGE>
10.78 Marketing Agreement by and between Foster Farms, Inc. and Agro
Power Development, Inc. dated January 1, 1995. [incorporated by
reference to Exhibit 10.78 to the registrant's September 30, 1998
quarterly report on form 10-Q] **
10.79 Credit Agreement (Line of Credit Facility) by and between CoBank,
ACB, as Agent and as a Syndication Party and Village Farms
International Financing Association dated as of June 24, 1997
[incorporated by reference to Exhibit 10.79 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.80 Promissory Note (Line of Credit Facility) of Village Farms
International Financing Association dated June 24, 1997 in
principal amount of $10,000,000. [incorporated by reference to
Exhibit 10.80 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
10.81 First Amendment to Credit Agreement (Line of Credit Facility)
[Regarding EcoScience Merger] by and between Village Farms
International Finance Association and CoBank, ACB dated September
29, 1998. [incorporated by reference to Exhibit 10.81 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.82 Second Amendment to Credit Agreement (Line of Credit Facility) by
and between CoBank, Village Farms International Finance
Association and Agro Power Development Inc. dated September 29,
1998. [incorporated by reference to Exhibit 10.82 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.83 Line of Credit Security Agreement by and between Village Farms
International Finance Association, and CoBank, ACB dated June 24,
1997 with a line of credit of $10,000,000. [incorporated by
reference to Exhibit 10.83 to the registrant's September 30, 1998
quarterly report on form 10-Q]
10.84 Credit Agreement (Construction Loan Funding) by and between
CoBank, ACB as Agent and Syndicated Party and Village Farms
International Financing Association dated as of June 24, 1997.
[incorporated by reference to Exhibit 10.84 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.85 First Amendment to Credit Agreement (Construction Loan Funding)
[Regarding EcoScience Merger] by and between Village Farms
International Finance Association and CoBank, ACB dated September
29, 1998. [incorporated by reference to Exhibit 10.85 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.86 Promissory note (Construction Loan Funding) of Village Farms
International Financing Association dated June 24, 1997 in
principal amount of $30,000,000. [incorporated by reference to
Exhibit 10.86 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
E-5
<PAGE>
10.87 Construction Loan Security Agreement by and between Village Farms
International Finance Association, and CoBank, ACB dated June 24,
1997. [incorporated by reference to Exhibit 10.87 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.88 Credit Agreement (Term Loan Funding) by and between CoBank, ACB
as Agent and Syndication Party and Village Farms International
Financing Association dated as of June 24, 1997. [incorporated by
reference to Exhibit 10.88 to the registrant's September 30, 1998
quarterly report on form 10-Q]
10.89 Promissory Note (Term Loan Funding) of Village Farms
International Financing Association dated June 24, 1997 in
principal amount of $50,000,000. [incorporated by reference to
Exhibit 10.89 to the Registrant's September 30, 1998 quarterly
report on form 10-Q]
10.90 Guaranty of Agro Power Development, Inc. dated as of June 24,
1997 to Construction Lenders, Term Lenders and Line of Credit
Lenders. [incorporated by reference to Exhibit 10.90 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.91 First Amendment to Credit Agreement (Term Loan Funding)
[Regarding EcoScience Merger] by and between Village Farms
International Finance Association and CoBank, ACB dated September
29, 1998. [incorporated by reference to Exhibit 10.91 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.92 Second Amendment to Credit Agreement (Term Loan Funding) by and
between CoBank, Village Farms International Finance Association
and Agro Power Development Inc. dated September 29, 1998.
[incorporated by reference to Exhibit 10.92 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.93 Term Loan Security Agreement by and between Village Farms
International Finance Association, and CoBank, ACB dated June 24,
1997. [incorporated by reference to Exhibit 10.93 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.94 Amendment to Loan Documents by and between CoBank, Village Farms
International Finance Association and Agro Power Development,
Inc. dated September 29, 1998. [incorporated by reference to
Exhibit 10.94 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
10.95 First Amendment to Guarantor Security and Pledge Agreement
[Regarding EcoScience Merger] by and between Agro Power
Development, Inc. and CoBank, ACB dated September 29, 1998.
[incorporated by reference to Exhibit 10.95 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
E-6
<PAGE>
10.96 First Amendment to Guaranty of Agro Power Development, Inc.
[Regarding EcoScience Merger] by and between Agro Power
Development, Inc. and The Lender Group dated September 29, 1998.
[incorporated by reference to Exhibit 10.96 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.99 Agreement of Limited Partnership of Village Farms of Presidio,
L.P. dated as of August 31, 1998. [incorporated by reference to
Exhibit 10.99 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
10.100 Commercial Greenhouse Design and Construction Contract between
Agro Power Development and Dalsem Kassenboyw B.V. dated as of
August 31, 1998. [incorporated by reference to Exhibit 10.100 to
the registrant's September 30, 1998 quarterly report on form
10-Q]
10.101 Commercial Design and Construction Contract between Village Farms
of Presidio, L.P. and Agro Power Development, Inc. dated as of
August 31, 1998. [incorporated by reference to Exhibit 10.101 to
the registrant's September 30, 1998 quarterly report on form
10-Q]
10.102 Commercial Packing House Design and Construction Contract dated
July 10, 1998 between Agro Power Development, Inc. and NC
Sturgeon, Inc. [incorporated by reference to Exhibit 10.102 to
the registrant's September 30, 1998 quarterly report on form
10-Q]
10.103 Marketing and Sales Agreement between Village Farms of Presidio,
L.P. and Village Farms, Inc. dated as of August 31, 1998.
[incorporated by reference to Exhibit 10.103 to the registrant's
September 30, 1998 quarterly report on form 10-Q]
10.104 Management, Operation and Maintenance Contract dated as of August
31, 1998 among New Amsterdam Joint Venture, L.L.C. and Village
Farms of Presidio, L.P. incorporated by reference to Exhibit
10.104 to the registrant's September 30, 1998 quarterly report on
form 10-Q]
10.105 $1,375,000 Promissory Note and Security Agreement dated March 10,
1997 among Agro Power Development, Inc., Village Farms of
Delaware LLC, Village Farms LLC and Cogentrix Delaware Holdings,
Inc. [incorporated by reference to Exhibit 10.105 to the
registrant's September 30, 1998 quarterly report on form 10-Q]
10.106 Loan Agreement by and between Pocono Village and First Pioneer
Farm Credit, ACA, dated March 5, 1997. [incorporated by reference
to Exhibit 10.106 to the registrant's September 30, 1998
quarterly report on form 10-Q]
10.107 Installment Promissory Note for $2,200,000.00 from Pocono Village
to First Pioneer Farm Credit, ACA, dated March 10, 1997.
[incorporated by reference to Exhibit 10.107 to the registrant's
September 30, 1998 quarterly report on form
E-7
<PAGE>
10-Q]
10.108 Construction Loan Agreement between Pocono Village and First
Pioneer Farm Credit, dated March 10, 1997. [incorporated by
reference to Exhibit 10.108 to the registrant's September 30,
1998 quarterly report on form 10-Q]
10.109 Security Agreement between Pocono Village and First Pioneer Farm
Credit, ACA, dated March 10, 1997. [incorporated by reference to
Exhibit 10.109 to the registrant's September 30, 1998 quarterly
report on form 10-Q]
10.112 Stock Purchase Agreement, dated as of December 7, 1998, Stock
Pledge Agreement, dated as of December 30, 1998, and Registration
Rights Agreement, dated as of December 30, 1998 between the
Registrant and Cogentrix Delaware Holdings. Inc. and $20.6
million Promissory Note dated December 30, 1998 issued by
Registrant to Cogentrix Delaware Holdings, Inc. [incorporated by
reference to Exhibit 10.112 to Registrant's Form 8-K dated
December 7, 1998]
10.113 Amendment to Loan Documents dated February 26, 1999 by and among
Registrant, EcoScience Produce Systems Corp., Agro Dynamics, Inc.
Agro Dynamics Canada, Inc. and Silicon Valley Bank.[incorporated
by reference to Exhibit 10.113 to Registrant's September 30, 1998
quarterly report on Form 10-Q]
10.114 First Amendment to Registration Rights Agreement dated as of
March 11, 1999 between the Registrant and Cogentrix Delaware
Holdings, Inc. [incorporated by reference to Exhibit 10.114 to
Registrant's September 30, 1998 quarterly report on form 10-Q].
10.115 Extension Agreement dated as of March 15, 1999 between Registrant
and Cogentrix Delaware Holdings, Inc. [filed herewith]
10.116 Allonge to Promissory Note dated December 30, 1998 of Registrant,
payable to Cogentrix Delaware Holdings, Inc. [filed herewith]
10.117 Promissory Note dated March 15, 1999 issued by Registrant to
Cogentrix Delaware Holdings, Inc. in the amount of $1 million.
[filed herewith]
10.118 Amendment to Stock Pledge Agreement dated as of March 15, 1999
between Registrant and Cogentrix Delaware Holdings, Inc. [filed
herewith]
21 Subsidiaries of the Registrant. [filed herewith]
23 Consent of Arthur Andersen LLP. [filed herewith]
24 Powers of Attorney of officers and directors of the Company
[included in the signature page to this report].
E-8
<PAGE>
27 Financial Data Schedule for the transition period ended January
3, 1999. [filed herewith]
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
** Information has been omitted from this exhibit and is subject to a
request or such a request has been approved for confidential treatment.
E-9
Exhibit 10.2
EcoScience Corporation 1999 Stock Option Plan
ARTICLE I
PURPOSE AND EFFECTIVENESS
1.1 Purpose. The purpose of the Plan is to promote the success of the Company by
providing a method whereby (i) eligible employees of the Company and its
Subsidiaries and (ii) independent contractors providing services to the Company
or its Subsidiaries may be awarded additional remuneration for services they
render and encouraged to invest in capital stock of the Company, thereby
increasing their proprietary interest in the Company's businesses, encouraging
them to remain in the employ of the Company or its Subsidiaries, and increasing
their personal interest in the continued success and progress of the Company or
its Subsidiaries. The Plan is also intended to aid in (i) attracting persons of
exceptional ability and leadership qualities to become officers and employees of
the Company and its Subsidiaries and (ii) inducing independent contractors to
agree to provide services to the Company.
1.2 Effective Date. The Plan became effective on December 17, 1998, but shall be
subject to approval by the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock of the Company. Any Options
granted under the Plan prior to such stockholder approval shall be conditioned
upon such approval and shall be null and void if such approval is not obtained.
1.3 Term of Plan. Unless sooner terminated by action of the Board, the Plan will
terminate on December 27, 2008, ten years from the Effective Date. Options
granted before that date that continue to be outstanding subsequent to that date
will continue to be effective in accordance with the terms and conditions of the
Plan.
ARTICLE II
DEFINITIONS
2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the Plan
shall have the following meanings (whether used in the singular or plural):
"Agreement" means a written agreement between a Holder and the Company which
sets out the terms of the grant of an Option, as any such Agreement may be
supplemented or amended from time to time.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, or
any successor statute or statutes thereto. Reference to any specific Code
section shall include any successor section.
<PAGE>
"Common Stock" means the common stock which the Company is currently authorized
to issue or may in the future be authorized to issue.
"Committee" means the committee of the Board appointed or designated pursuant to
Section 3.1 to administer the Plan in accordance with its terms.
"Company" means Ecoscience Corporation, a Delaware corporation, and any
successor entity.
"Date of Grant" means the effective date on which an Option is granted to a
Holder as set forth in the applicable Option Agreement.
"Domestic Relations Order" means a domestic relations order as defined by the
Code or Title I of the ERISA, or the rules thereunder.
"Effective Date" means December 17, 1998, the date on which the Plan originally
became effective.
"Employee" means common law employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company or any Subsidiary of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, or any successor statute or statutes thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time, or any successor statute or statutes thereto. Reference to any specific
Exchange Act section shall include any successor section.
"Fair Market Value" of a share of Common Stock on any day means the last sale
price (or, if no last sale price is reported, the average of the high bid and
low asked prices) for a share of Common Stock on such day (or, if such day is
not a trading day, on the next preceding trading day) as reported on Nasdaq or,
if not reported on Nasdaq, as quoted by the National Quotation Bureau
Incorporated, or if the Common Stock is listed on an exchange, as reported on
the principal exchange on which Common Stock is listed. If for any day the Fair
Market Value of a share of the Common Stock is not determinable by any of the
foregoing means, then the Fair Market Value for such day shall be determined in
good faith by the Committee on the basis of such quotations and other
considerations as the Committee deems appropriate.
"Holder" means an Employee of the Company or a Subsidiary or an independent
contractor who has received an Option under this Plan.
"Incentive Option" means an option granted under this Plan that is both intended
to and qualifies as an incentive stock option under Section 422 of the Code.
"Nonqualified Option" means an option granted under this Plan that either is not
intended to be or is not denominated as an Incentive Option, or that does not
qualify as an incentive stock option under Section 422 of the Code.
"Option" means a Nonqualified Option or an Incentive Option.
-2-
<PAGE>
"Option Shares" means, with respect to any Option granted under this Plan, the
Common Stock that may be acquired upon the exercise of such Option.
"Option Price" means the price which must be paid by a Holder upon exercise of
an Option to purchase a share of Common Stock.
"Plan" means this Ecoscience Corporation 1998 Stock Option Plan, as amended from
time to time.
"Retirement" means any Termination of Service pursuant to the terms of any
pension plan or policy of the Company applicable to a Holder who is an Employee
at the time of his or her Termination of Service, or if no such plan or policy
exists, the attainment of either (i) age 65, or (ii) age 55 and the completion
of ten full years of service with the Company.
"Secretary" means the secretary of the Company or his designee.
"Shares" means shares of Common Stock.
"Subsidiary" of the Company means any present or future subsidiary (as defined
in Section 424(f) of the Code) of the Company or any business entity in which
the Company owns directly or indirectly, 50% or more of the voting, capital or
profits interests. An entity shall be deemed a subsidiary of the Company for
purposes of this definition only for such periods as the requisite ownership or
control relationship is maintained.
"Termination of Service" occurs when a Holder who is an Employee of the Company
or any Subsidiary shall cease to serve as an Employee of the Company and its
Subsidiaries, for any reason.
"Total and Permanent Disability" means a Holder is qualified for long-term
disability benefits under the applicable health and welfare plan of the Company
or if no such benefits are then in existence, that the Holder is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
-3-
<PAGE>
"Vesting Date" with respect to any Option granted hereunder means the date on
which such Option ceases to be subject to a risk of forfeiture, as designated in
or determined in accordance with the Agreement with respect to such Option. If
more than one Vesting Date is designated for an Option, reference in the Plan to
a Vesting Date in respect of such Option shall be deemed to refer to each part
of such Option and the Vesting Date for such part.
ARTICLE III
ADMINISTRATION
3.1 Committee. The Plan shall be administered by the Compensation Committee of
the Board unless a different committee is appointed by the Board. Subject to the
provisions of Section 3.2, the Committee shall be comprised of not less than two
persons all of whom qualify as both: (i) a "Non-Employee Director" within the
meaning of the rules promulgated under Section 16(b) of the Exchanged Act, and
(ii) an "outside director" within the meaning of Section 162(m) of the Code. The
Board may from time to time appoint members of the Committee in substitution for
or in addition to members previously appointed, may fill vacancies in the
Committee and may remove members of the Committee. The Committee shall select
one of its members as its chairman. The Committee shall hold meetings at such
times and places as may be necessary for the proper administration of the Plan
and shall keep minutes of its meetings. A majority of its members shall
constitute a quorum and all determinations shall be made by a majority of such
quorum. Any determination reduced to writing and signed by all of the members
shall be fully as effective as if it had been made by a majority vote at a
meeting duly called and held.
3.2 Additional Members. The Committee may have as members directors who do not
qualify as outside directors (a "nonqualifying director") in addition to at
least two or more directors who do qualify as both Non-Employee Directors and as
outside directors. In such case, each nonqualifying director (i) may not
participate in Committee meetings, discussions or considerations involving the
grant of Options to "covered employees" as described in Section 162(m)(3) of the
Code and the regulations promulgated thereunder, and (ii) will abstain from each
vote pertaining to such covered employees. The inclusion of such nonqualifying
directors shall be permitted only for so long as, in the opinion of counsel, the
provisions of this Section 3.2 do not contravene the requirements of ss.162(m)
of the Code.
3.3 Powers. Subject to the provisions of the Plan, the Committee shall have sole
authority, in its absolute discretion: (i) to determine which eligible
individuals shall be granted Options; (ii) to grant Options; (iii) to determine
the times when Options may be granted and the number of Shares that may be
purchased pursuant to such Options; (iv) to determine the exercise price of the
Shares subject to each Option, which price shall be not less than the minimum
specified in Section 6.3 (v) to determine the time or times when each Option
becomes exercisable, the duration of the exercise period, and any other
restrictions on the exercise of Options issued hereunder; (vi) to prescribe the
form or forms of the Option Agreements under the Plan; (vii) to determine the
circumstances under which the time for exercising Options should be accelerated
and to accelerate the time for exercising outstanding Options; (viii) to
determine the duration and purposes for leaves of absence which may be granted
to a Holder without constituting a Termination of Service for purposes of the
Plan; and (ix) to make all other determinations deemed necessary or advisable
for the administration of the Plan; provided, however, that with respect to
those Holders who are not "officers" or "directors" of the Company within the
meaning of Section 16(b) of the Exchange Act, the Committee may delegate to any
person or persons
-4-
<PAGE>
("Subcommittee") all or any part of its authority as set forth in clause (i)
through (ix) above. The Committee may employ attorneys, consultants, accountants
or other persons, and the Committee, the Company and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of such
persons.
3.4 Rules and Interpretations. The Committee is authorized, subject to the
provisions of the Plan, to establish, amend and rescind such rules and
regulations as it deems necessary or advisable for the proper administration of
the Plan and to take such other action in connection with or in relation to the
Plan as it deems necessary or advisable. Each action and determination made or
taken pursuant to the Plan by the Committee, including any interpretation or
construction of the Plan, shall be final and conclusive for all purposes and
upon all persons.
3.5 Liability and Indemnification. No member of the Committee shall be
personally liable for any action, determination or interpretation made by him or
the Committee in good faith with respect to the Plan or any Option granted
pursuant thereto. Each member of the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees)
reasonably incurred by him or liability (including any sum paid in settlement of
a claim with the approval of the Company) arising out of any act or omission to
act in connection with this Plan unless arising out of such member's own fraud
or bad faith. Such indemnification shall be in addition to any rights of
indemnification the members of the Committee may have as directors or otherwise
under the by-laws of the Company.
3.6 Survival of Provisions. The provisions of this Article III shall survive any
termination of the Plan.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. The maximum number of Shares with respect to which Options
may be granted during the term of the Plan is 1,800,000 (or the number and kind
of Shares or other securities which are substituted for those Shares or to which
those Shares are adjusted pursuant to the provisions of Article VIII of the
Plan) reduced by the number of shares issued under the 1991 Stock Option Plan
(the "1991 Plan"). The terms of this Plan shall not apply to options granted
prior to the Effective Date, and such options shall continue to be administered
pursuant to the terms of the 1991 Plan. No fractional Shares shall be issued
with respect to Options granted under the Plan.
4.2 Source of Shares. During the term of this Plan, the Company will at all
times reserve and keep available the number of shares of Common Stock that shall
be sufficient to satisfy the requirements of this Plan. Shares of Common Stock
will be made available from the authorized but unissued shares of the Company or
from shares reacquired by the Company, including shares purchased in the open
market.
4.3 Counting of Shares. In the event that any outstanding Option under the Plan
or the 1991 Plan for any reason expires, is terminated, forfeited or is canceled
without having been exercised prior to the expiration date of the Plan, the
Shares subject to the unexercised portion of such Option may, to the extent
permitted by rules promulgated under the Exchange Act, again be subject to an
Option granted under the Plan.
-5-
<PAGE>
ARTICLE V
ELIGIBLITY AND PARTICIPATION
5.1 General. The persons who shall be eligible to participate in the Plan and to
receive Options under the Plan shall be such employees (including officers and
directors) of the Company and its Subsidiaries or independent contractors as the
Committee shall select. Options may be made to employees or independent
contractors who hold or have held Options under this Plan or any similar or
other awards under any other plan of the Company or any of its Subsidiaries. Any
member of such Committee shall be eligible to receive options while serving on
the Committee, subject to applicable provisions of the Exchange Act and the
rules promulgated thereunder.
5.2 Committee Discretion. Options may be granted by the Committee at any time
and from time to time to new Holders, or to then Holders, or to a greater or
lesser number of Holders, and may include or exclude previous Holders, as the
Committee shall determine. Except as required by this Plan, Options granted at
different times need not contain similar provisions. The Committee's
determinations under the Plan (including without limitation determinations of
which individuals, if any, are to receive Options, the form, amount and timing
of such Options, the terms and provisions of such Options and the agreements
evidencing same) need not be uniform and may be made by it selectively among
individuals who receive, or are eligible to receive, under the Plan.
ARTICLE VI
GRANTS OF STOCK OPTIONS
6.1 Grant of Options. Subject to the limitations of the Plan, the Committee
shall designate from time to time those eligible persons to be granted Options,
the time when each Option shall be granted to such eligible persons, number of
shares of Common Stock subject to such Option, whether such Option is an
Incentive Option or a Nonqualified Option and, subject to Section 6.2, the
purchase price of the shares of Common Stock subject to such Option. Options
shall be evidenced by Agreements in such form and containing such terms and
provisions not inconsistent with the provisions of the Plan as the Committee may
from time to time approve. Each grantee of an Option shall be notified promptly
of such grant and a written Agreement shall be promptly executed and delivered
by the Company to the grantee. Subject to the other provisions of the Plan, the
same person may receive Incentive Options and Nonqualified Options at the same
time and pursuant to the same Agreement, provided that Incentive Options and
Nonqualified Options are clearly designated as such.
6.2 Provisions of Options. Option Agreements shall conform to the terms and
conditions of the Plan. Such Agreements may provide that the grant of any Option
under the Plan, or that Stock acquired pursuant to the exercise of any Option,
shall be subject to such other conditions (whether or not applicable to the
Option or Stock received by any other optionee) as the Committee determines
appropriate, including, without limitation, provisions conditioning exercise
upon the occurrence of certain events or performance or the passage of time,
provisions to assist the Holder in financing the purchase of Stock through the
exercise of Options, provisions for forfeiture, restrictions on resale or other
disposition of shares acquired under the Plan, provisions conditioning the grant
of the option or future options upon the Holder retaining ownership of Shares
acquired upon exercise for a stated period of time, provisions giving the
-6-
<PAGE>
Company the right to repurchase shares acquired under the Plan in the event the
Holder elects to dispose of such shares, and provisions to comply with federal
and state securities laws and federal and state income tax and other payroll tax
withholding requirements. All Options shall specify the term during which the
Option may be exercised, which shall be ten years or less, subject to the
Provisions of the Plan with respect to termination of employment.
6.3 Option Price. The price at which Shares may be purchased upon exercise of an
Option shall be fixed by the Committee and may be more than or equal to the Fair
Market Value of the Shares subject to the Option as of the date the Option is
granted.
6.4 Limitation on Grants. No individual may be granted in any fiscal year of the
Company Options covering more than 250,000 shares (as such numbers may be
adjusted from time to time after as provided in Section 8.1).
6.5 Limitations on Exercisability. No Option or part thereof may be exercised
within six months of the date the Agreement evidencing such Option is delivered
to the Holder or , before the Vesting Date(s) set forth in its terms, in either
case other than in the event of an acceleration as provided in Article VIII, or
after the Option expires by its terms as set forth in the applicable Agreement.
In the case of an Option which is exercisable in installments, installments
which are exercisable and not exercised shall remain exercisable during the term
of the Option. The grant of an Option shall impose no obligation on the Holder
to exercise such Option.
6.6 Vesting. The Committee may specify in any Agreement a vesting schedule that
must be satisfied before Options may be exercised, such that all or any portion
of an Option may not be exercised until a Vesting date or Vesting dates
subsequent to the six month anniversary of its Date of Grant, or until the
occurrence of one or more specified events, subject in any case to the terms of
the Plan. Subsequent to the grant of an Option, the Committee, at any time
before complete termination of such Option, may accelerate the time or times at
which such Option may be exercised in whole or in part (without reducing the
term of such Option).
6.7 Nontransferability of Options. No Option shall be transferable other than by
will or the laws of descent and distribution or pursuant to a Domestic Relations
Order. During the lifetime of the Holder, the Option shall be exercisable only
by such Holder (or his or her court-appointed legal representative), except as
otherwise required pursuant to a Domestic Relations Order. The Committee may,
however, in its sole discretion, provide in the applicable Agreement evidencing
a Nonqualified Options that the Holder may transfer, assign or otherwise dispose
of an option (i) to his spouse, parents, siblings and lineal descendants, (ii)
to a trust for the benefit of the optionee and any of the foregoing, or (iii) to
any corporation or partnership controlled by the Holders, subject to such
conditions or limitations as it may establish to ensure compliance with any rule
promulgated pursuant to the Exchange Act, or for other purposes.
6.8 No Rights as a Stockholder. A Holder or a transferee of an Option shall have
no rights as a stockholder with respect to any Share covered by his Option until
he shall have become the holder of record of such Share, and he shall not be
entitled to any dividends or distributions or other rights in respect of such
Share for which the record date is prior to the date on which he shall have
become the holder of record thereof.
6.9 Special Provisions Applicable to Incentive Options. Options granted under
this Plan which are intended to qualify as Incentive Options shall be
specifically designated as such in the applicable Agreement.
-7-
<PAGE>
To the extent the aggregate Fair Market Value (determined as of the time the
Option is granted) of the Stock with respect to which any Incentive Options
granted hereunder may be exercisable for the first time by the Holder in any
calendar year (under this Plan or any other stock option plan of the Company or
any Subsidiary thereof) exceeds $100,000, such Options shall not be considered
Incentive Options.
No Incentive Option may be granted to an individual who, at the time the Option
is granted, owns directly, or indirectly within the meaning of Section 424(d) of
the Code, stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any Subsidiary thereof, unless such
Option (i) has an exercise price of at least 110% of the Fair Market Value of
the Stock on the Date of Grant of such option; and (ii) cannot be exercised more
than five years after the Date of Grant.
Each Holder who receives an Incentive Option must agree to notify the Company in
writing immediately after the Holder makes a Disqualifying Disposition of any
Stock acquired pursuant to the exercise of an Incentive Option. A Disqualifying
Disposition is any disposition of such Stock before the later of (i) two years
after the date the optionee was granted the Incentive Option or (ii) one year
after the date the Holder acquired Stock by exercising the Incentive Option,
other than a transfer (i) from a decedent to an estate, (ii) by bequest or
inheritance, (iii) pursuant to a tax-free corporate reorganization, or (iv) to a
spouse or incident to divorce. Any transfer of ownership to a broker or nominee
shall be deemed to be a disposition unless the Holder provides proof
satisfactory to the Committee of his continued beneficial ownership of the
Stock.
Any other provision of the Plan to the contrary notwithstanding, no Incentive
Option shall be granted after the date which is ten years from the date this
Plan is adopted by the Board, or the date the Plan is approved by the
stockholders, whichever is earlier.
ARTICLE VII
EXERCISES OF STOCK OPTION
7.1 General. Any Option may be exercised in whole or in part at any time to the
extent such Option has become exercisable during the term of such Option;
provided, however, that each partial exercise shall be for whole Shares only.
Each Option, or any exercisable portion thereof, may only be exercised by
delivery to the Secretary or his office in accordance with such procedures for
the exercise of Options as the Committee may establish from time to time of (i)
notice in writing signed by the Holder (or other person then entitled to
exercise such Option) that such Option, or a specified portion thereof, is being
exercised; (ii) payment in full for the purchased Shares (as specified in
Section 7.3 below); (iii) such representations and documents as are necessary or
advisable to effect compliance with all applicable provisions of Federal or
state securities laws or regulations; (iv) in the event that the Option or
portion thereof shall be exercised pursuant to Section 8.2 by any individual
other than the Holder, appropriate proof of the right of such individual to
exercise the Option or portion thereof; and (v) full payment to the Company of
all amounts which, under federal or state law, it is required to withhold upon
exercise of the Option (as specified in Section 7.4 below).
7.2 Share Certificates. Upon receiving notice of exercise and payment, the
Company will cause to be delivered to the Holder, as soon as practicable, a
certificate in the Holder's name for the Shares purchased, and within a
reasonable time thereafter such transfer shall be evidenced on the books and
records of the Company. The Shares issuable and deliverable upon the exercise of
a
-8-
<PAGE>
Stock Option shall be fully paid and nonassessable. Notwithstanding the above,
the Company shall not be required to issue or deliver any certificate or
certificates for Shares purchased upon the complete or partial exercise of the
Stock Option prior to fulfillment of (i) the completion of any registration or
other qualification of such Shares under any federal or state law or under
rulings or regulations of the Securities and Exchange Commission or of any other
governmental regulatory body or (ii) the obtaining of any approval or other
clearance from any federal or state governmental agency which may be necessary
or advisable.
7.3 Payment for Shares. Payment for Shares purchased under an Option granted
hereunder shall be made in full upon exercise of the Option. The method or
methods of payment of the purchase price for the Shares to be purchased upon
exercise of an Option and of any amounts required by Section 10.5 shall be
determined by the Committee and may consist of (i) cash, (ii) check, (iii)
promissory note, (iv) whole shares of Common Stock, (v) the delivery, together
with a properly executed exercise notice, of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the purchase price, (vi) any combination of the foregoing
methods of payment, or such other consideration and method of payment as may be
permitted for the issuance of shares under the Delaware General Corporation Law.
The permitted method or methods of payment of the amounts payable upon exercise
of an Option, if other than in cash, shall be set forth in the applicable
agreement and may be subject to such conditions as the Committee deems
appropriate To the extent the Option exercise price may be paid in Shares as
provided above, Shares delivered by the Holder may be (i) upon the exercise of
an Incentive Option, shares which were received by the Holder upon exercise of
one or more previously exercised Incentive Options, but only if such Shares have
been held by the Holder for the periods of time required by Section 422(a)(1) or
six months, whichever is longer, or (ii) shares which were received by the
Holder upon exercise of one or more Nonqualified Options, but only if such
Shares have been held by the Holder for at least six months.
7.4 Replacement Options. An Agreement may provide that the Holder has the right
to acquire upon exercise of the Option (hereinafter referred to as the Original
Option) a Replacement Option. An Original Option which provides for the grant of
a Replacement Option shall entitle the Holder, upon exercise of the Original
Option (in whole or in part) both prior to the termination of employment of the
Holder and by satisfaction of the option price wholly or partially in Shares of
Common Stock, to receive a Replacement Option. In addition to any other terms
and conditions the applicable Agreement deems appropriate, the Replacement
Option shall be subject to the following terms: (i) the number of shares subject
to the Replacement Option shall not exceed the number of shares used to satisfy
the Option price of the Original Option; (ii) the Date of Grant will be the date
of the exercise of the Original Option; (iii) the option price shall be the Fair
Market Value on the Date of Grant; (iv) the Replacement Option shall be
exercisable no earlier than two years after the Date of Grant; (v) the Option
term will not extend beyond the term of the Original Option; and (vi) the
Replacement Option shall be a Nonqualified Option.
7.5 Forfeiture of Replacement Option. Any Replacement Option granted pursuant to
Section 7.4 shall be forfeited by the Holder and become null and void if the
Holder shall sell or otherwise dispose of the shares acquired upon the exercise
of the applicable Original Option within two years of the date they were
purchased; provided, however, that for this purpose transfers that are not
Disqualifying Dispositions shall not be considered sales or dispositions for the
purpose of this Section.
7.6 Share Withholding. Each Agreement shall require that a Holder pay to the
Company, at the time of exercise of a Nonqualified Option, such amount as the
Company deems necessary to satisfy the Company's obligation to withhold federal
or state income or other taxes incurred by
-9-
<PAGE>
reason of the exercise or the transfer of Shares thereupon. A Holder may satisfy
such withholding requirements by having the Company withhold from the number of
Shares otherwise issuable upon exercise of the Option that number of shares
having an aggregate Fair Market Value on the date of exercise equal to the
minimum amount required by law to be withheld; provided, however, that in the
case of an exercise by a Holder subject to Section 16(b) of the Exchange Act,
such withholding must be approved by the Committee before execution thereof.
ARTICLE VIII
EVENTS AFFECTING PLAN RESERVE OR OUTSTANDING OPTIONS
8.1 Capital Adjustments. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock dividend,
stock split, reclassification or otherwise) or combines its outstanding shares
of Common Stock into a smaller number of shares of Common Stock (by reverse
stock split, reclassification or otherwise), or the Committee determines that
any stock dividend, extraordinary cash dividend, reclassification,
recapitalization, reorganization, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock, or other similar
corporate event (including mergers or consolidations) affects the Common Stock
such that an adjustment is required in order to preserve the benefits or
potential benefits intended to be made available under this Plan, then the
Committee shall, in such manner as it may deem equitable and appropriate, make
such adjustments to any or all of (i) the number of shares of Common Stock which
thereafter may be optioned by the Plan, (ii) the number of shares subject to
outstanding Options, and (iii) the exercise price with respect to the foregoing,
provided, however, that the number of shares subject to any Options shall always
be a whole number. The Committee may provide for a cash payment to any Holder of
an Option in connection with any adjustment made pursuant to this Section 8.1.
Any such adjustment to an Option shall be made without a change to the total
exercise price applicable to the unexercised portion of the Option (except for
any change in the aggregate price resulting from rounding-off of share
quantities or prices), and shall be final and binding upon all Holders, the
Company, their representatives, and all other interested persons.
In the event of a transaction involving (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company is not the
surviving company or (iii) the sale or disposition of all or substantially all
of the Company's assets, provision shall be made in connection with such
transaction for the assumption of Options theretofore granted under the Plan, or
the substitution for such Options of new options of the successor corporation,
with appropriate adjustment as to the number and kind of Shares and the purchase
price for Shares thereunder, or, in the discretion of the Committee, the Plan
and the Options issued hereunder shall terminate on the effective date of such
transaction if appropriate provision is made for payment to the Holder of an
amount in cash equal to the Fair Market Value of a Share multiplied by the
number of Shares subject to the Options (to the extent such Options have not
been exercised) less the exercise price for such Options (to the extent such
Options have not been exercised); provided, however, that if the Board desires
to have a transaction described in clause (ii) or (iii) above treated as a
pooling of interests under generally accepted accounting principles, the
Committee shall not take any action or make any determination under this Article
VIII which would prevent such treatment.
8.2 Death, Disability or Retirement. If a Holder who is an Employee or a
director of the Company ceases to be an Employee or a director of the Company by
reason of death, or solely in the
-10-
<PAGE>
case of an Employee, Disability, Retirement or death within three months after
ceasing to be an Employee because of Disability or Retirement, then
notwithstanding any contrary waiting period, installment period or vesting
schedule in any Agreement or in the Plan, unless the applicable Agreement
provides otherwise, each outstanding Option granted under the Plan to such
Holder shall immediately become vested and exercisable in full in respect of the
aggregate number of shares covered thereby. Each such Option may be exercised by
the Holder, his estate or beneficiary, or his representative, as the case may
be, for a period of (i) one year from the date of death; (ii) six months from a
Termination on account of Disability; or (iii) three months from a Termination
on account of Retirement, as the case may be. In no event, however, shall an
Option remain exercisable beyond the latest date on which it could have been
exercised without regard to this Section 8.2.
8.3 Other Termination of Service. If a Holder who is an Employee or a director
ceases to be an Employee or a director for any reason other than death,
Disability, or Retirement, or if there is a termination of the relationship in
respect of which a consultant or advisor was granted an Option hereunder, except
as otherwise determined by the Committee, all Options held by the Holder that
were not vested and exercisable immediately prior to such termination shall
become null and void at the time of the termination. Any Options that were
exercisable immediately prior to the termination will continue to be exercisable
for a period of (i) three months in the case of voluntary resignation; and (ii)
six months in the case of involuntary dismissal (or such shorter or longer
period as the Committee may determine), and shall thereupon terminate. Any
termination by the Company for Cause will be treated in accordance with the
provisions of Section 8.4. In no event, however, shall an Option remain
exercisable beyond the latest date on which it could have been exercised without
regard to this Section 8.3.
8.4 Termination by Company for Cause. If a Holder's employment or service
relationship with the Company or a Subsidiary shall be terminated by the Company
or such Subsidiary for Cause prior to the exercise of any Option, then all
Options held by such Holder, whether or not then vested or exercisable, shall
immediately terminate. For these purposes, Cause shall have the meaning ascribed
thereto in any employment agreement to which such Holder is a party or, in the
absence thereof, shall include but not be limited to, insubordination,
dishonesty, other misconduct of any kind and the refusal to perform his duties
and responsibilities for any reason other than illness or incapacity.
8.5 Leave of Absence. The Committee may determine whether any given leave of
absence constitutes a termination of employment; provided, however, that for
purposes of the Plan (i) a leave of absence, duly authorized in writing by the
Company for military service or sickness, or for any other purpose approved by
the Company if the period of such leave does not exceed 90 days, and (ii) a
leave of absence in excess of 90 days, duly authorized in writing by the
Company, provided the employee's right to reemployment is guaranteed either by
statute or contract, shall not be deemed a termination of employment. Options
granted under the Plan shall not be affected by any change of employment so long
as the Holder continues to be an employee of the Company or any Subsidiary.
8.6 Change-In-Control. In the event of any Approved Transaction, Board Change or
Control Purchase, notwithstanding any contrary waiting period, installment
period, or vesting schedule in any Agreement or in the Plan, unless the
applicable Agreement provides otherwise, each outstanding Option granted under
the Plan shall become exercisable in full in respect of the aggregate number of
Shares covered thereby.
-11-
<PAGE>
"Approved Transaction" means any transaction in which the Board (or, if approval
of the Board is not required as a matter of law, the stockholders of the
Company) shall approve (i) any merger, consolidation or binding share exchange
of the Company, pursuant to which shares of common stock of the Company would be
changed or converted into or exchanged for cash, securities or other property,
other than any such transaction in which the common stockholders of the Company
immediately prior to such transaction have the same proportionate ownership of
the common stock of, and voting power with respect to, the surviving corporation
immediately after such transaction, (ii) the adoption of any plan or proposal
for the liquidation or dissolution of the Company, or (iii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company.
"Board Change" means, during any period of two consecutive years, individuals
who at the beginning of such period constituted the entire Board cease for any
reason to constitute a majority thereof, unless the election, or the nomination
for election, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
"Control Purchase" means any transaction (or series of related transactions) in
which (i) any person (as such term is defined in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act), corporation or other entity (other than the Company, any
Subsidiary or any employee benefit plan sponsored by the Company or any
Subsidiary) shall purchase any common stock of the Company (or securities
convertible into common stock of the Company) for cash, securities or any other
consideration pursuant to a tender offer or exchange offer, without the prior
consent of the Board, or (ii) any person (as such term is so defined),
corporation or other entity (other than the Company, any Subsidiary, any
employee benefit plan sponsored by the Company or any Subsidiary, or any
Controlling Person (as defined below)) shall become the "beneficial owner" (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the then outstanding securities of the Company
ordinarily having the right to vote in the election of directors, other than in
a transaction (or series of related transactions) approved by the Board. For
purposes of this definition, "Controlling Person" means each of the Chairman of
the Board, the President and each of the directors of the Company as of the
Effective Date of this Plan, and (b) the respective family members, estates and
heirs of each of the persons referred to in clause (a) above and any trust or
other investment vehicle for the primary benefit of any of such persons or their
respective family members or heirs. As used with respect to any person, the term
"family member" means the spouse, parents, siblings and lineal descendants of
such person.
8.7 Recapture of Option Profit. In the case of an Employee who has been granted
an Option and exercised such Option under this Plan, who has terminated
employment, and who has engaged in Harmful Conduct, the Committee may, in its
sole discretion, require such Employee to pay to the Company his Recent Option
Profit. For the purposes of this Section 8.7, "Harmful Conduct" means a breach
in any material respect of an agreement to not reveal confidential information
regarding the business operations of the Company or any Subsidiary, or to
refrain from solicitation of the customers, suppliers or employees of the
Company or any Subsidiary. "Recent Option Profit" means an amount equal to the
excess of (i) the Fair Market Value of the Stock purchased by such individual
through the exercise of Options during the 15-month period commencing 12 months
before the individual's last day of employment and ending three months after the
last day of employment over (ii) the amount paid to exercise such Options.
-12-
<PAGE>
ARTICLE IX
GOVERNMENT REGULATIONS AND REGISTRATION OF SHARES
9.1 General. The Plan, and the grant and exercise of Options thereunder, and the
Company's obligation to sell and deliver stock under such Options, shall be
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any regulatory or governmental agency as may be required.
9.2 Registration of Shares. The obligation of the Company with respect to
Options shall be subject to all applicable laws, rules and regulations and such
approvals by any governmental agencies as may be required, including, without
limitation, the effectiveness of any registration statement required under the
Securities Act of 1933, and the rules and regulations of any securities exchange
or association on which the Common Stock may be listed or quoted. For so long as
the Common Stock of the Company is registered under the Exchange Act, the
Company shall use its reasonable efforts to comply with any legal requirements
(i) to maintain a registration statement in effect under the Securities Act of
1933 with respect to all shares of the applicable series of Common Stock that
may be issued to Holders under the Plan, and (ii) to file in a timely manner all
reports required to be filed by it under the Exchange Act.
9.3 Nonregistered Shares. Unless a registration statement under the Securities
Act and the applicable rules and regulations thereunder is then in effect with
respect to Shares issued upon exercise of any Option, the Company shall require
that the offer and sale of such shares be exempt from the registration
provisions of said Act. In furtherance of such exemption, the Company may
require, as a condition precedent to the exercise of any Option, that the person
exercising the Option give to the Company written representation and
undertaking, satisfactory in form and substance to the Company, that he is
acquiring the Shares for his own account for investment and not with a view to
the distribution or resale thereof and otherwise establish to the Company's
satisfaction that the offer or sale of the Shares issuable upon exercise of the
Option will not constitute or result in any breach or violation of the
Securities Act or any similar state act or statute or any rules or regulations
thereunder. In the event a registration statement under the Securities Act is
not then in effect with respect to the Shares issued upon exercise of an Option,
the Company shall place upon any stock certificate an appropriate legend
referring to the restrictions on disposition under the Act.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Legends. Each certificate evidencing Common Stock obtained through the
exercise of an Option shall bear such legends as the Committee deems necessary
or appropriate to reflect or refer to any terms, conditions or restrictions
applicable to such Shares, including, without limitation, any to the effect that
the Shares represented thereby may not be disposed of unless the Company has
received an opinion of counsel, acceptable to the Company, that such
dispositions will not violate any federal or state securities laws.
10.2 Right of Company to Terminate Employment. Nothing contained in the Plan or
in any Option, and no action of the Company or the Committee with respect
thereto, shall confer or be construed to confer on any Holder any right to
continue in the employ of the Company or any of its Subsidiaries or interfere in
any way with the right of the Company or a Subsidiary to terminate the
employment of the Holder at any time, with or without cause; subject, however,
to the
-13-
<PAGE>
provisions of any employment agreement between the Holder and the Company or any
Subsidiary.
10.3 Designation of Beneficiaries. Each Holder who shall be granted an Option
under the Plan may designate a beneficiary or beneficiaries and may change such
designation from time to time by filing a written designation of beneficiary or
beneficiaries with the Committee on a form to be prescribed by it, provided that
no such designation shall be effective unless so filed prior to the death of
such person.
10.4 Compliance with Other Laws and Regulations. Notwithstanding anything
contained herein to the contrary, the Company shall not be required to sell or
issue shares of Common Stock if the issuance thereof would constitute a
violation by the Company of any provisions of any law or regulation of any
governmental authority or any national securities exchange or other forum in
which shares of Common Stock are traded (including without limitation Section 16
of the Exchange Act); and, as a condition of any sale or issuance of shares of
Common Stock, the Committee may require such agreements or undertakings, if any,
as the Committee may deem necessary or advisable to assure compliance with any
such law or regulation. The Plan, the grant and exercise of Options hereunder,
and the obligation of the Company to sell and deliver shares of Common Stock,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
10.5 Tax Withholding. The Company's obligation to deliver shares of Common Stock
under the Plan shall be subject to applicable federal, state and local tax
withholding requirements. Federal, state and local withholding tax due upon the
exercise of any Option may, in the discretion of the Committee, be paid in
shares of Common Stock already owned by the Holder or through the withholding of
shares otherwise issuable to such Holder, upon such terms and conditions
(including, without limitation, the conditions referenced in Section 6.6) as the
Committee shall determine which shares shall have an aggregate Fair Market Value
equal to the required minimum withholding payment. If the Holder shall fail to
pay, or make arrangements satisfactory to the Committee for the payment to the
Company of all such federal, state and local taxes required to be withheld by
the Company, then the Company shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to such Holder an
amount equal to federal, state or local taxes of any kind required to be
withheld by the Company.
10.6 Separability. It is the intent of the Company that Options granted under
this Plan comply with certain exemptive provisions applicable to persons subject
to Section 16 of the Exchange Act unless otherwise provided herein or in an
Option Agreement, that any ambiguities or inconsistencies in the construction of
this Plan to be interpreted to give effect to such intention, and that if any
provision of this Plan is found not to be consistent with the availability of
exemptions for grants by or dispositions to the Company under Section 16 of the
Exchange Act, such provision shall be null and void to the extent required to
comply with such exemptive provisions.
10.7 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options and the awarding of stock and
cash otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific cases.
<PAGE>
10.8 Exclusion from Pension and Profit-Sharing Computation. By acceptance of an
Option, unless otherwise provided in the applicable Agreement, each Holder shall
be deemed to have agreed that such Option is special incentive compensation that
will not be taken into account, in any manner, as salary, compensation or bonus
in determining the amount of any payment under any pension, retirement or other
employee benefit plan, program or policy of the Company or any Subsidiary. In
addition, each beneficiary of a deceased Holder shall be deemed to have agreed
that such Option will not affect the amount of any life insurance coverage, if
any, provided by the Company on the life of the Holder which is payable to such
beneficiary under any life insurance plan covering employees of the Company or
any Subsidiary.
10.9 Governing Law. The Plan shall be governed by, and construed in accordance
with, the laws of the State of New Jersey.
10.10 Company's Rights. The grant of Options pursuant to the Plan shall not
affect in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
10.11 Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant
to Options granted under this Plan shall constitute general funds of the
Company.
10.12 Rights of First Refusal. The Agreements may contain such provisions as the
Committee shall determine to the effect that if a Holder elects to sell all or
any shares of Common Stock that such Holder acquired upon the exercise of an
Option granted under the Plan, then such Holder shall not sell such shares
unless such Holder shall have first offered in writing to sell such shares to
the Company at Fair Market Value on a date specified in such offer (which date
shall be at least three business days and not more than ten business days
following the date of such offer). In any such event, certificates representing
shares issued upon exercise of Options shall bear a restrictive legend to the
effect that transferability of such shares are subject to the restrictions
contained in the Plan and the applicable Agreement and the Company may cause the
transfer agent for the Common Stock to place a stop transfer order with respect
to such shares.
ARTICLE XI
TERMINATION AND AMENDMENT
11.1 General. Unless the Plan shall theretofore have been terminated as
hereinafter provided, no Options may be granted under the Plan on or after the
tenth anniversary of the Effective Date. The Board or the Committee may at any
time prior to the tenth anniversary of the Effective Date terminate the Plan,
and may, from time to time, suspend or discontinue the Plan or modify or amend
the Plan in such respects as it shall deem advisable; except that no such
modification or amendment shall be effective prior to approval by the Company's
stockholders to the extent such approval is required by applicable legal
requirements.
11.2 Modification. No termination, modification or amendment of the Plan may,
without the consent of the person to whom any Option shall theretofore have been
granted, adversely affect the rights of such person with respect to such Option.
No modification, extension, renewal or other change in any Option granted under
the Plan shall be made after the grant of such Option, unless the same is
consistent with the provisions of the Plan. With the consent of the Holder and
subject to the terms and conditions of the Plan, the Committee may amend
outstanding
-15-
<PAGE>
Agreements with any Holder, including, without limitation, any amendment which
would (i) accelerate the time or times at which the Option may be exercised
and/or (ii) extend the scheduled expiration date of the Option. The Committee
may, subject to the approval of the Shareholders, and solely with the Holder's
consent unless otherwise provided in the Agreement, agree to cancel any Option
under the Plan and issue a new Option in substitution therefore, provided that
the Option so substituted shall satisfy all of the requirements of the Plan as
of the date such new Option is made. Nothing contained in the foregoing
provisions of this Section 11.2 shall be construed to prevent the Committee from
providing in any Agreement that the rights of the Holder with respect to the
Option evidenced thereby shall be subject to such rules and regulations as the
Committee may, subject to the express provisions of the Plan, adopt from time to
time, or impair the enforceability of any such provision.
Exhibit 10.114
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
This First Amendment to Registration Rights Agreement is made and entered
into as of March 11, 1999 by and among ECOSCIENCE CORPORATION (the "Company"), a
Delaware corporation and Cogentrix Delaware Holdings, Inc., a Delaware
corporation ("CDH").
WHEREAS, the Company and CDH have entered into a Registration Rights
Agreement dated as of December 30, 1998 (the "Registration Rights Agreement");
WHEREAS, the Company and CDH with to amend certain provisions of the
Registration Rights Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Amendment of Agreement. The references to the date "March 16, 1999"
contained in Sections 2(a), 2(c) and 2(e)(i) of the Registration Rights
Agreement are hereby deleted and replaced with the date "June 15, 1999."
2. Representation of CDH. CDH hereby represents that it is the sole owner of
the Shares (as defined in the Registration Rights Agreement) and it has not
transferred or assigned any of such Shares or its rights under the
Registration Rights Agreement to any other party.
IN WITNESS WHEREOF, the parties have executed and delivered this First
Amendment to Registration Rights Agreement as of the date first above written.
ECOSCIENCE CORPORATION
By:________________________________________
Name:
Title:
COGENTRIX DELAWARE HOLDINGS, INC.
By:________________________________________
Name:
Title:
Exhibit 10.115
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT ("Agreement") dated as of March 15, 1999, is made by
and between COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation, having
its principal place of business at 1105 North Market Street, Suite 1108,
Wilmington, DE 19801 ("Seller"), and ECOSCIENCE CORPORATION, a Delaware
corporation, having its principal place of business at 10 Alvin Court, East
Brunswick, New Jersey 08816 (the "Purchaser").
WHEREAS, Seller and Purchaser have entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") dated as of December 7, 1998 pursuant to which (i)
Purchaser has executed a promissory note in favor of Seller (the "Note") under
the terms of which Purchaser has agreed to pay to Seller the principal sum of
TWENTY MILLION, SIX HUNDRED THOUSAND AND NO/00 Dollars ($20,600,000.00),
together with interest on such principal sum at eleven and one-quarter percent
(11.25%) per annum as set forth therein, on March 15, 1999 and (ii) Seller has
sold to Purchaser all of the outstanding shares of common stock (the "Shares")
of COGENTRIX OF BUFFALO, INC. ("CBI"), COGENTRIX OF FORT DAVIS I, INC., ("CFDI")
COGENTRIX GREENHOUSE INVESTMENTS, INC., ("CGI"), COGENTRIX OF MARFA, INC.,
("CMA") AND COGENTRIX OF POCONO INC. ("CPI"), each a Delaware corporation (each
of CBI, CFDI, CGI, CMI and CDI are referred to herein as a "Company" and
collectively as the "Companies").
WHEREAS, Purchaser desires to extend the date on which the principal amount of
the Note is due and payable and Seller is willing to so extend such payment date
on the terms and conditions set forth herein.
WHEREAS, capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
1. Extension of Note. On the Effective Date, the date for payment in one
installment of the principal together with all interest accrued on the
Note shall be extended from March 15, 1999 to June 30, 1999. Such
extension shall be evidenced by the execution and delivery by Seller
of an Allonge to Promissory Note (the "Allonge") in the form of
Exhibit A hereto; provided, that the failure of Seller to attach the
Allonge to the Note shall not affect the validity of the extension of
time for payment provided for herein.
2. Consideration for Extension. In consideration of the extension of the
time for payment of the Note, Purchaser shall pay to Seller an
extension fee in the amount of $1,000,000.00, such amount to be paid
to Seller through the
-1-
<PAGE>
issuance by Purchaser to Seller of a promissory note, (the "Extension
Note") in the form of Exhibit B hereto.
3. Effective Date. The "Effective Date" shall be the last date which each
of the following conditions shall have been satisfied or waived by the
Seller:
(i) Purchaser shall have delivered to Seller (A) the Extension Note,
(B) an executed counterpart of the Allonge and (C) an executed
counterpart of the Amendment to Stock Pledge Agreement (the
"Pledge Amendment") in the form of Exhibit C hereto.
(ii) Each of the representations of the Purchaser made in this
Agreement shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made as of such
time and Purchaser shall have performed each and every covenant
contained in this Agreement required to be performed by Purchaser
by the Effective Date.
4. Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Seller as follows:
(i) Organization and Authority of the Purchaser. The Purchaser
is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and
has all necessary corporate power and authority to enter
into this Agreement, the Pledge Amendment and the Allonge
and to issue the Extension Note, to carry out its
obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution
and delivery of this Agreement, the Pledge Amendment and the
Allonge and the issuance of the Extension Note by the
Purchaser, the performance by the Purchaser of its
obligations hereunder and thereunder and the consummation by
the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action on
the part of the Purchaser. This Agreement, the Pledge
Amendment, the Allonge and the Extension Note have been duly
executed and delivered by the Purchaser, and (assuming due
authorization, execution and delivery by the Seller) each of
this Agreement, the Pledge Amendment, the Allonge and the
Extension Note constitutes a valid and binding obligation of
the Purchaser enforceable against the Purchaser in
accordance with its terms.
(ii) No Conflict. Except as may result from any facts or
circumstances relating solely to the Seller, the execution,
-2-
<PAGE>
delivery and performance of this Agreement, the Pledge
Amendment and the Allonge and the issuance of the Extension
Note by the Purchaser do not and will not (a) violate,
conflict with or result in the breach of any provision of
the Certificate of Incorporation or By-laws of the
Purchaser, (b) conflict with or violate any law or
governmental order applicable to the Purchaser or (c)
conflict with, or result in any breach of, constitute a
default (or event which with the giving of notice or lapse
or time, or both, would become a default) under, require any
consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation, or
cancellation of, or result in the creation of any
encumbrance on any of the assets or properties of the
Purchaser pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to
which the Purchaser is a party or by which any of such
assets or properties are bound or affected which would have
a material adverse effect on the ability of the Purchaser to
consummate the transactions contemplated by this Agreement.
(iii) Governmental Consents and Approvals. The execution, delivery
and performance of this Agreement, the Pledge Amendment and
the Allonge and the issuance of the Extension Note by the
Purchaser do not and will not require any consent, approval,
authorization or other order of, action by, filing with, or
notification to, any governmental authority.
5. Miscellaneous.
(i) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the
same agreement, it being understood that all parties need
not sign the same counterpart.
(ii) Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the Pledge Amendment (including the documents
and instruments referred to herein and therein) (i)
constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral,
between Seller and Purchaser with respect to the subject
matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto any rights or remedies
hereunder.
-3-
<PAGE>
(iii) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA.
6. Mandatory Prepayments. If an Event of Default under the Stock Pledge
occurs, the principal and all accrued and unpaid interest on the
Extension Note shall without further act become immediately due and
payable in full.
The following shall constitute "Prepayment Events"; (i) Purchaser or
any of its subsidiaries shall incur any indebtedness for borrowed
money, (other than under their respective working capital facilities
(a "Debt Event"), (ii) Purchaser or any of its Subsidiaries shall
issue any capital stock for cash (a "Stock Event"), or (iii) Purchaser
or any of its Subsidiaries, shall sell any asset, other than in the
ordinary course of business (an "Asset Sale"). "Net Proceeds" shall
mean (i) in the case of a Debt Event, all cash loan proceeds, less
reasonable transactions expenses, (ii) in the case of a Stock Event,
all cash proceeds, less reasonable transaction expenses and (iii) in
the case of an Asset Sale, all net cash proceeds, after payment of
reasonable transactions expenses and indebtedness required to be
repaid by any lien attached to the related asset, and, only in the
case of a sale of the Pocono facility, the payment of indebtedness to
Agro Power Development, Inc. related to the Pocono facility.
"Available Net Proceeds" shall mean the excess of Net Proceeds over
the amounts utilized to prepay the Note from Net Proceeds as required
by Section 10 of the Stock Purchase Agreement.
On the day that a Prepayment Event occurs, Purchaser shall pay over to
Seller as a prepayment on the Extension Note, the lesser of the
Available Net Proceeds related to such Prepayment Event and the
principal and interest the outstanding on the Extension Note. Amounts
received by Seller shall be applied first against accrued interest and
the balance against the remaining principal outstanding. If any such
payment shall be sufficient to pay the Extension Note in full, Seller
shall on receipt of such payment, mark the Extension Note as cancelled
and return the same to Purchaser. If such payment is not sufficient to
pay the Extension Note in full, Seller shall, on receipt of a new
Extension Note, in the form of Exhibit B in a principal amount equal
to the outstanding principal after such payment, surrender to
Purchaser the Extension Note then held by Seller.
-4-
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have each caused this Agreement to be
duly executed as of the date first written above.
PURCHASER:
ECOSCIENCE CORPORATION
By:_______________________________
Name: J. Kevin Cobb
Title: Senior Vice President
SELLER:
COGENTRIX DELAWARE HOLDINGS,
INC.
By:_______________________________
Name: Thomas F. Schwartz
Title: Senior Vice President -
Finance and
Exhibit 10.116
ALLONGE
TO
PROMISSORY NOTE
ALLONGE to PROMISSORY NOTE ("Note"), dated December 30, 1998, of ECOSCIENCE
CORPORATION, a Delaware corporation, having its principal place of business at
10 Alvin Court, East Brunswick, New Jersey 08816 (the "Maker"), payable to the
order of COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation, having its
principal place of business at 1105 North Market Street, Suite 1108, Wilmington,
DE 19801 (together with his successors and assigns, the "Holder).
The date for payment in one installment of the principal together with all
interest accrued on the Note is extended from March 15, 1999 to June 30, 1999.
COGENTRIX DELAWARE HOLDINGS,
INC.
By:_______________________________________
Name: Thomas F. Schwartz
Title: Senior Vice President - Finance and
Treasurer
ECOSCIENCE CORPORATION
By:
Name: J. Kevin Cobb
Title: Senior Vice President
Exhibit 10.117
PROMISSORY NOTE
$1,000,000.00 March 15, 1999
FOR VALUE RECEIVED, the undersigned, ECOSCIENCE CORPORATION, a Delaware
corporation, having its principal place of business at 10 Alvin Court, East
Brunswick, New Jersey 08816 (collectively, the "Maker"), hereby promises to pay
to the order of COGENTRIX DELAWARE HOLDINGS, INC., a Delaware corporation,
having its principal place of business at 1105 North Market Street, Suite 1108,
Wilmington, DE 19801 (together with his successors and assigns, the "Holder),
the principal sum of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00), together
with interest at eleven and a quarter percent (11.25%) per annum, in one
installment payable on the 30th day of June, 1999.
If (i) there should be a default in the payment of interest or principal
due hereunder or (ii) the Maker or any other person liable hereon should make an
assignment for the benefit of creditors or (iii) attachment or garnishment
proceedings are commenced against the Maker or any other person liable hereon,
or (iv) a receiver, trustee or liquidator is appointed over or execution levied
upon any property of the Maker or (v) proceedings are instituted by or against
the Maker or any other person liable hereon under any bankruptcy, insolvency,
reorganization or other law relating to the relief of debtors, including without
limitation the United States Bankruptcy Code, as amended, or (vii) the Maker
makes any misrepresentation or breaches any warranties made to the Holder in
connection with any loans extended by the Holder to the Maker, then, and in each
such event, the Holder may, at its option, without notice or demand, declare the
remaining unpaid principal balance of this Promissory Note and all accrued
interest thereon immediately due and payable in full.
Any amount hereunder which is not paid when due, whether at stated
maturity, by acceleration or otherwise, shall bear interest from the date when
due until paid at the lesser of (a) the foregoing rate per annum plus four
percentage points or (b) the maximum rate permitted by law, said interest to be
compounded annually and computed on the basis of a 360-day year consisting of
twelve 30 day months.
All payments made hereunder shall be made in lawful currency of the United
States of American to Wilmington Trust Company, Wilmington, Delaware, ABA
Routing Number 031-100-092, Account of Cogentrix Delaware Holdings, Inc.,
Account Number 32561-4, Attn: Christopher Monigle, or at such other place as the
Holder may designate in writing. All payments made hereunder, whether a
scheduled payment, prepayment, or payments as a result of acceleration, shall be
allocated first to accrued but unpaid interest, and then to payments of
principal remaining outstanding hereunder.
Maker agrees to pay all reasonable costs of collection, including
attorneys' fees paid or incurred by the Holder in enforcing this Promissory Note
on default or the rights and remedies herein provided.
<PAGE>
This Promissory Note is made pursuant to the provisions of the Extension
Agreement (the "Extension Agreement") dated as of March 15, 1999, between the
Maker and the Holder. This Promissory Note is secured by a Stock Pledge
Agreement dated as of December 30, 1998, as amended, between the Maker and the
Holder. This Promissory Note is subject to mandatory prepayment, in whole or in
part, as provided in the Extension Agreement. The Maker may prepay this
Promissory Note in whole or in part without premium or penalty.
The Maker, for itself and for any guarantors, sureties, endorsers and/or
any other person or persons now or hereafter liable hereon, if any, hereby
waives demand of payment, presentment for payment, protest, notice of nonpayment
or dishonor and any and all other notices and demands whatsoever, and any and
all delays or lack of diligence in the collection hereof, and expressly consents
and agrees to any and all extensions or postponements of the time of payment
hereof from time to time at or after maturity and any other indulgence and
waives all notice thereof.
This Promissory Note shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned has duly caused this Promissory Note to
be executed and delivered as of the date first written above.
ECOSCIENCE CORPORATION
By:_________________________________
Name: J. Kevin Cobb
Title: Senior Vice President
Exhibit 10.118
AMENDMENT TO STOCK PLEDGE AGREEMENT
THIS AMENDMENT TO STOCK PLEDGE AGREEMENT (the "Amendment") dated as of
March 15, 1999, amends the STOCK PLEDGE AGREEMENT (the "Agreement"), dated as of
December 30, 1998, made by ECOSCIENCE CORPORATION, a Delaware corporation,
having its principal place of business at 10 Alvin Court, East Brunswick, New
Jersey 08816 (the "Pledgor"), to COGENTRIX DELAWARE HOLDINGS, INC., a Delaware
corporation, having its principal place of business at 1105 North Market Street,
Suite 1108, Wilmington, DE 19801 ("Pledgee").
WHEREAS, Pledgor and Pledgee have entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement") dated as of December 7, 1998 pursuant to which
(i) Pledgor has executed a promissory note in favor of Pledgee (the "Note")
under the terms of which Pledgor has agreed to pay to Pledgee the principal sum
of TWENTY MILLION, SIX HUNDRED THOUSAND AND NO/00 Dollars ($20,600,000.00),
together with interest on such principal sum at eleven and one-quarter percent
(11.25%) per annum as set forth therein, on March 15, 1999 and (ii) Pledgor and
Pledgee have entered into an Extension Agreement (the "Extension Agreement"),
dated of even date herewith, pursuant to which Pledgee has agreed, subject to
the terms and conditions thereof, to extend the date of payment under the Note
to June 30, 1999 and in consideration of such extension Pledgor has executed a
promissory note in favor of Pledgee (the "Extension Note") under the terms of
which Pledgor has agreed to pay to Pledgee the principal sum of ONE MILLION AND
NO/00 Dollars ($1,000,000.00), together with interest on such principal sum at
eleven and one-quarter percent (11.25%) per annum as set forth therein, on June,
30,1999.
WHEREAS, it is a condition to the effectiveness of the Extension Agreement
that Pledgor enter into this Amendment to, among other things, add the Pledgor's
obligations under the Extension Note to the obligations secured by the
Agreement.
WHEREAS, capitalized terms used herein and not defined herein shall have
the meanings set forth in the Agreement.
NOW, THEREFORE, in consideration of the benefits accruing to Pledgor under
the Extension Agreement, and in order to induce Pledgee to enter into the
Extension Agreement, Pledgor hereby agrees as follows:
1. Amendment to Agreement. The Agreement is hereby amended as follows:
(i) The definition of "Documents" in the second recital is restated
in its entirety to read "The Stock Purchase Agreement, the Rights
Agreement, the Note and the Extension Note are referred to herein
collectively as the "Documents";
(ii) The reference to "Note" in Section 5.1(a) is replaced with the
words "Note or Extension Note";
<PAGE>
(iii) The reference to "Note" in Section 19 is replaced with the words
"Note and Extension Note";
(iv) There is added to Section 5.1 a new clause (f) to read in its
entirety "With respect to any indebtedness in excess of $100,000
of Pledgor, any Company or other direct or indirect subsidiary of
Pledgor (other than Pocono Village Farms, L.P., but including
Village Farms of Buffalo, L.P., Village Farms of Texas, L.P. and
Village Farms of Marfa, L.P). any such indebtedness (or any
portion thereof) shall be declared due and payable or shall be
required to be prepaid (other than by a regularly scheduled
payment), prior to the stated maturity thereof or in the case of
a revolving credit commitment, such commitment is terminated
prior to the stated termination date for such commitment; and
(v) There is added to the end Section 16 the following sentence:
"Pledgor shall give Pledgee prompt notice of the occurrence of
any Event of Default hereunder"
2. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument.
3. GOVERNING LAW THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA.
4. Entire Agreement. This Amendment and the Extension Agreement
(including the documents and instruments referred to herein and
therein) constitutes the entire contract between the parties relative
to the subject matter hereof. Any previous agreement among the parties
with respect to the subject matter hereof is superseded by this
Amendment and the Extension Agreement. The parties confirm that,
except as amended hereby, the Agreement remains in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, Pledgor and Pledgee have executed, or caused to be executed
by their duly authorized officers, this Amendment as an instrument under seal as
of the date first above written.
PLEDGEE:
COGENTRIX DELAWARE HOLDINGS,
INC.
By:_______________________________
Name: Thomas F. Schwartz
Title: Senior Vice President - Finance
and Treasurer
PLEDGOR:
ECOSCIENCE CORPORATION
By:_______________________________
Name: J. Kevin Cobb
Title: Senior Vice President
EXHIBIT 21
SUBSIDIARIES
Company State of Incorporation/Organization
------- -----------------------------------
Agro Dynamics Canada, Inc. Canada
Agro Dynamics, Inc. Delaware
Agro Power Development, Inc. Delaware
Cogentrix Greenhouse Investments, Inc. Delaware
Cogentrix of Buffalo, Inc. Delaware
Cogentrix of Fort Davis I, Inc. Delaware
Cogentrix of Marfa, Inc. Delaware
Cogentrix of Pocono, Inc. Delaware
EcoScience Produce Systems Corp. Delaware
Keystone Village Farms, LLC Delaware
New Amsterdam Joint Venture, LLC Delaware
New Amsterdam Management, Co. Delaware*
Pocono Village Farms, LP Delaware
Village Farms International Finance Association Delaware
Village Farms Mediterranean, Inc. Delaware
Village Farms of Buffalo, LP Delaware
Village Farms of Colorado, Inc. Delaware
Village Farms of Delaware, LLC Delaware
Village Farms of Marfa, LP Delaware
Village Farms of Texas, LP Delaware
Village Farms of Virginia, Inc. Delaware
Village Farms of Wheatfield, LLC Delaware
Village Farms fo Presidio, LP**
Village Farms, Inc. Delaware
Village Farms, LLC Delaware
Village Farms of Morocco, S.A. Morocco**
* 86% owned
** 50% owned
EXHIBIT 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 2, 1999 included in this Form 10-K, into
EcoScience Corporation's previously filed Registration Statement File Numbers
33-55206, and 333-25341.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of January 3, 1999 and Consolidated Statement of
Operations for the Transition Period then Ended and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jan-3-1999
<PERIOD-END> Jan-3-1999
<CASH> $1,095
<SECURITIES> 127
<RECEIVABLES> 7,271
<ALLOWANCES> 551
<INVENTORY> 9,209
<CURRENT-ASSETS> 20,825
<PP&E> 65,200
<DEPRECIATION> 5,525
<TOTAL-ASSETS> 101,864
<CURRENT-LIABILITIES> 103,486
<BONDS> 780
0
0
<COMMON> 126
<OTHER-SE> (5,220)
<TOTAL-LIABILITY-AND-EQUITY> 101,864
<SALES> 26,194
<TOTAL-REVENUES> 26,194
<CGS> 25,237
<TOTAL-COSTS> 25,237
<OTHER-EXPENSES> 8,546
<LOSS-PROVISION> 483
<INTEREST-EXPENSE> 2,928
<INCOME-PRETAX> (8,420)
<INCOME-TAX> 67
<INCOME-CONTINUING> (8,487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,487)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
