-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MwMEw0juqmNrwts1yUepTc5u9/Hsh6CQOiShHvkVLD+wgyNELF3mstxuX+ppGd09 Pe8L9NZZ09U36w7qrh4zdg== 0000912057-96-022881.txt : 19961016 0000912057-96-022881.hdr.sgml : 19961016 ACCESSION NUMBER: 0000912057-96-022881 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECOSCIENCE CORP/DE CENTRAL INDEX KEY: 0000882259 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 042912632 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19746 FILM NUMBER: 96643807 BUSINESS ADDRESS: STREET 1: 10 ALVIN COURT CITY: EAST BRUNSWICK STATE: NJ ZIP: 08816 BUSINESS PHONE: 9084328200 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ________ Commission file number 0-19746 ECOSCIENCE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-2912632 (State of incorporation) (I.R.S. Employer Identification No.) 10 ALVIN COURT 08816 EAST BRUNSWICK, NEW JERSEY (Zip Code) (Address of principal executive offices) 908-432-8200 (Registrant's telephone number, including area code). Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. As of September 19, 1996, there were outstanding 9,342,177 shares of Common Stock, $.01 par value per share. The aggregate market value of shares of Common Stock held by non-affiliates of the registrant, based upon the last sales price for such stock on that date as reported by NASDAQ, was approximately $10,104,436. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 1996 Annual Meeting of Stockholders held on November 7, 1996 are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Number of Pages: Exhibit Index on Page: 54 ---- ---- PART I - -------------------------------------------------------------------------------- ITEM 1. BUSINESS - -------------------------------------------------------------------------------- GENERAL EcoScience Corporation ("EcoScience") is a marketing, sales and product development company servicing the needs of the agricultural specialties markets and professional pest control operators ("PCO"). The Company provides (i) sophisticated growing systems to greenhouse operators, (ii) technologically advanced sorting and grading equipment to produce packers, (iii) equipment, coatings and disease control products, including all natural biologicals for protecting fruits, vegetables and ornamentals in storage and transit to market, and (iv) unique biological pest control products to PCO. The Company focuses on the technical marketing of agricultural specialties products and services, and the development of biological pest control products. The Company serves the specialty agriculture market through its three subsidiaries: Agro Dynamics, Inc. and Agro Dynamics Canada Inc. (collectively, "AGRO") and the EcoScience Produce Systems Corp. ("EPSC") which are hereinafter referred to collectively with EcoScience as the "Company." EcoScience was incorporated under the laws of the State of Florida on August 27, 1982, and was reincorporated in the State of Delaware on June 29, 1988. On November 18, 1992, EcoScience acquired all of the outstanding capital stock of AGRO, an East Brunswick, New Jersey based company that designs and markets products and growing systems for the North American horticulture industry. The Company sells technologically advanced products and services for intensive farming. On May 24, 1994, the Company acquired certain assets and liabilities of American Machinery Corporation ("AMC"), an Orlando, Florida based business that provides postharvest coating products and services to the fresh fruit and vegetable markets throughout the United States, the Caribbean, Central America and South America. Concurrent with the acquisition of AMC, the Company formed EPSC to combine the AMC product line and operating unit with its existing activities. EcoScience sells to PCO through marketing collaborations with Terminix International Company L.P. ("Terminix") and Maruwa Biochemical Co., Ltd. ("Maruwa Biochemical"). See "Collaborative Agreements." The Company's primary products are (i) advanced growing systems based on Stonewool-Registered Trademark-, manufactured by Grodania A/S, (ii) sophisticated Aweta, B.V. sorting and grading equipment, (iii) computerized irrigation systems from H. Hoogendorn Automation B.V., (iv) PacRite-Registered Trademark- and Indian River Gold-TM- coatings manufactured by EPSC, (v) the Bio-Save-TM- PostHarvest BioProtectant line of products and (vi) the Bio-Blast-TM- Biological Termiticide. In addition, the Company distributes a broad array of specialty products used in greenhouses and in fruit, vegetable and ornamental packing. In fiscal 1996, the Company continued to implement an extensive restructuring program to complete its shift from a research and development based organization to one focused on commercial product sales. The restructuring involved the elimination of the Company's Massachusetts based research and manufacturing operations. The Company operates from its headquarters in East Brunswick, New Jersey, where it maintains sales, marketing and warehousing operations, and its Orlando, Florida facility which contains the Company's major coatings and biologicals production facility. The Company also maintains sales and customer service offices in Visalia, California; Ventura, California; Englewood, Colorado; Yakima, Washington; Milton, Canada and Surrey, British Columbia, Canada. 1 The Company's current technology base is in the development and application of natural microbial pest control agents and of coatings to sustain the freshness of fruits and vegetables. The Company's technology base allows it to provide technical support for growers and packers of specialty crops. The Company conducts research on the use of microbial agents to control plant diseases and insect pests as well as on new applications for natural coatings to sustain nutrition and overall quality in fresh cut fruits and vegetables. In fiscal 1996, the Company (i) demonstrated the performance of its Bio- Save line of products for the control of postharvest fruit diseases in a broad range of commercial programs, (ii) successfully completed commercial tests of its Bio-Blast Biological Termiticide and (iii) concluded a Phase-1 Small Business Innovation Research ("SBIR") program on the prevention of postharvest diseases of bananas. This SBIR program will be continued in fiscal 1997 and 1998 under a fully funded Phase-2 SBIR grant. In addition, the Company expects to conduct tests to determine the range of performance and applicability for both its Bio-Save line of products as well as for the Bio-Blast insect control product. The fiscal 1996 restructuring program focused on reducing research and development expenses and long term liabilities associated with the Bio-Path-TM- Cockroach Control Chamber manufacturing facility formerly located in Northborough, Massachusetts. The program led to expanded sales and marketing efforts for the Company's core products in growing and packing systems and emphasized the introduction of the Company's Bio-Save and Bio-Blast lines of all natural biological pest control products. PRODUCTS The Company's focus is on development and commercialization of products for the following major markets: (i) specialty agriculture; (ii) postharvest packing of fruits and vegetables; and (iii) biological pest control for the professional pest control operator. SPECIALTY AGRICULTURE The Company, through AGRO, markets and distributes commercial products and provides services to the greenhouse and nursery market in North America and Mexico. COMMERCIAL PRODUCTS GROWING SYSTEMS. The Company is the exclusive distributor in the United States and Canada of the Grodan brand of stonewool, an inert growing medium supplied by Grodania A/S, a Danish based company that is headquartered in Denmark and which is a wholly owned subsidiary of Rockwool International A/S. Stonewool is made by melting and spinning rock. It is designed to support the growth of high value crops and to improve plant root distribution and plant yields through more efficient use of oxygen, water and fertilizer. Stonewool is used worldwide for cultivation of a variety of plants in controlled growing environments such as greenhouses. The sale of products under the distribution agreement with Grodania A/S accounted for 45%, 43%, and 59% of the Company's total product sales in fiscal 1996, 1995, and 1994, respectively. The Company believes that revenues under this distribution agreement will account for more than 10% of the Company's consolidated product sales in fiscal 1997. 2 AUTOMATED IRRIGATION AND ENVIRONMENTAL CONTROL SYSTEMS. The Company through its ISYS-TM- Division, designs, fabricates, assembles and distributes greenhouse irrigation and fertilization systems, computerized environmental control systems, pest control testing and application products. In addition, the Company provides customers with technical support, product service, turnkey installation, product marketing and other supplementary services. The Company is also the exclusive distributor in the United States, Canada and Mexico of computerized environmental control systems and accessories produced by a Netherlands based company, H. Hoogendoorn Automation B.V. The Company also distributes additional products in the North American market on both an exclusive and non-exclusive basis. These products include accessories and other product lines for the use in the intensive farming and horticulture industries. POSTHARVEST PACKING OF FRUITS AND VEGETABLES Through AGRO and EPSC, the Company provides equipment, coatings and disease control products to the fruit, vegetable and ornamental packing markets. COMMERCIAL PRODUCTS SORTING AND GRADING. The Company is the exclusive distributor in the United States, Canada, Mexico and the Caribbean of advanced automated computerized color, weight and size sorting and grading systems and ancillary equipment produced by Aweta, B.V., a Netherlands based company. The sale of products under the distribution agreement with Aweta, B.V. accounted for 20% of the Company's total product sales in fiscal 1996. The Company believes that revenues under this distribution agreement will account for more than 10% of the Company's consolidated product sales in fiscal 1997. TRADITIONAL COATING PRODUCTS. The Company manufactures, markets and provides a broad spectrum of postharvest coating and cleaning products and services. Its traditional protective coating and storage products include Indian River Gold, PacRite, SEALBRITE-Registered Trademark- and DURA-FRESH-Registered Trademark-. These products were originally acquired in May 1994 with the asset purchase of AMC. These traditional coating products are conventional shellac and carnauba based coatings which have been used successfully in the citrus and pome fruit markets. These traditional coating products, together with the Company's Nature Seal coating products, maintain the quality and extend the shelf life of produce by (i) providing a barrier to free gas exchange, (ii) providing a barrier against abrasion, scuffing, bruising and other injuries, (iii) providing a carrier for decay preventing agents, (iv) providing a glossy appearance that is aesthetically appealing to consumers, (v) reducing shrinkage caused by water loss and (vi) maintaining firmness of the fruit or vegetable. The Company's traditional coating products contain materials that are Food and Drug Administration ("FDA") approved additives or have been listed by the FDA as "Generally Recognized As Safe" and accordingly, these coatings do not require FDA approval or registration. PacRite, SEALBRITE, and Indian River Gold currently are sold by the Company in the United States, the Caribbean, Central America and South America. NATURE SEAL. In June 1993, the Company acquired exclusive, worldwide rights to Nature Seal, a naturally derived cellulose based protective coating for harvested fruits and vegetables. Nature Seal coatings provide a protective preservative film to maintain quality, control ripening and enhance overall appearance of fruits and vegetables. The components of the coatings are "Generally Recognized As Safe" by the FDA and, accordingly, Nature Seal does not require regulatory approval for marketing. In August 1993, the Company commenced sales of its first Nature Seal product. Since then, the Company's efforts have been focused on developing and refining formulations for a variety of fruits and 3 vegetables. Throughout fiscal 1996, the Company conducted field tests on these formulations and is currently focused on targeted marketing and distribution of the Nature Seal product. BIO-SAVE POSTHARVEST BIOPROTECTANT. The newest products to be sold by the Company are its Bio-Save line of biological disease inhibitors. These products are sold through EPSC to the pear, apple and citrus markets. Postharvest diseases and damage during storage and shipment can account for losses ranging from 10% to 25% of total annual production of fruits and vegetables, depending on the crop and climate. The Company has developed and registered natural PSEUDOMONAS SYRINGAE microorganisms which can control the development of Blue Mold (PENICILLIUM EXPANSUM), Gray Mold (BOTRYTIS CINEREA) and Mucor Rot (MUCOR PYRIFORMIS) on apples and pears, and Blue Mold (P. ITALIUM), Green Mold (P. DIGITATUM) and Sour Rot (GEOTRICHUM CANDIDUM) on citrus fruit. The Company has conducted successful field trials over the last five years utilizing selected microbial agents in Florida, California, Oregon, West Virginia, Massachusetts, Michigan, and Washington and Chile. In March 1996, the Company received EPA registration and state registrations in its primary markets for its Bio-Save 100, Bio-Save 1000, and Bio-Save 110 biofungicides for the control of postharvest diseases on apples, pears and citrus fruit. These registrations were for revised formulations of the original Bio-Save active ingredient first approved in March 1995. The Company, through EPSC, conducted initial focused sales of the product in fiscal 1996 and is planning a major product launch in fiscal 1997. BIOLOGICAL INSECT CONTROL In the biological insect control market, the Company, with collaborative partners, has been focused on developing and selling cost effective bioinsecticide alternatives to synthetic chemical insecticides for use in specific applications, including sensitive use environments such as homes, restaurants, schools and food processing facilities. COMMERCIAL PRODUCTS BIO-BLAST BIOLOGICAL TERMITICIDE. The Company, together with its collaborator, Terminix, has developed a natural fungal product to control termites, the Bio-Blast Biological Termiticide. See "Collaborative Arrangements." This product contains a fungus selected for its ability to infect and kill termites which has been formulated for application utilizing conventional equipment in a termite infested structure. The product uses METARHIZIUM ANISOPLIAE, the naturally occurring insect killing fungus. The product is a dry powder packaged and portioned for ease of storage and use. It is used as a water suspension. The Company commenced commercial trials of Bio- Blast in the first quarter of fiscal 1995 under the terms of its development agreement with Terminix, and trials continued throughout fiscal 1996. These trials have demonstrated that Bio-Blast is an effective tool for the control of termite infestations. The Company has demonstrated that termites exposed to the fungus in the product can spread the fungus by contact to nest mates that have not directly contacted the fungal agent, thereby infecting and killing other termites through the Horizontal Transfer-Registered Trademark- effect. The Company received Environmental Protection Agency ("EPA") product registration for the termiticide in October 1994,and subsequently received approval for registration from 47 states. In fiscal 1996, the Company made its initial sales to both Terminix and Maruwa Biochemical. BIO-PATH COCKROACH CONTROL CHAMBER. In June 1993, the Company commenced sales to PCO of its first biological insect control product, the Bio-Path Cockroach Control Chamber, the first biological cockroach control product registered by the EPA. This product uses the Company's patented Bio-Path Cockroach Chamber technology to house a naturally occurring insect killing fungus, METARHIZIUM ANISOPLIAE, the same fungal ingredient utilized in the Bio-Blast Biological Termiticide. The fungus, when delivered to the cockroach through the chamber, adheres to the cockroach's body 4 causing infection and ultimate death of the insect. Cockroaches that have touched the fungus spread the fungus through contact with other cockroaches which have not passed through the chamber. Despite the technical success of the product, the Company has not been able to generate the expected positive margins for this first generation product due to high production costs. As a result, the Company has ceased production of the first generation Bio-Path Cockroach Control Chamber. The Company has completed formulation of a second generation product, which has not yet received EPA approval, and is seeking contractors for reduced cost toll manufacturing. The Company is currently seeking partners to market the second generation product. SALES AND DISTRIBUTION SPECIALTY AGRICULTURE PRODUCTS. The Company sells directly into this market through AGRO. AGRO has a marketing/sales force of 19 people located in its distribution and service centers in East Brunswick, New Jersey; Milton, Ontario, Canada; and Ventura, California, and in its sales/service offices in Englewood, Colorado; Orlando, Florida; Yakima, Washington and Langley, British Columbia, Canada. POSTHARVEST PACKING. The Company uses its AGRO and EPSC direct sales forces to market and sell its packing equipment and its traditional and naturally derived coatings and Bio-Save BioProtectants to fruit and vegetable growers, packers and processors in the United States, the Caribbean, Central America and South America. EPSC has a sales and technical support services force of 9 people located in its distribution and service centers in Orlando, Florida and Visalia, California. AGRO has sales/service offices handling and supporting this market in Yakima, Washington; East Brunswick, New Jersey and Englewood, Colorado. BIOLOGICAL PEST CONTROL. In June 1992, the Company entered into a product development and license agreement with Terminix for collaboration on the development and marketing of termite control products in the United States and Canada. See "Collaborative Agreements." In July 1995, the Company received its first purchase order from Terminix for the sale of its Bio-Blast termiticide product. In March 1996, the Company received its second order from Terminix. The Company's sales and distribution agreement with Bengal Chemical, Inc. for the non-exclusive retail distribution of the Company's Bio-Path Cockroach Control Chamber in certain retail markets in the United States expired in fiscal 1996. The Company will seek additional retail distribution arrangements for its Bio-Path product pending successful development of cost effective manufacturing. INTERNATIONAL SALES. The Company expects to market products internationally primarily through local and regional distributors and partners. The Company has established a development and distribution agreement with Maruwa Biochemical for distribution of its Bio-Path Cockroach Control Chamber and Bio- Blast Biological Termiticide in Japan upon registration there. In addition, the Company has entered into a marketing and distribution agreement with Dong Sung Pharmaceutical Co., Ltd. ("Dong Sung"), for distribution of its Bio-Path Cockroach Control Chamber in South Korea upon its registration there. In May 1995, the Company entered into a marketing and distribution agreement with Rhone-Poulenc Agrochimie ("Rhone-Poulenc") for distribution of its Bio-Path Cockroach Control Chamber to PCO in 16 countries in Europe upon registration in each of those countries. See "Collaborative Agreements." Financial information segregated by major geographic area (United States and Canada) is set forth in Note 10 to the Company's Consolidated Financial Statements, which appears elsewhere in this Annual Report on Form 10-K. 5 MANUFACTURING As part of the fiscal 1995 restructuring program, the Company ceased production of the first generation Bio-Path Cockroach Control Chamber. The Company has completed formulation of a second generation product, which has not yet received EPA approval, and is seeking contractors for reduced cost toll manufacturing. The Company is currently seeking partners to market the second generation product. In fiscal 1995, the active ingredient (fungal conidia) for the Bio-Blast termiticide product was produced at the Northborough, Massachusetts facility. Subsequent processing and packaging were conducted by third party subcontractors with specialized equipment. During fiscal 1995, the Company identified and engaged in discussions with a select number of companies with a proven ability to produce the fungal active ingredient for the Bio-Blast product on a cost- effective basis. Commensurate with the closing of its Northborough facility, the Company established supply arrangements for manufacture of the active ingredient in the Bio-Blast product. Upon receipt of the raw active ingredient, the Company now processes, formulates and packages this material to produce the Bio-Blast product in its Orlando, Florida manufacturing facility. Traditional coating products and Nature Seal coatings are currently being manufactured at the EPSC facility in Orlando, Florida. Production of the Company's postharvest fruit disease control products (Bio-Save) require large-scale fermentation and formulation capacity. The Company has established relationships with third party subcontractors to manufacture these products. To date, the Company has been able to acquire a sufficient supply of the Bio-Save product for its commercial sales. COLLABORATIVE AGREEMENTS MARUWA BIOCHEMICAL CO., LTD. In June 1993, the Company entered into a Development and Distribution Agreement with Maruwa Biochemical (the "Maruwa Agreement") to commercialize the Company's Bio-Path Cockroach Control Chamber in Japan. In addition, the Company is currently working with Maruwa on commercialization of its Bio-Blast product. Under the Maruwa Agreement, Maruwa Biochemical will pursue at its own expense the registration and commercialization of the Company's cockroach and termite control products in Japan, including the initiation of field trials and, if required, the commencement of toxicology studies. Following receipt of all required approvals, Maruwa Biochemical is obligated to distribute products supplied by the Company and sold to Maruwa Biochemical at prices to be determined by agreement. Maruwa Biochemical paid an initial licensing fee to the Company upon execution of the Maruwa Agreement. DONG SUNG PHARMACEUTICAL CO., LTD. In May 1994, the Company entered into a Marketing and Distribution Agreement with Dong Sung (the "Dong Sung Agreement") for the exclusive rights to market and distribute the Company's Bio-Path Cockroach Control Chamber product in South Korea. Under the Dong Sung Agreement, Dong Sung will pursue at its own expense the registration and commercialization of this product in South Korea, including minimum amounts for advertising and promotion during the first two calendar years once registration has occurred as provided for in the agreement. The Dong Sung Agreement expires on December 31, 1999, unless extended by the parties. Dong Sung has the right to terminate the Dong Sung Agreement without cause upon 90 days notice to the Company. 6 RHONE-POULENC AGROCHIMIE. In May 1995, the Company entered into a Marketing and Distribution Agreement with Rhone-Poulenc (the "Rhone-Poulenc Agreement") for the exclusive rights to market and distribute the Company's Bio- Path Cockroach Control Chamber product to PCO in 16 countries in Europe subject to registration in each of those countries. The term of the Rhone-Poulenc registration is for a period of five years from the date of execution or the date product registration is received in the particular country, whichever is later, and may be renewed for successive one year periods thereafter by mutual agreement of the parties. THE TERMINIX INTERNATIONAL COMPANY, L.P. In June 1992, the Company entered into a Product Development and License Agreement with Terminix (the "Terminix Agreement") for collaboration on the development and marketing of termite control products. Under the Terminix Agreement, Terminix provided funding to the Company for the development of biological termite control products and received exclusive rights to use and distribute any resulting products in the United States and Canada. The Company has retained all rights elsewhere. The Company managed product development, manufactures and sells products to Terminix at an agreed markup over the Company's manufacturing cost. The Company will also share any profit realized by Terminix over specified levels. The Terminix Agreement extends until expiration of the last to expire of any patents which may issue covering the Company's biological termite control technology, subject to Terminix's right to terminate the agreement at any time. The Company received EPA product registration for the termite control product in October 1994, and subsequently received approval for registration from 47 states. TECHNOLOGY The Company's technology is applied in three broad areas: (i) the development of natural microbial biological pesticides; (ii) the development of fresh fruit and vegetable coatings; and (iii) service to our customers on postharvest disease control, production of agricultural specialties and the proper handling and packing of produce after harvest. MICROBIAL PEST CONTROL Microbial pesticide products are based on microorganisms isolated from the environment, formulated and delivered to a target pest so that they kill the pest or control or inhibit its proliferation on the target. The agents form the foundation of true biological pest control products. They are packaged alive and perform their function through proliferation in the pest environment. They are distinct from other biological pest control products such as BACILLUS THURINGIENSIS ("Bt") which do not require growth in the environment. Bt is lethal to insects because of its production of a toxin during the manufacturing process. Much of the formulation and delivery technology developed for synthetic chemical pesticides or microbial products such as Bt is inappropriate for microbial products which employ and preserve living organisms. The EcoScience microbial technology uses live microorganisms which either attack and kill a target pest (e.g. Bio-Blast) or through natural growth inhibit the ability of a target pest to proliferate (e.g. Bio-Save). The following is a list describing the Company's proprietary microbial pest control technologies including methods to (i) identify and isolate active microbial agents, (ii) manufacture commercial quantities of those microbial agents, (iii) formulate and package them as products with commercially acceptable stability and shelf life and (iv) deliver them to the target pest. See "Patents and Trade Secrets." 7 IDENTIFICATION OF ACTIVE INGREDIENTS. The Company has developed proprietary assays for the screening and identification of microbial agents which are effective in the prevention of certain plant diseases or which are lethal to certain pests. The Company has been awarded a patent for the use of a microbial agent identified through these proprietary assays and may file additional patent applications. DEVELOPMENT OF MANUFACTURING METHODS. The Company has access to or has developed a variety of proprietary methods for growing, processing and harvesting microbial agents which it believes can be used to produce commercial quantities of active ingredients for the Company's products. DEVELOPMENT OF FORMULATION SYSTEMS. The Company has access to or has developed proprietary processing systems to stabilize and extend the shelf life of fungal and bacterial agents and ensure stability, longevity and activity in use. These systems lead to formulations which allow living fungi and bacteria to remain viable in dry, aqueous or oil-based formulations until use. This technology is the basis for the Bio-Save, Bio-Blast and Bio-Path products. Additionally, it serves as the basis for the contract formulation business EcoScience will develop in the future. DEVELOPMENT OF DELIVERY SYSTEMS. The Company has developed proprietary delivery systems including Bio-Path Cockroach Chambers, sprays, dusts and gels, optimizing performance of microbial agents by facilitating accurate delivery of concentrated doses. DEVELOPMENT OF PACKAGING SYSTEMS. The Company has developed proprietary packaging systems to extend the shelf life of microbial agents during storage and transportation. The Company believes that, in order to be commercially successful, biopesticide products must remain viable in conventional distribution channels and have a minimum shelf life of 18 to 24 months. FRESH FRUIT AND VEGETABLE COATINGS The Company's coating technology utilizes FDA food grade and/or GRAS listed products to protect fruits and vegetables after harvest and during storage and during transit to market. The technology focuses on controlling respiration (oxygen transport) and water loss on fruits and vegetables. Restricting respiration and reducing water loss ensures delivery of fresher products to the consumer. The key to the Company's approach is to design the appropriate coating for each type of produce. Different types of produce respond differently to respiration and water loss and therefore different coatings are required for different classes of produce. In June 1993, the Company acquired commercial rights to Nature Seal, a naturally derived, cellulose based protective coating for harvested fruits and vegetables. In May 1994, the Company acquired a line of traditional coating products which utilizes conventional shellac and carnauba as their main ingredients that have been used successfully in the citrus and pome fruit markets. The Company's coating products provide a protective preservative film on fruits and vegetables to maintain quality, control ripening and enhance overall appearance. TECHNICAL ADVICE AND SERVICE The Company advises its customers on improved technical growing and packing techniques and systems. The key to successfully servicing our customers requires knowledge of the customers challenges and problems and technical solutions available to solve those problems. Customers frequently depend on the Company for such service and advice. 8 TECHNOLOGY SUMMARY The Company's technology has applicability to a variety of potential products and product systems. These include various insect spray and chamber products, plant and root fungal disease control systems, and preharvest and postharvest coatings and disease control systems which are currently in varying stages of development. As part of the Company's restructuring program, certain research and product development programs and the funding thereof have been suspended, curtailed, or deferred. Future development and funding of these research and product development programs will depend on a number of factors, including market conditions, availability of financial, technical, and other resources, technological advancements, manufacturing capabilities, governmental regulations, and other relevant matters which may confront the Company in the future. The Company's operating costs and expenses to date have related to a large extent to the research and development of products and product systems for future commercialization. Expenses incurred by the Company under third party funded research and development programs totaled approximately $0, $155,000, and $603,000 in fiscal 1996, 1995, and 1994, respectively. Expenses incurred under Company funded research and development programs totaled approximately $1,018,000, $4,328,000, and $7,553,000 in fiscal 1996, 1995, and 1994, respectively. TECHNOLOGY LICENSING UNITED STATES DEPARTMENT OF AGRICULTURE ("USDA"). The Company has an agreement with the USDA granting the Company exclusive rights to the use of a microbial strain developed at the USDA for the control of postharvest diseases of pome fruits. This use is the subject of a pending U.S. patent application by the USDA. The license agreement provides for a royalty to the USDA based on sales by the Company of products incorporating the licensed microbial strain. The Company has also licensed the worldwide rights to develop and commercialize additional biological disease control organisms recently patented by the USDA. The organisms licensed to the Company under the patent are naturally occurring yeasts which effectively control the development of blue mold (PENICILLIUM EXPANSUM), gray mold (BOTRYTIS CINEREA) and Mucor rot on apples and pears. J.R. BROOKS & SON, INC. AND SEALD-SWEET GROWERS, INC. In June 1993, the Company acquired from J.R. Brooks & Son, Inc. ("J.R. Brooks") and Seald-Sweet Growers, Inc. ("Seald-Sweet") an exclusive, worldwide sublicense to use the technology underlying the Nature Seal coatings, the rights to which J.R. Brooks and Seald-Sweet obtained under license from the USDA, subject to the rights of the USDA to use the technology on a royalty free, non-exclusive basis for governmental purposes only. Under its sublicense with J.R. Brooks and Seald-Sweet, the Company agreed to pay a royalty or, in certain circumstances, a percentage of profits, on sales of products incorporating the Nature Seal technology. The sublicense agreement extends until expiration of the last to expire patents covering the Nature Seal technology. COMPETITION The Company faces substantial competition in the sale of certain products and growing systems to greenhouses and nurseries in North America. The Company believes that its range of products and services, and product quality, will allow it to compete effectively in North America. Competition in the fruit and vegetable coatings market is similarly intense. Fruit and vegetable coating products are developed and marketed primarily to several large companies which offer a full 9 range of products. In addition, several smaller companies offer a limited range of fruit and vegetable coating products. The Company believes that it can compete effectively in this market with its Nature Seal coating and Bio-Save PostHarvest BioProtectant and other traditional coating products based on the cost effectiveness and the quality of its coating formulations and services. Competition is also intense in the pesticide industry. The Company competes with large manufacturers of synthetic chemical pesticides, and established biopesticide companies. The pesticide industry is dominated by large chemical companies located in the United States, Japan and Europe. These companies have substantial financial and technical resources, extensive sales and distribution capabilities, varied product registration experience and the ability to manufacture products efficiently. The Company believes that its commercial success will depend upon the development of cost effective products which compete with synthetic chemical pesticides on the basis of effectiveness, safety and ecological benefit. In addition, product line profitability will depend upon cost effective products and strong sales and distribution networks for the Company's products. GOVERNMENT REGULATION AND PRODUCT REGISTRATION In most countries throughout the world, governmental authorities require registration of pesticides before sales are allowed. In the United States, the EPA regulates pesticides under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"). Pesticides are also regulated by the individual states. Some states, such as California, Florida and New York, have their own extensive registration requirements. In order to market products outside the United States, the Company must receive regulatory approval from the authorities of each applicable jurisdiction. In addition, the FDA administers the Federal Food, Drug and Cosmetic Act ("FFDCA") and establishes standards for pesticide residues in food to protect public health. Detailed and complex procedures must be followed in order to obtain approvals under FIFRA to develop and commercialize a pesticide product. A registration application must be submitted to the EPA for each product and must list each pest for which the product will be used. Evaluation data for registration includes, but may not be limited to, non-target organism testing, environmental data, product analysis and residue studies, product performance, and toxicology (hazards to human beings and domestic animals). The EPA has established specific testing requirements for registration of microbial pesticides, which are set out in Subdivision M of the EPA's Pesticide Assessment Guidelines. Chemical pesticides are currently subject to a three tier toxicology testing procedure, and a four tier environmental evaluation process. A microbial pesticide product which satisfactorily completes both the toxicology Tier 1 tests and environmental evaluation is not required to go through the testing requirements of subsequent tiers. Additional tests may be required, however, in response to any questions which may arise during Tier 1 testing. The Company's product development cycle typically anticipates two to three years of field evaluation and up to two years for product registration, which can run concurrently with the last year of field trials. The cost of registration is typically less than $500,000. In contrast, synthetic chemical pesticides require toxicology and environmental testing to verify product safety prior to receiving registration, which the Company estimates can take a up to seven years or longer and can cost up to approximately $10 million or more. Already registered chemical pesticides are also being subjected to additional testing requirements. In 1988, the United States Congress mandated that the EPA re-register by 1997 all pesticide products containing active ingredients registered prior to 1984, using the current testing protocols. 10 In July 1992, the EPA announced its "Reduced Risk Pesticide Policy" initiative which streamlined the regulatory process for qualified products. In June 1993, the federal government announced its commitment to reduce the use of pesticides and promote sustainable agriculture in the United States. The EPA, the USDA and the FDA are all considering regulatory reforms which may require amendments to both major pesticide regulatory laws: FIFRA and FFDCA. In testimony before Congress on September 21, 1993, the administrators of the USDA, the FDA and the EPA stated their intentions to work jointly to reduce risk associated with pesticides and to facilitate the availability of alternative effective pest control products. The new Biopesticide and Pollution Prevention Division of the EPA is intended to accelerate the registration of these "Reduced Risk" products, but there can be no assurance of the impact or timing of these initiatives. The Company received EPA approval for registration of its cockroach control product on May 13, 1993. To date, the Company has received approvals for registration of the cockroach control product from every state except Hawaii and Alaska, and Puerto Rico and Mexico. In October 1994, the Company received EPA registration for its Bio-Blast termiticide. The Company subsequently received registration from 47 states. In March 1995, the Company received EPA registration for Bio-Save 10 and Bio-Save 11 biofungicides in all states requested. In March 1996, the Company received EPA registration for Bio-Save 1000, Bio-Save 100 and Bio-Save 110. These registrations are for new formulations of the original Bio-Save 10 and 11 products. The Company's Nature Seal and traditional coating products are formulated in water and are based on vegetable or resin materials that are FDA approved food additives or have been listed by the FDA as "Generally Recognized As Safe" for their intended use. As such, the Company's Nature Seal and traditional coating products currently do not require FDA approval or registration. Nature Seal and the traditional coating products are not pesticides and are therefore not subject to EPA registration. Certain of the Company's activities, including the operation of its laboratories and manufacturing facilities, have been, or may be, subject to regulation (i) under various other state and federal laws and regulations including the Occupational Safety and Health Act, the National Environmental Policy Act, the Clean Air Act, the Clean Water Act, the Emergency Planning and Community Right-To-Know Act and other state and federal statutes regulating environmental quality and (ii) by state and federal agencies, including the USDA and the FDA. From time to time, governmental authorities review the need for additional laws and regulations for biotechnology and pesticide products that could, if adopted, apply to the business of the Company. The Company is unable to predict whether any such new regulations will be adopted or whether, if adopted, they will adversely affect its business. Historically, compliance with applicable federal, state, and local provisions which have been enacted or adopted regulating the discharge of materials into the environment by the Company's manufacturing or laboratory operations has had an immaterial effect upon the Company's capital expenditures, results of operations and competitive position. PATENTS AND TRADE SECRETS The Company owns or has rights to certain proprietary information, including patents and patent applications, which relate to its technology and its products. The Company actively seeks protection, when appropriate, for its products and proprietary information by means of United States and foreign patents. In addition, the Company may rely upon confidentiality agreements and other contractual arrangements to protect certain of its proprietary information. The Company has a total of eight U.S. patents covering its microbial biological insecticide technology. 11 The Company has six U.S. patents covering its Bio-Path chamber technology, with corresponding foreign patents and patent applications: (i) METHOD AND DEVICE FOR THE BIOLOGICAL CONTROL OF COCKROACHES, (ii) METHOD AND DEVICE FOR THE BIOLOGICAL CONTROL OF INSECTS, (iii) INSECT CONTAMINATION CHAMBER, (iv) METHOD AND DEVICE FOR THE BIOLOGICAL CONTROL OF FLYING INSECTS, (v) DEVICE FOR BIOLOGICAL CONTROL OF COCKROACHES, and (vi) DEVICE CONTAINING FUNGUS FOR BIOLOGICAL CONTROL OF INSECTS. The Insect Contamination Chamber patent contains claims relating to the design of the Company's Bio-Path Cockroach Control Chambers. The Company's other issued patents claim methods of increasing the mortality rate of target species of insects by providing an effective dose of a pathogenic fungus in a chamber designed to attract and lethally infect the targeted insect, and the chambers. The Company has an additional patent, MAINTENANCE AND LONG-TERM STABILIZATION OF FUNGAL CONIDIA USING SURFACTANTS, describing methods utilizing a uniqueness of surfactants for fungal formulation. An additional patent, PSEUDOMONAS SYRINGAE ATCC 55389 AND USE THEREOF FOR INHIBITING MICROBIAL DECAY ON FRUIT, has been awarded covering a microorganism that is the active ingredient in Bio-Save 10, 100, and 1000. Provided maintenance fees are paid, U.S. design patents have a term of 14 years from the date of issue; and U.S. utility patents that are based on applications filed before June 8, 1995, and that have not expired as of June 8, 1995, have a term that is the longer of 20 years from the earliest effective filing date or 17 years from issuance. In certain instances, however, the term may be limited to the term of a related patent claiming similar technology. The Company's patents were issued in 1991, 1992, 1993, 1994, and 1995. The Company has pending three patent applications relating to methods of extending microbial shelf life. There can be no assurance that any patents will issue from any of the Company's patent applications or that issued patents will provide adequate protection for the Company. The Company has two exclusive licenses to the issued patents covering the Nature Seal technology from J.R. Brooks and Seald-Sweet, which licensed the patents from the USDA. The patents were issued to the USDA in March 1993 and December 1994. The Company has acquired the exclusive rights to the use of microbial strains developed at the USDA for the control of postharvest diseases of pome fruits. These rights are the subject of pending and issued USDA patents. Much of the Company's technology and many of its processes are dependent upon the knowledge, experience and skills of certain scientific and technical personnel. To protect its rights to its proprietary information and technology, the Company requires all employees, consultants, advisors and collaborators to enter into confidentiality agreements which prohibit the disclosure of confidential information to persons unaffiliated with the Company and require disclosure and assignment to the Company of ideas, developments, discoveries and inventions made by such persons. There can be no assurance that these agreements will prevent disclosure of the Company's confidential information or will provide meaningful protection for the Company's confidential information if there is unauthorized use or disclosure. In the absence of patent protection, the Company's business may be adversely affected by competitors who develop substantially equivalent technology. 12 PERSONNEL As of September 20, 1996, the Company had 64 full-time employees. A total of 3 persons are employed full-time in manufacturing and production; 41 in sales, marketing and distribution; 5 in research and development; and 15 in management and administration. None of the Company's employees is covered by a collective bargaining agreement. The Company considers its relations with its employees to be good. ITEM 2. PROPERTIES - -------------------------------------------------------------------------------- As part of the Company's restructuring program, the Company's corporate headquarters and research and development operations were relocated in the second quarter of fiscal 1996 to AGRO's facility in East Brunswick, New Jersey. This facility consists of 23,375 square feet of space at under a five-year lease which expires in July 1999, and which provides an option to renew for an additional five-year term. In addition, AGRO leases 10,000 square feet of space for its sales/service center and warehouse facility located in Milton, Ontario, under a five-year lease which expires in September 1997, and which provides an option to renew for an additional five-year term. AGRO also leases space for its other sales/service centers located in Ventura, California; Englewood, Colorado; and Yakima, Washington under various lease terms. The Company's wholly-owned subsidiary, EPSC, leases approximately 24,000 square feet of space for its headquarters, production and warehouse facilities located in Orlando, Florida, under a five-year lease which expires in May 1999, and which provides an option to renew for an additional five-year term. In addition, EPSC leases on a month-to-month basis approximately 4,000 square feet of space for its sales/service center and warehouse located in Visalia, California. The Company believes that its existing facilities are adequate to meet current requirements and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations and additional offices. ITEM 3. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- The Company is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - -------------------------------------------------------------------------------- There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 1996. 13 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of September 19, 1996, are listed below: Executive Name Age Position Officer Since - ---- --- -------- ------------- Michael A. DeGiglio 42 President and Chief Executive Officer 1993 Richard A. Andrews 44 Vice President 1990 Harold A. Joannidi 45 Treasurer, Corporate Controller and Secretary 1995 David W. Miller 44 Vice President-Technology 1988 William B. Silk 69 Vice President 1996 MR. DEGIGLIO joined the Company upon its acquisition of AGRO in November 1992, and has served as President of the AGRO Division since that time. In July 1995, Mr. DeGiglio assumed the offices of President and Chief Executive Officer of the Company. Prior to joining the Company, Mr. DeGiglio was employed with AGRO since 1984, where he served as President. Prior to co-founding AGRO, Mr. DeGiglio was Vice President of International Sales for NYPCO International Inc. Mr. DeGiglio served on active duty in the United States Navy as an Officer and Jet Aviator from July 1976 through December 1982, presently holds the rank of Commander and is the Commanding Officer of a Jet Aviation Squadron with the United States Naval Reserve. Throughout his Naval career, he has held various department head positions and has completed numerous Senior Advanced Management and Total Quality Leadership courses. Mr. DeGiglio also serves as Chief Executive Officer and Director of Agro Power Development, Inc. Mr. DeGiglio received a B.S. in Aeronautical Science and Aviation Management from Embry Riddle Aeronautical University. MR. ANDREWS joined the Company in September 1990 and served as its Vice President of Business Development until April 1994, when he assumed the position of President of EPSC. In 1996, Mr. Andrews became Vice President of the Company. Prior to joining the Company, Mr. Andrews was employed from 1986 to 1990 with BioTechnica International in Cambridge, Massachusetts, where he served as President of the Diagnostics Division and Vice President of Commercial Development. Mr. Andrews received a B.S. in Chemistry from Hobart College, a M.S. in Chemistry from Purdue University and a S.M. in Technology and Policy from the Massachusetts Institute of Technology. MR. JOANNIDI joined the Company in 1995 as Corporate Controller. In March 1996, Mr. Joannidi became Treasurer and Secretary of the Company. In 1992 and from 1994 until joining the Company, Mr. Joannidi also served as a Financial and Systems Consultant to the Company. Prior to joining and in addition to being a consultant to the Company, Mr. Joannidi operated a manufacturing company from 1992 to 1994, served as a Financial and Systems Consultant to various companies from 1988 to 1992, and held financial management positions at Tel Plus International, Inc./Siemens AG, Johnson Matthey Jewelry Corporation and Refinemet International Company from 1980 to 1988. Mr. Joannidi attained Certified Public Accountant designation while employed at the public accounting firm of Coopers & Lybrand. He attended Tufts University and Northeastern University, receiving a B.S. degree in Accounting and Economics from Northeastern University. 14 DR. MILLER joined the Company in May 1988 and currently serves as Vice President-Technology. Prior to joining the Company, Dr. Miller was employed from 1983 to 1988 as Staff Scientist and Project Leader at Genetics Institute, Inc., in Cambridge, Massachusetts. Dr. Miller received a B.S. in Biochemistry from the University of California, Davis, and a Ph.D. in Biochemistry and Molecular Biology from Harvard University, where he studied the molecular biology of insects. Dr. Miller also was a National Institutes of Health post-doctoral Fellow studying insect viruses at the University of Idaho. MR. SILK joined EcoScience upon its acquisition of Agro Dynamics, Inc. in November 1992. Since that time, Mr. Silk has served as Executive Vice President and General Sales Manager at AGRO. In March 1996, Mr. Silk became a Vice President of the Company. Prior to joining the Company, Mr. Silk served as Vice President of Sales and Marketing of Agro Dynamics since its inception in 1984. Previously, Mr. Silk was with Johns-Manville Corp. for 33 years in various sales-engineering and market management positions in both domestic and international operations. Mr. Silk holds a Bachelor of Science degree from Polytechnic Institute of Brooklyn, New York. 15 PART II - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- The Common Stock was admitted for trading on the National Association of Securities Dealers Automatic Quotation System ("NASDAQ"), National Market System under the NASDAQ symbol "ECSC" since the date of the Company's initial public offering on February 5, 1992 until November 26, 1995. On November 27, 1995, the Company's Common Stock was transferred from the NASDAQ, National Market System to the NASDAQ, Small-Capitalization Market System. As of September 19, 1996, there were approximately 303 holders of record of the Common Stock. The Company has never declared or paid any cash dividends on its Common Stock and does not anticipate doing so in the foreseeable future. The table below sets forth, for the fiscal quarters indicated, the reported high and low closing sales prices of the Common Stock as reported by NASDAQ based on published financial sources. 1996 High Low ------------------- ---------- -------- Fourth Quarter . . . . . . . . . 1 5/8 1 1/4 Third Quarter. . . . . . . . . . 1 3/8 1 1/16 Second Quarter . . . . . . . . . 1 7/16 First Quarter. . . . . . . . . . 1 1/2 13/16 1995 High Low ----------------- ---------- -------- Fourth Quarter . . . . . . . . . 1 11/16 1 1/4 Third Quarter. . . . . . . . . . 2 3/8 1 1/4 Second Quarter . . . . . . . . . 3 1/2 1 3/4 First Quarter. . . . . . . . . . 4 7/8 2 3/8 16 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- The selected financial data presented below have been derived from the Company's audited consolidated financial statements for each year in the five- year period ended June 30, 1996. The information below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes which appear elsewhere in this Annual Report on Form 10-K.
YEARS ENDED JUNE 30, CONSOLIDATED STATEMENTS OF OPERATIONS DATA: ------------------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------ Revenues: Product sales . . . . . . . . . . . . . . . . . . . . . $14,151 $12,335 $ 9,246 $ 3,802 $ - Research, development, licensing fees and other . . . . 8 155 812 545 147 Investment income . . . . . . . . . . . . . . . . . . . 199 590 853 1,525 869 ------- ------- ------- ------- ------ Total revenues . . . . . . . . . . . . . . . . . . . 14,358 13,080 10,911 5,872 1,016 ------- ------- ------- ------- ------ Costs and expenses: Cost of goods sold. . . . . . . . . . . . . . . . . . . 10,394 10,153 7,875 3,288 - Research and development. . . . . . . . . . . . . . . . 1,018 4,483 8,156 6,294 4,485 Acquired research and development . . . . . . . . . . . - -- -- 750 -- Asset valuation and restructuring charges (reversal). . (1,550) 6,000 5,800 - - Selling and marketing . . . . . . . . . . . . . . . . . 2,594 3,672 3,043 1,690 412 General and administrative. . . . . . . . . . . . . . . 2,216 2,441 3,382 3,159 1,428 Interest and other. . . . . . . . . . . . . . . . . . . 514 1,425 208 95 6 ------- ------- ------- ------- ------ Total costs and expenses . . . . . . . . . . . . . . 15,186 28,174 28,464 15,276 6,331 ------- ------- ------- ------- ------ Loss before extraordinary gain . . . . . . . . . . . . . . (828) (15,094) (17,553) (9,404) (5,315) Extraordinary gain on early extinguishment of debt . . . . 241 - - - - ------- ------- ------- ------- ------ Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($587) ( $15,094) ($17,553) ($9,404) ($5,315) ------- ------- ------- ------- ------ ------- ------- ------- ------- ------ Net income (loss) per share: Loss before extraordinary gain. . . . . . . . . . . . . ($0.09) ($1.71) ($2.27) ($1.41) ($1.30) Extraordinary gain. . . . . . . . . . . . . . . . . . . 0.03 - - - - ------- ------- ------- ------- ------ Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($0.06) ($1.71) ($2.27) ($1.41) ($1.30) ------- ------- ------- ------- ------ ------- ------- ------- ------- ------ Weighted average number of common shares outstanding. . . . . . . . . . . . . . 9,070 8,839 7,748 6,664 4,086 ------- ------- ------- ------- ------ ------- ------- ------- ------- ------ CONSOLIDATED BALANCE SHEET DATA: JUNE 30, ------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------ Unrestricted and restricted cash, cash equivalents, short-term investments and marketable securities . . . $2,639 $ 7,831 $20,141 $24,576 $,32,121 Total assets . . . . . . . . . . . . . . . . . . . . . . . 10,111 18,769 33,990 31,843 33,741 Noncurrent liabilities, less current maturities. . . . . . 311 8,425 8,119 2,012 126 Stockholders' investment . . . . . . . . . . . . . . . . . 2,473 2,492 18,110 25,123 32,785
17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL Since its inception and until its 1995 restructuring program which is now substantially completed and which is discussed below, the Company has been engaged in research to develop new biological pest control products and in raising capital to support its development and commercial programs. Beginning in 1992, the Company accelerated its commercialization activities, including the establishment of manufacturing capabilities and premarketing for the Bio- Path Cockroach Control Chamber, which received marketing approval from the EPA in May 1993. In June 1993, the Company commenced sales of Bio-Path Cockroach Control Chambers to the professional pest control market. As part of the restructuring program discussed below, the Company has ceased production of the first generation Bio-Path Cockroach Control Chamber. The Company has completed formulation of a second generation product, which has not yet received EPA approval, and is seeking contractors for reduced cost toll manufacturing. The Company is currently seeking partners to market the second generation product. In June 1992, the Company entered into the Terminix Agreement for the joint development of biopesticides for termite control. In October 1994, the Company was granted EPA registration for the Company's Bio-Blast Biological Termiticide. The Company commenced commercial trials of its Bio-Blast termiticide in the first quarter of 1995 in 11 states under the terms of its development agreement with Terminix. In July 1995, the Company initiated sales of the Bio-Blast termiticide to Terminix. In November 1992, the Company acquired AGRO, an East Brunswick, New Jersey based company which designs, markets and distributes advanced technologies, products, growing systems and services for the North American intensive farming, horticulture and produce packing industries. In June 1993, the Company entered into licensing agreements with two companies for rights to develop, manufacture and distribute Nature Seal, a patented, naturally derived coating product to protect the quality of fruits and vegetables after harvest. In May 1994, the Company acquired certain net assets of AMC, an Orlando, Florida based company which provides postharvest coating products and services to the fresh fruit and vegetable markets throughout the United States, the Caribbean, Central America and South America. Concurrent with the acquisition of AMC, the Company formed EPSC to combine the AMC product line and operating unit with its existing coatings activities, which include the distribution of its Nature Seal coating products. On January 11, 1996, the Company entered into a lease termination agreement for its Worcester corporate headquarters and research and development under which the Company paid the landlord $125,000 and issued 500,000 shares of the Company's common stock with a market value of $500,000 in exchange for an immediate termination of the lease. Additionally, the Company incurred approximately $25,000 for expenses related to the completion of the transaction. After accounting for these settlement provisions, which totaled $650,000, the Company reversed $1,550,000 of accrued restructuring costs in the third quarter of fiscal 1996 that related to the accrued restructuring costs which were originally recorded in fiscal 1995 ($2,000,000) and the remaining accrued restructuring costs which were originally recorded in fiscal 1994 ($200,000). 18 In 1995, the Company recorded asset valuation and restructuring charges of $6,000,000 or $0.68 per share to write down the value of certain assets and to provide for the costs associated with the closure of the Company's facilities located in Worcester, Northborough, and Shrewsbury, Massachusetts, and for reductions in the Massachusetts based work force. The write down of assets in 1995 included a $1,946,000 non-cash charge against the Company's investment in its manufacturing, laboratory, and office property and equipment located in Massachusetts and approximately a $354,000 non-cash charge for certain other assets to their respective net realizable values. The remaining $3,700,000 of the 1995 charge consisted of accruals to provide for the costs associated with the planned facility lease settlements ($2,000,000), manufacturing plant shut down ($497,000), employee severance benefits ($1,035,000), and other contractual obligations ($168,000) related to the restructuring program adopted in 1995. At the end of fiscal 1995, the Company began the implementation of the restructuring program which is now substantially completed. The program was designed to shift the corporate focus from research and development to commercial operations in an effort to reduce operating losses and conserve cash resources. As part of the restructuring program, the Company eliminated substantially all of its Massachusetts based work force (33 positions) in the first quarter of fiscal 1996. In addition, during fiscal 1995, certain functions were moved to the Company's manufacturing facility in Northborough, Massachusetts, and the Company's space at its corporate headquarters and research and development facility in Worcester, Massachusetts, was decreased from approximately 41,000 square feet to approximately 15,000 square feet. In the first quarter of fiscal 1996, the Company closed the Worcester facility and all functions were moved to the Northborough facility. During the second quarter of fiscal 1996, the Company relocated all of its Massachusetts based operations to its East Brunswick, New Jersey facility. The Company charged costs and expenses totaling $1,674,000 against the restructuring accruals during 1996. In addition, the Company reversed $1,550,000 in accrued restructuring costs after accounting for the termination of its Worcester corporate headquarters and research and development facility lease in the third quarter of fiscal 1996. The Company has completed a major portion of its restructuring activities in fiscal 1996. In August 1994, the Company implemented a restructuring program to focus the Company's resources on product development programs with the greatest near to intermediate market potential, and to significantly reduce expense levels. As part of this restructuring program, the Company reduced its Massachusetts based work force by 29% (24 positions) and curtailed and deferred research and development activities for certain product programs. In 1994, the Company recorded asset valuation and restructuring charges of $5,800,000 or $0.75 per share to write down the value of certain assets, primarily related to its investment in the Northborough manufacturing facility, and to provide for the costs associated with the Company's consolidation of its facilities and for reductions in research and development programs and staff. The write down of assets included a $3,000,000 non-cash charge against the Company's investment in its manufacturing facility and related equipment and a $500,000 non-cash charge for certain other assets. The remaining $2,300,000 of the 1994 charge consisted of accruals to provide for the costs associated with the consolidation of the Company's corporate headquarters, research and development, and manufacturing facilities ($1,300,000) and employee severance benefits ($1,000,000). The Company paid and charged expenses totaling $1,746,000 against such restructuring accruals during 1995. The Company completed all of the employee terminations related to the 1994 restructuring program in the first half of fiscal 1995 and a portion of the facility consolidation activities in fiscal 1995. 19 The Company believes that inflation and changing prices have not had a material effect on its operations to date. 1996 COMPARED TO 1995 The Company's total revenues increased $1,278,000 or 10% to $14,358,000 in 1996 from $13,080,000 in 1995, due primarily to the Company's product sales increase of $1,816,000 or 15% to $14,151,000 in 1996 from $12,335,000 in 1995. Product sales increased at AGRO by $2,302,000, while EPSC and EcoScience had product sales decreases. The following table sets forth the Company's product sales by operating company for 1996 and 1995: (IN THOUSANDS) 1996 1995 Increase ------- ------- --------- AGRO ................ $11,094 $ 8,792 $2,302 EPSC ................ 2,882 3,018 (136) EcoScience .......... 175 525 (350) ------- ------- ------- Consolidated ........ $14,151 $12,335 $1,816 ------- ------- ------- ------- ------- -------
AGRO is the exclusive distributor in the United States and Canada of the Grodan brand of stonewool, which is an inert growing medium supplied by Grodania A/S, a Danish company. The sale of products under the distribution agreement with Grodania A/S accounted for 45%, 43%, and 59% of the Company's total product sales in 1996, 1995, and 1994, respectively. Although there are a limited number of sources of the particular growing medium products that are sold under this distribution agreement, the Company's management believes that other suppliers could provide similar products on comparable terms. A change in suppliers, however, could cause a delay in filling orders as well as a possible loss of sales, which would affect operating results adversely. In August 1995, AGRO entered into a distribution agreement with Aweta B.V., a Netherlands based company, for the exclusive right to sell Aweta B.V.'s sorting and grading products and equipment to the fruit, vegetable, and flower markets in North America, Mexico, and the Caribbean. The sale of products under the distribution agreement with Aweta B.V. accounted for 20% of the Company's total product sales in 1996. Although there are a limited number of sorting and grading equipment manufacturers in the world, the Company's management believes that other suppliers could provide equipment on comparable terms. A change in supplier, however could cause a delay in filling orders as well as a possible loss of sales which would affect operating results adversely. The Company believes that revenues under these distribution agreements will each account for more than 10% of the Company's consolidated product sales in 1997. The increase in the Company's total product sales in 1996 was offset by a decrease in research, development, and licensing fee income of $147,000 and lower investment income of $391,000. The decrease in research, development, and licensing fee income in 1996 primarily resulted from a reduction of $112,000 in license fees and product support payments received from Terminix as its contractual payment obligations were fulfilled. The decrease in investment income in 1996 resulted from a corresponding decline in the average funds available for investment during the 1996 period. 20 Cost of goods sold increased $241,000 or 2% to $10,394,000 in 1996 from $10,153,000 in 1995. In 1996, cost of goods sold at AGRO increased by $1,947,000 due to product sales increases, while cost of goods sold at EcoScience decreased $1,716,000 due to the cessation of manufacturing of the first generation Bio-Path Cockroach Control Chamber. Gross margin on product sales increased $1,575,000 or 72% to $3,757,000 in 1996 from $2,182,000 in 1995, while gross margin percentage on product sales increased to 27% in 1996 from 18% in 1995. Gross margin increased due primarily to the cessation of manufacturing of Bio-Path and related cost savings at EcoScience; and, AGRO's increase in gross margin from product sales increases, offset by a gross margin decrease at EPSC from product sales decreases. Research and development expenses decreased $3,465,000 or 77% to $1,018,000 in 1996 from $4,483,000 in 1995, due primarily to a decrease at EcoScience of $3,783,000 from the implementation of the Company's restructuring program at the close of fiscal 1995, which curtailed and deferred research and development activities for certain product programs, as well as reduced personnel and facility costs. The Company has and will continue to incur ongoing research and development expenses for its Bio-Save PostHarvest BioProtectant, Bio-Blast termiticide and other near term revenue generating opportunities. EPSC research and development expenses increased $318,000 in 1996, due primarily to additional personnel and related support expenses for the Bio-Save PostHarvest BioProtectant and other product programs. Selling and marketing expenses decreased $1,078,000 or 29% to $2,594,000 in 1996 from $3,672,000 in 1995, due primarily to the decreases in EcoScience's and EPSC's selling and marketing expenses of $860,000 and $418,000, respectively and an increase of $200,000 at AGRO. The decrease in EcoScience's selling and marketing expenses for 1996 was primarily attributable to the restructuring program initiatives discussed above. The decrease in EPSC's selling and marketing expenses for 1996 was primarily attributable to the reduction of selling and marketing department personnel and related costs during the latter part of fiscal 1995. The increase in AGRO's selling and marketing expenses was primarily due to additional personnel and related costs to support new product sales and sales increases discussed above. General and administrative expenses decreased $225,000 or 9% to $2,216,000 in 1996 from $2,441,000 in 1995, due primarily to the decreases in EcoScience's and EPSC's general and administrative expenses of $208,000 and $107,000, respectively, which was offset by an increase in such expenses for AGRO of $90,000. The decrease in EcoScience's general and administrative expenses for 1996 was primarily attributable to the restructuring program initiatives discussed above. The decrease in EPSC's general and administrative expenses for 1996 was due primarily to personnel and related cost reductions. The increase in AGRO's general and administrative expenses was primarily due to increased business activity and related support costs. Interest and other expenses decreased $911,000 or 64% to $514,000 in 1996 from $1,425,000 in 1995 due primarily to the decrease in interest expense which resulted from the lower average level of long-term debt and capital lease obligations outstanding during 1996. During 1995, the Company had also incurred approximately $211,000 of expenses in connection with the exploration and evaluation of its various strategic alternatives which included potential mergers, acquisitions, divestitures, joint ventures, and other transactions. In connection with the acquisition of AMC in May 1994, the Company issued a promissory note in the principal amount of $430,000 to the shareholder of AMC. In February 1996, the Company settled the remaining balance of the promissory note and other acquisition related 21 liabilities totaling $501,000 for $251,000, excluding $9,000 of related transaction expenses, which resulted in an extraordinary gain on the early extinguishment of debt of $241,000 or $0.03 per share with no related income tax effect. The Company incurred a loss before extraordinary gain of $828,000 or $0.09 per share in 1996. The Company incurred a net loss of $587,000 or $0.06 per share in 1996 compared to a net loss of $15,094,000 or $1.71 per share in 1995. Excluding the reversal of the accrued restructuring costs and the extraordinary gain on early extinguishment of debt, the Company incurred a loss of $2,378,000 or $0.26 per share in 1996. Excluding the asset valuation and restructuring charges, the Company incurred a loss of $9,094,000 or $1.03 per share in 1995. 1995 COMPARED TO 1994 The Company's total revenues increased $2,169,000 or 20% to $13,080,000 in 1995 from $10,911,000 in 1994, due primarily to the inclusion of a full year of operating results of EPSC in the 1995 period. The Company's product sales increased $3,089,000 or 33% to $12,335,000 in 1995 from $9,246,000 in 1994 due primarily to the increases in sales by EPSC and AGRO of $2,841,000 and $229,000, respectively. The following table sets forth the Company's product sales by operating company for 1995 and 1994: (IN THOUSANDS 1995 1994 Increase ------- ------- --------- AGRO ................ $ 8,792 $8,563 $ 229 EPSC ................ 3,018 177 2,841 EcoScience .......... 525 506 19 ------- ------ ------ Consolidated ........ $12,335 $9,246 $3,089 ------- ------ ------ ------- ------ ------
The increase in the Company's total product sales in 1995 was offset by a decrease in research, development, and licensing fee income of $657,000 and lower investment income of $263,000. The decrease in research, development, and licensing fee income in 1995 primarily resulted from a reduction of $363,000 in license fees and product support payments received from Terminix as its contractual payment obligations were fulfilled. The decrease in investment income in 1995 resulted from a corresponding decline in the average funds available for investment during the 1995 period. Cost of goods sold increased $2,278,000 or 29% to $10,153,000 in 1995 from $7,875,000 in 1994 due primarily to the inclusion of a full year of operating results of EPSC which accounted for $1,519,000 of this increase. In addition, the Company incurred higher than expected production costs for its Bio-Path Cockroach Control Chamber in 1995 which accounted for $719,000 of this increase in cost of goods sold. Gross margin on product sales increased $811,000 or 59% to $2,182,000 in 1995 from $1,371,000 in 1994, while gross margin percentage on product sales increased to 18% in 1995 from 15% in 1994 due primarily to the inclusion of a full year of operating results of EPSC in the 1995 period. As previously discussed, the Company has ceased any further development and production of its first generation Bio-Path Cockroach Chamber as of June 30, 1995. 22 Research and development expenses decreased $3,673,000 or 45% to $4,483,000 in 1995 from $8,156,000 in 1994. Approximately $1,631,000 of the decrease in research and development expenses was due to the closure of the Company's process development facility, and the termination of related activities at the Company's Amherst, Massachusetts pilot plant in June 1994. The remaining portion of the decrease was primarily due to the major reductions in research and development activities and personnel as part of the Company's restructuring program implemented in August 1994. Selling and marketing expenses increased $629,000 or 21% to $3,672,000 in 1995 from $3,043,000 in 1994. The increase in selling and marketing expenses was primarily attributable to the inclusion of a full year of operating results of EPSC in the 1995 period, which accounted for $1,299,000 of this increase, and to additional personnel costs incurred by AGRO of $103,000, which were offset by reductions in personnel, travel, consulting, and other expenses of $773,000 at EcoScience. General and administrative expenses decreased $941,000 or 28% to $2,441,000 in 1995 from $3,382,000 in 1994. The decrease in general and administrative expenses was primarily due to reductions in personnel and facility related costs of approximately $1,069,000, which resulted primarily from the restructuring program implemented in August 1994, and to a decrease in professional service fees of approximately $343,000 at EcoScience. The decrease in general and administrative expenses in 1995 was offset by the inclusion of a full year of operating results of EPSC which added approximately $496,000 to general and administrative costs. Interest and other expenses increased $1,217,000 to $1,425,000 in 1995 from $208,000 in 1994 due primarily to the increase in interest expense which resulted from the higher level of long term debt and capital lease obligations outstanding during 1995 and because certain interest costs were capitalized as part of the Company's construction activities at the Northborough manufacturing facility in 1994. The Company also incurred approximately $238,000 of expenses during 1995 in connection with the exploration and evaluation of its various strategic alternatives which included potential mergers, acquisitions, divestitures, joint ventures, and other transactions. In addition, the Company recorded a gain of $150,000 for the settlement of certain debt obligations at less than their carrying values in 1994. The Company incurred a net loss of $15,094,000 or $1.71 per share in 1995 compared to a net loss of $17,553,000 or $2.27 per share in 1994. Excluding the asset valuation and restructuring charges, the Company incurred a loss of $9,094,000 or $1.03 per share in 1995 compared to a loss of $11,753,000 or $1.52 per share in 1994. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company's cash expenditures have exceeded its revenues. The Company's operations have been funded through public and private placements of its equity securities, bank loans and lease financings, revenues from product sales, licensing, collaborative research and development arrangements, and investment income. In conjunction with the asset valuation and restructuring charges recorded in 1995, the Company implemented and substantially completed in fiscal 1996 a program to reduce its operating losses and to conserve its cash resources for use in the Company's operating businesses. This restructuring program has significantly reduced research and development and general and administrative costs from historical levels. In 1995, the Company funded $1,174,000 23 of accrued restructuring costs that had been recorded in 1994 and 1995. Additionally, accrued restructuring costs were reduced by changes related to the operating lease termination, discussed above, in the amount of $2,050,000, consisting of a $1,550,000 restructuring cost reversal and $500,000 for the issuance of common stock. The balance of accrued restructuring costs, $1,030,000 (total current and noncurrent portions), as of June 30, 1996, is expected to be funded in 1997 and beyond. The Company expects to incur administrative, business development and commercialization expenditures in the future as it advances the development, manufacturing, and marketing of its Bio-Blast and Bio-Save products. In addition, the Company expects to incur incremental costs associated with its plans to expand product lines at AGRO. The Company may also use cash to acquire technology, products or companies that support the strategy of the Company. Cash and cash equivalents were $734,000 at June 30, 1996, compared to $481,000 at June 30, 1995. Unrestricted and restricted cash, cash equivalents, and short-term investments totaled $2,639,000, compared to $7,831,000 at June 30, 1995. Cash flows used for operating activities totaled $2,651,000 and principally represented the $1,174,000 expended for costs accrued as part of the Company's restructuring program adopted in 1995. Cash flows used by financing activities totaled $2,892,000 in 1996, which consisted principally of payments of $2,900,000 on debt and capital leases. Cash flows provided by investment activities in 1996 totaled $5,790,000 and included the proceeds from the sales of short-term investments of $6,159,000 and property and equipment of $368,000, and a decrease in other noncurrent assets of $95,000, which were offset by purchases of short-term investments of $705,000 and property and equipment of $127,000. The Company's working capital and current ratio were ($308,000) and 0.9 to 1, respectively, at June 30, 1996, compared to $3,347,000 and 1.4 to 1, respectively, at June 30, 1995. The Company's working capital has increased significantly since June 30, 1996, as a result of the subsequent equity offering and lease settlement transactions which occurred on September 27, 1996, and are discussed further below and in Notes 4 and 11 to the Notes to the Consolidated Financial Statement. Giving effect to the subsequent equity offering and lease settlement transactions, the working capital and current ratio would have been $1,119,000 and 1.2 to 1 (unaudited), respectively, if these transactions had occured on June 30, 1996. On June 30, 1994, the Company sold certain manufacturing equipment and leasehold improvements with an original cost of approximately $3,800,000 to a financing company. The Company, in turn, leased the equipment and improvements back from the financing company. The lease was accounted for as a capitalized lease obligation. The lease bore interest at an effective rate of approximately 14% and has been payable in monthly installments of principal and interest of approximately $88,000 over 50 months. On October 11, 1995, the Company and the financing company entered into an agreement which modified the lease pursuant to which the financing company waived a payment default which occurred in September 1995, in exchange for the Company's advance payment of approximately $1,135,000 which was applied to satisfy the total amount of the obligation outstanding under rental schedule No. 2 to the lease. In addition, the Company issued to the financing company a warrant to purchase 100,000 shares of common stock at an exercise price of $3.00 per share. The Company continued to make the remaining monthly payments of approximately $55,000 under rental schedule No. 1. In August 1996, the Company entered into a lease settlement agreement with the financing company pursuant to which the Company paid $880,000, from the proceeds of an equity offering discussed below, to satisfy the remaining capital lease obligation under rental schedule No. 1 of approximately $1,248,000 on September 27, 1996. Accordingly, the Company reclassified $880,000 from "long-term debt and capital leases" to "current maturities of noncurrent liabilities" in the consolidated balance sheet to reflect the impact of this agreement as of June 30, 1996. The present value of the minimum lease payments under this capital lease obligation was $1,390,000 as of June 30, 1996. In May 1993, the Company entered into a 15 year lease agreement for a manufacturing facility in Northborough, Massachusetts. This lease was accounted for as a capital lease, had borne interest at 24 an effective annual rate of approximately 13% and had been payable in monthly installments of principal and interest of approximately $44,000. The present value of the minimum lease payments under this capital lease obligation was $3,525,000 at September 29, 1995. On September 29, 1995, the Company and the lessor entered into a lease termination agreement under which the Company paid the lessor, on October 31, 1995, approximately $195,000; released to the lessor approximately $305,000 held in an escrow account; and agreed to make an advance lease payment for the period October 1995 through December 1995 to the lessor in exchange for an early termination and release from the remaining lease obligations effective December 31, 1995. The effect of this lease termination on the consolidated financial statements during fiscal 1996 was to reduce assets under capital leases by $2,936,000 and capital lease obligations by $3,500,000, and to increase accrued restructuring costs by $73,000. These transactions had a non-cash effect on the Company's consolidated financial statements for 1996. The Company issued a promissory note in the amount of $430,000 in connection with the acquisition of AMC in May 1994. This promissory note was payable in 16 equal quarterly installments plus accrued interest calculated at the prime rate (8.25% at June 30, 1996) plus 1%, not to exceed 9%. This promissory note was part of the EPSC debt settlement discussed above in the Results of Operations section. In October 1994, the Company established a $250,000 line of credit with a bank for the purchase of equipment. Funds borrowed under that line had been payable over 36 months commencing February 5, 1995 at an interest rate of prime plus 2%. In addition, the Company established a $1,500,000 revolving line of credit with the same bank for AGRO under which borrowings had borne interest at a rate of prime plus 1% and is secured by all the assets of AGRO and the outstanding common stock of AGRO owned by the Company. The loan proceeds from the revolving line of credit have been used to finance the working capital needs of AGRO and any principal amounts outstanding were originally due on January 5, 1996. As of June 30, 1996, the Company had principal obligations of $1,041,000 under the revolving line of credit. Under the terms of the credit agreements, the Company was required to maintain a minimum consolidated tangible net worth of $5,000,000 ("Net Worth Covenant"), a consolidated quick asset to current liabilities ratio of 1.50 to 1 through June 30, 1995 and 1.25 to 1 thereafter ("Quick Ratio Covenant"), and a minimum aggregate cash, cash equivalents and short-term investment balance of $5,000,000 ("Cash Covenant"). As of June 30, 1995 and through October 5, 1995, the Company was in violation of the Net Worth Covenant and Quick Ratio Covenant. On October 5, 1995, the Company and the bank entered into an amendment to the revolving and equipment lines of credit agreements pursuant to which the bank waived the violations of Net Worth and Quick Ratio Covenants at June 30, 1995 and through October 5, 1995, eliminated the Net Worth and Quick Ratio Covenants for compliance periods commencing after June 30, 1995, and reduced the Cash Covenant from $5,000,000 to $1,000,000 for compliance periods commencing after June 30, 1995. In addition, the amendment to the credit agreements required repayment of all outstanding obligations under the equipment line of credit (approximately $194,000 as of October 5, 1995); increased the interest rate on borrowings under the revolving line of credit to prime (8.25% at June 30, 1996) plus 1.5% effective October 1, 1995; and expanded the collateral requirements to include a certificate of deposit in the amount of $700,000 to be held by the bank as partial cash collateral for the borrowings currently outstanding under the revolving line of credit. Any additional borrowings under the revolving line of credit will require 67% cash collateral coverage in the form of a certificate of deposit to be held by the bank. The amendment also extended the expiration date of the credit agreement from January 5, 1996 to July 5, 1996 and any principal amounts outstanding, together with accrued interest thereon were due on such date. 25 On July 5, 1996, September 5, 1996 and October 5, 1996, the Company and the bank entered into three amendments to the revolving line of credit agreement pursuant to which the bank extended the expiration date of the credit agreement from July 5, 1996 to December 15, 1996 on the same terms, and any principal amounts outstanding, together with accrued interest thereon, are due on December 15, 1996. The Company is currently negotiating with the bank certain modifications to the terms of the revolving line of credit which include, but are not limited to, an increase in the borrowing capacity, elimination of the cash collateral coverage requirement, financial covenants, and extension of the repayment and expiration dates of the credit agreement. In addition, the Company has received a term sheet from a financial institution to replace the existing revolving line of credit with a proposed credit facility structure that meets the Company's requirements for the foreseeable future. The Company believes that it will obtain either a modification and extension to the existing revolving line of credit agreement or secure another financing arrangement which has terms no less favorable than those contained in the current revolving line of credit agreement in fiscal 1997. On January 11, 1996, the Company entered into a lease termination agreement for its Worcester corporate headquarters and research and development facility, under which the Company paid the landlord $125,000 and issued 500,000 shares of the Company's common stock with a market value of $500,000 on January 22, 1996, in exchange for an immediate termination of the lease. Additionally, the Company incurred approximately $25,000 for expenses related to the completion of the transaction. After accounting for these settlement provisions, which totaled $650,000, the Company reversed $1,550,000 of accrued restructuring costs in the third quarter of fiscal 1996 that related to accrued restructuring costs, which were originally recorded in fiscal 1995 ($2,000,000) and the remaining accrued restructuring costs which were originally recorded in fiscal 1994 ($200,000). On September 27, 1996, the Company sold 1,040,000 unregistered shares of common stock in a Regulation D and Company offering. Net proceeds realized from the equity offering totaled $1,119,000 after placement agent fees and expenses and Company expenses totaling $181,000. On September 27, 1996, pursuant to a lease settlement agreement dated August 8, 1996, between the Company and its financing company, the Company paid $880,000 and returned certain leased equipment with a net book value of $328,000 to the financing Company as final satisfaction of its capital lease obligation under rental schedule No. 1, as discussed in Note 4(b) to the Company's consolidated financial statements. The Company plans to finance the cash needs discussed above principally with existing cash reserves, represented by approximately $734,000 of unrestricted cash and cash equivalents, $700,000 of short-term investments and $1,205,000 of restricted cash and short-term investments as of June 30, 1996. The Company believes that such cash reserves, along with revenues from product sales, and funds available under the extended or potentially modified revolving line of credit or replacement financing arrangement, as discussed above, will be sufficient throughout the next 12 months to finance the Company's working capital needs, planned capital expenditures, restructuring program initiatives and related obligations, and to service its indebtedness. The Company believes it may need to raise additional funds to finance its ongoing operations after June 30, 1997, although there can be no assurances that such funds will be available on terms favorable to the Company, if at all. The Company is continuing to explore potential mergers, joint ventures, and various other strategic options, which are aimed at enhancing stockholder value and the long- term commercial viability of the Company. 26 SEASONALITY The timing of the Company's operating revenues may vary as a result of the seasonal nature of its businesses. In addition, operating revenues may be affected by the timing of new product launches, acquisitions, sales orders, and other economic factors. Operating revenues may be concentrated in the Company's second and third quarters as a result of the North American growing season. Although the Company believes that the historical trend in quarterly revenues for the second and third quarters of each year are generally higher than the first and fourth quarters, there can be no assurance that this will occur in future periods. Accordingly, quarterly or other interim results should not be considered indicative of results to be expected for any other quarter or for the full fiscal year. FORWARD LOOKING STATEMENTS This report contains forward looking statements that describe the Company's business prospects. These statements involve risks and uncertainties including, but not limited to, regulatory uncertainty, level of demand for the Company's products and services, product acceptance, industry wide competitive factors, seasonality factors, timing of completion of major equipment projects and political, economic or other conditions. Furthermore, market trends are subject to changes which could adversely affect future results. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and supplementary consolidated quarterly financial data for the years ended June 30, 1996, 1995, and 1994, are set forth on pages 28 through 53. 27 ECOSCIENCE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30, -------------------------------- 1996 1995 -------- -------- ASSETS Current assets: Cash and cash equivalents ............... $ 734 $ 481 Short-term investments .................. 700 6,150 Restricted cash and short-term investment ............................. 1,205 500 Accounts receivable, less reserves of $118 and $186 at June 30, 1996 and 1995, respectively ........................... 1,552 1,961 Interest receivable ..................... 32 84 Inventories ............................. 2,001 1,525 Other current assets .................... 795 498 -------- -------- Total current assets ................. 7,019 11,199 -------- -------- Property and equipment, net ................. 998 4,478 Restricted cash equivalents ................. - 700 Intangible assets, net ...................... 1,949 2,152 Other noncurrent assets ..................... 145 240 -------- -------- Total assets ......................... $ 10,111 $ 18,769 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities: Current maturities of noncurrent liabilities .......................... $ 2,441 $ 2,597 Accounts payable ...................... 2,347 1,946 Accrued restructuring costs ........... 730 1,754 Accrued expenses and other current liabilities .......................... 1,809 1,555 -------- -------- Total current liabilities ......... 7,327 7,852 -------- -------- Noncurrent liabilities: Long-term debt and capital leases, less current maturities .............. 11 5,693 Other long-term liabilities ........... 300 2,732 -------- -------- Total noncurrent liabilities ...... 311 8,425 -------- -------- Commitments and contingencies ............. - - Stockholders' investment: Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued and outstanding ......... - - Common stock, $.01 par value, 25,000,000 shares authorized; 9,342,177 and 8,840,511 shares issued and outstanding at June 30, 1996 and 1995, respectively ......... 93 88 Additional paid-in capital ................ 56,077 55,581 Accumulated deficit ....................... (53,697) (53,110) Unrealized loss on short-term investments . - (67) -------- -------- Total stockholders' investment .... 2,473 2,492 -------- -------- Total liabilities and stockholders' investment ....................... $ 10,111 $ 18,769 -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 28 ECOSCIENCE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Years Ended June 30, --------------------------------------------------- 1996 1995 1994 -------- -------- --------- Revenues: Product sales ........................................ $ 14,151 $ 12,335 $ 9,246 Research, development, licensing fees and other ...... 8 155 812 Investment income .................................... 199 590 853 -------- -------- ------- Total revenues ................................. 14,358 13,080 10,911 -------- -------- ------- Costs and expenses: Cost of goods sold ................................... 10,394 10,153 7,875 Research and development ............................. 1,018 4,483 8,156 Asset valuation and restructuring charges (reversal) . (1,550) 6,000 5,800 Selling and marketing ................................ 2,594 3,672 3,043 General and administrative ........................... 2,216 2,441 3,382 Interest and other ................................... 514 1,425 208 -------- -------- ------- Total costs and expenses ....................... 15,186 28,174 28,464 -------- -------- ------- Loss before extraordinary gain ........................ (828) (15,094) (17,553) Extraordinary gain on early extinguishment of debt .... 241 - - -------- -------- ------- Net loss .............................................. ($587) ($15,094) ($17,553) -------- -------- ------- -------- -------- ------- Net income (loss) per share: Loss before extraordinary gain .................... ($0.09) ($1.71) ($2.27) Extraordinary gain ................................ 0.03 - - -------- -------- ------- Net loss .......................................... ($0.06) ($1.71) ($2.27) -------- -------- ------- -------- -------- ------- Weighted average number of common shares outstanding ........................ 9,070 8,839 7,748 -------- -------- -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE IN AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 29 ECOSCIENCE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (In thousands, except share amounts) COMMON STOCK UNREALIZED ----------------------- ADDITIONAL LOSS ON TOTAL NUMBER OF $.01 PAID-IN ACCUMULATED SHORT-TERM STOCKHOLDERS' SHARES PAR VALUE CAPITAL DEFICIT INVESTMENTS INVESTMENT --------- --------- ---------- ----------- ----------- ------------- Balance at June 30, 1993 .................... 6,786,291 $68 $45,518 ($20,463) $ - $ 25,123 Exercise of stock options ................... 44,798 - 201 - - 201 Compensation associated with common stock grants ............................... 5,790 - 48 - - 48 Exercise of common stock warrants ........... 39,354 - 11 - - 11 Sale of common stock, net of issuance costs of $440 .............................. 1,763,050 18 9,485 - - 9,503 Issuance of common stock for purchase of American Machinery Corporation .......... 202,553 2 1,024 - - 1,026 Change in unrealized loss on short-term investments ..................... - - - - (249) (249) Net loss .................................... - - - (17,553) - (17,553) --------- --- ------- ------- ---- -------- Balance at June 30, 1994 .................... 8,841,836 88 56,287 (38,016) (249) 18,110 Exercise of stock options ................... 6,082 - 1 - - 1 Retirement of common stock .................. (7,407) - - - - - Cash settlement of price guarantee for common stock issued for purchase of American Machinery Corporation ............. - - (707) - - (707) Change in unrealized loss on short-term investments ..................... - - - - 182 182 Net loss .................................... - - - (15,094) - (15,094) --------- --- ------- ------- ---- -------- Balance at June 30, 1995 .................... 8,840,511 88 55,581 (53,110) (67) 2,492 Exercise of stock options ................... 1,666 - 1 - - 1 Issuance of common stock in settlement of lease obligation ............ 500,000 5 495 - - 500 Change in unrealized loss on short-term investments .................... - - - - 67 67 Net loss .................................... - - - (587) - (587) --------- --- ------- ------- ---- -------- Balance at June 30, 1996 .................... 9,342,177 $93 $56,077 ($53,697) $ - $ 2,473 --------- --- ------- ------- ---- -------- --------- --- ------- ------- ---- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 30 ECOSCIENCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended June 30, ----------------------------------------- 1996 1995 1994 -------- ---------- ---------- Cash flows from operating activities: Net loss ..................................................... ($587) ($15,094) ($17,553) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization ............................ 580 1,125 1,059 Gain on sale of property and equipment ................... (74) - - Gain on settlement of accounts payable ................... (51) - - Loss on sale of investments .............................. 58 23 21 Non-cash gain on settlement of debt ...................... (241) - (150) Asset valuation and restructuring charges (reversal) ..... (1,550) 6,000 5,800 Deferred and other non-cash compensation ................. - - 48 Foreign exchange loss (gain) ............................. (13) 58 71 Deferred rent ............................................ - (38) 177 Changes in current assets and liabilities, net of effect of companies acquired: Accounts and interest receivable ..................... 461 478 (779) Inventories .......................................... (476) (39) (363) Other current assets ................................. (297) 82 (72) Accounts payable and accrued expenses ................ 713 (1,808) 1,329 Accrued restructuring costs .......................... (1,174) (1,746) - ------- -------- -------- Net cash used for operating activities ................... (2,651) (10,959) (10,412) ------- -------- -------- Cash flows from investing activities: Purchases of property and equipment, net ..................... (127) (725) (3,918) Proceeds from sales of property and equipment ................ 368 56 192 Payments for purchases of companies, net of cash acquired ....................................... - (707) (488) Purchases of short-term investments and marketable securities .................................. (705) (1,494) (23,960) Proceeds from sales of short-term investments and marketable securities .................................. 6,159 5,265 34,113 Decrease (increase) in other noncurrent assets ............... 95 (1,066) (296) ------- -------- -------- Net cash provided by investing activities ................ 5,790 1,329 5,643 ------- -------- -------- Cash flows from financing activities: Proceeds from sale of common stock and exercise of stock options .................................. 1 1 9,704 Proceeds from long-term debt ................................. 7 2,567 5,800 Payments on long-term debt and capital leases ............... (2,900) (2,278) (4,978) ------- -------- -------- Net cash (used for) provided by financing activities ....... (2,892) 290 10,526 ------- -------- -------- Increase (decrease) in cash and cash equivalents before effect of exchange rate changes on cash ...................... 247 (9,340) 5,757 Effect of exchange rate changes on cash ........................ 6 (65) (18) ------- -------- -------- Increase (decrease) in cash and cash equivalents ............... 253 (9,405) 5,739 Cash and cash equivalents at beginning of period ............... 481 9,886 4,147 ------- -------- -------- Cash and cash equivalents at end of period ..................... $ 734 $ 481 $ 9,886 ------- -------- -------- ------- -------- -------- Total unrestricted and restricted cash, cash equivalents and short-term investments at end of period ...................... $ 2,639 $7,831 $20,141 ------- -------- -------- ------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 31 ECOSCIENCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 1. OPERATIONS EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries (collectively, the "Company"), Agro Dynamics, Inc. and Agro Dynamics Canada Inc. (collectively, "AGRO") and EcoScience Produce Systems Corp. ("EPSC") are engaged in the development and commercialization of natural pest control products, naturally derived coatings to preserve food quality and extend the shelf life of fruits and vegetables, and the marketing and distribution of advanced technologies, products, growing systems and services for the intensive farming, horticulture and produce packing industries. The Company derives a major portion of its revenues from the sale of growing medium products to the North American intensive farming and horticulture industries, and sorting and grading equipment to the produce packing industries, and to a lesser extent from the sale of postharvest coating products to the fresh fruit and vegetable markets throughout the western hemisphere. The Company historically has devoted substantially all of its efforts toward new product research and development, and the manufacture, marketing and distribution of products developed, acquired or licensed. Substantially all revenues generated by the Company prior to the acquisition of AGRO were from collaborative research and development arrangements and investment income. The Company introduced its first two products, the Bio-Path Cockroach Control Chamber and Nature Seal, in June 1993. In March 1995, the Company began marketing its third product, Bio-Save PostHarvest BioProtectant. In August 1995, the Company introduced its fourth product, Bio-Blast termiticide. The Company is subject to a number of risks similar to those of other companies in similar stages of development, including dependence on key individuals, competition from other products and companies, the necessity to develop, register, and manufacture commercially usable products, the ability to achieve profitable operations and the need to raise additional funds through public or private debt or equity financing. At the close of fiscal 1995, the Company adopted and began implementation of a restructuring program to shift the corporate focus from research and development activities to commercial operations in an effort to reduce operating losses and conserve cash reserves. Under the restructuring program, the Company eliminated substantially all of its Massachusetts based work force, closed its manufacturing facility located in Northborough, Massachusetts, and relocated its corporate headquarters and operations to AGRO's East Brunswick, New Jersey facility during the second quarter of fiscal 1996. As part of the restructuring program, the Company has ceased production of the first generation Bio-Path Cockroach Control Chamber. The Company has completed formulation of a second generation product, which has yet received EPA approval, and is seeking contractors for reduced cost toll manufacturing. The Company is currently seeking partners to market the second generation product. The Company believes that the impact of the restructuring program has significantly reduced its working capital needs such that its cash and short- term investments as of June 30, 1996, together with the proceeds from the equity offering subsequent to June 30, 1996, funds available under its existing or potential replacement revolving line of credit, along with revenues from product sales will be sufficient to finance the Company's working capital needs for at least the next twelve months. At such time, the Company believes that it may need to raise additional funds through public or private debt or equity financings. Although there can be no assurances that such funds will be available on terms favorable to the Company, if at all. The 32 Company is continuing to explore potential mergers, joint ventures, and various other strategic options, which are aimed at enhancing stockholder value and the long-term commercial viability of the Company. See Notes 4, 8 and 11 for further discussion of the Company's restructuring program and subsequent events. 2. ACQUISITIONS (A) AMERICAN MACHINERY CORPORATION In May 1994, the Company acquired certain assets and assumed certain liabilities of American Machinery Corporation ("AMC"), an Orlando, Florida based company which provides postharvest coating products and services to the fresh fruit and vegetable markets throughout the United States, the Caribbean, Central America and South America. Concurrent with the acquisition of AMC, the Company formed EPSC to combine the AMC product line and operating unit with its coating activities, which included the distribution of Nature Seal coating products. The initial purchase price for AMC consisted of $419,000 in cash (including acquisition related costs), a promissory note in the principal amount of $430,000 and 202,553 shares of the Company's common stock with a market value of $1,026,000, as well as the assumption of liabilities totaling $304,000. The acquisition agreement provided for additional payments of up to $300,000 based upon the attainment of certain annual and cumulative revenue milestones through December 31, 1997. The Company accrued such additional consideration and increased goodwill by the same amount at the acquisition date. The initial financial performance milestone was achieved as of December 31, 1994, and $68,000 was paid to AMC and charged against the purchase accrual in June 1995. In addition, the acquisition agreement provided that at the end of a four month period following the effective date (December 2, 1994) of a registration statement filed with the Securities and Exchange Commission (the "Commission") registering the 202,553 shares of common stock issued in connection with the purchase of AMC, the Company was obligated to pay AMC in cash the amount by which the fair market value of the 202,553 shares of common stock as of the date of the acquisition ($1,026,000) exceeded the sum of the net proceeds received by AMC from the sale of such shares during the four month period ($319,000). In April 1995, the Company paid $707,000 to AMC in satisfaction of this obligation and reduced "additional paid-in capital" by the same amount. The acquisition has been accounted for as a purchase in accordance with Accounting Principles Board Opinion ("APBO") No. 16, "Business Combinations." Accordingly, the results of operations have been included in the accompanying consolidated financial statements from the date of acquisition. The Company allocated approximately $1,082,000 of the total purchase price to certain assets acquired. In February 1996, the Company settled the remaining outstanding balance under the promissory note and additional consideration liabilities related to the acquisition which together totaled $501,000 for $251,000. As part of this settlement, the Company also issued a warrant to purchase 50,000 shares of its common stock at $2.00 per share to the shareholder of AMC. See Note 4 for further discussion of the AMC settlement. (B) AGRO DYNAMICS, INC. In November 1992, the Company acquired all of the outstanding capital stock of AGRO, an East Brunswick, New Jersey based company which markets and distributes advanced technologies, products, growing systems and services to the North American intensive farming, horticulture and produce packing industries. The initial purchase price for AGRO consisted of cash and shares of the Company's common stock which totaled $2,184,000. The acquisition agreement also provided for additional payments of up to $900,000 based upon the attainment by AGRO of certain cumulative 33 earnings milestones ranging from $1,250,000 (at which level no additional payments are due) to $1,700,000 (at which level the entire additional payment is due) over a 39 month period from October 1, 1992 to December 31, 1995. The initial financial performance milestone was achieved as of December 31, 1993, and correspondingly, the Company recorded additional consideration of $68,000 for the acquisition, as reflected in the consolidated financial statements for the year ended June 30, 1994. The second and third financial performance milestones were not achieved as of December 31, 1994 and 1995, respectively. The acquisition was accounted for as a purchase in accordance with APBO No. 16. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of EcoScience and its wholly-owned subsidiaries, AGRO and EPSC. All material intercompany transactions and balances have been eliminated in consolidation. (B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (C) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash, cash equivalents and short-term investments consist of highly liquid investments and are stated at the lower of cost or market value. Cash and cash equivalents consist of investments with original maturities of less than 90 days. Short-term investments have maturities greater than 90 days and such securities are classified as available for sale in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company uses the specific identification method in determining the cost basis of short-term investments and marketable securities, and in computing any realized gains or losses from the sale of such securities. Short-term investments are stated at fair market value, net of unrealized holding losses of $0 and $67,000 at June 30, 1996 and 1995, respectively. Net realized losses on short-term investments and marketable securities were $58,000, $23,000, and $21,000 in 1996, 1995, and 1994, respectively. 34 The balances of cash and cash equivalents, and short-term investments consist of the following: (IN THOUSANDS) June 30, -------------------- 1996 1995 -------- -------- CASH AND CASH EQUIVALENTS: Cash ................................... $ 508 $ 471 Bond mutual funds ...................... - 3 Money market funds ..................... 226 - United States Government obligations ... - 7 ------ ------ $ 734 $ 481 ------ ------ ------ ------ SHORT-TERM INVESTMENTS: United States Government obligations ... $ 700 $6,150 ------ ------ ------ ------ RESTRICTED CASH AND SHORT-TERM INVESTMENT: Cash in money market account .......... $ 80 $ 80 Certificate of deposits ............... 1,125 420 ------ ------ $1,205 $ 500 ------ ------ ------ ------
The aggregate fair value, gross unrealized holding gain and loss, amortized cost, and average maturity for the Company's short-term investments held at June 30, 1996 and 1995, are presented below: (IN THOUSANDS) Fair Gross Unrealized Amortized Value Holding Gain and (Loss) Cost ------ ----------------------- --------- AT JUNE 30, 1996: United States Government obligations ... $ 700 $ - $ - $ 700 ------ ---- ---- ------ ------ ---- ---- ------ (Matures June 30, 1996) AT JUNE 30, 1995: United States Government obligations ... $6,150 $ 6 $ (73) $6,217 (Average maturity of 9.6 months) ------ ---- ---- ------ ------ ---- ---- ------ Certificate of Deposit ................. $ 420 $ - $ - $ 420 (Matured December 31, 1995) ------ ---- ---- ------ ------ ---- ---- ------
The Company has a certificate of deposit in the amount of $425,000 which has been pledged as security to the issuing bank for the payment or performance of any or all obligations that may arise under the terms of an outstanding standby letter of credit in the amount of $400,000. In addition, the Company is required to maintain a minimum cash balance of $80,000 in a money market account under the terms of its revolving line of credit agreement with a bank. (D) CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, short-term investments, accounts receivable, and other receivables. The Company primarily invests its available funds into United States Government securities as well as investments with high quality financial institutions. The Company performs 35 ongoing evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains reserves and allowances for potential credit losses; which to date, such credit losses have been insignificant and within management's expectations. As of June 30, 1996, the Company had cash and term deposits with certain banks which exceeded the United States Federal Deposit Insurance Corporation ("FDIC") insurance limit for such deposits by approximately $1,210,000, and cash and cash equivalents in the amount of $251,000 in a bank in Canada, where there is no deposit insurance. (E) INVENTORIES Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following: (IN THOUSANDS) June 30, ------------------------- 1996 1995 --------- -------- Raw materials ........................... $ 226 $ 43 Work-in-process ......................... - 160 Finished goods .......................... 1,775 1,322 ------ ------ $2,001 $1,525 ------ ------ ------ ------
Work-in-process and finished goods inventories include material, labor and manufacturing overhead. (F) OTHER CURRENT ASSETS Other current assets consist of the following:
(IN THOUSANDS) June 30, ------------------ 1996 1995 ------ ------ Prepaid insurance .................. $ 34 $ 82 Prepaid equipment project costs .... 639 - Facility lease deposit in escrow ... - 296 Non-trade receivables .............. 25 49 Other .............................. 97 71 ---- ---- $795 $498 ---- ---- ---- ----
36 (G) PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: (IN THOUSANDS) June 30, --------------------- 1996 1995 -------- ---------- Laboratory equipment . . . . . . . . . . . . . . $ 990 $ 951 Furniture, fixtures and equipment. . . . . . . . 1,543 1,471 Leasehold improvements . . . . . . . . . . . . . 61 564 Assets under capital leases. . . . . . . . . . . 585 4,115 ------- ------- 3,179 7,101 Less accumulated depreciation and amortization . (2,181) (2,623) ------- ------- $ 998 $ 4,478 ------- ------- ------- ------- The Company provides for depreciation and amortization using the declining balance and straight-line methods by charges to operations in amounts estimated to allocate the cost of these assets over their useful lives as follows: Classification Estimated Useful Life - -------------- ---------------------- Laboratory equipment . . . . . . . . . . . 5 Years Furniture, fixtures and equipment. . . . . 5-7 Years Leasehold improvements . . . . . . . . . . Life of Lease Assets under capital leases. . . . . . . . 3-25 Years Leasehold improvements are amortized over the term of the lease or the useful life of the asset, whichever is shorter. The Company leases certain production and laboratory equipment under a capital lease agreement. Accumulated amortization for assets under capital leases totaled $257,000 and $760,000 at June 30, 1996 and 1995, respectively. The property and equipment costs stated above are net of asset valuation charges of $1,946,000 and $3,000,000 in 1995 and 1994, respectively, relating to the Company's restructuring programs described in Notes 1, 4 and 8. As of June 30, 1996, the Company had certain property and equipment with a net book value of approximately $328,000 which is intended to be disposed of as part of the restructuring program adopted in fiscal 1995. (H) INTANGIBLE ASSETS Intangible assets consist primarily of goodwill and other intangible assets resulting from acquisitions accounted for using the purchase method of accounting. Goodwill is amortized using the straight-line method over 20 years. Other intangible assets relating to acquired businesses consist principally of amounts attributable to distribution agreements and other deferred costs. The amortization for distribution agreements and other assets is on a straight-line basis over five years. Goodwill, net of accumulated amortization, was $1,815,000 and $1,919,000 at June 30, 1996 and 1995, respectively. The accumulated amortization of goodwill and other intangible assets totaled $819,000 and $715,000 at June 30, 1996 and 1995, respectively. Amortization of goodwill and other intangible assets included in the accompanying consolidated statements of operations was $204,000, $195,000 and $331,000 in 1996, 1995, and 1994, respectively. 37 The carrying values and amortization periods for goodwill and other intangible assets are reviewed on an ongoing basis by the Company's management based on several factors including, among others, the Company's future operations and their impact on cash flows. If impairment to the carrying values or the estimated useful lives of such intangible assets are indicated by this review, the Company will adjust the carrying values of such assets to their respective estimated fair values or revise the amortization period for such assets to their estimated remaining useful lives. (I) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: (IN THOUSANDS) June 30, -------------------- 1996 1995 -------- ------- Payroll related costs . . . . . . . . . . $ 107 $ 109 Professional fees . . . . . . . . . . . . 152 218 Deferred rent . . . . . . . . . . . . . . -- 304 Accrued inventory purchases . . . . . . . 202 163 Customer deposits . . . . . . . . . . . . 986 311 Other . . . . . . . . . . . . . . . . . . 362 450 -------- ------- $1,809 $1,555 (J) REVENUE RECOGNITION Product sales revenue is recognized upon shipment or equipment installation, as applicable. The Company recognizes revenue under research and development agreements in accordance with the terms of the respective contracts which typically stipulate as the work is performed and costs are incurred. The Company recognizes license fees under sales and license agreements, as certain milestones are achieved and related nonrefundable license fees are received. (K) RESEARCH AND DEVELOPMENT EXPENSES The Company charges research and development expenses to operations as incurred. (L) FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's Canadian subsidiary are translated into U.S. dollars at year-end exchange rates. Revenue and expense items are translated at average rates prevailing during the year. Cumulative translation adjustments have been immaterial. Transaction gains and losses are included in the results of operations as incurred. (M) NET LOSS PER SHARE Net loss per common share is computed based upon the weighted average number of common shares outstanding. Common equivalent shares are not included in the per share calculations for each of the years presented as the effect of their inclusion would be antidilutive. 38 (N) FAIR VALUE OF FINANCIAL INSTRUMENTS Except as disclosed in Note 3(c), no class of financial instrument has a material difference between its carrying value and estimated fair value based on market quotations, projected cash flows and other estimating methods. (O) SUPPLEMENTAL CASH FLOW INFORMATION The Company made certain cash payments and consummated certain non-cash investing and financing transactions as summarized below: (IN THOUSANDS) Years Ended June 30, ----------------------------- 1996 1995 1994 ------ ------ ------- CASH PAID FOR: Interest. . . . . . . . . . . . . . . . . . $ 608 $ 930 $ 585 Income taxes. . . . . . . . . . . . . . . . 18 60 9 NON-CASH INVESTING AND FINANCING ACTIVITIES: Acquisition of assets under capital leases . -- -- (3,675) Capital lease financing for assets acquired. . . . . . . . . . . . . . . . . . -- -- 3,675 Disposition of assets under capital lease. . 2,936 -- -- Termination of capital lease obligation. . . (3,500) -- -- Termination of operating lease obligation and related reduction of accrued restructuring . . . . . . . . . . . . . . . (2,050) -- -- Issuance of common stock for companies acquired . . . . . . . . . . . . . . . . . -- -- 1,026 Issuance of common stock in exchange for termination of operating lease obligation . 500 -- -- (P) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" in March 1995, which is effective January 1, 1996 and must be adopted by no later than the fiscal year ending June 30, 1997. SFAS No. 121 requires that an impairment loss be recognized when circumstances indicate that the carrying amount of the asset may not be recoverable. Historically, the Company has used a methodology similar to SFAS No. 121 in determining the amount of any potential impairment. Accordingly, the Company does not believe that the adoption of SFAS No. 121 will have a significant impact on its consolidated financial statements. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). SFAS 123 requires that an entity account for employee stock compensation under a fair value based method. However, SFAS 123 also allows an entity to continue to measure compensation costs for employee stock based compensation plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Effective for fiscal years beginning after December 15, 1995, entities electing to remain with accounting under APB 25 are required to make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting under SFAS 123 had been applied. The Company will continue to account for employee stock based compensation under APB 25 and will make the pro forma disclosures required under SFAS 123 beginning in fiscal 1997. 39 Accordingly, the Company does not believe that the adoption of SFAS No. 123 will have a significant impact on its consolidated financial statements. 4. DEBT AND LEASES (A) LONG-TERM DEBT Long-term debt consists of the following: (IN THOUSANDS) June 30, -------------------------- 1996 1995 -------- -------- Revolving line of credit . . . . . . . . . $1,041 $1,050 Equipment line of credit . . . . . . . . . -- 216 Promissory note for AMC acquisition. . . . -- 322 Installment notes. . . . . . . . . . . . . 21 16 ------- ------- 1,062 1,604 Less current maturities. . . . . . . . . . (1,051) (328) ------- ------- $ 11 $ 1,276 ------- ------- ------- ------- As of June 30, 1996, the future maturities of long-term debt are as follows: Year Ending Amount ----------- ------- 1997 . . . . . . . . . . $1,051 1998 . . . . . . . . . . 10 1999 . . . . . . . . . . 1 2000 . . . . . . . . . . -- 2001 . . . . . . . . . . -- In connection with the acquisition of AMC in May 1994, the Company issued a promissory note in the principal amount of $430,000 to the shareholder of AMC. In February 1996, the Company settled the remaining balance of the promissory note and other acquisition related liabilities totaling $501,000 for $251,000, excluding $9,000 of related transaction expenses, which resulted in an extraordinary gain on the early extinguishment of debt of $241,000 or $0.03 per share with no related income tax effect. As part of this settlement, the Company also issued a warrant to purchase 50,000 shares of its common stock at $2.00 per share to the shareholder of AMC. On October 28, 1994, the Company and AGRO entered into equipment and revolving lines of credit with a bank, under which the Company borrowed $250,000 to finance the purchases of capital equipment and AGRO may borrow up to the lesser of $1,500,000 or the sum of 75% of eligible accounts receivable and 25% of eligible inventories up to a maximum of $250,000 on a revolving basis for working capital needs. Funds borrowed under the equipment line of credit were payable in equal principal installments of $6,944 plus accrued interest over 36 months commencing February 5, 1995, at an interest rate of prime plus 2% and were secured by the first lien on all fixed assets financed under this line of credit. Funds borrowed under the revolving line of credit have borne interest at a rate of prime plus 1% and are secured by all the assets of AGRO and all the outstanding common stock of AGRO owned by the Company. Interest on funds borrowed under the 40 revolving line of credit is payable monthly in arrears and repayment of principal was originally due on January 5, 1996. As of June 30, 1995, the equipment and revolving lines of credit agreement imposed certain covenants including a minimum consolidated tangible net worth of $5,000,000 ("Net Worth Covenant"), a consolidated quick asset to current liabilities ratio of 1.50 to 1 through June 30, 1995, and 1.25 to 1 thereafter ("Quick Ratio Covenant"), a minimum cash, cash equivalents, and short-term investments balance of $5,000,000 ("Cash Covenant"), and a restriction on the declaration and payment of any cash dividends. As of June 30, 1995 and through October 5, 1995, the Company was in violation of the Net Worth and Quick Ratio Covenants. On October 5, 1995, the Company and the bank entered into an amendment to the equipment and revolving lines of credit agreement pursuant to which the bank waived the violations of the Net Worth and Quick Ratio Covenants at June 30, 1995 and through October 5, 1995; eliminated the Net Worth and Quick Ratio Covenants for compliance periods after June 30, 1995; and reduced the Cash Covenant from $5,000,000 to $1,000,000 for compliance periods after June 30, 1995. In addition, the amendment to the credit agreement required repayment of all outstanding obligations under the equipment line of credit (approximately $194,000 at September 29, 1995); increased the interest rate on borrowings under the revolving line of credit to prime (8.25% at June 30, 1996) plus 1.5% effective October 1, 1995; and expanded the collateral requirements to include a certificate of deposit in the amount of $700,000 to be held by the bank as partial cash security for the borrowings outstanding under the revolving line of credit at October 5, 1995. Any additional borrowings under the revolving line of credit will require 67% cash collateral coverage in the form of a certificate of deposit to be held by the bank. The amendment also extended the expiration date of the credit agreement from January 5, 1996 to July 5, 1996, and any principal amounts outstanding, together with accrued interest thereon, were due on such date. On July 5, 1996, September 5, 1996 and October 5, 1996, the Company and the bank entered into three amendments to the revolving line of credit agreement pursuant to which the bank extended the expiration date of the credit agreement from July 5, 1996 to December 15, 1996 on the same terms, and any principal amounts outstanding, together with accrued interest thereon, are due on December 15, 1996. The Company is currently negotiating with the bank certain modifications to the terms of the revolving line of credit which include, but are not limited to, an increase in the borrowing capacity, elimination of the cash collateral coverage requirement, financial covenants and extension of the repayment and expiration dates of the credit agreement. In addition, the Company has received a term sheet from a financial institution to replace the existing revolving line of credit with a proposed credit facility structure that meets the Company's requirements for the foreseeable future. The Company believes that it will obtain either a modification and extension to the existing revolving line of credit agreement or secure another financing arrangement which has terms no less favorable than those contained in the current revolving line of credit agreement in fiscal 1997. In June 1995, the Company entered into an installment note with a bank to finance the purchase of a truck. The installment note is payable in monthly installments of $548, bears interest at 9.55%, and is secured by that truck. In September 1995, the Company entered into an installment note with a bank to finance the purchase of another truck. This installment note is payable in monthly installments of $401, bears interest at 8.75% and is secured by that truck. 41 (B) LEASES In November 1991, the Company entered into a 10 year lease for one of its facilities in Worcester, Massachusetts. The lease granted the Company five months of free rent which was amortized on a straight line basis over the total expected lease payments and which served to reduce rent expense recorded by the Company. In September 1992, the Company entered into a 10-year facility lease with its landlord for expanded space in a new facility in Worcester, Massachusetts. The new lease canceled the Company's obligations under its prior lease, discussed above, upon occupancy in April 1994. The new lease granted the Company three months of free rent which was amortized on a straight line basis over the total expected lease payments and which served to reduce rent expense recorded by the Company. On November 1, 1994, the Company and Hybridon, Inc. (the "Subtenant") entered into a sublease agreement under which the Company sublet certain space at its corporate headquarters and research and development facility to the Subtenant for a term of 21 months ending July 1996. On October 11, 1995, the Company and the Subtenant entered into an amendment to the sublease agreement under which the Company sublet a significant amount of additional space at this facility to the Subtenant and extended the term of the sublease agreement through December 31, 1996. The basic rental rate charged to the Subtenant is approximately the same as the Company's rental rate under its lease. In addition, on September 19, 1995, the Company and its landlord entered into a partial lease termination agreement with respect to certain space at its corporate headquarters and research and development facility. On January 11, 1996, the Company and its landlord entered into a lease termination agreement, under which the Company paid the landlord $125,000 on January 18, 1996 and issued 500,000 shares of the Company's common stock with a market value of $500,000 on January 22, 1996 in exchange for an immediate termination of the lease. Additionally, the Company incurred approximately $25,000 for expenses related to the completion of the transaction. See Note 8 for a discussion of these transactions and their impact on restructuring accounting in fiscal 1996. In May 1993, the Company entered into a 15 year lease agreement for a manufacturing facility in Northborough, Massachusetts. This lease was accounted for as a capital lease, had borne interest at an effective annual rate of approximately 13% and had been payable in monthly installments of principal and interest of approximately $44,000. The present value of the minimum lease payments under this capital lease obligation was $3,525,000 at September 29, 1995. On September 29, 1995, the Company and the lessor entered into a lease termination agreement under which the Company paid the lessor on October 31, 1995 approximately $195,000; released to the lessor approximately $305,000 held in an escrow account; and agreed to make an advance lease payment for the period October 1995 through December 1995 to the lessor in exchange for an early termination and release from the remaining lease obligations effective December 31, 1995. Accordingly, the Company reclassified $500,000 from "long- term debt and capital leases" to "current maturities of noncurrent liabilities" in the consolidated balance sheet and adjusted the present value of the remaining minimum lease payments under this capital lease obligation to reflect the impact of the lease termination agreement as of June 30, 1995. The effect of this lease termination on the consolidated financial statements during fiscal 1996 was to reduce assets under capital leases by $2,936,000 and capital lease obligations by $3,500,000, and to increase accrued restructuring costs by $73,000. 42 On June 30, 1994, the Company sold certain manufacturing equipment and leasehold improvements with an original cost of approximately $3,800,000 to a financing company. The Company, in turn, leased the equipment and improvements back from the financing company. The lease was accounted for as a capitalized lease obligation. The lease bore interest at an effective rate of approximately 14% and had been payable in monthly installments of principal and interest of approximately $88,000 over 50 months. On October 11, 1995, the Company and the financing company entered into an agreement which modified the lease pursuant to which the financing company waived a payment default which occurred in September 1995, in exchange for the Company's advance payment of approximately $1,135,000, which resulted in a decrease to accrued restructuring costs of $45,000 in fiscal 1996. This payment satisfied the total amount of the obligation outstanding under rental schedule No. 2 to the lease. In addition, the Company issued to the financing company a warrant to purchase 100,000 shares of common stock for $3.00 per share pursuant to the terms of this agreement. Accordingly, the Company reclassified $886,000 from "long-term debt and capital leases" to "current maturities of noncurrent liabilities" in the consolidated balance sheet to reflect the impact of this agreement as of June 30, 1995. The Company continued to make the remaining monthly payments of approximately $55,000 under rental schedule No. 1 to the lease until the remaining obligation was fully satisfied on September 27, 1996, with the proceeds from an equity offering described in Note 11. Pursuant to a lease settlement agreement dated August 8, 1996, between the Company and the financing company, the Company paid $880,000 to satisfy the remaining capital lease obligation under rental schedule No. 1 of approximately $1,248,000 on September 27, 1996, which resulted in an increase to accrued restructuring costs of $60,000. Accordingly the Company reclassified $880,000 from "long- term debt and capital leases" to "current maturities of noncurrent liabilities" in the consolidated balance sheet to reflect the impact of this agreement as of June 30, 1996. See Note 11 for further discussion of the pro forma impact of this settlement. The present value of the minimum lease payments under this capital lease obligation was $1,390,000 as of June 30, 1996. Future minimum lease payments under noncancellable operating leases, future minimum sublease payments under noncancellable operating leases, and the present value of future minimum capital lease payments after reflecting the impact of the subsequent settlement to the lease described above, are as follows: (IN THOUSANDS) Capital Operating Operating Leases Leases Subleases ------- --------- ----------- Years ending June 30, 1997 . . . . . . . . . . . . . . $1,445 $ 319 ($29) 1998 . . . . . . . . . . . . . . -- 293 (3) 1999 . . . . . . . . . . . . . . -- 275 (3) 2000 . . . . . . . . . . . . . . -- 63 (3) 2001 . . . . . . . . . . . . . . -- 56 (3) Thereafter . . . . . . . . . . . -- 9 -- ------- ------- ----- Total minimum lease payments. . . . . 1,445 $1,015 ($41) Amount representing interest. . . . . (55) ------- ----- ------- ------- ----- Present value of minimum lease payments . . . . . . . . . . . . . . 1,390 Less current maturities . . . . . . . (1,390) ------- $ -- ------- ------- 43 Rental expense included in the accompanying consolidated statements of operations was $833,000, $1,064,000, and $1,051,000 for 1996, 1995 and 1994, respectively. Sublease rental income was ($346,000) and ($302,000) for 1996 and 1995, respectively. 5. STOCKHOLDERS' INVESTMENT (A) PUBLIC OFFERINGS In February 1992, the Company sold 2,990,000 shares of common stock in an initial public offering. Net proceeds of the offering were $29,958,000. In connection with the initial public offering of its common stock, 2,306,174 outstanding shares of Series A convertible redeemable preferred stock and 2,050,000 outstanding shares of Series B convertible redeemable preferred stock were converted into 2,904,087 shares of common stock. In December 1993, the Company sold 1,763,050 shares of common stock in a public offering. Net proceeds of the offering were $9,503,000. (B) COMMON STOCK PURCHASE WARRANTS The Company has issued warrants to purchase shares of its common stock to certain stockholders, directors and consultants to the Company. Outstanding warrants expire through 2002. The following table summarizes warrant activity for the three years ended June 30, 1996: Number of Price Per Warrants Share ---------- ---------------- Outstanding at June 30, 1993 . . . . . . 408,712 $0.38 - $11.00 Granted. . . . . . . . . . . . . . . . 20,000 9.75 Exercised. . . . . . . . . . . . . . . (68,665) 3.75 -------- ---------------- Outstanding at June 30, 1994 . . . . . . 360,047 0.38 - 11.00 Granted. . . . . . . . . . . . . . . . -- -- -------- ---------------- Outstanding at June 30, 1995 . . . . . . 360,047 0.38 - 11.00 Granted. . . . . . . . . . . . . . . . 250,000 1.3 - 3.00 Expired. . . . . . . . . . . . . . . . (151,087) 0.38 - 9.55 -------- ---------------- Outstanding at June 30, 1996 . . . . . . 458,960 1.38 - 11.00 -------- ---------------- -------- ---------------- Exercisable at June 30, 1996 . . . . . . 391,850 $1.38 - $11.00 -------- ---------------- -------- ---------------- (C) STOCK OPTION PLANS On December 14, 1988, the Company's Board of Directors approved the 1988 stock option plan (the "1988 Plan") which provided for the grant of incentive stock options and nonqualified stock options. The Board of Directors has agreed not to issue future options under the 1988 Plan. In May 1991, the Board of Directors approved a stock option plan (the "1991 Plan") to grant options to acquire up to 1,300,000 shares of common stock to employees and consultants. Options granted under the 1991 Plan vest over various periods and expire no later than 10 years from the date of grant. The difference, if any, between the fair value of the Company's common stock on the date 44 of grant and the exercise price of the option has been recognized as compensation expense in the accompanying consolidated statements of operations. On December 13, 1994, the Compensation Committee of the Board of Directors authorized the Company to offer an exchange with each holder (who was then an employee but not an executive officer or director of the Company) of stock options granted under the 1991 Plan, a new stock option for a number of shares equal to the number of shares remaining unexercised under the old stock option at the time of exchange subject to certain conditions. The option price of each new stock option granted under this offer was equal to the fair market value ($2.125 per share) of the Company's common stock on the date of authorization. A total of 169,483 stock options were exchanged under this offer during 1995. Option activity for the three years ended June 30, 1996, is summarized as follows:
Number of Price Per Shares Share --------- --------- Outstanding at June 30, 1993 ........... 572,794 $0.38 - $11.38 Granted .............................. 395,334 4.88 - 11.00 Exercised ............................ (44,798) 0.38 - 6.98 Terminated ........................... (67,483) 0.45 - 11.38 -------- -------------- Outstanding at June 30, 1994 ........... 855,847 0.38 - 11.38 Granted .............................. 18,250 1.84 - 4.88 Exercised ............................ (6,082) 0.45 - 0.45 Terminated ........................... (406,982) 0.45 - 11.38 -------- -------------- Outstanding at June 30, 1995 ........... 461,033 0.38 - 11.38 Granted .............................. 551,500 0.56 - 1.63 Exercised ............................ (1,666) 0.45 Terminated ........................... (174,851) 0.60 - 11.38 -------- -------------- Outstanding at June 30, 1996 ........... 836,016 $0.38 - $11.38 -------- -------------- -------- -------------- Exercisable at June 30, 1996 ........... 257,708 $0.38 - $11.38 -------- -------------- -------- --------------
6. INCOME TAXES As of June 30, 1996, the Company had available net operating loss carryforwards of approximately $46,000,000 and research and development tax credit carryforwards of approximately $900,000 to reduce future federal income taxes, if any. These carryforwards expire through 2010 and are subject to review and possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 limits a Company's ability to utilize certain net operating loss and tax carryforwards in the event of a cumulative change in ownership in excess of 50%, as defined. The Company has completed numerous financings which may have resulted in a change in ownership in excess of 50%, as defined. The utilization of net operating loss and tax credit carryforwards may be limited due to ownership changes. The Company adopted the provisions of SFAS No. 109 in 1994 which had no impact upon the consolidated financial statements. There was no effect on net loss or financial position from adopting the provisions of SFAS No. 109 for any period presented. 45 The components of the net deferred tax amount recognized in the accompanying consolidated balance sheets are set forth below:
June 30, --------------------------- (IN THOUSANDS) 1996 1995 ----------- ----------- Deferred tax assets ...................... $16,500,000 $14,200,000 Valuation allowance ...................... (16,500,000) (14,200,000) ----------- ------------ $ - $ - ----------- ------------ ----------- ------------
The approximate tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is summarized as follows:
June 30, --------------------------- (IN THOUSANDS) 1996 1995 ----------- ----------- Net operating losses .................... $15,600,000 $12,920,000 Other temporary differences ............. - 180,000 Research and development credits ........ 900,000 1,100,000 ----------- ------------ $16,500,000 $14,200,000 ----------- ------------ ----------- ------------
Due to the uncertainty surrounding the timing of realizing the potential benefits of its favorable tax attributes in future income tax returns, the Company has placed a valuation allowance against its otherwise recognizable deferred tax assets. 7. SALES, LICENSE AND DEVELOPMENT AGREEMENTS In June 1992, the Company entered into a Product Development and License Agreement (the "License Agreement") with The Terminix International Company, L.P. ("Terminix") to license certain technology and provide for the joint development of biopesticides for termite control. The License Agreement provides for license fees and product development support to be paid to the Company over a three-year period plus reimbursement for certain outside development costs. The License Agreement grants Terminix exclusive sales rights in the United States and Canada for the termite control product developed under the Agreement. The Company will retain manufacturing rights and will receive royalties on sales of the termite control product by Terminix. AGRO has a distribution agreement with an unrelated company for a term of five years ending in December 1997, with automatic one-year extensions unless either party elects to terminate the agreement. The agreement grants AGRO the exclusive right to sell the unrelated company's product in the United States and Canada. The agreement requires AGRO to maintain minimum annual sales which, if not met, would allow the unrelated company to modify the exclusivity of the agreement. The sale of products under this agreement accounted for 45%, 43%, and 59% of the Company's total product sales for the years ended June 30, 1996, 1995, and 1994, respectively. Although there are a limited number of sources of the particular growing medium products that are sold under this distribution agreement, the Company's management believes that other suppliers could provide similar products on comparable terms. A change in suppliers, however, could cause a delay in filling orders as well as a possible loss of sales, which would affect operating results adversely. 46 In June 1993, the Company entered into an agreement to license certain technology and patents for the manufacture and sale of vegetable and fruit coating products under the name Nature Seal. In consideration for this license, the Company issued common stock and a warrant for the purchase of common stock to the licensers and is required to pay certain minimum future royalties and royalties based upon future sales of products which incorporate the licensed technology. The value of the stock and warrant consideration was recorded as research and development expense in 1993. In June 1993, the Company entered into a Sales and License Agreement (the "Maruwa Agreement") with Maruwa BioChemical Co., Ltd. to license certain biopesticide technology for control of cockroaches. The Maruwa Agreement provides for license fees to be paid to the Company in accordance with the achievement of certain registration and development milestones. The Maruwa Agreement grants the licensee exclusive sales rights in Japan for Bio-Path cockroach control technology. The Company will retain manufacturing rights and will receive royalties on sales of the Bio-Path Cockroach Control Chamber by the licensee. In January 1994, the Company entered into a Development and Distribution Agreement with Bengal Chemical, Inc. (the "Bengal Agreement") for the nonexclusive distribution rights to the Company's Bio-Path Cockroach Control Chamber. The term of the Bengal Agreement is for calendar years 1994 and 1995 with year to year extensions permitted upon the attainment of minimum product sales for the year preceding the extension. The Bengal Agreement expired during fiscal 1996. In May 1994, the Company entered into a Marketing and Distribution Agreement with Dong Sung Pharmaceutical Co., Ltd. (the "Dong Sung Agreement") for the exclusive rights to market and distribute the Company's Bio-Path Cockroach Control Chamber in South Korea. The term of the Dong Sung Agreement commences on May 24, 1994, and continues in effect through December 31, 1999, and may be renewed for an additional two calendar years thereafter. In May 1995, the Company entered into a Marketing and Distribution Agreement with Rhone-Poulenc Agrichimie (the "Rhone-Poulenc Agreement") for the exclusive rights to market and distribute the Company's Bio-Path Cockroach Control Chamber to professional pest control operators in 16 countries in Europe. The term of the Rhone-Poulenc Agreement is for a period of three years for each country named therein, except for the United Kingdom which is for a period of five years from the date of execution or the date product registration is received in the particular country, whichever is later, and may be renewed for successive one year periods thereafter by mutual agreement of the parties. In August 1995, AGRO entered into a distribution agreement with an unrelated company for an initial term of three years for the North American fruit, vegetable, and flower markets ending in September 1998, and in the fruit, vegetable, and flower markets in the Caribbean Islands and Mexico ending in August 1997. This agreement will be automatically extended for each of the respective terms set forth above unless either party elects to terminate the agreement upon ninety days prior written notice. The agreement grants AGRO the exclusive right to sell the unrelated company's sorting and grading products and equipment in most of the United States, Canada, Mexico, and the Caribbean. The agreement requires AGRO to secure annually a certain minimum market share percentage of the available market for sorting and grading machines. The sale of products under this agreement accounted for 20% of total product sales for the fiscal year ended June 30, 1996. Although there are a limited number of sorting and grading equipment manufacturers in the world, 47 the Company's management believes that other suppliers could provide similar equipment on comparable terms. A change in supplier, however, could cause a delay in filling orders as well as a possible loss of sales, which would affect operating results adversely. In September 1995, AGRO entered into a distribution agreement with an unrelated company for a term commencing on July 1, 1995 and ending on June 30, 1997, with automatic one year extensions unless either party elects to terminate the agreement with three months' advanced notice in writing. The agreement grants AGRO the exclusive right to sell the unrelated company's environment control products and accessories in the United States, Canada and Mexico. 8. ASSET VALUATION AND RESTRUCTURING CHARGES The Company's consolidated statement of operations for 1995 included a $6,000,000 or $0.68 per share charge to write down the value of certain assets and to provide for the costs associated with the closure of the Company's facilities located in Worcester, Northborough, and Shrewsbury, Massachusetts, and for reductions in the Massachusetts based work force. The write-down of assets in 1995 included a $1,946,000 non-cash charge against the Company's investment in manufacturing, laboratory, and office property and equipment located in Massachusetts and approximately a $354,000 non-cash charge for certain other assets to their respective net realizable values. As of June 30, 1996 and 1995, these assets had a net book value of approximately $328,000 and $3,835,000, respectively, and were intended to be disposed of in fiscal 1997 and 1996, respectively. The remaining $3,700,000 consisted of accrued charges, of which $2,500,000 was classified in other long-term liabilities at June 30, 1995, for the costs of facility lease settlements ($2,000,000), manufacturing plant shut-down ($497,000), severance benefits for 33 employees primarily in the research and development and manufacturing areas ($1,035,000), and other contractual obligations, including the termination of certain inventory supply and distribution agreements ($168,000), related to the restructuring program adopted in fiscal 1995. The Company completed a major portion of its 1995 restructuring program activities in the first half of fiscal 1996 and the remaining restructuring program initiatives are expected to be completed in fiscal 1997 and beyond. The Company's consolidated statement of operations for 1994 included a $5,800,000 or $0.75 per share charge to write down the value of certain assets and to provide for the costs associated with the consolidation of the Company's facilities and for reductions in research and development programs. The write down of assets in 1994 included a $3,000,000 non-cash charge against the Company's investment in its manufacturing facility and related equipment in Northborough, Massachusetts and approximately a $500,000 non-cash charge for certain other assets to reduce their carrying value to their respective net realizable values. The remaining $2,300,000 consisted of accrued charges, of which $800,000 was classified in other long-term liabilities at June 30, 1994, for the consolidation of the Company's corporate headquarters, research and development, and manufacturing facilities ($1,300,000), and for reductions in research and development activities and 24 related employees ($1,000,000). The Company completed all of the employee terminations related to the 1994 restructuring program in the first half of 1995 and a portion of the facility consolidation activities in 1995. At the close of fiscal 1995, the Company began the implementation of the restructuring program which was designed to shift the corporate focus from research and development to commercial operations, in an effort to reduce operating losses and conserve cash resources. As part of the restructuring program, the Company eliminated substantially all of its Massachusetts based work 48 force (33 positions) in the first quarter of fiscal 1996. In addition, during fiscal 1995 certain functions were moved to the Company's manufacturing facility in Northborough, Massachusetts, and the Company's space at its corporate headquarters and research and development facility located in Worcester, Massachusetts, was decreased from approximately 41,000 square feet to approximately 13,000 square feet. In the first quarter of fiscal 1996, the Company closed the Worcester facility and all remaining functions were moved to the Northborough facility. During the second quarter of fiscal 1996, the Company relocated its Massachusetts based operations including corporate headquarters to AGRO's East Brunswick, New Jersey facility. On January 11, 1996, the Company and its landlord for its Worcester corporate headquarters and research and development facility entered into a lease termination agreement, under which the Company paid the landlord $125,000 on January 18, 1996 and issued 500,000 shares of the Company's common stock with a market value of $500,000 on January 22, 1996, in exchange for an immediate termination of the lease. Additionally, the Company incurred approximately $25,000 for expenses related to the completion of the transaction. After accounting for these settlement provisions which totaled $650,000, the Company reversed $1,550,000 of accrued restructuring costs in the third quarter of fiscal 1996 that related to accrued restructuring costs which were originally recorded in fiscal 1995 ($2,000,000) and the remaining accrued restructuring costs which were originally recorded in fiscal 1994 ($200,000). During fiscal 1996, the Company incurred $1,674,000 of costs related to the 1995 restructuring program of which $860,000 related to facility lease settlements and manufacturing plant shut down, $725,000 related to employee severance benefits, and $89,000 related to other contracted liabilities. As of June 30, 1996, accrued restructuring costs of $1,030,000 (total current and noncurrent portions) consisted of $641,000 for facility lease settlements, $310,000 for employee severance benefits and $79,000 for other contractual liabilities. 9. GEOGRAPHIC SEGMENT INFORMATION Financial information segregated by major geographic area is summarized as follows:
Years Ended June 30, ------------------------------------ (IN THOUSANDS) 1996 1995 1994 -------- --------- ----- Revenues: United States ................... $9,937 $9,516 $ 8,126 Canada .......................... 4,421 3,564 2,785 ------- ------- ------- Consolidated ................. $14,358 $13,080 $10,911 ------- ------- ------- ------- ------- ------- Net income (loss): United States ................... ($587) ($15,122) ($17,494) Canada .......................... - 28 (59) ------- ------- ------- Consolidated ................. ($587) ($15,094) ($17,553) ------- ------- ------- ------- ------- -------
June 30, ------------------------------------ (IN THOUSANDS) 1996 1995 1994 -------- --------- ----- Identifiable assets: United States .................... $ 9,316 $ 18,143 $ 33,316 Canada ........................... 1,412 1,364 1,004 Intercompany eliminations ........ (617) (738) (330) ------- ------- ------- Consolidated .................. $ 10,111 $ 18,769 $ 33,990 ------- ------- ------- ------- ------- -------
49 10. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is an analysis of certain items in the consolidated statements of operations by quarter for 1996 and 1995: CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1996 ------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) First Quarter Second Quarter Third Quarter Fourth Quarter -------------- -------------- ------------- -------------- Revenues ................................... $4,194 $ 4,295 $ 3,139 $ 2,730 Cost of goods sold ......................... 3,147 2,933 2,097 2,217 Research and development ................... 312 274 197 235 Asset valuation and restructuring charges (reversal) ...................... - - (1,550) - Selling, general, administrative and other . 1,351 1,363 1,285 1,325 ------ ------- ------- ------- Income (loss) before extraordinary gain .... (616) (275) 1,110 (1,047) Extraordinary gain on early extinguishment of debt ................................. - - 241 - ------ ------- ------- ------- Net income (loss) .......................... ($616) ($275) $1,351 ($1,047) ------ ------- ------- ------- ------ ------- ------- ------- Net income (loss) per share: Before extraordinary gain ............... ($0.07) ($0.03) $0.12 ($0.11) Extraordinary gain ...................... - - 0.03 - ------ ------- ------- ------- Net income (loss) ....................... ($0.07) ($0.03) $0.15 ($0.11) ------ ------- ------- ------- ------ ------- ------- -------
1995 ------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter -------------- -------------- ------------- -------------- Revenues .................................. $ 2,861 $ 3,265 $ 3,938 $ 3,016 Cost of goods sold ........................ 2,313 2,442 3,021 2,377 Research and development .................. 1,183 1,141 1,086 1,073 Asset valuation and restructuring charges . - - - 6,000 Selling, general, administrative and other. 1,822 1,725 1,983 2,008 ------ ------- ------- ----- Net loss .................................. ($2,457) ($2,043) ($2,152) ($8,442) ------ ------- ------- ----- ------ ------- ------- ----- Net loss per common share ................. ($0.28) ($0.23) ($0.24) ($0.96) ------ ------- ------- ----- ------ ------- ------- -----
50 11. SUBSEQUENT EVENTS On September 27, 1996, the Company sold 1,040,000 unregistered shares of common stock in a Regulation D offering. Net proceeds realized from the equity offering totaled $1,119,000 after placement agent fees and expenses and Company expenses totaling $181,000. In connection with the offering, the Company also issued a warrant to purchase 156,000 shares of its common stock at $2.00 per share to the placement agent. The Company agreed to register the shares of the offering and warrant within nine months under the Securities Act of 1933. On September 27, 1996, pursuant to a lease settlement agreement dated August 8, 1996, between the Company and its financing company, the Company paid $880,000 and returned certain leased equipment with a net book value of $308,000 to the financing company as final satisfaction of its capital lease obligation under rental schedule No. 1, as discussed in Note 4(b). The following table sets forth the unaudited consolidated pro forma summary balance sheet giving effect to the transactions described above, as if they had occurred on June 30, 1996:
(Unaudited) (Unaudited) Consolidated Pro Forma Consolidated (IN THOUSANDS) Historical Adjustments Pro Forma ------------ ----------- ------------ ASSETS: Current assets ......................... $ 7,019 $ 289 $ 7,308 Property and equipment, net ............ 998 (308) 690 Other noncurrent assets ................ 2,094 - 2,094 ------- ------- -------- Total assets ........................ $10,111 ($19) $10,092 ------- ------- -------- ------- ------- -------- LIABILITIES AND STOCKHOLDERS' INVESTMENT: Current liabilities .................... $ 7,327 ($1,138) $ 6,189 Noncurrent liabilities ................. 311 - 311 Stockholders' investment ............... 2,473 1,119 3,592 ------- ------- -------- Total liabilities and stockholders' investment ......................... $10,111 ($19) $10,092 ------- ------- -------- ------- ------- --------
51 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Stockholders of EcoScience Corporation: We have audited the accompanying balance sheets of EcoScience Corporation (a Delaware corporation) and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' investment and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EcoScience Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Roseland, New Jersey September 6, 1996 (except for the matters discussed in Notes 4 and 11, as to which the date is October 5, 1996) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES - ------------------------------------------------------------------------------- Not applicable. 52 PART III - ------------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------------------------- The information required by this item, in addition to that set forth above in Part I under the caption "Executive Officers of the Registrant" is set forth in the section entitled "Election of Directors" contained in the Company's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A (the "Proxy Statement") in connection with the Company's 1996 Annual Meeting of Stockholders to be held on November 7, 1996, and such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - ------------------------------------------------------------------------------- Remuneration of directors and officers and information related thereto is included in the section entitled "Executive Compensation" contained in the Proxy Statement and such information is incorporated herein by reference, except for information contained under the captions "Report of the Compensation Committee" and "Performance Graph", which shall not be deemed incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------------- Security ownership of management and certain beneficial owners and information related thereto is included in the section entitled "Security Ownership of Beneficial Owners and Management" contained in the Proxy Statement and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------------------------------- Transactions with management and related parties and information related thereto is included in the section entitled "Certain Transactions" contained in the Proxy Statement and such information is incorporated herein by reference. 53 PART IV - ------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------------- (a)(1) The following consolidated financial statements of the Company and its subsidiaries for the years ended June 30, 1996, 1995 and 1994, are included at the pages indicated below: Page ---- Consolidated Balance Sheets.......................................... 28 -As of June 30, 1996 and 1995 Consolidated Statements of Operations................................ 29 -For the Years Ended June 30, 1996, 1995 and 1994 Consolidated Statements of Changes in Stockholders' Investment....... 30 -For the Years Ended June 30, 1996, 1995 and 1994 Consolidated Statements of Cash Flows................................ 31 -For the Years Ended June 30, 1996, 1995 and 1994 Notes to Consolidated Financial Statements........................... 32 Report of Independent Accountants.................................... 52 (a)(2) There are no consolidated financial statement schedules required to be presented herein: All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or ------------------------------------ are not applicable, and therefore have been omitted. (a)(3) The following Exhibits are included in this Annual Report on Form 10-K: Exhibit Exhibit Number Description - ------- --------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of the Registrant dated June 29, 1988 [incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992]. 3.2 By-Laws of the Registrant [incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 4.1 Specimen Common Stock Certificate of the Registrant [incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 54 Exhibit Exhibit Number Description - ------- -------------------------------------------------------------------- 10.1* Registrant's 1991 Stock Option Plan, As Amended [incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.2* Registrant's 1988 Stock Option Plan [incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S- 1, Registration Statement No. 33-44664]. 10.3* Form of Non-Statutory Stock Option Agreement [incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.4 Common Stock Purchase Warrant between the Registrant and Copley Partners 2, L.P., dated December 6, 1989, as amended [incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.5 8% Convertible Preferred Stock Purchase Agreement between the Registrant and the other parties named therein, dated June 29, 1988, amended and restated on December 6, 1989, and amended June 7, 1991 and July 30, 1991[incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.6 Preferred Stock Purchase Agreement between the Registrant and the other parties named therein, dated June 7, 1991, and amended as of July 30, 1991 [incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.7 Series B Preferred Stock Purchase Agreement between the Registrant and the other parties named therein, dated July 30, 1991, and amended on October 31, 1991 [incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.8 Common Stock Warrant between the Registrant and E. Andrews Grinstead III, dated May 22, 1991, as amended [incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.9 Common Stock Purchase Warrant between the Registrant and Burns McClellan, Inc., dated May 28, 1991 [incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. 55 Exhibit Exhibit Number Description - ------- -------------------------------------------------------------------- 10.10 Common Stock Purchase Warrant between the Registrant and E. Andrews Grinstead, III, dated June 7, 1991, as amended [incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.11 Common Stock Purchase Warrant between the Registrant and Ray A. Goldberg, dated June 7, 1991, as amended [incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.12 Common Stock Purchase Warrant between the Registrant and Richard E. Lyng, dated June 7, 1991, as amended [incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.13 Warrant to Purchase Shares of Common Stock by and between the Registrant and Oppenheimer & Co., Inc., dated October 31, 1991 [incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33- 44664]. 10.14 Letter Agreement between the Registrant and Dr. and Mrs. Meir Broza, dated November 4, 1991 [incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.15 Assignment of Patent Rights, dated November 7, 1991 [incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33- 44664]. 10.16 Option to Purchase Common Stock between the Registrant and Dr. Meir Broza, dated November 4, 1991 [incorporated by reference to Exhibit 10.21 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.17 Warrant Purchase Agreement between the Registrant and Dominion Ventures, Inc., dated November 26, 1991 [incorporated by reference to Exhibit 10.23 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.18 Master Lease Agreement between the Registrant and Dominion Ventures, Inc., dated November 26, 1991 [incorporated by reference to Exhibit 10.24 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 56 Exhibit Exhibit Number Description - ------- --------------------------------------------------------------------- 10.19* Non-Statutory Stock Option Agreement between the Registrant and Haim B. Gunner, dated as of July 25, 1991 [incorporated by reference to Exhibit 10.25 to the Registrant's Registration Statement on Form S- 1, Registration Statement No. 33-44664]. 10.20 Cooperative Research and Development Agreement between the Registrant and the United States Department of Agriculture, dated July 10, 1990 [incorporated by reference to Exhibit 10.26 to the Registrant's Registration Statement on Form S-1, Registration Statement No. 33-44664]. 10.21 Product Development and License Agreement between the Registrant and The Terminix International Company, L.P., dated as of June 3, 1992, with certain confidential material omitted [incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992]. 10.22 Agreement and Plan of Reorganization dated as of November 18, 1992, among the Registrant, Agro Dynamics, Inc., Eco Acquisition Corporation and the Stockholders named therein [incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3, Registration Statement No. 33-58540]. 10.23 Sublicense Agreement between the Registrant, J.R. Brooks & Sons., Inc. and Seald-Sweet Growers, Inc., dated as of June 23, 1993, with certain confidential material omitted [incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.24 Agreement between Agro Dynamics, Inc. and Grodania A/S with certain confidential material omitted [incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.25 Lease between the Registrant and Worcester Business Development Corporation, dated as of May 28, 1993 [incorporated by reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.26 Form of Warrant issued to Directors of the Registrant [incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. 10.27 Massachusetts Biotechnology Research Park Space Lease between the Registrant and Worcester Business Development Corporation, dated as of September 25, 1992 [incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993]. * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. 57 Exhibit Exhibit Number Description - ------- ------------------------------------------------------------------- 10.28 Asset Purchase Agreement, dated as of March 2, 1994, by and among the Registrant, American Machinery Corporation and Aeroglide Corporation [incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-3, Registration Statement No. 33-83184]. 10.29 Master Equipment Lease Agreement, dated as of June 7, 1994, between the Registrant and Financing For Science International, Inc. [incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994]. 10.30 Loan Agreement dated as of October 28, 1994 by and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc. and Silicon Valley Bank [incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994]. 10.31 Sublease Agreement dated as of November 1, 1994, between the Registrant and Hybridon, Inc. [incorporated by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.32 Marketing and Distribution Agreement dated as of May 15, 1995 between Registrant and Rhone-Poulenc Agrichimie. [incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.33 Distribution Agreement dated as of August 1, 1995, by and among Agro Dynamics, Inc., Aweta, BV and Autoline. [incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.34 Distributorship Agreement dated as of September 25, 1995, between Agro Dynamics, Inc. and H. Hoogendoorn Automation B.V. [incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.35 Partial Lease Termination Agreement for Massachusetts Biotechnology Research Park Space dated as of September 19, 1995, between the Registrant and Worcester Business Development Corporation. [incorporated by reference to Exhibit 10.36 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.36 Lease Termination Agreement dated as of September 29, 1995, between the Registrant and Worcester Business Development Corporation. [incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 58 Exhibit Exhibit Number Description - ------- --------------------------------------------------------------------- 10.37 Amendment of Sublease dated as of October 11, 1995, between the Registrant and Hybridon, Inc. [incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.38 Loan Modification Agreement dated as of October 5, 1995, by and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc., and Silicon Valley Bank. [incorporated by reference to Exhibit 10.39 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.39 Agreement dated as of October 11, 1995 modifying the Master Equipment Lease between the Registrant and Financing For Science International, Inc. [incorporated by reference to Exhibit 10.40 to the Registrant's Annual Report on Form 10-K/A-2 for the fiscal year ended June 30, 1995]. 10.40 Lease Termination Agreement dated as of January 11, 1996 between the Registrant and Worcester Business Development Corporation [incorporated by reference to Exhibit 10.41 to the Registrant's Current Report on Form 8-K dated January 16, 1996]. 10.41 Debt Settlement Agreement dated as of February 20, 1996, by and among the Registrant, EcoScience Produce Systems Corp., Aeroglide Corporation of Florida and Aeroglide Corporation [incorporated by reference to Exhibit 10.42 to the Registrant's Current Report on Form 8-K dated March 20, 1996]. 10.42 Loan Modification Agreement dated as of July 5, 1996, by and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc., and Silicon Valley Bank [filed herewith]. 10.43 Loan Modification Agreement dated as of September 5, 1996, by and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc., and Silicon Valley Bank [filed herewith]. 10.44 Loan Modification Agreement dated as of October 5, 1996, by and among the Registrant, Agro Dynamics, Inc., Agro Dynamics Canada Inc., and Silicon Valley Bank [filed herewith]. 10.45 Private Placement Memorandum dated September 20, 1996 for Offering of Registrants's Common Stock [filed herewith]. 10.46 Common Stock Warrant between the Registrant and Taglich Brothers, D'Amadeo, Wagner & Company, Incorporated [filed herewith]. 10.47 Master Equipment Lease Settlement Agreement dated as of August 8, 1996, between the Registrant and Financing For Science International, Inc. [filed herewith]. 59 Exhibit Exhibit Number Description - ------- ------------------------------------------------------------------- 10.48 Common Stock Warrant between the Registrant and Aeroglide Corporation [filed herewith]. 10.49 Form of Stock Purchase Agreement dated September 25, 1996, by and among EcoScience Corporation, Taglich Brothers, D'Amadeo, Wagner & Company, Incorporated, and other entities [filed herewith]. 21 Subsidiaries of the Registrant [filed herewith]. 23 Consent of Arthur Andersen LLP [filed herewith]. 24 Powers of Attorney of officers and directors of the Company [included in the signature page filed on October 14, 1996]. 27 Financial Data Schedule for the Fiscal Year Ended June 30, 1996 [filed herewith] (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year ended June 30, 1996. Note: [NONE OF THE EXHIBITS LISTED IN THE FOREGOING INDEX IS INCLUDED WITH THIS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1996. A COPY OF THESE EXHIBITS MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO HAROLD A. JOANNIDI, ECOSCIENCE CORPORATION, 10 ALVIN COURT, EAST BRUNSWICK, NEW JERSEY 08816.] 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of East Brunswick, the State of New Jersey, on October 14, 1996. ECOSCIENCE CORPORATION By: /s/ Michael A. DeGiglio ---------------------------- Michael A. DeGiglio President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below on this report hereby constitutes and appoints Michael A. DeGiglio and Kenneth S. Boger, and each of them with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits hereto, and other documents in connection herewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date - ---- ----- ---- /s/ Michael A. DeGiglio President and Chief Executive October 14, 1996 - --------------------------- Officer Michael A. DeGiglio /s/ Harold A. Joannidi Treasurer, Secretary and October 14, 1996 - --------------------------- Corporate Controller Harold A. Joannidi /s/ Kenneth S. Boger Director October 14, 1996 - --------------------------- Kenneth S. Boger 61 /s/ E. Andrews Grinstead III Director October 14, 1996 - ---------------------------- E. Andrews Grinstead III /s/ Larry M. Nouvel Director October 14, 1996 - ------------------------ Larry M. Nouvel /s/ David J. Ryan Chairman of the Board October 14, 1996 - ------------------------ David J. Ryan /s/ Heinz K. Wehner Director October 14, 1996 - ------------------------ Heinz K. Wehner 62 EX-10.42 2 EXHIBIT 10.42 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of July 5, 1996, by and between Agro Dynamics, Inc. ("Agro Dynamics") and Agro Dyanmics Canada Inc. ("Agro Canada") (each, a "Borrower" and collectively, the "Borrowers") and Silicon Valley Bank, a California-chartered bank ("Lender"), with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under the name of "Silicon Valley East." 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrowers to Lender, Borrower's are indebted to Lender pursuant to, among other documents, a Revolving Credit Note, dated October 28, 1994 in the original principal amount of up to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the "Revolving Note"). The Revolving Note has been modified pursuant to Loan Modification Agreement dated October 5, 1995. The Revolving Note, together with other promissory notes from Borrowers to Lender, is governed by the terms of a Loan Agreement, dated October 28, 1994, between Borrowers and Lender, as such agreement may be amended from time to time (the "Loan Agreement"). Hereinafter, all indebtedness owing by Borrowers to Lender shall be referred to as the "Indebtedness." 2. DESCRIPTION OF COLLATERAL: Repayment of the indebtedness is secured by three Security Agreements, each, dated October 28, 1994 (each, the "Security Agreement"), executed by Agro Dynamics and Agro Canada and EcoScience Corporation (the "Pledgor"); two Stock Pledge Agreements, each dated October 28, 1994 (each, the "Pledge Agreement"), one executed by Pledgor and one executed by Agro Dynamics and an Assignment of Deposit Account dated October 5, 1995 (the "Assignment"), executed by Pledgor. Additionally, repayment of the Indebtedness is guaranteed by EcoScience Corporation (the "Guarantor") pursuant to an EcoScience Guaranty dated October 28, 1994 (the "Guaranty"). Hereinafter, the above-described security documents, together with all other documents securing payment of the Indebtedness shall be referred to as the "Security Documents." Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents." 3. DESCRIPTION OF CHANGE IN TERMS. A. MODIFICATION(S) TO REVOLVING NOTE. 1. Payable in one payment of all outstanding principal plus all accrued unpaid interest on September 5, 1996. In addition, Borrowers will pay one regular monthly payment of all accrued unpaid interest due on August 5, 1996. 4. PAYMENT OF LOAN FEE. Borrowers shall pay Lender a fee in the amount of One Thousand and 00/100 Dollars ($1,000.00) (the "Loan Fee") plus all out-of-pocket expenses. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 6. NO DEFENSES OF BORROWER. Each Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Indebtedness. 7. CONTINUING VALIDITY. Borrowers understand and agree that in modifying the existing Indebtedness, Lender is relying upon Borrowers' representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lender's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrowers to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the partly is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this Paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. 8. JURISDICTION/VENUE. Each Borrower accepts for itself and in connection with its properties, unconditionally, the non-exclusive jurisdiction of any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts in any action, suit or proceeding of any kind against it which arises out of or by reason of this Loan Modification Agreement, provided, however, that if for any reason Lender cannot avail itself of the courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara County, California. 9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrowers and Lender (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Lender in California). 10. CONDITIONS. The effectiveness of this Loan Modification Agreement is conditioned upon payment of the Loan Fee. This Loan Modification Agreement is executed as of the date first written above. BORROWERS: LENDER: AGRO DYNAMICS, INC. SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Harold A. Joannidi By: /s/ Joan S. Parsons -------------------------- ----------------------------- Name: Harold A. Joannidi Name: Joan S. Parsons ------------------------ --------------------------- Title: Treasurer Title: Senior Vice President ----------------------- -------------------------- By: /s/ Michael DeGiglio -------------------------- Name: Michael DeGiglio ------------------------ Title: President ----------------------- AGRO DYNAMICS CANADA INC. SILICON VALLEY BANK By: /s/ Harold A. Joannidi By: /s/ Christine Ware -------------------------- ----------------------------- Name: Harold A. Joannidi Name: Christine Ware ------------------------ --------------------------- Title: Treasurer Title: Vice President ----------------------- ------------------------- Signed at San Jose, CA By: /s/ Michael DeGiglio -------------------------- Name: Michael DeGiglio ------------------------ Title: President ----------------------- The undersigned hereby consents and confirms the modifications to the Indebtedness pursuant to this Loan Modification Agreement and the Existing Loan Documents (including such provisions which apply specifically to EcoScience), hereby ratifies all the provisions of the Guaranty, Security Agreement, Pledge Agreement and Assignment, and confirms that all provisions of those document are in full force and effect. GUARANTOR/PLEDGOR: ECOSCIENCE CORPORATION By: /s/ Harold A. Joannidi -------------------------- Name: Harold A. Joannidi ------------------------ Title: Treasurer ----------------------- By: /s/ Michael DeGiglio -------------------------- Name: Michael DeGiglio ------------------------ Title: President ----------------------- EX-10.43 3 EXHIBIT 10.43 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of September 5, 1996, by and between Agro Dynamics, Inc. ("Agro Dynamics") and Agro Dyanmics Canada Inc. ("Agro Canada") (each, a "Borrower" and collectively, the "Borrowers") and Silicon Valley Bank, a California-chartered bank ("Lender"), with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under the name of "Silicon Valley East." 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrowers to Lender, Borrower's are indebted to Lender pursuant to, among other documents, a Revolving Credit Note, dated October 28, 1994 in the original principal amount of up to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the "Revolving Note"). The Revolving Note has been modified pursuant to Loan Modification Agreement dated October 5, 1995 and July 5, 1996. The Revolving Note, together with other promissory notes from Borrowers to Lender, is governed by the terms of a Loan Agreement, dated October 28, 1994, between Borrowers and Lender, as such agreement may be amended from time to time (the "Loan Agreement"). Hereinafter, all indebtedness owing by Borrowers to Lender shall be referred to as the "Indebtedness." 2. DESCRIPTION OF COLLATERAL: Repayment of the indebtedness is secured by three Security Agreements, each, dated October 28, 1994 (each, the "Security Agreement"), executed by Agro Dynamics and Agro Canada and EcoScience Corporation (the "Pledgor"); two Stock Pledge Agreements, each dated October 28, 1994 (each, the "Pledge Agreement"), one executed by Pledgor and one executed by Agro Dynamics and an Assignment of Deposit Account dated October 5, 1995 (the "Assignment"), executed by Pledgor. Additionally, repayment of the Indebtedness is guaranteed by EcoScience Corporation (the "Guarantor") pursuant to an EcoScience Guaranty dated October 28, 1994 (the "Guaranty"). Hereinafter, the above-described security documents, together with all other documents securing payment of the Indebtedness shall be referred to as the "Security Documents." Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents." 3. DESCRIPTION OF CHANGE IN TERMS. A. MODIFICATION(S) TO REVOLVING NOTE. 1. Payable in one payment of all outstanding principal plus all accrued unpaid interest on October 5, 1996. 4. PAYMENT OF LOAN FEE. Borrowers shall pay Lender a fee in the amount of Five hundred and 00/100 Dollars ($500.00) (the "Loan Fee") plus all out-of-pocket expenses. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 6. NO DEFENSES OF BORROWER. Each Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Indebtedness. 7. CONTINUING VALIDITY. Borrowers understand and agree that in modifying the existing Indebtedness, Lender is relying upon Borrowers' representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lender's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrowers to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the partly is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this Paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. 8. JURISDICTION/VENUE. Each Borrower accepts for itself and in connection with its properties, unconditionally, the non-exclusive jurisdiction of any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts in any action, suit or proceeding of any kind against it which arises out of or by reason of this Loan Modification Agreement, provided, however, that if for any reason Lender cannot avail itself of the courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara County, California. 9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrowers and Lender (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Lender in California). 10. CONDITIONS. The effectiveness of this Loan Modification Agreement is conditioned upon payment of the Loan Fee. This Loan Modification Agreement is executed as of the date first written above. BORROWERS: LENDER: AGRO DYNAMICS, INC. SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Harold A. Joannidi By:/s/ Joan S. Parsons ------------------------ ----------------------------- Name: Harold A. Joannidi Name: Joan S. Parsons ----------------------- --------------------------- Title: Treasurer Title: Senior Vice President ---------------------- ------------------------- AGRO DYNAMICS CANADA INC. SILICON VALLEY BANK By:/s/ Harold A. Joannidi By:/s/ Christine Ware ------------------------- ------------------------------ Name: Harold A. Joannidi Name: Christine Ware ----------------------- --------------------------- Title: Treasurer Title: Vice President ---------------------- -------------------------- Signed at San Jose, CA The undersigned hereby consents and confirms the modifications to the Indebtedness pursuant to this Loan Modification Agreement and the Existing Loan Documents (including such provisions which apply specifically to EcoScience), hereby ratifies all the provisions of the Guaranty, Security Agreement, Pledge Agreement and Assignment, and confirms that all provisions of those document are in full force and effect. GUARANTOR/PLEDGOR: ECOSCIENCE CORPORATION By: /s/ Harold A. Joannidi --------------------------- Name: Harold A. Joannidi ------------------------- Title: Treasurer ------------------------ EX-10.44 4 EXHIBIT 10.44 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of October 5, 1996, by and between Agro Dynamics, Inc. ("Agro Dynamics") and Agro Dyanmics Canada Inc. ("Agro Canada") (each, a "Borrower" and collectively, the "Borrowers") and Silicon Valley Bank, a California-chartered bank ("Lender"), with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under the name of "Silicon Valley East." 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by Borrowers to Lender, Borrower's are indebted to Lender pursuant to, among other documents, a Revolving Credit Note, dated October 28, 1994 in the original principal amount of up to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the "Revolving Note"). The Revolving Note has been modified pursuant to Loan Modification Agreement dated October 5, 1995, July 5, 1996 and September 5, 1996. The Revolving Note, together with other promissory notes from Borrowers to Lender, is governed by the terms of a Loan Agreement, dated October 28, 1994, between Borrowers and Lender, as such agreement may be amended from time to time (the "Loan Agreement"). Hereinafter, all indebtedness owing by Borrowers to Lender shall be referred to as the "Indebtedness." 2. DESCRIPTION OF COLLATERAL: Repayment of the indebtedness is secured by three Security Agreements, each, dated October 28, 1994 (each, the "Security Agreement"), executed by Agro Dynamics and Agro Canada and EcoScience Corporation (the "Pledgor"); two Stock Pledge Agreements, each dated October 28, 1994 (each, the "Pledge Agreement"), one executed by Pledgor and one executed by Agro Dynamics and an Assignment of Deposit Account dated October 5, 1995 (the "Assignment"), executed by Pledgor. Additionally, repayment of the Indebtedness is guaranteed by EcoScience Corporation (the "Guarantor") pursuant to an EcoScience Guaranty dated October 28, 1994 (the "Guaranty"). Hereinafter, the above-described security documents, together with all other documents securing payment of the Indebtedness shall be referred to as the "Security Documents." Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents." 3. DESCRIPTION OF CHANGE IN TERMS. A. MODIFICATION(S) TO REVOLVING NOTE. 1. Payable in one payment of all outstanding principal plus all accrued unpaid interest on December 15, 1996. In addition, Borrowers will pay one regular monthly payment of all accrued unpaid interest due on November 15, 1996. 4. PAYMENT OF LOAN FEE. Borrowers shall pay Lender a fee in the amount of Two Thousand and 00/100 Dollars ($2,000.00) (the "Loan Fee") plus all out-of-pocket expenses. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 6. NO DEFENSES OF BORROWER. Each Borrower agrees that, as of this date, it has no defenses against the obligations to pay any amounts under the Indebtedness. 7. CONTINUING VALIDITY. Borrowers understand and agree that in modifying the existing Indebtedness, Lender is relying upon Borrowers' representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lender's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrowers to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the partly is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this Paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. 8. JURISDICTION/VENUE. Each Borrower accepts for itself and in connection with its properties, unconditionally, the non-exclusive jurisdiction of any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts in any action, suit or proceeding of any kind against it which arises out of or by reason of this Loan Modification Agreement, provided, however, that if for any reason Lender cannot avail itself of the courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara County, California. 9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrowers and Lender (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Lender in California). 10. CONDITIONS. The effectiveness of this Loan Modification Agreement is conditioned upon payment of the Loan Fee. This Loan Modification Agreement is executed as of the date first written above. BORROWERS: LENDER: AGRO DYNAMICS, INC. SILICON VALLEY BANK, doing business as SILICON VALLEY EAST By: /s/ Harold A. Joannidi By: /s/ Jane Braun ------------------------ ----------------------------- Name: Harold A. Joannidi Name: Jane Braun ----------------------- --------------------------- Title: Treasurer Title: Senior Vice President ---------------------- ------------------------- AGRO DYNAMICS CANADA INC. SILICON VALLEY BANK By:/s/ Harold A. Joannidi By:/s/ Christine Ware ------------------------- ------------------------------ Name: Harold A. Joannidi Name: Christine Ware ----------------------- --------------------------- Title: Treasurer Title: Vice President ---------------------- -------------------------- Signed at San Jose, CA The undersigned hereby consents and confirms the modifications to the Indebtedness pursuant to this Loan Modification Agreement and the Existing Loan Documents (including such provisions which apply specifically to EcoScience), hereby ratifies all the provisions of the Guaranty, Security Agreement, Pledge Agreement and Assignment, and confirms that all provisions of those document are in full force and effect. GUARANTOR/PLEDGOR: ECOSCIENCE CORPORATION By: /s/ Harold A. Joannidi --------------------------- Name: Harold A. Joannidi ------------------------- Title: Treasurer ------------------------ EX-10.45 5 EXHIBIT 10.45 COPY NUMBER: RECIPIENT'S NAME: CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM ECOSCIENCE CORPORATION A DELAWARE CORPORATION ----------------------- PRIVATE PLACEMENT OF 1,040,000 SHARES OF COMMON STOCK, $0.01 PAR VALUE AT $1.25 PER SHARE ----------------------- FOR ACCREDITED INVESTORS ONLY ----------------------- THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND RESTRICTED TRANSFERABILITY. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH OR APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC") OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE NOR HAS THE SEC OR ANY STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND THE EXHIBITS HERETO (COLLECTIVELY, "MEMORANDUM"). ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION IN WHICH AN OFFER IS NOT AUTHORIZED. THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CONFIDENTIAL, CONTAINS NON- PUBLIC INFORMATION, AND IS INTENDED ONLY FOR THE PERSON WHOSE NAME APPEARS ABOVE AND SUCH PERSON'S ADVISORS, IF ANY. TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED REPRODUCTION OF ANY PORTION OF THIS MEMORANDUM IS STRICTLY PROHIBITED ---------------------------- SEPTEMBER 20, 1996 ECOSCIENCE CORPORATION TERMS OF OFFERING OF COMMON STOCK THE FOLLOWING ARE THE TERMS OF THE OFFERING OF COMMON STOCK OF ECOSCIENCE CORPORATION (THE "COMPANY') WHICH SHOULD BE READ TOGETHER WITH THE ATTACHED OVERVIEW AND THE EXHIBITS ANNEXED THERETO. Securities Offered............... The Offering consists of 1,040,000 shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), having an offering price of $1,300,000 in the aggregate. Offering Price................... $1.25 per share of Common Stock. Common Stock Outstanding......... 9,342,177 shares of Common Stock issued and outstanding as of September 19, 1996. Use of Proceeds.................. The net proceeds from this Offering are estimated to be approximately $1,150,000 after deducting offering expenses. The proceeds will be used to repay certain indebtedness and for general corporate purposes. Purchaser Requirements........... Purchase of the Common Stock offered hereby is limited to accredited investors ("Accredited Investors") as that term is defined in Regulation D under the Securities Act of 1933 as amended ("the Securities Act") who make certain representations concerning their assets or income, investment intention and sophistication Placement Agent.................. The Company has retained Taglich Brothers, D'Amadeo, Wagner & Company, Inc. to act as placement agent ("the Placement Agent") in connection with this offering and will pay Placement Agent $25,000, plus a 7.0% commission for all equity funds raised. In addition, the Placement Agent shall receive five (5) year Warrants to purchase 156,000 shares of the Company's common stock, at an exercise price of $2.00 per share. The Company will reimburse the Placement Agent for all of its expenses in connection with the offering up to a maximum of $15,000. Shares may be offered by certain other broker/dealers and the Placement Agent may allot a portion of its compensation to such other broker/dealers. Offering Period.................. The Offering will continue through September 25, 1996 subject to an extension for a period of up to 30 days on the terms set forth in the agreement between the Company and the Placement Agent. There will not be any closing unless the entire offering is sold. Subscription Procedure.......... To subscribe for the shares offered hereby, prospective investors are to complete the Subscription Agreement which accompanies the Private Placement Memorandum and return it to the Placement Agent in the self-addressed envelope. The execution and delivery of the Subscription Agreement will constitute a prospective investor's irrevocable subscription for the shares indicated. All executed Subscription Agreements shall be accompanied by check or wire transfer to the Escrow Agent. The Company has the right, in its sole discretion, to accept or reject any subscription, in whole or in part. Escrow Account.................. All subscription payments received prior to the closing of this Offering will be deposited with the Escrow Agent in an Escrow Account. No interest will be earned by subscribers on subscription payments held in the Escrow Account. If less than all the shares being offered are sold prior to termination of the Offering Period, or if for any reason the closing of the purchase and sale of the shares does not take place, all payments will be returned to subscribers without interest or deduction. Restrictions on Transfer........ The Common Stock issued at closing may not be offered, sold or resold unless they are registered under the Securities Act or an exemption from the registration requirements of the Recurities Act is available. None of such securities has been registered under the Securities Act. Registration of Shares.......... The Company has agreed to prepare and file with the SEC a registration statement ("Registration Statement") on the appropriate form under the 1933 Act, with respect to the Shares and the shares of Common Stock issuable upon the exercise of the Placement Agent Warrants collectively, the ("Registrable Securities"), within nine (9) months after the Closing and use its best efforts to have the Registration Statement become effective and to keep such registration statement effective and current for three (3) years. If such Registration Statement is not declared effective within nine (9) months after the Closing, the holders of such Registrable Securities (including transferees authorized under applicable securities laws) shall be entitled to additional Shares of Common Stock equal to, and the number of shares issuable under the Placement Agent Warrants shall be increased by, the lesser of (i) the product of (x) four (4%) percent of the number of Registrable Securities owned by each such holder, and (y) the number of months, or any part thereof, beyond said nine (9) month period until the Registration Statement is declared effective or (ii) 35%. In addition, holders of the Registrable Securities will be entitled to piggyback registration rights, which subject to certain restrictions, would permit the holders to include their Registrable Securities in a Registration Statement filed by the Company covering securities to be offered by the Company or other selling security holders. EX-10.46 6 EXHIBIT 10.46 EXHIBIT 10.46 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT") OR ANY STATE SECURITIES LAWS AND HAVE BEEN ACQUIRED PURSUANT TO AN INVESTMENT REPRESENTATION ON THE PART OF THE PURCHASER HEREOF AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, BY THE PURCHASER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF ITS COUNSEL OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY, IN EITHER CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933 ACT, AND APPLICABLE STATE SECURITIES LAWS. ECOSCIENCE CORPORATION Common Stock Purchase Warrant to Purchase 156,000 Shares of Common Stock This Common Stock Purchase Warrant is issued to: TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED 100 Wall Street 10th Floor New York, NY 10005 by ECOSCIENCE CORPORATION, a Delaware corporation (hereinafter called the "Company", which term shall include its successors and assigns). FOR VALUE RECEIVED and subject to the terms and conditions hereinafter set out, the registered holder of this Warrant is entitled upon surrender of this Warrant to purchase from the Company One Hundred Fifty-Six Thousand (156,000) fully paid and nonassessable shares of Common Stock, no par value (the "Common Stock"), at the price of $2.00 per share. This Warrant shall expire at the close of business on September 24, 2001. 1. (a) The right to purchase shares of Common Stock represented by this Warrant may be exercised by the registered holder hereof, in whole or in part by the surrender of this Warrant (properly endorsed if required) at the principal office of the Company at 10 Alvin Court, East Brunswick, New Jersey 08816, (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company), and upon payment to the Company, by cash or by certified check or bank draft, of the Warrant Purchase Price (as hereinafter defined) for such shares. The Company agrees that the shares so purchased shall be deemed to be issued to the registered holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. Certificates for the shares so purchased (together with a cash adjustment in lieu of any fraction of a share) shall be delivered to the registered holder hereof within a reasonable time, not exceeding five (5) business days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of shares, if any, with respect to which this Warrant shall not then have been exercised, in all other respects identical with this Warrant, shall also be issued and delivered to the registered holder hereof within such time, or, at the request of such registered holder, appropriate notation may be made on his Warrant and the same returned to such registered holder. (b) This Warrant may be exercised to acquire, from and after the date hereof, the number of shares of Common Stock set forth on the first page hereof; provided, however, the right hereunder to purchase such shares of Common Stock shall expire at the close of business on September 24, 2001. 2. This Warrant is being issued by the Company to Taglich Brothers, D'Amadeo, Wagner & Company, Incorporated ("Taglich Brothers") pursuant to a Placement Agreement between the Company and Taglich Brothers dated September 12, 1996, whereby the Company agreed to issue a five (5) year warrant exercisable at $2.00 per share to Taglich Brothers equal to fifteen (15%) percent of the total number of shares of Common Stock sold by Taglich Brothers in a Private Placement pursuant to a Confidential Private Placement Memorandum dated September 20, 1996 ("Memorandum"). 3. The Company covenants and agrees that all Common Stock upon issuance against payment of the exercise price pursuant to this Warrant will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof; and, without limiting the generality of the foregoing, the Company covenants and agrees that it will take from time to time all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the then effective Warrant Purchase Price. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will have at all times authorized, and reserved for the purpose of issue or transfer upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant, and will procure at its sole expense upon each such reservation of shares the listing thereof (subject to issuance or notice of issuance) on all stock exchanges on which the Common Stock is then listed or inter-dealer trading systems on which the Common Stock is then traded. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock may be listed or inter-dealer trading system on which the Common Stock is then traded. The Company will not take any action which would result in any adjustment in the number of shares of Common Stock purchasable hereunder if the total number of shares of Common Stock issuable pursuant to the terms of this Warrant after such action upon full exercise of this Warrant and, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and other -2- rights to purchase shares of Common Stock then outstanding, would exceed the total number of shares of Common Stock then authorized by the Company's Articles of Incorporation, as then amended. 4. The above provisions are, however, subject to the following: (a) The Initial Warrant Purchase Price shall be $2.00 per share. Such purchase price shall be subject to an adjustment from time to time as hereinafter provided (such price or price as last adjusted, as the case may be, being herein called the "Warrant Purchase Price"). Upon each adjustment of the Warrant Purchase Price, the registered holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Purchase Price resulting from such adjustment, the number of shares of Common Stock obtained by (i) multiplying the Warrant Purchase Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable hereunder immediately prior to such adjustment and (ii) dividing the product thereof by the Warrant Purchase Price resulting from such adjustment. (b) In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Warrant Purchase Price in effect immediately prior to such combination shall be proportionately increased. (c) If any capital reorganization or reclassification of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale (except as otherwise provided below in this paragraph 4(c)), lawful and adequate provisions shall be made whereby the registered holder hereof shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the registered holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Warrant Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof (including an immediate adjustment, by reason of such consolidation or merger, of the Warrant Purchase Price to the value for the Common Stock reflected by the terms of such consolidation or merger if the value so reflected is less than the Warrant Purchase Price in effect immediately prior to such consolidation or merger). In the event of a merger or consolidation of the Company with or into another corporation as a result of which a number of shares of common stock of the surviving -3- corporation greater or lesser than the number of shares of Common Stock of the Company outstanding immediately prior to such merger or consolidation are issuable to holders of Common Stock of the Company, then the Warrant Purchase Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Company. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to the registered holder hereof at the last address of such holder appearing on the books of the Company, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase or otherwise acquire. If a purchase, tender or exchange offer is made to and accepted by the holders of more than fifty (50%) percent of the outstanding shares of Common Stock of the Company, the Company shall not effect any consolidation, merger or sale with the Person having made such offer or with any Affiliate of such Person, unless prior to the consummation of such consolidation, merger or sale the registered holder of this Warrant shall have been given a reasonable opportunity to then elect to receive upon the exercise of this Warrant either the amount of stock, securities or assets then issuable with respect to the number of shares of Common Stock of the Company in accordance with such offer. The term "Person" as used in this paragraph 4(c) shall mean and include an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization and a government or any department or agency thereof. For the purposes of this paragraph 4(c), an Affiliate of any Person shall mean any Person directly or indirectly controlling, controlled by or under direct or indirect preferred control with, such other Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. (d) In case the Company shall sell or issue (i) Common Stock (except upon exercise or conversion of options, warrants or convertible or exchangeable securities either issued prior to the date hereof or as to which there has already been adjustment pursuant to subdivision (ii)) or (ii) rights, options, warrants or convertible or exchangeable securities exchangeable or exercisable into Common Stock (collectively, "Rights") of the Company at a price per share which is lower (at the record date for such issuance) than the then Warrant Purchase Price per share of Common Stock, the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Common Stock or Rights, plus the number of additional shares of Common Stock offered for subscription or purchase, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such Common Stock or Rights plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the then Warrant Purchase Price per share of Common Stock. Such adjustment shall be made whenever such Common Stock or Rights are issued, and shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such Rights. -4- (e) Whenever the Warrant Purchase Price and the number of shares of Common Stock shall be adjusted as herein provided, the Company shall compute the adjusted Warrant Purchase Price and the adjusted number of shares of Common Stock in accordance with such provisions and shall prepare a certificate signed by its President, any Vice President, Treasurer or Secretary setting forth the adjusted Warrant Purchase Price and the adjusted number of shares of Common Stock which may be acquired and showing in reasonable detail the facts upon which such adjustments are based, and the Company shall cause to be mailed to the registered holder of this Warrant a notice stating that the Warrant Purchase Price and the number of shares of Common Stock have been adjusted and setting forth the adjusted Warrant Purchase Price and the adjusted number of shares of Common Stock. (f) In case at any time: (i) the Company shall declare any cash dividend upon its Common Stock payable at a rate in excess of the rate of the last cash dividend theretofore paid; (ii) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution (other than regular cash dividends) to the holders of its Common Stock; (iii) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (iv) there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (v) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of said cases, the Company shall give by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company (A) at least twenty (20) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (B) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least twenty (20) days prior written notice of the date when the same shall take place. Any notice required by clause (A) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and any notice required by clause (B) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property -5- deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. (g) If any event occurs as to which in the reasonable and good faith opinion of the Board of Directors of the Company the other provisions of this paragraph 4 are not strictly applicable or if strict application would not fairly protect the purchase rights of this Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Warrant Purchase Price as otherwise determined pursuant to this paragraph 4 except in the event of a combination of shares of the type contemplated in paragraph 4(b) and then in no event to an amount larger than the Warrant Purchase Price as adjusted pursuant to paragraph 4(b). 5. In the event the Company grants rights to all shareholders to purchase Common Stock, the registered holder of this Warrant shall have the same rights as if this Warrant had been exercised immediately prior to such grant. 6. The registered holder of this Warrant shall, with respect to the shares of Common Stock issuable upon the exercise of this Warrant, have the registration rights and "piggy back" registration rights set forth in the Stock Purchase Agreement (the form of which is attached to the Memorandum) by and among the Company, Taglich Brothers and the Investors purchasing shares pursuant to the Memorandum. Such registration rights and "piggy back" registration rights are incorporated herein by this reference as if such provisions had been set forth herein in full. 7. This Warrant need not be changed because of any change in the Warrant Purchase Price or in the number of shares of Common Stock purchased hereunder. 8. The terms defined in this paragraph, whenever used in this Warrant, shall, unless the context otherwise requires, have the respective meanings hereinafter specified. The term "Common Stock shall mean and include the Company's Common Stock, $0.01 par value, authorized on the date of the original issue of this Warrant and shall also include in case of any reorganization, reclassification, consolidation, merger or sale of assets of the character referred to in paragraph 4 hereof, the stock, securities or assets provided for in such paragraph. The term "Company" shall also include any successor corporation to ECOSCIENCE CORPORATION by merger, consolidation or otherwise. The term "outstanding" when used with reference to Common Stock shall mean at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company. The term "Securities Act" shall mean the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission, or any other Federal agency then administering such Securities Act, thereunder, all as the same shall be in effect at the time. 9. This Warrant is exchangeable, upon the surrender hereby by the registered holder hereof at the office or agency of the Company, for new Warrants of like tenor representing in the -6- aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by such registered holder hereof at the time of such surrender. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any such new Warrants and, in the case of any such loss, theft, or destruction, upon delivery of a bond of indemnity, reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender or cancellation of this Warrant or such new Warrants, the Company will issue to the registered holder hereof a new Warrant of like tenor, in lieu of this Warrant or such new Warrants, representing the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder. 10. The Company agrees to use its best efforts to file timely all reports required to be filed by it pursuant to Section 13 or 15 of the Securities Exchange Act of 1934, as amended, and to provide such information as will permit the registered holder to sell this Warrant or any stock acquired upon exercise of this Warrant in accordance with Rule 144 under the Securities Act. 11. The Company will at no time close its transfer books against the transfer of this Warrant or of any shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. This Warrant shall not entitle the registered holder hereof to any voting rights or any rights as a stockholder of the Company. The rights and obligations of the Company, of the registered holder of this Warrant, and of any holder of shares of Common Stock issuable hereunder, shall survive the exercise of this Warrant. 12. This Warrant sets forth the entire agreement of the Company and the registered holder of this Warrant and the Common Stock issuable upon the exercise of this Warrant with respect to the rights of the registered holder of this Warrant and the Common Stock issuable upon the exercise of this Warrant, notwithstanding the knowledge of such registered holder of any other agreement or the provisions of any agreement, whether or not known to such registered holder and the Company represents that there are no agreements inconsistent with the terms hereof or which purport in any way to bind the registered holder of this Warrant or the Common Stock. 13. The validity, interpretation and performance of this Warrant and each of its terms and provisions shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer under its corporate seal and to be dated September 25, 1996. ECOSCIENCE CORPORATION By: /s/ HAROLD A. JOANNIDI ---------------------- Name: Harold A. Joannidi Title: Treasurer and Secretary [CORPORATE SEAL] -7- EX-10.47 7 EXHIBIT 10.47 [LETTERHEAD] August 8, 1996 Michael DeGiglio President EcoScience Corporation 10 Alvin Court East Brunswick, NJ 08816 Dear Mike: Financing for Science International, Inc. (FSI) accepts EcoScience Corporation's (EcoScience) offer to prepay its obligations and return the surplus equipment under the Master Equipment Lease Agreement dated June 7, 1994 under the following terms and conditions: 1) EcoScience shall pay the August rental of $55,073.60 no later than August 9,1996 and shall pay $930,000.00 no later than September 6, 1996. In the event that the September 6th date is not met, then EcoScience shall pay the September rental of $55,073.60 no later than September 9, 1996 and a payment of $880,000.00 no later than September 30, 1996. 2) The $92,632.00 held by FSI as proceeds of prior equipment sales shall be retained by FSI. 3) The surplus equipment presently on consignment sale at Aaron Equipment Company (Aaron), 735 E. Green St., Bensenville, IL 60106 shall be returned to FSI's control and all expenses due and owing Aaron through the date of the lump sum payment to FSI shall be paid by EcoScience directly to Aaron. 4) Copies of all agreements between EcoScience and Aaron shall be delivered to FSI no later than August 12, 1996 for review, along with the name of the contact person at Aaron. 5) Title to the equipment retained by EcoScience with an original cost totaling $47,613.65 shall be transferred to EcoScience following the payments described in paragraph one above. If this outlines the business agreement, please acknowledge with a signed copy faxed back to me and I will proceed to have the legal documents prepared to reflect this agreement. If you have any questions I can be reached directly at (866) 674-7532. Sincerely, Acknowledged: /s/ Duane E. Starr EcoScience Corporation - ------------------ by /s/ Michael DeGiglio Duane E. Starr ------------------------ Senior Vice President Michael DeGiglio, President Asset Management cc: Robert W. Maxwell EX-10.48 8 EXHIBIT 48 EXHIBIT 10.48 THIS WARRANT HAS BEEN ISSUED PURSUANT TO AN INVESTMENT REPRESENTATION ON THE PART OF THE HOLDER HEREOF AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF COUNSEL TO THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY, IN EITHER CASE TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE STOCK ISSUABLE UPON ITS EXERCISE ARE FURTHER SUBJECT TO THE RESTRICTIONS ON TRANSFER REFERRED TO IN SECTION 3 OF THIS WARRANT. Warrant No. 21 50,000 Shares COMMON STOCK PURCHASE WARRANT TO SUBSCRIBE FOR SHARES OF COMMON STOCK OF ECOSCIENCE CORPORATION THIS CERTIFIES THAT, for value received, Aeroglide Corporation of Florida or its permitted assigns (the "Registered Holder") is entitled to subscribe for and purchase from EcoScience Corporation, a Delaware corporation (the "Company"), at any time prior to February 28, 1999, Fifty Thousand (50,000) shares of the Common Stock, par value $.01 per share (as defined in Section 7(a) herein, the "Stock"), for a purchase price of Two Dollars ($2.00) per share (with adjustments provided for herein, hereinafter called the "Warrant Price"). 1. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised by the Registered Holder hereof in whole or in part (but not as to fractional shares of Stock) by the surrender of this Warrant and delivery of an executed Notice of Exercise in the form appended hereto to the Company at its principal office at 10 Alvin Court, East Brunswick, New Jersey 08816, Attention: President, at any time or times within the period specified above, accompanied by payment for the Stock as to which this Warrant is being exercised by wire transfer to an account designated by the Company or by certified or bank check. In the event of a partial exercise of the rights represented by this Warrant, this Warrant shall be canceled and the Company shall deliver a new Warrant of like tenor representing the balance of the shares of Stock purchasable hereunder. A certificate or certificates for the Stock purchased upon exercise of this Warrant and, in the event of a partial exercise of this Warrant, a -2- new Warrant, shall be delivered by the Company to the Registered Holder not later than ten days after payment is made for the purchased Stock. Any exercise of the rights represented by this Warrant shall be deemed to have been effected immediately prior to the close of business on the date on which the Notice of Exercise and accompanying payment shall have been received by the Company and this Warrant shall have been surrendered. If the last day for the exercise of this Warrant shall be a Sunday or a legal holiday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized by law to close, then this Warrant may be exercised on the next succeeding day which is not a Sunday, legal holiday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized by law to close. No payment or adjustment shall be made upon any exercise on account of any dividends on the Stock issued upon such exercise. 2. VALIDITY OF ISSUE. The Company warrants that all shares of Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof (other than taxes in respect of any transfer involved in the issuance and delivery of any certificate for shares of Stock in a name other than that of the Registered Holder hereof). The Company further warrants that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of shares of Stock to provide for the exercise of the rights represented by this Warrant. 3. INVESTMENT REPRESENTATION. The Registered Holder by accepting this Warrant represents that the Warrant is acquired for the Registered Holder's own account for investment purposes and not with a view to any offering or distribution thereof and that the Registered Holder has no present intention of selling or otherwise disposing of the Warrant or the underlying shares of Stock upon exercise, and the Registered Holder will confirm, in respect of securities obtained upon such exercise, that it is acquiring such securities for its own account and not with a view to any offering or distribution in violation of applicable securities laws. The Registered Holder further represents that it will not sell or otherwise dispose of the Warrant or the underlying shares of Stock in the absence of an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering such securities, or an opinion of counsel for the Registered Holder hereof reasonably acceptable to the Company, or such other evidence as may be reasonably acceptable to the Company, that no such registration is required. The Registered Holder further agrees that the Company may affix to the certificate(s) evidencing the Stock of the Company which may be issued upon the exercise of this Warrant a legend in the form set forth below: THE SHARE OR SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT (i) PURSUANT TO A REGISTRATION THEREOF UNDER THE SECURITIES ACT OF 1933, OR (ii) UPON DELIVERY TO THE COMPANY OF THE WRITTEN OPINION -3- OF COUNSEL FOR THE HEREON-NAMED OWNER, WHICH OPINION IS REASONABLY ACCEPTABLE TO THE COMPANY, OR SUCH OTHER EVIDENCE AS MAY BE REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED TRANSFER MAY BE EFFECTED WITHOUT SUCH REGISTRATION. 4. ADJUSTMENTS TO PREVENT DILUTION. (a) In case the Company shall at any time subdivide its outstanding shares of Stock into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall be proportionately reduced, and the number of shares issuable upon exercise of this Warrant shall be proportionately increased; and conversely, in case the outstanding shares of Stock of the Company shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall be proportionately increased and the number of shares issuable upon exercise of this Warrant shall be proportionately reduced. (b) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or sale of all or substantially all of the Company's assets or those of any successor corporation shall be effected, then, as a condition of such capital reorganization, reclassification, consolidation, merger, or sale, lawful and adequate provision shall be made whereby the Registered Holder hereof shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant, in lieu of shares of Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, those shares of stock, securities or assets which would have been issued or payable with respect to or in exchange for the Stock issuable upon exercise of this Warrant had this Warrant been exercised immediately prior to the record date (or the effective date, as the case may be) for such capital reorganization, reclassification, consolidation, merger or sale; and in any such case appropriate provision shall be made with respect to the rights and interests of the Registered Holder of this Warrant to the end that the provisions hereof (including without limitation provisions for adjustment of the Warrant Price and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities, or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any consolidation or merger unless prior to the consummation thereof the successor corporation shall assume by written instrument executed and mailed to the Registered Holder hereof at its address registered on the books of the Company the obligation to deliver to the Registered Holder hereof such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Registered Holder may be entitled to purchase. (c) Upon any adjustment of the Warrant Price, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the Registered Holder of this Warrant at its address registered on the books of the Company, which notice shall -4- state the Warrant Price resulting from such adjustment and the increased or decreased number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 5. NOTICE OF REORGANIZATIONS, ETC. In case at any time: (a) the Company shall declare any dividend upon its Stock whether payable in cash, property, Stock or other assets, or make any distribution to the Registered Holders of its Stock; or (b) there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another entity; or (c) there shall be a voluntary or involuntary dissolution, liquidation, or winding up of the Company, then, in each one or more of such cases, the Company shall give at least 10 days' prior written notice, by first class mail, postage prepaid, addressed to the Registered Holder at its address registered on the books of the Company, of the date on which the books of the Company shall close or a record shall be taken for purposes of ascertaining which shareholders will be entitled to participate in such dividend or distribution or will be entitled to vote on such capital reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. 6. "PIGGY-BACK" REGISTRATIONS. If at any time the Company shall determine to register any of its securities under the Securities Act on Form S-1 or its then equivalent, it shall send to the Registered Holder hereof written notice of such determination and, if within 10 days after receipt of such notice, the Registered Holder shall so request in writing, the Company shall use its best efforts to include in such registration statement all or any part of the shares of Stock purchasable hereunder the Registered Holder requests to be registered therein, except that if, in connection with any offering involving an underwriting of Common Stock to be issued by the Company, the managing underwriter shall impose a limitation on the number of shares of such Stock which may be included in any such registration statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, and such limitation is imposed pro rata with respect to all securities whose holders have a contractual, incidental ("piggy-back") right to include such securities in the registration statement and as to which inclusion has been requested pursuant to such right, then the Company shall be obligated to include in such registration statement only such limited portion (which may be none) of the Stock with respect to which the Registered Holder has requested inclusion hereunder. Notwithstanding the foregoing, the Registered Holder -5- shall not have any right to request inclusion in such registration statement of any Stock which is available for sale and can be sold (whether or not sold) pursuant to Rule 144A or Rule 144 under the Securities Act, or any similar rule promulgated by the Securities and Exchange Commission permitting the resale of restricted securities without the necessity of a registration statement under the Securities Act. 7. MISCELLANEOUS. (a) As used herein the term "Stock" shall mean and include the Company's presently authorized Common Stock, par value $.01 per share, and stock of any other series or class into which such presently authorized Stock may hereafter be changed. (b) This Warrant shall not entitle the Registered Holder hereof to voting rights or any other rights whatsoever as a stockholder of the Company or, except as set forth in Section 5 above, to any notice of meetings of stockholders or any other proceedings of the Company. (c) This Warrant is exchangeable, upon the surrender hereof at the office or agency of the Company, for new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares of Stock which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares of Stock as shall be designated by said Registered Holder hereof at the time of such surrender. 8. TRANSFER AND REGISTERED HOLDER. Subject to the foregoing, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Registered Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed, together with a written assignment of this Warrant duly executed by the Registered Holder hereof or its duly authorized attorney. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the Registered Holder hereof as the owner for all purposes. 9. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with, and governed by, the laws of the Commonwealth of Massachusetts. -6- IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by an officer thereunto duly authorized and its corporate seal to be hereunto affixed, on this 20 day of February, 1996. ECOSCIENCE CORPORATION By: /s/ MICHAEL A. DEGIGLIO -------------------------- Name: Michael A. DeGiglio Title: President & CEO (SEAL) Attest: /s/ HAROLD A. JOANNIDI - ---------------------- Name: Harold A. Joannidi Title: Corporate Controller -7- NOTICE OF EXERCISE (To be Executed by the Registered Holder in Order to Exercise the Warrant) The undersigned hereby irrevocably elects to exercise the right to purchase ______________________________ (_________) shares of Common Stock, $.01 par value, of EcoScience Corporation covered by Warrant No. W-[_] according to the conditions thereof and herewith makes payment of the Warrant Price of such shares in full. I. Specify method of exercise by check mark: ______ 1. Such payment is hereby tendered in the form of $________ by wire transfer or by certified or bank check. ______ 2. The holder elects to receive shares for the value (as determined pursuant to paragraph 1 of the Warrant and as calculated in the attached schedule) of the Warrant. II. The undersigned hereby confirms the representations and warranties contained in Section 3 of the Warrant. Printed Name of Warrant Holder: ____________________________ Signature: ____________________________ Title (if signing on behalf of a Warrant Holder: ____________________________ Address: ____________________________ ____________________________ ____________________________ Dated:_______________________ -8- EX-10.49 9 EXHIBIT 10.49 EXHIBIT 10.49 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT ("Agreement") dated as of the day of September, 1996, by and among ECOSCIENCE CORPORATION, a Delaware corporation (the "Company"), TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED ("Placement Agent"), either on its own behalf or on behalf of other investors, and the persons and entities listed on EXHIBIT A to this Agreement (Placement Agent and the persons and entities listed on EXHIBIT A annexed hereto being referred to individually as an "Investor" and collectively as the "Investors"). W I T N E S S E T H : WHEREAS, in reliance upon the representations, warranties, terms and conditions hereinafter set forth, the Investors desire to purchase from the Company, and the Company desires to sell to the Investors, one million forty thousand (1,040,000) shares of the Company's common stock, $0.01 par value (each a "Share" and collectively, the "Shares") subject to the terms hereof; and WHEREAS, the Shares are being issued pursuant to the Company's Confidential Private Placement Memorandum and Exhibits thereto dated September 25,1996 (collectively, the "Memorandum"); and WHEREAS, the Shares are being issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act"). NOW, THEREFORE, in consideration of the premises and the respective promises hereinafter set forth, the Company and the Investors hereby agree as follows: 1. SALE AND PURCHASE OF SHARES. (a) Subject to the terms and conditions of this Agreement, the Company shall sell to the Investors one million forty thousand (1,040,000) Shares, and each Investor shall purchase from the Company the number of Shares as is set forth after the Investor's name on EXHIBIT A annexed hereto for a consideration of One Dollar and 25/100 ($1.25) per Share provided that no Shares will be sold unless all Shares are subscribed and paid for by September 25,1996. (b) The sale and purchase described in Paragraph 1(a) of this Agreement shall take place at a closing (the "Closing") at the offices of SPITZER & FELDMAN P.C., 405 Park Avenue, New York, New York 10022-4405 or such other place as shall be acceptable to the Company and Placement Agent on September 25, 1996. 2. PAYMENT. At Closing, the Company shall deliver to Placement Agent, on behalf of the Investors, the original executed and sealed certificates for the Shares being purchased by the Investors pursuant to Paragraph 1 of this Agreement, against its receipt of payment therefor by certified or bank check drawn on a bank located in the United States or by wire transfer in federal funds in the amount of the aggregate purchase price for such Shares as provided in Paragraph 1 of this Agreement, less the amount of fees payable to Placement Agent pursuant to Paragraph 10(a) of this Agreement. All certificates for Shares being purchased by the Investors shall be issued in the respective names of the Investors in accordance with instructions provided by Placement Agent. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to and covenants and agrees with each Investor as of the date hereof and as of the date of the Closing, as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted by the Company or the property owned or leased by the Company requires such qualification. Except as set forth in the Memorandum, the Company has no subsidiaries and does not own any equity interest and has not made any loans or advances to or guarantees of indebtedness to any person, corporation, partnership or other entity. (b) The authorized capital of the Company consists of twenty-five million (25,000,000) shares of common stock, $0.01 par value (the "Common Stock") of which, as of the date of this Agreement, 9,342,177 shares of Common Stock are issued and outstanding and 1,294,976 Shares of Common Stock are reserved for issuance. Except as set forth in the Memorandum, the Company is not a party to any agreement to issue, nor has it issued, any warrants, options or rights or debentures, notes or other evidence of indebtedness or other securities, instruments or agreements upon the exercise or conversion of which or pursuant to the terms of which additional shares of capital stock of the Company may become issuable. No holder of any of the Company's securities has preemptive rights or contractual rights of first refusal. (c) The Company has the full right, power and authority to execute, deliver and perform under this Agreement, the Shares -2- and the Placement Agent Warrants (as defined below). This Agreement has been duly executed by the Company and, at Closing, the Shares and the Placement Agent Warrants being issued will have been duly executed by the Company, and this Agreement, the Shares, the Placement Agent Warrants and the transactions contemplated by this Agreement, the Shares and the Placement Agent Warrants have been duly authorized by all necessary corporate action and each constitute, the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms. (d) All of the issued and outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and nonassessable, with no personal liability attaching to the holders thereof, and such shares of Common Stock have not been issued in violation of the preemptive rights or rights of first refusal of any holder of securities of the Company. All of the issued and outstanding shares of Common Stock have been issued pursuant to either a registration statement under the 1933 Act or an exemption from the registration requirements of the 1933 Act and were issued in accordance with all applicable Federal and state securities laws. (e) The Company has delivered to each Investor a copy of the following financial statements of the Company (hereinafter collectively, the "Financial Statements"): (1) (i) its balance sheet as at June 30, 1995 and 1994, and (ii) the statements of income, shareholders' equity (deficiency) and cash flows for the fiscal years ended June 30, 1995 and 1994, and the related notes thereto, which have been audited by Arthur Andersen LLP, independent certified public accountants, and (2) the unaudited balance sheet at March 31, 1996 and unaudited statements of operations and cash flows for the nine (9) month period ended March 31, 1996, and the notes related thereto. The Financial Statements, which are included in the Company's Form 10-K Annual Report for the year ended June 30, 1995 and the Company's Form 10-Q Quarterly Report for the quarter ended March 31, 1996, were prepared in accordance with generally accepted accounting principles consistently applied and present and reflect fairly the financial position of the Company at the respective balance sheet dates and the results of its operations, changes in shareholders' equity and cash flows for the periods then ended. (f) The Shares of Common Stock issuable upon the exercise of the Placement Agent Warrants have been validly authorized for issuance and, when issued against payment of the exercise price pursuant to this Agreement and the terms of the Placement Agent Warrants, as the case may be, will be duly and validly authorized and issued, fully paid and nonassessable and -3- free from preemptive rights or rights of first refusal held by any person. (g) The Company has good and marketable title to all of its property and assets and, except as set forth in the Memorandum, none of the property or assets of the Company is subject to any lien, mortgage, pledge, encumbrance or other security interest. (h) Since March 31, 1995, except as set forth in the Memorandum, there has not been any material adverse change in the financial condition or in the operations, business or prospects of the Company from that shown in the Financial Statements or any damage or destruction, whether covered by insurance or not, which affects the business, property or assets of the Company. (i) The Company has delivered to each Investor (i) a copy of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, (ii) a copy of the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1996, December 31, 1995 and September 30, 1995 (iii) a copy of the Company's annual report and proxy statement relating to the Company's 1996 annual meeting of stockholders, (iv) any Current Reports on Form 8-K or other reports filed with the Securities and Exchange Commission (the "SEC") subsequent to April 30, 1996, (v) a copy of each Schedule 13D or 13G which has been filed with the Company within the past year; provided, that no representation is made by the Company with respect to the contents of any Schedule 13D or 13G; and (vi) any additional documents referred to in EXHIBIT B annexed hereto. (j) Neither the execution or delivery of this Agreement or the Shares or the Placement Agent Warrants by the Company nor the performance by the Company of the transactions contemplated by this Agreement, the Shares or the Placement Agent Warrants: (i) requires the consent, waiver, approval, license or authorization of or filing with or notice to any person, entity or public authority (except any filings required by Federal or state securities laws, which filings have been or will be made on a timely basis); (ii) violates or constitutes a default under or breach of any law, rule or regulation applicable to the Company; (iii) conflicts with or results in a breach or termination of any provision of, or constitutes a default under, or will result in the creation of any lien, charge or encumbrance upon any of the property or assets of the Company with or without the giving of notice, the passage of time or both, pursuant to (A) the Company's certificate of incorporation or by-laws, (B) any mortgage, deed of trust, indenture, note, loan agreement, security agreement, contract, lease, license, alliance agreement, joint venture agreement, or -4- other agreement or instrument, or (C) any order, judgment, decree, statute, regulation or any other restriction of any kind or character to which the Company is a party or by which any of the assets of the Company may be bound. (k) The Company has no material indebtedness to any officer, director, 5% stockholder or other Affiliate (as defined in the Rules and Regulations of the SEC under the 1933 Act) of the Company. (l) The Company is in compliance in all material respect with all laws, rules and regulations of all Federal, state and local government agencies having jurisdiction over it or affecting its business, assets or properties, and the Corporation possesses all licenses, permits, consents, approvals and agreements which are required to be issued by any and all applicable Federal, state or local authorities necessary for the operation of its business and/or in connection with its assets or properties. (m) The Company is not in default in any material respects under any note, loan agreement, security agreement, mortgage, contract, lease, alliance agreement, joint venture agreement, agreement, license, permit, consent, approval or instrument to which it is a party, and no event has occurred which, with or without the lapse of time or giving of notice, or both, would constitute such default thereof by the Company or would cause acceleration of any obligation of the Company or would adversely affect the business, operations, financial condition or prospects of the Company. (n) Except as set forth in the Memorandum, to the best of the Company's knowledge, no officer, director or 5% stockholder of the Company and no Affiliate of any such person either (i) holds any interest in any corporation, partnership, business, trust, sole proprietorship or any other entity which is engaged in a business similar to that conducted by the Company (other than a five (5%) percent or less interest in a public company engaged in any such business) or (ii) engages in any material related-party transaction with the Company . (o) There are no material (i.e., involving an asserted liability in excess of ten thousand dollars ($10,000)) claims, actions, suits, proceedings or labor disputes, inquiries or investigations (whether or not purportedly on behalf of the Company), pending or, to the best of the Company's knowledge, threatened, against the Company, at law or in equity or by or before any Federal, state, county, municipal or other governmental department, SEC, NASDAQ, board, bureau, agency or instrumentality, -5- domestic or foreign, whether legal or administrative or in arbitration or mediation, nor, to the Company's knowledge, is there any basis for any such action or proceeding. Neither the Company nor any of its assets are subject to, nor is the Company in default with respect to, any order, writ, injunction, judgment or decree that could materially adversely affect the financial condition, business, assets or prospects of the Company. (p) The accounts receivable of the Company represent receivables generated from the sale of goods and services in the ordinary course of business. The Company knows of no material disputes concerning accounts receivable not disclosed in the Memorandum, and the accounts receivable are collectible in the ordinary course of business, subject to reserves reflected on the Financial Statements. (q) Except as set forth in the Memorandum, the Company has (i) no written employment contracts and no oral employment contracts not terminable at will by the Company, with any officer, director or other employee of the Company or any five (5%) percent shareholder of the Company, (ii) no consulting agreement or other compensation agreement with any officer, director or other employee of the Company or any five (5%) percent shareholder of the Company, and (iii) no agreement or contract with any party that will result in the payment by the Company, or the creation of any commitment or obligation (absolute or contingent), of the Company to pay any severance, termination, "golden parachute", or similar payment to any present or former personnel of the Company following termination of employment. To the Company's knowledge, no director, executive officer or other key employee of the Company has indicated that he or she intends to resign as director and/or executive officer of the Company or to terminate his or her employment with the Company. (r) The accounts payable of the Company represent bona fide payables to third parties incurred in the ordinary course of business and represent bona fide debts for services and/or goods provided to the Company. (s) The Company is not a party to a labor agreement with respect to its employees with any labor organization, union, group or association and there are no employee unions (nor any similar labor or employee organizations). In the last five (5) years, the Company has not experienced any attempt by organized labor or its representatives to make the Company conform to demands of organized labor relating to its employees or to enter into a binding agreement with organization labor that would cover any of the Company's employees. There is no labor strike or labor stoppage or -6- slowdown pending, or, to the knowledge of the Company, threatened against the Company nor has the Company experienced in the last five (5) years any work stoppage or other material labor difficulty. The Company is in compliance in all material respects with all applicable laws, rules and regulations regarding employment practices, employee documentation, terms or conditions of employment and wage and hours and the Company is not engaged in any unfair labor practices. There are no unfair labor practices, charges or complaints against the Company pending before the National Labor Relations Board or any other governmental agency. (t) Except as set forth in the Memorandum, there are no employee pension, retirement or other benefit plans, maintained, contributed to or required to be contributed to by the Company covering any employee or former employee of the Company. The Company has no material liability or obligation of any kind or nature, whether accrued or contingent, matured or unmatured, known or unknown, under any provision of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any provision of the Internal Revenue Code of 1986, as amended, specifically relating to persons subject to ERISA. (u) The Company has timely filed with the appropriate taxing authorities all returns in respect of taxes required to be filed through the date hereof and has timely paid all taxes it is required to pay or has established an adequate reserve therefor, except where the Company has timely filed for extensions. There are no pending or, to the knowledge of the Company, threatened audits, investigations or claims for or relating to any liability of the Company in respect of taxes. (v) The Company has no liabilities of any kind or nature whether accrued or contingent, matured or unmatured, known or unknown, except (i) as set forth in the Financial Statements, (ii) as set forth in the Memorandum and (iii) those liabilities incurred by the Company in the ordinary course of business since March 31, 1996. (w) Except as set forth in the Memorandum, no customer of the Company during fiscal year 1996 accounted for more than five (5%) percent of the revenues of the Company, except for one customer which accounted for 7% and to the best of the Company's knowledge, no customer will account for more than five (5%) percent of the Company's revenues during fiscal year 1997. (x) There are no finder's fees or brokerage commissions payable with respect to the transactions contemplated by this Agreement, except as provided in Paragraph 10 of this Agreement, -7- and the Company agrees to indemnify and hold harmless each of the Investors from and against any and all cost, damage, liability, judgment and expense (including reasonable fees and expenses of counsel) arising out of or relating to claims for such fees or commissions (and to pay Placement Agent pursuant to a separate agreement between the Company and Placement Agent), except to the extent that any such fees or commissions have been incurred by an Investor as a result of the actions of that Investor. (y) The Company is not currently and has not during the past six (6) months been engaged in negotiations with respect to any merger, consolidation, acquisition, disposition or other material business transaction. (z) The Company has the right to conduct its business in the manner in which its business has been heretofore conducted. The conduct of such business by the Company does not violate or infringe upon the patent, copyright, trade secret or other proprietary rights of any third party, and the Company has received no notice of any claim of any such violation or infringement. (aa) The Company has delivered to each Investor a copy of the Memorandum. The information contained in the Financial Statements and the Memorandum, taken together, describe in all material respects the business and financial condition of the Company, and such material, taken together, does not contain any misstatement of a material fact or omit to state a material fact necessary to make the information not misleading. The Investors shall be entitled to rely on such material notwithstanding any investigation they or any of them may have made, provided that the Investor does not have knowledge of a misrepresentation or omission as a result of such investigation . 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor hereby represents and warrants to and covenants and agrees with the Company and Placement Agent, as of the date hereof and as of the Closing Date, as follows: (a) Investor has the full right, power and authority to enter into this Agreement and to carry out and consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement and the transaction contemplated hereby have been authorized by all necessary action of the Investor. This Agreement constitutes the legal, valid and binding obligation of the Investor. (b) Investor acknowledges that Investor has received and reviewed the Financial Statements and the Memorandum and has had an -8- opportunity to meet with and ask questions of the management of the Company. In evaluating the suitability of making this investment, the Investor has not relied upon any representations or warranties made by the Company or its agents or any of the other Investors except as set forth in this Agreement, and each Investor acknowledges that no such other representations or warranties have been made to it, or to its advisors (if applicable), by the Company or its agents or by any of the other Investors and it has relied only on its review of this Agreement and its own advisors in deciding to make this investment. (c) Investor is an Accredited Investor (as defined in Rule 501 promulgated by SEC under the 1933 Act), has the financial ability to bear the economic risk of the Investor's investment, can afford to sustain a complete loss of such investment and has adequate means of providing for the Investor's current needs and personal contingencies, and has no need for liquidity in the Investor's investment in the Company; and the amount invested in the Company by the Investor does not constitute a substantial portion of the Investor's net worth. The Investor has delivered to the Company and Placement Agent a confidential investor questionnaire, and all of the information set forth in the confidential investor questionnaire is true and correct in all material respects. (d) Investor is acquiring the Shares being purchased for investment and not with a view to the sale or distribution thereof, for such Investor's own account and without any present intention of selling and not on behalf of others and the Investor has not granted any other person any right or option or any participation or beneficial interest in any of the Shares, except that Placement Agent may acquire Shares (but Placement Agent has no obligation to acquire Shares) and thereafter transfer such Shares to persons who qualify as Investors pursuant to this Agreement and execute this Agreement as an Investor, provided that Placement Agent shall have delivered the Shares being transferred to the Company or its transfer agent prior to the effective date of the registration statement to be filed by the Company pursuant to Paragraph 7(a) of this Agreement. Investor acknowledges that the Common Stock comprising the Shares constitute restricted securities within the meaning of Rule 144 of the SEC under the 1933 Act, and that such securities may not be sold except pursuant to an effective registration statement under the 1933 Act or in a transaction exempt from registration under the 1933 Act, and the Investor acknowledges that the Investor understands the meaning and effect of such restriction. The Investor will only transfer Shares or shares issued upon exercise of the Placement Agent Warrant in accordance with the provisions of applicable federal and state -9- securities laws. The Investor has sufficient knowledge and experience in financial and business matters so that the Investor is capable of evaluating the risks and merits of the purchase of the Shares. The Investor is aware that no Federal or state regulatory agency or authority has passed upon the sale of the Shares or the terms of the sale or the accuracy or adequacy of any material being provided to the Investor and that the price of the Shares was negotiated between the Company and Placement Agent and does not necessarily bear any relationship to the underlying assets or value of the Company. INVESTOR UNDERSTANDS THAT AN INVESTMENT IN THE SHARES BEING PURCHASED INVOLVES A HIGH DEGREE OF RISK. (e) INVESTOR UNDERSTANDS THAT, IN CONNECTION WITH INVESTOR'S EVALUATION OF THE COMPANY, INVESTOR HAS BEEN OR MAY HAVE BEEN PROVIDED WITH ACCESS TO CERTAIN INFORMATION CONCERNING THE COMPANY WHICH HAS NOT BEEN PUBLICLY DISCLOSED. INVESTOR FURTHER UNDERSTANDS THAT ANY TRADING BY THE INVESTOR IN SECURITIES OF THE COMPANY USING NON-PUBLIC INFORMATION COULD CONSTITUTE A VIOLATION OF FEDERAL AND STATE SECURITIES LAWS AND OTHER LAWS AND MAY SUBJECT THE INVESTOR TO CRIMINAL AND/OR CIVIL PENALTIES AND/OR LIABILITY. In view of the foregoing, Investor agrees not to (i) purchase or sell, including a short sale, any of the Company's securities or rights to purchase or sell such securities as long as the Investor is in possession of material non-public information or (ii) disclose any non-public information to any other person. (f) There are no finder's fees or brokerage commissions payable with respect to the purchase by the Investor of the Shares, except as provided in Paragraph 10 of this Agreement. (g) For purposes hereof, Placement Agent is only included in the term "Investor" in its capacity as acquiror of the Placement Agent Warrant. 5. USE OF PROCEEDS. The net proceeds from the sale of the Shares will be used by the Company to prepay at a discount certain indebtedness of the Company, for expenses related to the transactions contemplated hereby and other general corporate purposes, as disclosed in the Memorandum. 6. UNREGISTERED SECURITIES. The Shares have not been registered under the 1933 Act, in reliance upon the applicability of Section 3(b), 4(2), 4(6) and/or Regulation D of the 1933 Act to the transactions contemplated hereby. The Investor acknowledges that the Company is relying in part on such Investor's representations in Paragraph 4 of this Agreement and in the confidential investor questionnaire to establish such exemption. In furtherance of such reliance, the certificates representing the -10- Shares will bear an investment legend prominently stamped or printed thereon, substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED EXCEPT: (i) PURSUANT TO AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT OR (ii) IF IN THE OPINION OF COUNSEL FOR THE REGISTERED OWNER HEREOF, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY, THE PROPOSED SALE, TRANSFER OR ASSIGNMENT MAY BE EFFECTED WITHOUT SUCH REGISTRATION AND WILL NOT BE IN VIOLATION OF APPLICABLE STATE SECURITIES LAWS. 7. REGISTRATION RIGHTS AND "PIGGY-BACK" REGISTRATION RIGHTS. (a) As soon as possible after the closing hereunder, the Company shall at its sole cost and expense file a registration statement on the appropriate form with the SEC covering all of the Shares and all of the shares of Common Stock issuable upon the exercise of the Placement Agent Warrants (collectively, the "Registrable Securities"), time being of the essence. The Company will use its best efforts to have such registration statement declared effective as soon as possible thereafter, and shall keep such registration statement current and effective for at least three (3) years from the effective date thereof or until such earlier date as all of the Registrable Securities registered pursuant to such registration statement shall have been sold or otherwise transferred. Notwithstanding anything to the contrary contained herein, if such registration statement shall not be declared effective within nine (9) months after the Closing hereunder, then (i) the Company shall issue to each Investor, additional Shares of Common Stock equal to the lesser of (x) the product of (1) four (4%) percent of the number of Shares then owned by the Investor (and transferences authorized under applicable securities laws) and purchased hereunder, and (2) the number of months, or any part thereof, beyond said nine (9) month period until the initial registration statement described herein covering the Registrable Securities is declared effective or (y) thirty- five (35%) percent of the number of Shares being purchased by each Investor hereunder and (ii) the number of shares issuable under Placement Agent Warrants will be increased by the lesser of (1) four (4%) percent multiplied by the number of months, or any part thereof, beyond said nine (9) month period until the initial registration statement described herein covering the Registrable Securities is declared effective or (2) thirty-five (35%) percent -11- of the number of shares issuable under the Placement Agent Warrants issued to Placement Agent at Closing. (b) In the event the Company effects any registration under the 1933 Act of any Registrable Securities pursuant to Paragraphs 7(a) above or 7(g) below, the Company shall indemnify and hold harmless, to the extent permitted by law, any registered holder whose Registrable Securities are included in such registration statement (each, a "Seller"), any underwriter, any officer, director, employee or agent of any Seller or underwriter, and each other person, if any, who controls any Seller or underwriter within the meaning of Section 15 of the 1933 Act, against any losses, claims, damages or liabilities, judgment, fines, penalties, costs and expenses, joint or several, or actions in respect thereof (collectively, the "Claims"), to which each such indemnified party becomes subject, under the 1933 Act or otherwise, insofar as such Claims arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or any amendment or supplement thereto or any document filed under a state securities or blue sky law (collectively, the "Registration Documents") or insofar as such Claims arise out of or are based upon the omission or alleged omission to state in any Registration Document a material fact required to be stated therein or necessary to make the statements made therein not misleading, and will reimburse any such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in investigating or defending any such Claim; provided that the Company shall not be liable in any such case to the extent such Claim is based upon an untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in any Registration Document in reliance upon and in conformity with written information furnished to the Company by or on behalf of any indemnified party specifically for use in the preparation of such Registration Document. (c) In connection with any registration statement in which any Seller is participating, each Seller, severally and not jointly, shall indemnify, and hold harmless, to the extent permitted by law, the Company, each of its directors, each of its officers who have signed the registration statement, each other person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, each other Seller and each underwriter, any officer, director, employee or agent of any such other Seller or underwriter and each other person, if any, who controls such other Seller or underwriter within the meaning of Section 15 of the 1933 Act against any Claims to which each such indemnified party may become subject under the 1933 Act or otherwise, insofar as such -12- Claims (or actions in respect thereof) are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Document, or insofar as any Claims are based upon the omission or alleged omission to state in any Registration Document a material fact required to be stated therein or necessary to make the statements made therein not misleading, and will reimburse any such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in investigating or defending any such claim; provided, however, that such indemnification or reimbursement shall be payable only if, and to the extent that, any such Claim arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Registration Document in reliance upon and in conformity with written information furnished to the Company by the Seller specifically for use in the preparation thereof. (d) Any person entitled to indemnification under Paragraphs 7(b) or 7(c) above shall notify promptly the indemnifying party in writing of the commencement of any Claim if a claim for indemnification in respect thereof is to be made against an indemnifying party under this Paragraph 7(d), but the omission of such notice shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under Paragraph 7(b) or 7(c) above, except to the extent that such failure shall materially adversely affect any indemnifying party or its rights hereunder. In case any action is brought against the indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it chooses, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party; and, after notice from the indemnifying party to the indemnified party that it so chooses, the indemnifying party shall not be liable for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that (i) if the indemnifying party fails to take reasonable steps necessary to defend diligently the Claim within twenty (20) days after receiving notice from the indemnified party that the indemnified party believes it has failed to do so; (ii) if the indemnified party who is a defendant in any action or proceeding which is also brought against the indemnifying party reasonably shall have concluded that there are legal defenses available to the indemnified party which are not available to the indemnifying party; or (iii) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct, the indemnified party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all indemnified -13- parties in each jurisdiction, except to the extent any indemnified party or parties reasonably shall have concluded that there are legal defenses available to such party or parties which are not available to the other indemnified parties or to the extent representation of all indemnified parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct) and the indemnifying party shall be liable for any reasonable expenses therefor; provided, that no indemnifying party shall be subject to any liability for any settlement of a Claim made without its consent (which may not be unreasonably withheld, delayed or conditioned). If the indemnifying party assumes the defense of any Claim hereunder, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party (which consent may not be unreasonably withheld, delayed or conditioned). (e) If for any reason the indemnity provided in Paragraphs 7(b) or 7(c) above is unavailable, or is insufficient to hold harmless, an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of any Claim in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other from the transactions contemplated by this Agreement. If, however, the allocation provided in the immediately preceding sentence is not permitted by applicable law, or if the indemnified party failed to give the notice required by Paragraph 7(d) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable in respect of any Claim shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such Claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. -14- (f) The provisions of Paragraphs 7(b) through 7(e) of this Agreement shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made or omitted by or on behalf of any indemnified party and shall survive the transfer of the Registrable Securities by any such party. (g) Investor shall have certain "piggy-back" registration rights with respect to the Registrable Securities as hereinafter provided: A. If at any time after the Closing, the Company shall file with the SEC a registration statement under the 1933 Act registering any shares of Common Stock owned by any person or entity, the Company shall give written notice to Investor thereof prior to such filing. B. Within twenty (20) days after such notice from the Company, Investor shall give written notice to the Company whether or not the Investor desires to have all of the Investor's Registrable Securities included in the registration statement. If Investor fails to give such notice within such period, Investor shall not have the right to have Investor's Registrable Securities registered pursuant to such registration statement. If Investor gives such notice, then the Company shall use its best efforts to include the Registrable Securities in the registration statement, at the Company's sole cost and expense, subject to the remaining terms of this Paragraph 7(g). C. If the registration statement relates to an underwritten offering, and the underwriter shall determine in writing that the total number of shares of Common Stock to be included in the offering, including the Registrable Securities, shall exceed the amount which the underwriter deems to be appropriate for the offering, the number of shares of the Registrable Securities shall be reduced in the same proportion as the remainder of the shares in the offering and each Investor's Registrable Securities included in such registration statement will be reduced proportionately. For this purpose, if other securities in the registration statement are derivative securities, their underlying shares shall be included in the computation. D. Investor shall have two (2) opportunities to have the Registrable Securities registered under this Paragraph 7(g). -15- E. Investor shall furnish in writing to the Company such information as the Company shall reasonably require in connection with a registration statement. F. In connection with any offering involving an underwriting of Common Stock to be issued by the Company, the Company shall not be required to include a Selling Shareholder's Registrable Shares in such underwriting unless such Selling Shareholder accepts the terms of the underwriting as agreed upon by the Company and the underwriters selected by the Company. (h) If and whenever the Company is required by the provisions of this Paragraph 7 to use its best efforts to register any Registrable Securities under the 1933 Act, the Company shall, as expeditiously as possible under the circumstances: A. Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective as soon as possible and remain effective. B. Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement current and to comply with the provisions of the 1933 Act, and any regulations promulgated thereunder, with respect to the sale or disposition of all Registrable Securities covered by the registration statement required to effect the distribution of the securities, but in no event shall the Company be required to do so for a period of more than three (3) years following the effective date of the registration statement. C. Furnish to the Sellers participating in the offering, copies (in reasonable quantities) of summary, preliminary, final, amended or supplemented prospectuses, in conformity with the requirements of the 1933 Act and any regulations promulgated thereunder, and other documents as reasonably may be required in order to facilitate the disposition of the securities, but only while the Company is required under the provisions hereof to keep the registration statement current. D. Use its best efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions of the United States as the Sellers participating in the offering shall reasonably request, and do any and all other acts and things which may be reasonably necessary to enable each participating Seller to -16- consummate the disposition of the Registrable Securities in such jurisdictions. E. Notify each Seller selling Registrable Securities, at any time when a prospectus relating to any such Registrable Securities covered by such registration statement is required to be delivered under the 1933 Act, of the Company's becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and promptly prepare and furnish to each such Seller selling Registrable Securities a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. F. As soon as practicable after the effective date of the registration statement, and in any event within eighteen (18) months thereafter, make generally available to Sellers participating in the offering an earnings statement (which need not be audited) covering a period of at least twelve (12) consecutive months beginning after the effective date of the registration statement which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including, at the Company's option, Rule 158 thereunder. To the extent that the Company files such information with the SEC in satisfaction of the foregoing, the Company need not deliver the above referenced earnings statement to Seller. G. Upon request, deliver promptly to counsel of each Seller participating in the offering copies of all correspondence between the SEC and the Company, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to the registration statement and permit each such Seller to do such investigation at such Seller's sole cost and expense, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary. Each Seller agrees that it will use its best efforts not to interfere unreasonably with the Company's business when conducting any such investigation. H. Provide a transfer agent and registrar located in the United States for all such Registrable Securities covered by -17- such registration statement not later than the effective date of such registration statement. I. List the Registrable Securities covered by such registration statement on such exchanges and/or on the NASDAQ as the Common Stock is then currently listed upon. J. Pay all Registration Expenses incurred in connection with a registration of Registrable Securities, whether or not such registration statement shall become effective; provided that each Seller shall pay all underwriting discounts, commissions and transfer taxes, if any, relating to the sale or disposition of such Seller's Registrable Securities pursuant to a registration statement. As used herein, "Registration Expenses" means any and all reasonable and customary expenses incident to performance of or compliance with the registration rights set forth herein, including, without limitation, (i) all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses of complying with state securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities but no other expenses of the underwriters or their counsel), (iii) all printing, messenger and delivery expenses, and (iv) the reasonable fees and disbursements of counsel for the Company and the Company's independent public accountants. (i) The Company acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Paragraph 7 and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Paragraph 7 may be specifically enforced. In the event that the Company shall fail to file such registration statement when required pursuant to Paragraph 7(a) above or to keep any registration statement effective as provided in this Paragraph or otherwise fails to comply with its obligations and agreements in this Paragraph 7, then, in addition to any other rights or remedies Investors may have at law or in equity, including without limitation, the right of rescission, the Company shall indemnify and hold harmless the Investors from and against any and all manner or loss which they may incur as a result of such failure. In addition, the Company shall also reimburse the Investors for any and all reasonable legal fees and expenses incurred by them in enforcing their rights pursuant to this Paragraph 7, regardless of whether any litigation was commenced; provided, however, that the Company shall not be liable for the fees and expenses of more than one law firm, which firm shall be designated by Placement Agent. -18- (j) The word Investor as used in this Paragraph 7 includes all transferees of Registrable Securities authorized under applicable securities laws. 8. CONDITIONS. The obligations of the Investors to purchase the Shares are subject to the satisfaction or fulfillment, as of the date of Closing, of each of the following conditions: (a) The Company shall have delivered to Placement Agent, on behalf of the Investors, (i) a currently-dated long-form good standing certificate or telegram from the Secretary of State of Delaware and each other jurisdiction in which the Company is incorporated or qualified to do business as a foreign corporation; (ii) the certificate of incorporation of the Company, as currently in effect, certified by the Secretary of State of the State of Delaware (iii) by-laws of the Company certified by the secretary of the Company; and (iv) certified resolutions of the Company's Board of Directors approving this Agreement, the issuance of the Shares and Placement Agent Warrants, the registration of the Common Stock and the other transactions contemplated by this Agreement. (b) There shall have occurred no material adverse event affecting the Company its business, assets, prospects or the Company's securities since the date of this Agreement. (c) No litigation or administrative proceeding shall have been threatened or commenced against the Company which (i) seeks to enjoin or otherwise prohibit or restrict the consummation of the transactions contemplated by this Agreement or (ii) if adversely determined, would have an adverse effect upon the Company's business, assets or prospects or the Company's securities. (d) The Company shall have delivered to Placement Agent, on behalf of the Investors, a certificate of its principal executive and financial officers as to the matters set forth in Paragraphs 8(a), (b) and (c) of this Agreement and to the further effect that (i) the Company is not in default, in any respect, under any note, loan agreement, security agreement, mortgage, deed of trust, indenture, contract, alliance agreement, lease, license, joint venture agreement, agreement or other instrument to which it is a party, except as disclosed in the Financial Statements or the Memorandum; (ii) the Company's representations and warranties contained in this Agreement are true and correct in all respects on such date with the same force and effect as if made on such date; (iii) there has been no amendment or changes to the Company's certificate of incorporation or by-laws or authorizing resolutions from those delivered pursuant to Paragraph 8(a) of this Agreement; -19- and (iv) no event has occurred which, with or without the lapse of time or giving of notice, or both, would constitute a material breach or default thereof by the Company or would cause acceleration of any obligation of the Company, or could materially adversely affect the business, operations, financial condition or prospects of the Company. (e) Placement Agent, on behalf of the Investors, shall have received the opinion of Warner & Stackpole LLP, counsel for the Company, dated as of the closing date in form and substance satisfactory to counsel to Placement Agent. (f) The Company shall have prepared and filed or delivered to counsel for filing with the SEC and any states in which such filing is required, a Form D relating to the sale of the Shares and such other documents and certificates as are required. (g) In addition to the right of Placement Agent to terminate this Agreement and not consummate the transaction contemplated by this Agreement as a result of the failure of the Company to comply with any of its obligations set forth in this Agreement, this Agreement may be terminated by Placement Agent by written notice to the Company at any time prior to the Closing if, in Placement Agent' sole judgment, (i) the Company shall have sustained a loss that is material to the Company, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree; (ii) trading in securities on any exchange or system shall have been suspended or limited either generally or specifically with respect to the Company's Common Stock; (iii) material governmental restrictions have been imposed on trading in securities generally or specifically with respect to the Company's Common Stock (not in force and effect on the date of this Agreement); (iv) a banking moratorium shall have been declared by Federal or New York State authorities; (v) an outbreak of major international hostilities or other national or international calamity shall have occurred; (vi) the Congress of the United States or any state legislative body shall have passed or taken any action or measure, or such bodies or any governmental body or any authoritative accounting institute, or board, or any governmental executive shall have adopted any orders, rules or regulations, which Placement Agent believes is likely to have an adverse effect on the business, financial condition or financial statements of the Company or the market for the Shares; (vii) the Common Stock shall have been delisted from NASDAQ or the Company shall have received notice from NASDAQ advising the Company of its intention to have the Common Stock delisted from NASDAQ, whether conditional or otherwise, or the Company shall fail to meet the requirements for -20- continued listing on NASDAQ; unless in any such case, receipt of the aggregate purchase price for Shares under this Agreement and other Agreements closing contemporaneously herewith satisfies the condition to continuing the Company's listing therewith, (viii) there shall have been, in Placement Agent's judgment, a material decline in the Dow Jones Industrial Index or the market price of the Common Stock at any time subsequent to the date of this Agreement. 9. COVENANTS OF THE COMPANY. The Company agrees at all times as long as the securities comprising the Placement Agent Warrants may be exercised, to keep reserved from the authorized and unissued Common Stock, such number of shares of Common Stock as may be, from time to time, issuable upon the exercise of the Placement Agent Warrants. 10. FEES. (a) Upon the receipt by the Company of the payments from the Investors provided for in Paragraph l of this Agreement, the Company shall pay to Placement Agent a fee equal to Twenty-Five Thousand ($25,000) Dollars plus seven (7.0%) percent of the gross proceeds paid to the Company for all Shares sold pursuant to this Agreement, a portion of which may be paid by Placement Agent to other registered broker-dealers. Such amount may be deducted by Placement Agent from the payment being made to the Company pursuant to Paragraph 2 of this Agreement. In addition, the Company shall issue to the Placement Agent at the Closing, five (5) year warrants ("Placement Agent Warrants") to purchase 156,000 shares of Common Stock at an exercise price of Two Dollars ($2.00) per share. The Company shall reimburse Placement Agent for up to Fifteen Thousand Dollars ($15,000) of expenses, including legal fees of counsel to Placement Agent . . (b) The Company shall pay any fees required in connection with the qualification of the sale of the Shares under the state securities or blue sky laws of any state which Placement Agent reasonably deems necessary. 11. NOTICES. All notices provided for in this Agreement shall be in writing signed by the party giving such notice, and delivered personally or sent by overnight courier or messenger against receipt thereof or sent by registered or certified mail (air mail if overseas), return receipt requested, or by facsimile transmission, if confirmed by mail as provided in this Paragraph 11. Notices shall be deemed to have been received on the date of personal delivery or facsimile or, if sent by certified or registered mail, return receipt requested, shall be deemed to be -21- delivered on the third business day after the date of mailing. Notices shall be sent to the following addresses: TO THE COMPANY: ECOSCIENCE CORPORATION 10 Alvin Court East Brunswick, New Jersey 08816 TELECOPIER: (908) 257-9770 Attention: Michael DeGiglio President and Chief Executive Officer WITH A COPY TO: WARNER & STACKPOLE LLP 75 State Street Boston, Massachusetts 02109 TELECOPIER: (617) 951-9151 Attention: Kenneth S. Boger, Esq. TO THE INVESTORS: at the addresses set forth in Exhibit A to this Agreement WITH COPIES TO: TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED 100 Wall Street, 10th Floor New York, New York 10005 TELECOPIER: (212) 509-6587 Attention: Mr. Michael N. Taglich, President and SPITZER & FELDMAN P.C. 405 Park Avenue New York, New York 10022-4405 TELECOPIER: (212) 838-7472 Attention: Robert G. Leonard, Esq. or to such other address as any party shall designate in the manner provided in this Paragraph 11. -22- 12. MISCELLANEOUS. (a) This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof, superceding any and all prior or contemporaneous oral and prior written agreements and understandings. This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all parties with respect to a modification or amendment or the party granting the waiver with respect to a waiver. No course of conduct or dealing and no trade custom or usage shall modify any provisions of this Agreement. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. Each party hereby consents to the exclusive jurisdiction of the Federal and state courts situated in New York County, New York in connection with any action arising out of or based upon this Agreement and the transactions contemplated by this Agreement. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective personal representatives, successors and permitted assigns. (d) In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. (e) Each party shall, without payment of any additional consideration by any other party, at any time on or after the date of any Closing take such further action and execute such other and further documents and instruments as the other party may request in order to provide the other party with the benefits of this Agreement. (f) The captions and headings contained herein are solely for convenience and reference and do not constitute a part of this Agreement. (g) All references to any gender shall be deemed to include the masculine, feminine or neuter gender, the singular shall include the plural and the plural shall include the singular. -23- (h) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. -24- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first aforesaid. ECOSCIENCE CORPORATION TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED By: ----------------------------------------- By: --------------------------- Michael DeGiglio, President and Michael N.Taglich,President Chief Executive Officer TO BE COMPLETED BY INVESTOR ---------------------------------------- Print Name Signature for Individual Investor Signature of Investor Other than Individual - ------------------------------ By: Signature ------------------------------------ Name: Title: ---------------------------------------- Address ---------------------------------------- City State Zip Code ---------------------------------------- Number of Shares ---------------------------------------- Social Security or Employer Identification Number -25- EX-21 10 EXHIBIT 21 ECOSCIENCE CORPORATION EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT JUNE 30, 1996 Legal Name of Subsidiary State/Providence of Incorporation ---------------------------- --------------------------------- Agro Dynamics, Inc. Delaware Agro Dynamics Canada Inc. Ontario EcoScience Produce Systems Corp. Delaware EX-23 11 EXHIBIT 23 ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE INCORPORATION OF OUR REPORT DATED SEPTEMBER 6, 1996 (EXCEPT WITH RESPECT TO THE MATTER DISCUSSED IN NOTES 4 AND 11 AS TO WHICH THE DATE IS OCTOBER 5, 1996), INCLUDED IN THIS FORM 10-K INTO ECOSCIENCE CORPORATION'S PREVIOUSLY FILED REGISTRATION STATEMENTS FILE NOS. 33-55206, 33-83184 AND 33-31144. ARTHUR ANDERSEN LLP ROSELAND, NEW JERSEY OCTOBER 14, 1996 EX-27 12 EXHIBIT 27
5 This schedule contains summary information extracted from the Company's Consolidated Balance Sheet as of June 30, 1996 and Consolidated Statement of Operations for the Year Ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JUN-30-1996 JUN-30-1996 $1,939 700 1,584 118 2,001 7,019 3,179 2,181 10,111 7,327 11 0 0 93 2,380 10,111 14,151 14,358 10,394 10,394 (1,550) 13 514 (828) 0 (828) 0 241 0 ($587) ($0.06) ($0.06)
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