UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, FOR THE FISCAL YEAR ENDED JANUARY 2, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______.
Commission File No.
0-19746
ECOSCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2912632
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10 ALVIN COURT, EAST BRUNSWICK, NEW JERSEY 08816
(Address of principal executive offices)
(732) 432-8200
(Registrant's telephone number, including area code)
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 on the OTC
Bulletin Board) of voting shares held by non-affiliates of the registrant as of
March 28, 2000 was $1,857,826.
As of March 28, 2000, 12,887,882 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 June 1, 2000.
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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. Factors that might cause such differences include the Company's
risks and uncertainties related to the Company's future profitability, ability
to meet its capital needs, government regulation, continued cooperation of the
Company's creditors, competition, market acceptance, Year 2000 compliance and
other factors including 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 high quality
greenhouse grown tomatoes using advanced, sophisticated technology that is
considered environmentally friendly. In addition, The Company develops, markets,
and distributes biological and agricultural products.
The Company's primary products are (i) premium greenhouse grown tomatoes which
it sells to retail supermarkets and fresh food distribution companies, (ii)
advanced growing systems based on Stonewool(R), manufactured by Grodania A/S
("Grodan"), (iii) computerized environmental and irrigation control systems
manufactured by H. Hoogendoorn Automation B.V., (iv) BioSave PostHarvest
BioProtectant line of products and (v) Bio-Blast(R) Biological Termiticide.
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. APD operates sophisticated, highly intensive agricultural greenhouse
projects and markets and sells the premium tomatoes produced in 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 1999 and 1998, APD sold approximately 54.9 and 47.8 million pounds
of tomatoes grown at APD greenhouses, and sold an additional 3.1 and 4.3 million
pounds of tomatoes, respectively pursuant to marketing arrangements with third
party producers.
The Company serves the biological and agricultural product markets primarily
through three subsidiaries: Agro Dynamics, Inc. ("ADI"), Agro Dynamics Canada
Inc. (collectively, "AGRO") and EcoScience Produce Systems Corp. ("EPSC"). On
November 8, 1999, the Company sold substantially all of the assets of EPSC,
excluding EPSC's BioSave(R)("BioSave") biofungicide products and technology, to
Pace International LLC ("PACE"). See "Recent Developments--Sale of Assets of
EPSC." In March 2000, ADI formed a joint venture company with Grodania A/S (the
"Joint Venture") to conduct the business previously conducted by ADI. See
"Recent Developments - Formation of Joint Venture."
The Company 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.
In February 1999, the Company sold its postharvest equipment distribution
business, which was engaged primarily in the sale of sorting, grading and
packing systems manufactured by Aweta, B.V., to Autoline, 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 shares of Common Stock issued to the stockholders of APDNY
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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 Company and APDNY combined to form an integrated, environmentally focused,
consumer products agribusiness, 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.
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 13 to the Company's Consolidated Financial Statements. Financial
information segregated by major geographic area (United States and Canada) is
set forth in Note 13 to the Company's Consolidated Financial Statements.
Dollar amounts contained in this report are presented in thousands (except share
data). References contained herein to "the transition 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
FORMATION OF JOINT VENTURE. In January 2000, the Company, through ADI, entered
into a joint venture agreement with Grodan, a wholly owned subsidiary of
Rockwool International A/S, pursuant to which it formed Agro-Dan, Inc., a
Delaware corporation, in which ADI owns a 51% interest and Grodan owns a 49%
interest. In March 2000, ADI contributed substantially all of its assets and
liabilities to the Joint Venture and Grodan assigned to ADI its right to collect
approximately $3 million under the distribution agreement with ADI and
contributed approximately $83 in cash to the Joint Venture. Grodan and the Joint
Venture have entered into a new distribution agreement which has a five year
term expiring on December 31, 2004, subject to automatic five year extensions
unless either party elects to terminate the agreement upon six months prior
written notice. ADI and Grodan have entered into a stockholders agreement which
provides that each stockholder has the right to designate 50% of the Joint
Venture's Board of Directors, subject to adjustment if their respective
ownership interests in the Joint Venture change. Actions by stockholders require
the approval of 52% of the outstanding shares of the Joint Venture. Each
stockholder must offer its shares in the Joint Venture to the other stockholder
if it wishes to sell its shares.
CORPORATE RESTRUCTURING. Effective January 2, 2000, and as part of the Company's
financial restructuring and its continuing efforts to consolidate and streamline
operations, the following subsidiary entities were merged into a new entity,
Village Farms, L.P.: Village Farms of Virginia, Inc., Village Farms of Texas,
L.P., Village Farms of Marfa, L.P., Village Farms of Presidio, L.P., Village
Farms of Buffalo, L.P., Keystone Village Farms, L.L.C, Village Farms of
Colorado, Inc., Village Farms, Inc. and Village Farms Mediterranean, Inc.
DEBT RESTRUCTURING. Effective January 2, 2000, the Company restructured an
existing $58,900 term facility with CoBank, ACB ("CoBank") and closed on a new
$13,400 working capital line of credit which was funded in 1999. The maturity
date of the term facility is July 31, 2001, with a two-year extension under
certain conditions. The line of credit will mature July 31, 2000 with an option
to request a one-year extension. The interest rate is the CoBank National
Variable Rate plus 2%. Principal under the term facility will be payable
quarterly in the amount of $5,000 per year and an additional $5,000 payment is
due no later than March 31, 2000. Interest payments on both the term facility
and the working capital line have been deferred until March 31, 2000. On March
31, 2000, the Company made a $2,500 principal payment which did not satisfy the
required principal and interest payments due CoBank on March 31, 2000 and
accordingly is in violation of the Loan Agreement. The Company is seeking a
waiver from CoBank but no assurance can be given that CoBank will grant same.
On January 2, 2000 the Company completed a restructuring of its indebtedness to
Cogentrix Delaware Holdings, Inc. ("Cogentrix"). Cogentrix exchanged, at
approximately a $9,000 discount, $21,600 of notes plus all accrued and unpaid
interest thereon and a promissory note of APD payable to Cogentrix in the amount
of $894, for a $15,900 subordinated note ("Exchange Note") bearing interest at
5% per year and 333,333 shares of non-voting, no dividend Series A Convertible
Preferred Stock of EcoScience ("Series A"). On each December 31st, commencing on
December 31, 2000, EcoScience is required to prepay the then outstanding
principal and interest of the Exchange Note by an amount which 70% of earnings
before interest, taxes, depreciation and amortization (EBITDA) exceeds $15,000.
Commencing December 1, 2003 EcoScience is required to make an annual principal
payment under the Exchange Note in the amount of $3,180 plus accumulated and
unpaid interest. Commencing on June 1, 2008, all or any portion of shares of the
Series A, at the option of Cogentrix, may be converted into fully paid and
nonassessable shares of Common Stock at a conversion price equal to $5 per
share, subject to adjustment.
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ACQUISITION OF AGRORENT INTEREST IN GREENHOUSES. Effective January 2, 2000, the
Company acquired from the Agrorent group of companies, the remaining 13.75%
minority partnership interest in its Presidio facility, in exchange for 268,604
shares of EcoScience Common Stock. In settlement of certain obligations to the
Agrorent companies, the Company issued $418 aggregate principal amount of
promissory notes which are convertible into shares of EcoScience Common Stock at
a conversion price of $1.12 per share, subject to adjustment under certain
circumstances.
SALE OF ASSETS OF EPSC. In November 1999, the Company sold substantially all of
the assets of EPSC, excluding EPSC's BioSave biofungicide products and
technology, to PACE. The purchase price of the assets was $1,000 plus inventory
book value, as defined. Upon the closing of the transaction, EPSC and PACE
entered into a distribution agreement pursuant to which PACE was granted the
exclusive right to distribute BioSave in the United States for the citrus, pome
fruit and cherry markets.
SALE OF GREENHOUSE. On June 10, 1999 the Company's 12 acre greenhouse facility
in Mount Carmel, Pennsylvania was sold to Mount Carmel Greenhouses, LLC. The
Company received $2,000, of which $731 was used to pay off all debt related to
the facility. The transaction resulted in a gain on sale of $150, which has been
included in other income.
GREENHOUSE TOMATOES
GENERAL
Through APD, the Company operates six greenhouse facilities in the United
States, representing approximately 176 acres of growing capacity. Three of these
facilities, each of which has approximately forty (40) acres of growing
capacity, are among the largest greenhouses in the United States. By producing,
harvesting, packaging and directly marketing most of its products, APD reduces
the need for numerous intermediaries (i.e. repackers, brokers and wholesalers)
utilized by traditional field producers of field grown fresh vegetables.
The Company is committed to delivering to customers and consumers the highest
quality fresh vegetables produced under environmentally friendly conditions
using advanced technology and technical expertise.
THE GREENHOUSE VEGETABLE INDUSTRY
Approximately $7 billion at the retail level, or over 5.5 billion pounds, of
fresh tomatoes were sold in the United States in 1999. According to industry
estimates, greenhouse grown tomatoes (including imports from Canada, Mexico and
Europe) currently represent approximately 11% of the fresh tomatoes sold in the
United States. The Company estimates that there are approximately 900 acres
devoted to greenhouse vegetable production in the United States and
approximately 45% 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.
The ability to control climatic conditions within a greenhouse enables
greenhouse operators to produce tomatoes that are superior to field grown
tomatoes in terms of taste, color, appearance and shelf life. This is
particularly notable during periods when local production is not available. In
many markets, the only fresh tomatoes that are consistently available during
"off season periods" are picked while green and treated with ethylene gas during
shipment from 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.
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. Following the success of the European greenhouse vegetable
industry, greenhouse vegetable production has rapidly expanded in Canada, the
United States, Israel and Morocco over the past ten years.
Because of latitude and light levels that are comparable to the Netherlands,
Canadian greenhouse growers were the first to apply greenhouse vegetable growing
technology in North America and the growth of the Canadian industry preceded the
development of the greenhouse vegetable industry in the United States. Recently,
the rapid growth of Canadian acreage under glass has exceeded the rate of
increase in the market demand, depressing market prices from spring to fall when
Canadian greenhouses are in production.
While the initial large-scale development of the United States greenhouse
vegetable industry was associated with the growth of the energy cogeneration
industry, recent expansion in the United States has occurred in the south
latitudes, where light levels
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are sufficient to produce greenhouse vegetables during the winter when there is
less competition from field grown as well as greenhouse vegetables. The
Company's three facilities in west Texas are the furthest south of any domestic
greenhouse vegetable producers, which provides a solid foundation for off-season
markets.
During 1999, sharply higher industry volumes reduced market prices for
greenhouse grown tomatoes, both for the Company as well as its competitors. The
Company believes that the increased supply has reduced the growth rate of
production capacity in the industry which will allow the growth in market demand
to more efficiently absorb the increased volumes that have depressed prices over
the past eighteen months.
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 United States produced greenhouse grown
produce and (iv) a growing 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 high front-end capital investment. 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 and the technological
innovations it has made to date as an industry leader makes it uniquely and
strategically positioned and qualified to take advantage of promising market
opportunities.
GREENHOUSE OPERATIONS
The Company owns four of the six greenhouse facilities in operation. The other
two facilities are leased. The Company uses inert media culture systems to grow
tomatoes in 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, season 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.
Bumblebees released into the greenhouse naturally pollinate the Company's
tomatoes. Integrated pest management practices using predator insects are
managed to control pests such as white fly.
Two 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 following table provides information with respect to the Company's
greenhouse facilities:
<TABLE>
<CAPTION>
DATE
OPERATIONS
GREENHOUSE FACILITY COMMENCED ACREAGE (1) LOCATION LEASED/OWNED
------------------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Keystone Division 3/1/94 10 Ringgold, PA Leased (2)
Texas Division 12/1/96 40 Fort Davis, TX Owned
Marfa Division 12/1/97 40 Marfa, TX Owned
Buffalo Division 4/1/98 18 Buffalo, NY Owned
Virginia Division 4/1/98 42 King George County, VA Leased (3)
Presidio Division 10/1/98 26 Marfa, TX Owned
--
Total Acreage 176
</TABLE>
(1) Acreage excludes administrative office and packing house operations.
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(2) 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.
(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. The lease, as amended July 19, 1999, permits the
lessor to terminate the lease, effective as of June 30, 2001.
In September 1999, the Company ceased operations at its 12-acre Wheatfield, New
York facility.
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.
Hand picked tomatoes are sorted and weighed using advanced color sorting and
grading equipment coupled with skilled workers to assure each package is packed
to the highest quality standards. The Company's premium beefsteak tomatoes are
packed into single layer 15 pound boxes with 18-52 tomatoes per flat depending
on the size. Each tomato is labeled with a Price Look Up (PLU) sticker 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
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 PLU
stickers, stem tags or in mesh or poly 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 three tomatoes into a plastic tray with a net weight of 14
oz or into a four cell clamshell container with a net weight of 16, 20 or 24 oz.
The 16 oz. clamshell product is marketed under the label Village Farms Baby
Beefs(TM).
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
product quality and production yields and lower the cost of production. 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.
SALES AND DISTRIBUTION OF TOMATO PRODUCTS
APD currently sells approximately 50% of its Village Farms(R) and Home
Choice(TM) brand products to retail supermarket chains and dedicated
wholesalers. The remainder is sold to distributors and food service clients. APD
currently employs 14 sales, marketing and distribution 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. In
1999, the Company aggressively expanded its base of customers beyond its core
markets in the Northeastern United States and Texas to the Midwest, West and
Southeast.
JOINT VENTURE FOR PRODUCTION AND MARKETING PEPPERS
In 1999, the Company entered into a joint venture agreement with RB Packing of
California, Inc. to produce and market Mediterranean style peppers at the
Company's Virginia facility.
BIOLOGICAL AND AGRICULTURAL PRODUCTS BUSINESS
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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) 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 Grodan, 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 sale of products under the distribution agreement with Grodan
accounted for 18%, 18%, 17% and 20% of the Company's total product sales for the
year ended January 2, 2000, the transition period ended January 3, 1999 and the
fiscal years ended June 30, 1998, and 1997, respectively.
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.
Biological Disease Control Products. The fruit and vegetable industry suffers
large economic losses caused by postharvest decay organisms in most agricultural
commodities. Postharvest diseases and damage during harvest, storage and
shipment can account for economic losses ranging from 10%-25% of total annual
production of fruit and vegetables, depending on the crop and the climate. Many
of these pathogens are resistant to the few postharvest chemicals registered and
available. Through EPSC, the Company provides biological disease control
products to the fruit and vegetable industries. The Company's biological control
products consists of its BioSave line of products which is the most widely sold
bioprotectant in the post-harvest fruit and vegetable industry. BioSave products
can effectively manage fungicide resistance under commercial storage conditions.
The Company's BioSave 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. BioSave is a
bacterium that naturally occurs on the surface of many agricultural plants and
effectively prevents decay in cold and controlled atmosphere storage. The
BioSave line of biological disease inhibitors are sold through a distributor in
the United States to the pear, apple, citrus, cherry, and potato markets.
Additionally, BioSave, which is a natural biological product, is currently used
on organically grown fruits and vegetables. The Company has developed and
registered with the United States Environmental Protection Agency ("EPA"),
biological products for sale using naturally occurring microorganisms,
Pseudomonas syringae, which aid in the control of Blue Mold (Penicillium
expansum), Gray Mold (Botrytis cinerea) and Mucor Rot (Mucor pyriformis) on
apples and pears, and Blue Mold (P. italicum), Green Mold (P. digitatum) and
Sour Rot (Geotrichum candidum) on citrus. In 1997, the Company received EPA
registration on cherries for the control of Blue Mold (P. expansum) and Gray
Mold (Botrytis cinerea). In 1999, the Company received EPA registration for the
use of BioSave on seed and storage potatoes. BioSave effectively manages Dry rot
and Silver Scurf, caused by Fusarium and Helminthosporium. The Company continues
to investigate the application of BioSave to control other post harvest diseases
on fruit and vegetables, such as cranberries, bananas, and stone fruit (peaches,
plums and nectarines).
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 has developed a natural fungal product to control termites,
Bio-Blast(R) 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 International Company, L.P. ("Terminix")
and Maruwa Biochemical Co. Ltd. ("Maruwa"). In fiscal 1997, the Company
initiated the United States commercial launch of Bio-Blast in collaboration with
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Paragon Professional Pest Control Products ("Paragon") (formerly Terminix
International Company, L.P.). The Company received patent (5989898) "Method for
Storing Fungal Conidia" on November 23, 1999. The patent covers the United
States and Australia and protects The Company's process of extending the
viability of conidia, thus extending its shelf life.
SALES AND DISTRIBUTION OF BIOLOGICAL AND AGRICULTURAL PRODUCTS
Growing and Control Systems. Historically, the Company sold its growing systems
and automated irrigation and environmental control systems directly through
AGRO. Since the formation of the Joint Venture with Grodan, this activity is now
conducted through the Joint Venture which has a force of 30 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.
Biological Disease Control Products. The Company has entered into a distribution
agreement with PACE which expires March 31, 2001 pursuant to which PACE has been
granted the exclusive rights to distribute BioSave in the United States for the
citrus, pome fruit and cherry markets.
Biological Insect Control. In February 1999, the Company entered into a
Marketing and Distribution Agreement with Paragon pursuant to which Paragon 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 Paragon at a specified price. Paragon 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) replaced the Product Development and
License Agreement between the parties which granted Paragon exclusive rights to
use and distribute Bio-Blast in the United States.
In March 1999, the Company entered into an agreement with Prentiss Incorporated
("Prentiss") pursuant to which 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 which would have expired on
December 31, 1999, has been extended through December 31, 2000, subject to
earlier termination by either party upon 60 days written notice. If The Company
terminates the agreement, it will be obliged to repurchase all of Prentiss'
unsold inventory.
The Company expects to market its Bio-Blast(R) Biological Termiticide
internationally primarily through local and regional distributors and partners.
The Company has entered into a marketing and distribution agreement with 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, would have expired on September 30, 1999, but was renewed by mutual
agreement until December 31, 2000 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.
Production of the Company's biological postharvest fruit disease control
product, BioSave, requires large scale fermentation and formulation capacity.
Currently, a single sub-contractor manufactures the BioSave 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 BioSave product for its commercial sales, the
inability of the sub-contractor to meet the Company's needs for the BioSave
products or a change in supplier could cause a delay in filling orders, as well
as a possible loss of sales, which would adversely affect operating results.
RESEARCH AND DEVELOPMENT
The Company continues to develop new markets for Bio-Blast(R) Biological
Termiticide. Current research at the University of Georgia and studies planned
for the summer of 2000 by the United States Department of Agriculture ("USDA"),
target Bio-Blast for use in monitoring stations for control of termites.
Monitoring stations would greatly extend the markets for Bio-Blast.
The Company has been developing a new freeze-dried formulation of the BioSave
products. In February 2000, the Company submitted to the EPA request for
registration of a new freeze-dried BioSave formulation. This formulation is
easier to use than
8
<PAGE>
the current frozen formulation, and will allow the product to be marketed to
more diverse regions in and outside of the United States. The freeze-dried
formulation is as effective as the frozen formulation.
COMPETITION
The tomato market in which the Company competes is highly competitive. In
addition to other domestic and foreign greenhouse producers, the Company must
compete with United States 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, Mexico, Israel, Spain and the Netherlands.
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.
Currently, no known requests for new bioprotectant post-harvest products have
been submitted for registration with the EPA. The registration process usually
requires a minimum of eighteen months for those submissions that receive
registration.
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 storm water runoff and 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 Food and Drug Administration ("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 ("OSHA");
and the prevalence of foreign 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.
9
<PAGE>
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(R)
Biological 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 OSHA, the National Environmental Policy Act, the
Emergency Planning and Community Right-To-Know Act, the Food Quality Protection
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 United States 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.
The Company 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. BioSave).
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
10
<PAGE>
Company has suspended; however, this technology can be extended to any other
insects that can be controlled via a chamber system. An additional patent
describing further fungal formulation technology was approved on November 23,
1999 for the United States markets.
The Company has been issued two additional United States Patents which relate to
the use of bacteria, chiefly as biofungicides in the treatment of plant fungal
disease.
Provided maintenance fees are paid, United States design patents have a term of
14 years from the date of issue; and United States utility patents that are
based on applications filed before June 8, 1995, and that have not expired as of
June 8, 1995, have a term that is the longer of 20 years from the earliest
effective filing date or 17 years from issuance. In certain instances, however,
the term may be limited to the term of a related patent claiming similar
technology. The Company has an additional patent 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 received 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 March 15, 2000 the Company had approximately 785 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.
PROPERTIES
The Company's corporate headquarters and AGRO's New Jersey operations are
currently located in East Brunswick, New Jersey. The facility consists of 23,000
square feet and is under a lease that expires in May 2000. The Company has
entered into a ten year lease agreement with respect to 20,000 square feet of
office and warehouse space in Eatontown, New Jersey and expects to move its
corporate headquarters to this location in May 2000.
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 also leases a 12,000 square foot facility for its sales,
service and warehouse center in Ventura, California which expires in July 2001.
APD's principal properties consist of its greenhouse facilities in Ringgold,
Pennsylvania; Buffalo, 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. In addition, APD leases 500 square feet of office space in
Naples, Florida.
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.
LEGAL PROCEEDINGS
On February 22, 2000, the Company received notice that a complaint was filed by
Oxbow Power of North Tonowanda, New York, Inc. ("Oxbow") against Village Farms
of Wheatfield, LLC ("VFW") and Agro Power Development, Inc. in the State of
11
<PAGE>
New York Supreme Court in the County of Niagara. In the complaint, the plaintiff
asserted various causes of action including an allegation that VFW breached the
Commercial Greenhouse Lease and Operating Agreement with Oxbow. The plaintiff
seeks $5,950 of damages together with interest and costs of the action. The
Company filed an answer and counterclaim on March 22, 2000. Excluding claims for
past due rental payments of approximately $360, offset by a $320 counterclaim
for assets left at the premises, the Company believes the complaint is without
merit and intends to vigorously defend against the allegations made in the
complaint.
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.
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 2, 2000.
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:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael A. DeGiglio 45 President and Chief Executive Officer
Albert VanZeyst 54 Executive Vice President
Kenneth S. Hollander 34 Senior Vice President and Chief Financial Officer, Treasurer and
Secretary
</TABLE>
Michael A. DeGiglio, age 45, 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 in November 1992, and
served as Chief Executive Officer of AGRO 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
2001 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
2000 Annual Meeting of Stockholders.
Kenneth S. Hollander has been Senior Vice President and Chief Financial Officer
of the Company since June 1999. From June 1996 to May 1999, Mr. Hollander was
Chief Financial Officer of HumaScan Inc., a public medical device company. From
1989 to May 1996, Mr. Hollander was Controller of Sidmak Laboratories, Inc., a
generic pharmaceutical company. From 1987 to 1989, Mr. Hollander was employed by
the accounting firm of Arthur Andersen & Co. He received a B.S. in Business
Administration from Washington University in St. Louis.
12
<PAGE>
PART II
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
Since June 29, 1999, the Company's Common Stock has traded on the OTC Bulletin
Board under the symbol "ECSC". Prior thereto, the Common Stock was traded on the
Nasdaq SmallCap Market. As of March 30, 2000, there were approximately 262
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 March 28, 2000, the reported closing price of
the Common Stock was $0.50 per share.
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 the Nasdaq Stock Market and the OTC Bulletin Board based on
published financial sources.
High Low
---- ---
1999
Fiscal Quarter ended January 2, 2000 $ 7/16 $ 1/8
Fiscal Quarter ended October 3, 1999 1 3/16 13/32
Fiscal Quarter ended July 4, 1999 2 9/16 1/2
Fiscal Quarter ended April 2, 1999 4 7/8 2 9/16
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
On January 2, 2000, the Company issued 268,604 shares of Common Stock in
connection with the acquisition of the minority interest in its Presidio
greenhouse operation, and 333,333 shares of Series A Preferred Stock in
connection with the restructuring of its indebtedness to Cogentrix. Each of
these issuances was made in reliance upon the exemption provided by Section 4(2)
of the Securities Act of 1933 as a transaction not involving any public
offering.
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.
13
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from (i) the
Company's audited consolidated financial statements for the fiscal year ended
January 2, 2000, transition period ended January 3, 1999, for each year in the
four 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.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
Transition Six Months
Year Ended Period Ended Ended
January 2, January 3, December 31,
2000 1999 1997
----------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Net revenues $53,361 $26,194 $17,835
Cost of revenues 53,668 25,237 14,675
-------- -------- --------
Gross profit (307) 957 3,160
-------- -------- --------
Operating expenses:
Selling, general and administrative 11,948 8,307 3,987
Research and development -- 239 202
Impairment charge 654 -- --
Asset valuation and restructuring
(reversal) charges -- -- --
-------- -------- --------
Total operating expenses 12,602 8,546 4,189
-------- -------- --------
Operating (loss) income (12,909) (7,589) (1,029)
-------- -------- --------
Other (expense) income:
Interest, net (10,437) (2,928) (841)
Other, net 1,014 (158) (100)
-------- -------- --------
Total other (expense) income (9,423) (3,086) (941)
-------- -------- --------
Loss before taxes, minority interest and
extraordinary items (22,332) (10,675) (1,970)
Provision for income taxes 5 67 21
-------- -------- --------
Loss before minority interest and
extraordinary item (22,337) (10,742) (1,991)
Minority interest 364 2,255 1,311
-------- -------- --------
(Loss) income before extraordinary item (21,973) (8,487) (680)
Extraordinary item (1,693) -- --
-------- -------- --------
Net (loss) income ($23,666) ($ 8,487) ($ 680)
-------- -------- --------
(Loss) earnings per share:
Basic
(Loss)income before extraordinary item ($ 1.74) ($ 0.73) ($ 0.06)
Extraordinary item ($ 0.14) -- --
-------- -------- --------
Net (loss) income ($ 1.88) ($ 0.73) ($ 0.06)
-------- -------- --------
Weighted average basic shares
outstanding 12,620 11,641 11,605
======== ======== ========
Diluted
(Loss)income before extraordinary item ($ 1.74) ($ 0.73) ($ 0.06)
Extraordinary item ($ 0.14) -- --
-------- -------- --------
Net (loss) income ($ 1.88) ($ 0.73) ($ 0.06)
-------- -------- --------
Weighted average diluted shares
outstanding 12,620 11,641 11,605
======== ======== ========
<CAPTION>
Years Ended June 30,
1998 1997 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Net revenues $ 46,177 $ 39,862 $24,668 $ 20,251
Cost of revenues 41,847 32,279 18,603 16,617
-------- -------- ------- --------
Gross profit 4,330 7,583 6,065 3,634
-------- -------- ------- --------
Operating expenses:
Selling, general and administrative 10,336 6,879 6,394 7,317
Research and development 465 508 1,018 4,483
Impairment charge -- -- -- --
Asset valuation and restructuring
(reversal) charges -- (377) (1,550) 6,000
-------- -------- ------- --------
Total operating expenses 10,801 7,010 5,862 17,800
-------- -------- ------- --------
Operating (loss) income (6,471) 573 203 (14,166)
-------- -------- ------- --------
Other (expense) income:
Interest, net (3,289) (1,923) (611) (682)
Other, net (115) 12 136 158
-------- -------- ------- --------
Total other (expense) income (3,404) (1,911) (475) (524)
-------- -------- ------- --------
Loss before taxes, minority interest and
extraordinary items (9,875) (1,338) (272) (14,690)
Provision for income taxes 21 78 116 91
-------- -------- ------- --------
Loss before minority interest and
extraordinary item (9,896) (1,416) (388) (14,781)
Minority interest 5,659 1,936 274 --
-------- -------- ------- --------
(Loss) income before extraordinary item (4,237) 520 (114) (14,781)
Extraordinary item -- -- 241 --
-------- -------- ------- --------
Net (loss) income ($ 4,237) $ 520 $ 127 ($14,781)
-------- -------- ------- --------
(Loss) earnings per share:
Basic
(Loss)income before extraordinary item ($ 0.36) $ 0.05 ($ 0.01) ($ 1.31)
Extraordinary item -- -- $ 0.02 --
-------- -------- ------- --------
Net (loss) income ($ 0.36) $ 0.05 $ 0.01 ($ 1.31)
-------- -------- ------- --------
Weighted average basic shares
outstanding 11,619 11,548 11,334 11,288
======== ======== ======= ========
Diluted
(Loss)income before extraordinary item ($ 0.36) $ 0.05 ($ 0.01) ($ 1.31)
Extraordinary item -- -- $ 0.02 --
-------- -------- ------- --------
Net (loss) income ($ 0.36) $ 0.05 $ 0.01 ($ 1.31)
Weighted average diluted shares
outstanding 11,619 11,583 11,381 11,288
======== ======== ======= ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
June 30,
CONSOLIDATED BALANCE SHEET DATA January 2, January 3, ----------------------------------------------
2000 1999 1998 1997 1996 1995
---------- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Unrestricted and restricted cash, cash
equivalents, short-term investments and
marketable securities $ 1,246 $ 1,222 $4,222 $ 6,787 $ 6,151 $ 8,036
Total assets 81,397 101,864 79,508 70,592 36,249 20,465
Debt and capital leases 91,661 85,797 55,274 43,483 19,460 8,580
Stockholder's (deficit) equity ($28,571) ($5,094) ($118) $ 4,046 $ 3,010 $ 2,625
</TABLE>
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.
During 1999, sharply higher industry volumes reduced market prices for
greenhouse grown tomatoes, both for the Company as well as its competitors. The
Company believes that the increased supply has reduced the growth rate of
production capacity in the industry which will allow the growth in market demand
to more efficiently absorb the increased volumes that have depressed prices over
the past eighteen months.
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 United States produced greenhouse grown
produce and (iv) a growing 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 high front-end capital investment. 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 and the technological
innovations it has made to date as an industry leader makes it uniquely and
strategically positioned and qualified to take advantage of promising market
opportunities.
CHANGE OF FISCAL YEAR
In 1998, the Company 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. The fiscal year end date for the
transition period was 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 was
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 OF MINORITY INTERESTS
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
15
<PAGE>
partnerships that operate four of the Company's greenhouse operations. The
purchase price of the Acquired Companies consisted of 1,000,000 shares (which
have been registered for public sale) of The Company 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. In connection with an extension of the maturity
of the note, the Company issued Cogentrix an additional note in the principal
amount of $1,000 which had terms similar to the original note.
On January 2, 2000 the Company completed a restructuring of the indebtedness to
Cogentrix. Cogentrix exchanged, at approximately a $9,000 discount, $21,600 of
notes plus all accrued and unpaid interest thereon and a promissory note of APD
payable to Cogentrix in the amount of $894 for a $15,900 subordinated note
("Exchange Note") bearing interest at 5% per year and 333,333 shares of
non-voting, no dividend Series A Convertible Preferred Stock of The Company
("Series A"). On each December 31st, commencing on December 31, 2000, The
Company is required to prepay the then outstanding principal and interest of the
Exchange Note by an amount in which 70% of earnings before interest, taxes,
depreciation and amortization (EBITDA) exceeds $15,000. Certain prepayments must
also be made in the event the Company incurs certain borrowings, issues stock
for cash or sells assets outside the ordinary course of business. Commencing
December 1, 2003 The Company is required to make an annual principal payment
under the Exchange Note in the amount of $3,180 plus accumulated and unpaid
interest. Commencing on June 1, 2008, all or any portion of shares of the Series
A, at the option of Cogentrix, may be converted into fully paid and
nonassessable shares of Common Stock at a conversion price equal to $5 per
share, subject to adjustment.
Effective January 2, 2000, the Company acquired from the Agrorent group of
companies, the remaining 13.75% minority partnership interest in its Presidio
greenhouse operation, in exchange for 268,604 shares of EcoScience Common Stock.
In settlement of certain obligations to the Agrorent companies, the Company
issued $418 aggregate principal amount of promissory notes which are convertible
into shares of EcoScience Common Stock at a conversion price of $1.12 per share,
subject to adjustment under certain circumstances.
CORPORATE RESTRUCTURING.
Effective January 2, 2000, and as part of the Company's financial restructuring
and its continuing efforts to consolidate and streamline operations, the
following subsidiary entities were merged into a new entity, Village Farms,
L.P.: Village Farms of Virginia, Inc., Village Farms of Texas, L.P., Village
Farms of Marfa, L.P., Village Farms of Presidio, L.P., Village Farms of Buffalo,
L.P., Keystone Village Farms, L.L.C, Village Farms of Colorado, Inc., Village
Farms, Inc. and Village Farms Mediterranean, Inc.
DEBT RESTRUCTURING.
Effective January 2, 2000, the Company restructured an existing $58,900 term
facility with CoBank, ACB ("CoBank") and closed on a new $13,400 working capital
line of credit which was funded in 1999. The maturity date of the term facility
is July 31, 2001, with a two-year extension under certain conditions. The line
of credit will mature July 31, 2000 with an option to request a one-year
extension. The interest rate is the CoBank National Variable Rate plus 2%.
Principal under the term facility will be payable quarterly in the amount of
$5,000 per year and an additional $5,000 payment is due no later than March 31,
2000. Interest payments on both the term facility and the working capital line
have been deferred until March 31, 2000. On March 31, 2000, the Company made a
$2,500 principal payment which did not satisfy the required principal and
interest payments due CoBank on March 31, 2000 and accordingly is in violation
of the Loan Agreement. The Company is seeking a waiver from CoBank but no
assurance can be given that CoBank will grant same.
FORMATION OF JOINT VENTURE.
In January 2000, ADI entered into a joint venture agreement with Grodan, a
wholly owned subsidiary of Rockwool International A/S. Under the terms of the
agreement ADI formed a joint venture company with Grodan in March 2000 of which
ADI owns 51% of and Grodan 49%. ADI contributed substantially all of its assets
and liabilities to the joint venture.
SALE OF GREENHOUSE
On June 10, 1999 the Company's 12 acre greenhouse facility in Mount Carmel,
Pennsylvania was sold to Mount Carmel Greenhouses, LLC. The Company received
$2,000, of which $731 was used to pay off all debt related to the facility. The
transaction resulted in a gain on sale of $150, which has been included in other
income.
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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 $344 for the fiscal year ended January 2, 2000,
$3,532 for the transition period ended January 3, 1999 and $3,557 and $4,967 in
the fiscal years ended June 30, 1998 and 1997, respectively. The Company
concluded that the long term outlook of the postharvest equipment distribution
business was no longer consistent with its future strategic direction. This
transaction did not result in a material gain or loss and did not have a
material impact on the Company's financial position or results of operations.
SALE OF ASSETS OF EPSC
In November 1999, the Company sold substantially all of the assets of EPSC,
excluding EPSC's BioSave biofungicide products and technology, to PACE. The
purchase price of the assets was $1,000 plus inventory book value, as defined.
Upon the closing of the transaction, EPSC and PACE entered into a distribution
agreement pursuant to which PACE was granted the exclusive right to distribute
BioSave in the United States for the citrus, pome fruit and cherry markets. An
impairment charge of $654 was recorded in the year ended January 2, 2000,
related to the Company's sale of substantially all of the assets of EPSC.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 2, 2000 VS. YEAR ENDED JUNE 30, 1998
The Company's net revenues increased by $7,184 or 16% to $53,361 for the period
ended January 2, 2000 from $46,177 for the year ended June 30, 1998. This
increase was primarily due to the increases in product sales in the greenhouse
tomato market of $12,080, offset by a decrease in sales in the biological and
agricultural products market of $4,896.
The following table sets forth the Company's net revenues by market for the
period ended January 2, 2000 and the year ended June 30, 1998:
<TABLE>
<CAPTION>
Increase
January 2, 2000 June 30, 1998 (Decrease)
--------------- ------------- ----------
<S> <C> <C> <C>
Tomatoes $40,951 $28,871 $12,080
Biological and Agricultural Products 12,410 17,306 (4,896)
------- ------- -------
Consolidated $53,361 $46,177 $7,184
======= ======= ======
</TABLE>
Net revenue increases for the greenhouse tomato market were primarily due to
increased capacity and production, offset by weak market pricing. Four of the
Company's greenhouse facilities representing 126 acres were not in full
production for the year ended June 30, 1998.
Net revenue decreases for the biological and agricultural products market were
primarily due to the sale of its postharvest equipment division on February 2,
1999, the discontinuance of its packing insert sales in Canada and decreased
coating sales. Sales of the postharvest equipment division decreased $5,095 or
94 % to $344 for the fiscal year ended January 2, 2000 from $5,439 for the
fiscal year ended June 30, 1998. Sales of packing inserts decreased $628 to $0
for the fiscal year ended January 2, 2000 from $628 for the fiscal year ended
June 30, 1998. The Company's sales of coating products decreased $1,383 or 44 %
to $1,744 for the fiscal year ended January 2, 2000 from $3,127 for the fiscal
year ended June 30, 1998. These coating products were primarily sold to citrus
growers in California which were adversely affected by a winter freeze.
Cost of revenues increased $11,821 or 28% to $53,668 for the year ended January
2, 2000 from $41,847 for the fiscal year ended June 30, 1998, primarily due the
increase to net revenue.
Gross profit on net revenues decreased $4,637 to ($307) for the year ended
January 2, 2000 from a gross profit of $4,330 for the year ended June 30, 1998,
primarily as a result of lower market prices and less than anticipated
production yields in the tomato segment resulting in fixed production costs
being allocated over fewer units. Gross profit percentage on net revenues
decreased to (0.6%) for the year ended January 2, 2000 from a gross profit
percentage of 9% the year ended June 30, 1998 for the reasons stated above.
Selling, general and administrative expenses increased $1,147 or 11% to $11,948
for the fiscal year ended January 2, 2000 from $10,801 for the fiscal year ended
June 30, 1998, primarily due to increased expenses attributable to the Company's
four
17
<PAGE>
new greenhouse facilities and the expansion of the Company's sales, marketing,
finance and greenhouse management operations.
An impairment charge of $654 was recorded in the year ended January 2, 2000,
related to the assets of EPSC. The Company's long term assets, principally
property and equipment and goodwill, were written down to the sales price.
Operating loss increased $6,438 or 99% to $12,909 for the year ended January 2,
2000 compared to $6,471 for the year ended June 30, 1998. The increase in
operating loss resulted primarily from an increase of $1,801 in operating
expenses for the year ended January 2, 2000, and from the $4,637 decrease in
gross profit.
Other expenses increased by $6,019 to $9,423 for the year ended January 2, 2000,
compared to $3,404 for the year ended June 30, 1998, primarily due to increased
interest expenses. Interest expense, net, increased by $7,148 for the year ended
January 2, 2000 compared to the year ended June 30, 1998 due to $1,251 in
default interest recorded on the CoBank facility due to certain technical
defaults and increased indebtedness.
The Company's net loss increased $19,429 or $1.51 per basic and diluted share to
a net loss of $23,666 or $1.88 per diluted share for the year ended January 2,
2000 compared to net loss of $4,237 or $0.36 per diluted share for the year
ended June 30, 1998.
The Company's EBITDA decreased $10,159 to ($7,863) for the year ended January 2,
2000 from $2,296 for the year ended June 30, 1998. EBITDA is net income (loss)
excluding interest income, interest expense, depreciation and amortization
expense. While EBITDA should not be construed as a substitute for income (loss)
from operations, net income (loss) or cash flows from operating activities in
analyzing the Company's operating performance, financial condition or cash
flows, the Company is reporting EBITDA because it is commonly used by certain
users of the Company's financial statements to analyze and compare companies on
the basis of operating performance, leverage and liquidity and to determine a
company's ability to service debt.
TRANSITION PERIOD SIX MONTHS 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 ended December 31, 1997.
This increase was primarily 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:
<TABLE>
<CAPTION>
January 3, 1999 December 31, 1997 Increase
--------------- ----------------- --------
<S> <C> <C> <C>
Tomatoes $15,453 $8,656 $6,797
Biological and Agricultural Products 10,741 9,179 1,562
------- ------- ------
Consolidated $26,194 $17,835 $8,359
======= ======= ======
</TABLE>
Net revenue increases for the greenhouse tomato market were primarily due to
increased capacity. The Company's Buffalo, New York, Virginia and Marfa, Texas
facilities (representing 100 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 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
revenue 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
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<PAGE>
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 production and sales due to the abbreviated
growing cycle and, therefore, significantly lowered gross profits of these
facilities.
The timing of the 100 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, 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 subsequently converted
the facility for tomato production.
Selling, general and administrative expenses increased $4,357 or 104% to $8,546
for the period ended January 3, 1999 from $4,189 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.
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 selling, general and administrative expenses.
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 basic and 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:
<TABLE>
<CAPTION>
Increase
June 30, 1998 June 30, 1997 (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Tomatoes $28,871 $21,963 $6,908
Biological and Agricultural Products 17,306 17,899 (593)
------- ------- ------
Consolidated $46,177 $39,862 $6,315
======= ======= ======
</TABLE>
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<PAGE>
Net revenue increases for the greenhouse tomato market were primarily due to
increased capacity. The Company's Buffalo, Virginia and Marfa, Texas facilities
(representing 100 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% 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 100 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 $3,791 or 54% to $10,801
in 1998 from $7,010 in 1997, primarily due to start-up costs attributable to the
Company's three new greenhouse facilities and the expansion of the Company's
sales, marketing, finance and greenhouse management operations.
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
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<PAGE>
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 expense, 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.
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
weak market pricing. 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.
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 cash shortfall will remain until additional capital is raised.
Effective January 2, 2000, the Company restructured an existing $58,900 term
facility with CoBank, ACB ("CoBank") and closed on a new $13,400 working capital
line of credit which was funded in 1999 ("Loan Agreement"). The maturity date of
the term facility is July 1, 2001, with a two-year extension under certain
conditions. The line of credit will mature July 1, 2000 with an option to
request a one-year extension. No assurance can be given that CoBank will grant
the extension. The interest rate is the CoBank National Variable Rate plus 2%.
Principal under the term facility will be payable quarterly in the amount of
$5,000 per year and an additional $5,000 payment is due no later than March 31,
2000. Interest payments on both the term facility and the working capital line
have been deferred until March 31, 2000. The Company did not make the required
principal and interest payments due CoBank on March 31, 2000 and is currently
negotiating an extension of the payment date with CoBank. No assurance can be
given that the extension will be granted. Village Farms, L.P. ("VFLP") is the
borrower under the revised Loan Agreement. The Company and APD have guaranteed
the obligations under the Loan Agreements and the loan is secured by a first
lien and security interest in all of the assets of VFLP and APD.
On January 2, 2000 the Company completed a restructuring of its indebtedness to
Cogentrix Delaware Holdings, Inc. ("Cogentrix"). Cogentrix exchanged, at
approximately a $9,000 discount, $21,600 of notes plus all accrued and unpaid
interest thereon and a promissory note of APD payable to Cogentrix in the amount
of $894 for a $15,900 subordinated note ("Exchange Note") bearing interest at 5%
per year and 333,333 shares of non-voting, no dividend Series A Convertible
Preferred Stock of EcoScience ("Series A"). On each December 31st, commencing on
December 31, 2000, EcoScience is required to prepay the then outstanding
principal and interest of the Exchange Note by an amount in which 70% of
earnings before interest, taxes, depreciation and amortization (EBITDA) exceeds
$15,000. Certain prepayments must also be made in the event the Company incurs
certain borrowings, issues stock for cash or sells assets outside the ordinary
course of business. Commencing December 1, 2003 EcoScience is required to make
an annual principal payment under the Exchange Note in the amount of $3,180 plus
accumulated and unpaid interest. Commencing on June 1, 2008, all or any portion
of shares of the Series A, at the option of Cogentrix, may be converted into
fully paid and nonassessable shares of Common Stock at a conversion price equal
to $5 per share, subject to adjustment.
The Loan Agreement contains covenants, including, among others, covenants which
limit the ability of VFLP to incur other indebtedness, pay dividends, make
distributions, sell assets and participate in mergers and other acquisition
transactions.
On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement with
Century Business Credit Corporation ("Agreement") for borrowings of up to $4,000
secured by eligible accounts receivable and inventory, as defined. Funds
borrowed under the Agreement bear interest at a rate, the greater of 7% or prime
(8.5% at January 2, 2000) plus 2 3/4% and are secured by all the assets of the
Joint Venture and all of the outstanding common stock of AGRO and the Joint
Venture owned by the Company. This agreement, which has an initial two-year
term, replaced a $3,000 revolving credit facility with Silicon Valley Bank. The
Joint Venture has assumed the obligations under the Agreement. AGRO and EPSC are
guarantors of these
21
<PAGE>
obligations. As of January 2, 2000, the Company had $1,552 of additional
borrowing availability under the revolving line of credit.
Cash and cash equivalents were $1,246 at January 2, 2000 compared to $1,095 at
January 3, 1999. Cash used in operating activities totaled $13,274 for the
period ended January 2, 2000 and principally consisted of a net loss of $23,666,
minority interest in the net loss of the consolidated limited partnerships of
$364 and an decrease in accounts payable and accrued expenses of $1,278;
partially offset by a decrease in inventory of $1,892, and depreciation and
amortization of $6,012, and a decrease in goodwill of $2,467. Cash provided by
financing activities totaled $12,457 for the period ended January 2, 2000, which
consisted principally of net borrowings under lines of credit of $682, proceeds
from long-term debt of $58,886, partially offset by payments of long-term debt
of $47,043. Cash provided by investment activities for the period ended January
2, 2000 totaled $873, which consisted principally of proceeds from the sale of
assets of $3,245, partially offset by purchases of property and equipment of
$1,357. The Company's current liabilities exceeded its current assets by $75,946
(which includes $58,886 of senior debt classified as current, which otherwise
would have been classified as long-term if the Company was able to meet the
principal and interest payments due March 31, 2000) and its current ratio was
0.18 to 1, at January 2, 2000 compared to 0.20 to 1, respectively, at January 3,
1999.
Debt and capital leases increased by $5,864 to $91,661 at January 2, 2000
compared to $85,797 at January 3, 1999. The increase was attributable to the new
$13,400 working capital line of credit which was funded in 1999 offset by the
exchange at approximately a $9,000 discount of the notes due Cogentrix for
$21,600 plus all accrued and unpaid interest thereon and a promissory note of
APD payable to Cogentrix in the amount of $894 for a $15,900 subordinated note.
The Company believes that its $1,246 of cash and cash equivalents as of January
2, 2000, 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 3, 2001, provided that CoBank extends the
maturity dates of certain payments under the Loan Agreement and the Company can
resolve its short term cash flow shortfall by raising additional capital. The
Company has engaged a financial advisor to assist it in raising additional funds
to finance its ongoing operations in 2000, current debt obligations and expected
growth after January 3, 2001. The Company is currently attempting to raise debt
and/or equity financing. No assurance can be given that the Company will be able
to complete the refinancing or that the Company's creditors will not attempt to
enforce legal remedies available to them. This raises substantial doubt about
the ability of the Company to continue as a going concern.
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
As described in the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 1999, the Company had examined its critical information
("IT") and non-IT operating systems for Year 2000 ("Y2K") compliance. Since
entering the year 2000, the Company has not experienced any significant
disruptions to its business either directly or by reason of Y2K related problems
affecting the Company's customers or suppliers. The Company will continue to
monitor its critical IT and non-IT systems over the next several months, but
does not anticipate any significant Y2K impact on its business.
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, have been
insignificant and within management's expectations.
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 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.
22
<PAGE>
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, (iii) the
markets in which it competes are highly competitive, (iv) the share price of its
common stock may be volatile, (v) its operations are subject to extensive
government regulation, (vi) it depends on key personnel, (vii) its operating
results may fluctuate significantly, (viii) its greenhouse operations may be
adversely affected by crop disease and pestilence, and the perishability of its
produce, (ix) weather and other events could effect crop yields and damage
greenhouse structures, (x) it is sensitive to price increases and raw materials,
(xi) it depends on certain corporate relationships, (xii) a significant
percentage of its sales are made to a limited number of customers, (xiii) its
directors and officers own a significant percentage of its capital stock 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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements for the year ended January 2,
2000, the transition period ended January 3, 1999 and the years ended June 30,
1998 and 1997 are set forth on pages F-1 through F-20.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not applicable.
PART III
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 2000 Annual Meeting of Stockholders to be held on June 1, 2000,
and such information is incorporated herein by reference.
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.
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.
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
EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
(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:
None
</TABLE>
23
<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 March 31, 2000.
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 Kenneth S. Hollander, and each of them with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments to this report,
and to file the same, with all exhibits 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 Executive March 31, 2000
- ----------------------------------- Officer) and Director
Michael A. DeGiglio
/s/ Kenneth S. Hollander Senior Vice President and Chief Financial Officer, March 31, 2000
- ----------------------------------- Treasurer and Secretary (Principal Financial and
Kenneth S. Hollander Accounting Officer)
/s/ Thomas A. Montanti Director March 31, 2000
- -----------------------------------
Thomas A. Montanti
/s/ David J. Ryan Director March 31, 2000
- -----------------------------------
David J. Ryan
/s/ Albert W. Vanzeyst Executive Vice President and Director March 31, 2000
- -----------------------------------
Albert W. Vanzeyst
/s/ Heinz K. Wehner Director March 31, 2000
- -----------------------------------
Heinz K. Wehner
</TABLE>
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999 F-3
Consolidated Statements of Operations for the fiscal years ended January 2,
2000, June 30, 1998 and 1997 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 January 2, 2000, June 30, 1998 and 1997 and the transition period
(see Note 2) ended January 3, 1999 F-5
Consolidated Statements of Cash Flows for the fiscal years ended January 2,
2000, June 30, 1998 and 1997 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
</TABLE>
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 2, 2000 and
January 3, 1999 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the fiscal years ended January
2, 2000, June 30, 1998 and 1997 and the transition period ended January 3, 1999.
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 auditing standards generally accepted
in the United States. 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 2, 2000 and January 3, 1999, and the results of their
operations and their cash flows for the fiscal years ended January 2, 2000, June
30, 1998 and 1997 and the transition period ended January 3, 1999 in conformity
with accounting principles generally accepted in the United States.
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 incurred recurring losses
from operations, has an accumulated deficit and negative working capital. 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
March 31, 2000
F-2
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
JANUARY 2, 2000 JANUARY 3, 1999
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,246 $ 1,095
Short-term investments -- 127
Accounts receivable, less reserves of $806 and $551
at January 2, 2000 and January 3, 1999, respectively 7,672 7,271
Assets held for sale -- 1,911
Inventories 7,317 9,209
Other current assets 487 1,212
--------- ---------
Total current assets 16,722 20,825
--------- ---------
Property, plant and equipment, net 56,941 65,200
Intangible assets, net 5,314 13,550
Other noncurrent assets 2,420 2,289
--------- ---------
Total assets $ 81,397 $ 101,864
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings $ 16,094 $ 37,080
Current maturities of long-term debt 59,005 47,557
Current obligations under capital leases 49 42
Accounts payable 8,433 11,102
Accrued expenses and other current liabilities 9,087 7,705
--------- ---------
Total current liabilities 92,668 103,486
--------- ---------
Noncurrent liabilities:
Long-term debt, less current maturities 16,191 780
Obligations under capital leases 322 338
Other long-term liabilities 787 1,689
--------- ---------
Total liabilities 109,968 106,293
--------- ---------
Minority interest -- 665
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; 333,333 and 0
issued and outstanding at January 2, 2000 and
January 3, 1999, respectively 3 --
Common stock, $0.01 par value, 100,000,000 shares authorized; 12,887,882
and 12,619,278 issued and outstanding at January 2, 2000 and
January 3, 1999, respectively 129 126
Additional paid-in-capital 55,662 55,574
Accumulated deficit (84,372) (60,706)
Accumulated other comprehensive income (loss) 7 (88)
--------- ---------
Total stockholders' deficit (28,571) (5,094)
--------- ---------
Total liabilities and stockholders' deficit $ 81,397 $ 101,864
========= =========
</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>
YEAR ENDED TRANSITION PERIOD ENDED (SEE NOTE 2) YEAR ENDED JUNE 30,
---------- ------------------------------------ -------------------
(UNAUDITED)
JANUARY 2, 2000 JANUARY 3, 1999 DECEMBER 31, 1997 1998 1997
--------------- --------------- ----------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 53,361 $ 26,194 $ 17,835 $ 46,177 $ 39,862
Cost of revenues 53,668 25,237 14,675 41,847 32,279
-------- -------- -------- -------- --------
Gross (loss) profit (307) 957 3,160 4,330 7,583
-------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative 11,948 8,546 4,189 10,801 7,387
Asset valuation and restructuring
reversal -- -- -- -- (377)
Impairment charge 654 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses 12,602 8,546 4,189 10,801 7,010
-------- -------- -------- -------- --------
Operating (loss) income (12,909) (7,589) (1,029) (6,471) 573
-------- -------- -------- -------- --------
Other (expense) income:
Interest, net (10,437) (2,928) (841) (3,289) (1,923)
Other, net 1,014 (158) (100) (115) 12
-------- -------- -------- -------- --------
Total other expense, net (9,423) (3,086) (941) (3,404) (1,911)
-------- -------- -------- -------- --------
Loss before taxes and minority interest (22,332) (10,675) (1,970) (9,875) (1,338)
Provision for income taxes 5 67 21 21 78
-------- -------- -------- -------- --------
Loss before minority interest and
extraordinary item (22,337) (10,742) (1,991) (9,896) (1,416)
Minority interest 364 2,255 1,311 5,659 1,936
-------- -------- -------- -------- --------
Net (loss) income before extraordinary item (21,973) (8,487) (680) (4,237) 520
Extraordinary item (1,693) -- -- -- --
Net (loss) income ($23,666) ($ 8,487) ($ 680) ($ 4,237) $ 520
======== ======== ======== ======== ========
Loss per share:
Basic:
(Loss) earnings per share ($ 1.74) ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05
Extraordinary item ($ 0.14) $ 0.00 $ 0.00 $ 0.00 $ 0.00
-------- -------- -------- -------- --------
Net (loss) income ($ 1.88) ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05
-------- -------- -------- -------- --------
Weighted average basic shares outstanding 12,620 11,641 11,605 11,619 11,548
======== ======== ======== ======== ========
Diluted:
(Loss) earnings per share ($ 1.74) ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05
Extraordinary item ($ 0.14) $ 0.00 $ 0.00 $ 0.00 $ 0.00
-------- -------- -------- -------- --------
Net (loss) income ($ 1.88) ($ 0.73) ($ 0.06) ($ 0.36) $ 0.05
-------- -------- -------- -------- --------
Weighted average diluted shares outstanding 12,620 11,641 11,605 11,619 11,583
======== ======== ======== ======== ========
</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 Preferred Stock
-------------------------- ---------------------
Number of $0.01 Par Number of $0.01 Par Additional
Shares Value Shares Value Paid-in Capital
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 11,388,922 114 0 56,272
Exercise of stock options 3,800 17
Issuance of common stock 208,000 2 1,137
S Corp distributions
Net income
---------- ---- ------- -- -------
Balance at June 30, 1997 11,600,722 116 57,426
Exercise of stock options 17,456 83
Unrealized gain on short-term investments
Pooling adjustment
S Corp distributions
Net loss
---------- ---- ------- -- -------
Balance at June 30, 1998 11,618,178 116 57,509
Exercise of stock options 1,100 5
Unrealized gain on short-term investments
Cumulative translation adjustments
S Corp conversion (5,930)
S Corp distributions
Issuance of common stock 1,000,000 10 3,990
Net loss
---------- ---- ------- -- -------
Balance at January 3, 1999 12,619,278 126 55,574
Cumulative translation adjustments
Issuance of common stock 268,604 3 39
Issuance of peferred stock 333,333 3 49
Net loss
---------- ---- ------- -- -------
Balance at January 2, 2000 12,887,882 $129 333,333 $3 $55,662
========== ==== ======= == =======
<CAPTION>
Accumulated Other Total
Accumulated Comprehensive Stockholders' Comprehensive
Deficit Income (loss) Equity (deficit) Income (loss)
----------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 (53,376) 0 3,010 194
Exercise of stock options 17
Issuance of common stock 1,139
S Corp distributions (640) (640)
Net income 520 520 520
-------- -- -------- --------
Balance at June 30, 1997 (53,496) 0 4,046 520
Exercise of stock options 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 (57,749) 6 (118) (4,231)
Exercise of stock options 5
Unrealized gain on short-term investments (4) (4) (4)
Cumulative translation adjustments (90) (90) (90)
S Corp conversion 5,930
S Corp distributions (400) (400)
Issuance of common stock 4,000
Net loss (8,487) (8,487) (8,487)
-------- -- -------- --------
Balance at January 3, 1999 (60,706) (88) (5,094) (8,581)
Cumulative translation adjustments 95 95 95
Issuance of common stock 42
Issuance of peferred stock 52
Net loss (23,666) (23,666) (23,666)
-------- -- -------- --------
Balance at January 2, 2000 ($84,372) $7 ($28,571) ($23,571)
======== == ======== ========
</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 ENDED (SEE NOTE 2)
YEAR ENDED --------------------------------------
JANUARY 2, 2000 JANUARY 3, 1999 DECEMBER 31, 1997
--------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($23,666) ($ 8,487) ($ 680)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 6,012 2,146 1,301
Write-down of goodwill 2,467 -- --
Minority interest in limited partnerships (364) (2,255) (1,311)
(Gain) on sale of investments -- (6) --
Foreign exchange (gain) (9)
Loss (gain) on disposal of assets 415 1 (3)
Impairment charge 654 -- --
Reversal of restructuring charge -- -- --
Changes in current assets and liabilities:
Accounts receivable, net (401) (462) (917)
Inventories 1,892 (4,159) (3,704)
Other current assets 725 1,008 (1,015)
Other noncurrent assets 279 105 3
Accounts payable and accrued expenses (1,278) 6,094 908
-------- -------- --------
Net cash used in operating activities: ($13,274) ($ 6,015) ($ 5,418)
-------- -------- --------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property and equipment (1,357) (4,632) (14,306)
Proceeds from sale of assets 3,425 2 343
Purchase of short-term investment -- -- --
Proceeds from sale of short-term investment 127 409 --
Release of restricted cash -- 2,500 --
(Increase) decrease in other noncurrent assets (420) 243 (356)
Increase (decrease) in other noncurrent liabilities (902) (2,548) (4,606)
(Increase) in loan receivable -- -- (643)
Proceeds from long-term construction activities -- -- --
-------- -------- --------
Net cash provided by (used in) investing activities 873 (4,026) (19,568)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock -- -- --
Proceeds from exercise of stock options -- 5 83
Debt issue cost -- (134) (601)
Minority interest contributions to limited partnerships -- 1,000 2,741
Cash dividends -- (400) (220)
Proceeds from long-term debt 58,886 3,602 14,306
Net borrowings under line of credit 682 8,332 5,394
Payments on capital leases (68) (56) (24)
Payments on long-term debt (47,043) (2,312) (3,849)
-------- -------- --------
Net cash provided by financing activities 12,457 10,037 17,830
-------- -------- --------
Effects of exchange rates on cash balances 95 (90) --
Increase (decrease) in cash and cash equivalents 151 (94) (7,156)
Cash and cash equivalents at beginning of period 1,095 1,189 9,598
-------- -------- --------
Cash and cash equivalents at end of period $ 1,246 $ 1,095 $ 2,442
======== ======== ========
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($ 4,237) $ 520
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 3,223 1,906
Write-down of goodwill -- --
Minority interest in limited partnerships (5,659) (1,935)
(Gain) on sale of investments -- (2)
Foreign exchange (gain)
Loss (gain) on disposal of assets (3) --
Impairment charge -- --
Reversal of restructuring charge -- (377)
Changes in current assets and liabilities:
Accounts receivable, net (2,818) (1,002)
Inventories (1,987) (2,427)
Other current assets (1,040) (553)
Other noncurrent assets 73 (30)
Accounts payable and accrued expenses 5,015 1,081
-------- --------
Net cash used in operating activities: ($ 7,433) ($ 2,819)
-------- --------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of property and equipment (26,099) (28,244)
Proceeds from sale of assets 628 50
Purchase of short-term investment -- (503)
Proceeds from sale of short-term investment -- 677
Release of restricted cash 750 455
(Increase) decrease in other noncurrent assets (141) (268)
Increase (decrease) in other noncurrent liabilities (3,532) --
(Increase) in loan receivable (643) (1,538)
Proceeds from long-term construction activities -- 801
-------- --------
Net cash provided by (used in) investing activities (29,037) (28,570)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock -- 1,139
Proceeds from exercise of stock options 83 17
Debt issue cost (601) (1,507)
Minority interest contributions to limited partnerships 2,741 9,667
Cash dividends (330) (640)
Proceeds from long-term debt 24,299 28,123
Net borrowings under line of credit 7,148 2,045
Payments on capital leases (54) (46)
Payments on long-term debt (5,225) (6,146)
-------- --------
Net cash provided by financing activities 28,061 32,652
-------- --------
Effects of exchange rates on cash balances -- --
Increase (decrease) in cash and cash equivalents (8,409) 1,263
Cash and cash equivalents at beginning of period 9,598 1,746
-------- --------
Cash and cash equivalents at end of period $ 1,189 $ 3,009
======== ========
</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, the Company had also derived revenues from the
sale of sorting, grading and packing systems to the produce packing industry. In
November 1999, the Company sold substantially all of the assets of EPSC,
excluding EPSC's BioSave products and technology, to Pace International, LLC.
In March 2000, AGRO entered into a joint venture agreement with Grodania A/S
("Grodan") of Denmark a wholly owned subsidiary of Rockwool International A/S
(the "Joint Venture"). Under the terms of the agreement EcoScience formed a
joint venture company with Grodan under its AGRO subsidiary in which AGRO owns
51% of the company and Grodan 49%. AGRO contributed substantially all of its
assets and liabilities to the joint venture.
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 $72,286
credit facility discussed in Note 7.
As a result of the above, the Company has incurred significant recurring losses
resulting in an accumulated deficit of $84,372 as of January 2, 2000. The
Company did not make the required March 31, 2000 principal and interest payments
and has reclassified $58,886 of debt as current in the accompanying January 2,
2000 balance sheet which otherwise would have been classified as long-term.
On February 1, 1999, the Company's postharvest equipment division of its wholly
owned subsidiary AGRO, which was the exclusive distributor in North America for
Aweta B.V.'s sorting and grading equipment, was sold to Autoline, Inc. Autoline
Inc. and Aweta B.V. are both wholly owned subsidiaries of FPS Food Processing
Systems of Holland. The Company concluded that the long term outlook of the
postharvest equipment distribution business was no longer consistent with its
future strategic direction. This transaction did not result in a material gain
or loss and will not have a material impact on the Company's financial position
or results of operations.
On June 10, 1999 the Company's 12 acre greenhouse facility in Mount Carmel,
Pennsylvania was sold to Mount Carmel Greenhouses, LLC. The Company received
$2,000, of which $731 was used to pay off all debt related to the facility. The
transaction resulted in a gain on sale of $150, which has been included in other
income.
On November 8, 1999 the Company sold substantially all of the assets of EPSC,
excluding EPSC's BioSave(R) biofungicide product. EPSC conducted the Company's
postharvest coating products business. The Company received $1,327 which
represents the purchase price of $1,000 plus $327 for the sale of inventory.
F-7
<PAGE>
An extraordinary item of $1,693 was recorded in the year ended January 2, 2000
which represents the write-off of deferred financing fees related to the June
1997 financing with CoBank, ACB ("CoBank").
The Company believes that its $1,246 of cash and cash equivalents as of January
2, 2000, 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 3, 2001, provided that the Company can resolve
its short term cash flow shortfall by raising additional capital. The Company
has engaged a financial advisor to assist in raising additional funds to finance
its ongoing operations in 2000, current debt obligations and expected growth
after January 3, 2001. The Company is currently attempting to raise debt and/or
equity financing. No assurance can be given that the Company will be able to
complete the refinancing or that the Company's creditors will not attempt to
enforce legal remedies available to them. 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).
Effective January 2, 2000, the Company acquired from the Agrorent group of
companies, the remaining 13.75% minority partnership interest, in its Presidio
greenhouse facility, in exchange for 268,604 shares of EcoScience Common Stock.
In settlement of certain obligations to the Agrorent companies, the Company
issued $418 aggregate principal amount of promissory notes which are convertible
into shares of EcoScience Common Stock at a conversion price of $1.12 per share,
subject to adjustment under certain circumstances. The acquisition was not
material to the financial statements.
b. Fiscal Year-End and Transition Period
During 1998, the Company changed 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. For 1998,
the audited transition period financial statements are 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
F-8
<PAGE>
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, $1,246 and $1,095 at January 2, 2000, and January 3,
1999, 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 $0 and $127 at January 2, 2000, and January 3, 1999, respectively.
e. Inventories
January 2, 2000 January 3, 1999
--------------- ---------------
Raw materials $0 $77
Crop inventory 6,229 6,582
Finished goods 1,088 2,550
------- -------
$7,317 $9,209
======= =======
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.
f. Property, plant and equipment.
Property, plant 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 15-20 years
Greenhouse and leasehold improvements 10-20 years
Greenhouse equipment 5-10 years
Machinery and equipment 3-5 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.
g. 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.
On December 30, 1998, the Company acquired the minority interests in certain
limited partnerships. The goodwill resulting from this transaction was $12,058.
As a result of restructuring of the indebtedness to Cogentrix, goodwill was
decreased $9,009. Goodwill was increased $2,537 due to the lower than expected
final appraisal value that was received in 1999 for the Buffalo greenhouse (see
Note 4).
Goodwill, net of accumulated amortization, was $5,314 and $13,550 at January 2,
2000 and January 3, 1999 respectively. The accumulated amortization of goodwill
and other intangible assets totaled $784 and $509 at January 2, 2000 and January
3, 1999, respectively. Amortization of goodwill and other intangible assets
included in the accompanying consolidated statements of operations was $690 and
$50 in fiscal year ended January 2, 2000 and in the transition period ended
January 3, 1999, respectively.
h. Revenue Recognition
Revenue from tomato, biological and agricultural product sales is recognized
upon shipment by the Company. Certain equipment sales are recognized upon
installation and include certain warranty provisions.
F-9
<PAGE>
i. 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 income (loss) in the accompanying financial statements until the
sale or liquidation of the underlying foreign investment.
j. Earnings (Loss) Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," requires presentation of both basic and diluted earnings per share in
the Consolidated Statements of Operations. Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share gives effect to all potentially dilutive common shares that
were outstanding during the period.
The following table sets forth a reconciliation of weighted average common
shares outstanding to the weighted average common shares assuming dilution:
<TABLE>
<CAPTION>
Transition Years Ended June 30,
Year Ended Period Ended -----------------------
January 2, 2000 January 3, 1999 1998 1997
--------------- --------------- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 12,620 11,641 11,619 11,548
Dilutive effect of common shares
issuable (1) -- -- -- 35
------ ------ ------ ------
Weighted average common shares
outstanding assuming dilution 12,620 11,641 11,619 11,583
====== ====== ====== ======
</TABLE>
(1) Issuable under common stock purchase warrants and stock option plans.
Common stock purchase warrants and stock options at January 2, 2000, January 3,
1999, June 30, 1998 and 1997 to purchase 1,226,281, 275,511, 281,491 and 309,387
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.
k. 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 7 for the estimated fair value of certain
debt agreements.
l. 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
Year Ended Period Ended Year Ended Year Ended
January 2, 2000 January 3, 1999 June 30, 1998 June 30, 1997
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash paid for:
Interest $6,280 $1,828 $3,320 $2,761
Income taxes 5 2 5 175
Non-cash investing and financing activities:
Disposition of assets under capital
lease -- -- -- 308
Termination of capital lease obligation -- -- -- (405)
Assets acquired under capital leases -- -- 319 451
Interest capitalized -- 165 384 384
Acquisition of minority interests (302) (26,921) -- --
Cancellation of notes and related
interest, net (22,494) 1,321 -- --
Issuance of acquisition notes payable 15,900 21,600 -- --
Issuance of common stock 3 4,000 -- --
Issuance of preferred stock 3 -- -- --
</TABLE>
F-10
<PAGE>
m. Long-Lived Assets
The provision of SFAS No. 121, "Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed of " ("SFAS 121"). Requires,
among other things, that an entity review its long lived assets and certain
related intangibles for impairment when changes in circumstances indicate the
carrying amount of an asset may not be fully recoverable. The Company does not
believe that any such change have occurred. An impairment charge of $654 was
recorded in the year ended January 2, 2000, related to the assets of EPSC.
n. Stock Based Compensation
The provision of SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"), 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 10).
o. Income Taxes
The provisions of SFAS 109, "Accounting for Income Taxes", 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 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 11).
p. 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 (loss) 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).
q. 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 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 st7ockholders 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.
F-11
<PAGE>
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
Net revenues:
EcoScience $ 22,317 $ 20,853
APD 28,871 21,963
Eliminations (5,011) (2,954)
-------- --------
TOTAL $ 46,177 $ 39,862
======== ========
Net (loss) income:
EcoScience ($ 967) $ 385
APD (3,010) 356
Eliminations (260) (221)
-------- --------
TOTAL ($4,237) $ 520
======== ========
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 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
and 1997. 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 year ended June 30, 1997 represent the
historical financial statements for APD for the 52 week period ended December
28, 1997.
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.
F-12
<PAGE>
4. ACQUISITION
On December 30, 1998, the Company acquired, through the acquisition of four
entities, the Cogentrix minority interests in certain entities that operated
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 had terms similar to the original note. The notes were secured by
all of the outstanding capital stock of APD and the Acquired Companies. As a
condition to the acquisition, EcoScience registered the 1,000,000 shares of
common stock for public sale.
Additional consideration given in the transaction was 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 $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.
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.
On December 30, 1998, the Company acquired the minority interests in certain
limited partnerships. The goodwill resulting from this transaction was $12,058.
As a result of restructuring of the indebtedness to Cogentrix, goodwill was
decreased $9,009. Goodwill was increased $2,537 due to the lower than expected
final appraisal value that was received in 1999 for the Buffalo greenhouse.
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. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
January 2, 2000 January 3, 1999
--------------- ---------------
<S> <C> <C>
Land $973 $973
Land improvements 2,132 2,266
Greenhouses 51,505 54,062
Greenhouse and leasehold improvements 572 301
Greenhouse equipment 10,788 11,250
Machinery and equipment 838 1,873
------- -------
66,808 70,725
Less accumulated depreciation and amortization (9,867) (5,525)
------- -------
$56,941 $65,200
======= =======
</TABLE>
Included in the amounts above are $540 and $435 in assets held under capital
leases at January 2, 2000 and January 3, 1999, respectively.
F-13
<PAGE>
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
January 2, 2000 January 3,1999
--------------- --------------
Interest $5,393 $2,707
Payroll related expenses 335 540
Professional fees 622 833
Accrued inventory purchases 439 546
Customer Deposits 74 415
Rent 915 --
Utilities 377 401
Other 932 2,263
------ ------
$9,087 $7,705
====== ======
7. Debt
(a) Short-term borrowings
Short-term borrowings consists of the following:
January 2, 2000 January 3, 1999
--------------- ---------------
Revolving line of credit(1) $2,448 $2,254
VFIFA line of credit (2) -- 13,226
Agrorent note A (5) 246 --
VFLP line of credit (2) 13,400 --
Notes payable to Cogentrix (3) -- 21,600
------- -------
$16,094 $37,080
======= =======
(b) Long-term debt
Long-term debt consists of the following:
January 2, 2000 January 3, 1999
--------------- ---------------
VFIFA construction and term loan
credit facility (2) $-- $46,219
PVF non-revolving line of credit (4) -- 804
Notes payable to Cogentrix (3) 15,900 1,071
VFLP term loan facility (2) 58,886 --
Agrorent note B (5) 172 --
Other long-term debt 238 243
------- -------
75,196 48,337
Less current maturities (59,005) (47,557)
------- -------
$16,191 $780
======= =======
(1) On June 29, 1999, AGRO and EPSC entered into a new revolving loan agreement
with Century Business Credit Corporation ("Agreement") for borrowings of up
to $4,000 secured by eligible accounts receivable and inventory, as
defined. Funds borrowed under the Agreement bear interest at a rate, the
greater of 7% or prime (8.5% at January 2, 2000) plus 2 3/4% and are
secured by all the assets of the Joint Venture and all of the outstanding
common stock of AGRO and the Joint Venture owned by the Company. This
agreement, which has an initial two-year term, replaced a $3,000 revolving
credit facility with Silicon Valley Bank. The Joint Venture has assumed the
obligations under the Agreement. AGRO and EPSC are guarantors of these
obligations. As of January 2, 2000, the Company had $1,552 of additional
borrowing availability under the revolving line of credit.
F-14
<PAGE>
(2) Effective January 2, 2000, the Company restructured an existing $58,900
term facility with CoBank and closed on a new $13,400 working capital line
of credit which was funded in 1999 ("Loan Agreement"). The maturity date of
the term facility is July 31, 2000, with a two-year extension under certain
conditions. The line of credit will mature July 31, 2001 with an option to
request a one-year extension. The interest rate is the CoBank National
Variable Rate plus 2% (10.5% at January 2, 2000). Principal under the term
facility will be payable quarterly in the amount of $5,000 per year and an
additional $5,000 payment is due no later than March 31, 2000. Interest
payments on both the term facility and the working capital line have been
deferred until March 31, 2000. On March 31, 2000, the Company made a $2,500
principal payment which did not satisfy the required principal and interest
payments due CoBank on March 31, 2000 and accordingly is in violation of
the Loan Agreement. The Company is seeking a waiver from CoBank but no
assurance can be given that CoBank will grant same. EcoScience and APD have
guaranteed the obligations under the Loan Agreements and the loan is
secured by a first lien and security interest in all of the assets of
Village Farms, L.P. and APD.
(3) On January 2, 2000 the Company completed a restructuring of the
indebtedness to Cogentrix. Cogentrix exchanged, at approximately a $9,000
discount, $21,600 of notes plus all accrued and unpaid interest thereon and
a promissory note of APD payable to Cogentrix in the amount of $894 for a
$15,900 subordinated note ("Exchange Note") bearing interest at 5% per year
and 333,333 shares of non-voting, no dividend Series A Convertible
Preferred Stock of EcoScience ("Series A"). On each December 31st,
commencing on December 31, 2000, EcoScience is required to prepay the then
outstanding principal and interest of the Exchange Note by an amount by
which 70% of earnings before interest, taxes, depreciation and amortization
(EBITDA) exceeds $15,000. Certain prepayments must also be made in the
event the Company incurs certain borrowings, issues stock for cash or sells
assets outside the ordinary course of business. Commencing December 1, 2003
EcoScience is required to make an annual principal payment under the
Exchange Note in the amount of $3,180 plus accumulated and unpaid interest.
Commencing on June 1, 2008, all or any portion of shares of the Series A,
at the option of Cogentrix, may be converted into fully paid and
nonassessable shares of Common Stock at a conversion price equal to $5 per
share, subject to adjustment.
(4) In March 1997, PVF entered into a $2,200 loan agreement with a bank. In
1998, PVF prepaid $1,175 of the outstanding borrowings with certain
replacement collateral and insurance proceeds. On June 10, 1999 the
Company's 12 acre greenhouse facility in Mount Carmel, Pennsylvania was
sold to Mount Carmel Greenhouses, LLC. The Company received $2,000, of
which $731 was used to pay off all debt related to the facility.
(5) Effective January 2, 2000, the Company acquired from the Agrorent group of
companies, the remaining 13.75% minority partnership interest, in its
Presidio facility, in exchange for 268,604 shares of EcoScience Common
Stock. In settlement of certain obligations to the Agrorent companies, the
Company issued $418 aggregate principal amount of promissory notes which
are convertible into shares of EcoScience Common Stock at a conversion
price of $1.12 per share, subject to adjustment under certain
circumstances.
The aggregate maturities of debt as of January 2, 2000 are as follows:
2000 $59,005
2001 270
2002 18
2003 3,186
2004 3,180
Thereafter 9,537
-------
$75,196
=======
8. LEASES
a. Capital Leases
The Company leases certain equipment under capital leases. Future minimum lease
payments are as follows:
2000 $64
2001 63
2002 50
2003 17
2004 18
Thereafter 220
----
Total minimum lease payments 432
Less amount representing interest (61)
----
371
Less current maturities (49)
----
$322
====
F-15
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
As of January 2, 2000 the Company has entered into certain lease commitments
through 2011.
The future minimum lease payments as of January 2, 2000 are as follows:
2000 $2,693
2001 2,520
2002 2,453
2003 2,412
2004 1,834
Thereafter 6,285
-------
$18,197
=======
The above amounts include 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 May 2000.
Rent expense under the Company's various lease agreements totaled approximately
$3,010, $2,114, $4,061 and $1,830 and for the fiscal year ending January 2, 2000
the transition period ended January 3, 1999 and the fiscal years ended June 30,
1998 and 1997, respectively. Included in noncurrent liabilities in the
accompanying consolidated balance sheets is $870 and $876 at January 2, 2000 and
January 3, 1999, respectively, related to the effect of accounting for the
scheduled rent increases on a straight-line basis over the applicable lease
terms.
On February 22, 2000, the Company received notice that a complaint was filed by
Oxbow Power of North Tonowanda, New York, Inc. ("Oxbow") against Village Farms
of Wheatfield, LLC ("VFW") and Agro Power Development, Inc. in the State of New
York Supreme Court in the County of Niagara. In the complaint, the plaintiff
asserted various causes of action including an allegation that VFW breached the
Commercial Greenhouse Lease and Operating Agreement with Oxbow. The plaintiff
seeks $5,950 of damages together with interest and costs of the action. The
Company filed an answer and counterclaim on March 22, 2000. Excluding claims for
past due rental payments of approximately $360, offset by a $320 counterclaim
for assets left at the premises, the Company believes the complaint is without
merit and intends to vigorously defend against the allegations made in the
complaint.
In addition to the complaint filed by Oxbow, the Company is party to various
claims and lawsuits arising in the normal course of business. In the opinion of
management, these suits and claims will not result in judgments or settlements
which, in the aggregate, would have a material adverse effect on the Company's
financial condition or results of operations.
10. STOCKHOLDERS' EQUITY (DEFICIT)
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 10,000,000 shares. The accompanying
financial statements give retroactive effect to the one for five reverse stock
split for all periods presented.
On January 2, 2000 the Company completed a restructuring of the indebtedness to
Cogentrix. The Company issued Cogentrix 333,333 shares of non-voting, no
dividend Series A Convertible Preferred Stock of The Company ("Series A").
Commencing on June 1, 2008, all or any portion of shares of the Series A, at the
option of Cogentrix, may be converted into fully paid and nonassessable shares
of Common Stock at a conversion price equal to $5 per share, subject to
adjustment.
F-16
<PAGE>
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 2004. The following table summarizes warrant activity
for the two years ended June 30, 1998, the transition period ended January 3,
1999 and the year ended January 2, 2000:
<TABLE>
<CAPTION>
Weighted Average
Number of Warrants Price Per Share Range Exercise Price
------------------ --------------------- ----------------
<S> <C> <C> <C>
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
Granted -- -- - -- --
Cancelled -- 34.38 - 35.00 34.53
------- ----- ------ -----
Outstanding at January 3, 1999 124,311 5.00 - 48.75 15.00
Granted 75,000 .75 - .75 .75
Cancelled (10,000) 10.00 - 10.00 10.00
------- ----- ------ -----
Outstanding at January 2, 2000 189,311 .75 - 48.75 $8.96
======= ===== ====== =====
Exercisable at January 2, 2000 189,311 $.75 - $48.75 $8.96
======= ===== ====== =====
</TABLE>
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
(the "1991 Plan"), to employees and consultants. The 1999 Plan was approved by
the stockholders at the Annual Meeting of Stockholders held in May 1999. 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 have
agreed not to issue future options under the 1991 Plan.
Option activity for the two years ended June 30, 1998, the transition period
ended January 3, 1999 and the year ending January 2, 2000, is summarized as
follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Options Price Per Share Range Exercise Price
----------------- --------------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1996 167,203 1.88 - 56.88 10.84
Granted 68,036 4.69 - 12.50 6.07
Exercised 4.38 4.38
(3,800)
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
Granted 910,650 0.69 - 2.00 0.85
Cancelled (24,880) 4.38 - 10.63 6.09
--------- ----- ----- -----
Outstanding at January 2, 2000 1,036,970 $0.69 - $35.00 $1.56
========= ===== ====== =====
Exercisable at January 2, 2000 141,175 $2.00 - $35.00 $5.99
========= ===== ====== =====
</TABLE>
F-17
<PAGE>
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 fiscal year
ended January 2, 2000, the transition period ended January 3, 1999 and the
fiscal years ended June 30, 1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
Fiscal Transition
Year Ended Period Ended Fiscal Year Ending June 30,
---------------------------
January 2, 2000 January 3, 1999 1998 1997
--------------- --------------- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ($23,772) ($8,754) ($4,462) $29
-------- ------- ------- -----
Net loss per share, basic and diluted ($1.88) ($.74) ($.38) $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 January 2, 2000 and June 30, 1998
and 1997, 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 74%, 67% and 70% for the fiscal years ended January 2,
2000 and June 30, 1998 and 1997, respectively. The weighted average fair value
of the options granted during the fiscal years ended January 2, 2000 and June
30, 1998 and 1997 was $0.65, $0.85, and $0.86, respectively. No options were
granted during the transition period ended January 3, 1999.
11. INCOME TAXES
As of January 2, 2000, the Company had available net operating loss
carryforwards of approximately $33,000 and research and development tax credit
carryforwards of approximately $900 to reduce future federal income taxes, if
any. These carryforwards expire through 2014 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 completed a merger with APD in 1998 which 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 2, 2000 January 3, 1999
--------------- ---------------
Deferred tax assets $14,300 $5,400
Valuation allowance (14,300) (5,400)
------- ------
$-- $--
======= ======
The approximate tax effect of each type of temporary difference and carryforward
before allocation of the valuation allowance is summarized as follows:
January 2, 2000 January 3, 1999
--------------- ---------------
Net operating losses $13,200 $4,300
Other temporary differences 200 200
Research and development credits 900 900
------- ------
$14,300 $5,400
======= ======
F-18
<PAGE>
Due to the uncertainty surrounding the timing of realizing the potential
benefits of its favorable tax attributes in future income tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets.
A reconciliation of the provision for (benefit from) income taxes for the fiscal
year ended January 2, 2000, the transition period ended January 3, 1999 and the
fiscal years ended June 30, 1998 and 1997 with the statutory federal income tax
rate follows:
<TABLE>
<CAPTION>
Fiscal Transition
Year Ended Period Ended Fiscal Year Ending June 30,
------------------ --------------------------------
January 2, 2000 January 3, 1999 1998 1997
------------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Benefit) provision at nominal rate (34.0%) (34.0%) (34.0%) 34.0%
Increases (reductions) in taxes resulting from:
Net operating loss carryforward -- -- -- (34.0)
Valuation allowance 34.0 34.0 34.0 --
Foreign income taxes -- -- -- 10.8
State income taxes 0.1 0.1 0.1 4.2
----- ----- ----- -----
Provision for income taxes-% 0.1% 0.1% 0.1% 0.1%
----- ----- ----- -----
Provision for income taxes-$ $ 5 $ 67 $ 21 $ 78
----- ----- ----- -----
</TABLE>
The provision for income taxes for the fiscal year ended January 2, 2000,
transition period ended January 3, 1999 and the fiscal years ended June 30,
1998 and 1997 is primarily composed of foreign and state income taxes.
12. SALES, LICENSE AND DEVELOPMENT AGREEMENTS
The Joint Venture has a distribution agreement with an unrelated company for a
term of five years ending in December 2004, with automatic five-year extensions
unless either party elects to terminate the agreement. The agreement grants the
Joint Venture the exclusive right to sell the unrelated company's product (the
"Grodan Product Line") in the United States, Canada, Mexico, and the Caribbean.
Sales of the Grodan Product Line accounted for 18%, 18%, 17% and 20% of the
Company's total net revenues for the year ended January 2, 2000, the transition
period ended January 3, 1999 and the fiscal years ended June 30, 1998 and 1997,
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, this division was
sold (see Note 1).
13. 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 176 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.
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.
F-19
<PAGE>
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
Year Ended Period Ended
Years Ended June 30,
January 2, 2000 January 3, 1999 1998 1997
---------------- --------------- ------ -----
<S> <C> <C> <C> <C>
Company data by operating segment (1)
Net revenues
Greenhouse tomatoes $40,951 $15,453 $28,871 $21,963
Biological and agricultural products 12,410 10,741 17,306 17,899
------- ------- ------- -------
Total $53,361 $26,194 $46,177 $39,862
======= ======= ======= =======
Total assets
Greenhouse tomatoes $77,188 $93,539 $69,971 $62,072
Biological and agricultural products 4,209 8,325 9,537 8,520
------- ------- ------- -------
Total $81,397 $101,864 $79,508 $70,592
======= ======= ======= =======
Capital expenditures
Greenhouse tomatoes $1,305 $4,568 $25,554 $28,154
Biological and agricultural products 52 64 545 90
------- ------- ------- -------
Total $1,357 $4,632 $26,099 $28,244
======= ======= ======= =======
Operating (loss) income
Greenhouse tomatoes ($11,327) ($6,272) ($5,276) $295
Biological and agricultural products (1,582) (1,317) (1,195) 278
------- ------- ------- -------
Total ($12,909) ($7,589) ($6,471) $573
======= ======= ======= =======
Depreciation and amortization expense
Greenhouse tomatoes $5,724 $1,979 $2,891 $1,504
Biological and agricultural products 288 167 332 402
------- ------- ------- -------
Total $6,012 $2,146 $3,223 $ 1,906
======= ======= ======= =======
Company data by geographic segments (2)
Net revenues
United States $47,657 $23,135 $39,243 $34,219
Canada 5,704 3,059 6,934 5,643
------- ------- ------- -------
Total $53,361 $26,194 $46,177 $39,862
======= ======= ======= =======
</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-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
- -------------- -------------------
<S> <C>
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].
2.2 Asset Purchase and Sale Agreement between EcoScience
Corporation, EcoScience Produce Systems Corporation and Pace
International, LLC dated November 4, 1999 (incorporated by
reference to Exhibit 10.124 to the Registrant's October 3,
1999 quarterly report on form 10-Q).
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].
3.4 Certificate of Designations, Preferences and Rights of Series A Preferred Stock [filed
herewith].
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. [incorporated by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the transition period ended January 3, 1999].
10.3* Form of Non-Statutory Stock Option Agreement. [incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664].
10.4 Common Stock Purchase Warrant between the Registrant and Copley Partners 2, L.P., dated
December 6, 1989, as amended. [incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1993].
10.7 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].
10.26 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].
10.61 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].
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].
10.78 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].**
10.100 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].
10.112 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].
10.114 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.
[incorporated by reference to Exhibit 10.115 to Registrant's
Annual Report on form 10-K for the year ended January 3,
1999].
10.116 Alonge to Promissory Note dated December 30, 1998 of Registrant, payable to Cogentrix Delaware
Holdings, Inc. [incorporated by reference to Exhibit 10.115 to Registrant's Annual Report on
form 10-K for the year ended January 3, 1999].
10.117 Promissory Note dated March 15, 1999 issued by Registrant to Cogentrix Delaware Holdings, Inc.
in the amount of $1 million. [incorporated by reference to Exhibit 10.115 to Registrant's
Annual Report on form 10-K for the year ended January 3, 1999].
10.118 Amendment to Stock Pledge Agreement dated as of March 15,
1999 between Registrant and Cogentrix Delaware Holdings,
Inc. [incorporated by reference to Exhibit 10.115 to
Registrant's Annual Report on form 10-K for the year ended
January 3, 1999].
10.119 * Employment agreement between EcoScience Corporation and
Kenneth S. Hollander, dated June 1, 1999 [incorporated by
reference to Exhibit 10.119 to the Registrant's Registration
Statement on Form S-1].
10.120 Extension agreement and related allonges to Cogentrix
Energy, Inc. promissory notes dated June 29, 1999
[incorporated by reference to Exhibit 10.120 to the
Registrant's July 4, 1999 quarterly report on form 10-Q].
10.121 Extension agreement and relate allonges to Cogentrix Energy,
Inc. promissory notes dated July 30, 1999 [incorporated by
reference to Exhibit 10.121 to the Registrant's July 4, 1999
quarterly report on form 10-Q].
10.122 First Amendment to Operating Agreement between Village Farms of Virginia, Inc. and Greenhost,
Inc. [incorporated by reference to Exhibit 10.122 to the Registrant's July 4, 1999 quarterly
report on form 10-Q].
10.123 Loan and Security Agreement between Century Business Credit
Corporation and Agro Dynamics, Inc. and EcoScience Produce
Systems Corporation dated June 29, 1999 [incorporated by
reference to Exhibit 10.123 to the Registrant's July 4, 1999
quarterly report on form 10-Q].
10.125 Consolidated, Amended and Restated Loan Agreement By and Between CoBank, ACB and Village Farms,
L.P. dated as of January 2, 2000 [filed herewith].
10.126 Guaranty of Agro Power Development, Inc. to CoBank, ACB [filed herewith].
10.127 Guaranty of EcoScience Corporation to CoBank, ACB [filed herewith].
10.128 Agreement dated as of January 2, 2000 among Village Farms of Presidio, L.P., Village Farms of
Delaware, LLC, Village Farms, LLC, Village Farms, L.P., Agrorent A, LLC, Agrorent B, LLC,
Agrorent Holdings Inc., New Amsterdam Joint Venture, LLC, Agrorent B.V., Kwekerij Nic Poot
B.V., Nic Poot, New Amsterdam Management, Co., and EcoScience Corporation [filed herewith].
10.129 Exchange Agreement dated as of January 2, 2000 by and between Cogentrix Delaware Holdings, Inc.
and EcoScience Corporation [filed herewith].
10.130 Amendment and Assumption Agreement dated as of March 3, 2000 by and between Agro Dynamics,
Inc., EcoScience Produce Systems Corporation, Agro-Dan, Inc. and Century Business Credit
Corporation [filed herewith].
10.131 Stockholders' Agreement dated as of March 3, 2000 by and among Agro-Dan, Inc., EcoScience
Corporation, Agro Dynamics, Inc. and Grodania A/S [filed herewith].
10.132 Distribution Agreement dated March 3, 2000 between Agro-Dan, Inc. and Grodania A/S [filed
herewith].
10.133 Joint Venture Agreement, dated as of January 12, 2000, by and among EcoScience Corporation,
Agro Dynamics, Inc. and Grodania A/S [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].
27 Financial Data Schedule for the fiscal year ended January 2, 2000 [filed herewith].
</TABLE>
- -----------------------------------
* 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.
EXHIBIT 3.4
ECOSCIENCE CORPORATION
STATEMENT OF RIGHTS AND
PREFERENCES OF PREFERRED STOCK
DESIGNATION OF SERIES A PREFERRED STOCK
The shares of this series shall be designated the "Series A Preferred
Stock" (the "SERIES A PREFERRED STOCK") and shall consist of 333,333 shares,
with a par value of $.01 per share and a stated value of $20.00 per share.
statement of the relative powers, dividends, preferences, rights,
qualifications, limitations and restrictions of the Series A Preferred Stock
is as follows:
1. Dividends.
(a) Except as required by applicable law, the holders of the Series A
Preferred Stock shall not be entitled to receive any dividends in respect of the
Series A Preferred Stock. So long as any share of Series A Preferred Stock
remains outstanding, no dividends shall be paid upon, or declared or set apart
for, the Common Stock or any other class of capital stock of the Corporation
ranking junior to the Series A Preferred Stock with respect to rights on
liquidation (the Common Stock and any other class of capital stock of the
Corporation ranking junior to the Series A Preferred Stock being collectively
referred to as "JUNIOR SECURITIES").
2. Voting. Except as required by applicable law and as expressly provided
in this Section 2, the holders of the Series A Preferred Stock shall not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Corporation. The holders of the Series A
Preferred Stock shall be entitled to vote separately as a class on any (a)
proposed amendment to this Statement of Rights and Preference of Preferred Stock
(the "STATEMENT") which would increase or decrease the aggregate number of
authorized shares of Series A Preferred Stock, (b) proposal to create a new
class of shares having rights and preferences equal to or having priority over
the Series A Preferred Stock or (c) proposed amendments of this Statement that
could adversely affect the powers, preferences, participations, rights,
qualifications or restrictions of the Series A Preferred Stock. Any matter on
which the holders of the Series A Preferred Stock are entitled to vote as a
class requires the affirmative vote of holders owning a majority of the issued
and outstanding shares of Series A Preferred Stock.
3. Liquidation Preference.
(a) Series A Preferred Stock. Upon the occurrence of a Liquidating
Event (as defined below), whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive, out of the assets of the
Corporation available for distribution to its shareholders or from the proceeds
from such Liquidating Event, and prior to and in preference to any payment or
distribution made in respect of the Corporation's Junior Securities, $20.00 in
cash, securities or other property (based upon the Market Price thereof for such
securities and the
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<PAGE>
fair market value thereof for such other property, in each case calculated as of
the date of such Liquidating Event) for each share of Series A Preferred Stock
(together with all accrued and unpaid dividends thereon) (the "SERIES A
LIQUIDATION PREFERENCE"). If, upon such Liquidating Event, the assets
distributable to the holders of the Series A Preferred Stock shall be
insufficient to permit the payment in full of the Series A Liquidation
Preference, the assets of the Corporation shall be distributed to the holders of
the Series A Preferred Stock ratably until the holders shall have received the
full amount to which they would otherwise be entitled.
(b) Valuation of Securities. For purposes of this Section 3, if any
asset distributed to shareholders upon the occurrence of any Liquidating Event
consists of property other than cash or securities, the value of such
distribution shall be deemed to be the fair market value thereof at the time of
such distribution, as determined in good faith by the Board of Directors of the
Corporation. Any securities to be delivered pursuant to this Section 3 shall be
valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by Section 3(b)(ii) hereof
shall be valued at the Market Price (as defined below); and
(ii) Securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising
solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall valued at an appropriate discount from the Market
Price, as reasonably determined by the Board of Directors in good
faith, to reflect the adjusted fair market value thereof.
For purposes of this Statement, "MARKET PRICE" of any security means the average
of the closing prices of such security's sales on the principal securities
exchanges on which such security may at the time be listed, or, if there has
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five days consisting of the day prior to the day as of which
Market Price is being determined and the four consecutive business days prior to
such day. If at any time such security is not listed on any securities exchange
or quoted in the NASDAQ System or the over-the-counter market, the Market Price
shall be the fair value thereof determined in good faith by the Corporation's
Board of Directors
(c) Liquidating Event. Any of the following shall be considered a
"LIQUIDATING EVENT", and shall entitle the holders of the Series A Preferred
Stock and the Common Stock to receive at the closing, in cash, securities or
other property, amounts as specified in Sections 3(a) (valued as provided in
Section 3(b) above):
(i) any liquidation, dissolution or winding up of the
Corporation; or
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(ii) a sale, lease or other disposition of all or substantially
all the Corporation's assets provided, however, that if the holders of
a majority of the shares of Series A Preferred Stock so elect by
giving written notice to the Corporation before the effective date of
any such sale, lease or disposition that would otherwise be a
Liquidating Event as defined herein, such merger or consolidation
shall not be deemed a Liquidating Event and the provisions of Section
5(e) below shall apply.
(d) Notice of Liquidation Event. The Corporation shall give to each
holder at least thirty (30) days prior written notice of any Liquidating Event
by delivery of such notice via first class mail, postage prepaid, at the
holder's address as set forth in the records of the Corporation; provided,
however, that any holder of Series A Preferred Stock may convert its shares of
Series A Preferred Stock to Common Stock at any time prior to the payment date
stated in such notice.
4. Redemption. The Series A Preferred Stock shall not be subject to
redemption by the Corporation.
5. Conversion of Series A Preferred Stock. Each holder of shares of Series
A Preferred Stock shall have the right to convert such shares into shares of the
Common Stock of the Corporation as follows:
(a) Optional Conversion. Commencing on June 1, 2008, all or any
portion of shares of the Series A Preferred Stock, at the option of the holders,
may be converted into fully paid and nonassessable shares (calculated as to each
conversion to the largest whole share) of Common Stock of the Corporation by
multiplying the number of shares of Series A Preferred Stock to be converted
times $5.00 and dividing the result by the Conversion Price (as defined below)
then in effect.
(b) Conversion Price. The initial conversion price per share of Series
A Preferred Stock (the "CONVERSION PRICE") shall be equal to $5.00. The
Conversion Price shall be subject to adjustment as hereinafter provided.
(i) If and whenever the Corporation issues or sells, or in
accordance with Section 5(c) below is deemed to have issued or sold,
any shares of Common Stock for a consideration per share less than the
Market Price of the Common Stock in effect immediately prior to the
time of such issue or sale, then immediately upon such issue or sale
or deemed issue or sale the Conversion Price shall be reduced to the
Conversion Price determined by dividing (a) the sum of (i) the product
derived by multiplying the Conversion Price in effect immediately
prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding (as defined below) immediately prior to such issue
or sale, plus (ii) the consideration, if any, received by the
Corporation upon such issue or sale, by (b) the number of shares of
Common Stock Deemed Outstanding immediately
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<PAGE>
after such issue or sale. "COMMON STOCK DEEMED OUTSTANDING" means, at
any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding assuming exercise and/or conversion of the
Corporation's Options (as defined below) and Convertible Securities
(as defined below), whether or not such Options or Convertible
Securities are actually exercisable at such time.
(ii) Notwithstanding any provision in this Section 5, there shall
be no adjustment to the Conversion Price hereunder with respect to the
issuance of Common Stock upon conversion of the Series A Preferred
Stock.
(c) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Section 5(b) above, the
following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in any
manner grants or sells any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities (as defined
below) ("OPTIONS") and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or
exchange of any stock or securities directly or indirectly convertible
into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES")
issuable upon exercise of such Options, is less than the Market Price
of the Common Stock in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options
shall be deemed to be outstanding and to have been issued and sold by
the Corporation at the time of the granting or sale of such Options
for such price per share. For purposes of this paragraph, the "PRICE
PER SHARE FOR WHICH COMMON STOCK IS ISSUABLE" shall be determined by
dividing (A) the total amount, if any, received or receivable by the
Corporation as consideration for the granting or sale of such Options,
plus the minimum aggregate amount of additional consideration payable
to the Corporation upon exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation in
any manner issues or sells any Convertible Securities and the price
per share for which Common Stock is issuable upon conversion or
exchange thereof is less
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<PAGE>
than the Market Price of the Common Stock in effect immediately prior
to the time of such issue or sale, then the maximum number of shares
of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For the
purposes of this paragraph, the "PRICE PER SHARE FOR WHICH COMMON
STOCK IS ISSUABLE" shall be determined by dividing (A) the total
amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment
of the Conversion Price shall be made when Common Stock is actually
issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Conversion
Price had been or are to be made pursuant to other provisions of this
Section 5, no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.
(iii) Change in Options Price or Conversion Rate. If the purchase
price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible
Securities or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time,
the Conversion Price in effect at the time of such change shall be
immediately adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Options or the termination of
any right to convert or exchange any Convertible Securities without
the exercise of any such Options or rights, the Conversion Price then
in effect hereunder shall be adjusted immediately to the Conversion
Price which would have been in effect at the time of such expiration
or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor
(net of discounts, commissions and related expenses). If any Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be the fair value of such
consideration, except where such consideration consists of securities,
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in which case the amount of consideration received by the Corporation
shall be the Market Price thereof as of the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in
which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as
is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be determined in good faith by
the Corporation's Board of Directors.
(vi) Integrated Transactions. If any Options are issued in
connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which
no specific consideration is allocated to such Options by the parties
thereto, the Options shall be deemed to have been issued for such
consideration as shall be determined in good faith by the
Corporation's Board of Directors.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Corporation or any subsidiary, and the
disposition of any shares so owned or held shall be considered an
issue or sale of Common Stock.
(viii) Record Date. If the Corporation takes a record of the
holders of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (B) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issuance or sale of
the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(ix) Waiver of Adjustment. Notwithstanding anything to the
contrary contained herein, there shall be no adjustment pursuant to
this Section 5(c):
(A) if prior to the issuance of Common Stock, Options or
Convertible Securities, the Corporation receives written notice
from the holders of a majority of the then outstanding shares of
Series A Preferred Stock agreeing that no such adjustment shall
be made as the result of such issuance; or
(B) with respect to shares of Common Stock issued or
issuable (1) as a dividend or distribution on Series A Preferred
Stock or (2) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock described in the
preceding clause (1).
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(d) Subdivision or Combination of Common Stock. In the event that the
Corporation at any time or from time to time shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then the Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate.
(e) Extraordinary Event. Prior to the consummation of any
Extraordinary Event (as defined below), the Corporation shall make appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Series A Preferred Stock then outstanding) to ensure that each
of the holders of Series A Preferred Stock shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the conversion of such holder's Series A Preferred Stock, such shares of stock,
securities or assets as such holder would have received in connection with such
Extraordinary Event if such holder had converted its Series A Preferred Stock
immediately prior to such Extraordinary Event. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
reasonably satisfactory to the holders of a majority of the Series A Preferred
Stock then outstanding) to ensure that the provisions of this Section 5 shall
thereafter be applicable to the Series A Preferred Stock). The Corporation shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation)
resulting from such consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance reasonably satisfactory to
the holders of a majority of the Series A Preferred Stock then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire. For purposes of this Section 5, "EXTRAORDINARY EVENT" means
the occurrence or consummation of a transaction or series of related
transactions (other than any such transaction that is treated as a Liquidating
Event) resulting in: (i) a merger, consolidation, sale or reorganization in
which the Corporation or any of its subsidiaries is not the surviving
corporation; or (ii) a sale, lease or exchange, directly or indirectly, of all
or substantially all of the property and assets of the Corporation, whether or
not in the ordinary course of business.
(f) Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 5 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Series A
Preferred Stock in a manner consistent with the other provisions of this
Designation of Series A Preferred Stock; provided, however, that no such
adjustment shall increase the Conversion Price as otherwise determined pursuant
to this Section 5 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock.
(g) Conversion Procedure.
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(i) Except as otherwise provided herein, each conversion of
Series A Preferred Stock shall be deemed to have been effected as of
the close of business on the date on which the certificate or
certificates representing the Series A Preferred Stock to be converted
have been surrendered for conversion at the principal office of the
Corporation. At the time any such conversion has been effected, the
rights of the holder of the shares converted as a holder of Series A
Preferred Stock shall cease and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock are
to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented
thereby.
(ii) Notwithstanding any other provision hereof, if a conversion
of Series A Preferred Stock is to be made in connection with an
Extraordinary Event or any other transaction affecting the Corporation
or any holder of Series A Preferred Stock, the conversion of any
shares of Series A Preferred Stock may, at the election of the holder
thereof, be conditioned upon the consummation of such transaction, in
which case such conversion shall be deemed to be effective immediately
prior to the consummation of such transaction.
(iii) Promptly (and in any event within five (5) business days in
the case of Section 5(h)(iii)(A) below) after a conversion has been
effected, the Corporation shall deliver to the converting holder:
(A) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified; and
(B) a certificate representing any shares of Series A
Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted.
(iv) The issuance of certificates for shares of Common Stock upon
conversion of Series A Preferred Stock shall be made without charge to
the holders of such Series A Preferred Stock for any issuance tax in
respect thereof (so long as such certificates are issued in the name
of the record holder of such Series A Preferred Stock) or other cost
incurred by the Corporation in connection with such conversion and the
related issuance of shares of Common Stock. Upon conversion of each
share of Series A Preferred Stock, the Corporation shall take all such
actions as are necessary in order to ensure that the Common Stock
issuable with respect to such conversion shall be validly issued,
fully paid and nonassessable, free and clear of all taxes (other than
any taxes relating to any dividends paid with respect thereto), liens,
charges and encumbrances with respect to the issuance thereof.
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(v) The Corporation shall not close its books against the
transfer of Series A Preferred Stock or of Common Stock issued or
issuable upon conversion of Series A Preferred Stock in any manner
which interferes with the timely conversion of Series A Preferred
Stock. The Corporation shall assist and cooperate with any holder of
such shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of
such shares hereunder (including, without limitation, making any
filings required to be made by the Corporation).
(h) No Fractional Shares. No fractional share shall be issued upon the
conversion of any share of shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors).
(i) No Impairment. The Corporation will not, by amendment of this
Statement or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action
(other than actions taken in good faith), avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in carrying out all the provisions of
this Section 5 and in taking all such action as may be necessary or appropriate
in order to protect the conversion rights of the holders of the Series A
Preferred Stock against impairment.
(j) Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property that
at the time would be received upon the conversion of the Series A Preferred
Stock.
(k) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose or determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional shares of Common Stock, or
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Corporation shall mail to each holder of Series A Preferred Stock, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend.
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(l) Reservation of Common Stock. The Corporation shall, at all times
when the Series A Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the purpose of effecting
the conversion of the Series A Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Series A Preferred Stock. Before taking
any action which would cause the effective purchase price for the Series A
Preferred Stock to be less than the par value of the shares of Series A
Preferred Stock, the Corporation shall take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such effective purchase price.
6. Retirement of Shares. Any shares of Series A Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation shall be deemed retired and
shall be cancelled and may not under any circumstances thereafter be reissued or
otherwise disposed of by the Corporation.
7. Restrictions on Transfers. No holder of the Series and Preferred Stock
may transfer any portion of its shares of Series A Preferred Stock without the
prior written consent of the Corporation (which consent shall not be
unreasonably withheld, delayed or conditioned).
10
CONSOLIDATED, AMENDED AND
RESTATED LOAN AGREEMENT
BY AND BETWEEN
COBANK, ACB
AND
VILLAGE FARMS, L.P.
DATED AS OF JANUARY 2, 2000
<PAGE>
CONSOLIDATED, AMENDED AND RESTATED LOAN AGREEMENT
THIS CONSOLIDATED, AMENDED AND RESTATED LOAN AGREEMENT ("AGREEMENT") is
entered into as of the 2nd day of January, 2000, by and between COBANK, ACB
("COBANK"), whose mailing address is P.O. Box 5110, Denver, Colorado 80217, and
VILLAGE FARMS, L.P., a limited partnership formed under the laws of the State of
Delaware, whose mailing address is 10 Alvin Court, New Brunswick, NJ 08816
("BORROWER").
RECITALS
A. CoBank has purchased all right, title and interest of Village Farms
International Finance Association, a Delaware corporation ("VFIFA") to the
Buffalo Loan, the Marfa Loan, the Presidio Loan and the Texas Loan, and all
collateral security therefor, pursuant to that certain Note Purchase Agreement
of even date herewith by and between VFIFA and CoBank ("NOTE PURCHASE
AGREEMENT").
B. The borrower under each of the Buffalo Loan, the Marfa Loan, the
Presidio Loan and the Texas Loan has merged into Borrower and Borrower is the
surviving entity. Borrower and CoBank desire to consolidate, amend and restate
the terms and conditions of the Buffalo Loan, the Marfa Loan, the Presidio Loan
and the Texas Loan.
C. Certain other entities which were merged into Borrower also
previously borrowed money from VFIFA and from Agro Power Development, a Delaware
corporation ("APD"), and Borrower desires to refinance such loans.
AGREEMENT
Now, therefore, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINED TERMS
As used in this Agreement, the following terms shall have the meanings
set forth below (and such meaning shall be equally applicable to both the
singular and plural form of the terms defined, as the context may require):
1.1 APD Entities: Village Farms, L.L.C., a Delaware limited liability
company; and Cogentrix Greenhouse Investments, Inc., a Delaware corporation.
1.2 APD Guaranty: that certain Guaranty of even date herewith pursuant to
which APD unconditionally guarantees the payment and performance of all
obligations
<PAGE>
of Borrower to CoBank, whether now existing or hereafter arising and including,
without limitation, all indebtedness of Borrower to CoBank under the Loan
Documents, as amended, modified or supplemented from time to time.
1.3 APD Loans: the loans made by APD to Village Farms of Presidio, L.P., a
Delaware limited partnership, Keystone Village Farms, L.L.C., a Delaware limited
liability company, and Village Farms of Virginia, Inc., a Delaware corporation,
with proceeds of the loans which were made to APD by VFIFA using proceeds of the
loan made to VFIFA by CoBank under the Line of Credit Agreement and using
distributions received by APD on account of the sale of the assets of Pocono.
1.4 APD Finance Loan: the loans made to APD by VFIFA with proceeds of the
loans made by CoBank to VFIFA under the Line of Credit Agreement.
1.5 Bank Debt: all amounts owing under the Notes, fees owing under the Loan
Documents, indemnification obligations arising under the Loan Documents
(including, without limitation, Article 14 of this Agreement), all draws under
the Issued Letter of Credit and all reimbursement obligations of Borrower under
any reimbursement agreement executed in connection with the Issued Letter of
Credit, Additional Costs, and all interest, expenses, charges and other amounts
payable by Borrower pursuant to the Loan Documents.
1.6 Borrower Pension Plan: a Borrower Benefit Plan that is an "employee
pension benefit plan" as defined in Section 3(2) of ERISA that is intended to
satisfy the requirements of Section 401(a) of the Code.
1.7 Buffalo Loan: the loans made to Village Farms of Buffalo, L.P., a
Delaware limited partnership, by VFIFA with proceeds of the loans made by CoBank
to VFIFA pursuant to the VFIFA Loan Agreements.
1.8 Business Day: any day other than a Saturday or Sunday and other than a
day which is a Federal legal holiday or a legal holiday for banks in the State
of Colorado or the State of New Jersey.
1.9 Capital Lease: means any lease of property (whether real, personal or
mixed) by a Person where the discounted present value of the rental obligations
of such Person as lessee under such lease, in accordance with GAAP, is required
to be capitalized on the balance sheet of such Person.
1.10 Change of Control: any of the following events: (a) any "person" or
any syndicate or group deemed a "person" within the meaning of Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") has become, directly or indirectly, the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), of 30% or more of the voting power of the voting stock of
EcoScience on a fully-diluted basis, after giving effect to
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the conversion and exercise of all outstanding warrants, options and other
securities of EcoScience (whether or not such securities are then currently
convertible or exercisable), or (b) during any period of two consecutive board
election years, individuals who at the beginning of such period constituted the
board of directors of EcoScience cease for any reason (other than death,
disability or expiration of term) to constitute a majority of the directors of
EcoScience then in office unless such new directors were elected by the
directors of EcoScience who constituted the board of directors of EcoScience at
the beginning of such period; provided, however, that no Change of Control shall
occur or be deemed to have occurred if any of Michael A. DeGiglio, Albert
Vanzeyst or Thomas Montanti, acting individually or as a group, becomes the
beneficial owner of 30% or more of the voting power of the voting stock of
EcoScience or if any of Michael A. DeGiglio, Albert Vanzeyst or Thomas Montanti
disposes of 35% or less of the voting power of the voting stock of EcoScience of
which he is the beneficial owner (as herein defined) as of the date of this
Agreement, with ownership percentages determined in all cases on a fully diluted
basis after giving effect to the conversion and exercise of all outstanding
warrants, options and other securities of EcoScience (whether or not such
securities are then currently convertible or exercisable).
1.11 Cogentrix: Cogentrix Delaware Holdings, Inc.
1.12 Collateral: the Borrower Collateral, the General Partner Collateral
and the Guarantor Collateral.
1.13 Compliance Certificate: a certificate in the form of Exhibit 1.13
hereto.
1.14 Construction Loan Agreement: that certain Credit Agreement
(Construction Loan Funding) dated as of June 24, 1997 by and between CoBank, for
its own benefit as a lender and, as Agent Bank for the benefit of the present
and future Syndication Parties, and VFIFA, as amended
1.15 Default Interest Rate: a rate of interest equal to 400 basis points
over the Interest Rate.
1.16 EBITDA: for any period, the consolidated net income of Borrower for
such period (excluding the effect of any extraordinary gains or losses), plus
the sum of the amounts of (a) Interest Expense, plus (b) federal and state
income taxes, plus (c) depreciation and amortization expense, all as determined
in accordance with GAAP.
1.17 EcoScience: EcoScience Corporation, a Delaware corporation.
1.18 EcoScience Guaranty: that certain Guaranty of even date herewith
pursuant to which EcoScience unconditionally guarantees the payment and
performance of all obligations of Borrower to CoBank, whether now existing or
hereafter arising and including, without limitation, all indebtedness of
Borrower to CoBank under the Loan Documents, as amended, modified or
supplemented from time to time.
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1.19 Effective Date: the first date on which the conditions set forth in
Article 9 shall have been satisfied.
1.20 Environmental Laws: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended, 42 U.S.C. 9601-9657 and the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901-6987.
1.21 Environmental Regulations: any federal, state or local law, statute,
code, ordinance, regulation, requirement or rule (other than the Environmental
Laws) now in effect or hereinafter enacted relating to pollution or protection
of the environment, health, safety or natural resources.
1.22 GAAP: generally accepted accounting principles in the United States of
America, applied consistently, as in effect from time to time.
1.23 General Partner: Village Farms of Delaware, L.L.C., a Delaware limited
liability company.
1.24 General Partner Entities: Cogentrix of Buffalo, Inc., a Delaware
corporation; Cogentrix of Fort Davis I, Inc., a Delaware corporation; and
Cogentrix of Marfa, Inc., a Delaware corporation.
1.25 General Partner Security Agreement: that certain Security and Pledge
Agreement of even date herewith pursuant to which General Partner pledges and
grants to CoBank a security interest in the General Partner Collateral, as
amended, modified or supplemented from time to time.
1.26 Greenhouses: the greenhouses operated by Borrower for the production
of vegetables or other produce.
1.27 Greenhouse Properties: the real property on which the Greenhouses are
located.
1.28 Gross Profit: Borrower's revenue from sales minus the cost of goods
sold, determined on a consolidated basis and calculated in accordance with GAAP.
1.29 Guarantees: the APD Guaranty and the EcoScience Guaranty.
1.30 Guarantors: APD and EcoScience.
1.31 Guarantor Collateral: the APD Collateral and the EcoScience
Collateral.
1.32 Hazardous Substances: dangerous, toxic or hazardous pollutants,
contaminants, chemicals, wastes, materials or substances, as defined in or
governed by the provisions of any Environmental Laws or Environmental
Regulations, and also including urea formaldehyde, polychlorinated biphenyls,
asbestos, asbestos-containing materials, nuclear fuel or waste, and petroleum
products, or any other waste, material, substances, pollutant or contaminant
which would subject an owner of property to any
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damages, penalties or liabilities under any applicable Environmental Laws or
Environmental Regulations.
1.33 Interest Expense: for any period, total interest expense (including
the interest component of any Capital Leases) of Borrower determined on a
consolidated basis and in accordance with GAAP.
1.34 Interest Rate: the National Variable Rate plus 200 basis points.
1.35 Issued Letter of Credit: that certain Letter of Credit issued by
CoBank on October 1, 1997 for the benefit of National Fuel Gas Distribution
Corporation in the face amount of $80,000, as amended, modified, extended or
replaced from time to time.
1.36 Lien: any mortgage, pledge, lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and, with respect to real property, any easement, right of
way or other encumbrance on title to real property.
1.37 Line of Credit Agreement: that certain Credit Agreement (Line of
Credit Funding) dated as of June 24, 1997 by and between CoBank, for its own
benefit as a lender and, as Agent Bank for the benefit of the present and future
Syndication Parties, and VFIFA, as amended.
1.38 Loan Documents: this Agreement, the Notes, the Note Purchase
Agreement, the Guarantees, the Security Documents, and other documents required
by CoBank from time to time to grant or assign to CoBank a perfected security
interest in the Collateral, together with all renewals, extensions, amendments,
modifications, and supplements thereto.
1.39 Marfa Loan: the loans made to Village Farms of Marfa, L.P., a Delaware
limited partnership, by VFIFA with proceeds of the loans made by CoBank to VFIFA
pursuant to the VFIFA Loan Agreements.
1.40 Material Adverse Change: with respect to any Person, any material
adverse change in the business, condition (financial or otherwise), operations,
performance or properties of such Person.
1.41 Material Adverse Effect: with respect to any Person, a material
adverse effect on (a) the business, condition (financial or otherwise),
operations, performance or properties of such Person, (b) the ability of such
Person to perform its obligations under any Loan Document to which it is a party
or (c) the rights and remedies of CoBank under any Loan Document.
1.42 Mission Critical: a Person with respect to whom the failure of such
Person's Significant Software to be Year 2000 Compliant could reasonably be
expected to have a Material Adverse Effect on Borrower.
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1.43 National Variable Rate: the rate of interest established by CoBank
from time to time as its National Variable Rate. The National Variable Rate is
intended by CoBank to be a reference rate, and CoBank may charge other borrowers
rates at, above, or below that rate. Any change in the National Variable Rate
shall take effect on the date established by CoBank as the effective date of
such change.
1.44 Notes: the Tranche A Note and the Tranche B Note, as amended, modified
or supplemented from time to time.
1.45 Participant: collectively, any Person to whom CoBank shall sell or
assign a loan participation or other fractional undivided interest in the Bank
Debt, as evidenced by the Notes and other Loan Documents, and the legal
representatives, successors and assigns of any such Person.
1.46 Pennsylvania Loan: the loans made to Keystone Village Farms, L.L.C. by
VFIFA with proceeds of the loans made by CoBank to VFIFA pursuant to the VFIFA
Loan Agreements.
1.47 Permits: any and all permits, licenses and consents from any
governmental entity or third party that must be obtained in order to own/lease
and operate the Greenhouses and the Greenhouse Properties and for Borrower to
perform Borrower's obligations under the Loan Documents.
1.48 Permitted Liens: Liens against any Collateral which are permitted
under Section 12.3 of this Agreement or otherwise expressly permitted pursuant
to any other Loan Document.
1.49 Person: any individual, sole proprietorship, joint venture,
unincorporated organization, cooperative association, limited liability company,
corporation, association, partnership, trust, government, governmental agency,
or other entity.
1.50 Potential Default: any event which with the giving of notice or lapse
of time, or both, would become an Event of Default.
1.51 Pocono: Village Farms of Pocono, L.P., a Delaware limited partnership.
1.52 Pocono Loan: the loans made to Village Farms of Pocono, L.P., a
Delaware limited partnership, by VFIFA with proceeds of the loans made by CoBank
to VFIFA pursuant to the Construction Loan Agreement.
1.53 Presidio: Village Farms of Presidio, L.P., a Delaware limited
partnership.
1.54 Presidio Loan: the loans made to Presidio by VFIFA with proceeds of
the loans made by CoBank to VFIFA pursuant to the VFIFA Loan Agreements.
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1.55 Projections: the projections provided to CoBank with respect to
projected operations and financial results of operations of Borrower after
consummation of the Borrower Merger, identified on, or attached hereto as,
Exhibit 1.55.
1.56 Quarter: the quarters of Borrower's Fiscal Year.
1.57 Security Documents: the security agreements, mortgages, deeds of
trust, financing statements, pledge agreements, amendments to ground leases,
lessor's consents, and/or other security documents required pursuant to this
Agreement and/or executed by Borrower, General Partner or any Guarantor in favor
of, or assigned by VFIFA to, CoBank to secure the performance of Borrower's
obligations under the Notes and other Loan Documents with a Lien on the
Collateral, in form and substance acceptable to CoBank, together with all
renewals, extensions, amendments, modifications, and supplements thereto.
1.58 Significant Software: any device or system owned or licensed by a
Person (including without limitation all computer hardware or software,
firmware, equipment containing embedded microchips or integrated circuits, or
other set or collection of processing instructions) regularly used by such
Person in its business operations or financial accounting which, individually,
or together with one or more such items, would, if it failed to be Year 2000
Compliant, have a material adverse effect on the business condition (financial
or otherwise), operations, performance, or properties of such Person.
1.59 Significant Software Provider: a third party vendor which provides
Significant Software.
1.60 Term Loans: the Tranche A Loan and the Tranche B Loan.
1.61 Term Loan Agreement: that certain Credit Agreement (Term Loan Funding)
dated as of June 24, 1997 by and between CoBank, for its own benefit as a lender
and, as Agent Bank for the benefit of the present and future Syndication
Parties, and VFIFA, as amended.
1.62 Texas Loan: the loans made to Village Farms of Texas, L.P., a Delaware
limited partnership, by VFIFA with proceeds of the loans made by CoBank to VFIFA
pursuant to the VFIFA Loan Agreements and the loans originally made to Village
Farms of Texas, L.P. by the Farm Credit Bank of Texas and the Texas Production
Credit Association which were subsequently purchased by VFIFA from the Farm
Credit Bank of Texas and the Texas Production Credit Association.
1.63 Tranche A Commitment: $13,400,000
1.64 Tranche B Commitment: $58,885,739.67 plus the amount of any and all
draws on the Issued Letter of Credit.
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1.65 Tranche A Maturity Date: July 31, 2000 or such later date to which the
maturity of the Tranche A Loan is extended by CoBank pursuant to Section 6.3.1
of this Agreement.
1.66 Tranche B Maturity Date: July 31, 2001 or such later date to which the
maturity of the Tranche B Loan is extended by CoBank pursuant to Section 6.3.2
of this Agreement.
1.67 Tranche A Note: the promissory note of even date herewith made by
Borrower payable to CoBank in the principal amount of the Tranche A Commitment,
as amended, modified or supplemented from time to time.
1.68 Tranche B Note: the promissory note of even date herewith made by
Borrower payable to CoBank in the principal amount of the Tranche B Commitment,
as amended, modified or supplemented from time to time.
1.69 Turnaround Manager: a qualified turnaround manager, reasonably
acceptable to CoBank, to perform the functions of the chief executive officer of
Borrower and APD.
1.70 VFIFA Loan Agreements: the Line of Credit Agreement, the Construction
Loan Agreement and the Term Loan Agreement.
1.71 Village Farms Entities: collectively, Village Farms of Colorado, Inc.,
a Delaware corporation; Village Farms, Inc., a Delaware corporation; Village
Farms Mediterranean, Inc., a Delaware corporation; Village Farms of Virginia,
Inc., a Delaware corporation; Village Farms of Texas, L.P., a Delaware limited
partnership; Village Farms of Marfa, L.P., a Delaware limited partnership;
Village Farms of Presidio, L.P., a Delaware limited partnership; Village Farms
of Buffalo, L.P., a Delaware limited partnership; and Keystone Village Farms,
L.L.C., a Delaware limited liability company.
1.72 Virginia Loan: the loans made to Village Farms of Virginia, Inc. , a
Delaware corporation, by VFIFA with proceeds of the loans made by CoBank to
VFIFA pursuant to the VFIFA Loan Agreements.
1.73 Year 2000 Compliant: shall mean, with respect to Significant Software,
(a) that it shall include calendar year 2000 date conversion and compatibility
capabilities, including date data century recognition, same century and multiple
century formula and date value calculations and user interface date data values
that reflect the century so that it will (i) manage and manipulate data
involving dates, including single century and multiple century dates and
formulas, and will not cause an abnormally ending scenario within the
application or cause an abort or result in the generation of incorrect values or
invalid output involving such dates, (ii) include the indication of the correct
century in all date related user interface functions, and (iii) operate in the
same manner with year dates of 2000 and beyond as it operates with year dates of
1900 to 1999; and (b) that it shall recognize the year 2000 as a leap year,
including recognition
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and processing of the correct date on February 29, 2000. Significant Software
that is Year 2000 Compliant shall be considered to be in "Year 2000 Compliance".
The following terms are defined in portions of this Agreement other than
Article 1:
Additional Costs Section 15.10
Advance Date Section 5.1
Agrorent Buy-Out Section 9.1.15
APD Collateral Section 7.2
APD Merger Section 9.1.10
Borrower Benefit Plan Section 10.19
Borrower Collateral Section 7.1
Borrower Merger Section 9.1.10
CoBank Equity Interests Section 8.1
Code Section 10.19
Dalsem Section 12.3
EcoScience Collateral Section 7.2
ERISA Section 10.19
Event of Default Section 13.1
Facility Fee Section 5.3
Financial Statements Section 10.13
Fiscal Year Section 10.26
General Partner Collateral Section 7.3
General Partner Merger Section 9.1.10
Indemnified Parties Section 14.1
Intellectual Property Section 10.25
Material Agreements Section 10.12
Merged Entities Balance Sheets Section 10.13
Regulatory Change Section 15.10
Required Licenses Section 10.18
Title Commitments Section 9.1.2
Title Insurers Section 9.1.2
Title Policy Section 9.1.2
Tranche A Loan Section 2.1.1
Tranche B Loan Section 2.1.2
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ARTICLE 2.
LOAN AMOUNTS
2.1 The Term Loans.
2.1.1 Tranche A Loan. CoBank agrees, on the terms and conditions
hereinafter set forth, to make a loan to Borrower in the amount of the Tranche A
Commitment ("TRANCHE A LOAN"). Amounts borrowed under this Section 2.1.1 and
repaid or prepaid may not be reborrowed.
2.1.2 Tranche B Loan. CoBank agrees, on the terms and conditions
hereinafter set forth, to make a loan to Borrower in the amount of the Tranche B
Commitment ("TRANCHE B LOAN"). Amounts borrowed under this Section 2.1.2 and
repaid or prepaid may not be reborrowed.
ARTICLE 3.
USE OF PROCEEDS
3.1 Proceeds. The proceeds of the Term Loans shall be used as follows: (a)
$63,239,340.67 shall represent the aggregate of the outstanding balance of the
Buffalo Loan, Marfa Loan, Presidio Loan and Texas Loan purchased by CoBank from
VFIFA which loans are amended and restated herein, and (b) $9,046,399 shall be
used by Borrower solely to pay off the APD Loans, the Virginia Loan, and the
Pennsylvania Loan.
ARTICLE 4.
AVAILABILITY AND DISBURSEMENT
4.1 Availability - Tranche A Loan. The Tranche A Loan will be made
available to Borrower in a single advance on the Effective Date for the purposes
set forth in Section 3.1 hereof.
4.2 Availability - Tranche B Loan. The Tranche B Loan will be made
available to Borrower in a single advance on the Effective Date for the purposes
set forth in Section 3.2 hereof.
ARTICLE 5.
INTEREST AND FEES
5.1 Interest. Except as provided in Sections 5.2 and 5.3, the outstanding
principal balance under the Term Loans shall bear interest at the Interest Rate.
Interest shall be calculated on the actual number of days the proceeds of the
Term Loans are outstanding on the basis of a year consisting of 360 days. In
calculating interest, the Business Day on which an advance of the proceeds of
the Term Loans is made ("ADVANCE DATE") shall be included and the Business Day
on which any amounts are repaid shall be excluded.
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5.2 Default Interest Rate. All past due payments of any Bank Debt (whether
as a result of nonpayment by Borrower when due, at maturity, or upon
acceleration) shall, at the option of CoBank, bear interest at the Default
Interest Rate from and after the due date for the payment, or on the date of
maturity or acceleration, as the case may be.
5.3 Facility Fee. Borrower shall pay to CoBank, a facility fee equal to
$1,807,143.49 ("FACILITY FEE"), payable as follows: (a) an amount equal to
$361,428.70 shall be paid on the next Business Day after the first to occur of
the original Tranche B Maturity Date or payment in full of all Bank Debt and the
termination of this Agreement, and (b) an amount equal to $1,445,714.79 shall be
paid on the next Business Day after the Tranche B Maturity Date; provided,
however, that if the Tranche A Loan has been previously paid in full and
Borrower has repaid at least 50% of the original principal amount of the Tranche
B Loan and, as a result, the original Tranche B Maturity Date has been extended
to January 31, 2003 pursuant to Section 6.3.2 hereof, then the remaining portion
of the Facility Fee payable on the next Business Day after the Tranche B
Maturity Date (as extended pursuant to Section 6.3.2) shall be reduced to
$722,857.40; and, provided further, that if the original Tranche B Maturity Date
is extended pursuant to Section 6.3.2 and the outstanding principal amount of
the Tranche B Loan is paid in full on or before such extended Tranche B Maturity
Date, payment of the portion of the Facility Fee described in this clause (b)
shall be waived.
ARTICLE 6.
PAYMENTS
6.1 Principal Payments.
6.1.1 Tranche A Loan. Borrower shall make a principal payment to
CoBank on March 31, 2000 in the amount of $5,000,000 and shall pay in full to
CoBank the remaining outstanding principal amount of the Tranche A Loan on or
before the Tranche A Maturity Date.
6.1.2 Tranche B Loan. Borrower shall (i) make principal payments to
CoBank, on the last day of the first, second and fourth calendar quarters
occurring during the term of this Agreement, commencing on March 31, 2000, in
the amounts specified below for the calendar quarters indicated below, and (ii)
pay the entire outstanding principal balance owing under the Tranche B Loan
(including without limitation the amount of all draws under the Issued Letter of
Credit) on or before the Tranche B Maturity Date:
Calendar Quarter Ending Principal Payment Amount
----------------------- ------------------------
Each March 31 $1,500,000
Each June 30 $1,000,000
Each December 31 $2,500,000
6.2 Interest Payments. Interest on the Tranche A Loan shall be payable in
arrears on the first Business Day of each month, commencing March 31, 2000, and
on the Tranche A Maturity Date. Interest on the Tranche B Loan shall be payable
in arrears
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on the first Business Day of each month, commencing March 31, 2000, and on the
Tranche B Maturity Date.
6.3 Extension of Maturity Dates.
6.3.1 Tranche A Loan. Borrower may, at least 60 days but no more than
90 days prior to the original Tranche A Maturity Date, request that CoBank
extend the Tranche A Maturity Date from July 31, 2000 to July 31, 2001. CoBank
shall notify Borrower of its decision with respect to such extension request no
later than 30 days prior to the original Tranche A Maturity Date. CoBank shall
be obligated to grant such extension request if no Potential Default or Event of
Default has occurred prior to the original Tranche A Maturity Date, but
otherwise may grant or reject such request in its sole discretion.
6.3.2 Tranche B Loan. The Tranche B Maturity Date shall be extended by
CoBank from July 31, 2001 to January 31, 2003 if (a) on or before the original
Tranche B Maturity Date the original principal amount of the Tranche B Loan has
been paid down with the proceeds of equity, or indebtedness subordinated to the
Bank Debt on terms and conditions satisfactory to CoBank in its sole discretion,
or with cash flow generated from Borrower's operation of the Greenhouses in
excess of Borrower's expenses, such that no more than fifty percent (50%) of the
original principal amount of the Tranche B Loan is then outstanding, and (b) no
Potential Default or Event of Default has occurred prior to the original Tranche
B Maturity Date.
6.4 Voluntary Prepayments. Borrower shall have the right to prepay, without
premium or penalty, all, or a portion, in increments of not less than $1,000,000
(or the unpaid balance if less), of the outstanding principal balance under the
Term Loans upon one (1) Business Day's prior written notice to CoBank. Voluntary
prepayments shall not forgive, excuse, or postpone, subsequently scheduled
principal payments.
6.5 Application of Prepayments. Provided no Event of Default or Potential
Default has occurred, all prepayments of principal will be applied first to the
Tranche A Loan, if any portion thereof is outstanding, and then to outstanding
amounts under the Tranche B Loan. Upon the occurrence of an Event of Default or
Potential Default, any prepayments made by Borrower shall be applied, as CoBank,
in its sole discretion, shall determine, to fees, interest or principal owing
under the Tranche A Loan or the Tranche B Loan, or to any other Bank Debt.
6.6 Manner of Payment. All payments, including prepayments, that Borrower
is required or permitted to make under the terms of this Agreement shall be made
to CoBank (a) in immediately available federal funds, to be received no later
than 12:00 noon Mountain Time of the Business Day on which such payment is due
by wire transfer through Federal Reserve Bank, Kansas City, Routing Number:
307088754, COBANK ENGWD (or to such other account as CoBank may designate by
notice); and (b) without setoff or counterclaim and free and clear of, and
without deduction for, any taxes, levies, impost, duties, charges, fees,
deductions, withholding, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any
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jurisdiction or any political subdivision thereof or taxing or other authority
therein unless Borrower is compelled by law to make such deduction or
withholding. Whenever any payment (including principal of or interest on the
Term Loans or any fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a date that is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
interest or fees, if applicable.
ARTICLE 7.
SECURITY
7.1 Borrower's Assets. As security for the payment and performance of all
obligations of Borrower to CoBank, including but not limited to principal and
interest under the Notes, the Facility Fee, Additional Costs, and all other Bank
Debt or obligations under any of the Loan Documents, Borrower shall grant to,
and maintain for, CoBank, subject to Permitted Liens, a first Lien on all of its
assets, both real and personal, tangible and intangible, whether now owned or
hereafter acquired, including, without limitation, the Greenhouses, the
Greenhouse Properties, and all equipment, machinery, fixtures, accounts and
inventory of Borrower (the "BORROWER COLLATERAL"). Borrower shall execute and
deliver to CoBank the Security Documents to evidence and perfect the first
priority security interest of CoBank in the Collateral. Borrower shall also
execute such further security agreements, mortgages, deeds of trust, financing
statements, assignments or other documents as CoBank may reasonably request, in
form and substance as CoBank shall specify, to establish, confirm, perfect,
maintain the first priority of, or provide notice of, CoBank's Lien on the
Borrower Collateral. Borrower shall deliver to CoBank possession of any
instruments and certificated securities included in the Borrower Collateral
(duly endorsed to CoBank's reasonable satisfaction).
7.2 Guarantees. The payment and performance of Borrower's obligations under
this Agreement and all other Loan Documents shall be guaranteed by (a) APD
pursuant to the APD Guaranty, and APD's obligations under the APD Guaranty shall
be secured by, subject to Permitted Liens, a first Lien in favor of CoBank on
all assets of APD, both real and personal, tangible and intangible, whether now
owned or hereafter acquired ("APD COLLATERAL"), and (b) EcoScience pursuant to
the EcoScience Guaranty, and EcoScience's obligations under the EcoScience
Guaranty shall be secured by a first Lien in favor of CoBank on all issued and
outstanding capital stock of APD ("ECOSCIENCE COLLATERAL").
7.3 Pledge by General Partner. General Partner shall pledge and grant to
CoBank a first Lien, as evidenced by the General Partner Security Agreement, in
all of its assets and properties (other than its general partnership interest in
Village Farms of Pocono, L.P.) as security for the payment and performance of
Borrower's obligations under this Agreement and all other Loan Documents
("GENERAL PARTNER COLLATERAL").
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ARTICLE 8.
COBANK EQUITY
8.1 CoBank Equity Interests. Borrower agrees to maintain such equity
interests in CoBank ("COBANK EQUITY INTERESTS") as CoBank may from time to time
require in accordance with its bylaws and capital plan as applicable to its
borrowers generally. In connection with the foregoing, Borrower hereby
acknowledges receipt, prior to the execution of this Agreement, of CoBank's
bylaws, a written description of the terms and conditions under which the CoBank
Equity Interests are issued, CoBank's Loan-Based Capital Plan, CoBank's most
recent annual report, and if more recent than CoBank's latest annual report, its
latest quarterly report.
ARTICLE 9.
CONDITIONS TO TERM LOANS
9.1 Conditions to Term Loans. CoBank's obligation to enter into the Loan
Documents and to make the Term Loans is subject to satisfaction, in CoBank's
sole discretion, of each of the following conditions precedent:
9.1.1 Loan Documents; Other Documents. CoBank shall have received: (a)
duly executed originals of the Loan Documents; and (b) such other instruments
and documents in which CoBank has been granted a security interest and of which
CoBank is to have possession under the terms of the Loan Documents.
9.1.2 Searches; UCC Filings; Title Insurance. CoBank shall have
received:
(a) searches of appropriate filing offices in the states where the
Greenhouses are located, the states where the Village Farms Entities had their
respective chief executive offices and/or where any assets were located prior to
the consummation of the Borrower Merger, the states where APD has material
assets or properties, the states where the APD Entities had their respective
chief executive offices prior to the consummation of the APD Merger, the states
where the General Partner Entities had their respective chief executive offices
prior to consummation of the General Partner Merger, and the respective states
of residence for EcoScience and General Partner, showing that (i) no state or
federal tax liens have been filed which remain in effect against Borrower, the
Village Farms Entities, the APD Entities, the General Partner Entities, General
Partner or any Guarantor, (ii) no financing statements have been filed by any
Person other than CoBank and the holders of Liens permitted under the Loan
Documents which remain in effect against Borrower, the Village Farms Entities,
the APD Entities, the General Partner Entities, General Partner or any Guarantor
or any of the Collateral, (iii) all Security Documents necessary to perfect the
Liens granted to CoBank in the Collateral have been filed or recorded, to the
extent such Liens are capable of being perfected by a filing; and
(b) title insurance commitments ("TITLE COMMITMENTS") in form and amount
acceptable to CoBank from one or more insurers acceptable to CoBank ("TITLE
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INSURERS") committing to issue an American Land Title Association lender's title
insurance policy ("TITLE POLICY") insuring CoBank's Lien on Borrower's fee or
leasehold interest in each Greenhouse Property, as applicable, as a valid first
priority Lien, and (i) containing only such exceptions to title as are
acceptable to CoBank, and (ii) containing such other endorsements as CoBank may
require; and
(c) closing letters, satisfactory to CoBank, from the Title Insurers
confirming that the Title Insurers are irrevocably committed to issue the Title
Policies in form and substance satisfactory to CoBank and that all conditions
precedent to the issuance of the Title Policies have been satisfied.
9.1.3 Organizational Documents. CoBank shall have received: (a) good
standing certificates, dated no more than thirty (30) days prior to the
Effective Date, for each of Borrower, General Partner and Guarantors for their
respective states of organization and for each state where their respective
operations require qualification or authorization to transact business including
without limitation, with respect to Borrower, each state where a Greenhouse
Property is located; (b) a copy of the Certificate of Limited Partnership of
Borrower, a copy of the Certificate of Formation or Articles of Organization of
General Partner, and a copy of the Certificate or Articles of Incorporation of
each of APD and EcoScience, certified by the Secretary of State of their
respective states of organization, no more than thirty (30) days prior to the
Effective Date; and (c) a copy of the limited partnership agreement of Borrower,
the operating agreement of General Partner and the bylaws of APD and EcoScience,
including all amendments thereto, certified by General Partner, in the case of
Borrower, by a manager of General Partner, in the case of General Partner, and
by the corporate secretary, in the case of APD and EcoScience.
9.1.4 Evidence of Partnership Action; Incumbency Certificate. CoBank
shall have received in form and substance satisfactory to CoBank, (a) documents
(including a resolution signed by the proper authority under Borrower's limited
partnership agreement) evidencing all action taken by Borrower to authorize the
execution, delivery and performance of the Loan Documents, and naming those
persons with authority to execute the Loan Documents on behalf of Borrower, and
(b) an incumbency certificate issued by General Partner certifying the names and
true signatures of the officers/agents authorized to execute the Loan Documents
to which Borrower is a party on behalf of Borrower.
9.1.5 Evidence of General Partner Action; Incumbency Certificate.
CoBank shall have received in form and substance satisfactory to CoBank, (a) a
copy, certified as true, correct and complete by a manager of General Partner,
of the resolutions adopted by the proper authority under General Partner's
operating agreement which authorize the execution, delivery and performance of
the Security Documents to which General Partner is a party, and naming those
persons with authority to execute the Security Documents to which it is a party
on behalf of General Partner, and (b) an incumbency certificate executed by the
manager of General Partner certifying the names
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and true signatures of the officers/agents authorized to execute the Security
Documents to which General Partner is a party on behalf of General Partner.
9.1.6 Evidence of Action by APD and EcoScience; Incumbency
Certificates. CoBank shall have received in form and substance satisfactory to
CoBank, (a) a copy, certified as true, correct and complete by the corporate
secretary, of the resolutions adopted by the Board of Directors of each of APD
and EcoScience which authorize the execution, delivery and performance of the
Loan Documents to which such Guarantor is a party, and naming those persons with
authority to execute such Loan Documents on behalf such Guarantor, and, with
respect to APD, approving the appointment of the individual hired as the
Turnaround Manager to perform the duties and responsibilities of the chief
executive officer of APD, and (b) a certificate of the corporate secretary of
each of such Guarantors, certifying the names and true signatures of the
officers/agents authorized to execute the Loan Documents to which such Guarantor
is a party on behalf of such Guarantor.
9.1.7 Legal Opinion. CoBank shall have received a favorable opinion of
counsel (who shall be reasonably acceptable to CoBank) for Borrower, General
Partner and Guarantors, in substantially the form of Exhibit 9.1.7 hereto and as
to such other matters as CoBank may reasonably request.
9.1.8 Evidence of Insurance. Borrower and APD shall have provided
CoBank with insurance certificates and such other evidence, in form and
substance satisfactory to CoBank, of all insurance required to be maintained by
them under the Loan Documents.
9.1.9 Evidence of Mergers and Borrower Applications for Qualification.
CoBank shall have received evidence, in form and substance satisfactory to
CoBank (including copies of the relevant transaction documents), that (a) the
Village Farms Entities have been duly and properly merged into Borrower (the
"BORROWER MERGER") in accordance with the laws of all applicable jurisdictions,
including, without limitation, a certified copy of all filings made with any
governmental authority in order to effect the Borrower Merger; (b) all necessary
filings have been made in the appropriate real property records of the
jurisdictions where the Greenhouse Properties are located in order to reflect
the fact that Borrower is the surviving entity of the Borrower Merger and that
the interests previously held by the Village Farms Entities in the Greenhouse
Properties, and all interests in personal property used in connection with the
Greenhouse Properties, are now vested in Borrower; (c) Borrower has filed
applications with the appropriate governmental authorities to qualify to do
business as a foreign limited partnership in each state where a Greenhouse is
located; (d) the APD Entities have been duly and properly merged into APD (the
"APD MERGER") in accordance with the laws of all applicable jurisdictions,
including, without limitation, a certified copy of all filings made with any
governmental authority in order to effect the APD Merger; and (e) the General
Partner Entities have been duly and properly merged into General Partner (the
"GENERAL PARTNER MERGER") in accordance with the laws of all
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applicable jurisdictions, including, without limitation, a certified copy of all
filings made with any governmental authority in order to effect the General
Partner Merger.
9.1.10 Evidence of Cogentrix Debt Subordination. CoBank shall have
received evidence, in form and substance satisfactory to CoBank (including
copies of the relevant transaction documents), that all indebtedness of APD and
EcoScience owed to Cogentrix (including, without limitation, indebtedness owing
by EcoScience to Cogentrix pursuant to the promissory note dated December 30,
1998 in the principal amount of $20,600,000.00 and the promissory note dated
March 15, 1999 in the principal amount of $1,000,000.00, and indebtedness owing
by APD to Cogentrix pursuant to the promissory note dated March 10, 1997 in the
principal amount of $893,750) has been subordinated to all indebtedness owed to
CoBank under the Loan Documents on terms and conditions satisfactory to CoBank
in its sole discretion.
9.1.11 Management and Marketing Agreements. CoBank shall have (a)
received evidence, in form and substance satisfactory to CoBank, of the
termination of all management and all marketing agreements binding on Borrower,
the Village Farms Entities, the APD Entities, the General Partner Entities,
General Partner or APD, or (b) received a true, correct and complete copy of all
management and all marketing agreements binding on Borrower, the Village Farms
Entities, the APD Entities, the General Partner Entities, General Partner or
APD, certified by an appropriate officer of such entity, and shall have approved
the terms of any such agreements in writing.
9.1.12 Approval of Action Plan for Pocono and Wheatfield. CoBank shall
have received (a) General Partner's action plan to resolve the claims of
creditors of Pocono and to dissolve Pocono upon resolution of such claims, and
(b) APD's action plan to resolve the claims of creditors of Village Farms of
Wheatfield, L.L.C. ("Wheatfield") and to dissolve Wheatfield upon resolution of
such claims, and CoBank shall have approved, in its sole discretion, such action
plans in writing.
9.1.13 Purchase and Sale of VFIFA Loans. CoBank and VFIFA, after the
Borrower Merger, shall have consummated the purchase by CoBank from VFIFA, with
full recourse, of all of VFIFA's right, title and interest in and to the Buffalo
Loan, the Marfa Loan, the Presidio Loan and the Texas Loan pursuant to the Note
Purchase Agreement and upon terms and conditions satisfactory to CoBank in its
sole discretion.
9.1.14 Recording of Documents. All of the Security Documents required
to be recorded or filed to perfect the Liens granted therein shall be so
recorded and filed, including without limitation the filing or recording of all
Security Documents or other documents necessary to transfer VFIFA's right, title
and interest in the collateral security for the Buffalo Loan, the Marfa Loan,
the Presidio Loan and the Texas Loan to CoBank.
9.1.15 Agrorent Buy-Out. CoBank shall have (a) received evidence, in
form and substance satisfactory to CoBank, that Agrorent A, L.L.C. has
transferred all of its general partnership interests in Presidio to General
Partner and that Agrorent B, L.L.C. transferred all of its limited partnership
interests in Presidio to Village Farms,
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L.L.C. prior to the APD Merger (the "AGRORENT BUY-OUT"), and (b) approved the
terms and conditions (including, without limitation, the purchase price and the
payment terms thereof) of the Agrorent Buy-Out, and (c) received copies of all
transaction documents concerning the Agrorent Buy-Out certified as true, correct
and complete by the Chief Executive Officer or Chief Financial Officer of APD.
9.1.16 Payoffs. CoBank shall have received (a) evidence that APD has
paid the outstanding balance under the APD Finance Loan and the Pocono Loan to
VFIFA, and (b) payment in full of the outstanding balance under the VFIFA Loan
Agreements.
9.1.17 Expenses. CoBank shall have received payment, by wire transfer
of immediately available federal funds for all out-of-pocket costs and expenses
incurred by CoBank and any Participant in the Term Loans as of the Effective
Date (including, without limitation, the reasonable fees and expenses of counsel
retained by CoBank and any such Participant) in connection with the preparation,
negotiation, review, and execution of the Loan Documents and the transactions
contemplated thereby.
9.1.18 Litigation. There shall be no litigation by any person or
entity (private or governmental) pending or threatened: (a) with respect to the
Term Loans or any of the Loan Documents or the transactions contemplated
thereby, (b) with respect to the Borrower Merger, the General Partner Merger or
the APD Merger or (c) which could result in a Material Adverse Change with
respect to Borrower, General Partner or any Guarantor.
9.1.19 Appointment of Agent for Service. CoBank shall have received
evidence satisfactory to CoBank that Borrower, General Partner and Guarantors
have appointed The Corporation Company to serve as their agent for service of
process at The Corporation Company's Denver, Colorado office, and that The
Corporation Company has accepted such appointment by Borrower, General Partner
and Guarantors.
9.1.20 No Material Change. No Material Adverse Change shall have
occurred and be continuing with respect to Borrower, General Partner or any
Guarantor.
9.1.21 Financial Information. CoBank shall have received (a) the
financial statements and Projections described in Sections 10.13 and 10.16 of
this Agreement, and (b) an internally prepared balance sheet as at October 31,
1999 for each of the Village Farms Entities, APD Entities and General Partner
Entities prepared in accordance with GAAP duly certified by the chief financial
officer of each such entity certifying that such balance sheet is complete and
presents fairly the financial position of such entity as at such date in
conformity with GAAP.
9.1.22 Further Assurances. Borrower, General Partner and Guarantors
shall have provided and/or executed and delivered to CoBank such further
assignments, documents or financing statements, in form and substance
satisfactory to CoBank, that
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Borrower, General Partner and Guarantors are required to execute and/or deliver
pursuant to the terms of the Loan Documents or as CoBank may reasonably request.
ARTICLE 10.
REPRESENTATIONS AND WARRANTIES
To induce CoBank to make the Term Loans, and recognizing that CoBank is
relying thereon, Borrower represents and warrants as follows:
10.1 Organization, Good Standing, Etc. Borrower is duly organized, validly
existing and in good standing as a limited partnership under the laws of the
State of Delaware. Borrower has filed applications for authority to transact
business as a foreign limited partnership in each jurisdiction where the
Greenhouse Properties are located and in each other jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on Borrower.
10.2 Authority; Due Authorization. Borrower has full power and authority
(including, without limitation, all governmental licenses, permits and other
approvals) to own or lease and operate its properties and to carry on its
business as now conducted and as contemplated to be conducted. The execution and
delivery of, and performance by Borrower of its obligations under, each Loan
Document to which it is a party, and the consummation of the transactions
contemplated by the Loan Documents, are within Borrower's partnership powers and
have been duly authorized by all necessary partnership action.
10.3 Mergers. Each of the Borrower Merger, the APD Merger and the General
Partner Merger has been duly and fully consummated in accordance with the laws
of the State of Delaware. Borrower is the surviving entity of the Borrower
Merger. APD is the surviving entity of the APD Merger, and General Partner is
the surviving entity of the General Partner Merger.
10.4 Consents. All consents or approvals of any Person which were necessary
for, or required in connection with, the Borrower Merger (including without
limitation any necessary consents of any lessor of any Greenhouse Property), the
APD Merger and/or the General Partner Merger have been obtained in writing, and
a true and correct copy thereof has been delivered to CoBank. All consents or
approvals of any Person which are necessary for, or are required as a condition
of, the execution, delivery and performance of the Loan Documents and the
transactions contemplated thereby have been obtained in writing, and a true and
correct copy thereof have been delivered to CoBank.
10.5 Ownership of Borrower. General Partner is the sole general partner of
Borrower and owns a 1% partnership interest in Borrower. Borrower's sole limited
partner is APD, and APD owns a 99% partnership interest in Borrower. General
Partner and APD own their respective partnership interests in Borrower, in each
case, free and clear of any Lien other than Liens created under the Loan
Documents.
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10.6 Title to Borrower Collateral. Borrower has all real and personal
property necessary for the conduct of its business and has good and marketable
title to all of the Borrower Collateral, free and clear of all Liens, except for
Permitted Liens. The Borrower Collateral is in good operating condition and
repair, reasonable wear and tear excepted, and suitable in all material respects
for the purposes for which it is being utilized except where the failure to be
in good operating condition could not reasonably be expected to result in a
Material Adverse Effect on Borrower.
10.7 Litigation. There are no pending legal or governmental actions,
proceedings or investigations to which Borrower is a party or to which any
property of Borrower is subject which could reasonably be expected to have a
Material Adverse Effect on Borrower, and, to the best of Borrower's knowledge,
no such actions or proceedings are threatened or contemplated by governmental
authorities or any other Person. There are no outstanding judgments,
injunctions, orders, writs or decrees of any arbitrator, court or governmental
authority binding on Borrower or its assets or properties.
10.8 No Violations. The Borrower Merger did not, and the execution,
delivery and performance of the Loan Documents, will not: (a) violate any
provision of Borrower's certificate of limited partnership or partnership
agreement; (b) violate, conflict with, result in a breach of, constitute a
default under, or with the giving of notice or the expiration of time or both,
constitute a default under, any existing material indenture, lease, security
agreement, mortgage, permit or other governmental authorization, contract, note,
instrument or any other agreements or documents binding on Borrower or affecting
its property; (c) violate or conflict with any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to
Borrower, or (d) except for the Liens created under the Loan Documents, result
in or require the creation or imposition of any Lien upon or with respect to any
of the properties of Borrower.
10.9 Binding Agreement. Each of the Loan Documents to which Borrower is a
party is, or when executed and delivered, will be, the legal, valid and binding
obligation of Borrower, enforceable in accordance with its terms, subject only
to limitations on enforceability imposed by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally and by general principles of equity.
10.10 Compliance with Laws. Borrower is in compliance in all material
respects with all federal, state, and local laws, rules, regulations,
ordinances, codes and orders, including without limitation all Permits necessary
for the conduct of Borrower's business.
10.11 Chief Executive Office. Borrower's place of business, or chief
executive office if it has more than one place of business, is located at 10
Alvin Court, East Brunswick, NJ 08816.
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10.12 Material Agreements. All agreements, excluding the Loan Documents, of
Borrower, the termination or breach of which could result in a Material Adverse
Effect on Borrower ("MATERIAL AGREEMENTS") are listed on Schedule 10.12 hereto
and neither Borrower nor, to Borrower's knowledge, any other party to any
Material Agreement, is in default thereunder, and no facts exist which with the
giving of notice or the passage of time, or both, would constitute such a
default. A true, correct and complete copy of each Material Agreement and all
amendments thereto which was requested by CoBank has been provided to CoBank by
Borrower. All of Borrower's leases which constitute Material Agreements are in
full force and effect and afford Borrower peaceful and undisturbed possession of
the subject matter thereof.
10.13 Financial Statements. Borrower has heretofore furnished to CoBank (a)
the consolidated audited balance sheet of APD as at January 3, 1999, and the
related consolidated statement of income and operations of APD for the fiscal
year then ended, accompanied by an opinion of APD's independent public
accountants, and the internally prepared consolidated balance sheet of APD as at
October 31, 1999, and the related consolidated statement of income and
operations of APD for the month then ended, duly certified by the chief
financial officer of APD (collectively, the "FINANCIAL STATEMENTS"), and (b) the
internally prepared balance sheet of each of the Village Farms Entities, the APD
Entities and the General Partner Entities as at October 3, 1999, duly certified
by the chief financial officer of each such entity (collectively, the "MERGED
ENTITIES BALANCE SHEETS"). The Financial Statements, including the notes
thereto, are complete, and present fairly the financial position and results of
operations and changes in the financial position of APD and its consolidated
entities as at such dates and for the periods specified, in conformity with
GAAP; provided, however that the internally prepared financial statements
through October 31, 1999 are subject to normal year-end adjustments and do not
include footnotes. The Merged Entities Balance Sheets are complete, and present
fairly the financial position of each of the Village Farms Entities, the APD
Entities and the General Partner Entities as at such date and for the period
specified, in conformity with GAAP; provided, however that the Merged Entities
Balance Sheets are subject to normal year-end adjustments and do not include
footnotes
10.14 Absence of Undisclosed Liabilities. Except as described on Schedule
10.14, neither APD nor any of its consolidated entities nor any of the Village
Farms Entities, APD Entities or General Partner Entities has any material
liability (whether absolute, accrued, contingent or otherwise and whether due or
to become due), arising out of any set of facts existing on or prior to the date
hereof, except liabilities and obligations fully reflected or reserved against
in the Financial Statements or the Merged Entities Balance Sheets.
10.15 No Material Adverse Change. Except as described on Schedule 10.15,
since (a) October 31, 1999, there has been no Material Adverse Change in the
financial condition, results of operations, business or prospects of APD or any
of its consolidated entities; and (b) October 3, 1999, there has been no
Material Adverse Change in the financial condition, results of operations,
business or prospects of any of the Village Farms Entities, the APD Entities or
the General Partner Entities.
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10.16 Projections. The Projections of Borrower delivered to CoBank fairly
present in all material respects the projected operations, financial condition,
assets and liabilities of Borrower as of the dates covered thereby. To
Borrower's knowledge, no undisclosed facts existed at the time of submission of
the Projections which, if taken into account, would have resulted in any
material change in the Projections. The Projections were prepared in good faith
on the basis of the assumptions stated therein, which assumptions were fair in
light of the conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, Borrower's best estimate of its future
results of operations and other information projected therein (it being
recognized by CoBank that such Projections are an estimate and that actual
results during the period or periods covered by the Projections may differ from
the projected results). No change in the business, condition (financial or
otherwise), operations, performance or properties of Borrower has occurred since
the date of the Projections that would materially change any of the information
set forth in the Projections.
10.17 Payment of Taxes. Borrower has filed all required federal, state and
local tax returns and has paid all taxes as shown on such returns as they have
become due. Borrower has paid when due all other taxes, assessments or
impositions levied or assessed against Borrower or its business or properties.
10.18 Licenses and Approvals. Borrower: (a) has ownership of, or license to
use, all franchises, certificates, approvals, Permits, and licenses used,
necessary, or desirable to permit it to own its properties and to conduct its
business in substantially the manner as presently conducted or contemplated to
be conducted, with respect to which the failure to obtain and maintain would
have a Material Adverse Effect on Borrower ("REQUIRED LICENSES"); and (b) has
taken all action, including the filing of all reports and requests for
extensions or continuation, necessary to maintain all such Required Licenses,
and has not taken or failed to take any action which, with the giving of notice,
or the expiration of time, or both, could result in any such Required License
being withdrawn, revoked, modified, or limited. Schedule 10.18 lists all
Required Licenses presently in existence with respect to Borrower. Except as set
forth on Schedule 10.18, each Required License is in full force and effect, and
there is no outstanding notice of cancellation or termination or, to Borrower's
knowledge, any threatened cancellation or termination in connection therewith,
nor has an event occurred with respect to any Required License which, with the
giving of notice or passage of time or both, could result in the revocation or
termination thereof or otherwise in any impairment of Borrower's rights with
respect thereto, which impairment could reasonably be expected to result in a
Material Adverse Effect. None of the Required Licenses is subject to any
restrictions or conditions that limit Borrower's ability to conduct its business
in substantially the manner as presently conducted or contemplated to be
conducted (other than restrictions or conditions generally applicable to
licenses of that type). No consent, permission, authorization, order, or license
of any governmental authority is necessary in connection with the: (x)
execution, delivery, performance, or enforcement of the Loan Documents to which
Borrower is a party; and (y) the operation of the Greenhouses, except such as
have been obtained and are in full force and effect and as are described on
Schedule 10.18.
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10.19 Employee Benefit Plans. Borrower does not presently maintain or
participate in, and has not in the past maintained or participated in, and is
not obligated to contribute to, any of the following (each a "BORROWER BENEFIT
PLAN"): (a) any funded "employee welfare benefit plan," as that term is defined
in Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder ("ERISA"); (b) any "multiemployer
plans," as defined in Section 3(37) of ERISA; (c) any "employee pension benefit
plan" as defined in Section 3(2) of ERISA; (d) any "employee benefit plan", as
such term is defined in Section 3(3) of ERISA; (e) any "multiple employer plan"
within the meaning of Section 413 of the Internal Revenue Code of 1986, as
amended from time to time ("CODE"); (f) any "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA; (g) a "voluntary
employees' beneficiary association" within the meaning of Section 501(a)(9) of
the Code; (h) a "welfare benefit fund" within the meaning of Section 419 of the
Code; or (i) any employee welfare benefit plan within the meaning of Section
3(1) of ERISA for the benefit of retired or former employees.
10.20 Equity Investments. Borrower does not have any subsidiaries or own
any stock or other voting or equity interest, directly or indirectly, in any
Person, except for the CoBank Equity Interests and a membership interest in
VFIFA.
10.21 Owned Real Property and Greenhouses. Set forth on Schedule 10.21
hereto is a complete and accurate list of all real property owned by Borrower,
showing as of the date hereof the street address, county or other relevant
jurisdiction, state, and book and fair value thereof and indicating whether a
Greenhouse is located on such real property. Borrower has good, marketable and
insurable fee simple title to such real property and Greenhouses located
thereon, free and clear of all Liens, except for Permitted Liens.
10.22 Leased Real Property and Greenhouses. Set forth on Schedule 10.22
hereto is a complete and accurate list of all leases of real property under
which Borrower is the lessee, showing as of the date hereof the street address,
county or other relevant jurisdiction, state, lessor, record owner (if different
from lessor), expiration date and annual rental cost thereof and indicating
whether a Greenhouse is located on such real property. Each such lease is the
legal, valid and binding obligation of the lessor thereof, enforceable in
accordance with its terms, and affords Borrower peaceful and undisturbed
possession of the subject matter thereof. Borrower's leasehold interests in the
real property that is the subject of the leases listed on Schedule 10.22, and
the Greenhouses located thereon, are held by Borrower free and clear of all
Liens, except for Permitted Liens.
10.23 Liens. Set forth on Schedule 10.23 hereto is a complete and accurate
list of all Liens securing equipment lease obligations or purchase money
indebtedness on the property or assets of Borrower, showing as of the date
hereof the lienholder thereof, the principal amount of the obligations secured
thereby, the payment terms of such obligations, and the property or assets of
Borrower subject thereto.
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10.24 Environmental Compliance. Without limiting the provisions of Section
10.10 above, all real property owned or leased by Borrower and all operations
conducted by Borrower are, and prior to consummation of the Borrower Merger
were, in compliance in all material respects with all Environmental Laws and
Environmental Regulations, with respect to which the failure to comply would
have a Material Adverse Effect. To the best of Borrower's knowledge, no
environmental contamination or condition currently exists on any property owned
or leased by Borrower which could delay the sale or other disposition of, or
could have (or already has had) an adverse effect on the value of, the property
of Borrower. To the best of Borrower's knowledge, no environmental contamination
or condition currently exists on any property adjoining any property owned or
leased by Borrower which could delay the sale or other disposition of, or could
have (or already has had) an adverse effect on the value of, the property of
Borrower.
10.25 Intellectual Property. Set forth on Schedule 10.25 hereto is a
complete and accurate list of all patents, trademarks, trade names, service
marks and copyrights, and all applications for any of the foregoing that are
owned by Borrower and are registered with any federal or state governmental
authority (collectively, "INTELLECTUAL PROPERTY") and all licenses thereof,
showing as of the date hereof the jurisdiction in which registered, the
registration number, the date of registration and the expiration date or, if
registration is not yet complete, the date of the application therefor and the
application number and title, if any, and listing any licenses thereof. Borrower
is not a licensee under any written license for any patent, trademark,
tradename, service mark or copyright other than shrinkwrap licenses for
"off-the-shelf" software used by Borrower in the conduct of its business.
Borrower owns or licenses all Intellectual Property that it utilizes in its
business as presently being conducted and as anticipated to be conducted, except
where the failure to do so could not reasonably be expected to result in a
Material Adverse Effect on Borrower. The Intellectual Property registrations are
in full force and effect, and Borrower has taken or caused to be taken all
action, necessary to maintain the Intellectual Property registrations in full
force and effect and has not taken or failed to take or cause to be taken any
action which, with the giving of notice, or the expiration of time, or both,
could result in any such Intellectual Property registrations being revoked,
invalidated, modified, or limited.
10.26 Fiscal Year. Each fiscal year of Borrower ("FISCAL YEAR") begins on
the day after the Sunday closest to December 31 of each calendar year and ends
on the Sunday closest to December 31 of each calendar year.
10.27 Year 2000. Borrower has (i) initiated a review and assessment of all
areas within its business and operations (including those affected by suppliers,
vendors and customers) that could be adversely affected by the risk that the
Significant Software used by Borrower or Borrower's Mission Critical suppliers,
vendors and customers may not be Year 2000 Compliant, (ii) developed a plan and
timetable for remediation of Borrower's Significant Software that may not be
Year 2000 Compliant and for the development of contingency plans in the event of
a failure of the Significant Software of Borrower or its Mission Critical
suppliers, vendors and customers to be Year 2000
2000
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Compliant, and (iii) to date, implemented that plan in accordance with such
timetable. Based on the foregoing, to the best of Borrower's knowledge, after
due inquiry, the impact of the yearon Borrower and the Mission Critical
customers and suppliers of Borrower will not be such as to have a Material
Adverse Effect on Borrower.
10.28 Disclosure. Neither the representations and warranties contained in
this Article 10 nor any information, exhibit or report furnished by Borrower to
CoBank in connection with the negotiation and preparation of this Agreement or
the other Loan Documents contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE 11.
AFFIRMATIVE COVENANTS
From and after the date of this Agreement and until the Bank Debt is
indefeasibly paid in full, Borrower agrees that it will observe and comply with
the following covenants for the benefit of CoBank:
11.1 Books and Records. Borrower shall at all times keep proper books of
record and account, in which correct and complete entries shall be made of all
its dealings, in accordance with GAAP.
11.2 Reports and Notices. Borrower shall provide to CoBank the following
reports, information and notices:
11.2.1 Annual Financial Statements. As soon as available, but no later
than ninety (90) days after the end of any Fiscal Year of Borrower occurring
during the term hereof, (a) the consolidated annual financial statements of
Borrower, prepared in accordance with GAAP consistently applied which shall: (i)
be audited by independent certified public accountants selected by Borrower
which are reasonably acceptable to CoBank; (ii) be accompanied by a report of
such accountants containing an opinion reasonably acceptable to CoBank; (iii) be
accompanied by a Compliance Certificate; (iv) be prepared in reasonable detail
and in comparative form; and (v) include a balance sheet, an income statement, a
statement of cash flows, a statement of stockholders' equity, and all notes and
schedules relating thereto, and (b) include a comparison of Borrower's actual
operating results for such completed Fiscal Year to the budgeted results of
operations for such Fiscal Year.
11.2.2 Monthly Financial Reports. As soon as available but no later
than thirty (30) days after the end of each month, a comparison of Borrower's
actual operating results for such month to the budgeted results of operations
for such month, prepared in accordance with GAAP consistently applied.
11.2.3 Quarterly Financial Statements. As soon as available but in no
event more than forty-five (45) days after the end of each of the first three
Quarters in the Fiscal Year, the following internally-prepared consolidated
financial statements of Borrower, prepared in accordance with GAAP consistently
applied: (a) a balance sheet,
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(b) an income statement, (c) a statement of cash flows, (d) a comparison of
Borrower's actual operating results for such Quarter to the budgeted operating
results for such Quarter, and (e) such other quarterly statements as CoBank may
specifically request, which quarterly statements shall include any and all notes
and schedules thereto. Such quarterly financial statements required pursuant to
this Subsection 11.2.3 shall be accompanied by a Compliance Certificate.
11.2.4 Budget. Promptly upon becoming available and in any event no
later than thirty (30) days prior to the end of each Fiscal Year, a copy of
Borrower's budget setting forth the projected operating results of Borrower on a
month-by-month basis for the next Fiscal Year and broken-out by Greenhouse
operation, in a form satisfactory to CoBank, together with the assumptions and
projections on which such budget is based. Each budget submitted by Borrower to
CoBank shall: (a) reflect Borrower's reasonable estimate of the results of
Borrower's operations for the succeeding Fiscal Year and other information
projected therein, and (b) be based upon assumptions and projections that are
reasonable and fair in light of all conditions existing at the time of the
submission of such budget to CoBank. In addition, if any material changes are
made to such budget during the year, then Borrower will promptly furnish copies
to CoBank of any such changes.
11.2.5 Additional Information. With reasonable promptness, such
additional financial information or documentation as CoBank may reasonably
request.
11.2.6 Notice of Default. As soon as the existence of any Event of
Default or Potential Default becomes known to any management executives of
Borrower, written notice of such Event of Default or Potential Default, the
nature and status thereof, and the action being taken or proposed to be taken
with respect thereto.
11.2.7 Notice of Litigation. Notice in writing promptly after Borrower
obtains knowledge thereof, of all litigation in which Borrower, General Partner
or any Guarantor is a party, and which either: (a) involves an amount of
$100,000 or more, singularly or in the aggregate at any time; or (b) could
reasonably be expected to result in a Material Adverse Effect with respect to
Borrower, General Partner or any Guarantor.
11.2.8 Notice of Material Adverse Effect. Promptly after Borrower
obtains knowledge thereof, notice of any matter which has resulted or could
result in a Material Adverse Effect on Borrower, General Partner or any
Guarantor.
11.2.9 Notice of Environmental Litigation. Without limiting the
provisions of Subsection 11.2.7 of this Agreement, promptly after Borrower's
receipt thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or other communication alleging a condition that may require
Borrower to undertake or to contribute to a cleanup or other response under
Environmental Laws or Environmental Regulations, or which seeks penalties,
damages, injunctive relief, or criminal sanctions related to alleged violations
of such laws, or which claims personal injury or property
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damage to any person as a result of environmental factors or conditions or
which, if adversely determined, could have a Material Adverse Effect on
Borrower.
11.2.10 Regulatory and Other Notices. Promptly after Borrower's
receipt thereof, copies of any notices or other communications received from any
governmental authority with respect to any matter or proceeding the effect of
which could reasonably be expected to have a Material Adverse Effect on
Borrower.
11.2.11 Adverse Action Regarding Required Licenses and Intellectual
Property. In the event Borrower learns that any petition, action, investigation,
notice of violation or apparent liability, notice of forfeiture, order to show
cause, complaint or proceeding is pending, or, to the best of Borrower's
knowledge, threatened, to seek to revoke, cancel, suspend, modify, or limit any
of the Required Licenses or the Intellectual Property registrations, Borrower
shall provide CoBank with prompt written notice thereof and shall take, or cause
to be taken, all reasonable measures to contest such action in good faith.
11.3 Maintenance of Existence. Borrower shall maintain its existence as a
limited partnership in good standing under the laws of the State of Delaware.
Within 30 days of the date of this Agreement, Borrower (a) shall be authorized
to do business and in good standing in each state where the Greenhouse
Properties are located and each other state where the transaction of its
business makes such qualification necessary and the failure to be so qualified
would have a Material Adverse Effect on Borrower, and (b) shall deliver to
CoBank good standing certificates evidencing such authorization and good
standing.
11.4 Compliance with Legal Requirements and Agreements. Borrower shall
comply with: (a) all laws, rules, regulations and orders applicable to Borrower
or its business; and (b) all agreements, indentures, mortgages, and other
instruments to which it is a party or by which it or any of its property is
bound, where the failure to so comply could have a Material Adverse Effect on
Borrower.
11.5 Compliance with Environmental Laws. Without limiting the provisions of
Section 11.4 of this Agreement, Borrower shall comply in all material respects
with, and take all reasonable steps necessary to cause all persons occupying or
present on any properties owned or leased by Borrower to comply with, all
Environmental Laws and Environmental Regulations, with respect to which the
failure to comply could have a Material Adverse Effect on Borrower.
11.6 Insurance. Borrower shall keep the Borrower Collateral insured at all
times by an insurance carrier or carriers approved by CoBank which have an A
rating by the current BEST Key Rating Guide (provided that Florists Mutual Group
will be deemed an approved insurance carrier so long as its BEST Key Rating does
not fall below its rating as of the date of this Agreement), against all risks
covered by a special form policy (and including flood coverage for the
Greenhouse located in Buffalo, New York only, and including windstorm coverage
for all Greenhouses but specifically excluding earthquake coverage) in the
amount of the full replacement cost (other than
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with respect to motor vehicles) of the Borrower Collateral as well as liability,
worker's compensation, business interruption, boiler and machinery and such
other insurance as CoBank may reasonably require, in amounts and with
deductibles or maximum payouts customarily carried by entities in similar lines
of business. Borrower shall also maintain fidelity coverage (including employee
dishonesty) on such officers and employees and in such amounts as CoBank shall
specify, or in the absence of any such specification, as customarily carried by
entities engaged in comparable businesses and comparably situated. Such
insurance policies shall contain such reasonable endorsements as CoBank shall
from time to time require and all liability policies shall name CoBank as an
additional insured as its interests may appear. All such insurance policies
shall be endorsed with a mortgagee's or loss payable clause, as appropriate, in
favor of CoBank. The policy or policies evidencing all insurance referred to in
this Section and receipts for the payment of premiums thereon or certificates of
such insurance satisfactory to CoBank shall be delivered to and held by CoBank.
All such insurance policies shall contain a provision requiring at least ten
(10) days' notice to CoBank prior to any cancellation for non-payment of
premiums and at least forty-five (45) days' notice to CoBank of cancellation for
any other reason or of modification or non-renewal. No later than thirty (30)
days prior to expiration, Borrower shall give CoBank satisfactory written
evidence of renewal of all such policies with premiums paid. Borrower agrees to
pay all premiums on such insurance as they become due, and will not permit any
condition to exist on or with respect to the Borrower Collateral which would
wholly or partially invalidate any insurance thereon. Effective upon the
occurrence of an Event of Default, all of Borrower's right, title and interest
in and to all such policies and any unearned premiums paid thereon are hereby
assigned to CoBank who shall have the right, but not the obligation, to assign
the same to any purchaser of the Borrower Collateral at any foreclosure sale.
Borrower shall give immediate written notice to the insurance carrier and CoBank
of any loss. Borrower hereby authorizes and empowers CoBank upon the occurrence
and during the continuation of an Event of Default, at CoBank's option and in
CoBank's sole discretion, to act as attorney-in-fact for Borrower to make proof
of loss, to adjust and compromise any claim under insurance policies, to collect
and receive insurance proceeds, and to deduct therefrom CoBank's expenses
incurred in the collection of such proceeds, and all insurance policies of
Borrower shall provide that CoBank may act as Borrower's attorney-in-fact for
such purposes.
11.7 Taxes. Borrower shall cause to be paid when due all taxes,
assessments, and other governmental charges and levies upon it, its income, its
sales, its properties, and federal and state taxes withheld from its employees'
earnings, unless (a) such taxes, assessments, or other governmental charges or
levies shall be contested in good faith by appropriate actions or legal
proceedings, (b) adequate reserves therefor shall be established by Borrower in
accordance with GAAP during the period of such contest, (c) the enforcement of
any contested item, and any Lien relating thereto, is effectively stayed, and
(d) the failure to pay or comply with the contested item could not reasonably be
expected to result in a Material Adverse Effect with respect to Borrower.
11.8 Title to Assets and Maintenance. Borrower shall defend and maintain
title to, and shall maintain, keep and preserve all of its material properties
(tangible and
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intangible) necessary or used in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, and shall cause to
be made all repairs, renewals, replacements, betterments and improvements
thereof, all as in the sole judgment of Borrower may be reasonably necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
11.9 Payment of Liabilities. Except for those liabilities set forth on
Schedule 11.9 which shall be paid in accordance with the schedule therefor set
forth on Schedule 11.9, Borrower shall pay all liabilities as they become due
unless (with the exception of the Bank Debt) they are contested in good faith by
appropriate actions or legal proceedings, Borrower establishes adequate reserves
therefor in accordance with GAAP, the enforcement of such liability, and any
Lien relating thereto, is effectively stayed, and such contest will not result
in a Material Adverse Effect on Borrower.
11.10 Further Assurances; Real Property Security Interests. Borrower shall,
as may be required from time to time by CoBank, provide such documents as may be
necessary or desirable in the judgment of CoBank to confirm the Lien on the
Borrower Collateral granted to CoBank. Promptly after the purchase or other
acquisition of any interest in real estate, Borrower shall provide CoBank with
written notice of such acquisition and shall grant to CoBank a first deed of
trust or mortgage on such interest in real estate, such deed of trust or
mortgage to be in form and substance as specified by CoBank. In connection with
the delivery of any mortgage or deed of trust, Borrower shall deliver to CoBank
a mortgagee's title policy satisfactory to CoBank in such amount as CoBank shall
specify, to be obtained at Borrower's sole cost. In connection with entering
into, as lessee, any ground lease upon which a Greenhouse will be located, or
any other real property lease with respect to which the annual rental is
$50,000.00 or more, Borrower shall deliver to CoBank a lease amendment or
leasehold assignment and consent (naming CoBank as assignee), as determined by
CoBank and in the form specified by CoBank, together with such consents or
estoppels of lessor as CoBank shall specify.
11.11 Inspection. Borrower shall permit CoBank and its agents, during
normal business hours or at such other times as the parties may agree, to
examine Borrower's properties, books, and records, and to discuss Borrower's
affairs, finances, operations, and accounts with its respective officers,
directors, employees, and independent certified public accountants.
11.12 Required Licenses and Intellectual Property. Borrower shall duly and
lawfully obtain and maintain in full force and effect all Required Licenses, and
Borrower shall maintain, or cause to be maintained, in full force and effect the
Intellectual Property registrations, except where the failure to do so would not
have a Material Adverse Effect on Borrower.
11.13 ERISA. In the event Borrower adopts , maintains, or becomes obligated
to make payments under, any Borrower Benefit Plan in the future (which Borrower
may not do without the prior written consent of CoBank), Borrower shall: (a)
cause each such Borrower
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Benefit Plan to comply in all material respects with the Code and ERISA,
including but not limited to preparing and delivering each material report,
statement or other document required by ERISA and the Code within the period
specified therein and conforming in form and substance to the provisions
thereof; (b) cause any Borrower Benefit Plan that is intended to satisfy the
requirements of Section 401(a) of the Code to satisfy such requirements
including, but not limited to obtaining a favorable determination letter with
respect to each such Borrower Benefit Plan; and (c) administer each Borrower
Benefit Plan in all material respects in accordance with the terms of such plan
and with ERISA, the Code, and any other applicable law, except to the extent any
failure to comply with the preceding clauses would not have a Material Adverse
Effect on Borrower.
11.14 Performance Standards; Budgets. Borrower shall meet the performance
standards described on Exhibit 11.14 for each calendar month and Quarter, except
that Borrower will not be deemed to have breached the covenants of this Section
11.14: (a) if the negative variance from one or more of the performance
standards set forth on Exhibit 11.14 is ten percent (10%) or less in any
calendar month or five percent (5%) or less in any Quarter, or (b) even when the
negative variance from one or more of the performance standards exceeds ten
percent (10%) in any calendar month or five percent (5%) in any Quarter, if (i)
such negative variance is recouped in the immediately succeeding calendar month,
and (ii) there is no negative variance in any amount in any of the standards set
forth on Exhibit 11.14 in such succeeding calendar month. No later than 30 days
after the end of each month and forty-five days after the end of each Quarter,
Borrower shall provide to CoBank a certificate of Borrower's chief financial
officer stating that: (1) he has reviewed all necessary reports regarding the
operations of Borrower, (2) he has, based upon such reports and such review,
calculated (which calculations shall be set forth in detail and attached to such
certificate) each of the performance standards for Borrower referred to on
Exhibit 11.14 hereto for the relevant measurement period, and (3) based upon
such review and calculations, each of such performance standards have been met
for such measurement period.
11.15 Year 2000. Borrower agrees: (a) to use its best efforts to obtain
from all Significant Software Providers, no later than the Effective Date,
reasonable assurance that Borrower's Significant Software is Year 2000
Compliant; (b) to use its best efforts to obtain, no later than the Effective
Date, reasonable assurance from all of Borrower's Mission Critical third party
suppliers and customers that such suppliers' and customers' Significant Software
is Year 2000 Compliant; (c) to diligently conduct thorough Year 2000 Compliance
tests on or before the Effective Date on all of Borrower's Significant Software
and to provide a written report to CoBank within two Business Days thereafter
detailing any Year 2000 Compliance failures of Borrower's Significant Software
and Borrower's plans for timely remediation of such Significant Software; (d) to
complete all remediation of identified Year 2000 Compliance failures in
Borrower's Significant Software no later than the Effective Date; (e) to provide
to CoBank, no later than the Effective Date, the written certification of
Borrower's chief financial officer, or other officer satisfactory to CoBank,
that: all of Borrower's Significant Software has been diligently and thoroughly
tested; any necessary remediation, with respect to Year 2000
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Compliance failures identified through such testing, has been completed; and, to
the best of Borrower's knowledge, its Significant Software is Year 2000
Compliant; and (f) to provide to CoBank, no later than the Effective, a written
report detailing Borrower's contingency plans in the event of an unexpected
failure of Borrower's Significant Software or Mission Critical suppliers or
customers to be Year 2000 Compliant.
ARTICLE 12.
NEGATIVE COVENANTS
From and after the date of this Agreement and until the Bank Debt is
indefeasibly paid in full, Borrower agrees that it will observe and comply with
the following covenants for the benefit of CoBank:
12.1 Borrowing. Borrower shall not create, incur, assume or permit to
exist: (a) any indebtedness for borrowed money or for the deferred purchase
price of property or services; (b) any contingent liabilities, such as
guarantees and reimbursement obligations; or (c) any obligations under leases
(whether operating or capital leases), except for: (v) indebtedness for the
deferred purchase price of property and services acquired in the ordinary course
of business which is described on Schedule 11.9, (w) indebtedness owing under
the Loan Documents and any other indebtedness owing to CoBank (provided,
however, that any such indebtedness shall be subordinated to the Bank Debt), (x)
the leases of Greenhouses and/or Greenhouse properties listed on Schedule 10.22
hereto, and (y) leases and purchase money financing of equipment required in the
ordinary course of Borrower's business the aggregate amount of which does not
exceed $250,000.00 at any time; and (z) indebtedness constituting any
refinancing or refunding of indebtedness described in subparagraph (y) of this
Section, provided that the principal amount thereof does not increase as a
result of any such refinancing or refunding from the balance owing on the date
hereof or on the date of such refinancing or refunding, whichever is lower.
12.2 No Other Businesses. Except as set forth on Schedule 12.2, Borrower
shall not transact or engage in any business other than the operation of the
Greenhouses, including the planting, growing, harvesting, and marketing of
tomatoes, vegetables or other crops without CoBank's prior written consent.
12.3 Liens. Borrower shall not create, incur, assume or suffer to exist any
Lien on any of the Borrower Collateral, except:
(a) the Liens resulting from the Loan Documents;
(b) Liens for taxes or other governmental charges which are not due or
remain payable without penalty, unless (i) such taxes, assessments, or
other governmental charges or levies shall be contested in good faith by
appropriate actions or legal proceedings, (ii) adequate reserves therefor
shall be established by Borrower in accordance with GAAP during the period
of such contest, (iii) the enforcement of any contested item, and any Lien
resulting therefrom, is effectively stayed, and (iv) the failure to pay or
comply with the contested item
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could not reasonably be expected to result in a Material Adverse Effect with
respect to Borrower;
(c) deposits or pledges to secure workmen's compensation, unemployment
insurance, old age benefits or other social security obligations or in
connection with or to secure the performance of bids, tenders, trade
contracts or leases or to secure statutory obligations or surety or appeal
bonds or other pledges or deposits of like nature and all in the ordinary
course of business;
(d) mechanics', carriers', workmen's, repairmen's or other like Liens
arising in the ordinary course of business in respect of obligations not
yet due or which are being contested in good faith and by appropriate
proceedings so long as (i) adequate reserves therefor shall be established
by Borrower in accordance with GAAP during the period of such contest, (ii)
the enforcement of any contested item, and any Lien resulting therefrom, is
effectively stayed, and (iii) the failure to pay or comply with the
contested item could not reasonably be expected to result in a Material
Adverse Effect with respect to Borrower;
(e) easements, rights-of-way, zoning restrictions and other similar matters
incidental to the ownership of real property which do not in the aggregate
materially detract from the value of such real property or materially
impair their use in the operation of the business of Borrower;
(f) Liens securing leases or purchase money financing of equipment acquired
in the ordinary course of Borrower's business, provided that such Liens
shall attach only to the equipment so leased or purchased and that the
aggregate amount of all lease obligations and purchase money financing so
secured does not exceed the amount permitted under Section 12.1; (g) Liens,
deposits, or pledges to secure the performance of bids, contracts (other
than contracts for the payment of money), leases (to the extent not
otherwise prohibited hereunder), public or statutory obligations, surety,
stay, appeal, indemnity, performance or similar bonds, or other similar
obligations arising out of or entered into in the ordinary course of
Borrower's business; and
(h) With respect to the Greenhouse owned and operated by Presidio prior to
the Borrower merger, the mechanic's lien of Dalsem Horticultural Projects,
B.V. ("DALSEM") securing the amount described on Schedule 11.9 hereto as
owing to Dalsem, which amount has been subordinated to at least $3,521,854
of the Bank Debt.
12.4 Sale of Assets. Borrower shall not sell, convey, assign, lease or
otherwise transfer or dispose of, voluntarily, by operation of law or otherwise,
any of the Borrower Collateral to any Person, except that: (a) Borrower may, in
the ordinary course of Borrower's business, make sales or other dispositions of
tomatoes, vegetables, and other crops grown in the Greenhouses; and (b) Borrower
may dispose of worn-out or obsolete equipment so long as (i) if an Event of
Default has occurred and is continuing, any
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proceeds are paid to CoBank for application to the Bank Debt, (ii) whether or
not an Event of Default has occurred and is continuing, such sales do not
involve equipment having an aggregate fair market value in excess of $100,000.00
for all such equipment disposed of in any calendar year that is not replaced
with comparable equipment, and (iii) the transfer is made in an arm's-length
transaction.
12.5 Liabilities of Others. Borrower shall not assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligation of any other Person.
12.6 Payments on Indebtedness. Borrower shall not make any principal
payment (including without limitation any prepayment) on any indebtedness except
indebtedness owing to CoBank under the Loan Documents and, so long as no Event
of Default or Potential Default shall exist, indebtedness not prohibited by
Section 12.1 of this Agreement.
12.7 Change in Business Structure. Borrower shall not merge or consolidate
with any entity, or acquire all or substantially all of the assets of any person
or entity, acquire or construct any Greenhouse after the date hereof, or form or
create any new subsidiary or affiliate, or commence operations under any other
name, organization, or entity, including any joint venture without CoBank's
prior written consent. Borrower shall not cease operations at any Greenhouse
without CoBank's prior written consent.
12.8 Loans, Advances and Investments. Except for the purchase and ownership
of CoBank Equity Interests, Borrower shall not make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any stock,
obligations or securities or equities of, or any other interest in, or make any
capital contribution to, any Person, except that Borrower may own, purchase or
acquire:
(a) commercial paper maturing not in excess of one year from the date of
acquisition and rated P1 by Moody's Investors Service, Inc. or A1 by
Standard & Poor's Corporation on the date of acquisition;
(b) certificates of deposit in North American commercial banks rated C or
better by Keefe, Bruyette & Woods, Inc. or 3 or better by Cates Consulting
Analysts, maturing not in excess of one year from the date of acquisition;
(c) obligations of the United States government or any agency thereof, the
obligations of which are guaranteed by the United States government,
maturing, in each case, not in excess of one year from the date of
acquisition; and
(d) repurchase agreements of any bank or trust company incorporated under
the laws of the United States of America or any state thereof and fully
secured by a pledge of obligations issued or fully and unconditionally
guaranteed by the United States government.
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12.9 Transactions With Related Parties. Borrower shall not purchase,
acquire, or sell any equipment, other personal property, real property or
services from or to any affiliate of Borrower, except in the ordinary course of
Borrower's business and upon fair and reasonable terms no less favorable than
would be obtained by Borrower in a comparable arm's-length transaction with an
unrelated Person.
12.10 ERISA. Borrower shall not: (a) adopt, maintain or become obligated to
contribute to any Borrower Benefit Plan or any Borrower Pension Plan without the
prior written consent of CoBank; (b) engage in or permit any transaction which
could result in a "prohibited transaction" (as such term is defined in Section
406 of ERISA) or in the imposition of an excise tax pursuant to Section 4975 of
the Code; (c) engage in or permit any transaction or other event which could
result in a "reportable event" as such term is defined in Section 4043 of ERISA
for any Borrower Pension Plan; (d) fail to make full payment when due of all
amounts which, under the provisions of any Borrower Benefit Plan, Borrower is
required to pay as contributions thereto; (e) permit to exist any "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA) in excess
of $25,000.00, whether or not waived, with respect to any Borrower Pension Plan;
(f) fail to make any payments to any "multiemployer plan" that Borrower may be
required to make under any agreement relating to such "multiemployer plan" or
any law pertaining thereto; or (g) terminate any Borrower Pension Plan in a
manner which could result in the imposition of a lien on any property of
Borrower pursuant to Section 4068 of ERISA. Borrower shall not terminate any
Borrower Pension Plan so as to result in any liability to the Pension Benefit
Guaranty Corporation. As used in this Section, all terms enclosed in quotation
marks shall have the meanings set forth in ERISA. Borrower's failure to comply
with any of the foregoing provisions of this Section shall not constitute a
breach of this Agreement or an Event of Default unless such failure has a
Material Adverse Effect on Borrower.
12.11 Distributions to Partners. Borrower shall not return any capital,
pay, make, or allocate or otherwise set apart for the payment of, any
distributions or loans, whether in cash, assets, or in obligations of Borrower,
whatsoever to Borrower's partners, except:
(a) in connection with transactions permitted under Section 12.9, and
(b) that, so long as no Potential Default or Event of Default has occurred,
Borrower may, in connection with that certain Promissory Note dated January
2, 2000 made by EcoScience payable to Cogentrix in the principal amount of
$15,900,000 ("COGENTRIX NOTE"):
(i) make distributions to APD in December of each year, commencing in
December 2000 and continuing until the Cogentrix Note has been paid in
full in the following amount provided that such distributions to APD
must in turn be distributed to EcoScience and must be used by
EcoScience only to make mandatory annual prepayments to Cogentrix
pursuant to Section 7(b)(i) of that certain Exchange Agreement
("EXCHANGE AGREEMENT") dated as of
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January 2, 2000 by and between Cogentrix and EcoScience (but not
mandatory prepayments on account of "Prepayment Events" as such term
is defined in the Exchange Agreement) and scheduled payments to
Cogentrix under section 7(a) of the Exchange Agreement, so long as
such indebtedness has been subordinated to all indebtedness owed to
CoBank under the Loan Documents on terms and conditions satisfactory
to CoBank in its sole discretion, in an aggregate amount equal to:
seventy percent (70%) of all EBITDA in excess of $15,000,000
(determined on the basis of the most recent consolidated and
consolidating audited financial statements of APD that have been
delivered to CoBank); provided, however, that effective December 1,
2003, the foregoing restriction is waived to the extent necessary to
enable Borrower to make distributions to APD in the amount of the
scheduled payment to Cogentrix, on the date that each such scheduled
payment is due, pursuant to Section 7(a) of the Exchange Agreement
provided that such distributions to APD must in turn be distributed to
EcoScience and must be used by EcoScience only to make such scheduled
payments.
12.12 Dissolution or Liquidation. Borrower shall not dissolve or liquidate,
or enter into any consolidation, pool, joint venture, or other combination.
12.13 Amendment of Organizational Documents. Borrower shall not amend any
material term of its Certificate of Limited Partnership or its limited
partnership agreement without the prior written consent of CoBank.
12.14 Change in Fiscal Year. Borrower shall not change its Fiscal Year.
12.15 Issued Letter of Credit. The expiration date of the Issued Letter of
Credit shall not be extended past July 31, 2001 unless Borrower has signed
CoBank's standard form of reimbursement agreement and provided such collateral
security for such reimbursement obligations as CoBank may require. If,
notwithstanding such prohibition, the expiration date of the Issued Letter of
Credit is extended beyond July 31, 2001 and Borrower has not executed such
reimbursement agreement and provided CoBank with such collateral security, then
on the Tranche B Maturity Date, Borrower shall be required to deposit with
CoBank cash in an amount equal to the undrawn face amount of the Issued Letter
of Credit as collateral security for Borrower's reimbursement obligations in
connection with the Issued Letter of Credit.
ARTICLE 13.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
13.1 Events of Default. The occurrence of any of the following events (each
an "EVENT OF DEFAULT") shall terminate any obligation on the part of CoBank to
disburse the proceeds of the Term Loans and, at the option of CoBank, shall make
the Notes and the entire Bank Debt immediately due and payable (provided, that
in the case of an Event of Default under Subsection 13.1(g) all amounts owing
under the Notes and the
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other Loan Documents shall automatically and immediately become due and payable
without any action by or on behalf of CoBank), and CoBank may exercise all
rights and remedies for the collection of any amounts outstanding hereunder and
take whatever action it deems necessary to secure itself, all without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, or other notices or demands of any kind or character:
(a) Failure of Borrower to pay within five (5) days of the date when due,
whether by acceleration or otherwise, any of the Bank Debt in accordance
with this Agreement or the other Loan Documents.
(b) Any representation or warranty set forth in any Loan Document, or in
connection with any transaction contemplated by any such document, shall
prove in any material respect to have been false or misleading when made by
Borrower, VFIFA, General Partner or any Guarantor, as applicable.
(c) Any default by Borrower, General Partner or any Guarantor in the
performance or compliance with the covenants, promises, conditions or
provisions of Sections 11.6, 11.11, 11.14, 12.1, 12.3, 12.4, 12.5, 12.6,
12.7, 12.11, 12.12, or 12.14, or Sections 5.4, 5.5, 5.6, or 5.10 of the
General Partner Security Agreement, or Sections 8.6, 8.11, 8.14, 9.1, 9.3,
9.4, 9.5, 9.6, 9.7, 9.11, 9.12, 9.14, 9.15, or 9.16 of the APD Guaranty or
Sections 8.6, 8.9, 9.1, 9.2, 9.3 or 9.6 of the EcoScience Guaranty.
(d) Any breach of the covenants set forth in Sections 11.2, 11.3, 11.8,
11.9 (except as provided in Section 13.1(f)), 11.12, 11.13, 11.15, 12.8,
12.9, or 12.10 of this Agreement, or Sections 5.12 or 5.13 of the General
Partner Security Agreement, or Sections 8.2, 8.3, 8.8, 8.9, 8.12, 8.13,
8.15, 9.8, 9.9, or 9.10 of the APD Guaranty, or Sections 8.2, 8.3, 8.7,
8.10, 8.11, or 9.5 of the EcoScience Guaranty, and such failure continues
for five (5) days after Borrower, General Partner or any Guarantor, as
applicable, learns of such failure to comply, whether by Borrower's,
General Partner's or such Guarantor's own discovery or through notice from
CoBank.
(e) The occurrence of an "Event of Default" as that term is defined in any
other Loan Document.
(f) Failure of Borrower, General Partner or any Guarantor to comply with
any other provision of this Agreement or the other Loan Documents not
constituting an Event of Default under any of the preceding provisions of
this Section 13.1, and such failure continues for thirty (30) days after
Borrower, General Partner or such Guarantor learns of such failure to
comply, whether by Borrower's, General Partner's or such Guarantor's own
discovery or through notice from CoBank.
(g) The failure of Borrower, General Partner or any Guarantor to pay when
due, or failure to perform or observe any other obligation or condition
with respect to, any of the following obligations to any Person, beyond any
period of
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grace under the instrument creating such obligation: (i) any indebtedness
for borrowed money or for the deferred purchase price of property or
services in excess of $50,000.00, (ii) any obligations under leases which
have or should have been characterized as capitalized leases, as determined
in accordance with GAAP, or (iii) any contingent liabilities, such as
guarantees, for the obligations of others relating to indebtedness for
borrowed money or for the deferred purchase price of property or services
or relating to obligations under leases which have or should have been
characterized as capitalized leases, as determined in accordance with GAAP.
(h) Borrower, General Partner or any Guarantor applies for or consents to
the appointment of a trustee or receiver for any part of their respective
properties; any bankruptcy, reorganization, debt arrangement, dissolution
or liquidation proceeding is commenced or consented to by Borrower, General
Partner or any Guarantor; or any application for appointment of a receiver
or a trustee, or any proceeding for bankruptcy, reorganization, debt
management or liquidation is filed for or commenced against Borrower,
General Partner or any Guarantor, and is not withdrawn or dismissed within
sixty (60) days thereafter.
(i) In the event (i) General Partner ceases to be the sole general partner
of Borrower or APD ceases to be the sole limited partner or Borrower, or
(ii) EcoScience ceases to own 100% of the issued and outstanding capital
stock of APD, or (iii) a Change of Control occurs with respect to
EcoScience without CoBank's prior written consent.
(j) Failure by APD or Borrower to maintain a Turnaround Manager reasonably
acceptable to CoBank.
(k) Any Guaranty or any Security Document to which General Partner or any
Guarantor is a party shall, at any time after their execution, cease to be
in full force and effect, or shall be revoked or declared null and void, or
the validity or enforceability thereof shall be contested by General
Partner or any Guarantor, or General Partner or any Guarantor shall deny
any further liability or obligation thereunder, or shall be in default or
fail to perform its obligations thereunder, or any covenant or agreement
set forth therein shall be breached, or General Partner or any Guarantor
should breach or be in default under the terms of any of the Loan Documents
to which General Partner or such Guarantor is a party.
(l) The entry of one or more judgments in an aggregate amount in excess of
$50,000.00 against Borrower and/or in excess of $100,000.00 in the
aggregate against General Partner or any Guarantor, in either case not
stayed or discharged within thirty (30) days after entry.
13.2 No Advances. CoBank shall have no obligation to disburse the proceeds
of the Term Loans if a Potential Default or an Event of Default shall occur and
be continuing.
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13.3 Rights and Remedies. In addition to the remedies set forth in Section
13.1 and 13.2 of this Agreement, upon the occurrence of an Event of Default,
CoBank shall be entitled to exercise all the rights and remedies provided in the
Security Documents and other Loan Documents and by any applicable law,
including, without limitation, the Uniform Commercial Code as enacted in the
state of Colorado or the state where the Collateral is located at such time,
whichever provides CoBank with greater rights. Each and every right or remedy
granted to CoBank pursuant to this Agreement and the other Loan Documents, or
allowed CoBank by law or equity, shall be cumulative. Failure or delay on the
part of CoBank to exercise any such right or remedy shall not operate as a
waiver thereof. Any single or partial exercise by CoBank of any such right or
remedy shall not preclude any future exercise thereof or the exercise of any
other right or remedy.
ARTICLE 14.
INDEMNIFICATION
14.1 General; Stamp Taxes; Intangibles Tax. Borrower agrees to indemnify
and hold CoBank and each Participant and their respective directors, officers,
employees, agents, professional advisers and representatives ("INDEMNIFIED
PARTIES") harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which any Indemnified Party may incur
(or which may be claimed against any such Indemnified Party by any Person),
including attorneys' fees incurred by any Indemnified Party, arising out of or
resulting from: (a) the material inaccuracy of any representation or warranty of
Borrower, VFIFA, General Partner or any Guarantor in this Agreement or any other
Loan Document; (b) the material failure of Borrower, VFIFA, General Partner or
any Guarantor to perform or comply with any covenant or obligation of Borrower,
VFIFA, General Partner or such Guarantor under this Agreement or any other Loan
Document; or (c) the exercise by CoBank of any right or remedy set forth in this
Agreement or the other Loan Documents, provided that Borrower shall have no
obligation to indemnify any Indemnified Party against claims, damages, losses,
liabilities, costs or expenses to the extent that a court of competent
jurisdiction renders a final non-appealable determination that the foregoing are
solely the result of the willful misconduct or gross negligence of such
Indemnified Party. In addition, Borrower agrees to indemnify and hold the
Indemnified Parties harmless from and against any and all claims, damages,
losses, liabilities, costs or expenses whatsoever which CoBank or any other
Indemnified Party may incur (or which may be claimed against any such
Indemnified Party by any Person), including attorneys' fees incurred by any
Indemnified Party, arising out of or resulting from the imposition or nonpayment
by Borrower, VFIFA, General Partner or any Guarantor of any stamp tax,
intangibles tax, or similar tax imposed by any governmental authority, including
any amounts owing by virtue of the assertion that the property valuation used to
calculate any such tax was understated. Borrower shall have the right to assume
the defense of any claim as would give rise to Borrower's indemnification
obligation under this Section with counsel of Borrower's choosing so long as
such defense is being diligently and properly conducted and Borrower shall
establish to the Indemnified Party's satisfaction that the amount of such claims
are not, and will not be, material in comparison to the liquid and
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unrestricted assets of Borrower available to respond to any award which may be
granted on account of such claim. So long as the conditions of the preceding
sentence are met, Indemnified Party shall have no further right to reimbursement
of attorneys' fees incurred thereafter. The obligation to indemnify set forth in
this Section shall survive the termination of this Agreement and the other Loan
Documents.
14.2 Indemnification Relating to Hazardous Substances. Borrower shall not
locate, produce, treat, transport, incorporate, discharge, emit, release,
deposit or dispose of any Hazardous Substance in, upon, under, over or from any
property owned or operated by Borrower, except in accordance with all
Environmental Laws and Environmental Regulations; Borrower shall not permit any
Hazardous Substance to be located, produced, treated, transported, incorporated,
discharged, emitted, released, deposited, disposed of or to escape in, upon,
under, over or from any property owned or operated by Borrower, except in
accordance with Environmental Laws and Environmental Regulations; and Borrower
shall comply with all Environmental Laws and Environmental Regulations which are
applicable to such property. If CoBank reasonably believes that an Environmental
Law or Environmental Regulation has been violated by Borrower's activities upon
property owned or operated by Borrower, and if CoBank so requests, Borrower
shall have prepared an environmental review, audit, assessment and/or report
relating to the subject property, at Borrower's sole cost and expense, by an
engineer or other environmental expert acceptable to CoBank. If, however, the
environmental review, audit, assessment and/or report reveals that no
Environmental Law or Environmental Regulation has been violated, CoBank shall
reimburse Borrower for the costs and expenses of such engineer or other
environmental expert in completing such audit or report. Borrower shall
indemnify the Indemnified Parties against, and shall reimburse the Indemnified
Parties for, any and all claims, demands, judgments, penalties, liabilities,
costs, damages and expenses, including court costs and attorneys' fees incurred
by the Indemnified Parties (prior to trial, at trial and on appeal) in any
action against or involving the Indemnified Parties, resulting from any breach
of the foregoing covenants, or from the discovery of any Hazardous Substance in,
upon, under or over, or emanating from, such property, it being the intent of
Borrower and the Indemnified Parties that the Indemnified Parties shall have no
liability or responsibility for damage or injury to human health, the
environmental or natural resources caused by, for abatement and/or clean-up of,
or otherwise with respect to, Hazardous Substances by virtue of the interest of
CoBank (or any Participant), in the property created by any documents securing
Bank Debt (including without limitation the Loan Documents) or as the result of
CoBank exercising any of its rights or remedies with respect thereto, including
but not limited to becoming the owner thereof by foreclosure or conveyance in
lieu of foreclosure. The foregoing covenants of this Section shall be deemed
continuing covenants for the benefit of the Indemnified Parties, and any
successors and assigns of the Indemnified Parties, including but not limited to
the holder of any certificate of purchase, any transferee of the title of CoBank
or any subsequent owner of the property, and shall survive the satisfaction or
release of any Lien, any foreclosure of any Lien and/or any acquisition of title
to the property or any part thereof by CoBank, or anyone claiming by, through or
under CoBank or Borrower by deed in lieu of foreclosure or otherwise. Any
amounts covered by the foregoing
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indemnification shall bear interest from the date incurred at the Default
Interest Rate, shall be payable on demand, and shall be secured by the Security
Documents. The indemnification and covenants of this Section shall survive the
termination of this Agreement and the other Loan Documents.
ARTICLE 15.
MISCELLANEOUS
15.1 Costs and Expenses. To the extent permitted by law, Borrower agrees to
pay to CoBank, on demand, all out-of-pocket costs and expenses incurred by it
and any Participant in the Term Loans as of the Effective Date (including,
without limitation, the reasonable fees and expenses of counsel retained by
CoBank and any such Participant and reasonable consulting, appraisal,
engineering and environmental assessment costs) in connection with the
preparation, negotiation, and execution of the Loan Documents and the
transactions contemplated thereby (including without limitation any post-closing
matters) and the enforcement or protection of CoBank's rights under the Loan
Documents, including without limitation collection of any of the Bank Debt and
the enforcement of any security interest in the Collateral (regardless of
whether such enforcement or collection is by court action or otherwise), as
applicable.
15.2 Service of Process and Consent to Jurisdiction. Borrower irrevocably
agrees that any litigation with respect to this Agreement or to enforce any
judgment obtained against Borrower for breach of this Agreement or under the
Notes or other Loan Documents may be brought in the courts of the State of
Colorado and in the United States District Court for the District of Colorado
(if applicable subject matter jurisdictional requirements are present), as
CoBank may elect; and, by execution and delivery of this Agreement, Borrower
irrevocably submits to such jurisdiction. With respect to litigation concerning
this Agreement or any other Loan Document within the jurisdiction of the courts
of the State of Colorado or the United States District Court for the District of
Colorado, Borrower hereby irrevocably appoints, until January 31, 2005, The
Corporation Company, 1675 Broadway, Denver, Colorado 80202, as the agent of
Borrower to receive for and on behalf of Borrower, service of process, which
service may be made by mailing a copy of any summons or other legal process to
Borrower in care of such agent. Borrower agrees that Borrower shall maintain a
duly appointed agent for service of summons and other legal process in Colorado
as long as Borrower remains obligated under this Agreement. The receipt by such
agent and/or by Borrower of such summons or other legal process in any such
litigation shall be deemed personal service and acceptance by Borrower for all
purposes of such litigation. Borrower agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
15.3 Jury Waiver. IT IS MUTUALLY AGREED BY AND BETWEEN COBANK AND BORROWER
THAT THEY EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER OF THEM AGAINST THE OTHER PARTY ON ANY MATTER WHATSOEVER
ARISING OUT
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OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE NOTES, OR THE OTHER LOAN
DOCUMENTS.
15.4 Notices. All notices, requests and demands required or permitted under
the terms of this Agreement shall be in writing and (a) shall be addressed as
set forth below or at such other address as either party shall designate in
writing and shall be personally delivered or sent by facsimile transmission,
overnight courier, or United States Mail, certified and return receipt
requested, and (b) shall be deemed to have been given or made: (i) if delivered
personally, immediately upon delivery, (ii) if by facsimile transmission,
immediately upon sending and upon confirmation of receipt, (iii) if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending, and (iv) if by United
States Mail, certified mail, return receipt requested, five (5) days after
mailing.
15.4.1 Borrower:
Village Farms, L.P.
10 Alvin Court
East Brunswick, NJ 08816
Facsimile: (732) 432-0770
Attention: Michael DiGiglio, President
15.4.2 CoBank:
CoBank, ACB
5500 S. Quebec St.
Englewood, CO 80111
Facsimile: (303) 224-6109
Attention: Mr. Nicholas D. Jewitt
Vice President, Special Assets
With a copy to:
Farm Credit Bank of Texas
6210 Highway 290 East
Austin, Texas 78723
P.O. Box 15919
Austin, Texas 78761
Facsimile: (512) 465-0675
Attention: Mr. Jim Floyd
15.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of Borrower and CoBank and their respective successors and
assigns, except that Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of CoBank. CoBank may,
without notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Loan
41
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Documents and further may assign, or sell participations in, all or any part of
the Term Loans or any other interest herein.
15.6 Severability. The invalidity or unenforceability of any provision of
this Agreement or the other Loan Documents shall not affect the remaining
portions of such documents or instruments; in case of such invalidity or
unenforceability, such documents or instruments shall be construed as if such
invalid or unenforceable provisions had not been included therein.
15.7 Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF
COLORADO FROM TIME TO TIME IN EFFECT, without giving effect to any otherwise
applicable rules concerning conflicts of law.
15.8 Captions. The captions or headings in this Agreement and any table of
contents hereof are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
15.9 Amendments. This Agreement may not be modified or amended unless such
modification or amendment is in writing and is signed by both Borrower and
CoBank. Borrower agrees that it shall reimburse CoBank for all fees and expenses
incurred by it and any Participant in retaining outside legal counsel in
connection with any amendment or modification to this Agreement requested by
Borrower.
15.10 Additional Costs of Maintaining Loan. Borrower shall pay to CoBank
from time to time such amounts as CoBank may determine to be necessary to
compensate it and any Participant for any costs incurred by CoBank or any
Participant which are attributable to the making or maintaining of the Term
Loans hereunder or its obligation to make any advance of the proceeds of the
Term Loans, or any reduction in any amount receivable by CoBank or any
Participant under this Agreement or the Notes in respect to any such advances
under the Term Loans or such obligation (such increases in costs and reductions
in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from
any change after the date of this Agreement in United States federal, state,
municipal, or foreign laws or regulations (including Regulation D), or the
adoption or making after such date of any interpretations, directives, or
requirements applying to a class of banks including CoBank or any Participant of
or under any United States federal, state, municipal, or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof ("REGULATORY CHANGE"), which: (a) changes the basis of
taxation of any amounts payable to CoBank or any Participant under this
Agreement or the Notes in respect of the Term Loans (other than taxes imposed on
the overall net income of CoBank or any Participant); or (b) imposes or modifies
any reserve, special deposit, or similar requirements relating to any extensions
of credit or other assets of, or any deposits with or other liabilities of,
CoBank or any Participant; or (c) imposes any other condition affecting this
Agreement or the Notes (or any of such
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extensions of credit or liabilities). CoBank will notify Borrower of any event
occurring after the date of this Agreement which will entitle CoBank or any
Participant to compensation pursuant to this Section as promptly as practicable
after it obtains knowledge thereof and determines to request such compensation.
CoBank shall include with such notice, a certificate from CoBank setting forth
in reasonable detail the calculation of the amount of such compensation.
Determinations by CoBank for purposes of this Section of the effect of any
Regulatory Change on the costs of CoBank or any Participant of making or
maintaining the Term Loans or on amounts receivable by CoBank or any Participant
in respect of the Term Loans, and of the additional amounts required to
compensate CoBank or any Participant in respect of any Additional Costs, shall
be conclusive absent manifest error, provided that such determinations are made
on a reasonable basis.
15.11 Capital Requirements. In the event that the introduction of or any
change in (a) any law or regulation, or (b) the judicial, administrative, or
other governmental interpretation of any law or regulation, or (c) compliance by
CoBank or any Participant or any corporation controlling CoBank or any
Participant with any guideline or request from any governmental authority
(whether or not having the force of law) has the effect of requiring an increase
in the amount of capital required or expected to be maintained by CoBank or any
Participant or any corporation controlling CoBank or any Participant, and CoBank
certifies that such increase is based in any part upon its or any Participant's
obligations hereunder, and other similar obligations, Borrower shall pay to
CoBank such additional amount as shall be certified by CoBank to Borrower to be
the net present value (discounted at the National Variable Rate) of the amount
by which such increase in capital reduces the rate of return on capital which
CoBank or any Participant could have achieved over the period remaining until
the Tranche B Maturity Date but for such introduction or change. CoBank will
notify Borrower of any event occurring after the date of this Agreement that
will entitle CoBank or any Participant to compensation pursuant to this Section
as promptly as practicable after it obtains knowledge thereof and of CoBank's
determination to request such compensation. CoBank shall include with such
notice, a certificate setting forth in reasonable detail the calculation of the
amount of such compensation. Determinations by CoBank for purposes of this
Section of the effect of any increase in the amount of capital required to be
maintained by CoBank or any Participant and of the amount of compensation owed
to CoBank under this Section shall be conclusive absent manifest error, provided
that such determinations are made on a reasonable basis.
15.12 RELEASE. BORROWER HEREBY RELEASES, WAIVES AND FOREVER DISCHARGES
VFIFA, COBANK AND EACH PARTICIPANT AND EACH OF THEIR RESPECTIVE SHAREHOLDERS,
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND UNKNOWN, ABSOLUTE
AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS, CAUSES OF ACTION,
ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND EXISTING OR ACCRUED AS OF
THE DATE OF THIS AGREEMENT IN FAVOR OF BORROWER OR THE VILLAGE FARMS ENTITIES.
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15.13 ENTIRE AGREEMENT. THIS AGREEMENT (TOGETHER WITH ALL EXHIBITS AND
SCHEDULES HERETO, WHICH ARE INCORPORATED HEREIN BY THIS REFERENCE) AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AND ENTIRE UNDERSTANDING BETWEEN
COBANK AND BORROWER WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
15.14 Liberal Construction. This Agreement constitutes a fully negotiated
agreement between commercially sophisticated parties, each assisted by legal
counsel, and shall not be construed and interpreted for or against any party
hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BORROWER:
VILLAGE FARMS, L.P., a Delaware limited
partnership
By: Village Farms of Delaware, L.L.C., its
general partner
By:
------------------------------
Name: Kenneth S. Hollander
Title: Senior Vice President
COBANK:
COBANK, ACB
By:
-----------------------------------
Name: Nicholas D. Jewitt
Title: Vice President, Special Assets
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINED TERMS..........................................................................................1
1.1 APD Entities ............................................................................................1
1.2 APD Guaranty ............................................................................................1
1.3 APD Loans ...............................................................................................2
1.4 APD Finance Loan ........................................................................................2
1.5 Bank Debt ...............................................................................................2
1.6 Borrower Pension Plan ...................................................................................2
1.7 Buffalo Loan ............................................................................................2
1.8 Business Day ............................................................................................2
1.9 Capital Lease ...........................................................................................2
1.10 Change of Control ......................................................................................2
1.11 Cogentrix ..............................................................................................3
1.12 Collateral .............................................................................................3
1.13 Compliance Certificate .................................................................................3
1.14 Construction Loan Agreement ............................................................................3
1.15 Default Interest Rate ..................................................................................3
1.16 EBITDA .................................................................................................3
1.17 EcoScience .............................................................................................3
1.18 EcoScience Guaranty ....................................................................................3
1.19 Effective Date .........................................................................................3
1.20 Environmental Laws .....................................................................................3
1.21 Environmental Regulations ..............................................................................3
1.22 GAAP ...................................................................................................4
1.23 General Partner ........................................................................................4
</TABLE>
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<TABLE>
<S> <C> <C>
1.24 General Partner Entities ...............................................................................4
1.25 General Partner Security Agreement .....................................................................4
1.26 Greenhouses ............................................................................................4
1.27 Greenhouse Properties ..................................................................................4
1.28 Greenhouse Properties ..................................................................................4
1.29 Guarantees .............................................................................................4
1.30 Guarantors .............................................................................................4
1.31 Guarantor Collateral ...................................................................................4
1.32 Hazardous Substances ...................................................................................4
1.33 Interest Expense .......................................................................................4
1.34 Interest Rate ..........................................................................................4
1.35 Issued Letter of Credit ................................................................................4
1.36 Lien ...................................................................................................4
1.37 Line of Credit Agreement ...............................................................................5
1.38 Loan Documents .........................................................................................5
1.39 Marfa Loan .............................................................................................5
1.40 Material Adverse Change ................................................................................5
1.41 Material Adverse Effect ................................................................................5
1.42 Mission Critical .......................................................................................5
1.43 National Variable Rate .................................................................................5
1.44 Notes ..................................................................................................5
1.45 Participant ............................................................................................5
1.46 Pennsylvania Loan ......................................................................................5
1.47 Permits ................................................................................................6
1.48 Permitted Liens ........................................................................................6
</TABLE>
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<TABLE>
<S> <C> <C>
1.49 Person .................................................................................................6
1.50 Potential Default ......................................................................................6
1.51 Pocono .................................................................................................6
1.52 Pocono Loan ............................................................................................6
1.53 Presidio ...............................................................................................6
1.54 Presidio Loan ..........................................................................................6
1.55 Projections ............................................................................................6
1.56 Quarter ................................................................................................6
1.57 Security Documents .....................................................................................6
1.58 Significant Software ...................................................................................6
1.59 Significant Software Provider ..........................................................................7
1.60 Term Loans .............................................................................................7
1.61 Term Loan Agreement ....................................................................................7
1.62 Texas Loan .............................................................................................7
1.63 Tranche A Commitment ...................................................................................7
1.64 Tranche B Commitment ...................................................................................7
1.65 Tranche A Maturity Date ................................................................................7
1.66 Tranche B Maturity Date ................................................................................7
1.67 Tranche A Note .........................................................................................7
1.68 Tranche B Note .........................................................................................7
1.69 Turnaround Manager .....................................................................................7
1.70 VFIFA Loan Agreements ..................................................................................7
1.71 Village Farms Entities .................................................................................7
1.72 Virginia Loan ..........................................................................................8
1.73 Year 2000 Compliant ....................................................................................8
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 2. LOAN AMOUNTS...........................................................................................9
2.1 The Term Loans ..........................................................................................9
2.1.1 Tranche A Loan .........................................................................9
2.1.2 Tranche B Loan .........................................................................9
ARTICLE 3. USE OF PROCEEDS........................................................................................9
3.1 Proceeds ................................................................................................9
ARTICLE 4. AVAILABILITY AND DISBURSEMENT..........................................................................9
4.1 Availability - Tranche A Loan ...........................................................................9
4.2 Availability - Tranche B Loan ...........................................................................9
ARTICLE 5. INTEREST AND FEES......................................................................................9
5.1 Interest ................................................................................................9
5.2 Default Interest Rate ..................................................................................10
5.3 Facility Fee ...........................................................................................10
ARTICLE 6. PAYMENTS..............................................................................................10
6.1 Principal Payments .....................................................................................10
6.1.1 Tranche A Loan ........................................................................10
6.1.2 Tranche B Loan ........................................................................10
6.2 Interest Payments ......................................................................................10
6.3 Extension of Maturity Dates ............................................................................11
6.3.1 Tranche A Loan ........................................................................11
6.3.2 Tranche B Loan ........................................................................11
6.4 Voluntary Prepayments ..................................................................................11
6.5 Application of Prepayments .............................................................................11
6.6 Manner of Payment ......................................................................................11
ARTICLE 7. SECURITY..............................................................................................12
</TABLE>
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<TABLE>
<S> <C> <C>
7.1 Borrower's Assets ......................................................................................12
7.2 Guarantees .............................................................................................12
7.3 Pledge by General Partner ..............................................................................12
ARTICLE 8. COBANK EQUITY.........................................................................................12
8.1 CoBank Equity Interests ................................................................................12
ARTICLE 9. CONDITIONS TO TERM LOANS..............................................................................13
9.1 Conditions to Term Loans ...............................................................................13
9.1.1 Loan Documents; Other Documents .......................................................13
9.1.2 Searches; UCC Filings; Title Insurance ................................................13
9.1.3 Organizational Documents ..............................................................13
9.1.4 Evidence of Partnership Action; Incumbency Certificate ................................14
9.1.5 Evidence of General Partner Action; Incumbency Certificate ............................14
9.1.6 Evidence of Action by APD and EcoScience; Incumbency Certificates .....................14
9.1.7 Legal Opinion .........................................................................14
9.1.8 Evidence of Insurance .................................................................14
9.1.9 Evidence of Mergers and Borrower Applications for Qualification .......................15
9.1.10 Evidence of Cogentrix Debt Subordination .............................................15
9.1.11 Management and Marketing Agreements ..................................................15
9.1.12 Approval of Action Plan for Pocono and Wheatfield ....................................15
9.1.13 Purchase and Sale of VFIFA Loans .....................................................16
9.1.14 Recording of Documents ...............................................................16
9.1.15 Agrorent Buy-Out .....................................................................16
9.1.16 Payoffs ..............................................................................16
</TABLE>
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<TABLE>
<S> <C> <C>
9.1.17 Expenses .............................................................................16
9.1.18 Litigation ...........................................................................16
9.1.19 Appointment of Agent for Service .....................................................16
9.1.20 No Material Change ...................................................................16
9.1.21 Financial Information ................................................................17
9.1.22 Further Assurances ...................................................................17
ARTICLE 10. REPRESENTATIONS AND WARRANTIES.......................................................................17
10.1 Organization, Good Standing, Etc ......................................................................17
10.2 Authority; Due Authorization ..........................................................................17
10.3 Mergers ...............................................................................................17
10.4 Consents ..............................................................................................17
10.5 Ownership of Borrower .................................................................................18
10.6 Title to Borrower Collateral ..........................................................................18
10.7 Litigation ............................................................................................18
10.8 No Violations .........................................................................................18
10.9 Binding Agreement .....................................................................................18
10.10 Compliance with Laws .................................................................................18
10.11 Chief Executive Office ...............................................................................18
10.12 Material Agreements ..................................................................................19
10.13 Financial Statements .................................................................................19
10.14 Absence of Undisclosed Liabilities ...................................................................19
10.15 No Material Adverse Change ...........................................................................19
10.16 Projections ..........................................................................................19
10.17 Payment of Taxes .....................................................................................20
10.18 Licenses and Approvals ...............................................................................20
</TABLE>
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<TABLE>
<S> <C> <C>
10.19 Employee Benefit Plans ...............................................................................20
10.20 Equity Investments ...................................................................................21
10.21 Owned Real Property and Greenhouses ..................................................................21
10.22 Leased Real Property and Greenhouses .................................................................21
10.23 Liens ................................................................................................21
10.24 Environmental Compliance .............................................................................21
10.25 Intellectual Property ................................................................................22
10.26 Fiscal Year ..........................................................................................22
10.27 Year 2000 ............................................................................................22
10.28 Disclosure ...........................................................................................22
ARTICLE 11. AFFIRMATIVE COVENANTS................................................................................22
11.1 Books and Records .....................................................................................23
11.2 Reports and Notices ...................................................................................23
11.2.1 Annual Financial Statements ..........................................................23
11.2.2 Monthly Financial Reports ............................................................23
11.2.3 Quarterly Financial Statements .......................................................23
11.2.4 Budget ...............................................................................23
11.2.5 Additional Information ...............................................................23
11.2.6 Notice of Default ....................................................................24
11.2.7 Notice of Litigation .................................................................24
11.2.8 Notice of Material Adverse Effect ....................................................24
11.2.9 Notice of Environmental Litigation ...................................................24
11.2.10 Regulatory and Other Notices ........................................................24
11.2.11 Adverse Action Regarding Required Licenses and Intellectual Property ................24
</TABLE>
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<TABLE>
<S> <C> <C>
11.3 Maintenance of Existence ..............................................................................24
11.4 Compliance with Legal Requirements and Agreements .....................................................24
11.5 Compliance with Environmental Laws ....................................................................25
11.6 Insurance .............................................................................................25
11.7 Taxes .................................................................................................26
11.8 Title to Assets and Maintenance .......................................................................26
11.9 Payment of Liabilities ................................................................................26
11.10 Further Assurances; Real Property Security Interests .................................................26
11.11 Inspection ...........................................................................................26
11.12 Required Licenses and Intellectual Property ..........................................................27
11.13 ERISA ................................................................................................27
11.14 Performance Standards, Budgets .......................................................................27
11.15 Year 2000 ............................................................................................27
ARTICLE 12. NEGATIVE COVENANTS...................................................................................28
12.1 Borrowing .............................................................................................28
12.2 No Other Businesses ...................................................................................28
12.3 Liens .................................................................................................28
12.4 Sale of Assets ........................................................................................29
12.5 Liabilities of Others .................................................................................30
12.6 Payments on Indebtedness ..............................................................................30
12.7 Change in Business Structure ..........................................................................30
12.8 Loans, Advances and Investments .......................................................................30
12.9 Transactions With Related Parties .....................................................................30
12.10 ERISA ................................................................................................30
12.11 Distributions to Partners ............................................................................31
</TABLE>
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<TABLE>
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12.12 Dissolution or Liquidation ...........................................................................31
12.13 Amendment of Organizational Documents ................................................................31
12.14 Change in Fiscal Year ................................................................................31
12.15 Issued Letter of Credit ..............................................................................32
ARTICLE 13. EVENTS OF DEFAULT; RIGHTS AND REMEDIES...............................................................32
13.1 Events of Default .....................................................................................32
13.2 No Advances ...........................................................................................34
13.3 Rights and Remedies ...................................................................................34
ARTICLE 14. INDEMNIFICATION......................................................................................34
14.1 General; Stamp Taxes; Intangibles Tax .................................................................34
14.2 Indemnification Relating to Hazardous Substances ......................................................35
ARTICLE 15. MISCELLANEOUS........................................................................................36
15.1 Costs and Expenses ....................................................................................36
15.2 Service of Process and Consent to Jurisdiction ........................................................36
15.3 Jury Waiver ...........................................................................................36
15.4 Notices ...............................................................................................36
15.4.1 Borrower .............................................................................37
15.4.2 CoBank ...............................................................................37
15.5 Successors and Assigns ................................................................................37
15.6 Severability ..........................................................................................37
15.7 Applicable Law ........................................................................................37
15.8 Captions ..............................................................................................37
15.9 Amendments ............................................................................................38
15.10 Additional Costs of Maintaining Loan .................................................................38
15.11 Capital Requirements .................................................................................38
</TABLE>
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<TABLE>
<S> <C> <C>
15.12 Release ..............................................................................................39
15.13 Entire Agreement .....................................................................................39
15.14 Liberal Construction .................................................................................39
</TABLE>
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EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit 1.13 Compliance Certificate
Exhibit 1.55 Projections
Exhibit 9.1.7 Opinion Letter
Exhibit 11.14 Performance Standards
Schedules
- ---------
Schedule 10.12 Material Agreements
Schedule 10.14 Undisclosed Liabilities
Schedule 10.15 Material Adverse Changes
Schedule 10.18 Required Licenses
Schedule 10.21 Owned Real Property and Greenhouses
Schedule 10.22 Leased Real Property and Greenhouses
Schedule 10.23 Liens
Schedule 10.25 Intellectual Property
Schedule 11.9 Permitted Past-Due Liabilities and Payment Schedule
Schedule 12.2 Other Businesses
GUARANTY
OF
AGRO POWER DEVELOPMENT, INC.
TO
COBANK, ACB
<PAGE>
GUARANTY OF AGRO POWER DEVELOPMENT, INC.
This Guaranty ("GUARANTY") is made and given as of January 2, 2000 by AGRO
POWER DEVELOPMENT, INC., a Delaware corporation ("GUARANTOR"), to COBANK, ACB
("COBANK").
R E C I T A L S
A. CoBank and Village Farms, L.P., a Delaware limited partnership
("BORROWER") have entered into a Consolidated, Amended and Restated Loan
Agreement of even date herewith (as amended, modified or supplemented from time
to time, the "LOAN AGREEMENT") pursuant to which CoBank has agreed make certain
term loans to Borrower in an aggregate principal amount up to $72,285,739.67
("LOANS") under the terms and conditions set forth in the Loan Agreement.
B. CoBank is willing to extend such credit to Borrower pursuant to the
provisions of the Loan Agreement upon the condition, among others, that
Guarantor execute this Guaranty.
A G R E E M E N T S
NOW, THEREFORE, for value received, and intending to be legally bound
herein, and to induce CoBank to extend credit and make advances to Borrower
pursuant to the terms of the Loan Agreement, Guarantor covenants and agrees with
CoBank as follows:
1. DEFINED TERMS. As used in this Guaranty, the following terms shall have
the meanings set forth below (and such meaning shall be equally applicable to
both the singular and plural form of the terms defined, as the context may
require):
1.1 APD ENTITIES: Village Farms, L.L.C., a Delaware limited liability
company; and Cogentrix Greenhouse Investments, Inc., a Delaware corporation.
1.2 APD MERGER: the merger of the APD Entities into Guarantor with
Guarantor as the surviving entity.
1.3 BORROWER MERGER: the merger of the Village Farms Entities into
Borrower with Borrower as the surviving entity.
1.4 BUSINESS DAY: any day other than a Saturday or Sunday and other
than a day which is a Federal legal holiday or a legal holiday for banks in the
State of Colorado or the State of New Jersey.
1.5 CAPITAL LEASE: means any lease of property (whether real, personal
or mixed) by a Person where the discounted present value of the rental
obligations of such Person as lessee under such lease, in accordance with GAAP,
is required to be capitalized on the balance sheet of such Person.
<PAGE>
1.6 COMPLIANCE CERTIFICATE: a certificate of the chief financial
officer of Guarantor acceptable to CoBank and in the form attached as Exhibit
1.6 hereto.
1.7 EBITDA: for any period, the consolidated net income of Guarantor
from its consolidated Greenhouse operations for such period (excluding the
effect of any extraordinary gains or losses), plus the sum of the amounts of (a)
Interest Expense, plus (b) federal and state income taxes, plus (c) depreciation
and amortization expense associated with Guarantor's Greenhouse operations, all
as determined in accordance with GAAP.
1.8 ECOSCIENCE: EcoScience Corporation, a Delaware corporation.
1.9 ENVIRONMENTAL LAWS: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended, 42 U.S.C. 9601-9657 and the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901-6987.
1.10 ENVIRONMENTAL REGULATIONS: any federal, state or local law,
statute, code, ordinance, regulation, requirement or rule (other than the
Environmental Laws) now in effect or hereinafter enacted relating to pollution
or protection of the environment, health, safety or natural resources.
1.11 GAAP: generally accepted accounting principles in the United
States of America, applied consistently, as in effect from time to time.
1.12 GENERAL PARTNER: Village Farms of Delaware, L.L.C., a Delaware
limited liability company.
1.13 GENERAL PARTNER ENTITIES: Cogentrix of Buffalo, Inc., a Delaware
corporation; Cogentrix of Fort Davis I, Inc., a Delaware corporation; and
Cogentrix of Marfa, Inc., a Delaware corporation.
1.14 GENERAL PARTNER MERGER: the merger of the General Partner
Entities into General Partner with General Partner as the surviving entity.
1.15 GREENHOUSES: the greenhouses operated by Borrower for the
production of vegetables or other produce.
1.16 GROSS PROFIT: Guarantor's revenue from sales minus the cost of
goods sold, determined on a consolidated basis with respect to Guarantor's
consolidated Greenhouse operations only and calculated in accordance with GAAP.
1.17 GUARANTEES: this Guaranty and that certain Guaranty of even date
herewith pursuant to which EcoScience unconditionally guarantees the payment and
performance of all obligations of Borrower to CoBank under the Loan Documents,
as such guarantees are amended, modified or supplemented from time to time.
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<PAGE>
1.18 GUARANTOR DOCUMENTS: this Guaranty and the Guarantor Security
Documents.
1.19 GUARANTOR SECURITY AGREEMENT: the Security and Pledge Agreement
of even date herewith by and between Guarantor and CoBank, together with all
renewals, extensions, amendments, modifications, and supplements thereto.
1.20 GUARANTOR SECURITY DOCUMENTS: the Guarantor Security Agreement,
the mortgages, deeds of trust, leasehold assignments and consents, financing
statements, pledge agreements, assignments, and/or other security documents
executed by Guarantor in favor of CoBank to secure Guarantor's performance of
its obligations under this Guaranty with a Lien on all assets, real and
personal, of Guarantor, in form and substance acceptable to CoBank, together
with all renewals, extensions, amendments, modifications, and supplements
thereto.
1.21 HAZARDOUS SUBSTANCES: dangerous, toxic or hazardous pollutants,
contaminants, chemicals, wastes, materials or substances, as defined in or
governed by the provisions of any Environmental Laws or Environmental
Regulations, and also including urea formaldehyde, polychlorinated biphenyls,
asbestos, asbestos-containing materials, nuclear fuel or waste, and petroleum
products, or any other waste, material, substances, pollutant or contaminant
which would subject an owner of property to any damages, penalties or
liabilities under any applicable Environmental Laws or Environmental
Regulations.
1.22 INDEBTEDNESS: any and all advances, debts, obligations and
liabilities of Borrower under or pursuant to the Loan Documents, and any
renewals, amendments, extensions or replacements thereof, including without
limitation all principal, interest, reimbursement and indemnification
obligations, and loan fees owed under the Loan Agreement and all expenses,
charges and other amounts payable by Borrower pursuant to the Loan Documents,
whether now existing or hereafter contracted or incurred, plus interest thereon
at the rate determined pursuant to the Loan Agreement.
1.23 INTEREST EXPENSE: for any period, total interest expense
(including the interest component of any Capital Leases) of Guarantor determined
in accordance with GAAP and on a consolidated basis with respect to Guarantor's
consolidated Greenhouse operations.
1.24 LIEN: means any mortgage, pledge, lien, security interest or
other charge or encumbrance of any kind, or any other type of preferential
arrangement, including, without limitation, the lien or retained security title
of a conditional vendor and, with respect to real property, any easement, right
of way or other encumbrance on title to real property.
1.25 LOAN DOCUMENTS: the Loan Agreement, the Notes, the Note Purchase
Agreement, the Guarantees, the Security Documents, and any other document
required by CoBank from time to time in order to grant to, or maintain for,
CoBank a
3
<PAGE>
perfected security interest in the Collateral, together with all renewals,
extensions, amendments, modifications, and supplements thereto.
1.26 MATERIAL ADVERSE CHANGE: means, with respect to any Person, any
material adverse change in the business, condition (financial or otherwise),
operations, performance or properties of such Person.
1.27 MATERIAL ADVERSE EFFECT: means, with respect to any Person, any
material adverse change in the business, condition (financial or otherwise),
operations, performance or properties of such Person.
1.28 MISSION CRITICAL: a Person with respect to whom the failure of
such Person's Significant Software to be Year 2000 Compliant could reasonably be
expected to have a Material Adverse Effect on Guarantor.
1.29 NOTES: the promissory notes executed by Borrower payable to
CoBank evidencing the Loans dated of even date herewith, as amended, modified or
supplemented from time to time.
1.30 PARTICIPANT: means, collectively, any Person to whom CoBank shall
sell or assign a loan participation or other fractional undivided interest in
the Indebtedness, as evidenced by the Notes and other Loan Documents, and the
legal representatives, successors and assigns of any such Person.
1.31 PERSON: any individual, sole proprietorship, joint venture,
unincorporated organization, cooperative association, limited liability company,
corporation, association, partnership, trust, government, governmental agency,
or other entity.
1.32 PROJECTIONS: the projections provided to CoBank with respect to
projected Greenhouse operations and financial results of Greenhouse operations
of Guarantor and its consolidated entities, identified on, or attached hereto
as, Schedule 1.32.
1.33 QUARTER: the quarters of Guarantor's Fiscal Year.
1.34 SECURITY DOCUMENTS: the security agreements, mortgages, deeds of
trust, financing statements, pledge agreements, amendments to ground leases,
lessor's consents, and/or other security documents required pursuant to the Loan
Agreement and/or executed by Borrower, General Partner, Guarantor or EcoScience
in favor of CoBank to secure the performance of Borrower's obligations under the
Notes and the other Loan Documents with a Lien on all assets and properties of
Borrower, General Partner and Guarantor, and on all of the stock in Guarantor
owned by EcoScience, in form and substance acceptable to CoBank, together with
all renewals, extensions, amendments, modifications, and supplements thereto.
4
<PAGE>
1.35 SIGNIFICANT SOFTWARE: any device or system of a Person (including
without limitation all computer hardware or software, firmware, equipment
containing embedded microchips or integrated circuits, or other set or
collection of processing instructions) regularly used by such Person in its
business operations or financial accounting which, individually, or together
with one or more other items of Significant Software, would, if it failed to be
Year 2000 Compliant, have a material adverse effect on the business condition
(financial or otherwise), operations, performance, or properties of such Person.
1.36 VFIFA: Village Farms International Finance Association, a
Delaware cooperative corporation.
1.37 VILLAGE FARMS ENTITIES: collectively, Village Farms of Colorado,
Inc., a Delaware corporation; Village Farms, Inc., a Delaware corporation;
Village Farms Mediterranean, Inc., a Delaware corporation; Village Farms of
Virginia, Inc., a Delaware corporation; Village Farms of Texas, L.P., a Delaware
limited partnership; Village Farms of Marfa, L.P., a Delaware limited
partnership; Village Farms of Presidio, L.P., a Delaware limited partnership;
Village Farms of Buffalo, L.P., a Delaware limited partnership; and Keystone
Village Farms, L.L.C., a Delaware limited liability company.
1.38 YEAR 2000 COMPLIANT: shall mean, with respect to Significant
Software, (a) that it shall include calendar year 2000 date conversion and
compatibility capabilities, including date data century recognition, same
century and multiple century formula and date value calculations and user
interface date data values that reflect the century so that it will (i) manage
and manipulate data involving dates, including single century and multiple
century dates and formulas, and will not cause an abnormally ending scenario
within the application or cause an abort or result in the generation of
incorrect values or invalid output involving such dates, (ii) include the
indication of the correct century in all date related user interface functions,
and (iii) operate in the same manner with year dates of 2000 and beyond as it
operates with year dates of 1900 to 1999; and (b) that it shall recognize the
year 2000 as a leap year, including recognition and processing of the correct
date on February 29, 2000. Significant Software that is Year 2000 Compliant
shall be considered to be in "Year 2000 Compliance".
The following terms are defined in portions of this Guaranty other than this
Article 1:
Authorized Stock Section 7.19
Code Section 7.18
ERISA Section 7.18
Financial Statements Section 7.12
Fiscal Year Section 7.26
Guaranteed Obligations Article 2
Guarantor Benefit Plan Section 7.18
Guarantor's Claims Section 3.5
Guarantor Collateral Article 6
Guarantor Pension Plan Section 9.10
Indemnified Parties Section 10.1
5
<PAGE>
Intellectual Property Section 7.25
Material Agreements Section 7.11
Merged Entities Balance Sheets Section 7.12
Mergers Section 7.3
Pocono Section 8.16
Real Estate Interests Section 7.20
Required Licenses Section 7.17
Title Commitments Section 7.24
Title Insurers Section 7.24
Title Policy Section 7.24
Wheatfield Section 8.16
Capitalized terms used, but not defined, herein shall have the meaning
given to such terms in the Loan Agreement, if defined therein.
2. GUARANTY. Guarantor hereby guarantees absolutely and unconditionally to
CoBank, and its successors and assigns, and any Participant acquiring an
interest in the Indebtedness of Borrower, and becomes surety for: (a) the due
and punctual payment, in lawful money of the United States, of all Indebtedness
of Borrower as and when any of the foregoing shall become due and payable in
accordance with the terms thereof at stated maturity, by acceleration, or
otherwise; and (b) the full and timely performance of any and all other
obligations of Borrower to CoBank, of every type and description, whether now
existing or hereafter contracted or incurred, arising directly or indirectly out
of or with respect to the Loan Documents. Guarantor shall also pay all costs,
expenses and attorneys' fees incurred by CoBank and any Participant in their
efforts to collect the foregoing, foreclose upon or exercise their rights with
respect to any security for the foregoing, or to enforce this Guaranty, or to
protect the rights of CoBank and any such Participant with respect thereto. The
term "GUARANTEED OBLIGATIONS" as used in this Guaranty shall mean such
indebtedness, obligations and liabilities described above in this Article 2.
3. GUARANTY OF PAYMENT; WAIVER OF DEFENSES, ETC.
3.1 GENERAL. This Guaranty is a guarantee of payment and not of
collection, and Guarantor waives any right to require that any action be brought
against Borrower or to require that resort be had at any time to any direct or
indirect security for the Guaranteed Obligations. Guarantor's obligations
hereunder are continuing obligations and are absolute and unconditional
irrespective of the genuineness, validity or enforceability of any instrument or
instruments now or hereafter evidencing any Guaranteed Obligation or any part
thereof (including but not limited to the Loan Documents) or of any other
agreement now or hereafter entered into by CoBank and Borrower pursuant to which
any Guaranteed Obligation or any part thereof is issued, or of any other
circumstance which might otherwise constitute a legal or equitable discharge of
a guarantor or surety. Guarantor's obligations hereunder shall continue in full
force and effect as long as any Guaranteed Obligation or any part thereof
remains outstanding and unpaid or CoBank has any obligation to make any
extension of credit to Borrower pursuant to any of the Loan Documents.
6
<PAGE>
3.2 WAIVERS. With respect to its obligations under this Guaranty,
Guarantor waives any and all defenses and discharges available to a guarantor,
surety, endorser or accommodation party, dependent upon its character as such.
Guarantor hereby waives presentment for payment, notice of nonpayment, demand
and protest. Guarantor agrees that its obligations hereunder shall not be
affected or impaired in any way by any of the following acts or things (which
CoBank may do from time to time without notice to Guarantor): (a) any amendment
(including, without limitation, an amendment increasing the interest rate),
modification or extension of any Loan Documents, or any waiver of compliance by
Borrower with the terms of any of the foregoing; (b) any sale, pledge,
surrender, compromise, settlement, release, renewal, extension, indulgence,
alteration, substitution, exchange, modification or other disposition of any
Guaranteed Obligation or any collateral therefor; (c) any acceptance or release
of collateral for, or guarantors of, any Guaranteed Obligation; (d) any
inability, failure, neglect or omission to obtain, perfect, enforce or realize
upon any collateral for any of the Guaranteed Obligations, or to exercise any
lien upon or right of appropriation of any moneys, credits or property to the
liquidation of any Guaranteed Obligation, or to pursue or obtain any deficiency
judgment against Borrower following any foreclosure of any security interest,
mortgage or deed of trust granted by Borrower to CoBank; or (e) any application
of payments or credits upon the Guaranteed Obligations under the Loan Documents.
CoBank shall not be required, before exercising its rights under this Guaranty,
to first resort for the payment of any Guaranteed Obligation to Borrower, or
other guarantors or sureties or accommodation parties or any collateral,
property, liens or other remedies or rights whatsoever. With respect to its
obligations under this Guaranty, Guarantor agrees not to exercise any right of
contribution, recourse, subrogation or reimbursement available to Guarantor
against Borrower or any other Person or entity or property unless and until all
the Guaranteed Obligations have been indefeasibly paid in full and there is no
obligation of CoBank to make any extension of credit to Borrower under the Loan
Documents. Guarantor hereby waives any rights it may have at equity or in law to
require CoBank to apply any rights of marshalling or other equitable doctrines
in the circumstances.
3.3 AMOUNT OF INDEBTEDNESS. CoBank may, at its sole option and without
any notice to or consent of Guarantor, allow the Indebtedness of Borrower owed
to CoBank to exceed the principal amount of all promissory notes executed by
Borrower in connection with the Indebtedness without in any way adversely
affecting Guarantor's liability hereunder.
3.4 SUBROGATION. After all Guaranteed Obligations have been
indefeasibly paid in full and there is no obligation of CoBank to make any
extension of credit to a Borrower under the Loan Documents, Guarantor shall have
and may exercise rights of subrogation against Borrower.
3.5 SUBORDINATION OF OTHER DEBT. Any indebtedness or obligation of
Borrower, or any other claim against or liability of Borrower, now or hereafter
held by or owed to Guarantor ("GUARANTOR'S CLAIMS") is hereby subordinated by
Guarantor to the Indebtedness; and such Guarantor's Claims, if CoBank so
requests, shall be
7
<PAGE>
collected, enforced and received by Guarantor as trustee for CoBank and paid
over to CoBank on account of the Indebtedness.
3.6 LIENS AND RIGHTS OF SET-OFF. In addition to all Liens upon, and
right of set-off against, the property of Guarantor existing under applicable
law, CoBank may, without demand or notice of any kind, and at any time when any
amount shall be due and payable hereunder by Guarantor, appropriate and apply
toward the payment of such amount, in such order of application as CoBank may
elect, any property, balances, credits, deposits, accounts or moneys of
Guarantor in the possession or control of CoBank for any purpose. Guarantor
hereby grants to CoBank a right of set-off and a security interest in such
property and funds in the possession or control of CoBank. Guarantor further
expressly grants to CoBank the right, to be exercised at the discretion of
CoBank, to file one or more financing statements under the Uniform Commercial
Code naming Guarantor as debtor and CoBank as secured party with respect to such
property and funds and Guarantor hereby agrees to sign any such statement.
4. RECOVERY OF PAYMENT. If any payment received by CoBank and applied to
the Guaranteed Obligations is subsequently set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of Borrower), the Guaranteed
Obligations to which such payment was applied shall, for the purposes of this
Guaranty, be deemed to have continued in existence, notwithstanding such
applications, and this Guaranty shall be enforceable as to such Guaranteed
Obligations as fully as if such applications had never been made.
5. INFORMATION REGARDING BORROWER. Guarantor assumes full responsibility
for keeping fully informed of the financial condition of Borrower and all other
circumstances affecting Borrower's ability to pay and perform its obligations
under the Loan Documents and agrees that CoBank shall not have any duty to
report to Guarantor any information which CoBank receives about the financial
condition of Borrower or any circumstances bearing on the ability of Borrower to
perform its obligations under the Loan Documents, and Guarantor hereby expressly
and unconditionally waives any defense based on the failure of CoBank to report
such information.
6. SECURITY. As security for the payment and performance of Guarantor's
obligations under this Guaranty, Guarantor shall grant to CoBank and maintain
for CoBank, a first Lien on all of its assets and properties, both real and
personal, tangible or intangible, whether now owned or held or hereafter
acquired (the "GUARANTOR COLLATERAL"), subject to any Lien permitted by Section
9.3 hereof. Guarantor has executed and delivered to CoBank the Guarantor
Security Documents as required under this Guaranty to evidence the Lien of
CoBank in the Guarantor Collateral, and the terms, provisions and conditions of
the Guarantor Security Documents are hereby incorporated in this Guaranty and
made a part hereof. Guarantor shall also execute such further security
agreements, mortgages, deeds of trust, financing statements, assignments or
other documents as CoBank shall request, in form and substance as such CoBank
shall specify, to establish, confirm, perfect or provide notice of CoBank's Lien
on the Guarantor Collateral.
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7. REPRESENTATIONS AND WARRANTIES. Guarantor represents, covenants and
warrants to CoBank that:
7.1 ORGANIZATION, GOOD STANDING, ETC. Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Guarantor has the power to own its properties and to carry on its
business as now being conducted. Guarantor is duly qualified to do business and
is in good standing in each jurisdiction in which the transaction of its
business makes such qualification necessary except where the failure to be so
qualified would not have a Material Adverse Effect on Guarantor.
7.2 AUTHORITY; DUE AUTHORIZATION. Guarantor has full power and
authority (including, without limitation, all governmental licenses, permits and
other approvals) to own or lease and operate its properties and to carry on its
business as now conducted and as contemplated to be conducted. The execution and
delivery of, and performance by Guarantor of its obligations under, each
Guarantor Document are within Guarantor's corporate powers and have been duly
authorized by all necessary corporate action.
7.3 MERGERS. The APD Merger, the General Partner Merger and the
Borrower Merger (collectively, the "Mergers") have each been duly and fully
consummated in accordance with the laws of the State of Delaware and any other
applicable jurisdiction. Guarantor is the surviving entity of the APD Merger.
General Partner is the surviving entity of the General Partner Merger, and
Borrower is the surviving entity of the Borrower Merger.
7.4 CONSENTS. All consents, authorizations or approvals of any Person
(including, without limitation, Guarantor) which were necessary for, or required
in connection with, the Mergers have been obtained in writing, and a true and
correct copy thereof has been delivered to CoBank. All consents or approvals of
any Person which are necessary for, or are required as a condition of, the
execution, delivery and performance of the Guarantor Documents have been
obtained in writing, and a true and correct copy thereof have been delivered to
CoBank.
7.5 TITLE TO GUARANTOR COLLATERAL. Guarantor has all real and personal
property necessary for the conduct of its business and has good title to all of
the Guarantor Collateral, free and clear of all Liens, except as permitted by
Section 9.3 of hereof. The Guarantor Collateral is in good operating condition
and repair, reasonable wear and tear excepted, and suitable in all material
respects for the purposes for which it is being utilized except where the
failure to be in good operating condition could not reasonably be expected to
result in a Material Adverse Effect on Guarantor.
7.6 LITIGATION. Except as set forth on Schedule 7.6, there are no
pending legal or governmental actions, proceedings or investigations to which
Guarantor is a party or to which any property of Guarantor is subject which
could reasonably be expected to have a Material Adverse Effect on Guarantor,
and, to the best of Guarantor's knowledge, no such actions or proceedings are
threatened or contemplated
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by governmental authorities or any other Person. There are no outstanding
judgments, injunctions, orders, writs or decrees of any arbitrator, court or
governmental authority binding on Guarantor or its assets
or properties.
7.7 NO VIOLATIONS. The APD Merger did not, and the execution, delivery
and performance by Guarantor of the Guarantor Documents will not: (a) violate
any provision of Guarantor's certificate of incorporation or bylaws; (b)
violate, conflict with, result in a breach of, constitute a default under, or
with the giving of notice or the expiration of time or both, constitute a
default under, any existing material indenture, lease, security agreement,
mortgage, permit or other governmental authorization, contract, note, instrument
or any other agreements or documents binding on Guarantor or affecting its
property; (c) violate or conflict with any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award applicable to Guarantor, or
(d) except for the Liens created under the Guarantor Documents, result in or
require the creation or imposition of any Lien upon or with respect to any of
the properties of Guarantor.
7.8 BINDING AGREEMENT. Each of the Guarantor Documents is, or when
executed and delivered, will be, the legal, valid and binding obligation of
Guarantor, enforceable in accordance with its terms, subject only to limitations
on enforceability imposed by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally and by general
principles of equity.
7.9 COMPLIANCE WITH LAWS. Guarantor is in compliance in all material
respects with all federal, state, and local laws, rules, regulations,
ordinances, codes and orders, including without limitation all laws, rules and
regulations governing the issuance and maintenance of the Required Licenses.
7.10 CHIEF EXECUTIVE OFFICE. Guarantor's place of business, or chief
executive office, if it has more than one place of business, is located at 10
Alvin Court, East Brunswick, NJ 08816.
7.11 MATERIAL AGREEMENTS. All agreements, excluding the Guarantor
Documents, of Guarantor, the termination or breach of which would have a
Material Adverse Effect on Guarantor ("MATERIAL AGREEMENTS") are listed on
Schedule 7.11 hereto and neither Guarantor nor, to Guarantor's knowledge, any
other party to any Material Agreement, is in default thereunder, and no facts
exist which with the giving of notice or the passage of time, or both, would
constitute such a default. Guarantor will provide a true, correct and complete
copy of each Material Agreement and all amendments thereto to CoBank upon its
request.
7.12 FINANCIAL STATEMENTS. Guarantor has previously furnished to
CoBank (a) its consolidated audited balance sheet as at January 3, 1999, and its
related consolidated statement of income and operations for the fiscal year then
ended, accompanied by an opinion of Guarantor's independent public accountants,
and the internally-prepared consolidated balance sheet of Guarantor as at
October 31, 1999, and the related consolidated statement of income and
operations of Guarantor for the month
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then ended, duly certified by the chief financial officer of Guarantor
(collectively, the "FINANCIAL STATEMENTS") and (b) the internally prepared
balance sheet of each of the Village Farms Entities, the APD Entities and the
General Partner Entities as at October 3, 1999, duly certified by the chief
financial officer of each such entity (collectively, the "Merged Entities
Balance Sheets"). The Financial Statements, including the notes thereto, are
complete, and present fairly the financial position and results of operations
and changes in the financial position of Guarantor and its consolidated entities
as at such dates and for the periods specified, in conformity with GAAP;
provided, however that the internally prepared financial statements through
October 31, 1999 are subject to normal year-end adjustments and do not include
footnotes. The Merged Entities Balance Sheets are complete, and present fairly
the financial position of each of the Village Farms Entities, the APD Entities
and the General Partner Entities as at such date and for the period specified,
in conformity with GAAP; provided, however that the Merged Entities Balance
Sheets are subject to normal year-end adjustments and do not include footnotes.
7.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except as described on
Schedule 7.13, neither Guarantor nor any of its consolidated entities nor any of
the Village Farms Entities, APD Entities or General Partner Entities has any
material liability (whether absolute, accrued, contingent or otherwise and
whether due or to become due), arising out of any set of facts existing on or
prior to the date hereof, except liabilities and obligations fully reflected or
reserved against in the Financial Statements or the Merged Entities Balance
Sheets.
7.14 NO MATERIAL ADVERSE CHANGE. Except as described on Schedule 7.14,
since (a) October 31, 1999, there has been no Material Adverse Change in the
financial condition, results of operations, business or prospects of Guarantor
or any of its consolidated entities; and (b) October 3, 1999, there has been no
Material Adverse Change in the financial condition, results of operations,
business or prospects of any of the Village Farms Entities, the APD Entities or
the General Partner Entities.
7.15 PROJECTIONS. The Projections of Guarantor delivered to CoBank
fairly present in all material respects the projected operations, financial
condition, assets and liabilities of Guarantor as of the dates covered thereby.
To Guarantor's knowledge, no undisclosed facts existed at the time of submission
of the Projections which, if taken into account, would have resulted in any
material change in the Projections. The Projections were prepared in good faith
on the basis of the assumptions stated therein, which assumptions were fair in
light of the conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, Guarantor's best estimate of its future
results of operations and other information projected therein (it being
recognized by CoBank that such Projections are an estimate and that actual
results during the period or periods covered by the Projections may differ from
the projected results). No change in the business, condition (financial or
otherwise), operations, performance or properties of Guarantor has occurred
since the date of the Projections that would materially change any of the
information set forth in the Projections.
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7.16 PAYMENT OF TAXES. Guarantor has filed all required federal, state
and local tax returns and has paid all taxes as shown on such returns as they
have become due. Guarantor has paid when due all other taxes, assessments or
impositions levied or assessed against it or its businesses or properties.
7.17 LICENSES AND APPROVALS. Guarantor: (a) has ownership of, or
license to use, all franchises, certificates, approvals, permits, authorities,
agreements, and licenses used or necessary to permit it to own its properties
and to conduct its business, in substantially the manner as presently conducted
and as contemplated to be conducted, with respect to which the failure to obtain
and maintain would have a Material Adverse Effect on Guarantor ("REQUIRED
LICENSES"); and (b) has taken all action, including the filing of all reports
and requests for extensions or continuations, necessary to maintain all such
Required Licenses, and has not taken or failed to take any action which, with
the giving of notice, or the expiration of time, or both, could result in any
such Required License being withdrawn, revoked, modified, or limited. Schedule
7.17 lists all Required Licenses presently in existence with respect to
Guarantor. Except as set forth on Schedule 7.17, each Required License is in
full force and effect, and there is no outstanding notice of cancellation or
termination or, to Guarantor's knowledge, any threatened cancellation or
termination in connection therewith, nor has an event occurred with respect to
any Required License which, with the giving of notice or passage of time or
both, could result in the revocation or termination thereof or otherwise in any
impairment of Guarantor's rights with respect thereto, which impairment could
reasonably be expected to have a Material Adverse Effect on Guarantor. None of
the Required Licenses is subject to any restrictions or conditions that limit
Guarantor's ability to conduct its business in substantially the manner as
presently conducted or contemplated to be conducted (other than restrictions or
conditions generally applicable to licenses of that type). No consent,
permission, authorization, order, or license of any governmental authority is
necessary in connection with the execution, delivery, performance, or
enforcement of the Guarantor Documents, except such as have been obtained and
are in full force and effect and as are described on Schedule 7.17.
7.18 EMPLOYEE BENEFIT PLANS. Guarantor does not presently maintain or
participate in, and has not in the past maintained or participated in, and is
not obligated to contribute to, any of the following (each a "GUARANTOR BENEFIT
PLAN" and collectively "GUARANTOR BENEFIT PLANS"): (a) any funded "employee
welfare benefit plan," as that term is defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
thereunder ("ERISA"); (b) any "multiemployer plans," as defined in Section 3(37)
of ERISA; (c) any "employee pension benefit plan" as defined in Section 3(2) of
ERISA; (d) any "employee benefit plan", as such term is defined in Section 3(3)
of ERISA; (e) any "multiple employer plan" within the meaning of Section 413 of
the Internal Revenue Code of 1986, as amended from time to time ("CODE"); (f)
any "multiple employer welfare arrangement" within the meaning of Section 3(40)
of ERISA; (g) a "voluntary employees' beneficiary association" within the
meaning of Section 501(a)(9) of the Code; (h) a "welfare benefit fund" within
the meaning of Section 419 of the Code; or (i) any employee welfare
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benefit plan within the meaning of Section 3(1) of ERISA for the benefit of
retired or former employees.
7.19 EQUITY INVESTMENTS; CAPITALIZATION. The authorized and the issued
and outstanding capital stock or other equity interests of Guarantor and
Guarantor's consolidated entities, and the securities certificates (if any)
representing such equity interests, are as set forth on Schedule 7.19 attached
hereto ("AUTHORIZED STOCK"). All such Authorized Stock has been duly and validly
authorized and issued in accordance, in all material respects, with all
applicable federal and state laws, including securities laws, and is fully paid
and non-assessable. Except as set forth on Schedule 7.19, there are no
outstanding warrants, options or other rights to purchase or acquire any shares
of the capital stock or other equity interests of Guarantor or any of
Guarantor's consolidated entities nor any outstanding securities convertible
into such shares, warrants, options, nor any rights to acquire any such
convertible securities. To Guarantor's knowledge, the Authorized Stock is held
of record and beneficially by the Persons, and in the amounts, identified on
Schedule 7.19. Neither Guarantor nor any of Guarantor's consolidated entities
owns any equity interest in any entity other than as set forth on Schedule 7.19.
Except for Liens granted to CoBank in connection with the Indebtedness and this
Guaranty, Guarantor and each of Guarantor's consolidated entities own the stock
and other equity interests set forth on Schedule 7.19 as being so owned, in each
case free and clear of any Lien or restriction on transfer (other than
restrictions generally applicable under securities laws).
7.20 REAL PROPERTY. Schedule 7.20 contains a complete and accurate
list of all real property interests held by Guarantor ("REAL ESTATE INTERESTS"),
including without limitation any fee interest or leasehold interest and, in the
case of fee interests, showing as of the date hereof the street address, county
or other relevant jurisdiction, state, and book and fair value thereof, and, in
the case of leasehold interests, showing as of the date hereof the street
address, county or other relevant jurisdiction, state, lessor, record owner (if
different from lessor), expiration date and annual rental cost thereof.
Guarantor has good and marketable title to all Real Estate Interests listed on
Schedule 7.20 hereto.
7.21 LIENS. Set forth on Schedule 7.21 hereto is a complete and
accurate list of all Liens securing equipment lease obligations or purchase
money indebtedness on the property or assets of Guarantor, showing as of the
date hereof the lienholder thereof, the principal amount of the obligations
secured thereby, the payment terms of such obligations, and the property or
assets of Guarantor subject thereto
7.22 ENVIRONMENTAL COMPLIANCE. Without limiting the provisions of
Section 7.9 above, all real property owned or leased by Guarantor and all
operations conducted by Guarantor are in compliance in all material respects
with all Environmental Laws and Environmental Regulations, with respect to which
the failure to comply would have a Material Adverse Effect on Guarantor. To the
best of Guarantor's knowledge, no environmental contamination or condition
currently exists on any Real Estate Interest owned or leased by Guarantor which
could delay the sale or
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other disposition of, or could have (or already has had) an adverse effect on
the value of, such Real Estate Interest of Guarantor. To the best of Guarantor's
knowledge, no environmental contamination or condition currently exists on any
property adjoining any Real Estate Interest owned or leased by Guarantor which
could delay the sale or other disposition of, or could have (or already has had)
an adverse effect on the value of, such Real Estate Interest of Guarantor.
7.23 NO CONTINGENT LIABILITIES. Except for the Guaranteed Obligations,
Guarantor: (a) does not have any direct or contingent liability for any
obligation of any Person; and (b) has no obligation to make a loan or advance to
any Person or to own, purchase or acquire any stock, obligations or securities
of, or any other interests in, or to make any capital contribution to, any
Person.
7.24 TITLE INSURANCE. Guarantor has delivered to CoBank: (a) title
insurance commitments ("TITLE Commitments") acceptable to CoBank from one or
more insurers acceptable to CoBank ("TITLE INSURERS") committing to issue an
American Land Title Association lender's title insurance policy ("TITLE
POLICY"), in form and amount satisfactory to CoBank, insuring CoBank's Lien on
each of Guarantor's Real Estate Interests constituting a fee interest and on
each of Guarantor's Real Estate Interests constituting a ground lease, or any
other leasehold interest with respect to which the annual rental payments are
$50,000.00 or more, as a valid first priority Lien, and (i) containing only such
exceptions to title as are acceptable to CoBank, and (ii) containing such other
endorsements as CoBank may require; and (b) with respect to leasehold Real
Estate Interests (other than pursuant to a ground lease) where the annual rental
payments are less than $50,000.00, either a Title Commitment or, at Guarantor's
option, a written ownership and encumbrance report of current date indicating
that there are no Liens on such Real Estate Interests. In addition, in the case
of Guarantor's Real Estate Interests constituting fee interests, constituting
leasehold interests under a ground lease, or constituting other leasehold
interests with respect to which the annual rental payments are $50,000.00 or
more, Guarantor has caused the Title Insurers to deliver to CoBank a written
confirmation acceptable to CoBank confirming that the Title Insurers are
irrevocably committed to issue the Title Policies in form and substance
satisfactory to CoBank and that all conditions precedent to the issuance of the
Title Policies have been satisfied.
7.25 INTELLECTUAL PROPERTY. Set forth on Schedule 7.25 hereto is a
complete and accurate list of all patents, trademarks, trade names, service
marks and copyrights, and all applications for any of the foregoing that are
owned or licensed by Guarantor (collectively, "INTELLECTUAL PROPERTY") and are
registered with any federal or state governmental authority and all licenses
thereof, showing as of the date hereof the jurisdiction in which registered, the
registration number, the date of registration and the expiration date or, if
registration is not yet complete, the date of the application therefor and the
application number and title, if any, and indicating whether Guarantor owns or
licenses each such item of Intellectual Property. Guarantor owns or licenses all
Intellectual Property that it utilizes in its business as presently being
conducted and as anticipated to be conducted, except where the failure to do so
could not reasonably be
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expected to result in a Material Adverse Effect on Guarantor. The Intellectual
Property is in full force and effect, and Guarantor has taken or caused to be
taken all action, necessary to maintain the Intellectual Property in full force
and effect and has not taken or failed to take or cause to be taken any action
which, with the giving of notice, or the expiration of time, or both, could
result in any such Intellectual Property being revoked, invalidated, modified,
or limited.
7.26 FISCAL YEAR. Each fiscal year of Guarantor ("FISCAL YEAR") begins
on the day after the Sunday closest to December 31 of each calendar year and
ends on the Sunday closest to December 31 of each calendar year.
7.27 YEAR 2000. Guarantor has (i) initiated a review and assessment of
all areas within its business and operations (including those affected by
suppliers, vendors and customers) that could be adversely affected by the risk
that the Significant Software used by Guarantor or Guarantor's Mission Critical
suppliers, vendors and customers may not be Year 2000 Compliant, (ii) developed
a plan and timetable for remediation of Guarantor's Significant Software that
may not be Year 2000 Compliant and for the development of contingency plans in
the event of a failure of the Significant Software of Guarantor or its Mission
Critical suppliers, vendors and customers to be Year 2000 Compliant, and (iii)
to date, implemented that plan in accordance with such timetable. Based on the
foregoing, to the best of Guarantor's knowledge, after due inquiry, the impact
of the year 2000 on Guarantor and the Mission Critical customers and suppliers
of Guarantor will not be such as to have a Material Adverse Effect on Guarantor.
7.28 DISCLOSURE. Neither the representations and warranties contained
in this Article 7 nor any information, exhibit or report furnished by Guarantor
to CoBank in connection with the negotiation and preparation of this Guaranty or
the other Guarantor Documents contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
8. AFFIRMATIVE COVENANTS OF GUARANTOR. From and after the date of this
Guaranty and until the Guaranteed Obligations are indefeasibly paid in full and
CoBank has no obligation to make any extension of credit to Borrower, Guarantor
agrees that it will observe and comply with the following covenants:
8.1 BOOKS AND RECORDS. Guarantor shall at all times keep proper books
of record and account, in which correct and complete entries shall be made of
all its dealings, in accordance with GAAP.
8.2 REPORTS AND NOTICES. Guarantor shall provide to CoBank the
following reports, information and notices:
8.2.1 ANNUAL FINANCIAL STATEMENTS. As soon as available, but in
no event later than ninety (90) days after the end of any Fiscal Year: (a) the
annual financial statements of Guarantor, on a consolidated and consolidating
basis, prepared in
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accordance with GAAP consistently applied which shall: (i) be audited by
independent certified public accountants selected by Guarantor which are
reasonably acceptable to CoBank; (ii) be accompanied by a report of such
accountants containing an opinion reasonably acceptable to CoBank; (iii) be
accompanied by a Compliance Certificate; (iv) be prepared in reasonable detail
and in comparative form; and (v) include a balance sheet, an income statement, a
statement of cash flows, a statement of stockholders' equity, and all notes and
schedules relating thereto; and (b) include a comparison of Guarantor's actual
operating results for such completed Fiscal Year to the budgeted results of
operations for such Fiscal Year.
8.2.2 MONTHLY FINANCIAL REPORTS. As soon as available but no
later than thirty (30) days after the end of each month, a comparison of
Guarantor's actual operating results for such month to the budgeted results of
operations for such month, prepared on a consolidated and consolidating basis
and in accordance with GAAP consistently applied.
8.2.3 QUARTERLY FINANCIAL STATEMENTS. As soon as available but in
no event more than forty-five (45) days after the end of each of the first three
Quarters in the Fiscal Year, the following internally-prepared financial
statements, prepared on a consolidated and consolidating basis and in accordance
with GAAP consistently applied: (a) a balance sheet, (b) an income statement,
(c) a statement of cash flows, (d) a comparison of Guarantor's actual operating
results for such Quarter to the budgeted operating results for such Quarter, and
(e) such other quarterly statements as CoBank may specifically request, which
quarterly statements shall include any and all notes and schedules thereto. Such
quarterly financial statements required pursuant to this Subsection 8.2.3 shall
be accompanied by a Compliance Certificate.
8.2.4 BUDGET. Promptly upon becoming available and in any event
no later than thirty (30) days prior to the end of each Fiscal Year, a copy of
the budget setting forth the projected consolidated and consolidating Greenhouse
operating results of Guarantor on a month-by-month basis for the next Fiscal
Year and broken-out by Greenhouse operation, in a form satisfactory to CoBank,
together with the assumptions and projections on which such budget is based.
Each budget submitted by Guarantor to CoBank shall: (a) reflect Guarantor's
reasonable estimate of the results of Guarantor's operations for the succeeding
Fiscal Year and other information projected therein, and (b) be based upon
assumptions and projections that are reasonable and fair in light of all
conditions existing at the time of the submission of such budget to CoBank. In
addition, if any material changes are made to such budget during the year, then
Guarantor will promptly furnish copies to CoBank of any such changes.
8.2.5 ADDITIONAL INFORMATION. With reasonable promptness, such
additional financial information or documentation as CoBank may reasonably
request.
8.2.6 NOTICE OF DEFAULT. As soon as the existence of any default
in the observance or performance of any of the covenants in this Article 8 or in
Article 9 hereof becomes known to any officer of Guarantor, written notice of
such default, the
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nature and status thereof, and the action being taken or proposed to be taken
with respect thereto.
8.2.7 NOTICE OF LITIGATION. Notice in writing promptly after Guarantor
obtains knowledge thereof, of all litigation in which Guarantor, General
Partner, or Borrower is a party, and which either: (a) involves an amount of
$100,000 or more, singularly or in the aggregate at any time, or (b) could
reasonably be expected to result in a Material Adverse Effect on Guarantor,
General Partner or Borrower.
8.2.8 NOTICE OF MATERIAL ADVERSE EFFECT. Promptly after Guarantor
obtains knowledge thereof, notice of any matter which has resulted or could
result in a Material Adverse Effect on Guarantor, General Partner or Borrower.
8.2.9 NOTICE OF ENVIRONMENTAL LITIGATION. Without limiting the
provisions of Subsection 8.2.7 of this Guaranty, promptly after Guarantor's
receipt thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or other communication alleging a condition that may require
Guarantor to undertake or to contribute to a cleanup or other response under
Environmental Laws or Environmental Regulations, or which seeks penalties,
damages, injunctive relief, or criminal sanctions related to alleged violations
of such laws, or which claims personal injury or property damage to any person
as a result of environmental factors or conditions or which, if adversely
determined, could have a Material Adverse Effect on Guarantor.
8.2.10 GOVERNMENTAL AND OTHER NOTICES. Promptly after Guarantor's
receipt thereof, copies of any notices or other communications received from any
governmental authority, with respect to any matter or proceeding the effect of
which could reasonably be expected to have a Material Adverse Effect on
Guarantor.
8.2.11 ADVERSE ACTION REGARDING REQUIRED LICENSES AND
INTELLECTUAL PROPERTY. In the event Guarantor learns that any petition, action,
investigation, notice of violation or apparent liability, notice of forfeiture,
order to show cause, complaint or proceeding is pending, or, to the best of
Guarantor's knowledge, threatened, to seek to revoke, cancel, suspend, modify or
limit (in a manner which is likely to have a Material Adverse Effect on
Guarantor), any of the Required Licenses or the Intellectual Property, Guarantor
shall provide CoBank with prompt written notice thereof and shall take, or cause
to be taken, all reasonable measures to contest such action in good faith.
8.3 MAINTENANCE OF EXISTENCE AND QUALIFICATION. Guarantor shall
maintain its corporate existence in good standing under the laws of the State of
Delaware. Guarantor will qualify and remain qualified as a foreign corporation
in each jurisdiction in which such qualification is necessary or desirable in
view of its business, operations and properties and the failure to be so
qualified would have a Material Adverse Effect on Guarantor.
8.4 COMPLIANCE WITH LEGAL REQUIREMENTS AND AGREEMENTS. Guarantor shall
comply with: (a) all laws, rules, regulations and orders applicable to
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Guarantor or its business; and (b) all agreements, indentures, mortgages, and
other instruments to which it is a party or by which it or any of its property
is bound, where the failure to so comply could have a Material Adverse Effect on
Guarantor.
8.5 COMPLIANCE WITH ENVIRONMENTAL LAWS. Without limiting the
provisions of Section 8.4 of this Guaranty, Guarantor shall comply in all
material respects with, and take all reasonable steps necessary to cause all
persons occupying or present on any Real Estate Interests of Guarantor to comply
with, all Environmental Laws and Environmental Regulations, with respect to
which the failure to comply could have a Material Adverse Effect on Guarantor.
8.6 INSURANCE. Guarantor shall keep the Guarantor Collateral insured
at all times by an insurance carrier or carriers approved by CoBank which have
an A rating by the current BEST Key Rating Guide (provided that Florists Mutual
Group will be deemed an approved insurance carrier so long as its BEST Key
Rating does not fall below its rating as of the date of this Guaranty), against
all risks covered by a special form policy (and including flood and windstorm
coverage) in the amount of the full replacement cost of the Guarantor Collateral
as well as liability, worker's compensation, business interruption, boiler and
machinery and such other insurance as CoBank may reasonably require, in amounts
and with deductibles or maximum payouts customarily carried by entities in
similar lines of business. Guarantor shall also maintain fidelity coverage
(including employee dishonesty) on such officers and employees and in such
amounts as CoBank shall specify, or in the absence of any such specification, as
customarily carried by corporations engaged in comparable businesses and
comparably situated. Such insurance policies shall contain such reasonable
endorsements as CoBank shall from time to time require and all liability
policies shall name CoBank as an additional insured as its interests may appear.
All such insurance policies shall be endorsed with a mortgagee's or loss payable
clause, as appropriate, in favor of CoBank. The policy or policies evidencing
all insurance referred to in this Section and receipts for the payment of
premiums thereon or certificates of such insurance satisfactory to CoBank shall
be delivered to and held by CoBank. All such insurance policies shall contain a
provision requiring at least ten (10) days' notice to CoBank prior to any
cancellation for non-payment of premiums and at least forty-five (45) days'
notice to CoBank of cancellation for any other reason or of modification or
non-renewal. Guarantor shall give CoBank satisfactory evidence of renewal of all
such policies with premiums paid at least thirty (30) days before expiration.
Guarantor agrees to pay all premiums on such insurance as they become due, and
will not permit any condition to exist on or with respect to the Guarantor
Collateral which would wholly or partially invalidate any insurance thereon.
Effective upon the occurrence of an Event of Default under the Loan Agreement,
all of Guarantor's right, title and interest in and to all such policies and any
unearned premiums paid thereon are hereby assigned to CoBank who shall have the
right, but not the obligation, to assign the same to any purchaser of the
Guarantor Collateral at any foreclosure sale. Guarantor shall give immediate
written notice to the insurance carrier and CoBank of any loss. Guarantor hereby
authorizes and empowers CoBank, at CoBank's option and in CoBank's sole
discretion, to, upon the occurrence of an Event of Default under the Loan
Agreement, act as attorney-in-fact for
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Guarantor to make proof of loss, to adjust and compromise any claim under
insurance policies, to collect and receive insurance proceeds, and to deduct
therefrom CoBank's expenses incurred in the collection of such proceeds, and all
insurance policies of Guarantor shall provide that CoBank may act as Guarantor's
attorney-in-fact for such purposes.
8.7 TAXES. Guarantor shall cause to be paid when due all taxes,
assessments, and other governmental charges and levies upon it, its income, its
sales, its properties, and federal and state taxes withheld from its employees'
earnings, unless (a) such taxes, assessments, or other governmental charges or
levies shall be contested in good faith by appropriate actions or legal
proceedings, (b) adequate reserves therefor shall be established by Guarantor in
accordance with GAAP during the period of such contest, (c) the enforcement of
any contested item, and any Lien relating thereto, is effectively, stayed, and
(d) the failure to pay or comply with the contested item could not reasonably be
expected to result in a Material Adverse Effect on Guarantor.
8.8 TITLE TO ASSETS AND MAINTENANCE. Guarantor shall defend and
maintain title to, and shall maintain, keep and preserve all of its material
properties (tangible and intangible) necessary or used in the proper conduct of
its business in good working order and condition, ordinary wear and tear
excepted, and shall cause to be made all repairs, renewals, replacements,
betterments and improvements thereof, all as in the sole judgment of Guarantor
may be reasonably necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
8.9 PAYMENT OF LIABILITIES. Except for those liabilities set forth on
Schedule 8.9 which shall be paid in accordance with the schedule therefor set
forth on Schedule 8.9, Guarantor shall pay all liabilities as they become due
unless (with the exception of any obligations or liabilities owed to CoBank)
they are contested in good faith by appropriate actions or legal proceedings,
Guarantor establishes adequate reserves therefor in accordance with GAAP, the
enforcement of such liability, and any Lien relating thereto, is effectively
stayed, and such contest will not result in a Material Adverse Effect on
Guarantor.
8.10 FURTHER ASSURANCES, REAL PROPERTY INTERESTS. Guarantor shall, as
may be required from time to time by CoBank, provide such documents as may be
necessary or desirable in the judgment of CoBank to confirm the Lien on the
Guarantor Collateral granted to CoBank. Promptly after the purchase or other
acquisition of any Real Estate Interest, Guarantor shall provide CoBank with
written notice of such acquisition and shall grant to CoBank a first deed of
trust or mortgage on such Real Estate Interest, such deed of trust or mortgage
to be in form and substance as specified by CoBank. In connection with the
delivery of any mortgage or deed of trust, Guarantor shall deliver to CoBank,
where required under the guidelines set forth in Section 7.24, a mortgagee's
title policy satisfactory to CoBank in such amount as CoBank shall specify, to
be obtained at Guarantor's sole cost. In connection with entering into, as
lessee, any lease with respect to which the annual rental is $20,000.00 or more,
Guarantor shall deliver to CoBank a lease amendment or leasehold assignment and
consent (naming
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CoBank as assignee), as determined by CoBank and in the form specified by
CoBank, together with such consents or estoppels of lessor as CoBank shall
specify.
8.11 INSPECTION. Guarantor shall permit CoBank and its agents, during
normal business hours or at such other times as the parties may agree, to
examine Guarantor's properties, books, and records, and to discuss Guarantor's
affairs, finances, operations, and accounts with its respective officers,
directors, employees, and independent certified public accountants.
8.12 REQUIRED LICENSES AND INTELLECTUAL PROPERTY. Guarantor shall duly
and lawfully obtain and maintain in full force and effect all Required Licenses,
and Guarantor shall maintain, or cause to be maintained, in full force and
effect the Intellectual Property.
8.13 ERISA. In the event Guarantor adopts, maintains, or becomes
obligated to make payments under, any Guarantor Benefit Plan in the future
(which Guarantor may not do without the prior written consent of CoBank),
Guarantor shall: (a) cause each such Guarantor Benefit Plan to comply in all
material respects with the Code and ERISA, including but not limited to
preparing and delivering each material report, statement or other document
required by ERISA and the Code within the period specified therein and
conforming in form and substance to the provisions thereof; (b) cause any
Guarantor Benefit Plan that is intended to satisfy the requirements of Section
401(a) of the Code to satisfy such requirements including, but not limited to
obtaining a favorable determination letter with respect to each such Guarantor
Benefit Plan; and (c) administer each Guarantor Benefit Plan in all material
respects in accordance with the terms of such plan and with ERISA, the Code, and
any other applicable law, except to the extent any failure to comply with the
preceding clauses would not have a Material Adverse Effect on Guarantor.
8.14 PERFORMANCE STANDARDS; BUDGETS. Guarantor shall meet the
performance standards described on Exhibit 8.14 for each calendar month and
Quarter, except that Guarantor will not be deemed to have breached the covenants
of this Section 8.14: (a) if the negative variance from one or more of the
performance standards set forth on Exhibit 8.14 is ten percent (10%) or less in
any calendar month or five percent (5%) or less in any Quarter, or (b) even when
the negative variance from one or more of the performance standards exceeds ten
percent (10%) in any calendar month or five percent (5%) in any Quarter, if (i)
such negative variance is recouped in the immediately succeeding calendar month,
and (ii) there is no negative variance in any amount in any of the standards set
forth on Exhibit 8.14 in such succeeding calendar month. No later than 30 days
after the end of each month and forty-five days after the end of each Quarter,
Guarantor shall provide to CoBank a certificate of Guarantor chief financial
officer stating that: (1) he has reviewed all necessary reports regarding the
operations of Guarantor, (2) he has, based upon such reports and such review,
calculated (which calculations shall be set forth in detail and attached to such
certificate) each of the performance standards for Guarantor referred to on
Exhibit 8.14 hereto for the relevant measurement period, and (3) based upon such
review and calculations, each of such performance standards have been met for
such measurement period.
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8.15 YEAR 2000. Guarantor agrees: (a) to use its best efforts to
obtain from all Significant Software Providers, no later than the date hereof,
reasonable assurance that Guarantor's Significant Software is Year 2000
Compliant; (b) to use its best efforts to obtain, no later than the date hereof,
reasonable assurance from all of Guarantor's Mission Critical third party
suppliers and customers that such suppliers' and customers' Significant Software
is Year 2000 Compliant; (c) to diligently conduct thorough Year 2000 Compliance
tests on or before the date hereof on all of Guarantor's Significant Software
and to provide a written report to CoBank within two Business Days thereafter
detailing any Year 2000 Compliance failures of Guarantor's Significant Software
and Guarantor's plans for timely remediation of such Significant Software; (d)
to complete all remediation of identified Year 2000 Compliance failures in
Guarantor's Significant Software no later than the date hereof; (e) to provide
to CoBank, no later than the date hereof, the written certification of
Guarantor's chief financial officer, or other corporate officer satisfactory to
CoBank, that: all of Guarantor's Significant Software has been diligently and
thoroughly tested; any necessary remediation, with respect to Year 2000
Compliance failures identified through such testing, has been completed; and, to
the best of Guarantor's knowledge, its Significant Software is Year 2000
Compliant; and (f) to provide to CoBank, no later than the date hereof, a
written report detailing Guarantor's contingency plans in the event of an
unexpected failure of Guarantor's Significant Software or Mission Critical
suppliers or customers to be Year 2000 Compliant.
8.16 ACTION PLANS. Guarantor agrees (a) to cause General Partner to
follow the action plan, submitted to CoBank by General Partner and approved by
CoBank, to resolve the claims of creditors of Village Farms of Pocono, L.P.
("POCONO") and to dissolve Pocono upon resolution of such claims, and (b) to
follow the action plan, submitted to CoBank by Guarantor and approved by CoBank,
to resolve the claims of creditors of Village Farms of Wheatfield, L.L.C.
("WHEATFIELD") and to dissolve Wheatfield upon resolution of such claims.
9. NEGATIVE COVENANTS OF GUARANTOR. From and after the date of this
Guaranty and until the Guaranteed Obligations are indefeasibly paid in full and
CoBank does not have any obligation to make any extension of credit to Borrower,
Guarantor agrees that it will observe and comply with the following covenants
for the benefit of CoBank:
9.1 BORROWINGS. Guarantor shall not create, incur, assume or permit to
exist: (a) any indebtedness for borrowed money or for the deferred purchase
price of property or services; (b) any contingent liabilities, such as
guarantees and reimbursement obligations; or (c) any obligations under leases
(whether operating or capital leases), except for: (i) indebtedness for the
deferred purchase price of property and services acquired in the ordinary course
of business which is described on Schedule 8.9, (ii) indebtedness or contingent
liabilities owed to CoBank under the Loan Documents, (iii) leases and purchase
money financing of equipment required in the ordinary course of Guarantor's
business the aggregate amount of which does not exceed $50,000.00 at any time;
and (iv) indebtedness constituting any refinancing or refunding
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of indebtedness described in clause (iii) of this Section, provided that the
principal amount thereof does not increase as a result of any such refinancing
or refunding from the balance owing on the date hereof or on the date of such
refinancing or refunding, whichever is lower.
9.2 NO OTHER BUSINESSES. Guarantor shall not transact or engage in any
business other than: (a) ownership of equity interests in entities engaged in
the operation of greenhouses, including the planting, growing, harvesting,
and/or marketing of tomatoes, vegetables or other crops, and (b) agricultural
biotech business activities related to vegetable and/or fruit production and
preservation, without CoBank's prior written consent.
9.3 LIENS. Guarantor shall not create, incur, assume or suffer to
exist any Lien on any of the Guarantor Collateral, except:
(a) the Liens resulting from the Guarantor Security Documents;
(b) Liens for taxes or other governmental charges which are not due or
remain payable without penalty, unless (i) such taxes, assessments, or other
governmental charges or levies shall be contested in good faith by appropriate
actions or legal proceedings, (ii) adequate reserves therefor shall be
established by Guarantor in accordance with GAAP during the period of such
contest, (iii) the enforcement of any contested item, and any Lien resulting
therefrom, is effectively stayed, and (iv) the failure to pay or comply with the
contested item could not reasonably be expected to result in a Material Adverse
Effect on Guarantor;
(c) deposits or pledges to secure workmen's compensation, unemployment
insurance, old age benefits or other social security obligations or in
connection with or to secure the performance of bids, tenders, trade contracts
or leases or to secure statutory obligations or surety or appeal bonds or other
pledges or deposits of like nature and all in the ordinary course of business;
(d) mechanics', carriers', workmen's, repairmen's or other like Liens
arising in the ordinary course of business in respect of obligations not yet due
or which are being contested in good faith and by appropriate proceedings so
long as (i) adequate reserves therefor shall be established by Guarantor in
accordance with GAAP during the period of such contest, (ii) the enforcement of
any contested item, and any Lien resulting therefrom, is effectively stayed, and
(iii) the failure to pay or comply with the contested item could not reasonably
be expected to result in a Material Adverse Effect on Guarantor;
(e) easements, rights-of-way, zoning restrictions and other similar
matters incidental to the ownership of real property which do not in the
aggregate materially detract from the value of such real property or materially
impair their use in the operation of the business of Guarantor;
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(f) licenses of Guarantor's trademarks that are permitted under that
certain Trademark Security Agreement of even date herewith by and between
Guarantor and CoBank, together with all renewals, extensions, amendments,
modifications, and supplements thereto; and
(g) Liens securing leases or purchase money financing of equipment
acquired in the ordinary course of Guarantor's business, provided that such
Liens shall attach only to the equipment so leased or purchased and that the
aggregate amount of all lease obligations and purchase money financing so
secured does not exceed the amount permitted under Section 9.1.
9.4 SALE OF ASSETS. Guarantor shall not sell, convey, assign, lease or
otherwise transfer or dispose of, voluntarily, by operation of law or otherwise,
any of the Guarantor Collateral, except for the sale of inventory in the
ordinary course of business and except that: (a) Guarantor may dispose of
worn-out or obsolete equipment so long as (i) if an Event of Default has
occurred under the Loan Agreement and is continuing, any proceeds are paid to
CoBank for application to the Indebtedness, (ii) whether or not an Event of
Default has occurred under the Loan Agreement and is continuing, such sales do
not involve equipment having an aggregate fair market value in excess of
$50,000.00 for all such equipment disposed of in any calendar year that is not
replaced with comparable equipment, and (iii) the transfer is made in an
arm's-length transaction.
9.5 LIABILITIES OF OTHERS. Guarantor shall not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligation of any other Person other than pursuant to this Guaranty.
9.6 PAYMENTS ON INDEBTEDNESS. Guarantor shall not make any principal
payment on any indebtedness except indebtedness owing to CoBank under the
Guarantor Documents and, so long as no Event of Default or Potential Default
under the Loan Agreement shall exist, indebtedness permitted by Section 9.1 of
this Guaranty.
9.7 CHANGE IN BUSINESS STRUCTURE. Guarantor shall not merge or
consolidate with any entity, or acquire all or substantially all of the assets
of any person or entity, or form or create any new subsidiary or affiliate, or
commence operations under any other name, organization, or entity, including any
joint venture without CoBank's prior written consent.
9.8 LOANS, ADVANCES AND INVESTMENTS. Guarantor shall not make or
permit to remain outstanding any loan or advance to, or purchase or acquire any
stock, obligations or securities or equities of, or any other interest in, or
make any capital contribution to, any Person, except that Guarantor may
purchase, or acquire:
(a) commercial paper maturing not in excess of one year from the date
of acquisition and rated P1 by Moody's Investors Service, Inc. or A1 by Standard
& Poor's Corporation on the date of acquisition;
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(b) certificates of deposit in North American commercial banks rated C
or better by Keefe, Bruyette & Woods, Inc. or 3 or better by Cates Consulting
Analysts, maturing not in excess of one year from the date of acquisition;
(c) obligations of the United States government or any agency thereof,
the obligations of which are guaranteed by the United States government,
maturing, in each case, not in excess of one year from the date of acquisition;
and
(d) repurchase agreements of any bank or trust company incorporated
under the laws of the United States of America or any state thereof and fully
secured by a pledge of obligations issued or fully and unconditionally
guaranteed by the United States government.
9.9 TRANSACTIONS WITH RELATED PARTIES. Guarantor shall not purchase,
acquire, or sell any equipment, other personal property, real property or
services from or to any affiliate of Guarantor, except in the ordinary course of
Guarantor's business and upon fair and reasonable terms no less favorable than
would be obtained by Guarantor in a comparable arm's-length transaction with an
unrelated Person.
9.10 ERISA. Guarantor shall not: (a) adopt, maintain or become
obligated to contribute to any Guarantor Benefit Plan or any Guarantor Pension
Plan without the prior written consent of CoBank; (b) engage in or permit any
transaction which could result in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA) or in the imposition of an excise tax pursuant
to Section 4975 of the Code; (c) engage in or permit any transaction or other
event which could result in a "reportable event" as such term is defined in
Section 4043 of ERISA for any Guarantor Benefit Plan that is an "employee
pension benefit plan" as defined in Section 3(2) of ERISA that is intended to
satisfy the requirements of Section 401(a) of the Code (each a "GUARANTOR
PENSION Plan"); (d) fail to make full payment when due of all amounts which,
under the provisions of any Guarantor Benefit Plan, Guarantor is required to pay
as contributions thereto; (e) permit to exist any "accumulated funding
deficiency" (as such term is defined in Section 302 of ERISA) in excess of
$25,000.00, whether or not waived, with respect to any Guarantor Pension Plan;
(f) fail to make any payments to any "multiemployer plan" that Guarantor may be
required to make under any agreement relating to such "multiemployer plan" or
any law pertaining thereto; or (g) terminate any Guarantor Pension Plan in a
manner which could result in the imposition of a lien on any property of
Guarantor pursuant to Section 4068 of ERISA. Guarantor shall not terminate any
Guarantor Pension Plan so as to result in any liability to the Pension Benefit
Guaranty Corporation. As used in this Section, all terms enclosed in quotation
marks shall have the meanings set forth in ERISA. Guarantor's failure to comply
with any of the foregoing provisions of this Section shall not constitute a
breach of this Guaranty unless such failure has a Material Adverse Effect on
Guarantor.
9.11 PAYMENT OF DIVIDENDS; DISTRIBUTIONS. Guarantor shall not,
directly or indirectly, declare or pay any dividends on account of any shares of
any class of its capital stock now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise
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acquire any shares of any class of its capital stock (or set aside or otherwise
deposit or invest any sums for such purpose) for any consideration other than
common stock or apply or set apart any sum, or make any other distribution (by
reduction or capital or otherwise) in respect of any such shares or agree to do
any of the foregoing.
9.12 DISSOLUTION OR LIQUIDATION. Guarantor shall not dissolve or
liquidate, or enter into any consolidation, pool, joint venture, or other
combination.
9.13 AMENDMENT OF ORGANIZATIONAL DOCUMENTS. Guarantor shall not amend
any material term of its articles or certificate of Incorporation or its bylaws:
(a) if such amendment is in conjunction with any action which is otherwise
prohibited under the terms of this Guaranty, and (b) in all other cases, without
giving at least fifteen (15) days prior written notice to CoBank and a copy of
the proposed amendment(s).
9.14 CHANGE IN FISCAL YEAR. Guarantor shall not change its Fiscal
Year.
9.15 OWNERSHIP OF BORROWER. Guarantor shall not cease to be the sole
limited partner of Borrower or cease to be the sole member of General Partner
and shall not permit General Partner to cease to be the sole general partner of
Borrower.
9.16 ISSUANCE OF ADDITIONAL SHARES OF CAPITAL STOCK; ETC. Guarantor
shall not issue any additional shares of capital stock or other equity interests
of Guarantor, or any warrants, options or other rights to purchase or acquire
any shares of capital stock or other equity interests of Guarantor or any
additional securities convertible into such shares of capital stock or equity
interests.
10. INDEMNIFICATION.
10.1 GENERAL; STAMP TAXES; INTANGIBLES TAX. Guarantor agrees to
indemnify and hold CoBank, each Participant and their directors, officers,
employees, agents, professional advisers and representatives ("INDEMNIFIED
Parties") harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which any Indemnified Party may incur
(or which may be claimed against any such Indemnified Party by any Person),
including attorneys' fees incurred by any Indemnified Party, arising out of or
resulting from: (a) the material inaccuracy of any representation or warranty
made by Borrower, VFIFA, General Partner, EcoScience or Guarantor in any Loan
Document; (b) the material failure of Borrower, VFIFA, General Partner,
EcoScience or Guarantor to perform or comply with any covenant or obligation of
Borrower, VFIFA, General Partner, EcoScience or Guarantor under any Loan
Document; or (c) the exercise by CoBank of any right or remedy set forth in this
Guaranty or any other Loan Document, provided that Guarantor shall have no
obligation to indemnify any Indemnified Party against claims, damages, losses,
liabilities, costs or expenses to the extent that a court of competent
jurisdiction renders a final non-appealable determination that the foregoing are
solely the result of the willful misconduct or gross negligence of such
Indemnified Party. In addition, Guarantor agrees to indemnify and hold the
Indemnified Parties harmless from and against any and
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all claims, damages, losses, liabilities, costs or expenses whatsoever which
CoBank or any other Indemnified Party may incur (or which may be claimed against
any such Indemnified Party by any Person), including attorneys' fees incurred by
any Indemnified Party, arising out of or resulting from the imposition or
nonpayment by Guarantor, Borrower, VFIFA, EcoScience or General Partner of any
stamp tax, intangibles tax, or similar tax imposed by any governmental
authority, including any amounts owing by virtue of the assertion that the
property valuation used to calculate any such tax was understated. Guarantor
shall have the right to assume the defense of any claim as would give rise to
Guarantor's indemnification obligation under this Section with counsel of
Guarantor's choosing so long as such defense is being diligently and properly
conducted and Guarantor shall establish to the Indemnified Party's satisfaction
that the amount of such claims are not, and will not be, material in comparison
to the liquid and unrestricted assets of Guarantor available to respond to any
award which may be granted on account of such claim. So long as the conditions
of the preceding sentence are met, the Indemnified Party shall have no further
right to reimbursement of attorneys' fees incurred thereafter. The obligation to
indemnify set forth in this Section shall survive the termination of this
Guaranty.
10.2 INDEMNIFICATION RELATING TO HAZARDOUS SUBSTANCES. Guarantor shall
not locate, produce, treat, transport, incorporate, discharge, emit, release,
deposit or dispose of any Hazardous Substance in, upon, under, over or from any
property owned or operated by Guarantor, except in accordance with all
Environmental Laws and Environmental Regulations; Guarantor shall not permit any
Hazardous Substance to be located, produced, treated, transported, incorporated,
discharged, emitted, released, deposited, disposed of or to escape in, upon,
under, over or from any property owned or operated by Guarantor, except in
accordance with all Environmental Laws and Environmental Regulations; and
Guarantor shall comply with all Environmental Laws and Environmental Regulations
which are applicable to such property. If CoBank reasonably believes that an
Environmental Law or Environmental Regulation has been violated by Guarantor's
activities upon property owned or operated by Guarantor, and if CoBank so
requests, Guarantor shall have prepared an environmental review, audit,
assessment and/or report relating to the subject property, at Guarantor's sole
cost and expense, by an engineer or other environmental expert acceptable to
CoBank. If, however, the environmental review, audit, assessment and/or report
reveals that no Environmental Law or Environmental Regulation has been violated,
CoBank shall reimburse Guarantor for the costs and expenses of such engineer or
other environmental expert in completing such audit or report. Guarantor shall
indemnify the Indemnified Parties against, and shall reimburse the Indemnified
Parties for, any and all claims, demands, judgments, penalties, liabilities,
costs, damages and expenses, including court costs and attorneys' fees incurred
by the Indemnified Parties (prior to trial, at trial and on appeal) in any
action against or involving the Indemnified Parties, resulting from any breach
of the foregoing covenants, or from the discovery of any Hazardous Substance in,
upon, under or over, or emanating from, such property, it being the intent of
Guarantor and the Indemnified Parties that the Indemnified Parties shall have no
liability or responsibility for damage or injury to human health, the
environmental or natural resources caused by, for abatement and/or clean-up of,
or otherwise with respect to,
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Hazardous Substances by virtue of the interest of CoBank (or any Participant) in
the property created by any documents securing the Guaranteed Obligations or as
the result of CoBank exercising any of its rights or remedies with respect
thereto, including but not limited to becoming the owner thereof by foreclosure
or conveyance in lieu of foreclosure. The foregoing covenants of this Section
shall be deemed continuing covenants for the benefit of the Indemnified Parties,
and any successors and assigns of the Indemnified Parties, including but not
limited to the holder of any certificate of purchase, any transferee of the
title of CoBank or any subsequent owner of the property, and shall survive the
satisfaction or release of any Lien, any foreclosure of any Lien and/or any
acquisition of title to the property or any part thereof by CoBank, or anyone
claiming by, through or under CoBank or Guarantor by deed in lieu of foreclosure
or otherwise. Any amounts covered by the foregoing indemnification shall bear
interest from the date incurred at the Default Interest Rate, shall be payable
on demand, and shall be secured by the Guarantor Security Documents. The
indemnification and covenants of this Section shall survive the termination of
this Guaranty.
11. MISCELLANEOUS.
11.1 LOAN DOCUMENTS. Guarantor has received and reviewed the Loan
Agreement and the other Loan Documents and acknowledges, agrees, and consents to
the terms and conditions set forth therein.
11.2 ADDITIONAL GUARANTORS. This Guaranty shall be binding on
Guarantor whether or not any other guarantors execute any guarantees of the
Indebtedness.
11.3 NO WAIVER BY COBANK. No delay or failure by CoBank to exercise
any right or remedy against Guarantor will be construed as a waiver of that
right or remedy. All remedies of CoBank against Guarantor are cumulative.
Failure or delay on the part of CoBank to exercise any such right or remedy
shall not operate as a waiver thereof. Any single or partial exercise by CoBank
of any such right or remedy shall not preclude any future exercise thereof or
the exercise of any other right or remedy.
11.4 ASSIGNMENT. Guarantor may not assign this Guaranty without the
written consent of CoBank. Subject to the foregoing, the provisions of this
Guaranty shall be binding upon Guarantor, its successors and assigns. CoBank
may, without notice to or consent from Guarantor, assign all or any part of the
Guaranteed Obligations or any security therefor. In the event of such
assignment, each and every immediate and successive assignee, transferee or
holder of all or any part of the Guaranteed Obligations shall have the right to
enforce this Guaranty, by legal action or otherwise, for its benefit, as fully
as if such assignee, transferee or holder were named herein and specifically
given such rights and power. Notwithstanding such sale, assignment, or transfer,
CoBank shall have an unimpaired right to enforce this Guaranty for its own
benefit as to any portion of the Guaranteed Obligations not sold, transferred or
assigned, or which CoBank may have reacquired after such sale, transfer or
assignment.
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11.5 SEVERABILITY. The invalidity or unenforceability of any one or
more provisions of this Guaranty will not affect any other provision of this
Guaranty. In the case of such invalidity or unenforceability, this Guaranty
shall be construed as if the invalid or unenforceable provisions had not been
included herein.
11.6 AMENDMENTS. This Guaranty may not be amended without the written
consent of CoBank and Guarantor. Guarantor agrees that it shall reimburse CoBank
and any Participant for all fees and expenses incurred in retaining outside
legal counsel in connection with any amendment or modification to this Guaranty
requested by Guarantor.
11.7 SERVICE OF PROCESS AND CONSENT TO JURISDICTION. Guarantor
irrevocably agrees that any litigation with respect to this Guaranty or any
other Guarantor Document or to enforce any judgment obtained against Guarantor
for breach of this Guaranty or the other Guarantor Documents may be brought in
the courts of the State of Colorado and in the United States District Court for
the District of Colorado (if applicable subject matter jurisdictional
requirements are present), as CoBank may elect; and, by execution and delivery
of this Guaranty, Guarantor irrevocably submits to such jurisdiction. With
respect to litigation concerning this Guaranty or the other Guarantor Documents
within the jurisdiction of the courts of the State of Colorado or the United
States District Court for the District of Colorado, Guarantor hereby irrevocably
appoints, until January 31, 2005, The Corporation Company, 1675 Broadway,
Denver, Colorado 80202, as the agent of Guarantor to receive for and on behalf
of Guarantor, service of process, which service may be made by mailing a copy of
any summons or other legal process to Guarantor in care of such agent. Guarantor
agrees that Guarantor shall maintain a duly appointed agent for service of
summons and other legal process as long as Guarantor remains obligated under
this Guaranty. The receipt by such agent and/or by Guarantor of such summons or
other legal process in any such litigation shall be deemed personal service and
acceptance by Guarantor for all purposes of such litigation. Guarantor agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
11.8 JURY WAIVER. IT IS MUTUALLY AGREED BY AND BETWEEN COBANK AND
GUARANTOR THAT THEY EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS GUARANTY OR THE GUARANTOR SECURITY DOCUMENTS.
11.9 RELEASE. GUARANTOR HEREBY RELEASES, WAIVES AND FOREVER DISCHARGES
VFIFA, COBANK, EACH PARTICIPANT AND EACH OF THEIR RESPECTIVE SHAREHOLDERS,
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND UNKNOWN, ABSOLUTE
AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS, CAUSES OF ACTION,
ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND EXISTING OR ACCRUED AS OF
THE DATE OF THIS AGREEMENT IN FAVOR OF GUARANTOR.
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11.10 NOTICES. All notices, requests and demands required or permitted
under the terms of this Guaranty shall be in writing and (a) shall be addressed
as set forth below or at such other address as either party shall designate in
writing and shall be personally delivered or sent by facsimile transmission,
overnight courier, or United States Mail, certified and return receipt
requested, and (b) shall be deemed to have been given or made: (i) if delivered
personally, immediately upon delivery; (ii) if by facsimile transmission,
immediately upon sending and upon confirmation of receipt; (iii) if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and (iv) if by United
States Mail, certified mail, return receipt requested, five (5) days after
mailing.
If to CoBank:
CoBank, ACB
5500 S. Quebec St.
Englewood, CO 80111
Facsimile: (303) 224-6109
Attention: Mr. Nicholas D. Jewitt
Vice President, Special Assets
With a copy to:
Farm Credit Bank of Texas
6210 Highway 290 East
Austin, Texas 78723
P.O. Box 15919
Austin, Texas 78761
Facsimile: (512) 465-0675
Attention: Mr. Jim Floyd
If to Guarantor:
Agro Power Development, Inc.
10 Alvin Court
East Brunswick, New Jersey 08816
Facsimile: (732) 432-0770
Attention: Michael DiGiglio,
President
11.11 APPLICABLE LAW. To the extent not governed by federal law, this
Guaranty shall be governed by and interpreted in accordance with the internal
laws of the State of Colorado, without giving effect to any otherwise applicable
rules concerning conflicts of law.
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11.12 CAPTIONS. The captions or headings in this Guaranty and any
table of contents hereof are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Guaranty.
11.13 LIBERAL CONSTRUCTION. This Guaranty constitutes a fully
negotiated agreement between commercially sophisticated parties, each assisted
by legal counsel, and shall not be construed and interpreted for or against
Guarantor or CoBank.
[SIGNATURES FOLLOW ON NEXT PAGE]
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Guarantor has executed this Guaranty as of the day and year first above
written.
GUARANTOR:
AGRO POWER DEVELOPMENT, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
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TABLE OF CONTENTS
<TABLE>
<S> <C>
R E C I T A L S ..................................................................................................1
A G R E E M E N T S ..............................................................................................1
1. Defined Terms .................................................................................................1
1.1 APD Entities .............................................................................................1
1.2 APD Merger ...............................................................................................1
1.3 APD Entities .............................................................................................1
1.4 Business Day .............................................................................................1
1.5 Capital Lease ............................................................................................1
1.6 Compliance Certificate ...................................................................................1
1.7 EBITDA ...................................................................................................1
1.8 EcoScience ...............................................................................................2
1.9 Environmental Laws .......................................................................................2
1.10 Environmental Regulations ...............................................................................2
1.11 GAAP ....................................................................................................2
1.12 General Partner .........................................................................................2
1.13 General Partner Entities ................................................................................2
1.14 General Partner Merger ..................................................................................2
1.15 Greenhouses .............................................................................................2
1.16 Gross Profit ............................................................................................2
1.17 Guarantees ..............................................................................................2
1.18 Guarantor Documents .....................................................................................2
1.19 Guarantor Security Agreement ............................................................................2
1.20 Guarantor Security Documents ............................................................................2
</TABLE>
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<TABLE>
<S> <C>
1.21 Hazardous Substances ....................................................................................3
1.22 Indebtedness ............................................................................................3
1.23 Interest Expense ........................................................................................3
1.24 Lien ....................................................................................................3
1.25 Loan Documents ..........................................................................................3
1.26 Material Adverse Change .................................................................................3
1.27 Material Adverse Effect .................................................................................3
1.28 Mission Critical ........................................................................................3
1.29 Notes ...................................................................................................4
1.30 Participant .............................................................................................4
1.31 Person ..................................................................................................4
1.32 Projections .............................................................................................4
1.33 Quarter .................................................................................................4
1.34 Security Documents ......................................................................................4
1.35 Significant Software ....................................................................................4
1.36 VFIFA ...................................................................................................4
1.37 Village Farms Entities ..................................................................................4
1.38 Year 2000 Compliant .....................................................................................5
2. Guaranty ......................................................................................................5
3. Guaranty of Payment; Waiver of Defenses, Etc. .................................................................6
3.1 General ..................................................................................................6
3.2 Waivers ..................................................................................................6
3.3 Amount of Indebtedness ...................................................................................7
3.4 Subrogation ..............................................................................................7
</TABLE>
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<TABLE>
<S> <C>
3.5 Subordination of Other Debt ..............................................................................7
3.6 Liens and Rights of Set-Off ..............................................................................7
4. Recovery of Payment ...........................................................................................7
5. Information Regarding Borrower ................................................................................7
6. Security ......................................................................................................7
7. Representations and Warranties ................................................................................8
7.1 Organization, Good Standing, etc .........................................................................8
7.2 Authority; Due Authorization .............................................................................8
7.3 Mergers ..................................................................................................8
7.4 Consents .................................................................................................8
7.5 Title to Guarantor Collateral ............................................................................8
7.6 Litigation ...............................................................................................9
7.7 No Violations ............................................................................................9
7.8 Binding Agreement ........................................................................................9
7.9 Compliance with Laws .....................................................................................9
7.10 Chief Executive Office ..................................................................................9
7.11 Material Agreements .....................................................................................9
7.12 Financial Statements ....................................................................................9
7.13 Absence of Undisclosed Liabilities .....................................................................10
7.14 No Material Adverse Change .............................................................................10
7.15 Projections ............................................................................................10
7.16 Payment of Taxes .......................................................................................10
7.17 Licenses and Approvals .................................................................................11
7.18 Employee Benefit Plans .................................................................................11
</TABLE>
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<TABLE>
<S> <C>
7.19 Equity Investments; Capitalization .....................................................................11
7.20 Real Property ..........................................................................................12
7.21 Liens ..................................................................................................12
7.22 Environmental Compliance ...............................................................................12
7.23 No Contingent Liabilities ..............................................................................12
7.24 Title Insurance ........................................................................................13
7.25 Intellectual Property ..................................................................................13
7.26 Fiscal Year ............................................................................................13
7.27 Year 2000 ..............................................................................................13
7.28 Disclosure .............................................................................................14
8. Affirmative Covenants of Guarantor ...........................................................................14
8.1 Books and Records .......................................................................................14
8.2 Reports and Notices .....................................................................................14
8.2.1 Annual Financial Statements .......................................................................14
8.2.2 Monthly Financial Reports .........................................................................14
8.2.3 Quarterly Financial Statements ....................................................................14
8.2.4 Budget ............................................................................................15
8.2.5 Additional Information ............................................................................15
8.2.6 Notice of Default .................................................................................15
8.2.7 Notice of Litigation ..............................................................................15
8.2.8 Notice of Material Adverse Effect .................................................................15
8.2.9 Notice of Environmental Litigation ................................................................15
8.2.10 Governmental and Other Notices ...................................................................15
8.2.11 Adverse Action Regarding Required Licenses and Intellectual Property .............................16
</TABLE>
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<TABLE>
<S> <C>
8.3 Maintenance of Existence and Qualification ..............................................................16
8.4 Compliance with Legal Requirements and Agreements .......................................................16
8.5 Compliance with Environmental Laws ......................................................................16
8.6 Insurance ...............................................................................................16
8.7 Taxes ...................................................................................................17
8.8 Title to Assets and Maintenance .........................................................................17
8.9 Payment of Liabilities ..................................................................................17
8.10 Further Assurances, Real Property Interests ............................................................17
8.11 Inspection .............................................................................................18
8.12 Required Licenses and Intellectual Property ............................................................18
8.13 ERISA ..................................................................................................18
8.14 Performance Standards; Budgets .........................................................................18
8.15 Year 2000 ..............................................................................................19
8.16 Action Plans ...........................................................................................19
9. Negative Covenants of Guarantor ..............................................................................19
9.1 Borrowings ..............................................................................................19
9.2 No Other Businesses .....................................................................................20
9.3 Liens ...................................................................................................20
9.4 Sale of Assets ..........................................................................................21
9.5 Liabilities of Others ...................................................................................21
9.6 Payments on Indebtedness ................................................................................21
9.7 Changes in Business Structure ...........................................................................21
9.8 Loans, Advances and Investments .........................................................................21
9.9 Transactions With Related Parties .......................................................................22
</TABLE>
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<TABLE>
<S> <C>
9.10 ERISA ..................................................................................................22
9.11 Payment of Dividends; Distributions ....................................................................22
9.12 Dissolution or Liquidation .............................................................................22
9.13 Amendment of Organizational Documents ..................................................................22
9.14 Change in Fiscal Year ..................................................................................22
9.15 Ownership of Borrower ..................................................................................23
9.16 Issuance of Additional Shares of Capital Stock; Etc. ...................................................23
10. Indemnification .............................................................................................23
10.1 General; Stamp Taxes; Intangibles Tax ..................................................................23
10.2 Indemnification Relating to Hazardous Substances .......................................................23
11. Miscellaneous ...............................................................................................24
11.1 Loan Documents .........................................................................................24
11.2 Additional Guarantors ..................................................................................24
11.3 No Waiver by CoBank ....................................................................................25
11.4 Assignment .............................................................................................25
11.5 Severability ...........................................................................................25
11.6 Amendments .............................................................................................25
11.7 Service of Process and Consent to Jurisdiction .........................................................25
11.8 Jury Waiver ............................................................................................26
11.9 Release ................................................................................................26
11.10 Notices ...............................................................................................26
11.11 Applicable Law ........................................................................................27
11.12 Captions ..............................................................................................27
11.13 Liberal Construction ..................................................................................27
</TABLE>
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EXHIBITS AND SCHEDULES
Exhibit 1.6 Compliance Certificate
Exhibit 8.14 Performance Standards
Schedule 1.32 Projections
Schedule 7.6 Litigation
Schedule 7.11 Material Agreements
Schedule 7.13 Undisclosed Liabilities
Schedule 7.14 Material Adverse Changes
Schedule 7.17 Required Licenses and Consents
Schedule 7.19 Equity Investments and Capitalization
Schedule 7.20 Real Estate Interests
Schedule 7.21 Liens
Schedule 7.25 Intellectual Property
Schedule 8.9 Past-Due Liabilities and Payment Schedule
vii
GUARANTY
OF
ECOSCIENCE CORPORATION
TO
COBANK, ACB
<PAGE>
GUARANTY OF ECOSCIENCE CORPORATION
This Guaranty ("GUARANTY") is made and given as of January 2, 2000 by
ECOSCIENCE CORPORATION, a Delaware corporation ("GUARANTOR"), to COBANK, ACB
("COBANK").
R E C I T A L S
A. CoBank and Village Farms, L.P., a Delaware limited partnership
("BORROWER") have entered into a Consolidated, Amended and Restated Loan
Agreement of even date herewith (as amended, modified or supplemented from time
to time, the "LOAN AGREEMENT") pursuant to which CoBank has agreed make certain
term loans to Borrower in an aggregate principal amount up to $72,285,739.67
("LOANS") under the terms and conditions set forth in the Loan Agreement.
B. Guarantor owns 100% of the issued and outstanding capital stock of Agro
Power Development, Inc. ("APD"), a Delaware corporation, which owns, directly
and indirectly 100% of the partnership interests in Borrower. Guarantor will
benefit from the extensions of credit made by CoBank to Borrower by virtue of
its indirect ownership of Borrower.
C. CoBank is willing to extend such credit to Borrower pursuant to the
provisions of the Loan Agreement upon the condition, among others, that
Guarantor execute this Guaranty.
A G R E E M E N T S
NOW, THEREFORE, for value received, and intending to be legally bound
herein, and to induce CoBank to extend credit and make advances to Borrower
pursuant to the terms of the Loan Agreement, Guarantor covenants and agrees with
CoBank as follows:
1. DEFINED TERMS. As used in this Guaranty, the following terms shall have
the meanings set forth below (and such meaning shall be equally applicable to
both the singular and plural form of the terms defined, as the context may
require):
1.1 APD ENTITIES: Village Farms, L.L.C., a Delaware limited liability
company; and Cogentrix Greenhouse Investments, Inc., a Delaware corporation.
1.2 APD MERGER: the merger of the APD Entities into Guarantor with
Guarantor as the surviving entity.
1.3 BORROWER MERGER: the merger of the Village Farms Entities into
Borrower with Borrower as the surviving entity.
1.4 BUSINESS DAY: any day other than a Saturday or Sunday and other
than a day which is a Federal legal holiday or a legal holiday for banks in the
State of Colorado or the State of New Jersey.
<PAGE>
1.5 CODE: means the Internal Revenue Code of 1986, as amended from
time to time.
1.6 COMPLIANCE CERTIFICATE: a certificate of the chief financial
officer of Guarantor acceptable to CoBank and in the form attached as Exhibit
1.6 hereto.
1.7 ERISA: the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
1.8 ERISA AFFILIATE: means any corporation or trade or business which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Guarantor or is under common control (within the
meaning of Section 414(c) of the Code) with Guarantor, provided, however, that
for purposes of provisions herein concerning minimum funding obligations
(imposed under Section 412 of the Code or Section 302 of ERISA), the term "ERISA
Affiliate" shall also include any entity required to be aggregated with
Guarantor under Section 414(m) or 414(o) of the Code.
1.9 GAAP: generally accepted accounting principles in the United
States of America, applied consistently, as in effect from time to time.
1.10 GENERAL PARTNER: Village Farms of Delaware, L.L.C., a Delaware
limited liability company.
1.11 GENERAL PARTNER ENTITIES: Cogentrix of Buffalo, Inc., a Delaware
corporation; Cogentrix of Fort Davis I, Inc., a Delaware corporation; and
Cogentrix of Marfa, Inc., a Delaware corporation.
1.12 GENERAL PARTNER MERGER: the merger of the General Partner
Entities into General Partner with General Partner as the surviving entity.
1.13 GUARANTEES: this Guaranty and that certain Guaranty of even date
herewith pursuant to which APD unconditionally guarantees the payment and
performance of all obligations of Borrower to CoBank under the Loan Documents,
as such guarantees are amended, modified or supplemented from time to time.
1.14 GUARANTOR BENEFIT PLAN: means (a) any funded "employee welfare
benefit plan," as that term is defined in Section 3(1) of ERISA; (b) any
"multiemployer plans," as defined in Section 3(37) of ERISA; (c) any "employee
pension benefit plan" as defined in Section 3(2) of ERISA; (d) any "employee
benefit plan", as such term is defined in Section 3(3) of ERISA; (e) any
"multiple employer plan" within the meaning of Section 413 of the Code; (f) any
"multiple employer welfare arrangement" within the meaning of Section 3(40) of
ERISA; (g) a "voluntary employees' beneficiary association" within the meaning
of Section 501(c)(9) of the Code; (h) a "welfare benefit fund" within the
meaning of Section 419 of the Code; or (i) any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA for the benefit of retired or former
employees, which is maintained by the Guarantor or in
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which Guarantor participates or to which Guarantor is obligated to contribute,
but excluding any such plan, arrangement, association or fund that is maintained
outside of the United States primarily for the benefit of persons substantially
all of whom are nonresident aliens.
1.15 GUARANTOR DOCUMENTS: this Guaranty and the Guarantor Security
Documents.
1.16 GUARANTOR PENSION PLAN: each Guarantor Benefit Plan that is an
"employee pension benefit plan" as defined in Section 3(2) of ERISA that is
intended to satisfy the requirements of Section 401(a) of the Code.
1.17 GUARANTOR SECURITY AGREEMENT: the Security and Pledge Agreement
of even date herewith by and between Guarantor and CoBank, together with all
renewals, extensions, amendments, modifications, and supplements thereto.
1.18 GUARANTOR SECURITY DOCUMENTS: the Guarantor Security Agreement,
the mortgages, deeds of trust, leasehold assignments and consents, financing
statements, pledge agreements, assignments, and/or other security documents
executed by Guarantor in favor of CoBank to secure Guarantor's performance of
its obligations under this Guaranty with a Lien on all assets, real and
personal, of Guarantor, in form and substance acceptable to CoBank, together
with all renewals, extensions, amendments, modifications, and supplements
thereto.
1.19 INDEBTEDNESS: any and all advances, debts, obligations and
liabilities of Borrower under or pursuant to the Loan Documents, and any
renewals, amendments, extensions or replacements thereof, including without
limitation all principal, interest, reimbursement and indemnification
obligations, and loan fees owed under the Loan Agreement and all expenses,
charges and other amounts payable by Borrower pursuant to the Loan Documents,
whether now existing or hereafter contracted or incurred, plus interest thereon
at the rate determined pursuant to the Loan Agreement.
1.20 LIEN: means any mortgage, pledge, lien, security interest or
other charge or encumbrance of any kind, or any other type of preferential
arrangement.
1.21 LOAN DOCUMENTS: the Loan Agreement, the Notes, the Note Purchase
Agreement, the Guarantees, the Security Documents, and any other document
required by CoBank from time to time in order to grant to, or maintain for,
CoBank a perfected security interest in the Collateral, together with all
renewals, extensions, amendments, modifications, and supplements thereto.
1.22 MATERIAL ADVERSE CHANGE: means, with respect to any Person, any
material adverse change in the business, condition (financial or otherwise),
operations, performance or properties of such Person.
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<PAGE>
1.23 MATERIAL ADVERSE EFFECT: means, with respect to any Person, any
material adverse change in the business, condition (financial or otherwise),
operations, performance or properties of such Person.
1.24 MISSION CRITICAL: a Person with respect to whom the failure of
such Person's Significant Software to be Year 2000 Compliant could reasonably be
expected to have a Material Adverse Effect on Guarantor.
1.25 MULTIEMPLOYER PLAN: means a Plan defined as such in Section 3(37)
of ERISA.
1.26 NOTES: the promissory notes executed by Borrower payable to
CoBank evidencing the Loans dated of even date herewith, as amended, modified or
supplemented from time to time.
1.27 PARTICIPANT: means, collectively, any Person to whom CoBank shall
sell or assign a loan participation or other fractional undivided interest in
the Indebtedness, as evidenced by the Notes and other Loan Documents, and the
legal representatives, successors and assigns of any such Person.
1.28 PERSON: any individual, sole proprietorship, joint venture,
unincorporated organization, cooperative association, limited liability company,
corporation, association, partnership, trust, government, governmental agency,
or other entity.
1.29 PLAN: means any plan, agreement, arrangement or commitment which
is an employee benefit plan, as defined in Section 3(3) of ERISA, maintained by
Guarantor or any subsidiary of Guarantor or any ERISA Affiliate or with respect
to which Guarantor or any subsidiary of Guarantor or any ERISA Affiliate at any
relevant time has any liability or obligation to contribute.
1.30 QUARTER: the quarters of Guarantor's Fiscal Year.
1.31 SEC: the U.S. Securities and Exchange Commission.
1.32 EXCHANGE ACT: the Securities Exchange Act of 1934, as amended.
1.33 SECURITY DOCUMENTS: the security agreements, mortgages, deeds of
trust, financing statements, pledge agreements, amendments to ground leases,
lessor's consents, and/or other security documents required pursuant to the Loan
Agreement and/or executed by Borrower, General Partner, APD or Guarantor in
favor of CoBank to secure the performance of Borrower's obligations under the
Notes and the other Loan Documents with a Lien on all assets and properties of
Borrower, General Partner and APD, and on all of the stock in APD owned by
Guarantor, in form and substance acceptable to CoBank, together with all
renewals, extensions, amendments, modifications, and supplements thereto.
4
<PAGE>
1.34 SIGNIFICANT SOFTWARE: any device or system of a Person (including
without limitation all computer hardware or software, firmware, equipment
containing embedded microchips or integrated circuits, or other set or
collection of processing instructions) regularly used by such Person in its
business operations or financial accounting which, individually, or together
with one or more other items of Significant Software, would, if it failed to be
Year 2000 Compliant, have a material adverse effect on the business condition
(financial or otherwise), operations, performance, or properties of such Person.
1.35 VFIFA: Village Farms International Finance Association, a
Delaware cooperative corporation.
1.36 VILLAGE FARMS ENTITIES: collectively, Village Farms of Colorado,
Inc., a Delaware corporation; Village Farms, Inc., a Delaware corporation;
Village Farms Mediterranean, Inc., a Delaware corporation; Village Farms of
Virginia, Inc., a Delaware corporation; Village Farms of Texas, L.P., a Delaware
limited partnership; Village Farms of Marfa, L.P., a Delaware limited
partnership; Village Farms of Presidio, L.P., a Delaware limited partnership;
Village Farms of Buffalo, L.P., a Delaware limited partnership; and Keystone
Village Farms, L.L.C., a Delaware limited liability company.
1.37 YEAR 2000 COMPLIANT: shall mean, with respect to Significant
Software, (a) that it shall include calendar year 2000 date conversion and
compatibility capabilities, including date data century recognition, same
century and multiple century formula and date value calculations and user
interface date data values that reflect the century so that it will (i) manage
and manipulate data involving dates, including single century and multiple
century dates and formulas, and will not cause an abnormally ending scenario
within the application or cause an abort or result in the generation of
incorrect values or invalid output involving such dates, (ii) include the
indication of the correct century in all date related user interface functions,
and (iii) operate in the same manner with year dates of 2000 and beyond as it
operates with year dates of 1900 to 1999; and (b) that it shall recognize the
year 2000 as a leap year, including recognition and processing of the correct
date on February 29, 2000. Significant Software that is Year 2000 Compliant
shall be considered to be in "Year 2000 Compliance".
The following terms are defined in portions of this Guaranty other than this
Article 1:
ADI Section 9.3
APD Shares Section 7.18
EPSC Section 9.3
Financial Statements Section 7.11
Fiscal Year Section 7.17
Guaranteed Obligations Article 2
Guarantor's Claims Section 3.5
Guarantor Collateral Article 6
Indemnified Parties Section 10.1
Mergers Section 7.3
PBGC Section 7.14
5
<PAGE>
Capitalized terms used, but not defined, herein shall have the meaning
given to such terms in the Loan Agreement, if defined therein.
2. GUARANTY. Guarantor hereby guarantees absolutely and unconditionally to
CoBank, and its successors and assigns, and any Participant acquiring an
interest in the Indebtedness of Borrower, and becomes surety for: (a) the due
and punctual payment, in lawful money of the United States, of all Indebtedness
of Borrower as and when any of the foregoing shall become due and payable in
accordance with the terms thereof at stated maturity, by acceleration, or
otherwise; and (b) the full and timely performance of any and all other
obligations of Borrower to CoBank, of every type and description, whether now
existing or hereafter contracted or incurred, arising directly or indirectly out
of or with respect to the Loan Documents. Guarantor shall also pay all costs,
expenses and attorneys' fees incurred by CoBank and any Participant in their
efforts to collect the foregoing, foreclose upon or exercise their rights with
respect to any security for the foregoing, or to enforce this Guaranty, or to
protect the rights of CoBank and any such Participant with respect thereto. The
term "GUARANTEED OBLIGATIONS" as used in this Guaranty shall mean such
indebtedness, obligations and liabilities described above in this Article 2.
3. GUARANTY OF PAYMENT; WAIVER OF DEFENSES, ETC.
3.1 GENERAL. This Guaranty is a guarantee of payment and not of
collection, and Guarantor waives any right to require that any action be brought
against Borrower or to require that resort be had at any time to any direct or
indirect security for the Guaranteed Obligations. Guarantor's obligations
hereunder are continuing obligations and are absolute and unconditional
irrespective of the genuineness, validity or enforceability of any instrument or
instruments now or hereafter evidencing any Guaranteed Obligation or any part
thereof (including but not limited to the Loan Documents) or of any other
agreement now or hereafter entered into by CoBank and Borrower pursuant to which
any Guaranteed Obligation or any part thereof is issued, or of any other
circumstance which might otherwise constitute a legal or equitable discharge of
a guarantor or surety. Guarantor's obligations hereunder shall continue in full
force and effect as long as any Guaranteed Obligation or any part thereof
remains outstanding and unpaid or CoBank has any obligation to make any
extension of credit to Borrower pursuant to any of the Loan Documents.
3.2 WAIVERS. With respect to its obligations under this Guaranty,
Guarantor waives any and all defenses and discharges available to a guarantor,
surety, endorser or accommodation party, dependent upon its character as such.
Guarantor hereby waives presentment for payment, notice of nonpayment, demand
and protest. Guarantor agrees that its obligations hereunder shall not be
affected or impaired in any way by any of the following acts or things (which
CoBank may do from time to time without notice to Guarantor): (a) any amendment
(including, without limitation, an amendment increasing the interest rate),
modification or extension of any Loan Documents, or any waiver of compliance by
Borrower with the terms of any of the
6
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foregoing; (b) any sale, pledge, surrender, compromise, settlement, release,
renewal, extension, indulgence, alteration, substitution, exchange, modification
or other disposition of any Guaranteed Obligation or any collateral therefor;
(c) any acceptance or release of collateral for, or guarantors of, any
Guaranteed Obligation; (d) any inability, failure, neglect or omission to
obtain, perfect, enforce or realize upon any collateral for any of the
Guaranteed Obligations, or to exercise any lien upon or right of appropriation
of any moneys, credits or property to the liquidation of any Guaranteed
Obligation, or to pursue or obtain any deficiency judgment against Borrower
following any foreclosure of any security interest, mortgage or deed of trust
granted by Borrower to CoBank; or (e) any application of payments or credits
upon the Guaranteed Obligations under the Loan Documents. CoBank shall not be
required, before exercising its rights under this Guaranty, to first resort for
the payment of any Guaranteed Obligation to Borrower, or other guarantors or
sureties or accommodation parties or any collateral, property, liens or other
remedies or rights whatsoever. With respect to its obligations under this
Guaranty, Guarantor agrees not to exercise any right of contribution, recourse,
subrogation or reimbursement available to Guarantor against Borrower or any
other Person or entity or property unless and until all the Guaranteed
Obligations have been indefeasibly paid in full and there is no obligation of
CoBank to make any extension of credit to Borrower under the Loan Documents.
Guarantor hereby waives any rights it may have at equity or in law to require
CoBank to apply any rights of marshalling or other equitable doctrines in the
circumstances.
3.3 AMOUNT OF INDEBTEDNESS. CoBank may, at its sole option and without
any notice to or consent of Guarantor, allow the Indebtedness of Borrower owed
to CoBank to exceed the principal amount of all promissory notes executed by
Borrower in connection with the Indebtedness without in any way adversely
affecting Guarantor's liability hereunder.
3.4 SUBROGATION. After all Guaranteed Obligations have been
indefeasibly paid in full and there is no obligation of CoBank to make any
extension of credit to a Borrower under the Loan Documents, Guarantor shall have
and may exercise rights of subrogation against Borrower.
3.5 SUBORDINATION OF OTHER DEBT. Any indebtedness or obligation of
Borrower, or any other claim against or liability of Borrower, now or hereafter
held by or owed to Guarantor ("GUARANTOR'S CLAIMS") is hereby subordinated by
Guarantor to the Indebtedness; and such Guarantor's Claims, if CoBank so
requests, shall be collected, enforced and received by Guarantor as trustee for
CoBank and paid over to CoBank on account of the Indebtedness.
3.6 LIENS AND RIGHTS OF SET-OFF. In addition to all Liens upon, and
right of set-off against, the property of Guarantor existing under applicable
law, CoBank may, without demand or notice of any kind, and at any time when any
amount shall be due and payable hereunder by Guarantor, appropriate and apply
toward the payment of such amount, in such order of application as CoBank may
elect, any property, balances, credits, deposits, accounts or moneys of
Guarantor in the possession or control of CoBank for any purpose. Guarantor
hereby grants to CoBank a right of set-off and a
7
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security interest in such property and funds in the possession or control of
CoBank. Guarantor further expressly grants to CoBank the right, to be exercised
at the discretion of CoBank, to file one or more financing statements under the
Uniform Commercial Code naming Guarantor as debtor and CoBank as secured party
with respect to such property and funds and Guarantor hereby agrees to sign any
such statement.
4. RECOVERY OF PAYMENT. If any payment received by CoBank and applied to
the Guaranteed Obligations is subsequently set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of Borrower), the Guaranteed
Obligations to which such payment was applied shall, for the purposes of this
Guaranty, be deemed to have continued in existence, notwithstanding such
applications, and this Guaranty shall be enforceable as to such Guaranteed
Obligations as fully as if such applications had never been made.
5. INFORMATION REGARDING BORROWER. Guarantor assumes full responsibility
for keeping fully informed of the financial condition of Borrower and all other
circumstances affecting Borrower's ability to pay and perform its obligations
under the Loan Documents and agrees that CoBank shall not have any duty to
report to Guarantor any information which CoBank receives about the financial
condition of Borrower or any circumstances bearing on the ability of Borrower to
perform its obligations under the Loan Documents, and Guarantor hereby expressly
and unconditionally waives any defense based on the failure of CoBank to report
such information.
6. SECURITY. As security for the payment and performance of Guarantor's
obligations under this Guaranty, Guarantor shall grant to CoBank and maintain
for CoBank, a first Lien on all of Guarantor's stock in APD, whether now owned
or held or hereafter acquired (the "GUARANTOR COLLATERAL"). Guarantor has
executed and delivered to CoBank the Guarantor Security Documents as required
under this Guaranty to evidence the Lien of CoBank in the Guarantor Collateral,
and the terms, provisions and conditions of the Guarantor Security Documents are
hereby incorporated in this Guaranty and made a part hereof. Guarantor shall
also execute such further security agreements, stock powers, financing
statements, assignments or other documents as CoBank shall request, in form and
substance as such CoBank shall specify, to establish, confirm, perfect or
provide notice of CoBank's Lien on the Guarantor Collateral.
7. REPRESENTATIONS AND WARRANTIES. Guarantor represents, covenants and
warrants to CoBank that:
7.1 ORGANIZATION, GOOD STANDING, ETC. Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Guarantor has the power to own its properties and to carry on its
business as now being conducted. Guarantor is duly qualified to do business and
is in good standing in each jurisdiction in which the transaction of its
business makes such qualification necessary except where the failure to be so
qualified would not have a Material Adverse Effect on Guarantor.
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7.2 AUTHORITY; DUE AUTHORIZATION. Guarantor has full power and
authority (including, without limitation, all governmental licenses, permits and
other approvals) to own or lease and operate its properties and to carry on its
business as now conducted and as contemplated to be conducted. The execution and
delivery of, and performance by Guarantor of its obligations under, each
Guarantor Document are within Guarantor's corporate powers and have been duly
authorized by all necessary corporate action.
7.3 MERGERS. The APD Merger, the General Partner Merger and the
Borrower Merger (collectively, the "Mergers") have each been duly and fully
consummated in accordance with the laws of the State of Delaware and any other
applicable jurisdiction. APD is the surviving entity of the APD Merger. General
Partner is the surviving entity of the General Partner Merger, and Borrower is
the surviving entity of the Borrower Merger.
7.4 CONSENTS. All consents, authorizations or approvals of any Person
(including, without limitation, Guarantor) which were necessary for, or required
in connection with, the Mergers have been obtained in writing, and a true and
correct copy thereof has been delivered to CoBank. All consents or approvals of
any Person which are necessary for, or are required as a condition of, the
execution, delivery and performance of the Guarantor Documents have been
obtained in writing, and a true and correct copy thereof have been delivered to
CoBank.
7.5 TITLE TO GUARANTOR COLLATERAL. Guarantor owns 100% of the
outstanding capital stock of APD and all such issued and outstanding shares of
APD are represented by securities certificates. Guarantor has good title to the
Guarantor Collateral, free and clear of all Liens other than (a) the Lien of
CoBank and (b) the second Lien of Cogentrix securing the Cogentrix Note which is
subordinated to CoBank ("COGENTRIX LIEN"). The Guarantor Collateral has been
duly and validly authorized and issued in accordance, in all material respects,
with all applicable federal and state laws, including securities laws, and is
fully paid and non-assessable.
7.6 LITIGATION. Except as set forth on Schedule 7.6, there are no
pending legal or governmental actions, proceedings or investigations to which
Guarantor is a party or to which any property of Guarantor is subject which
could reasonably be expected to have a Material Adverse Effect on Guarantor,
and, to the best of Guarantor's knowledge, no such actions or proceedings are
threatened or contemplated by governmental authorities or any other Person.
There are no outstanding judgments, injunctions, orders, writs or decrees of any
arbitrator,court or governmental authority binding on Guarantor or its assets or
properties.
7.7 NO VIOLATIONS. The execution, delivery and performance by
Guarantor of the Guarantor Documents will not: (a) violate any provision of
Guarantor's certificate of incorporation or bylaws; (b) violate, conflict with,
result in a breach of, constitute a default under, or with the giving of notice
or the expiration of time or both, constitute a default under, any existing
material indenture, lease, security agreement, mortgage, permit or other
governmental authorization, contract, note, instrument or any
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other agreements or documents binding on Guarantor or affecting its property;
(c) violate or conflict with any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to Guarantor, or (d)
except for the Liens created under the Guarantor Documents, result in or require
the creation or imposition of any Lien upon or with respect to any of the
properties of Guarantor.
7.8 BINDING AGREEMENT. Each of the Guarantor Documents is, or when
executed and delivered, will be, the legal, valid and binding obligation of
Guarantor, enforceable in accordance with its terms, subject only to limitations
on enforceability imposed by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally and by general
principles of equity.
7.9 COMPLIANCE WITH LAWS. Guarantor is in compliance in all material
respects with all federal, state, and local laws, rules, regulations,
ordinances, codes and orders, including without limitation all laws, rules and
regulations relating to environmental matters.
7.10 CHIEF EXECUTIVE OFFICE. Guarantor's place of business, or chief
executive office, if it has more than one place of business, is located at 10
Alvin Court, East Brunswick, NJ 08816.
7.11 FINANCIAL STATEMENTS. Guarantor has previously furnished to
CoBank a true, correct and complete copy of its 10-K for its fiscal year 1998
filed with the SEC on April 20, 1999, and its 10-Q for the Quarter ended April
4, 1999 and the Quarter ended July 4, 1999, filed with the SEC on May 21, 1999
and August 18, 1999, respectively (collectively, the "FINANCIAL STATEMENTS").
The Financial Statements, including the notes thereto, are complete, and present
fairly the financial position and results of operations and changes in the
financial position of Guarantor and its consolidated entities as at such dates
and for the periods specified, in conformity with GAAP; provided, however that
the financial statements set forth in the 10-Qs for the Quarters ended April 4,
1999 and July 4, 1999 are subject to normal year-end adjustments and do not
include footnotes.
7.12 ABSENCE OF UNDISCLOSED LIABILITIES. Except as described on
Schedule 7.12, neither Guarantor nor any of its consolidated entities has any
material liability (whether absolute, accrued, contingent or otherwise and
whether due or to become due), arising out of any set of facts existing on or
prior to the date hereof, except liabilities and obligations fully reflected or
reserved against in the Financial Statements.
7.13 NO MATERIAL ADVERSE CHANGE. Except as described on Schedule 7.13,
since July 4, 1999, there has been no Material Adverse Change in the financial
condition, results of operations, business or prospects of Guarantor or any of
its consolidated entities.
7.14 PAYMENT OF TAXES. Guarantor has filed all required federal, state
and local tax returns and has paid all taxes as shown on such returns as they
have
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become due. Guarantor has paid when due all other taxes, assessments or
impositions levied or assessed against it or its businesses or properties.
7.15 EMPLOYEE BENEFIT PLANS; MULTIEMPLOYER PLANS. Schedule 7.15 sets
forth as of the date hereof a true and complete list of each Guarantor Benefit
Plan, Guarantor Pension Plan, and Multiemployer Plan that is maintained by
Guarantor or any of its subsidiaries or in which Guarantor or any of its
subsidiaries participates or to which Guarantor or any of its subsidiaries is
obligated to contribute, in each case as of the date hereof. Guarantor and its
subsidiaries are in compliance in all material respects with ERISA, to the
extent applicable to them, and have not received any notice to the contrary from
the Pension Benefit Guaranty Corporation ("PBGC").
7.16 NO CONTINGENT LIABILITIES. Except as set forth on Schedule 7.16,
Guarantor: (a) does not have any direct or contingent liability for any
obligation of any Person other than the Guaranteed Obligations; and (b) has no
obligation to make a loan or advance to any Person or to own, purchase or
acquire any stock, obligations or securities of, or any other interests in, or
to make any capital contribution to, any Person.
7.17 FISCAL YEAR. Each fiscal year of Guarantor ("FISCAL YEAR") begins
on the day after the Sunday closest to December 31 of each calendar year and
ends on the Sunday closest to December 31 of each calendar year.
7.18 CAPITALIZATION. The authorized capital stock and the issued and
outstanding shares of APD, and the securities certificates representing such
issued and outstanding shares, are as set forth on Schedule 7.18 attached
hereto. All such issued and outstanding shares of APD ("APD SHARES") have been
duly and validly authorized and issued in accordance, in all material respects,
with all applicable federal and state laws, including securities laws, and is
fully paid and non-assessable. Except as set forth on Schedule 7.18, there are
no outstanding warrants, options or other rights to purchase or acquire any
shares of the capital stock or other equity interests of APD nor any outstanding
securities convertible into such shares, warrants, options, nor any rights to
acquire any such convertible securities. All APD Shares are held of record and
beneficially by Guarantor. Except for Liens granted to CoBank in connection with
the Indebtedness and this Guaranty, Guarantor owns the APD Shares set forth on
Schedule 7.18 as being so owned free and clear of any Lien or restriction on
transfer (other than restrictions generally applicable under securities laws).
7.19 YEAR 2000. Guarantor has (i) initiated a review and assessment of
all areas within its business and operations (including those affected by
suppliers, vendors and customers) that could be adversely affected by the risk
that the Significant Software used by Guarantor or Guarantor's Mission Critical
suppliers, vendors and customers may not be Year 2000 Compliant, (ii) developed
a plan and timetable for remediation of Guarantor's Significant Software that
may not be Year 2000 Compliant and for the development of contingency plans in
the event of a failure of the Significant Software of Guarantor or its Mission
Critical suppliers, vendors and customers to be Year 2000 Compliant, and (iii)
to date, implemented that plan in accordance with such
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timetable. Based on the foregoing, to the best of Guarantor's knowledge, after
due inquiry, the impact of the year 2000 on Guarantor and the Mission Critical
customers and suppliers of Guarantor will not be such as to have a Material
Adverse Effect on Guarantor.
7.20 DISCLOSURE. Neither the representations and warranties contained
in this Article 7 nor any information, exhibit or report furnished by Guarantor
to CoBank in connection with the negotiation and preparation of this Guaranty or
the other Guarantor Documents contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
8. AFFIRMATIVE COVENANTS OF GUARANTOR. From and after the date of this
Guaranty and until the Guaranteed Obligations are indefeasibly paid in full and
CoBank has no obligation to make any extension of credit to Borrower, Guarantor
agrees that it will observe and comply with the following covenants:
8.1 BOOKS AND RECORDS. Guarantor shall at all times keep proper books
of record and account, in which correct and complete entries shall be made of
all its dealings, in accordance with GAAP.
8.2 REPORTS AND NOTICES. Guarantor shall provide to CoBank the
following reports, information and notices:
8.2.1 ANNUAL FINANCIAL STATEMENTS. As soon as available, but in
no event later than ninety (90) days after the end of any Fiscal Year, the
annual financial statements of Guarantor, on a consolidated and consolidating
basis, prepared in accordance with GAAP consistently applied which shall: (a) be
audited by independent certified public accountants selected by Guarantor which
are reasonably acceptable to CoBank; (b) be accompanied by a report of such
accountants containing an opinion reasonably acceptable to CoBank; (c) be
accompanied by a Compliance Certificate; (d) be prepared in reasonable detail
and in comparative form; and (e) include a balance sheet, an income statement, a
statement of cash flows, a statement of stockholders' equity, and all notes and
schedules relating thereto; provided, however, that for so long as Guarantor is
a reporting company under the Exchange Act, delivery to CoBank of its 10-K filed
with the SEC within three (3) Business Days of delivery to the SEC, shall
satisfy the requirements of this Subsection 8.2.1.
8.2.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available but in
no event more than forty-five (45 ) days after the end of each of the first
three Quarters in the Fiscal Year, the following internally-prepared financial
statements, prepared on a consolidated and consolidating basis and in accordance
with GAAP consistently applied and shall be accompanied by a Compliance
Certificate: (a) a balance sheet, (b) an income statement, (c) a statement of
cash flows, and (d) such other quarterly statements as CoBank may specifically
request, which quarterly statements shall include any and all notes and
schedules thereto; provided, however, that for so long as Guarantor is a
reporting company under the Exchange Act, delivery to CoBank
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of its 10-Q filed with the SEC within three (3) Business Days of delivery to the
SEC, shall satisfy the requirements of this Subsection 8.2.2.
8.2.3 ADDITIONAL INFORMATION. Within three (3) Business Days of
delivery to the SEC, a true, correct and complete copy of each 8-K filed with
the SEC and, with reasonable promptness, such additional financial information
or documentation as CoBank may reasonably request.
8.2.4 NOTICE OF DEFAULT. As soon as the existence of any default
in the observance or performance of any of the covenants in this Article 8 or in
Article 9 hereof becomes known to any officer of Guarantor, written notice of
such default, the nature and status thereof, and the action being taken or
proposed to be taken with respect thereto.
8.2.5 NOTICE OF LITIGATION. Notice in writing promptly after
Guarantor obtains knowledge thereof, of all litigation in which Guarantor is a
party, and which either: (a) involves an amount of $100,000 or more, singularly
or in the aggregate at any time, or (b) could reasonably be expected to result
in a Material Adverse Effect with respect to Guarantor.
8.2.6 NOTICE OF MATERIAL ADVERSE EFFECT. Promptly after Guarantor
obtains knowledge thereof, notice of any matter which has resulted or could
result in a Material Adverse Effect on Guarantor.
8.2.7 GOVERNMENTAL AND OTHER NOTICES. Promptly after Guarantor's
receipt thereof, copies of any notices or other communications received from any
governmental authority, with respect to any matter or proceeding the effect of
which could reasonably be expected to have a Material Adverse Effect on
Guarantor.
8.3 MAINTENANCE OF EXISTENCE AND QUALIFICATION. Guarantor shall
maintain its corporate existence in good standing under the laws of the State of
Delaware. Guarantor will qualify and remain qualified as a foreign corporation
in each jurisdiction in which such qualification is necessary or desirable in
view of its business, operations and properties and the failure to be so
qualified would have a Material Adverse Effect on Guarantor.
8.4 COMPLIANCE WITH LEGAL REQUIREMENTS AND AGREEMENTS. Guarantor shall
comply with: (a) all laws, rules, regulations and orders applicable to Guarantor
or its business; and (b) all agreements, indentures, mortgages, and other
instruments to which it is a party or by which it or any of its property is
bound, where the failure to so comply could have a Material Adverse Effect on
Guarantor.
8.5 TAXES. Guarantor shall cause to be paid when due all taxes,
assessments, and other governmental charges and levies upon it, its income, its
sales, its properties, and federal and state taxes withheld from its employees'
earnings, unless (a) such taxes, assessments, or other governmental charges or
levies shall be contested in good faith by appropriate actions or legal
proceedings, (b) adequate reserves therefor
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shall be established by Guarantor in accordance with GAAP during the period of
such contest, (c) the enforcement of any contested item, and any Lien relating
thereto, is effectively, stayed, and (d) the failure to pay or comply with the
contested item could not reasonably be expected to result in a Material Adverse
Effect on Guarantor.
8.6 GUARANTOR COLLATERAL. Guarantor shall (a) provide prompt written
notice to CoBank of any future adverse claims, interests, or Liens against any
of the Guarantor Collateral, (b) promptly obtain a release or discharge of any
such claims, interests, or Liens, and (c) diligently defend Guarantor's and
CoBank's interests in the Guarantor Collateral.
8.7 PAYMENT OF LIABILITIES. Guarantor shall pay all liabilities as
they become due unless (with the exception of any obligations or liabilities
owed to CoBank) they are contested in good faith by appropriate actions or legal
proceedings, Guarantor establishes adequate reserves therefor in accordance with
GAAP, the enforcement of such liability, and any Lien relating thereto, is
effectively stayed, and such contest will not result in a Material Adverse
Effect on Guarantor.
8.8 FURTHER ASSURANCES. Guarantor shall, as may be required from time
to time by CoBank, provide such documents as may be necessary or desirable in
the judgment of CoBank to confirm the Lien on the Guarantor Collateral granted
to CoBank.
8.9 INSPECTION. Guarantor shall permit CoBank and its agents, during
normal business hours or at such other times as the parties may agree, to
examine Guarantor's properties, books, and records, and to discuss Guarantor's
affairs, finances, operations, and accounts with its respective officers,
directors, employees, and independent certified public accountants.
8.10 ERISA. Guarantor shall: (a) cause each such Guarantor Benefit
Plan to comply in all material respects with the Code and ERISA, including but
not limited to preparing and delivering each material report, statement or other
document required by ERISA and the Code within the period specified therein and
conforming in form and substance to the provisions thereof; (b) cause any
Guarantor Benefit Plan that is intended to satisfy the requirements of Section
401(a) of the Code to satisfy such requirements including, but not limited to
obtaining a favorable determination letter with respect to each such Guarantor
Benefit Plan; and (c) administer each Guarantor Benefit Plan in all material
respects in accordance with the terms of such plan and with ERISA, the Code, and
any other applicable law, except to the extent any failure to comply with the
preceding clauses would not have a Material Adverse Effect on Guarantor. As soon
as possible and in any event within ten (10) days after Guarantor or any of its
subsidiaries knows or has reason to know that any "reportable event" as such
term is defined in Section 4043 of ERISA, or any "prohibited transaction" (as
such term is defined in Section 406 of ERISA) or the imposition of an excise tax
pursuant to Section 4975 of the Code, has occurred with respect to any Plan or
that the PBGC or Guarantor or any of its subsidiaries has instituted or will
institute proceedings under Title IV of ERISA to terminate any Plan, or that
Guarantor, any of its subsidiaries or any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan, or
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that a Plan which is a Multiemployer Plan is in reorganization (within the
meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section
4245 of ERISA) or is terminating, Guarantor shall provide to CoBank a
certificate of the chief financial officer of Guarantor or such subsidiary
setting forth details as to such occurrence and the action Guarantor or such
subsidiary proposes to take with respect thereto.
8.11 YEAR 2000. Guarantor agrees: (a) to use its best efforts to
obtain from all Significant Software Providers, no later than the date hereof,
reasonable assurance that Guarantor's Significant Software is Year 2000
Compliant; (b) to use its best efforts to obtain, no later than the date hereof,
reasonable assurance from all of Guarantor's Mission Critical third party
suppliers and customers that such suppliers' and customers' Significant Software
is Year 2000 Compliant; (c) to diligently conduct thorough Year 2000 Compliance
tests on or before the date hereof on all of Guarantor's Significant Software
and to provide a written report to CoBank within two Business Days thereafter
detailing any Year 2000 Compliance failures of Guarantor's Significant Software
and Guarantor's plans for timely remediation of such Significant Software; (d)
to complete all remediation of identified Year 2000 Compliance failures in
Guarantor's Significant Software no later than the date hereof; (e) to provide
to CoBank, no later than the date hereof, the written certification of
Guarantor's chief financial officer, or other corporate officer satisfactory to
CoBank, that: all of Guarantor's Significant Software has been diligently and
thoroughly tested; any necessary remediation, with respect to Year 2000
Compliance failures identified through such testing, has been completed; and, to
the best of Guarantor's knowledge, its Significant Software is Year 2000
Compliant; and (f) to provide to CoBank, no later than the date hereof, a
written report detailing Guarantor's contingency plans in the event of an
unexpected failure of Guarantor's Significant Software or Mission Critical
suppliers or customers to be Year 2000 Compliant.
8.12 PROCEEDS OF STOCK EVENT. If Guarantor or any of its subsidiaries
issues any capital stock or other equity interests for cash (a "STOCK EVENT")
other than the issuance of capital stock by a newly-formed 51% owned subsidiary
to Grodania A/S or its designee, then 50% of the Net Proceeds (or such lesser
amount as may be needed to pay in full all amounts owing under the Loan
Agreement) related to such Stock Event shall be paid to CoBank by Guarantor (or
the relevant subsidiary), within one Business Day of receipt thereof, to reduce
the outstanding balance of the Loans. As used in the foregoing sentence, "Net
Proceeds" shall mean all cash proceeds related to a Stock Event, less reasonable
transaction expenses.
9. NEGATIVE COVENANTS OF GUARANTOR. From and after the date of this
Guaranty and until the Guaranteed Obligations are indefeasibly paid in full and
CoBank does not have any obligation to make any extension of credit to Borrower,
Guarantor agrees that it will observe and comply with the following covenants
for the benefit of CoBank:
9.1 LIENS. Guarantor shall not create, incur, assume or suffer to
exist any Lien on any of the Guarantor Collateral, except the Lien in favor of
CoBank resulting from the Guarantor Security Documents and the Cogentrix Lien.
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9.2 SALE OF ASSETS. Guarantor shall not sell, convey, assign, or
otherwise transfer or dispose of, voluntarily, by operation of law or otherwise,
any of the Guarantor Collateral.
9.3 LIABILITIES OF OTHERS. Guarantor shall not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligation of any other Person other than pursuant to this Guaranty, except
for the guaranty by Guarantor of the indebtedness owed by Agro Dynamics, Inc.
("ADI"), which shall not exceed $4,000,000, and the indebtedness owed by
Ecoscience Produce Systems Corp. ("EPSC"), which shall not exceed $4,000,000, to
Century Business Credit Corp. but only for such period as ADI and EPSC are
subsidiaries of Guarantor.
9.4 CHANGE IN BUSINESS STRUCTURE. Without giving at least thirty (30)
days' prior written notice to CoBank, and furnishing CoBank with such documents
as CoBank may request pursuant to Section 8.8 hereof prior to taking any such
action, Guarantor shall not change its name, identity or corporate structure, or
the location of its place of business (or chief executive office if more than
one place of business).
9.5 ERISA. Guarantor shall not: (a) engage in or permit any
transaction which could result in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA) or in the imposition of an excise tax pursuant
to Section 4975 of the Code; (b) engage in or permit any transaction or other
event which could result in a "reportable event" as such term is defined in
Section 4043 of ERISA for any Guarantor Pension Plan; (c) fail to make full
payment when due of all amounts which, under the provisions of any Guarantor
Benefit Plan, Guarantor is required to pay as contributions thereto; (d) permit
to exist any "accumulated funding deficiency" (as such term is defined in
Section 302 of ERISA) in excess of $25,000.00, whether or not waived, with
respect to any Guarantor Pension Plan; (e) fail to make any payments to any
"multiemployer plan" that Guarantor may be required to make under any agreement
relating to such "multiemployer plan" or any law pertaining thereto; or (f)
terminate any Guarantor Pension Plan in a manner which could result in the
imposition of a lien on any property of Guarantor pursuant to Section 4068 of
ERISA. Guarantor shall not terminate any Guarantor Pension Plan so as to result
in any liability to the PBGC. As used in this Section, all terms enclosed in
quotation marks shall have the meanings set forth in ERISA. Guarantor's failure
to comply with any of the foregoing provisions of this Section shall not
constitute a breach of this Guaranty unless such failure has a Material Adverse
Effect on Guarantor.
9.6 DISSOLUTION OR LIQUIDATION. Guarantor shall not dissolve or
liquidate, or enter into any merger, consolidation, or other combination.
9.7 COGENTRIX DOCUMENTS. Guarantor shall not permit or agree to any
amendment to the Exchange Agreement or the Cogentrix Note without the prior
written consent of CoBank.
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10. INDEMNIFICATION.
10.1 GENERAL; STAMP TAXES; INTANGIBLES TAX. Guarantor agrees to
indemnify and hold CoBank, each Participant and their directors, officers,
employees, agents, professional advisers and representatives ("INDEMNIFIED
Parties") harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which any Indemnified Party may incur
(or which may be claimed against any such Indemnified Party by any Person),
including attorneys' fees incurred by any Indemnified Party, arising out of or
resulting from: (a) the material inaccuracy of any representation or warranty
made by Borrower, APD, VFIFA, General Partner or Guarantor in any Loan Document;
(b) the material failure of Borrower, APD, VFIFA, General Partner or Guarantor
to perform or comply with any covenant or obligation of Borrower, APD, VFIFA,
General Partner or Guarantor under any Loan Document; or (c) the exercise by
CoBank of any right or remedy set forth in this Guaranty or any other Loan
Document, provided that Guarantor shall have no obligation to indemnify any
Indemnified Party against claims, damages, losses, liabilities, costs or
expenses to the extent that a court of competent jurisdiction renders a final
non-appealable determination that the foregoing are solely the result of the
willful misconduct or gross negligence of such Indemnified Party. In addition,
Guarantor agrees to indemnify and hold the Indemnified Parties harmless from and
against any and all claims, damages, losses, liabilities, costs or expenses
whatsoever which CoBank or any other Indemnified Party may incur (or which may
be claimed against any such Indemnified Party by any Person), including
attorneys' fees incurred by any Indemnified Party, arising out of or resulting
from the imposition or nonpayment by Guarantor, Borrower, APD, VFIFA or General
Partner of any stamp tax, intangibles tax, or similar tax imposed by any
governmental authority, including any amounts owing by virtue of the assertion
that the property valuation used to calculate any such tax was understated.
Guarantor shall have the right to assume the defense of any claim as would give
rise to Guarantor's indemnification obligation under this Section with counsel
of Guarantor's choosing so long as such defense is being diligently and properly
conducted and Guarantor shall establish to the Indemnified Party's satisfaction
that the amount of such claims are not, and will not be, material in comparison
to the liquid and unrestricted assets of Guarantor available to respond to any
award which may be granted on account of such claim. So long as the conditions
of the preceding sentence are met, the Indemnified Party shall have no further
right to reimbursement of attorneys' fees incurred thereafter. The obligation to
indemnify set forth in this Section shall survive the termination of this
Guaranty.
11. MISCELLANEOUS.
11.1 LOAN DOCUMENTS. Guarantor has received and reviewed the Loan
Agreement and the other Loan Documents and acknowledges, agrees, and consents to
the terms and conditions set forth therein.
11.2 ADDITIONAL GUARANTORS. This Guaranty shall be binding on
Guarantor whether or not any other guarantors execute any guarantees of the
Indebtedness.
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11.3 NO WAIVER BY COBANK . No delay or failure by CoBank to exercise
any right or remedy against Guarantor will be construed as a waiver of that
right or remedy. All remedies of CoBank against Guarantor are cumulative.
Failure or delay on the part of CoBank to exercise any such right or remedy
shall not operate as a waiver thereof. Any single or partial exercise by CoBank
of any such right or remedy shall not preclude any future exercise thereof or
the exercise of any other right or remedy.
11.4 ASSIGNMENT. Guarantor may not assign this Guaranty without the
written consent of CoBank. Subject to the foregoing, the provisions of this
Guaranty shall be binding upon Guarantor, its successors and assigns. CoBank
may, without notice to or consent from Guarantor, assign all or any part of the
Guaranteed Obligations or any security therefor. In the event of such
assignment, each and every immediate and successive assignee, transferee or
holder of all or any part of the Guaranteed Obligations shall have the right to
enforce this Guaranty, by legal action or otherwise, for its benefit, as fully
as if such assignee, transferee or holder were named herein and specifically
given such rights and power. Notwithstanding such sale, assignment, or transfer,
CoBank shall have an unimpaired right to enforce this Guaranty for its own
benefit as to any portion of the Guaranteed Obligations not sold, transferred or
assigned, or which CoBank may have reacquired after such sale, transfer or
assignment.
11.5 SEVERABILITY. The invalidity or unenforceability of any one or
more provisions of this Guaranty will not affect any other provision of this
Guaranty. In the case of such invalidity or unenforceability, this Guaranty
shall be construed as if the invalid or unenforceable provisions had not been
included herein.
11.6 AMENDMENTS. This Guaranty may not be amended without the written
consent of CoBank and Guarantor. Guarantor agrees that it shall reimburse CoBank
and any Participant for all fees and expenses incurred in retaining outside
legal counsel in connection with any amendment or modification to this Guaranty
requested by Guarantor.
11.7 SERVICE OF PROCESS AND CONSENT TO JURISDICTION. Guarantor
irrevocably agrees that any litigation with respect to this Guaranty or any
other Guarantor Document or to enforce any judgment obtained against Guarantor
for breach of this Guaranty or the other Guarantor Documents may be brought in
the courts of the State of Colorado and in the United States District Court for
the District of Colorado (if applicable subject matter jurisdictional
requirements are present), as CoBank may elect; and, by execution and delivery
of this Guaranty, Guarantor irrevocably submits to such jurisdiction. With
respect to litigation concerning this Guaranty or the other Guarantor Documents
within the jurisdiction of the courts of the State of Colorado or the United
States District Court for the District of Colorado, Guarantor hereby irrevocably
appoints, until January 31, 2005, The Corporation Company, 1675 Broadway,
Denver, Colorado 80202, as the agent of Guarantor to receive for and on behalf
of Guarantor, service of process, which service may be made by mailing a copy of
any summons or other legal process to Guarantor in care of such agent. Guarantor
agrees that Guarantor shall maintain a duly appointed agent for service of
summons and other legal process as
18
<PAGE>
long as Guarantor remains obligated under this Guaranty. The receipt by such
agent and/or by Guarantor of such summons or other legal process in any such
litigation shall be deemed personal service and acceptance by Guarantor for all
purposes of such litigation. Guarantor agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
11.8 JURY WAIVER. IT IS MUTUALLY AGREED BY AND BETWEEN COBANK AND
GUARANTOR THAT THEY EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS GUARANTY OR THE GUARANTOR SECURITY DOCUMENTS.
11.9 RELEASE. GUARANTOR HEREBY RELEASES, WAIVES AND FOREVER DISCHARGES
COBANK, EACH PARTICIPANT AND EACH OF THEIR RESPECTIVE SHAREHOLDERS, DIRECTORS,
OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND UNKNOWN, ABSOLUTE AND
CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS, CAUSES OF ACTION, ACTIONS,
SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND EXISTING OR ACCRUED AS OF THE DATE
OF THIS AGREEMENT IN FAVOR OF GUARANTOR.
11.10 NOTICES. All notices, requests and demands required or permitted
under the terms of this Guaranty shall be in writing and (a) shall be addressed
as set forth below or at such other address as either party shall designate in
writing and shall be personally delivered or sent by facsimile transmission,
overnight courier, or United States Mail, certified and return receipt
requested, and (b) shall be deemed to have been given or made: (i) if delivered
personally, immediately upon delivery; (ii) if by facsimile transmission,
immediately upon sending and upon confirmation of receipt; (iii) if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and (iv) if by United
States Mail, certified mail, return receipt requested, five (5) days after
mailing.
If to CoBank:
CoBank, ACB
5500 S. Quebec St.
Englewood, CO 80111
Facsimile: (303) 224-6109
Attention: Mr. Nicholas D. Jewitt
Vice President, Special Assets
19
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With a copy to:
Farm Credit Bank of Texas
6210 Highway 290 East
Austin, Texas 78723
P.O. Box 15919
Austin, Texas 78761
Facsimile: (512) 465-0675
Attention: Mr. Jim Floyd
If to Guarantor:
EcoScience Corporation
10 Alvin Court
East Brunswick, New Jersey 08816
Facsimile: (732) 432-0770
Attention: Michael DiGiglio,
President
11.11 APPLICABLE LAW. To the extent not governed by federal law, this
Guaranty shall be governed by and interpreted in accordance with the internal
laws of the State of Colorado, without giving effect to any otherwise applicable
rules concerning conflicts of law.
11.12 CAPTIONS. The captions or headings in this Guaranty and any
table of contents hereof are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Guaranty.
11.13 LIBERAL CONSTRUCTION. This Guaranty constitutes a fully
negotiated agreement between commercially sophisticated parties, each assisted
by legal counsel, and shall not be construed and interpreted for or against
Guarantor or CoBank.
[SIGNATURES FOLLOW ON NEXT PAGE]
20
<PAGE>
Guarantor has executed this Guaranty as of the day and year first above
written.
GUARANTOR:
ECOSCIENCE CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
21
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TABLE OF CONTENTS
<TABLE>
<S> <C>
R E C I T A L S ..................................................................................................1
A G R E E M E N T S ..............................................................................................1
1. Defined Terms .................................................................................................1
1.1 APD Entities .............................................................................................1
1.2 APD Merger ...............................................................................................1
1.3 Borrower Merger ..........................................................................................1
1.4 Business Day .............................................................................................1
1.5 Code .....................................................................................................1
1.6 Compliance Certificate ...................................................................................2
1.7 ERISA ....................................................................................................2
1.8 ERISA Affiliate ..........................................................................................2
1.9 GAAP .....................................................................................................2
1.10 General Partner .........................................................................................2
1.11 General Partner Entities ................................................................................2
1.12 General Partner Merger ..................................................................................2
1.13 Guarantees ..............................................................................................2
1.14 Guarantor Benefit Plan ..................................................................................2
1.15 Guarantor Documents .....................................................................................2
1.16 Guarantor Pension Plan ..................................................................................3
1.17 Guarantor Security Agreement ............................................................................3
1.18 Guarantor Security Documents ............................................................................3
1.19 Indebtedness ............................................................................................3
1.20 Lien ....................................................................................................3
</TABLE>
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<TABLE>
<S> <C>
1.21 Loan Documents ..........................................................................................3
1.22 Material Adverse Change .................................................................................3
1.23 Material Adverse Effect .................................................................................3
1.24 Mission Critical ........................................................................................3
1.25 Multiemployer Plan ......................................................................................3
1.26 Notes ...................................................................................................3
1.27 Participant .............................................................................................4
1.28 Person ..................................................................................................4
1.29 Plan ....................................................................................................4
1.30 Quarter .................................................................................................4
1.31 SEC .....................................................................................................4
1.32 Exchange Act ............................................................................................4
1.33 Security Documents ......................................................................................4
1.34 Significant Software ....................................................................................4
1.35 VFIFA ...................................................................................................4
1.36 Village Farms Entities ..................................................................................4
1.37 Year 2000 Compliant .....................................................................................5
2. Guaranty ......................................................................................................5
3. Guaranty of Payment; Waiver of Defenses, Etc ..................................................................5
3.1 General ..................................................................................................5
3.2 Waivers ..................................................................................................6
3.3 Amount of Indebtedness ...................................................................................6
3.4 Subrogation ..............................................................................................7
3.5 Subordination of Other Debt ..............................................................................7
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
3.6 Liens and Rights of Set-Off ..............................................................................7
4. Recovery of Payment ...........................................................................................7
5. Information Regarding Borrower ................................................................................7
6. Security ......................................................................................................7
7. Representations and Warranties ................................................................................8
7.1 Organization, Good Standing, etc. ........................................................................8
7.2 Authority; Due Authorization .............................................................................8
7.3 Mergers ..................................................................................................8
7.4 Consents .................................................................................................8
7.5 Title to Guarantor Collateral ............................................................................8
7.6 Litigation ...............................................................................................8
7.7 No Violations ............................................................................................9
7.8 Binding Agreement ........................................................................................9
7.9 Compliance with Laws .....................................................................................9
7.10 Chief Executive Office ..................................................................................9
7.11 Financial Statements ....................................................................................9
7.12 Absence of Undisclosed Liabilities ......................................................................9
7.13 No Material Adverse Change ..............................................................................9
7.14 Payment of Taxes .......................................................................................10
7.15 Employee Benefit Plans .................................................................................10
7.16 No Contingent Liabilities ..............................................................................10
7.17 Fiscal Year ............................................................................................10
7.18 Capitalization .........................................................................................10
7.19 Year 2000 ..............................................................................................10
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.20 Disclosure .............................................................................................11
8. Affirmative Covenants of Guarantor ...........................................................................11
8.1 Books and Records .......................................................................................11
8.2 Reports and Notices .....................................................................................11
8.2.1 Annual Financial Statements .......................................................................11
8.2.2 Quarterly Financial Statements ....................................................................11
8.2.3 Additional Information ............................................................................11
8.2.4 Notice of Default .................................................................................12
8.2.5 Notice of Litigation ..............................................................................12
8.2.6 Notice of Material Adverse Effect .................................................................12
8.2.7 Governmental and Other Notices ....................................................................12
8.3 Maintenance of Existence and Qualification ..............................................................12
8.4 Compliance with Legal Requirements and Agreements .......................................................12
8.5 Taxes ...................................................................................................12
8.6 Guarantor Collateral ....................................................................................12
8.7 Payment of Liabilities ..................................................................................13
8.8 Further Assurances ......................................................................................13
8.9 Inspection ..............................................................................................13
8.10 ERISA ..................................................................................................13
8.11 Year 2000 ..............................................................................................13
9. Negative Covenants of Guarantor ..............................................................................14
9.1 Liens ...................................................................................................14
9.2 Sale of Assets ..........................................................................................14
9.3 Liabilities of Others ...................................................................................14
</TABLE>
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<TABLE>
<S> <C>
9.4 Change in Business Structure ............................................................................14
9.5 ERISA ...................................................................................................14
9.6 Dissolution or Liquidation ..............................................................................15
10. Indemnification .............................................................................................15
10.1 General; Stamp Taxes; Intangibles Tax ..................................................................15
11. Miscellaneous ...............................................................................................16
11.1 Loan Documents .........................................................................................16
11.2 Additional Guarantors ..................................................................................16
11.3 No Waiver by CoBank ....................................................................................16
11.4 Assignment .............................................................................................16
11.5 Severability ...........................................................................................16
11.6 Amendments .............................................................................................16
11.7 Service of Process and Consent to Jurisdiction .........................................................16
11.8 Jury Waiver ............................................................................................17
11.9 Release ................................................................................................17
11.10 Notices ...............................................................................................17
11.11 Applicable Law ........................................................................................18
11.12 Captions ..............................................................................................18
11.13 Liberal Construction ..................................................................................18
</TABLE>
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EXHIBITS AND SCHEDULES
Exhibit 1.6 Compliance Certificate
Schedule 7.6 Litigation
Schedule 7.12 Undisclosed Liabilities
Schedule 7.13 Material Adverse Changes
Schedule 7.15 Employee Benefit Plans
Schedule 7.16 Contingent Liabilities
Schedule 7.18 APD Shares
vi
AGREEMENT
This Agreement, dated as of January 2, 2000 (the "Agreement"), among
Village Farms of Presidio, L.P., a Delaware limited partnership (the
"Partnership"), Village Farms of Delaware, LLC, a Delaware limited liability
company ("VF Delaware"), Village Farms, LLC, a Delaware limited liability
company ("VF"), Village Farms, L.P., a Delaware limited partnership ("VFLP"),
Agrorent A, LLC, a Delaware limited liability company ("Agrorent A"), Agrorent
B, LLC, a Delaware limited liability company ("Agrorent B"), Agrorent Holdings
Inc., a Delaware corporation ("Holdings"), New Amsterdam Joint Venture, LLC, a
New Jersey limited liability company ("New Amsterdam"), Agrorent B.V., a
Netherlands corporation ("ABV"), Kwekerij Nic Poot B.V., a Netherlands
corporation ("KNP"), Nic Poot, an individual residing in the Netherlands
("Poot"), New Amsterdam Management, Co., a New Jersey corporation
("Management"), and EcoScience Corporation, a Delaware corporation
("EcoScience").
WHEREAS, Agrorent A is a general partner and Agrorent B is a limited
partner of the Partnership;
WHEREAS, Agrorent A and Agrorent B wish to exchange their general and
limited partnership interests in the Partnership for common stock, $0.01 par
value, of EcoScience (the "Common Stock");
WHEREAS, ABV owns a 50% membership interest in New Amsterdam and
Management also owns a 50% membership interest in New Amsterdam;
WHEREAS, ABV wishes to sell its membership interest in New Amsterdam to
Management;
WHEREAS, the Partnership is indebted to KNP in an amount of $9,597.90
(the "KNP Debt") for certain materials provided to it by KNP and certain
expenditures made by KNP on its behalf;
WHEREAS, the Partnership is indebted to ABV in an amount of $214,498.33
(the "ABV Debt") for certain materials provided to it by ABV and certain
expenditures made by ABV on its behalf;
WHEREAS, New Amsterdam is indebted to KNP in an amount of $21,812.65
(the "New Amsterdam Debt") for certain materials provided to it by KNP and
certain expenditures made by KNP on its behalf;
WHEREAS, ABV is entitled to a distribution of $171,629.33 (the "New
Amsterdam Distribution") under the Operating Agreement of New Amsterdam;
WHEREAS, the transactions contemplated by this Agreement have been
agreed upon in connection with the refinancing on the date hereof (the
"Refinancing") by CoBank, ACB of the Partnership's current indebtedness under
that certain Loan Agreement, dated as of August 31, 1998, by and between the
Partnership and Village Farms International Finance Association, a Delaware
corporation;
<PAGE>
WHEREAS, the Refinancing is conditioned upon the merger of the
Partnership and certain other entities with and into VFLP (the "Merger"); and
WHEREAS, it is the intention of the parties hereto that this Agreement
become effective immediately prior to the effectiveness of the Merger.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be equally bound,
the parties hereto agree as follows:
1. Assignment of Partnership Interests. Upon the terms and subject to the
-----------------------------------
conditions set forth in this Agreement:
(a) Agrorent A hereby transfers, assigns and conveys its entire 1%
general partnership interest in the Partnership to VF
Delaware.
(b) Agrorent B hereby transfers, assigns and conveys its entire
12.75% limited partnership interest in the Partnership to VF.
2. Issuance of EcoScience Common Stock.
------------------------------------
(a) In consideration for the assignment of partnership interest
made pursuant to Section 1(a) above, VF Delaware hereby
transfers, assigns and conveys to Agrorent A stock
certificates representing 19,535 shares of Common Stock.
(b) In consideration for the assignment of partnership interest to
be made pursuant to Section 1(b) above, VF hereby transfers,
assigns and conveys to Agrorent B stock certificates
representing 249,069 shares of Common Stock.
3. Transfer of New Amsterdam Membership Interest. Upon the terms and
subject to the conditions set forth in this Agreement, ABV hereby
transfers, assigns and conveys its entire 50% membership interest in
New Amsterdam to Management. In consideration for such transfer,
assignment and conveyance, Management hereby pays ABV $1.00.
4. Assignment of KNP Debt. KNP hereby transfers, assigns and conveys its
right to receive payment of the KNP Debt to ABV. Each of the parties
hereto hereby irrevocably consents to such transfer, assignment and
conveyance.
5. Assignment of New Amsterdam Debt. (i) KNP hereby transfers, assigns and
conveys its right to receive payment of the New Amsterdam Debt to ABV
and (ii) New Amsterdam hereby transfers, assigns and conveys its
obligation to pay the New Amsterdam Debt to the Partnership, which
hereby assumes such obligation. Each of the parties hereto hereby
irrevocably consents to each such transfer, assignment, conveyance and
assumption.
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<PAGE>
6. Assignment of New Amsterdam Distribution. New Amsterdam hereby transfers,
assigns and conveys its obligation to pay the New Amsterdam Distribution to
the Partnership, which hereby assumes such obligation. Each of the parties
hereto hereby irrevocably consents to such transfer, assignment,
conveyance and assumption.
7. Treatment of Debt. Pursuant to the Merger, the obligation of the
Partnership to pay the New Amsterdam Distribution, the KNP Debt, the ABV
Debt and the New Amsterdam Debt shall be assumed by VFLP. From and after
the Effective Time (as defined in Section 11 below), (a) the KNP Debt, the
ABV Debt and the New Amsterdam Debt shall be represented by and repaid in
accordance with a Promissory Note in the principal amount of $245,908.88
issued by VFLP to ABV in substantially the form annexed hereto as Exhibit A
("Note A") and (b) the amount of the New Amsterdam Distribution shall be paid
to ABV by VFLP pursuant to and in accordance with a Promissory Note in the
principal amount of $171,629.33 issued by VFLP to ABV in substantially the
form annexed hereto as Exhibit B ("Note B" and together with Note A, the
"Notes").
8. Representations and Warranties.
-------------------------------
(a) EcoScience, VF Delaware, VF, the Partnership, Management, VFLP and
New Amsterdam (collectively, the "EcoScience Parties") hereby
jointly and severally represent and warrant to each of Agrorent A,
Agrorent B, Holdings, Poot, ABV and KNP (collectively, the
"Agrorent Parties") that (i) each EcoScience Party has the full
legal right, power and authority to execute and deliver this
Agreement and the Notes, and to fully perform its obligations
hereunder and thereunder;(ii) the execution, delivery and
performance of this Agreement and the Notes by the EcoScience
Parties and the consummation by them of the transactions
contemplated hereby and thereby (A) have been duly authorized by
all necessary action on their part and (B) will not result in a
violation or breach of any term or provision of, or constitute a
default or accelerate the performance required under (I) the
organizational documents of any EcoScience Party or any affiliate
thereof or (II) any indenture, mortgage, deed of trust, security
agreement, loan agreement, other agreement, contract, document,
instrument,obligation, promise or undertaking (whether written or
oral) that is legally binding under which any EcoScience Party or
any affiliate thereof has any right, obligation or liability or by
which it or any of the assets owned or used by it is bound, and
(iii) this Agreement constitutes the valid and binding obligation
of each EcoScience Party, enforceable against it in accordance with
its terms.
(b) The Agrorent Parties hereby jointly and severally represent and
warrant to each EcoScience Party that (i) each Agrorent Party has
the full legal right, power and authority to execute and deliver
this Agreement and to fully perform its obligations hereunder; (ii)
the execution,delivery and performance of this Agreement by the
Agrorent Parties (other than Poot) and the consummation by them of
the transactions contemplated hereby (A) have been duly authorized
by all necessary action on their part and (B) will not result in a
violation or breach of any term or provision of, or constitute a
default or accelerate the performance required under (I) the
organizational documents of any such Agrorent Party or any
affiliate thereof or (II) any indenture, mortgage, deed of trust,
security agreement, loan agreement, other agreement,contract,
document, instrument, obligation, promise or undertaking (whether
written or oral) that is legally binding under which any such
Agrorent Party or any affiliate thereof has any right, obligation
or liability or by which it or any of the assets owned or used by
it is bound, and (iii) this Agreement constitutes the valid and
binding obligation of each Agrorent Party, enforceable against it
in accordance with its terms.
3
<PAGE>
(c) EcoScience represents and warrants to Agrorent A and Agrorent B
that the Common Stock issued to Agrorent A and Agrorent B pursuant
to this Agreement has been duly authorized and validly issued, is
fully paid and non-assessable, and the issuance thereof was not
subject to any pre-emptive or similar right. EcoScience represents
and warrants to ABV that the Common Stock to be issued to ABV
pursuant to this Agreement and the Notes has been duly authorized,
and when issued and delivered in accordance with the terms of this
Agreement and the Notes, will have been validly issued and will be
fully paid and non-assessable, and the issuance thereof is, nor
will be, not subject to any pre-emptive or similar right.
(d) Agrorent A represents and warrants to VF Delaware that it has
good and marketable title to the 1% general partnership
interest in the Partnership being assigned to VF Delaware
pursuant to this Agreement and that such partnership interest
free and clear of all liens, claims, charges and encumbrances.
(e) Agrorent B represents and warrants to VF that it has good and
marketable title to the 12.75% limited partnership interest in
the Partnership being assigned to VF pursuant to this
Agreement and that such partnership interest is free and clear
of all liens, claims, charges and encumbrances.
9. Satisfaction of Obligations.
(a) The Agrorent Parties hereby acknowledge and agree that the Notes
issued pursuant to Section 7 of this Agreement are being issued in
full satisfaction of all amounts owed by the Partnership and New
Amsterdam to the Agrorent Parties and their respective members,
owners and affiliates and the acceptance (i) by ABV of the Notes
and (ii) by Agrorent A and Agrorent B of the Common Stock to be
issued to them pursuant to Section 2 hereof constitutes a complete
release and discharge by the Agrorent Parties of all EcoScience
Parties from all liabilities, damages,obligations and claims that
any of the Agrorent Parties may have against any of the EcoScience
Parties with respect to matters existing or arising out of events
occurring prior to the Closing, except for the obligations under
this Agreement and the Notes.
(b) The EcoScience Parties hereby acknowledge and agree that
acceptance by VF and VF Delaware of the interests in the
Partnership to be assigned by Agrorent A and Agrorent B
pursuant to Section 1 of this Agreement constitutes a complete
release and discharge by the EcoScience Parties of all
Agrorent Parties from all liabilities, damages, obligations
and claims that they may have against any of the Agrorent
Parties with respect to matters existing or arising out of
events occurring prior to the Closing, except for the
obligations under this Agreement.
10. Right to Acquire Stock.
(a) VFLP and EcoScience agree that ABV shall have the option, at any
time from the issuance of Note B until January 30, 2001, by giving
written notice to EcoScience, to convert its right to receive
payment of the amounts due under Note B (including any accrued
interest thereon) into a number of shares of Common Stock that
shall be calculated in accordance with paragraph (c)below. Within
eight business days after such notice, EcoScience shall deliver a
stock certificate representing the applicable number of shares of
Common Stock to ABV. Upon such delivery, ABV shall be deemed to
have assigned and transferred to EcoScience all of its right,
title and interest in Note B.
(b) VFLP and EcoScience agree that in the event any monthly
installment of principal under Note A or Note B is not paid within
thirty (30) days of when due, ABV shall have the option, at any
time until the full payment and satisfaction of such overdue
amount (including any accrue interest thereon), by giving written
notice to EcoScience, to convert its right to receive payment of
the overdue amount (including any accrued interest thereon) into a
number of shares of Common Stock that shall be calculated in
accordance with paragraph (d) below. Within eight business days
after such notice, EcoScience shall deliver a stock certificate
representing the applicable number of shares of Common Stock to
ABV. Upon such delivery, ABV shall be deemed to have assigned and
transferred to EcoScience all of its right to collect the overdue
amount of principal and interest thereon under the applicable
Note.
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<PAGE>
(c) The number of shares of Common Stock into which ABV shall have
the right to convert its rights under Note B pursuant to
paragraph (a) shall be calculated by dividing (i) the amount
due under Note B (including any accrued interest thereon) at
the time of conversion by (ii) $1.12 (the "Note B Conversion
Price").
(d) The number of shares of Common Stock into which ABV shall have
the right to convert its right to receive any overdue amount
(including interest thereon) pursuant to paragraph (b) shall
be calculated by dividing (i) the amount of overdue principal
and interest thereon at the time of conversion by (ii) $1.00
(the "Default Conversion Price").
(e) The Note B Conversion Price and the Default Conversion Price
shall be equitably adjusted to reflect the terms of any stock
split, reverse stock split, stock dividend, reclassification,
reorganization or similar transaction. No fractional shares
shall be issued pursuant to this Section 10; rather, the
number of shares issuable pursuant to this Section 10 shall be
rounded to the nearest whole share.
5
<PAGE>
(f) Contemporaneous with this Agreement, EcoScience is executing
and delivering to Agrorent A, Agrorent B and ABV Registration
Rights Agreements with respect to the shares of Common Stock
issuable pursuant to Section 2(a), 2(b) and this Section 10 in
substantially the form of Exhibit C.
11. Effective Date. The transactions contemplated by this Agreement shall be
deemed to be effective immediately prior to the Merger (the "Effective
Time").
12. Guarantee. EcoScience hereby absolutely, unconditionally and
irrevocably guarantees to each Agrorent Party the full and prompt
performance by each EcoScience Party of its obligations pursuant to this
Agreement and the Notes, in accordance with and subject only to the terms
and conditions of this Agreement and the Notes, irrespective of the
validity, regularity or enforceability of any of the Agreement and the
Notes or any provision thereof,the absence of any action to enforce the
Agreement or any Note, or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor.
EcoScience hereby waives diligence, presentment, demand for payment, the
filing of claims with a court or other governmental authority having
jurisdiction over any EcoScience Party or any property of any such party,
any right to require a proceeding first against any EcoScience Party,
protest or notice with respect to the Agreement or any Note and all demands
whatsoever.
13. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, (b) sent
by reputable overnight courier service on the third business day after
mailing, (c) telecopied (which is confirmed) (if confirmed during
business hours) at the time of such confirmation or (if confirmed
outside of business hours) the next business day or (d) mailed by
registered or certified air mail (return receipt requested) ten days
after being so mailed, in each case to the parties at the following
addresses (or at such other address for a party as shall be specified
by like notice):
(i) If to any EcoScience Party, to:
EcoScience Corporation
10 Alvin Court
East Brunswick, New Jersey 08816
U.S.A.
Attention: Michael A. DeGiglio
President and Chief Executive Officer
Telephone: +1-732-432-8200
Telecopy: +1-732-432-0770
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<PAGE>
with a copy to:
Giordano, Halleran & Ciesla, P.C.
125 Half Mile Road
PO Box 190 Middletown, New Jersey 07748
U.S.A.
Attention: Philip D. Forlenza
Telephone: +1-732-741-3900
Telecopy: +1-732-224-6599
(ii) If to any Agrorent Party, to:
Kwekerij Nic Poot B.V.
Woudseweg 31
2636 AV Schipluiden
The Netherlands
Attention: Nic Poot
Managing Director
Telephone: +31-15-380-8469
Telecopy: +31-15-380-8669
with a copy to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attention: Jan J.H. Joosten
Telephone: +1-212-837-6802
Telecopy: +1-212-422-4726
14. Miscellaneous. This Agreement (including the documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter
hereof; and (b) shall not be assigned by operation of law or otherwise
without the prior written consent of the other parties hereto. Any
assignment in violation of the terms of this Agreement shall be null
and void ab initio.
15. Counterparts; Effect. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
16. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their respective
successors and permitted assigns, and nothing in this Agreement.,
express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
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<PAGE>
17. Waiver of Jury Trial. Each party to this Agreement waives, to the
fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any action, suit or proceeding arising out
of this Agreement.
18. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement
in any court of the United States located in the State of New Jersey or
in New Jersey, this being in addition to any other remedy to which they
are entitled at law or in equity.
19. Construction of Agreement. The terms and provisions of this Agreement
represent the results of negotiations between the parties and their
representatives, each of which has been represented by counsel of its
own choosing, and neither of which has acted under duress or
compulsion, whether legal,economic or otherwise. Accordingly,
the terms and provisions of this Agreement shall be interpreted and
construed in accordance with their usual and customary meanings, and
each of the parties hereto hereby waives the application in connection
with the interpretation and construction of this Agreement of any rule
of law to the effect that ambiguous or conflicting terms or provisions
contained in this Agreement shall be interpreted or construed against
the party whose attorney prepared the executed draft or any earlier
draft of this Agreement.
20. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey and the parties
hereby agree that in the event of any dispute arising out of the terms
and provisions of this Agreement, such a dispute shall be submitted to
a court of competent jurisdiction in the State of New Jersey.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
VILLAGE FARMS OF PRESIDIO, L.P.
By: Village Farms of Delaware, LLC
General Partner
By: Agro Power Development, Inc.
Managing Member
By: ______________________________
Name:
Title:
VILLAGE FARMS OF DELAWARE, LLC
By: Agro Power Development, Inc.
Managing Member
By: ______________________________
Name:
Title:
VILLAGE FARMS, LLC
By: Agro Power Development, Inc.
Managing Member
By: ______________________________
Name:
Title:
AGRORENT A, LLC
By: ______________________________
Name: Nic Poot
Title: President
AGRORENT B, LLC
<PAGE>
By: ________________________________
Name: Nic Poot
Title: President
AGRORENT HOLDINGS INC.
By: _______________________________
Name: Nic Poot
Title: President
ECOSCIENCE CORPORATION
By: _______________________________
Name:
Title:
NEW AMSTERDAM JOINT VENTURE, LLC
By: _______________________________
Name:
Title:
NEW AMSTERDAM MANAGEMENT, CO.
By: _______________________________
Name:
Title:
AGRORENT B.V.
By: _______________________________
Name: Nic Poot
Title: Managing Director
KWEKERIJ NIC POOT B.V.
By: _______________________________
Name: Nic Poot
Title: Managing Director
VILLAGE FARMS, L.P.,
<PAGE>
By: Village Farms of Delaware, LLC
General Partner
By: Agro Power Development, Inc.
Managing Member
By: _______________________________
Name:
Title:
-----------------------------------------
Nic Poot
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") dated as of January 2, 2000, 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 ("CDH"), and ECOSCIENCE CORPORATION, a Delaware
corporation, having its principal place of business at 10 Alvin Court, East
Brunswick, New Jersey 08816 (the "EcoScience").
WITNESSETH
WHEREAS, EcoScience issued in favor of CDH (i) the promissory note, dated
December 30, 1998 in the principal amount of $20,600,000 and (ii) the promissory
note, dated March 15, 1999 in the principal amount of $1,000,000 (collectively,
the "EcoScience Notes"); and
WHEREAS, Agro Power Development Inc., a wholly owned subsidiary of
EcoScience ("APD"), issued in favor of CDH the promissory note, dated March 10,
1997, in the principal amount of $893,750 (the "Agro Power Note" and, together
with the EcoScience Notes, the "Notes"); and
WHEREAS, EcoScience desires to exchange the Notes for the promissory note,
dated as of the date hereof, and attached as Exhibit A hereto (the "Exchange
Note") and CDH is willing to exchange the Notes for the Exchange Note on the
terms and subject to the conditions set forth herein and therein; and
WHEREAS, contemporaneous with the effectiveness of this Agreement (i) each
of Cogentrix of Buffalo, Inc., Cogentrix of Fort Davis, Inc., Cogentrix of
Marfa, Inc. and Cogentrix of Pocono, Inc. (collectively, the "Merged
Corporations") is being merged with and into Village Farms of Delaware, LLC and
(ii) Cogentrix Greenhouse Investments, Inc. ("CGI") is being merged with and
into APD;and
WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of December 7, 1998, between CDH and EcoScience.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
1. Exchange of Notes. The obligation of EcoScience and APD to pay the
outstanding principal together with all interest accrued on the Notes is
hereby excused by CDH and EcoScience shall hereinafter be obligated to pay
the principal of, and interest on, the indebtedness evidenced by the
Exchange Note in accordance with the terms and conditions contained herein
and therein. Such exchange is hereby evidenced by the cancellation and
return by CDH to EcoScience of the EcoScience Notes, the return by CDH to
APD of the Agro Power Note and the execution and delivery by EcoScience of
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the Exchange Note and receipt thereof by CDH taking place contemporaneously
with the execution of this Agreement.
2. Consideration for Exchange. In consideration for the exchange by CDH of the
Notes for the Exchange Note, EcoScience shall, concurrently herewith,
authorize and issue 333,333 shares of Series A Preferred Stock of
EcoScience (the "Series A Preferred Stock") containing the provisions set
forth on Exhibit B hereto and is delivering such shares to CDH.
3. Delivery of Certain Documents. Contemporaneous with the execution of this
Agreement, EcoScience is delivering to CDH (i) a certified
copy of all corporate resolutions authorizing the transactions contemplated
hereunder and an incumbency certificate; and (ii) an opinion of counsel to
EcoScience.
4. Pledge Arrangement.
(a) CDH hereby agrees that the shares of the Merged Corporations and CGI
are hereby released from the Stock Pledge and CDHI is delivering the
certificates representing such shares to EcoScience;
(b) Contemporaneously with the execution of this Agreement, EcoScience and
CDH are entering into a Pledge Agreement (the "New Pledge Agreement")
pursuant to which all of the outstanding shares of APD (the "APD
Shares") are being pledged to CDH;
(c) Subject to the terms of a Stock Custody Bailment Agreement among
CoBank, ACB, CDH and EcoScience (the "Stock Custody Bailment
Agreement") being executed contemporaneously with this Agreement, CDH
is subordinating the lien on the APD Shares created by the New Pledge
Agreement to the lien of CoBank, ACB and delivering to CoBank, ACB the
certificates representing the APD Shares.
5. Representations and Warranties of EcoScience. EcoScience hereby represents
and warrants to CDH as follows:
(a) Organization and Authority of EcoScience. EcoScience 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 New Pledge Agreement and
the Stock Custody Bailment Agreement and to issue the Exchange Note
and the Series A Preferred Stock, 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 New Pledge Agreement and the Stock Custody and Bailment
Agreement and the issuance of the Exchange Note and the Series A
Preferred Stock by EcoScience, the performance by EcoScience of its
obligations hereunder and thereunder and the consummation by
EcoScience of the transactions
2
<PAGE>
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of EcoScience. This Agreement, the New Pledge Agreement
and the Stock Custody Bailment Agreement, the Exchange Note and the Series
A Preferred Stock have been duly executed and delivered by EcoScience, and
(assuming due authorization, execution and delivery by CDH) each of this
Agreement, the New Pledge Agreement, the Stock Custody Bailment Agreement
and the Exchange Note constitutes a valid and binding obligation of
EcoScience enforceable against EcoScience in accordance with its terms.
(b) No Conflict. Except as may result from any facts or circumstances
relating solely to CDH, the execution, delivery and performance of
this Agreement, the New Pledge Agreement and the Stock Custody
Bailment Agreement and the issuance of the Exchange Note and the
Series A Preferred Stock by EcoScience do not and will not (i)
violate, conflict with or result in the breach of any provision of the
Certificate of Incorporation or By-laws of EcoScience, (ii) conflict
with or violate any law or governmental order applicable to EcoScience
or (iii) conflict with, or result in any breach of, constitute a
default (or event which with the giving of notice or lapse of 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 EcoScience
pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which EcoScience is a party or by which
any of such assets or properties are bound or affected.
(c) Governmental Consents and Approvals. The execution, delivery and
performance of this Agreement, the New Pledge Agreement and the Stock
Custody Bailment Agreementand the issuance of the Exchange Note and
the Series A Preferred Stock by EcoScience do not and will not require
any consent, approval, authorization or other order of, action by,
filing with, or notification to, any governmental authority.
6. Miscellaneous.
(a) 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.
(b) 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 CDH and EcoScience 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.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF
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NORTH CAROLINA.
7. Mandatory Payments and Prepayments.
(a) On December 1st of each year commencing on December 1, 2003, until and
including December 1, 2007, EcoScience shall pay the principal amount
then outstanding under the Exchange Note in the amount of
$3,180,000.00.
(b) EcoScience shall prepay the principal amount outstanding from time to
time under the Exchange Note at the following times and in the
following amounts:
(i) Annual Mandatory Prepayment. On each December 31st, commencing on
December 31, 2000, EcoScience shall prepay the then outstanding
principal of the Exchange Note in an amount equal to the excess
of (X) 0.70 times (EBITDA minus $15,000,000) over (Y) the actual
amount of principal and interest payments made by EcoScience to
CDH in respect of the Exchange Note in the fiscal year then
ending, if any). "EBITDA" shall mean, for any period, the sum of
(a) net income after taxes of the Corporation, determined in
accordance with generally accepted accounting principals in the
United States plus (b) an amount which, in the determination of
net income for such period, has been deducted for (i) interest
expense, (ii) total federal, state, local and foreign income,
value added and similar taxes and (iii) depreciation and
amortization expense, all as determined in accordance with GAAP.
(ii) Prepayment Events: The following shall constitute "Prepayment
Events", if they occur, after such time as the indebtedness owing
pursuant to the CoBank Credit Agreement is paid in full: (a)
EcoScience or any of its Subsidiaries shall incur any
indebtedness for borrowed money, other than the indebtedness
evidenced by the CoBank Credit Agreement (as hereinafter defined)
and refinancings or replacements thereof (to the extent of the
aggregate principal amount actually refinanced or replaced), and
intercompany indebtedness between EcoScience and any of its
Subsidiaries or between any of such Subsidiaries (a "Debt Event")
(b) EcoScience or any of its Subsidiaries shall issue any capital
stock for cash (a "Stock Event") other than the issuance of
Capital Stock by a newly formed 51% owned subsidiary to Grodania
A/S or its designee (the "Grodan Transaction"), or (c) EcoScience
or any of its Subsidiaries shall sell any asset, other than in
the ordinary course of business other than the transfer of assets
to a newly formed 51% owned Subsidiary in connection with the
Grodan Transaction (an "Asset Sale"). "Net Proceeds" shall mean
(x) in the case of a Debt Event, all cash loan proceeds, less
reasonable transactions expenses, (y) in the case of a Stock
Event, all cash proceeds, less reasonable transaction expenses
and (z) 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.
4
<PAGE>
Except as specifically set forth in Section 8(b) below, on the day that a
Prepayment Event occurs, EcoScience shall pay over to CDH as a prepayment
on the Exchange Note, the lesser of (i) 50% of the Net Proceeds related to
such Prepayment Event or (ii) the principal and interest then outstanding
on the Exchange Note. . If any such payment shall be sufficient to pay the
Exchange Note in full, CDH shall on receipt of such payment, mark the
Exchange Note as cancelled and return the same to EcoScience. If such
payment is not sufficient to pay the Exchange Note in full, CDH shall
record such partial prepayment amount on Schedule I to the Exchange Note.
Each such payment made pursuant to this Section 7(b) shall be applied first
to the payment of accrued interest, and the balance to the outstanding
principal amount of the Exchange Note in inverse order of maturity thereof.
8. Certain Additional Provisions.
(a) Credit Agreement Provisions. For such time as any portion of the
indebtedness evidenced by the Consolidated, Amended and Restated Loan
Agreement, dated as of January 2, 2000, by and between CoBank, ACB and
Village Farms, L.P. (the "CoBank Credit Agreement") shall remain
outstanding and the Exchange Note shall not have been paid in full,
the Corporation shall observe and perform all of its covenants set
forth in Sections 8 and 9 of the Guaranty of EcoScience Corporation to
CoBank, ACB delivered pursuant to the CoBank Credit Agreement, and all
such covenants are incorporated by reference herein as if set forth
fully herein.
(b) Other Covenants. The Corporation covenants and agrees that, from the
date on which the indebtedness evidenced by the CoBank Credit
Agreement shall have been paid in full, it shall observe and perform,
until the Exchange Note shall have been paid in full, the following
covenants
(i) Maintenance of Existence. EcoScience shall maintain its
corporate existence in good standing under the laws of the
State of Delaware. EcoScience will qualify and remain
qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view
of its business, operations and properties and the failure
to be so qualified would have a material adverse effect on
EcoScience.
(ii) Compliance with Law. EcoScience shall comply with: (a) all
rules, regulations and orders applicable to EcoScience or
its business; and (b) all agreements, indentures, mortgages,
and other instruments to which it is a party or by whicih it
or any of its property is bound, where the failure to so
comply could have a material adverse effect on EcoScience.
(iii) Payment of Taxes. EcoScience shall cause to be paid when
due all taxes, assessments, and other governmental charges
and levies upon it, its sales, its properties, and federal
and state taxes withheld from its employees' earnings,
unless (a) such taxes, assessments, or other governmental
charges or levies shall be contested in good faith by
appropriate actions or
5
<PAGE>
legal proceedings, (b) adequate reserves therefor shall be
established by EcoScience in accordance with GAAP during the
period of such contest, (c) the enforcement of any contested
items, and any lien or encumbrance relating thereto, is
effectively, stayed, and (d) the failure to pay or comply
with the contested item could not reasonably be expected to
result in a material adverse effect on EcoScience.
(iv) Payment of Liabilities. EcoScience shall pay all liabilities
as they become due unless they are contested in good faith
by appropriate actions or legal proceedings, EcoScience
establishes adequate reserves therefor in accordance with
GAAP, the enforcement of such liability, and any lien or
encumbrance relating thereto, is effectively stayed, and
such contest will not result in a material adverse effect on
EcoScience.
(v) Prohibition on Sale of Assets. EcoScience shall not sell,
convey, assign or otherwise transfer or dispose of,
voluntarily, by operation of law or otherwise, any of its
assets except in the ordinary course of business.
(vi) Prohibition on Change in Business Structure. Without giving
at least thirty (30) days' prior written notice to CDH, and
furnishing CoBank with such documents as CoBank may
reasonably request prior to taking any such action,
EcoScience shall not change its name, identity or corporate
structure, or the location of its place of business (or
chief executive office if more than one place of business).
(vii) Prohibition in Dissolution and Liquidation. EcoScience
shall not dissolve or liquidate, or enter into any merger,
consolidation, or other combination unless the surviving
entity of such merger, consolidation or other combination
shall have a net worth (after giving effect to the
transaction) that is greater than or equal to that of
EcoScience immediately prior to such transaction.
(viii) Payment of CoBank. In the event that a Stock Event shall
occur while the indebtedness owing pursuant to the CoBank
Credit Agreement ("Outstanding Senior Debt") shall remain
outstanding and the Exchange Note shall not have been paid
in full, EcoScience (or the relevant Subsidiary) shall pay
over to CoBank as a prepayment of the Outstanding Senior
Debt the lesser of (i) 50% of the Net Proceeds related to
such Stock Event and (ii) the principal and interest of the
Outstanding Senior Debt then outstanding.
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IN WITNESS WHEREOF, CDH and EcoScience have each caused this Agreement to
be duly executed as of the date first written above.
ECOSCIENCE
ECOSCIENCE CORPORATION
By:
-------------------------------------
Name: Kenneth S. Hollander
Title: Senior Vice President and
Chief Financial Officer
CDH:
COGENTRIX DELAWARE HOLDINGS INC.
By:
-------------------------------------
Name: Thomas F. Schwarz
Title: Senior Vice President-Finance and
Treasurer
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<PAGE>
EXHIBIT A
TO
EXCHANGE AGREEMENT
FORM OF
PROMISSORY NOTE
$15,900,000.00 January 2, 2000
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 its successors and assigns, the "Holder"),
the principal sum of FIFTEEN MILLION, NINE HUNDRED THOUSAND AND NO/100 DOLLARS
($15,900,000.00), together with interest at five percent (5.00%) per annum, in
five (5) installments of $3,180,000.00, payable on each December 1st, commencing
on December 1, 2003 until and including December 1, 2007.
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) there shall
occur any liquidation, dissolution or winding up of the Maker, (viii) 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 America 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.
<PAGE>
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.
This Promissory Note is made pursuant to the provisions of the Exchange
Agreement (the "Exchange Agreement") dated as of January 2, 12000, between the
Maker and the Holder. This Promissory Note is subject to mandatory prepayment,
in whole or in part, as provided in the Exchange 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.
Holder acknowledges and agrees that all Maker's obligations arising under
this Promissory Note (the "Subordinated Debt"), including without limitation the
payment of any principal of (and premium, if any) and interest, are hereby
expressly subordinated, to the extent and in the manner hereinafter provided, in
right of payment to the prior indefeasible payment in full of all Senior Debt
(as defined below), and that all liens in favor of Holder under the Subordinated
Debt are hereby expressly subordinated, to the extent and in the manner
hereinafter provided, in right of priority and enforcement to the liens of the
holders of the Senior Debt. The following subordination is for the benefit of
each present or future holder of Senior Debt (collectively "Senior Creditors"),
and Holder and each future holder of any Subordinated Debt (collectively "Junior
Creditors") agrees that, notwithstanding any provisions to the contrary
contained in this Promissory Note:
1. Payments or Distributions. Until such time as all amounts owing under the
Senior Debt are indefesibly paid in full, Maker shall not be required to
make, and the Junior Creditors shall not be entitled to require or receive,
any payments of principal or interest (including regularly scheduled
payments, Annual Mandatory Prepayments (as defined in the Exchange
Agreement), payments on account of Prepayment Events (as defined in the
Exchange Agreement), or payments due on account of acceleration), including
payments in cash, securities, or other property:
(a) From the time Maker has received written notice from CoBank, ACB or
other Senior Creditor of the occurrence of an Event of Default or a
Potential Default under the Senior Debt until the time Maker receives
written notice from CoBank or other Senior Creditor that such Event of
Default or Potential Default has been cured or waived; or
<PAGE>
(b) During any Fiscal Year of Maker in an amount greater than the sum of
(A) (i) 70% of the amount by which Maker's EBITDA during such Fiscal
Year exceeds $15,000,000.00, less (ii) the actual amount of principal
and interest payments made by Maker to Junior Creditors in respect of
the Subordinated Debt during such Fiscal Year plus (B) commencing on
December 1, 2003, the amount of the installment amount required to be
paid in such Fiscal Year pursuant to the first paragraph of this Note.
The term "EBITDA" shall mean for any Fiscal Year, the sum of (y) net
income after taxes, determined in accordance with generally accepted
accounting principals in the United States ("GAAP") plus (z) an amount
which, in the determination of net income for such period, has been
deducted for (i) interest expense, (ii) total federal, state, local
and foreign income, value added and similar taxes, and (iii)
depreciation and amortization expense, all as determined in accordance
with GAAP; or
(c) Until such time Maker's final annual audited financial statements are
available and the calculations required in subparagraph 1(b) above
have been made.
2. Taking of Enforcement Action. Until such time as all amounts owing under
the Senior Debt are indefesibly paid in full, and notwithstanding any right
or remedy available to Junior Creditors under any of the agreements with
respect to the Subordinated Debt ("Junior Creditor Agreements"), applicable
law or otherwise, Junior Creditors shall not, directly or indirectly take
any of the following actions:
(a) accelerate this Note or any of the Subordinated Debt unless and until
the Senior Debt shall have been accelerated;
(b) seek to collect from Maker (including, without limitation, from or
against any property which is part of Maker's assets securing the
Subordinated Debt or the Senior Debt ("Collateral")) any of the
subordinated Debt; or exercise any of its rights or remedies upon a
default by Maker under the Junior Creditor Agreements or otherwise;
(c) seek to assert any claim or interest in any Collateral;
(d) commence, prosecute or participate in any administrative, legal or
equitable action or proceeding against Maker or its properties seeking
any reorganization, arrangement, composition, readjustment,
liquidation, bankruptcy or any other action involving the readjustment
of all or any part of Maker's obligations, or other similar relief
under the U.S. Bankruptcy Code or any present or future statute, law
or regulation relative to either Maker or its properties or any
proceedings for voluntary liquidation, dissolution or other winding up
of Maker's businesses or the appointment of any trustee, receiver or
liquidator for Maker or any part of its properties or any assignment
for the benefit of creditors or any marshalling of assets of Maker; or
(e) take any other action against Maker or the Collateral, or otherwise
directly or
<PAGE>
indirectly interfere with any Collateral or Senior Creditor's rights
and interest therein and thereto.
3. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of
Maker in a liquidation, dissolution, winding up or reorganization, or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Maker or its property:
(a) Holders of the Senior Debt shall be entitled to receive indefeasible
payment in full in cash of the principal of, and interest (including,
without limitation, interest accruing after the commencement of any
such proceeding) and other amounts payable through the date of payment
on, the Senior Debt before any Junior Creditors shall be entitled to
receive any payment of indebtedness evidenced by the Subordinated Debt
and any payment of principal of (and premium, if any) and interest on
any Subordinated Debt (whether or not there has been at that time a
default in the Senior Debt); and
(b) Until the Senior Debt is indefeasibly paid in full in cash, any
distribution to which any Junior Creditors would be entitled but for
these subordination provisions, shall be made to the Senior Creditors
(whether or not there has been at that time a default in the Senior
Debt).
4. Payment Over of Payments or Distributions. In the event any payments of
principal or interest is made to any Junior Creditors that because of these
subordination provisions should not have been made to them, or in the event
of any distribution, division, or application, partial or complete,
voluntary or involuntary, by operation of law or otherwise, of all or any
part of the assets of Maker or the proceeds thereof to the creditors of
Maker or readjustment of the obligations and indebtedness of Maker, whether
by reason of liquidation, bankruptcy, arrangement, receivership, assignment
for the benefit of creditors, marshalling of assets of Maker or any other
action or proceeding involving the readjustment of all or any part of the
Subordinated Debt or the application of the assets of Maker to the payment
or liquidation thereof, or upon the dissolution or other winding up of
Maker's business, or upon the sale of all or substantially all of Maker's
assets, then, and in any such event, Junior Creditors agree that:
(a) Senior Creditor shall first receive indefeasible payment in full in
cash of all of the Senior Debt (including, without limitation,
interest after the commencement of any such liquidation, dissolution
or bankruptcy at the rate specified in the applicable Senior Debt,
whether or not such interest is an allowable claim in any such
proceeding), and
(b) Senior Creditor shall be entitled to receive any payment or
distribution of any kind or character, whether in cash, securities or
other property, (including, without limitation, interest after the
commencement of any such liquidation, dissolution or bankruptcy at the
rate specified in the applicable Subordinated Debt, whether or not
such interest is an allowable claim in any such proceeding) which
would be payable or deliverable in respect of any or all of the
Subordinated Debt.
<PAGE>
(c) In order to enable Senior Creditor to enforce its rights hereunder,
Senior Creditor is hereby irrevocably authorized and empowered (in its
own name or in the name of Junior Creditors or otherwise), but shall
have no obligation to:
(i) enforce claims comprising any of the Subordinated Debt by proof
of debt, proof of claim, suit or otherwise;
(ii) demand, sue for, collect and receive any assets of Maker
distributed, divided or applied by way of payment, or any other
property or interest issued, on account of any of the
Subordinated Debt and apply the same, or the proceeds of any
realization upon the same, to any of the Senior Debt;
(iii) vote any claims comprising any of the Subordinated Debt to
accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension; and/or
(iv) take generally any action which Junior Creditors might otherwise
be entitled to take, as Senior Creditor may deem necessary or
advisable for the enforcement of its rights or interests
hereunder.
(d) To the extent necessary for Senior Creditor to realize the benefits of
the subordination of the Subordinated Debt provided for herein
(including the right to receive any and all payments and distributions
which might otherwise be payable or deliverable with respect to the
Subordinated Debt in any proceeding described in this Section 4 or
otherwise), Junior Creditors will execute and deliver to Senior
Creditor such instruments or documents (together with such assignments
or endorsements as Senior Creditor shall deem necessary), as may be
reasonably requested by Senior Creditor.
(e) Any such payments or distributions or security or instruments or the
proceeds thereof shall be received and held by the Junior Creditors in
trust, as trustee, for the benefit of the Senior Creditor, segregated
from other funds and property of the Junior Creditors and the Junior
Creditors shall forthwith deliver the same to the Senior Creditor
(together with any endorsement or assignment of Junior Creditors where
necessary), for application to any of the Senior Debt. In the event of
the failure of the Junior Creditors to make any such endorsement or
assignment to the Senior Creditor, the Senior Creditor, or any of its
officers or employees, are hereby irrevocably authorized on behalf of
Junior Creditors to make such endorsement.
5. No Contest of Senior Creditor Liens/Priority. Junior Creditors agree that
they shall not contest the validity, perfection priority or enforceability
of the liens granted to or held by the Senior Creditor upon the Collateral
and that, as between the Senior Creditor and the Junior Creditors, the
terms of these Subordination Provisions shall govern even if part or all of
the Senior Debt or the liens securing payment and performance thereof are
avoided, disallowed, set aside or otherwise invalidated in any judicial
proceeding or otherwise.
<PAGE>
Notwithstanding the time, order, or method of attachment or perfection of
the pledges, liens or security interests granted thereby or the time or
order of filing or recording of financing statements or other evidence of
pledges, liens or security interests, and notwithstanding anything
contained in any such filing or agreement to which the Senior Creditor
and/or the Junior Creditors may now or hereafter be a party, the pledges
of, security interests in, and other liens upon the Collateral granted to
or held by the Senior Creditor have and shall have priority over the
pledges of, security interests in, and other liens upon the Collateral
granted to, or held by, the Junior Creditors, and the liens of the Senior
Creditor therein shall have such priorities to the full extent of the
Senior Debt secured thereby at any time and from time to time outstanding.
6. Defined Terms:
"Senior Debt" means (a) all principal, interest, loan fees, Certificate
purchase obligations of Village Farms, L.P., Funding Losses, Additional
Costs, indemnification obligations, attorneys' fee payment obligations, and
all expenses, charges and other amounts payable by Maker pursuant to the
Guaranty to CoBank ACB of the obligations of Village Farms, L.P. under the
Consolidated, Amended and Restated Loan Agreement ("CoBank Loan Agreement")
dated as of January 2, 2000, by and between CoBank, ACB and Village Farms,
L.P., and any related notes, any related security agreements and any other
related documents, all as now in effect or as amended from time to time;
and (b) any and all renewals, extensions, refundings, amendments and
modifications of any of the foregoing.
7. CoBank, ACB shall be deemed to be a third party beneficiary of the
foregoing subordination provisions.
<PAGE>
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:
Title:
<PAGE>
Promissory Note
Schedule I
LOANS AND PAYMENTS
Unpaid
Principal Interest Principal Notations
Date Payments Payment Balance Made by
- ---------------------- ------------ ----------- ---------------- ---------------
AMENDMENT AND ASSUMPTION AGREEMENT
----------------------------------
AMENDMENT AND ASSUMPTION AGREEMENT (this "Agreement") dated as of March __,
2000 by and between AGRO DYNAMICS, INC. ("ADI"), ECOSCIENCE PRODUCE SYSTEMS
CORPORATION ("EPSC"), AGRO-DAN, INC. ("Agro-Dan") and CENTURY BUSINESS CREDIT
CORPORATION, a Subsidiary of The Foothill Group, Inc. ("Lender").
BACKGROUND
----------
ADI, EPSC and Lender are parties to a Loan and Security Agreement dated as
of June 29, 1999 (as same has been amended, supplemented, restated or otherwise
modified from time to time, the "Loan Agreement") pursuant to which Lender
provides ADI and EPSC with certain financial accommodations.
Pursuant to the terms of a Joint Venture Agreement dated as of January 12,
2000 ("Joint Venture Agreement") among ADI, Ecoscience Corporation and Grodania
A/S, a substantial portion of the assets of ADI will be transferred to Agro-Dan,
a newly formed Delaware corporation, and Agro-Dan shall assume all of ADI's
obligations to Lender under the Loan Agreement and the Ancillary Agreements
including, without limitation, the documents listed on Exhibit A attached hereto
(the Loan Agreement and the Ancillary Agreements, collectively, "Assigned
Documents").
In connection with the transactions contemplated by the Joint Venture
Agreement, all of ADI's rights and obligations under the Assigned Documents
shall automatically become the rights and obligations of Agro-Dan and Agro-Dan
shall have the benefit of all the rights of ADI and be bound by all the
obligations of ADI to Lender under the Assigned Documents, in each case on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, ADI,
EPSC and Agro-Dan hereto agree as follows:
1. All capitalized terms used herein that are not defined shall have the
meanings given to them in the Loan Agreement.
2. Agro-Dan hereby assumes in full, the payment, discharge, satisfaction
and performance of all Obligations of ADI and all other obligations,
indebtedness and liabilities of ADI to Lender under the Assigned Documents and
Agro-Dan acknowledges that it is liable for the payment, discharge, satisfaction
and performance of all Obligations. Without limiting the generality of the
foregoing, in order to secure the prompt payment and performance to Lender of
the Obligations, Agro-Dan hereby assigns, pledges and grants to Lender a
continuing security interest in and to all of the Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located. Nothing in
this Amendment shall impair, limit or affect the liens and security interest
heretofore granted, pledged and/or assigned to Lender by ADI as
<PAGE>
security for the Obligations. Agro-Dan hereby adopts all of the provisions,
terms and conditions contained in the Assigned Documents as if the Assigned
Documents had been entered into by and between Agro-Dan and Lender.
3. ADI and Agro-Dan hereby acknowledge that each will from time to time
after the execution hereof, upon request of Lender, execute and deliver to
Lender such further instruments, agreements and documents, and take such further
action as Lender may request in connection with the transactions herein
contemplated.
4. Subject to satisfaction of the conditions precedent set forth in
Section 6 below, Lender hereby consents to the formation of Agro-Dan and
the execution of the Joint Venture Agreement by the parties thereto and the
transactions contemplated therein and waives any Event of Default arising out of
the formation of Agro-Dan or the execution of or consummation of the
transactions contemplated by the Joint Venture Agreement.
5. The Loan Agreement is hereby amended as follows:
(a) The defined terms "Borrower" and "Borrowers" are amended to read
Agro-Dan.
(b) Paragraph 1(a) is amended as follows:
(i) The following defined terms are inserted in the appropriate
alphabetical order:
"Agro-Dan" means Agro-Dan, Inc., a corporation organized
under the laws of the State of Delaware.
"EPSC" means EcoScience Produce Systems Corporation, a
corporation organized under the laws of the State of
Delaware.
"Joint Venture Agreement" means the Joint Venture Agreement
among ADI, Ecoscience Corporation and Grodania A/S.
(ii) The following defined terms are amended in their entirety to
provide as follows:
"Borrowing Agent" means Agro-Dan.
"Eligible Inventory" means Inventory of each Borrower and
ADC Inventory which the Lender, in its sole and absolute discretion, exercised
in a commercially reasonable manner, determines: (a) is subject to the security
interest of Lender and is subject to no other liens or encumbrances whatsoever
(other than Permitted Liens); (b) is in good condition and meets all standards
imposed by any governmental agency, or department or division thereof having
regulatory authority over such Inventory, its use or sale including but not
limited to the Federal Fair Labor Standards Act of 1938 as amended, and all
rules, regulations and orders
2
<PAGE>
thereunder; (c) is currently either usable or salable in the normal course
of each Borrower's or ADC's business; (d) does not represent Inventory received
from suppliers of ADC within the immediately preceding thirty (30) day period
unless such Inventory has been paid for; and (e) not to be ineligible for any
other reason.
"Eligible Receivables" means and includes each Receivable of
each Borrower and each ADC Receivable which conforms to the following criteria:
(a) shipment of the merchandise or the rendition of services has been completed;
(b) no return, rejection or repossession of the merchandise has occurred; (c)
merchandise or services shall not have been rejected or disputed by the Customer
and there shall not have been asserted any offset, defense or counterclaim; (d)
continues to be in full conformity with the representations and warranties made
by Borrowers and ADC to the Lender with respect thereto; (e) Lender is, and
continues to be, satisfied with the credit standing of the Customer in relation
to the amount of credit extended; (f) there are no facts existing or threatened
which are likely to result in any adverse change in a Customer's financial
condition; (g) is documented by an invoice in a form approved by Lender and
shall not be unpaid more than ninety (90) days from invoice date; (h) less than
thirty-three percent (33%) of the unpaid amount of invoices due from such
Customer remain unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Receivable or the ADC Receivable unless such instrument is duly
endorsed to and in possession of the Lender or represents a check in payment of
a Receivable or an ADC Receivable; (j) if the Customer is located outside of the
United States or Canada, the goods which gave rise to such Receivable or such
ADC Receivable were shipped after receipt by such Borrower or ADC, as the case
may be, from or on behalf of the Customer of an irrevocable letter of credit,
assigned and delivered to the Lender and confirmed by a financial institution
acceptable to the Lender and is in form and substance acceptable to the Lender,
payable in the full amount of the Receivable or the ADC Receivable in United
States dollars at a place of payment located within the United States; (k) such
Receivable or ADC Receivable is not subject to any lien, other than Permitted
Liens; (l) does not arise out of transactions with any employee, officer, agent,
director, stockholder or Affiliate of any Borrower or ADC; (m) is payable to
Borrower or ADC; (n) does not arise out of a bill and hold sale prior to
shipment and, if the Receivable or the ADC Receivable arises out of a sale to
any Person to which Borrower or ADC is indebted, the amount of such
indebtedness, and any anticipated indebtedness, is deducted in determining the
face amount of such Receivable or such ADC Receivable; (o) is net of any
returns, discounts, claims, credits and allowances; (p) if the Receivable arises
out of contracts between Borrower and the United States, any state, or any
department, agency or instrumentality of any of them, such Borrower has so
notified Lender, in writing, prior to the creation of such Receivable, and, if
Lender so requests, there has been compliance with any governmental notice or
approval requirements, including without limitation, compliance with the Federal
Assignment of Claims Act; (q) is a good and valid account representing the
undisputed portion of a bona fide indebtedness incurred by the Customer therein
named, for a fixed sum as set forth in the invoice relating thereto with respect
to an unconditional sale and delivery upon the stated terms of goods sold by
Borrower, or work, labor and/or services rendered by Borrower or ADC; (r) the
total unpaid Receivables from such Customer does not exceed twenty percent (20%)
of all Eligible Receivables; (s) does not arise out of progress billings prior
to completion of the order; and (t) is otherwise satisfactory to the Lender as
determined in good faith by the Lender in the reasonable exercise of its
discretion.
3
<PAGE>
"Equipment" means and includes all of each Borrower's,
EPSC's and ADI's now owned or hereafter acquired equipment, machinery and goods
(excluding Inventory), whether or not constituting fixtures, including, without
limitation: plant and office equipment, tools, dies, parts, data processing
equipment, furniture and trade fixtures, trucks, trailers, loaders and other
vehicles and all replacements and substitutions therefore and all accessions
thereto.
"General Intangibles" means and includes all of each
Borrower's, EPSC's and ADI's now owned or hereafter acquired general intangibles
including, without limitation, trademarks, tradenames, tradestyles, trade
secrets, equipment formulation, manufacturing procedures, quality control
procedures, product specifications, patents, patent applications, copyrights,
registrations, contract rights, choses in action, causes of action, corporate or
other business records, inventions, designs, goodwill, claims under guarantees,
licenses, franchises, tax refunds, tax refund claims, computer programs,
computer data bases, computer program flow diagrams, source codes, object codes
and all other intangible property of every kind and nature.
"Guarantor" means individually ADC, ADI, EPSC and any other
Person who may hereafter guarantee payment or performance of the whole or any
part of the Obligations and "Guarantors" means collectively all such Persons.
"Individual Formula Amount" means at the date of
determination thereof, an amount equal to:
(a) Receivables Availability of Agro-Dan and ADC, plus
(b) Inventory Availability of Agro-Dan and ADC, minus
(c) such reserves as Lender may reasonably deem proper and necessary from
time to time.
"Inventory" means and includes all of each Borrower's,
EPSC's and ADI's now owned or hereafter acquired goods, merchandise and other
personal property, wherever located, to be furnished under any contract of
service or held for sale or lease, all raw materials, work in process, finished
goods and materials and supplies of any kind, nature or description which are or
might be used or consumed in such Borrower's, EPSC's and ADI's business or used
in selling or furnishing such goods, merchandise and other personal property,
and all documents of title or other documents representing them.
"Inventory Availability" means the amount of Revolving
Credit Advances against Eligible Inventory, Lender may from time to time during
the Term make available to each Borrower up to the lesser of (a) up to fifty
percent (50%) of the value of such Borrower's Eligible Inventory (calculated on
the basis of the lower of cost or market, on a first-in first-out basis) or (b)
fifty percent (50%) of the amount of such Borrower's Receivables Availability.
The Eligible Inventory of ADC shall be included for the purpose of determining
4
<PAGE>
the Eligible Inventory of Agro-Dan and the Eligible Receivables of ADC
shall be included for the purposes of determining the Eligible Receivables of
Agro-Dan.
"Receivables" means and includes all of each Borrower's,
EPSC's and ADI's now owned or hereafter acquired accounts and contract rights,
instruments, insurance proceeds, documents, chattel paper, letters of credit and
each Borrower's, EPSC's and ADI's rights to receive payment thereunder, any and
all rights to the payment or receipt of money or other forms of consideration of
any kind at any time now or hereafter owing or to be owing to any Borrower, EPSC
or ADI, all proceeds thereof and all files in which any Borrower, EPSC or ADI
has any interest whatsoever containing information identifying or pertaining to
any of such Borrower's, EPSC's or ADI's Receivables, together with all of each
Borrower's, EPSC's or ADI's rights to any merchandise which is represented
thereby, and all of each Borrower's, EPSC's or ADI's right, title, security and
guaranties with respect to each Receivable, including, without limitation, all
rights of stoppage in transit, replevin and reclamation and all rights as an
unpaid vendor.
"Receivables Availability" means the amount of Revolving
Credit Advances against Eligible Receivables Lender may from time to time during
the term of this Agreement make available to each Borrower up to eighty-five
percent (85%) of the net face amount of Eligible Receivables of such Borrower.
The Eligible Receivables of ADC shall be included for the purposes of
determining the Eligible Receivables of Agro-Dan.
(c) Paragraph 6 is amended in its entirety to provide as follows:
"6. Security Interest.
(a) To secure the prompt payment to Lender of the Obligations, each
Borrower, EPSC and ADI hereby assigns, pledges and grants to Lender a continuing
security interest in and to the Collateral, whether now owned or existing or
hereafter acquired or arising and wheresoever located, whether or not the same
is subject to Article 9 of the UCC; provided, however, the foregoing grant of a
security interest and lien shall not include any rights or interests of any
Borrower, EPSC or ADI under any licenses, leases or other contracts if and to
the extent that (i) the terms of the agreement or agreements creating or
evidencing such rights or interests prohibit such grant and (ii) the term
prohibiting such grant is effective as a matter of law and has not been waived
or the consent of the necessary party to the grant to Lender has not been
obtained; provided, further, (x) if any such prohibition is subsequently lifted,
terminated or is otherwise no longer effective as a matter of law or is waived
or the consent of the necessary party is obtained, a security interest therein
in favor of Lender shall automatically arise hereunder without any further
action on the part of any Borrower, EPSC, ADI or Lender and (y) nothing
contained herein shall be deemed to limit, impair or otherwise affect Lender's
security interest in any rights or interests of any Borrower, EPSC or ADI in or
to monies due or to become due under any such agreement. All of Borrowers',
EPSC's and ADI's ledger sheets, files, records, books of account, business
papers and documents relating to the Collateral shall, until delivered to or
removed by Lender, be kept by Borrowers, EPSC and ADI in trust for Lender until
all Obligations have been paid in full. Each confirmatory assignment schedule or
5
<PAGE>
other form of assignment hereafter executed by Borrowers, EPSC and ADI shall be
deemed to include the foregoing grant, whether or not the same appears therein.
(b) Lender may file one or more financing statements disclosing
Lender's security interest in the Collateral without a Borrower's, EPSC's
or ADI's signature appearing thereon or Lender may sign on a Borrower's, EPSC's
or ADI's behalf as provided in paragraph 13 hereof. The parties agree that a
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement. If any Receivable or any ADC Receivable becomes
evidenced by a promissory note or any other instrument for the payment of money,
the applicable Borrower, EPSC or ADI will or will cause ADC to immediately
deliver such instrument to Lender appropriately endorsed."
(d) Paragraph 7 is amended in its entirety to provide as follows:
"7. Representations Concerning the Collateral. Each Borrower, ESPC
and ADI represents and warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a
Revolving Credit Advance and made as of the time of each and every Revolving
Credit Advance hereunder):
(a) each Borrower, EPSC and ADI owns its respective Collateral free
and clear of all claims, liens, security interests and encumbrances
(including without limitation any claims of infringement) except (A) those in
Lender's favor and (B) Permitted Liens;
(b) none of the Collateral is subject to any agreement prohibiting
the granting of a security interest or requiring notice of or consent to
the granting of a security interest; and
(c) all Receivables and ADC Receivables (i) represent complete bona
fide transactions which require no further act under any circumstances on
the applicable Borrower's, EPSC's or ADC's part to make such Receivables or ADC
Receivables payable by the Customers, (ii) to the best of each Borrower's,
EPSC's and ADI's knowledge, are not subject to any present, future or contingent
offsets or counterclaims, and (iii) do not represent bill and hold sales,
consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of any Borrower,
EPSC or ADI."
(e) Paragraph 8 is amended in its entirety to provide as follows:
"8. Covenants Concerning the Collateral. During the Term, each
Borrower, EPSC and ADI covenants that it shall:
(a) not dispose of any of the Collateral whether by sale, lease or
otherwise except for (i) the sale of Inventory in the ordinary course of
business, and (ii) the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value for all Borrower's, EPSC and ADI of not more than
$100,000 and only to the extent that (x) the proceeds (if any) of any such
disposition are used to acquire replacement Equipment which is subject to
Lender's first priority
6
<PAGE>
security interest or (y) the proceeds (if any) of which are remitted to
Lender in reduction of the Obligations;
(b) not encumber, mortgage, pledge, assign or grant any security
interest in any Collateral or any other assets of Borrowers, EPSC or ADI to
anyone other than Lender and except for Permitted Liens;
(c) place notations upon each Borrower's, EPSC's or ADI's books of
account and any financial statement prepared by each such entity to
disclose Lender's security interest in the Collateral;
(d) keep and maintain the Equipment in good operating condition,
except for ordinary wear and tear, and except for obsolete and worn-out
equipment, shall make all necessary repairs and replacements thereof so that the
value and operating efficiency shall at all times be maintained and preserved.
No Borrower shall and neither EPSC nor ADI shall permit any such items to become
a fixture to real estate or accessions to other personal property;
(e) not extend the payment terms of any Receivable beyond thirty (30)
days from invoice date without prompt notice thereof to Lender;
(f) perform all other steps requested by Lender to create and
maintain in Lender's favor a valid perfected first security interest in all
Collateral (except for Permitted Liens);
(g) defend the Collateral against the claims and demands of al
parties; and
(h) cause at least annually, an appraisal to be performed by an
appraiser satisfactory to Lender, of the Inventory of Borrowers and the ADC
Inventory and Lender shall have the right based upon such appraisal to decrease
the amount to the amount of Inventory availability to an amount not greater than
eighty (80%) of the auction value of the Inventory of Borrowers and ADC
Inventory which is acceptable to Lender and on which Lender has a first
perfected security interest as set forth such appraisal."
(f) Paragraph 10 is amended in its entirety to provide as follows:
"10. Inspections. At all times during normal business hours, Lender
shall have the right to (a) visit and inspect Borrowers', EPSC's and ADI's
properties and the Collateral, (b) upon reasonable notice to Borrowing Agent,
inspect, audit and make extracts from Borrowers', EPSC's and ADI's relevant
books and records, including, but not limited to, management letters prepared by
independent accountants, provided, that no notice shall be required if an
Incipient Event of Default or Event of Default shall have occurred or if Lender
at any time deems itself insecure or shall fear the diminution in value of the
Collateral, and (c) discuss with Borrowers', EPSC's and ADI's principal
officers, and independent accountants, Borrowers', EPSC's and ADI's business,
assets, liabilities, financial condition, results of operations and business
prospects. Borrowers, EPSC and ADI will deliver to Lender any
7
<PAGE>
instrument necessary for Lender to obtain records from any service bureau
maintaining records for Borrowers, EPSC and ADI."
(g) Paragraph 11 is amended in its entirety to provide as follows:
"11. Financial Information. Borrowers shall provide Lender (a) as
soon as available, but in any event within ninety (90) days after the end
of each of Borrowers', EPSC's and ADI's fiscal years, a balance sheet of each
Borrower, EPSC, ADI and ADC as at the end of such fiscal year and the related
statements of income, retained earnings and changes in cash flow for such fiscal
year, setting forth in comparative form the figures as at the end of and for the
previous fiscal year, which shall have been reported on by independent certified
public accountants who shall be satisfactory to Lender and shall be accompanied
by an unqualified audit report issued by such independent certified public
accountants; (b) as soon as available, drafts of the balance sheet of each
Borrower, EPSC, ADI and ADC as at the end of each of Borrowers', EPSC's, ADI's
and ADC's fiscal years and the related statements of income, retained earnings
and changes in cash flow for such fiscal year, which have been internally
prepared by Borrowers, EPSC, ADI or ADC, as the case may be; (c) as soon as
available, but in any event within thirty (30) days after the close of each
month, the balance sheet as at the end of such month and the related statements
of income, retained earnings and changes in cash flow for such month, which have
been internally prepared by Borrowers, EPSC, ADI or ADC, as the case may be. All
financial statements required under (a), (b) and (c) above shall be prepared in
accordance with GAAP, subject to year-end adjustments in the case of monthly and
quarterly statements. Together with the financial statements furnished pursuant
to (a) above, Borrowers, EPSC and ADI shall and shall cause ADC to, deliver a
certificate of Borrowers', EPSC's, ADI's or ADC's certified public accountants
addressed to Lender stating that (i) they have caused this Agreement, the
Ancillary Agreements and the Guaranty Security Agreements to be reviewed and
(ii) in making the examination necessary for the issuance of such financial
statements, nothing has come to their attention to lead them to believe that any
Event of Default or Incipient Event of Default exists and, in particular, they
have no knowledge of any Event of Default or Incipient Event of Default or, if
such is not the case, specifying such Event of Default or Incipient Event of
Default and its nature, when it occurred and whether it is continuing. At the
times the financial statements are furnished pursuant to (a), (b) and (c) above,
a certificate of each Borrower's, EPSC's, ADI's and ADC's President or Chief
Financial Officer shall be delivered to Lender stating that, based on an
examination sufficient to enable him to make an informed statement, no Event of
Default or Incipient Event of Default exists, or, if such is not the case,
specifying such Event of Default or Incipient Event of Default and its nature,
when it occurred, whether it is continuing and the steps being taken by
Borrowers with respect to such event. In addition, Borrowers, EPSC and ADI shall
provide Lender, as soon as available, copies of all proxy statements, financial
statements and reports which any Borrower, EPSC, ADI, ADC or EcoScience sends to
its shareholders and holders of its Indebtedness and copies of any and all
periodic and special reports, as well as all registration statements which any
Borrower, EPSC, ADI, ADC or EcoScience files with the Securities and Exchange
Commission."
(h) The first paragraph of Paragraph 12 is amended in its entirety to
provide as follows:
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<PAGE>
"12. Additional Representations, Warranties and Covenants. Each
Borrower, EPSC and ADI represents, warrants (each of which such
representations and warranties shall be deemed repeated upon the making of a
request for a Revolving Credit Advance and made as of the time of each Revolving
Credit Advance made hereunder), and covenants that:"
(i) Paragraphs 12(a), (b) and (c) are amended in their entirety to provide
as follows:
"(a) (i) each Borrower, ESPC and ADI is a corporation duly organized
and validly existing under the laws of the states listed on Exhibit 12(a),
(ii) each Borrower, EPSC and ADI is duly qualified and in good standing in every
other state or jurisdiction in which the nature of such Borrower's, EPSC's or
ADI's business requires such qualification and (iii) ADC is a wholly owned
Subsidiary of Agro-Dan;
(b) the execution, delivery and performance of this Agreement and
the Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of such Borrower's, EPSC's or ADI's certificate of incorporation,
by-laws or of any indenture, agreement or undertaking to which such Borrower,
EPSC or ADI is a party or by which such Borrower or ADI is bound except where
the failure to qualify would not have a material adverse effect on the business,
assets, operations, prospects or financial or other condition of Borrower, EPSC
or ADI or the ability of such party to perform the Obligations and (iii) are
within such Borrower's, EPSC's or ADI's corporate powers;
(c) this Agreement and the Ancillary Agreements executed and
delivered by each Borrower, EPSC and ADI are such Borrower's, EPSC's or
ADI's legal, valid and binding obligations, enforceable in accordance with their
terms;"
(j) The following paragraph is inserted at the end of Paragraph 12:
"(r) Lender has received complete copies of the Joint Venture
Agreement (including all exhibits, schedules and disclosure letters
referred to therein or delivered pursuant thereto, if any) and all amendments
thereto waivers relating thereto and other side letters or agreements affecting
the terms thereof. None of such documents and agreements has been amended or
supplemented, nor have any of the provisions thereof been waived, except
pursuant to a written agreement or instrument which has heretofore been
delivered to Lender. Borrower, EPSC and ADI shall enforce all of its rights
under the Joint Venture Agreement and the executed in connection therewith
including, but not limited to, all indemnification rights and pursue all
remedies available to it with diligence and in good faith in connection with the
enforcement of any such rights."
(k) Paragraph 13 is amended in its entirety to provide as follows:
"13. Power of Attorney. Each Borrower, EPSC and ADI hereby appoints
Lender or any other Person whom Lender may designate as such Borrower's,
EPSC's or ADI's attorney, with power to: (i) endorse such Borrower's, EPSC's or
ADI's name on any
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<PAGE>
checks, notes, acceptances, money orders, drafts or other forms of payment
or security that may come into Lender's possession; (ii) sign such Borrower's,
EPSC's or ADI's name on any invoice or bill of lading relating to any
Receivables, drafts against customers, schedules and assignments of Receivables,
notices of assignment, financing statements and other public records,
verifications of account and notices to or from customers; (iii) verify the
validity, amount or any other matter relating to any Receivable by mail,
telephone, telegraph or otherwise with account debtors; (iv) execute customs
declarations and such other documents as may be required to clear Inventory
through Customs; (v) do all things necessary to carry out this Agreement, any
Ancillary Agreement and all related documents; and (vi) on or after the
occurrence and continuation of an Event of Default, notify the post office
authorities to change the address for delivery of such Borrower's, EPSC's or
ADI's mail to an address designated by Lender, and to receive, open and dispose
of all mail addressed to such Borrower. Each Borrower, EPSC and ADI hereby
ratifies and approves all acts of the attorney. Neither Lender nor the attorney
will be liable for any acts or omissions or for any error of judgment or mistake
of fact or law. This power, being coupled with an interest, is irrevocable so
long as any Receivable which is assigned to Lender or in which Lender has a
security interest remains unpaid and until the Obligations have been fully
satisfied."
(l) Paragraph 19 is amended in its entirety to provide as follows:
"19. Remedies. Upon the occurrence of an Event of Default pursuant
to paragraph 18(k) herein, all Obligations shall be immediately due and
payable and this Agreement shall be deemed terminated; upon the occurrence and
continuation of any other of the Events of Default, Lender shall have the right
to demand repayment in full of all Obligations, whether or not otherwise due.
Until all Obligations have been fully satisfied, Lender shall retain its
security interest in all Collateral. Lender shall have, in addition to all other
rights provided herein, the rights and remedies of a secured party under the
UCC, and under other applicable law, all other legal and equitable rights to
which Lender may be entitled, including without limitation, the right to take
immediate possession of the Collateral, to require Borrowers, EPSC and ADI to
assemble the Collateral, at Borrowers', EPSC's or ADI's expense, and to make it
available to Lender at a place designated by Lender which is reasonably
convenient to both parties and to enter any of the premises of any Borrower,
EPSC or ADI or wherever the Collateral shall be located, with or without force
or process of law, and to keep and store the same on said premises until sold
(and if said premises be the property of a Borrower, EPSC or ADI, such Borrower,
EPSC and ADI agrees not to charge Lender for storage thereof), and the right to
apply for the appointment of a receiver for any Borrower's, EPSC's or ADI's
property. Further, Lender may, at any time or times after default by any
Borrower, EPSC or ADI sell and deliver all Collateral held by or for Lender at
public or private sale for cash, upon credit or otherwise, at such prices and
upon such terms as Lender, in Lender's sole discretion, deems advisable or
Lender may otherwise recover upon the Collateral in any commercially reasonable
manner as Lender, in its sole discretion, deems advisable. The requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Borrowing Agent's address as shown in Lender's records, at least ten (10) days
before the time of the event of which notice is being given. Lender may be the
purchaser at any sale, if it is public. In connection with the exercise of the
foregoing remedies, Lender is granted permission to use all of Borrowers'
trademarks, tradenames, tradestyles, patents, patent applications, licenses,
franchises and other proprietary rights which are used in connection with
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(a) Inventory for the purpose of disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of unfinished goods. The
proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys' fees, and second to the payment (in whatever order Lender
elects) of all Obligations. Lender will return any excess to Borrowers and
Borrowers shall remain liable to Lender for any deficiency. In addition to all
other sums due to Lender, Borrowers shall pay Lender, for costs and expenses
incurred by Lender for internal collection efforts to obtain or enforce payment
of Receivables and the ADC Receivables, an amount equal to fifteen percent (15%)
of the net face amount of any Receivables and ADC Receivables collected."
(m) Paragraph 25 is amended to include the following at the end thereof:
"If to ADI: To Borrowing Agent as set forth above."
If to EPSC: To Borrowing Agent as set forth above."
(n) Exhibit 12(a) is replaced with the corresponding exhibit to this
Agreement.
6. This Agreement shall become effective upon satisfaction of the
following conditions precedent, each in a manner satisfactory to Century
and pursuant to agreements in form and substance satisfactory to Century :
(a) Lender shall have received this Agreement duly executed by ADI,
EPSC and Agro-Dan;
(b) Lender shall have received a fee in the amount of $10,000 which
shall be charged to Borrower's account on the effective date of this
Agreement.
(c) Lender shall have received final executed copies of the Joint
Venture Agreement and all related agreements, documents and instruments as
in effect o the effective date of this Agreement and the transactions
contemplated by such documentation shall be consummated concurrently with the
execution of this Agreement.
(d) Lender shall have received a copy of the resolutions in form
and substance reasonably satisfactory to Lender, of the board of directors
of Agro-Dan authorizing (x) the execution, delivery and performance of the
Agreement, and (y) the granting by Agro-Dan of the liens upon the Collateral
certified by the Secretary or an Assistant Secretary of Agro-Dan as of the date
of this Agreement; and, such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;
(e) Lender shall have received a copy of the certificate of
incorporation of Agro-Dan, and all amendments thereto, certified by the
Secretary of State or other appropriate official of its jurisdiction of
incorporation together with copies of the by-laws
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<PAGE>
of Agro-Dan certified as accurate and complete by the Secretary or an
Assistant Secretary of Agro-Dan;
(f) Lender shall have received the executed legal opinion of
Giordano, Halleran and Ciesla in form and substance satisfactory to Lender
regarding the due authorization, enforceability and validity of this Agreement
and the transactions contemplated herein;
(g) Lender shall have received in form and substance satisfactory to
Lender, certified copies of Agro-Dan's casualty insurance policies,
together with loss payable endorsements on Lender's standard form of loss payee
endorsement naming Lender as loss payee, and certified copies of Agro-Dan's
liability insurance policies, together with endorsements naming Lender as a
co-insured;
(h) Lender shall have received a duly executed agreement
establishing accounts for Agro-Dan with financial institutions reasonably
acceptable to Lender for the collection or servicing of the Receivables and
proceeds of the Collateral of Agro-Dan;
(i) Lender shall have received a Guaranty Agreement from ADC, ADI
and EPSC covering the Obligations of Agro-Dan;
(j) Lender shall have received from ADC all such documents necessary
to maintain a perfected security interest in the ADC Collateral granted to
Lender pursuant to the Guarantor Security Agreement;
(k) Lender shall have received from Agro-Dan stock certificates of
ADC and stock powers with respect to ADC duly endorsed in blank; and
(l) Lender shall have received such other certificates, instruments,
documents and agreements as may reasonably be required by Lender in
connection with this Agreement or its counsel.
7. Except as expressly provided herein, all of the representations,
warranties, terms, covenants and conditions contained in the Assigned
Documents shall remain unamended and shall continue to be and shall remain in
full force and effect in accordance with their respective terms. The amendment
and waivers set forth herein shall be limited precisely as provided for herein
and shall not be deemed a waiver or modification of, or an amendment to, any
other term or provision of any Assigned Document.
8. This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
9. This Agreement may be executed in one or more counterparts each of
which taken together shall constitute one and the same instrument. Any
signature delivered by a party via facsimile shall be deemed an original
signature hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year specified at the beginning hereof.
AGRO DYNAMICS, INC.
By:_______________________________
Name:
Title:
AGRO-DAN, INC.
By:_______________________________
Name:
Title:
ECOSCIENCE PRODUCE SYSTEMS CORPORATION
By:_______________________________
Name:
Title:
CENTURY BUSINESS CREDIT
CORPORATION, a Subsidiary of The
Foothill Group, Inc.
By:_______________________________
Name:
Title:
CONSENTED AND AGREED TO:
ECOSCIENCE CORPORATION
By:________________________________
Name:
Title:
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<PAGE>
Exhibit A
---------
1. Supplement Letter of Credit Security Agreement dated as of June 29, 1999
among ADI, EPSC and Lender.
2. Trademark Collateral Security Agreement and Trademark Assignment of
Security each dated as of June 29, 1999 by and between ADI and Lender and
Power of Attorney dated as of June 29, 1999 made by ADI in favor of Lender.
3. Patent Collateral Security Agreement and Patent Assignment of Security each
dated as of June 29, 1999 by and between ADI and Lender and Power of
Attorney dated as of June 29, 1999 made by ADI in favor of Lender.
14
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made and entered into as
of March 3, 2000, by and among Agro-Dan, Inc., a Delaware corporation (the
"Company"), EcoScience Corporation, a Delaware corporation ("ES"), Agro
Dynamics, Inc., a Delaware corporation wholly owned by ES ("ADI"), and Grodania
A/S, a Denmark corporation ("Grodan," and together with ADI, the
"Stockholders").
WITNESSETH:
WHEREAS, ES, ADI, and Grodan have entered into that certain Joint Venture
Agreement as of January 12, 2000 (the "Joint Venture Agreement"), pursuant to
which the Company is to be incorporated and in exchange for the contribution of
certain assets and the assumption of certain liabilities ADI is to be issued 51%
of the issued and outstanding common stock of the Company (the "Common Stock")
and Grodan is to be issued 49% of the issued and outstanding Common Stock of the
Company; and
WHEREAS, the Stockholders believe that it is in their best interests and in
the best interest of the Company to make provisions for the holding of shares of
common stock in the Company and for certain aspects of the operation and conduct
of the Company.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Operational Matters.
(a) Business Plan. The Stockholders acknowledge, agree and represent
that they have approved in all respects the Strategic Business Plan,
attached hereto as Schedule 1 (the "Strategic Business Plan"). The
Stockholders agree that each shall take all actions necessary or prudent in
order to implement and cause their director nominees serving on the Board
of Directors to implement the Strategic Business Plan; provided, however,
that no Stockholder shall be obligated to contribute additional capital to
the Company.
(b) Operation of Substrates Division. The Stockholders acknowledge and
agree that the "substrates division" shall be operated in accordance with
Schedule 2 attached hereto. The Stockholders acknowledge and agree that
Grodan has the exclusive right to make certain decisions with respect to
the "substrates division." The matters to be decided exclusively by Grodan
and the procedure to obtain consensus with respect to these matters are set
forth in Schedule 2. The Stockholders agree that they shall cause their
representatives on the Board of Directors to vote for any decision made by
Grodan after following the procedures set forth in Schedule 2.
(c) Audit. The Company shall cause its financial books and records to
be audited on an annual basis by an internationally recognized accounting
firm which audit of the Company's financial statements shall be completed
within ninety (90) days of the Company's year-end. So long as ADI holds a
majority of all of the issued and outstanding voting stock of the Company
(the "Aggregate Voting Power"), ADI's auditors shall also be the Company's
auditors.
<PAGE>
year-end. So long as ADI holds a majority of all of the issued and
outstanding voting stock of the Company (the "Aggregate Voting Power"),
ADI's auditors shall also be the Company's auditors.
(d) Dividends. Unless prohibited by the Delaware General Corporation
Law (including the applicable fiduciary duties of a board of directors),
the Company shall declare and pay within one-hundred twenty (120) days of
the fiscal year-end cash dividends equal to seventy-five percent (75%) of
the prior year's net income after taxes; provided that the declaration and
payment of such dividends do not violate the terms of any loan agreement or
any other material contract to which NEWCO is a party or by which its
assets are bound. The payment of such dividend to a shareholder may be
reducted to the extent the Company is required by law or regulation to make
any deduction or withholding of tax with regard to that particular
shareholder.
(e) Chief Executive Officer. The Chief Executive Officer of the
Company shall initially be Michael DeGiglio who shall serve in such
capacity until a new chief executive officer shall be appointed which
appointment shall occur on or prior to December 31, 2000. From the date of
this Agreement, Michael DeGiglio shall be entitled to an annual base salary
of $125,000 which shall be payable until the earlier of the date on which a
new chief executive officer is employed or December 31, 2000.
(f) Headquarters. The headquarters and principal place of business of
the Company shall initially be located at ADI's existing headquarters at 10
Alvin Court, East Brunswick, New Jersey and then, at an estimated date of
April 2000, in Eatontown, New Jersey (the "Headquarters"). Fifteen months
after the Company occupies the headquarters in Eatontown, New Jersey, the
Board of Directors of the Company shall decide whether to remain at the
Headquarters. In the event that the Board decides that Newco should
relocate, the Company shall assume fifty percent (50%) of the risk in
subleasing or assigning the lease for the Headquarters. The office plan for
the Headquarters shall be subject to Grodan's consent, which consent shall
not be unreasonably withheld after taking into account the requirements and
input of the landlord. Such office plan and layout shall, to the extent
reasonably possible, separate the Company from ES and its Affiliates or
other occupants of the premises.
(g) ADCI. The charter documents of Agro Dynamics Canada, Inc. shall be
amended to contain provisions substantially similar to the provisions of
the Company's charter documents.
2. Board of Directors.
(a) Composition of the Board. The Company's Board of Directors (the
"Board") shall consist of seven (7) members; provided that so long as
Grodania A/S and any Affiliates of Rockwool International A/S which shall
hold shares of Common Stock hold less than 50.1% of the Aggregate Voting
Power, the Board of Directors shall consist of six (6) members, three (3)
of whom shall be nominated by Grodan (the "Grodan Directors") and three (3)
of whom shall be nominated by ADI (the "ADI Directors"). Each Stockholder
further agrees that the Company shall have a Chairman of the Board who
shall serve for a term of one year. So long as Grodan holds less than 50.1%
of the Aggregate Voting Power, Grodan and ADI shall
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<PAGE>
alternate appointing the Chairman of the Board annually. The initial
Chairman of the Board shall be appointed by Grodan. So long as ADI holds at
least thirty percent (30%) of the Aggregate Voting Power, at least two (2)
members of the Board of Directors shall be nominated by ADI. So long as ADI
holds at least fifteen (15%) of the Aggregate Voting Power, at least one
(1) member of the Board of Directors shall be nominated by ADI. Each
Stockholder hereby agrees to vote all of its shares of Common Stock in the
Company for the other Stockholder's nominee(s) to the Board of Directors
and take any and all such action to procure such election to the Board of
Directors so long as any Stockholder has an exclusive right to nominate
such nominee(s).
(b) Board Operations. Any action taken by the Board of Directors shall
require the affirmative approval of a majority of the directors at a meeting at
which there exists a quorum. Notwithstanding anything to the contrary, any
action taken by the Board of Directors on any matter shall require (x) at least
fifty percent (50%) of the directors present and voting in favor of such action
to be Grodan Directors and (y) for so long as ADI holds 51% of the Aggregate
Voting Power, at least fifty percent (50%) of the directors present and voting
in favor of such action to be ADI Directors. In addition to the foregoing, the
following matters must be approved by the ADI Directors who are present at the
meeting:
(i) In the event that ADI shall hold at least 40% and less than 50.1% of
the Aggregate Voting Power; provided that the ADI Directors approval shall
not be required for the matters contained in subsections 2(b)(i)(6) and 2
(b)(i)(9)after the fifth anniversary of the date of this Agreement:
(1) merger, or consolidation of the Company with an Affiliate of
Grodan or a spin-off of any business of the Company;
(2) any merger or consolidation of the Company in which Grodan is to
receive for its Common Stock per share consideration different from
the per share consideration to be received by ADI;
(3) any merger or consolidation of the Company with another entity in
which immediately after consummation of the transaction the surviving
entity would have a net worth less than the net worth of the Company
immediately prior to the contemplated transaction. For purposes of
calculating net worth, net worth shall be deemed to include both
tangible and intangible assets;
(4) making any material and significant change to the scope of the
Company's business. The "Company's Business" shall be defined as
sales, marketing and distribution of products and services in the
horticultural industry;
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<PAGE>
(5) dissolution or liquidation of the Company;
(6) approval of any annual business plan (the "Annual Business Plan")
and annual capital budget (the "Annual Budget") of the Company solely
as the Annual Business Plan and Annual Budget directly relates to (x)
the business between the Company and Grodan and (y) the gross profit
of the Company. Notwithstanding anything to the contrary, this
subsection shall not apply to the management of the Substrates
Division under Section 1(b) of this agreement;
(7) conversion, reclassification or repurchase of Common Stock;
(8) incurrence of debt obligations for borrowed money, other than debt
incurred in the ordinary course of the Company's business including
the incurrence of debt for working capital purposes;
(9) sales or dispositions of the Company's material assets, other than
sales or dispositions in the ordinary course of the Company's business
and the making of loans (other than accounts receivable incurred in
the ordinary course of the Corporation's business) and investments in
excess of one million dollars ($1,000,000);
(10) making any change in the Company's dividend policy or to declare
any dividends or enter into any agreement which by its terms prohibits
or expressly limits the Company's ability to declare and pay cash
dividends;
(11) making any agreement, contract, arrangement, understanding,
transfer of assets or liabilities or other commitment or transaction
(collectively, "Arrangement") with any Stockholder, officer or
director of the Company, or with any Affiliate of the Company other
than an Arrangement on terms no less favorable to the Company than
would result from an arm's length negotiation with an unaffiliated
third party and which would not adversely affect the Company. For
purposes of this Agreement, "Affiliate" means a Person that, directly
or indirectly through one or more intermediaries, Controls, is
Controlled by or is under Common Control with, the first mentioned
Person; "Control" (including the terms "Controlled", "Controlled by"
and "under Common Control with") means the possession, directly or
indirectly as trustee or executor, of the power to direct or cause the
direction of the
4
<PAGE>
management or policies of a Person, whether through the ownership of
stock or as trustee or executor, by contract or credit arrangement or
otherwise; "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization, governmental authority, labor union, or other entity.
(12) amendment of the Company's by-laws or certificate of
incorporation.
(ii) In the event that ADI shall hold at least 20% but less than 40% of the
Aggregate Voting Power, the matters referred to in sections 2(b)(i)(1),
2(b) (i)(2), 2(b)(i)(3), 2(b)(i)(5), 2(b)(i)(7), 2(b)(i)(10) and
2(b)(i)(12).
3. No Pledge.
No Stockholder shall, either directly or indirectly, assign, mortgage,
hypothecate, transfer, pledge, create a security interest or lien upon,
encumber, give, place in trust, or otherwise permit a charge or claim on any
shares of Common Stock owned by such Stockholder to any Person other than an
existing Stockholder without the prior written consent of the non-transferring
Stockholder; provided, however, that ADI shall be permitted to pledge Common
Stock held by it as collateral for $4 million indebtedness to Century Business
Corporation.
4. Right of First Refusal.
No Stockholder, either directly or indirectly, shall sell, assign,
contribute or otherwise transfer ("Sell") any shares of Common Stock without
first offering the other Stockholders a right of first refusal to purchase such
shares of Common Stock as follows: In the event that any Stockholder receives a
bona fide written offer to purchase any part of its Common Stock that such
Stockholder wishes to accept (an "Offer"), such selling Stockholder shall give
prompt written notice of such Offer (the "Sale Notice") to the other Stockholder
and such selling Stockholder's intention to sell, setting forth the terms of the
Offer and including a copy of such Offer. The non-selling Stockholder shall have
the right but not the obligation to purchase all of the Common Stock subject to
the Offer on the same terms and for a purchase price per share equal to the
price set forth in such Offer, exercisable upon delivery of written notice (the
"Notice of Exercise") to the selling Stockholder on or before the tenth (10th)
Business Day following the date of the Sale Notice and provided that closing
must occur within 30 days after the date of the Notice of Exercise.
5. Certain Matters.
(a) So long as ADI shall be entitled to have representation on the Board of
Directors, in the event that a Person engaged in a business in competition with
the insulation and substrates business conducted by Rockwool International A/S
or its Affiliates acquires a direct or indirect ownership interest, beneficial
or otherwise, in securities representing in excess of 25% in
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<PAGE>
the Aggregate Voting Power of ES or ADI or obtains representation on the Board
of Directors of ES or ADI and ES and ADI shall have failed to buy back such
shares or remove such board members within forty five (45) days, ADI shall pay
within thirty (30) business days thereof liquidated damages to Grodan in the
amount of one million dollars ($1,000,000). The Stockholders acknowledge and
agree that the terms, conditions and amounts set forth in this section are
reasonable, considering the damages Grodan would sustain if the above events
were to occur. One million dollars ($1,000,000) is agreed upon and fixed as
liquidated damages because of the difficulty of ascertaining the exact amount of
damages that would be sustained in such events.
(b) When the Stockholders are unable to agree on any fundamental matter
involving the Company, the Board of Directors shall conduct two meetings
followed by a cooling off period of sixty (60) days. If after this time the
Stockholders continue to disagree, the Stockholders shall undertake in good
faith to continue to attempt to resolve the issue in a manner that will not
result in the liquidation of the Company.
(c) Notwithstanding anything to the contrary, in the event that (i) for any
reason, shares of Common Stock held by ADI shall be transferred to a party other
than Grodan or its Affiliates or (ii) ES, Agro Power Development, Inc. or ADI
commences a voluntary (or permits an involuntary) case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its liabilities under any bankruptcy, insolvency or other similar laws now or
hereinafter in effect, including the seeking of the appointment of a trustee,
receiver, liquidator or custodian, Grodan shall have the right but not the
obligation to purchase a number of shares of Common Stock from the Company so as
to give it 60.1% of the Aggregate Voting Power at a per share price equal to the
fair market value of the Company prior to such purchase divided by the number of
shares of Common Stock outstanding prior to such issuance.
(d) The provisions of the Company's Certificate of Incorporation and
by-laws with respect to indemnification in effect on the date of this Agreement
shall not be amended, repealed or otherwise modified for a period of six (6)
years after the date upon which ADI ceases to hold at least 20% of the Aggregate
Voting Power in any manner that would adversely affect the rights thereunder of
individuals who at or prior to such date were directors or officers of the
Company unless such amendment, repeal or modification is required by law.
6. Company to Enforce.
(a) The Company hereby agrees and undertakes to not issue, transfer or
reissue any shares of Common Stock in violation of the provisions of this
Agreement or without requiring proof of compliance with this Agreement.
(b) In the event that, at any time, any shares of Company are transferred
to any other party pursuant to the provisions of this Agreement, the transferee
shall take such shares of Common Stock pursuant to all provisions, conditions
and covenants of this Agreement, and, as a condition precedent to the transfer
of such shares of Company, the transferee shall agree (for and on behalf of
himself, his legal representatives and his transferees and assigns) in writing
to be bound by all the terms and provisions of this Agreement applicable to the
transferor.
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(c) The Company covenants that any additional shares of Common Stock
hereafter issued shall be subject to the terms and conditions of this Agreement.
7. Stock Transfer Record.
The Company shall maintain a stock transfer book in which shall be recorded
the name and address of each of its Stockholders. No transfer of Common Stock
shall be effective or valid unless and until recorded in such stock transfer
book. The Company agrees not to record any transfer of Common Stock in its stock
transfer book unless the transfer strictly complies with all the provisions of
this Agreement.
8. Endorsement on Stock Certificates.
Each certificate representing shares of Common Stock of the Company now or
hereafter held by any Stockholder or issued by the Company to any other Person
shall bear a legend in substantially the following form
The transfer of shares of stock represented by this Certificate is
restricted by the Certificate of Incorporation and By-Laws of the
Corporation and by a Stockholder's Agreement, dated March 3, 2000, by and
among the Corporation and certain of its Stockholders and EcoScience
Corporation, copies of which are on file at the office of the Corporation.
9. EcoScience Undertaking.
ES undertakes to cause ADI to fully perform its obligations contained
herein in accordance with the terms and conditions of this Agreement.
10. Grodan may Sell Common Stock to an Affiliate.
Notwithstanding anything to the contrary, Grodan may transfer its shares of
Common Stock to an Affiliate of Rockwool International A/S.
11. Specific Performance.
Each of the parties acknowledges and agrees that the other parties would be
damaged irreparably if any of the provisions of this Agreement are not performed
in accordance with their specific terms or otherwise are breached. Accordingly,
each party agrees that any of the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof, in addition to any other remedy to which such other party may
be entitled at law or in equity.
12. Notices.
All notices, demands or other communications required or permitted
hereunder shall be in writing and shall be sufficiently given if personally
delivered, mailed or transmitted,
7
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and shall be effective upon receipt if delivered personally on the third
Business Day following the date mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like changes of
address) or the first Business Day following being sent by electronic
transmission to the telecopier number specified below:
(a) if to ES:
EcoScience Corporation
10 Alvin Ct. Road
East Brunswick, NJ 08816
Attn: Michael DeGiglio
Chief Executive Officer
Telecopier No.: (732) 257-2326
(b) if to ADI:
Agro Dynamics, Inc.
10 Alvin Ct. Road
East Brunswick, NJ 08816
Attn: Michael DeGiglio
Chief Executive Officer
Telecopier No.: (732) 257-2326
with a copy to:
Giordano, Halleran & Ciesla
125 Half Mile Road
P.O. Box 190
Middletown, NJ 07748
Attn: John Aiello
Telecopier No.: (732) 224-6599
(c) if to Grodan:
Grodania A/S
Hovedgaden 501
DK 2640 Hedehusene
Denmark
Attn: Henrik Frank Nielsen
Managing Director
Telecopier No.: (011) 45 46 56 12 11
8
<PAGE>
with a copy to:
Pedersen & Jantzen
Nyropsgade 45
DK 1602 K0benhavn
Denmark
Attn: Dan Terkildsen
Telecopier No.: (011) 4533 1295 15
with a copy to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Attn: Howard M. Berkower
Telecopier No.: (212) 759-9133
13. Assignment; Successors and Assigns.
Neither this Agreement nor any interest herein may be assigned or
transferred by any party hereto or by operation of law or otherwise without the
consent in writing of the other parties, provided, however, that Grodan may
assign this Agreement to an Affiliate of Rockwool International A/S, so long as
Grodan remains liable for its obligations under this Agreement. Subject to the
foregoing, the provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, permitted
assigns, heirs and legal representatives.
14. Governing Law; Construction.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware in all respects, including all matters of
construction, validity and performance, without regard to their conflict of law
principles.
15. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
9
<PAGE>
16. Captions.
The captions in this Agreement are for convenience of reference only and
shall not be deemed to constitute part of this Agreement or to affect the
construction hereof.
17. Counterparts.
This Agreement may be executed in any number of counterparts, and by any
party on separate counterparts, each of which as so executed and delivered shall
be an original, and it shall not be necessary in making proof of this Agreement
as to any party hereto to produce or account for more than one such counterpart
executed by such party.
18. No Third Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any Person
other than (a) the parties hereto and their respective successors and permitted
assigns and (b) Michael A. DeGiglio who shall be deemed a third party
beneficiary with respect to and shall have the right to enforce the provisions
of Section 1(e) hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ECOSCIENCE CORPORATION
By:________________________________
Name:_________________________
Title:________________________
AGRO DYNAMICS INC.
By:________________________________
Name:_________________________
Title:________________________
GRODANIA A/S
By:_______________________________
Name:________________________
Title:_______________________
10
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AGRO-DAN, INC.
By:_______________________________
Name:________________________
Title:_______________________
11
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Schedule 1: Strategic Business Plan
for Newco
A. Newco
1. Mission:
Newco fulfils the need for continuous improvements within the North American
greenhouse industry - a.o. by marketing, selling, distributing and servicing
premier quality growing systems and adding real value to it's suppliers
strategies.
2. Goals:
* Meet planned sales, profitability and customer loyalty development.
* Ensure maximum internal synergy - especially related to "growing systems"
strategy.
* Ensure suppliers strategies are carried our successfully - thus enhancing
loyalty through improving the value chain.
* Ensure effective and efficient market coverage - a.o. through "full" local
geographical sales coverage of the full Newco product assortment (width)
complemented by having internal "expert" product line divisions (depth in
know-how).
* Increase Newco added value and expertise.
3. Focus & Strategies:
* Sales & operational marketing, distribution and service.
* Intensive horticulture / greenhouse industry.
* Growing systems approach.
* Assortment - High profile / quality brands (Grodan - Hoogendorn - etc.) as
the backbone of the JV and carriers of the JV Mission.
Operate separate "expert" product line divisions - Irrigation & Substrates.
* Accessories only to be included if supporting the Mission and creating
critical mass" and margins.
* Geographical area = United States, Mexico, Canada and the Caribbean.
* Local geographical coverage by sales representation in Ontario (Sales +
Warehouse), NJ (S+W), California (S+W), Virginia (W), Florida (S), BC (S+W).
* Separate customer service, finance, accounting functions from ECS.
12
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4. Responsibilities Newco's "Substrates Division":
* "Total Greenhouse Management" ("TGM") consultants.
* Special sales force - Focus on "technical sales", service and customer
loyalty.
* Authorised to take orders, perform sales calls, customer training, etc.
* Train internal Newco staff in "TGM".
* Participate in Grodania education and team building sessions.
* Operational marketing - ad's, fair's, direct mails, etc.
* Link to Grodan help-desk.
* Claim handling according to Grodan standard. Must work after NA legal
practice, however, as far as possible Grodan demands have to be fulfilled.
* "Business management function" responsibility - however can also take orders.
* Be trained in basics of other Newco product lines - able to promote when
possible.
* Could initially consist of 4 employees - a manager (Key Accounts), a
Grodan specialist USA / Mexico, aGrodan specialist Canada and a Pargro
specialist.
* Direct image building PR campaigns and activities (local level).
As defined in the stockholders agreement for Newco Grodania has the exclusive
right to make certain decisions within Newco.
5. Responsibilities Newco's sales staff:
* Full local geographical sales coverage.
* Be trained as generalists in all product lines (and strategies) of Newco.
* Heavy focus on sales.
* Focus on retail.
* Full area sales responsibility.
6. Newco sales & marketing synergy's and co-operation:
* Joint Marketing & Sales Action Plans - sales call's co-ordination &
Customer Management programme between all employees.
* Regular joint progress meetings.
* All staff to be able to promote all Newco products and strategies - Systems
approach by all employees.
* Competitor surveys in co-operation with Grodan Inc.
7. Organisation:
The enclosed chart (to be updated/delivered by Mike) schedules a rough draft
Newco organisation.
All vacancies are according to ADI budgeted in the figures received from ADI.
8. Budget & Plan:
Enclosed ADI balance sheet & income statement as of October 31st 1999 and income
statement 1996-2003 (to be updated/delivered by Mike).
Financial consequences of the organisational changes - incl. 2 advisers more in
substrates, 1 sales person more in BC, set-up of financing/accounting, various
savings and potential extra costs needed for team building and training to be
further evaluated.
13
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B. Grodan Inc.
1. Structure:
For the time being Grodan Inc. will remain a service company - thus avoiding
order processing etc. Orders will thus still be placed directly with Grodania in
DK.
The HQ location to be further evaluated..
2. Responsibilities:
Grodan Inc. will be responsible for:
* Substratus support and expert advise to Newco and the market.
High quality technical "grow-how".
* Digital support & interactive service package - incl. help desk.
* Training of Newco and customers.
* Customer service towards Newco and direct customers - being the link to
Grodania in DK.
* Sales & marketing responsible for direct customers - CGG &
Bonita.
* Strategic marketing - implementation of Grodania strategies (FAB's,
LCP, branding, customer management, etc.) in co-operation with Newco - and
within Newco.
* Co-ordination of marketing plans & campaigns with Newco - in line with global
Grodania campaigns.
* Direct image building PR campaigns and activities (global
level).
* Competitor surveys in co-operation with Newco.
* Link to R&D and production, the R&D to be based on NA market requirements.
3. Co-operation with Newco:
* Grodan Inc. will primarily co-operate with Newco's Substrates division and
the Intensive Farming division.
* Overall issues will be dealt with between senior management of Newco and
Grodania.
* A "strategic committee for substrates" - will a.o. discuss Newco's
substrates strategies. Consisting of - the manager of the IFH division in
Newco, the employees of Newco's substrates division, potentially some
regional Newco sales managers, the manager of Grodan Inc. and the marketing
manager of Grodania (who will act as chairman of the committee).
Henrik Frank Nielsen
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Schedule 2: Operation of the Company's Substrates Division
A. Issues with respect to Newco's Substrates Activities to be decided by Grodan.
1. All general organizational structure issues within the Substrates
Division.
2. Substrates marketing strategies such as positioning strategies
(including products & services & FAB's & pricing differences), customer
management principles, customer loyalty definitions and measurements.
3. Substrates image such as public relations and marketing campaigns,
trademarks, hereunder any decision with respect to the registration of
trademarks, house-style, e.g. labeling, layouts, product presentation etc.
4. Research and development, production, intellectual property rights
activities of any kind.
B. Procedure for obtaining consent with respect to the items listed above.
1. Issue A.1 would be discussed between the manager of the IFH division and
the manager of Grodan America.
2. A "strategic committee for substrates" - will take care of issue A.2
to A.4. The committee will consist of - the manager of the IFH division in Newco
(their sales director), the employees of Newco's Substrates Division, regional
Newco sales managers, the manager of Grodan American and the marketing manager
of Grodan. The marketing manager of Grodan acts as chairman of the committee.
3. If the issues in the opinion of Grodan cannot be resolved in the for
as indicated in 1 and 2, Grodania can at any time request the decision to be
submitted to the Board of Directors in Newco and decided in accordance the
Shareholder's Agreement.
15
______________________________
DATED _______________
AGREEMENT
______________________________
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CONTENTS
Clause Page
- ------ ----
1 Definition 3
2 Subject Matter of Agreement 3
3 Distributor's Obligations 4
4 Supplier's Obligations 5
5 Prices, Terms and Conditions 7
6 Limitation Damages 7
7 Patents and Protection of Designs 8
8 Trademark 8
9 Sub-dealers 9
10 Minimum Requirements 9
11 Limitations 10
12 Duration and Termination 11
13 Law Applicable 12
14 Settlement of Disputes 12
15 Miscellaneous 12
--------------
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THIS AGREEMENT (the "Agreement") is dated _______________ and made
BETWEEN
(a) Agro-Dan, Inc. (hereinafter referred to as the "Distributor"), 10 Alvin
Court, East Brunswick, New Jersey 08816, USA, duly organized and
existing under the laws of the state of Delaware a subsidiary of Eco
Science (hereinafter referred to "ECS"), 10 Alvin Court, duly organized
and existing under the laws of the state of Delaware;
(b) GRODANIA A/S, registration number A/S 104.022, Hovedgaden 501, 2640
Hedehusene, Denmark, duly organized and existing under the laws of
Denmark, (hereinafter referred to as the "Supplier").
In consideration of the mutual promises, agreements, and covenants hereinafter
set forth, it is mutually agreed as follows:
CLAUSE 1 - DEFINITION
SUPPLIER is a supplier of growing substrates based on mineral wool products for
the horticultural industry/intensive greenhouse farming, sold under the
trademark GRODAN(R) (hereinafter referred to as the "Trademark") which may be
manufactured by Supplier or by other members of the Rockwool International
Group. The Agreement comprises products for growing purposes consisting of
propagation units, growing blocks, wrapped and unwrapped slabs and granulates
(hereinafter referred to as the "Products").
CLAUSE 2 - SUBJECT MATTER OF AGREEMENT
2.1. Supplier hereby grants to Distributor the sole and exclusive right to
sell the Products in all of the States of the United States, including
its territories and possessions, Canada, Mexico and the Caribbean
(hereinafter referred to as the "Territory").
Distributor shall not be entitled to export the Products to areas outside the
Territory without the prior written consent from Supplier and
Distributor is obliged to make sales to a third party subject if
legally possible to export clause forbidding exports outside the
Territory by such third party.
2.2. Supplier shall not, except as provided in clause 2.3 and 2.4, export
Products into, or sell
______________________________
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Products in the Territory except to Distributor. Supplier will not
establish any distribution in the Territory nor will it support any
distributor other than AGRO-DAN INC. for sale of products in the
Territory. In the event of any documented infraction by Supplier or
other members of the Rockwool International Group and/or its official
distributors of this clause. Supplier will pay to the Distributor a
mutually agreed upon compensatory commission.
2.3. In the event of larger projects in the Territory being handled outside
the Territory, Supplier will refer such inquiries to Distributor. If
orders for commercial, legal or any other reason cannot be obtained by
Distributor after Distributor has been informed of such orders and
given a reasonable time to obtain them, Supplier is entitled to sell
directly to contractors in question. In such case Distributor is
entitled to receive a commission of 10 percent (based on Ex Works
Price) and payment will take place upon completion of said contract, as
and when payment to Supplier has taken place.
2.4. Supplier can in addition to clause 2.2. and 2.3. by way of direct sales
export Products into or sell Products to customers in the Territory. In
case of such direct sales Supplier will pay to the Distributor a
commission of 10 percent based on ex works prices. The commission will
be due in quarterly installments being payable each January 1, April 1,
July 1, and October 1. Distributor cannot put forward any claims
against Supplier except for Supplier's payment of commission stipulated
in this clause.
It is not the intention of Supplier to actively seek direct sales in
the Territory. Such direct sales and/or exports shall only take place
if Distributor for commercial, legal or any other reason cannot obtain
certain orders after Distributor has been given reasonable time to
obtain such orders.
CLAUSE 3 - DISTRIBUTOR'S OBLIGATIONS
3.1. Distributor shall promptly disclose to Supplier all improvements and
new ways of using the Products useful in connection with the use and
sale of the Products developed by Distributor or seen in the territory
during the term of this Agreement, whether patentable or not, and
Supplier shall have the right to make use of the same royalty free.
Supplier's right to make such use shall survive the termination of the
Agreement.
3.2. All information relating to GRODAN inventions and other information
furnished by Supplier to Distributor and used by the Distributor
pursuant to this Agreement shall be deemed to be the property of
Supplier and to have been disclosed in confidence and shall be held in
confidence by Distributor. Distributor shall exert all faithful and
reasonable efforts to prevent any disclosure thereof to third parties
during the term of this Agreement
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and for so long thereafter as such information shall not be generally
known in the trade.
Nothing in this Clause is intended, or shall be construed to prohibit
disclosure to the adviser referred to in Clause 3.7., or to customers
in connection with the use of the Products.
3.3. Distributor shall keep Supplier currently informed about market
conditions in the Territory i.e. state of competition, pricing,
activities etc.
3.4. On an annual basis, in September each year, Distributor shall give
to Supplier a plan showing the activities which Distributor will carry
through in order to expand the application of the Products in the
Territory. It is imperative that the plan contains an overall picture
of status, budgets and activities, describing the USA, Canada and
Mexico separately.
3.5. Each year before the end of June and December Distributor will furnish
Supplier with a report showing the development of sales in the
Territory compared to the plan and to the corresponding period for the
previous year and a high-light of current activities.
3.6. Distributor shall endeavor to maintain the best possible co-operation
with Supplier in order to maximize sales and in order to secure that
present and potential customers are given a technical, horticultural
advisory service which will enable such customers to appreciate the
full benefits connected with the proper use of the Products and secure
optimal growing results.
3.7. Distributor shall engage fully qualified horticultural, technical
advisors, consistent with market demands and performance requirements
of GRODAN.
3.8. Distributor will, with regular intervals and/or upon reasonable request
disclose to Supplier a list of all customers having purchased the
Products over the previous period. The information per customer will
comprise name, address and telephone number as well as Product(s)
purchased. If available, information about crops, acreage and
applications will be added as well.
3.9. Distributor is under an obligation in the Distributors' Delivery Terms
to insert provisions securing that the Supplier cannot be met with
claims for indirect loss of any kind of product liability from sales to
Peat Mixers (buyers mixing Supplier's granulates with other products
and selling such mixed products to end-users or sub-distributors). If
such a limitation is not included in the Distributor's agreement with
Peat Mixers and end-users, the Distributor may not seek reimbursement
for any claims made by such Peat Mixers and/or end-users. If, however,
such limitation included in the Distributor agreement with Peat Mixers
and/or end-users is deemed unenforceable by applicable law, the
Distributor shall be entitled to seek reimbursement from Supplier from
and against any such claim from Peat Mixers and/or end-users asserted
against Distributor.
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CLAUSE 4 - SUPPLIER'S OBLIGATIONS
4.1. Supplier shall give Distributor access to all information in the
possession of Supplier useful in connection with the sale and use of
the Products. Supplier shall, at his own expense, provide technical
business managers in key marketing areas as deemed necessary by the
Supplier for the purpose of rendering technical advise to Distributor
and/or end-users with respect to sale and application of the Products.
All costs concerned with Distributor's participation to be borne by
Distributor. Supplier is at liberty to pay visits to growers etc. at
his own expense and without Distributor's presence. Both parties agree
that it is of great importance to keep each other informed of customer
visits. Supplier may during the term of the Agreement for strategic
reasons decide to stop services rendering technical advise or otherwise
reorganize the set-up of technical advise for instance by means of
setting up a separate company for this purpose. If such a strategic
decision is made the obligation on the part of the Supplier to render
technical advise shall cease and Distributor will in this case if
needed have such technical services rendered from a third party.
Distributor will still receive technical support free of charge.
4.2. Supplier shall call to the attention of Distributor any other growing
substrates for other market segments, e.g. agriculture, forestry and
retail developed by Supplier - provided they not be replacement for
Products as described under clause 1.1 - during the term of this
Agreement, and Distributor shall have the option to obtain the
exclusive right to sell any such products in the Territory during the
term of this Agreement (including any renewals hereof), ON THE TERMS
STIPULATED IN THIS AGREEMENT
Clause 4.2 does not apply to Supplier's environmental diversification
projects such as Sound Absorbent Walls and Roof Greening which Supplier
is free to develop and market independently of Distributor.
If the Distributor request the Supplier to develop viable products
fitting Distributor's diversification plans, Supplier will in good
faith with active input from Distributor try to reveal whether or not
such a product can be developed. SUPPLIER CANNOT WITHOUT A REASONABLE
CAUSE REJECT SUCH DEVELOPMENT. AS A REASONABLE CAUSE CAN AMONG OTHERS
BE THE COSTS OF DEVELOPMENT, THE MARKET POTENTIAL RELATED TO THE
DEVELOPMENT OF SUCH PRODUCTS.
4.3. Supplier shall pass on to Distributor all relevant information about
the inquiries from the Territory which may reach Supplier.
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4.4. Supplier warrants and represents to Distributor that this Agreement,
when executed and delivered by the parties, will under Danish law be a
valid and binding agreement, enforceable in accordance with its terms.
Likewise, Distributor warrants and represents to Supplier that this
Agreement, when executed and delivered by the parties will under U.S.
law be a valid and binding agreement enforceable in accordance with its
terms.
4.5. Multi brand marketing is an essential part of the Supplier's marketing
concept. THE PARTIES WILL MAKE A JOINT DECISION WITH RESPECT TO SUCH
MULTI BRAND MARKETING ENABLING DISTRIBUTOR TO SELL OTHER BRANDS A right
for Distributor to sell such other brands will not be given unless the
FOLLOWING requirement has been fulfilled:
(i) Distributor shall ensure that among others sales, marketing,
service, advise and distribution channels for such other brand
are separate from that of the Products including - but not
limited to - separate personal handling of the different brands.
The handling of the different brands shall be conducted in such a
way that the customers have the impression that the two brands
are being handled by separate entities.
(ii) The parties agree on sales targets regarding the other brands.
CLAUSE 5 - PRICES, TERMS AND CONDITIONS
5.1. The Supplier has no obligation to supply from any specific location.
The parties have by way of the Agreement modified the clause Ex Works
(INCOTERMS) so that the risk of loss will pass from Supplier to
Distributor at the time where Products have been loaded on to the
carrier at the Supplier's premises in Denmark, Holland and Canada. This
alteration of the time where the risk of loss passes to Distributor has
not in any other way altered the application of the clause Ex Works
(INCOTERMS). 90 days before any change in prices can take effect
Supplier and Distributor will enter into discussions as to the level of
such a change. The decision to make a change in prices is the sole
decision of the Supplier and the Supplier will give 30 days' notice
before any change in prices is effected. The notice shall state the
specific prices regarding Products to be applied after the elapse of
the 30 days' notice period. HOWEVER IT IS AGREED THAT PRICES DURING THE
FIRST YEAR OF THIS AGREEMENT CAN INCREASE NO MORE THAN 4% FROM THE
LEVEL IN FORCE REPRESENTED BY THE CURRENT PRICE LIST AT THE
COMMENCEMENT OF THIS AGREEMENT. FOR THE SECOND YEAR THE MAXIMUM
INCREASE IS 5% AND FOR THE THIRD YEAR 6%.
CLAUSE 6 - LIMITATION DAMAGES
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6.1. Supplier is never to be held responsible for any loss which a defective
delivery might inflict on buyer or third party in connection with
application of the supplied goods. Responsibility for any form of loss
of profits as well as for any loss inflicted on buyer or third party in
consequence of delay or for any other reason is of no concern of
Supplier's. In the event of larger accounts in the Territory requiring
extra security with regard to deliveries Supplier agrees to negotiate
special conditions with Distributor, these negotiations to be carried
out in good faith and within reasonable time.
Supplier and Distributor shall both take out "Product Liability
Insurance" and Supplier and Distributor shall by way of a statement
from either party's insurance company state coverage (amounts per year
and per occurrence) and own risk of the insured.
CLAUSE 7 - PATENTS AND PROTECTION OF DESIGNS
7.1. Distributor undertakes not in any way to attack directly or through
third parties the patents or other proprietary rights belonging to
Supplier.
Apart from the above situation Supplier shall indemnify and hold
Distributor harmless from and against any and all claims, damages,
losses, and expenses (including reasonable attorney's fees) based upon
or arising out of any claim or determination (and the investigation
thereof) that the Products violate patents or other proprietary rights
of third parties. Supplier at its sole cost and expense may upon notice
to Distributor assume through counsel the defense of any litigation
brought by a third party.
Should Supplier after having been presented with a claim or
determination as mentioned above decide to assume the defense or to
discontinue legal action already assumed, Supplier may terminate this
Agreement with Distributor and Supplier shall only be obliged to pay
damages and losses suffered by Distributor as provided in the first
sentence of second paragraph of this clause 7.1 and expenses to
Distributor. Distributor as provided in the first sentence on the
second paragraph of this clause 7.1 shall in this case not be entitled
to raise any claim for any other damages or losses.
Should Distributor in this case wish to assume the defense of legal
action brought by third party Distributor shall be entitled to do so at
its own expense. Should Distributor win the legal action the Agreement
shall remain in full force and effect.
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CLAUSE 8 - TRADEMARK
8.1. Supplier has or shall endeavor to register the "Trademark" and
Distributor shall be entitled to use the Trademark during the term of
this Agreement, but shall not be entitled to register or use, either
during the term of this Agreement or at any time hereafter, any mark or
name having such similarity to the Trademark as would be likely to
cause confusion.
The Trademark and any and all good-will associated with symbolized by
the Trademark shall be the property of Supplier.
Distributor may in connection with the distribution of Products use the
name "AGRO DYNAMICS INC." or a variant thereof, all of which shall
remain the sole property of Distributor. If distribution is to be made
in name of another company this is to be approved by Supplier which
shall not be unreasonably withheld.
CLAUSE 9 - SUB-DEALERS
9.1. Distributor shall not be entitled to grant any right to third parties
in the Territory to sell any of the Products, without previous written
consent of the Supplier, which shall not, however, be unreasonably
withheld.
CLAUSE 10 - TARGETS
10.1. Distributor will, during the term of this Agreement, consistent with
sound business practice and using its reasonable efforts, sell and
purchase the maximum amount of Products practicable.
Distributor shall in consultation with Supplier and on an annual basis
in the third quarter of each calendar year, evaluate project
potentials, sales and market share targets and activities for the
following calendar year per.
1. Geographical marketing area
2. Application area
3. Product group
A minimum growth per year (within the product groups mentioned in
clause 1.1.) over five (5) years in U.S. sales dollar purchases (ex
works) will be required in order to satisfy
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the mutually agreed upon expectations of both Supplier and Distributor.
TARGETS per year:
2000: amounts sold for the year 1999 + 15%
2001: amounts sold for the year 2000 + 14%
2002: amounts sold for the year 2001 + 13%
2003: amounts sold for the year 2002 + 12%
2004: amounts sold for the year 2003 + 11%
The TARGETS comprehend only the Products and not additional products
sold by Distributor according to clause 4.2 or 4.5
Any GRODAN products imported into the Territory through other channels
than Distributor's shall be recorded by both parties at ex works
equivalent price level and credited to the minimum yearly purchases
Distributor will maintain a reasonable stock of the Products in the
Territory, the quantity to be agreed upon by both parties acting
reasonably and in good faith. Supplier will maintain a reasonable level
of product quality and delivery service. On the other hand, Distributor
will not exceed reasonable stock levels with the sole purpose of
reaching minimum purchase levels otherwise not obtained.
In the event Supplier has severe difficulties in fulfilling
Distributor's product requirements within agreed delivery times and
Distributor, as a cause of Supplier's failure to deliver, therefore
cannot meet minimum requirements, the minimum purchase requirements
shall be reduced accordingly.
10.2. THE TARGETS ARE MERELY GUIDELINES FOR THE DEVELOPMENT IN THE PURCHASE
AND A NON-FULFILLMENT CANNOT GRANT SUPPLIER THE RIGHT TO TERMINATE THE
AGREEMENT.
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Agro-Dan, Inc. & Grodania A/S
<PAGE>
10.3. Distributor's obligation to purchase the Products shall be excused if
Distributor's or Supplier's failure to perform is due to force majeure,
war, fire, flood, severe weather, accident, strike, delay in
transportation, order of a court or governmental agency, or other
causes - including but not limited to a new or current supplier buying
market share - reasonably beyond the control of the party failing to
perform.
CLAUSE 11 - LIMITATIONS
11.1. During the term of this Agreement Distributor shall not, directly or
indirectly, deal in or produce any products competing with the Products
or any other directly or indirectly competing product in any market
segment including - but not limited to - products for retail, forestry
and agriculture. Any other growing media is regarded as a competitive
product, unless otherwise is agreed to in writing which agreement shall
not be unreasonably withheld by Supplier.
Upon termination of this Agreement whatever the reason might be, both
parties are mutually committed not to pass on any confidential
information having been given by the other party.
CLAUSE 12 - DURATION AND TERMINATION
12.1. This Agreement shall commence January 1, 2000 and continue until
December 31, 2004.
This Agreement shall automatically be extended for successive FIVE(5)
year terms unless either party by at least six (6) months prior written
notice to the other given during the then current term elects
reasonably and in good faith to terminate this Agreement at the end of
the then current term. This Agreement may also be terminated as
elsewhere in this Agreement expressly provided. Any termination of this
Agreement as provided anywhere herein shall not effect any rights or
claims of any party arising prior to such termination.
12.2. In the event that either Supplier or Distributor determines during the
original or any extended term of this Agreement to construct or acquire
and operate in the Territory greenhouses or other facilities utilizing
the Products, it will advise the other.
12.3. Either party may terminate the Agreement if the other party fails to
perform any material obligation according to the Agreement. As an
example of a material obligation a reference can be made to clause
12.5. If a material obligation under the Agreement is not being
complied with, the non-
______________________________
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Agreement between
Agro-Dan, Inc. & Grodania A/S
<PAGE>
defaulting party can forward a demand to the defaulting party stating
that a non-compliance has occurred and the nature of such
non-compliance. The defaulting party must be given a 2 weeks' notice
from receipt of the demand in order to remedy the breach. If the
defaulting party has not remedied the breach within this time limit,
the non-defaulting party can terminate the Agreement with immediate
effect.
In the event that Distributor shall become involvent, or go bankrupt,
or shall be placed under control of a receiver, liquidator, or
committee of creditors, or in the vent of a judicial or voluntary
liquidation of Distributor, this Agreement may be terminated by the
Supplier with immediate effect.
12.4. IF ANY OF THE CIRCUMSTANCES LISTED IN THE SHAREHOLDERS AGREEMENT
BETWEEN AGRO DYNAMICS INC AND SUPPLIER SECTION 6.0 (A) OCCURS SUPPLIER
SHALL BE ENTITLED TO TERMINATE THIS AGREEMENT IMMEDIATELY UPON WRITTEN
NOTICE TO DISTRIBUTOR.
12.5. In the event that Mr. Michael A. DeGiglio is not Chief Executive
Officer of Distributor or member of the Board of Directors of
Distributor and/or ECS, the Board of Directors of ECS shall present
Supplier within two (2) months a comprehensive and detailed succession
plan regarding the newly appointed individual and the nature of the
future business relationships between Supplier and Distributor.
12.6. In the event that Supplier decides to completely abandon sales and
distribution of the Products in the Territory for financial,
environmental or other reasons, Supplier may at this sole discretion
terminate this Agreement with three (3) months prior written notice.
CLAUSE 13 - LAW APPLICABLE
13.1. This Agreement shall be deemed to have been made in Denmark, and Danish
law shall apply to all disputes about its proper interpretation and
application.
CLAUSE 14 - SETTLEMENT OF DISPUTES
14.1. Any disputes arising under this Agreement shall be settled in
accordance with the "Rules of Procedure of the International Court of
Arbitration" in Copenhagen.
CLAUSE 15 - MISCELLANEOUS
15.1. Distributor shall pay any stamp duty imposed in the Territory whereas
Supplier shall pay the Danish stamp duty if any.
______________________________
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Agreement between
Agro-Dan, Inc. & Grodania A/S
<PAGE>
15.2. Either Party shall retain one copy of this Agreement duly signed.
15.3. If any of the provisions contained in this Agreement be or come
illegal, such provisions shall be subject to re-negotiations and the
remaining provisions of this Agreement shall remain in full force and
effect.
15.4. Any amendments to this Agreement shall be deemed to be invalid unless
made in writing and signed by both parties.
15.5. The Distributor will accept that the Supplier transfers all his rights
and obligations to this Agreement to an "Affiliate" of the Supplier.
15.6. ECS and AGRO DYNAMICS INC has by co-signing this Agreement accepted the
Agreement as jointly and severally liable for Distributor's obligations
under the Agreement. WITH RESPECT TO PAYMENTS OF OVERDUE AMOUNTS THE
LIABILITY ON THE PART OF ECS AND AGRO DYNAMICS INC WILL BE EQUIVALENT
TO 51% OF ANY SUCH AMOUNT BEING OVERDUE AT ANY TIME.
*****
(the Distributor) (the Supplier)
AGRO-DAN, INC. GRODANIA A/S
by:/ by:/
- ------------------------------------------ -------------------------------
Name: Henrik Frank Nielsen
Title: Managing Director
AGRO DYNAMICS, INC.
by:/
- -----------------------------------------
Name:
Title:
ECOSCIENCE:
by:/
- -----------------------------------------
Name:
Title:
______________________________
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Agreement between
Agro-Dan, Inc. & Grodania A/S
JOINT VENTURE AGREEMENT
BY AND AMONG
ECOSCIENCE CORPORATION,
AGRO DYNAMICS, INC.
AND
GRODANIA A/S
JANUARY 12, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................1
1.1 Definitions.........................................................................1
ARTICLE II THE TRANSACTIONS............................................................................8
2.1 Formation of NEWCO..................................................................8
2.2 ADI Contribution of Assets and Liabilities..........................................8
2.3 Grodan Contribution................................................................10
2.4 Issuance of Common Stock...........................................................10
2.5 Timing.............................................................................10
ARTICLE III CLOSING................................................................................... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ADI......................................................11
4.1 Organization; Capitalization.......................................................11
4.2 Subsidiaries.......................................................................11
4.3 Authorization of Agreements, No Conflict, Etc......................................12
4.4 Title to Properties................................................................12
4.5 Leases.............................................................................13
4.6 Condition of Property..............................................................13
4.7 Compliance with Laws, Etc..........................................................13
4.8 Intellectual Property..............................................................15
4.9 Books and Records..................................................................15
4.10 Receivables........................................................................15
4.11 Litigation.........................................................................15
4.12 Material Contracts.................................................................16
4.13 Labor Matters......................................................................17
4.14 Financial Statements...............................................................17
4.15 Absence of Certain Changes or Events...............................................17
4.16 Undisclosed Liabilities............................................................18
4.17 Tax Matters........................................................................18
4.18 Insurance..........................................................................19
4.19 Employee Benefits..................................................................19
4.20 Employees..........................................................................22
4.21 Environmental Matters..............................................................22
4.22 Affiliate Transactions.............................................................24
4.23 Authorization of Transaction by ES.................................................24
4.24 Ownership of Common Stock of Seller................................................25
4.25 Sufficiency of Purchased Assets....................................................25
4.26 Broker's or Finder's Fees..........................................................25
4.27 Disclosure.........................................................................25
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF GRODAN...................................................25
5.1 Organization of Grodan.............................................................25
5.2 Authorization of this Agreement, Etc...............................................26
5.3 Broker's or Finder's Fees..........................................................26
ARTICLE VI COVENANTS..................................................................................26
6.1 Covenants of ES and ADI............................................................26
6.2 Filings and Governmental Consents..................................................28
6.3 Post Closing Cooperation/Further Assurances........................................28
6.4 Employment Matters.................................................................29
6.5 Financial Due Diligence............................................................30
6.6 Notification.......................................................................30
6.7 Non-Compete........................................................................31
ARTICLE VII CONDITIONS TO OBLIGATIONS OF GRODAN........................................................31
7.1 Representations, Warranties and Covenants of ADI and ES............................31
7.2 Absence of Proceedings.............................................................32
7.3 Due Diligence......................................................................32
7.4 Opinion of Counsel to Seller.......................................................32
7.5 Consents or Approvals..............................................................33
7.6 Other Agreements...................................................................33
7.7 Bill of Sale.......................................................................34
7.8 Conveyance; Assignment and Assumption Agreement....................................34
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF ADI...........................................................35
8.1 Representations, Warranties and Covenants of Grodan................................35
8.2 Absence of Proceedings.............................................................35
8.3 Opinion of Grodan's Counsel........................................................35
8.4 Consent of Century.................................................................36
8.5 Other Agreements...................................................................36
ARTICLE IX TERMINATION................................................................................37
9.1 Termination........................................................................37
9.2 Effect of Termination..............................................................37
ARTICLE X INDEMNIFICATION............................................................................38
10.1 Indemnification of Grodania and NEWCO..............................................38
10.2 Indemnification of ADI and ES......................................................38
10.3 Claims for Indemnification.........................................................38
10.4 Materiality or Knowledge...........................................................39
10.5 Method of Payment of Indemnification...............................................39
10.6 Limitations on Indemnification.....................................................39
ARTICLE XI MISCELLANEOUS..............................................................................40
11.1 Expenses...........................................................................40
11.2 Survival...........................................................................40
11.3 Notices............................................................................40
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
11.4 Assignment; Successors and Assigns.................................................42
11.5 Entire Agreement...................................................................42
11.6 Governing Law; Construction........................................................42
11.7 Construction.......................................................................42
11.8 Severability.......................................................................42
11.9 Arbitration........................................................................43
11.10 Captions...........................................................................43
11.11 Counterparts.......................................................................43
11.12 Publicity..........................................................................43
11.13 Waiver.............................................................................43
11.14 No Third Party Beneficiaries/No Partnership........................................44
</TABLE>
Exhibits & Schedules
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
2.1 Newco Certificate of Incorporation & By-Laws
2.2 Assumption Agreement
6.1(g) Terms of APD/NEWCO Supply Agreement
7.6(a) Stockholders' Agreement
7.6(b) Distribution Agreement between Newco and Grodan
7.6(e) Michael DeGiglio Noncompetition Agreement
7.6(g) Cost-Sharing Agreement
<CAPTION>
Schedules
- ---------
<S> <C>
2.2.1 Contributed Assets of ADI
2.2.2 Excluded Assets of ADI
2.2.3 Assumed Liabilities of ADI
4.1 ADI's jurisdiction of incorporation and the jurisdictions in which ADI is authorized to do
business; liens on ADI stock
4.2 Liens on ADCI capital stock
4.3 Conflicts/Necessary Consents of ADI
4.4 Liens on property owned by ADI
4.5 ADI & ADCI Leases
4.6 Inventory of Property
4.7 Governmental Authorizations held by ADI and ADCI
4.8 Intellectual Property of ADI and ADCI
4.10 Accounts Receivable of ADI and ADCI
4.11 Litigation involving ADI
4.12 Material Contracts of ADI
4.13(b) Proceedings involving ADI Related to Labor Law
4.14 Financial Statements of ADI
4.15 Deviations form the Ordinary Course of Business by ADI and ADCI since
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
1/1/99
4.16 Liabilities of ADI and ADCI
4.17 Tax Issues Related to ADI and ADCI
4.18 Insurance policies held by ADI and ADCI
4.19 Employee Benefits Plans
4.20 List of ADI employees
4.21 Environmental Compliance
4.22 Affiliate Transactions
4.24 Ownership of Common Stock of ADI
6.4 Terms and conditions of employment for individuals appointed by Grodan
</TABLE>
(iv)
<PAGE>
JOINT VENTURE AGREEMENT
JOINT VENTURE AGREEMENT, dated as of January 12, 2000, by and among
EcoScience Corporation, a Delaware corporation ("EcoScience" or "ES"), Agro
Dynamics, Inc., a Delaware corporation wholly owned by ES ("ADI") and Grodania
A/S, a Denmark corporation or its designee ("Grodan").
WHEREAS, ADI and Grodan have had an ongoing business relationship pursuant
to which ADI has been a distributor of Grodan substrates products for the
horticultural and greenhouse farming industry; and
WHEREAS, the parties wish to expand their business relationship and
establish a new entity to conduct the ongoing business operations of ADI which
is to be owned 51% by ADI and 49% by Grodan or a direct or indirect subsidiary
of Grodan;
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained herein, and upon the terms and subject to the
conditions hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS.
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Accounts Receivable" has the meaning set forth in Section 4.10.
"Affiliate" means a Person that, directly or indirectly through one or more
intermediaries, Controls, is Controlled by or is under common Control with, the
first mentioned Person.
"Affiliated Group" less has the meaning set forth in Section 4.17.
"Applicable Labor Law" means any and all laws, regulations, ordinances,
statutes or codes enacted by any Governmental Body, regarding or pertaining to
labor, employment, hiring, firing, equal employment opportunity, discrimination,
layoffs, session of employment, leaves of absence, immigration, wages, hours,
benefits, collective bargaining, labor relations, payment of social security and
similar taxes, occupation safety and health, plant closing, employment loss (as
that term is used in the WARN Act), independent contracting, affirmative action,
or contribution or portability of insurance benefits.
"Assumed Liabilities" has the meaning set forth in Section 2.2.
"Balance Sheet" has the meaning set forth in Section 4.14.
"Business Day" means any Day on which banks in the State of New Jersey are
not authorized or required to close.
<PAGE>
"Closing" has the meaning set forth in Article III.
"Closing Date" has the meaning set forth in Article III.
"Closing Documents" means all agreements and documents to be executed or
delivered in connection with the closing of the transactions contemplated by
this Agreement, including, without limitation, the documents described in
Article VII.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted or followed by the EcoScience Group or an ERISA Affiliate of the
EcoScience Group.
"Company Plan" means all Plans of which the EcoScience Group or an ERISA
Affiliate of the EcoScience Group is or was a Plan Sponsor, or to which the
EcoScience Group or an ERISA Affiliate of the EcoScience Group otherwise
contributes or has contributed, or in which the EcoScience Group or an ERISA
Affiliate of the EcoScience Group otherwise participates or has participated.
All references to Plans are to Company Plans unless the context requires
otherwise.
"Contracts" has the meaning set forth in Section 4.12.
"Contributed Assets" has the meaning set forth in Section 2.2.
"Control" (including the terms "Controlled," "Controlled by" and "under
common Control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
"Covenant Properties" means land and buildings owned, occupied or used by
the EcoScience Group.
"Day" means a calendar day.
"EcoScience Business" means any business activity undertaken by the
EcoScience Group.
"EcoScience Group" means, individually and collectively, EcoScience, ADI,
Agro Power Development, Inc., a Delaware corporation ("APD") and their
Affiliates.
"Employee Benefit Plan" means any (a) bonus, incentive compensation, profit
sharing, retirement, pension, group insurance, death benefit, group health,
medical expense reimbursement, dependent care, stock option, stock purchase,
stock appreciation rights, phantom stock, savings, deferred compensation,
consulting, severance pay, termination pay, vacation pay, leave of absence,
layoff, life insurance, accident, disability, workers' compensation, welfare or
2
<PAGE>
other employee benefit or fringe benefit plan, program, arrangement, practice or
policy, or (b) plan, program, arrangement, practice or policy, which is an
"employee pension benefit plan" as such term is defined in Section 3(2) of ERISA
or an "employee welfare benefit plan" as such term is defined in Section 3(1) of
ERISA, whether written or unwritten.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Claims" means any and all allegations, actions, orders,
decrees, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or violation, or causes
of action for any damage or lost use of property, by any Person, alleging
potential Liability (a) arising out of the operation of the EcoScience Business
prior to Closing based upon the presence, Release, or Threat of Release of any
Hazardous Materials on the Covenant Properties or Former Properties, owned,
leased or operated by the EcoScience Group prior to Closing; (b) arising out of
any violation of any Environmental Law by the EcoScience Group prior to Closing;
or (c) arising out of Environmental Matters that would result in such Liability
based upon Environmental Laws.
"Environmental Laws" means all applicable federal, state, district, local,
municipal, foreign, international, multinational or other law, administrative
order, constitution, ordinance, principal of common law, regulation, code,
statute or treaty, all rules or regulations promulgated thereunder, and all
orders, consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the Environment and human health including (i) laws relating to emissions,
discharges, Releases or Threatened Releases of Hazardous Materials, pollutants,
contaminants, chemicals, industrial materials, wastes of all types or other
substances into the Environment; and (ii) laws relating to the identification,
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, recycling, recovery, shipment, transport or other handling of
Hazardous Materials, pollutants, contaminants, chemicals, industrial materials,
wastes of all types or other substances. Environmental Laws include but are not
limited to the Comprehensive Environmental Response, Compensation and Liability
Act, as amended (42 U.S.C. ss. 9601 et seq.) and the regulations thereunder
("CERCLA"), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et.
seq.) and the regulations thereunder ("RCRA"), the Toxic Substances Control Act
(15 U.S.C. ss.ss. 2601, 2606) ("TSCA"), the Hazardous Materials Transportation
Act, the Federal Water Pollution Control Act ("FWPCA"), the Clean Air Act (42
U.S.C. ss. 7401, 7412) (the "Clean Air Act"), the Safe Drinking Water Act,
the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), and the
Occupational Safety and Health Act ("OSHA"), all as amended prior to Closing;
"Environmental Losses" means any losses, damages, Liabilities, Harm,
penalties, charges and claims and reasonably and properly incurred costs and
expenses suffered or incurred pursuant to Environmental Laws (but for the
avoidance of doubt excluding consequential loss and loss of opportunity or
future profits) and "Loss" shall be construed accordingly.
"Environmental Matters" means, in relation to the EcoScience Business and
the Covenant Properties and Former Properties, all matters relating to Releases,
Environmental
3
<PAGE>
Losses, Liability or Harm to the Environment, whether by Releases or Threat of
Releases of Hazardous Materials or by other means;
"Environmental Permits" means all permits, licenses, registrations,
authorizations, approvals, consents or orders of, or filings with, or
notifications to, any Governmental Body, or required under Environmental Laws or
necessary for the present and continued conduct of the EcoScience Business at
the Covenant Properties;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"ERISA Affiliate" means, with respect to the EcoScience Group, any other
person that, together with the EcoScience Group, would be or has been treated as
a single employer under Section 4001(b) of ERISA or Section 414 of the Code.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Former Properties" means all land and buildings previously owned, occupied
or used by the EcoScience Group.
"GAAP" means generally accepted accounting principles in the United States.
"Grodan's Business" means the substrates business and services as such
services relate to the substrates business engaged in by Grodan.
"Governmental Authorization" means any approval, consent, license,
variance, permit, conditional use permit, waiver or other authorization issued,
granted, given or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
"Governmental Body" means any (i) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (ii) federal, state,
local, municipal, foreign, or other government, (iii) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal), (iv)
multi-national organization or body, or (v) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power.
"Green Meteor Agreement" means that certain distribution agreement, dated
March 10, 1998, between ADI and Green Meteor B.V.
"Harm" means harm to the health of any living organism or other
interference with the ecological systems of which its forms a part and, in the
case of human beings, includes offense to any of the senses, impairment of
amenity and damage to property;
4
<PAGE>
"Hazardous Materials" means any
(i) "hazardous substance," "pollutants" or "contaminant" (as defined in
Sections 101(14) and (33) of CERCLA or the regulations issued pursuant to
Section 102 of CERCLA and found at 40 C.F.R. ss. 302), including any
element, compound, mixture, solution or substance that is or may be
designated pursuant to Section 102 of CERCLA;
(ii) substance that is or may be designated pursuant to Section
311(b)(2)(A) of the FWPCA, as amended (33 U.S.C.ss. 125, 1321(b)(2)(A));
(iii) hazardous waste having the characteristics identified under or listed
pursuant to Section 3001 of RCRA or having characteristics that may
subsequently be considered under RCRA to constitute a hazardous waste;
(iv) substance containing petroleum, as that term is defined in Section
9001(8) of RCRA;
(v) toxic pollutant that is or may be listed under Section 307(a) of FWPCA;
(vi) hazardous air pollutant that is or may listed under Section 112 of the
Clean Air Act;
(vii) imminently hazardous chemical substance or mixture with respect to
which action has been or may be taken pursuant to Section 7 of TSCA; (viii)
asbestos, asbestos-containing material;
(ix) waste oil and other petroleum products; and
(x) any other toxic materials, contaminants, or hazardous substances or
wastes pursuant to any Environmental Law.
"Hoogendoorn Agreement" means that certain distribution agreement, dated
March 10, 1995 between ADI and H. Hoogendoorn Automation B.V.
"ICC" means the International Chamber of Commerce located in Paris, France.
"ICC Rules" means the Rules of Arbitration of the ICC in effect on the date
that a dispute is submitted to the ICC for arbitration.
"including" means including without limitation.
"Indemnified Party" means the party or parties claiming a right to
indemnification pursuant to Article X.
"Indemnifying Party" means the party or parties from whom indemnification
is sought pursuant to Article X.
5
<PAGE>
"Intellectual Property" means patents, trademarks, service marks, trade
dress, logos, trade names, corporate names assumed names, and copyrights
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith.
"IRS" means the Internal Revenue Service.
"Law" has the meaning set forth in Section 4.3.
"Lease" or "Leases" means all of the right, title and interest of ADI and
ADCI in, to and under all leases, subleases, licenses and/or other occupancy
agreements affecting real property except as set forth on Schedule 2.2.2.
"Legal Requirement" means any applicable federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, code,
statute, or treaty.
"Liability" means any liability or obligation of any kind whatsoever,
whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, determined or indeterminable,
due or to become due.
"Lien" means any lien, claim, pledge, security interest, mortgage, charge,
easement, right-of-way, encroachment, covenant and/or restriction restricting
use or the manner of use, lease, right of use or other encumbrance or third
party right of any kind, whether written or oral.
"Litigation" has the meaning set forth in Section 10.3.
"Losses" means any and all claims, demands, losses, costs, damages,
obligations, Liabilities, judgments, settlements, including interest and
penalties thereon, Taxes, costs and expenses of any nature whatsoever (including
reasonable attorneys fees).
"Multiemployer Plan" has the meaning given in ERISA Section 3(37)(A).
"NEWCO's Business" means sales, marketing and distribution of products and
services to the horticultural industry.
"Ordinary Course of Business" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if (a) such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person, (b) such
action is not required to be authorized by the board of directors of such Person
(or by any Person or group of Persons exercising similar authority) and (c) such
action is similar in nature and magnitude to actions customarily taken, without
any authorization by the board of directors (or by any Person or group of
Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person; provided, however, in no event shall transactions involving
Affiliates be deemed to be in the Ordinary Course of Business.
6
<PAGE>
"Other Benefit Obligation" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of Code Section 132.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" has the meaning given in ERISA Section 3(3).
"Plan Sponsor" has the meaning given in ERISA 3(16)(B).
"Proceeding" means any claims, lawsuits, charges, complaints, grievances,
investigations, audits, arbitrations, or disputes initiated or brought before
any Governmental Body.
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of Code Section 401(a).
"Release" means any spilling, leaking, emitting, emptying, injection,
disposing, discharging, depositing, escaping, leaching, dumping, or other
releasing into the Environment, or within any building, structure, facility or
fixture whether intentional or unintentional.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means with respect to any Person, any corporation, association
or other business entity of which at least 50% of the total voting power in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person.
"Taxes" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, gross income, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, governmental Lien or other like assessment or
charge of any kind whatsoever, including any interest, surcharge, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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"Threat of Release" means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment or
human health that may result from such Release.
"Threatened" means a claim, proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"VEBA" means a voluntary employees' beneficiary association under Code
Section 501(c)(9).
"WARN Act" means the U.S. Worker Adjustment Retraining and Notification
Act, including all amendments and Department of Labor Regulations promulgated
pursuant to such Act.
ARTICLE II
THE TRANSACTIONS.
Section 2.1 Formation of NEWCO. On or prior to the Closing Date, ADI shall
cause a new corporation to be incorporated in the State of Delaware ("NEWCO").
The Certificate of Incorporation and By-Laws of NEWCO shall be as set forth on
Exhibit 2.1.
Section 2.2 ADI Contribution of Assets and Liabilities. (a) On the Closing
Date, ADI shall contribute, transfer, assign and deliver to NEWCO all of ADI's
right, title and interest in and to substantially all its assets, real, personal
and intangible which shall include all of the issued and outstanding capital
stock of ADCI (as hereinafter defined), Leases, Contracts and that certain
Single Block System Agreement, dated September 29, 1997 among ADI and Grodan
(collectively, the "Contributed Assets"). Schedule 2.2.1 sets forth a detailed
description of the classes and types of assets that comprise the Contributed
Assets and the cost basis of such assets on the financial and tax records of ADI
as of December 5, 1999. The Contributed Assets shall include the assets
reflected on Schedule 2.2.1 giving effect to the business operations of ADI in
the Ordinary Course of Business since December 5, 1999. The Contributed Assets
shall not include any receivables of ADI due from EcoScience and its
Subsidiaries, including APD, and such other assets as set forth on Schedule
2.2.2 (the "Excluded Assets").
(b) On the Closing Date, ADI shall also transfer and assign to NEWCO all of
ADI's obligations with respect to the classes and types of Liabilities set forth
and described on Schedule 2.2.3. (the "Assumed Liabilities"). Schedule 2.2.3
sets forth the description and amount of all of the classes and types of
Liabilities that will comprise the Assumed Liabilities as of December 5, 1999.
The Assumed Liabilities shall include the Liabilities reflected on Schedule
2.2.3 giving effect to the business operations of ADI (increases and decreases)
in the Ordinary Course of Business with respect to such assets since December 5,
1999. Notwithstanding anything to the contrary, in no event shall the Assumed
Liabilities include:
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(i) the Liabilities of ADI arising under that certain Distribution
Agreement dated September 29, 1997 between ADI and Grodan (the "Grodan
Distribution Agreement");
(ii) any Liabilities whatsoever that are not Assumed Liabilities;
(iii) any Liabilities owed to EcoScience and its Subsidiaries including
APD;
(iv) Taxes accrued for, applicable to or arising from any period ending on
or prior to the Closing or in connection with the consummation of the
transactions contemplated hereby and any Liability of EcoScience, ADI and
their Subsidiaries for the unpaid Taxes of any Person under Treasury
Regulation ss.1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract of otherwise, except for
sales taxes accrued on Schedule 2.2.3 and incurred subsequent to December
5, 1999 in the Ordinary Course of Business and to the extent that such
Taxes are to be reimbursed after the Closing pursuant to the Cost Sharing
Agreement;
(v) any obligation of ADI to indemnify any Person by reason of the fact
that such Person was a director, officer, employee or agent of ADI or was
serving at the request of ADI as a partner, trustee, director, officer,
employee or agent of another entity (whether such indemnification is for
judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses or otherwise and whether such indemnification is pursuant
to any statute, charter document, bylaw, agreement or otherwise);
(vi) any Liability of ADI for costs and expenses incurred in connection
with this Agreement and the transactions contemplated herein, except (1)
for reasonable legal fees owed to Giordano, Halleran and Ciesla in an
amount not to exceed $50,000 which shall be paid by NEWCO; and (2) the
reasonable fees owed to Arthur Andersen in connection with advisory
services rendered in connection with the transactions contemplated by this
Agreement and the fiscal 1999 audit of ADI in an amount not to exceed
$30,000 which shall be paid by NEWCO.
(vii) any Liability or obligation of ADI under this Agreement and the
transactions contemplated hereby or resulting from the consummation of such
transactions;
(viii) any Environmental Liability or Environmental Losses arising solely
from occurrences, conditions or Environmental Matters which existed on or
prior to the Closing Date, or, for any such Environmental Liability or
Environmental Losses arising from occurrences, conditions or Environmental
Matters which existed both before and after the Closing, the portion of any
such Environmental Liability or Environmental Losses caused by said
occurrences, conditions or Environmental Matters which existed prior to the
Closing Date;
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(ix) any Liability or obligation relating to the Employee Benefit Plans of
the EcoScience Group, including but not limited to any Liability or
obligation with respect to COBRA or any Multiemployer Plan (as defined in
Section 3(37) or 4001(a)(3) of ERISA) except as set forth on Schedule 2.2.3
and incurred subsequent to December 5, 1999 in the Ordinary Course of
Business and to the extent that such Liabilities are to be reimbursed after
the Closing pursuant to the Cost Sharing Agreement; and
(x) any Liability or obligation not expressly set forth on Schedule 2.2.3.
NEWCO shall at the Closing execute and deliver an Assignment and Assumption
Agreement substantially in the form set forth on Exhibit 2.2 (the "Assumption
Agreement").
Section 2.3 Grodan Contribution. On the Closing Date, Grodan shall (A)
transfer to NEWCO an amount of cash equal to the difference between (i)
$3,087,000 and (ii) the total amount outstanding pursuant to the Grodan
Distribution Agreement which is estimated to be approximately $2,800,000 as of
the date of this Agreement and (B) execute a document assigning ADI the right to
collect the total amount outstanding pursuant to the Grodan Distribution
Agreement owed to Grodan pursuant to the Grodan Distribution Agreement.
Section 2.4 Issuance of Common Stock. On the Closing Date, NEWCO shall
issue (A) 51 shares of common stock $.10 par value per share of NEWCO (the
"Common Stock") to ADI and (B) 49 shares of Common Stock to Grodan.
Section 2.5 Timing. The transactions contemplated under Section 2.1 to 2.4
shall occur simultaneously and none of the transactions shall be deemed to occur
until all such transactions shall have occurred.
ARTICLE III
CLOSING.
Except as otherwise set forth herein, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the law
offices Giordano, Halleran & Ciesla in Middletown, New Jersey, commencing at
10:00 a.m. local time on the later of (a) January 31, 2000, or (b) the second
Business Day following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective parties will take
at the Closing itself) or such other date as the parties may mutually determine
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ADI.
To induce Grodan to enter into this Agreement, and to consummate the
transactions contemplated, each of ES and ADI represents and warrants to Grodan
as follows:
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Section 4.1 Organization; Capitalization.
(a) ADI is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation, has all requisite
corporate power and authority to own and lease its properties and carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of properties makes such
qualification necessary except where the failure to be so qualified would not
have a material adverse effect on ADI . Schedule 4.1 contains a complete and
accurate list of ADI's jurisdiction of incorporation and other jurisdictions in
which it is authorized to do business.
(b) As of the date of this Agreement, the authorized and outstanding
capital stock of ADI is as set forth on Schedule 4.1. Except as set forth on
Schedule 4.1, there is outstanding no security, option to purchase, warrant,
right, call, subscription, pledge, agreement, commitment, right of first refusal
or understanding of any nature whatsoever, fixed or contingent, that directly or
indirectly (i) calls for the issuance, sale, pledge or other disposition of any
capital stock of ADI or any securities convertible into, or other rights to
acquire, any of the capital stock of ADI; (ii) obligates ADI to grant, offer to
grant or enter into any of the foregoing; or (iii) relates to the voting or
control of such capital stock, securities or rights. All of the issued and
outstanding shares of capital stock of ADI are owned by ES and held of record by
ES and are free and clear of all Liens except as set forth on Schedule 4.1.
Section 4.2 Subsidiaries.
(a) ADI does not own or have any right to acquire, directly or indirectly,
any capital stock of any corporation or have any direct or indirect equity or
ownership interest in any corporation, business trust, firm, association,
partnership, joint venture, entity or organization, except for Agro Dynamics
Canada, Inc., a corporation organized under Ontario law ("ADCI") of which all of
the issued and outstanding shares of capital stock are owned by ADI and held of
record by ADI and are free and clear of all Liens except as set forth on
Schedule 4.2. ADCI is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation, has all requisite
corporate power and authority to own and lease its properties and carry on its
business as it is now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of properties makes such
qualification necessary except where the failure to be so qualified would not
have a material adverse effect on ADCI. Ontario is the only jurisdiction in
which ADCI is authorized to do business. Except for ADCI, ADI does not now have
and has never had any Subsidiary.
(b) There is outstanding no security, option to purchase, warrant, right,
call, subscription, pledge, agreement, commitment, right of first refusal or
understanding of any nature whatsoever, fixed or contingent, that directly or
indirectly (i) calls for the issuance, sale, pledge or other disposition of any
capital stock of ADCI or any securities convertible into, or other rights to
acquire, any of the capital stock of ADCI; (ii) obligates ADI or ADCI to grant,
offer to grant or enter into any of the foregoing; or (iii) relates to the
voting or control of such capital stock, securities or rights.
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Section 4.3 Authorization of Agreements, No Conflict, Etc.
(a) Each of ES and ADI has the full legal right, power and authority to
execute and deliver this Agreement and the Closing Documents and to fully
perform its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of ES and ADI. This Agreement has been duly executed and delivered
by ES and ADI and constitutes, and upon the execution and delivery of the
Closing Documents, each of the Closing Documents will constitute, the valid and
binding obligation of each of ES and ADI, enforceable in accordance with its
terms.
(b) Except as set forth in Schedule 4.3, the execution, delivery and
performance of this Agreement and the Closing Documents by ES and ADI will not,
with or without the giving of notice and/or the passage of time, (i) violate or
conflict with the certificate of incorporation and by-laws of ES, ADI or ADCI or
any of their Affiliates (ii) violate or conflict with any domestic (federal,
state or local) or foreign law, rule, regulation, order, judgment or decree
(collectively, "Law" or "Laws") applicable to ES, ADI or ADCI or any of their
Affiliates or by which any property or asset of ES, ADI or ADCI or any of their
Affiliates is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, unilateral
amendment, acceleration or cancellation of, or give to others any right to
invalidate or terminate any rights, or result in the creation of a Lien on any
of the properties or assets of ES, ADI or ADCI or any of their Affiliates,
including the Contributed Assets or require the consent of any third party
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which ES, ADI or
ADCI or any of their Affiliates is a party or by which ES, ADI or ADCI or any of
their Affiliates or any property of ES, ADI or ADCI or any of their Affiliates
is bound or affected, or (iv) cause NEWCO to become subject to, or to become
liable for the payment of, any Tax imposed upon ES or ADI or any of their
Affiliates.
(c) Except as set forth in Schedule 4.3, neither ES, ADI, ADCI nor any of
their Affiliates is, nor will any of them be, required to give any notice to or
obtain any consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the transactions
contemplated herein.
Section 4.4 Title to Properties. ADI owns and has good and marketable title
to all Contributed Assets (whether real, personal, or mixed and whether tangible
or intangible) free and clear of all Liens, except as set forth on Schedule 4.4.
Upon transfer of the Contributed Assets to NEWCO pursuant to this Agreement,
good and marketable title to the Contributed Assets will pass to NEWCO, free and
clear of any Liens, except as set forth on Schedule 4.4. ADCI owns and has good
and marketable title to all of its assets (whether real, personal, or mixed and
whether tangible or intangible) free and clear of all Liens, except as set forth
on Schedule 4.4.
Section 4.5 Leases. ADI has delivered to Grodan a complete and true copy of
each Lease to which ADI or ADCI is a party or by which ADI or ADCI is bound, all
of which are listed in Schedule 4.5. All Leases are in full force and effect,
valid and binding in
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accordance with their respective terms and, to the best of ADI's knowledge,
there are no existing defaults or events that, with notice or lapse of time or
both, would constitute a default under any Lease. To the best of ADI's
knowledge, no party to any Lease has repudiated any provision thereof. There are
no disputes, oral agreements or forbearance agreements in effect as to any
premises affected by any Lease. ADI and ADCI have not assigned, transferred,
conveyed, mortgaged, pledged, deeded in trust or encumbered any interest of ADI
or ADCI in any of the Leases or the estates covered therein. The execution of
this Agreement, the contribution of the Contributed Assets to NEWCO and the
assignment to NEWCO of the Leases will not constitute a default or breach of any
Lease, except as specifically indicated in Schedule 4.5 as requiring the consent
to the assignment of such Lease. ADI and ADCI do not have any obligations as
tenant, lessee, subtenant, sublessee or licensee under any Lease which have
accrued and which have not been performed in all material respects, nor have
they received notice of any claimed default with respect to any such Lease. The
only interest in real property held by ADI or ADCI are interests resulting from
the Leases.
Section 4.6 Condition of Property. Schedule 4.6 sets forth a correct and
complete list of all items of machinery, equipment, computers, furniture, trade
fixtures and fixtures of ADI and ADCI with a value of $2,000 or more. All
machinery, equipment, computers, furniture, trade fixtures and fixtures of ADI
and ADCI are in a good state of repair and good working order, reasonable wear
and tear excepted, and are in conformity with all applicable Legal Requirements.
The operation and maintenance of said assets by ADI and ADCI comply in all
material respects with all applicable Legal Requirements.
Section 4.7 Compliance with Laws, Etc.
(a) Each of ADI and ADCI is, and at all times have been, in compliance in
all material respects with each Legal Requirement, including without limitation
any Applicable Labor and Environmental Law, that is or was applicable to it or
to the conduct or operation of its business or the ownership or use of any of
its assets, or to any conduct with respect to job applicants, employees and
independent contractors.
(b) To the best of ADI's and ADCI's knowledge, no event has occurred or
circumstance exists that (with or without notice or lapse of time) (i) may
constitute or result in a violation by ADI or ADCI of, or a failure on the part
of ADI or ADCI to comply with, any Legal Requirement, or (ii) may give rise to
any obligation on the part of ADI or ADCI to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(c) Except as set forth on Schedule 4.7, neither ADI nor ADCI has received
any actual or is aware of any Threatened notice or other communication (whether
oral or written) from any Governmental Body or other Person regarding any
actual, alleged, possible or potential (A) violation of, or failure to comply
with, any Legal Requirement, including without limitation any Applicable Labor
Law, or (B) obligation on the part of ADI or ADCI to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature.
(d) Schedule 4.7 contains a complete and accurate list of each Governmental
Authorization that is held by ADI and ADCI or that otherwise relates to the
business of, or to any of the assets owned or used by, ADI and ADCI. Each
Governmental Authorization listed or
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required to be listed in Schedule 4.7 is valid and in full force and effect.
Except as set forth in Schedule 4.7:
(i) each of ADI and ADCI is, and at all times has been, in compliance in
all material respects with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in
Schedule 4.7;
(ii) To the best of ADI's and ADCI's knowledge, no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure
to comply with any term or requirement of any Governmental Authorization
listed or required to be listed in Schedule 4.7, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental Authorization
listed or required to be listed in Schedule 4.7;
(iii) neither ADI nor ADCI has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Schedule 4.7
have been duly filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made with respect to
such Governmental Authorizations have been duly made on a timely basis with
the appropriate Governmental Bodies.
(e) The Governmental Authorizations listed in Schedule 4.7 collectively
constitute all of the Governmental Authorizations necessary to permit ADI and
ADCI to lawfully conduct and operate its business in the manner it currently
conducts and operates such business and to permit ADI to own and use its assets
in the manner in which it currently owns and uses such assets.
(f) No consent of any Person is necessary for the transfer of any
Governmental Authorizations to NEWCO, except as indicated on Schedule 4.7.
Section 4.8 Intellectual Property.
(a) Set forth on Schedule 4.8 is a list and description of all of the
Intellectual Property used by each of ADI and ADCI in the conduct of its
business. Such Intellectual Property is the only Intellectual Property necessary
for the operation of the businesses of ADI and ADCI as presently conducted. Each
item of Intellectual Property owned or used by ADI will be transferred and
available for use by NEWCO on identical terms and conditions immediately
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subsequent to the Closing Date. ADI and ADCI have taken all necessary and
commercially reasonable action to maintain and protect each material item of
Intellectual Property that it owns or uses.
(b) To the best knowledge of ADI and ADCI neither ADI nor ADCI has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of third parties, and neither ADI nor ADCI
has ever received any charge, complaint, claim, demand or notice alleging any
such interference, infringement, misappropriation or violation (including any
claim that ADI or ADCI must license or refrain from using any Intellectual
Property rights of any third party). Except as set forth on Schedule 4.8, to the
best of the knowledge of ADI and ADCI, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of ADI or ADCI.
Section 4.9 Books and Records. The books of account and other records of
ES, ADI and ADCI and their Affiliates, all of which have been made available to
Grodan, are complete and correct in all material respects and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Securities Exchange Act of 1934, as amended (regardless
of whether or not such entities are subject to that Section), including the
maintenance of an adequate system of internal controls. The books and records of
ADI and ADCI accurately reflect the bases for the financial condition and
results of operations of ADI and ADCI set forth in the financial statements
referred to in Section 4.14.
Section 4.10 Receivables. Schedule 4.10 sets forth a list of the customers
that comprise the accounts receivable of ADI and ADCI as of December 5, 1999
together with an aging schedule (the "Accounts Receivable"). The Accounts
Receivable represent, and at the Closing Date, will represent legal, valid and
binding obligations of ADI or ADCI arising in the Ordinary Course of Business.
To the best of ADI's or ADCI's knowledge, there is no contest, claim, or right
of set-off, other than returns in the Ordinary Course of Business, under any
agreement with any obligor of any Accounts Receivable relating to the amount or
validity of such Accounts Receivable.
Section 4.11 Litigation. Except as set forth in Schedule 4.11, there are no
civil or criminal claims, actions, suits, proceedings, audits, arbitrations,
grievances or, to the best of ES's, ADI's or ADCI's knowledge, investigations
pending or, to the best of ES's, ADI's or ADCI's knowledge, Threatened to be
brought before any Governmental Body involving ADI or ADCI or any claims
specifically relating to the properties or business of ADI or ADCI or to the
transactions contemplated by this Agreement. There is no order, decree or
judgment of any kind in existence enjoining or restraining ADI or ADCI or any
officer or employee of ADI or ADCI or requiring any of them to take any action
of any kind with respect to the operations or business of ADI or ADCI. All items
listed on Schedule 4.11 have been properly submitted to ADI's or ADCI's
insurance carrier as insured claims and have not been rejected by such carrier.
Section 4.12 Material Contracts. Schedule 4.12 lists the following
contracts and other agreements to which either ADI or ADCI is a party (other
than intercompany arrangements) as of the date hereof (collectively, the
"Contracts"):
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(a) any agreement (or group of related agreements) for the lease of
personal property to or from any person providing for lease payments in excess
of $10,000 per annum and a term of more than one year;
(b) any agreement (or group of related agreements) for the purchase or sale
of raw materials, commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which has a
term of more than six months, and involves consideration in excess of $10,000;
(c) any partnership or joint venture agreement;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation, in excess of $10,000, or under which it has
imposed a Lien, security interest or other encumbrance on any of its assets,
tangible or intangible, to secure such indebtedness or obligations;
(e) any agreement which purports to limit in any material respect the
manner in which, or the localities in which, all or any portion of the business
of ADI or ADCI is conducted;
(f) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other material plan or arrangement
(including any Employee Benefit Plan) for the benefit of its current or former
directors, officers, and employees;
(g) any other agreement (or group of related agreements) the performance of
which involves consideration in excess of $50,000.
Except as disclosed on Schedule 4.12, there is no contract or agreement that is
material to the business, financial condition or results of operations of ADI or
ADCI. To the best knowledge of ADI and ADCI, neither ADI nor ADCI is in
violation or default in any material respect under (nor does there exist any
condition which upon the passage of time or the giving of notice would cause a
violation or default under) any Contract. To the knowledge of ADI and ADCI, none
of the other parties to the Contracts are in violation of or in default under
(nor does there exist any condition which upon the passage of time or the giving
of notice would cause a violation or default under) any Contract.
Section 4.13 Labor Matters. (a) Neither ADI nor ADCI is party to or bound
by any collective bargaining or other agreement with any labor union or
bargaining representative. In addition, throughout the past five (5) years,
there has not been, nor is there presently pending or existing, and to the best
knowledge of ADI and ADCI there is not Threatened nor has there been Threatened
(i) any strike, slowdown, picketing, work stoppage, employee grievance or
organizing effort or activity by any employees or labor unions at or relating to
ADI or ADCI; (ii) any unfair labor practice charge against or affecting ADI or
ADCI; or (iii) any petition for certification of a collective bargaining
representative regarding employees of ADI or ADCI.
(b) Except as set forth on Schedule 4.13(b), each of ADI and ADCI is in
compliance in all material respects with all Applicable Labor Law. Except as set
forth in Schedule 4.13(b) throughout the past five years, there has not been,
nor is there presently
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pending or existing, and to the best knowledge of ADI and ADCI there is not
Threatened nor has there been Threatened any Proceeding against or affecting ADI
or ADCI relating to any actual or alleged violation of any Applicable Labor Law,
including but not limited to any charge or complaint filed by any employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, the Department of Labor, the Office of Federal Contract Compliance
Programs, the Immigration and Naturalization Service, the Occupational Safety
and Health Administration, or any comparable state or local governmental body.
ADI and ADCI have, and at all previous times have had, workers' compensation
insurance covering all of their employees, former employees and contractors.
Except as set forth in Schedule 4.13(b), ADI and ADCI have not caused and will
not cause any "employment loss" (as that term is used or defined in the WARN
Act) at any time from the date that is ninety days immediately preceding the
date hereof and continuing through the Closing Date. ADI and ADCI are not liable
for the payment of any compensation, damages, Taxes, fines, penalties or other
amounts, however designated, for failure to comply with any of the foregoing
laws.
Section 4.14 Financial Statements. Set forth in Schedule 4.14 are the true,
complete and correct copies of the consolidated balance sheet of ADI as at
December 5, 1999 (the "Balance Sheet"), and the related consolidated statement
of income, for the fiscal period then ended, (the "Financial Statements"). The
Financial Statements fairly present the consolidated financial condition and the
results of operations of ADI as at the respective dates of and for the periods
referred to in the Financial Statements, all in accordance with generally
accepted accounting principles, consistently applied. Attached hereto as
Schedule 4.14 is a reconciliation of the amounts reflected on Schedules 2.2.1
and 2.2.3 and the amounts reflected on the Financial Statements.
Section 4.15 Absence of Certain Changes or Events. Since January 1, 1999,
neither ADI nor ADCI has suffered any material adverse change or loss or
termination of, or breach or default of any Contract, and there has been no
material adverse change Threatened or anticipated in the results of operations
or business or assets of ADI, ADCI or in any of their properties, and neither
ADI nor ADCI knows of any event, in each case, which has had, or which might be
expected to have, a material adverse effect on the results of operations,
businesses or properties of ADI or ADCI. Except as set forth on Schedule 4.15,
since January 1, 1999, each of ADI and ADCI has conducted their business only in
the Ordinary Course of Business.
Section 4.16 Undisclosed Liabilities. Except as set forth in Schedule 4.16,
neither ADI nor ADCI has any indebtedness, Liabilities or obligations of any
nature (whether absolute, accrued, contingent or otherwise) that would be
required to be reflected on the Balance Sheet or the footnotes thereto in
accordance with generally accepted accounting principles including those owed to
any Affiliate except indebtedness, Liabilities and obligations: (a) reflected or
reserved against on the Balance Sheet; or (b) incurred since the date of the
Balance Sheet in the Ordinary Course of Business.
Section 4.17 Tax Matters.
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of ES, each of its Subsidiaries (including ADI and ADCI), and
each affiliated, combined, consolidated or unitary group of which ES or any of
its Subsidiaries (including ADI
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and ADCI) is or was a member (the "Affiliated Group") have been timely filed,
and all returns filed are true, complete and accurate in all material respects.
All Tax Returns include any required disclosure of all positions taken therein
that could give rise to a substantial underpayment penalty within Section 6662
of the Code or similar provision of state, local, foreign or other law. All
Taxes due and owing by ES, any Subsidiary (including ADI and ADCI) or Affiliated
Group have been paid, without regard to whether such Taxes have been assessed,
or adequately reserved. There is no claim, assessment, investigation, audit
examination, deficiency, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due and owing by ES, any Subsidiary
(including ADI and ADCI) or Affiliated Group. All assessments for Taxes due and
owing by ES, any Subsidiary (including ADI and ADCI) or Affiliated Group with
respect to completed and settled examinations or concluded litigation have been
paid. ES and each of its Subsidiaries (including ADI and ADCI) and Affiliated
Group have complied in all material respects with all rules and regulations
relating to the withholding of Taxes. There are no agreements in effect to
extend the period of limitations for the assessment or collection of any Taxes
for which ES, any Subsidiary (including ADI or ADCI) or Affiliated Group may be
liable.
(b) Adequate provisions in accordance with GAAP will be made (see Section
4.14 Financial Statements) for the payment of all Taxes for which ADCI may be
liable for the periods that were not yet due and payable as of the date thereof,
regardless of whether the Liability for such Taxes is disputed.
(c) There is no contract, agreement or intercompany account system in
existence under which NEWCO or ADCI has, or may at any time in the future have,
an obligation to contribute to the payment of any portion of a Tax (or pay any
amount calculated with reference to any portion of a Tax) determined with
respect to ES, each of its subsidiaries including ADI and ADCI or Affiliated
Group.
(d) Except as set forth on Schedule 4.17, no claim (except for claims
disposed of to such claimant's satisfaction or by a court of competent
jurisdiction) has ever been made by a Governmental Body in a jurisdiction where
ADI or ADCI does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Liens on any of the assets of either ADI or
ADCI that arose in connection with any failure (or alleged failure) to pay any
Tax and the transaction contemplated by this Agreement will not give rise to:
(i) the creation of any lien in respect of any Contributed Assets or other
assets of NEWCO or ADCI or (ii) the assertion or assessment of any additional
Taxes against the Contributed Assets or other assets of NEWCO or ADCI.
Section 4.18 Insurance. Schedule 4.18 sets forth the following information
with respect to each current insurance policy (including policies providing
property, casualty, Liability, and workers' compensation coverage and bond and
surety arrangements) to which ADI or ADCI is a party, a named insured or
otherwise the beneficiary of coverage (the "Insurance Policies"):
(a) the name, address, and telephone number of the agent;
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(b) the name of the insurer, the name of the policyholder, and the name of
each covered insured; and
(c) the type of coverage, the basis of coverage (i.e., "occurrence" or
"claims made"), the policy number and the period of coverage.
With respect to each such insurance policy, neither ADI nor ADCI has received
notice of any default or termination (including with respect to the payment of
premiums or the giving of notices) under the policy, nor has any suspension
thereof been Threatened, and no party to the policy has repudiated any provision
thereof. ADI and ADCI have been covered during the past three years by insurance
in scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period.
Section 4.19 Employee Benefits.
(a) Schedule 4.19 contains:
(i) a complete and accurate list of all Company Plans and material
Company Other Benefit Obligations.
(ii) the financial cost of all obligations owed under any Company Plan
or material Company Other Benefit Obligation that is not subject to the
disclosure and reporting requirements of ERISA.
(b) ES and ADI have delivered to Grodan:
(i) all documents that set forth the terms of each Company Plan or
material Company Other Benefit Obligation, and of any related trust,
including all summary plan descriptions, summaries and descriptions
furnished to participants and beneficiaries;
(ii) all personnel, payroll, employment manuals and policies;
(iii) a written description of any Company Plan or material Company
Other Benefit Obligation that is not otherwise in writing;
(iv) all registration statements filed with respect to any Company
Plan;
(v) all insurance policies purchased by or to provide benefits under
any Company Plan;
(vi) all reports submitted within the three years preceding the date of
this Agreement by third party administrators, actuaries, investment
managers, trustees, consultants, or other independent contractors with
respect to any Company Plan or Company Other Benefit Obligation;
(vii) the Form 5500 filed in each of the most recent three plan years
with respect to each Company Plan and Company Other Benefit
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Obligation, including all schedules thereto and the opinions of
independent accountants;
(viii) all notices that were given by the EcoScience Group or any ERISA
Affiliate of the EcoScience Group or any Company Plan to the IRS or any
participant or beneficiary, pursuant to statute, within the three years
preceding the date of this Agreement, including notices that are
expressly mentioned elsewhere in this Section 4.19;
(ix) all notices that were given by the IRS or the U.S. Department of
Labor to the EcoScience Group, any ERISA Affiliate of the EcoScience
Group, or any Company Plan within the three years preceding the date of
this Agreement; and
(x) with respect to Qualified Plans, the most recent determination
letter for each Plan of the EcoScience Group that is a Qualified Plan.
(c) (i) The EcoScience Group has performed in all material respects all of
its respective obligations under all Company Plans and Company Other
Benefit Obligations. The EcoScience Group has made appropriate entries
in their financial records and statements for all obligations and
Liabilities under such Plans and Obligations that have accrued but are
not due.
(ii) The EcoScience Group, with respect to all Company Plans and
Company Other Benefit Obligations, is in material compliance with
ERISA, the Code, other applicable Laws including the provisions of such
Laws expressly mentioned in this Section 4.19, and with any applicable
collective bargaining agreement.
(A) No transaction prohibited by ERISA Section 406 and no
"prohibited transaction" under Code Section 4975(c) has occurred with
respect to any Company Plan.
(B) The EcoScience Group does not have any Liability to the IRS
with respect to any Plan, including any Liability imposed by Chapter 43
of the Code.
(C) All contributions and payments made or accrued with respect to
all Company Plans and Company Other Benefit Obligations are deductible
under Code Section 162 or Section 404.
(iii) No event has occurred or, to the EcoScience Group's knowledge,
circumstance exists that could result in a material increase in premium
costs of Company Plans and Company Other Benefits Obligations that are
insured or a material increase in benefit costs of such Plans and
Obligations that are self-insured.
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(iv) Other than routine claims for benefits submitted by participants
or beneficiaries, no claim against, or legal proceeding or
investigation involving any Company Plan or Company Other Benefit
Obligation is pending or, to the EcoScience Group's knowledge, is
Threatened.
(v) Each Qualified Plan of the EcoScience Group has received a
favorable determination letter from the Internal Revenue Service that
it is qualified under Code Section 401(a) and that its related trust is
exempt from federal income tax under Code Section 501(a) and each such
Plan complies in all material respects in form and in operation with
the requirements of the Code and meets the requirements of a "qualified
plan" under Section 401(a) of the Code. To the EcoScience Group's
knowledge, no event has occurred or circumstance exists that will or
could give rise to disqualification or loss of tax-exempt status of any
Plan or trust.
(vi) There is no unfunded Liability under any Company Plan.
(vii) Neither the EcoScience Group nor any ERISA Affiliate of the
EcoScience Group has ever established, maintained or contributed to, or
had an obligation to maintain or contribute to, any Plan that is
subject to Title IV of ERISA.
(viii) The EcoScience Group has never established or contributed to, or
had an obligation to contribute to, any VEBA, any organization or trust
described in Code Section 501(c)(17) or Code Section 501(c)(20), or any
welfare benefit fund as defined in Code Section 419(e).
(ix) Neither the EcoScience Group nor any ERISA Affiliate of the
EcoScience Group has ever established, maintained, or contributed to or
otherwise participated in, or had an obligation to maintain, contribute
to, or otherwise participate in, any Multiemployer Plan.
(x) Neither the EcoScience Group nor any ERISA Affiliate of the
EcoScience Group has withdrawn from any Multiemployer Plan with respect
to which there is any outstanding Liability as of the date of this
Agreement. To the EcoScience Group's knowledge, no event has occurred
or circumstance exists that presents a risk of the occurrence of any
withdrawal from, or the participation, termination, reorganization, or
insolvency of, any Multiemployer Plan that could result in any
Liability of either the EcoScience Group or NEWCO to a Multiemployer
Plan.
(xi) Except to the extent required under ERISA Section 601 et seq. and
Code Section 4980B, the EcoScience Group does not provide health or
welfare benefits for any retired or former employee nor is it obligated
to provide health or welfare benefits to any active employee following
such employee's retirement or other termination of service.
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(xii) The EcoScience Group has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both retired
and active employees.
(xiii) The EcoScience Group has complied in all material respects with
the provisions of ERISA Section 601 et. seq. and Code Section 4980B and
with the provisions of ERISA Section 701 et seq. and Subtitle K of the
Code.
(xiv) No payment that is owed or may become due to any director,
officer, employee, or agent of the EcoScience Group will be
non-deductible to the EcoScience Group under Code Section 280G or
subject to tax under Code Section 4999; nor will the EcoScience Group
be required to "gross up" or otherwise compensate any such person
because of the imposition of any excise tax on a payment to such
person.
(xv) The consummation of the Agreement will not result in the payment,
vesting, or acceleration of any benefit.
Section 4.20 Employees. Schedule 4.20 sets forth a true and complete list
of all employees of ADI, their positions, locations, salaries or hourly wages
and severance arrangements (the "Employees"). Except as set forth on Schedule
4.20, there is no Liability for unpaid salary or wages, bonuses, vacation time
or other employee benefits, including, without limitation, retirement benefits,
due or accrued, nor Liability for withheld or deducted amounts from employees
earnings for the period ending on the Closing Date.
Section 4.21 Environmental Matters. Except as disclosed in Schedule 4.21:
(a) Environmental Laws. The EcoScience Group has complied with and is in
compliance in all material respects with, and is not in (material) violation of
any Environmental Laws. The EcoScience Group has not received any notice or
communication (written or oral) to the effect that (i) the EcoScience Group is
not in compliance with any Environmental Laws, or (ii) any currently existing
circumstances are likely to result in a failure of the EcoScience Group to
comply with any Environmental Laws.
(b) Environmental Permits. The EcoScience Group has obtained and complied
in all material respects with, and is in compliance in all material respects
with, all Environmental Permits that are required pursuant to Environmental Laws
for the operation of its business. The consummation of the transactions
contemplated by this Agreement will not result in such Environmental Permits no
longer being valid and useable by NEWCO in accordance with their terms in
connection with the operation of NEWCO's Business after the Closing. The
EcoScience Group has not received any notice or communication (written or oral)
to the effect that (i) the EcoScience Group is not in compliance with, or is in
violation of, any Environmental Permits, or (ii) any currently existing
circumstances are likely to result in a failure of the EcoScience Group to
comply with any Environmental Permits.
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(c) Environmental Claims. There are no pending or to the best knowledge of
the EcoScience Group Threatened Environmental Claims against the EcoScience
Group, or any other Environmental Matters that to the best knowledge of the
EcoScience Group might trigger an Environmental Claim.
(d) Releases. To the best knowledge of the EcoScience Group, during the
period in which the Covenant Properties or Former Properties were owned, leased
or operated by the EcoScience Group, there have been no Releases or Threatened
Releases of any Hazardous Materials (i) from any underground storage tank,
above-ground storage tank or other storage tank or receptacle, or related
piping, on, upon, into, from, or adjacent to the Covenant Properties or Former
Properties, owned, leased or operated by the EcoScience Group; (ii) that would
be reasonably likely to form the basis of any Environmental Claim against the
EcoScience Group; or (iii) that would be reasonably likely to form the basis of
any Environmental Matter which may trigger an Environmental Claim against the
EcoScience Group.
(e) Storage Tanks. No underground storage tank, above-ground storage tank,
or other storage tank or receptacle for Hazardous Materials currently is or has
been located on the Covenant Properties or Former Properties, owned, leased or
operated by the EcoScience Group.
(f) Miscellaneous. To the best knowledge of the EcoScience Group, none of
the following exists at the Covenant Properties or Former Properties, owned,
leased or operated by the EcoScience Group: (i) asbestos-containing material in
any form or condition; (ii) materials or equipment containing polychlorinated
biphenyls; (iii) surface impoundments; or (iv) wetlands.
(g) The EcoScience Group has not treated, stored, disposed of, arranged for
or permitted the disposal of, transported, handled or released any substance,
including, without limitation, any Hazardous Material, or owned, leased or
operated any facility or property, which could reasonably be expected to result
in (i) any Environmental Claim against the EcoScience Group for response costs,
natural resource damages or attorneys fees pursuant to any Environmental Laws;
or (ii) any Environmental Matter that may trigger any Environmental Claim
against the EcoScience Group.
(h) There are no Environmental Matters relating to the Covenant Properties
or Former Properties, or operations of the Business that will (i) prevent,
hinder or limit continued compliance in all material respects with Environmental
Laws; or (ii) give rise to any material investigatory, remedial or corrective
obligations pursuant to Environmental Laws.
(i) The consummation of this Agreement does not and will not impose any
obligation for notification or consent of any Governmental Body or third
parties, pursuant to any Environmental Laws, or under any Environmental Permits.
(j) The EcoScience Group has not, either expressly or contractually,
assumed or undertaken any Liability of any other Person for any (i)
Environmental Claim, (ii) corrective or remedial obligation, or (iii)
Environmental Matter relating to Environmental Laws.
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(k) No lien, either recorded or unrecorded, in favor of any Governmental
Body relating to any Environmental Claim against the EcoScience Group arising
under Environmental Laws has been attached to any property currently owned,
leased or operated by the EcoScience Group.
(l) The EcoScience Group has delivered to Grodan true and complete copies
and results of any reports, studies, audits, analyses, tests or monitoring
possessed or initiated by the EcoScience Group pertaining to Hazardous
Materials, in, on, under or adjacent to the Covenant Properties or Former
Properties, or concerning compliance by the EcoScience Group with Environmental
Laws.
Section 4.22 Affiliate Transactions. Except as set forth on Schedule 4.22,
since January 1998 neither ES, APD or their Affiliates, nor any of their
immediate family members, has been a party (either directly or through any
ownership, beneficial, contingent or other interest in an entity, business or
enterprise) to any transaction with or involving ADI or ADCI or any assets used
in the operation of the business of ADI and ADCI including, without limitation,
any arrangement (other than for services as officers, directors or employees of
ADI or ADCI) providing for (a) the furnishing of products or services by or to,
(b) the rental or lease of any real property, (c) any loan or other indebtedness
from or to, (d) the grant of any Lien from or to, or (e) otherwise requiring
payments or other consideration (including a promise of forbearance) from or to,
any such Person. All transactions listed on Schedule 4.22 have terms no less
favorable to ADI or ADCI than transactions entered into at arms'-length with
non-affiliated Persons. Schedule 4.22 sets forth a description of all sales made
by ADI or ADCI to APD during 1999. Neither ADI nor ADCI has made any payment
(whether by check, wire transfer or otherwise) or promised or otherwise
committed to make such payment to a creditor of ES or APD or any of their
Affiliates for or on behalf of ES, APD or any of their Affiliates (other than
ADI and ADCI).
Section 4.23 Authorization of Transaction by ES. ES is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of formation, has all requisite corporate power and authority to
own and lease its properties and carry on its business as it is now being
conducted. ES has full power and authority to execute and deliver this Agreement
and the other Closing Documents to which it is a party and to perform its
obligations hereunder and thereunder. This Agreement constitutes the valid and
legally binding obligation of ES enforceable in accordance with its terms and
conditions. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate or other action; no other corporate or other proceeding on the part of
ES is necessary to authorize this Agreement or to consummate the transactions
contemplated hereby; and this Agreement has been duly delivered by ES. ES need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any Governmental Body in order to consummate the
transactions contemplated by this Agreement.
Section 4.24 Ownership of Common Stock of ADI. ES is the record and
beneficial owner of 100 shares of Capital Stock of ADI which represents all of
the issued and outstanding shares of ADI free and clear of any restrictions on
transfer, Liens, options, warrants, purchase rights and rights of first refusal,
except as set forth on Schedule 4.24. ES is not a party
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to any option, warrant, purchase right or other contract or commitment that
could require ES to sell, transfer, or otherwise dispose of any capital stock of
ADI. ES is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of ADI.
Section 4.25 Sufficiency of Contributed Assets. The Contributed Assets
include all right, title and interest of ADI in and to all assets, properties
and rights of ADI necessary for or used in the operation of ADI's business,
other than the Excluded Assets.
Section 4.26 Broker's or Finder's Fees. No agent, broker, investment banker
or other Person or firm acting on behalf of ES, ADI or any of their Affiliates
or under its or their authority is or will be entitled to any broker's or
finder's fee or any other commission or similar fee, directly or indirectly, in
connection with the transactions contemplated by this Agreement or any of the
Closing Documents.
Section 4.27 Disclosure. No representation or warranty by ES and ADI in
this Agreement and no other written statement, document, certificate or other
instrument or exhibit previously furnished to Grodan or which are being
furnished to Grodan pursuant hereto (including but not limited to all Schedules
or Exhibits hereto) contains any untrue statement of a material fact or omits
any material fact necessary in order to make the statements contained therein
not misleading in light of the circumstances in which they were made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRODAN.
To induce ES and ADI to enter into this Agreement and to consummate the
transactions contemplated hereby, Grodan represents and warrants to ES and ADI
as follows:
Section 5.1 Organization of Grodan. Grodan is a corporation duly organized,
validly existing and in good standing under the laws of the Kingdom of Denmark
and has all requisite power and authority to carry on its business as now being
conducted, and to perform its obligations hereunder.
Section 5.2 Authorization of this Agreement, Etc. Grodan has full power to
execute this Agreement and the Closing Documents to be delivered by it. Grodan's
execution and delivery of this Agreement and the Closing Documents to be
delivered by it, and the consummation by it of all obligations on its part
contemplated hereby and thereby will have been duly authorized by all requisite
authority. Such execution, delivery and performance by Grodan with respect to
this Agreement and the Closing Documents and compliance with their terms and
provisions will not, with or without giving of notice and/or the passage of
time, conflict with or result in a breach of any provision of law applicable to
Grodan, the terms, conditions or provisions of its charter and or by laws or
other organizing documents or any judgment, order, injunction, decree,
regulation or ruling of any Governmental Body to which Grodan is subject; or any
agreement, mortgage, indenture, contract or other obligation to which Grodan is
subject, or any other judgment, decree, statute, regulation or any other
restriction of any kind or character to which Grodan is a party or by which any
of its assets may be bound.
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Section 5.3 Broker's or Finder's Fees. No agent, broker, investment banker
or other Person or firm acting on behalf of Grodan or under their authority is
or will be entitled to any broker's or finder's fee or any other commission or
similar fee, directly or indirectly, from Grodan in connection with the
transactions contemplated by this Agreement or any of the Closing Documents.
ARTICLE VI
COVENANTS.
Section 6.1 Covenants of ES and ADI.
(a) Between the date of this Agreement and the Closing Date, ADI and ADCI
shall, and ES shall cause them to:
(i) continue to operate and conduct their businesses in the Ordinary
Course of Business;
(ii) use their commercially reasonable efforts to preserve, consistent
with past custom and practice, their businesses and properties, including
their present operations, physical facilities, permits, approvals,
licenses, working conditions and relationships with Persons having
significant business relations with them, including, without limitation,
suppliers, customers, landlords, creditors, employees and agents except
where the failure to maintain such relationships would not have a material
adverse effect on ADI or ADCI or the ownership or operation of NEWCO of the
Contributed Assets;
(iii) confer with Grodan concerning operational matters of a material
nature and otherwise report periodically to Grodan concerning the status of
the business, operations and finances of ADI and ADCI;
(iv) (A) keep in full force and effect insurance now carried, (B)
perform all obligations under its contracts and agreements relating to or
affecting its properties, assets and business, (C) maintain its books of
account and records consistent with good business practices and (D) comply
in all material respects with all laws applicable to them and to the
conduct of their business; and
(v) use their best efforts to ensure that the representations and
warranties are true and correct at all times prior to the Closing.
(b) Except as otherwise expressly set forth in this Agreement or the
Schedules, without the prior written consent of Grodan, neither ADI nor ADCI
shall (A) issue any shares of capital stock, grant any rights to purchase shares
of capital stock, split or reclassify any shares of its capital stock or
declare, set aside or pay any dividend or other distribution or payment in cash,
stock or property in respect of shares of its capital stock, (B) acquire any
assets or properties, or enter into any other transaction, other than in the
Ordinary Course of Business,
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(C) sell, transfer or otherwise dispose of or encumber or mortgage any assets or
properties, other than in the Ordinary Course of Business, (D) waive, terminate,
release, grant or transfer any rights of value or modify or change any existing
license, lease, contract or other document, other than in the Ordinary Course of
Business, (E) enter into any agreement or engage in any transaction involving
more than $25,000, except for sales to unaffiliated customers in the Ordinary
Course of Business, and sales to APD consistent with past practice, if and only
if payment for such sales to APD is received prior to delivery, (F) enter into
any other contract or agreement other than in the Ordinary Course of Business,
(G) enter into any employment contract or collective bargaining agreement, or
modify the terms of any existing such contract or agreement, (H) establish any
new Employee Benefit Plan, or modify or terminate any existing Plan or any other
Employee Benefit Plan, (I) make any capital expenditures other than those which
would be consistent with usual and customary industry practice, or make any
capital expenditures in the aggregate in excess of $25,000, (J) take or agree to
take, or fail to take, any action if such action or failure to act would or is
likely to result in any of the representations and warranties contained in
Article IV being untrue or in any of the conditions to the Closing not being
satisfied, (K) amend its certificate of incorporation or bylaws, (L) incur or
assume any indebtedness for money borrowed except for borrowings under that
certain $4 million Credit Facility and Security Agreement dated June 29, 1999
(the "Century Loan") with Century Business Credit Corporation ("Century") (M)
guarantee any indebtedness, (N) change any of their accounting methods, (O)
enter into any contract, agreement, commitment or arrangement, whether oral or
written, with respect to any of the foregoing;
(c) Between the date of this Agreement and the Closing Date, ES and ADI
shall (i) cause NEWCO to be insured on all of the Insurance Policies (ii) use
its best efforts to cause all conditions precedent to the obligations of Grodan
to be satisfied on or prior to the Closing, and (iii) comply with the notice
provisions of bulk sales laws applicable to this transaction.
(d) ES, ADI and ADCI shall provide to Grodan such information with respect
to the business, operations, financial condition, prospects and management of
ADI and ADCI as Grodan may reasonably request.
(e) Each of ES and ADI shall, and shall cause each of its representatives
and agents (including counsel and accountants) to afford Grodan and
its representatives and agents full access during normal business
hours to ES's, ADI's and ADCI's properties and contracts, books,
records and other documents and data (including, without limitation,
electronic and computer information and financial information), and
Grodan and its representatives and agents shall be permitted to make
copies of such contracts, books, records and other documents and data
and extracts therefrom (including, without limitation, the preparation
of financial audits) and to discuss the business of ADI and ADCI with
the officers, representatives and employees of ADI and ADCI; provided,
that no examination or investigation of the foregoing by Grodan or
such representatives and agents pursuant to this subsection (e) shall
affect any of the representations and warranties of ADI or ES set
forth in this Agreement, and provided further, that (A) any
examination or
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investigation of the foregoing shall be conducted in such manner as
not to interfere unreasonably with the operation or the conduct of the
businesses of or any other activities carried on by ES and ADI and (B)
in the event of the termination of this Agreement for any reason
whatsoever, Grodan will return to ES and ADI upon written request all
documents, work papers, copies, extracts and other material obtained
from ES and ADI in connection with the transactions contemplated
hereby.
(f) On or before the Closing, ADI shall provide evidence of ownership of
Trademark 1, 353, 543 for Agro Dynamics.
(g) On or before the Closing, EcoScience shall cause APD to enter into a
supply agreement with NEWCO on such terms as set forth in Exhibit
6.1(g).
(h) On or before the Closing ADI will provide NEWCO with a clearance
certificate pursuant to Section 116 of the Income Tax Act of Canada.
Section 6.2 Filings and Consents. After the execution and delivery of this
Agreement, each of ES, ADI, ADCI and Grodan shall use its best efforts to
consummate the transactions contemplated hereby to cooperate in obtaining any
consent, approval, authorization or order of, or in making any registration or
filing with, any Person required in connection with the execution, delivery or
performance of this Agreement or in connection with the transactions
contemplated hereby including those set forth on Schedule 4.3; provided that no
party hereto shall be required to pay any Person (other than a Governmental
Body) or undertake any additional obligation to such Person to obtain such
Person's consent to the transactions contemplated by this Agreement.
Section 6.3 Post Closing Actions, Cooperation/Further Assurances/Other
Matters.
(a) If any consents of other Persons to assignment of any of the Contracts,
Leases, Governmental Authorizations or other items to be assigned to NEWCO
hereunder are not obtained prior to Closing, ES and ADI shall use its reasonable
commercial efforts to obtain, or will assist NEWCO in obtaining, such consents
as may be necessary or appropriate to vest in NEWCO all of ADI's right, title
and interest therein. If such consent is not obtained or if an attempted
assignment would be ineffective or would impair NEWCO's rights thereunder, ES
and ADI will cooperate with NEWCO in any arrangement designed to provide for
NEWCO the benefits under any such Contracts, Leases, Governmental Authorizations
or other items. Each party hereto shall execute and deliver, and cooperate with
any other party in obtaining, such additional instruments, documents,
conveyances and assurances as reasonably have been requested by any other party
to confirm and assure the rights and obligations set forth herein. ES and ADI
shall file all necessary documentation and returns with respect to the Transfer
Taxes as defined in Section 11.1.
(b) The obligation of Grodan to reimburse ADI and/or NEWCO with respect to
costs regarding the warehouse facilities in Ventura, California and Milton,
Canada shall
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terminate as of the Closing and thereafter all costs related to these two
facilities shall be borne by NEWCO.
Section 6.4 Employment Matters. (a) On the Closing Date, ADI shall use its
best efforts to cause all its employees to become employees of NEWCO on the same
terms and conditions of employment that ADI has in effect on the date hereof. On
or before the Closing Date, ADI shall send a written notice to all of its
employees regarding such employment. On or before the Closing Date NEWCO shall
hire the three individuals currently employed by Grodan on the terms and
conditions under which they are currently employed by Grodan. Schedule 6.4 sets
forth the identity of such individuals and the principal terms and conditions of
their employment.
(b) Certain Employee Plans. To the extent that service is relevant for
purposes of eligibility, vesting or benefit accrual under any current or future
Employee Benefit Plan, program or arrangement established, maintained or
contributed to for the benefit of employees including employees who will become
employees of NEWCO on the Closing Date ("NEWCO Employees"), such plan, program
or arrangement shall credit such NEWCO Employees for service on or prior to the
Closing Date with the members of the EcoScience Group. Any such plan, program or
arrangement of NEWCO shall waive any pre-existing condition limitations and
actively at work requirements and shall honor any deductible out-of-pocket
expenses incurred under any Employee Benefit Plan maintained by the EcoScience
Group by the NEWCO Employees and their beneficiaries or dependents.
(c) EcoScience Corporation 401(k) Retirement Savings Plan (the "ES 401(k)
Plan").
(i) On or prior to the Closing Date, ES and ADI shall either (1) cause
the ES 401(k) Plan to be amended to permit NEWCO to be a participating employer
in such plan and to permit NEWCO employees to participate in the ES 401(k) Plan
after the Closing Date and to provide such benefits no less favorable than those
benefits enjoyed by such employees prior to the Closing Date (the "Amendment");
provided that such Amendment is reasonably satisfactory to Grodan; or (2) cause
NEWCO to establish a Code Section 401(k) plan (the "NEWCO 401(k) Plan") for
NEWCO Employees which shall provide benefits to NEWCO Employees no less
favorable than those currently provided to the NEWCO Employees under the ES
401(k) Plan. ES and ADI agree to submit either the NEWCO 401(k) Plan or the
Amendment to the IRS for a determination letter to the effect that the NEWCO
401(k) Plan (or Amendment) is qualified under Sections 401(a) and 401(k) of the
Code within the time prescribed by applicable law to enable NEWCO to make any
required changes to the NEWCO 401(k) Plan (or Amendment) effective retroactive
to the date of its adoption ("Adoption Date") so the determination letter will
apply effective as of the Adoption Date and ES and ADI shall agree to cause
NEWCO to make any amendments to the NEWCO 401(k) Plan that the IRS may require
as a condition of issuing such determination letter.
(ii) Effective as of the Closing Date, NEWCO Employees will be fully
vested in their respective account balances under the ES 401(k) Plan.
(d) EcoScience Corporation Flexible Benefits Plan (the "ES Flex Plan"). On
or prior to the Closing Date, ES and ADI shall cause NEWCO to establish a Code
Section 125
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plan (the "NEWCO Flex Plan") for NEWCO Employees. The NEWCO Flex Plan shall
provide benefits to NEWCO Employees no less favorable than those provided to the
NEWCO Employees under the ES Flex Plan.
Section 6.5 Financial Due Diligence. Grodan shall immediately commence a
financial due diligence investigation with the assistance of Ernst & Young which
shall involve a review and analysis of the Financial Statements and books and
records of ADI and to the extent relevant ES since January 1, 1998 (the
"Financial Due Diligence"). Grodan shall utilize its best efforts to complete
the Financial Due Diligence on or before January 28, 2000.
Section 6.6 Notification. Between the date of this Agreement and the
Closing Date, ES or ADI will promptly notify Grodan in writing if ES or ADI
becomes aware of any fact or condition that causes or constitutes a breach of
any of the representations and warranties of ES or ADI as of the date of this
Agreement, or if ES or ADI becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Schedules if the Schedules were
dated the date of the occurrence or discovery of any such fact or condition, ES
or ADI will promptly deliver to Grodan a supplement to the Schedules specifying
such change. During the same period, ES or ADI will promptly notify Grodan of
the occurrence of any breach of any covenant of ES or ADI in this Article VI or
of the occurrence of any event that may make the satisfaction of the conditions
in Article VII or VIII impossible or unlikely. Notwithstanding the foregoing,
except as provided in Section 10.4, any such supplement or notification shall
not modify or alter the duties and obligations of ES or ADI hereunder or the
effect of any representation, warranty, covenant or indemnity made by ES or ADI
under this Agreement, or constitute a waiver by Grodan, modification or
alteration of any condition or obligation of ES or ADI.
Section 6.7 Non-Compete. Each of ES and ADI covenants and undertakes for
the period of time that ADI or an Affiliate will be a stockholder of NEWCO and
for a two-year period thereafter, it shall not at any time, directly or
indirectly through any Affiliate or otherwise:
(i) own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected with or have an interest
in, as a stockholder, director, officer, employee, promoter, consultant,
adviser, lender or otherwise, any business or enterprise that is in competition
with NEWCO's Business or Grodan's Business;
(ii) solicit any Person who is a customer or prospective customer of
NEWCO for business that is within the scope of NEWCO's Business or Grodan's
Business;
(iii) employ or retain, or knowingly arrange to have any other
business enterprise or person employ or retain, any person who is or (during the
term of this Agreement) was an employee, consultant or adviser of NEWCO,
provided, however, that this subsection (iii) shall not be applicable to (A) Tim
Mack, an individual residing at 16
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Arboretum Drive, Jackson, New Jersey and (B) any person whose employment has
been terminated by NEWCO.
ES and ADI hereby acknowledge and agree that any default under this Section 6.7
will cause damage to Grodan as a stockholder of NEWCO in an amount that would be
extremely difficult or impossible to ascertain. Accordingly, in addition to any
other relief to which Grodan may be entitled, Grodan shall be entitled to such
temporary and/or permanent injunctive relief without the necessity for posting
bond and without the necessity of proving actual damages as may be ordered by a
court of competent jurisdiction, including without limitation, an injunction
restraining any violation of this Section 6.7.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF GRODAN.
The obligations of Grodan to consummate the acquisition purchase of
shares of NEWCO at the Closing are subject, at Grodan's option, to the
fulfillment, prior to or at the Closing, of each of the conditions set forth in
this Article VII. Grodan may waive any condition specified in this Article VII
by executing a writing so stating at or prior to the Closing or by electing to
proceed with the Closing with such condition unsatisfied. If Grodan waives any
such unsatisfied condition, Grodan shall not be deemed to have waived any other
rights or remedies it may have with respect to such condition.
Section 7.1 Representations, Warranties and Covenants of ADI and ES.
(a) Each and every representation and warranty of ADI and ES herein
contained shall be true and complete in all material respects at the Closing
Date, with the same effect as though made at such time except to the extent that
a different time is specifically stated in any such representation or warranty
and except where the breaches of the representations and warranties in the
aggregate do not have a material adverse effect on ADI or the business to be
conducted by NEWCO with the Contributed Assets or the financial condition or
prospects of NEWCO. ADI and ES shall each have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed or complied with by them at or prior to the Closing Date. Solely
for purposes of this Section 7.1(a) and in determining compliance with the
condition(s) set forth herein, any representation and warranty made by ADI and
ES in this Agreement shall be read and interpreted as if the qualification
stated therein with respect to materiality was not contained herein. Grodan
shall have received a certificate of the President of ADI to such effect.
(b) The Chief Executive Officer of ADI and ES shall have executed and
delivered to Grodan a certificate, dated the Closing Date, as to the accuracy of
the matters set forth in subsection (a) above; and true and complete copies of
all resolutions of the board of directors of ADI and ES authorizing the
execution, delivery and performance of this Agreement, certified by the
Secretary or an Assistant Secretary of ADI and ES as of the Closing Date, shall
have been delivered to Grodan.
Section 7.2 Absence of Proceedings. No party to this Agreement shall be
subject to any restraining order or injunction restraining or prohibiting the
consummation of the
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transactions contemplated hereby or by any of the Closing Documents; and no
suit, action or proceeding shall have been instituted and remain pending before
a Governmental Body which would prohibit the continued operation or conduct of
the business of ADI, or adversely affect NEWCO's title or interest in the
Contributed Assets.
Section 7.3 Financial Due Diligence. The Financial Due Diligence shall not
have revealed any facts or set of circumstances inconsistent with or omitted
from the information contained in Article IV hereof or in the Schedules
delivered by ES and ADI on the date hereof which additional facts or set of
circumstances in Grodan's reasonable judgment may have a material adverse effect
on the business, operations or financial condition or prospects of ADI and/or
NEWCO.
Section 7.4 Opinion of Counsel to ES and ADI. Grodan shall have received
from counsel for ES and ADI an opinion, dated the Closing Date, in form and
substance satisfactory to Grodan, to the effect that:
(a) Each of ES and ADI is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of formation, with all
requisite corporate power and authority to own and lease its properties and
carry on its business as conducted on the Closing Date and to effect the
transactions contemplated by this Agreement;
(b) Each of ES and ADI has the right, power and authority to effect the
transactions contemplated by this Agreement and has taken all corporate action
and other action required by it to authorize the execution, delivery and
performance of this Agreement and to consummate the transactions contemplated
hereunder;
(c) Each of this Agreement and the Stockholders Agreement has been duly
authorized, executed and delivered by each of ES and ADI. The Non-Competition
Agreement (assuming due and valid authorization, execution and delivery by the
other parties thereto) constitutes the valid and binding obligation of Michael
De Giglio enforceable in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights, or by equitable principles
limiting the enforcement of creditors' rights generally;
(d) The execution and delivery by each of ADI and ES of this Agreement and
the Closing Documents and compliance with the terms and provisions hereof or
thereof do not conflict or will not conflict with or result in a breach of any
of the terms, conditions or provisions of the Certificate of Incorporation or
By-Laws of each of ADI and ES or of any judgment, order, injunction, decree or
ruling of any Governmental Body known to such counsel to which each of ADI and
ES or any of the Contributed Assets is subject, or, to the knowledge of such
counsel, any agreement or contract to which ADI or ES is a party, or constitute
a default thereunder or give to others any rights of termination of the
transactions contemplated thereby; and
(e) To such counsel's knowledge, all Governmental Authorizations required
in order to permit consummation by ADI of the transactions contemplated hereby
and by the Closing Documents have been obtained.
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Section 7.5 Consents or Approvals. All material consents, waivers,
approvals, licenses or authorizations of lessors, third parties, including
Century pursuant to the Century Loan, or Governmental Bodies (or any amendments
or modifications to existing agreements with third parties), including, without
limitation, those described in Schedule 4.3, required to transfer the
Contributed Assets and effect the transactions contemplated by this Agreement
and the Closing Documents, and to allow the business of ADI to be operated by
NEWCO after the Closing in the manner and to the extent that such business was
operated by ADI immediately prior to the Closing, have been obtained and
delivered to NEWCO.
Section 7.6 Other Agreements.
(a) ES and ADI shall have entered into the Stockholders Agreement
substantially in the form set forth on Exhibit 7.6(a);
(b) NEWCO shall have entered into the Distribution Agreement substantially
in the form set forth on Exhibit 7.6(b);
(c) Hoogendoorn shall have affirmatively consented to the assignment to
NEWCO of the Hoogendoorn Agreement on terms reasonably acceptable to Grodan;
(d) Green Meteor B.V. shall have affirmatively consented to the assignment
to NEWCO of the Green Meteor Agreement on terms reasonably acceptable to Grodan;
(e) Michael DeGiglio shall have entered into the Non-Compete Agreement
substantially in the form set forth on Exhibit 7.6(e);
(f) NEWCO shall have received from American Rockwool written
acknowledgement indemnifying NEWCO from and against any and all product
liability exposure resulting from the sales of American Rockwool granules, in a
form reasonably satisfactory to Grodan;
(g) ES, NEWCO and ADI shall have entered into the Cost-Sharing Agreement
substantially in the form set forth on Exhibit 7.6(g);
(h) NEWCO shall have adopted the NEWCO 401(k) Plan or the Amendment
pursuant to Section 6.4; and
(i) NEWCO shall have adopted the NEWCO Flex Plan pursuant to Section 6.4.
Section 7.7 Bill of Sale. On or prior to the Closing Date, ADI shall have
executed and delivered to NEWCO a General Bill of Sale in a form reasonably
satisfactory to Grodan.
Section 7.8 Conveyance; Assignment and Assumption Agreement. On or prior to
the Closing Date:
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(a) ADI shall deliver to NEWCO an assignment or assignments, in form and
substance satisfactory to Grodan, of ADI's right, title and interest to be
transferred hereby in and to all Intellectual Property of ADI;
(b) ADI shall deliver to NEWCO an assignment or assignments of ADI's
interest in all Contracts and Leases included in the Contributed Assets to be
assumed by NEWCO and NEWCO shall assume same;
(c) At or after the Closing, ADI shall also execute and deliver, at ADI's
expense, such further instruments of conveyance, sale, assignment or transfer,
and shall take or cause to be taken such other or further action, as Grodan
shall request at any time or from time to time in order to vest, confirm or
evidence in NEWCO title to all or any part of the Contributed Assets intended to
be contributed, sold, transferred, assigned and delivered to NEWCO under and in
accordance with this Agreement;
(d) ADI shall deliver to NEWCO all original Leases, Governmental
Authorizations, Contracts, books and records and other Contributed Assets;
(e) ES and ADI shall deliver to Grodan any and all necessary corporate
resolutions, authorizations or other instruments necessary or proper to evidence
the authority of ES or ADI and the Person(s) executing any Closing Documents on
ES or ADI's behalf to execute and/or deliver the same;
(f) ES or ADI shall deliver any and all other documents, agreements,
certifications, affidavits and/or instruments to be executed and/or delivered by
them in accordance with the terms of this Agreement.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF ADI.
The obligations of ADI to contribute, transfer and convey the Contributed
Assets at the Closing are subject, at ADI's option, to the fulfillment, prior to
or at the Closing, of each of the conditions set forth in this Article VIII. ADI
may waive any condition specified in this Article VIII by executing a writing so
stating at or prior to the Closing or by electing to proceed with the Closing
with such condition unsatisfied. If ADI waives any such unsatisfied condition,
ADI shall not be deemed to have waived any other rights or remedies it may have
with respect to such condition.
Section 8.1 Representations, Warranties and Covenants of Grodan.
(a) Except where the failure to satisfy such conditions would not have a
material adverse effect, (i) each and every representation and warranty of
Grodan herein contained shall be true and complete at the Closing Date, with the
same effect as though made at such time except to the extent that a different
time is specifically stated in any such representation or warranty, and (ii)
Grodan shall have performed and complied with all covenants and conditions
required by this Agreement to be performed or complied with by it at or prior to
the Closing Date.
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(b) Grodan shall have delivered to ADI a certificate, dated the Closing
Date and signed by its President or an executive vice president, as to the
accuracy of the matters set forth in subsection (a) above; and true and complete
copies of all resolutions of the boards of directors of Grodan authorizing the
execution, delivery and performance of this Agreement, certified by the
Secretary or an Assistant Secretary of Grodan as the case may be, as of the
Closing Date shall have been delivered to ADI.
Section 8.2 Absence of Proceedings. No party to this Agreement shall be
subject to any restraining order or injunction restraining or prohibiting the
consummation of the transactions contemplated hereby or by the Closing Documents
and no suit, action or proceeding shall have been instituted and remain pending
before a Governmental Body that would prohibit such transactions.
Section 8.3 Opinion of Grodan's Counsel. ADI shall have received from
Grodan's counsel an opinion, dated the Closing Date, in form and substance
satisfactory to counsel for ES and ADI, to the effect that:
(a) Grodan is duly organized and validly existing in good standing under
the laws of its state of incorporation with all requisite corporate power and
authority to own and operate its properties and to conduct the business it is
conducting as of the Closing Date and to effect the transactions contemplated by
this Agreement;
(b) Grodan has the right, power and authority to effect the transactions
contemplated by this Agreement and has taken all corporate action and other
action required by it to authorize the execution, delivery and performance of
this Agreement and to consummate the transactions contemplated hereunder;
(c) This Agreement and the Closing Documents to which Grodan is to be a
party have each been duly executed and delivered by Grodan and all corporate
action by Grodan required to authorize the transactions contemplated hereby and
thereby have been taken; and
(d) Neither the execution and delivery by Grodan of this Agreement or the
Closing Documents nor compliance with any terms and provisions thereof will
conflict with or result in a breach of any of the terms, conditions or
provisions of the respective Certificates of Incorporation or By-Laws of Grodan
or of any judgment, order, injunction, decree or ruling of any Governmental Body
to which Grodan is subject and of which Grodan's counsel has knowledge, or to
the knowledge of such counsel, any other agreement or contract to which Grodan
is a party or to which it is subject or constitute a default thereunder.
(e) To such counsel's knowledge, all Governmental Authorizations required
in order to permit consummation by Grodan of the transactions contemplated
hereby and by the Closing Documents have been obtained.
Section 8.4 Consent of Century. ADI shall have obtained the consent,
waiver, approval, or authorization of Century to effect the transactions
contemplated by this Agreement.
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Section 8.5 Other Agreements.
(a) Grodan shall have entered into the Stockholders Agreement
substantially in the form set forth on Exhibit 7.6(a).
(b) Grodan shall have entered into the Distribution Agreement
substantially in the form set forth on Exhibit 7.6(b).
(c) Grodan shall have entered into the Cost-Sharing Agreement
substantially in the form set forth on Exhibit 7.6(g).
(d) Hoogendoorn shall have affirmatively consented to the assignment to
NEWCO of the Hoogendoorn Agreement on terms reasonably acceptable to
ADI.
(e) Green Meteor B.V. shall have affirmatively consented to the assignment
to NEWCO of the Green Meteor Agreement on terms reasonably acceptable
to ADI.
(f) NEWCO shall have executed and delivered the Assumption Agreement.
ARTICLE IX
TERMINATION.
Section 9.1 Termination. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated and abandoned before the Closing
Date:
(a) by mutual written agreement of ES, ADI and Grodan;
(b) by Grodan, if (i) the conditions set forth in Article VII have not all
been fulfilled (or waived by it) on or before June 30, 2000, and (ii) Grodan has
complied with all of the obligations applicable to it as set forth in this
Agreement;
(c) by ES and ADI, if (i) the conditions set forth in Article VIII have not
all been fulfilled (or waived by ES and ADI) on or before June 30, 2000, and
(ii) ES and ADI have complied with all of the obligations applicable to them as
set forth in this Agreement;
(d) by Grodan, in the event of a breach by ES or ADI of any representation,
warranty, covenant or other agreement contained in this Agreement which would
give rise to the failure of the conditions contained in Section 7.1 and ES or
ADI shall fail to remedy such breach within ten (10) business days after written
notice specifying such breach in reasonable detail and demanding that the same
be remedied;
(e) by ES and ADI, in the event of a breach by Grodan of any
representation, warranty, covenant or other agreement contained in this
Agreement which would give rise to the failure of the conditions contained in
Section 8.1 and Grodan shall fail to remedy such breach within ten (10) business
days after written notice specifying such breach in reasonable detail and
demanding that the same be remedied; and
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(f) by Grodan, on or before January 28, 2000 in the event that the
Financial Due Diligence investigation shall have revealed any fact or set of
circumstances inconsistent with or omitted from the information contained in the
Schedules delivered by ES and ADI on the date hereof which additional facts or
set of circumstances in Grodan's reasonable judgment may have a material adverse
effect on the business, operations or financial condition or prospects of the
ADI or NEWCO.
Section 9.2 Effect of Termination. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 6.1(e), 9.2, 11.1, 11.3, 11.6, 11.9 and 11.14
shall survive.
ARTICLE X
INDEMNIFICATION.
Section 10.1 Indemnification of Grodan and NEWCO.
(a) ES and ADI jointly and severally agree to indemnify, defend and hold
harmless Grodan and its successors and assigns from and against any and all
Losses, directly or indirectly occasioned by, arising out of, related to, based
on or resulting from (i) any breach or default of any of the representations,
warranties, covenants or agreements of ES or ADI contained in this Agreement or
in any Exhibit or Schedule hereto or any Closing Document, (ii) Liabilities
whether or not addressed by a representation and warranty which were created,
incurred or arose from facts, events, conditions or circumstances existing on or
before the Closing Date, to the extent that, but only to the extent that, such
Liabilities were not reflected or reserved against on the Balance Sheet adjusted
for Liabilities incurred in the Ordinary Course of Business since December 5,
1999, (iii) Liabilities, Taxes, fees and expenses related to this Agreement and
the transactions contemplated hereby or resulting therefrom, and (iv) the
Liabilities not directly assumed by NEWCO pursuant to this Agreement (including,
without limitation, Environmental, Health and Safety Liabilities).
Section 10.2 Indemnification of ADI and ES. Grodan agrees to indemnify,
defend and hold harmless ES and ADI from and against any and all Losses,
directly or indirectly occasioned by, arising out of, related to, based on or
resulting from any breach or default of any of the representations, warranties,
covenants or agreements of Grodan contained in this Agreement or in any Exhibit,
Schedule or Closing Document.
Section 10.3 Claims for Indemnification.
(a) Promptly after the receipt by an Indemnified Party of notice of (i) any
claim, (ii) Environmental Claim or (iii) the commencement of any action,
proceeding or litigation (collectively, "Litigation") which may entitle an
Indemnified Party to indemnification, such party shall give the Indemnifying
Party written notice of such claim or the commencement of such Litigation. The
Indemnified Party shall permit the Indemnifying Party to assume the defense of
any such claim or Litigation if (i) the Indemnifying Party gives written notice
to the
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Indemnified Party acknowledging the Indemnified Party's right to indemnification
for such claim or Litigation pursuant to this Article X, (ii) counsel to the
Indemnifying Party is reasonably satisfactory to the Indemnified Party and (iii)
the claim or Litigation seeks only money damages (including reimbursement of
response clean up costs) and does not seek injunctive or other equitable relief.
The failure to give the Indemnifying Party timely notice under this clause shall
not preclude the Indemnified Party from seeking indemnification from the
Indemnifying Party unless such failure has materially prejudiced the
Indemnifying Party's ability to defend such claim or Litigation.
(b) If the Indemnifying Party assumes the defense of any such claim or
Litigation as set forth in subsection (a), the obligations of the Indemnifying
Party as to such claim or Litigation shall be limited to taking all steps
necessary in the defense or settlement of such claim or Litigation and to
holding the Indemnified Party harmless from and against any Losses, caused by or
arising out of any settlement approved by the Indemnifying Party or any judgment
in connection with such claim or Litigation; however, the Indemnified Party may
participate, at its or his expense, in the defense of such claim or Litigation
provided that the Indemnifying Party shall direct and control the defense of
such claim or Litigation. The Indemnified Party shall cooperate and make
available all books and records reasonably necessary and useful in connection
with the defense. Neither the Indemnifying Party nor the Indemnified Party shall
consent to entry of any judgment, or enter into any settlement with respect to
any Loss without the written consent of the other party, which consent shall not
be unreasonably withheld.
(c) If the Indemnifying Party does not assume the defense of any such claim
or Litigation, the Indemnified Party may, but shall have no obligation to,
defend against such claim or Litigation in such manner as it may deem
appropriate. The Indemnifying Party shall promptly reimburse the Indemnified
Party for the amount of all reasonable expenses, legal or otherwise, incurred by
the Indemnified Party in connection with the defense against or settlement of
such claim or Litigation. If no settlement of the claim or Litigation is made,
the Indemnifying Party shall promptly reimburse the Indemnified Party for the
amount of any judgment rendered with respect to such claim or in such Litigation
and of all reasonable expenses, legal or otherwise, incurred by the Indemnified
Party in the defense against such claim or Litigation.
Section 10.4 Materiality or Knowledge. Solely for the purposes of
calculating the amount of Losses arising from any breach or default of any of
the representations, warranties, covenants and agreements contained in this
Agreement or any Exhibit or Schedule, or any Closing Document, the applicable
provisions thereof shall be read and interpreted as if any qualification stated
therein with respect to materiality or material adverse effect or knowledge was
not contained therein, provided, however, in no event shall any party hereto be
indemnified for Losses resulting from events occurring during the period
beginning on the date hereof and ending on the Closing Date, if and only if, the
breaching or defaulting party shall notify the other party of such event in
writing at least three Business Days prior to the Closing Date.
Section 10.5 Method of Payment of Indemnification. All amounts payable
pursuant to this Article X shall be paid in cash to the Indemnified Party or to
such Person as the Indemnified Party may direct.
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Section 10.6 Limitations on Indemnification. Each party will have no
Liability for indemnification pursuant to this Article X until the aggregate
total of all Losses for which such party is the Indemnifying Party exceeds
$200,000 (at which time such party shall indemnify the Indemnified Party for the
entire amount of Damages). Notwithstanding anything to the contrary, if Grodan
shall be the Indemnified Party, ES and ADI shall be jointly and severally liable
to Grodan for 49% of such Losses and if ES and ADI shall be the Indemnified
Party, Grodan shall be liable to ES and ADI for 51% of such Losses. In no event
shall any party have Liability for indemnification pursuant to this Article X in
excess of $3,000,000 after giving effect to the percentages set forth in the
preceding sentence.
ARTICLE XI
MISCELLANEOUS.
Section 11.1 Expenses. Each of the parties hereto shall bear its own
expenses, including fees of any attorneys and accountants engaged by such party,
except for (a) if, and only if, the transactions contemplated hereby are
consummated, then NEWCO shall pay the (i) reasonable legal fees owed to
Giordano, Halleran and Ciesla in an amount not to exceed $50,000 which shall be
paid by NEWCO; and (ii) reasonable fees owed to Arthur Andersen in connection
with advisory services rendered in connection with the transactions contemplated
by this Agreement and the fiscal 1999 audit of ADI in an amount not to exceed
$30,000; (b) any Taxes or filing, registration or recording fees applicable to
or arising out of or in connection with the transactions described in Sections
2.1 - 2.4 ("Transfer Taxes") shall be borne by ES and ADI; and (c) in the event
of termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
Section 11.2 Survival. The representations, warranties, covenants,
indemnities and agreements of the parties to this Agreement shall survive the
Closing and shall survive any investigation by the other party; provided,
however, that the representations and warranties contained in Articles IV and V
shall survive until the second anniversary of the Closing Date, except for
Sections 4.2, 4.17, 4.19, 4.21 and 4.24 which shall survive indefinitely.
Section 11.3 Notices. All notices, demands or other communications required
or permitted hereunder shall be in writing and shall be sufficiently given if
personally delivered, mailed or transmitted, and shall be effective upon receipt
if delivered personally on the third Business Day following the date mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or the first Business Day
following being sent by electronic transmission to the telecopier number
specified below:
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(a) if to ES:
EcoScience Corporation
10 Alvin Ct. Road
East Brunswick, NJ 08816
Attn: Michael DeGiglio
Chief Executive Officer
Telecopier No.: (732) 257-2326
(b) if to ADI:
Agro Dynamics, Inc.
10 Alvin Ct. Road
East Brunswick, NJ 08816
Attn: Michael DeGiglio
Chief Executive Officer
Telecopier No.: (732) 257-2326
with a copy to:
Giordano, Halleran & Ciesla
125 Half Mile Road
P.O. Box 190
Middletown, NJ 07748
Attn: John Aiello
Telecopier No.: (732) 224-6599
(c) if to Grodan:
Grodania A/S
Hovedgaden 501
DK 2640 Hedehusene
Denmark
Attn: Henrik Frank Nielsen
Managing Director
Telecopier No.: (011) 45 46 56 12 11
with a copy to:
Pedersen & Jantzen
Nyropsgade 45
DK 1602 K0benhavn
Denmark
Attn: Dan Terkildsen
Telecopier No.: (011) 4533 1295 15
40
<PAGE>
with a copy to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Attn: Howard M. Berkower
Telecopier No.: (212) 759-9133
Section 11.4 Assignment; Successors and Assigns. Neither this Agreement nor
any interest herein may be assigned or transferred by any party hereto or by
operation of law or otherwise without the consent in writing of the other
parties, provided, however, that Grodan may assign this Agreement in whole or in
part to a separate entity, directly or indirectly, wholly owned by Rockwool
International A/S formed for the purpose of consummating the transactions
contemplated hereby in which case Grodan shall remain liable under the terms of
this Agreement. Subject to the foregoing, the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors, permitted assigns, heirs and legal representatives.
Section 11.5 Entire Agreement. This Agreement, the Schedules and Exhibits
referred to herein and the Closing Documents constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
all prior agreements and understandings both written and oral among such parties
and constitute the whole and entire basis upon which the respective rights,
duties, obligations, representations and warranties contained herein and therein
are based. No term or provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom the enforcement of such change, waiver, discharge or
termination is sought.
Section 11.6 Governing Law; Construction. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware in all
respects, including all matters of construction, validity and performance,
without regard to their conflict of law principles.
Section 11.7 Construction. THE PARTIES HAVE PARTICIPATED JOINTLY IN THE
NEGOTIATION AND DRAFTING OF THIS AGREEMENT. IF AN AMBIGUITY OR QUESTION OF
INTENT OR INTERPRETATION ARISES, THIS AGREEMENT SHALL BE CONSTRUED AS IF DRAFTED
JOINTLY BY THE PARTIES, AND NO PRESUMPTION OR BURDEN OF PROOF SHALL ARISE
FAVORING OR DISFAVORING ANY PARTY BY VIRTUE OF THE AUTHORSHIP OF ANY OF THE
PROVISIONS OF THIS AGREEMENT. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Nothing in the Schedules hereto shall be deemed adequate to disclose an
exception to a representation or warranty made herein unless the Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty concerns the
existence of the
41
<PAGE>
document or other item itself). The parties intend that each representation,
warranty and covenant contained herein shall have independent significance. All
references to Schedules and Exhibits shall mean the Schedules and Exhibits
attached hereto and made a part hereof.
Section 11.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
Section 11.9 Arbitration. All disputes arising in connection with this
Agreement shall be finally settled by an institutional arbitration under the ICC
Rules by three (3) arbitrators, one (1) appointed by ES and/or ADI, another one
(1) appointed by Grodan, and the third arbitrator shall be selected by the two
(2) party-appointed arbitrators, or failing agreement, by the ICC in accordance
with its rules. The place of the arbitration shall be the City of New York,
State of New York, United States of America. The language of the arbitration
shall be English and the arbitrators shall issue their awards reasoned and in
writing. Any decision or award resulting from such arbitration shall be final
and binding on the parties and the expenses of the arbitration shall be borne by
the parties in such proportion and manner as may be provided in the arbitration
award. The parties agree that any monetary award will be made and paid
exclusively in dollars of the United States of America.
Section 11.10 Captions. The captions in this Agreement are for convenience
of reference only and shall not be deemed to constitute part of this Agreement
or to affect the construction hereof.
Section 11.11 Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on separate counterparts, each of which as so
executed and delivered shall be an original, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed by such party.
Section 11.12 Publicity. Each of the parties hereto agrees that, until the
Closing it will consult with the other party before issuing any press release or
otherwise making any public statement with respect to this Agreement or the
transactions contemplated hereby and that, subject to the requirements of
applicable law or, neither party will make any such press release or public
statement without the prior consent of the other party.
Section 11.13 Waiver. All of the original rights and powers of any party
hereunder shall remain in force notwithstanding any neglect, forbearance or
delay in enforcement thereof, and no party shall be deemed to have waived any of
its rights, any provision of this Agreement or any notice given hereunder unless
such waiver is in a writing signed by an officer of the waiving party. No such
waiver by a party of any breach by another party of any provision of this
Agreement shall be deemed a waiver of any continuing, future or
42
<PAGE>
recurring breach of such provision or any other provision of this Agreement. No
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action or compliance with any representations,
warranties, covenants or agreements contained in this Agreement.
Section 11.14 No Third Party Beneficiaries/No Partnership. This Agreement
shall not confer any rights or remedies upon any Person other than the parties
hereto and their respective successors and permitted assigns. Nothing contained
or implied in this Agreement shall constitute a partnership between the parties
and, except as specifically provided herein, none of the parties shall have any
authority to bind or commit any other.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AGRO DYNAMICS INC.
By:
------------------------------------
Name:
Title:
ECOSCIENCE CORPORATION
By:
------------------------------------
Name:
Title:
GRODANIA A/S
By:
------------------------------------
Name: Jack de Jonge
Title: Chairman of the Board
By:
------------------------------------
Name: Henrik Frank Nielsen
Title: Managing Director
44
EcoScience Corporation and Subsidiaries
As of January 2, 2000
State of
Company Name Incorporation
- --------------------------------------------------------------- -------------
EcoScience Corporation DE
Agro-Dan, Inc. DE
Agro Dynamics, Inc. DE
Agro Dynamics Canada, Inc. Ontario
EcoScience Produce Systems Corporation DE
Agro Power Development, Inc. DE
New Amsterdam Management Co. NJ
Cogentrix of Pocono, Inc. DE
Village Farms, LP DE
Pocono Village Farms, LP DE
Village Farms International Finance Assoc DE
Village Farms of Wheatfield, LLC DE
New Amsterdam Joint Venture, LLC NJ
Village Farms of Delaware, LLC DE
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 March 30, 2000 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
March 31, 2000
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