FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14802
Calgene, Inc.
(Exact name of registrant as specified in its charter)
Delaware 68-0369863
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1920 Fifth Street,
Davis, California 95616
(Address of principal executive offices) (Zip Code)
(916) 753-6313
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
- ----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding at October 31, 1996: 60,464,636 shares
<PAGE>
CALGENE, INC.
INDEX
Page No.
--------
Part I. Financial Information (unaudited)
Condensed consolidated balance sheets -
September 30, 1996 and June 30, 1996 ...............................4
Condensed consolidated statements of operations -
three months ended September 30, 1996 and 1995......................5
Condensed consolidated statements of cash flows -
three months ended September 30, 1996 and 1995 .....................6
Notes to condensed consolidated financial statements ...............7
Management's discussion and analysis of financial
condition and results of operations ...............................10
Part II. Other Information
Item 1. Legal Proceedings.........................................16
Item 6. Exhibits and Reports on Form 8-K..........................17
Signatures..................................................................18
<PAGE>
PART I. FINANCIAL INFORMATION
<PAGE>
Calgene Inc.
Condensed Consolidated Balance Sheets
($ in thousands except per share amounts)
(Unaudited)
September 30 June 30
Assets 1996 1996
-------- --------
Current assets:
Cash and equivalents $ 598 $ 17,674
Available-for-sale securities 3,163 10,919
Accounts receivable, net of allowances 19,490 26,133
Inventories 27,977 23,865
Prepaid expenses and other current assets 1,601 2,174
-------- --------
Total current assets 52,829 80,765
Property, plant and equipment:
Land 22,755 22,755
Buildings 23,083 23,083
Leasehold improvements 8,591 8,556
Furniture, fixtures and equipment 40,654 40,398
Construction in progress 3,499 1,676
-------- --------
98,582 96,468
Less accumulated depreciation and amortization 18,634 16,481
-------- --------
Property, plant and equipment, net 79,948 79,987
Product rights, patents and other intangible
assets, less accumulated amortization 30,333 30,642
Costs in excess of fair values assigned to net
assets acquired, less accumulated amortization 35,582 36,219
Other non-current assets 5,147 5,689
-------- --------
$203,839 $233,302
======== ========
Liabilities and shareholders' equity Current liabilities:
Notes payable $ 18,939 $ 16,789
Note payable to affiliate 5,000 --
Accounts payable 14,963 20,111
Accrued payroll and related expenses 3,748 3,252
License contract payable -- 750
Amounts due customers 3,389 5,028
Other current liabilities 13,430 13,453
Current portion of long-term debt 13,157 22,850
-------- --------
Total current liabilities 72,626 82,233
Note payable to affiliate 24,760 24,760
Research and development advance from affiliate 10,000 10,000
Long-term debt 20,613 22,643
Commitments and contingencies
Minority interest 198 266
Shareholders' equity:
Common stock, $.001 par value; 80,000,000
shares authorized; 60,464,636 and 60,443,115
shares issued and outstanding at
September 30, 1996 and June 30, 1996, respectively 60 60
Additional paid-in capital 367,590 367,494
Accumulated deficit (292,008) (274,154)
-------- --------
Total shareholders' equity 75,642 93,400
-------- --------
$203,839 $233,302
======== ========
See accompanying notes
<PAGE>
Calgene, Inc.
Condensed Consolidated Statements of Operations
($ in thousands except per share amounts)
(Unaudited)
Three Months
Ended September 30
-----------------------------
1996 1995
------------- -------------
Revenues:
Product sales, net $ 36,611 $ 8,812
Product development revenues 359 300
------- -------
36,970 9,112
Costs and expenses:
Cost of goods sold 38,765 12,141
Research and development 4,018 3,223
Selling, general and administrative 10,392 3,892
------- -------
53,175 19,256
Interest expense (1,744) (513)
Other income, net 111 298
------- -------
Loss from operations before
income taxes (17,838) (10,359)
Provision for income taxes 16 15
------- -------
Net loss $ (17,854) $ (10,374)
======= =======
Net loss per share $ (0.30) $ (0.34)
======= =======
Shares used in per share calculations 60,443,354 30,249,592
See accompanying notes.
<PAGE>
Calgene, Inc.
Condensed Consolidated Statements of Cash Flows
Decrease in Cash and Equivalents
($ in Thousands)
(Unaudited)
Three Months Ended
September 30
----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net loss $(17,854) $(10,374)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,416 1,220
Other (73) (59)
Net changes in:
Operating assets 3,104 1,274
Operating liabilities (7,064) (3,585)
-------- --------
Net cash used in operating activities (18,471) (11,524)
Cash flows from investing activities:
Proceeds from sales of securities 8,715 5,893
Purchase of securities (955) (3,542)
Capital expenditures for property, plant and equipment (2,032) (1,094)
Purchases of product rights, patents and
other intangible assets (291) (1,208)
Other 214 54
-------- --------
Net cash provided by investing activities 5,651 103
Cash flows from financing activities:
Proceeds from notes payable 13,800 1,353
Payments on notes payable (11,650) (2,205)
Proceeds on note payable to affiliate 5,000 --
Decrease in securities-pledged 334 175
Increase in borrowings of long-term debt -- 3,000
Principal payments on long-term debt (11,832) (459)
Sale of common stock 92 117
-------- --------
Net cash provided by (used in) financing activities (4,256) 1,981
-------- --------
Net increase (decrease) in cash and equivalents (17,076) (9,440)
Cash and equivalents at beginning of period 17,674 11,753
-------- --------
Cash and equivalents at end of period $ 598 $ 2,313
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,712 $ 456
Income taxes $ 9 $ 26
See accompanying notes.
<PAGE>
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the interim periods. These financial statements should
be read in conjunction with the Company's audited financial statements contained
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1996.
In the opinion of management, the interim financial statements reflect all
adjustments necessary, consisting only of normal recurring adjustments, to
present fairly the Company's consolidated financial position at September 30,
1996 and the consolidated results of operations and cash flows for the fiscal
quarters ended September 30, 1996 and 1995. Results for the period ended
September 30, 1996 are not necessarily indicative of results to be expected for
the entire fiscal year.
Net loss per share has been computed by dividing the net loss by the
weighted average number of common shares outstanding during each period. Common
shares issuable upon the exercise of stock options have been excluded from the
computation of net loss per share since their inclusion would be antidilutive.
Certain amounts reported as of June 30, 1996 and for the fiscal quarter
ended September 30, 1995 have been reclassified to conform with the presentation
of the fiscal quarter ended September 30, 1996.
Product rights are stated at cost and are amortized on a straight-line
basis over the lesser of their contractual lives or their estimated useful lives
(generally 10 to 20 years). External costs incurred in obtaining patents are
capitalized. The costs of successful patent applications are amortized on a
straight-line basis over the lesser of their statutory lives or their estimated
useful lives (generally 17 years). External costs incurred in defense of patents
are capitalized and amortized on a straight-line basis over the remaining life
of the patent. The costs of unsuccessful patent applications or patent defense
are charged to expense in the period in which the patent applications are denied
or the patent defense is unsuccessful.
During the quarter ended September 30, 1996, the Company adopted the
provisions of FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121"). SFAS
121 requires impairment losses to be recognized for long-lived assets and
identifiable intangibles used in operations when indicators of impairment are
present and the estimated undiscounted cash flows are not sufficient to recover
the assets' carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount. Costs in excess of fair values
assigned to net assets acquired in purchase business combinations are included
in impairment evaluations when events or circumstances exist that indicate the
carrying amount of the acquired assets may not be recoverable.
Management of the Company is exploring alternative business strategies for
its Gargiulo subsidiary, certain of which may require the disposal and
write-down of long-lived assets and associated costs in excess of fair values
assigned to net assets acquired. No formal plans have yet been formulated or
adopted by the Company in this regard.
<PAGE>
2. Inventories
-----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value. Inventories consist of the following (in
thousands):
September 30, 1996 June 30, 1996
------------------ ------------------
Growing crops $ 14,272 $ 11,208
Supplies and seed
inventories 7,590 10,136
Finished goods 3,158 1,415
Work in progress 1,394 596
Raw materials 1,563 510
---------- -----------
$ 27,977 $ 23,865
========== ===========
3. Patent and Legal Proceedings
----------------------------
See Part II - Other Information
Item 1. Legal Proceedings
4. Notes Payable
-------------
During fiscal year 1996 the Company entered into a credit facility
agreement with Monsanto Company ("Monsanto"). Monsanto is obligated, subject to
certain terms and conditions, to lend up to $15 million annually until September
30, 1998, to Calgene, although not more than $15 million may be outstanding at
any one time. The credit facility agreement contains various covenants
precluding Calgene and its subsidiaries from taking certain actions without the
approval of Monsanto. Also, in the event of a default by Calgene, Monsanto has
certain rights to convert the outstanding principal and interest under such
agreement into additional shares of Calgene Common Stock, not to exceed
3,000,000 shares. The outstanding balance of this credit facility shall bear
interest at two percent above the prime rate (aggregating 10.25% at September
30, 1996). This credit facility expires on September 30, 1998. In September 1996
the Company received a $5 million advance under this credit facility. In October
1996 the Company received an additional $10 million advance.
5. Subsequent Events
-----------------
In October 1996 the Company sold a portion of its Florida produce farm land
for a gross sales price of $3 million. Commensurate with the sale, the Company
paid off a $3 million mortgage loan secured by the land sold as well as five
adjoining parcels. As part of the sales agreement, the buyer has the option to
purchase five additional parcels, one additional parcel in each of the next five
years, for a cumulative purchase price of $9 million.
On November 12, 1996, Calgene and Monsanto Company consummated a
transaction whereby Monsanto purchased 6,250,000 shares of Calgene Common Stock.
The gross proceeds from the transaction were $50 million or $8 per share. This
transaction brings Monsanto's equity ownership in Calgene to approximately 54.6%
and caused a shift in the composition of the Calgene Board of Directors to four
independent directors, the CEO of Calgene, and four Monsanto nominees. Of the
four independent directors, three are nominated by Calgene and one is nominated
by Monsanto.
<PAGE>
In November 1996, the Company sold a leased asset with a net book value of
$2.9 million for a gross sales price of $4.1 million. Commensurate with the
sale, the Company paid off a capitalized lease obligation of $3.1 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview of Gargiulo
On March 31, 1996, Calgene and Monsanto Company ("Monsanto") entered into a
transaction under which Monsanto contributed Gargiulo Inc. ("Gargiulo"), $30
million cash and certain oils and produce related technology in exchange for a
49.9% equity interest in Calgene. Gargiulo is a grower, packer, marketer and
distributor of tomatoes, strawberries and other produce. Gargiulo tomato
producing operations are conducted principally in Florida, California, Puerto
Rico and Mexico. Gargiulo berry production operations are conducted principally
in northern California. On February 29, 1996, Gargiulo and Collier Enterprises
consummated an asset purchase agreement whereby Gargiulo acquired substantially
all the assets subject to the assumption of certain specified liabilities of the
produce business conducted by certain affiliates of Collier Enterprises under
the trade name Collier Farms ("Collier"). Collier is an agricultural producer of
tomatoes and other vegetables in Florida, and engages in the packaging,
marketing and distribution of those products in the commodity markets. The
Company's tomato operations consist of the combined business of Calgene Fresh,
which was organized in 1992 to develop and produce genetically engineered
premium tomatoes, and Gargiulo.
Revenues
Calgene's product sales in the quarter ended September 30, 1996 increased
315% to $36.6 million from $8.8 million in the corresponding period of the prior
year. The increase is due to the inclusion of Gargiulo's operations which
resulted in higher fresh market produce sales of $27.9 million. Gargiulo's
product sales in the quarter were $32.0 million and were largely comprised of
tomato sales of $16.4 million and berry sales of $13.6 million.
Product development revenues in the current quarter increased by $59,000 as
compared to the corresponding period of the prior year due to addition of
several new research contracts. This increase was partly offset by the
conclusion of several other research contracts and a $125,000 benchmark
milestone payment which was recognized in the first quarter of fiscal 1996.
Gross Profit
Calgene's gross profit on net product sales was negative $2.2 million in
the quarter ended September 30, 1996, as compared to a negative gross profit of
$3.3 million in the comparable period of the prior year. Gross profit was
negative in the current quarter due to the Company's produce operations. Tomato
yields from Gargiulo's Central California production were reduced due to record
high heat in the region. In addition, tomato yield's from the Company's Virginia
operations were negatively impacted by a hurricane that hit the region in July.
Low strawberry prices the industry experienced in the quarter also impacted
Gargiulo.
Research and Development Expenses
Research and development expenses increased by $795,000 or 24.7% to $4.0
million in the quarter ended September 30, 1996, as compared to the
corresponding period of the prior year. The increase was primarily due to the
inclusion of $619,000 of Gargiulo variety development expenses, and higher
expenses for technology licensing activities.
<PAGE>
Selling, General and Administrative Expenses
Calgene's selling, general and administration expenses increased by $6.5
million or 167% to $10.4 million in the quarter ended September 30, 1996, as
compared to the corresponding period of the prior year. The increase reflects
$5.3 million in higher expenses for the Company's fresh market produce
operations attributable to the inclusion of Gargiulo. The increase also reflects
a corporate severance expense of $905,000. Selling, general and administration
expenses are expected to be higher over the next two fiscal quarters as compared
to the corresponding periods of the prior year due to the inclusion of Gargiulo.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank line
of credits and long-term debt obligations, increased $1.2 million to $1.7
million in the quarter ended September 30, 1996, as compared to the
corresponding period of the prior year. The increase was due to interest expense
of $1.6 million attributable to Gargiulo's debt obligations.
Pre-Tax Losses from Operations
In the quarter ended September 30, 1996, Calgene incurred a pre-tax loss of
$17.8 million as compared to a pre-tax loss of $10.4 million in the
corresponding period of the prior year. The increased pre-tax loss of $7.5
million reflects higher selling, general and administrative expenses, higher
interest expense, and higher research expenses, primarily due to the inclusion
of Gargiulo. These factors were partly offset by a gross profit improvement from
net product sales.
Provision for Income Taxes
For federal income tax return purposes, as of June 30, 1996 the Company has
a net operating loss carryover of approximately $193 million which expires
between 1996 and 2011, and a general business tax credit carryover of
approximately $4 million which expires between 1996 and 2011. In addition, as of
June 30, 1996 the Company has a net operating loss carryover of approximately
$129 million for state income tax purposes which expires between 1996 and 2011.
Approximately $20 million and $3 million of the federal and state net operating
loss carryovers, respectively, and $700,000 of the general business tax credit
carryover, are available only to offset the separate federal and state taxable
income, if any, of Calgene Fresh. For financial reporting purposes, a valuation
allowance of approximately $91.5 million has been recognized at June 30, 1996 to
offset the deferred tax assets related to all of the aforementioned
carryforwards.
Because of the change in ownership provisions of the Tax Reform Act of
1986, a portion of the Company's federal net operating loss and tax credit
carryovers will be subject to an annual limitation regarding their utilization
against taxable income in future periods. The Company expects that the annual
limitation will not have a material adverse effect on the Company's ability to
utilize the net operating loss and credit carryovers prior to the expiration of
the carryover periods.
Seasonality
Tomato prices are generally higher and unit volume lower during winter
months due to adverse weather conditions. The opposite effects occur in the
summer months. Sales of planting seed are seasonal, causing significant
fluctuations in product sales and working capital requirements. Cotton seed
sales are concentrated in the quarters ending March 31 and June 30. Strawberry
sales occur predominantly in the quarters ended June 30 and September 30.
Specialty oleochemical sales are generally not seasonal.
<PAGE>
Litigation
See "Legal Proceedings."
Government Farm Legislation
Cotton seed sales are affected by changes in U.S. government agricultural
policy, which may impose limitations on planting acreage as a criterion for
farmers' eligibility to receive government subsidy payments and other benefits.
An increase in the acreage set-aside for a subsidized crop will generally reduce
farmer demand for seed for that crop, and a decrease in the set-aside will
generally increase demand for the seed. In situations where growing conditions
give farmers the alternative of planting either of two crops, an increase in the
set-aside for one crop will tend to increase farmer demand for the seed of the
competing crop.
Inflation and Price Fluctuations
The market price for fresh produce can experience substantial fluctuations
in short periods. When the supply of tomatoes and berries on the market exceeds
the demand for such products, the market price may be driven down significantly,
in some instances below the cost of harvesting and packing. In such situations
it may be uneconomical to harvest a crop, resulting in a total loss of the costs
incurred in growing such crop. Even when market prices are sufficient to permit
recovery of direct harvesting and packing costs, prices may not be high enough
to permit recovery of growing costs and/or overhead and other indirect costs.
Calgene's plant oil and cotton operations can also be affected by changes in
prices of commodity plant oil and cottonseed oil and meal. The effects of
general inflation have not had a material impact on Calgene's consolidated
results of operations.
Liquidity and Capital Resources
At September 30, 1996 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $3.8 million, excluding $708,000
in securities pledged as collateral for certain obligations. This was a decrease
of $24.8 million from June 30, 1996. Uses of cash include financing the
Company's net loss; payments of $11.8 million on long-term debt; a $7.1 million
decrease in operating liabilities; and the acquisition of $2.0 million in
property, plant and equipment. Sources of cash included a $5.0 million increase
in notes payable to affiliate; a $3.1 million decrease in operating assets; and
a $2.2 million net increase in notes payable. The Company's investment policy is
to invest excess cash in high quality, liquid, short-term fixed income
securities.
Operating assets decreased by $3.1 million at September 30, 1996 as
compared to June 30, 1996 due to a $6.6 decrease in accounts receivable, offset
in part by a $4.1 million increase in inventories. Inventories increased by $4.1
million due to higher tomato growing costs and seasonal buildup of bulk
cottonseed.
Operating liabilities decreased by $7.1 million at September 30, 1996 as
compared to June 30, 1996 largely due to a $5.1 million decrease in trade
accounts payable, a $1.6 million decrease in amounts due customers for cotton
seed returns consistent with industry practice, and a $750,000 technology
license payment.
Net working capital decreased $18.3 million from a negative net working
capital of $1.5 million at June 30, 1996 to negative $19.8 million at September
30, 1996 primarily due to a $24.8 million reduction in cash and equivalents and
available for sale securities and a $3.1 million reduction in operating assets.
This increase was partly offset by a $9.6 million decrease in current
liabilities.
<PAGE>
In the normal course of business, the Company enters into various grower
contracts with third party growers. Pursuant to these contracts, the Company
contracts with growers to purchase their crop, subject to certain quality
standards, at the end of the growing cycle which is generally less than one
year. The amount of outstanding grower contract commitments was approximately
$6.8 million at September 30, 1996.
The Company has capitalized the legal fees incurred in its lawsuit with
Enzo Biochem, Inc. related to Calgene's defense of its antisense patent. On
February 2, 1996, the court ruled on behalf of the Company and held that
Calgene's patent was valid. If the defense of Calgene's patent is unsuccessful
as a result of potential appeals, the Company would have to expense all of these
unamortized legal costs. At September 30, 1996, the amount of these unamortized
costs was $5.8 million.
On November 12, 1996, Calgene and Monsanto Company consummated a
transaction whereby Monsanto purchased 6,250,000 shares of Calgene Common Stock
at a price of $50 million or $8 per share. The transaction increased Monsanto's
equity interest in Calgene to approximately 54.6% and gave Monsanto the right to
designate five of the nine members of the Board of Directors.
Monsanto is obligated, subject to certain terms and conditions, to lend up
to $40 million to Gargiulo ("Gargiulo Credit Facility"), and up to $15 million
annually to Calgene for the period ended September 30, 1998 ("Calgene Credit
Facility"), although not more than $15 million may be outstanding thereunder at
any one time. As of September 30, 1996, $24.8 million of the Gargiulo Credit
Facility and $5.0 million of the Calgene Credit Facility were outstanding. The
credit facility agreements each contain various covenants precluding Calgene and
its subsidiaries from taking certain actions without the approval of Monsanto.
Also, in the event of a default by Calgene under the Garguilo Credit Facility or
the Calgene Credit Facility, Monsanto has certain rights to convert the
outstanding principal and interest under such agreements into additional shares
of Calgene Common Stock at the then market value of the Calgene Common Stock,
and any such conversion could substantially dilute the ownership interests of
other Calgene stockholders.
Calgene currently has a $13 million line of credit with Harris Trust and
Savings Bank (the "Harris Credit Facility"). The Harris Credit Facility which
was scheduled to expire on January 31, 1996, has been extended until December
31, 1996. The bank may require changes in the terms of the Calgene credit
facility agreement with Monsanto and, if the required changes cannot be
accommodated, there can be no assurance that such bank will continue to make
these lines of credit available or, if such lines are not available, that
Calgene will be able to obtain alternative bank financing on favorable terms, if
at all. As of September 30, 1996, Calgene was not in compliance with certain
financial covenants under its credit agreement with Harris Bank. Calgene has
obtained waivers of such defaults through December 31, 1996 and believes it is
currently in compliance as a consequence of the November 1996 equity investment
by Monsanto. There was no balance outstanding on the Harris Credit Facility at
September 30, 1996.
Gargiulo has a $17.5 million line of credit and four mortgage loans with
NationsBank. NationsBank has indicated that it does not intend to renew its line
of credit and mortgage loans which at September 30, 1996, totaled $22.1 million.
The NationsBank lone of credit and loans were repaid on November 14, 1996.
A $3.5 million line of credit with a bank is used to finance working
capital requirements at Gargiulo's Puerto Rico operations. Borrowings under the
line bear interest at prime. The credit line expires on November 30, 1996. On
September 30, 1996, the bank's prime rate was 8.25%. As of September 30, 1996,
there was $3,500,000 outstanding on the line of credit. The Puerto Rico line of
credit was repaid on November 14, 1996.
<PAGE>
While Monsanto has agreed to make a $40 million loan available to Gargiulo
under the Gargiulo Credit Facility, further advances under such loan are subject
to the achievement of certain milestones, and are to be used solely to fund the
branded tomato strategy and are repayable out of specified portions of the
cumulative free cash flow of Gargiulo. While Monsanto has agreed to advance up
to $15 million annually to Calgene under the Calgene Credit Facility until
September 30, 1998, not more than $15 million may be outstanding thereunder at
any one time. Except as described above, Monsanto has no obligation to loan or
otherwise contribute additional cash to Calgene.
Calgene expects its current cash balances and the proceeds of the credit
facility agreements and other bank lines of credit expected to be available to
Calgene, will be sufficient to fund its operations for the foreseeable future.
However, such expectation is based in part on the achievement of the operating
plans of Calgene and there can be no assurance such operating plans will be
achieved. Also, there can be no assurance that all of Calgene's expected sources
of funds, including credit facilities, will be available. Accordingly, there can
be no assurance that Calgene will not be required to obtain additional sources
of financing or that any future required financing will be available on
favorable terms, if at all.
<PAGE>
PART II. OTHER INFORMATION
<PAGE>
ITEM 1. Legal Proceedings
From 1992 through early 1996, Calgene was engaged in a litigation with Enzo
Biochem, Inc. ("Enzo") a company licensed under three related U.S. patents and
counterpart foreign patents (the "Enzo Patents") which purported to cover the
use of antisense technology in all cells, including plant cells. Some of
Calgene's products, including the FLAVR SAVR tomato, use antisense technology.
Enzo had claimed that Calgene infringed the Enzo Patents. Calgene denied
infringement and challenged the validity of the Enzo Patents. On February 2,
1996, the District Court ruled that the Enzo Patents are invalid. In addition,
the validity of a patent owned by Calgene directed to the use of antisense in
plant cells was upheld by the District Court. Calgene subsequently requested
that the court clarify certain aspects of the infringement portion of its
decision, and the court has agreed to reconsider on this basis. There is no
indication that the court would reverse any aspect of its original ruling.
Meanwhile, Enzo has indicated that it intends to appeal the decision.
Although the trial court has the option of altering any aspect of its
decision upon reconsideration, and Enzo may appeal the decision after its
publication, Calgene believes that further proceedings will not have a material
adverse effect on its consolidated financial position or results of operations,
based on the trial court's determination that the SUNY/Enzo Patents are invalid
and not infringed by Calgene and that the Calgene Antisense Patent is valid.
Nevertheless, if on reconsideration or as a result of an appeal a court
were to determine that one or more of the Enzo Patents validly covers plant
cells and that such patents are infringed by Calgene's sales of products
incorporating such antisense technology, Calgene could be held liable for
significant damages and could be precluded from producing and selling the FLAVR
SAVR tomato, as well as other products currently under development. There is no
assurance that a license, if necessary, could be obtained by Calgene on
commercially acceptable terms, if at all. If the court were to determine that
the Calgene Antisense Patent is invalid or unenforceable, Calgene would be
deprived of the competitive and licensing advantages afforded by its patent.
Moreover, the Company would have to expense the capitalized legal fees related
to the defense of the Calgene's Antisense Patent, which amounted to
approximately $5.8 million at September 30, 1996.
Gargiulo is a defendant in two pending cases which involve personal injury
claims relating to a vehicle accident in which numerous migrant labor workers
being transported to the farm of Gargiulo & Dresick Associates (which was being
farmed under contract by Dresick Farms, Inc.) were killed or injured. The two
cases, Alvertano Alberto Jiminez; et al. v. Gargiulo & Associates; Pat Kreger,
Inc., Manuel Vega; Robles Rios; Jesus Loza and Samuel Santiago Vasquez, and Jose
Vasquez; et al. v. Gargiulo & Associates; Pat Kreger, Inc., Manuel Vega; Robles
Rios; Jesus Loza and Samuel Santiago Vasquez, were both filed on October 18,
1995, in the United States District Court for the Eastern District of
California. The company alleged to be transporting such farm workers was Pat
Kreger, Inc., an independent contractor engaged by Dresick Farms, Inc. to
arrange for migrant farm labor for the farm. The plaintiffs allege that the
vehicle in question was in violation of one or more federal and state safety
regulations governing farm labor vehicles. The plaintiffs are seeking general
damages, including compensation for pain and suffering; special damages,
including past, present and future medical expenses; compensation for the loss
of past and future income; and punitive damages in an unspecified amount.
Gargiulo's insurance carriers have been contacted regarding these lawsuits. It
has not yet been determined whether Gargiulo's insurance will be sufficient to
cover these claims, if any. Gargiulo intends to vigorously defend itself against
these claims and believes that the ultimate outcome will not have a material
adverse effect on the Company's financial position or results of operations.
<PAGE>
The Company is party to other pending litigation incidental to its business
and has from time to time been notified of various claims that are not the
subject of pending litigation. While the results of litigation and claims cannot
be predicted with certainty, the Company believes that the final outcome of all
such other litigation matters and claims will not have a materially adverse
effect on its consolidated financial position or results of operations.
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.42 Tenth Amendment to Secured Revolving Credit
Agreement and Secured Revolving Credit Note Among
Calgene Technology Corporation and Harris Trust
and Savings Bank Dated September 30, 1996...................... 19
B. Reports on Form 8-K
None.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALGENE, INC.
Date: November 14, 1996
By: /s/ Christian Leleu
-------------------
Christian Leleu
Chief Financial Officer
CALGENE TECHNOLOGY CORPORATION
TENTH AMENDMENT TO
SECURED REVOLVING CREDIT AGREEMENT AND
SECURED REVOLVING CREDIT NOTE
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Secured Revolving Credit
Agreement dated as of April 26, 1990, as emended (the "Credit Agreement"),
originally among the undersigned, CALGENE TECHNOLOGY CORPORATION (formerly known
as Calgene, Inc.), a Delaware corporation (the "Company"), Harris Trust and
Savings Bank (the "Bank") and Caisse Nationale de Credit Agricole, acting
through its Grand Cayman Branch ("Credit Agricole") and Harris Trust and Savings
Bank as agent thereunder (the "Agent"). All defined terms used herein shall have
the same meaning as in the Credit Agreement unless otherwise defined herein.
The Bank has extended a revolving credit facility to the Company on the
terms and conditions set forth in the Credit Agreement. Credit Agricole has
assigned to Harris, and Harris has assumed all of Credit Agricole's rights and
obligations under the Credit Agreement. The Company and Harris now wish to
extend the termination date of the Credit Agreement to December 31, 1996, and
amend certain terms of the Credit Agreement, all in the manner and on the terms
and conditions set forth in this Amendment.
SECTION 1. AMENDMENTS.
Upon satisfaction of all conditions precedent set forth in Section 3
hereof, the Credit Agreement shall be amended as follows:
Section 1.1. The Termination Date of the Credit Agreement shall be extended
to December 31, 1996.
Section 1.2. Section 1.1(a) of the Credit Agreement shall be amended by
replacing the date "September 30, 1996" appearing therein with the date
"December 31, 1996".
Section 1.3. Section 7.10 of the Credit Agreement shall be amended by
replacing the figure "1.2" appearing therein with the figure "1.0".
Section 1.4. Section 7.11 of the Credit Agreement shall be amended by
replacing the figure "$10,000,000" with the figure "$3,000,000".
Section 1.5. Section 8.1(1) of the Credit Agreement shall be amended to
read as follows:
"(1) no later than December 15, 1996, the Company shall have
failed to deliver to the Agent copies, certified by the secretary or
assistant secretary of the Company, of resolutions of the Company's
board of directors ratifying the execution and delivery by the Company
of the Tenth Amendment Secured Revolving Credit Agreement and Secured
Revolving Credit Note dated as of September ___, 1996 (the "Tenth
Amendment"), a Certificate of the Secretary or Assistant Secretary of
the Company as to the incumbency and signatures of the authorized
officers of the Company, and an option of counsel to the Company and
its Subsidiaries in form and substance satisfactory to the Bank."
Section 1.6 Exhibit A to the Credit Agreement and the Revolving Note of the
Company payable to the order of Harris Trust and Savings Bank (the "Note") shall
each be amended by deleting the date "September 30, 1996" appearing twice in the
first paragraph therein and inserting in lieu thereof the date "December 31,
1996".
Section 1.7. Harris Trust and Savings Bank shall type the following legend
on its Note:
"This Note has been amended pursuant to the terms of a Tenth
Amendment to Secured Revolving Credit Agreement and Secured
Revolving Credit Note dated as of September 30, 1996,
including an extension of the maturity date hereof, to which
reference is hereby made for a statement of terms thereof."
SECTION 2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
Section 2.1. The Company the Bank shall have executed this Amendment (such
execution may be in several counterparts and the several parties hereto may
execute on separate counterparts).
Section 2.2 Each of the representations and warranties set forth in Section
5 of the Credit Agreement shall be true and correct.
Section 2.3. The Company shall be in full compliance with all of the terms
and conditions of the Credit Agreement and no Event of Default or Potential
Default shall have occurred and be continuing thereunder or shall result after
giving effect to this Amendment.
Section 2.4. All legal matters incident to the execution and delivery
hereof and the instruments and documents contemplated hereby shall be
satisfactory to the Bank.
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents to the Bank that as of the date hereof, each of the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.2 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Bank) and the Company is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing thereunder or shall
result after giving effect to this Amendment.
4. MISCELLANEOUS.
Section 4.1. The Company has heretofore executed and delivered to the Agent
that certain Security Agreement Re: Inventory and Receivables and various
separate Pledge and Security Agreements, each dated as of April 26, 1990 (the
"Security Documents") and the Company hereby agrees that notwithstanding the
execution and delivery of this Amendment, the Security Documents shall be and
remain in full force and effect and that any rights and remedies of the Agent
thereunder, obligations or the Company thereunder and any liens and security
interests created or provided for thereunder shall be and remain in full force
and effect and shall not be affected, impaired or discharged thereby. Nothing
herein contained shall in any manner affect or impair the priority of the liens
and security interests created and provided for by the Security Documents as to
the indebtedness which would be secured thereby prior to giving effect to this
Amendment.
Section 4.2. The Company agrees to pay on demand all costs and expenses of
or incurred by the Bank in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Bank.
Section 4.3. Except as specifically amended herein the Credit Agreement and
the Note shall continue in full force and effect in accordance with their
original terms. Reference to this specific Amendment need not be made in any
note, document, letter, certificate, the Credit Agreement itself, the Note, or
any communication issued or made pursuant to or with respect to the Credit
Agreement or the Note, any reference to the Credit Agreement or Note being
sufficient to refer to the Credit Agreement as amended hereby.
Section 4.4. This Amendment may be executed in any number of counterparts,
and by the different parties on different counterparts, all of which taken
together shall constitute one and the same agreement. Any of the parties hereto
may execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes by deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Illinois.
Dated as of September 30, 1996.
CALGENE TECHNOLOGY CORPORATION
By /s/ Mike Motroni
Its Vice President
Accepted as of the date last written above.
HARRIS TRUST AND SAVINGS BANK
By /s/ Erica Kuhlmann
Its Vice President
GUARANTOR'S CONSENT
The undersigned, Calgene, Inc., a Delaware corporation, has heretofore
executed and delivered to the Bank a Guaranty Agreement dated march 28, 1996
(the "Guaranty") and hereby consents to the Amendment to the Credit Agreement as
set forth above and confirms that its Guaranty and all of the undersigned's
obligations thereunder remain in full force and effect and, without limiting the
foregoing, acknowledges and agrees that all indebtedness, obligations and
liabilities of the Company under the Credit Agreement as amended as set forth
above constitutes indebtedness which is guarantied by the undersigned under its
Guaranty. The undersigned further agrees that the consent of the undersigned to
any further amendments to the Credit Agreement shall not be required as a result
of this consent having been obtained, except to the extent, if any, required by
the Guaranty referred to above.
CALGENE, INC.
By /s/ Mike Motroni
Its Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 598
<SECURITIES> 3,163
<RECEIVABLES> 19,490
<ALLOWANCES> 0
<INVENTORY> 27,977
<CURRENT-ASSETS> 52,829
<PP&E> 98,582
<DEPRECIATION> 18,634
<TOTAL-ASSETS> 203,839
<CURRENT-LIABILITIES> 72,626
<BONDS> 20,613
0
0
<COMMON> 60
<OTHER-SE> 75,582
<TOTAL-LIABILITY-AND-EQUITY> 203,839
<SALES> 36,611
<TOTAL-REVENUES> 36,970
<CGS> 38,765
<TOTAL-COSTS> 42,783<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,744
<INCOME-PRETAX> (17,838)
<INCOME-TAX> 16
<INCOME-CONTINUING> (17,854)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,854)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
<FN>
<F1> TOTAL COSTS INCLUDE EXPENSES FOR BOTH FUNDED AND UNFUNDED R&D PROJECTS.
</FN>
</TABLE>
