F-1 1 a19-9851_1f1.htm F-1

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As filed with the Securities and Exchange Commission on May 31, 2019

 

 

Registration No. 333-          

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM F-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 


 

Bioceres Crop Solutions Corp.

(Exact name of Registrant as Specified in its Charter)

 


 

Not Applicable

(Translation of Registrant’s name into English)

 


 

Cayman Islands

 

2870

 

Not Applicable

(State or other jurisdiction of incorporation or
organization)

 

(Primary Standard Industrial Classification Code
Number)

 

(I.R.S. Employer Identification No.)

 

Bioceres Crop Solutions Corp.

Ocampo 210 bis

Predio CCT, Rosario, Santa Fe, Argentina

Tel: +54 (341) 486-1122

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 


 

Cogency Global Inc.

10 E. 40th Street, 10th Floor

New York, NY 10016

Tel.: +1 (212) 947-7200

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 


 

Copies to:

 

Conrado Tenaglia, Esq.

Matthew S. Poulter, Esq.

Linklaters LLP

1345 Avenue of the Americas

New York, New York 10105

Phone: +1 (212) 903-9000

Fax: +1 (212) 903-9100

 


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:     x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

 

Emerging growth company.     x

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.     o

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

 

 

 

 

 

 

Amount to be
Registered(1)

 

Proposed Maximum
Offering Price Per
Unit(2)

 

Proposed Maximum
Aggregate Offering
Price(2)

 

Amount of
Registration Fee

 

Ordinary Shares, par value $0.0001 per share, to be offered for resale by certain selling shareholders(3)

 

119,443

 

$

4.28

 

$

511,216

 

$

62

 

Ordinary Shares, par value $0.0001 per share, to be offered for resale by holders of warrants assuming exercise of such warrants(4)

 

24,200,000

 

$

4.28

 

$

103,576,000

 

$

12,553

 

Total

 

24,319,443

 

$

4.28

 

$

104,087,216

 

$

12,615

 

 


(1)          In the event of a stock split, reverse stock split, stock dividend or similar transaction involving our ordinary shares, the number of shares registered shall automatically be adjusted to cover the additional ordinary shares issuable pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”).

(2)          Estimated solely for purposes of calculating the registration fee in accordance with Rule 457 under the Securities Act, based upon the average of the high and low sales prices of the registrant’s ordinary shares as reported on the NYSE American on May 23, 2019.

(3)          Represents 119,443 ordinary shares previously issued to minority shareholders of Bioceres Semillas S.A. upon the exercise of their tag-along rights under a shareholders agreement, in connection with the consummation of the business combination (the “business combination”) pursuant to a share exchange agreement, as amended, by and among Union Acquisition Corp., whose name changed to Bioceres Crop Solutions Corp., and Bioceres, Inc., Bioceres LLC’s predecessor.

(4)          Represents ordinary shares underlying (i) 5,200,000 private placement warrants, (ii) 11,500,000 public warrants, each issued in connection with the initial public offering of Union Acquisition Corp. and (iii) 7,500,000 warrants issued to Bioceres LLC in connection with the business combination.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. The Selling Shareholders may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED           , 2019

 

 

Bioceres Crop Solutions Corp.

 

24,319,443 Ordinary Shares

 

This prospectus relates to the resale from time to time by the Selling Shareholders (as defined below in the section titled “Selling Shareholders”) of up to 24,319,443 ordinary shares, par value $0.0001 per share (“ordinary shares”), of Bioceres Crop Solutions Corp., which includes up to 24,200,000 ordinary shares issuable upon exercise of our outstanding warrants.

 

We will not receive any proceeds from the sale of the securities by the Selling Shareholders under this prospectus. Information regarding the Selling Shareholders, the number of ordinary shares that may be sold by them, and the times and manner in which they may offer and sell the ordinary shares under this prospectus is provided under the sections titled “Selling Shareholders” and “Plan of Distribution,” respectively. We have not been informed by any of the Selling Shareholders that they intend to sell their securities covered by this prospectus and do not know when or in what amount the Selling Shareholders may offer the securities for sale. The Selling Shareholders may sell any, all, or none of the securities offered by this prospectus.

 

Our ordinary shares trade on the NYSE American (“NYSE”) under the symbol “BIOX”. The last sale price of our ordinary shares on May 23, 2019 was $4.21 per share.

 


 

Investing in our securities involves risks. See “Risk Factors” beginning on page 27 to read about factors you should consider before buying our securities.

 

Neither the Securities and Exchange Commission nor any state or foreign securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 


 

Prospectus dated        , 2019.

 


Table of Contents

 

TABLE OF CONTENTS

 

 

Page

Special Note Regarding Forward-Looking Statements

iv

Summary

6

The Offering

16

Summary Combined Historical Information

17

Unaudited Pro Forma Combined Financial Information

21

Risk Factors

27

Use of Proceeds

70

Dividends

71

Capitalization

72

Selected Financial Information

73

Management’s Discussion and Analysis of Financial Condition and Results of Operations

76

Industry Overview

100

Business

108

Regulation

135

Management

141

Certain Relationships and Related Party Transactions

148

Principal Shareholders

156

Description of Share Capital

157

Taxation

162

Selling Shareholders

166

Plan of Distribution

169

Expenses of the Offering

171

Legal Matters

172

Experts

173

Enforcement of Civil Liabilities

174

Where You Can Find Additional Information

177

 


 

ABOUT THIS PROSPECTUS

 

This prospectus is a part of a registration statement on Form F-1 (the “Registration Statement”) that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration or continuous offering process. Under this shelf process, the Selling Shareholders may from time to time sell the ordinary shares covered by this prospectus in the manner described in “Plan of Distribution.” Additionally, we may provide a prospectus supplement to add information to, or update or change information contained in this prospectus, including the “Plan of Distribution.” You should read this prospectus before deciding to invest in our ordinary shares. You should read this prospectus together with the additional information about us described in the sections below entitled “Where You Can Find Additional Information.” We have not, and the Selling Shareholders have not authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date on the front cover of the prospectus. You should not assume that the information contained in this prospectus is accurate as of any other date.

 

BUSINESS COMBINATION

 

On March 14, 2019, Union Acquisition Corp. (“Union” or “UAC”), whose name changed to Bioceres Crop Solutions Corp., consummated the previously announced business combination pursuant to a share exchange agreement, dated as of November 8, 2018 (as amended, the “Exchange Agreement”), by and among UAC and Bioceres, Inc., a company incorporated under the laws of Delaware, which converted into Bioceres LLC pursuant to the Reorganization (as defined below) on February 28, 2019.

 

Prior to the consummation of the business combination on March 14, 2019, the following steps took place among Bioceres, Inc. and certain of its affiliates (collectively the “Reorganization”).

 

On February 13, 2019, Bioceres, Inc. formed a new subsidiary, BCS Holding Inc. (“BCS Holding”), and contributed all of its assets (including its crop business assets) to BCS Holding in exchange for 100% of the equity interests in BCS Holding. On February 28, 2019, Bioceres, Inc. converted into Bioceres LLC, and on March 1, 2019, Bioceres S.A., a company organized under the laws of Argentina and our ultimate parent

 

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company (the “Parent”) contributed all of its equity interest in Bioceres Semillas S.A. (“Bioceres Semillas”) (its direct majority owned subsidiary) to Bioceres LLC in exchange for additional equity interests in Bioceres LLC.

 

In addition, concurrently with the consummation of the business combination on March 14, 2019, the Rizobacter Call Option (as defined below) was exercised, pursuant to which the total indirect ownership of BCS Holding in Rizobacter increased to 80.00% of all outstanding stock of Rizobacter. On October 22, 2018, Parent, RASA Holding LLC, a Delaware limited liability company and a wholly owned subsidiary of Bioceres, Inc., now a wholly-owned subsidiary of BCS Holding (“RASA Holding”), and Pedro Enrique Mac Mullen, María Marta Mac Mullen and International Property Services Corp., as sellers (collectively, the “Grantors”) entered into an amended and restated option agreement (as may be amended from time to time, the “Rizobacter Call Option Agreement”), pursuant to which the Parent, RASA Holding or any of their nominated affiliates (including BCS Holding and its subsidiaries) would have the option (the “Rizobacter Call Option”) to purchase from the Grantors all of their 11,916,000 shares of common stock (par value AR$1 each and 5 votes per share, the “Rizobacter Stock”) of Rizobacter Argentina S.A., an Argentine corporation and a subsidiary of RASA Holding (“Rizobacter”), representing 29.99% of all outstanding common stock of Rizobacter. Consideration for the Rizobacter Call Option was in cash and in the form of BIOX shares (the “In-Kind Consideration”). On April 29, 2019, pursuant to the exercise of a put option by the Grantors under an option agreement granted pursuant to the Rizobacter Call Option, 938,604 of BIOX shares held by the Grantors were sold to Bioceres LLC. As a result of the business combination and the other transactions contemplated by the Exchange Agreement, as well as the Reorganization and exercise of the Rizobacter Call Option, Union became the holding company of BCS Holding, its subsidiaries and Bioceres Semillas. Upon the consummation of the business combination, Union changed its name to Bioceres Crop Solutions Corp.

 

Unless the context otherwise requires, “we,” “us,” “our,” “the Company,” “BIOX,” “Bioceres” and “Bioceres Crop Solutions” will refer to Bioceres Crop Solutions Corp. and its subsidiaries.

 

IMPORTANT INFORMATION ABOUT FINANCIAL PRESENTATION

 

In December 2016, our Parent approved a change in its and its subsidiaries’ fiscal year end from December 31 to June 30. Following the six-month period ended June 30, 2017 (the “Transition Period”), Bioceres S.A. and its subsidiaries’ fiscal year end was June 30 of each year. In connection with the business combination, the shareholders of Union passed resolutions to change its fiscal year to June 30, to be effective upon closing of the business combination, during an extraordinary general meeting held on February 27, 2019.

 

The combined statements of comprehensive income data for Bioceres for the six-month periods ended December 31, 2017 and 2018 and the combined statements of financial position data as of December 31, 2018 are derived from our unaudited interim condensed combined financial statements appearing elsewhere in this prospectus. The combined statements of comprehensive income data for Bioceres for the year ended June 30, 2018, for the Transition Period and for the years ended December 31, 2016 and 2015 and the combined statements of financial position data as of June 30, 2018, 2017 and as of December 31, 2016 are derived from our audited combined financial statements appearing elsewhere in this prospectus.

 

Our presentation currency is U.S. dollars. We account for our 50% equity interests in our joint ventures as equity method investments in our combined financial statements.

 

We have applied the following standards and amendments for the first time for our annual reporting period commencing July 1, 2018:

 

·                       IFRS 9 — Financial Instruments (version 2014). We previously elected to adopt IFRS 9 (version 2013).

 

·                       IFRS 15 — Revenue from Contracts with Customers.

 

·                       Amendments to IFRS 2 — Classification and measurement of share-based payment transactions.

 

·                       IFRIC 22 — Foreign currency transactions and advance consideration.

 

·                       Amendments to IAS 40 — Transfers of investment property.

 

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·       IAS 29 — Financial Reporting in Hyperinflationary Economics.

 

The adoption of these amendments did not have a material impact on the amounts recognized in prior periods.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, anticipated growth strategies, anticipated trends in our industry, our potential growth opportunities, plans and objectives. In some cases, you can identify forward-looking statements by terminology such as “believe,” “may,” “might,” “will,” “consider,” “estimate,” “continue,” “anticipate,” “intend,” “target,” “project,” “contemplate,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar terms or expressions. The statements we make regarding the following matters are forward-looking by their nature:

 

·                       our ability to develop and commercialize biotechnology products;

 

·                       our ability to maintain our joint venture agreements with our current partners;

 

·                       the success of the HB4 technology that we license and that remains subject to receipt of regulatory approval;

 

·                       our or our collaborators’ ability to develop commercial products that incorporate our seed traits and complete the regulatory approval process for such products;

 

·                       our expectations regarding the commercial value of our key products in yield and abiotic stress and biotic stress;

 

·                       our expectations regarding regulatory approval of products developed by us, our joint ventures and third-party collaborators;

 

·                       our ability to adapt to continuous technological change in our industry;

 

·                       our expectations that products containing our seed traits will be commercialized and we will earn royalties from the sales of such products;

 

·                       our expectations to accelerate the Microstar ramp up, our leading brand in micro-granulated fertilizers;

 

·                       our expectations regarding the future growth of the global agricultural, agricultural biotechnology, biological-based chemical and agro-industrial biotechnology markets;

 

·                       our ability to develop and exploit a proprietary channel for the sale of our biotechnology products;

 

·                       our compliance with laws and regulations that impact our business and changes to such laws and regulations;

 

·                       our ability to assemble, store, integrate and analyze significant amounts of public and proprietary data; and

 

·                       our ability to protect our intellectual property through patents, PVP, trademarks, trade secret laws, confidentiality provisions, and licensing arrangements for the genes that we identify.

 

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from the results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the risks provided under “Risk Factors” in this prospectus.

 

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no

 

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obligation to update publicly any forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or to changes in our expectations.

 

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SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our securities. Before investing in our securities, you should read the entire prospectus carefully, including the information under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements included elsewhere in this prospectus.

 

Overview

 

We are a fully-integrated provider of crop productivity solutions, including seeds, seed traits, seed treatments, biologicals, high-value adjuvants and fertilizers. While most industry participants specialize in a single technology, chemistry, product, condition or stage of plant development, we have developed a multi-discipline and multi-product platform capable of providing solutions throughout the entire crop cycle, from pre-planting to transportation and storage. Our platform is designed to cost-effectively bring high-value technologies to market through an open-architecture approach. See “—Our Business Model”. Our headquarters and primary operations are based in Argentina, which is our key end-market as well as one of the largest markets globally for GM crops. Our controlling shareholder, Bioceres S.A., leverages its relationship with its shareholders, many of whom are agricultural leaders and key participants in our end-markets, to increase adoption of our products and technologies. In 2016, we raised capital through financing from strategic investors such as Monsanto and BAF Capital, which we believe represents validation of our business model as well as endorsement of our products.

 

As of December 31, 2018, we owned or licensed 392 registered products and we owned or licensed, either exclusively or non-exclusively, 211 patents and patent applications. In some instances, our licenses are limited in terms of duration, geography and/or field of use. In the six-month period ended December 31, 2018, we distributed over 12.4 million doses of inoculants, 3.7 million liters of adjuvants, 6.7 tons of high value fertilizers as well as other agricultural inputs, and in the year ended June 30, 2018, we distributed over 14.1 million doses of inoculants, 7.5 million liters of adjuvants, 6.6 tons of high value fertilizers as well as other agricultural inputs across more than 25 countries, including Argentina, Brazil, Paraguay, India, United States, Uruguay, Germany, South Africa among others. Our pipeline of products includes fertilizers, inoculants, adjuvants, crop protection solutions and seeds. Our net revenue, net loss and Adjusted EBITDA for the year ended June 30, 2018 were US$133.5 million, US$14.3 million and US$22.4 million, respectively. Adjusted EBITDA is a non-IFRS financial measure. Net loss is the most directly comparable measure calculated in accordance with IFRS. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Financial Measures” and “Risk Factors—Risks Related to Our Business” for information regarding our use of Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA.

 

Taking into account our acquisition of Rizobacter in October 2016, we have a combined experience of 42 years and we have established a leadership position in sourcing, development, production and sales of biological products for some of the most globally prolific crops, including soy, corn, wheat and alfalfa. We sell our products through a 90-person sales and marketing team and enjoy exceptional access to the end-user grower as a result of: (i) our strategic alliances with global leaders, such as Syngenta AG (“Syngenta”), Valent Biosciences, Dow AgroSciences, Don Mario and TMG; (ii) the shareholders of our Parent, who collectively control significant agricultural land; and (iii) our longstanding relationships with dealers and distributors. Our customers include global blue-chip companies and industry leaders, large distributors, co-ops and dealers, as well as growers.

 

Our leading infrastructure, the success of our platform and commanding presence in our key markets have made us the effective flagship agricultural solutions provider, as well as the natural partner for global conglomerates, in South America.

 

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Our History

 

Our Parent was founded in 2001 by a leading group of growers in Argentina to address the demand for higher crop yield and productivity in a sustainable and environmentally conscious way. Since our founding, we have developed one of the leading fully integrated biotechnology platforms of its kind to source, validate, develop and commercialize agricultural technologies and products. We have strategically targeted some of the most globally prolific crops, namely, soy, wheat, alfalfa and corn, in one of the largest geographies for GM plants on a global scale.

 

In order to bring our products to market in an efficient and cost-effective manner, we have established multiple joint ventures, formed non-joint venture collaborations and created and acquired multiple companies. Our joint ventures include partnerships with important industry participants, such as Florimond Desprez, De Sangosse and Arcadia Biosciences. Some of our non-joint venture collaborations include those with Dow AgroSciences, Momentive, Syngenta and Forage Genetics, among others. Of the companies we have acquired, the most significant was our October 2016 acquisition of the controlling stake in Rizobacter S.A., a global leader in biological products and a pioneer in liquid inoculants.

 

On March 14, 2019, Union consummated the previously announced business combination pursuant to the Exchange Agreement, and prior to that date, the Reorganization also took place.  In addition, concurrently with the consummation of the business combination on March 14, 2019, the Rizobacter Call Option was exercised, pursuant to which the total indirect ownership of BCS Holding in Rizobacter increased to 80.00% of all outstanding stock of Rizobacter. In addition to its market leading position in biological products, Rizobacter offers fertilizers, professional seed treatment services and tolling or formulation services.

 

As a result of the business combination and the other transactions contemplated by the Exchange Agreement, as well as the Reorganization and exercise of the Rizobacter Call Option, Union became the holding company of BCS Holding, its subsidiaries and Bioceres Semillas. Upon the consummation of the business combination, Union changed its name to Bioceres Crop Solutions Corp, and our ordinary shares and public warrants started trading on the NYSE American.

 

The graph below sets forth our history and track record of innovation through joint ventures and acquisitions:

 

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Note:

(1)              Bioceres exercised the Rizobacter Call Option for additional 29.99% of common stock of Rizobacter upon the consummation of the business combination.

 

Organizational Structure

 

Bioceres Solutions Corp. is a Cayman Islands exempted company.  The following diagram depicts our current organizational structure:

 

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Our Business Model

 

Our business model is driven by three key pillars: technology sourcing, product development partnering, and production and market access:

 

Technology Sourcing

 

We have a right of first refusal agreement with INDEAR, our Parent’s technology sourcing and product development subsidiary, for any technology INDEAR develops or sources concerning crop productivity. Through such arrangement with INDEAR, we source and validate promising early stage technologies, which are usually financed through public grants and/or other capital efficient sources and thereby mitigate the associated high financial risks associated with such early stage discoveries.

 

Product Development Partnering

 

We focus on collaborating with strategic partners and creating joint ventures to develop validated technologies and to bring these products to market. We further reduce our financial burden and risk from product development activities while also increasing our ability to develop multiple products. The following joint ventures currently support this initiative:

 

·                                   Verdeca, our U.S.-based joint venture, was created to develop and bring soybean varieties with next-generation agricultural technologies to market.

 

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·                                   Trigall Genetics, our Uruguay-based joint venture that focuses on developing and commercializing conventional and next-generation biotechnology wheat varieties for the South American market.

 

·                                   Semya, an intra-company joint venture with Rizobacter, is dedicated to the EcoSeed initiative and focuses on researching and developing seed treatments as well as agricultural biological input applications for soybean, wheat and alfalfa markets.

 

Production and Market Access

 

We focus on leveraging our shareholder base of leading South American growers as well as proprietary sales channels for direct access to end consumers. By establishing multiple pathways to markets, we maximize our market reach and rate of technology adoption. We currently have over 300 products and licenses. The following subsidiaries support this initiative, certain of which match our investments on a dollar-for-dollar basis:

 

·                                    Rizobacter, a global leader in biological products and Argentina’s leading provider of bio-based solutions for the agricultural sector with a strong focus on crop nutrition and protection solutions.

 

·                                    Bioceres Semillas, our sales channel for seeds, with a primary crop focus on wheat and soybean.

 

·                                    Synertech, which was formed in partnership with De Sangosse with the goal of producing and commercializing micro-beaded fertilizers.

 

Our Competitive Strengths

 

Our diversified platform generates revenues through multiple technologies, customers, distribution channels and end-markets, providing us with a profitable growth trajectory. Our key competitive strengths include:

 

Premier Agricultural Solutions Provider with Flagship Position in Latin America

 

As the first non-governmental Latin America-based entity with an approved GMO event in a major global crop, we consider ourselves to be the pioneer in the agricultural biotechnology industry in Latin America. We have a combined experience of 42 years, which has allowed us to become and maintain our position not only as a reference entity for governmental agencies and policy-makers, but also as a leading choice for partnerships with global conglomerates. We have helped define regulations for gene editing and new breeding technologies as well as formulate intellectual property guidelines and legislation for our industry. We are a founding member of the Argentine Chamber of Biotechnology and one of a handful of selected companies collaborating with the Argentine Department of Science, Technology and Productive Innovation in the design of research grants aimed at our sector. We are a frequent and leading participant in all major forums dedicated to our industry and a prominent representative of our sector.

 

Proven Platform with a Successful Track-Record in Sourcing, Developing and Commercializing Key Biotechnologies

 

With our combined 42 years of experience, we and our subsidiaries have created our proprietary platform for sourcing, validating, developing and bringing key technologies and products to commercialization.

 

We source our technologies and products through various partnerships, collaborations and long-standing relationships with research institutions and scientists. We are the strategic partner of various institutions including CONICET for the development of multiple GM trait leads, Danziger Innovations for the development of modified gene lines in soybeans as well as quality and protection traits and the University of Illinois for the development of herbicide tolerance technology for alfalfa and soybeans, among others. We have also entered into various collaborative product development and distribution agreements including with: (a) Forage Genetics for enhanced alfalfa with herbicide resistance technology; (b) Dow AgroSciences for the

 

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development of new seed traits in soybeans; (c) Momentive for adjuvants; (d) Syngenta for new seed treatments; and (e) Valent BioSciences for the microbials in the United States, among others.

 

We manage our product development via various joint ventures and partnerships with leading participants in the global agriculture sector. We focus our efforts on developing products and technologies that address the specific requirements and demands of our global customer base and for some of the most globally prolific crops, such as soy and wheat, among others.

 

We have access not only to the largest distributors, co-ops and dealers, but also to end customers through our well-established subsidiaries, divisions, partnerships and our shareholders. By selling our proven genetics, seed and seed treatments on a branded basis, we believe we will continue to further strengthen our brand and grow our position in Latin America.

 

Capital-Efficient, Risk Mitigated Development Model

 

Development and regulatory approval for our products and technologies requires a highly evolved and complicated process that can last between 12 to 14 years. Furthermore, capital allocation requirements can be onerous due to the expensive discovery activities usually associated with life sciences research and the strict requirements for regulatory approval that are imposed on GM crops and technologies.

 

Through INDEAR, we believe that we have created a highly-competitive and capital efficient, independent platform for developing such products and technologies in Latin America. We consider INDEAR to be the go-to partner for advanced validation of promising research leads developed by local research institutions in Argentina, most of which do not have the necessary capabilities for this purpose. As advanced validation initiatives are funded often by existing government programs, INDEAR is able to reduce its capital exposure at this high-risk stage of the R&D process.

 

Upon technology validation, we enter into joint ventures, partnerships and collaborative agreements with industry participants that agree on the merits of a new technology and pursue the business opportunity jointly with us. Partnering with others in this stage of the R&D process allows us to reduce our capital exposure while retaining a controlling interest in the product or technology under development. By co-funding projects at an average investment ratio of four dollars from partners to one dollar that we invest, we further reduce our financial burden and risk from product development activities while also increasing our ability to develop multiple products.

 

We enjoy a competitive advantage in commercializing our products as we are able to leverage our strong industry relationships to bring our products to market faster than our competitors. We also facilitate the use of our technologies through licensing agreements and partnerships with global industry leaders, particularly in new markets with expanded regulatory requirements.

 

Patented and Well-Established High Impact Technologies and Integrated Products and as a Robust Pipeline of New Products and Technologies at or Close to Commercialization Phase.

 

We offer integrated products, such as our Rizobacter insignia Pack products, and we are currently developing our EcoSeed product. The EcoSeed combines germplasm, traits, biologicals and chemical components into a single product to improve overall crop yields. We will support our customers through an ag-tech platform that can provide a range of solutions including: cop evolution monitoring, localized weather analysis and accurate agronomic recommendations, satellite monitoring and fleet monitoring, geo-referenced crop scouting and crop re-plant insurance.

 

We believe that our patent and trademark portfolio for plant-related biologicals is amongst the most competitive in South America. As of December 31, 2018, we have identified and sought patent protection in our capacity as either title holder or licensee, either as exclusive or non-exclusive licensee, to 211 patents or patent applications. In some instances, our licenses are limited in terms of duration, geography and/or field of use. We usually seek patent protection in the largest global markets for our products and technologies,

 

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including, the United States, Brazil, Argentina, China, India, Mexico, Australia and certain other European and South American countries.

 

We have registrations in Argentina for 29 wheat, 20 soybean varieties and are also seeking registration for an additional 17 soybean varieties. Our subsidiary Rizobacter has 360 trademarks and applications in Argentina and 294 trademarks and applications globally.

 

We also have a robust and innovative portfolio of products and technologies for all stages of crop development. Many of these technologies are at or close to the commercialization phase, such as EcoSoy, EcoWheat and HarvXtraAlfalfa products. This year we launched a new bio-fungicide for soybean seed treatment and a new abiotic stress tolerant inoculant for soybeans. By the end of 2019, we expect to launch seed traits for wheat, soybean and alfalfa, seed treatments for wheat and soybeans, biocontrol products such as new bio-fungicides for wheat seed treatment, which will increase resistance mitigation, the EcoSeeds integrated product, which we expect to increase yields by up to 10%, and a bioadjuvants product, which is a microbially enhanced adjuvant with improved environmental footprint. By 2020, we expect to launch new seed traits for soybeans, and microbially-enhanced fertilizers and biofertilizers for a variety of crops, which we expect will increase yields and mitigate environmental effects. By 2021, we expect to launch wheat and soybean seed treatments and seed traits for soybean and alfalfa crops. For each of the years from 2019 to 2022, we expect to launch germplasms for wheat and soybean.

 

Unique Ownership by Key Industry Influencers Leading to Early and Broad Adoption of Technologies and Products

 

The current ownership structure of our Parent is composed of more than 300 shareholders, including some of the largest farm operators, processors, distributors and commercial participants in the Latin American agricultural sector. Our Parent shareholder structure also includes founding members of the Argentine Association of No-Till Producers (La Asociación Argentina de Productores en Siembra Directa) (“AAPRESID”) and leading members of the Argentine Association of Regional Consortiums for Agricultural Experimentation (Asociación Argentina de Consorcios Regionales de Experimentación Agrícola) (“AACREA”). These unique relationships not only allow us to quickly bring our products to market and integrate our technologies into the broad market by creating a proprietary distribution and commercialization channel, but also provides us with a highly desired early stage testing platform that allows us to receive direct market feedback in the testing process to vet and facilitate faster market penetration.

 

Highly Accomplished Management Team with a Unique Blend of Technical and Commercialization Experience and the Ability to Identify and Integrate Key Acquisitions

 

We believe we have a strong management team with a unique blend of executive, managerial, technical, commercialization and acquisition experience. We are able to leverage the experience of our management team not only to efficiently source and develop our technologies and products, but also to leverage their vast experience in commercial production, distribution, navigation of intellectual property requirements and inorganic acquisitions to strategically grow our business.

 

Our Growth Strategy

 

Our long-term growth strategy is based on an open-architecture approach to technology origination, identifying and accessing promising technologies from third parties, as well as forming strategic and capital-efficient partnerships that leverage each party’s strategic strengths and capabilities to more quickly bring innovations to market. Our near-term growth strategy includes the following:

 

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Continue to Lead Development and Commercialization of New Agricultural Biotechnology Products in Existing and New Markets

 

We intend to build upon our diverse portfolio of crop productivity solutions by consolidating our position in biological assets, including microbial, seed traits and germplasm assets, and continuing to pursue an integrated approach in the development of superior yielding products. We intend to expand upon our direct reach to customers by offering additional high demand technologies, such as digital farming solutions and direct-to-consumer retail, which we believe will facilitate the adoption and subsequent sales of our products as well as achieve efficiencies to create additional value opportunities.

 

Scale-Up Production of Rizobacter Products to Accelerate Penetration in Local and Regional Crop Nutrition Markets

 

We have invested significant capital in future developments of specialty fertilizers and have completed the construction of our micro-beaded fertilizer facility in Pergamino, Argentina. The facility began operations in January 2017 and is expected to supply high-demand specialty fertilizers in Argentina and neighboring countries. Through our acquisition of Rizobacter in 2016, we also have a sub-license for Microstar, the leading brand in micro-granulated fertilizers granted to Synertech by our commercial partner De Sangosse.

 

Commercial Launch of Seed Traits and EcoSeed Products to Drive Penetration in Local and Regional Integrated Seed Market

 

Given the near-term commercialization opportunity that HB4 and other seed technologies represent, we plan to integrate these solutions into customized seed products that represent a superior value proposition, with an initial focus on Latin America. EcoWheat and EcoSoy seeds integrate the uniqueness of HB4 stress tolerance into locally-adapted germplasms, customized with a seed treatment solution prescribed for specific environments. We believe that the product differentiation provided by our unique and varied technologies increase the value of our products for EcoSeed customers and will drive significant growth in this segment of our business. In the medium-term, we expect royalties from HB4 licenses to represent a significant component of our revenues as this landmark technology is more broadly adopted through strategic partnerships and third-party channels. We have received regulatory approval for the commercialization of the HarvXtraAlfalfa with Roundup Ready® technology developed by Forage Genetics International.

 

Expand our International Business by Accelerating Registration and Sales of Products Through Multiple Subsidiaries

 

We consider ourselves to be a global leader in the biological market and have used this position to establish subsidiaries in Brazil, Paraguay, Bolivia, Uruguay, the United States, South Africa, and more recently, India, Colombia and France. We believe we can use our international footprint and sales force to continue to define our key brands by bringing our broader portfolio of crop productivity solutions to these markets. We expect international growth to be driven initially by continued growth in our historical biological business, as well as by incorporating high-value adjuvants and crop nutrition solutions in the future. In the medium-term, we expect to leverage our leading distribution network to bring our integrated seed products and other crop protection and nutrition solutions to all of our current and target markets.

 

Pursue Strategic Collaborations and Acquisitions in Key Markets

 

We intend to continue working with our collaboration partners to bring our products to customers in key markets. We also plan to continue pursuing acquisitions and in-licensing opportunities to gain access to validated and important later stage products and technologies that we believe to be a strategic fit for our business.

 

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Implications of Being an Emerging Growth Company and a Foreign Private Issuer

 

As a company with less than US$1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

An emerging growth company may also take advantage of reduced reporting requirements that are otherwise applicable to public companies. If we choose to take advantage of any of these reduced reporting burdens, the information we provide to shareholders may be different from that which you may receive from other public companies. These provisions include:

 

·                       a requirement to have only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; and

 

·                       an exemption from the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act in the assessment of our internal control over financial reporting.

 

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earlier to occur of:

 

·                       the last day of our fiscal year during which we have total annual gross revenue of at least US$1.07 billion;

 

·                       the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt; or

 

·                       the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter.

 

Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act.

 

We are also considered a “foreign private issuer.” Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

·                       the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act;

 

·                       the requirement to comply with Regulation FD, which requires selective disclosure of material information;

 

·                       the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

·                       the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events.

 

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company,

 

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but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.

 

Corporate Information

 

Our principal executive offices are located at Ocampo 210 bis, Predio CCT, Rosario, Santa Fe, Argentina, and our telephone number is +54 341 486-1100. We were incorporated as an exempted company under the laws of the Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc., 10 E. 40th Street, 10th Floor, New York, NY 10016.

 

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THE OFFERING

 

Ordinary Shares being offered by certain existing shareholders

 

119,443 shares

 

 

 

Ordinary Shares underlying outstanding warrants

 

24,200,000 shares

 

 

 

Securities Outstanding

 

As of the date of this prospectus, we had (i) 36,120,517 ordinary shares issued and outstanding, (ii) no preference shares issued and outstanding, (iii) 12,700,000 private placement warrants outstanding (5,200,000 of which were issued in connection with Union’s initial public offering and 7,500,000 of which were issued in connection with the business combination) and (iv) 11,500,000 public warrants outstanding. The 36,120,517 ordinary shares issued and outstanding include 4,736,736 ordinary shares issued under the Rizobacter Call Option, which was exercised concurrently with the consummation of the business combination, as well as 119,443 ordinary shares issued to minority shareholders of Bioceres Semillas upon the exercise of their tag-along rights under the shareholders agreement of Bioceres Semillas.

 

 

 

Listing of Securities and trading symbols

 

Our ordinary shares and public warrants trade on the NYSE American under the symbols “BIOX” and “BIOX WS,” respectively.

 

 

 

Plan of distribution

 

The ordinary shares (and the ordinary shares issuable upon exercise of the warrants) covered by this prospectus may be sold by the Selling Shareholders in the manner described under the section entitled “Plan of Distribution.”

 

 

 

Use of Proceeds

 

We will not receive any proceeds from the sale of the securities by the Selling Shareholders under this prospectus.

 

 

 

Risk Factors

 

See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of risk factors you should carefully consider before deciding to invest in our securities.

 

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SUMMARY COMBINED HISTORICAL INFORMATION

 

The following tables set forth, for the periods and dates indicated, certain summary historical financial information. You should read the following summary combined financial and other data in conjunction with “Selected Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited financial statements and respective notes included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected in the future.

 

In December 2016, our Parent and its subsidiaries changed their fiscal year end from December 31 to June 30. Following the Transition Period, our Parent’s and its subsidiaries’ fiscal year end was June 30 of each year. The summary combined statement of comprehensive income data for the year ended June 30, 2018, for the Transition Period and for the years ended December 31, 2016 and 2015 and the summary combined statements of financial position data as of June 30, 2018, June 30, 2017 and December 31, 2016 are derived from the audited combined financial statements of Bioceres appearing elsewhere in this prospectus. The summary combined statement of comprehensive income data for Bioceres for the six-month period ended December 31, 2018 and 2017 and the summary combined statements of financial position data as of December 31, 2018 are derived from the unaudited interim condensed combined financial statements appearing elsewhere in this prospectus, which in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim periods. Bioceres’ combined financial statements have been prepared in accordance with International Financial Reporting Standards, which we refer to as IFRS, as issued by the International Accounting Standards Board.

 

Summary of Combined Historical Financial Information of Bioceres

 

Combined statement of comprehensive income of Bioceres

 

The summary combined statements of comprehensive income data for Bioceres for the year ended June 30, 2018, for the Transition Period and for the years ended December 31, 2016 and 2015 are derived from our audited combined financial statements appearing elsewhere in this prospectus.

 

The summary combined statement of comprehensive income data for Bioceres for the six-month period ended December 31, 2018 and 2017 are derived from the unaudited interim condensed combined financial statements appearing elsewhere in this prospectus.

 

 

 

Six-month Period Ended
December 31,

 

Year Ended
June 30,

 

Six-month
period
Ended June
30,

 

Year Ended December 31,

 

 

 

2018

 

2017

 

2018

 

2017

 

2016(1)

 

2015(2)

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

(US$)

 

Total revenue

 

92,071,466

 

81,007,237

 

133,542,704

 

46,885,310

 

41,169,249

 

5,206,091

 

Crop Protection

 

46,435,705

 

45,702,056

 

77,655,672

 

31,191,970

 

21,493,419

 

 

Seed and integrated products

 

19,494,529

 

17,571,476

 

26,802,707

 

9,053,112

 

14,448,436

 

5,206,091

 

Crop Nutrition

 

26,141,232

 

17,733,705

 

29,084,325

 

6,640,228

 

5,227,394

 

 

Cost of Sales

 

(47,652,679

)

(47,866,280

)

(77,094,551

)

(29,613,158

)

(30,598,956

)

(3,837,242

)

Crop Protection

 

(26,078,960

)

(30,573,546

)

(49,453,167

)

(22,641,887

)

(16,825,572

)

 

Seed and integrated products

 

(6,285,219

)

(8,897,005

)

(13,413,758

)

(4,886,619

)

(8,953,929

)

(3,837,242

)

Crop Nutrition

 

(15,288,500

)

(8,395,729

)

(14,227,626

)

(2,084,652

)

(4,819,455

)

 

 

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Six-month Period Ended
December 31,

 

Year Ended
June 30,

 

Six-month
period
Ended June
30,

 

Year Ended December 31,

 

 

 

2018

 

2017

 

2018

 

2017

 

2016(1)

 

2015(2)

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

(US$)

 

Research and development expenses

 

(942,692

)

(2,066,798

)

(3,950,100

)

(1,990,268

)

(853,854

)

(302,774

)

Selling, general and administrative expenses

 

(16,826,517

)

(19,859,876

)

(35,263,688

)

(15,689,598

)

(8,827,121

)

(1,401,037

)

Share of profit or loss of joint ventures and associates

 

812,593

 

(72,238

)

(2,136,801

)

(649,075

)

(707,042

)

(858,158

)

Other income or loss

 

(298,562

)

286,772

 

613,389

 

54,252

 

24,765

 

12

 

Operating income/(loss)

 

27,163,609

 

11,428,817

 

15,710,953

 

(1,002,537

)

207,041

 

(1,193,108

)

Finance income

 

25,790,367

 

5,371,368

 

26,982,795

 

1,762,484

 

156,468

 

1,569,592

 

Finance costs

 

(50,202,476

)

(18,564,163

)

(67,933,511

)

(11,955,747

)

(8,406,045

)

(879,769

)

Net gain of inflation effects on the monetary items

 

9,865,802

 

 

 

 

 

 

Income/(Loss) Loss before income tax

 

12,617,302

 

(1,763,978

)

(25,239,763

)

(11,195,800

)

(8,042,536

)

(503,285

)

Income tax benefit/(expense)

 

(5,050,749

)

5,856,052

 

10,928,517

 

2,817,251

 

1,860,647

 

(690,726

)

Income/(Loss) for the period/year

 

7,566,553

 

4,092,074

 

(14,311,246

)

(8.378,549

)

(6,181,899

)

(1,194,011

)

Other comprehensive loss(3)

 

(2,511,723

)

(11,651,111

)

(31,833,554

)

(2,714,241

)

(4,579,700

)

 

Total comprehensive income/(loss)

 

5,054,830

 

(7,559,037

)

(46,144,800

)

(11,092,790

)

(10,761,589

)

(1,194,011

)

Non-IFRS measures

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (unaudited)(4)

 

29,249,653

 

16,016,050

 

22,370,693

 

4,133,308

 

8,775,411

 

(1,116,215

)

 


Notes:—

(1)              Combined statements of profit or loss and other comprehensive income for the year ended December 31, 2016 include results of operations of Rizobacter from October 19, 2016 to December 31, 2016 (the period beginning on the date whereupon Bioceres acquired control of Rizobacter).

(2)              Combined statements of profit or loss and other comprehensive income for the year ended December 31, 2015 do not include the consolidated statements of profit or loss and other comprehensive income of Rizobacter, control of which Bioceres acquired on October 19, 2016.

(3)              Includes (i) exchange differences on translation of foreign operations from joint ventures, (ii) exchange differences on translation of foreign operations, (iii) revaluation of property, plant and equipment, net tax from joint ventures and (iv) revaluation of property, plant and equipment, net of tax.

(4)              To provide investors with additional information regarding Bioceres’ financial results, Bioceres monitors and has presented within this prospectus Adjusted EBITDA. Adjusted EBITDA is not a measurement of financial performance under IFRS and should not be considered an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to profit/(loss) as indicators of operating performance or any other measures of performance derived in accordance with IFRS. Bioceres defines Adjusted EBITDA as profit/(loss) exclusive of financial income/(costs), net gain of inflation effects on the monetary items, income tax benefit/(expense), depreciation, amortization, share based compensation and inventory purchase price allocation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Financial Measures.”

The table below provides a reconciliation of our income or loss for the periods to Adjusted EBITDA:

 

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Six-month Period Ended
December 31,

 

Year Ended
June 30,

 

Six-month
period
Ended June
30,

 

Year Ended December 31,

 

 

 

2018

 

2017

 

2018

 

2017

 

2016(1)

 

2015(2)

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

(US$)

 

Reconciliation of Net Income or Loss to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

Income/(Loss) for the period/year

 

7,566,553

 

4,092,074

 

(14,311,246

)

(8,378,549

)

(6,181,889

)

(1,194,011

)

Income tax (benefit)/expense

 

5,050,749

 

(5,856,052

)

(10,928,517

)

(2,817,251

)

(1,860,647

)

690,726

 

Finance costs

 

50,202,476

 

18,564,163

 

67,933,511

 

11,955,747

 

8,406,045

 

879,769

 

Finance income

 

(25,790,367

)

(5,371,368

)

(26,982,795

)

(1,762,484

)

(156,468

)

(1,569,592

)

Net gain of inflation effects on the monetary items

 

(9,865,802

)

 

 

 

 

 

Depreciation of property, plant and equipment

 

1,084,831

 

1,159,959

 

2,230,881

 

1,254,657

 

584,293

 

71,277

 

Amortization of intangible assets

 

992,292

 

1,135,677

 

2,141,476

 

1,418,529

 

424,179

 

2,331

 

Inventory purchase price allocation charge

 

 

2,257,378

 

2,257,378

 

2,436,949

 

7,516,071

 

 

Stock-based compensation charges

 

8,921

 

34,219

 

30,005

 

25,710

 

43,827

 

3,285

 

Adjusted EBITDA (unaudited)

 

29,249,653

 

16,016,050

 

22,370,693

 

4,133,308

 

8,775,411

 

(1,116,215

)

 

Summary Combined Statement of Financial Position of Bioceres

 

The table below illustrates our combined statement of financial position for the periods indicated:

 

 

 

Bioceres

 

 

 

As of
December 31,

 

As of
June 30,

 

As of
June 30,

 

As of
December 31,

 

 

 

2018

 

2018

 

2017

 

2016

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

(US$)

 

Cash and cash equivalents

 

4,251,154

 

2,215,103

 

1,679,478

 

982,897

 

Total assets

 

249,720,247

 

196,638,764

 

239,871,051

 

250,522,746

 

Borrowings

 

107,950,736

 

91,017,133

 

74,990,135

 

64,687,486

 

Total liabilities

 

194,875,959

 

163,505,108

 

162,631,985

 

166,852,003

 

Total equity

 

54,844,288

 

33,133,656

 

77,239,066

 

83,670,743

 

 

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Combined Statement of Cash Flows of Bioceres

 

The tables below illustrate our combined statement of cash flows for the periods indicated:

 

 

 

Six-month Period Ended
December 31,

 

Year Ended

June 30,

 

Six-month
period
Ended
June 30,

 

Year Ended December 31,

 

 

 

2018

 

2017

 

2018

 

2017

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

(US$)

 

Combined statement of cash flow of Bioceres:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows provided by (used in) operating activities

 

3,135,007

 

(10,034,571

)

9,036,893

 

(1,004,055

)

(2,019,885

)

(1,118,524

)

Net cash flows used in investing activities

 

(1,564,031

)

(5,096,096

)

(8,219,684

)

(5,857,749

)

(41,868,228

)

(5,594

)

Net cash flows provided by (used in) financing activities

 

465,075

 

14,964,993

 

(281,584

)

7,558,385

 

44,850,486

 

1,107,951

 

Net increase (decrease) in cash and cash equivalents

 

2,036,051

 

(165,674

)

535,625

 

696,581

 

962,373

 

(16,167

)

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

Pro Forma Presentation

 

The unaudited pro forma combined financial information has been derived by the application of pro forma adjustments to the historical combined financial statements of Bioceres, which have been presented to give effect to the business combination which is accounted for as a reverse recapitalization and the exercise of the Rizobacter Call Option.

 

The unaudited pro forma combined statement of financial position as of December 31, 2018 is based on the historical statement of financial position of Bioceres presented in accordance with IFRS and the historical statement of financial position of UAC as of December 31, 2018, adjusted in accordance with IFRS to reflect the business combination, the accounting effects of the reverse recapitalization and the exercise of the Rizobacter Call Option, as if those events have occurred on December 31, 2018.

 

The unaudited pro forma condensed combined statement of income combines the historical audited results of operations of Bioceres for the year ended June 30, 2018, with the historical unaudited results of operations of UAC for the period from November 14, 2017 (inception) to June 30, 2018, and gives pro forma effect to the events as if those had been consummated on July 1, 2017. The unaudited pro forma condensed combined statement of income for the six months ended December 31, 2018 combines the unaudited historical combined statement of income of Bioceres for the six-month period ended December 31, 2018 with the unaudited historical condensed combined statement of income of UAC for the six-month period ended December 31, 2018, giving effect to the events as if those had occurred at the beginning of the earliest period presented.

 

You should read the information contained in this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the historical audited combined financial statements of Bioceres and the accompanying notes included elsewhere in this prospectus. Certain line items of the unaudited pro forma condensed combined financial information of UAC included herein were aligned to Bioceres’ in order to conform to the presentation standards used in Bioceres’ combined financial statements. In addition, UAC’s historical financial reporting periods have been adjusted to conform to Bioceres’ historical financial reporting periods.

 

Unaudited pro forma combined statement of financial position as of December 31, 2018

 

 

 

I

 

II

 

 

 

III

 

 

 

IV

 

 

 

V

 

 

 

Bioceres

 

UAC

 

 

 

Pro forma
adjustments

 

 

 

Rizobacter
Call Option

 

 

 

Pro forma
combined

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

4,251,154

 

440,388

 

 

 

1,260,026

 

B

 

 

 

 

5,951,568

 

Other financial assets

 

4,567,406

 

117,650,398

 

 

 

(117,650,398

)

B C

 

 

 

 

4,567,406

 

Trade receivables

 

82,120,771

 

 

 

 

 

 

 

 

 

 

82,120,771

 

Other receivables

 

5,084,534

 

135,334

 

 

 

 

 

 

 

 

 

5,219,868

 

Income and minimum presumed income taxes recoverable

 

61,834

 

 

 

 

 

 

 

 

 

 

61,834

 

Inventories

 

24,097,484

 

 

 

 

 

 

 

 

 

 

24,097,484

 

Total current assets

 

120,183,183

 

118,226,120

 

 

 

(116,390,372

)

 

 

 

 

 

122,018,931

 

NON-CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other financial assets

 

346,575

 

 

 

 

 

 

 

 

 

 

346,575

 

Other receivables

 

1,409,634

 

 

 

 

 

 

 

 

 

 

1,409,634

 

 

21


Table of Contents

 

 

 

I

 

II

 

 

 

III

 

 

 

IV

 

 

 

V

 

 

 

Bioceres

 

UAC

 

 

 

Pro forma
adjustments

 

 

 

Rizobacter
Call Option

 

 

 

Pro forma
combined

 

Income and minimum presumed income taxes recoverable

 

570,231

 

 

 

 

 

 

 

 

 

 

570,231

 

Deferred tax assets

 

624,646

 

 

 

 

 

 

 

 

 

 

624,646

 

Investments in joint ventures

 

27,144,578

 

 

 

 

 

 

 

 

 

 

27,144,578

 

Property, plant and equipment

 

42,703,375

 

 

 

 

 

 

 

 

 

 

42,703,375

 

Intangible assets

 

35,181,602

 

 

 

 

 

 

 

 

 

 

35,181,602

 

Goodwill

 

21,556,423

 

 

 

 

 

 

 

 

 

 

21,556,423

 

Total non—current assets

 

129,537,064

 

 

 

 

 

 

 

 

 

 

129,537,064

 

Total assets

 

249,720,247

 

118,226,120

 

 

 

(116,390,372

)

 

 

 

 

 

251,555,995

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade and other payables

 

42,911,186

 

156,359

 

 

 

 

 

 

 

 

 

43,067,545

 

Borrowings

 

89,924,339

 

 

 

 

 

 

 

 

 

 

89,924,339

 

Employee benefits and social security

 

5,194,969

 

 

 

 

 

 

 

 

 

 

5,194,969

 

Deferred revenue and advances from customers

 

1,234,024

 

 

 

 

 

 

 

 

 

 

1,234,024

 

Income and minimum presumed income taxes payable

 

708,189

 

 

 

 

 

 

 

 

 

 

708,189

 

Government grants

 

4,754

 

 

 

 

 

 

 

 

 

 

4,754

 

Financed payment -Acquisition of business

 

19,338,121

 

 

 

 

 

 

 

(13,720,000

)

D

 

5,618,121

 

Ordinary shares subject to possible redemption

 

 

113,069,753

 

A

 

(113,069,753

)

C

 

 

 

 

 

Total current liabilities

 

159,315,582

 

113,226,112

 

 

 

(113,069,753

)

 

 

(13,720,000

)

 

 

145,751,941

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

 

18,026,397

 

 

 

 

 

 

 

 

 

 

18,026,397

 

Government grants

 

9,124

 

 

 

 

 

 

 

 

 

 

9,124

 

Investments in joint ventures

 

2,048,254

 

 

 

 

 

 

 

 

 

 

2,048,254

 

Deferred tax liabilities

 

14,974,403

 

 

 

 

 

 

 

 

 

 

14,974,403

 

Provisions

 

502,199

 

 

 

 

 

 

 

 

 

 

502,199

 

Financed payment - Acquisition of business

 

 

 

 

 

 

 

 

 

 

 

 

Total non—current liabilities

 

35,560,377

 

 

 

 

 

 

 

 

 

 

35,560,377

 

Total liabilities

 

194,875,959

 

113,226,112

 

 

 

(113,069,753

)

 

 

(13,720,000

)

 

 

181,312,318

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity attributable to owners of the parent

 

24,830,569

 

5,000,008

 

 

 

(3,320,619

)

C

 

29,060,387

 

E

 

55,570,345

 

Non-controlling interests

 

30,013,719

 

 

 

 

 

 

 

(15,340,387

)

E

 

14,673,332

 

Total equity

 

54,844,288

 

5,000,008

 

 

 

(3,320,619

)

 

 

13,720,000

 

 

 

70,243,677

 

Total equity and liabilities

 

249,720,247

 

118,226,120

 

 

 

(116,390,372

)

 

 

 

 

 

251,555,995

 

 

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Table of Contents

 


Notes to the pro forma combined statement of financial position as of December 31, 2018

 

I.                     This column is derived from the unaudited combined statement of financial position of Bioceres as of December 31, 2018.

 

II.                This column is derived from the unaudited balance sheet of UAC as of December 31, 2018 that has been adjusted to be presented under IFRS.

 

A.                 This has been classified as current liabilities due to the closing date of the business combination.

 

III.           This column shows the pro forma adjustments regarding:

 

B.                 The reclassification between “Other financial assets” and “Cash and cash equivalents” related to the release of funds held in the trust account; and

 

C.                 The payment of the redeemed shares and equity adjustments related to the redeemed shares in excess of those accounted on UAC financials as “ordinary shares subject to possible redemption.”

 

IV.            This column shows the pro forma adjustments in consideration of the exercise of the Rizobacter Call Option. The pro forma adjustment for the Rizobacter Call Option are:

 

D.                 Cancellation of financed payment — cancellation of the payment made in connection with the original Rizobacter purchase option, in light of the exercise of the Rizobacter Call Option; and

 

E.                  Equity adjustments for the acquisition of the 29.99% equity interest in Rizobacter in consideration of the Rizobacter Call Option and issuance of UAC shares mentioned above.

 

V.                 This column represents the unaudited pro forma combined statement of financial position as of December 31, 2018 for the business combination under IFRS and reflects all adjustments in columns I to IV above.

 

Unaudited pro forma combined statement of income for the six-month period ended December 31, 2018:

 

 

 

I

 

II

 

III

 

 

 

IV

 

 

 

Historical
Bioceres

 

Historical UAC

 

Pro forma
adjustments

 

 

 

Pro forma
combined

 

Revenue

 

92,058,506

 

 

 

 

 

92,058,506

 

Government grants

 

12,960

 

 

 

 

 

12,960

 

Total revenue

 

92,071,466

 

 

 

 

 

92,071,466

 

Cost of sales

 

(47,652,679

)

 

 

 

 

(47,652,679

)

Research and development expenses

 

(942,692

)

 

 

 

 

(942,692

)

Selling, general and administrative expenses

 

(16,826,517

)

(574,792

)

 

 

 

(17,401,309

)

Share of loss of joint ventures

 

812,593

 

 

 

 

 

812,593

 

Other income or expenses, net

 

(298,562

)

 

 

 

 

(298,562

)

Operating profit or loss

 

27,163,609

 

(574,792

)

 

 

 

26,588,817

 

Finance income

 

25,790,367

 

1,081,987

 

(1,081,987

)

A

 

25,790,367

 

Finance costs

 

(50,202,476

)

 

 

 

 

(50,202,476

)

Net gain of inflation effects on the monetary items

 

9,865,802

 

 

 

 

 

9,865,802

 

Income or loss before income tax

 

12,617,302

 

507,195

 

(1,081,987

)

 

 

12,042,510

 

Income tax (expenses)/benefit

 

(5,050,749

)

 

 

 

 

(5,050,749

)

Income or loss for the period

 

7,566,553

 

507,195

 

(1,081,987

)

 

 

6,991,761

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

Equity holders of the parent

 

4,229,006

 

507,195

 

586,787

 

B

 

5,322,988

 

Non-controlling interest

 

3,337,547

 

 

(1,668,774

)

B

 

1,668,773

 

 

 

7,566,553

 

507,195

 

(1,081,987

)

 

 

6,991,761

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

3,196,537

 

32,923,980

 

C

 

36,120,517

 

Basic and diluted net loss per ordinary share

 

 

(0.17

)

 

 

 

0.15

 

 

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Notes to the pro forma combined statement of income for the six-month period ended December 31, 2018

 

I.                     This column is derived from the historical unaudited interim combined statement of income of Bioceres for six-month period ended December 31, 2018.

 

II.                This column is derived from the historical interim statement of income of UAC for six-month period ended December 31, 2018 that has been adjusted to be presented under IFRS.

 

III.           This column shows the pro forma adjustments for:

 

A.                 Reversing of financial income from the marketable securities held in the trust account.

 

B.                 Reclassification of income or loss attributable to equity holders of the Parent and non-controlling interest in consideration of the full exercise of the Rizobacter Call Option (and the acquisition of 29.99% equity interest in Rizobacter) as if it had been exercised on July 1, 2018.

 

C.                 This adjustment represents: (i) the capitalization of ordinary shares not redeemed, (ii) rights conversions into ordinary shares, (iii) shares that were registered pursuant to the Form S-4 filed with the SEC on February 11, 2019 constituting consideration in the business combination, (iv) shares issued to the Grantors and (v) shares issued in connection with Bioceres Semillas’ shareholders’ tag-along exercise.

 

IV.            This column represents the unaudited pro forma combined statement of income for the business combination under IFRS and reflects all adjustments in columns I to III above.

 

Pro Forma Earnings Per Share (EPS)

 

The table below reflects the adjustments to basic and diluted net income per share for the effect of the business combination, assuming such transactions occurred on July 1, 2018, for the six-month period ended December 31, 2018.

 

 

 

EPS of Pro
Forma
Combined

 

Numerator:

 

 

 

Net Income (Loss) attributable to equity holders of the parent

 

5,322,988

 

 

 

 

 

Denominator:

 

 

 

UAC weighted average shares outstanding, basic and diluted

 

2,875,000

 

Capitalization of ordinary shares not redeemed

 

123,164

 

Rights conversion into ordinary shares

 

1,150,000

 

Registered shares constituting consideration in the business combination

 

27,116,174

 

Shares issued to the Grantors

 

4,736,736

 

Bioceres Semillas’ shareholders’ tag-along exercise

 

119,443

 

Basic and diluted weighted average shares outstanding

 

36,120,517

 

 

 

 

 

Basic and diluted net loss per ordinary share

 

0.15

 

 

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Table of Contents

 

Unaudited pro forma combined statement of income for the year ended June 30, 2018:

 

 

 

I

 

II

 

III

 

 

IV

 

 

 

Historical
Bioceres

 

Historical
UAC

 

Pro forma
adjustments

 

 

Pro forma
combined

 

Revenue

 

133,491,118

 

 

 

 

133,491,118

 

Government grants

 

51,586

 

 

 

 

51,586

 

Total revenue

 

133,542,704

 

 

 

 

133,542,704

 

Cost of sales

 

(77,094,551

)

 

 

 

(77,094,551

)

Research and development expenses

 

(3,950,100

)

 

 

 

(3,950,100

)

Selling, general and administrative expenses

 

(35,263,688

)

(355,847

)

 

 

(35,619,535

)

Share of loss of joint ventures

 

(2,136,801

)

 

 

 

(2,136,801

)

Other income or expenses, net

 

613,389

 

 

 

 

613,389

 

Operating profit or loss

 

15,710,953

 

(355,847

)

 

 

15,355,106

 

Finance income

 

26,982,795

 

418,410

 

(418,410

)

A

26,982,795

 

Finance costs

 

(67,933,511

)

 

(379,531

)

B

(68,313,042

)

Income or loss before income tax

 

(25,239,763

)

62,563

 

(797,941

)

 

(25,975,141

)

Income tax benefit

 

10,928,517

 

 

113,859

 

B

11,042,376

 

Income or loss for the period

 

(14,311,246

)

62,563

 

(684,082

)

 

(14,932,765

)

Attributable to:

 

 

 

 

 

 

 

 

 

 

Equity holders of the parent

 

(11,039,533

)

62,563

 

(2,319,939

)

C

(13,296,909

)

Non—controlling interest

 

(3,271,713

)

 

1,635,857

 

C

(1,635,856

)

 

 

(14,311,246

)

62,563

 

(684,082

)

 

(14,932,765

)

Weighted average shares outstanding, basic and diluted

 

 

2,893,654

 

33,049,231

 

D

35,942,885

 

Basic and diluted net loss per ordinary share

 

 

(0.12

)

 

 

(0.37

)

 


Notes to the pro forma combined statement of income for the year ended June 30, 2018

 

I.                     This column is derived from the historical combined statement of income of Bioceres for the year ended June 30, 2018.

 

II.                This column is derived from the historical statement of income of UAC for period from November 14, 2017 (inception) through June 30, 2018.

 

III.           This column shows the pro forma adjustments for:

 

A.                 Reversing of financial income from the marketable securities held in the trust account.

 

B.                 Accrued finance costs on the 9.99% call option as if it had been exercised on July 1, 2017, net of income tax at the statutory rate of 30%.

 

C.                 Reclassification of income or loss attributable to equity holders of the Parent and non-controlling interest in consideration of the full exercise of the Rizobacter Call Option (and the acquisition of 29.99% equity interest in Rizobacter) as if it had been exercised on July 1, 2017.

 

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D.                 This adjustment represents: (i) the capitalization of ordinary shares not redeemed, (ii) rights conversions into ordinary shares, (iii) shares that were registered  pursuant to the Form S-4 filed with the SEC on February 11, 2019 constituting consideration in the business combination, (iv) shares issued to the Grantors and (v) shares issued in connection with Bioceres Semillas’ shareholders’ tag-along exercise.

 

IV.            This column represents the unaudited pro forma combined statement of income for the business combination under IFRS and reflects all adjustments in columns I to III above.

 

Pro Forma Earnings Per Share (EPS)

 

 

 

EPS of Pro
Forma
Combined

 

Numerator:

 

 

 

Net Income (Loss) attributable to equity holders of the parent

 

(13,296,909

)

 

 

 

 

Denominator:

 

 

 

UAC weighted average shares outstanding, basic and diluted

 

2,893,654

 

Capitalization of ordinary shares not redeemed

 

123,164

 

Rights conversion into ordinary shares

 

1,150,000

 

Registered shares constituting consideration in the business combination

 

27,116,174

 

Shares issued to the Grantors

 

4,736,736

 

Bioceres Semillas’ shareholders’ tag-along exercise

 

119,443

 

Basic and diluted weighted average shares outstanding

 

35,942,885

 

 

 

 

 

Basic and diluted net loss per ordinary share

 

(0.37

)

 

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Table of Contents

 

RISK FACTORS

 

Investing in our securities involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this prospectus, including our financial statements and notes thereto before you invest in our ordinary shares. If any of the following risks actually materializes our operating results financial condition and liquidity could be materially adversely affected. As a result, the trading price of our ordinary shares could decline and you could lose all or part of your investment.

 

Risks Related to Our Business

 

We may not be successful in developing marketable or commercial technologies.

 

Our success depends in part on our ability to identify and develop high-value crop productivity technologies for use in commercial products. Through our technology sourcing and product development collaborations we commit substantial efforts and other resources to accomplish this. It may take several years, if at all, before many of our products complete the development process and become available for production and commercialization.

 

As of the date of this prospectus, many of our products have been commercialized by Rizobacter, including Rizoderma, crop protection products in the Maxim line and a variety of adjuvants and packs. There can be no assurance that our future crop productivity technologies will be viable for commercial use, or that we will be able to generate revenues from those technologies, in a significant manner or at all. If seeds or other products that contain our seed traits or technology are unsuccessful in achieving their desired effect or otherwise fail to be commercialized, we will not receive revenues from our customers or royalty payments from the commercialization of the seed traits and technologies we develop, which could materially and adversely affect our business, financial condition, results of operations and growth strategy.

 

Seeds containing the seed traits or biological treatments that we develop may be unsuccessful or fail to achieve commercialization for any of the following reasons:

 

·                       our seed traits or biological treatments may not be successfully validated in the target crops;

 

·                       our seed traits or biological treatments may not have the desired effect on the relevant crop sought by our end-market;

 

·                       we or our joint ventures or collaborators may be unable to obtain the requisite regulatory approvals for the seeds containing our seed traits or for our biological treatments;

 

·                       our competitors may launch competing or more effective seed traits, biological treatments or germplasms;

 

·                       a market may not exist for seeds containing our seed traits or biological treatments or such products may not be commercially successful;

 

·                       we may be unable to patent and/or obtain breeders’ rights or any other intellectual property rights on our traits and technologies in the necessary jurisdictions;

 

·                       even if we obtain patent and/or breeders’ rights or any other intellectual property rights on our seed traits, such rights may be later challenged by competitors or other parties; and

 

·                       even if we obtain patent and/or breeders’ rights or any other intellectual property rights on our seed traits, competitors may design competing products that do not infringe these intellectual property rights.

 

Our business and the commercialization of our products currently in development are subject to various government regulations and we or our collaborators may be unable to obtain, or may face delays in obtaining, necessary regulatory approvals.

 

Our business is generally subject to two types of regulations: (i) those that apply to our operations and (ii) those that apply to products containing or based on our technology. We are responsible for applying for

 

27


Table of Contents

 

and maintaining the regulatory approvals necessary for our operations, particularly those covering our field trials, bio-safety evaluations and feed and food tests. Under the terms of our joint venture agreements, we and our joint venture partners are jointly responsible for obtaining and maintaining the regulatory approvals necessary for the commercialization of products that contain our seed traits and other technologies in the various relevant markets. As an operational matter, we generally lead these processes in Argentina through our affiliate, Instituto de Agrobiotecnologia Rosario S.A. (“INDEAR”), and our international subsidiaries or our collaborators lead these efforts in the United States, China, Brazil, Paraguay, Uruguay and other international markets. In the future, we expect to seek regulatory approvals in other markets. Regulatory and legislative requirements affect the development, production and sale of our products, including the testing, commercializing and planting of seeds containing our biotechnology seed traits. Failure to receive such approvals or non-compliance with the applicable regulatory regime could adversely impact our operations and business strategy. Additionally, we may face difficulties in obtaining regulatory approvals in jurisdictions in which we have not previously operated or in which we have limited experience.

 

In most of our key target markets, including the United States, regulatory approvals must be received prior to the importation and commercialization of transgenic products. Regulatory regimes in some of our key target markets may be more onerous. For example, in Argentina, the federal government’s regulation of agricultural biotechnology is handled primarily by two agencies, the Argentine National Advisory Commission on Agricultural Biotechnology (Comisión Nacional Asesora de Biotecnología Agropecuaria) (“CONABIA”), which regulates activity related to biosafety, and the National Food Safety and Quality Service (Servicio Nacional de Sanidad y Calidad Agroalimentaria), or SENASA, which regulates activity related to food and feed safety. Additionally, the National Market Regulator (Dirección Nacional de Mercados) must conduct an economic evaluation. When products containing our seed traits or other technology reach large-scale field trials, bio-safety evaluations and commercial approval stages, if we, our joint ventures or other collaborators are unable to obtain the requisite regulatory approvals or if there is a delay in obtaining such approvals as a result of negative market perception, heightened regulatory standards or unfamiliarity with the applicable regulatory regime, such products will not be commercialized, which would negatively impact our business and results of operations.

 

Our EcoSeed business is dependent in large part on the success of a technology that we license and that remains subject to receipt of regulatory approval.

 

The majority of our biotechnology seed products currently under development incorporates HB4 technology (a yield improvement technology). We expect that the sale of biotech seeds that contain HB4 technology, our EcoSeed business, will comprise an increasingly significant portion of our future revenues. As a result, our future growth and financial performance will largely depend on our ability to receive regulatory approval for and to commercialize our HB4 technology, and if this effort is unsuccessful we may not have the resources to pursue development of our other products and our business could be materially and adversely affected. We also depend on our continued exclusive use of the HB4 technology pursuant to the terms of licensing agreements with the National Scientific and Technical Research Council of Argentina (Consejo Nacional de Investigaciones Científicas y Técnicas) (“CONICET”) and the National University of the Litoral. The Parent holds an exclusive license for HB4, which terminates on the expiration date of the last of the HB4 patents in 2033, unless terminated before such date in accordance with its terms. If this licensing agreement is declared unenforceable or invalid, we could lose access to one of our principal technologies and could become involved in a costly or time-consuming legal dispute.

 

The Parent is party to funding agreements pursuant to which certain investors have a right to the majority of the payments we may receive in connection with the commercialization of our technologies in certain crops.

 

Between 2005 and 2007, the Parent entered into agreements with various investors to obtain funding in the aggregate amount of US$1.0 million for research and early stage development of technology relating to a specific sunflower gene, Hahb 4, that is intended to promote drought tolerance in crops. The funding agreements grant the investors, in the aggregate, the right to receive 52.8% of the rights and royalties payable to us from the successful commercialization of the resulting technology with respect to soybean, wheat and

 

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Table of Contents

 

corn. As of the date hereof, the promoter element of the technology developed in connection with our research and development of Hahb 4 is being incorporated into a leading soybean product that Verdeca is developing, which also incorporates our HB4 technology. In addition, the licenses of our HB4 technology that we have granted to other developers and our joint ventures with respect to certain crops include the Hahb 4 promoter element. Accordingly, we may have to pay third parties royalties otherwise due to us in the absence of these agreements and we may not receive the full economic benefit of the commercialization of certain of our technologies. In addition, the investors party to these funding arrangements may claim to be entitled to payments in addition to the royalties, which we believe are within the scope of such agreements. The investors may also dispute the allocation of revenue as it relates to the relative importance of our various technologies incorporated into a given product. We cannot be certain how a court would interpret any ambiguities regarding the scope of these funding agreements or other claims that may be raised by one or more investors pursuant to these funding agreements. Any dispute regarding these agreements could be costly and divert management’s attention from our operations, and if the investors are deemed to have rights to payments in excess of those we believe are applicable, our business, results of operations, cash flows and prospects would be materially and adversely affected. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Tabular Disclosure of Contractual Obligations” and “Business—Early Stage Technology Development Agreements.”

 

There are a limited number of prospective collaborators in the markets in which we operate.

 

Our Research and Development (“R&D”) and commercialization activities are costly, time-intensive and require significant infrastructure and resources. Therefore, our business strategy involves entering into joint venture arrangements with global agricultural firms to leverage their resources, know-how and channels of distribution and into collaborations with research institutions and governmental agencies to facilitate our low-cost approach to R&D. The crop productivity market is highly consolidated and dominated by a relatively small number of large companies. Additionally, there are a limited number of researchers and research institutions focused on the technologies that we seek to develop and competition for entry into collaboration arrangements with them can be challenging. Due to the small number of companies in our markets and the small number of potential collaborators, there are limited opportunities for us to pursue additional joint ventures and collaborations with new partners and collaborators. We may cease to be attractive to prospective collaborators if our technology platform or track record is not perceived to be sufficiently developed or successful or if, in the case of prospective joint venture partners, such prospective partners view us as a competitor and choose not to collaborate with us. In addition, if we fail to develop or maintain our relationships with any of our existing collaborators, we could lose our opportunity to work with that collaborator and suffer a reputational risk that could impact our relationships with other collaborators in what is a relatively small industry community. If we are unable to enter into new joint venture agreements or collaborations, we may face higher development costs than anticipated, greater difficulties in achieving commercialization, challenges in expanding our portfolio of technologies and distribution networks and commercial products, or other adverse impacts, which could have a material adverse effect on our business prospects.

 

The licenses that we grant to certain of the joint ventures in which we participate and to certain third parties are exclusive with respect to certain territories and/or crops, limiting our ability to use the licensed technology and future technologies either independently or with another partner.

 

The license we have agreed to grant to Verdeca would be exclusive with respect to HB4 soybean technology worldwide and, although we would be permitted to use this technology, we would be prohibited from licensing it to third parties. The license we granted to Trigall Genetics is exclusive with respect to HB4 wheat technology in Argentina, Brazil, Paraguay and Uruguay. Pursuant to the terms of the licenses in each of the above-mentioned joint ventures, we reserve the rights to use such technologies for research and non-commercial purposes. We are prohibited from independently using the technology we licensed to Trigall Genetics and Verdeca with respect to wheat and soybean, respectively, within their exclusive field and territories. As a result, we are, to a certain extent, dependent on the efforts of our joint ventures and licensees that hold or will hold exclusive licenses to commercialize our technologies in those fields and territories. These licenses are valid so long as the respective joint venture operates and can be recuperated by us upon joint venture dissolution. The restrictions imposed by these licenses limit our flexibility to commercialize our

 

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technology and expand our business, both of which could adversely affect our business, results of operations and prospects.

 

Our product development cycle is lengthy and uncertain, and we may never generate revenues or earn royalties on the sale of our products currently in development.

 

R&D in the crop productivity industry is expensive, complex, prolonged and uncertain. We may spend many years and dedicate significant financial and other resources developing products that may never generate revenues or come to market. Our process of developing and commercializing technologies involves several phases and can take several years from discovery to commercialization of a product. On average, it takes between five and 13 years to develop a product for our crop productivity products. Some products will never reach the final stages of development.

 

Development of new or improved agricultural products involves risks of failure inherent in the development of products based on innovative and complex technologies. These risks include the possibility that:

 

·                       our products will fail to perform as expected in the field;

 

·                       our products will not receive necessary regulatory permits and governmental clearances in the markets in which we intend to sell them;

 

·                       our products may have adverse effects on consumers;

 

·                       consumer preferences, which are unpredictable and can vary greatly, may change quickly, making our products no longer desirable;

 

·                       our competitors develop new products that have other more appealing characteristics than our products;

 

·                       our products will be viewed as too expensive by food companies or growers as compared to competitive products;

 

·                       our products will be difficult to produce on a large scale or will not be economical to grow;

 

·                       intellectual property and other proprietary rights of third parties will prevent us, our R&D partners, or our licensees from marketing and selling our products;

 

·                       we may be unable to patent or otherwise obtain intellectual property protection for our discoveries in the necessary jurisdictions;

 

·                       we or the customers that we sell our products to may be unable to fully develop or commercialize our products in a timely manner or at all; and

 

·                       third parties may develop superior or equivalent products.

 

We intend to continue to invest in R&D including additional and expanded field testing to validate potential products in real world conditions. Because of the long product development cycle and the complexities and uncertainties associated with biotech technologies, there can be no assurance that we will ever generate significant revenues from the technologies or products that we are currently developing without significant delay, without the incurrence of unanticipated costs or at all.

 

We or our collaborators may fail to perform our respective contractual obligations and we may have disputes with our collaborators.

 

Pursuant to our joint venture agreements, other agreements with our joint venture partners and collaboration arrangements, we are required to provide R&D services over a particular period of time and meet other contractual obligations. If we fail to perform our obligations under these agreements, our collaborators’ obligations to us may be reduced and, in other cases, our collaborators may seek to dissolve the corresponding joint venture or terminate their agreements with us and, as a result, our anticipated revenues may decrease. In addition, the failure of any of our collaborators to perform their contractual obligations, due to financial

 

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hardship, disagreement under the relevant agreement or for any other reason, may hinder our research collaboration, development and commercialization activities, increase our costs and materially and adversely affect our results of operations. Because some of our intellectual property has been licensed to various joint ventures for use in several different fields, the interests of each of our partners in these joint ventures may not always be aligned. As a result, it is possible that potential disputes may arise between us and our partners.

 

Our ability to generate value from our joint ventures and research collaborations will depend on, among other things, our ability to work cooperatively with our collaborators for the discovery, development and commercialization of our technology and products and we may be unable to do so. We cannot be sure that the division of labor will be successful in aiding the commercialization of our products. Furthermore, the agreements governing our partnership and collaborations are complex and cover a range of future activities. The occurrence of any negative event with respect to the above matters or a dispute between us and our partners or collaborators could delay our development and commercialization efforts, and lead to the dissolution of the partnership or collaboration. If disagreements with a collaborator arise, any such dispute could be costly, time-consuming to resolve and distracting to our management. Such a dispute may also negatively affect our relationship with one or more of our other collaborators and may hinder our ability to enter into future collaboration agreements. Any of these occurrences could negatively impact our business and results of operations.

 

Our joint venture agreements or any partnerships that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our product candidates.

 

We may seek partnerships or joint venture arrangements with third parties for the development or commercialization of our product candidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into partnerships or joint venture arrangements. We will face, to the extent that we decide to enter into partnerships or joint venture agreements, significant competition in seeking appropriate partners. Moreover, partnerships or joint venture arrangements are complex and time-consuming to negotiate document implement and maintain. We may not be successful in our efforts to establish and implement partnerships, joint ventures, or other alternative arrangements should we so chose to enter into such arrangements and any future partnerships or joint ventures that we enter into may not be successful. Furthermore, the terms of any partnerships, joint ventures, or other arrangements that we may establish may not be favorable to us.

 

The success of our R&D partnerships or joint venture arrangements will depend heavily on the efforts and activities of our partners. Our joint venture arrangements may present financial, managerial, and operational challenges, including potential disputes, liabilities, or contingencies and may involve risks not otherwise present when operating independently including:

 

·                       partners may have business interests, goals or cultures that are or become inconsistent with our business interests, goals or culture;

 

·                       partners may have significant discretion in determining the efforts and resources that they will apply to partnerships or joint ventures;

 

·                       partners may not pursue development and commercialization of our potential products or may elect not to continue or renew development or commercialization programs based on trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as business combination that diverts resources or creates competing priorities;

 

·                       partners may delay trials, provide insufficient funding for a trial program, stop a trial, abandon a product candidate, repeat or conduct new trials or require a new formulation of a product candidate for testing;

 

·                       partners could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

·                       a partner with marketing manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

 

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·                       we could grant exclusive rights to our partners that would prevent us from collaborating with others;

 

·                       partners may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

·                       we may incur liabilities or losses as a result of an action taken by the joint venture or our joint venture partners;

 

·                       disputes may arise between us and a partner that causes the delay or termination of the research development or commercialization of our current or future products or that results in costly litigation or arbitration that diverts management attention and resources;

 

·                       our joint venture partners may act contrary to our instructions, requests, policies or objectives, which could reduce our return on investment, harm our reputation or restrict our ability to run our business;

 

·                       partnerships may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future products;

 

·                       partners may own or co-own intellectual property covering our products that results from our partnering with them and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; and

 

·                       a partner’s sales and marketing activities or other operations may not comply with applicable laws resulting in civil or criminal proceedings.

 

The risks described above or the failure to continue any joint venture or joint development arrangement or to resolve disagreements with our current or future joint venture partners could materially and adversely affect our ability to transact the business that is the subject of such joint venture, which would in turn negatively affect our financial condition and results of operations.

 

We may experience difficulties in collecting payments or royalties to which we believe we are entitled.

 

We sell certain of our products to distributors through Rizobacter and Bioceres Semillas, our proprietary commercial channels for crop productivity technologies. We also often license the use of certain technology to collaborators and licensees who use or will use the intellectual property to develop and commercialize seeds with improved seed traits. Additionally, we may be entitled under applicable intellectual property laws in the countries in which we operate to the payment of royalties from end users who subsequently multiply and use our seed technology. In each case, we may not actually receive the payments or royalties to which we are entitled, due to failure or refusal of the responsible parties to pay the amounts due. Failure to receive amounts owed to us could have an adverse impact on our business.

 

In the case of royalty payments from licensees, we rely on the good faith of the licensees to report to us the sales they earn from these products and to accurately calculate the royalties, to which we are entitled, processes that may involve complicated and difficult calculations. Under existing agreements, we have the right to inspect the inventory and accounts of multipliers of our seeds and licensees of our technologies; however, we must also rely on the good faith of end users to accurately report to us the multiplication of our seeds and remit royalty payments due in respect of the same, which may be respected to varying degrees in different jurisdictions given the absence of contractual privity and prevailing market practice.

 

Additionally, a licensee, collaborator or third party may use our intellectual property without our permission, dispute our ownership of certain intellectual property rights or argue that our intellectual property does not cover the joint venture’s marketed product.

 

We seek to address these concerns in our contractual agreements; however, we may not have contractual arrangements with the party in question and/or such provisions may not be effective. If these provisions prove to be ineffective, we may not be able to achieve our objectives of generating significant revenues from crop productivity products sales and royalties from our seed technologies. Furthermore, regardless of any resort to

 

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legal action, a dispute with an end-customer, a licensee or collaborator over intellectual property rights may damage our relationship with that licensee or collaborator and may also harm our reputation in the industry.

 

We depend on our key personnel and research collaborators and we may be adversely affected if we are unable to attract and retain qualified scientific and business personnel.

 

Our business is dependent on our ability to recruit and maintain highly skilled and educated individuals through direct employment or collaboration arrangements, with expertise in a range of disciplines, including biology, chemistry, plant genetics, agronomics, mathematics programming and other subjects relevant to our business. Our ability to recruit such a work force depends in part on our ability to maintain our market leadership in agricultural biotech industry in Argentina and Latin America. Maintaining our ability to attract highly-skilled workers and leading scientific institutions depends in part on our ability to maintain a strong technology platform and state-of-the-art facilities, as well as our ability to consistently and successfully commercialize our technology. There can be no assurance that we will be able to maintain leading scientific capabilities or continue to successfully maintain advanced technology in the market.

 

Our success is also dependent to a significant degree upon the technical skills and continued service of certain members of our management team, in particular those of our CEO, Dr. Federico Trucco. Dr. Trucco has occupied several positions at Bioceres since 2005 and has vast experience and knowledge of our business, strategy and technologies. Furthermore, he has developed and maintained strong relationships with our original shareholders. The cessation of Dr. Trucco’s employment for any reason could have a material and negative impact on us. In addition, the number of qualified and highly educated personnel in Argentina, where the majority of our operations are located, is limited and competition for the services of such persons may be intense. Our inability to secure, retain or find replacements for key management and technical personnel could adversely affect our business and could have a material adverse effect on our business, operating results, financial condition and growth prospects.

 

We do not enter into non-compete agreements with our employees, and therefore we may be unable to prevent our competitors from benefiting from the expertise of our former employees.

 

We do not enter into non-compete agreements with our employees, which prevents us from limiting our key employees from joining our competitors or competing directly against us. As a result, we may be unable to prevent our competitors from benefiting from the expertise of such employees. Direct competition by a former employee could materially adversely affect our business, results of operations and ability to capitalize on our proprietary information.

 

We may be adversely affected by global economic conditions.

 

Our ability to continue to develop and grow our business, build proprietary distribution channels and generate revenues from product sales and royalty payments may be adversely affected by global economic conditions in the future, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates and other challenges that could affect the global economy such as the changing financial regulatory environment. For example, our customers and licensees may experience deterioration of their businesses, cash flow shortages or difficulties obtaining financing, which could adversely affect the demand for our technologies, products and services. In addition, our earnings may be adversely affected by fluctuations in the price of certain commodities, such as grains, milk, meat, biofuels and biomaterials. If commodity prices are negatively impacted, the value of our products could be directly and negatively impacted. Additionally, growers’ incomes have historically been negatively affected by commodity prices. As a result, fluctuations in commodity prices could have an impact on growers’ purchasing decisions and negatively affect their ability and decisions to purchase our seeds or products that incorporate our proprietary technology. We cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

 

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Our crop productivity business is highly seasonal and affected by factors beyond our control, which may cause our sales and operating results to fluctuate significantly.

 

The sale of our products is dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both highly seasonal patterns and substantial fluctuations in quarterly sales and profitability. Weather conditions and natural disasters, such as heavy rains, hail, floods, freezing conditions, windstorms, drought or fire, also affect decisions by our distributors, direct customers and end users about the types and amounts of products to use and the timing of harvesting and planting. Pergamino, Argentina where a large percentage of our operations are based, experienced intense flooding in late 2016. According to the Buenos Aires Grain Exchange, the average national yields of soybean and corn as of April 18, 2018 had registered decreases as a result of the drought. From December 2017 to March 2018, Argentina experienced a significant drought, which impacted crop yields. As we increase our sales in our current markets and expand into new markets in different geographies, it is possible that we may experience different seasonality patterns in our business. Disruptions may lead to delays in harvesting or planting by growers which can result in pushing orders to a future quarter, which could negatively affect results for the quarter in question and cause fluctuations in our operating results. Seasonal variations may be especially pronounced because our product lines are mainly sold in the Southern Hemisphere. Our seeds, biologicals and other crop input products sales tend to be comparatively low during the third and fourth quarters of our fiscal year, as soybean related sales peak in the second quarter. However, planting and growing seasons, climatic conditions and other variables on which sales of our products are dependent vary from year to year and quarter to quarter. As a result, we may experience substantial fluctuations in quarterly seed sales.

 

The overall level of seasonality in our business is difficult to evaluate as a result of our relatively early stage of development, our limited number of commercialized products, our expansion into new geographical territories, the introduction of new products and the timing of introductions of new products. It is possible that our business may be more seasonal or experience seasonality in different periods than anticipated. Other factors may also contribute to the unpredictability of our operating results, including the size and timing of significant distributor transactions, the delay or deferral of use of our commercial technology or products and the fiscal or quarterly budget cycles of our direct customers, distributors, licensees and end users. Customers may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year.

 

Our results of operations from our crop productivity products may vary significantly from period to period due to circumstances beyond our control.

 

The crop productivity market is affected by various factors that make their operations relatively unpredictable from period to period. The development of our products may be adversely affected by circumstances beyond our control. For our crop productivity products, factors beyond our control include weather and climatic variations, such as droughts or heat stress, or other factors we are unable to identify. For example, if there were a prolonged or permanent disruption to the electricity, climate control or water supply operating systems in our greenhouses or laboratories, the plants on which we are testing our seed traits and the samples we store in freezers, both of which are essential to our development activities, would be severely damaged or destroyed, adversely affecting our development activities and thereby our business and results of operations. We have experienced crop failures in the past for various reasons, which have resulted in re-start field trials and delays in achieving expected results.

 

The crop productivity market is also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied, climatic conditions and the risks associated with ongoing global climate change. The costs to control disease and other infestations vary depending on the severity of the damage and the extent of the plantings affected. Moreover, there can be no assurance that available technologies to control such infestations will continue to be effective. These infestations can also increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, financial position and results of operations.

 

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Any development or product failure we may experience or any inability to economically source necessary materials could result in increased cost of development of our crop productivity products, which may negatively impact our business and results of operations.

 

Certain estimates of market opportunity included in this prospectus are based on assumptions that are inherently uncertain and subject to risks and uncertainties that could have a material adverse effect on our business, operating results and financial condition.

 

The information regarding market opportunity for EcoSoy and EcoWheat has been prepared by management and our assumptions underlying our statements about these market opportunities are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and other uncertainties that could cause actual results to differ materially from those set forth in the market opportunity. No independent third party has compiled, examined, or performed any procedures with respect to our potential market opportunities related to EcoSoy and/or EcoWheat, nor has any third party expressed any opinion or any other form of assurance on the information or its achievability by us, and no independent third party has assumed responsibility for, or claimed any association with, the information we have included herein regarding such potential market opportunities. The information regarding market opportunities for EcoSoy and EcoWheat is not fact and should not be relied upon as being indicative of future results. For example, we extrapolated from publicly available data for the past ten years to estimate soy and wheat production area in order to in turn estimate the size of EcoSoy and EcoWheat-related market opportunities. Changes in economic, climate, regulatory and other factors could significantly reduce the target area and our market opportunity. We also made assumptions regarding the number of bags of soybeans and wheat seeds needed to plant one hectare as well as other information, which in each case may prove to be materially incorrect. Furthermore, we may not be able to take advantage of these market opportunities even if they are available. Our failure to take advantage of market opportunities or to correctly size our market opportunity could have a material adverse effect on our ability to take advantage of our investments in EcoSoy and EcoWheat, and therefore on our business, operating results and financial condition.

 

Consumer and government resistance to GM crops may negatively affect our public image and reduce sales of seeds or other products containing our seed traits.

 

We are active in the field of biotech development of seeds, including GM seeds and the successful commercialization of our products depends, in part, on public acceptance of genetically engineered agricultural products. Some consumers may reject foods made from GM seeds and production of certain GM crops is prohibited in certain countries due to food safety and environmental concerns. Any increase in negative perceptions of GM crops, or more restrictive government regulations in response thereto, could have a negative effect on our business and may delay or impair the development and commercialization of our products.

 

The commercial success of our products may be adversely affected by claims that biotechnology plant products are unsafe for consumption or use, pose risks of damage to the environment, or create legal, social and ethical dilemmas.

 

The high public profile of biotechnology in food production and food products and public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and biotechnology plant products could negatively affect our public image and results of operations.

 

The prohibition of the production of certain GM crops in select countries and the current resistance from consumer groups to GM crops not only limits our access to such markets but also has the potential of spreading to and influencing the acceptance of products developed through biotechnology in other regions of the world and may also influence regulators in other countries to limit or ban production of GM crops, which could limit the commercial opportunities to exploit biotechnology. For example, in the United States, no product may be labelled as “organic” if it contains any genetically modified organisms (“GMO”). Additionally, some states in the United States are considering, and one state has passed a law relating to, mandatory labelling of GMO foods, which may carry a negative connotation for consumers and which could make it difficult and expensive for companies to use ingredients from GM crops and distribute products in compliance with the labelling requirements, each of which could in turn have an adverse impact on the sale of our GM seeds. In Argentina,

 

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a class action suit has been initiated against the national government and certain biotechnology companies, including the Parent, requesting, among other changes, the mandatory labelling of GM foods and environmental protection of land use. As of the date of this prospectus, the plaintiffs’ request for an injunction against GMO approvals was rejected by the Federal Court of Appeals and an extraordinary appeal at the Supreme Court was filed, the practicable chances of success of which are low.

 

GM crops are grown principally in the United States, Brazil and Argentina, where there are fewer restrictions on the production of GM crops. If these or other countries where GM crops are grown or where we engage in business activities enact laws or regulations that ban the production of such crops or make regulations more stringent, we could experience a longer product development cycle for our products and may be forced to abandon projects related to certain crops or geographies, both of which would negatively affect our business and results of operations. Public attitudes towards ownership of genetic material and potential changes to laws regulating such ownership could weaken our intellectual property rights with respect to our genetic material and discourage R&D partners from supporting, developing or commercializing our products and technologies. Furthermore, any future labeling requirements could heighten these concerns and make consumers less likely to purchase food products containing gene-edited ingredients.

 

Competition in crop productivity products is intense and requires continuous technological development.

 

We currently face significant direct and indirect competition in the markets in which we operate. The markets for crop productivity products are intensely competitive and rapidly changing. Many companies engage in the development of crop productivity products, and speed in commercializing a new product can be a significant competitive advantage.

 

As an example, some of our competitors engage in research associated with discovery and therefore have R&D budgets allocated for crop productivity products that are more significant than our own R&D budget and that cover more activities than those in which we engage. In addition, former collaborators, by virtue of having had access to our proprietary technology, may utilize this insight for their own development efforts.

 

In most segments of the crop productivity markets, the number of products available to end-customers is steadily increasing as new products are introduced. We may be unable to compete successfully against our current and future competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance for products containing our seed traits and technology. In addition, many of our competitors have substantially greater financial, marketing, sales, distribution and technical resources than us and some of our competitors have more experience in R&D, regulatory matters, manufacturing and marketing. We anticipate increased competition in the future as new companies enter the market and new technologies become available. Programs to improve genetics and crop protection chemicals are generally concentrated within a relatively small number of large companies, while non-genetic approaches are underway with broader set of companies. Mergers and acquisitions in the plant science, specialty food ingredient and agricultural biotechnology seed and chemical industries may result in even more resources being concentrated among a smaller number of our competitors.

 

Our technology may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors, which will prevent or limit our ability to generate revenues from the commercialization of our seed traits and technology. At the same time, the expiration of patents covering existing products reduces the barriers to entry for competitors. Our ability to compete effectively and to achieve commercial success depends, in part, on our ability to control manufacturing and marketing costs; effectively price and market our products, successfully develop an effective marketing program and an efficient supply chain, develop new products with properties attractive to food manufacturers or growers and commercialize our products quickly without incurring major regulatory costs. We may not be successful in achieving these factors and any such failure may adversely affect our business, results of operations and financial condition.

 

We register and market soybean varieties with glyphosate tolerance technology, meaning those that have been genetically modified to tolerate herbicides based on glyphosate.

 

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Changes in laws and regulations to which we are subject, or to which we may become subject in the future, may materially increase our costs of operation, decrease our operating revenues and disrupt our business.

 

Laws and regulatory standards and procedures that impact our business are continuously changing. Responding to these changes and meeting existing and new requirements may be costly and burdensome. Changes in laws and regulations may occur that could:

 

·                       impair or eliminate our ability to source technology and develop our products, including validating our products through field trials and passing biosafety evaluations;

 

·                       increase our compliance and other costs of doing business through increases in the cost to protect our intellectual property, including know-how, trade secrets and regulatory data, or increases in the cost to obtain the necessary regulatory approvals to commercialize and market the products we develop directly or jointly;

 

·                       require significant product redesign or redevelopment;

 

·                       render our seed traits and technology and products that incorporate them less profitable or less attractive compared to competing products;

 

·                       reduce the amount of revenues generated from government grants, licenses or other royalties; and

 

·                       discourage us and other collaborators from offering, and end-markets from purchasing, products that incorporate our seed traits and technology.

 

Any of these events could have a material adverse effect on our business, results of operations and financial condition. We believe we currently are in compliance with regulations related to growing GM crops in Argentina and other countries; however, if these regulations change, our validation trials and compliance efforts may become costly and burdensome.

 

Any changes in regulation in countries where GM crops are grown or exported into could result in our collaborators, other third parties or us being unable or unwilling to develop, commercialize or sell products that incorporate our seed traits or technology. In addition, we rely on various forms of intellectual property protection. Legislation and jurisprudence on intellectual property in the key markets where we seek protection, such as the United States, Brazil and Argentina, is evolving and changes in laws could affect our ability to obtain or maintain intellectual property protection for our products. Any changes to these existing laws and regulations may materially increase our costs, decrease our revenues and disrupt our business.

 

Our substantial indebtedness could adversely affect our financial condition.

 

We have a significant amount of indebtedness. As of December 31, 2018, our total indebtedness (as defined in the Exchange Agreement) was US$102.7 million. We may incur additional indebtedness in the future. We also have a program under which we could issue corporate bonds in a principal amount of up to US$40 million. Our high level of indebtedness could have important adverse consequences, including:

 

·                       limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

 

·                       requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

·                       increasing our vulnerability to general adverse economic and industry conditions;

 

·                       limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

 

·                       placing us at a disadvantage compared to other, less leveraged competitors; and

 

·                       increasing the cost of borrowing.

 

The occurrence of any of the above may negatively impact our business and results of operations. As of June 30, 2018, due to the macroeconomic conditions in Argentina, Rizobacter failed to comply with certain

 

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financial ratio covenants under the Syndicated Loan Facility and obtained a waiver from the majority lenders. If any of our indebtedness gets accelerated as a result of our failure to meet certain covenants, the risks described above could intensify.

 

Price increases and shortages of raw materials could adversely affect our results of operations.

 

Our results of operations may be affected by the availability and pricing of raw materials, principally materials needed to design our technologies, such as raw glycerin. Factors such as changes in the global or regional levels of supply and demand, weather conditions, seasonal fluctuations, shortages or interruptions, changes in global climates and government regulations could substantially impact the price of raw materials. To the extent we are unable to pass on increases in raw materials and energy prices to our customers, a substantial increase in raw material prices or a continued interruption in supply could have a material adverse effect on our business, financial condition and results of operations.

 

The overall agricultural industry is susceptible to commodity price changes and we, along with our food manufacturing customers and grower customers, are exposed to market risks from changes in commodity prices.

 

Changes in the prices of certain commodity products could result in higher overall cost along the agricultural supply chain, which may negatively affect our ability to commercialize our products. We will be susceptible to changes in costs in the agricultural industry as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, product recalls and government regulations. As a result, we may not be able to anticipate or react to changing costs by adjusting our practices, which could cause our operating results to deteriorate.

 

We may be required to pay substantial damages as a result of product liability claims for which we do not have insurance.

 

Product liability claims are a commercial risk for our business, particularly as we are involved in the sale of commercial technology and the supply of biotechnological products, some of which may be shown in the future to be harmful to humans and the environment. We may be held liable if any product we develop, unsuitable during marketing, sale or consumption. We do not currently have insurance coverage for such claims. Courts have levied substantial damages in the United States and elsewhere against a number of companies in the agriculture industry in past years based upon claims for injuries allegedly caused by the use of their products.

 

In addition, we may face product liability and similar claims involving cross-pollination of crops, which recently has affected other companies in our industry operating in the United States, and cross-contamination of GMO and non-GMO ingredients. In Argentina, there are no precedents for product liability cases in the agricultural industry related to transgenic or biotechnology products; however, there has been at least one product liability case related to the use of pesticides.

 

There is a possibility that a products liability case could be filed against us in Argentina, in which case damages may be substantial albeit potentially smaller than those typically awarded in the United States. Product liability claims against us, our joint ventures or third-party licensees selling products that contain our seed traits or technology or allegations of product liability relating to seeds or other products containing seed traits or technology developed by us could damage our reputation, harm our relationships with our collaborators and other business counterparties and materially and adversely affect our business, results of operations, financial condition and prospects.

 

Our operations are subject to various health and environmental risks associated with our use, handling and disposal of potentially toxic materials.

 

We are subject to numerous federal, state, local and foreign environmental, health and safety laws and regulations, including those governing laboratory procedures, the handling, use, storage, treatment, manufacture and disposal of hazardous materials and wastes, discharge of pollutants into the environment and human health and safety matters. As part of our technology sourcing and product development activities, we

 

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develop GMOs by inserting new genes into the genomes of certain plants and bacteria. Though we introduce these genes in order to improve plant traits, we cannot always predict the effect that these genes may have on the organism. In some cases, the genes may render the organism poisonous or toxic, or they may cause the organism to develop other dangerous characteristics that could harm the organism’s surrounding environment. Furthermore, there is a risk that, when testing GMOs, the seeds or strains of these organisms may escape the laboratory, greenhouse, industrial facility or field in which they are being tested and contaminate nearby areas. Poisonous or toxic organisms may therefore be inadvertently introduced into the environment or possibly enter the food production system, harming the people and animals who come in contact with them. Our crop protection products, which include Rizoderma, adjutants, therapies, herbicides, fungicides and insecticides, among others, bear similar risks in the development stage.

 

We cannot eliminate the risk of contamination or discharge and any resultant injury from these materials. If these risks were to materialize, we could be subject to fines, liability, reputational harm or otherwise adverse effects on our business. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, or may otherwise be required to remedy the contamination, and our liability may exceed any insurance coverage and our total assets. Furthermore, compliance with environmental, health and safety laws and regulations may be expensive and may impair our R&D efforts. If we fail to comply with these requirements, we could incur substantial costs and liabilities, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance In addition, we cannot predict the impact on our business of new or amended environmental, health and safety laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced. These current or future laws and regulations may impair our research, development or production efforts.

 

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.

 

We are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and regulatory requirements will be time consuming, resulting in increased costs to us or other adverse consequences.

 

As a public company, we are subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We expect to implement additional procedures and processes for the purpose of addressing the applicable standards and requirements for public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

As an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements including, but not limited to, an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and the rules and regulations of the SEC thereunder. These exemptions will cease to apply by no later than the last day of our fiscal year following the fifth anniversary of the completion of Union’s initial public offering (the “IPO”)  (or under certain other circumstances) and we expect to incur additional expenses and devote increased management effort toward ensuring compliance with the additional reporting requirements that will apply when we cease to be an “emerging growth company.” We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

 

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We may require additional financing in the future and may not be able to obtain such financing on favorable terms, if at all, which could force us to delay, reduce or terminate some of our activities.

 

The process of developing and commercializing products is expensive, lengthy and risky and we expect to continue investing in our R&D services to identify new potential products for development. We may require additional capital to fund our technology sourcing and product development projects and to provide working capital to fund other aspects of our business. Although we currently believe that our cash and cash equivalents and marketable securities will provide adequate resources to fund our operations, including technology sourcing and product development expenses, planned capital expenditures and working capital requirements for the foreseeable future, we may nevertheless need additional financing in the future, due to changes in our business strategy or the occurrence of unanticipated events.

 

We may seek to issue additional equity securities, which could result in dilution to our existing shareholders, or raise additional debt financing, which could subject us to restrictive covenants that limit our operating flexibility and require us to comply with certain financial ratios. Alternatively, we may not be able to raise sufficient additional funds on terms that are favorable to us, if at all. If we fail to raise the funds we require, our ability to fund our operations, take advantage of strategic opportunities, develop and commercialize products or technologies, or otherwise respond to competitive pressures could be significantly limited. In such an event, we may be forced to delay or terminate our development initiatives or the commercialization of our technology and products, curtail operations or grant licenses to our technology on terms that are not favorable to us. If adequate funds are not available, we may not be able to successfully execute our business strategy or continue our business.

 

Development and commercialization of our products may incur scrutiny under the Convention on Biological Diversity Treaty.

 

The Convention is an international treaty that was adopted at the Earth Summit in Rio de Janeiro, Brazil in 1992. The treaty provides that if a company uses genetic resources, such as an indigenous plant, from a participating country to develop a product, then such company must obtain the prior informed consent of the participating country and owes fair and equitable compensation to the participating country. Although the United States is not a participating country, most countries where we currently obtain or may obtain genetic resources in the future, including Argentina, have ratified the treaty and are currently participants in the Convention. We may fall under scrutiny of the Convention with respect to the development or commercialization of any of our products derived from genetic resources originating from any of the countries that are participants in the Convention. There can be no assurance that the government of a participating country will not assert that it is entitled to fair and equitable compensation from us. Such compensation, if demanded, may make commercialization of our products impracticable.

 

Our business strategy may change and the successful implementation of our business plan is uncertain.

 

As an emerging biotechnology company, we continually analyze our business plan and operations in the light of market conditions and developments. We currently generate a significant portion of our revenue from the sale of crop protection products. We anticipate that following the successful regulatory approval and commercialization of our technologies, including HB4, an increasing portion of our revenues will be generated by sales of seed and integrated products through our proprietary commercial channels and third-party licensees, with incremental income projected to be generated by the joint ventures in which we participate. We face numerous challenges to completing the various steps necessary for the commercialization of our products and there can be no guarantee that we will be able to successfully commercialize our technologies. As a result of our continuous analyses of our crop productivity solutions, we may decide to make substantial changes in our business plan and operations. Such modifications may also result from management’s belief that it has identified more economical or efficient means of achieving our objectives. Furthermore, such changes could relate to minor aspects of the business plan, such as the methods in which we sell our crop productivity solutions, or to key aspects of the plan, such as the type of technologies that we seek to commercialize. Changes to our business plan could result in material delays to the commercialization of our products.

 

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Our failure to accurately forecast and manage inventory could result in an unexpected shortfall or surplus of products which could harm our business.

 

We are required to produce inventories of certain of our products (mainly seeds and biologicals) and we monitor our inventory levels based on our own projections of future demand. Because of the significant time it takes to produce commercial quantities of seeds, production decisions must be made well in advance of sales. An inaccurate forecast of demand for any seed variety can result in the unavailability of seeds in high demand. Such unavailability may depress sales volumes and adversely affect customer relationships. Conversely, an inaccurate forecast could also result in an over-supply of seeds which may increase costs, negatively impact cash flow, reduce the quality of inventory and ultimately create write-offs of inventory. The acquisition of Rizobacter has increased the scale of our sales operations and as a result increased the magnitude of these risks, the realization of which could have a material adverse effect on our business, results of operations and financial condition.

 

Disruption to our IT and operating system could adversely affect our reputation and have a material adverse effect on our business and results of operations.

 

Disruption or failure of our IT system due to technical reasons, natural disaster or other unanticipated catastrophic events, including power interruptions, storms, fires, floods, earthquakes, terrorist attacks and wars could significantly impair our ability to deliver data related to our projects to our collaborators on schedule and materially and adversely affect our relationships with our collaborators, our business and our results of operations. We expect to continue to develop our computational technologies and may need to update our IT system and storage capabilities. If our existing or future IT system does not function properly, or if the IT system proves incompatible with our new technologies, we could experience interruptions in data transmissions and slow response times, preventing us from completing routine research and business activities. Furthermore, we can provide no assurance that our current IT system is fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats.

 

Our business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our cyber-security.

 

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism war telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of field trial data from completed or ongoing or planned field trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, damage to our reputation, and the further development of our product candidates could be delayed.

 

Labor unions can request, and have requested, the unionization of some of our employees.

 

In December 2016 and March 2017, the Argentine Trade Union of Truck Drivers (Sindicato de Choferes de Camiones) (“SCC”) and the Argentine Union of Rural Workers and Stevedores (Unión Argentina de Trabajadores Rurales y Estibadores) (“UATRE”), respectively requested the unionization of some employees of Rizobacter. With respect to the former, the SCC requested to unionize employees involved in logistics and operation of forklifts. UATRE requested to unionize workers engaged in the handling and storage of grain related to our seed treatment process undertaken seasonally. After negotiations, both SCC and UATRE came to an agreement with Rizobacter wherein Rizobacter agreed to hire companies to carry out the operations

 

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covered by each union. Each company agreed to indemnify Rizobacter in relation to any subsequent claims by the workers registered with the SCC or the UATRE, as the case may be, without direct cause to Rizobacter.

 

If new union disputes arise, they may be time consuming and distracting to management. The occurrence of a union dispute could have a material and adverse effect on our costs and business, results of operations and financial condition.

 

We rely on third parties to grow our seeds. If these parties do not grow our seeds at a satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, our commercialization efforts could be delayed or otherwise negatively impacted.

 

We rely on affiliated and unaffiliated growers to grow the majority of our proprietary seed and to sell it to us at negotiated prices each year. Our current dependence upon others for the production of our seeds may adversely affect our ability to commercialize any products on a timely and competitive basis. If our growers decline to a significant degree to plant the acreage on which we rely, and if we cannot find other growers to plant the lost acreage, our inventory of seed could be insufficient to satisfy the needs of our customers. Furthermore, growers may refuse to grow our seeds for any reason, including deterioration in our business relationship or the existence of more favorable terms with other companies. For example, if a particular crop is paying a materially higher price than has been paid in the past, growers may decide to not grow our seeds in favor of receiving a higher return from an alternative crop planted on the same acreage. If third-party growers decline to grow our seeds or if they are unable to grow our seeds at acceptable quality levels, our business, results of operations and financial condition could materially decline.

 

We are subject to anti-corruption and anti-money laundering laws with respect to both our domestic and international operations, and non-compliance with such laws can subject us to criminal and civil liability and harm our business.

 

We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C.§201, the U.S. Travel Act, the USA PATRIOT Act, Argentine Law No. 27,401, as amended, and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit us and our collaborators from authorizing, offering, or directly or indirectly providing improper payments or benefits to recipients in the public or private sector. We or our collaborators may have direct and indirect interactions with government agencies and state-affiliated entities and universities in the course of our business. We may also have certain matters come before public international organizations such as the United Nations. We use third-party collaborators, joint venture and strategic partners, law firms, and other representatives for regulatory compliance, patent registration, lobbying, deregulation advocacy, field testing, and other purposes in a variety of countries, including those that are known to present a high corruption risk such as India, China, and Latin American countries. We can be held liable for the corrupt or other illegal activities of these third-party collaborators, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. In addition, although we have implemented policies and procedures to ensure compliance with anti-corruption and related laws, there can be no assurance that all of our employees, representatives, contractors, partners, or agents will comply with these laws at all times. Noncompliance with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other or injunctions, suspension and debarment from contracting with certain governments or other persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm our business, results of operations, and financial condition.

 

A portion of our revenue is generated from government grants from Argentine government entities and our operations rely on grants to fund our technology sourcing and product development activities. We cannot

 

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guarantee that we will continue to obtain government grants in the future, and our failure to do so for any reason could require us to change our operating model.

 

The receipt of government grants is central to our strategy of minimizing our capital expenditures in connection with technology sourcing and product development and represents an important means of development of early-stage technology. Pursuant to such grants, the government directly pays for, or we are reimbursed for certain expenses incurred in connection with, our technology development activities. Additionally, a portion of our revenue is generated from payments to us or payments made directly to our suppliers in the form of government grants.

 

Our ability to obtain grants and fund our technology sourcing and product development activities with funds received from government entities in the future depends upon the availability of funds under applicable government programs and approval of our applications to participate in such programs. The application process for these grants and other incentives is highly competitive. We may not be successful in obtaining any additional grants, loans or other incentives. The receipt of grant funds also subjects us to compliance with the specific grant requirements, including rigorous documentation requirements. Failure to comply with these requirements could lead to termination of these grant or difficulties in obtaining new grants, as well as an inability to receive reimbursement for our costs or a requirement to refund costs previously reimbursed.

 

Additionally, we are subject to audits in connection with our grant funds, which may subject us to penalties if we are not compliant with applicable requirements. An audit could result in a material adjustment to our results of operations and financial condition. In addition, serious reputational harm or significant adverse financial effects could occur if allegations of impropriety are made against us, even if we are ultimately found to have done no wrong.

 

Finally, there can be no assurance that the Argentine government, or the international bodies such as the Inter-American Development Bank and the World Bank that historically have provided the funding that the Argentine government has used to make research grants, will continue to provide grants or funding at current levels or at all. To the extent that our existing grants are terminated or modified or we are unsuccessful in securing government grants in the future, we may have to modify our business strategy and would lose a potential source of revenue and means of sourcing and developing new technology, which could adversely affect our results of operations and increase our costs.

 

Risks Related to Our Intellectual Property

 

Agreements with our collaborators and third parties may not adequately prevent disclosure of trade secrets, know-how and other proprietary information, which could materially adversely affect our technology and harm our business.

 

We rely on a combination of intellectual property laws and other agreements with our collaborators and third parties to protect and otherwise seek to control access to, and distribution of, our proprietary information. These measures may not prevent disclosure, infringement or misappropriation of our confidential information. Our confidentiality and nondisclosure agreements or covenants may not be enforceable under applicable law and, even if they are enforceable, may be breached, and we may not have adequate remedies for such a breach that would effectively prevent the further dissemination of our confidential information or direct competition with us by a joint venture partner. We also have limited control over the protection of trade secrets used by our collaborators and could lose future trade secret protection if any unauthorized disclosure of such information occurs. Enforcement of any claim that a party illegally disclosed confidential information or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, others may independently discover our trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties. Laws regarding trade secret rights in certain markets where we operate may afford little or no protection of our trade secrets. If any of our trade secrets were to be disclosed to or independently developed by a competitor, or if we otherwise were to lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced and our business and competitive position could be harmed. Moreover, our collaborators may allege that we have disclosed their trade secrets or confidential information.

 

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We may not be able to adequately protect our intellectual property rights throughout the world.

 

Our commercial success depends in part on our ability to obtain and maintain patent or other intellectual property protection and/or trade secrets protection for the technologies we develop and use. We are responsible for determining the jurisdictions in which patent protection will be pursued for our intellectual property. Filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States are less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States and other countries in which we file for patent protection, such as Argentina, China, India, Brazil, Mexico and Australia. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and we may be unable to prevent such competitors from importing those infringing products into territories where we have patent protection but enforcement is not as strong due to the exhaustion of rights. These products may compete with our product candidates and our licensed patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions. In addition, competitors could use our licensed patent disclosures and/or reverse engineer our trade-secret-protected products in order to produce competing products. Moreover, growers or others in the chain of commerce may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or detect. For example, in Argentina, growers may legally avoid paying royalties to the owners of intellectual property if they keep the seeds from their own harvests and plant them for personal use. Argentine legislation in respect of breeders’ rights includes a concept of a “farmer’s privilege,” which allows growers to use seeds obtained from their own harvests to be replanted on their own farm. According to the National Seed Institute of Argentina (Instituto Nacional de Semillas), the reserves of seeds kept for personal use has grown significantly in recent years, which may increase the likelihood that growers illegally claiming the privilege may use and/or sell GM seeds into the market without paying royalties owed to us.

 

The legal systems of certain countries, including China, where we have licensed patent applications, have not historically favored the enforcement of patents or other intellectual property rights, which could hinder us from preventing the infringement of our licensed patents or other intellectual property rights and result in substantial risks to us. Proceedings to enforce our licensed patent rights in the United States or foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our licensed patents at risk of being invalidated or interpreted narrowly and our licensed patent applications at risk of not issuing and could provoke third parties to assert patent infringement or other claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license from third parties.

 

Changes in Argentine and U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

 

As is the case with other biotech companies, our success is heavily dependent on intellectual property, including patents. Obtaining and enforcing biotech patents involves technological and legal complexity, and is costly, time consuming, and inherently uncertain. In this regard, the Argentine Patent Office (Instituto Nacional de Propiedad Intelectual) issued Regulation 283/15 with new guidelines for examining biotech inventions. These guidelines seriously restrict the patentability of several categories of inventions in the agricultural field. This restriction is already being followed in the practice of the Argentine Patent Office.

 

In September 2016, the Argentine Patent Office issued Argentine Regulation 56/16, under which the Argentine Patent Office will deem that any patent application whose examination had not begun by October 15, 2016 satisfies the substantive requirements of patentability (novelty, non-obviousness and industrial application); provided that a patent has been granted abroad for the same invention by a foreign patent office carrying out substantive examination in a country whose patent law has the same substantive requirements as Argentine law. This can result in prosecution times that are substantially shorter, and similar to those of the

 

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fastest jurisdictions. In particular, the patent office has applied this regulation to biotech cases as long as they are directed to matter that is not affected by the guidelines.

 

In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. In a recent ruling (in re “Monsanto Technology LLC c/ Instituto Nacional de la Propiedad Industrial s/ Denegatoria de Patente”, case number CCF 8044/2007), Tribunal III of the Civil and Commercial Federal Court of Appeals of the City of Buenos Aires confirmed, by revoking a decision of a lower court, the rejection of a biotechnological patent application by the Argentine Patent Office, with the understanding that the invention should be protected as a plant variety protection (“PVP”) and not under a patent (the patent application was for a recombinant DNA molecule and a cell transformed by such molecule). Lack of inventive activity and non-patentable matters are also mentioned as grounds in this precedent. Although the Court of Appeals’ decision is now being reviewed by Argentine Supreme Court of Justice, this precedent may adversely affect patentability of the technologies we develop. Depending on decisions by the Argentine and U.S. Congresses, the federal courts in each country, the U.S. Patent and Trademark Office and the Argentine Patent Office, as well as the relevant authorities in other countries in which we hold patents, the laws and regulations governing patents could change in unpredictable ways that may weaken or undermine our ability to obtain new patents or to enforce our existing licensed patents and patents we might obtain in the future. During recent years, certain sectors of the Argentine agricultural industry have been requesting that the Argentine PVP Law No. 20,247 (the “Argentine PVP Law”) is amended.

 

If we or one of our collaborators or licensees are sued for infringing the intellectual property rights of a third party, such litigation could be costly and time consuming and could prevent us or our collaborators or licensees from developing or commercializing products that incorporate our technology.

 

Our ability to generate significant revenues from our products depends on our and our joint ventures’ and licensees’ ability to develop, market and sell products and utilize our proprietary technologies without infringing the intellectual property and other rights of any third parties.

 

As the agricultural biotech industry continues to develop, we, our collaborators or licensees may become party to, or threatened with, litigation or other adverse proceedings regarding intellectual property or proprietary rights in our technology, processes, developed seed traits or seed treatments. Third parties may assert claims based on existing or future intellectual property rights and the outcome of any proceedings is subject to uncertainties that cannot be adequately quantified in advance. Any litigation proceedings could be costly and time consuming. A negative outcome from an intellectual property infringement suit could result in liability for monetary damages, require us to indemnify our licensees for damages arising from warranties we have made about the intellectual property we have licensed, which claims might not be subject to a cap, or treble damages and attorneys’ fees if we are found to have willfully infringed a patent. There is also no guarantee that we, our collaborators or licensees would be able to obtain a license under such infringed intellectual property on commercially reasonable terms or at all. A finding of infringement could prevent us, our collaborators or our licensees from developing, marketing or selling a product or force us to cease some or all of our business operations. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel may be diverted as a result of these proceedings, which could have a material adverse effect on our operations. In some cases, our agreements with our collaborators or licensees might oblige us to pay for the enforcement of our licensed intellectual property rights, even though our collaborators or licensees may be responsible for commercializing the potentially infringing products. Claims that we have misappropriated the confidential information or trade secrets of third parties could similarly have a negative impact on our business.

 

The value of our intellectual property could diminish due to technological developments or challenges by competitors, making our products less competitive.

 

Our intellectual property rights are important to the operation of our business and the commercialization of our crop productivity products. We rely on a combination of patents, PVP, trademarks, trade secret laws,

 

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confidentiality provisions and licensing arrangements to establish and protect our intellectual property. However, the importance of technology development and intellectual property protection in the crop productivity industry increases the risk that technological advances by others could render our products less competitive. Our business could be negatively affected by any of the following:

 

·                       our issued licensed patents, PVP certificates and trademark registrations may be successfully challenged by our competitors;

 

·                       we may be unable to obtain intellectual property licenses that are necessary or useful to our business on favorable terms, or at all;

 

·                       new technology that is independently developed by others may supersede our technology and make our products less desirable or costlier in the marketplace;

 

·                       competitors may design around our licensed patent and/or PVP protections; and

 

·                       competitors may reverse engineer our trade secret technologies.

 

We may be required to pay royalties to employees who develop inventions that have been or will be commercialized by us, even if the rights to such inventions have been assigned to it, exclusive licenses have been granted to it and the employees have waived their rights to royalties or other additional compensation.

 

Under Argentine Patent and Utility Models Law No. 24,481 and Argentine Labor Law No. 20,744, which provide the legal framework related to ownership of inventions developed during an employer-employee relationship, the employer is awarded ownership of inventions when the employee was hired for the purpose of engaging in inventive discovery or when such invention otherwise derives from the knowledge acquired by virtue of the employee’s working for the employer. Depending on the nature and the scope of an employee’s contribution to an invention and the nature of his or her hiring, he or she may be entitled to additional compensation by the employer; however, the employer will still retain ownership rights on the conditions mentioned above. If an employee was hired for a purpose other than to engage in inventive discovery and he or she creates an invention that is not related to the employer’s processes, methods or business, the employee shall be the owner of the invention.

 

A significant portion of our employees are dedicated to activities that may be considered inventive. As a result, a significant portion of our employees execute confidentiality and ownership rights agreements upon commencement of employment whereby they agree to classify all work undertaken by them as engagement in inventive discovery, which grants us all ownership rights in inventions created while such employees are employed by us. If these assignments or exclusive licenses were deemed invalid or unenforceable, we could be required to pay royalties to our employees who have invented intellectual property that we have commercialized, which in turn may have a material adverse effect on our results of operations. In addition, if these assignments or exclusive licenses were deemed invalid or unenforceable, it is possible that our employees could assign or license to third parties their rights in any inventions created while employed by us. This could have a material adverse effect on our results of operations.

 

Risks Related to Rizobacter’s Acquisition

 

Certain of the Rizobacter shares are subject to a judicial injunction.

 

Concurrently with the closing of business combination, the Rizobacter Call Option was exercised and we currently own 80.00% of Rizobacter’s capital stock through our subsidiary RASA Holding, 29% of which are subject to a precautionary measure issued pursuant to an injunction that affects 44% of the total share capital of Rizobacter. In addition, the precautionary measure also covers 30% of the dividends distributed on such shares, directing such percentage of dividends into a judicially created escrow account. Simultaneously with the exercise of the Rizobacter Call Option, 1,330,156 of the UAC shares representing 10% of Rizobacter shares subject to the precautionary measures were pledged to Bioceres S.A. The precautionary measure relates to litigation among historical shareholders of Rizobacter arising from a disputed transfer of shares that occurred in 1995. Although the Supreme Court of Argentina ruled against certain of the litigating historical shareholders, such shareholders subsequently pursued other legal recourse—including the precautionary

 

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measure and non-innovative (medida de no innovar)—to further dispute the original transfer of shares. The non-innovative measure (medida de no innovar) was overturned by an Argentine court of appeals on April 17, 2018.

 

We purchased our controlling stake in Rizobacter subject to the precautionary measure and associated ongoing litigation. Should such contingencies be lifted, the Parent may be obligated to pay a contingent purchase price of US$17.3 million to certain selling shareholders of Rizobacter. Conversely, should the court rule against the free transferability of the affected shares, we would be obligated to return certain shares, thereby reducing our equity participation in Rizobacter, and the Parent would not be obligated to pay the abovementioned contingent purchase price. Given the Supreme Court of Argentina’s finding that the 1995 share transfer was valid, it is not likely or probable that our equity participation in Rizobacter will be affected and that the Parent may be obligated to pay the contingent purchase price of US$17.3 million. The same Rizobacter shareholders who challenged the 1995 transfer requested an additional precautionary measure against the sellers and Rizobacter relating to the same disputed share transfer, in response to which Rizobacter filed a motion for reversal with an appeal, which was granted by an Argentine court of appeals on April 17, 2018, overturning the non-innovative measure.

 

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

 

We plan to selectively partner, in-license or acquired key enabling technologies and businesses across our value chain that we believe will keep us on the cutting edge of our industry. We may not be able to identify appropriate targets or make acquisitions under satisfactory conditions, in particular, satisfactory price conditions. In addition, we may be unable to obtain the financing for these acquisitions under other purposes in the context of existing operations. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction, which could have a material adverse effect on our business, financial conditions, earnings and prospects.

 

Risks Related to Operating in Latin America and Argentina

 

Latin America

 

Latin America has experienced, and may continue to experience, adverse economic or political conditions that may impact our business, financial condition and results of operations.

 

Our business is dependent to a certain extent upon the economic conditions prevalent in Argentina, as well as the other Latin American countries in which it currently operates, such as Uruguay, and in which it may seek to expand operations in the future, such as Brazil. Latin American countries have historically experienced uneven periods of economic growth, recessions, periods of high inflation and economic instability. Recently, the economic growth rates of the economies of many Latin American countries have slowed and some have entered mild recessions. Additionally, economic and political developments in Latin America, including future economic changes or crises (such as inflation, currency devaluation or recession), government deadlock, political instability, terrorism, civil strife, changes in laws and regulations, restrictions on the repatriation of dividends or profits, expropriation or nationalization of property, restrictions on currency convertibility, volatility of the foreign exchange market and exchange controls could impact our operations and/or the market value of the ordinary shares and have a material adverse effect on our business, financial condition and results of operations.

 

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Latin American governments have exercised, and continue to exercise, significant influence over the economies of the countries in which we operate, which could adversely affect our business, financial condition, results of operations and prospects.

 

Historically, governments in Latin America have frequently intervened in the economies of their respective countries and have occasionally made significant changes in policy and regulations. Governmental actions to control inflation and other policies and regulations have often involved, among others, price controls, currency devaluations, capital controls and tariffs. Our business, financial condition, results of operations and prospects may be adversely affected by the changes in government policies or regulations of Latin American governments, including:

 

·                       exchange rates and exchange control policies;

 

·                       tariff and inflation control policies;

 

·                       price control policies;

 

·                       liquidity of domestic capital and lending markets;

 

·                       tax policies, royalty and tax increases and retroactive tax claims; and

 

·                       other political, diplomatic, social and economic developments in or affecting the countries in which we operate.

 

In July 2018, Andrés Manuel López Obrador was elected president of Mexico and assumed office on December 1, 2018, and in October 2018, Jair Bolsonaro was elected president of Brazil assumed office on January 1, 2019. We cannot predict the changes these new administrations may bring, the impact of such changes on the Argentine economy or the business and results of the operations of our Argentine subsidiaries.

 

Argentina

 

Our business, results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates, including between the U.S. dollar and the Argentine peso.

 

In recent years, and especially during the last months, the Argentine peso has suffered significant devaluations against the U.S. dollar. In 2015, the peso depreciated 51.73% against the U.S. dollar primarily after the lifting of certain foreign exchange restrictions in the month of December, mainly as a consequence of the substantial reduction of the spread between the exchange rate on the Argentine Exchange Currency Market (Mercado Único y Libre de Cambio) (“MULC”) and the unofficial market. Since the devaluation in December 2015, the Central Bank of Argentina (Banco Central de la República Argentina) (“Central Bank”) has allowed the peso to float and significantly limited interventions to those needed to ensure the orderly functioning of the MULC. In 2016, the peso depreciated 22.15% against the U.S. dollar and in 2017, the peso depreciated 18.45% against the U.S. dollar.

 

Due to several factors, including but not limited to the raising of the interest rate by the US Federal Reserve, the inability of the Argentine government to perform structural changes and reduce the fiscal deficit, the Argentine government’s increasing need for international financing, the increase of the Argentine government’s inflation goals for 2018, a historical drought that affected the crops production (main export of Argentina) and the Turkish crisis, during the first half of 2018 the Argentine peso suffered a new sharp depreciation, which as of December 31, 2018 accumulated 103.83%. As a consequence of the recent inflation trends, the peso qualifies as a currency in a hyperinflationary economy as of July 1, 2018.

 

As part of the plan to control the foreign exchange rate and inflation, the government adopted a series of measures. On June 7, 2018, the Argentine government and the International Monetary Fund (“IMF”) entered into a technical agreement through which the IMF granted to Argentina a stand-by loan for an amount of up to US$50 billion for a term of up to three years to strengthen the federal reserves and Argentina’s financial and fiscal position. On June 21, 2018, the IMF made a first disbursement of US$15 billion under the agreement. By the end of September 2018, the amount of the stand-by loan was increased an additional US$7.1 billion and in October 2018 the IMF made the second disbursement of US$5.7 billion. In December 2018, the IMF made a third disbursement of US$7.6 billion and in April 2019 made a fourth disbursement of

 

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US$10.8 billion. It is expected that the IMF will make additional disbursements in 2019 for US$12 billion. In addition, the Central Bank defined foreign exchange intervention and non-intervention zones for the U.S. dollar exchange rate and increased the amount of Leliq (Letras de Liquidez) (Central Bank peso debt instruments), which by the end of 2019 would represent about 4% of the Gross Domestic Product (“GDP”), with interest rates of more than 70%. As of the date of this prospectus, these and other measures adopted by the government and the Central Bank to control the foreign exchange rate caused a deepening recession (the IMF projected a GDP decrease of 1.2% for 2019), increasing unemployment and medium and small companies’ failures, while high inflation and foreign exchange instability continues. In addition, in October 2019 there will be presidential elections, and there is a great degree of uncertainty and speculation regarding the re-election of Mauricio Macri or on who may be elected as his successor, which also contributes to the economic instability. All these factors can potentially have a material adverse effect on the access to international financing by the public and private sectors in Argentina.

 

On September 28, 2018, the U.S. dollar exchange rate reached a peak of AR$40.8967 per U.S. dollar. Effective October 1, 2018, the Central Bank defined foreign exchange intervention and non-intervention zones for the U.S. dollar exchange rate until the end of 2018, at AR$34 per U.S. dollar in the lower bound and AR$44 per U.S. dollar in the upper bound. Such rates are adjusted daily, provided that if the exchange rate is beyond the upper bound, the Central Bank may sell foreign currency for a daily amount of up to US$150 million, and beyond the lower bound, the Central Bank may increase the monetary base backed with the increase of the Argentine federal reserves. As of the date of this prospectus, the exchange rate was equal to AR$37.6 per U.S. dollar, while the non-intervention zones were fixed at AR$37.011 per U.S. dollar in the lower bound and AR$47.897 per U.S. dollar in the upper bound. However, on April 16, 2019, the Central Bank froze the non-intervention zones levels as of such date, equal to AR$39.755 per U.S. dollar in the lower bound and AR$51.448 per U.S. dollar in the upper bound until December 31, 2019. In addition, the Central Bank announced that until June 30, 2019, it will abstain from purchasing U.S. dollars below the lower bound. Beginning on April 15, 2019, the Central Bank started offering to sell up to US$60 million on two daily auctions up to an aggregate of US$9,600 from the funds disbursed by the IMF. Despite the foregoing, in an effort to reduce volatility of the U.S. dollar exchange rate, on April 29, 2019, the committee of monetary policy (COPOM) of the Central Bank announced that the Central Bank could sell foreign currency even if the exchange rate is below the upper bound and will increase the daily sales from US$150 million to US$250 million if the exchange rate is beyond the upper bound. Finally, the COPOM confirmed that the Central Bank will not buy foreign currency until June 2019 if the exchange rate is below AR$39,755. The sharp depreciation of the Argentine peso has fostered inflation and created a strong volatility in the U.S. dollar exchange rate that gave raise to doubts on further depreciations of the Argentine peso and the control of the inflation levels, which could lead to a new financial crisis. We are unable to predict the future value of the peso against the U.S. dollar. If the peso continues to devalue, all or some of the negative effects on the Argentine economy related to such devaluation could reappear.

 

Our combined financial information included herein is presented in U.S. dollars. Therefore, the resulting exchange differences arising from the translation of balances and transactions in Argentine pesos to U.S. dollars are recognized in the financial gain or expense item. Fluctuations in exchange rates relative to the U.S. dollar could impair the comparability of our results from period to period and could have a material adverse effect on our results of operations and financial condition. In addition, our results of operations and financial condition are affected by changes in the Argentine peso to U.S. dollar exchange rate because the majority of our operations are conducted in Argentina and, accordingly, a significant portion of our costs are incurred in Argentine pesos, while our revenues are primarily denominated in or influenced by U.S. dollars. Consequently, appreciation of the U.S. dollar relative to the Argentine peso, to the extent not offset by inflation in Argentina, could result in favorable variations in our operating margins and, conversely, depreciation of the Argentine peso against the U.S. dollar may raise our costs in U.S. dollars, which would increase the prices of our commercial technology, products and services to our customers, which, in turn, could adversely affect our business and results of operations and cause significant variability in our results of operations from period to period. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Operating Results—Macroeconomic conditions” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Operating Results— Factors affecting comparability of prior periods.”

 

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The devaluation of the Argentine peso has had a negative impact on the ability of certain Argentine businesses to honor their foreign currency-denominated debt and has also led to very high inflation and significantly reduced real wages. We have a significant amount of indebtedness denominated in U.S. dollars. If the Argentine peso is further significantly devalued, the Argentine economy and our business could be adversely affected. Significant variations in the comparative value of the Argentine peso to the U.S. dollar could adversely affect our business and results of operations.

 

As of July 1, 2018, the peso qualifies as a currency of a hyperinflationary economy, and we are required to apply inflationary adjustments to our financial statements, which could adversely affect our Argentine subsidiaries’ financial statements, results of operations and financial condition.

 

Pursuant to the International Accounting Standards (“IAS”) 29 (Financial Reporting in Hyperinflationary Economies), the financial statements of entities whose functional currency is that of a hyperinflationary economy must be adjusted for the effects of changes in a suitable general price index. IAS 29 does not prescribe when hyperinflation arises but includes several characteristics of hyperinflation. The International Accounting Standards Board (“IASB”) does not identify specific hyperinflationary jurisdictions. However, in June 2018, the International Practices Task Force of the Centre for Quality (“IPTF”), which monitors “highly inflationary countries” categorized Argentina as a country with projected three-year cumulative inflation rate greater than 100%. Additionally, some of the other qualitative factors of IAS 29 were present, providing prima facie evidence that the Argentine economy is hyperinflationary for purposes of IAS 29. Therefore, Argentine companies using International Financial Reporting Standard as adopted by the IASB (“IFRS”) are required to apply IAS 29 to their financial statements for periods ending on and after July 1, 2018.

 

Similarly, Argentine Generally Accepted Accounting Principles (“Argentine GAAP”) (Technical Resolutions No. 17, 39 and 41 (“TR 17”)) also requires the adjustment of financial statements to reflect the changes in general price index in the context of hyperinflation. The Argentine Federation of Economic Sciences Professionals Bodies (Federación Argentina de Consejos Profesionales de Ciencias Económicas) (“FACPCE”), after finding the presence of the qualitative requirements of Argentine GAAP for the adjustment, stated that the adjustment should be applied to all Argentine companies’ financial statements for periods ending on or after July 1, 2018.

 

Adjustments to reflect inflation, such as those required by IAS 29 and TR 17, were prohibited by law No. 23,928 (the “Law 23,928”). Additionally, Decree No. 664/03, issued by the Argentine government (the “Decree”), instructed regulatory authorities, such as Public Registries of Commerce, the Superintendence of Corporations of the City of Buenos Aires and the Argentine Securities Commission (Comisión Nacional de Valores) (“CNV”), to accept only financial statements that comply with the prohibition set forth by the Law 23,928. However, on December 4, 2018, Law 27,468 abrogated Decree No. 664/03 and amended Law 23,928 indicating that the prohibition of indexation no longer applies to the financial statements. According to the foregoing, on December 26, 2018, the CNV amended its rules to adopt the adjustments to reflect inflation under IAS 29 for the periods ending on and after December 31, 2018, and on February 4, 2019, extended the term for the filing of the interim unaudited financial statements ended on December 31, 2018 until March 14, 2019. As a result, beginning with the period ending on December 31, 2018, Bioceres’ Argentine subsidiaries prepared financial statements in compliance with IFRS, adopting IAS 29 and TR 17 for regulatory purposes in Argentina. For purposes of the determination of the indexation for tax purposes, Law 27,468 substituted the WPI (as defined below) for the CPI, and modified the standards for triggering the tax indexation procedure. During the first three years as from January 1, 2018, the tax indexation will be applicable if the variation of the Consumer Price Index (“CPI”) exceeds 55% in 2018, 30% in 2019 and 15% in 2020. From January 1, 2021, the tax indexation procedure will be triggered under similar standards as those set forth by IAS 29 and TR 17. To the extent that the CPI increased by 47.6% in 2018 (below the statutory threshold for this year), the tax indexation procedure was not triggered for 2018. However, in March 2019, the CPI increased by 54.7% as compared to March 2018 and, therefore, the statutory threshold for the tax indentation could be triggered for Argentine entities with fiscal years ending June 30, 2019, like that of our Argentine subsidiaries.

 

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We cannot predict the future impact that the application of IAS 29 and the eventual application of the tax indexation procedure and related adjustments will have on our Argentine subsidiaries’ financial statements or the effects on our business, results of operations and financial condition. Also, we cannot predict when the application of IAS 29 will no longer be mandatory.

 

Government intervention in the Argentine economy could adversely affect the economy and our financial condition and results of operations.

 

During recent years, the Argentine government increased its direct intervention in the economy, including through the implementation of regulation of market conditions, expropriations or nationalizations and price controls.

 

For example, in 2012, the Kirchner administration removed the directors and senior officers of YPF S.A., Argentina’s largest oil and gas company, which was controlled by the Spanish group Repsol, and the Argentine Congress approved a bill to expropriate the shares held by Repsol representing 51% of the shares of YPF S.A. In February 2014, the Argentine government and Repsol reached an agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF S.A. shares, which totaled US$5.0 billion (Ps.79.3 billion) payable by delivery of Argentine sovereign bonds with various maturities. The agreement settled the claim filed by Repsol with the International Centre for Settlement of Investment Disputes (“ICSID”).

 

In December 2012 and July 2013, the Argentine Congress established new regulations relating to domestic capital markets. The new regulations generally provided for increased intervention in the capital markets by the government, authorizing, for example, the CNV to appoint observers with the ability to veto the decisions of the board of directors of companies admitted to the public offering regime under certain circumstances and suspend the board of directors for a period of up to 180 days. This power was later abrogated by the Law No. 27,440.

 

In September 2014, the Kirchner administration enacted a law that enables the Argentine government to intervene in certain markets when it considers that any party to such market is trying to impose prices or supply restrictions in such market. This law applies to all economic processes linked to goods, facilities and services which, either directly or indirectly, satisfy basic needs of the population (so-called “basic needs goods”), and grants broad powers to the relevant enforcing agency to become involved in such processes. It also empowers the enforcing agency to order the sale, production, distribution and/or delivery of basic needs goods throughout the country in case of a shortage of supply.

 

In May 2016, the Argentine congress barred companies from laying off workers for a 180-day period in a law later vetoed by President Macri.

 

More recently, and due to the foreign exchange crisis, rapidly increasing inflation and decline in economic activity during the first half of 2018, on November 8, 2018 the Central Bank issued Communication “A” 6595 imposing on financial entities a minimum cash requirement equal to 23% up to 29 days; 17% between 30 and 59 days; 11% between 60 and 89 days; 5% between 90 and 179 days; 2% between 180 and 365 days; and 0% for more than 365 days on obligations with international financial facilities; which, however, was repealed on January 1, 2019. On November 12, 2018, the Argentine government issued a decree imposing the payment of an extraordinary non-remuneratory bonus of AR$5,000 to all workers in the private sector, to be paid in two installments in December 2018 and February 2019, and imposing a notice requirement until March 31, 2019, under which all private sector employers must give notice of any proposed layoffs without cause to the Argentine Ministry of Production and Work, at least ten days prior to the proposed layoffs. In addition, effective October 1, 2018, the Central Bank defined foreign exchange intervention and non-intervention zones for the U.S. dollar exchange rate until the end of 2018, at AR$34 per U.S. dollar in the lower bound and AR$44 per U.S. dollar in the upper bound. Such rates are adjusted daily; provided that beyond the upper bound, the Central Bank may sell foreign currency for a daily amount of up to US$150 million, and beyond the lower bound, the Central Bank may increase the monetary base backed with the increase of the federal reserves. As of the date of this prospectus, the non-intervention zones were fixed at AR$37.011 per U.S. dollar in the lower bound and AR$47.897 per U.S. dollar in the upper bound. However, on April 16,

 

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2019, the Central Bank froze the non-intervention zones levels as of such date, equal to AR$39.755 per U.S. dollar in the lower bound and AR$51.448 per U.S. dollar in the upper bound until December 31, 2019. In addition, the Central Bank announced that until June 30, 2019, it will abstain from purchasing U.S. dollars below the lower bound. Beginning on April 15, 2019, the Central Bank started offering to sell up to US$60 million on two daily auctions up to an aggregate of US$9,600 from the funds disbursed by the IMF. Despite the foregoing, in an effort to reduce volatility of the U.S. dollar exchange rate, on April 29, 2019, the committee of monetary policy (COPOM) of the Central Bank announced that the Central Bank could sell foreign currency even if the exchange rate is below the upper bound, and will increase the daily sales from US$150 million to US$250 million if the exchange rate is beyond the upper bound. Finally, the COPOM confirmed that the Central Bank will not buy foreign currency until June 2019 if the exchange rate is below AR$39,755.

 

Substantially all of our assets are located in Argentina. Therefore, we are subject to political uncertainties, including expropriation or nationalization of our business or assets, or subject to renegotiation or annulment of existing contracts and other similar risk, although the current administration has not taken an interventionist approach. In the future, intervention in the economy by the Argentine government may continue or increase, the occurrence of which may adversely affect Argentina’s economy and, in turn, our business, results of operations and financial condition. We cannot assure investors that these or other measures that may be adopted by the Argentine government in the future in response to social unrest, such as nationalizations, intervention by the CNV, forced renegotiations or modifications of existing contracts, new tax policies, price fixing, regulations and reforms affecting foreign trade and investments, will not have a material adverse effect on the Argentine economy and, consequently, will not adversely affect our business, results of operations and financial condition.

 

Political developments in Argentina could adversely affect the Argentine economy.

 

Presidential and congressional elections in Argentina took place and a runoff election (ballotage) between the two leading presidential candidates was held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. The Macri administration assumed office on December 10, 2015.

 

Since assuming office, the Macri administration has announced and implemented several significant economic and policy reforms, including:

 

·                       Argentine National Institute of Statistics and Census (Instituto Nacional de Estadística y Censos) (“INDEC”) reforms. In January 2016, based on its determination that INDEC had failed to produce reliable statistical information, the Macri administration declared the national statistical system and the INDEC in a state of administrative emergency. INDEC implemented certain methodological reforms and adjusted certain macroeconomic statistics on the basis of these reforms which enabled a readjustment of Argentine duties towards the IMF. Since June 2015, INDEC began publishing revised data, including foreign trade and balance of payment statistics, the CPI and revised GDP data for the years 2004 through 2015. In March 2018, the Macri administration announced the preparation of a draft bill to provide INDEC with total autonomy and to transform it into an entity that will guarantee greater statistical independence of the main macroeconomic indicators.

 

·                       Agreement with holdout creditors. The Macri administration has settled the substantial majority of outstanding claims brought by holdout creditors and has issued sovereign bonds in the international financial markets passed by Congress through Law No. 27,249. Although the size of the claims involved has decreased significantly, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions.

 

·                       Foreign exchange reforms. The Macri administration eliminated all foreign exchange restrictions, including certain currency controls, which were imposed by the previous administration. However, due to the foreign exchange crisis, soaring inflation and plummeting economic activity during the first half of 2018, on November 8, 2018 the Central Bank issued Communication “A” 6595 imposing on financial entities a minimum cash requirement equal to 23% up to 29 days; 17% between 30 and 59 days; 11% between 60 and 89 days; 5% between 90 and 179 days; 2% between 180 and 365 days; and 0% for more than 365 days on obligations with international financial facilities; which, however, was repealed on January 1, 2019. In addition, effective October 1, 2018, the Central Bank

 

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defined foreign exchange intervention and non-intervention zones for the U.S. dollar exchange rate until the end of 2018, at AR$34 per U.S. dollar in the lower bound and AR$44 per U.S. dollar in the upper bound. Such rates are adjusted daily; provided that beyond the upper bound, the Central Bank may sell foreign currency for a daily amount of up to US$150 million, and beyond the lower bound, the Central Bank may increase the monetary base backed with the increase of the federal reserves. As of the date of this prospectus, the non-intervention zones were fixed at AR$37.011 per U.S. dollar in the lower bound and AR$47.897 per U.S. dollar in the upper bound. However, on April 16, 2019, the Central Bank froze the non-intervention zones levels as of such date, equal to AR$39.755 per U.S. dollar in the lower bound and AR$51.448 per U.S. dollar in the upper bound until December 31, 2019. In addition, the Central Bank announced that until June 30, 2019, it will abstain from purchasing U.S. dollars below the lower bound. Beginning on April 15, 2019, the Central Bank started offering to sell up to US$60 million on two daily auctions up to an aggregate of US$9,600 from the funds disbursed by the IMF. Despite the foregoing, in an effort to reduce volatility of the U.S. dollar exchange rate, on April 29, 2019, the committee of monetary policy (COPOM) of the Central Bank announced that the Central Bank could sell foreign currency even if the exchange rate is below the upper bound, and will increase the daily sales from US$150 million to US$250 million if the exchange rate is beyond the upper bound. Finally, the COPOM confirmed that the Central Bank will not buy foreign currency until June 2019 if the exchange rate is below AR$39,755.

 

·                       Foreign trade reforms. The Macri administration has eliminated export duties on wheat, corn, beef and other regional products, and reduced duties on soybeans by 5% from 35% to 30%. With respect to payments for imports of goods and services, the Macri administration announced the elimination of amount limitations for access to the Foreign Exchange Market for any new transactions as of December 17, 2015, and for existing debts for imports of goods and services as of April 22, 2016. On January 2, 2017, the Argentine government enacted a further reduction of the export duties rate set for soybean and soybean products, setting a monthly 0.5% cut on the export duties rate beginning on January 2018. However, due to the foreign exchange crisis in the second half of 2018, in September general export duties were re-imposed and the progressive reduction of export duties on soybean products stopped. For example, a general additional export duty has been imposed on all exports of goods, levied on the lower of 12% of the good’s FOB value or AR$3 or AR$4 per U.S. dollar, depending on the kind of the good. Also, in addition to the general additional export duty referred above, exports of soybean and soybean products have been subject to an export duty equal to 18%. And on December 28, 2018, a new export duty has been imposed on exports of services until December 31, 2020, levied on the lower of 12% or AR$4 per U.S. dollar.

 

·                       Fiscal policy. The Macri administration took steps to anchor fiscal accounts, reduce the primary fiscal deficit, eliminate subsidies, reorganize certain expenditures and generate increased revenue through a tax amnesty program. The primary fiscal deficit for 2016 was 4.6% of GDP, 0.2% lower than the Federal government target; for 2017 the primary fiscal deficit was 3.9% of GDP, 0.3% lower than the Federal government target, and for 2018, the primary fiscal deficit is 2.4%, 0.3% lower than the Federal government target. Due to the foreign exchange crisis in the second half of 2018, the Argentine government implemented a series of measures aiming at reducing the fiscal deficit drastically, including the suspension of public infrastructure works, the depreciation of the Argentine peso, the re-imposition of export duties, the request of a stand-by loan agreement with the IMF and the elimination of the Supportive Federal Fund (by which the Federal Government distributed 30% of the proceeds of the export duties on soybean and soybean products to the provinces and municipalities), among other things. For the incoming years, the Argentine government targets a primary fiscal deficit of 0% of the GDP for 2019 and a primary fiscal surplus of 1% of the GDP for 2020. As opposed to Fernández de Kirchner, who financed the deficit by producing new currency, the Macri administration adopted a different financing strategy for the country’s fiscal deficit, favoring the issuance of new debt in the international debt markets. Although the Macri administration intends to reduce Argentina’s primary fiscal deficit, as of the date of this prospectus, it is uncertain whether the Macri administration will be successful in doing so because of the lack of the adoption of structural changes to reduce government spending, the increase of

 

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inflation, the reduction of government’s tax revenues deriving from the economic recession, and the deficit of the balance of payments, among others.

 

·                       Correction of monetary imbalances. The Macri administration has adopted an inflation targeting regime in parallel with the floating exchange rate regime and set inflation targets for the next four years. The Central Bank has increased stabilization efforts to reduce excess monetary imbalances and raised peso interest rates to offset inflationary pressure. The Central Bank announced inflation target ranges for 2017 (12% to 17%); 2018 (8% to 12%); and 2019 (3.5% to 6.5%). However, inflation for 2017 arose to 24.8%, and for 2018, fostered by a depreciation of 103.83% of the Argentine peso to the U.S. dollar, soared to 47.6%. The official estimation of inflation for 2019 is 29%, while private sources predict an inflation closer to 40% for the same period. Since October 1, 2018, in addition to the creation of the foreign exchange intervention and non-intervention zones, the Central Bank adopted a policy of zero currency issuance. Therefore, the Central Bank re-calculated the inflation target for 2019 and 2020 to 27.8% and 19.6%, respectively. However, the inflation for March 2019 reached a peak of 4.7% and accumulated an aggregate of 11.8% during the first semester of 2019. On April 17, 2019 the Macri administration announced a series of economic measures to control inflation, including the freezing of prices of 60 basic products for at least six months, the commitment to avoid new tariff increases above those already announced as of the date of this prospectus and the freezing of the U.S. dollar intervention zones fixed as of April 16, 2019, equal to Ps.39.755 per U.S. dollar in the lower bound and Ps.51.448 per U.S. dollar in the upper bound. See “—Risks Related to Operating in Latin America and Argentina—Argentina—Political developments in Argentina could adversely affect the Argentine economy—Foreign Exchange Reforms” and “—Risks Related to Operating in Latin America and Argentina—Argentina—Continuing high inflation may have a negative effect on the Argentine economy and on our financial performance.”

 

·                       Tax Amnesty Law. On June 29, 2016, the Argentine Congress passed Law No. 27,260, which became effective on July 22, 2016 and provides for a tax amnesty regime and tax reform. This regime allowed individuals and entities to disclose undeclared assets both abroad and in Argentina, under the conditions set forth in the law and within a period extending from its effectiveness until March 31, 2017, without the need to repatriate such assets to Argentina and without penalty (other than charges described below) or the need to explain the source of the funds, among other benefits. The law also provides that there will be no charge on assets worth up to US$25,000, and a discounted applicable tax of 5% on property and assets worth up to US$80,000. Above that threshold, the applicable tax was 10% until the end of 2016 and 15% until the end of March 2017, when the amnesty window closed.

 

·                       National Electricity State of Emergency and Reforms. Following years of very limited investment in the domestic energy sector, as well as a continued freeze on electrical power and natural gas tariffs since the 2001-2002 economic crisis, Argentina began to experience energy shortages in 2011. In response to the growing energy deficit left by the prior government, the Macri administration, upon assuming office, declared a state of emergency with respect to the national electrical power system, which will remain in effect until December 31, 2017. The state of emergency allowed the federal government to take actions designed to ensure the supply of electrical power to the country, such as instructing the Ministry of Energy and Mining to design and implement, with the cooperation of all federal public entities, a coordinated program to guarantee the quality and security of the electrical power system. In addition, the Macri administration announced the elimination of certain energy subsidies and a substantial increase in electrical power rates. In this context, subsidy policies were reexamined and new electricity tariffs went into effect on February 1, 2016 with varying increases depending on geographical location and consumption levels. Following the tariff increases, preliminary injunctions requesting a suspension of tariff increases were filed by customers, politicians and nongovernmental organizations that defend customers’ rights, which were granted by Argentine courts. During 2017 in the city and the metropolitan area of Buenos Aires, electricity tariffs increased between 60% and 148%, and during 2018, increased on an average of 122%. The electricity tariffs increased 26%, 14% and 4% in

 

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February, March and April, 2019, respectively. The new gas tariff schedule was published on October 7, 2016 with an average increase of 200%. On October 11, 2016, the Ministry of Energy and Mining (a) expanded the amount of eligible beneficiaries of social tariffs to include retirees and pensioners that receive pensions equal to up to two minimum salaries, certain war veterans and medically dependent customers, and (b) decreed that institutions that perform activities of public interest would be entitled to residential rates. The year-on-year increase in the price of energy in the wholesale electricity market for end-users, which excludes transportation and distribution costs and accounts for approximately 45% of the tariff to end-users in the City of Buenos Aires, totaled 233% (from Ps.96/MWh to Ps.320/MWh on average), while the increase in the price of natural gas for end-users was 68% (from Ps.37/MMBtu to Ps.62/MMBtu on average). On March 10, 2017, a public hearing was held in order to discuss the increase in gas rates as of April 2017. In December 2017, the Ministry of Energy announced new increases that varied from 39% and 47% between December, 2017 and February, 2018. During 2018, gas tariffs increased 78%, and will increase 10%, 9% and 8% in April, May and June, 2019, respectively. The Macri administration announced the freezing of new tariff increases above those described above until December 31, 2019.

 

·                       Corporate Criminal Liability Law (Ley de Responsabilidad Penal Empresaria). On November 8, 2017, the Argentine Congress passed Law No. 27,401 which provides for the criminal liability of corporate entities when the following crimes are committed, directly or indirectly, with their intervention or on their behalf, interest or benefit: (a) local or international bribery and influence peddling, (b) negotiations that are incompatible with public office, (c) illegal payments made to public officials under the appearance of taxes or fees owed to the relevant government agency, (d) illegal enrichment of public officers and employees, and (e) producing knowingly false balance sheets and reports to cover up local or international bribery or influence peddling. Companies found liable for committing such crimes may be subject to various sanctions, including, among others, fines ranging from two to five times the “undue” benefit that was obtained or that could have been obtained through the actions incurred in breach of this regulation. Additionally, Companies found liable may forfeit assets obtained through the illegal actions. The law became effective on March 1, 2018.

 

·                       Amendment to Labor Risks Law. On February 15, 2017, the Argentine congress passed Law 27,348, which amends and complements Labor Risks Law No. 24,557, or the Labor Risks Law, and aims to reduce litigation arising from accidents at work. Under the new regime, prior to filing a lawsuit resulting from work-related accidents, affected workers must go through jurisdictional medical commissions, in order to assess the impact of any accident and to assign benefits provided for under the Labor Risks Law.

 

·                       Productive Financing Law. On May 9, 2018, the Argentine congress passed Law No. 27,440, which amends and updates the Argentine Capital Markets Law, the Mutual Funds Law and the Argentine Negotiable Obligations Law, among others. Furthermore, the law amends certain tax provisions, including certain regulations relating to derivatives and promotes a financial inclusion program.

 

·                       Social Security Reform Law. On December 28, 2017 Argentine Law No. 27,426 was promulgated. The law provides for modifications to the method of calculation of increases of social security benefits. In most cases, minimum benefits will equal 82% of the minimum wage. The law also grants employees the option to maintain their employment status until the age of 70, though employees may choose to retire earlier. Male employees may retire at 65 and female employees may retire at 60.

 

·                       Labor Reform Draft Bill. The Macri administration announced a draft bill to reform labor and social security which was sent to the Argentine congress for debate on November 21, 2017. On November 29, 2017, the draft bill was passed by the Argentine senate, and sent to the Argentine congress the same day. The draft bill aims to improve competitiveness and efficiency of various sectors, increase employment, attract investment and reduce labor costs.

 

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·                       Tax Rules.

 

·                       Pursuant to the amendment to the Personal Assets Tax Law approved by Law No. 27,480, enacted on December 5, 2018, for fiscal year 2019 the minimum taxable amount is AR$2 million. For taxpayers domiciled in Argentina, the tax rate would still be 0.25% if the aggregate amount of declared assets is between AR$2 million and AR$5 million, but it would increase to 0.5% on the excess of AR$5 million if the declared assets are of between AR$5 and AR$20 million and to 0.75% on the excess of AR$20 million if the value of informed assets is higher than AR$20 million. For individuals and entities not domiciled in Argentina, the tax rate would be maintained at 0.25%, irrespective of the value of the taxable assets.

 

·                       Law No. 27,430, enacted on December 27, 2017 and published in the Argentine Official Gazette on December 29, 2017 (the “Tax Reform”), introduces important amendments to the Argentine tax system. Specifically, it introduces amendments to income tax (both at corporate and individual levels), value added tax (VAT), tax procedural law, criminal tax law, social security contributions, excise tax, tax on fuels, and tax on the transfer of real estate. At a corporate level, the Tax Reform decreases the corporate income tax rate from 35% to 30% for fiscal years starting January 1, 2018 to December 31, 2019, and to 25% for fiscal years starting January 1, 2020 and onwards. The Tax Reform also establishes dividend withholding tax rates of 7% for profits accrued during fiscal years starting January 1, 2018 to December 31, 2019, and 13% for profits accrued in fiscal years starting January 1, 2020 and onwards. The new withholding rates apply to distributions made to shareholders qualifying as resident individuals or nonresidents. Even though the combined effective rate for shareholders on distributed income (corporate income tax rates plus dividend withholding rates on the after tax profit) will be close to the prior 35% rate, this change is aimed at promoting the reinvestment of profits. Additionally, the Tax Reform repeals the “equalization tax” (i.e., 35% withholding applicable to dividends distributed in excess of the accumulated taxable income) for income accrued from January 1, 2018. The reform did not substantially modify the tax treatment set forth in Law No. 26,893 (the “Argentine Income Tax Law”) to gains recognized by nonresidents on the sale of shares, quotas or other equity participations in Argentine companies as well as “other securities” of Argentine residents. However, the reform shifted the tax liability from nonresident purchasers to nonresident sellers. Beginning January 1, 2018, when a nonresident seller sells shares or quotas in an Argentine company to a nonresident buyer, the seller must pay Argentine Income Tax on the net gain resulting from the sale, exchange or other transfer of shares and other securities issued by Argentine companies (“Capital Gains”) through its legal representative in Argentina. General Resolution No. 4,227 establishes a payment mechanism for the Argentine Income Tax on Capital Gains pertaining to completed transactions.

 

·                       Limitation of Bureaucracy and Simplification. On January 11, 2018, Decree No. 27/2018, or Decree 27/2018, was published in the Argentine Official Gazette, with the objective to reduce government bureaucracy and approve new practices which reduce costs and boost competitiveness. The Decree 27/2018 modifies and simplifies regulatory frameworks related to Argentina’s National Food Safety and Quality Service (Servicio Nacional de Sanidad y Calidad Agroalimentaria) (“SENASA”), companies, transportation, trademark and patent procedures, transportation, digital signature, access to credit and work promotion.

 

·                       Regulation of the Modern Biotechnology Promotion and Development Law. On January 17, 2018, Decree 50/2018 regulating the Modern Biotechnology Promotion and Development Law No. 26,270 was published in the Argentine Official Gazette. With the aim of promoting the development and production of modern biotechnology in Argentina through tax benefits and other incentives, Decree 50/2018 establishes benefits that apply to qualifying beneficiaries.

 

·                       New Antitrust Law: On May 9, 2018, the Argentine Congress passed Law No. 27,442, which became effective on May 24, 2018. The New Antitrust Law created the National Competition Authority, a decentralized autarkic body within the Executive Branch, comprised of an Antitrust Tribunal (that has not yet been formally created as of the date of this prospectus), the Secretariat of Instruction of Anticompetitive Behaviors, and the Secretariat of Economic Concentrations. The New Antitrust

 

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Law incorporated significant changes in merger control and anticompetitive conduct investigation procedures, and introduced leniency for the first time in antitrust practice. Among other things, the New Antitrust Law: (i) calculates all threshold amounts, fines, etc. by reference to adjustable units (which are herein referred to their equivalent in Ps. as of the date of this prospectus); (ii) increases the threshold of the economic concentrations to be reported to Ps.2,640 million; (iii) exempts from the reporting obligation economic concentrations where the aggregate of the total assets of the target and the transaction amount does not exceed Ps.528 million, and the parties were not involved in economic concentrations in the same relevant market for an aggregate of Ps.528 million in the prior 12 months or Ps.1,584 million in the prior 36 months; (iv) increases the amount of the fines for lack of reporting to up to 0.1% of the national consolidated volume of business or up to Ps.19,800,000, per day of delay; (v) allows third parties to object economic concentrations; and (vi) provides that the following agreements constitute anticompetitive behaviors, which are presumed to cause damage to the general economic interest and, therefore, are deemed void: agreements to (a) fix the purchase or sale price of products and/or services; (b) (x) manufacture, distribute, buy or commercialize a limited amount of goods and/or (y) provide a limited number, volume or frequency of services; (c) divide, distribute or horizontally impose areas, portions or segments of the markets, clients or supply sources; or (d) establish or coordinate submissions or abstentions in public tenders. The New Antitrust Law limits fines to (i) 30% of the consolidated business in Argentina in the last fiscal year of the perpetrator’s group; (ii) the double of the economic benefit reported from the anticompetitive conduct; or (iii) if none of the foregoing is available, a maximum of Ps.5,280 million.

 

·                       Negotiation with the IMF. On June 7, 2018, the Argentine government and the IMF announced the arrival of a technical agreement for the granting of a stand-by loan to Argentina for an amount of up to US$50 billion for a term of up to three years for strengthening the federal reserves and the financial and fiscal position of Argentina. The agreement was approved for the board of directors of the IMF on June 20, 2018, together with the fiscal and economic plan for Argentina and on June 21, 2018, the IMF made the first disbursement of US$15 billion. By the end of September 2018, a new agreement was announced under which the amount of the stand-by loan is increased in US$7.1 billion. Pursuant to the agreement, by the end of October 2018, the IMF made the second disbursement of $5.7 billion, by the end of December made a third disbursement of $7.6 billion and in April 2019, made a fourth disbursement of $10.8 billion. It is expected that the IMF would make additional disbursements during 2019 for US$12 billion.

 

·                       Fair Trade Law: On April 22, 2019, the Argentine government enacted Decree No. 274/19 that abrogates and replaces the Fair Trade Law No. 22,802. This Decree introduces a list of behaviors that may be considered unfair, such as the abuse of economic dependence, the unfair obtaining of commercial conditions, the sale under costs and acts of discrimination. By contrast to Law 22,802, the new regime establishes that such behaviors may be sanctioned despite the lack of dominant position and damage to the general economic interest. The sanctions for violations under the Decree include, among others, fines calculated pursuant to variable units that, as of the date of this prospectus, amount to up to Ps.200 million.

 

Some of the measures proposed by the Macri administration may generate political and social opposition, which may in turn prevent the new government from adopting such measures as proposed. Political parties opposed to the Macri administration retained a majority of the seats in both chambers of the Argentine Congress in the last elections, which will require the Macri administration to seek political support from the opposition for its economic proposals. In October 2017, mid-term congressional elections were held in Argentina. Although President Macri’s governing coalition obtained the largest share of the votes at the national level, it continues without a majority in either chamber of congress. Such circumstances create further uncertainty in the ability of the Macri administration to pass legislation required to implement its proposals. In addition, there are presidential elections in Argentina in October 2019 and there are uncertainties on whether Macri will run for re-election or will be re-elected, or other candidate from his coalition will be elected, and the coalition majorities at both chambers of congress. Therefore, there remains uncertainty on the continuation

 

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of the measures and policies adopted by the Macri administration, or the changes to be adopted by a new administration and their impact on the economy and our business.

 

The fiscal, monetary and currency adjustments undertaken by the Macri administration subdued growth in the short-term. Immediately after most of the foreign exchange controls were lifted on December 10, 2015, the dismantling of the multiple exchange regime resulted in the official peso exchange rate (available only for certain types of transactions) falling in value by 40.1%, as the peso-U.S. dollar exchange rate reached Ps.13.76 to US$1.00 on December 17, 2015. As of December 2016, the Argentine peso depreciated 22.15% and as of December 2017, the Argentine peso depreciated 18.45%. During 2018, the Argentine peso has depreciated 103.83% accumulating a total depreciation of 284.84% since December 16, 2015 (immediately after most of the foreign exchange controls were lifted and dismantling of the multiple exchange regimes). Between December 31, 2018 and April 30, 2019, the Argentine peso depreciated 16.4% against the U.S. dollar. For containing the escalade of the peso-U.S. dollar exchange rate, during 2018 the Central Bank sold more than US$14 billion, reducing the Central Bank reserves; and increased the peso interest rates to more than 60%, affecting the access to domestic financing. Due to the foreign exchange crisis, in 2018 the inflation soared to 47.6% with an official estimation of 29% for 2019, while private sources predict an inflation closer to 40% for the same period; and the economic activity contracted 3.3% in 2018 and is expected to contract 1.6% in 2019.

 

As of the date of this prospectus, the impact that these measures and any future measures taken by the Macri administration will have on the Argentine economy cannot be predicted. The proposed deregulation could be disruptive to the economy and fail to benefit, or harm, our business. The failure of these measures to achieve their intended goals could adversely affect the Argentine economy and our business, financial condition and results of operations.

 

The credibility of several Argentine economic indexes has been called into question, which may lead to a lack of confidence in the Argentine economy and in turn limit our ability to access the credit and capital markets.

 

Between 2007 and 2014, INDEC, which is the only institution in Argentina with the statutory authority to produce official national statistics, underwent a process of institutional and methodological reforms that gave rise to a controversy with respect to the reliability of the information it produces, including inflation, GDP and unemployment data.

 

Reports published by the IMF and data produced by private sources has shown that between 2007 and 2014, inflation rates were considerably higher than those published by INDEC. The IMF has censured Argentina for failing to adopt remedial measures addressing the quality of official data, including inflation and GDP data, as required under the Articles of Agreement of the IMF adopted at the United Nations Monetary and Financial Conference, Bretton Woods, on July 22, 1944 (the “Articles of Agreement of the IMF”).

 

Between February 2014 and November 2015, INDEC established a new inflation index, known as National Urban Consumer Price Index (Índice de Precios al Consumidor Nacional Urbano) (“NUCPI”), which measured prices on goods across the country and replaced the previous index that only measured inflation in the urban sprawl of the City of Buenos Aires. Even though the new methodology brought inflation statistics closer to those estimated by private sources, material differences between the official inflation data and private estimates remained during 2015.

 

However, during December 2015 and January 2016, the Macri administration declared the national statistical system and INDEC to be in a state of administrative emergency through December 31, 2016 and announced that INDEC would implement certain methodological reforms and adjust certain macroeconomic statistics on the basis of these reforms. Accordingly, the publication of official data on prices, poverty, unemployment and GDP was temporarily suspended and in the interim the Macri administration released an alternative temporary CPI index based on data from the City of Buenos Aires and the province of San Luis. After implementing the methodological reforms, in June 2016, INDEC resumed its CPI publications and revised GDP data for the years 2004 through 2015. Among other adjustments, in calculating GDP for 2004, INDEC made changes to the composition of GDP that resulted in a downward adjustment of approximately

 

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12% for that year. In calculating real GDP for subsequent years based on the revised 2004 GDP, INDEC used deflators that are consistent with its revised methodology to calculate inflation. By understating inflation in the past, INDEC had overstated growth in real terms. The adjustments made by INDEC resulted in a determination of real GDP growth for the period between 2004 and 2015 of 48.6%, as opposed to a 65% growth in real terms for the same period resulting from the information used prior to June 2016. As a consequence of these reforms, on November 9, 2016, the IMF lifted its censure on Argentina, noting that Argentina had resumed the publication of data in a manner consistent with its obligations under the Articles of Agreement of the IMF. In March 2018, the Macri administration announced a draft bill to provide INDEC with total autonomy and to transform it into an entity that will guarantee greater statistical independence of the main macroeconomic indicators.

 

However, uncertainty remains as to whether official data and measurement procedures sufficiently reflect inflation in Argentina, and what effect these reforms will have on the Argentine economy. As of the date of this prospectus, the impact that these measures and other future measures taken by the Macri administration with respect to INDEC could have on the Argentine economy and investors’ perception of the country cannot be predicted.

 

Continuing high inflation may have a negative effect on the Argentine economy and on our financial performance.

 

In the past, inflation has materially undermined the Argentine economy and the government’s ability to foster conditions that would permit stable growth. In recent years, Argentina has confronted inflationary pressures (including the depreciation of the Argentine Peso), evidenced by significantly higher fuel, energy and food prices, among other factors.

 

The reliability of INDEC’s statistical data between 2007 and 2015 has been called into question. However, since assuming office in December 2015, Macri’s administration temporarily suspended INDEC’s publication of price indexes and implemented a series of methodological reforms and adjustments to improve the reliability of the statistical information reported by INDEC. In the interim, INDEC released alternative temporary CPI index based on data from the City of Buenos Aires and the Province of San Luis and resumed CPI publications in June 2016. For further information, see “—Risks Related to Operating in Latin America and Argentina—Argentina—The credibility of several Argentine economic indexes has been called into question, which may lead to a lack of confidence in the Argentine economy and in turn limit our ability to access the credit and capital markets.”

 

According to data published by INDEC, the NUCPI increased 23.9% between January and December 2014 and 11.9% between January and October 2015. In 2014, based on data from the City of Buenos Aires, the CPI increased by 34.3%. In 2015, based on data from the Province of San Luis, the CPI grew 31.6% and based on data from the City of Buenos Aires, the CPI increased by 26.9%. For the period between January and April 2016, based on data from the Province of San Luis, the CPI grew 14.08% and based on data from the City of Buenos Aires, the CPI increased by 19.10%. After implementation of the methodological reforms, INDEC reported an increase in the CPI of 16.8% between June and December 2016, and of 24.8% in 2017. However, fostered by a depreciation of the Argentine Peso against the U.S. dollar of 103.83% during 2018, the CPI increased by 47.6%. The official estimation of CPI increase for 2019 is 29%, while private sources predict a CPI increase closer to 40% for the same period. In March 2019, CPI reached a peak of 4.7% and accumulated an aggregate of 11.8% during the first quarter of 2019.

 

INDEC also published inflation figures for the Wholesale Price Index (“WPI”). According to data published by INDEC, the WPI increased 10.6% between January and October 2015, increased 34.5% in 2016 and 18.8% in 2017. Further, INDEC reported an increase of 73.5% during 2018. During the first quarter of 2019, WPI accumulated an aggregate increase of 8.2%.

 

If the fiscal deficit is not reduced and the exchange rate of the Argentine Peso to the U.S. dollar not stabilized, inflation rates could continue escalating and end in hyperinflation and a new economic crisis. There is uncertainty regarding the effects that the measures adopted, or that may be adopted in the future, by the Central Bank and/or the Argentine government may have in controlling inflation. If inflation remains high or

 

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continues to rise, Argentina’s economy may be negatively impacted, and our results of operations could be materially affected.

 

Limited access of the Federal Government and the private sector to the international capital markets could adversely affect our financial condition.

 

After Argentina’s 2001 sovereign default, resulting from defaulted bonds exchanges in 2005 and 2010, Argentina restructured approximately 91% of its defaulted debt that was eligible for restructuring. Holdout bondholders tha