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As filed with the Securities and Exchange Commission on February 13, 1998
Registration No. 333-42185
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EPL TECHNOLOGIES, INC.
(Exact name of Registrant as Specified in its Charter)
Colorado 84-0990658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 International Plaza, Suite 245
Philadelphia, Pennsylvania 19113-1507
(610) 521-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Paul L. Devine
Chairman, President and Chief Executive Officer
2 International Plaza, Suite 245
Philadelphia, Pennsylvania 19113-1507
(610) 521-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
Raymond D. Agran, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
(215) 665-8500
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1998
PROSPECTUS
4,047,878 Shares
EPL TECHNOLOGIES, INC.
Common Stock
(par value $.001 per share)
This Prospectus relates to 4,047,878 shares (the "Shares") of common
stock, par value $.001 per share ("Common Stock"), of EPL Technologies, Inc., a
Colorado corporation (the "Company"), which may be offered for sale from time to
time by certain shareholders of the Company (the "Selling Shareholders"), or by
their respective pledgees, donees, transferees or other successors in interest
that receive such Shares as a gift, partnership distribution or other non-sale
related transfer (the "Offering"). The offer and sale of the Shares by the
Selling Shareholders, or by their pledgees, donees, transferees or other
successors in interest, may be effected from time to time in one or more of the
following transactions: (a) to underwriters who will acquire the Shares for
their own account and resell them in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale (any public offering price and any discount or
concessions allowed or reallowed or paid to dealers may be changed from time to
time); (b) through brokers, acting as principal or agent, in transactions (which
may involve block transactions) on the Nasdaq SmallCap Market or on one or more
exchanges on which the Shares are then listed, in special offerings, exchange
distributions pursuant to the rules of the applicable exchanges or in the
over-the-counter market, or otherwise, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices; (c) directly or through brokers or agents in private
sales at negotiated prices; (d) short sales; (e) by any other legally available
means; or (f) any combination of the foregoing. The number of Shares that may
actually be sold by each of the Selling Shareholders will be determined by such
Selling Shareholder. See "PLAN OF DISTRIBUTION."
375,720 of the Shares are currently held by the Selling Shareholders.
144,444 of the Shares are issuable to Selling Shareholders by the Company upon
conversion of outstanding shares of the Company's Series C Convertible Preferred
Stock (the "Series C Preferred Stock"). 527,714 of the Shares are issuable to
Selling Shareholders by the Company pursuant to the terms of certain outstanding
warrants (the "Warrants") (403,228 of which are issuable upon the exercise of
warrants which were issued in connection with the Series D Preferred Stock
defined below (the "Series D Warrants")). 3,000,000 of the Shares are issuable
to Selling Shareholders by the Company upon conversion of outstanding shares of
the Company's Series D Convertible Preferred Stock (the "Series D Preferred
Stock"). The number of Shares set forth above with respect to the Series D
Preferred Stock represents an estimate of the number of shares of Common Stock
issuable upon conversion of the Series D Preferred Stock, based on 150% of the
shares of Common Stock issuable at a conversion price of $6.25 per share, in
accordance with Rule 416 ("Rule 416") under the Securities Act of 1933, as
amended (the "Securities Act"). In addition to such estimated number of shares,
in accordance with Rule 416, the number of shares of Common Stock underlying the
Series D Preferred Stock and offered for sale hereby includes such additional
number of shares as may be issued or issuable upon conversion of the Series D
Preferred Stock by reason of the floating rate conversion price mechanism or
other adjustment mechanisms described in the Certificate of Designation for the
Series D Preferred Stock, or by reason of any stock split, stock dividend or
similar transaction involving the Common Stock, in order to prevent dilution.
Although the Company will receive the exercise price of any Warrants that are
exercised, the Company will not receive any of the proceeds from the sale of any
Shares by the Selling Shareholders. The expenses of registration of the Shares
that may be offered hereby under the Securities Act, will be paid by the
Company.
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"EPTG". On February 12, 1998, the closing price of the Common Stock was $5.50.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY __, 1998
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No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in or incorporated by reference in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company, the Selling
Shareholders or any other person. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful or to any person to whom it would be unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION ..................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................... 3
RISK FACTORS .............................................................. 4
THE COMPANY ............................................................... 8
USE OF PROCEEDS ........................................................... 9
MANAGEMENT ................................................................ 10
PRINCIPAL SHAREHOLDERS .................................................... 16
SELLING SHAREHOLDERS ...................................................... 18
PLAN OF DISTRIBUTION ...................................................... 19
LEGAL MATTERS ............................................................. 21
EXPERTS ................................................................... 21
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "SEC"). Reports, proxy
statements and other information concerning the Company filed with the SEC can
be inspected and copied at the public reference facilities maintained by the SEC
at its office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as
well as at the Regional Offices of the SEC at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. Shares of the
Company's Common Stock are traded on the Nasdaq SmallCap Market. Such reports,
proxy and information statements and other information can also be inspected and
copied at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits thereto, the "Registration
Statement"), under the Securities Act with respect to the securities offered
pursuant to this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information, reference is made to the Registration Statement and the exhibits
filed as a part thereof. Statements contained herein concerning any document
filed as an exhibit are, in each instance, qualified by, and reference is made
to, the copy of such document filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC pursuant to the Exchange Act
(File No. 0-28444) are hereby incorporated by reference into this Prospectus:
(a) the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1996, (b) the Company's Quarterly Reports on Forms 10-Q/A for the
quarters ended March 31, 1997, June 30, 1997, and September 30, 1997, (c) the
Company's Current Reports on Form 8-K filed on September 26, 1997, October 3,
1997, October 24, 1997, and December 24, 1997 (as amended by Form 8-K/A filed on
February 12, 1998), (d) the Company's Current Report on Form 8-K dated
September 19, 1995, as amended on November 14, 1995 and (e) the description of
the Common Stock contained in the Company's registration statement on Form 8-A
dated April 30, 1996.
All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering pursuant to this
Prospectus shall be deemed to be incorporated by reference and to be a part of
this Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of any such person, a
copy of any or all of the documents incorporated herein by reference, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to Timothy B. Owen, Secretary and
Treasurer, EPL Technologies, Inc., 2 International Plaza, Suite 245,
Philadelphia, Pennsylvania 19113-1507, telephone (610) 521-4400.
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RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
and involves a high degree of risk. Prospective investors should consider
carefully the following risk factors, in addition to the other information
presented in this Prospectus, before purchasing the shares of Common Stock
offered hereby.
HISTORICAL LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. To date, the
Company has generated limited revenues from operations. Primarily as a result of
expenses incurred in organization and efforts to build an appropriate
infrastructure, research and development and marketing activities, the Company
has accumulated net losses aggregating $21,022,000 through September 30, 1997.
The Company expects that it will continue to incur significant operating losses
until such time, if ever, that the Company is able to attain sales levels from
its products and services that are sufficient to support its operations. There
can be no assurance that the Company's products and services can be successfully
marketed or that the Company will ever achieve significant revenues or
profitable operations.
LIMITED RELEVANT OPERATING HISTORY. Historically, the Company operated
exclusively as a manufacturer and marketer of processing aids for fruits and
vegetables. After the advent of new management in December 1992, the Company
began to alter its operational and growth strategies by seeking to add
incremental resources and capabilities, in an effort to develop integrated
systems solutions designed to maintain the quality and integrity of fresh-cut
produce. Since 1994, a majority of the Company's revenues have been derived from
sales of packaging materials, a substantial portion of which are used in
applications in the snack food, bakery and confectionery industries, and for
other uses unrelated to the Company's systems approach to fresh produce.
However, the Company's long term growth will depend on the success of its
integrated systems solutions for fresh-cut produce, in general, and on its
processing aids, in particular. Consequently, the Company's limited relevant
operating history makes it difficult to predict future operating results on an
annual or quarterly basis. The Company's prospects must be considered in light
of the risks, uncertainties, expenses and difficulties frequently encountered by
companies marketing new technologies in new and evolving markets.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company has
sustained operating losses and, as of September 30, 1997, had accumulated net
losses aggregating $21,022,000. The Company's revenues have not been sufficient
to fund the development of the Company's business, and thus it has had to
finance its operating losses externally, principally through equity financing.
The Company's needs for capital, including for acquisitions, have been
substantial and are expected to continue to be substantial as the Company
pursues its operating and growth strategies. The Company's continued ability to
operate is dependent upon its ability to obtain adequate financing and to
achieve levels of revenue necessary to support its cost structure. There can be
no assurance that the Company will be successful in obtaining additional
financing on commercially acceptable terms, if at all. Failure to obtain
additional financing on terms satisfactory to the Company could materially limit
the Company's ability to fund its operations and its growth plan.
EXTENDED PRODUCT DEVELOPMENT AND SALES PROCESS. The process by which the
Company develops and sells its integrated systems solutions for certain kinds
and varieties of fresh-cut produce is both expensive and time-consuming. After
preliminary discussions with a potential customer, the Company performs a
comprehensive review of the potential customer's methods and facilities and
initiates a series of tests in an effort to tailor the application of the
Company's proprietary and other technologies to the kind or variety of produce
to be processed. The Company also works closely with the potential customer to
develop a detailed protocol to be followed in processing such produce. Once the
development of this integrated systems solution is substantially complete, the
Company conducts increasingly sophisticated tests in an effort to refine the
prescribed solution before the potential customer makes any purchase decision.
Although the Company believes it has improved its sales efforts significantly,
the Company's product development and sales process continues to be lengthy and
resource intensive and could limit the Company's growth. Additionally, limited
awareness of the Company and its products in the marketplace and the highly
fragmented nature of the fresh-cut produce industry may extend the Company's
product development and sales process. The Company does not believe that this
process is likely to shorten significantly, and there can be no assurance that
the Company will have adequate resources to continue to fund this process.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's penetration to date of the
various markets it is seeking to develop has been limited. Some of the markets
targeted by the Company are newly defined or emerging, such as fresh-cut
potatoes and sliced apples. In light of the evolving nature of these markets,
there can be no assurance as to the ultimate or continuing level of demand for,
or market acceptance of, the Company's products or services. Consequently, there
is no assurance that the Company will be able to obtain sufficient market
acceptance of its processing aids to achieve profitability on a timely basis, or
at all. Failure to gain sufficient market acceptance for the Company's
processing aids would have a material adverse effect on the Company's business,
financial condition and results of operations.
LIMITED MARKETING AND SALES EXPERIENCE. The Company has limited experience
in marketing and selling its products and services as integrated systems
solutions designed to maintain the quality and integrity of fresh-cut produce.
The marketing and sales process requires use of scientific and technical
services and the Company's process engineering capabilities. To achieve broad
market penetration for its products, the Company will be required to develop an
expanded marketing and sales force, including technical and scientific service
and support personnel. Limited market awareness of the Company and its products,
the highly fragmented nature of the fresh produce processing industry and the
lengthy sales cycle for the Company's products heighten the need for an
increased number of sufficiently skilled marketing and sales personnel. There
can be no assurance that the Company will be able to recruit and retain skilled
sales, marketing, service or support personnel on a timely basis, or at all, or
that the Company's marketing and sales efforts will be successful. Failure to
further develop and maintain a marketing and sales staff would have a material
adverse effect on the Company's business, financial condition and results of
operations.
MULTIPLE PRODUCT LINES. The Company currently is engaged in three related
areas of business, which are focused primarily on the fresh-cut produce
industry: processing aids, packaging, and scientific and technical services. The
Company believes that its products and services are complementary and present
cross-marketing opportunities. However, there can be no assurance that the
Company's products or services can be successfully cross-marketed. Additionally,
if problems are encountered with any area of the Company's business, the
financial and personnel resources available to a business of the size of the
Company may be diverted from the other business areas, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY; RISKS
OF INFRINGEMENT OR MISAPPROPRIATION. The Company's success is dependent in part
on its ability to obtain patent protection for its products, maintain trade
secret protection and operate without infringing the proprietary rights of
others. The Company currently has two U.S. patents, four U.S. patents pending
and numerous others licensed to the Company or under review for application.
Furthermore, the Company has two patents outside the U.S. and 23 patent
applications pending in countries outside the U.S. for its processing aid
technologies, with others under review. There can be no assurance that patent
applications owned by or licensed to the Company will be issued
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or that patents issued or licensed to the Company will provide the Company with
any competitive advantages or adequate protection for its products. Moreover,
no assurance can be given that any patents issued or licensed to the Company
will not be challenged, invalidated or circumvented by others. The Company's
products might conflict with the patent rights of others, whether existing now
or in the future. Alternatively, the products of others could infringe the
patent rights of the Company. Although the Company intends to defend its
proprietary intellectual property rights, the defense and prosecution of patent
claims is costly and time consuming, even if the outcome were favorable to the
Company. An adverse outcome could subject the Company to significant
liabilities to third parties, require that disputed rights be licensed from
third parties or require the Company to cease selling its products.
The Company also relies on trade secrets and proprietary know-how, which it
seeks to protect in part by confidentiality agreements with its collaborators,
employees and consultants, as much of the Company's technology may not be
patentable. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any such breach or
that the Company's trade secrets will not otherwise become known or be developed
independently by competitors.
In addition, the Company uses certain trademarks owned by other companies
through licensing agreements. For example, the Company uses the Green Giant
Fresh(R) brand on its fresh-cut potato products sold to the food service
industry pursuant to a license agreement, the initial term of which expires in
2007. There can be no assurance that any such licensing agreements will not be
terminated or will be renewed in the future. The inability of the Company to use
the trademarks of such other companies in the future would have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION; RISKS ASSOCIATED WITH FOOD PROCESSING PRODUCTS. The
Company is subject to numerous U.S. and foreign regulations. Although the
Company has concluded that the use of the Company's processing aids in
accordance with the Company's protocols is generally recognized as safe ("GRAS")
under FDA regulations, there is a risk that new scientific information about an
ingredient could change its GRAS status, that the FDA could revise its
regulations governing the GRAS status of the ingredients, or that the FDA might
take the position that an ingredient is not GRAS under the current regulations.
Any such change could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company is
subject to risks generally associated with food processing products, which
include, among others, that (i) production defects may occur; (ii) an ingredient
used in the Company's products may be banned, have its use limited or be found
to cause health problems; and (iii) sales may be limited or discontinued due to
perceived health concerns (regardless of actual effects), adverse publicity or
other reasons within or beyond the control of the Company. Moreover, although
the Company has concluded that the use of the Company's processing aids in
accordance with the Company's recommended protocols currently does not require
the Company's customers to list the Company's processing aids in the list of
ingredients on labels on fresh-cut fruits and vegetables under the FDA's current
labeling requirements for such foods, and production of the Company's processing
aids and packaging materials has not been subject to intensive regulation,
regulations applicable to the Company and its products, including the FDA's
requirements regarding current "good manufacturing practices" and labelling
requirements applicable to food, may change. Any such change could have a
material adverse effect on the Company. The FDA also regulates the material
content of direct-contact food containers and packages. The Company purchases
the film used in its food-related packaging from third parties which
guarantee or warrant the compliance of such films with applicable FDA or foreign
regulations. The failure, however, of any such third party to comply with
applicable regulations could have a material adverse effect on the Company's
business, financial condition and results of operations.
ENVIRONMENTAL MATTERS. The Company's packaging operations are subject to
federal, state and local U.S., U.K. and other European environmental laws and
regulations that impose limitations on the generation, storage, transport,
disposal and emission of various substances into the environment, including laws
that restrict the discharge of pollutants into the air and water and establish
standards for the treatment, storage and disposal of solid and hazardous wastes.
Although in the U.S. the Company's printing operations are subcontracted, in the
U.K. the Company is subject to laws and regulations regarding the use, storage,
transport and disposal of inks used with its packaging products. While the
storage and transport of inks are the contractual responsibility of the
Company's supplier, there can be no assurance that there will not be an
accidental contamination, disposal or injury from the use, storage, transport or
disposal of inks used in the Company's packaging business and that such an
occurrence would not have a material adverse effect on the Company's business,
financial condition or results of operations. Additionally, the Company's use of
plastic film in its packaging operations may subject it, in certain
jurisdictions, to laws and regulations designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits on the use of plastic products. In addition, various consumer and special
interest groups have lobbied from time to time for the implementation of
additional environmental protection measures. The Company may be required to
make capital expenditures in response to changing compliance standards and
environmental regulations. Furthermore, unknown contamination of sites currently
or formerly owned or operated by the Company (including contamination caused by
prior owners and operators of such sites) and off-site disposal of hazardous
substances and wastes may give rise to additional compliance costs. There can be
no assurance that the Company will not incur liabilities for environmental
matters in the future, including those resulting from changes in environmental
regulations, that may be material to the Company's business, financial condition
and results of operations.
INTEGRATION OF ACQUISITIONS; POSSIBLE ADVERSE EFFECT OF RAPID EXPANSION. An
element of the Company's growth strategy is the pursuit of acquisitions that
either expand or complement its existing lines of business. There can be no
assurance that the Company will be able to identify and acquire acceptable
acquisition candidates on terms favorable to the Company and in a timely enough
manner to the extent necessary to fulfill its expansion plans, or that any such
acquisitions can be operated profitably or successfully integrated into the
Company's operations. The Company's failure to complete acquisitions and
continue its expansion could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has a
limited financial and managerial infrastructure. As the Company proceeds with
its acquisition strategy, there can be no assurance that the Company's
management and financial controls, personnel, computer systems and other
corporate support systems will be adequate to manage the resulting increase in
the size and scope of the Company's operations. In addition, acquisitions
involve a number of special risks, including adverse short-term effects on the
Company's reported financial results, the diversion of management's attention,
the dependence on retention, hiring and training of key personnel, and risks
associated with unanticipated problems or legal liabilities, some or all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, if the Company acquires an
existing business, a significant portion of the purchase price for such business
may be allocated to goodwill and intangibles if such acquisition does not
involve the purchase of significant amounts of tangible property. All of such
goodwill and intangibles must be amortized over time, which amortization would
reduce the Company's reported earnings.
PRODUCT OBSOLESCENCE. The market for products used in maintaining the
integrity of fresh-cut produce is characterized by changing technologies and
evolving industry standards, which could result in product obsolescence or short
product life cycles. The Company's ability to achieve and maintain
profitability, therefore, may be dependent upon its ability to continually
enhance its products and its related applications technology, which may require
the Company to make substantial, unexpected expenditures. The Company may find
it necessary to develop additional products and services to satisfy evolving
industry and customer requirements, which may consume significant funds and
resources. There can be no assurance that the Company will be able to allocate
or obtain the funds and resources as may be necessary to improve its current
products or develop new products, or that the Company will be successful in such
efforts.
RELIANCE ON KEY EMPLOYEES. The Company's success is dependent upon the
efforts of certain key personnel, including Paul L. Devine, the Company's
Chairman, President and Chief Executive Officer. The loss of the services of Mr.
Devine or other key employees could have a material adverse effect on the
Company's business, financial condition and results of operations. Additional
suitably qualified staff will also need to be recruited and retained to expand
the business as planned. There can be no assurance that the Company will be able
to recruit or retain any such personnel to the extent necessary. The Company
currently maintains key person life insurance on Mr. Devine in the amount of
$1,000,000. The Company is not the beneficiary of any life insurance policies on
any other executive officers.
COMPETITION. The Company's direct, indirect and potential competitors
include producers of sulfites and "sulfite substitutes," as well as other
providers of alternative preservation and packaging technologies for fresh-cut
produce, including those employing temperature, gas and humidity control. Many
competitors and potential competitors, particularly in the market for produce
packaging, are larger, have greater financial, marketing, sales, distribution,
technological and management resources, and enjoy greater name recognition than
does the Company. Certain of these companies may also enjoy long-standing
relationships with processors of fresh produce. Accordingly, there can be no
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assurance that the Company will be able to compete effectively against such
competitors and potential competitors.
POTENTIAL FOR DILUTION FROM OUTSTANDING SECURITIES. To the extent
outstanding options or warrants are exercised or shares of preferred stock are
converted, there will be dilution to new investors. At September 30, 1997,
(i) 2,855,000 shares of Common Stock were issuable upon exercise of outstanding
stock options at a weighted average exercise price of $3.45 per share, (ii)
284,501 shares of Common Stock were issuable upon exercise of warrants
outstanding, at a weighted average exercise price of $2.84 per share, and (iii)
2,764,000 shares of Common Stock were issuable upon conversion of the Company's
Series A Preferred Stock and Series C Preferred Stock outstanding.
INTERNATIONAL SALES. A significant portion of the Company's revenues is
earned outside of the United States, principally in Europe, and, therefore, is
subject to the risks associated with international sales, including economic or
political instability, shipping delays, changes in regulation, adverse tax
consequences and various trade restrictions, all of which could have a
significant impact on the Company's ability to deliver products on a competitive
and timely basis. Future imposition of, or significant increases in the level
of, customs, duties, export quotas or other trade restrictions, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the laws of certain foreign countries do not
protect the Company's intellectual property rights to the same extent as do the
laws of the United States, although this effect is lessened in countries that
adhere to the General Agreement on Tariffs and Trade. Although the impact of
currency fluctuation has not been significant in the past with respect to the
Company's operations in the U.K., the impact of future fluctuations in exchange
rates cannot be predicted with any measure of accuracy. As the Company increases
its operations abroad, particularly in light of the Company's recent acquisition
of a packaging company in Valencia, Spain, no assurance can be given that any
future exchange rate fluctuations will not have a material adverse effect on the
Company's business, financial condition and results of operations.
CERTAIN RISKS ASSOCIATED WITH AGRICULTURAL PRODUCTS. Because the Company's
business relies, both directly and indirectly, on the availability of fresh
produce, the Company's results of operations will be subject to certain risks
associated with agricultural products. The market for agricultural products is
unpredictable and volatile, and is affected by numerous factors. The most
important of such factors are weather conditions and patterns, current and
projected produce stocks and prices, and governmental agricultural policies,
including those that directly or indirectly influence the number of acres
planted, the mix of crops planted, and crop prices. Any or all of such factors
may adversely affect the Company's business, financial condition and results of
operations.
PRICE AND AVAILABILITY OF RAW MATERIALS. The Company's results of
operations may be affected by the price and availability of raw materials used
in the Company's products. Should there be an increase in the price of one or
more of the raw materials used in the manufacture of the Company's products, the
Company may not be able to increase sufficiently the sales price of its products
to compensate for any such increase in raw material costs. Certain of the raw
materials used in the Company's products are obtained from single source
suppliers and the Company has not arranged for alternative supply sources. The
Company's inability to obtain sufficient quantities of such raw materials on
commercially reasonable terms, or in a timely manner, would have a material
adverse effect on its business, financial condition or results of operations.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Although
historically, the management of the Company has not discerned a seasonal pattern
in the Company's business on a consolidated basis, certain aspects of the
Company's business are seasonal. For example, Fabbri Artes Graficas Valencia
S.A., one of the Company's subsidiaries, historically has reported relatively
higher sales and income in the Company's first and fourth fiscal quarters
because of the timing of citrus and other crop harvests. The Company's results
of operations may become subject to greater seasonality as its various
businesses develop at different rates.
The Company may experience significant quarter to quarter fluctuations in
its results of operations. Quarterly results of operations may fluctuate as a
result of a variety of factors including, but not limited to, the timing, market
acceptance and speed of nationwide roll-outs of fresh-cut potato, corn and apple
products by the Company or through its strategic alliances and the timing of
introduction, commercialization and market acceptance of other such produce
products that utilize the Company's proprietary processing aids. In addition,
significant quarterly fluctuations may occur due to the timing of any new
acquisitions. Additional factors that may affect the quarter to quarter results
of operations include competitive conditions in the industry and general
economic conditions. As a result, the Company believes that period to period
comparisons of its results of operations are not necessarily meaningful or
indicative of the results that the Company may achieve in any subsequent
quarters or full years. Such quarterly fluctuations may result in volatility in
the market price of the Common Stock of the Company, and it is possible that in
future quarters the Company's results of operations could be below the
expectations of the public markets. Such an event could have a material adverse
effect on the market price of the Common Stock of the Company.
PRODUCT LIABILITY. The Company's agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims. These agreements generally contain provisions such as
disclaimers of warranties and limitations on liability. It is possible, however,
that the limitation of liability provisions contained in such agreements may not
be effective as a result of existing or future federal, state or local laws or
ordinances or unfavorable judicial decisions. Although EPL has not experienced
any product liability claims to date, the sale and support of products by the
Company may entail the risk of such claims. Although the Company currently
maintains product liability insurance coverage, there can be no assurance that
this coverage will be adequate to protect the Company against future product
liability claims or that product liability insurance will be available to the
Company in the future on commercially reasonable terms, if at all. Furthermore,
there can be no assurance that the Company will be able to avoid significant
product liability claims and the attendant adverse publicity. Consequently, a
product liability claim or other claim with respect to uninsured or underinsured
liabilities could have a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON KEY CUSTOMERS. The Company's processing aids are specifically
developed for certain varieties and kinds of produce. In marketing its
integrated systems solutions for fresh-cut produce, the Company generally
targets a select group of processors as customers and works closely with each
processor to develop protocols designed to be suited to the particular needs of
such processor. For the nine months ended September 30, 1997, two packaging
customers accounted for an aggregate of approximately 38% of the Company's total
sales. The Company has entered into strategic alliances with certain of its
major customers; however, there can be no assurance that the Company's customer
relationships can be maintained. The loss of any of the Company's major
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Furthermore, the development and evolution of markets for the Company's
processing aids is substantially dependent upon the efforts of its customers.
Although the Company believes that its customers will be motivated to
commercialize the products covered by these relationships in a timely and
effective manner, the amount of financial and other resources devoted to these
activities generally is beyond the Company's control.
POSSIBLE VOLATILITY OF SHARE PRICE. The market price of the Common Stock
could be subject to significant fluctuations in response to the Company's
operating results and other factors, and there can be no assurance that the
market price of the Common Stock will not decline below the public offering
price as of the date hereof. Factors such as operating results, contractual
arrangements with customers, natural disasters or other developments relating to
the Company's products or its competitors, changes in analysts' estimates or in
conditions of the economy or the financial markets, and regulatory changes, as
well as changes within the industry, may have a significant effect on the market
price of the Common Stock. In addition, the stock market has experienced from
time to time extreme price and volume fluctuations that may be unrelated to the
operating performance of particular companies. Historically, the average daily
trading volume of the Common Stock as reported on the Nasdaq SmallCap Market has
been relatively low. There can be no assurance that a more active trading market
will develop in the future.
DIVIDEND POLICY. Other than in connection with the payment of accumulated
dividends, which have not been declared or paid, on its Series A Preferred
Stock, Series B Convertible Preferred Stock and Series C Preferred Stock
(collectively with the Series D Preferred Stock, the "Preferred Stock"), the
Company intends to retain earnings, if any, that may be generated from
operations to finance the expansion and development of its business. No cash
dividends have been declared or paid to date on the Common Stock. The Company
does not expect to declare or pay cash dividends to the holders of the Common
Stock in the foreseeable future and no such dividends may be declared or paid
until all accumulated dividends on the Series A, Series B and Series C Preferred
Stock have been paid.
6
8
SHARES ELIGIBLE FOR FUTURE SALE. As of February 12, 1998, there were
18,095,965 shares of Common Stock outstanding. In addition, an aggregate of
3,556,250 shares are issuable upon the exercise of outstanding stock options and
682,396 shares are issuable upon the exercise of warrants. Upon completion of
the Offering, assuming exercise in full of all of the Company's outstanding
warrants and options and the conversion of the Series A Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock (based on 150% of the number of
Shares issuable upon conversion of the Series D Preferred Stock at a conversion
price of $6.25 per share and in accordance with Rule 416), the Company will have
28,302,555 shares of Common Stock outstanding. The shares offered hereby will be
freely tradeable without restrictions or further registration under the
Securities Act. Substantially all of the remaining shares are either registered
with the SEC pursuant to effective registration statements or are otherwise
freely tradeable without restriction, except for any shares held by "affiliates"
of the Company within the meaning of the Securities Act, which will be subject
to the resale limitations of Rule 144. Therefore, future sales of substantial
amounts of Common Stock (including shares issued upon the exercise of
outstanding options and warrants) in the public market or the prospect of such
sales could adversely affect the market price of the Common Stock and may have a
material adverse effect on the Company's ability to raise any necessary capital
to fund its future operations. An additional 984,250 shares of Common Stock are
reserved for issuance under the Company's 1994 Stock Incentive Plan.
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
software programs and operating systems in its internal operations, including
applications used in manufacturing, product development, financial business
systems and various administrative functions. To the extent that these software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year "2000," some level of modification or even possibly
replacement of such source code or applications will be necessary. The Company
is currently in the process of completing its identification of software
applications that are not "Year 2000" compliant and expects to make appropriate
responses to address any issues identified. Given the information known at this
time about the Company's systems, coupled with the Company's ongoing, normal
course-of-business efforts to upgrade or replace business critical systems as
necessary, it is currently not anticipated that these "Year 2000" costs will
have any material adverse impact on the Company's business, financial condition
or results of operations. However, the Company is still in the preliminary
stages of analyzing its software applications and, to the extent they are not
fully "Year 2000" compliant, there can be no assurance that the costs necessary
to update software, or potential systems interruptions, would not have a
material adverse effect on the Company's business, financial condition or
results of operations.
CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER CONSIDERATIONS.
Trilon Dominion Partners, L.L.C. and Lancer Partners, L.P. beneficially own
approximately 26.0% and 19.8%, respectively, of the Common Stock. Such persons
have the ability to significantly influence the election of the Company's
directors and the outcome of all other issues submitted to the Company's
shareholders. The beneficial ownership of such persons, together with the
ability of the Board of Directors of the Company to issue shares of preferred
stock and to fix the rights and preferences thereof, also may have the effect
of delaying, deferring or preventing an unsolicited change in the control of
the Company, which may adversely affect the market price of the Common Stock or
the ability of shareholders to participate in a transaction in which they might
otherwise receive a premium for their shares.
7
9
THE COMPANY
The Company is a leading developer, manufacturer and marketer of
proprietary produce processing aids, packaging technologies, and scientific and
technical services, which are designed to maintain the quality and integrity of
fresh-cut produce. The Company designs products which are components of
integrated systems solutions, specifically to address the needs of a variety of
fresh-cut produce categories. The foundation of the Company's integrated system
is its proprietary produce processing aid technology, which inhibits the natural
enzymatic degradation of fruits and vegetables after they have been processed.
Fresh-cut fruits and vegetables that are treated with the Company's proprietary
processing aids better maintain their natural characteristics, such as color,
texture, taste and smell. In certain fresh-cut produce categories, such as
fresh-cut sliced apples, fresh-cut potatoes and fresh corn, the Company's
processing aids allow increased availability of these fresh-cut produce products
in retail and commercial markets. The Company has concluded that the use of the
Company's processing aids, in accordance with the Company's recommended
protocols, is "generally recognized as safe" or "GRAS" under FDA regulations.
The Company also uses a variety of film technologies to create packaging
specifically designed to complement and enhance the effectiveness of the
Company's processing aids by allowing fruits and vegetables to "breathe" after
they have been cut and packaged. The Company markets these packaging products to
produce growers and processors. The Company also markets flexible packaging for
uses in the snack food, bakery and confectionery industries, and for other uses.
In addition, the Company's scientific and technical services, which include food
safety and microbiological testing, provide fresh produce processors with
expertise in food safety, post-harvest horticulture and processing techniques,
and serve to support the cross-marketing efforts for the Company's other
products.
The Company's revenues consist of (i) revenues derived from the sale of
processing aids and flexible packaging, (ii) revenues derived from the sale of
certain fresh-cut fruits and vegetables, (iii) royalties from the sale of
certain fresh-cut fruits and vegetables and (iv) fees received for scientific
and technical services provided by the Company. The Company's revenues from the
sale of produce and royalty revenues are derived from sales of various kinds and
varieties of fresh-cut fruits and vegetables which use the Company's proprietary
technologies and which the Company believes would not be available commercially
without such use. Historically, substantially all of the Company's revenues have
been derived from the sale of flexible packaging to the snack food, produce,
bakery, and confectionery industries and for other uses. The Company believes
that its packaging technologies, coupled with acquisitions of produce packagers,
provide a platform to increase its sales of packaging, processing aids and
scientific and technical services to growers and processors of fresh produce.
Therefore, the Company expects that the proportion of its revenues derived from
the sale of its products and services addressing the needs of the fresh-cut
produce industry will increase over time and constitute a significant portion of
the Company's future revenue growth.
Prior to 1994, the Company was a development-stage enterprise with limited
capital resources and limited revenues operating exclusively as a manufacturer
and marketer of processing aids. After the advent of new management and an
infusion of capital in December 1992, the Company began to expand its business
to include packaging and scientific and technical services in an effort to
develop integrated systems solutions designed to maintain and support the
quality and integrity of fresh-cut produce. The Company has made the following
acquisitions to accomplish this objective:
- In September 1994, the Company acquired Respire Films, Inc. ("Respire"),
a U.S.-based business involved in the marketing of packaging films.
- In September 1995, the Company acquired Bakery Packaging Services
Limited, based near Runcorn, England (the "Runcorn Facility"). The
Runcorn Facility provided the Company with a U.K. base for packaging,
together with access to numerous produce and other food companies in the
U.K. and elsewhere in Europe. The Runcorn Facility also provided the
Company with proprietary perforating technology to enhance the Company's
strategic position, as well as an incremental source of packaging
revenue. The U.K. packaging business was further enhanced by the
acquisition of a food- grade printing facility and certain other assets
located at Gainsborough, Lincolnshire, England (the "Gainsborough
Facility"), from Printpack Europe (St. Helens) Limited in July 1996. The
Company has consolidated the operations of the Runcorn Facility and the
Gainsborough Facility into those of its subsidiary, EPL Flexible
Packaging Limited ("EPL Flexible").
- In April 1996, the Company acquired the assets of Pure Produce, Inc.
("Pure Produce") based in Worcester, Massachusetts, providing the Company
with in-house scientific and technical capabilities, specifically in the
areas of food safety and microbiological testing.
- In July 1996, the Company acquired Crystal Plastics, Inc. ("Crystal"),
located outside Chicago, to provide a base for the proprietary gas flame
perforation equipment and increase the Company's packaging presence in
the U.S. Crystal uses "K" and polystyrene resins to manufacture and
convert a range of films for numerous applications, some of which are
used to support the Company's U.S. packaging business as a part of the
Company's integrated systems solutions. Crystal also provides the U.S.
base for facilitating fulfillment of an exclusive agreement with E.I.
duPont de Nemours & Co. Inc. ("DuPont"), whereby the Company provides all
of DuPont's perforating requirements for DuPont's Mylar(R) films (the
"DuPont Agreement").
- In October 1997, the Company acquired California Microbiological
Consulting, Inc., based in Walnut Creek, California ("CMC"). Together
with Pure Produce, CMC specializes in food safety, forensic testing and
microbiological consulting, and provides the Company with scientific and
technical facilities on the East and West Coasts.
- In December 1997, the Company acquired Fabbri Artes Graficas Valencia
S.A., a converter, printer and marketer of specialty flexible packaging,
serving principally the European produce market, based in Valencia,
Spain. This acquisition complements and enhances the Company's existing
U.K.-based packaging businesses, providing incremental capacity for more
efficient production of the combined product mix, as well as a strategic
foothold on the European continent for the launch of the Company's
related processing aid and scientific and technical services businesses.
The Company's packaging technologies complement and enhance the
effectiveness of its processing aids, making packaging an integral component of
the integrated system. In marketing its packaging technologies, the Company
works closely with its customers to determine optimal packaging characteristics
for the customer's products, thereby being in a position to influence a
customer's buying decision with respect to its packaging needs. The Company's
packaging business also provides a revenue stream that helps to fund market
development and the Company's lengthy sales process, and the presence of its
packaging infrastructure in regions where produce is grown enhances its sales
prospects to produce growers and processors.
The scientific and technical services the Company provides complement the
processing aids and packaging as a part of its integrated systems solutions. The
Company's scientific and technical expertise provides the Company with an
expanding base of knowledge about food technology, and the Company believes this
expertise helps to establish credibility with customers and support the
commercialization of the Company's products.
The Company markets its processing aids, packaging technologies and
scientific and technical services to processors of packaged, fresh-cut produce
as part of integrated systems solutions for processing fresh-cut produce. To
this end, the Company has been developing relationships with produce processors
and other companies in an effort to penetrate further the fresh-cut produce
market.
- In July 1996, the Company formed NewCorn Co LLC ("Newcorn"), a limited
liability company in which the Company has a 51% membership interest.
Newcorn is a joint venture among the Company and Underwood Ranches and
Twin Garden Farms, two major regional growers and processors of fresh-cut
sweet corn. Newcorn processes, packages, markets and sells fresh-cut corn
products using the Company's processing aids and packaging materials,
with the aim of developing year-round, nationally available branded
fresh-cut corn products.
- Effective September 22, 1997, the Company executed a ten-year exclusive
trademark license agreement (subject to extension) and strategic alliance
with Potandon Produce LLC ("Potandon"), a Green Giant Fresh(R) brand
licensee of the Pillsbury Company. The agreement is subject to the terms
of Potandon's license of the Green Giant Fresh(R) brand, and contains
certain minimum royalty requirements and other customary provisions.
During the first three years of the term of the agreement, Potandon has
the option to require the Company to negotiate in good faith to form a
business entity in which Potandon and the Company would jointly
participate in the fresh-cut potato products business on terms yet to be
established. The Company sells fresh-cut potato products, such as french
fries, to the food service industry under the Green Giant Fresh(R) brand
name, utilizing the Company's "Potato Fresh(R) System" processing aid
technologies and related protocols in processing potatoes supplied by
Potandon. In order to produce and market its fresh-cut potato products,
the Company uses one co-packer and plans to add several other regional
co-packers, and is building a dedicated sales and marketing
infrastructure to support its efforts.
- In October 1997, the Company entered into a strategic alliance with
Farmington Fresh, a major grower and marketer of Fuji apples. Under this
alliance, the Company has licensed its "Apple Fresh(R)" processing aids
and provides flexible packaging and scientific and technical services in
connection with the production by Farmington Fresh of certain varieties
of fresh-cut sliced apples. The agreement, which currently extends until
December 2002, grants Farmington Fresh production exclusivity in its
local geographic market. In addition to revenues from sales of the
Company's processing aids, packaging and scientific and technical
services, the agreement entitles the Company to receive a royalty from
each package of fresh-cut apple slices sold.
8
10
The Company was incorporated in 1985 under the laws of the State of
Colorado. The Company's executive offices are located at 2 International Plaza,
Suite 245, Philadelphia, Pennsylvania 19113-1507, and its telephone number is
(610) 521-4400.
USE OF PROCEEDS
The net proceeds from the sale of the Shares will be received by the
Selling Shareholders. The Company will not receive any of the proceeds from any
sale of the Shares by the Selling Shareholders, but will receive the exercise
price of any Warrants exercised by the Selling Shareholders, up to a maximum of
approximately $4,686,968. Any proceeds received from the exercise of the
Warrants will be used for working capital and general corporate purposes.
9
11
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
NAME AGE POSITIONS WITH THE COMPANY AND AFFILIATES
- ----------------------------------- --- ----------------------------------------------------
Paul L. Devine..................... 43 Chairman of the Board of Directors, President, Chief
Executive Officer
Timothy B. Owen.................... 38 Secretary and Treasurer
Derrick W. Lyon.................... 54 Chief Executive Officer of EPL Technologies (Europe)
Limited
Dr. William R. Romig............... 51 Senior Vice President -- Science and Technology
Karen A. Penichter................. 44 Vice President -- Sales
Antony E. Kendall.................. 54 Chief Executive Officer of EPL Flexible Packaging
Ltd.
Virginia N. Finnerty............... 37 Chief Operating Officer of IPS Produce, Inc.
Jose Saenz de Santa Maria.......... 42 Managing Director of Fabbri Artes Graficos Valencia
SA
Robert D. Mattei(1)................ 58 Director
Ronald W. Cantwell(1).............. 53 Director
- ---------------
(1) Member of Compensation, Audit and 1994 Stock Incentive Plan Committees
Paul L. Devine. Mr. Devine was appointed Chairman and Chief Executive
Officer of the Company in March 1992. From 1989 to 1992, Mr. Devine was involved
as a business consultant in the identification and targeting of acquisitions for
various public companies. During this time, he also served as a director and
chief executive officer of various companies, including three U.K. subsidiaries
of Abbey Home Healthcare, Inc., a U.S. public health care group. Prior to this,
he was the Chief Executive of Leisure Time International, plc from 1986 to 1989.
He is a graduate of London University and holds Bachelors and Masters degrees in
curriculum research. Throughout his business career, he has been intimately
involved in the design and implementation of new product strategies, both in
financial services and health/hygiene services.
Timothy B. Owen. Mr. Owen was appointed Secretary and Treasurer in October
1996, having served as European Financial Controller of the Company since 1995.
From 1992 until 1995, Mr. Owen performed financial and accounting services for
the Company as an independent consultant. From 1990 to 1993, Mr. Owen served as
chief financial officer and secretary of various companies, including three U.K.
subsidiaries of Abbey Home Healthcare, Inc. Prior to this, from 1986 to 1990, he
was a financial controller for the Foseco Group Plc, holding both corporate and
operational positions. Mr. Owen qualified as a chartered accountant with Touche
Ross & Co. (now Deloitte & Touche) in 1985. He is a graduate of Brunel
University, and holds an Honors degree in economics.
Derrick W. Lyon. Mr. Lyon was appointed Chief Executive Officer of EPL
Technologies (Europe) Limited in August 1996. Mr. Lyon previously served as
Chief Operating Officer of Bakery Packaging Services Limited ("BPS") (now EPL
Flexible Packaging Ltd.) following its acquisition by the Company in September
1995 until December 1996. From 1981 to 1995, Mr. Lyon was Managing Director and
a founding shareholder of BPS. Prior to this, Mr. Lyon held senior management
positions within Bernard Wardle & Co., Smurfit Limited, and W.R. Grace, where he
had over 25 years experience in the printing and packaging industries. He holds
a degree in mechanical engineering from City University, London, and Bachelors
and Masters degrees in economics from St. John's College, Cambridge.
10
12
Dr. William R. Romig. Dr. Romig was appointed Vice President of Research
and Development of the Company in September 1994, and, as of January 1, 1998,
serves as Senior Vice President of Science and Technology. From 1988 until 1994,
Dr. Romig was first Senior Director of Vegetable Genetics and then Senior
Director of Business Development and Director of Product Development for
FreshWorld, a joint venture between DNA Plant Technology Corporation, a public
company, and DuPont. Prior to 1988, he worked for General Foods Corporation
(Kraft) eventually attaining the highest technical position of Principal
Scientist. Dr. Romig received his B.S. in Plant Pathology from Cornell
University and his Ph.D. from the University of Delaware. He has held positions
of Adjunct Professor at several universities and has lectured and published in
the area of fresh-cut fruits and vegetables. Dr. Romig is also Chairman of the
Company's Scientific Advisory Board.
Karen A. Penichter. Ms. Penichter joined the Company as Vice President/
Sales in March 1996. From 1986 until 1996, Ms. Penichter worked for FMC
Corporation -- Food Ingredients Division in several sales management positions
until attaining the position of Director of Sales in 1993. She worked as a Sales
Representative and then Sales Manager for SCM Corporation -- Durkee Foods
Division until 1986. Ms. Penichter was employed by Thomas J. Lipton Company as a
Food Technologist from 1978-1982. Ms. Penichter holds a BA in Biology from SUNY
Binghamton and an M.S. in Food Technology from Rutgers University.
Antony P. Kendall. Mr. Kendall joined the Company in August 1996 as chief
executive officer of BPS (now EPL Flexible Packaging Ltd.). From 1970 to 1996,
Mr. Kendall worked for the UCB group of Companies in various senior management
positions. Most recently he was Managing Director of UCB Flexible Ltd.,
responsible for marketing its specialty packaging products in the U.K. and for
Pepsico European contracts. He holds a B.S. degree in Mechanical Engineering
from the University of London.
Virginia N. Finnerty. Ms. Finnerty has served as Chief Operating Officer
of IPS Produce, Inc., the subsidiary through which the Company conducts its
activities related to fresh-cut potatoes, since June 1997. From June 1994 to
June 1997, Ms. Finnerty served as the Company's Director of Business
Development. From December 1993 to June 1994, Ms. Finnerty worked in sales and
marketing development for the Greater Philadelphia Chamber of Commerce. From
1990 to 1993, Ms. Finnerty served as a sales and marketing manager for Osterman
Foods. Ms. Finnerty holds a BFA and an Education Certification from Temple
University and an MBA in marketing from St. Joseph's University.
Jose Saenz de Santa Maria. Mr. Saenz has served as Managing Director of
Fabbri since its acquisition by the Company in December 1997. Mr. Saenz joined
the Company in July 1997 as an independent consultant, and was responsible for
conducting the Company's on-site due diligence with respect to the Fabbri
Acquisition. From January 1994 to July 1997, Mr. Saenz served as Managing
Director of AMCOR Flexibles Espano. Prior to this, Mr. Saenz served as a senior
executive of Ramondine, Inc., a specialty packaging company, from August 1987 to
December 1993. He is a law graduate of the University of Madrid and holds
Masters degrees in Commercial Management and Marketing from CESEM Business
School (Madrid).
Robert D. Mattei. Mr. Mattei is an investor and entrepreneur. Mr. Mattei
has been self-employed in various aspects of the food service industry for more
than 20 years. As a restaurateur, Mr. Mattei has developed, operated and sold
many successful operations. Mr. Mattei currently owns three restaurants, and
acts as an industry consultant primarily involved in the development of
restaurant concepts. Mr. Mattei has been a member of the Board of Directors of
the Company since February 1988 and was Secretary of the Company from February
1988 to March 1993.
Ronald W. Cantwell. Mr. Cantwell currently serves as President of Trilon
Dominion Partners L.L.C. ("Trilon"), and has done so since its inception in June
1995. Mr. Cantwell also serves as President of VC Holdings, Inc., the sole
manager of Trilon. Prior to this, Mr. Cantwell served as President of The
Catalyst Group, Inc., where he executed a variety of merchant banking activities
and developed and directed the strategic plan for a diverse mix of utility
assets. In addition, he was involved in advising numerous mergers, acquisitions
and restructuring matters for The Edper Group, the principal investor in The
Catalyst Group. Prior to joining The Catalyst Group, Mr. Cantwell spent nineteen
years in the practice of public accounting, most recently with Ernst & Young,
where he was a tax partner and headed the Dallas-based Mergers and Acquisitions
practice.
13
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company for the year ended December 31, 1997 for services rendered in all
capacities to the Chief Executive Officer and each of the other four most highly
compensated executive officers (the "Named Executive Officers").
11
14
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ---------------
NAME AND OTHER RESTRICTED ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION SALARY BONUS SATION AWARD(S) SARs PAYOUTS SATION
YEAR ($) ($) ($) ($) (#) ($) ($)
- -------------------------------------------------------------------------------------------------
Paul L. Devine 1997 275,000 225,000 0 200,000 0 0
Chairman, President 1996 225,000 210,978 0 0 500,000 0 0
and Chief Executive 1995 56,250 100,000 120,000 0 200,000 0 0
Officer
Derrick W. Lyon 1997 0 0 148,500(1) 0 0 0 0
CEO - EPL 1996 0 0 184,000(1) 0 100,000 0 0
Technologies 1995 0 0 36,000(1) 0 100,000 0 0
(Europe) Ltd
Antony Kendall 1997 125,470 8,200 13,089(2) 0 50,000 0 0
Chief Executive 1996 47,839 0 2,470(2) 0 100,000 0 0
EPL Flexible 1995 0 0 0 0 0 0 0
Packaging Ltd
Timothy B. Owen 1997 105,000 40,000 0 0 100,000 0 0
Treasurer and 1996 90,000 0 0 0 115,000 0 0
Secretary 1995 60,000 0 30,000 0 125,000 0 0
William R. Romig 1997 105,750 14,075 1,634 0 150,000 0 0
Vice President, 1996 94,089 5,000 0 0 175,000 0 0
Research & 1995 85,000 0 0 0 35,000 0 0
Development
(1) includes payments made to DWL Associates Limited, an entity controlled by
Mr. Lyon, for the provision of consulting and advisory services. Amounts assume
an exchange rate of GBP1:$1.60 in 1995 and 1996, and GBP1:$1.65 in 1997.
(2) assumes an exchange rate of GBP1:$1.65.
COMPENSATION OF DIRECTORS
With the exception of Mr. Devine in his capacity as an officer of the Company,
no cash compensation was paid to any director of the Company during the year
ended December 31, 1997. In May 1997, in accordance with the terms of the
Company's 1994 Stock Incentive Plan, Robert D. Mattei and former director Dr.
Rainer G. Bichlbauer were each granted an option to acquire 15,000 shares of
Common Stock at an exercise price of $5.25 per share, for their services as
members of the audit and compensation committees. Also pursuant to the 1994
Stock Incentive Plan, Mr. William Hopke, also a former director, served for part
of fiscal 1996 and was granted an option to acquire 10,000 shares of Common
Stock at an exercise price of $5.25 per share for his services as a member of
such committees. These options are exercisable for five-year terms and have
exercise prices equal to the fair market value of such shares on the date of
grant.
EMPLOYMENT AND CONSULTING CONTRACTS
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Mr. Devine and the Company are parties to an employment agreement dated as
of January 1, 1997 which provides that Mr. Devine is to serve as the Company's
Chairman of the Board, President and Chief Executive Officer. The agreement
provides for a rolling three year term. The Agreement provides for a base salary
to be fixed by the Board which, as of January 1, 1997, was $275,000 per year.
Pursuant to the agreement the Company will maintain life insurance on Mr.
Devine's life with a face amount equal to at least $1,000,000, for which Mr.
Devine may designate a beneficiary. Under the agreement Mr. Devine also will be
entitled to receive a retirement benefit if he remains continuously employed (as
defined) by the Company until age fifty. Generally, if Mr. Devine retires at age
65, the retirement benefit to be received annually will be equal to 50% of his
average annual base salary and bonus during the final three years of his
employment (less benefits from any other defined benefit pension plan of the
Company). The percentage of Mr. Devine's average annual base salary and bonus
will be reduced or increased by 6% for each year by which Mr. Devine elects to
have such retirement benefit commence earlier or later than his 65th birthday.
The agreement also provides that Mr. Devine is entitled to participate in all
benefit plans and arrangements of the Company and may also receive bonuses, if
any, as determined by the Board of Directors. The agreement also provides
certain disability and death benefits to Mr. Devine, as well as severance
payments approximately equal to Mr. Devine's average salary and bonus for the
previous three years, to continue for three years if Mr. Devine is terminated
under certain conditions. Additionally, Mr. Devine is entitled to receive a
payment of slightly less than three times his "base amount" (as defined in the
Internal Revenue Code of 1986) in the event of a "change of control" of the
Company (as defined in the agreement). This agreement also contains certain
customary provisions regarding confidentiality and non-competition.
The Company entered into a Consulting Agreement with DWL Associates
Limited, an entity controlled by Mr. Lyon, for the provision of consulting and
advisory services. The agreement, which was signed as part of the acquisition by
the Company of BPS in September 1995, has an original term of two years,
expiring September 30, 1997. As notice not to renew was not served by either
party, the agreement has automatically renewed for a further twelve months,
expiring September 30, 1998. Under this agreement, either party may terminate
this agreement upon six months notice. Annual fees of GBP90,000 ($149,000 at an
exchange rate of GBP1:$1.65) are payable under this agreement, plus the
reimbursement of directly incurred expenses.
The Company, through Bakery Packaging Services Limited (now known as EPL
Flexible Packaging Limited ("EPL Flexible")), entered into an employment
agreement with Mr. Kendall commencing on August 1, 1996, which provides that Mr.
Kendall is to serve as Chief Executive of EPL Flexible. The agreement provides
for an annual salary of GBP70,000 ($115,000 at an exchange rate of GBP1:$1.65),
which salary is reviewable on January 1 annually and has been increased to
GBP83,000 ($137,000 at an exchange rate of GBP1:$1.65) as of July 1, 1997,
together with customary benefits, such as vacation, the provision of an
automobile, healthcare coverage and contributions into a defined contribution
pension scheme. A bonus is also payable upon the achievement of certain
performance targets, as agreed on an annual basis. After the first twelve
months, the contract may be terminated by either side upon six months' notice.
The agreement also contains certain customary provisions regarding
confidentiality and non-competition.
The Company entered into an employment agreement with Dr. Romig effective
September 1, 1994, which provides for a twelve month term, with annual renewal
terms. Effective January 1, 1998, the Company entered into a new agreement with
Dr. Romig, which runs for an initial term of two years, with annual renewal
terms thereafter. Either party may terminate the contract upon six months'
notice. The initial annual salary is $120,000, with a bonus of up to 25% of the
salary based upon the achievement of agreed-upon objectives. In addition to the
customary provisions on vacation and healthcare coverage, the agreement also
provides that, in the event of a termination of employment by either party due
to a change in control (as defined in the agreement), Dr. Romig would receive a
total payment equal to twice his annual salary plus a bonus equal to his average
bonus earned over the previous twelve months. The agreement also contains
certain customary provisions regarding confidentiality and non-competition.
1994 STOCK INCENTIVE PLAN
The Company's 1994 Stock Incentive Plan (the "Plan") was adopted by the
shareholders on July 21, 1994, and modified by the shareholders to increase the
shares issuable thereunder and to make certain other changes on July 22, 1996,
and again on July 21, 1997. The Plan is intended as an additional incentive to
certain employees, certain consultants or advisors and non-employee members of
the Board of Directors to enter into or remain in the employ of the Company or
to serve on the Board of Directors by providing them with an additional
opportunity to increase their proprietary interest in the Company and to align
their interests with those of the Company's shareholders generally through the
receipt of options to purchase Common Stock and has been structured to comply
with the applicable provisions of Section 16(b) of the Securities Exchange Act
of 1934, as amended, and Rule 16b-3 thereunder. The Plan provides for the grant
of incentive stock options within the meaning of the Internal Revenue Code of
1986, as amended, and non-qualified stock options and the award of shares of
Common Stock. The particular terms of each option grant or stock award are set
forth in a separate agreement between the Company and the optionee or award
recipient. The Plan is administered by the 1994 Stock Incentive Plan
Administration Committee appointed by the Board of Directors, which is currently
comprised of Robert D. Mattei and Ronald W. Cantwell. The committee has the
discretion to determine the number of shares subject to each award, and other
applicable terms and conditions, including a grant's vesting schedule. The term
of an option may not be more than five years from the grant date. Options
granted under the Plan generally terminate three months after an optionee ceases
to be employed by the Company (twelve months in the case of death or
disability). The Plan provides that no option may be granted under it after May
4, 1999.
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The following table sets forth certain information concerning grants of stock
options made during the year ended December 31, 1997 to Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------
% OF
TOTAL POTENTIAL REALIZABLE VALUE AT
OPTIONS ASSUMED ANNUAL RATES OF
GRANTED TO STOCK PRICE APPRECIATION FOR
EMPLOYEES EXERCISE OPTION TERM (5 YEARS)(1)
OPTIONS IN FISCAL OR BASE EXPIRATION -------------------------
NAME GRANTED YEAR PRICE DATE 0% 5% 10%
- ---------------- -------- ------------- -------- ---------- --- ------- --------
Paul L. Devine 200,000 18.51% $7.00 11/14/2002 0 386,794 854,714
Derrick W. Lyon 0 0 0 N/A N/A N/A N/A
Antony Kendall 50,000 4.63 7.00 11/14/2002 0 96,699 213,679
Timothy B. Owen 100,000 9.25 7.00 11/14/2002 0 193,397 427,357
William R. Romig 150,000 13.88 7.00 11/14/2002 0 290,096 641,036
(1) The dollar amounts under these columns are the result of calculations at
0%, 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation of the
price of the Common Stock.
The following table sets forth certain information concerning exercises of
stock options during the year ended December 31, 1997 and the value of
unexercised stock options at December 31, 1997 for Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES (1)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ACQUIRED VALUE --------------------------------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ---------- ----------- ------------- ----------- -------------
Paul L. Devine 400,000(1) 2,212,500(1) 800,000 0 1,462,500 0
Derrick W. Lyon 0 0 200,000 0 618,750 0
Antony Kendall 0 0 150,000 0 109,375 0
Timothy B. Owen 10,000(1) 60,625(1) 340,000 0 669,375 0
William R. Romig 0 0 360,000 0 468,751 0
(1) None of the shares underlying the exercised options has been sold as at
December 31, 1997.
(2) At December 31, 1997, the closing price of a share of Common Stock on the
Nasdaq SmallCap Market was $6.125.
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CERTAIN TRANSACTIONS
Effective October 21, 1997, the Company completed a revolving line of
credit agreement (the "Trilon Line") with Trilon Dominion Partners L.L.C.
("Trilon"). In connection with obtaining the Trilon Line, the Company paid
Trilon a total transaction fee of $100,000. Under the Trilon Line, Trilon made
available to the Company $2.1 million for working capital purposes. Amounts
drawn were secured by, among other things, a blanket lien on the assets of the
Company's wholly-owned U.S. subsidiaries and on the assets of the Company
itself. Interest was at the "prime rate" (as published in the Wall Street
Journal) plus 4% and payable quarterly in arrears. $337,500 was drawn as of
September 30, 1997. Part of the proceeds of the placement of the Series D
Preferred Stock and the warrants issued in connection with the Series D
Preferred Stock was used to repay the Trilon Line on November 12, 1997,
whereupon the Trilon Line was cancelled. The Trilon Line therefore is no longer
available for drawings. Mr. Cantwell, a director of the Company, is the
President of Trilon and President of VC Holdings, Inc., the sole managing member
of Trilon.
The Company had a revolving line of credit under an agreement originally
obtained from Dominion Capital, Inc. ("Dominion"), a related party of Trilon,
which was to have expired on March 21, 1998, bearing interest at prime plus
2.5%. In July 1995, Dominion transferred its interest in this line of credit to
Trilon. On October 2, 1995 Trilon agreed to convert the outstanding principal
amount of $4,050,000 under the line of credit into 2,025,000 shares of Common
Stock and warrants to purchase 100,000 shares of Common Stock for $2.00 per
share. In addition, as part of such transaction, the Company issued 162,613
shares of Common Stock in settlement of accrued interest of $310,164, and
24,000 shares of Common Stock in settlement of commitment fees.
The Company entered into a Consulting Agreement with DWL Associates
Limited, an entity controlled by Mr. Lyon. See "Management -- Executive
Compensation."
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock (as defined and calculated under Rule 16b-3 issued
under the Securities Exchange Act of 1934, as amended), as of February 12, 1998
by: (i) each person known by the Company to be the beneficial owner of more than
5% of the Common Stock, (ii) each director, (iii) the Named Executive Officers
(see "Management -- Executive Compensation"), and (iv) all current executive
officers and directors of the Company as a group. Except as set forth below, the
shareholders named below have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
SHARES BENEFICIALLY
OWNED (1)
-----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------- --------- -------
Trilon Dominion Partners, L.L.C...... 5,381,806(2)(8) 26.0%
Lancer Partners, L.P. ............... 3,577,011(3) 19.8
Norwich Union Investment Management
Limited............................ 962,500(4) 5.3
Willbro Nominees Ltd................. 293,930(5) 1.6
Paul L. Devine....................... 1,540,833(6) 8.1
Robert D. Mattei..................... 428,965(7) 2.4
Ronald W. Cantwell................... 5,381,806(8) 26.0
Derrick W. Lyon...................... 200,000(9) 1.1
Dr. William R. Romig................. 360,000(9) 2.0
Timothy B. Owen...................... 375,000(10) 2.0
Antony E. Kendall.................... 150,000(9) *
Directors and executive officers as a
group (10 persons)................. 8,899,104(11) 38.5
- ---------------
* Less than one percent.
(1) Unissued shares of Common Stock of each owner subject to currently
exercisable options or other rights to acquire securities exercisable within
60 days of the date hereof are included in the totals listed and are deemed
to be outstanding for the purpose of computing the percentage of Common
Stock owned by such person, but are not deemed to be outstanding for the
purpose of computing the percentage of the class owned by any other person.
The effect of this calculation is to increase the stated total ownership
percentage currently controlled. Information in the table is based solely
upon information contained in filings with the Securities and Exchange
Commission, pursuant to Sections 13(d) and 13(g) of the Securities Exchange
Act of 1934, as amended, and the records of the Company.
(2) Includes 2,577,333 shares of Common Stock that may be acquired by converting
1,933,000 shares of Series A Preferred Stock into shares of Common Stock.
Trilon Dominion Partners, L.L.C. ("Trilon") beneficially owns 93.2% of the
Company's outstanding Series A Preferred Stock. The sole members of Trilon
are VC Holdings, Inc. (the sole managing member of Trilon and owner of 100%
of the voting interest in Trilon) and Dominion Capital, Inc., a Virginia
corporation ("Dominion Capital"). Ronald W. Cantwell, a director of the
Company, owns all of the voting stock of VC Holdings, Inc. Dominion Capital
is a wholly-owned subsidiary of Dominion Resources, Inc., a Virginia
corporation ("Dominion Resources"). Both Dominion Capital and Dominion
Resources may be considered to be indirect beneficial owners of the shares
of Common Stock held by Trilon. However, both Dominion Capital and Dominion
Resources disclaim any beneficial ownership of such shares. The address for
Trilon is 245 Park Avenue, Suite 2820, New York, NY 10017.
(3) Includes shares of Common Stock held by funds other than Lancer Partners,
L.P., but which are commonly managed in a group that includes Lancer
Partners, L.P. The address for Lancer Partners, L.P. is 375 Park Avenue,
Suite 2006, New York, NY 10017.
(4) Includes 62,500 shares of Common Stock issuable upon exercise of Warrants.
The address for Norwich Union Investment Management Limited is Sentinel
House, 37 Surrey Street, Norwich NR13UZ, England, U.K.
(5) Includes 144,444 shares of Common Stock issuable upon conversion of Series C
Preferred Stock and 61,986 shares of Common Stock issuable upon exercise of
Warrants. Willbro Nominees beneficially owns 100% of the Series C Preferred
Stock. The address for Willbro Nominees is 6 Broadgate, London EC2M 2RP,
England, U.K.
(6) Includes 880,000 shares of Common Stock that may be acquired by (i)
converting 50,000 shares of A Preferred Stock into 66,667 shares of Common
Stock, (ii) exercising options to acquire 800,000 shares of Common Stock and
(iii) exercising warrants to acquire 13,333 shares of Common Stock. Mr.
Devine beneficially owns 2.4% of the Series A Preferred Stock. The address
for Mr. Devine is c/o the Company, 2 International Plaza, Suite 245,
Philadelphia, PA 19113-1507.
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(7) Includes 95,000 shares of Common Stock that may be acquired by exercising
options to acquire 95,000 shares of Common Stock and 20,000 shares of
Common Stock owned by Mr. Mattei's wife, as to which he disclaims
beneficial ownership.
(8) Mr. Cantwell may be considered to be an indirect beneficial owner of
such shares of Common Stock by virtue of his ownership of all of the voting
stock of VC Holdings, Inc., the sole managing member of Trilon and owner of
100% of the voting interest in Trilon. The only other member of Trilon is
Dominion Capital, which holds a non-voting membership interest in Trilon.
Dominion Capital is a wholly-owned subsidiary of Dominion Resources. Both
Dominion Capital and Dominion Resources may be considered to be indirect
beneficial owners of such shares of Common Stock. However, both entities
disclaim any beneficial ownership of such shares. The address for Mr.
Cantwell is c/o Trilon, 245 Park Avenue, Suite 2820, New York, NY 10017.
(9) Amount shown represents shares issuable upon exercise of options.
(10) Includes 340,000 shares that may be acquired by exercising options.
(11) Includes 5,027,333 shares of Common Stock that may be acquired by (i)
converting 1,983,000 shares of A Preferred Stock into 2,644,000 shares of
Common Stock, (ii) exercising options to acquire 2,370,000 shares of Common
Stock and (iii) exercising warrants to acquire 13,333 shares of Common
Stock.
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SELLING SHAREHOLDERS
The table below sets forth information as of February 12, 1998 with respect
to the Selling Shareholders, including the number of shares of Common Stock
owned prior to the Offering, the number of Shares being offered for each
account, and the number and percentage of shares of Common Stock to be owned by
the Selling Shareholders immediately following the sale of the Shares, assuming
all of the offered Shares are sold. In the case of the shares of Common Stock
underlying the Series D Preferred Stock, the number of shares of Common Stock
owned and offered for sale hereby represents an estimate of the number of shares
of Common Stock issuable upon conversion of the Series D Preferred Stock, based
on 150% of the shares of Common Stock issuable at a conversion price of $6.25
per share. This estimate could be greater than or less than the actual number of
shares issued upon conversion. See footnote 5 to the table below for a detailed
description.
Shares Beneficially
Owned Shares Shares Beneficially
Before the Being Owned
Offering(1) Offered After the Offering(1)(2)
----------- ------- ------------------------
Name Number Percent
---- ------ -------
Willbro Nominees Ltd. 293,930(3) 293,390 0 0
Norwich Union Investment
Management Limited 962,500(4) 312,500 650,000 3.6%
Clifford M. Coles 78,000 38,220 39,780 *
RGC International Inventors, LDC 1,905,808(5) 1,905,808 0 0
Capital Ventures International 680,645(5) 680,645 0 0
Halifax Fund, L.P. 816,775(5) 816,775 0 0
* Less than 1%.
(1) Except as set forth in footnote (5) below, beneficial ownership is
determined in accordance with Rule 13d-3 of the Exchange Act. Shares of
Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days of February 12, 1998 are deemed outstanding for
computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person. The
persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
(2) Assumes all Shares offered hereby are sold in the Offering.
(3) Includes 144,444 shares of Common Stock issuable upon conversion of Series
C Preferred Stock and 61,986 shares of Common Stock issuable upon exercise
of Warrants.
(4) Includes 62,500 shares of Common Stock issuable upon exercise of Warrants.
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(5) In accordance with Rule 416, the number of shares of Common Stock set
forth in the table represents a good faith estimate of the number of shares of
Common Stock to be offered by the Selling Shareholder, based on 150% of the
number of shares of Common Stock that would have been issuable upon conversion
of the Series D Preferred Stock at a conversion price of $6.25 per share, in
accordance with Rule 416 and exercise of the Series D Warrants. The actual
number of shares of Common Stock issuable upon conversion of the Series D
Preferred Stock is determined by a formula based on the market price at the time
of conversion, is therefore subject to adjustment and could be materially less
or more than such estimated number depending on factors that cannot be
predicted by the Company. Specifically, at any given time, the Series D
Preferred Stock is convertible into a number of shares of Common Stock
determined by dividing the sum of (a) the stated value of the Series D Preferred
Stock and (b) a premium amount equal to 4% (on an annualized basis) of the
stated value of the Series D Preferred Stock, by the then applicable conversion
price (calculated as 94% of the average closing bid prices of the Common Stock
for any five (5) consecutive trading days in the twenty-five (25) trading day
period ending one trading day prior to the date of conversion) with a maximum
conversion price of $11.63, subject to certain restrictions. Such 150% estimate
assumes no accrual of the premium on the conversion price since the issuance of
the Series D Preferred Stock. Additional shares also may be issued in the event
certain other agreements associated with the Series D Preferred Stock require
satisfaction, including certain redemption rights in certain circumstances and
liquidated damages provisions. All of such shares, to the extent issued (if
ever), are included in the shares underlying the Series D Preferred Stock as
presented in this table and offered hereby. The Shares offered hereby, and
included in the Registration Statement of which this Prospectus is a part, also
include such additional number of shares of Common Stock as may be issued or
issuable upon conversion of the Series D Preferred Stock by reason of the
floating rate conversion price mechanism or other adjustment mechanisms
described in the Certificate of Designation for the Series D Preferred Stock, or
by reason of any stock split, stock dividend or similar transaction involving
the Common Stock, in order to prevent dilution. The number of shares of Common
Stock beneficially owned and being offered by RGC International Investors, LDC,
Capital Ventures International, and Halifax Fund, L.P. includes 1,680,000,
600,000 and 720,000 shares of Common Stock issuable upon conversion of the
Series D Preferred Stock, respectively, and 225,808, 80,645 and 96,775 shares of
Common Stock, respectively, issuable upon exercise of the Series D Warrants,
which are exercisable for a period of five (5) years at $10.08 each. Pursuant to
the terms of the Series D Preferred Stock and the Series D Warrants, the shares
of Series D Preferred Stock and the Series D Warrants are convertible or
exercisable by any holder only to the extent that the number of shares of Common
Stock thereby issuable, together with the number of shares of Common Stock owned
by such holder and its affiliates (but not including shares of Common Stock
underlying unconverted shares of Series D Preferred Stock or unexercised
portions of the Series D Warrants) would not exceed 4.99% of the then
outstanding Common Stock as determined in accordance with Section 13(a) of the
Exchange Act. Accordingly, the number of shares of Common Stock set forth in the
table for this Selling Shareholder may exceed the number of shares of Common
Stock that this Selling Shareholder could own beneficially at any given time
through this Selling Shareholder's ownership of the Series D Preferred Stock and
the Series D Warrants. In that regard, beneficial ownership of this Selling
Shareholder set forth in the table is not determined in accordance with Rule
13d-3 under the Exchange Act.
Relationships Between the Company and the Selling Shareholders
Clifford M. Coles is the President of CMC. In connection with the
Company's acquisition of CMC in October 1997, as the former controlling
shareholder of CMC, Mr. Coles received, among other things, 78,000 shares of
Common Stock in exchange for the common stock of CMC.
PLAN OF DISTRIBUTION
The offer and sale of the Shares by the Selling Shareholders, or by their
pledgees, donees, transferees or other successors in interest, may be effected
from time to time in one or more of the following transactions: (a) to
underwriters who will acquire the Shares for their own account and resell them
in one or more transactions,
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including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale (any public offering price and any
discount or concession allowed or reallowed or paid to dealers may be changed
from time to time); (b) through brokers, acting as principal or agent, in
transactions (which may involve block transactions) on the Nasdaq SmallCap
Market or on one or more exchanges on which the Shares are then listed, in
special offerings, exchange distributions pursuant to the rules of the
applicable exchanges or in the over-the-counter market, or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices or at fixed prices; (c) directly or through
brokers or agents in private sales at negotiated prices; (d) short sales; (e) by
other legally available means; or (f) any combination of the foregoing. The
number of Shares that may actually be sold by each of the Selling Shareholders
will be determined by such Selling Shareholder.
The sale price to the public may be the market price prevailing at the
time of sale, a price related to such prevailing market price or such other
price as the Selling Shareholders determine from time to time. The Shares may
also be sold pursuant to Rule 144.
The Selling Shareholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the Shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Brokers acting as agents for the Selling
Shareholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the Shares will
do so for their own account and at their own risk. It is possible that a Selling
Shareholder will attempt to sell shares of Common Stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any of the Shares
offered hereby will be sold by the Selling Shareholders. The Selling
Shareholders and any brokers, dealers or agents, upon effecting the sale of any
of the Shares offered hereby, may be deemed "underwriters" as that term is
defined under the Securities Act or the Exchange Act, or the rules and
regulations thereunder.
Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions. Discounts or concessions may be allowed
or reallowed or paid to dealers.
Upon the Company being notified by any Selling Shareholder that a material
arrangement has been entered into with a broker or dealer for the sale of any of
the Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplemented
Prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (a) the name of each such broker-dealer, (b) the
number of shares involved, (c) the price at which such shares were sold, (d) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (e) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this Prospectus, as supplemented, and (f) other facts material to the
transaction.
The Selling Shareholders and any other persons participating in the sale
or distribution of the Shares may be subject to applicable provisions of the
Securities Act and Exchange Act and the rules and regulations thereunder,
including Regulation M, which provisions may limit the timing of purchases and
sales of any of the Shares by the Selling Shareholders or any other such person.
The foregoing may affect the marketability of the Shares.
In connection with the Offering, the Company has agreed to indemnify the
Selling Shareholders, or their transferees or assignees, against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Selling Shareholders or their respective pledgees, donees,
transferees or other successors in interest, may be required to make in respect
thereof.
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23
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions, if required, only
through registered or licensed brokers or dealers. In addition, in certain
states the Shares may not be sold unless the Shares have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and complied with.
The Company has agreed that it will bear all costs, expenses and fees in
connection with the registration of the Shares.
LEGAL MATTERS
The validity of the Shares offered hereby is being passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania
and Denver, Colorado.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of Fabbri Artes Graficas Valencia S.A. as of
September 30, 1997 and 1996 and for each of the two years in the period ended
September 30, 1997 included in the Company's Current Report on Form 8-K dated
December 24, 1997, as amended on February 12, 1998 and incorporated in this
Prospectus and Registration Statement by reference, have been audited by Coopers
& Lybrand, S.A., independent auditors, as set forth in their report thereon.
Such financial statements are incorporated by reference herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Bakery Packaging Services Limited for each of
the two years in the period ended November 30, 1994 included in the Company's
Current Report on Form 8-K dated September 19, 1995, as amended on November 14,
1995 and incorporated in this Prospectus and Registration Statement by
reference, have been audited by Porter Matthews & Marsden, independent auditors,
as set forth in their report thereon. Such financial statements are incorporated
by reference herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
21
24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the Shares being
registered hereby.
SEC Registration Fee $ 7,356
NASDAQ Listing Fee 7,500
Accountants' Fees and Expenses 10,000*
Legal Fees and Expenses 35,000*
Miscellaneous 144*
-------
TOTAL $60,000*
* As estimated and subject to change.
The Selling Shareholders will not bear any portion of the expenses of
registration of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article 109 of the Colorado Business Corporation Act, as amended
(the "CBCA"), the Company has the power to indemnify directors and officers
under prescribed circumstances and subject to certain limitations, against
certain costs and expenses, including attorneys' fees actually and reasonably
incurred in connection with any action, suit or proceedings, whether civil,
criminal, administrative or investigative, to which any of them is a party by
reason of his or her being a director or officer of the Company if it is
determined that he or she acted in accordance with the applicable standard of
conduct set forth in such statutory provisions.
Article VF. of the Company's Amended and Restated Articles of
Incorporation, as amended, and Article VI of the Company's Bylaws, as amended,
provide that the Company shall indemnify directors and officers of the Company
against all expenses, liability and loss incurred as a result of such person's
being a party to, or threatened to be made a party to, any proceeding (as
defined, which includes any threatened proceeding) by reason of the fact that he
or she is or was a director or officer of the Company or is otherwise the
subject of any such proceeding by reason of that person's relationship with the
Company, to the fullest extent authorized by the CBCA, if the person conducted
the activities in question in good faith, reasonably believed that the conduct
was in the Company's best interests or was not opposed to the Company's best
interests and, in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful. Article VI of the Bylaws, as amended, further
permits the Company to maintain insurance, at its expense, to protect itself and
any such director or officer of the Company against any such expenses, liability
or loss, whether or not the Company would have the power to indemnify such
person against such expenses, liability or loss under the Bylaws, as amended.
The Company has directors' and officers' liability insurance.
II-1
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ITEM 16. EXHIBITS.
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation of the Company, as
amended, (Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997 on file with the Securities and Exchange
Commission (the "SEC")).
3.2 Amended and Restated Bylaws of the Company, as amended.
(Incorporated by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
1997 on file with the SEC.)
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for the
eight months ended December 31, 1992 on file with the SEC).
5.1* Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to the
validity of the shares of Common Stock being registered.
10.1 License Agreement dated as of April 29, 1997 by and between
Integrated Produce Systems, Inc. and Farmington Fresh (confidential
treatment has been requested for certain portions of this
agreement).
10.2* Amendment to License Agreement, dated February 13, 1998, between
Integrated Produce Systems, Inc. and Farmington Fresh.
10.3 Operating Agreement of NewCornCo, LLC, dated July 19, 1996, between
the Registrant and Agricultural Innovation & Trade, Inc.
(confidential treatment has been requested for certain portions of
this agreement).
10.4 Fresh-Cut Corn Processing Agreement, dated July 22, 1996, between
NewCornCo, LLC, and Agricultural Innovation & Trade, Inc.
(confidential treatment has been requested for certain portions of
this agreement).
10.5 Assignment of Membership Interest, dated December 6, 1997,
between Agricultural Innovation & Trade, Inc. and Twin
Garden Sales, Inc. (confidential treatment has been
requested for certain portions of this agreement).
10.6 Requirements Agreement, dated as of December 6, 1997, between
NewCornCo, LLC, and Twin Garden Farms (confidential treatment has
been requested for certain portions of this agreement).
10.7 Employment Agreement, dated January 1, 1998, between the Company and
William R. Romig
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Coopers & Lybrand, S.A.
23.3 Consent of Porter, Mattews & Marsden
[/R]
23.4* Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1).
24.1* Power of Attorney (included in signature page).
__________
*previously filed
**to be filed by amendment
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26
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement.
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act")'
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not
apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Township of Tinicum, Commonwealth of Pennsylvania, on
February 13, 1998.
EPL TECHNOLOGIES, INC.
/s/ Paul L. Devine
----------------------------
Paul L. Devine
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Paul L. Devine Chairman, President and February 13, 1998
- --------------------- Chief Executive Officer
Paul L. Devine (Principal Executive Officer)
/s/ Timothy B. Owen Secretary and Treasurer February 13, 1998
- ---------------------- (Principal Financial and
Timothy B. Owen Accounting Officer)
/s/ Robert D. Mattei Director February 13, 1998
- --------------------
Robert D. Mattei
/s/ Ronald W. Cantwell Director February 13, 1998
- ----------------------
Ronald W. Cantwell
II-4
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EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
3.1 Amended and Restated Articles of Incorporation
of the Company, as amended, (Incorporated by
reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997 on
file with the SEC).
3.2 Amended and Restated Bylaws of the Company, as
amended, (Incorporated by reference to Exhibit
3.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September
30, 1997 on file with the SEC.)
4.1 Specimen Common Stock Certificate
(Incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for
the eight months ended December 31, 1992 on
file with the SEC).
5.1* Opinion of Ballard Spahr Andrews & Ingersoll, LLP
as to the validity of the shares of Common
Stock being registered.
10.1 License Agreement dated as of April 29, 1997 by
and between Integrated Produce Systems, Inc.
and Farmington Fresh (confidential treatment
has been requested for certain portions of this
agreement).
10.2* Amendment to License Agreement, dated February 13,
1998, between Integrated Produce Systems, Inc.
and Farmington Fresh.
10.3 Operating Agreement of NewCornCo, LLC, dated
July 19, 1996, between the Company and
Agricultural Innovation & Trade, Inc. (confidential
treatment has been requested for certain
portions of this agreement).
10.4 Fresh-Cut Corn Processing Agreement, dated
July 22, 1996, between NewCornCo, LLC, and
Agricultural Innovation & Trade, Inc. (confidential
treatment has been requested for certain
portions of this agreement).
10.5 Assignment of Membership Interest, dated December 6, 1997,
between Agricultural Innovation & Trade, Inc. and Twin
Garden Sales, Inc. (confidential treatment has been
requested for certain portions of this agreement).
10.6 Requirements Agreement, dated December 6, 1997,
between NewCornCo, LLC, and Twin Garden Farms
(confidential treatment has been requested for
certain portions of this agreement).
10.7 Employment Agreement, dated January 1, 1998, between the Company
and William R. Romig
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Coopers & Lybrand, S.A.
23.3 Consent of Porter, Matthews & Marsden
23.4* Consent of Ballard Spahr Andrews & Ingersoll, LLP
(included in Exhibit 5.1).
24.1* Power of Attorney (included in signature page).
____________
*previously filed
**to be filed by amendment.