<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only
(as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CALGENE, INC.
--------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii),
14a-6(i)(1), or 14a-6(i)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3)
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
October 10, 1996
To the Stockholders of Calgene, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
Calgene, Inc. (the "Company") on Tuesday, November 12, 1996 at 10:00 a.m.
local time. The Annual Meeting will be held at the Varsity Theatre, 616 Second
Street, Davis, California.
A description of business to be conducted at the Annual Meeting is set forth
in the attached Notice of Annual Meeting and Proxy Statement. Also enclosed is
a copy of our Annual Report to Stockholders for the fiscal year ended June 30,
1996.
Whether or not you plan to attend the Annual Meeting, please mark, sign,
date and return the enclosed proxy card promptly in the accompanying envelope.
By returning the proxy, you can help the Company avoid the expense of
duplicate proxy solicitations and possibly having to reschedule the Annual
Meeting if a quorum of the outstanding shares is not present or represented by
proxy. If you attend the Annual Meeting and wish to change your proxy vote,
you may do so simply by voting in person at the Annual Meeting.
Lloyd M. Kunimoto
President
<PAGE>
CALGENE, INC.
1920 FIFTH STREET
DAVIS, CALIFORNIA 95616
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 12, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Calgene,
Inc. (the "Company" or "Calgene") will be held on Tuesday, November 12, 1996
at 10:00 a.m., local time, at the Varsity Theatre, 616 Second Street, Davis,
California for the following purposes:
1. To elect directors of the Company.
2. To approve the Stock Purchase Agreement dated as of September 27, 1996
("Stock Purchase Agreement") between Calgene and Monsanto Company, a
Delaware Company ("Monsanto"), pursuant to which (i) Calgene would issue
6,250,000 shares of Common Stock to Monsanto for $8.00 per share for an
aggregate purchase price of $50 million, thereby increasing Monsanto's
ownership interest in shares of Calgene Common Stock from 49.9% to
approximately 54.6% (without giving effect to the exercise of outstanding
options and warrants), (ii) Monsanto and Calgene would enter into a
Restated Stockholders Agreement ("Restated Stockholders Agreement")
amending and restating the Stockholders Agreement dated March 31, 1996
("Stockholders Agreement") as more fully described in the Proxy Statement,
and (iii) the Company's Restated Certificate of Incorporation would be
amended to reflect the amendments to the Stockholders Agreement
contemplated by the Restated Stockholders Agreement (the foregoing
transactions are hereinafter collectively referred to as the "Monsanto
Transaction").
3. To increase the authorized number of shares of Common Stock from
80,000,000 to 100,000,000 shares.
4. To confirm the appointment of Ernst & Young LLP as the independent
auditors of the Company through the fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the
meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Holders of Common Stock of record at the close of business on September 23,
1996 are entitled to vote at the Annual Meeting.
FOR THE BOARD OF DIRECTORS
MICHAEL J. MOTRONI
Secretary
Davis, California
October 10, 1996
IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-
PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. IF YOU ATTEND THE MEETING, YOU MAY
VOTE IN PERSON EVEN IF YOU RETURN A PROXY.
<PAGE>
CALGENE, INC.
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 12, 1996
INFORMATION CONCERNING
VOTING AND PROXY SOLICITATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Calgene, Inc. ("Calgene" or the "Company") for use at the Annual Meeting of
Stockholders to be held on Tuesday, November 12, 1996 at 10:00 a.m., local
time, or at any adjournment of the Annual Meeting. The Annual Meeting will be
held at the Varsity Theatre, 616 Second Street, Davis, California.
The Company's principal executive offices are located at 1920 Fifth Street,
Davis, California 95616. This Proxy Statement is being mailed to stockholders
on or about October 10, 1996.
Only holders of Common Stock of record at the close of business on September
23, 1996 (the "Record Date") are entitled to vote at the meeting. On the
Record Date, 60,443,115 shares of the Company's Common Stock were issued and
outstanding. The affirmative vote of the holders of a plurality of the shares
of Common Stock present or represented at the Annual Meeting is required for
the election of directors. Each share is entitled to one vote for each of the
nine nominees, unless a stockholder notifies the Secretary of the Company
prior to the commencement of voting of the stockholder's intention to cumulate
votes. In that event, each share will be entitled to nine votes, which a
stockholder may cast for a single candidate or distribute among up to nine
candidates, but such cumulative voting will only apply to candidates who have
been properly nominated prior to the commencement of voting. The affirmative
vote of (i) the holders of a majority of the shares of Common Stock present or
represented at the Annual Meeting, other than broker non-votes (as defined
below) and other than those held by Monsanto and (ii) the holders of a
majority of the shares of Common Stock outstanding on the Record Date is
required for the approval of the Monsanto Transaction. The affirmative vote of
the holders of a majority of the shares of Common Stock outstanding on the
Record Date is required for the approval of the proposed amendment to the
Certificate of Incorporation to increase the authorized number of shares of
Common Stock from 80,000,000 to 100,000,000 shares, and the approval of the
holders of a majority of the shares of Common Stock present or represented at
the Annual Meeting is required for the ratification of the selection of Ernst
& Young LLP as the Company's independent auditors through the fiscal year
ending December 31, 1997. A majority of the shares entitled to vote, present
in person or represented by proxy (including those held by Monsanto), will
constitute a quorum at the Annual Meeting. For purposes of determining a
quorum, shares represented by all valid proxies received will be counted,
including proxies that contain instructions to abstain as to certain votes and
proxies filed by brokers or others indicating that their voting authority does
not extend to all agenda items ("broker non-votes"). Monsanto, which owns
49.9% of the outstanding shares of Common Stock as of the Record Date, has
advised the Company that it intends to vote "FOR" each proposal set forth in
this Proxy Statement.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date, or by attending the meeting and voting in person.
The cost of soliciting proxies will be borne by the Company. If the Company
decides to retain the services of a proxy solicitor, the Company estimates
that it would pay a fee not to exceed $6,000. In addition, the Company expects
to reimburse brokerage firms and other persons representing beneficial owners
of shares for their expense in forwarding solicitation material to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person or by telephone or facsimile.
1
<PAGE>
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock of
the Company as of July 31, 1996 by each director, by each executive officer
shown in the Summary Compensation Table (see "Executive Compensation"), by all
directors and executive officers as a group and by each person known by the
Company to be a beneficial owner of more than 5% of the shares outstanding.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY APPROXIMATE PERCENT
OWNED(1) OWNED(2)
------------------- -------------------
<S> <C> <C>
Roger H. Salquist...................... 239,940 *
Robert E. Baker........................ 15,000 *
Andrew M. Baum......................... 49,817 *
Patrick J. Fortune..................... -- --
Robert T. Fraley....................... -- --
Jeffrey D. Gargiulo.................... 6,667 *
Michael R. Hogan....................... -- --
Thomas F. Hughes....................... 28,618 *
Lloyd M. Kunimoto...................... 38,263 *
Danilo S. Lopez........................ -- --
Michael J. Motroni..................... 37,040 *
Howard D. Palefsky..................... 14,500 *
John E. Robson......................... 19,167 *
Roderick N. Stacey..................... 107,830 *
Allen J. Vangelos...................... 14,600 *
Hendrik A. Verfaillie.................. -- --
All executive officers and directors as
a group (16 persons).................. 587,692 *
Monsanto Company....................... 30,146,114 49.9%
800 North Lindbergh
Boulevard, St. Louis, MO 63137(3)
Travelers Group Inc. .................. 3,386,072 5.6%
and Affiliates
388 Greenwich Street
New York, NY 10013(4)
</TABLE>
- --------
* Less than 1%.
(1) The Company believes that all beneficial owners named in the table have
sole voting and investment power with respect to the shares they
beneficially own. The shares shown in the table to be beneficially owned
include any shares that the person has the right to acquire within 60 days
of July 31, 1996 by exercise of any stock option for which the Company has
knowledge. The shares subject to such options are as follows: Mr.
Salquist: 209,762; Mr. Baker: 14,500; Mr. Baum: 41,116; Mr. Gargiulo:
6,667; Mr. Hughes: 26,544; Mr. Kunimoto: 31,366; Mr. Motroni: 37,040; Mr.
Palefsky: 13,500; Mr. Robson: 4,167; Mr. Stacey: 107,830; Mr. Vangelos:
14,500; and all executive officers and directors as a group: 513,242.
(2) Percent of the 60,443,115 outstanding shares of Common Stock, counting as
outstanding for each named person all shares issuable to such person on
exercise of options that are included in the first column.
(3) Does not include the 6,250,000 shares of Calgene Common Stock ("Additional
Shares") which would be issued if the Monsanto Transaction is consummated,
which would increase Monsanto's holdings to approximately 54.6% (without
giving effect to the exercise of outstanding options and warrants).
(4) Based on a Schedule 13G filed on January 23, 1996 with respect to
beneficial ownership as of December 31, 1995. The total includes 2,013,372
shares beneficially owned by Smith Barney Inc. and 1,372,700 shares
beneficially owned by other subsidiaries of Smith Barney Holdings Inc.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A board of nine directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the nine nominees of the Board of Directors named below. Except for
Messrs. Fortune and Hogan, all of the nominees are presently directors of the
Company. If any nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the current Board of Directors to fill the vacancy in
accordance with the Stockholders Agreement. It is not expected that any
nominee will be unable or will decline to serve as a director. If stockholders
nominate persons other than the Board's nominees for election as directors,
the proxy holders will vote all proxies received by them in accordance with
cumulative voting to assure the election of as many of the Board's nominees as
possible.
Directors are elected by a plurality of the votes cast. Proxies marked to
withhold authority to vote for one or more nominees, and broker non-votes,
will not be counted as votes cast. Each share is entitled to one vote for each
of the nine nominees, unless a stockholder notifies the Secretary of the
Company prior to the commencement of voting of the stockholder's intention to
cumulate votes. In that event, each share will be entitled to nine votes,
which a stockholder may cast for a single candidate or distribute among up to
nine candidates, but such cumulative voting will only apply to candidates who
have been properly nominated prior to the commencement of voting.
Messrs. Verfaillie, Fraley, Robson, Hogan and Fortune have been designated
by Monsanto in accordance with the Stock Purchase Agreement and the Restated
Stockholders Agreement between Calgene and Monsanto. The election of Messrs.
Verfaillie, Fraley, Robson, Hogan and Fortune is a condition precedent to
Monsanto's purchase of the Additional Shares. See "Approval of Transaction
with Monsanto."
The Board of Directors recommends a vote FOR the nominees listed below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- --------------- --- -------------------- --------
<S> <C> <C> <C>
Patrick J. Fortune............ 49 Chief Information Officer of --
Monsanto Company
Robert T. Fraley.............. 43 President of Ceregen (a business 1996
unit of Monsanto Company)
Michael R. Hogan.............. 43 Vice President and Corporate --
Controller of Monsanto Company
Lloyd M. Kunimoto............. 43 President and Acting Chief Executive 1996
Officer of the Company
Howard D. Palefsky............ 49 Chairman and Chief Executive Officer 1986
of Collagen Corporation
John E. Robson................ 66 Senior Advisor of Robertson, 1996
Stephens & Company
Roger H. Salquist............. 55 Consultant; Former Chairman and 1981
Chief Executive Officer of the
Company
Allen J. Vangelos............. 64 President and Chief Executive 1994
Officer of Calavo Growers of
California
Hendrik A. Verfaillie......... 51 Executive Vice President of Monsanto 1996
Company
</TABLE>
The term of office of each person elected as a director will continue until
the next Annual Meeting of Stockholders or until his or her successor has been
elected. The terms of the Stockholders Agreement and Restated Stockholders
Agreement set forth the rights of Calgene and Monsanto to designate nominees
to the
3
<PAGE>
Board of Directors. See "Approval of Transaction with Monsanto--Summary of
Stockholders Agreement and Restated Stockholders Agreement." There is no
family relationship between any director and any other director or executive
officer of the Company.
Mr. Fortune was appointed Corporate Vice President, Information Technology
and Chief Information Officer of Monsanto Company in October 1995. From August
1994 to August 1995, Mr. Fortune was President and Chief Operating Officer of
Coram-Healthcare Corporation, whose business is home infusion therapy for
cancer and AIDS patients. From 1991 to 1994, Mr. Fortune was Corporate Vice
President, Information Management for Bristol-Meyers Squibb. From 1989 to
1991, Mr. Fortune was Senior Vice President and General Manager of Packaging
Corporation of America, prior to which he served as Vice President,
Information Services and Corporate Vice President of the Parenterals Group of
Baxter International. He is also a member of the Board of Directors of Parexel
Corporation, a clinical research organization, and serves on the Board of
Visitors of the School of Physical Sciences at the University of Chicago.
Mr. Fraley was named President of Ceregen, a business unit of Monsanto, in
1995. From 1993 to 1995, Mr. Fraley was Vice President, New Products Division,
of the Monsanto Agricultural Products Group. From 1990 to 1993, Mr. Fraley was
Vice President, Research and Development, New Products Division, of the
Monsanto Agricultural Products Group. Mr. Fraley is a director of DEKALB
Genetics Corp., an agricultural products company.
Mr. Hogan was appointed Corporate Vice President and Corporate Controller of
Monsanto Company in January 1996. From 1986 to 1995, Mr. Hogan was Executive
Vice President of General American Life and while holding such position also
served as President and Director of Gencore Health Systems, Inc. and its
predecessor organization from 1990 through 1994.
Mr. Kunimoto has been the President and Acting Chief Executive Officer of
the Company since July 1996. From June 1995 to July 1996, Mr. Kunimoto served
as Vice President of Strategic Planning and Business Development. From
November 1983 to June 1995, Mr. Kunimoto served in several senior management
positions with the Company.
Mr. Palefsky has been the Chairman and Chief Executive Officer of Collagen
Corporation, a medical products company, since 1995. He served as President
and Chief Executive Officer of Collagen Corporation from 1978 to 1995. He is
also a director of Target Therapeutics, Inc. and Innovasive Devices, Inc.,
both medical products companies.
Mr. Robson has been a Senior Advisor of Robertson, Stephens & Company since
1993. From 1989 to 1992, Mr. Robson was Deputy Secretary of the United States
Treasury. Mr. Robson is also a director of Monsanto Company, a chemicals,
pharmaceuticals and agricultural products company, Northrop Grumman
Corporation, an aerospace and defense company, and Security Capital Industrial
Trust, a real estate investment trust.
Mr. Salquist has been a consultant to the Company since August 1996. Mr.
Salquist had previously served as an executive officer of the Company since
September 1983 and its Chief Executive Officer since November 1985. Mr.
Salquist is a director of Collagen Corporation, a medical products company.
Mr. Vangelos has been the President and Chief Executive Officer of Calavo
Growers of California since September 1986, prior to which he held management
positions at Castle & Cooke, including Vice President and General Manager of
Processed Products and President of International Diversified Business and
Fresh Marketing. From 1980 to 1984, he was the Chief Executive Officer of
Impact Corporate Group, a food brokerage company. Mr. Vangelos was the 1993
Chairman of the Board of Directors of the Agricultural Council of California
and a past Chairman of the United Fresh Fruit and Vegetable Association.
Mr. Verfaillie was appointed an Executive Vice President of Monsanto Company
in July 1995. Prior to this he served as President of The Agricultural Group,
Vice President and Advisory Director--Monsanto Company from 1993 to 1995, Vice
President and General Manager, Roundup Division--The Agricultural Group from
1990 to 1993, and Vice President-Commercial Development--Monsanto Agricultural
Company from 1986 to 1990.
4
<PAGE>
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company (the "Board") held four meetings
during the fiscal year ended June 30, 1996. No nominee attended fewer than 75%
of the meetings of the Board of Directors and of the committee of the Board on
which he served that were held during the period of the director's service
except for Mr. Stinnett who passed away in January 1996.
The Board has an Audit Committee, a Human Resources Committee and a
Replacement/Retention Committee. From time to time, the Board has created
various ad hoc committees for special purposes.
The Audit Committee consists of Messrs. Palefsky, Robson and Fraley. The
Audit Committee held three meetings in the last fiscal year. The Audit
Committee recommends engagement of the Company's independent auditors and is
primarily responsible for approving the services performed by the Company's
independent auditors and for reviewing and evaluating the Company's accounting
principles and its system of internal accounting controls.
The Human Resources Committee consists of Messrs. Vangelos, Verfaillie and
Baker. The Human Resources Committee held two meetings during the last fiscal
year. The Human Resources Committee considers and makes recommendations to the
Calgene Board of Directors concerning general compensation policies and
employee benefit plans and specifically recommends salary levels and bonus
awards for certain senior executive officers, including the Chief Executive
Officer. The Human Resources Committee also administers Calgene's stock option
plans and has sole authority to grant options to officers. The Human Resources
Committee's executive salary and bonus recommendations for fiscal 1996 were
approved by the Calgene Board of Directors without modifications.
The Retention/Replacement Committee consists of Messrs. Palefsky, Verfaillie
and Robson. The Retention/Replacement Committee held no meetings during the
last fiscal year. The Retention/Replacement Committee is responsible for the
retention and/or replacement of all of the executive officers of the Company.
Under the terms of the Restated Stockholders Agreement, the
Retention/Replacement Committee would be eliminated, thus leaving the Calgene
Board of Directors thereafter responsible for the retention and/or replacement
of all of the executive officers of the Company.
Directors who are not also employees of the Company or Monsanto or their
subsidiaries receive a fee of $1,000 per meeting ($250 per telephone meeting)
attended, $500 per Board committee meeting attended (unless held on the same
day as a Board meeting) and a monthly retainer of $1,000, plus out-of-pocket
travel expenses. Prior to April 1, 1996, directors received an annual retainer
of $3,000 (accruing and payable $250 per month). Under the 1996 Stock Option
Plan, non-employee directors (excluding directors employed by Monsanto)
receive an option to purchase 10,000 shares of Common Stock at the time of
their initial election to the Board, and receive annually thereafter options
to purchase 3,000 shares of Common Stock. These automatically granted options
have terms of five years (subject to continued service on the Board), become
exercisable in equal monthly increments over the twelve months following the
respective grant dates and have exercise prices equal to the fair market value
of the Common Stock on their respective dates of grant. On March 25, 1996,
annual options were automatically granted to each of the nonemployee directors
then serving (excluding directors employed by Monsanto) at an exercise price
of $6.00 per share.
There were no consulting fees paid to directors in fiscal 1996.
In addition to the fees listed above, Monsanto Company transferred to Mr.
Robson 15,000 shares of Common Stock of the Company pursuant to the terms of a
letter agreement dated May 6, 1996 between John E. Robson and Monsanto
Company. Such shares are subject to a three-year vesting period, under which
33 1/3% of the total number of shares originally granted become non-
forfeitable on each March 31 commencing March 31, 1997.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table provides certain summary information concerning
compensation earned during the last three fiscal years by the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company who were serving at the end of fiscal 1996 (the "named
executive officers"). The table also includes such information for two former
executive officers who at the end of fiscal 1996 were no longer employed by
the Company or a subsidiary of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR ($) ($) ($) OPTIONS (#) $(2)
- ------------------ ------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Salquist(3)(4). 1996 $275,577 $ -- -- -- $3,596
Chairman of the Board 1995 242,404 -- -- 100,000 1,212
and Chief Executive 1994 225,865 -- -- 104,762 --
Officer
Andrew M. Baum.......... 1996 160,046 10,000 -- 40,000 3,280
Vice President 1995 162,600 10,000 -- 25,000 840
1994 154,592 -- -- -- --
Thomas F. Hughes........ 1996 125,261 25,000 -- 55,175 3,002
Division President, 1995 106,731 25,000 -- 22,825 1,142
Stoneville 1994 89,462 -- -- 10,000 977
Pedigreed Seed Company
Lloyd M. Kunimoto(5).... 1996 140,000 60,000 -- 50,000 2,800
Vice President 1995 140,538 -- -- 25,000 754
1994 135,519 4,808 -- -- --
Michael J. Motroni...... 1996 140,230 -- 100,000(6) 20,000 2,962
Vice President of 1995 120,461 -- -- 15,000 647
Finance and Secretary 1994 107,135 3,654 -- -- --
Roderick N. Stacey...... 1996 198,462 -- 695,000 -- 6,524
Former President and 1995 233,558 -- -- -- 1,077
Chief Operating Officer 1994 200,673 -- 6,679 100,000 --
Danilo S. Lopez......... 1996 148,077 -- 131,250 -- 2,558
Former President, 1995 171,635 -- -- 100,000 815
Calgene Fresh
</TABLE>
- --------
(1) Includes amounts earned in the fiscal year even if paid in the subsequent
fiscal year or deferred pursuant to the Company's 401(k) savings plan.
Excludes amounts paid during the fiscal year that were earned in a prior
year.
(2) Amounts reported as "All Other Compensation" represent the Company's
matching contributions under its 401(k) savings plan.
(3) The options shown in the table as granted to Mr. Salquist in fiscal 1994
were originally granted in 1987 for a six-year term and extended for four
additional years in fiscal 1994.
(4) In August 1996 Mr. Salquist resigned as Chairman of the Board and Chief
Executive Officer. Mr. Salquist remains as a member of the Board and has
also become a consultant to the Company. See "Executive Compensation--
Change of Control Employment Agreements."
(5) Since the resignation of Mr. Salquist, Mr. Kunimoto has served as Acting
Chief Executive Officer.
(6) Represents amount paid to Mr. Motroni in May 1996 pursuant to a Change of
Control Employment Agreement dated July 19, 1995 and amended on May 31,
1996. See "Executive Compensation--Change of Control Employment
Agreements."
6
<PAGE>
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
Messrs. Salquist, Stacey and Motroni entered into Change of Control
Employment Agreements, dated as of July 19, 1995, with the Company. Each
agreement becomes effective only upon a Change of Control (as defined) of the
Company and provides that, if the employment of the officer is terminated by
the Company without Cause (as defined) or by the officer for Good Reason (as
defined) within the three-year term of the agreement or if (in the case of Mr.
Salquist) he resigns upon the six-month or three-year anniversaries of the
effective date of the agreement, the officer shall receive severance benefits
that include a payment equal to 2.99 times his base salary and average bonus
for the prior three fiscal years. For purposes of such agreements, a Change of
Control included the closing of the transaction on March 31, 1996 pursuant to
which Monsanto Company acquired a 49.9% equity interest in the combined
business of the Company and Gargiulo, L.P. (the "Initial Monsanto
Transaction"). See "Certain Transactions--Reorganization Agreement."
In connection with his resignation following the closing of the Initial
Monsanto Transaction, Mr. Stacey and the Company entered into an amendment to
his Change of Control Employment Agreement pursuant to which Mr. Stacey agreed
that payments required to be made to him under such agreement would be paid
over a one-year period rather than in a lump sum. The amended agreement
provided for the payment of $347,500 upon Mr. Stacey's resignation and monthly
payments of $9,000 during a 12 month consulting period and an additional
payment of $239,500 at the end of the 12 month period.
In connection with his resignation in August 1996, Mr. Salquist and the
Company entered into an amendment to his Change of Control Employment
Agreement pursuant to which Mr. Salquist agreed that payments required to be
made to him under such agreement would be paid over a 13 month period rather
than in a lump sum. The amended agreement provided for the payment of $315,000
upon Mr. Salquist's resignation and monthly payments of $25,000 during a 12
month consulting period and an additional payment of $290,000 at the end of
the 12 month period.
On May 31, 1996, Mr. Motroni and the Company entered into an amendment to
his Change of Control Employment Agreement pursuant to which Mr. Motroni
agreed to remain in the employ of the Company until the earlier of (i) May 31,
1997 or (ii) the occurrence, after May 31, 1996, of any event that constitutes
Good Reason (as defined) in consideration of the Company's payment to Mr.
Motroni of $100,000. In addition, the amended agreement provides for the
payment to Mr. Motroni of $335,000 upon the earliest of (i) the cessation of
his employment for any reason after May 31, 1997, (ii) the termination of his
employment without Cause (as defined) or by reason of death, or (iii) his
resignation as a result of the occurrence of any event that constitutes Good
Reason.
7
<PAGE>
STOCK OPTION TABLES
The following table provides information regarding stock options granted in
fiscal 1996 to the named executive officers in the Summary Compensation Table.
In accordance with rules of the Commission, the table shows the hypothetical
gains that would be produced by the respective options based on assumed 5% and
10% rates of annual compound stock price appreciation from the date the
options were granted until the end of the ten-year option terms. The actual
value an executive may realize will depend on the spread between the market
price and the exercise price on the date the option is exercised.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
-------------------------------------------- REALIZED VALUE
PERCENT OF AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OPTIONS STOCK PRICE
OF SHARES GRANTED APPRECIATION FOR
UNDERLYING TO OPTION TERM
OPTIONS EMPLOYEES ($)(3)
GRANTED IN FISCAL EXERCISE EXPIRATION -----------------
(#)(1) YEAR(%) PRICE($)(2) DATE 5% 10%
---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Salquist....... -- -- -- -- -- --
Andrew M. Baum.......... 40,000 2.00 5.75 4/22/06 144,646 366,561
Thomas F. Hughes........ 175 -- 6.75 7/27/05 743 1,883
25,000 1.25 5.688 3/22/06 89,429 226,630
30,000 1.51 5.75 4/22/06 108,484 274,921
Lloyd M. Kunimoto....... 50,000 2.51 5.75 4/22/06 180,807 458,201
Michael J. Motroni...... 5,000 .25 4.75 12/18/05 14,936 37,851
15,000 .75 5.75 4/22/06 54,242 137,460
Roderick N. Stacey...... -- -- -- -- -- --
Danilo S. Lopez......... -- -- -- -- -- --
</TABLE>
- --------
(1) Newly granted options have terms of ten years and become exercisable
incrementally in equal monthly amounts over a period of five years from
the date of grant. The committee that administers the stock option plan
may, with the consent of the option holder, modify the terms (including
price) of outstanding options.
(2) The exercise price may be paid in cash or by delivery of already-owned
shares, subject to certain conditions.
(3) At assumed rates of appreciation of 5% and 10%, compounded annually, the
Common Stock would appreciate in value 63% and 159%, respectively, over a
ten-year period. These mandated computations do not represent the
Company's estimate or projection of future Common Stock prices.
8
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table shows stock options exercised by the named executive
officers in the Summary Compensation Table during fiscal 1996, the aggregate
value of gains on the dates of exercise, the number of shares covered by both
exercisable and non-exercisable stock options as of fiscal year-end, and the
year-end values for such options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES YEAR-END(#) YEAR-END($)(1)
ACQUIRED ON VALUE ------------------------- --------------------------------
EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Salquist....... -- -- 202,262 92,500 144,048 --
Andrew M. Baum.......... -- -- 37,134 62,866 1,166 33,834
Thomas F. Hughes........ -- -- 20,610 79,390 2,046 47,629
Lloyd M. Kunimoto....... -- -- 26,884 73,116 1,459 42,291
Michael J. Motroni...... -- -- 33,085 41,915 2,782 19,718
Roderick N. Stacey...... -- -- 107,830 160,170 10,500 --
Danilo S. Lopez......... -- -- -- -- -- --
</TABLE>
- --------
(1) Value is based on market value of the Common Stock at exercise date (for
value realized), or at year-end (for value of unexercised options), minus
the option exercise price.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
COMPOSITION AND FUNCTIONS OF THE COMMITTEE
The Human Resources Committee (referred to in this report as the
"Committee") consists of three non-employee directors: Messrs. Allen J.
Vangelos, Hendrik A. Verfaillie and Robert E. Baker.
The Committee performs the functions of a compensation committee. The
Committee considers and makes recommendations to the Calgene Board of
Directors concerning general compensation policies and employee benefit plans
and specifically recommends salary levels and bonus awards for certain senior
executive officers, including the Chief Executive Officer. The Committee also
administers Calgene's stock option plan and has sole authority to grant
options to officers. The Committee's executive salary and bonus
recommendations for fiscal 1996 were approved by the Calgene Board of
Directors without modifications.
OBJECTIVES OF EXECUTIVE COMPENSATION POLICY
The objectives of Calgene's executive compensation policy are to:
. set executive compensation at levels sufficient to attract, retain and
motivate highly qualified executive personnel;
. align the interests of management and the stockholders by making a
substantial portion of executive compensation dependent on the success of
Calgene, as measured by long-term appreciation in the market price of
Calgene's Common Stock; and
. balance considerations of individual achievements each year with
Calgene's financial and non-financial performance.
9
<PAGE>
In furtherance of these objectives, Calgene's executive compensation policy
provides for a combination of base salary, cash incentive bonus awards and
long-term stock options. Calgene also makes matching contributions under its
401(k) savings plan for all employees that participate, including its
executive officers. Calgene does not provide its executives with significant
perquisites.
SALARY AND BONUSES
In determining its recommendation to the Calgene Board of Directors
concerning the salary of senior executive officers, the Committee considers
published data from annual surveys of executive compensation at other
companies in its field. With the survey data as a reference point, the
Committee makes adjustments based on its evaluation of Calgene executives'
individual levels of experience, responsibility and past performance. The
Committee also takes into consideration each executive's comparability with
other Calgene executives. The Committee typically gives considerable weight to
the views of the Chief Executive Officer with respect to executive salaries
other than his own. Annual salary adjustments normally become effective in the
month of July.
The Committee also awards incentive bonuses for certain senior executives
based on both individual and corporate performance. Such awards in 1996 were
based on subjective assessments of performance and not on any specific
formulas.
STOCK OPTIONS
The granting of stock options is the principal method available to the
Committee to align the interests of the executive officers with those of the
stockholders. The option will reward the executive only if the market price of
the Common Stock appreciates over the option term and the executive remains
employed by Calgene over the vesting period. Options granted to executive
officers generally have a ten-year term, vest over a period of five years and
may be exercised at a price per share equal to the market price on the date of
grant. Stock options are granted to at least some executive officers each
year, as well as to numerous other employees. The number of shares in an
option grant reflects the executive's position at Calgene, stock options
granted to the executive in the past and the executive's potential
contribution to the success of Calgene. In granting stock options to senior
executive officers, the Committee has not followed any set of fixed
guidelines.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee increased the salary of Mr. Salquist from $225,000 in fiscal
1995 to $275,000 in fiscal 1996, reflecting his contributions to the Company
and the consummation of the Initial Monsanto Transaction.
OTHER MATTERS
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code, which disallows a tax deduction to any publicly-held
corporation for compensation (including non-cash compensation) exceeding $1
million in any year paid to any of the five most highly compensated executive
officers, unless such compensation meets certain requirements. The cash
compensation of each of Calgene's executive officers is well below $1 million.
The principal non-cash compensation of Calgene executives is from stock
options. Calgene is generally entitled to a tax deduction if an executive
exercises a nonqualified stock option or disposes of shares acquired from the
exercise of an incentive stock option before the required holding period has
ended. The Committee believes that Calgene stock options either will meet the
requirements of Section 162(m) or will not result in the loss of significant
tax deductions. Taking this into account, as well as Calgene's large tax loss
carryover and the reduced flexibility from a change to the stock option plan
to conform to the requirements of Section 162(m), the Committee has not
recommended any change to the stock option plan. However, the Committee may
consider imposing annual exercise limitations in some future option grants to
executives if Calgene would otherwise be deprived of significant tax benefits.
10
<PAGE>
The Calgene Board of Directors approved Change of Control Agreements for
Roger H. Salquist, Roderick N. Stacey and Michael J. Motroni. These agreements
provide for the payment of severance compensation in the event of termination
of their employment in connection with any Change of Control of Calgene.
This report is submitted by the following directors, who constituted all the
members of the Committee during fiscal 1996.
Robert E. Baker
Allen J. Vangelos
Hendrik A. Verfaillie
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1996, the members of the Human
Resources Committee were Messrs. Baker, Vangelos and Verfaillie. None of the
members has ever been an officer or employee of the Company or any of its
subsidiaries. During fiscal 1996, there were no Committee "interlocks" within
the meaning of the Securities and Exchange Commission rules, and there
continue to be no such "interlocks."
Mr. Salquist, former Chairman of the Board and Chief Executive Officer,
participated in portions of meetings of the Committee at the invitation of the
Committee and made various proposals to the Committee at its request. In
addition, at the Committee's direction, Mr. Salquist set the cash compensation
of certain other executives.
11
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the five-year cumulative total returns for Calgene
Common Stock, the Nasdaq Composite Index and a select Peer Group Index of
companies identified by Calgene. The graph assumes a $100 investment on June
30, 1991 in Calgene Common Stock and in each of the two indices, and assumes
the reinvestment of all dividends paid by companies represented in the two
indices. The representation of the component companies in the indices is
weighted according to their respective market capitalizations at the end of
each period for which cumulative returns are shown in the graph. The selected
peer group index consists of the following agricultural biotechnology
companies known by the Company to have their shares traded on the Nasdaq
National Market: Mycogen Corporation, Ecogen Inc., DNA Plant Technology
Corporation and Biosys Inc. The graph is in this Proxy Statement in accordance
with the rules of the SEC and is not necessarily indicative of future
performance.
[CALGENE STOCK COMPARISON LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Calgene, Inc.................... 100 120.63 148.51 149.96 95.13 89.88
Nasdaq Composite................ 100 158.23 186.20 154.69 199.47 249.51
Peer Group Index................ 100 120.85 124.61 118.34 68.42 71.18
</TABLE>
12
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's officers and directors are required to file with the
Securities and Exchange Commission reports of their acquisitions and
dispositions of equity securities of the Company. Based on the Company's
review of copies of such reports received by it, or written representations
from reporting persons, the Company believes that during the fiscal year ended
June 30, 1996, its officers and directors filed all required reports on a
timely basis.
PROPOSAL NO. 2
APPROVAL OF TRANSACTION WITH MONSANTO
The Company has entered into a Stock Purchase Agreement dated as of
September 27, 1996 with Monsanto (the "Stock Purchase Agreement"), pursuant to
which (i) the Company agreed to sell and issue to Monsanto, and Monsanto
agreed to purchase, 6,250,000 shares of Common Stock of the Company (the
"Additional Shares"), at $8.00 per share, for an aggregate purchase price of
$50 million, thereby increasing Monsanto's ownership interest in shares of
Calgene Common Stock from 49.9% to approximately 54.6% (without giving effect
to the exercise of outstanding options and warrants), (ii) Monsanto and
Calgene agreed to enter into a Restated Stockholders Agreement ("Restated
Stockholders Agreement") amending and restating the Stockholders Agreement
dated March 31, 1996 ("Stockholders Agreement"), and (iii) the Restated
Certificate of Incorporation shall be amended to reflect the amendments to the
Stockholders Agreement contemplated by the Restated Stockholders Agreement
(the foregoing transactions are herein collectively referred to as the
"Monsanto Transaction"). On September 27, 1996, the last reported sale price
of the Calgene Common Stock on the Nasdaq National Market was $5.125 per
share. Upon the closing of such purchase, Monsanto will own approximately
36,396,114 shares of Common Stock of the Company, representing approximately
54.6% of the issued and outstanding shares of Common Stock of the Company. The
affirmative vote of (i) the holders of a majority of the shares of Common
Stock present or represented at the Annual Meeting, other than broker non-
votes and shares held by Monsanto and (ii) the holders of a majority of the
shares of Common Stock outstanding on the Record Date is required for the
approval of the Monsanto Transaction.
REASONS FOR THE TRANSACTION
In the year ended June 30, 1996, the Company incurred substantial losses
primarily in connection with the operation of its tomato business. As of June
30, 1996, the Company had available cash and equivalents and available for
sale securities of $28.6 million and working capital of negative $1.5 million.
The Company believes that significant additional funds are required to pay
down debt, fund its tomato operations, support the market introduction of new
cotton products and finance continued oils research and development. The Board
of Directors of Calgene believes that the proposed transaction with Monsanto
is on terms no less favorable to the Company than could be obtained from an
independent third party. The Board determined to seek stockholder approval for
the Monsanto Transaction because the transaction will enable Monsanto to
nominate a majority of the members of the Board of Directors of Calgene. If
the proposed transaction with Monsanto is not approved at the Annual Meeting,
Calgene is unable to predict whether it will be able to obtain required
financing on favorable terms, if at all.
The Board of Directors recommends a vote FOR the Monsanto Transaction.
SUMMARY OF STOCK PURCHASE AGREEMENT
Consummation of the purchase of the Additional Shares by Monsanto pursuant
to the Stock Purchase Agreement is subject to various conditions including:
(i) expiration of the applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HRS Act"), (ii) election of
the five (5) Monsanto designated directors of the Company by the stockholders
of Calgene, (iii) approval of the Monsanto Transaction, which includes the
issuance of the Additional Shares to Monsanto by the holders of a majority of
the shares of Calgene Common Stock present or represented at the Annual
Meeting, other than Monsanto, (iv) Calgene shall have executed the Restated
Stockholders Agreement, (v) the Additional Shares shall have been
13
<PAGE>
authorized for listing on the Nasdaq National Market, subject to official
notice of issuance, (vi) between the date of the Stock Purchase Agreement and
the Closing Date there shall have been no Material Adverse Change (as defined
in the Stock Purchase Agreement) in the position, financial or otherwise, or
the operations, assets, liabilities or results of operations of Calgene or its
subsidiaries, and (vii) prior to Closing, Calgene shall not have issued,
agreed to issue or approve the issuance of any shares of its capital stock or
any options, warrants or other rights entitling the holder thereof to convert
into or receive shares of Calgene capital stock, except for the grant of
options for Calgene Common Stock to employees and consultants in the ordinary
course of business and the issuance of shares of Calgene Common Stock pursuant
to the exercise of outstanding options or warrants, unless approved by the
Calgene directors designated by Monsanto in writing. The waiting period under
the HSR Act has expired.
The Stock Purchase Agreement provides that the closing of the transactions
contemplated thereunder shall occur on the first date after the conditions set
forth therein are satisfied or waived. Assuming the requisite stockholder
approval at the Annual Meeting with respect to the Monsanto Transaction,
Calgene and Monsanto presently anticipate closing on or about November 12,
1996. The Stock Purchase Agreement provides that either Monsanto or Calgene
may terminate the Stock Purchase Agreement if the conditions for each's
benefit as set forth therein are not satisfied or waived by January 31, 1997.
SUMMARY OF THE STOCKHOLDERS AGREEMENT AND THE RESTATED STOCKHOLDERS AGREEMENT
As part of the Monsanto Transaction, the Stock Purchase Agreement provides
that, simultaneously with the issuance of the Additional Shares to Monsanto,
Calgene and Monsanto shall enter into the Restated Stockholders Agreement
which amends and restates the existing Stockholders Agreement. A copy of the
proposed Restated Stockholders Agreement is appended to this Proxy Statement
as Exhibit A.
The following is a summary of both the existing Stockholders Agreement which
became effective on March 31, 1996 and the proposed Restated Stockholders
Agreement which will become effective upon the consummation of the
transactions contemplated by the Stock Purchase Agreement.
Composition of the Calgene Board. The existing Stockholders Agreement
provides that the composition of the Calgene Board and the manner of selecting
members thereof shall be as follows:
(a) After March 31, 1996, the Calgene Board shall be comprised of nine
directors;
(b) Until the earlier of any time that (i) Monsanto's percentage
ownership of the outstanding Calgene securities ("Percentage Interest") is
at least 55% or (ii) Calgene elects to convert borrowings made from
Monsanto into equity securities of Calgene and Monsanto's Percentage
Interest is at least 50% after such conversion (a "Trigger Event"), the
Calgene Board shall consist of two directors who include the Chief
Executive Officer and a second director nominated by a majority of the
Company Directors (as hereinafter defined) ("Company Management
Directors"), three Independent Directors (as defined in the Stockholders
Agreement) nominated by Calgene ("Company Directors") and four directors
nominated by Monsanto (each a "Monsanto Director"), at least one of which
shall be an Independent Director;
(c) At and after the occurrence of a Trigger Event, the Calgene Board
shall be comprised of 11 Directors and Monsanto shall have the right to
designate two additional directors to the Board; and
(d) At any time that Monsanto's Percentage Interest is at least 70%, (i)
Monsanto shall have the right to designate eight Calgene Directors, to
consist of two Company Management Directors and six other directors
designated by Monsanto (including at least one Independent Director) and
(ii) Calgene shall have the right to designate three Independent Directors
to the Board. At such time as Monsanto's Percentage Interest is at least
99%, Monsanto shall have the right to designate all of the Calgene
Directors.
The proposed Restated Stockholders Agreement provides that the composition
of the Calgene Board and the manner of selecting members thereof shall be as
follows:
(a) Until otherwise changed in accordance with the Restated Stockholders
Agreement, the Board of Directors of Calgene shall be comprised of nine
Directors consisting of one Company Management Director, three Independent
Directors and five Directors designated by Monsanto, at least one of which
shall
14
<PAGE>
be an Independent Director. With respect to the nominees for election at
the Annual Meeting, Mr. Kunimoto is the Company Management Director,
Messrs. Salquist, Vangelos and Palefsky are the Company Directors and
Messrs. Verfaillie, Fraley, Robson, Hogan and Fortune have been designated
by Monsanto with Mr. Robson being the Independent Director designated by
Monsanto.
(b) The provision in the existing Stockholders Agreement set forth in
clause (c) above, increasing the Calgene Board to 11 upon the occurrence of
a Trigger Event and granting to Monsanto the right to designate two
additional directors was deleted.
(c) At any time that Monsanto's Percentage Interest is at least seventy
percent (70%), Calgene shall nominate (i) six directors designated by
Monsanto which shall consist of one Company Management Director and five
Monsanto directors (including at least one Independent Director) and (ii)
three Independent Directors. At such time as Monsanto's Percentage Interest
is at least ninety-nine percent (99%), Calgene shall nominate nine
directors designated by Monsanto.
The Restated Stockholders Agreement also provides that the Board of
Directors, by unanimous action, may increase the number of directors
comprising the Board and may elect, or nominate for election, the director(s)
to fill the vacancy or vacancies created by such increase.
Under the terms of the existing Stockholders Agreement, and unchanged by the
Restated Stockholders Agreement, Calgene shall nominate the following number
of Monsanto designees when the Monsanto Percentage Interest is as set forth
below:
<TABLE>
<CAPTION>
MONSANTO
DESIGNEES FOR NOMINATION
MONSANTO PERCENTAGE INTEREST TO THE CALGENE BOARD
---------------------------- ------------------------
<S> <C>
less than 40% but at least 20%...................... 3 directors
less than 20% but at least 10%...................... 2 directors
less than 10% but at least 5%....................... 1 director
less than 5%........................................ none
</TABLE>
In addition, the Restated Stockholders Agreement has changed the definition
of "Trigger Event" so that upon the purchase by Monsanto of the Additional
Shares pursuant to the Stock Purchase Agreement a "Trigger Event" occurs.
Under the terms of the Restated Stockholders Agreement the
Retention/Replacement Committee would be eliminated, leaving the Calgene Board
of Directors thereafter responsible for the retention and/or replacement of
all of the executive officers of the Company.
Registration Rights. The Stockholders Agreement provides Monsanto and
certain assignees may, subject to certain conditions and limitations, require
Calgene, whether or not Calgene proposes to register its Common Stock for
sale, to register with the Securities and Exchange Commission all or part of
the shares held by Monsanto. The Restated Stockholders Agreement provides that
the Additional Shares acquired by Monsanto pursuant to the Stock Purchase
Agreement shall also be entitled to these registration rights. Calgene is not
required to effect such a registration prior to September 30, 1998, unless an
event of default has occurred and is continuing under the Credit Agreements.
See "Certain Transactions--Credit Agreements."
Anti-Dilution Rights. If at any time Calgene agrees to sell shares of
Calgene Common Stock or other securities having the right to vote generally in
any election of directors of Calgene (collectively, "Calgene Securities") in a
private or public offering (other than pursuant to Calgene stock option
plans), Monsanto is entitled to notice of such proposed sale and has the
right, but not the obligation, to acquire all or any portion of the Calgene
Securities to be offered for sale sufficient for Monsanto to maintain, after
the consummation of the proposed offering, the same percentage of ownership of
Calgene Securities as Monsanto possessed immediately prior to such offering.
With respect to shares of Calgene Securities issued pursuant to Calgene's
stock option plans, Monsanto shall have the right to maintain its percentage
ownership of issued and outstanding Calgene Securities by making open market
purchases in accordance with the Stockholders Agreement. This provision is
unchanged by the Restated Stockholders Agreement.
15
<PAGE>
Limitations on Monsanto's Ownership of Calgene Securities. The existing
Stockholders Agreement provides that until September 30, 1998 Monsanto may not
increase its Percentage Interest above 49.9% except in limited circumstances
such as:
(a) conversion of principal and/or interest under the Credit Agreements;
(b) issuance of Calgene Securities in an asset sale by Monsanto to
Calgene;
(c) prior to March 31, 1997 a tender offer for 100% of the publicly held
shares; or
(d) on or after March 31, 1997, a tender offer to increase its Percentage
Interest to 70%, provided if Monsanto increases its Percentage Interest to
more than 80%, then it has to tender for 100% of the publicly held shares.
In both (c) and (d) above, the price must be approved by disinterested
directors and supported by a fairness opinion by an investment banking firm.
The Restated Stockholders Agreement increases the Percentage Interest which
Monsanto may hold prior to September 30, 1998 to 54.6% to reflect the purchase
of the Additional Shares pursuant to the Stock Purchase Agreement and deletes
clause (c) above.
Limitations on Monsanto's Resale of Calgene Securities. The existing
Stockholders Agreement provides that Monsanto shall not, directly or
indirectly, sell any Calgene Securities (other than to an affiliate) except as
follows: (a) on and after March 31, 1997, Monsanto may sell Calgene Securities
(i) as part of a joint venture, merger or sale of all or substantially all of
its current Crop Protection business unit, as such business may be
subsequently renamed or reorganized, or (ii) pursuant to a tender offer by a
third party to the stockholders of Calgene; (b) after September 30, 1998, in
addition to the rights set forth in (a) above, Monsanto may sell Calgene
Securities (ii) in a registered public offering pursuant to the registration
rights granted to Monsanto under the Stockholders Agreement; (ii) through
sales pursuant to Rule 144 under the Securities Act of 1933 (the "Securities
Act"); (iii) through sales of not more than 10% of the total issued and
outstanding Calgene Securities to a Non-Financial Purchaser (as defined in the
Stockholders Agreement); or (iv) through sales to a Financial Purchaser (as
defined in the Stockholders Agreement); (c) after September 30, 1999, in
addition to the rights set forth in (a) and (b) above, Monsanto may sell
Calgene Securities through a private sale of 35% or more of the total issued
and outstanding Calgene Securities to a Non-Financial Purchaser under
circumstances where such third party assumes the applicable and proportionate
rights and obligations of Monsanto under the Stockholders Agreement and the
other transaction agreements; and (d) notwithstanding the foregoing, at any
time, Monsanto may sell Calgene Securities issued to Monsanto upon conversion
by Monsanto of principal or accrued interest under the Credit Agreements after
the occurrence of an event of default (see "Certain Transactions--Credit
Agreements").
This provision will not be changed by the Restated Stockholders Agreement.
Approval Required for Certain Actions. The existing Stockholder Agreement
provides as follows:
(a) On and after March 31, 1996 until the earlier of a Trigger Event or
such date on which Monsanto's Percentage Interest is less than 25%, a
majority of the Calgene Board, including at least one Company Director and
one Monsanto Management Director, shall be required to approve any of the
following: (i) the entry by Calgene or any of its Affiliates into any
merger or consolidation or the acquisition by Calgene or any of its
Affiliates of any business or assets that would constitute more than 10% of
Calgene's total assets determined on a consolidated basis (a "Substantial
Part"); (ii) the sale, pledge, grant of security interest in, transfer,
retirement or other disposal of a Substantial Part of Calgene, except
pursuant to a security interest granted in connection with borrowings
permitted under subsection (iv) below or the pledge or granting of a
security interest in certain intangible property as further described in
the Stockholders Agreement; (iii) any dividend by or return of capital by
Calgene or Gargiulo, Inc. (formerly Tomato Investment Associates, Inc.)
(other than such distributions by Gargiulo, Inc. to Calgene as are
necessary for Calgene to timely perform its obligations under the Gargiulo
Credit Facility Agreement); (iv) any incurrence or assumption, in the
aggregate, by Calgene, any of its affiliates or any combination thereof, of
any indebtedness for borrowed
16
<PAGE>
money at any time outstanding exceeding in the aggregate (determined on a
consolidated basis) the greater of (A) $15 million, increasing by $5
million on each July 1 commencing July 1, 1996, plus amounts secured by
inventory and/or receivables for seasonal working capital lines and
indebtedness incurred to acquire property, plant or equipment and secured
by the acquired asset, minus amounts outstanding under the Calgene Credit
Facility Agreement, or (B) the amounts set forth in the Calgene Operating
Plan (as defined in the Stockholders Agreement), provided that loans under
the Gargiulo Credit Facility Agreement shall not be counted in this
limitation; (v) the repurchase or redemption of any Calgene securities,
other than from employees upon termination of employment or service; (vi)
the establishment of any new committees of the Calgene Board or new or
revised delegations of Calgene Board authority to any Calgene Board
committee or changes or revisions to general delegations of authority to
officers or other persons for categories of expenditures; (vii) the
adoption of or amendment to any benefit or incentive plans of Calgene or
any of its Affiliates which would increase the annual cost thereof by more
than fifteen percent (15%) from the prior fiscal year or any adoption of,
or amendment to, any stock option plan; (viii) the election, appointment or
removal of the Chief Executive Officer, Chief Operating Officer or Chief
Financial Officer of Calgene and its successors and the establishment of
its annual or long-term compensation level and benefits (other than
agreements in effect at the Effective Time); provided, however, that
Monsanto shall have the right to select the Chief Technical Officer of
Calgene and a controller reporting to the Chief Financial Officer of
Calgene; (ix) approval of the Operating Plan and Strategic Plan (each as
defined in the Stockholders Agreement) of Calgene and its Affiliates, as
well as the annual operating plan and long-term strategic plan for the
Gargiulo business, to be submitted to the Calgene Board annually for
approval, and any material changes thereto; (x) any transaction between
Calgene (and its Affiliates), on the one hand, and its directors, officers
or employees, on the other hand, which is not in the normal course of
business; (xi) any modification of the transaction agreements; (xii) any
amendment of the By-Laws or Certificate of Incorporation of Calgene or
Gargiulo, Inc.; (xiii) the issuance of additional Calgene securities (other
than warrants for the purchase of Calgene securities) in excess of
4,000,000 shares of Calgene Common Stock in any two-year period to a third
party, other than pursuant to plans referred to in subsection (vii) above
or the issuance of any warrants for the purchase of Calgene securities;
(xiv) the sale or licensing by Calgene or any of its Affiliates of certain
intangible property, as further described in the Stockholders Agreement, or
any other intangible property for consideration (other than royalties
contingent on future sales) exceeding $5 million in the aggregate
(determined on a consolidated basis) per transaction or per series of
related transactions; (xv) new fixed capital investments, capital leases or
noncancellable operating leases by Calgene and its Affiliates having annual
payments in the aggregate (determined on a consolidated basis) exceeding
the aggregate amount set forth in the Operating Plan; (xvi) matters
relating to Gargiulo, Inc. covered in Article 5 of the Stockholders
Agreement, including, without limitation, any changes in the composition of
the Gargiulo Board of Directors; (xvii) any press release which mentions or
directly or indirectly refers to Monsanto, except as required by law and
where Calgene Board approval cannot be obtained in a timely manner;
(xviii) the initiation, settlement or termination of any suit or proceeding
concerning intellectual property, any other matter which could have an
adverse public affairs effect upon Monsanto or the filing of any insolvency
or bankruptcy proceeding by or on behalf of Calgene or any of its
Affiliates; or (xix) the removal or election of the directors, subject to
the terms of the Stockholders Agreement, of Gargiulo, Inc.
(b) After a Trigger Event and until the earlier of (i) March 31, 1999 or
(ii) such time as Monsanto's Percentage Interest is at least seventy
percent (70%), a majority of the Calgene Board, including at least two
Company Directors, shall be required to approve any of the following:
except as provided in the Stockholders Agreement, the matters set forth in
clauses (i), (ii), (vi), (viii), (ix) and (xi) of paragraph (a) above; or
(ii) any transaction between Calgene (and its Affiliates) and Monsanto or
any Affiliate of Monsanto.
(c) From and after the occurrence of both (i) a Trigger Event and (ii)
March 31, 1999, and until Monsanto's Percentage Interest is at least 99%,
neither Monsanto nor any of Affiliates shall enter into any transaction
with Calgene or any of its Affiliates without the approval of at least two
Company Directors.
The Restated Stockholders Agreement will delete clause (a)(xvi) above
because Article 5 of the Stockholders Agreement referred to therein, which
contained several provisions relating to the operations of
17
<PAGE>
Gargiulo, Inc. (formerly Tomato Investment Associates, Inc.) a wholly owned
subsidiary of Calgene, will also be deleted.
Further, the Restated Stockholders Agreement changes the definition of
"Trigger Event" so that upon the purchase by Monsanto of the Additional Shares
a "Trigger Event" occurs. Accordingly, after the purchase by Monsanto of the
Additional Shares, clause (b) above, not clause (a), will be applicable.
CERTIFICATE OF AMENDMENT
The amendments to Calgene's Certificate of Incorporation reflected in the
proposed Certificate of Amendment are to (i) reflect the amendments to the
provisions in the Stockholders Agreement as reflected in the Restated
Stockholders Agreement and described in the "Composition of the Calgene Board"
and "Approval Required for Certain Actions," and (ii) increase the authorized
shares of Calgene from 80,000,000 shares to 100,000,000 shares. A copy of the
Certificate of Amendment is appended to this Proxy Statement as Exhibit B.
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding on the Record Date is required for the approval of the
amendments. Monsanto, which owns 49.9% of the outstanding shares of Common
Stock as of the Record Date, has advised the Company that it intends on voting
in favor of the amendments. Additionally, the amendments to Calgene's
Certificate of Incorporation to reflect the Restated Stockholders Agreement
will also require the affirmative vote of the holders of a majority of the
shares of Common Stock present or represented at the Annual Meeting, other
than broker non-votes and other than those held by Monsanto.
THE FOREGOING IS A BRIEF SUMMARY OF CERTAIN PROVISIONS OF THE STOCK PURCHASE
AGREEMENT, THE RESTATED STOCKHOLDERS AGREEMENT AND CERTIFICATE OF AMENDMENT.
THE RESTATED STOCKHOLDERS AGREEMENT AND CERTIFICATE OF AMENDMENT ARE ATTACHED
HERETO AS EXHIBITS A AND B, RESPECTIVELY, AND INCORPORATED BY REFERENCE
HEREIN.
18
<PAGE>
CERTAIN TRANSACTIONS
SUMMARY OF EXISTING AGREEMENTS WITH MONSANTO
Reorganization Agreement. On October 13, 1995, the Company and Monsanto
entered into an Agreement and Plan of Reorganization ("Reorganization
Agreement") and certain other agreements whereby Monsanto contributed all of
the outstanding shares of capital stock of Tomato Investment Associates, Inc.,
a wholly-owned subsidiary of Monsanto ("TIA"), whose principal asset was the
entire equity interest in Gargiulo, L.P., $30 million in cash and certain
technology licenses in exchange for a 49.9% equity interest in the Company. In
connection with the Reorganization Agreement, a total of 30,146,114 shares of
Common Stock of the Company were issued to Monsanto. The Reorganization
Agreement was approved by the stockholders of the Company on March 25, 1996.
On March 31, 1996 (the "Effective Time"), the Company and Monsanto consummated
the transactions contemplated by the Reorganization Agreement which included
entering into the agreements discussed below. Subsequent to the Effective
Date, Gargiulo L.P. was merged into TIA and TIA changed its name to "Gargiulo,
Inc."
Stockholders Agreement. On March 31, 1996, the Company and Monsanto entered
into a Stockholders Agreement (the "Stockholders Agreement"). The Stockholders
Agreement and the proposed Restated Stockholders Agreement are summarized
herein under "Proposal No. 2--Approval of Transaction with Monsanto--Summary
of the Stockholders Agreement and the Restated Stockholders Agreement."
CREDIT AGREEMENTS
Calgene Credit Facility Agreement
On March 31, 1996, Monsanto and Calgene entered into the Calgene Credit
Facility Agreement pursuant to which Monsanto shall, during the Commitment
Period (as hereinafter defined), and subject to the terms and conditions
contained therein, make, at the request of Calgene, three consecutive one-year
loans of up to $15 million each (each a "Calgene Loan" and together the
"Calgene Loans"), collectively totalling not more than $45,000,000. At no time
shall the outstanding principal of all Calgene Loans exceed $15 million. Prior
to the occurrence of an Event of Default (as defined in the Calgene Credit
Facility Agreement), Calgene may borrow, repay and reborrow under each Calgene
Loan, each such borrowing or reborrowing being an "Advance." The "Commitment
Period" began on March 31, 1996 and ends on the earlier of September 30, 1998,
or such earlier time that Monsanto terminates its obligations to make further
Advances under the Calgene Credit Facility Agreement. The Calgene Loans made
pursuant to the Calgene Credit Facility Agreement are to be secured by the
joint and several guaranty of the subsidiaries of Calgene.
Prior to the occurrence of an Event of Default, the Calgene Loans bear
interest at the per annum rate equal to 2.00% above Citibank's published prime
rate (the "Calgene Base Rate"), and following an Event of Default at the per
annum rate equal to 3.00% above the Calgene Base Rate. During the continuance
of an Event of Default, Calgene shall have no right to obtain any new Advances
under this Agreement. The Calgene Loans may be prepaid in whole or in part at
any time after giving at least three days prior written notice to Monsanto.
In lieu of repayment of outstanding principal and accrued interest on each
Calgene Loan, Calgene, subject to Monsanto's right to require Calgene to sell
shares and pay cash, as provided below, may elect to convert all or any
portion of the principal and accrued interest due under the applicable Calgene
Loan (the "Conversion Amount") into shares of Calgene Common Stock at the
average of the closing market price for such shares during the thirty trading
days immediately preceding the applicable maturity date for such Calgene Loan.
Monsanto may, in its sole discretion and within five business days after its
receipt of notice from Calgene that Calgene intends to exercise Calgene's
rights to convert the Conversion Amount, give written notice to Calgene
stating that (i) all or any part of the Conversion Amount shall be payable in
cash (the "Alternative Conversion Amount"), (ii) Calgene shall, at its
expense, sell publicly such number of shares of its common stock as Monsanto
would have received if the Alternative Conversion Amount had been converted as
described above
19
<PAGE>
and (iii) the net proceeds of such sale shall be paid by Calgene to Monsanto
in full payment and satisfaction of such Alternative Conversion Amount.
Upon any such conversion, the Conversion Amount shall first be applied to
reduce the accrued interest due on the applicable Calgene Loan as of the
applicable maturity date, and any remaining portion of the Conversion Amount
shall be applied to reduce the principal due on such Calgene Loan. In any
event, on each annual Maturity Date (as defined in the Calgene Credit Facility
Agreement), all outstanding principal and accrued interest not converted by
Calgene into shares of Calgene Common Stock shall be repaid in full to
Monsanto.
Upon the occurrence and during the continuation of an Event of Default, for
a period of thirty (30) days from the occurrence of the Event of Default,
Calgene, subject to Monsanto's right to require Calgene to sell shares and pay
cash, as described above, may similarly elect to convert all or any portion of
the principal and accrued interest under any outstanding Calgene Loan into
shares of Calgene Common Stock. If Calgene does not elect to exercise its
conversion rights upon such an Event of Default, Monsanto may, in addition to
its other remedies, elect to convert all or a portion of the remaining
principal and accrued interest under such Calgene Loan into shares of Calgene
Common Stock at the average of the closing market prices for such shares
during the thirty days preceding such Event of Default. In no event, however,
shall Monsanto elect to convert principal and accrued interest into more than
3,000,000 shares of Calgene Common Stock (as such number is adjusted for stock
dividends, stock splits and similar events affecting holders of Calgene's
common stock).
The obligation of Monsanto to provide Advances is subject to the fulfillment
of certain conditions, including, among others: (i) the continued accuracy of
all representations and warranties made by Calgene and its subsidiaries; (ii)
the compliance with all covenants contained in the Calgene Credit Facility
Agreement; (iii) no event shall have occurred which would constitute an Event
of Default or Potential Event of Default (as defined in the Calgene Credit
Facility Agreement); or (iv) there shall not have occurred any circumstance
which could reasonably be expected to have a material adverse effect on (A)
the business, assets, operations or financial condition of Calgene and its
subsidiaries, taken as a whole, or (B) the ability of the Company and its
subsidiaries to perform their obligations under the Calgene Credit Facility
Agreement.
The covenants contained in the Calgene Credit Facility Agreement require
Calgene to maintain a minimum consolidated net worth of not less than $10
million and a minimum consolidated working capital of not less than $5
million. The Calgene Credit Facility Agreement also requires that Calgene and
its subsidiaries meet certain specified financial ratios, including a ratio of
total long-term liabilities to net worth and a current ratio. In addition, the
Calgene Credit Facility Agreement imposes a number of limitations on Calgene
with respect to future acquisitions, liens, mergers and the sale of assets,
loans and investments, guaranties, capital expenditures, the payment of
dividends and the incurrence of indebtedness. The existence of these covenants
could limit Calgene's ability to finance the growth of its existing operations
if cash flows were to decrease substantially or if expenses were to increase
substantially. These covenants would also limit Calgene's ability to engage in
additional acquisitions that would significantly increase the ratio of long-
term indebtedness to net worth following such acquisitions. The failure of
Calgene to satisfy these covenants would cause an Event of Default which could
have a material adverse effect on its business and results of operations.
Calgene is not in compliance with certain financial covenants contained in the
Calgene Credit Facility Agreement. Monsanto has agreed to grant Calgene a
limited waiver with respect to such non-compliance only as to the initial
Advance which matures March 31, 1997, provided Calgene first makes all
reasonable efforts to obtain any further necessary funds from its existing
senior lenders.
All of the Calgene Loans shall be subordinated and subject in right of
payment to the prior payment in full of a certain senior indebtedness of
Calgene as more fully described in the Calgene Credit Facility Agreement. No
payment on account of principal or interest on the Calgene Loans shall be made
if at the time of such payment or immediately after giving the effect thereto:
(i) there shall exist a default in any payment with respect to any such senior
indebtedness or (ii) there shall have occurred an event of default (other than
a default in the payment of amounts due thereon) with respect to any such
senior indebtedness.
20
<PAGE>
As of August 31, 1996, there was no outstanding balance of principal and
interest under the Calgene Credit Facility Agreement.
Gargiulo Credit Facility Agreement
On March 31, 1996, Monsanto and Calgene entered into the Gargiulo Credit
Facility Agreement pursuant to which Monsanto shall, during the Commitment
Period (as hereinafter defined), and subject to the terms and conditions
contained therein, make available to Calgene a revolving credit facility of up
to $40 million (the "Gargiulo Loan").
The Gargiulo Loan has been used to acquire Collier Farms and to support the
branded tomato strategy of Gargiulo as determined by the Gargiulo Board of
Directors (other than amounts used to finance the acquisition of Collier
Farms). Prior to the occurrence of an Event of Default (as defined in the
Gargiulo Credit Facility Agreement), Gargiulo may borrow, repay and reborrow,
each such borrowing or reborrowing being an "Advance." In order to obtain an
Advance from Monsanto under the Gargiulo Credit Facility Agreement, Gargiulo
must provide documentation reasonably acceptable to Monsanto verifying that
Gargiulo has reached certain milestones and achieved certain goals as set
forth therein. The maximum amount of each Advance is subject to certain
limitations based upon such milestones and goals. The "Commitment Period"
began on March 31, 1996 and ends on the earlier of the fourth anniversary or
such earlier time that Monsanto terminates its obligations to make further
Advances. The Gargiulo Loan is secured by the joint and several guaranty of
the subsidiaries of Calgene.
Prior to the occurrence of an Event of Default, the Gargiulo Loan shall bear
interest at the per annum rate equal to 2.00% above Citibank's published prime
rate (the "Gargiulo Base Rate"), and following an Event of Default at the per
annum rate equal to 3.00% above the Gargiulo Base Rate. During the continuance
of an Event of Default, Calgene shall have no right to obtain any new
Advances. The Gargiulo Loan may be prepaid in whole or in part at any time
after giving at least three days prior written notice to Monsanto.
The Gargiulo Loan is payable, unless extended as described below, in one
payment on the fourth anniversary of the Effective Time (the "Maturity Date")
in an amount equal to the lesser of (i) the Repayment Portion of the
Cumulative Free Cash Flow (as defined in the Gargiulo Credit Facility
Agreement) of Gargiulo from the Effective Time to the Maturity Date and (ii)
the amount of the outstanding principal and accrued interest on the Gargiulo
Loan. "Repayment Portion" means the sum of 20% of the first $10 million of
Cumulative Free Cash Flow, 50% of the next $10 million and 80% of the
remaining balance. In the event that the Repayment Portion is not sufficient
to pay all of the then outstanding principal and accrued interest at the
Maturity Date, the maturity date with respect to the unpaid amount of
outstanding principal and interest shall be extended to the sixth anniversary
of the Effective Time (the "Extended Maturity Date"). In the event the
Repayment Portion of the Cumulative Free Cash Flow (less amounts previously
paid) is not sufficient to pay the then outstanding principal and accrued
interest at the Extended Maturity Date, Calgene shall pay Monsanto such lesser
amount and Monsanto, at its sole option, may do any one or combination of the
following: (i) convert all or any portion of the then outstanding principal
and accrued interest into shares of Calgene Common Stock at the average of the
closing market prices for such shares during the thirty trading days
immediately preceding the date of such conversion, (ii) further extend the
Final Maturity Date (as defined in the Gargiulo Credit Facility Agreement)
upon the same terms as are contained in the Gargiulo Credit Facility
Agreement, or (iii) as to any unpaid amount which is not converted under
clause (i) or for which payment is not extended pursuant to clause (ii), cause
Calgene to sell publicly that number of shares of Calgene Common Stock as
Monsanto would have received if such amount has been converted under clause
(i) above with the net proceeds of such sale being delivered to Monsanto in
full payment and satisfaction of such amount.
Upon the occurrence and during the continuation of an Event of Default,
Monsanto may, in addition to its other remedies, similarly elect to convert
all or any portion of the principal and accrued interest under the Gargiulo
Loan (the "Gargiulo Conversion Amount") into shares of Calgene Common Stock at
the average of the closing market prices for such shares during the thirty
days preceding such Event of Default. In no event,
21
<PAGE>
however, shall Monsanto elect to convert principal and accrued interest into
more than 8,000,000 shares of Calgene Common Stock (as such number is adjusted
for stock dividends, stock splits and similar events affecting holders of
Calgene's common stock). Upon any such conversion, the Gargiulo Conversion
Amount shall first be applied to reduce the accrued interest due on the
Gargiulo Loan, and any remaining portion of the Gargiulo Conversion Amount
shall be applied to reduce the principal due on such Gargiulo Loan.
The obligation of Monsanto to provide Advances is subject to the fulfillment
of certain conditions, including, among others: (i) the continued accuracy of
all representations and warranties made by Calgene and its subsidiaries; (ii)
the compliance with all covenants contained in the Gargiulo Credit Facility
Agreement; (iii) no event shall have occurred which would constitute an Event
of Default or Potential Event of Default (as defined in the Gargiulo Credit
Facility Agreement); or (iv) there shall not have occurred any circumstance
which could reasonably be expected to have a material adverse effect on (A)
the business, assets, operations or financial condition of Calgene and its
subsidiaries, taken as a whole or (B) the ability of the Company and its
subsidiaries to perform their obligations under the Gargiulo Credit Facility
Agreement.
The covenants contained in the Gargiulo Credit Facility Agreement require
Calgene to maintain a minimum consolidated net worth of not less than $10
million and a minimum consolidated working capital of not less than $5
million. The Gargiulo Credit Facility Agreement also requires that Calgene and
its subsidiaries meet certain specified financial ratios, including a ratio of
total long-term liabilities to net worth and a current ratio. In addition, the
Gargiulo Credit Facility Agreement imposes a number of limitations on Calgene
and each of its subsidiaries with respect to future acquisitions, liens,
mergers and the sale of assets, loans and investments, guaranties, capital
expenditures, the payment of dividends and the incurrence of indebtedness. The
existence of these covenants could limit Calgene's ability to finance the
growth of its existing operations if cash flows were to decrease substantially
or if expenses were to increase substantially. These covenants would also
limit Calgene's ability to engage in additional acquisitions that would
significantly increase the ratio of long-term indebtedness to net worth
following such acquisitions. The failure of Calgene to satisfy these covenants
would cause an Event of Default which could have a material adverse effect on
its business and results of operations. Calgene is not in compliance with
certain financial covenants contained in the Gargiulo Credit Facility
Agreement. Calgene intends to seek a waiver from Monsanto with respect to such
non-compliance.
The Gargiulo Loan is to be subordinated and subject in right of payment to
the prior payment in full of certain senior indebtedness of Calgene as more
fully described in the Gargiulo Credit Facility Agreement. No payment on
account of principal or interest on the Gargiulo Loan shall be made if at the
time of such payment or immediately after giving the effect thereto, (i) there
shall exist a default in any payment with respect to any such senior
indebtedness or (ii) there shall have occurred an event of default (other than
a default in the payment of amounts due thereon) with respect to any such
senior indebtedness.
As of August 31, 1996, the outstanding balance of principal and interest
under the Gargiulo Credit Facility Agreement was $25.1 million.
License Agreements
As part of the Initial Monsanto Transaction in March 1996, Monsanto
contributed certain technology licenses to Calgene pursuant to various license
agreements and letter agreements. The technologies underlying the License
Agreements are summarized below.
ACC Synthase and ACC Deaminase. ACC is a precursor of ethylene, a plant
growth regulator that induces ripening in certain fruits. By reducing the
amount of ACC available for conversion into ethylene, the ripening process can
be delayed. Control of the ripening process may enable Calgene to improve the
efficiency of its tomato production operations. Calgene will be granted non-
exclusive, perpetual, royalty-free rights to the ACC synthase and ACC
deaminase genes for use in certain produce crops and shall be able to practice
under Monsanto's ACC Synthase license from the USDA.
22
<PAGE>
Fruit-specific Promoters. Promoters control the expression of genes in each
plant cell. In order for certain genes to function in a beneficial manner,
expression of these genes must be restricted to certain parts of the plant.
Fruit-specific promoters provide a means of limiting gene expression to the
fruit. For example, these promoters may be useful in regulating carbohydrate
metabolism (e.g., sugar content) in ripening fruits such as tomatoes and
strawberries. Calgene has been granted non-exclusive, perpetual, royalty-free
rights to certain fruit-specific promoters for use in certain produce crops.
Virus Resistance Genes. Virus infection is known to significantly reduce the
yields of certain crops, including tomatoes. Monsanto has developed methods of
interfering with viral replication in engineered plants, which slows the rate
and degree of infection, and reduces the yield loss resulting from the
infection. Calgene has been granted non-exclusive, perpetual, royalty-free or
royalty-bearing rights to certain aspects of Monsanto's patent estate related
to the engineering of virus resistance into certain produce crops.
FAD 3 Gene. The FAD 3 gene controls the relative amount of polyunsaturated
fatty acids found in plant oils, including canola oil. Calgene believes that
reducing the expression of the FAD 3 gene in engineered canola plants may
result in an oil with reduced linoleic and linolenic acid content. Such an oil
would be a superior cooking oil, as well as a superior raw material for the
production of margarine and shortening. Calgene has been granted exclusive,
perpetual, royalty-bearing rights to the FAD 3 gene for use in certain oilseed
crops.
Insect Resistance Gene. Monsanto has modified genes from a soil
microorganism called Bacillus thurengiensis ("B.t.") the encode proteins that
are toxic to certain insects. Use of insecticides to control insects is a
major cost in the production of tomatoes. Calgene has been granted non-
exclusive, perpetual, royalty-free rights to Monsanto's B.t. patent estate for
use in certain produce crops.
ADP Glucose Pyrophosphorylase ("ADPGPP") Gene. The ADPGPP gene is a
bacterial gene involved in starch biosynthesis. By expression of this gene in
plants, the starch and/or sugar content of plants can be increased. This may
improve the flavor or sweetness of produce crops such as tomatoes or
strawberries. Calgene has been granted non-exclusive, perpetual, royalty-free
rights to Monsanto's patent estate related to ADPGPP for use in certain
produce crops. Monsanto and Calgene are parties to an interference at the
United States Patent and Trademark Office relating to the ADPGPP gene.
Oil Modification Technology. Monsanto has certain patent rights and know-how
related to the production of plants with altered oil compositions. By
modifying oil composition it may be possible to provide temperate sources of
certain tropical oils and the production of novel oil compositions. The
Monsanto oil modification genes include sucrose phosphorylase, cytochrome b5
and PEP carboxylase. Calgene has been granted non-exclusive, perpetual,
royalty-free rights under Monsanto's patents and know-how for use in certain
oilseed crops.
Insect Protected Cotton Direct Grower Licensing Agreement
Calgene has entered into an agreement with Monsanto under which Calgene will
participate in the direct licensing of Monsanto's B.t. technology to cotton
growers. Under the terms of this agreement, Monsanto has granted to Calgene a
non-exclusive, royalty-free U.S. license to use Monsanto's B.t. technology in
Calgene's cottonseed products. Subject to the issuance of a Monsanto patent
that covers the B.t. gene that is currently being utilized in Calgene's
cottonseed product development program, Calgene would be obligated under
applicable patent law to end use of its current B.t. gene and is permitted
under such agreement to incorporate Monsanto's B.t. gene into its product
development program over a four-year period.
Monsanto intends to enter into license agreements directly with cotton
growers. Under the terms of these agreements, cotton growers would obtain a
one-time right to purchase a specified number of units of cottonseed
containing Monsanto's B.t. gene in return for the payment of a license fee.
Monsanto has agreed to pay to Calgene a specified percentage of the net
license fees received from licensed growers who subsequently purchase
Calgene's cottonseed products containing Monsanto's B.t. gene. The material
terms of Calgene's agreement shall be modified to reflect any more favorable
terms that may be granted to any other cottonseed company that may participate
in the direct licensing program.
23
<PAGE>
Oilseed Development Agreement
In May 1996, Calgene and Monsanto executed a broad strategic cross-licensing
agreement encompassing the two companies' oilseed research programs. Under the
agreement, Calgene received a royalty free license to current and future
Monsanto agronomic technology for use in combination with Calgene's
proprietary oils modification genes for use in developing specialty canola oil
product. Monsanto received a royalty bearing license to Calgene technology to
develop agronomically superior corn, soybean, canola and sunflower crops. In
addition, Monsanto paid $7 million to Calgene and will pay royalties based on
sales of insect resistant corn, soybean, canola and sunflower seed with
increased oil content and modified meal composition utilizing Calgene
technology. Also as part of the agreement, Monsanto paid Calgene $10 million
in cash to help fund oilseed research and development. In exchange, Monsanto
will receive a portion of the future profits from Calgene's specialty oils
business.
PROPOSAL NO. 3
INCREASE IN AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Company currently has authorized 80,000,000 shares of Common Stock. As
of August 31, 1996, there were 60,443,115 shares of Common Stock outstanding
and 3,673,996 additional shares of Common Stock reserved for issuance upon
exercise of outstanding stock options. After giving effect to the purchase of
the Additional Shares by Monsanto, only 9,632,889 shares will be available for
further issuance. Accordingly, the Board has adopted an amendment to the
Certificate of Incorporation, subject to stockholder approval, to increase its
authorized Common Stock to 100,000,000 shares. The affirmative vote of the
holders of a majority of the shares of Calgene Common Stock outstanding on the
Record Date is required for approval of this amendment to the Certificate of
Incorporation.
The Board of Directors recommends a vote FOR the proposed increase in
authorized Common Stock.
PROPOSAL NO. 4
CONFIRMATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On May 21, 1996, the Company announced that it was changing its fiscal year
end from June 30 to December 31. The Board of Directors has selected Ernst &
Young LLP as the Company's independent public accountants for the transition
period of July 1, 1996 through December 31, 1996 and for the fiscal year
ending December 31, 1997 and recommends that the stockholders confirm such
selection. Confirmation will require the affirmative vote by holders of a
majority of shares present or represented by proxy and entitled to vote on the
matter. In the event that confirmation fails to receive the required majority
vote, the Board of Directors will reconsider its selection.
Ernst & Young LLP has audited the Company's annual financial statements
since the fiscal year ended September 30, 1982. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting with the
opportunity to make a statement if they desire to do so, and are expected to
be available to respond to appropriate questions.
24
<PAGE>
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Proposals that are intended to be presented by stockholders of the Company
at the 1998 Annual Meeting must be received by the Company no later than
December 3, 1997 in order that they may be potentially eligible to be included
in the Company's proxy statement and form of proxy relating to that meeting.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement its
Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and all
reports filed by the Company with the Securities and Exchange Commission
pursuant to Section 13(a) of the Securities Exchange Act of 1934 after the
date hereof and prior to the date of the Annual Meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares they
represent as the Board of Directors may recommend.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST
A COPY OF THE ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS,
SCHEDULES AND A LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO THE CORPORATE
SECRETARY, CALGENE, INC., 1920 FIFTH STREET, DAVIS, CALIFORNIA 95616.
25
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CALGENE, INC.
1996 ANNUAL MEETING OF STOCKHOLDERS
To be held on November 12, 1996
The undersigned stockholder of Calgene, Inc. ("Calgene") hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement for the 1996 Annual Meeting of Stockholders of Calgene, Inc.
to be held on November 12, 1996, and hereby appoints Lloyd M. Kunimoto and
Michael J. Motroni, and each of them, proxy and attorney-in-fact, with full
power of substitution, on behalf and in the name of the undersigned to
represent the undersigned at such meeting and at any continuations or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present,
on the matters set forth on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
1. To elect directors of the Company.
NOMINEES: Patrick J. Fortune, Robert T. Fraley, Michael R. Hogan, Lloyd M.
Kunimoto, Howard D. Palefsky, John E. Robson, Roger H. Salquist, Allen J.
Vangelos, Hendrik A. Verfaillie.
For [_] Withheld [_]
[_] ___________________ For all nominees except vote withheld
from nominee(s) noted on line above.
2. To approve the Monsanto Transaction, as described in the accompanying
Proxy Statement.
For [_] Against [_] Abstain [_]
3. To increase the authorized number of shares of Common Stock from
80,000,000 to 100,000,000 shares.
For [_] Against [_] Abstain [_]
4. To confirm the appointment of Ernst & Young LLP as the independent
auditors of the Company through the fiscal year ending December 31, 1997.
For [_] Against [_] Abstain [_]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE AND AS THE
---
PROXYHOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing as officers or in a fiduciary capacity should so
indicate. If shares are held by joint tenants or as community property, both
should sign.)
Signature _______________________ Date________________
Signature _______________________ Date________________
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Calgene, Inc.
We have audited the accompanying consolidated balance sheets of Calgene, Inc. as
of June 30, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended June 30, 1996. Our audits also included the financial
statement schedules listed in the Index at Item 14(a)2. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Calgene, Inc. at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Sacramento, California
September 12, 1996
<PAGE>
EXHIBIT A
CALGENE, INC.
(FORMERLY CALGENE II, INC.)
AND
MONSANTO COMPANY
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE 1 Effect of this Agreement........................................ 1
1.1 Effect of this Agreement........................................ 1
ARTICLE 2 Compliance with Securities Act.................................. 1
2.1 Certain Definitions............................................. 1
2.2 Requested Registration.......................................... 5
2.3 Company Registration............................................ 7
2.4 Expenses of Registration........................................ 8
2.5 Registration Procedures......................................... 8
2.6 Indemnification................................................. 9
2.7 Information by Holder........................................... 10
2.8 Rule 144 Reporting.............................................. 10
2.9 Transfer of Registration Rights................................. 11
2.10 Limitations on Subsequent Registration Rights................... 11
2.11 Termination of Registration Rights.............................. 11
2.12 "Market Stand-off" Agreement.................................... 11
ARTICLE 3 Anti-Dilution Rights and Limitations on Owner................... 11
3.1 Anti-Dilution Rights............................................ 11
3.2 Private Offering................................................ 12
3.3 Public Offering................................................. 12
3.4 Limitations..................................................... 12
3.5 Open Market Purchases to Maintain Ownership Percentage.......... 12
3.6 Limitations on Holder's Ownership............................... 12
3.7 Limitations on Holder's Resale of Company Securities............ 13
ARTICLE 4 Company and Calgene Corporate Governance........................ 13
4.1 Composition of the Board of Directors and Calgene Board......... 13
4.2 Solicitation and Voting of Shares............................... 15
4.3 Committees...................................................... 16
4.4 Approval Required for Certain Actions........................... 16
4.5 Enforcement of this Agreement................................... 18
4.6 Certificate of Incorporation and By-laws........................ 18
4.7 Advisors........................................................ 18
4.8 Injunctive Relief............................................... 18
ARTICLE 5 Governance of Gargiulo.......................................... 19
ARTICLE 6 Miscellaneous................................................... 19
6.1 Governing Law................................................... 19
6.2 Successors and Assigns.......................................... 19
6.3 Entire Agreement; Amendment..................................... 19
6.4 Notices......................................................... 19
6.5 Delays or Omissions............................................. 20
6.6 Counterparts.................................................... 20
6.7 Severability.................................................... 20
6.8 Stock Legends................................................... 20
6.9 [This section intentionally left blank.]........................ 20
6.10 Audits Consultants and Inspections.............................. 20
6.11 No Third Party Beneficiaries.................................... 20
6.12 Sections and Articles........................................... 21
6.13 Headings........................................................ 21
</TABLE>
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AGREEMENT made as of the day of November, 1996, by and between Calgene,
Inc., a Delaware corporation (formerly known as Calgene II, Inc.), having its
principal place of business at 1920 Fifth Street, Davis, California 95616 (the
"Company"), and Monsanto Company, a Delaware corporation, having its principal
place of business at 800 North Lindbergh Boulevard, St. Louis, Missouri 63167
("Monsanto").
WHEREAS, Calgene Technology Corporation, a Delaware corporation and a
wholly-owned subsidiary of the Company (formerly known as Calgene,
Inc.)("Calgene"), and Monsanto have entered into an Agreement and Plan of
Reorganization, dated as of October 13, 1995 (the "Reorganization Agreement"),
and certain other Transaction Agreements (as defined in the Reorganization
Agreement) whereby Monsanto acquired shares of the Company's common stock, par
value $.001 per share ("Common Stock") and may acquire additional shares of
Common Stock;
WHEREAS, the Company and Monsanto agreed that the Company shall, at the
request of a Holder (as hereafter defined), register under the Securities Act
of 1933, as amended (the "Securities Act"), and register or qualify under any
applicable state securities or blue sky laws the Common Stock of the Company
acquired or to be acquired by Holder so as to permit a Holder to sell such
Common Stock in the public markets;
WHEREAS, the Company and Monsanto agreed on certain restrictions and
obligations with respect to the management and operation of the Company,
Calgene and Tomato Investment Associates, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Tomato Associates");
WHEREAS, the Company and Monsanto have entered into a Stock Purchase
Agreement dated as of September 27, 1996 (the "Stock Purchase Agreement")
pursuant to which Monsanto has agreed to purchase additional shares of Common
Stock of the Company; and
WHEREAS, in connection with the consummation of the transaction contemplated
by the Stock Purchase Agreement, the Company and Monsanto desire to amend the
Stockholders Agreement dated March 31, 1996 by and between the Company and
Monsanto (the "Prior Stockholders Agreement") in its entirety and to become
bound by the terms of this Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and conditions herein contained, the Company and Monsanto hereby agree as
follows:
ARTICLE 1
EFFECT OF THIS AGREEMENT
1.1 Effect of this Agreement. Effective upon the date hereof, and subject
only to the conditions set forth herein, all provisions relating to the
granting of registration rights and covenants related thereto made by the
Company and Monsanto shall be contained in this Agreement. The registration
rights and covenants provided herein set forth the sole and entire agreement
between the Company and Monsanto on the subject matter of registration rights.
ARTICLE 2
COMPLIANCE WITH SECURITIES ACT
2.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings (all terms defined in this
Article 2 or in other provisions of this Agreement in the singular shall have
the same meaning when used in the plural and vice versa):
1
<PAGE>
"Affiliate" has the same meaning as in Rule 12b-2 promulgated under the
Exchange Act.
"Associate" has the same meaning as in Rule 12b-2 promulgated under the
Exchange Act.
"Board" or "Board of Directors" means the Board of Directors of the Company
except where the context otherwise requires.
"Calgene" has the meaning set forth in the recitals herein.
"Calgene Board" means the Board of Directors of Calgene.
"Calgene Director" means a member of the Calgene Board.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.001 par value, of the Company.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Credit Facility" means the Holding Company Credit Facility
Agreement dated March 31, 1996 between the Company and Monsanto.
"Company Director" means an Independent Director who is designated for such
position by the Company in accordance with Section 4.1 hereof.
"Company Management Director" means the Chief Executive Officer (or, if
there is none at any time, a Director nominated by a majority of the Company
Directors) and a second Director who shall be nominated by a majority of the
Company Directors.
"Company Securities" has the meaning set forth in Section 3.1 hereof.
"Control Securities" means securities of the Company, other than Restricted
Securities, owned by a Holder at the time such Holder would be deemed to be an
Affiliate of the Company.
"Credit Facilities" means the Company Credit Facility and the Gargiulo
Credit Facility.
"Director" means a member of the Board of Directors of the Company.
"Effective Date" means November , 1996.
"Effective Date Percentage" means the greater of 53% or the percentage of
outstanding shares of Common Stock of the Company held by Monsanto immediately
after the consummation of the transactions contemplated by the Stock Purchase
Agreement.
"Equity Security" means (i) any Common Stock or other Voting Stock, (ii) any
securities of the Company convertible into or exchangeable for Common Stock or
other Voting Stock or (iii) any options, rights or warrants (or any similar
securities) issued by the Company to acquire Common Stock or other Voting
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Purchaser" means a Person (i) purchasing Company Securities from
Monsanto for investment purposes or otherwise in the ordinary course of
business and not for the purpose nor with the effect of changing or
influencing the control of the Company and (ii) which Person is not already
primarily in the same lines of business as the Company.
2
<PAGE>
"Gargiulo" means Gargiulo, Inc. formerly known as Tomato Investment
Associates, Inc.
"Gargiulo Business" means the business transacted by Tomato Associates after
March 31, 1996, which business was transacted by Gargiulo prior to March 31,
1996.
"Gargiulo Credit Facility" means the Gargiulo Credit Facility Agreement
dated March 31, 1996 between the Company and Monsanto.
"hereto", hereunder", "herein", "hereof" and the like mean and refer to this
Agreement as a whole and not merely to the specific article, section,
paragraph or clause in which the respective word appears.
"Holder" means Monsanto and, subject to Section 2.9 hereof and except for
purposes of Article 3 hereof, any subsequent holder of outstanding Registrable
Securities.
"Indemnified Party" has the meaning set forth in Section 2.6(c) hereof.
"Indemnifying Party" has the meaning set forth in Section 2.6(c) hereof.
"Independent Director" means a Director or Calgene Director (i) who is not
and has never been an officer or employee of Calgene, the Company, any
Affiliate or Associate of Calgene or the Company or of a Person that derived
five percent (5%) or more of its revenues or earnings in its most recent
fiscal year from transactions involving Calgene, the Company or any Affiliate
or Associate of Calgene or the Company, (ii) who is not and has never been an
officer or employee of Monsanto, any Affiliate or Associate of Monsanto or of
a Person that derived more than five percent (5%) of its revenues or earnings
in its most recent fiscal year from transactions involving Monsanto or any
Affiliate or Associate of Monsanto, (iii) who is not and never has been an
officer or employee of Gargiulo, any Affiliate or Associate of Gargiulo or of
a Person that derived more than five percent (5%) of its revenues or earnings
in its most recent fiscal year from transactions involving Gargiulo or any
Affiliate or Associate of Gargiulo, (iv) who has no affiliation, compensation,
consulting or contracting arrangement with Calgene, the Company, Monsanto,
Gargiulo or their respective Affiliates or Associates or any other Person such
that a reasonable person would regard such Director as likely to be unduly
influenced by management of Calgene, the Company or Monsanto, respectively
(provided, however, that no Person shall be regarded as being unduly
influenced by the management of Monsanto merely because such Person serves or
previously served as a director of Monsanto or any Affiliate or Associate of
Monsanto), and (v) who has an outstanding reputation for personal integrity
and distinguished achievement in areas relevant to the Company.
Notwithstanding the foregoing, no member of the immediate family of any Person
who does not qualify to be an Independent Director by reason of clause (i),
(ii), (iii) or (iv) above shall be considered an Independent Director. For
purposes of the preceding sentence, the term "immediate family" shall have the
same meaning as set forth in Item 404(a) of Regulation S-K. Without limiting
the foregoing, Roger H. Salquist shall qualify as an Independent Director so
long as he continues to qualify under clauses (iv) and (v) of such definition.
Roger H. Salquist shall not fail to qualify under clause (iv) above as a
result of his Change of Control Employment Agreement dated July 19, 1995, as
modified, or Consulting Agreement dated September 16, 1996 with the Company.
Any of the above restrictions may be waived by unanimous action of the Board
of Directors.
"Monsanto" has the meaning set forth in the first paragraph hereof.
"Monsanto Director" means a Director or Calgene Director, including any
Monsanto Management Director, who is designated for such position by Monsanto
in accordance with Section 4.1 hereof.
"Monsanto Management Director" means a Director or Calgene Director who is
designated for such position by Monsanto in accordance with Section 4.1 hereof
and who is or was an employee of Monsanto.
"New Percentage Ownership" has the meaning set forth in Section 3.6(c)
hereof.
3
<PAGE>
"Non-Financial Purchaser" means a Person, other than a Financial Purchaser,
purchasing Company Securities from Monsanto.
"Operating Plan" has the meaning set forth in Section 4.4(a)(ix) hereof.
"Other Selling Stockholders" has the meaning set forth in Section 2.2(c)
hereof.
"Percentage Interest" means the percentage of outstanding Voting Stock that
is controlled directly or directly by Monsanto and its Affiliates.
"Person" means a corporation, association, partnership, joint venture,
limited liability company, individual, trust, unincorporated organization, a
government agency or political subdivision thereof and any other entity.
"Preliminary Prospectus" means a preliminary prospectus as contemplated by
Rule 430 or 430A under the Securities Act included at any time in the
Registration Statement.
"Pre-Offering Percentage" has the meaning set forth in Section 3.1 hereof.
"Prospectus" means (i) the prospectus as first filed with the Commission
pursuant to Rule 424(b) under the Securities Act or, (ii) if no such filing is
required, the form of final prospectus included in the Registration Statement
at the effective date thereof or (iii) if a Term Sheet or Abbreviated Term
Sheet (as such terms are defined in Rule 434(b) and 434(c), respectively,
under the Securities Act) is filed with the Commission pursuant to Rule 424(b)
(7) under the Securities Act, the Term Sheet or Abbreviated Term Sheet and the
last Preliminary Prospectus filed with the Commission prior to the time the
Registration Statement became effective, taken together (including, in each
case, the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Securities Act), together with any supplement to any of the
foregoing.
"Registration Statement" means any registration statement of the Company
filed under the Securities Act which covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the Prospectus
relating thereto and all amendments and supplements to such registration
statement, including post-effective amendments, all exhibits and all material
incorporated or deemed to be incorporated by reference in such registration
statement.
"Registrable Securities" means shares of Common Stock issued or issuable to
Monsanto pursuant to the Transaction Agreements and the Prior Stockholders
Agreement and the Stock Purchase Agreement whether owned by Monsanto or a
permitted transferee of Monsanto and all such other securities of the Company
acquired by Monsanto or any Affiliate of Monsanto in accordance herewith.
"Register", "Registered" and "Registration", whether or not capitalized,
mean and refer to a registration effected by preparing and filing a
Registration Statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering of the
effectiveness of such Registration Statement.
"Registration Expenses" means all expenses incurred by the Company in
compliance with this Article 2, including, without limitation, all
registration fees, qualification fees, filing fees, advertising and road show
expenses (excluding advertising and road show expenses incurred by a Holder),
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Reorganization Agreement" has the meaning set forth in the recitals herein.
"Requesting Holder" means a Holder requesting any registration pursuant to
Section 2.2 hereof.
4
<PAGE>
"Restricted Securities" means the securities of the Company acquired by a
Holder from the Company or an Affiliate of the Company otherwise than pursuant
to a public offering.
"Section 16 Officers" has the meaning set forth in Section 4.3(b)(iii)
hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities.
"Strategic Plan" has the meaning set forth in Section 4.4(a)(ix) hereof.
"Subsidiary" has the same meaning as in Rule l2b-2 promulgated under the
Exchange Act.
"Substantial Part" means more than ten percent (10%) of the total
consolidated assets of the Company as shown on the Company's consolidated
balance sheet as of the end of the most recent fiscal quarter ending prior to
the time the determination is made.
"Tomato Associates" has the meaning set forth in the recitals herein.
"Transaction Agreements" has the meaning set forth in the Reorganization
Agreement.
"Trigger Event" means the earliest of (i) any time that Monsanto's
Percentage Interest is at least fifty-five percent (55%), (ii) the Company
elects to convert borrowings made from Monsanto into Equity Securities and
Monsanto's Percentage Interest is at least fifty percent (50%) after such
conversion, or (iii) the closing of Monsanto's purchase of additional shares
of Common Stock pursuant to the Stock Purchase Agreement.
"Unaffiliated Equity Holders" means holders of Equity Securities other than
Monsanto or any of its Affiliates.
"Voting Stock" means securities having the right to vote generally in any
election of Directors of the Company (other than solely by reason of the
occurrence of an event).
2.2 Requested Registration.
(a) Request for Registration. Holders of Registrable Securities shall have
the right to request (with such requests in writing and stating the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of shares by such Holders) up to two (2) registrations on Form S-3
(and up to two (2) additional registrations on Form S-3 for each conversion of
outstanding principal or interest into shares of Common Stock upon the
occurrence of an "Event of Default" under the Company Credit Facility or the
Gargiulo Credit Facility (as defined in each such Credit Facility,
respectively)) at the Company's expense and an unlimited number of additional
registrations on Form S-3 at the selling Holder's expense, provided that the
requests for additional registrations are made by Holders of at least ten
percent (10%) of the Registrable Securities, subject only to the following:
(i) The Company shall not be required to effect a registration pursuant
to this Section 2.2 prior to September 30, 1998, unless an Event of Default
has occurred and is continuing under the Company Credit Facility or under
the Gargiulo Credit Facility, in which event the Company shall be required
to effect a registration pursuant to this Section 2.2 at any time upon the
request of a Holder with respect to any shares of Common Stock issued to a
Holder upon conversion of outstanding principal or accrued interest under
either the Company Credit Facility or the Gargiulo Credit Facility after
the occurrence of an Event of Default under either of such agreements.
(ii) The Company shall not be required to effect a registration pursuant
to this Section 2.2 within one hundred eighty (180) days after the
effective date of the last such registration pursuant to this Section 2.2.
5
<PAGE>
(iii) The Company shall not be required to effect a Registration
Statement in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act or applicable rules or regulations
thereunder.
(iv) The Company shall not be required to effect a Registration Statement
for a period of not more than ninety (90) days immediately following the
delivery of a certificate signed by the President of the Company to the
Requesting Holders stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such Registration Statement to be filed on or
before the date filing would otherwise be required hereunder; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period and the Company may not exercise this right based
on the fact that the Company has recently registered any of its securities
for the account of a security holder or holders exercising their respective
demand registration rights.
If the Company cannot qualify for registration on Form S-3, then the Company
shall effect any registration required or requested by the Holder on Form S-1,
or such other appropriate form, in which event this Section 2.2 shall apply in
all respects as if the words "Form S-3" were replaced by the words "Form S-1"
or the appropriate designation for such other form.
(b) Notice of Inclusion. The Company shall give written notice to all
Holders of Registrable Securities of the receipt of a request for registration
pursuant to this Section 2.2 and shall provide a reasonable opportunity for
other Holders to participate in the registration; provided, however, that, if
the registration is for an underwritten offering, then the terms of Section
2.2(c) hereof shall apply to all participants in such offering. Subject to the
foregoing, the Company shall use its best efforts to effect promptly the
registration of all shares of Registrable Securities on Form S-3 to the extent
requested by the Holder or Holders thereof for purposes of disposition.
(c) Underwriting. If the Requesting Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2, and the Company shall include such information in the
written notice referred to in Section 2.2(b) hereof. The right of any Holder
to registration pursuant to this Section 2.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested and to the
extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters of
recognized national standing, selected for such underwriting by a majority in
interest of the Requesting Holders and reasonably acceptable to the Company.
Notwithstanding any other provision of this Section 2.2, if the representative
advises the Requesting Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, then the Requesting
Holders shall so advise all Holders, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated first among all Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the Registration Statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, then such person may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Requesting Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; provided, however, that, if, by the withdrawal of
such Registrable Securities, a greater number of Registrable Securities held
by other Holders may be included in such registration (up to the maximum of
any limitation imposed by
6
<PAGE>
the underwriters), then the Company shall offer to all Holders who have
included Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used to determine the
underwriter limitation in this Section 2.2(c).
If the underwriter has not limited the number of Registrable Securities to
be underwritten, then the Company and its executive officers, and such other
Persons as are determined by the Board of Directors, their successors, and
their assigns ("Other Selling Stockholders"), may include securities for their
own account in such registration if the underwriter so agrees and if the
number of Registrable Securities held by the Holders that would otherwise have
been included in such registration and underwriting will not thereby be
limited for any reason, including but not limited to the price for which the
Registrable Securities will be sold. To the extent that the underwriter wishes
to limit the number of shares to be included in the registration on behalf of
the Company and the Other Selling Stockholders, the shares of Common Stock to
be registered held by the Other Selling Stockholders shall be excluded from
such offering prior to excluding any shares held by the Company and those held
by the Company shall be excluded prior to excluding any Registrable Securities
held by the Holders.
2.3 Company Registration.
(a) Notice and Inclusion. If, at any time after September 30, 1998, the
Company shall determine to register any of its securities for its own account,
other than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, the Company
shall:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to attempt
to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all Registrable Securities specified in a written request or
requests, within twenty (20) days after receipt of the written notice from
the Company, by any Holder or Holders.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering by the Company of its securities through an
underwriting, then the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 2.3(a)(i) hereof. In such event, the
right of any Holder to registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company, and all the Other
Selling Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company. Notwithstanding any
other provision of this Section 2.3, if the underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, then the underwriter may exclude from such registration and
underwriting some or all of the Registrable Securities held by the Holders or
the stock held by Other Selling Stockholders in accordance with this Section
2.3(b). The Company shall so advise all Holders and all Other Selling
Stockholders distributing their securities through such underwriting, and (i)
as to the first registration in which Holders are entitled to participate
pursuant to this Section 2.3, the number of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof on the basis that shares held by all the
Other Selling Stockholders who are not Holders shall first be excluded to the
extent required and, if further exclusion is necessary, shares held by the
selling Holders shall then be excluded; provided, however, that, as among the
respective Other Selling Stockholders as a group on the one hand and the
Holders as a group on the other hand suffering such exclusion, the exclusion
shall be in proportion, as nearly as practicable, to the amount of securities
entitled to inclusion in such registration held by each of the Other Selling
Stockholders as a group and each of the Holders at the time of filing the
Registration Statement; and (ii) as to all subsequent registrations, the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among all
Other Selling Stockholders and the Holders in proportion, as nearly as
practicable, to the respective amounts of securities entitled to inclusion in
such registration held by all such Other Selling Stockholders and Holders at
7
<PAGE>
the time of filing the Registration Statement. For purposes of the
apportionment provisions in clause (i) above, for any selling Holder that is a
partnership or corporation, the partners, retired partners, and shareholders
of such Holder, the estate and family members of such partners and retired
partners, and any trusts for the benefit of any of the foregoing persons shall
be deemed to be a single "selling Holder," and any pro rata reduction with
respect to such selling Holder shall be based upon the aggregate number of
shares carrying registration rights owned by all entities and individuals
included in such "selling Holder," as defined in this sentence. If any Other
Selling Stockholder or Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
2.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration qualification or compliance pursuant to this
Article 2 shall be borne by the Company; provided, however, that the
Registration Expenses for the fifth and all subsequent registrations under
Section 2.2(a) hereof requested by the Holders shall be borne by the
requesting Holders pro rata on the basis of the number of their shares so
registered. All Selling Expenses relating to the securities registered by
Holders and, if applicable, Other Selling Stockholders, and fees and
disbursements of counsel, shall be borne by the Holders or the Other Selling
Stockholders, as the case may be, of such securities pro rata on the basis of
the number of their shares so registered.
2.5 Registration procedures.
(a) Company shall use its best efforts to register or qualify the
Registrable Securities covered by such Registration Statement under such other
securities or blue sky laws of such United States jurisdictions as Holder
shall reasonably request and do any and all acts and things which may be
necessary or desirable to enable Holder to consummate the public sale or other
disposition in such jurisdictions; provided, however, that Company shall not
be required in connection therewith or as a condition thereto to qualify to do
business or file a general consent to service of process in any such
jurisdictions.
(b) The Company represents and warrants that, on the date of its
effectiveness, the Registration Statement will comply in all material respects
with the applicable requirements of the Securities Act and the rules
thereunder, including without limitation Rule 415; on the date of its
effectiveness, the Registration Statement will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein not
misleading; provided, however, that no representation is made by Company with
respect to information relative to any Holder; and the Prospectus will not
include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that no representation is made by Company with respect to information relative
to any Holder.
(c) If, at any time or times while the Registration Statement is effective,
Company notifies Holder that a development has occurred or is pending which,
based upon consultation with Company's legal counsel, Company reasonably
believes may cause the then current Prospectus not to be in compliance with
applicable securities laws, then Holder shall refrain from delivering the
Prospectus and from making any offers or sales of Registrable Securities
requiring the delivery of the Prospectus until such time as Company either
notifies Holder that the Prospectus complies with such laws or delivers an
amended Prospectus in replacement of the deficient Prospectus. Company shall
use its reasonable best efforts to minimize the time during which Holder must
so refrain, and no more than one (1) such period of refrain shall be imposed
during any period of one hundred eighty (180) days.
(d) At least two (2) business days prior to the initial filing of the
Registration Statement or Prospectus and no fewer than two (2) business days
prior to the filing of any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), Company shall furnish Holder, its legal counsel and the managing
underwriter, if any, copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) shall be subject to
8
<PAGE>
review of Holder, its legal counsel and such underwriters, if any, and Company
shall cause its officers and directors and the independent certified public
accountants to Company to respond to such inquiries as shall be necessary, in
the opinion of respective counsel to Company and any such underwriters, to
conduct a reasonable investigation within the meaning of the Securities Act.
Company shall not file any such Registration Statement or Prospectus or any
amendments or supplements thereto to which Holder, its legal counsel, or the
managing underwriters, if any, shall reasonably object on a timely basis
(i.e., within two (2) business days of receipt thereof).
(e) Company shall promptly notify Holder when the Registration Statement is
declared effective; notify Holder of any stop-order or similar proceeding by
the Commission or any state securities authority; and furnish such number of
Prospectuses, Prospectus supplements and other documents incident thereto as
Holder from time to time may reasonably request.
(f) In the event of any breach by Company of the provisions of Section 2.2,
2.3, 2.4 or 2.5, the parties agree that Holder will suffer irreparable harm.
Accordingly, the parties agree that the provisions of Sections 2.2, 2.3, 2.4
and 2.5 are specifically enforceable by Holder and that Holder shall be
entitled to temporary and permanent injunctive relief against Company and the
other rights and remedies to which Holder may be entitled to at law, in equity
or under this Agreement for any such breach.
2.6 Indemnification.
(a) Indemnification by the Company. The Company shall indemnify each Holder
with respect to which registration, qualification or compliance has been
effected pursuant to this Article 2, each of its officers, directors,
employees, agents and partners, each Person controlling such Holder within the
meaning of Section 15 of the Securities Act, each underwriter, if any, and
each Person who controls any underwriter within the meaning of Section 15 of
the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any Prospectus, offering circular or other document
(including any related Registration Statement, notification or the like)
incident to any such registration qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification or compliance. The Company shall reimburse each such Holder,
each of its officers, directors, employees, agents and partners, and each
Person controlling such Holder, each such underwriter and each Person who
controls any such underwriter for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
expense, claim, loss, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such
claim, loss, damage, liability, action or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and
stated to be specifically for use therein.
(b) Indemnification by the Holders. To the extent set forth in the second
sentence of this Section 2.6(b), each Holder shall, if Registrable Securities
or other securities held by such Holder are included in the securities as to
which such registration qualification or compliance is being effected,
indemnify the Company, each of its directors, officers, employees and agents,
each underwriter, if any, of the Company's securities covered by such a
Registration Statement, each Person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, each other
such Holder, each of such other Holder's officers, directors, employees,
agents and partners, and each Person controlling such Holder within the
meaning of Section 15 of the Securities Act against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact made by the Holder and
9
<PAGE>
contained in any such Registration Statement, Prospectus, offering circular or
other document, or any amendment or supplement thereto or incident to any such
registration qualification or compliance or based on any omission (or alleged
omission) to state therein a material fact required to be made by the Holder
and stated therein or necessary to make the statements therein not misleading
or any violation by the Company of any rule or regulation promulgated under
the Securities Act applicable to the Company in connection with such
registration qualification or compliance as a result of any statement (or
based on any omission to state or alleged omission) required to be made by
such Holder. Each such Holder shall reimburse the Company, such other Holders,
directors, officers, employees, agents, partners, Persons, underwriters and
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such expense, claim,
loss, damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such Registration Statement, Prospectus,
offering circular or other document or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished by the
Holder to the Company by an instrument duly executed by such Holder and stated
to be specifically for use therein; provided, however, that the obligations of
such Holders hereunder shall be limited to an amount equal to the proceeds to
each such Holder of Registrable Securities sold as contemplated herein in
connection with the particular registration qualification or compliance
involved.
(c) Notice. Each party entitled to indemnification under this Section 2.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; provided, however, that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and that the Indemnified
Party may participate in such defense at its own expense; and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
2.6 unless such failure resulted in detriment to the Indemnifying Party. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
2.7 Information by Holder. Each Holder or Holders of Registrable Securities
in any registration shall furnish to the Company such information regarding
such Holder or Holders and the distribution proposed by such Holder or Holders
as the Company may reasonably request in writing but only to the extent as
shall be required in connection with any registration qualification or
compliance referred to in this Article 2.
2.8 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities or Control Securities to the public without
registration, the Company agrees to:
(a) Use its best efforts to make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities
Act;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements);
(c) For so long as a Holder owns any Restricted Securities or Control
Securities, furnish to the Holder forthwith upon request (i) a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company,
and (iii) such other reports and documents so filed as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without
registration; and
10
<PAGE>
(d) When any Holder qualifies under Rule 144 for the unrestricted right
of sale under Rule 144, the Company shall, upon written request of such
Holder (such request to include sufficient detail as to establish how the
Holder so qualifies under Rule 144), promptly remove any restrictive legend
that may have been placed on any Restricted or Control Securities and issue
Common Stock of the Company free of such restrictive or other legends.
2.9 Transfer of Registration Rights. The rights to cause the Company to
register the Registrable Securities granted to each Holder by the Company
under Sections 2.2 and 2.3 hereof may be transferred or assigned to a
transferee or assignee in connection with the transfer or assignment of not
less than one million (1,000,000) shares of the Registrable Securities;
provided, however, that the Company shall be entitled to notice of any such
transfer of registration rights within thirty (30) days of the date such
transfer is effected.
2.10 Limitations on Subsequent Registration Rights. No owner or prospective
owner of securities of the Company shall have any registration rights other
than as set forth in this Agreement. The Company shall not, without the prior
written consent of the Holders (which consent shall not be unreasonably
withheld) of not less than sixty-six and two-thirds percent (66 2/3%) of the
Registrable Securities then held by Holders, enter into any agreement with any
owner or prospective owner of any securities of the Company that would allow
such owner or prospective owner to include such securities in any registration
filed under this Article 2 if such inclusion would adversely affect the rights
of any Holder.
2.11 Termination of Registration Rights. The registration rights granted
pursuant to this Article 2 shall terminate as to each Holder at such time as
(a) all Registrable Securities can be sold within a given three (3) month
period without compliance with the registration requirements of the Securities
Act pursuant to Rule 144 supported by a written opinion of legal counsel for
the Company, which opinion shall be reasonably satisfactory in form and
substance to legal counsel for such Holders, and (b) all accrued interest and
principal under the Company Credit Facility and the Gargiulo Credit Facility
has been repaid in full or converted into Common Stock of the Company (and
such Common Stock can be sold as provided in (a) above).
2.12 "Market Stand-off" Agreement. Each Holder hereby agrees that, to the
extent requested by the Company and an underwriter of a sale of Common Stock
(or other securities) of the Company for the account of the Company and not
for the account of a security holder or holders exercising their respective
demand registration rights, it shall not sell or otherwise transfer or dispose
of (other than to transferees who agree to be similarly bound) any Registrable
Securities during the ninety (90) day period following the effective date of a
registration statement of the Company filed under the Securities Act;
provided, however, that all officers and directors of the Company, all Other
Selling Stockholders and all other Persons with registration rights (whether
or not pursuant to this Agreement) shall enter into similar agreements. To
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and
the shares or securities of every other Person subject to the foregoing
restriction) until the end of such ninety (90) day period.
ARTICLE 3
ANTI-DILUTION RIGHTS AND LIMITATIONS ON OWNER
3.1 Anti-Dilution Rights. If, at any time after the Effective Date, Company
agrees to sell shares of its Common Stock or other Voting Stock ("Company
Securities") in a private or public offering (other than Company Securities
issued pursuant to the Company's stock option plans), Holder shall have the
right, but not the obligation, to acquire all or any portion of the Company
Securities sufficient for Holder to maintain, after the offering, the same
percentage of ownership of issued and outstanding Company Securities that
Holder possessed immediately prior to the offering (the "Pre-Offering
Percentage"). With respect to the issuance of Company Securities pursuant to
the Company's stock option plans, Holder shall have a right to maintain its
percentage ownership of issued and outstanding Company Securities by making
open market purchases as provided in Section 3.5 hereof.
11
<PAGE>
3.2 Private Offering. With respect to a private offering, other than
pursuant to a Company stock option plan, Company shall, within five (5)
business days after the execution of any agreement entered into in connection
with such private offering, notify Holder in writing of the proposed offering
and provide Holder with copies of all related documentation, including, for
example, any letter of intent and the final contract. Holder shall have twenty
(20) business days from the date of receipt of Company's notice in which to
advise Company whether Holder elects to exercise its rights under Section 3.1
hereof. If Holder does not respond, or if Holder indicates that it will not
exercise its rights, Holder shall be considered irrevocably to have waived its
rights under Section 3.1 hereof with respect to such specific private
offering. If Holder timely advises Company that Holder will exercise its
rights under Section 3.1 hereof, Holder shall have the right to acquire all or
any portion of the necessary amount of the Company Securities to maintain
Holder's Pre-Offering Percentage at the price or value of the consideration
specified in the private offering agreement entered into between Company and
the purchaser. Closing shall be in accordance with the terms of the private
offering agreement, and Holder shall make such investment representations to
Company and shall provide Company with such other documentation at closing as
is reasonably required by Company to comply with applicable securities laws.
3.3 Public Offering. With respect to a public offering, Company shall notify
Holder no later than five (5) business days after Company has entered into a
letter of intent with its underwriters, and shall provide Holder with a copy
of the letter of intent. Holder shall have twenty (20) business days from the
date of receipt of Company's notice in which to advise Company whether Holder
elects to exercise its rights under Section 3.1 hereof. If Holder does not
respond or if Holder indicates that it will not exercise its rights, Holder
shall be considered irrevocably to have waived its rights under Section 3.1
hereof with respect to the public offering. If Holder timely advises Company
that Holder desires to retain its rights under Section 3.1 hereof, then, when
Company files a Registration Statement containing a Preliminary Prospectus
with the Commission, Company shall provide Holder with copies of the
Preliminary Prospectus and all subsequent amendments. Holder shall have twenty
(20) business days from its receipt of the Preliminary Prospectus in which to
exercise its rights under Section 3.1 hereof by making an offer to acquire all
or any portion of the necessary amount of Company Securities to maintain
Holder's Pre-Offering Percentage based on the price, less all Selling
Expenses, and the other terms contained in the final Prospectus. No such offer
to buy shall be accepted prior to the time that the Registration Statement
becomes effective. The Registration Statement shall indicate that Holder has
anti-dilution rights to purchase Company Securities on the terms offered to
the public.
3.4 Limitations. Notwithstanding the preceding provisions of this Article 3,
Company shall not be required to issue any fractional shares as a result of
Holder's exercise of its rights under Section 3.1 hereof. Company shall not be
required to transfer any Company Securities to Holder under this Article 3 if
to do so would result in the violation of any applicable law, rule or
regulation.
3.5 Open Market Purchases to Maintain Ownership Percentage. Notwithstanding
any other provision hereof, at any time after the Effective Date, Holder may
make such open market purchases of Company Securities as are necessary to
maintain Holder's percentage of ownership of issued and outstanding Company
Securities at the Effective Date Percentage or to increase its percentage of
ownership of issued and outstanding Company Securities to the Effective Date
Percentage. With respect to the issuance of Company Securities pursuant to a
Company stock option plan or any warrant, conversion right or other option,
Company shall notify Holder no later than ten (10) calendar days after the end
of each calendar quarter and within ten (10) calendar days of the record date
for a shareholder meeting and for dividend payments for Company Securities of
the number of shares and issuance price of Company Securities issued pursuant
to Company's stock option plans or any warrant, conversion right or other
option subsequent to the last notice given pursuant to this Section 3.5 so as
to enable Holder to make open market purchases of Company Securities as
permitted under this Section 3.5.
3.6 Limitations on Holder's Ownership. Except for purchases of Company
Securities made in accordance with this Article 3 or the Stock Purchase
Agreement, during the term of this Agreement, Holder shall not directly or
indirectly acquire any Company Securities except as follows:
12
<PAGE>
(a) On and after March 31, 1996 until September 30, 1998, Holder shall not
increase or further increase its ownership of issued and outstanding Company
Securities above the Effective Date Percentage, except through one (1) or more
of the following:
(i) Conversion of principal and/or interest under the Company Credit
Facility or the Gargiulo Credit Facility into shares of Common Stock;
(ii) Issuance of Company Securities in an asset sale by Holder to Company;
and
(iii) A tender offer by Holder to increase its ownership to seventy percent
(70%) or more of the issued and outstanding Company Securities at a price
approved by the disinterested Directors of Company and based upon a
fairness opinion delivered to the Board of Directors of the Company by an
investment banking firm; provided, however, that, if Holder makes a tender
offer to increase its ownership to more than eighty percent (80%) of the
issued and outstanding Company Securities, such tender offer must be for
one hundred percent (100%) of the publicly traded Company Securities.
(b) After September 30, 1998, Holder may increase its ownership of Company
Securities through open market purchases or otherwise.
(c) If, at any time after the Effective Date, Holder shall elect to
increase its percentage of ownership of issued and outstanding Company
Securities above the Effective Date Percentage as permitted by paragraph (a)
above (such increased percentage hereafter being the "New Percentage
Ownership"), then thereafter Holder may make such open market purchases of
Company Securities as are necessary to maintain such New Percentage Ownership
or to increase its percentage of ownership of issued and outstanding Company
Securities to such New Percentage Ownership.
(d) Holder shall not be required to dispose of any Company Securities if
Holder's percentage ownership of Company Securities is increased as a result
of any recapitalization by Company or any other action taken by Company.
3.7 Limitations on Holder's Resale of Company Securities. Holder shall not
directly or indirectly sell any Company Securities (other than to an Affiliate
of Holder) except as follows:
(a) On and after March 31, 1997 until September 30, 1998, Holder may sell
Company Securities (i) as part of a joint venture, merger or sale of all or
substantially all of its current Crop Protection business unit, as such
business may be subsequently renamed or reorganized, or (ii) pursuant to a
tender offer by a third party to the shareholders of Company.
(b) After September 30, 1998, in addition to the rights to sell Company
Securities set forth in paragraph (a) above, Holder may sell Company
Securities (i) in a registered public offering pursuant to the registration
rights granted to Holder under this Agreement, (ii) through sales pursuant to
Rule 144 under the Securities Act, (iii) through sales of not more than ten
percent (10%) of the total issued and outstanding Company Securities to a Non-
Financial Purchaser, or (iv) through sales to a Financial Purchaser.
(c) After September 30, 1999, in addition to the rights to sell Company
Securities as set forth in paragraphs (a) and (b) above, Holder may sell
Company Securities through a private sale of thirty-five percent (35%) or more
of the total issued and outstanding Company Securities to a Non-Financial
Purchaser under circumstances where such third party assumes the applicable
and proportionate rights and obligations of Holder under this Agreement and
the other Transaction Agreements.
(d) Notwithstanding the foregoing, at any time after the Effective Date,
Holder may sell Company Securities issued to Holder upon conversion by Holder
of principal or accrued interest under either of the Credit Facilities after
the occurrence of an Event of Default under either of such Credit Facilities.
ARTICLE 4
COMPANY AND CALGENE CORPORATE GOVERNANCE
4.1 Composition of the Board of Directors and Calgene Board. The number of
Directors comprising both the Board of Directors and the Calgene Board and the
manner of nominating the members thereof shall be as follows:
13
<PAGE>
(a) The number of Directors comprising the Board of Directors shall
initially be fixed at nine (9) Directors. The parties agree that the manner of
nominating, and the governance provisions relating to, the Board of Directors
and the Calgene Board shall be identical, and that the provisions of this
Section 4.1 set forth below and of Sections 4.3(c) and 4.3(d) hereof shall be
deemed to apply equally to the Calgene Board and Calgene Directors.
Accordingly, when applied to the Calgene Board, the term "Director" shall be
deemed to mean "Calgene Director", the term "Company", whether used alone or
as a modifier, shall be deemed to mean "Calgene", and the term "Board of
Directors" shall be deemed to mean "Calgene Board".
(b) Until changed in accordance with this Agreement, the Board of Directors
shall be comprised of nine (9) Directors, and the Company shall nominate for
election as Directors: (i) one (1) Company Management Director, (ii) three (3)
Company Directors, and (iii) five (5) Directors designated by Monsanto, at
least one (1) of which shall be an Independent Director.
(c) [This section intentionally left blank]
(d) At any time that Monsanto's Percentage Interest is at least seventy
percent (70%), (i) the Company shall nominate: (i) six (6) Directors
designated by Monsanto, which shall consist of the one (1) Company Management
Director and five (5) other Monsanto Directors (including at least one (1)
Independent Director) and (ii) three (3) Independent Directors. At such time
as Monsanto's Percentage Interest is at least ninety-nine percent (99%), the
Company shall nominate nine (9) Directors designated by Monsanto.
(e) Notwithstanding anything in the foregoing paragraphs (b) and (d) to the
contrary, (i) at any time Monsanto's Percentage Interest is less than forty
percent (40%) but at least twenty percent (20%), the Company shall nominate
three (3) Directors designated by Monsanto, (ii) at any time Monsanto's
Percentage Interest is less than twenty percent (20%) but at least ten percent
(10%), the Company shall nominate two (2) Directors designated by Monsanto and
(iii) at any time Monsanto's Percentage Interest is less than ten percent
(10%) but at least five percent (5%), the Company shall nominate one (1)
Director designated by Monsanto. If, at any time, Monsanto's Percentage
Interest is less than five percent (5%), the Company shall not be obligated to
nominate any Director designated by Monsanto. At any such time, all other
Directors, other than the Company Management Directors, shall be nominated by
the Company.
(f) The Independent Directors to be nominated by the Company from time to
time shall be nominated by action of a majority of Company Directors then in
office. The Company Directors shall consult with the other Independent
Directors as to the nomination of any Company Director, and in the event a
majority of the Company Directors are unable to agree upon any Company
Director nominee, then the majority of all the Independent Directors shall
nominate such nominee. In the event that no Company Directors are in office at
the time of any nomination of a Company Director, such Company Directors shall
be nominated by a majority of the Independent Directors then in office;
provided, however, that the holders of a majority of the outstanding Voting
Stock held by Unaffiliated Equity Holders shall be entitled to nominate and
elect Company Directors in lieu of any individuals so nominated to be such
Company Directors by a majority of the Independent Directors.
(g) The Company and Monsanto, respectively, shall have the right to nominate
any replacement for a Director nominated in accordance with this Section 4.1
by the Company or Monsanto, respectively, upon the death, resignation,
retirement, disqualification or removal from office for cause of such
Director. Such replacement for any Independent Director shall also be an
Independent Director unless, in the case of a replacement of a Monsanto
Director, the Monsanto Directors include more than the required number of
Independent Directors. The Board of Directors shall elect each person so
nominated by Monsanto or the Company pursuant to this paragraph (g). In
addition, the Board of Directors shall nominate the Company's Chief Executive
Officer to replace such officer's predecessor in office as a Company
Management Director.
(h) In the event that the number of Monsanto Directors on the Board of
Directors differs from the number that Monsanto has the right (and wishes) to
designate for nomination pursuant to this Section 4.1, (i) if the number of
Monsanto Directors exceeds such number, Monsanto shall promptly take all
appropriate action to cause to resign that number of Monsanto Directors as is
required to make the remaining number of such Monsanto Directors conform to
this Section 4.1 or (ii) if the number of Monsanto Directors otherwise is less
than such number, the Company shall promptly take all necessary action to
create sufficient vacancies on the
14
<PAGE>
Board of Directors to permit Monsanto to designate the full number of Monsanto
Directors which it is entitled (and wishes) to nominate pursuant to this
Section 4.1 (such action to include seeking the resignation or removal of
Directors or, at the request of Monsanto, calling a special meeting of the
stockholders of the Company for the purpose of removing Directors to create
such vacancies to the extent permitted by applicable law). Upon the creation
of any vacancy pursuant to the preceding sentence, Monsanto shall nominate the
person to fill such vacancy in accordance with this Section 4.1 and the Board
of Directors shall elect each person so nominated. Notwithstanding the
foregoing, at each annual meeting of the stockholders of the Company, the
Company shall nominate such number of Directors as Monsanto is otherwise
entitled to designate under this Section 4.1.
(i) Notwithstanding anything herein to the contrary, no individual who is an
officer, director, employee, agent, partner or principal stockholder of any
competitor of the Company or any of its Affiliates (other than Monsanto and
its Affiliates) or any competitor of Monsanto or any of its Affiliates (other
than the Company) shall serve as a Director without the unanimous consent of
the Board of Directors.
(j) In the event that Monsanto desires to remove any Monsanto Director with
or without cause and Monsanto is unable to procure the resignation of such
Monsanto Director, then, upon the request of Monsanto, the Board of Directors
shall promptly call a special meeting of stockholders of the Corporation for
purposes of removing such Monsanto Director. In the event that the Company
desires to remove any Company Director with or without cause and the Company
is unable to procure the resignation of such Company Director, then, upon the
request of a majority of all of the Independent Directors then in office, the
Board of Directors shall promptly call a special meeting of stockholders of
the Company for purposes of removing such Company Director. In the event that
the Chief Executive Officer's employment with the Company is terminated for
any reason, then upon the request of either Monsanto or a majority of all of
the Independent Directors then in office, the Board of Directors shall
promptly call a special meeting of stockholders of the Corporation for the
purpose of removing such person as a Company Management Director.
(k) Notwithstanding anything to the contrary herein, the Board of Directors,
by unanimous action of all members of the Board of Directors, may increase the
number of directors comprising the Board of Directors and may elect, or
nominate for election, the director(s) to fill the vacancy or vacancies
created by such increase.
4.2 Solicitation and Voting of Shares.
(a) The Company shall use its best efforts to solicit from the stockholders
of the Company eligible to vote for the election of Directors proxies in favor
of the Company Management Directors and the nominees designated in accordance
with Section 4.1 hereof or the removal of any Director pursuant to Section
4.1(h) or 4.1(j) hereof.
(b) In any election of Directors or any meeting of the stockholders of the
Company called expressly for the removal of Directors, so long as the Board of
Directors includes (and will include after any such removal) the number of
Monsanto Directors contemplated by Section 4.1 hereof and so long as such
meeting is properly called and Monsanto is properly notified in accordance
with the Company's by-laws and certificate of incorporation, Monsanto and its
Affiliates shall attend such meeting for purposes of establishing a quorum and
shall vote all their shares of Voting Stock (i) in favor of any nominee or
Director designated in accordance with Section 4.1 hereof, (ii) in favor of
removal of any Director as contemplated by Section 4.1(h) or 4.1(j) hereof,
and (iii) otherwise against the removal of any Director designated in
accordance with Section 4.1 hereof (other than in cases of removal of a
Director for cause); provided, however, that, if Monsanto and its Affiliates
elect to cumulate their votes in accordance with the Company's by-laws and
certificate of incorporation, then, in any vote electing Monsanto Directors,
Monsanto and its Affiliates may cast all of their votes in favor of one (1) or
more of the Monsanto Directors designated by Monsanto and in any vote with
respect to the removal of a Monsanto Director, Monsanto and its Affiliates may
cast all or any portion of their votes either in favor or against the removal
of any Monsanto Director unless a Monsanto Director is otherwise required to
be removed in accordance with Section 4.1(h) hereof. In any other matter
submitted to a vote of the stockholders of the Company, Monsanto and its
Affiliates may vote any or all of their shares in their sole discretion.
15
<PAGE>
(c) Monsanto agrees that it will, and will cause any of its Subsidiaries
(other than the Company and its Subsidiaries) to, take all action as a
stockholder of the Company or as is otherwise reasonably within its control,
as necessary to effect the provisions of this Agreement, including, without
limitation, voting all shares of Voting Stock in favor of all persons
nominated in accordance with Section 4.1 hereof; provided, however, that, if
Monsanto cannot so take actions to give effect to all of the provisions of
this Agreement, it may first take actions to ensure that it receives all of
its benefits hereunder and then, to the extent possible, to give effect to the
provisions in favor of the Company.
4.3 Committees.
(a) The Board of Directors shall establish, empower and maintain the
committees of the Board of Directors contemplated by this Section 4.3.
(b) The following committees shall be established, empowered and maintained
by the Board of Directors at all times during the term of this Agreement:
(i) an Audit Committee, consisting of at least three (3) of the Company's
Independent Directors, which committee shall be authorized and empowered to
cause an audit to be performed of the Company and each of its Subsidiaries;
(ii) [This section intentionally left blank]
(iii) a Compensation Committee, responsible, among other things, for
recommending to the Board of Directors, for approval by a majority of the
Board of Directors, (a) the adoption and amendment of all employee benefit
plans and arrangements, (b) the engagement of, terms of any employment
agreements and arrangements with, and termination of, all persons
designated by the Company as "officers" for purposes of Section 16 of the
Exchange Act ("Section 16 Officers") and (c) the policies, limitations and
procedures under which the Stock Option Plan Administration Committee shall
operate; and
(iv) such other committees as the Board of Directors deems necessary or
desirable; provided, however, that such committees are established in
compliance with Section 4.4(a)(vi) hereof, if applicable.
(c) Except as otherwise provided in Section 4.3(b) hereof or as agreed by a
majority of the Monsanto Management Directors, the number of Monsanto
Directors on each committee of the Board of Directors shall be the same
proportion (but not less than one (1)) of the total membership of such
committee as the number of Monsanto Directors, as the case may be, is of the
entire Board of Directors. Except as otherwise provided in Section 4.3(b)
hereof, the Monsanto Directors on each committee of the Board of Directors
shall be determined by a majority of the Monsanto Management Directors.
(d) No action by any committee of the Board of Directors shall be valid
unless taken by unanimous written consent as provided in the Company's by-laws
or taken at a meeting for which adequate notice has been duly given or waived
by the members of such committee. Such notice shall include a description of
the general nature of the business to be transacted at the meeting, and no
other business may be transacted at such meeting unless all members of the
committee are present and consent to the consideration of such other business.
Any committee member unable to participate in person at any meeting shall be
given the opportunity to participate by telephone. The Board of Directors or
the remaining committee members shall designate an Independent Director or
Company Management Director to replace any absent or disqualified Independent
Director member or Company Management Director member, respectively, of any
committee and a majority of the Monsanto Management Directors shall designate
a Monsanto Director to replace any absent or disqualified Monsanto Director
member of any committee. Each of the committees established by the Board of
Directors pursuant to this Section 4.3 shall establish such other rules and
procedures for its operation and governance (consistent with the terms of this
Agreement) as it shall see fit and may seek such consultation and advice as to
matters within its purview as it shall require.
4.4 Approval Required for Certain Actions.
(a) On and after the Effective Date and until the earlier of a Trigger Event
or such date on which Monsanto's Percentage Interest is less than twenty-five
(25%), a majority of the Board, including at least one (1)
16
<PAGE>
Company Director and one (1) Monsanto Management Director, shall be required
to approve any of the following:
(i) the entry by the Company or any of its Affiliates into any merger or
consolidation or the acquisition by the Company or any of its Affiliates of
any business or assets that would constitute a Substantial Part of the
Company (determined on a consolidated basis) whether such acquisition be by
merger or consolidation or the purchase of stock or assets or otherwise;
(ii) the sale, pledge, grant of security interest in, transfer,
retirement or other disposal of (A) a Substantial Part of the Company
(determined on a consolidated basis), except pursuant to a security
interest granted in connection with borrowings permitted under subsection
(iv) below or (B) the pledge or granting of a security interest in any
intangible property set forth in Exhibit B attached to the disclosure
letter from Monsanto to Calgene dated June 27, 1995 (the "Monsanto
Disclosure Letter");
(iii) any dividend by or return of capital by the Company or Gargiulo
(other than such distributions by Gargiulo to the Company as are necessary
for the Company to timely perform its obligations under Sections 1.02 and
5.02(c) of the Gargiulo Credit Facility);
(iv) any incurrence or assumption, in the aggregate, by the Company, any
of its Affiliates or any combination thereof, of any indebtedness for
borrowed money at any time outstanding exceeding in the aggregate
(determined on a consolidated basis) the greater of (i) fifteen million
dollars ($15,000,000), increasing by five million dollars ($5,000,000) on
each July 1 commencing July 1, 1996, plus amounts secured by inventory
and/or receivables for seasonal working capital lines and indebtedness
incurred to acquire property, plant or equipment and secured by the
acquired asset, minus amounts outstanding under the Company Credit
Facility, or (ii) the amounts set forth in the Company's Operating Plan
(hereinafter defined), provided that loans under the Gargiulo Credit
Facility shall not be counted in this limitation;
(v) the repurchase or redemption of any Equity Securities of the Company,
other than from employees upon termination of employment or service;
(vi) the establishment of any new committees of the Board (or the Calgene
Board) or new or revised delegation(s) of Board (or the Calgene Board)
authority to any Board (or Calgene Board) committee or changes or revisions
to general delegations of authority to officers or other Persons for
categories of expenditures;
(vii) the adoption of or amendment to any benefit or incentive plans of
the Company or any of its Affiliates which would increase the annual cost
thereof by more than fifteen percent (15%) from the prior fiscal year or
any adoption of, or amendment to, any stock option plan;
(viii) the election, appointment or removal of the Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer of the Company
and Calgene and their successors and the establishment of their annual or
long term compensation level and benefits and basis for awards (other than
agreements in effect on the Effective Date); provided, however, that
Monsanto shall have the right to select the Chief Technical Officer of the
Company and a controller reporting to the Chief Financial Officer of the
Company;
(ix) approval of the annual operating plan ("Operating Plan") and long-
term strategic plan ("Strategic Plan") of the Company and its Affiliates,
as well as the annual operating plan and long-term strategic plan for the
Gargiulo Business, to be submitted to the Board annually for approval, and
any material changes thereto;
(x) any transaction between the Company (and its Affiliates), on the one
hand, and its (their) directors, officers or employees, on the other hand,
which is not in the normal course of business;
(xi) any modification of the Transaction Agreements;
(xii) any amendment of the by-laws or certificate of incorporation of the
Company, Calgene or Tomato Associates by the respective Boards of Directors
thereof;
(xiii) the issuance of any warrants for the purchase of Equity Securities
or the issuance of additional Equity Securities (other than warrants for
the purchase of Equity Securities) in excess of four million
17
<PAGE>
(4,000,000) shares of Common Stock in any two (2) year period to a third
party, other than pursuant to plans referred to in subsection (vii) above;
(xiv) the sale or licensing by the Company or any of its Affiliates of
(A) any intangible property set forth in Exhibit B attached to the
disclosure letter from Monsanto to Calgene dated June 27, 1995 or (B) any
other intangible property for consideration (other than royalties
contingent on future sales) exceeding five million dollars ($5,000,000) in
the aggregate (determined on a consolidated basis) per transaction or per
series of related transactions;
(xv) new fixed capital investments, capital leases or noncancellable
operating leases by the Company and its Affiliates having annual payments
in the aggregate (determined on a consolidated basis) exceeding the
aggregate amount set forth in the Operating Plan;
(xvi) [This section intentionally left blank]
(xvii) any press release which mentions or directly or indirectly refers
to Monsanto, except as required by law and where Board approval cannot be
obtained in a timely manner;
(xviii) the initiation, settlement or termination of any suit or
proceeding concerning intellectual property, any other matter which could
have an adverse public affairs effect upon Monsanto or the filing of any
insolvency or bankruptcy proceeding by or on behalf of the Company or any
of its Affiliates; or
(xix) the removal or election of the directors of Gargiulo.
(b) After a Trigger Event and until the earlier of (i) March 31, 1999 or
(ii) Monsanto's Percentage Interest is at least seventy percent (70%), a
majority of the Board, including at least two (2) Company Directors, shall be
required to approve any of the following:
(i) the matters set forth in subsections (i), (ii), (vi), (viii), (ix)
and (xi) of paragraph (a) above; or
(ii) any transaction between the Company (and its Affiliates) and
Monsanto or any Affiliate of Monsanto.
(c) From and after the occurrence of both (i) a Trigger Event and (ii) March
31, 1999, and until Monsanto's Percentage Interest is at least ninety-nine
percent (99%), neither Monsanto nor any of its Affiliates shall enter into any
transaction with the Company or any of its Affiliates without the approval of
at least two (2) Company Directors.
4.5 Enforcement of this Agreement. The Independent Directors, acting by
unanimous consent, shall have full and complete authority on behalf of the
Company to enforce the terms of this Agreement.
4.6 Certificate of Incorporation and By-laws. The Company and Monsanto shall
take or cause to be taken all lawful action necessary to ensure at all times
that the Company's and Calgene's Certificate of Incorporation and By-laws are
not at any time inconsistent with the provisions of this Agreement. Not later
than the Effective Date, the Board of Directors shall amend the Company's By-
laws and the Calgene Board shall amend Calgene's By-laws to reflect the
provisions of this Agreement.
4.7 Advisors. The Independent Directors shall be entitled to retain, at the
cost and expense of the Company, the services of an investment banking firm of
national reputation of their choice and one (1) law firm of their choice to
advise them in their capacity as Independent Directors with respect to any
matter on which the Independent Directors are required or permitted to act
hereunder.
4.8 Injunctive Relief. In the event of a breach of the provisions of this
Article 4, a party hereto entitled to rights under this Article 4 will suffer
irreparable harm and the total amount of monetary damages will be impossible
to calculate and will therefore be an inadequate remedy. Accordingly, in such
event, such party shall be entitled to temporary and permanent injunctive
relief against the Company and any other breaching party and to any other
rights and remedies to which such party may be entitled to at law or in
equity.
18
<PAGE>
ARTICLE 5
GOVERNANCE OF GARGIULO
[This Article intentionally left blank.]
ARTICLE 6
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Delaware (exclusive of such state's choice of laws
rules).
6.2 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties
hereto.
6.3 Entire Agreement; Amendment. The Company and Monsanto hereby agree that,
as of the date of this Agreement: (i) the Prior Stockholders Agreement is
hereby amended in its entirety by this Agreement, (ii) the provisions of the
Prior Stockholders Agreement shall no longer be of any force or effect, (iii)
the Company and Monsanto shall be bound by the terms of this Agreement, and
(iv) this Agreement and the other documents delivered pursuant hereto
constitute the complete, exclusive and final understanding and agreement
between the parties with regard to the subjects hereof and thereof. Except as
specifically set forth herein, any term of Section 2 or 3 hereof may be waived
only with the prior written consent of the Company and the Holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 6.3 shall be binding upon each Holder of the Registrable
Securities (including securities into which such Registrable Securities have
been converted) outstanding at the time, each future Holder of all such
securities, and the Company. Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the Company and Monsanto, or in the case of a
waiver, by the party against whom the waiver is to be effective; provided that
no such amendment or waiver shall be effective without the approval of all of
the Independent Directors.
6.4 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, and shall be deemed sufficiently given when
delivered in person or transmitted by telegram or telecopier (confirmed by
mail), addressed as follows:
If to Monsanto: Monsanto Company 800 North Lindbergh
Boulevard St. Louis, Missouri 63167
Attention: Assistant Secretary
Telecopy Number: 314-694-2574
If to any other Holder, at such address and telecopy number as such Holder
shall have furnished the Company in writing.
If to Company: Calgene, Inc.1920 Fifth Street
Davis, California 95616Attention:
Chairman and Chief Executive
OfficerTelecopy Number: 916-753-1510
or to such other address as may be specified from time to time in a notice
given by such party. The parties agree to acknowledge in writing the receipt
of any such notice delivered in person.
19
<PAGE>
6.5 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any Holder of any Registrable Securities, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such Holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party or any waiver on
the part of any party of any provisions or conditions of this Agreement must
be made in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement, at law, in
equity or otherwise afforded to any party, shall be cumulative and not
alternative.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.7 Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, however, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
6.8 Stock Legends. Subject to Section 2.8(d) hereof, certificates
representing Restricted Securities (other than Restricted Securities issued to
Monsanto in connection with the conversion of principal and/or accrued
interest under the Company Credit Facility or the Gargiulo Credit Facility
upon the occurrence of an Event of Default under either such Credit Facility)
issued to Monsanto pursuant to the Transaction Agreements and the Stock
Purchase Agreement shall bear the following legend:
"The securities represented by this certificate are subject to certain
resale restrictions and entitled to the benefits set forth in a
Stockholders Agreement dated March 31, 1996, as amended and restated on
November , 1996, between Calgene, Inc., a Delaware corporation (formerly
known as Calgene II, Inc.), and Monsanto Company, a Delaware corporation
(the "Agreement") . A copy of the Agreement and all amendments thereto are
on file in the office of the Secretary of the Company."
6.9 [This section intentionally left blank.]
6.10 Audits Consultants and Inspections. Monsanto (using Monsanto's
internal and/or external auditors or any other Person appointed by Monsanto to
whom the Company does not reasonably object) shall have the right (i) to audit
the books and records, other financial information and business practices and
operations of the Company and its Affiliates, and (ii) to discuss the business
practices and operations, affairs, finances and accounts of the Company and
its Affiliates with the officers of the Company and its Affiliates and the
independent public accountants who review or audit the Company's financial
statements, all at such reasonable times and as often as may reasonably be
requested. The Company shall also permit inspection of its (and its
Affiliates') properties, books and records by Monsanto (using the Persons
identified above) during normal business hours or at other reasonable times.
The scope of all such audits, discussions and inspections shall be determined
by Monsanto in its sole discretion. Any authorized representative of Monsanto
who or which is not employed by Monsanto (i) shall be required to execute a
confidentiality agreement in a form approved by the Board of Directors (which
approval shall not be unreasonably withheld or delayed) and (ii) may not be
employed by or affiliated with a competitor of the Company, as reasonably
determined by the Board of Directors; provided, however, that an independent
certified public accounting firm shall not be deemed to be employed by or
affiliated with a competitor of the Company even if such firm provides
services to a competitor of the Company.
6.11 No Third Party Beneficiaries. Nothing contained in this Agreement,
express or implied, is intended to or shall confer upon anyone other than the
parties hereto (and their successors and assigns, including, without
limitation, subsequent Holders and purchasers under Section 3.7(c)) any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
20
<PAGE>
6.12 Sections and Articles. All sections and articles referred to herein are
sections and articles of this Agreement.
6.13 Headings. Headings as to the contents of particular articles and
sections are for convenience only and are in no way to be construed as part of
this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
Calgene, Inc.
By: _________________________________
Lloyd M. Kunimoto
President
Monsanto Company
By: _________________________________
Hendrik A. Verfaillie
Executive Vice President
21
<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CALGENE, INC.
PURSUANT TO SECTION 242
OF THE CORPORATION LAW
OF THE STATE OF DELAWARE
Calgene, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation held on September
20, 1996, a resolution was duly adopted, pursuant to Section 242 of the
General Corporation Law of the State of Delaware, setting forth an amendment
to the Certificate of Incorporation of the Corporation and declaring said
amendment to be advisable. The stockholders of the Corporation duly approved
said proposed amendment in accordance with Sections 211 and 222 of the General
Corporation Law of the State of Delaware at a meeting of stockholders on
November 12, 1996. The resolution authorizing the amendment is as follows:
RESOLVED: That Article FIFTH of the Certificate of Incorporation of the
Corporation be and hereby is amended as follows:
1. Section A of Article FIFTH shall be amended as follows:
(a) The following definitions shall be deleted: "Gargiulo, G.P." and
"Gargiulo, L.P."
(b) The definition of "Gargiulo" shall be amended to read in its
entirety as follows:
" `Gargiulo' means Gargiulo, Inc. formerly known as Tomato
Investment Associates, Inc."
(c) The definition of "Governance Agreement" shall be amended and
restated to read in its entirety as follows:
" `Governance Agreement' means the Amended and Restated Stockholders
Agreement dated as of November , 1996 by and between the
Corporation and Monsanto."
(d) The following sentence shall be added at the end of the
definition of "Independent Director":
"Without limiting the foregoing, Roger H. Salquist shall qualify as
an Independent Director so long as he continues to qualify under
clauses (iv) and (v) of such definition. Roger H. Salquist shall not
fail to qualify under clause (iv) above as a result of his Change of
Control Employment Agreement dated July 19, 1995, as modified, or
Consulting Agreement dated September 16, 1996 with the Corporation.
Any of the above restrictions may be waived by unanimous action of
the Board of Directors."
(e) The following definition shall be added:
" `Stock Purchase Agreement' means the Stock Purchase Agreement
dated as of September 27, 1996 between the Corporation and
Monsanto."
(f) The definition of "Trigger Event" shall be amended and restated
to read in its entirety as follows:
" `Trigger Event' means the earliest of (i) any time that Monsanto's
Percentage Interest is at least fifty-five percent (55%), (ii) the
Corporation elects to convert borrowings made from Monsanto into
Equity Securities and Monsanto's Percentage Interest is at least
fifty percent (50%) after such conversion, or (iii) the closing of
Monsanto's purchase of additional shares of Common Stock pursuant to
the Stock Purchase Agreement."
1
<PAGE>
(g) The definition of "Registrable Securities" shall be amended and
restated to read in its entirety as follows:
" `Registrable Securities' means shares of Common Stock issued or
issuable to Monsanto pursuant to the Transaction Agreements and the
Prior Stockholders Agreement (as defined in the Governance
Agreement) and the Stock Purchase Agreement whether owned by
Monsanto or a permitted transferee of Monsanto and all such other
securities of the Corporation acquired by Monsanto or any Affiliate
of Monsanto in accordance herewith."
2. Section C of Article FIFTH shall be amended and restated to read in
its entirety as follows:
"C. THE BOARD OF DIRECTORS; COMMITTEES
During the term of the Governance Agreement (i) the number of directors and
the manner of nominating and removing members thereof shall be set forth in
Section C(1), below, and (ii) the Board of Directors shall establish, empower,
and maintain committees as set forth in Section C(2), below.
1. Board of Directors. The number of Directors and manner of nominating
Directors shall be as follows:
(a) The number of Directors comprising the Board of Directors shall
initially be fixed at nine (9) Directors.
(b) Until changed in accordance with the Governance Agreement, the
Board of Directors shall be comprised of nine (9) Directors, and the
Corporation shall nominate for election as Directors: (i) one (1)
Corporation Management Director, (ii) three (3) Corporation Directors,
and (iii) five (5) Directors designed by Monsanto, at least one (1) of
which shall be an Independent Director.
(c) [This section intentionally left blank]
(d) At any time that Monsanto's Percentage Interest is at least
seventy percent (70%), (i) the Corporation shall nominate: (i) six (6)
Directors designated by Monsanto, which shall consist of the one (1)
Corporation Management Director and five (5) other Monsanto Directors
(including at least one (1) Independent Director) and (ii) three (3)
Independent Directors. At such time as Monsanto's Percentage Interest
is at least ninety-nine percent (99%), the Corporation shall nominate
nine (9) Directors designated by Monsanto.
(e) Notwithstanding anything in the foregoing paragraphs (b) and (d)
to the contrary, (i) at any time Monsanto's Percentage Interest is less
than forty percent (40%) but at least twenty percent (20%), the
Corporation shall nominate three (3) Directors designated by Monsanto,
(ii) at any time Monsanto's Percentage Interest is less than twenty
percent (20%) but at least ten percent (10%), the Corporation shall
nominate two (2) Directors designated by Monsanto and (iii) at any time
Monsanto's Percentage Interest is less than ten percent (10%) but at
least five percent (5%), the Corporation shall nominate one (1)
Director designated by Monsanto. If, at any time, Monsanto's Percentage
Interest is less than five percent (5%), the Corporation shall not be
obligated to nominate any Director designated by Monsanto. At any such
time, all other Directors, other than the Corporation Management
Directors, shall be nominated by the Corporation.
(f) The Independent Directors to be nominated by the Corporation from
time to time shall be nominated by action of a majority of Corporation
Directors then in office. The Corporation Directors shall consult with
the other Independent Directors as to the nomination of any Corporation
Director, and in the event a majority of the Corporation Directors are
unable to agree upon any Corporation Director nominee, then the
majority of all the Independent Directors shall nominate such nominee.
In the event that no Corporation Directors are in office at the time of
any nomination of a Corporation Director, such Corporation Directors
shall be nominated by a majority of the Independent Directors then in
office; provided, however, that the holders of a majority of the
outstanding Voting Stock held by Unaffiliated Equity Holders shall be
entitled to nominate and elect Corporation Directors in lieu of any
individuals so nominated to be such Corporation Directors by a majority
of the Independent Directors.
2
<PAGE>
(g) The Corporation and Monsanto, respectively, shall have the right
to nominate any replacement for a Director nominated in accordance with
this Section C(1) by the Corporation or Monsanto, respectively, upon
the death, resignation, retirement, disqualification or removal from
office for cause of such Director. Such replacement for any Independent
Director shall also be an Independent Director unless, in the case of a
replacement of a Monsanto Director, the Monsanto Directors include more
than the required number of Independent Directors. The Board of
Directors shall elect each person so nominated by Monsanto or the
Corporation pursuant to this paragraph (g). In addition, the Board of
Directors shall nominate the Corporation's Chief Executive Officer to
replace such officer's predecessor in office as a Corporation
Management Director.
(h) In the event that the number of Monsanto Directors on the Board
of Directors differs from the number that Monsanto has the right (and
wishes) to designate for nomination pursuant to this Section C(1), (i)
if the number of Monsanto Directors exceeds such number, Monsanto shall
promptly take all appropriate action to cause to resign that number of
Monsanto Directors as is required to make the remaining number of such
Monsanto Directors conform to this Section C(1) or (ii) if the number
of Monsanto Directors otherwise is less than such number, the
Corporation shall promptly take all necessary action to create
sufficient vacancies on the Board of Directors to permit Monsanto to
designate the full number of Monsanto Directors which it is entitled
(and wishes) to nominate pursuant to this Section C(1) (such action to
include seeking the resignation or removal of Directors or, at the
request of Monsanto, calling a special meeting of the stockholders of
the Corporation for the purpose of removing Directors to create such
vacancies to the extent permitted by applicable law). Upon the creation
of any vacancy pursuant to the preceding sentence, Monsanto shall
nominate the person to fill such vacancy in accordance with this
Section C(1) and the Board of Directors shall elect each person so
nominated. Notwithstanding the foregoing, at each annual meeting of the
stockholders of the Corporation, the Corporation shall nominate such
number of Directors as Monsanto is otherwise entitled to designate
under this Section C(1).
(i) Notwithstanding anything herein to the contrary, no individual
who is an officer, director, employee, agent, partner or principal
stockholder of any competitor of the Corporation or any of its
Affiliates (other than Monsanto and its Affiliates) or any competitor
of Monsanto or any of its Affiliates (other than the Corporation) shall
serve as a Director without the unanimous consent of the Board of
Directors.
(j) In the event that Monsanto desires to remove any Monsanto
Director with or without cause and Monsanto is unable to procure the
resignation of such Monsanto Director, then, upon the request of
Monsanto, the Board of Directors shall promptly call a special meeting
of stockholders of the Corporation for purposes of removing such
Monsanto Director. In the event that the Corporation desires to remove
any Corporation Director with or without cause and the Corporation is
unable to procure the resignation of such Corporation Director, then,
upon the request of a majority of all of the Independent Directors then
in office, the Board of Directors shall promptly call a special meeting
of stockholders of the Corporation for purposes of removing such
Corporation Director. In the event that the Chief Executive Officer's
employment with the Corporation is terminated for any reason, then upon
the request of either Monsanto or a majority of all of the Independent
Directors then in office, the Board of Directors shall promptly call a
special meeting of stockholders of the Corporation for the purpose of
removing such person as a Corporation Management Director.
(k) Notwithstanding anything to the contrary herein, the Board of
Directors, by unanimous action of all members of the Board of
Directors, may increase the number of directors comprising the Board of
Directors and may elect, or nominate for election, the director(s) to
fill the vacancy or vacancies created by such increase.
2. Committees.
(a) The Board of Directors shall establish, empower and maintain the
committees of the Board of Directors contemplated by this Section C(2).
3
<PAGE>
(b) The following committees shall be established, empowered and maintained
by the Board of Directors at all times during the term of the Governance
Agreement:
(i) an Audit Committee, consisting of at least three (3) of the
Corporation's Independent Directors, which committee shall be authorized
and empowered to cause an audit to be performed of the Corporation and each
of its Subsidiaries;
(ii) [This section intentionally left blank]
(iii) a Compensation Committee, responsible, among other things, for
recommending to the Board of Directors, for approval by a majority of the
Board of Directors, (a) the adoption and amendment of all employee benefit
plans and arrangements, (b) the engagement of, terms of any employment
agreements and arrangements with, and termination of, all persons
designated by the Corporation as "officers" for purposes of Section 16 of
the Exchange Act ("Section 16 Officers"), and (c) the policies, limitations
and procedures under which the Stock Option Plan Administration Committee
shall operate; and
(iv) such other committees as the Board of Directors deems necessary or
desirable; provided, however, that such committees are established in
compliance with Section D(a)(vi) below, if applicable.
(c) Except as otherwise provided in Section C(2)(b) above or as agreed by a
majority of the Monsanto Management Directors, the number of Monsanto
Directors on each committee of the Board of Directors shall be the same
proportion (but not less than one (1)) of the total membership of such
committee as the number of Monsanto Directors, as the case may be, is of the
entire Board of Directors. Except as otherwise provided in Section C(2)(b)
above, the Monsanto Directors on each committee of the Board of Directors
shall be determined by a majority of the Monsanto Management Directors.
(d) No action by any committee of the Board of Directors shall be valid
unless taken by unanimous written consent as provided in the Corporation's By-
laws or taken at a meeting for which adequate notice has been duly given or
waived by the members of such committee. Such notice shall include a
description of the general nature of the business to be transacted at the
meeting, and no other business may be transacted at such meeting unless all
members of the committee are present and consent to the consideration of such
other business. Any committee member unable to participate in person at any
meeting shall be given the opportunity to participate by telephone. The Board
of Directors or the remaining committee members shall designate an Independent
Director or Corporation Management Director to replace any absent or
disqualified Independent Director member or Corporation Management Director
member, respectively, of any committee and a majority of the Monsanto
Management Directors shall designate a Monsanto Director to replace any absent
or disqualified Monsanto Director member of any committee. Each of the
committees established by the Board of Directors pursuant to this Section C(2)
shall establish such other rules and procedures for its operation and
governance (consistent with the terms of the Governance Agreement) as it shall
see fit and may seek such consultation and advice as to matters within its
purview as it shall require."
3. Section D of Article FIFTH shall be amended and restated to read in its
entirety as follows:
"D. APPROVAL REQUIRED FOR CERTAIN ACTIONS
(a) Until the earlier of a Trigger Event or such date on which Monsanto's
Percentage Interest is less than twenty-five (25%), a majority of the Board,
including at least one (1) Corporation Director and one (1) Monsanto
Management Director, shall be required to approve any of the following:
(i) the entry by the Corporation or any of its Affiliates into any merger
or consolidation or the acquisition by the Corporation or any of its
Affiliates of any business or assets that would constitute a Substantial
Part of the Corporation (determined on a consolidated basis) whether such
acquisition be by merger or consolidation or the purchase of stock or
assets or otherwise;
(ii) the sale, pledge, grant of security interest in, transfer,
retirement or other disposal of (A) a Substantial Part of the Corporation
(determined on a consolidated basis), except pursuant to a security
interest granted in connection with borrowings permitted under subsection
(iv) below or (B) the pledge or granting of a security interest in any
intangible property set forth in Exhibit B attached to the Monsanto
Disclosure Letter;
4
<PAGE>
(iii) any dividend by or return of capital by the Corporation or Gargiulo
(other than such distributions by Gargiulo to the Corporation as are
necessary for the Corporation to timely perform its obligations under
Sections 1.02 and 5.02(c) of the Gargiulo Credit Facility);
(iv) any incurrence or assumption, in the aggregate, by the Corporation,
any of its Affiliates or any combination thereof, of any indebtedness for
borrowed money at any time outstanding exceeding in the aggregate
(determined on a consolidated basis) the greater of (i) fifteen million
dollars ($15,000,000), increasing by five million dollars ($5,000,000) on
each July 1 commencing July 1, 1996, plus amounts secured by inventory
and/or receivables for seasonal working capital lines and indebtedness
incurred to acquire property, plant or equipment and secured by the
acquired asset, minus amounts outstanding under the Corporation Credit
Facility, or (ii) the amounts set forth in the Corporation's Operating
Plan, provided that loans under the Gargiulo Credit Facility shall not be
counted in this limitation;
(v) the repurchase or redemption of any Equity Securities of the
Corporation, other than from employees upon termination of employment or
service;
(vi) the establishment of any new committees of the Board or new or
revised delegation(s) of Board authority to any Board committee or changes
or revisions to general delegations of authority to officers or other
Persons for categories of expenditures;
(vii) the adoption of or amendment to any benefit or incentive plans of
the Corporation or any of its Affiliates which would increase the annual
cost thereof by more than fifteen percent (15%) from the prior fiscal year
or any adoption of, or amendment to, any stock option plan;
(viii) the election, appointment or removal of the Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer of the
Corporation and Calgene and their successors and the establishment of their
annual or long term compensation level and benefits and basis for awards
(other than agreements in effect on the Effective Date); provided, however,
that Monsanto shall have the right to select the Chief Technical Officer of
the Corporation and a controller reporting to the Chief Financial Officer
of the Corporation;
(ix) approval of the annual operating plan ("Operating Plan") and long-
term strategic plan ("Strategic Plan") of the Corporation and its
Affiliates, as well as the annual operating plan and long-term strategic
plan for the Gargiulo Business, to be submitted to the Board annually for
approval, and any material changes thereto;
(x) any transaction between the Corporation (and its Affiliates), on the
one hand, and its (their) directors, officers or employees, on the other
hand, which is not in the normal course of business;
(xi) any modification of the Transaction Agreements;
(xii) any amendment of the By-laws or certificate of incorporation of the
Corporation, Calgene or Gargiulo by the respective Boards of Directors
thereof;
(xiii) the issuance of any warrants for the purchase of Equity Securities
or the issuance of additional Equity Securities (other than warrants for
the purchase of Equity Securities) in excess of four million (4,000,000)
shares of Common Stock in any two (2) year period to a third party, other
than pursuant to plans referred to in subsection (vii) above;
(xiv) the sale or licensing by the Corporation or any of its Affiliates
of (A) any intangible property set forth in Exhibit B attached to the
Monsanto Disclosure Letter or (B) any other intangible property for
consideration (other than royalties contingent on future sales) exceeding
five million dollars ($5,000,000) in the aggregate (determined on a
consolidated basis) per transaction or per series of related transactions;
(xv) new fixed capital investments, capital leases or noncancellable
operating leases by the Corporation and its Affiliates having annual
payments in the aggregate (determined on a consolidated basis) exceeding
the aggregate amount set forth in the Operating Plan;
(xvi) [This section intentionally left blank]
(xvii) any press release which mentions or directly or indirectly refers
to Monsanto, except as required by law and where Board approval cannot be
obtained in a timely manner;
5
<PAGE>
(xviii) the initiation, settlement or termination of any suit or
proceeding concerning intellectual property, any other matter which could
have an adverse public affairs effect upon Monsanto or the filing of any
insolvency or bankruptcy proceeding by or on behalf of the Corporation or
any of its Affiliates; or
(xix) the removal or election of the directors of Gargiulo.
(b) After a Trigger Event and until March 31, 1999 or Monsanto's Percentage
Interest is at least seventy percent (70%), a majority of the Board, including
at least two (2) Corporation Directors, shall be required to approve any of
the following:
(i) the matters set forth in subsections (i), (ii), (vi), (viii), (ix)
and (xi) of paragraph (a) above; or
(ii) any transaction between the Corporation (and its Affiliates) and
Monsanto or any Affiliate of Monsanto.
(c) From and after the occurrence of both (i) a Trigger Event and (ii) March
31, 1999 and until Monsanto's Percentage Interest is at least ninety-nine
percent (99%), neither Monsanto nor any of its Affiliates shall enter into any
transaction with the Corporation or any of its Affiliates without the approval
of at least two (2) Corporation Directors."
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be signed
by its President on this day of November, 1996.
Calgene, Inc.
BY: _________________________________
LLOYD M. KUNIMOTO
PRESIDENT
6
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended June 30,
1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
________ to ________.
For the Fiscal Year Ended Commission File Number
June 30, 1996 0-14802
CALGENE, INC.
(Registrant)
Delaware 68-0115089 68-0369863
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1920 Fifth Street, Davis, CA 95616
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (916) 753-6313
Securities registered pursuant to
Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $187,002,034 as of July 31, 1996, based upon the
closing price on the NASDAQ National Market System reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
60,443,115 shares of Common Stock were Issued and Outstanding as of
August 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held in November 1996 is incorporated by reference into Part III of this Form
10-K to the extent stated herein.
<PAGE>
PART I
ITEM 1. BUSINESS
--------
OVERVIEW
Calgene is a biotechnology company that is developing a portfolio of
genetically engineered plants and plant products for the food, seed and
oleochemical industries. The Company's research and business efforts are focused
in three core crop areas--fresh produce (tomato and strawberry), edible and
industrial plant oils (canola) and cotton--where Calgene believes biotechnology
can provide substantial added commercial value in consumer, industrial and seed
markets.
In March 1996, Calgene and Monsanto Company ("Monsanto") entered into a
transaction (the "Monsanto Transaction") under which Monsanto contributed
Gargiulo, Inc. ("Gargiulo"), $30 million and certain oils and produce related
technology to Calgene in exchange for a 49.9% equity interest in Calgene.
Gargiulo is a grower, packager, marketer and distributor of tomatoes,
strawberries and other produce with operations in Florida, California, Puerto
Rico and Mexico.
Fresh Produce. The Company is currently growing, packaging, marketing and
distributing traditionally developed tomatoes, strawberries and other fresh
fruits and vegetables through its Gargiulo subsidiary. Calgene scientists are
using genetic engineering and plant breeding techniques to develop tomato
varieties with increased sweetness and delayed softening in order to market a
premium quality product. Calgene scientists are also seeking to develop tomato
varieties with higher yield and virus resistance in an effort to reduce
production costs. In May 1994, after FDA action, Calgene began commercialization
of the FLAVR SAVR tomato, the world's first genetically engineered whole food
product. Calgene has also received regulatory clearance to commercialize the
FLAVR SAVR tomato in Canada, Mexico and the United Kingdom. In fiscal 1995,
Calgene curtailed production of the FLAVR SAVR tomato and began introducing the
FLAVR SAVR gene into Gargiulo varieties using traditional plant breeding methods
in an effort to develop agronomically suitable varieties. Calgene is also
seeking to develop strawberry plants that resist diseases and produce berries
with increased sweetness.
Plant Oils. Calgene is developing genetically engineered canola oils with a
broad range of food and industrial applications. Calgene scientists have
genetically engineered canola varieties that produce substantial quantities of
laurate, an important food ingredient and an ingredient in soap, detergent and
personal care products. Laurate is not naturally present in canola or other
non-tropical oil plants. To date, the Company has sold one million pounds of
Laurical(TM) canola oil and is currently planning for 30,000 acres of commercial
production for harvest in 1997. The Company is also in field trials with canola
plants that have been genetically engineered to produce oil with increased
stearate levels, creating a potential substitute for hydrogenated oils in
margarine, fluid shortening and confectionery products. The Company's
subsidiary, Calgene Chemical, manufactures and distributes plant oil-based
chemicals. Calgene is in the early stage of developing polyunsaturated fatty
acids ("PUFAs") in canola plants to be sold to food ingredient and
medical/nutritional markets based on health benefits.
Cotton. The Company is currently selling genetically engineered BXN cotton
seed and traditionally developed cotton seed varieties through its subsidiary
Stoneville Pedigreed Seed Company. Calgene's cotton genetic engineering program
focuses on reducing farmers' growing costs through the development of cotton
varieties that require less pesticides thereby reducing farmer's growing costs,
and cotton varieties that produce natural colors. U.S. cotton farmers spend
annually over $200 million on herbicides and $225 to $400 million on
insecticides. Herbicide resistant and insect resistant cotton varieties have the
potential to enable cotton farmers to significantly reduce the total volume of
herbicides and insecticides applied, resulting in substantial savings in
production costs, improved yields and benefits to the environment. Calgene
believes that the cost savings to farmers will enable Calgene to price
genetically engineered seed varieties at a premium to current cotton seed
prices. The Company commercially sold its genetically engineered BXN(TM) cotton,
which is resistant to the herbicide Bromoxynil(R) in 1995 and 1996 at a price
premium in excess of 41% over Calgene's non-genetically engineered cotton seed.
Calgene has also conducted field trials since 1991 with BXN cotton varieties
that are also genetically engineered to contain a Bt gene for resistance to
Heliothis, the principal cotton insect pest. Calgene plans to commercially
introduce cotton varieties with both BXN and Bt traits in 1998. Company
scientists are in the early stages of a development program designed to create
cotton varieties having natural colors which may reduce or eliminate the need
for dyeing and provide unique color-fastness. Calgene is seeking to produce
identity-preserved genetically engineered cotton and sell premium-priced colored
cotton fiber to the fabric, apparel and houseware manufacturers.
BUSINESS STRATEGY
Calgene's business strategy is to build and grow operating businesses in
its three core crop areas to facilitate the market introduction of genetically
engineered proprietary products and to maximize the long-term financial return
from such products. Implementation of this strategy will provide the Company
with direct access to markets where it will sell fresh and processed plant
products having improved quality traits and/or cost of production advantages,
and to markets where it will sell seed that has been engineered with value-added
agronomic traits. Calgene has selected fresh produce (tomato and strawberry),
edible and industrial plant oils (canola), and cotton as its core crops on the
basis of the following criteria:
o Calgene has efficiently transformed and regenerated these crops with
proven plant transformation methods, thereby making the crops suitable
candidates for genetic engineering.
o These crops offer significant long-term profit opportunities for
genetically engineered products in seed (input) or crop and product
(output) markets, or both.
o Market characteristics offer the Company a realistic opportunity to
attain a leading market share in the input or output markets, or both.
Calgene addresses its core crop opportunities through a combination of
operating subsidiaries and commercial partnerships. The Company is developing
genetically engineered, premium quality, fresh market tomatoes and strawberries
through its Gargiulo subsidiary. In plant oils, the Company has developed and is
growing genetically engineered laurate canola and is developing a portfolio of
genetically engineered canola oils, some of which it intends to distribute and
process through its Calgene Chemical subsidiary. Calgene Chemical currently
distributes industrial and edible vegetable oils, and manufactures vegetable
oil-based specialty chemicals. In certain market segments where the capital
investment and other commitments required to serve the markets exceed Calgene's
resources, the Company has established relationships with major corporations
which have leading positions in the targeted segments. These arrangements
provide for the other company to pay Calgene royalties based on genetically
engineered product sales or usage, to purchase genetically engineered and
nongenetically engineered plant-based raw materials from Calgene or to assist in
Calgene's product and market development. In cotton, the Company is currently
developing and marketing conventional seed varieties and genetically engineered
herbicide resistant seed varieties through its Stoneville subsidiary and is
developing and intends to market genetically engineered insect resistant cotton
varieties.
PRODUCTS AND PRODUCT DEVELOPMENT
The following table sets forth Calgene's primary genetically engineered
products and products under development, the potential commercial applications
for such products, and the development status of such products:
<TABLE>
<CAPTION>
PRODUCT
PRODUCT APPLICATIONS DEVELOPMENT STATUS
PRODUCE
<S> <C> <C>
FLAVR SAVR Tomato High quality fresh market tomato with Commercialization began on a limited
delayed fruit degradation basis in 1994. Varieties with improved
agronomic characteristics are currently
being developed.
High sweetness tomato High quality fresh market tomato Initial target genes have been transformed
into tomato plants and are being evaluated.
Virus resistant tomato Improved crop yields and quality Initial target genes identified.
Disease resistant strawberry Improved crop yields and longer shelf Target genes are identified and are
life currently being transformed into
strawberry plants.
High sweetness strawberry High quality fresh strawberry Target genes are identified and are
currently being transformed into
strawberry plants.
PLANT OILS
Laurical(R) Confectionery and other food products Test market began in 1995.
with improved functionality.
Alternative source of raw materials
for soaps and detergents.
High Stearate Oil Margarine and shortening ingredient Rapeseed plants with over 30% stearate
that requires no hydrogenation. in the oil have been produced and are in
Liquid shortening. field trials.
High Myristate Oil Butter replacers for baking. Less Rapeseed plants containing 40% myristate
expensive and more abundant source of in oil have been produced in the
raw materials for milder soaps and greenhouse.
personal care products.
Medium Chain Fatty Acids/ Less expensive source of raw Rapeseed plants with up to 38% medium
Medium Chain Triglycerides materials for high performance chain fatty acids have been produced
lubricants, nutritional formulas and in the greenhouse.
high energy foods
COTTON
BXN Cotton Cotton plants that require less Commercialization began in 1995.
chemical herbicide usage
BXN plus Bt Cotton Cotton plants that require less Initial varieties have been developed.
chemical herbicide and insecticide Commercial introduction planned for 1998.
usage
</TABLE>
FRESH PRODUCE
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 Inc., which was contributed by Monsanto to
Calgene in 1996 as part of the Monsanto Transaction.
Gargiulo engages in the growing, packaging, marketing and distribution of
tomatoes and strawberries and, to a lesser extent, other fresh fruits and
vegetables. Gargiulo also engages in breeding research with respect to tomatoes
and, to a lesser extent, strawberries. Gargiulo's tomato producing operations
are conducted principally in Florida, California, Puerto Rico and Mexico.
Gargiulo's berry production operations are conducted principally in northern
California. Tree fruits are grown in Chile, and potatoes, which Gargiulo began
producing, packing and distributing for the first time in January 1995, are
grown in southwest Florida. Gargiulo's corporate headquarters are located in
Naples, Florida.
In order to diversify the product line, in the early 1980's Gargiulo's
predecessor companies commenced an operation to grow, cool, market and
distribute strawberries in northern California. Gargiulo acquired interests in
companies in Chile in 1987 for the production, sale and importation into the
United States of various winter fruits, including nectarines and grapes. Through
a relationship with a Chilean grower, during the winter months in the United
States, Gargiulo also imports and markets raspberries and asparagus.
Gargiulo believes it has achieved recognition among the wholesalers,
retailers, brokers and food service entities which it serves, as a reputable and
reliable supplier of tomatoes and berries. Gargiulo intends to continue to
concentrate its efforts in this business and to capitalize, whenever possible,
on the opportunities to profit in the commodity fruit and vegetable business.
With its vertically integrated structure, management, marketing and research
capabilities and its established distribution channels, Gargiulo believes its is
well positioned to take advantage of opportunities in the commodity fruit and
vegetable markets.
Calgene scientists have genetically engineered the patented FLAVR SAVR gene
into flavorful tomato varieties to delay softening so that these varieties can
remain on the vine longer to allow full flavor and texture to develop before
harvest and be distributed with relatively low rates of spoilage. In view of the
production scale-up difficulties that it has encountered, Calgene curtailed its
FLAVR SAVR tomato growing operations in the Spring of 1996 until it is able to
complete the development of varieties of FLAVR SAVR tomatoes that have enhanced
commercial agronomic qualities. Calgene, through its Gargiulo subsidiary,
intends to focus its tomato operations on plant breeding activities necessary to
develop such enhanced varieties of its genetically-engineered tomatoes, but
there can be no assurance that such efforts will be successful or will not be
discontinued by Calgene. In fiscal 1996, Gargiulo began to market a premium
branded tomato line, but subsequently discontinued such marketing program until
it develops a tomato line suited for such branded program. There can be no
assurance that Calgene will be successful in developing genetically engineered
tomatoes with the agronomic characteristics necessary for commercial production
or that it will be successful in marketing a branded tomato line. See "Risk
Factors - Risks Applicable to the Branded Tomato Strategy" and "Risk Factors
Risks Associated with Production of Genetically Engineered Tomatoes."
Tomatoes. Gargiulo's principal product is fresh tomatoes. For fiscal 1996,
Gargiulo packed and shipped approximately 257 million pounds of fresh tomatoes,
which it produced through its own farming operations, through joint ventures or
partnerships with other growers or pursuant to contractual arrangements with
other growers. For Gargiulo's and its predecessors' fiscal years ended June 30,
1994, 1995 and 1996, product revenues from Gargiulo's tomato operations were
approximately $50.3 million, 60.1 million and $77.3 million, respectively.
Gargiulo's tomato operations are vertically integrated with seed research,
production, packing, repacking, distribution, marketing, and sales capabilities.
With production available year round from its various locations, Gargiulo
believes it is well positioned for consistent year round supply of tomatoes to
customers throughout the United States and Canada.
Approximately 85% of the tomatoes produced by Gargiulo during Fiscal 1996
were harvested and processed as green tomatoes. Green tomatoes are sorted by
grade and size according to specifications promulgated by the USDA and are
typically packed into 25 pound boxes. The tomatoes are then stored at
65(degree)F in the presence of ethylene gas for one to four days. This process
allows the tomato to achieve a deep red color acceptable to the retail consumer
and results in a sufficient shelf-life so that the tomato reaches the retail
consumer in an acceptable condition. The vast majority of tomatoes produced in
the United States are harvested green and processed in this manner. Gargiulo,
through its participation in a joint venture with a Mexican partner, has the
capability to produce tomatoes which are ripened on the vine, packed and then
shipped. The Mexican climate allows for vine ripening which many retail consumer
believe results in a better tasting tomato than tomatoes which are picked green
and ripened off the vine.
For a portion of its tomatoes Gargiulo is establishing a direct to retail
distribution and marketing program ("DTR"). By controlling the quality of its
tomatoes through the entire distribution system, including regional repack
operations and into the grocery stores, Gargiulo believes that high quality
product can be consistently delivered that commands premium prices. DTR may also
enable Gargiulo to obtain relatively long-term supply contracts with fixed
prices that avoid some of the price volatility customary with commodity
tomatoes.
If DTR is successful, Gargiulo intends to embark upon a branded tomato
program to produce and market a premium tomato under the Gargiulo name. The
success of the branded tomato strategy will depend in large measure on
Gargiulo's ability (i) to induce customers to identify Gargiulo's premium tomato
with the Gargiulo name, (ii) to induce consumers to pay a premium price for that
superior tomato, and (iii) to be able to produce and deliver that tomato to
customers on a consistent, year round basis. Based on market research performed
by Gargiulo and Calgene's experience with the FLAVR SAVR tomato, Gargiulo
believes that there is a sufficient customer base willing to pay a premium price
for a superior tomato to justify the significant amount of money that will be
required for marketing and advertising necessary to promote the branded tomato.
Ultimately, Gargiulo's branded tomato strategy is to provide advertising,
marketing and promotional services directly to the major retail grocery chains.
Gargiulo believes that retailers would embrace this service because it would
contribute to their profit. It would benefit Gargiulo by providing a consistent
source of sales for Gargiulo's tomatoes and by reducing Gargiulo's reliance on
the commodity markets. As one of the few vertically integrated commercial fruit
and vegetable growers in the industry, Gargiulo intends to use its plant
research capabilities, year round supply capabilities, geographic and product
line diversification, operational skill and professional management to enable it
to produce tomatoes suitable for sale directly to the retail market. There can
be no assurance that Gargiulo's efforts with the branded tomato will be
successful. See "Risk Factors--Risks Associated with the Branded Tomato
Strategy."
Berries. During Fiscal 1996, Gargiulo grew approximately 2.7 million flats
of fresh strawberries and cooled approximately one million flats of fresh
strawberries through its own farming operations and pursuant to relationships
with contract growers. On a smaller scale, Gargiulo also cools and markets
raspberries, grown by itself and others, and blackberries and blueberries grown
by others. For the fiscal years ended June 30, 1994, 1995 and 1996, product
revenues from Gargiulo's berry operations were approximately $20.8 million,
$23.4 million and $30.8 million, respectively.
Potatoes. In Fiscal 1995 and 1996, Gargiulo grew and cultivated red
potatoes in southwest Florida. Gargiulo's strategy is to position itself to
produce and market high quality fresh red potatoes during the winter and to take
advantage of market timing and potentially stronger prices in competition with
potatoes obtained from storage by other producers.
Peppers. During Fiscal 1995 and 1996, Gargiulo, as part of its joint
venture with a Mexican grower, produced and distributed red, yellow and green
peppers from Mexico from January through May.
Chilean Winter Fruits. Since the mid 1980's, Gargiulo and its predecessor
companies have imported and sold during the winter in the United States,
apricots, asparagus, grapes, nectarines, pears, plums and raspberries from Chile
and other South and Central American countries. Gargiulo, through its Chilean
subsidiary, has interests, together with its Chilean partners, in grape
vineyards and nectarine orchards located in Chile. Gargiulo's focus is on
importing and distributing high quality fruit during the winter months in the
United States and Canada.
Acquisition of Collier Farms
In February 1996, Gargiulo acquired substantially all of the assets and
certain specified liabilities of the produce business conducted by certain
affiliates of Collier Enterprises (the "Seller") under the trade name of
"Collier Farms." Collier Farms is an agricultural producer of fresh tomatoes and
other vegetables in southwest Florida, and engages in the packaging, marketing
and distribution of those products into the commodity markets. The purchase
price paid by Gargiulo for Collier Farms was approximately $32 million, payable
$10 million in cash and $10 million in the form of a purchase money note payable
to the Seller, maturing on June 30, 2000, plus the assumption of $12 million in
expenses incurred by Collier Farms since July 1, 1995, which expenses relate to
the production of Collier Farms 1995-1996 crop. In addition, Gargiulo will make
an earn-out payment to the Seller after the fiscal year ended June 30, 2000,
based upon the future earnings of the combined southwest Florida operations of
Collier Farms and Gargiulo. Gargiulo also entered into a long-term lease with
affiliates of the Seller (the "Collier Lease") for a minimum of 6,000 acres of
farmland in southwest Florida with the right to lease up to an additional 5,000
acres of farmland. The initial term of the Collier Lease is five years and
Gargiulo has three options of five years each to extend such lease.
PLANT OILS
The primary focus of Calgene plant oils business is the development of a
specialty lipid food ingredient business that will leverage Calgene's unique
genetically engineered oils. Initial efforts in this area are aimed at the
commercialization of Calgene's cornerstone product, Laurical(R), a genetically
engineered canola oil containing lauric acid. Calgene's secondary focus is the
development and commercialization of oils that contain long chain
polyunsaturated fatty acids for food ingredient and medical/nutrition markets.
The final area of focus is the development and commercialization of oils for
industrial markets, in particular, the oleochemical and oleochemical derivative
markets.
Specialty Food Ingredients
In 1994 over 16 billion pounds of plant oils and oil based products with a
value of $4.5 billion were used in U.S. food products and approximately 19
billion pounds with a value of $5.5 billion were used in Europe. The majority of
oil markets are commodity based, with purchases driven almost exclusively by
price. These markets are served primarily by soybean, sunflower, canola, palm
and other commodity oils. At any given time, the prices for these oils seldom
differ by more than $0.05 per pound, although the entire commodity oil complex
rises and falls as a function of macro supply and demand conditions.
Approximately 5% of the edible plant oils market consists of specialized
applications where ingredients are selected principally to meet specific
functional requirements. These specialty lipid markets are served primarily by
fractionated oil products and formulated ingredients (emulsified oils processed
to achieve specific physical properties). Each specialty lipid market is served
by a spectrum of products. In contrast to commodity markets, there are
significant price differences among these products, which can range from $0.50
to $2.00 per pound, but typically do not vary as much over time as do commodity
prices. Functionality of the oil is important in these markets.
Calgene is developing a series of structured triglyceride products with
specific saturated fatty acids for the food industry. These products are unique
because they produce combinations of fatty acids and triglyceride structure
which are not available from either natural or cost effective synthetic sources.
Calgene believes oils consisting of these triglycerides are, at their price
points, functionally superior to current products in many cases. These
functional advantages include better flavor release, mouthfeel, emulsifier
functionality, light reflectance (allows reduced fat usage in opaque systems)
and air retention in whipped products. Upon development of an oil prototype,
Calgene intends to generate the applications data required for customers to
derive full product benefits. These data, along with competitive product data,
should allow the determination of optimum product formulation (crude oil,
formulated ingredient, etc.) and positioning in each addressable market.
Calgene's strategy is to become a fully integrated specialty lipid food
ingredient supplier, either alone or in partnership with an existing food
ingredient company. The specialty food ingredient products currently being
developed and further described below include high laurate oil, high stearate
oil, high myristate oil, and medium chain triglycerides.
Polyunsaturated Fatty Acids
Polyunsaturated fatty acids ("PUFA") are long chain fatty acids which are
produced by a variety of organisms including algae and fungi. These fatty acids
are also found in fish oil. Recent clinical studies have shown that certain PUFA
have significant medical benefits, such as cholesterol control and infant
nutrition. Existing commercial sources of PUFA are fish oils, which are costly,
can contain toxins, and cannot be used as food additives due to poor odor and
taste. Calgene has begun a research program to clone the genes that it believes
will allow canola plants to produce PUFA. If successful, Calgene intends to sell
PUFA products to food ingredient and medical/nutritional markets based on the
oil's health benefits. PUFA are currently available primarily from non-crop
sources (fish oils and fermentation) but are very expensive. Plant produced PUFA
will have a tremendous cost advantage. Also, the research required to develop
PUFA oils has a high level of technical risk. Calgene has therefore chosen to
work with strategic partners who will fund PUFA oil development and provide the
necessary clinical and marketing capabilities required for commercialization.
Industrial Oils
Approximately 10% of the world's plant oil production is consumed by the
oleochemical industry. In particular, coconut and palm kernel oils are key
feedstocks because they contain laurate, a fatty acid which offers unique
cleansing and foaming properties. Laurate based surfactants are a primary
ingredient in the manufacture of soap, detergent and personal care products
worldwide. The U.S. oleochemical industry consumed nearly 900 million pounds of
lauric oils worth $330 million in 1994 and 1.4 billion pounds worth $550 million
were consumed in Europe. All of these oils were imported because there are
currently no non-tropical sources of laurate.
Where applicable, the Company intends to market its genetically engineered
oils to the oleochemical and oleochemical derivative industries using oils
developed for Calgene's food ingredient products. In the U.S., Calgene's
oleochemical subsidiary, Calgene Chemical, intends to develop oleochemical
derivatives that leverage the unique fatty acid composition of the Company's
engineered oils. Industrial oil products developed or currently being developed
and further described below include high laurate oil, high myristate oil and
medium chain fatty acids.
Genetically Engineered Oil Programs
The discussion below describes the targets of Calgene's genetically
modified oil programs and the estimated size of the current product markets for
which Calgene's products, if developed, could serve as equivalents or
substitutes. It should be recognized that Calgene's potential products might not
be competitive with the entire market identified due to performance and pricing
considerations. With the exception of the Company's initial laurate canola
(Laurical(R)) product currently being commercialized, Calgene's genetically
modified oil products are in various stages of development. These projects
involve substantial technical challenges and some are still in the "proof of
concept" phase. Most of Calgene's genetically engineered oil products are not
expected to be commercially available for several years, and their availability
will depend upon, among other things, achievement of certain technical
objectives in the product development process. See "Research."
Laurical(R). Calgene has developed and introduced Laurical(R), a novel high
value structured triglyceride with broad application in food markets.
Laurate-based fats are used in confectionery applications that are cost
sensitive or require specialized melting properties. Laurate or C12 is also a
key raw material for the soap, detergent, oleochemical, and personal care
industries. Currently, commercial sources of laurate are limited to coconut and
palm kernel oils, which are imported into the U.S. primarily from Southeast
Asia. Calgene has isolated and patented a C12 thioesterase gene responsible for
producing laurate. DNA constructs containing this thioesterase gene have been
genetically engineered into canola plants, some of which have more than 40%
laurate in the oil. The Company began commercial sales of its high laurate oil
in 1995 and has sold the Laurical oil to one of the largest laurate oil
consumers in the U.S. Calgene is currently evaluating the functional and
commercial value of its laurate canola oil in edible applications. Using a
different gene that they have cloned, Calgene scientists are also attempting to
further elevate the percentage of laurate in canola oil to increase its
commercial usefulness, particularly for industrial applications.
High Stearate Oil. Margarines, shortenings and many fat-based food
ingredients are currently manufactured from vegetable oils that are chemically
processed by hydrogenation to increase the level of solid fat in the oil to
provide suitable texture and consistency. Calgene has engineered genetic
constructs into canola plants to increase the levels of the fatty acid stearate.
These high stearate oils could have superior functionality with respect to
melting point, taste and texture and other characteristics. In addition,
Calgene's high stearate oils are free of the trans-fatty acids associated with
hydrogenation, which many scientists believe promote the formation of
cholesterol. The high level of stearate will also allow for the production of
food products without chemical processing (hydrogenation). Calgene is evaluating
these genetically engineered canola plants in both field trials and in
greenhouses. Company scientists are currently attempting to increase the
functionality of its high stearate oils for potential use in margarines,
shortenings and food ingredients. The Company estimates that annual U.S.
consumption of vegetable oils used in premium margarines and shortenings is in
excess of several hundred million pounds. Calgene believes that it could capture
a portion of that market by producing canola oil with elevated levels of
stearate without the expense of hydrogenation and the resultant trans-fatty
acids.
High Myristate Oil. Myristate and its derivatives are potential raw
materials for soaps and detergents because they show improved performance
properties as compared to laurate in certain uses. Currently myristic acid is
only available in limited quantities and is expensive compared to other fatty
acids. Using a variety of thioesterase genes, Calgene scientists have
genetically engineered canola plants that produce oil containing over 40%
myristate. Efforts are underway to further elevate the level of myristate to
commercial significance.
Medium Chain Fatty Acids. Calgene has isolated and cloned a C8/C10
thioesterase gene responsible for producing Medium chain fatty acids ("MCFA.")
DNA constructs containing this thioesterase gene have been genetically
engineered into canola plants, some of which have up to 38% MCFA in the oil.
Efforts are currently underway to further elevate the level of MCFA to
commercial significance.
Medium chain triglycerides ("MCT"), which are currently produced by
resynthesizing MCFA into triglycerides, are used as nutritional supplements to
treat dietary disorders and to provide a ready source of energy for hospital
patients recovering from post-surgical trauma. MCT have also been incorporated
into an increasing number of high-oleochemical feed stocks derived from
genetically engineered canola. The Company estimates that world consumption of
MCT are approximately 22 million pounds. Recent average prices for MCT are
approximately $1.55 per pound.
MCFAs are also components of high performance synthetic lubricant
ingredients called polyolesters. Currently available MCFA are byproducts of
splitting and fractionation of coconut and palm kernel oil for the production of
other fatty acids, which limits the supply of MCFA. The limited supply and high
cost of MCFA preclude the use of polyolesters in high volume applications such
as automotive lubricants, for which petroleum derivatives are currently used,
even though polyolesters often provide better functionality. The Company
estimates that annual U.S. consumption of polyolesters and of similar products
exceeds 200 million pounds. Recent average prices for MCFA are approximately
$.90 per pound.
Nongenetically Engineered Oils
To ensure that it will be able to produce its transgenic oils cost
effectively in the U.S., Calgene, is developing canola varieties adapted to U.S.
growing regions. In addition to its own breeding program, the Company accesses
advanced germplasm through joint breeding and commercial agreements with leading
canola companies in Denmark, Germany, France, Canada and Australia. In 1994 and
1995, farmers under contract to Calgene planted 8,000 and 11,000 acres of
canola, respectively. Calgene contracted with third parties to collect and crush
the canola crop and thereafter sold the resulting oil and meal. The objective of
this program is to demonstrate the Company's ability eventually to produce
identity-preserved genetically modified oils under contract at a reasonable cost
compared with commodity oils. In 1996 Calgene expects to harvest approximately
8,000 acres of genetically engineered Laurical Canola. Calgene plans to grow
30,000 acres of Laurical Canola under identity-preserved contract production for
harvest in 1997.
Calgene's specialty oleochemical manufacturer, Calgene Chemical, develops,
manufactures and markets a wide line of specialty esters, surfactants,
ethoxylates and other oleochemicals for the food, cosmetic, soap and detergent,
sugar, lubricant and textile markets. Calgene Chemical also provides a facility
for processing oleochemical feed stocks derived from genetically engineered
canola.
Monsanto Strategic Alliance
In May 1996, Calgene and Monsanto executed a broad strategic cross
licensing agreement encompassing the two companies' oilseed research programs.
Under the agreement, Calgene received a royalty free license to current and
future Monsanto agronomic technology for use in combination with Calgene's
proprietary oils modification genes for use in developing specialty canola oil
product. Monsanto received a royalty bearing license to Calgene technology to
develop agronomically superior corn, soybean, canola and sunflower crops. In
addition, Monsanto paid $7 million to Calgene and will pay royalties based on
sales of insect resistant corn, soybean, canola and sunflower seed with
increased oil content and modified meal composition utilizing Calgene
technology. Also a part of the agreement Monsanto paid Calgene $10 million in
cash to help fund oilseed research and development. In exchange, Monsanto will
receive a portion of the future profits from Calgene's specialty oils business.
COTTON
Calgene's cotton genetic engineering program is focused on the development
of herbicide resistant and insect resistant cotton varieties. The Company
believes that such products will enable cotton farmers to significantly reduce
the total quantities of herbicides and insecticides applied to cotton in the
field. As a result, Calgene expects significant environmental benefits as well
as substantial reductions in farmers' production costs and improved yields.
Calgene believes that such cost savings to farmers will enable Calgene to price
genetically engineered seed varieties at a premium to current cotton seed market
prices. In addition, Company scientists are in the early stages of a development
program designed to create cotton varieties that produce colored fiber. See
"Research."
Fourteen million acres of cotton were planted in the United States in 1996
making it the nation's fifth largest field crop. Of this total acreage, over
eight million acres of "upland picker" cotton are planted in the southern,
southeastern and southwestern U.S., the balance being lower value "stripper"
cotton planted in the high plains of Texas and Oklahoma (approximately five
million acres) and specialty "acala" and "pima" cotton grown in California and
Arizona (one to one and one-half million acres). Calgene estimates that the U.S.
cotton seed market has a value in excess of approximately $100 million per year
and produces cotton fiber having a value in excess of $5 billion per year at the
farm level. Cotton production requires the most intensive use of agricultural
chemicals of any major U.S. field crop. Cotton farmers spend over $200 million
per year on herbicides and $225 to $400 million per year on insecticides. The
majority of these herbicide and insecticide costs occur in areas planted with
upland picker cotton. Despite these costs the U.S. Cotton Council estimates that
U.S. cotton growers lose crop valued at over one billion dollars to weed and
insect damage each year.
Calgene has genetically engineered varieties of upland picker cotton to be
resistant to the herbicide bromoxynil (BXN cotton). Rhone-Poulenc manufactures
and sells bromoxynil under its Buctril(R) label. Farmers currently use Buctril
for broadleaf weed control in growing corn and wheat which are naturally
resistant to bromoxynil. However, cotton, a broadleaf plant, is not naturally
resistant to bromoxynil and is killed by the doses of bromoxynil which are
administered to control broadleaf weeds. Weed control in cotton fields is
currently constrained by the lack of post-emergent broadleaf herbicides, such as
bromoxynil, which are effective at low application rates. Cotton farmers are
therefore limited to using other herbicides, at high application rates, often
resulting in crop damage. Calgene estimates that conversion of the three to four
million broadleaf weed-plagued cotton acres to BXN cotton could save farmers up
to approximately $40 million annually by reducing total herbicide chemical usage
by as much as nine million pounds. Buctril is effective at low doses, generates
no residues in any of the food crops it is used on, and rapidly degrades in the
environment in less than two weeks, depending on field conditions.
In April 1995 the Company commercially introduced its first BXN cotton
varieties, selling 225 tons of seed. Supply limited, in April 1996 the Company
sold BXN cotton seed that is currently growing on over 50,000 acres. The BXN
cotton seed was sold at a 41% premium over Calgene's non-genetically engineered
cotton seed. BXN seed production for 1997 commercial sales is currently in
progress to supply up to 400,000 acres.
Calgene has transformed certain of its proprietary cotton varieties with
both a gene from a strain of the Bacillus thuringiensis ("Bt") and BXN. These
plants produce a Bt toxin that has demonstrated the ability to achieve
significant levels of control of Heliothis (the principal cotton insect pests)
in laboratory, greenhouse and field tests. U.S. field trials with cotton
containing the Bt genes have been conducted since 1994. Calgene plans to
commercially introduce cotton varieties with both BXN and Bt traits in 1998.
Calgene scientists are also genetically engineering cotton varieties that
produce high quality cotton fiber having unique natural colors. If successfully
developed, these fibers could reduce or eliminate the need for dyeing and
provide unique color-fastness while retaining superior spinning qualities. The
annual U.S. market for dyed cotton used in apparel and home furnishings is
estimated to be in excess of $4 billion. If successfully developed, Calgene
plans to market these cotton fibers directly to textile mills at a premium price
over traditional cotton fiber.
Stoneville, Calgene's cotton seed subsidiary with operations in
Mississippi, Arizona and South Carolina, holds the second largest share of the
U.S. upland picker cotton seed market with approximately 9.4% U.S. market share
in 1996. See "Competition." Since it was acquired by Calgene in December 1986,
Stoneville has expanded its cotton seed processing capacity by acquiring an
Arizona based delinting and processing facility in 1987, and in 1989 by
constructing a highly efficient delinting facility constructed at its
Mississippi headquarters. In 1990, Stoneville acquired the cotton assets of
Northrup King Co., which include the Coker Pedigreed Seed Company ("Coker")
cotton seed label, the Coker cotton breeding program and Coker cotton sales
accounts, located primarily in the southeastern U.S. and in Spain, Greece and
certain Latin American countries.
Stoneville maintains a conventional cotton breeding program to develop new
cotton varieties with improved yield, earliness, fiber characteristics, insect
and disease resistance, and other important agronomic characteristics.
Stoneville's newest variety ST 495, which was developed by Stoneville and
introduced in 1995, combines excellent yield with "smooth leaf" traits that
improve fiber grades. ST 474, which was introduced in 1994, continues to produce
superior yields and exceptional yield stability across different growing
regions. In 1993, Stoneville introduced varieties ST 132 and LA 887 (licensed
from Louisiana State University), which have demonstrated excellent agronomic
performance and superior fiber characteristics.
RESEARCH
Overview
Calgene believes that it has one of the world's leading research programs
in the application of recombinant DNA technology to plants. Over the past ten
years, some of the most significant advances in plant biotechnology have been
reported by Calgene's science team, which at June 30, 1996, was comprised of 128
research and product development scientists and support personnel. The expertise
of the Company's research scientists covers cell biology, molecular biology,
biochemistry, plant physiology, plant pathology, plant breeding and
microbiology. Calgene currently holds 42 issued U.S. utility patents and 18
foreign utility patents and has over 178 utility patent applications currently
pending in the U.S. and abroad. See "Patents and Trade Secrets." Total research
and development expenses for fiscal 1996, 1995, and 1994 were approximately
$14.0 million, $15.4 million and $15.6 million, respectively. Research and
development expenses incurred under contract with others for fiscal 1996, 1995
and 1994 were $4.2 million, $3.4 million, and $2.7 million, respectively.
Calgene's research strategy has been to establish itself as a recognized
world leader in the application of recombinant DNA technology to plants by
concentrating its research efforts and resources on (i) developing broad-based
expertise in modification of the plant oils biosynthesis pathway and in fruit
and vegetable postharvest physiology; (ii) building a portfolio of potentially
useful agronomic genes from both internal discovery and external licensing;
(iii) developing the most effective and efficient plant transformation and
regeneration systems and gene expression systems applicable to targeted core
crops; and (iv) being the most proficient at integrating molecular techniques
with conventional plant breeding.
The plant genetic engineering process can generally be divided into five
major phases: (i) identification and isolation (cloning) of genes and gene
promoters (sequences of DNA that regulate gene expression); (ii) transfer and
integration of a gene or genes into the chromosomes of the recipient cell
(transformation); (iii) selection and regeneration of the transformed cells into
whole plants using cell culture methods; (iv) verification that the expressed
genes confer the desired trait (phenotype); and (v) genetic analysis to
determine that successive generations consistently inherit and express the
desired trait. Calgene scientists have developed efficient plant transformation
and regeneration systems for tomato, strawberries, cotton and canola. Calgene
has received patents on promoters which selectively express plant genes in the
tissue of ripening tomatoes and promoters which selectively express plant genes
in the seeds of canola plants. These technical tools are necessary to assure the
proper expression of recombinant genes. The Company believes that patents on
these promoters may provide Calgene with a competitive advantage.
Calgene is investigating a novel method of plant transformation, termed
"plastid transformation." This method allows a high number of foreign gene
copies to be introduced into plant cells resulting in a high level of foreign
gene expression. Such high protein levels are desired for a diverse array of
potential applications in transgenic plants, including the enhancement of
agronomic traits. One advantage of this technology derives from the fact that
plastid-borne genes are inherited exclusively from the maternal parent, and thus
there is no pollen transmission. This eliminates any possibility of outcrossing
of inserted genes, and thereby facilitates hybrid breeding strategies.
Researchers at Calgene have used this technology to obtain foreign protein
expression levels that constitute 40% of the total soluble protein in the leaves
of transgenic plants. Although plastid transformation generally results in
plants containing the foreign gene in every plant cell, Calgene scientists have
developed a method to selectively express foreign plastid-borne genes. Such
selective gene expression permits the use of this technology with a greater
range of gene candidates. Opportunities in each of Calgene's core crops for the
plastid transformation method have been identified. In August 1996 Calgene was
granted two patents for plastid transformation in plants. The first patent
provides a method for enhancing expression of a gene in a plastid by using a
gene sequence preferred by the plant plastid. The second patent is co-owned by
Calgene and Rutger's University which covers expression of Bt insecticidal
protein in chloroplasts.
Fresh Produce
Calgene has identified and cloned or acquired rights to a portfolio of
genes which influence the ripening and post harvest physiology of many fruits
and vegetables. Calgene scientists were among the first to demonstrate the
ability to repress endogenous plant genes using antisense technology.
Specifically, they have achieved up to a 99% reduction of polygalacturonase
("PG"), a naturally-occurring enzyme involved in the softening of tomatoes,
resulting in tomatoes with delayed degradation and spoilage properties.
Calgene's efforts in this area have resulted in the issuance of a U.S. patent
covering antisense PG in tomatoes as well as a U.S. patent covering the broad
use of antisense technology in plants. See "Risk Factors--Patents and Trade
Secrets."
Calgene has rights to the l-aminocyclopropane-l-carboxylic acid deaminase
("ACCD") gene and from USDA to the l-aminocyclopropane-l-carboxylic acid
synthase ("ACC Synthase") gene. The expression of the ACCD gene or the antisense
expression of the ACC Synthase gene in plants has been shown to significantly
reduce the ability of the plant to produce ethylene, the plant hormone which
controls ripening and other aspects of plant development.
ACCD may be useful in crops where antisense is not available or useful.
Under a research collaboration with scientists from Rousell-Uclaf, S.A.,
Calgene scientists have cloned a high activity gene for sucrose phosphate
synthase, which is believed to play a major role in the production and transfer
of photosynthate (sugar) in plant leaves to storage in the fruit, tubers or
roots. This gene is being applied to alter the amount and quality of stored
sugars in tomato, and is applicable to a broad range of crops. In addition,
Calgene has entered into research agreements with several Universities to
genetically engineer tomato plants to be resistant to a wide range of viral
diseases. Viral diseases are a major cause of low tomato crop yield and poor
fruit quality.
Gargiulo began investing in research and development in the early 1980's.
At its inception, the primary focus of the reserach and development effort was
the seed development program, designed to increase tomato yield and increase
fruit size. Research efforts remain concentrated on obtaining better yield per
acre, and producing a tomato with attributes such as better taste, texture and
color. Other tomato research goals include the development of tomatoes which are
resistant to insects, fungal and bacterial disease, which have high temperature
fruit set and which have improved flavor, firmness and color, and the
development of seeds designed to grow best in the diverse climatic areas in
which Gargiulo operates. The research program has produced varieties that are
grown by Gargiulo and which Gargiulo believes have resulted in higher yields per
acre than varieties available from competing seed companies. Gargiulo believes
that one of the competitive strengths of its tomato research effort lies in the
ownership of its own seed production facility in Chile and its tight linkage to
its commercial operations. This affords Gargiulo the opportunity to screen large
numbers of potential commercial varieties in commercial field trials with direct
feedback from the market.
Calgene is conducting a research program to genetically engineer strawberry
plants to resist Botrytis, a fungal disease which reduces crop yields and resist
verticillium and phytopthora to reduce the current reliance on soil fumigation.
Calgene scientists are also working to genetically engineer strawberries with
increased sweetness.
Plant Oils
Calgene believes that it has a leading research program to modify plant oil
composition. Calgene has allocated the largest percentage of its research and
development expenditures to develop a portfolio of genetically modified canola
oils. Calgene selected canola because of its efficient oil producing capability
and its adaptability to a broad range of North American and European growing
regions. Canola also has certain biological characteristics that make it a good
candidate for genetic engineering. The primary focus of Calgene's oils reserach
effort is the manipulation and control of plant oil biosynthesis through
identification, isolation and use of the genes necessary for specific changes in
plant oil composition. These genes can be used in a variety of oilseed crops.
For certain products, soybean and sunflower are currently being evaluated as
alternatives to canola. It is anticipated that Calgene will leverage Monsanto's
capabilities in these other crops. Calgene's oils research are working in three
areas - modification of saturate levels, modification of fatty acid chain length
and control of triglyceride structure. To cost effectively produce its modified
oil products, Calgene uses plant breeding to convert the plant prototypes
developed by the research group into agronomically competitive cultivars. The
plant breeding strategy calls for the coordination of Calgene's own plant
breeding program with leading plant breeding programs in target production
geographies. Calgene's internal plant breeding program focuses on using research
prototypes to produce breeding lines for use in final variety development. In
this process, Calgene's plant breeders fine tune the chemical composition of the
oil, stabilize the oil trait, and ensure that the breeding lines have no gross
agronomic deficiencies. Calgene's breeding partners then use these breeding
lines to develop agronomically competitive cultivars for the targeted
geographies. Calgene also has royalty free access to Monsanto's agronomic
technology for use in developing specialty oil varieties, and will utilize this
technology on a broad basis in its product development programs.
In 1990, Calgene cloned a gene for stearoyl-ACP desaturase, a key enzyme in
the formation of plant oils used in both food and industrial applications. The
Company has introduced the stearoyl-ACP desaturase gene into canola in an
antisense orientation and increased the level of saturated fats (stearates) in
the oil by more than ten times. This was the first reported modification of
vegetable oil by genetic engineering. Calgene is currently conducting field
trials to evaluate genetically engineered canola plants with elevated levels of
stearates. Trials have been conducted in Michigan, Georgia, South Carolina,
Alabama and California, as well as in Canada and Scotland. Rapeseed oil with
higher levels of stearates could be a potential substitute for hydrogenated oils
in margarine, shortening and confectionery products.
In 1991, Calgene cloned the gene for lauroyl-ACP thioesterase, an enzyme
that plays an important role in the synthesis of laurate, a medium chain C12
fatty acid used in food industries and in soap, detergent, oleochemical,
personal care. Oil containing laurate is naturally produced by coconut and oil
palm trees, but is absent in major European and North American oilseed crops
such as canola and soybean. Calgene has genetically engineered the lauroyl-ACP
thioesterase gene into canola and developed plants that produce oil containing
over 40% laurate. This was the first reported development of an oilseed plant
producing a fatty acid not naturally present in the seed. Calgene received a
U.S. patent on the lauroyl-ACP thioesterase gene in March 1994. An additional
U.S. patent was granted to Calgene in May 1996 that expands the coverage of the
thioesterase gene. Calgene is currently working to further elevate the laurate
level in canola oil and increase the commercial usefulness.
In February 1993, Calgene was granted a U.S. patent to genetically
engineered Brassica cells and in August 1993 to genetically engineered Brassica
cells in Europe. Brassica is the genus name for a family of plants which
includes canola, broccoli, cauliflower, cabbage and brussel sprouts. These
patents cover the most efficient transformation method for Brassica species in
the industry and is a key technology of Calgene's proprietary vegetable oils.
Calgene has sold licenses to other companies for use of this transformation
method in areas outside the Company's core crop areas. The European patent is
currently being challenged in opposition proceedings.
In June 1994, Calgene scientists announced the cloning of a gene encoding a
ketoacyl-CoA synthase which was used to convert canola rapeseed to rapeseed
producing a high erucic oil. Calgene believes that this and similar genes can be
used to develop oilseed varieties enriched in long chain fatty acids which have
value for industrial and edible applications.
In June 1994, Calgene scientists announced the purification and cloning of
the coconut LPAAT gene. This enzyme is efficient at placing short chain
saturated fatty acids into the middle position of triacylglycerol molecules
during their biosynthesis. Most oilseeds including canola, soybean, sunflower
and others cannot build triacylglycerol molecules with saturated fatty acids in
the middle position. Calgene anticipates that use of the LPAAT gene could result
in the development of oilseeds with levels of laurate, myristate, and medium
chain fatty acids at levels as high as 75%.
Using a variety of thioesterase genes, Calgene scientists have genetically
engineered canola plants that produce oil containing over 40% myristate, a
medium chain C14 fatty acid. Myristate and its derivatives are potential raw
materials for soaps and detergents. In October 1995, Calgene was granted a
patent covering the myristol thioesterase gene which is potentially useful for
the development of plants rich in myristate.
Calgene has isolated and cloned a C8/C10 thioesterase gene responsible for
producing MCFA. DNA constructs containing this thioesterase gene have been
genetically engineered into canola plants, some of which have up to 38% MCFA in
the oil. MCFA are components of high performance synthetic lubricants. Efforts
are underway to further elevate the level of MCFA to commercial significance. In
May 1996 Calgene was granted patents encompassing synthase genes which may be
responsible for increasing the production of C8/C10.
In May 1995, Calgene was granted a patent covering the seed specific
promoter napin, which is a key element in many of the Company's genetically
engineered plant oils products. Seed specific promoter technology is relevant to
almost every genetically modified oil and meal product by allowing specific
control of genes introduced into plant cells by genetic engineering. In the case
of oil modification, seed specific promoters ensure that only plant storage oils
are effected by transgenic oils genes, without otherwise affecting the plant.
Because of the timing and strength of expression, the napin promoter is the most
common promoter used in plant oils genetic engineering research.
Cotton
Under a research collaboration with Rhone-Poulenc, in 1986 Calgene
scientists cloned the BXN gene which encodes an enzyme that degrades bromoxynil,
a broadleaf herbicide produced and sold by Rhone Poulenc. For cotton farmers,
broadleaf weed control is currently inefficient and costly because post-emergent
broadleaf herbicides such as bromoxynil, which are effective at low application
rates, are lethal to cotton, a broadleaf plant. Cotton farmers are therefore
limited to using other herbicides at high application rates, often resulting in
crop damage. Calgene proprietary cotton varieties engineered with the BXN gene
show no adverse effects when bromoxynil is applied at up to ten times expected
field rates. By using BXN cotton seed and bromoxynil, Calgene believes cotton
farmers will reduce herbicide usage and crop damage and have more effective weed
control. Rhone-Poulenc owns the BXN gene patent, issued in March 1989 which is
licensed exclusively to Calgene for use in cotton. Stoneville, Calgene's cotton
seed subsidiary, commercially introduced its first BXN cotton varieties to U.S.
growers in April 1995.
Calgene has transformed certain of its proprietary cotton varieties with a
gene from a strain of Bt. These plants produce a toxin that has demonstrated the
ability to achieve significant levels of control of Heliothis, the principal
cotton insect pests. Cotton plants containing both BXN and Bt were developed by
Calgene in 1990 and first field tested in 1991. Patents covering Bt technology
have been applied for by other companies, two of which have granted Calgene the
right to obtain licenses to their technology.
Calgene is also conducting a research program to genetically engineer
cotton plants to produce fiber with improved or unique characteristics. Research
targets include developing colored cotton fibers that require little or no dye
while maintaining its quality spinning characteristics, as well as cotton fiber
with increased length, strength and absorbency. Calgene scientists have
demonstrated from initial test results that they have altered the color of
cotton fiber. Further research is focusing on enhancing the shade of color. In
July 1996, Calgene was granted a patent covering a gene construct for expression
of the pigmentation gene, melanin, in cotton fiber.
PATENTS AND TRADE SECRETS
Calgene currently holds 42 issued U.S. utility patents and 18 foreign
utility patents, three of which have been assigned to contract partners. Calgene
has 178 utility patent applications currently pending in the U.S. and abroad and
will continue to file patent applications in order to obtain proprietary
protection of certain genes, gene constructs, uses of genes in specific
applications and methods for genetic engineering of plants. There is no
assurance that patents can be obtained in a timely fashion, or if issued, will
afford Calgene any significant protections.
In April 1992, Calgene was granted a U.S. patent covering the use of
antisense technology in plants. Calgene is involved in litigation with Enzo, the
licensee of other patents intending to cover the use of antisense technology in
all cells. Calgene and the other company have each challenged the validity of
the other's patents. See "Legal Proceedings." In Europe, a patent intending to
cover antisense in all cells has been granted to Enzo. Calgene has filed an
opposition to the grant of that patent. Agracetus has been granted a European
patent with claims intending to cover the use of antisense in all plants.
Calgene has filed an opposition to the grant of that patent. In May 1996,
Monsanto Company purchased the plant biotechnology assets of Agracetus along
with related intellectual property.
Also related to antisense technology, Calgene is a licensee under the
patent rights held by the Fred Hutchinson Cancer Research Center ("FHCRC"). The
patent application is pending and is seeking to provoke an interference with the
issued Enzo U.S. patent. As part of its agreement with the FHCRC, Calgene has
agreed to indemnify certain patent and litigation costs incurred by FHCRC.
Calgene's research efforts resulted in the issuance of a U.S. patent
covering the PG gene which Calgene refers to as the FLAVR SAVR gene. In August
1991, Campbell licensed to Calgene the exclusive North American rights to
produce and sell fresh market tomatoes containing the FLAVR SAVR gene. In
February 1994, Calgene, Campbell and Zeneca A.V.P., another company using PG
gene technology, entered into an agreement under which Calgene acquired
exclusive worldwide rights to produce and sell fresh market tomatoes with the
FLAVR SAVR gene.
In April 1993, Calgene announced the signing of several cross licensing
agreements with Monsanto Company. The agreements resolved several current and
potential patent conflicts between the two companies. Under the agreements,
Calgene received licenses to Monsanto's patent and patent applications pending
in the areas of plant transformation technologies, and selectable markers; and
the right to obtain certain licenses to Monsanto's Bt insect resistance
technology for use in cotton. Monsanto received licenses to Calgene's patents
and patents pending in the areas of plant transformation of certain plants and
antisense RNA technology. Calgene and Monsanto granted each other licenses to
certain of their respective patents pending in the area of ethylene repression,
and settled an interference proceeding at the U.S. Patent and Trademark Office
directed toward CaMV promoters which are broadly used by agricultural
biotechnology companies to control gene expression in genetically engineered
plants. In January 1994, Calgene acquired rights to obtain a license to Bt
technology owned by Plant Genetic Systems N.V.
In September 1995, Calgene and Monsanto entered into an agreement whereby
Calgene will participate in Monsanto's direct licensing program for Bt cotton in
the U.S., subject to the issuance of a patent to Monsanto which covers the Bt
gene currently used by Calgene in its product development efforts. If one or
more patents issue to a party other than Monsanto covering use of the Bt gene(s)
used in Calgene's Bt products, it may be necessary for either Calgene and/or
Monsanto to obtain a license in order for Calgene to commercialize its Bt
products. There is no assurance that it will be possible to obtain licenses
under such third party patents on commercially reasonable terms, if at all.
Other patent applications filed by Calgene competitors and others could, if
patents are issued, preclude Calgene from using, without a license, technology
and techniques basic to genetic engineering and to areas of particular
importance to Calgene. The extent to which Calgene may be required to license
such patents and the cost and availability of such licenses are currently
unknown.
Some of the Company's product development contracts require Calgene to
transfer intellectual property rights, including patents, to the contract
sponsors, and for Calgene to receive certain license rights.
Plant varieties may also be protected under USDA's Plant Variety Protection
("PVP") program. Calgene has several PVP certificates issued and additional PVP
applications pending.
Calgene also seeks to strengthen its intellectual property position by
licensing technology developed at universities and other corporations. In some
instances, such licenses are necessary to enable the practice of fundamental DNA
technology. In other instances, licenses are used to obtain a competitive or
proprietary position or to enhance Calgene's technology.
In addition to patents, the Company seeks to protect its proprietary
know-how as trade secrets. Although Calgene takes precautionary measures to
maintain the confidentiality of its trade secrets, there is no assurance that
competitors will not gain access to Calgene's know-how or independently develop
substantially equivalent know-how.
COMPETITION
The plant biotechnology industry is highly competitive. Competitors include
independent companies that specialize in biotechnology; chemical, pharmaceutical
and food companies that have biotechnology laboratories; universities; and
public and private research organizations. Some of these companies and
organizations have greater financial, technical and marketing resources than
Calgene. Calgene believes that maintaining its leadership position in plant
biotechnology will require achieving and retaining technological superiority,
attracting and retaining qualified personnel, developing production and
marketing expertise and developing proprietary products or processes.
Other companies are developing and seeking to commercialize
premium-quality, fresh market tomatoes developed with recombinant DNA or other
technologies. DNA Plant Technology Corporation, a competing biotechnology
company has developed a vine-ripened tomato using one such other technology,
somoclonal variation, which it is currently selling. Competition in the fresh
tomato market is expected to intensify as additional companies introduce
tomatoes developed through biotechnology and as existing "gas green" tomato
producers react to competitive pressures by growing and marketing traditionally
developed vine-ripe tomatoes.
The tomato and berry markets in which Calgene competes are highly
competitive. In addition to competition from other domestic growers many of whom
have greater resources and are able to produce at lower costs than Calgene,
there is increasing competition from foreign producers, particularly Mexican
growers who are able to compete both on the basis of quality and price. The more
arid climates in which the Mexican tomatoes are grown are conducive to vine
ripening. By contrast, the wetter climates in which tomatoes are grown in the
southeastern United States require that they be picked while still green and
exposed to ethylene gas to promote ripening. Many retail consumers perceive vine
ripened tomatoes to have better flavor than standard "gas green" tomatoes.
Accordingly, vine ripened tomatoes produced in Mexico may be able to compete
effectively against gas green tomatoes which are the predominant product of
Gargiulo. Although Calgene produces vine ripened tomatoes in Mexico and Puerto
Rico, such tomatoes represented only approximately 14.6% of Gargiulo's total
tomatoes produced during Fiscal 1996. In addition, Gargiulo believes that
certain provisions in the North American Free Trade Agreement, coupled with the
sharp devaluation of the Mexican peso, are primarily responsible for the below
production-cost prices that Florida tomato growers received for their tomatoes
last winter in the United States. Although Gargiulo is not able to predict the
financial effect which the surge of Mexican tomatoes into the U.S. will have on
its revenues, it expects that the large supply, combined with the vine-ripening
characteristics that some consumers find more attractive than gas-green
tomatoes, will continue to have a significant adverse impact on the revenues of
Florida tomato growers, including Gargiulo. Furthermore, in the event the
branded tomato strategy is successful, there can be no assurance that Calgene's
competitors, many of whom have greater resources, will not be able to duplicate
such strategy and produce branded tomatoes for sale at premium prices. In such
event, the success of Calgene's branded tomato strategy may he adversely
affected. See "Risk Factors --Potential Inability to Successfully Produce or
Market the Branded Tomato."
Stoneville sells upland picker cotton seed which is grown in the southern,
southeastern and southwestern U.S., areas which constitute approximately
one-half of the U.S. cotton acreage. Stoneville's primary competitor is Delta
and Pine Land Company, which the Company believes has a market share of
approximately 65%. Stoneville has the second largest market share. Other
competitors have smaller market shares. Calgene believes that a farmer's
decision to purchase a particular variety of cotton seed has traditionally been
based upon both price and performance criteria, including yield, fiber length,
strength and maturity. Calgene expects that the herbicide and insecticide
resistant characteristics of its BXN and Bt cotton varieties will also be
important factors in the farmer's decision.
Calgene Chemical manufactures and markets specialty oleochemicals and
surfactants and food ingredient products which are price sensitive. The market
for such products is highly competitive.
GOVERNMENT REGULATION
Regulation by federal, state and local government authorities in the U.S.
and by foreign governmental authorities will be a significant factor in the
future production and marketing of Calgene's genetically engineered plants and
plant products.
The federal government has implemented a coordinated policy for the
regulation of biotechnology research and products. The USDA has primary federal
authority for the regulation of specific research, product development and
commercial applications of certain genetically engineered plants. The FDA has
principal jurisdiction over plant products that are used for human or animal
food. The EPA has jurisdiction over the field testing and commercial application
of plants genetically engineered to contain pesticides. Other federal agencies
have jurisdiction over certain other classes of products or laboratory research.
The USDA regulates the growing and transportation of most genetically
engineered plants and plant products. In October 1992 following a request from
Calgene, the USDA issued a determination that allows the growing and shipping of
the initial varieties of the FLAVR SAVR tomato anywhere in the U.S. in the same
manner as conventionally developed tomato. In February 1994, the USDA
deregulated Calgene's herbicide resistant (BXN) cotton, allowing the Company to
grow and ship seed of these varieties in the same manner as conventionally
developed cotton. Laurate canola was de-regulated by the USDA in October 1994.
In May 1992, the FDA announced its policy on foods developed through
genetic engineering (the "FDA Policy"). The FDA Policy provides that the FDA
will apply the same regulatory standards to foods developed through genetic
engineering as applied to foods developed through traditional plant breeding.
Under the FDA Policy, the FDA will not ordinarily require premarket review of
genetically engineered plant varieties of traditional foods unless their
characteristics raise significant safety questions, such as elevated levels of
toxicants, or the presence of allergens, or they are deemed to contain a food
additive.
In May 1994, the FDA announced its determination, based on its review of
extensive data submitted by Calgene, that the FLAVR SAVR tomato has not been
significantly altered with respect to safety or nutritive value when compared to
conventional tomatoes. The FDA also issued a food additive regulation permitting
the use of the kanr selectable marker gene, which encodes for the enzyme
APH(3')11 in genetically engineering tomatoes, cotton and canola.
Calgene has completed its consultation with the FDA on issues of safety
concerning BXN cotton and laurate canola. The FDA Policy does not require the
submission of data supporting the safety of a genetically engineered product,
but does require that the developing company ensure the safety of the product
guided by the FDA Policy and consultation with the FDA. The generation of data
supporting both products' safety has been completed.
The FDA Policy does not require that genetically engineered products be
labeled as such, provided that such products are as safe and have the same
nutritional characteristics as conventionally developed products. There can be
no assurance that the FDA will not reconsider its position, or that local and
state authorities will not enact labeling requirements, either of which could
have a material adverse effect on marketing of some future products.
The FDA is in the process of modifying its policy on foods developed
through genetic engineering to include a Premarket Notification ("PMN")
procedure. This policy modification will require companies that develop
genetically engineered foods to inform the FDA that its safety evaluation is
complete and that the company intends to commercialize the product. The
objective of the PMN is to make the FDA and the public aware of all new
genetically engineered food products entering the market. If PMN is required,
the Company believes it should not delay Calgene's plans to commercialize its
genetically engineered food products.
In June 1994, Calgene filed a request with Health Canada for permission to
sell FLAVR SAVR tomatoes in Canada. The request was filed pursuant to a proposed
Health Canada review process in which Health Canada is notified of Calgene's
intention to sell and to advertise for sale FLAVR SAVR tomatoes in Canada.
Canada notified Calgene in February 1995 that it has no objections to the
importation and sale of the FLAVR SAVR tomato. Calgene also received approval
from Agriculture and Agri-Foods Canada in February 1996 and from Health Canada
in April 1996 which allows the growing and commercialization of Laurate canola
in Canada. Calgene has received permission from the Mexican Health and
Agriculture authorities to grow and sell the FLAVR SAVR tomato in Mexico.
In March 1996, Calgene received approval from the United Kingdom Ministry
of Agriculture, Fisheries and Food that ten different lines of fresh tomatoes
containing the FLAVR SAVR gene are safe for consumption. This was the first
clearance of an unprocessed genetically modified food anywhere in Europe.
Commercialization of BXN cotton required clearance from the EPA to allow
use of the herbicide bromoxynil on cotton plants. Bromoxynil is produced and
sold by Calgene's strategic partner, Rhone Poulenc. These clearances were
received by Rhone-Poulenc on May 5, 1995.
Calgene's activities will be subject to general FDA food regulations and
are, or may be, subject to regulation under various other laws and regulations
including, among others, the Occupational Safety and Health Act, the Toxic
Substances Control Act, the National Environmental Policy Act, other Federal
water air and environmental quality statutes, export control legislation,
antitrust and other laws. At the present time. most states are generally
deferring to federal agencies (USDA or EPA) for the approval of field trials,
although all states are provided a review period prior to the issuance of a
field trial permit. Failure to comply with applicable regulatory requirements
could result in enforcement action, including withdrawal of marketing approval,
seizure or recall of products, injunction or criminal prosecution.
The federal regulatory agencies most involved in the predominant business
of Gargiulo--the production and marketing of fresh fruit and vegetables-- are
the USDA and the FDA. The USDA sets standards for raw produce and governs its
inspection and certification. Under the Perishable Agricultural and Commodities
Act ("PACA"), the USDA exercises broad control over the marketing of produce in
domestic and foreign commerce, sets standards of fair conduct as to
representations, sales, delivery, shipment and payment for goods and regulates
the licensing of produce merchants and brokers. Gargiulo's growing operations
are also subject to substantial oversight by the Environmental Protection Agency
(the "EPA") in matters ranging from the use of fertilizers and pesticides to the
condition of farmland and wetlands protection. Of particular concern in this
regard is the current investigation by the EPA and other environmental
regulators into the possible harmful effects on the ozone layer of methyl
bromide, a chemical widely used by Gargiulo and other agricultural producers.
The USDA also has specific authority, under the Federal Seed Act, to oversee the
quality and labeling of commercial seed products, such as those developed by
Gargiulo.
Through its extensive use of farm labor in its growing operations, Gargiulo
is subject to supervision by the United States Department of Labor, under both
the Fair Labor Standards Act and the Occupational Safety and Health Act; and the
prevalence of foreign workers in this sector of Gargiulo's work force
necessarily involves oversight by the Immigration and Naturalization Service.
Almost every aspect of federal regulation is accompanied by regulation on
the state level, in each jurisdiction where Gargiulo has growing and/or research
operations. In particular in Florida, the South Florida Water Management
District regulates surface water management and irrigation water withdrawals.
Gargiulo must also, in its Mexican operation, comply with the requirements of
Mexican law, most importantly Mexico's environmental protection law.
HUMAN RESOURCES
At June 30, 1996 Calgene employed a total of 1,341 regular employees, of
whom 128 were research and product development scientists and support personnel,
854 were production, farm and packing house employees, 52 were sales and
marketing personnel and 307 were in administrative and general management
positions. In addition Calgene employed approximately 3,053 seasonal workers.
None of Calgene's work force is presently unionized, although there is no
assurance that unions, especially for farm workers, may not attempt to unionize
Calgene's workers in the future. Calgene believes its relations with its
employees are good.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position Since
---- --- -------- -----
Lloyd M. Kunimoto....43 Acting Chief Executive Officer.....................1996
Richard J. Stonard...41 Senior Vice President and Chief Technical Officer..1995
Christian Leleu......43 Senior Vice President and Chief Financial Officer..1996
Andrew Baum..........40 Vice President and President of Oils Division......1987
Thomas Hughes........37 President, Stoneville Pedigreed Seed Co............1992
Michael J. Motroni...41 Vice President of Finance and Secretary............1992
Jeffrey D. Gargiulo..43 Chief Executive Officer, Gargiulo, Inc.............1996
The executive officers are elected by and serve at the discretion of the
Board of Directors of the Company.
Mr. Kunimoto has been the President and Acting Chief Executive Officer
since July 1996. From June 1995 to July 1996 Mr. Kunimoto served as Vice
President of Strategic Planning and Business Development. From November 1983 to
June 1995, Mr. Kunimoto served in several senior management positions with the
Company.
Dr. Stonard joined Calgene as Senior Vice President and Chief Technical
Officer in 1996. Since 1982 Dr. Stonard worked in various positions at Monsanto
Company, most recently as Director of Crop Protection Research for Ceregen, a
unit of Monsanto.
Mr. Leleu joined the Company as Senior Vice President and Chief Financial
Officer in 1996. Mr. Leleu worked in various positions at Monsanto Company, most
recently as Director of Business Analysis for Crop Protection.
Mr. Baum joined Calgene as Director of Operations in 1981, became Vice
President of Operations in 1987 and became Senior Vice President of Operations
in 1991. Since November 1992, Mr. Baum has been the President of Calgene's Oils
Division. Mr. Baum is a founding member and is currently Secretary of the U.S.
Canola Association.
Mr. Hughes joined Stoneville Pedigreed Seed Co. in 1988 as Plant Operations
Manager and became President in 1992. Mr. Hughes is Director of the Mississippi
Seedmen's Association, President of the Mississippi Seed Improvement Association
and is an active member of the Delta Council, Cotton Foundation (National Cotton
Council), and the American Seed Trade Association.
Mr. Motroni joined the Company in August 1983 and became Controller in July
1986. He was elected Vice President of Finance and Secretary in May 1992.
Mr. Gargiulo has been Chairman and Chief Executive Officer of Gargiulo L.P.
since 1981 and since March 1996 Chief Executive Officer of Gargiulo, Inc., the
successor company to Gargiulo L.P. Mr. Gargiulo is Chairman of the Executive
Committee of the Produce Marketing Association.
RISK FACTORS
Management and Coordination of Operations. In March 1996, Calgene and
Monsanto consummated a transaction under which Monsanto contributed Gargiulo,
$30 million and certain oils and produce related technology in exchange for a
49.9% interest in Calgene. The achievement of the anticipated benefits of the
Monsanto Transaction will depend in part upon whether the businesses of Calgene
and Gargiulo can be managed and coordinated in an efficient and effective
manner, and there can be no assurance that this will occur. The difficulties of
managing and coordinating the businesses of Calgene and Gargiulo may be
increased by the geographic separation of the organizations and their
decentralized managements. The coordination of the businesses of Calgene and
Gargiulo may require the dedication of management resources which may
temporarily distract attention from the day-to-day business of the combined
companies. In addition, Gargiulo is in the process of integrating the operations
of Collier Farms into its own operations, which may further distract the
management of Gargiulo from day-to-day operations. In connection with the
Collier Transaction, Gargiulo incurred approximately $20 million of indebtedness
in the form of $10 million loan from Monsanto under an existing credit facility
and a $10 million purchase money note payable to Collier Enterprises (the
"Seller Note"). Gargiulo's ability to repay such indebtedness will depend, in
part, on the successful integration of the operations of Collier Farms into the
operations of Gargiulo and the success of the Collier Farms operations which are
subject to the same agribusiness risks as apply to Calgene as described below.
Combination of Tomato Businesses. Gargiulo acquired the right to lease up
to 11,000 acres of farmland in southwest Florida as a consequence of the Collier
acquisition. Consequently, certain of the farmland owned by Gargiulo in Florida
will no longer be necessary and will be sold. At June 30, 1996, such farmland
secured approximately $10 million of mortgage indebtedness. Such farmland is
also used as security for the Seller Note. There can be no assurance that
Gargiulo will be able to sell such farmland for an amount that is sufficient to
repay the indebtedness secured by such farmland, if at all. Calgene anticipates
further consolidations, the financial impact of which cannot be estimated at
this time.
Significant Influence by Monsanto and Possible Conflicts of Interest.
Monsanto owns 49.9% of the outstanding shares of Common Stock and has the right
to designate four of the nine members of the Calgene Board under a Stockholders
Agreement. Monsanto has the right to designate additional directors if and when
its percentage ownership of Calgene Common Stock increases. In addition, certain
actions may not be taken by Calgene without the approval of Monsanto. In July
1996, Calgene announced that it and Monsanto Company entered into a letter of
intent under which Monsanto will purchase an additional 6,250,000 shares of
Calgene common stock at a price of $8 per share (the "Proposed Monsanto
Transaction"). If approved by Calgene's shareholders, the purchase would bring
Monsanto's equity ownership interest to approximately 54.6% and give Monsanto
the right to designate five of the nine members of the Board. Also, Monsanto is
obligated, subject to certain terms and conditions, to lend up to $40 million to
Gargiulo, and up to $15 million annually for a period of three years to Calgene,
although not more than $15 million may be outstanding thereunder at any one
time. As of June 30, 1996, $24.8 million of the $40 million credit facility was
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
Calgene credit facility agreements, 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. It is possible that Monsanto's interest as a
stockholder of Calgene may differ from its interest as a lender, and there can
be no assurance that actions taken by Monsanto pursuant to the exercise of its
various rights under the Stockholders Agreement, and the credit facility
agreements will be in the best interests of all other stockholders of Calgene.
At June 30, 1996, Calgene was in violation of certain financial covenants in the
$40 million credit facility. Monsanto has agreed to waive such financial
covenants until September 30, 1997.
Possible Need for Additional Financing. Calgene expects its current cash
balances, together with the $50 million cash contribution to be made by Monsanto
for the purchase of additional common stock under the Proposed Monsanto
Transaction 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 Calgene's shareholders will approve the Proposed Monsanto Transaction, or
that all of Calgene's expected sources of funds will be available. Calgene
currently has a $13 million line of credit with Harris 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 August 31, 1996, Calgene was not
in compliance with certain financial covenants under its credit agreement with
Harris Bank. While Calgene has obtained waivers of such defaults through
December 31, 1996, there can be no assurance that it will be in compliance with
such covenants in the future or, in the event it is not in compliance, that it
will be able to obtain waivers of any such covenants. Gargiulo was not in
compliance with certain financial covenants in its credit agreement with
NationsBank. Gargiulo has received waivers under such covenants until November
30, 1996. There can be no assurance that Gargiulo will be in compliance with
such covenants or other covenants in its credit agreement in the future or that,
in the event it is not in compliance, that it will be able to obtain waivers of
any such covenants. NationsBank has indicated that it does not intend to renew
its credit agreement with Gargiulo beyond November 30, 1996. While Monsanto has
agreed to make a $40 million loan available to Gargiulo, 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 for three
consecutive years, 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. For all the foregoing reasons,
there can be no assurance that Calgene will be able to obtain any future
required financing on favorable terms, if at all.
History of Losses; Uncertainty of Future Financial Results. Calgene has
incurred aggregate net losses of approximately $274 million from inception in
1981 through June 30, 1996, including research and development expenses in
excess of $200 million. The net loss for Calgene in the year ended June 30, 1996
("Fiscal 1996") was $97.0 million, including in-process research and development
expense and asset write-downs totaling $74.8 million primarily as a consequence
of the Monsanto Transaction and the acquisition of Gargiulo. Calgene expects to
incur a substantial net loss in the six month period ending December 31, 1996.
There is no assurance that some or all of the factors which caused these
historical losses will not be present in future periods or that Calgene will be
able to overcome these or other problems and achieve profitability in the highly
unpredictable and volatile fresh produce business.
Potential Inability to Successfully Produce or Market the Branded Tomato.
Calgene intends to market a premium quality branded tomato under the Gargiulo
brand name, as part of its branded tomato strategy. A branded tomato program
requires year-round production of a tomato which consistently and uniformly
combine the characteristics and attributes retail consumers generally look for
in the tomatoes they purchase, such as pleasing flavor, tempting color, and good
size, shape and firmness. Calgene believes that such tomatoes, if successfully
produced and marketed, would gain brand recognition and that a sufficient number
of retail consumers would be willing to pay a premium price for such tomatoes.
However, to date, no grower or shipper has successfully produced and supplied a
branded tomato on a nationwide and year-round basis. While Calgene believes the
development of a successful branded tomato program is achievable, it recognizes
that such development will take a significant amount of time, effort and
capital. Even if Calgene is able to produce tomatoes suitable for a branded
program, there can be no assurance that retail consumers will be willing to
consistently pay premium prices for such tomatoes. Because Gargiulo has been
principally engaged in the commodity tomato business, and has little experience
in the fresh tomato business, Calgene will have little or no marketing
experience of the type required for a branded tomato program. There can be no
assurance that Calgene' s marketing efforts will be successful.
Funding of Branded Tomato Strategy. Upon the terms and conditions of the
Gargiulo Credit Facility Agreement, Monsanto has made available to Calgene a
revolving credit facility of up to $40 million. The proceeds of loans under the
Gargiulo Credit Facility Agreement are to be used solely to support the branded
tomato strategy (other than amounts used to finance $10 million of borrowings
made by Gargiulo to finance the Collier Transaction and to allow Gargiulo to
make an approximate $2 million payment to Monsanto pursuant to the Development
Agreement). In order to obtain an advance from Monsanto under the Gargiulo
Credit Facility Agreement, Calgene must provide reasonably acceptable
documentation to Monsanto verifying that certain milestones have been reached
and certain goals have been achieved, all as set forth in the Gargiulo Credit
Facility Agreement. In the event such milestones and goals are not achieved,
Monsanto will have no obligation to make advances under the Gargiulo Credit
Facility Agreement and Calgene will likely be unable to obtain sufficient
capital to support the implementation or expansion of the branded tomato
program.
Risks Associated with Production of Genetically-Engineered Tomatoes.
Calgene has experienced difficulties in scaling-up production of its
genetically-engineered tomatoes and has temporarily curtailed its tomato growing
operations until it is able to complete its development of varieties with
suitable agronomic characteristics. There can be no assurance that Calgene will
be able to accomplish such development or production scale-up of
genetically-engineered tomatoes. Unless and until such time as Calgene develops
genetically-engineered tomatoes with agronomic characteristics which it deems
sufficient for cost-effective commercial production, it will be dependent upon
the sale of tomatoes into the commodity markets.
Agribusiness Risks. A variety of agribusiness risks affect all of the fresh
produce sold by Calgene, including, without limitation, the following:
Supply and Demand. The fresh produce business is particularly sensitive
to fluctuation in supply and demand. When the supply of tomatoes and berries in
the market exceeds the demand for such products the market price for fresh
produce 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. In addition, oversupply can also
affect the prices obtained for premium quality produce. See "--Risks Associated
with the Branded Tomato Strategy."
Limited Barriers to Entry. The relatively low capital requirements for
farming permit relatively easy entrance into the fresh produce business, which
in turn can result in over-supply.
Weather. Weather conditions greatly affect the amount of fresh produce
that is brought to market. and accordingly, the prices received for such
produce. Storms, frosts, droughts, and particularly floods. can destroy crop and
less severe weather conditions, such as excess precipitation, cold weather and
heat, can kill or damage significant portions of a crop, rendering much of it
unpackable and unsalable.
Crop Disease and Pestilence. Crop disease and pestilence can be
unpredictable and can have a devastating effect on crops, rendering them
unsalable and resulting in the loss of all or a major portion of the crop for
that harvest .season. Even when only a portion of the crop is damaged, the
profits a grower could have ~ de on the crop will be severely disrupted because
the costs to plant and cultivate the entire crop will have been incurred
although only a portion of it can be sold. While some crop diseases and
pestilence are preventable or treatable. the costs of prevention or treatment
may be high. Calgene is attempting to develop insect and disease resistant
strains of tomatoes, other produce and cotton. However, there can be no
assurance that these efforts will be successful.
Labor Shortages and Union Activity. The production of fresh produce is
heavily dependent upon the availability of a large migrant labor force in order
to harvest crops. The turnover rate among the migrant labor force is high due to
the strenuous work, long hours, necessary relocation and relatively low pay.
Further the pool of such workers willing and able to do such unskilled manual
labor is shrinking. To the extent it becomes necessary to pay more to attract
unskilled labor to migrant farm work, labor costs can be expected to increase.
In addition, compliance with more stringent immigration laws has increased and
is likely to continue to increase migrant labor costs.
The migrant worker work force has not been unionized for the most part,
though significant efforts to form collective bargaining units or to have
existing ones recognized has occurred in the past, particularly in California
and to a lesser extent, Southwest Florida. There can be no assurance that such
union organizing activities will not occur in the future. If such organizing
efforts were to occur and be successful on a large scale labor costs would
likely increase and there could be work stoppages, which would be particularly
damaging in an industry where harvesting crops at peak times and getting them to
market on a timely basis is critical. The majority of fresh produce is shipped
by truck and is therefore susceptible to labor disturbances in the trucking
industry. Labor disturbances in the trucking industry can limit the ability to
get fresh produce to market before it spoils. Although Gargiulo has never been
affected by a nationwide truckers strike, it has been affected by regional
strikes and there can be no assurance that Calgene will not be affected by
national or regional labor disruptions in the trucking industry in the future.
Availability of Farmland in Florida and California. Calgene intends to
lease the majority of the land on which it grows its crops, particularly
tomatoes. These leases are generally short term, and as a result, Calgene will
likely be required to renegotiate many of its leases on an annual basis, thereby
subjecting itself to the possibility of increased rental payments. In addition,
a significant amount of the available land in Florida is classified as
"wetlands" and subject to significant restrictions on use. While Calgene
believes that the acquisition of Collier Farms by Gargiulo reduces this risk in
part, there can be no assurance that Calgene will enjoy the benefits it
anticipates as a result of the Collier Transaction.
Risks similar to those set forth above are associated with the continued
leasing of farmland for the growing of strawberries in California. Additionally,
farmland along the California coast is subject to the problem of salt water
intrusion which would be adverse to the growing of strawberries.
Seed Sales. Seed sales are affected by U.S. government agricultural policy,
which imposes varying limitations on planting acreage as a criterion for
farmers' eligibility to receive government subsidy payments and other benefits.
There is no assurance that current or future U.S. government agricultural
policies will not have a material adverse effect on Calgene's financial results.
Technological Change. The application of recombinant DNA and related
technologies to plants is complex and subject to rapid change. A number of
companies are engaged in research related to plant biotechnology including
companies that rely on the use of recombinant DNA as a principal scientific
strategy and companies that rely on other technologies. Technological advances
by others could render Calgene products less competitive. Many of these
companies, as well as competitors that supply non-genetically engineered
products have substantially greater resources than Calgene. Other companies are
developing and seeking to commercialize premium quality, fresh market tomatoes
developed with recombinant DNA or other technologies. One of Calgene's
competitors. a biotechnology company, has developed a vine-ripened tomato using
one such other technology, somoclonal variation.
which it is currently selling.
Product Development Uncertainties. Although Calgene has completed the
genetic engineering of BXN(TM) cotton and laurate canola, Calgene's other
genetically engineered products are at various stages of development. There are
difficult scientific objectives to he achieved in certain product development
programs before the technological feasibility of such products can be
demonstrated. Even the more advanced programs could encounter technological
problems that could significantly delay or prevent product development or
product introduction.
Patents and Trade Secrets. Since 1992, Calgene has been engaged in
litigation with Enzo Biochem ("Enzo") a company licensed under three related
U.S. patents and counterpart foreign patents (the "Enzo Patents") which purport
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 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. Meanwhile, 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. Enzo has
indicated that it intends to appeal the decision. 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 he 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. See "Item 3 -
Legal Proceedings."
The European Patent Office (the "EPO") has granted a patent to Enzo with
respect to claims which are intended to cover the use of antisense in all cells,
including plant cells. The EPO has also granted a patent to Agracetus, Inc., a
plant biotechnology company ("Agracetus"), with claims which are intended to
cover the use of antisense technology in all plants. A preliminary decision from
the EPO indicates that Calgene's opposition to Enzo's patent should be rejected.
Calgene has filed supplemental arguments with the EPO responding to the EPO's
reasoning and providing additional grounds for invalidation based upon evidence
which surfaced during the course of the U.S. litigation and intends to
supplement its opposition in the near future against such Agracetus patent. If
these proceedings are not successful in limiting the scope of the claims of
these patents and if Calgene is unable to obtain licenses from the respective
patent holders to use such antisense technology, Calgene could be prevented from
expanding some of Calgene's genetically engineered products, including tomatoes
engineered with the FLAVR SAVR gene, into Europe. There is no assurance that
licenses could be obtained on commercially reasonable terms, if at all. In May
1996, Monsanto Company purchased the plant biotechnology assets of Agracetus
along with related intellectual property.
Other companies have applied for patents covering Bt technology. If patents
were to be issued to other companies, Calgene would be required to obtain a
license to employ the Bt gene in commercial products. There is no assurance that
such 1icenses could be obtained on commercially reasonable terms, if at all.
Calgene has rights to obtain certain licenses to Monsanto's Bt technology and
has licensed Plant Genetics systems issued Bt patent.
U.S. patents have been issued to Agracetus for the transformation of
cotton. Calgene has obtained a license from Agracetus for non-fiber uses. The
patents are now in reexamination before the U.S. Patent Office and some claims
have been indicated as allowable by the Examiner. Once the reexamination is
completed, Calgene may determine that a license under these patents is needed
for its genetically engineered cotton fiber products. There is no assurance that
such a license could be obtained on commercially reasonable terms if at all. In
May 1996, Monsanto Company acquired from Agracetus its technology for cotton
fiber improvement.
A U.S. patent has been issued to a competitor for a genetic component which
is currently used in Calgene FLAVR SAVR tomato. Although alternatives are
available, in the event Calgene would be prevented from utilizing this genetic
element, it would cause disruption in the production of FLAVR SAVR tomatoes.
Analysis of this patent is currently underway. In the event that it is
determined that a license is necessary, there is no assurance that a license can
be obtained on commercially reasonable terms, if at all.
Patent applications filed in the United States are not publicly available
for examination. Patent applications filed outside of the United States may be
available for examination, but may not accurately reflect the applications filed
in the United States on the same claimed inventions. Patent application filed or
to be filed in the future by Calgene's competitors or others could, if patents
are issued, preclude Calgene from using. in the patent issuing countries,
technology and techniques basic to genetic engineering and to areas of
particular importance to Calgene. If Calgene is unable to obtain licenses to use
such technology, there could be a delay in the introduction of some of Calgene's
genetically engineered products in those countries. Whether such patents will be
issued, the extent to which Calgene would be required to license such patents
and the availability and cost of such licenses are currently unknown.
Calgene has received U.S. and foreign utility patents and has filed and
will continue to file patent applications in order to obtain proprietary
protection of certain genes, gene constructs, uses of genes in specific
applications and methods for genetic engineering of plants. There is no
assurance that future patents call he obtained in a timely fashion or, if
issued, will afford Calgene significant protection. In addition to patents,
Calgene seeks to protect its proprietary know-how as trade secrets. Although
Calgene takes precautionary measures to maintain the confidentiality of its
trade secrets, there is no assurance that competitors will not gain access to
Calgene's know-how or independently develop substantially equivalent know-how.
Public Acceptance of Genetically Engineered Products. The commercial
success of Calgene's genetically engineered products will depend in part on
public acceptance of the cultivation and consumption of genetically engineered
plants and plant products. Public attitudes may be influenced by claims that
genetically engineered plant products are unsafe for consumption or pose a
danger to the environment. There is no assurance that Calgene's genetically
engineered products will gain public acceptance.
Government Regulation. The field testing, production and marketing of
genetically engineered plants and plant products by Calgene is subject to
federal, state, local and foreign governmental regulation. There is no assurance
that regulatory agencies administering existing or future regulations or
legislation will allow Calgene to produce and market its genetically engineered
products in a timely manner or under technically or commercially feasible
conditions. In addition, regulatory action or private litigation could result in
expenses, delays or other impediments to Calgene's product development programs
or the commercialization of resulting products.
Although the U.S. Food and Drug Administration (the "FDA") has announced in
a policy statement that it will apply the same regulatory standards to foods
developed through genetic engineering as applied to foods developed through
traditional plant breeding, genetically engineered food products will be subject
to premarket review if they raise safety questions or are deemed to be food
additives. Calgene has completed the safety assessment of its FLAVR SAVR tomato,
BXN(TM) cotton and laurate canola products in accordance with the FDA policy.
There is no assurance that future Calgene products will not be subject to
lengthy FDA reviews and unfavorable FDA determinations if they raise safety
questions or are deemed to be food additive.
The FDA has announced in a policy statement that it will not require that
genetically engineered products he labeled as such, provided that such products
are as safe, and have the same nutritional characteristics as conventionally
developed products. There can be no assurance that the FDA will not reconsider
its position, or that local and state authorities will not enact labeling
requirements, either of which could have a material adverse effect on Calgene.
International regulatory requirements for genetically engineered plants and
plant products are only partially in place. Consequently, there can be no
assurance that additional data, labeling or other requirements will not be
required in countries where Calgene intends to grow and/or commercialize its
genetically engineered products. Foreign regulatory agencies could require
Calgene to conduct further safety assessments and potentially delay product
development programs or commercialization of resulting products. In addition the
Mexican health and agriculture authorities and Health Canada could reconsider
their respective positions regarding the marketing of the FLAVR SAVR tomato and
laurate canola.
The United States Department of Agriculture (the "USDA") prohibits
genetically engineered plants from being grown and transported except pursuant
to a deregulation, or under controls so burdensome as to render
commercialization impracticable. The only Calgene plants currently exempted by
the USDA are Calgene's initial tomato varieties engineered with the FLAVR SAVR
gene, the BXN(TM) cotton varieties and laurate canola. No assurance can be given
that additional Calgene products will be exempted by the USDA.
ITEM 2. PROPERTIES
----------
Calgene's principal research and development, executive and administrative
offices are located in three adjacent buildings in Davis, California, totaling
approximately 71,000 square feet. Each of the buildings is leased. Including
options to extend, the leases expire on 57,000 square feet in the year 2015 and
on 14,000 square feet in the year 2003. The company owns a 24,000 square foot
greenhouse facility located on ten acres near its main facility. An additional
54,000 square feet of greenhouse space is leased near Galt, California.
Including options to extend, the two leases in Galt expire in November 1997 and
July 1998, respectively.
In Georgia, the Company leases approximately 9,300 square feet of office
and laboratory space. With options to extend, the lease expires in March 2002. A
3,000 square foot greenhouse was constructed in 1994 by the Company.
At Stoneville, Mississippi, the Company owns approximately 155,000 square
feet of production and warehouse space, including a 16,000 square foot seed
delinting production facility. In addition, the Company also owns approximately
47,450 square feet of administrative and research and development facilities,
and 123 acres of research land. Currently, the Company is in the process of
constructing 27,000 square feet of additional warehouse space. The Company's
Arizona operations are located on 15 acres of leased land which, including
options to extend, expire in the year 2018. The Company owns 83,000 square feet
of production and warehouse space on this leased land. The Company's Stoneville
and Arizona facilities have the capacity to process up to 20,000 tons of bulk
cotton seed.
At its Calgene Chemical facility in Illinois, the Company leases office,
production, laboratory and warehouse space located on approximately 4.5 acres.
Including options to extend, the lease expires in 2017.
Gargiulo's principal properties presently consist of its executive offices
and sales offices and related packing facility located in Naples, Florida; a
research facility in Bonita Springs, Florida; tomato packing facilities in
Palmetto, Florida; Quincy, Florida; Mappsville, Virginia; Santa Isabela, Puerto
Rico; and Firebaugh, California; administrative offices in Watsonville,
California; a sales office in Nogales, Arizona; and various owned and leased
farmland. Gargiulo owns or leases farmland in and around Naples and Qunicy,
Florida; Watsonville, Oxnard, Santa Maria and Firebaugh, California; Mappsville,
Virginia; Santa Isabela, Puerto Rico; and Sinaloa State, Mexico. The majority of
Gargiulo's land is leased pursuant to relatively short-term leases. Thus, the
amount of farmland leased in any of the geographic areas in which Gargiulo
operates can vary from growing season to growing season.
With the acquisition of Collier Farms Gargiulo obtained four properties
located in southwest Florida. These properties are the sites of the two packing
houses, proposed seasonal labor housing and transplant nursery. In addition,
Gargiulo obtained access to long-term property leases which are used in the
growing operations. These areas have historically been used for vegetable
production and total approximately 11,000 acres. These properties are subject to
a master lease agreement which gives Garguilo certain rights to utilize these
properties. Collier Farms leases two additional properties in central Florida.
These farms are used for early fall and late spring production of tomatoes and
other vegetables. Each location is approximately 200 net acres.
The tomato and vegetable packing houses are located in Immokalee, Florida.
The Company's facilities are suitable for their respective uses and are, in
general, adequate for its needs, at least through 1997. The research and
development, executive and administrative offices at the Davis facility will
accommodate planned growth beyond 1997.
ITEM 3. 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
materially 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 June 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 Vazquez, were both filed on October 18,
1995, in the United States District Court for the Eastern District of
California. The company hiring and 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 on results of operations.
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 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDERS MATTERS
--------------------
Calgene's Common Stock is traded over-the-counter on the NASDAQ National
Market under the symbol CGNE. The following table sets forth for the periods
indicated the high and low sale prices of the Common Stock as reported by
NASDAQ.
High Low
FISCAL 1995
Quarter ended September 30, 1994 ...................12.375 8.625
Quarter ended December 31, 1994......................9.875 6.375
Quarter ended March 31, 1995.........................8.875 5.750
Quarter ending June 30, 1995.........................9.625 5.375
FISCAL 1996
Quarter ended September 30, 1995 ....................8.125 6.625
Quarter ended December 31, 1995......................7.250 4.250
Quarter ended March 31, 1996.........................7.375 4.500
Quarter ending June 30, 1996.........................6.875 5.375
As of September 23, 1996, there were approximately 3,244 holders of record
of the Calgene Common Stock. Calgene believes that the number of beneficial
owners of Calgene Common Stock is in excess of 31,000.
ALL STOCKHOLDERS OF CALGENE ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION
FOR THE CALGENE COMMON STOCK.
Calgene has never declared or paid cash dividends and does not intend to
pay cash dividends in the foreseeable future. Future cash dividends, if any,
will be determined by the Calgene Board and will be based upon Calgene's future
earnings, capital requirements, financial condition and other factors deemed
relevant by the Calgene Board. In addition, the ability of Calgene to pay
dividends would be restricted by the terms of certain indebtedness of Calgene as
well as the terms of the Calgene Credit Facility Agreement and the Gargiulo
Credit Facility Agreement the Company has with Monsanto Company.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS
DATA (1):
Revenues:
---------
<S> <C> <C> <C> <C> <C>
Product sales $ 95,723 $ 48,972 $ 35,408 $ 24,675 $ 18,211
Product development 9,272 6,459 3,025 2,562 3,666
--------- --------- --------- --------- ---------
Total revenues $ 104,995 $ 55,431 $ 38,433 $ 27,237 $ 21,877
---------
---------
Loss from continuing operations $ (97,014) $ (30,602) $ (42,801) $ (25,223) $ (18,616)
Net loss $ (97,014) $ (30,602) $ (42,801) $ (25,623) $ (19,916)
Net loss per share (2):
Loss from continuing operations $ (2.56) $ (1.04) $ (1.71) $ (1.11) $ (1.34)
Net loss $ (2.56) $ (1.04) $ (1.71) $ (1.13) $ (1.42)
---------
CONSOLIDATED BALANCE SHEET DATA:
---------
Total assets $ 233,302 $ 89,231 $ 78,312 $ 88,401 $ 85,223
Long-term obligations $ 57,403 $ 15,421 $ 5,704 $ 3,694 $ 4,378
Preferred stock (3) $ -- $ -- $ -- $ -- $ 29,506
Common stock and additional
paid-in capital $ 367,554 $ 223,191 $ 190,961 $ 169,506 $ 111,119
(1) As described elsewhere herein, acquisitions during 1993 and 1996 affect the comparability of the selected
financial data.
(2) Applicable to holders of common stock.
(3) Includes additional paid-in capital allocable to Preferred Stock.
Substantially all the Preferred Stock was converted to Common Stock in
July 1992.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITIONS 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 fiscal 1996 increased 95.5% to $95.7 million
from $49.0 million in fiscal 1995. The increase resulted from the inclusion of
Gargiulo's product sales of $48.3 million in the fourth quarter of fiscal 1996.
Product sales in fiscal 1995 increased 38.3% to $49.0 million from $35.4 million
in fiscal 1994. The increase reflects $6.8 million higher tomato sales, $4.2
million higher cotton seed sales, and $2.3 million higher specialty oleochemical
sales. As a result of the Gargiulo acquisition, sales of fresh market produce
are expected to increase in the next fiscal year.
Product development revenues in fiscal 1996 increased by 43.6% to $9.3
million from $6.5 million in the prior fiscal year. The increase was due to a
$3.3 million increase in technology license sales reflecting the net impact of
non-recurring sales of $7.0 million and $3.8 million in fiscal 1996 and 1995,
respectively. Product development revenues in fiscal 1995 increased by 113.5% to
$6.5 million from $3.0 million in the prior fiscal year. The increase was
primarily due to a $3.4 million increase in technology license sales.
Gross Profit
Calgene's gross profit on net product sales was $5.3 million in fiscal 1996
as compared to a negative gross profit of $4.7 million in fiscal 1995. The $10.0
million improvement is attributable to a $10.4 million reduction of negative
gross profit at Calgene Fresh, and the inclusion of Gargiulo fourth quarter
gross profit of $2.1 million. This improvement was partly offset by a $2.1
million decrease in gross profit from cotton operations primarily due to surplus
inventory write downs and higher product costs. Gross profit in fiscal 1995 was
negative $4.7 million as compared to a negative gross profit of $8.6 million in
fiscal 1994. The negative gross profit is attributable to the Company's fresh
market tomato operations. The positive gross profit variance of $3.9 million in
fiscal 1995 is largely due to a gross profit increase of $2.3 million in cotton
operations primarily reflecting increased domestic seed sales. In addition,
tomato sales incurred a negative gross profit of $14.9 million in fiscal 1995,
compared with a negative gross profit of $16.4 million in fiscal 1994.
Research and Development Expenses
Research and development expenses decreased by $1.4 million or 8.8% to
$14.0 million in fiscal 1996 as compared to fiscal 1995. The decrease primarily
reflects the full year impact of the Company's third quarter fiscal 1995
implementation of a program to reduce ongoing research expenses. This program
included staff reductions of approximately 10% of the Company's 320 regular full
time employees, and reflected a shift in resources from research into product
development to focus on commercialization of the Company's genetically
engineered products. In addition, the decrease reflects lower expenses for
licensing activities. The lower research and development expense was partly
offset from the inclusion of Gargiulo research and development expenses in the
fourth quarter. Research and development expenses decreased $195,000 in fiscal
1995 to $15.4 million as compared to $15.6 million in fiscal 1994 primarily due
to lower distribution testing, consulting and product development expenses in
the Company's tomato operations. These decreases were partly offset by higher
expenses for licensing activities and higher product development expenses for
genetically modified canola oils.
Selling, General and Administrative Expenses
Calgene's selling, general and administration expenses increased by $5.6
million or 35.0% to $21.7 million in fiscal 1996 as compared to fiscal 1995. The
increase reflects $5.3 million in higher expenses for the Company's fresh market
produce operations attributable to the inclusion of Gargiulo expenses in the
fourth quarter. Selling, general and administration expenses decreased by $5.2
million or 24.4% to $16.1 million in fiscal 1995 as compared to fiscal 1994. The
decrease primarily reflects lower sales and marketing expenses and lower payroll
and consulting expenses in the Company's tomato operations. In addition, fiscal
1994 reflects a $1.0 million scale-back charge attributable to the reduction of
non-genetically engineered tomato marketing operations. The fiscal 1995 decrease
was partly offset by higher general corporate expenses which include a $483,000
write-off of costs associated with Calgene's decision to conclude discussions
with a potential strategic partner. Selling, general and administration expenses
are expected to increase substantially primarily due the Gargiulo acquisition.
In-process Research & Development Acquired
In connection with Calgene's transaction with Monsanto, Calgene engaged an
independent appraiser to provide the Company with recommendations of value for
certain assets acquired from Monsanto, including Gargiulo. Based on the
valuation analysis, Calgene assigned $59.2 million of the purchase price to
in-process research and development. Because the technological feasibility of
the acquired in-process research and development has not been established and
has no alternative future uses, it was expensed in the third quarter of fiscal
1996. Although the Company is in the process of evaluating its research and
development projects, it is expected that future expenditures of over $20
million will be necessary to develop the acquired in-process technology into
commercial products.
Write-off of Assets
During fiscal 1996 the Company recorded a charge of $15.6 million for the
write-off of assets as compared to $1.1 million in the prior fiscal year. The
write-off for fiscal year 1996 includes $10.4 million primarily related to the
merger of Calgene's tomato operations into Gargiulo. The write-off of tomato
assets primarily reflects a $5.4 million asset impairment charge due to the
consolidation of facilities and equipment and a $2.5 million write-off of
obsolete technology licenses. The Company also recorded $1.5 million for the
write-off of its investment in a majority owned potato joint venture (before
minority interest), and $1.0 million for the write-off of a technology license
option the Company does not intend to exercise. As a consequence of the
Company's decision in the third quarter of fiscal 1996 to reduce its emphasis on
commodity distribution products at Calgene Chemical, the excess purchase price
of net assets acquired associated with the commodity distribution business was
written-down to net realizable value resulting in a $1.2 million expense. The
$1.1 million expense in fiscal 1995 reflects the write-off of obsolete assets by
Calgene Fresh.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank line
of credits and long-term debt obligations, increased $2.5 million to $3.4
million in fiscal 1996 as compared to $924,000 in fiscal 1995. The increase was
primarily due to interest expense of $1.7 million attributable to Gargiulo's
debt obligations. In addition, the increase includes higher interest expense
incurred due to a $23 million loan made by Monsanto in the form of a
subordinated convertible note. The note was converted into equity on March 31,
1996 pursuant to the terms of the Reorganization Agreement (see Note 4 of the
consolidated financial statements). Interest expense increased $195,000 to
$924,000 in fiscal 1995 as compared to $729,000 in the prior fiscal year. The
increase was primarily due to higher interest rates and higher borrowings on the
Company's bank line of credit used to finance inventories and receivables.
Other Income (Expense), Net
Other income in fiscal 1996 was $2.3 million as compared to $1.1 million in
fiscal 1995. The increase reflects a $595,000 increase in the minority partner's
interest share of the higher net losses from a potato joint venture as a
consequence of management's decision to cease its operation and sell remaining
assets. In addition, the increase reflects a $238,000 gain realized from an
insured casualty loss. In fiscal 1995 other income increased $747,000 as
compared to the prior fiscal year. The increase was primarily due to a $370,000
reduction in the net loss of an affiliate, and $352,000 in higher interest
income.
Pre-Tax Losses from Operations
In fiscal 1996, Calgene incurred a pre-tax loss of $97.0 million as
compared to a pre-tax loss of $30.6 million in the prior fiscal year. The
increased fiscal 1996 pre-tax loss of $66.4 million reflects non-recurring
charges associated with closing the Reorganization Agreement including $59.2
million for the purchase of in-process research and development, and $15.6
million for the write-off of assets. In addition, the higher loss reflects
higher selling, general, and administrative expenses and higher interest expense
due the to inclusion of Gargiulo operations. These factors were partly offset by
a gross profit improvement from net product sales, higher product development
revenues, an increase in other income, and lower research and development
expenses. In fiscal 1995, Calgene incurred a pre-tax loss of $30.6 million as
compared to a pre-tax loss of $42.7 million in the prior fiscal year. The
decreased fiscal 1995 pre-tax loss is primarily attributable to lower selling,
general and administration expenses at Calgene Fresh and higher product
development revenues. In addition, the decreased pre-tax losses reflect
increases in gross profits on net product sales from cotton seed and
oleochemical sales, and a reduction in gross losses on net product sales at
Calgene Fresh. These factors were partly offset by higher selling, general and
administrative expenses for general corporate purposes, and the loss on
disposition of obsolete assets.
The Company expects to continue to incur pre-tax losses in fiscal 1997.
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.
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 June 30, 1996 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $ 28.6 million, excluding $1.0
million in securities pledged as collateral for certain obligations. This was an
increase of $6.6 million from June 30, 1995. Sources of cash in fiscal 1996
included (i) $7 million in partial consideration for Monsanto's 49.9% equity
interest in Calgene (excluding $23 million from the conversion of long-term debt
into equity), (ii) the Company's May 1996 transaction with Monsanto whereby $10
million was advanced to help fund oilseed research and development, (iii) a $2.7
million loan from Monsanto, and (iv) a $10.3 million decrease in net operating
assets and liabilities. Uses of cash include (i) Calgene's net loss, excluding
non-cash expenses of $59.2 million for in-process research and development
acquired, $15.6 million for the write-off of assets and $7.0 million in
depreciation and amortization expense, (ii) the acquisition of $3.9 million in
property, plant and equipment, (iii) the $1.5 million net decrease in notes
payable and long-term debt and (iv) the $1.4 million purchase of product rights,
patents and other intangible assets. The Company's investment policy is to
invest excess cash in high quality, liquid, short-term fixed income securities.
Inventories increased by $15.7 million in fiscal 1996 as compared to fiscal
1995 due to the inclusion of $18.5 million of inventory from the Gargiulo
acquisition. The increase was partly offset by lower inventories at Calgene
Fresh reflecting the wind-down and consolidation of operations into Gargiulo.
Accounts receivable increased $19.4 million in fiscal 1996 as compared to the
prior fiscal year due to the inclusion of $21.9 million of trade receivables
from Gargiulo and higher cottonseed receivables. The increase was partly offset
by the collection of receivables at Calgene Fresh.
Current liabilities increased $54.5 million in fiscal 1996 as compared to
fiscal 1995 largely due to a $21.4 million increase in current portion long term
debt and a $9.0 million increase in notes payable. These increases reflects the
inclusion of $21.6 million in current portion of long term debt and $16.3
million in notes payable from the acquisition of Gargiulo. In addition, trade
payables increased by $13.6 million due to the inclusion of $17.5 million from
Gargiulo, partly offset by lower trade payables at Calgene Fresh. Other current
liabilities increased by $9.6 million in fiscal 1996 as compared to the prior
year due to a $10.2 million increase from the inclusion of Gargiulo, partly
offset by a reduction at Calgene Fresh.
Net working capital decreased $12.3 million from $10.8 million at June 30,
1995 to negative $1.5 million at June 30, 1996 primarily due to a $54.5 million
increase in current liabilities. This increase was partly offset by a $19.4
million increase in accounts receivable, a $18.5 million increase in
inventories, and a $6.6 million increase in cash and equivalents and available
for sale securities.
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
$7.6 million at June 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 June 30, 1996, the amount of these unamortized costs
was $5.8 million.
In July 1996, Calgene announced that it and Monsanto Company entered into a
letter of intent under which Monsanto will purchase an additional 6,250,000
shares of Calgene common stock at a price of $8 per share. If approved by
Calgene's public shareholders, the purchase would bring Monsanto's equity
ownership interest to approximately 54.6% and give Monsanto the right to
designate five of the nine members of the Board. Also, 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 for a period of
three years to Calgene ("Calgene Credit Facility"), although not more than $15
million may be outstanding thereunder at any one time. As of June 30, 1996,
$24.8 million of the Gargiulo Credit Facility was 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 and 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. At June 30, 1996, Calgene was in violation of certain financial
covenants in the $40 million credit facility. Monsanto has agreed to waive such
financial covenants until September 30, 1997. In order to comply with the
financial covenants before the waiver period ends, it will be necessary for
Calgene to consummate the pending equity purchase by Monsanto, or utilize the
Calgene Credit Facility.
Calgene currently has a $13 million line of credit with Harris 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 August 31, 1996,
Calgene was not in compliance with certain financial covenants under its credit
agreement with Harris Bank. While Calgene has obtained waivers of such defaults
through December 31, 1996, there can be no assurance that it will be in
compliance with such covenants in the future or, in the event it is not in
compliance, that it will be able to obtain waivers of any such covenants.
Gargiulo was not in compliance with certain financial covenants in its
credit agreement with NationsBank. Gargiulo has received waivers under such
covenants until November 30, 1996. There can be no assurance that Gargiulo will
be in compliance with such covenants or other covenants in its credit agreement
in the future or that, in the event it is not in compliance, that it will be
able to obtain waivers of any such covenants. NationsBank has indicated that it
does not intend to renew its credit agreement with Gargiulo beyond November 30,
1996. At June 30, 1996 the Company owed NationsBank $23.1 million.
While Monsanto has agreed to make a $40 million loan available to Gargiulo,
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 for three consecutive years, 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, together with the $50 million
cash contribution to be made by Monsanto for the purchase of additional common
stock under the Proposed Monsanto Transaction 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 Calgene's shareholders will
approve the Monsanto equity investment, or that all of Calgene's expected
sources of funds 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
Index to Consolidated Financial Statements
and Supplementary Data
Page
Report of Independent Auditors..............................................34
Consolidated Balance Sheets - June 30, 1996 and 1995........................35
Consolidated Statements of Operations - Years ended
June 30, 1996, 1995 and 1994................................................37
Consolidated Statements of Shareholders' Equity -
Years ended June 30, 1996, 1995 and 1994....................................38
Consolidated Statements of Cash Flows - Years ended June 30,
1996, 1995 and 1994.........................................................39
Notes to Consolidated Financial Statements..................................40
Supplementary Data (Unaudited)..............................................58
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Calgene, Inc.
We have audited the accompanying consolidated balance sheets of Calgene, Inc. as
of June 30, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended June 30, 1996. Our audits also included the financial statement
schedules listed in the Index at Item 14(a)2. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Calgene, Inc. at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Sacramento, California
September 12, 1996
<PAGE>
CALGENE, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS 1996 1995
------ -------- --------
Current assets:
Cash and equivalents $ 17,674 $ 11,753
Available-for-sale securities 10,919 10,283
Accounts receivable, primarily trade,
net of allowance for doubtful accounts
of $487 and $346 at June 30, 1996
and 1995, respectively 26,133 6,697
Inventories 23,865 8,148
Prepaid expenses and other
current assets 2,174 1,699
-------- --------
Total current assets 80,765 38,580
Property, plant and equipment:
Land 20,119 763
Buildings 22,357 3,743
Leasehold improvements 10,689 9,643
Furniture, fixtures and equipment 41,627 22,436
Construction in progress 1,676 1,459
-------- --------
96,468 38,044
Less accumulated depreciation and amortization 16,481 15,524
-------- --------
Property, plant and equipment, net 79,987 22,520
Product rights, patents and other
intangible assets, less accumulated
amortization of $3,060 and $2,507
at June 30, 1996 and 1995,
respectively 30,642 16,199
Costs in excess of fair values assigned
to net assets acquired, less accumulated
amortization of $4,612 and $4,145 at
June 30, 1996 and 1995, respectively 36,219 10,025
Other non-current assets 5,689 1,907
-------- --------
$233,302 $ 89,231
======== ========
See accompanying notes.
<PAGE>
CALGENE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ --------- ---------
Current liabilities:
Notes payable $ 16,789 $ 7,761
Accounts payable 20,111 6,487
Accrued payroll and related expenses 3,252 2,049
License contract payable 750 1,500
Amounts due customers 5,028 4,596
Other current liabilities 13,453 3,872
Current portion of long-term debt 22,850 1,494
--------- ---------
Total current liabilities 82,233 27,759
License contract payable, long-term -- 750
Note payable to affiliate 24,760 --
Research and development advance from affiliate 10,000 --
Long-term debt 22,643 14,671
Commitments and contingencies (Note 10)
Minority interest 266 --
Shareholders' equity:
Preferred stock, $.001 par value; 5,000,000
authorized, no shares issued and outstanding -- --
Common stock, $.001 par value; 80,000,000
shares authorized, 60,443,115 and 30,244,226
shares issued and outstanding at June 30, 1996
and 1995, respectively 60 30
Additional paid-in capital 367,494 223,161
Accumulated deficit (274,154) (177,140)
--------- ---------
Total shareholders' equity 93,400 46,051
--------- ---------
$ 233,302 $ 89,231
========= =========
See accompanying notes.
<PAGE>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
Revenues:
<S> <C> <C> <C>
Product sales, net $ 95,723 $ 48,972 $ 35,408
Product development revenues 9,272 6,459 3,025
------------ ------------ ------------
104,995 55,431 38,433
Costs and expenses:
Cost of goods sold 90,403 53,678 43,982
Research and development:
Contract 4,222 3,436 2,721
Other 9,801 11,937 12,847
Selling, general and administrative 21,705 16,081 21,279
In-process research and development
acquired 59,200 -- --
Write-off of assets 15,574 1,098 --
------------ ------------ ------------
200,905 86,230 80,829
Interest expense (3,428) (924) (729)
Other income, net 2,345 1,136 389
------------ ------------ ------------
Loss from operations before provision for
income taxes (96,993) (30,587) (42,736)
Provision for income taxes (21) (15) (65)
------------ ------------ ------------
Net loss $ (97,014) $ (30,602) $ (42,801)
============ ============ ============
Net loss per share $ (2.56) $ (1.04) $ (1.71)
============ ============ ============
Shares used in per share calculations 37,883,871 29,439,008 24,987,513
============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 30, 1996, 1995, and 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common stock Additional Total
-------------------------- paid-in Accumulated shareholders'
Shares Amount capital deficit equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 24,411,782 $ 24 $ 169,482 ($ 103,737) $ 65,769
Net loss -- -- -- (42,801) (42,801)
Sale of common stock, net of expenses 1,845,000 2 19,150 -- 19,152
Options exercised 249,530 1 1,605 -- 1,606
Stock compensation -- -- 697 -- 697
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1994 26,506,312 27 190,934 (146,538) 44,423
Net loss -- -- -- (30,602) (30,602)
Sale of common stock, net of expenses 3,683,262 3 31,419 -- 31,422
Options exercised 54,652 -- 340 -- 340
Stock compensation -- -- 452 -- 452
Unrealized gain on available-for-sale
securities -- -- 16 -- 16
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1995 30,244,226 30 223,161 (177,140) 46,051
Net loss -- -- -- (97,014) (97,014)
Sale of common stock, net of expenses 30,192,707 30 144,343 -- 144,373
Options exercised 6,182 -- 40 -- 40
Unrealized loss on available-for-sale
securities -- -- (50) -- (50)
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 60,443,115 $ 60 $ 367,494 ($ 274,154) $ 93,400
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(97,014) $(30,602) $(42,801)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest in net loss (787) (116) (46)
Depreciation and amortization 6,989 4,957 4,099
In-process research and development acquired 59,200 -- --
Write-off of assets 15,574 1,098 --
Equity in net loss of affiliate 1 213 583
Stock compensation -- 452 697
Net changes in operating assets and liabilities, excluding effect of
acquisition of subsidiaries:
Accounts receivable 8,912 (1,992) (1,658)
Allowance for doubtful accounts 141 173 (78)
Inventories 6,455 (2,003) 1,320
Prepaid expenses and other current assets 1,447 (303) 34
Accounts payable (1,903) (1,429) 2,589
Accrued payroll and related expenses 784 246 241
Amounts due customers 432 1,268 1,740
Other current liabilities (6,227) 612 1,637
Other 242 30 82
--------------- --------------- ---------------
Net cash used in operating activities (5,754) (27,396) (31,561)
--------------- --------------- ---------------
Cash flows from investing activities:
Proceeds from sales of securities 11,787 22,904 24,904
Purchase of securities (12,473) (17,714) (15,588)
Collection of notes receivable -- -- 1,709
Investment in affiliate 19 (73) (579)
Capital expenditures for property, plant and equipment (3,887) (5,649) (4,437)
Payment for purchase of subsidiaries, net of cash and equivalents acquired (1,436) (90) (12)
Purchases of product rights, patents and other intangible assets (1,397) (4,782) (4,843)
Proceeds from sale of assets 489 38 69
--------------- --------------- ---------------
Net cash provided by (used in) investing activities (6,898) (5,366) 1,223
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 8,453 19,398 14,214
Payments on notes payable (19,489) (20,322) (13,161)
Decrease in securities-pledged 214 159 136
Increase in borrowings of long-term debt 25,057 10,000 --
Principal payments on long-term debt (15,549) (1,768) (1,332)
Sale of common stock 7,207 31,762 20,758
Proceeds on notes payable to affiliate 2,680 -- --
Research and development advance from affiliate 10,000 -- --
--------------- --------------- ---------------
Net cash provided by financing activities 18,573 39,229 20,615
--------------- --------------- ---------------
Net increase (decrease) in cash and equivalents 5,921 6,467 (9,723)
Cash and equivalents at beginning of year 11,753 5,286 15,009
--------------- --------------- ---------------
Cash and equivalents at end of year $17,674 $11,753 $5,286
=============== =============== ===============
</TABLE>
See accompanying notes.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
-------------------------
Calgene is a biotechnology company that is developing a portfolio of
genetically engineered plants and plant products for the food, seed and
oleochemical industries. The Company's research and business efforts
are focused in three core crop areas--fresh produce (tomato and
strawberry), edible and industrial plant oils (canola) and
cotton--where Calgene believes biotechnology can provide substantial
added commercial value in consumer, industrial and seed markets.
Consolidation and Equity Accounting
-----------------------------------
The consolidated financial statements include the accounts of Calgene,
its wholly-owned subsidiaries and its majority owned joint venture
(together the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Calgene uses the equity method to account for its investments in its 50
percent or less owned joint ventures. Under the equity method, Calgene
recognizes its proportionate share of the net income or loss of these
joint ventures currently, rather than when realized through dividends
or disposal.
Cash Equivalents and Available-for-sale Securities
--------------------------------------------------
Cash equivalents and available-for-sale securities, consisting
principally of certificates of deposit, bankers acceptances, commercial
paper, U.S. treasury and agency securities, and money market funds, are
stated at fair market value, and are adjusted for amortization of
premiums and accretion of discounts, which are recognized as
adjustments to interest income. Unrealized gains and losses, net of
tax, on available-for-sale securities are reported in shareholders'
equity. Gross realized gains and losses on available-for-sale
securities were not material during the periods presented. The
aggregate fair market value of available-for-sale securities at June
30, 1996, is $28,288,00, of which $17,369,000 is included in cash and
equivalents. The aggregate fair market value of available-for-sale
securities at June 30, 1995, is $20,276,000, of which $9,993,000 is
included in cash and equivalents. The contractual maturities of
available-for-sale securities at June 30, 1996, are as follows:
$23,894,000 in fiscal 1997, $1,509,000 in fiscal 1998, $1,831,000 in
fiscal 1999 and $1,054,000 in fiscal 2002.
Inventories
-----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost and depreciated or
amortized on a straight-line basis over the estimated useful lives of
the assets or the capital lease term, whichever is less. The
estimated useful lives range from 3 to 30 years.
Product Rights, Patents and Other Intangible Assets
---------------------------------------------------
Product rights of approximately $3,042,000 at June 30, 1996 and
$7,827,000 at June 30, 1995 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. The net book value of capitalized patent related costs
is $7,908,000 and $8,372,000 at June 30, 1996 and 1995, respectively.
Other intangible assets consist primarily of the seed library
acquired in connection with the acquisition of Gargiulo (Note 4),
which is being amortized over its estimated useful life of 15 years.
Costs in excess of fair values assigned to net assets acquired are
capitalized and amortized on a straight-line basis over periods of 10
to 25 years.
Revenue Recognition and Product Development Arrangements
--------------------------------------------------------
Revenue from product sales is recognized primarily at the time of
shipment net of estimated product returns. The Company performs
research under contracts for the development of certain products for
other entities. Revenue from product development contracts is
recognized according to the percentage of completion method. Funding
received in advance of research performed under these contracts is
recorded as deferred revenue. Related contract expenses are charged to
expense as incurred.
Income Taxes
------------
The liability method is used to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. General
business tax credits will be accounted for as a reduction of federal
income taxes payable under the flow-through method.
Net Loss Per Share
------------------
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 equivalent shares related to stock options have been
excluded from the computation of net loss per share since their
inclusion would be antidilutive.
Statement of Cash Flows
-----------------------
For purposes of the consolidated statement of cash flows, the Company
considers highly liquid investments with original maturities of three
months or less to be cash equivalents. During fiscal 1996, 1995 and
1994, the Company paid cash for interest and income taxes as follows:
(In thousands)
1996 1995 1994
---- ---- ----
Interest $1,619 $895 $621
Income taxes 83 91 53
The Company maintains its cash and equivalents and short-term
investments in several different instruments. This diversification of
risk is consistent with the Company's policy to maintain liquidity and
ensure the safety of principal.
Accounting for Stock Based Compensation
---------------------------------------
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with the provision of the Accounting
Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." In 1995, the Financial Accounting Standards Board
released Statement of Financial Accounting Standard No. 123 (SFAS 123),
"Accounting for Stock Based Compensation." SFAS 123 provides an
alternative to APB 25 and is effective for fiscal years beginning after
December 15, 1995. The Company expects to continue to account for its
stock plans in accordance with APB 25. Accordingly, SFAS 123 is not
expected to have any material impact on the Company's financial
position or results of operations.
Fair Values of Financial Instruments
------------------------------------
The carrying amounts reported in the balance sheet for cash and
equivalents and available-for-sale securities approximates their
respective fair values. The carrying amounts of the Company's
borrowings under its debt agreements approximate their fair value.
The fair values of the Company's long-term debt are estimated using
discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing
arrangements.
Use of Estimates and Certain Risks
----------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Among other things, the Company is subject to risks
from changes in farm legislation, market price fluxtuations for the
Company's products, and adverse weather conditions which my effect the
ultimate realization of certain of its inventories.
Reclassifications
-----------------
Certain amounts reported for prior years have been reclassified to
conform with the presentation of the fiscal 1996 financial statements.
2. RECEIVABLES
-----------
Receivables consist of the following:
<TABLE>
<CAPTION>
(In thousands)
-----------------------------------------
June 30, 1996 June 30, 1995
------------------------ -------------
Trade Related Party Trade
-------- ------------- -----
<S> <C> <C> <C>
Customer $ 18,808 $ -- $ 6,708
Grower advances 5,917 -- --
Other 923 972 335
-------- -------- --------
Total 25,648 972 7,043
Less allowance for doubtful amounts (487) -- (346)
-------- -------- --------
Total $ 25,161 $ 972 $ 6,697
</TABLE>
3. INVENTORIES
-----------
Inventories consist of the following at June 30, 1996 and 1995:
(In thousands)
1996 1995
---- ----
Growing crops $ 11,208 $2,368
Supplies and seeds inventories 10,136 1,123
Finished goods 1,415 1,942
Work in progress 596 2,245
Raw materials 510 470
-------- -------
$23,865 $8,148
======= ======
4. STRATEGIC ALLIANCE
------------------
On March 31, 1996, Calgene and Monsanto Company ("Monsanto")
consummated an Agreement and Plan of Reorganization (the
"Reorganization Agreement") and related Plan of Merger under which
Monsanto contributed Gargiulo, Inc. ("Gargiulo"), $30 million and
certain oils and produce related technology in exchange for a 49.9%
equity interest in Calgene. Gargiulo is a grower, packager, marketer
and distributor of tomatoes, strawberries and other produce with
operations in Florida, California, Puerto Rico and Mexico. The
acquisition of Gargiulo was accounted for as a purchase.
In connection with the Reorganization Agreement a total of 30,161,114
shares of Calgene common stock were issued with an aggregate fair value
of approximately $144,206,000. The per share value of Calgene common
stock assigned to the transaction was based on the last trade as
reported on the National Market System on the day the Company's
negotiations with Monsanto concluded. The common stock trade price was
discounted to account for Monsanto's liquidity restrictions based on an
independent appraisal. The purchase price consists of the following:
(In thousands)
30,161,114 shares of common stock $144,206
Acquisition costs, consisting primarily
of financial advisory, legal and accounting fees 1,530
Less cash received (30,000)
--------
$115,736
========
A summary of the purchase price allocation is as follows:
(In thousands)
Net assets acquired $11,506
Identified intangible assets 21,680
Excess purchase price over net assets acquired 23,350
In-process research and development 59,200
--------
$115,736
========
Intangible assets include completed technology, assembled workforce and
costs in excess of fair values assigned to net assets acquired. The
estimated useful lives are expected to range from 5 to 15 years.
Because the technological feasibility of the acquired in-process
research and development has not been established and has no
alternative future uses, the $59.2 million allocated to in-process
research and development has been expensed.
Between June 29, 1995 and March 19, 1996 Calgene received $23 million
in advances toward the $30 million proceeds in the form of a
subordinated promissory note. The subordinated note was converted to
equity upon consummation of the transaction. The additional $7 million
was received on April 1, 1996.
Acquisition of Collier Farms
----------------------------
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 purchase price consists of $10 million in cash and a $10 million
promissory note, plus an earn-out payment based upon achieving certain
earnings of the combined operations of Gargiulo and Collier in
Southwest Florida. Gargiulo also acquired Collier's 1995-1996 crop and
assumed liabilities related thereto, and committed to lease certain
farmland from affiliates of Collier. The acquisition was accounted for
as a purchase. The purchase price consists of the following:
(In thousands)
Cash $10,000
Promissory note 10,000
Investment in 1995-1996 crop 12,127
Acquisition costs, consisting primarily
of financial advisory, legal and accounting fees 200
-------
$32,327
=======
A summary of the purchase price allocation is as follows:
(In thousands)
Net assets acquired $23,500
Excess purchase price over net assets acquired 8,827
-------
$32,327
=======
Unaudited Proforma Combined Results of Operations
-------------------------------------------------
Unaudited proforma combined results of operations giving effect to
certain adjustments as if the Gargiulo and Collier acquisitions
occurred on July 1, 1995 are displayed in the following table. These
unaudited proforma combined results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition been
in effect on July 1, 1995 or which may result in the future.
(In thousands,
except per share
amounts)
Revenue $182,041
Net loss $(128,115)
Net loss per share $(2.12)
5. OILSEED CROSS LICENSING AGREEMENT
---------------------------------
In May 1996, the Company entered into a broad cross licensing agreement
with Monsanto encompassing the two companies' oilseed research
programs. The agreement has an initial term of 15 years.
Under the agreement Calgene received a royalty free license to current
and future Monsanto agronomic technology for use in combination with
Calgene's proprietary oils modification genes for development of
specialty canola oil products. Calgene also received $10 million from
Monsanto for best-efforts research and development activities to be
performed by Calgene over a three year period relating to further
development of plant expression or oil modification technologies. In
exchange for the above, Calgene will pay royalties to Monsanto based on
a portion of the net profits of Calgene's oils division. The Company
recorded the $10 million research and development funding as a
long-term liability in the accompanying balance sheet. Royalties
payable to Monsanto as described above will be charged against the
liability in the period incurred. In the event the aggregate royalties
to Monsanto exceeds $10 million, such amounts will be charged to
expense as incurred.
In exchange for a $7 million non-refundable license fee paid to
Calgene, Monsanto received a royalty bearing license to Calgene
technology to develop agronomically superior corn, soybean, canola and
sunflower crops. The license fee was recorded as product development
revenue in the accompanying Statement of Operations.
6. PENDING MONSANTO EQUITY INVESTMENT
----------------------------------
On July 30, 1996, Calgene and Monsanto entered into a letter of intent
under which Monsanto will purchase an additional 6,250,000 shares of
Calgene Common Stock. The gross proceeds from the transaction will be
$50 million or $8 per share. This purchase would increase Monsanto's
equity ownership in Calgene to 54.6% and would cause a shift in the
composition of the Calgene Board of Directors to provide for four
independent directors, the CEO of Calgene, and four Monsanto nominees.
Of the four independent directors, three will be nominated by Calgene
and one will be nominated by Monsanto.
The closing of the transaction is subject to the execution of a
definitive written agreement and Calgene shareholder approval.
7. PGI-KIRIN PARTNERSHIP
---------------------
In March 1990 the Company and Kirin Brewery Co., Ltd. established
PGI-Kirin Partnership ("PGK"), a joint venture to develop and
commercialize new potato varieties. In January 1996 management decided
to cease PGK operations and sell its remaining assets. Consequently,
Calgene recorded an estimated net write-off of its investment in PGK of
$982,000 in the third fiscal quarter of fiscal 1996. PGK's revenues in
fiscal 1996 and fiscal 1995 were $1.6 million and $1.5, respectively.
8. WRITE-OFF OF ASSETS
-------------------
During fiscal 1996 the Company recorded a charge of approximately $15.6
million for the write-off of assets, including $10.4 million primarily
related to the merger of Calgene's tomato operations into Gargiulo. The
write-off of tomato assets primarily reflects a $5.4 million asset
impairment charge due to the consolidation of facilities and equipment
and a $2.5 million write-off of obsolete technology licenses. The
Company also recorded $1.5 million for the write-off of its investment
in PG-K (before minority interest), and $1.0 million for the write-off
of an option to a technology license the Company does not intend to
exercise. As a consequence of the Company's decision in the third
quarter of fiscal 1996 to reduce its emphasis on commodity distribution
products at Calgene Chemical, the excess purchase price of net assets
acquired associated with the commodity distribution business was
written-down to net realizable value resulting in a $1.2 million
expense.
9. LONG-TERM DEBT AND NOTES PAYABLE
--------------------------------
Long-term debt consists of the following at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands)
1996 1995
---------- -----------
<S> <C> <C>
Note payable to bank; due in monthly installments of
approximately $3,000 including interest at 11.8% per annum,
through 2004; secured by a $300,000 certificate of deposit
and guaranteed by the Small Business Administration. $221 $235
Mortgage notes payable; due in quarterly installments of
approximately $31,000 including interest at 8.5% per annum,
through 1998; secured by land and buildings with a net book
value of approximately $572,200 at June 30, 1996. 280 377
Capitalized lease obligations; due in monthly installments of
approximately $150,000 including interest imputed at 5.4% to
11% per annum, through 2001; secured by equipment with a net
book value of approximately $5,602,000 at June 30, 1996 and
supported by a $150,000 irrevocable letter of credit issued by
a bank which is secured by a $150,000 certificate of
deposit. 6,030 2,960
Note payable to the former owner of an acquired business; due
in annual installments of $253,500 and $338,000 at July 17,
1996 and 1997, respectively; plus interest on the unpaid
principal balance at the prime rate (8.25% at June 30, 1996)
over the term of the loan; secured by a $591,500 certificate
of deposit. 592 705
Non-interest bearing note payable to the former owner of an
acquired business; due in monthly installments of $14,083
through June 30, 1997. 169 338
Mortgage note payable; interest only payable in monthly
installments of approximately $3,800, current interest at 9.0%
per annum. Interest is adjustable effective each November 1 to
prime plus 1%, rate not to exceed 9% or be lower than 6%
during the term of the note. Final payment of $506,000 plus
unpaid interest due November 1, 1999; secured by land with a
net book value of approximately $605,000 at
June 30, 1996. 506 506
Note payable to a corporate lender, due in quarterly
installments of $30,938 including interest imputed at 22.29%
per annum, through June 1, 1998. 279 371
Convertible note payable to a corporate lender; converted to
equity on March 31, 1996 (Note 4). -- 10,000
Note payable to a bank; due in monthly installments of
approximately $2,200 including interest at 8.59% per annum,
through 2000; secured by equipment with a net book value of
approximately $200,300 at June 30, 1996 144 --
Note payable to a bank; due in monthly installments of
approximately $22,500 monthly including interest at prime plus
1.25% (aggregating 9.50% at June 30, 1996) per annum, through
2005, secured by buildings and equipment with a net
book value of approximately $2,467,000 at June 30, 1996. 1,644 --
A significant portion of the net tangible assets of Gargiulo
(approximately $110,000,000 at June 30, 1996) has been pledged as
collateral for the following debt and lease obligations:
Note payable to former owner of an acquired business for the
purchase of growing crops, principal due upon collection of
crop receivable, plus interest at 7%; subsequent to June 30,
1996 this note was paid in full 9,070 --
Mortgage loan payable to former owner of an acquired business,
payable in quarterly principal installments of $280,966 plus
interest at prime (8.25% at June 30, 1996)
through February 28, 2001 5,338 --
Mortgage loan payable to former owner of an acquired business,
payable in quarterly principal installments of $219,034 plus
interest at prime (8.25% at June 30, 1996)
through February 28, 2001 4,162 --
Mortgage loan, payable in annual principal installments of
$1,000,000 through August 1999, with interest at prime (8.25%
at June 30, 1996) 4,000 --
Mortgage loan, payable in annual principal installments of
$175,000, balance due November 30, 1996 with interest at
prime plus .85% (aggregating 9.10% at June 30, 1996) 3,325 --
Mortgage loan, payable in annual principal installments of
$153,333, balance due November 30, 1996 with interest at
prime plus .85% (aggregating 9.10% at June 30, 1996) 2,147 --
Mortgage loan, payable in annual principal installments of
$273,200, balance due on November 30, 1996 with interest at
prime plus .85% (aggregating 9.10% at June 30, 1996) 1,658 --
Mortgage loans, payable in annual principal and interest
installments of $184,041 with interest ranging from prime to
9% 1,191 --
Mortgage loans payable in monthly principal and interest
installments of $40,237 with interest ranging from 6.63% to
prime (8.25% at June 30, 1996) 1,377 --
Term loan payable to former partner in acquired business,
monthly principal and interest payments of $37,981, with
interest at 10% 1,149 --
Note payable to a corporate lender, due in monthly
installments of $25,550 including interest at 10.38% per
annum, through 1999 417 673
Various term loans payable with interest at rates that range
from 8% to 12%. Maturity dates ranging from June 1998
through November 2001. 1,794 --
Note payable to affiliate consists of the following:
Advances under a $40,000,000 convertible term loan with a
balloon payment due March 31, 2000 interest at prime plus 2%
(aggregating 10.25% at June 30, 1996) 24,760 --
---------- -----------
70,253 16,165
Less note payable to affiliate 24,760 --
Less amount due within one year 22,850 1,494
---------- -----------
Long-term debt $22,643 $14,671
========== ===========
</TABLE>
The capitalized lease obligations listed above contain certain
restrictive covenants which, among other things, require the Company to
maintain a specified level of working capital. In addition, certain
debt and capital lease obligations prohibit the Company from paying
dividends on common stock.
At June 30, 1996 aggregate future principal payments by fiscal year on
long-term debt and note payable to affiliate are due as follows:
(In thousands)
1997 $22,850
1998 6,272
1999 5,268
2000 30,421
2001 3,369
Thereafter 2,073
-------
$70,253
=======
Notes Payable
-------------
A $13 million bank line of credit is used to help finance working
capital requirements for Calgene's subsidiaries, excluding Gargiulo.
Borrowings under the line bear interest at the greater of one quarter
percent over the bank's prime rate or two and one half percent over the
federal funds rate. On June 30, 1996 the bank's prime rate was 8.25%
and the federal funds rate was 5.48%. The weighted average annual
interest rate under the line of credit was 8.90% and 8.92% for the
fiscal year ended June 30, 1996, and 1995, respectively. Borrowings are
subject to certain financial covenants which include prohibiting the
Company from paying cash dividends on its common stock. The Company is
not in compliance with certain line of credit financial covenants and
conditions at August 31, 1996. However, the Company has obtained
waivers from the bank extending through December 31, 1996. The Company
anticipates being in compliance with such covenants and conditions
prior to the expiration of the waiver. Borrowings are secured by
qualifying accounts receivable and inventory and must be repaid on a
monthly basis to the extent they exceed qualifying accounts receivable
and inventory. As of June 30, 1996, the line of credit had been paid in
full. As of June 30, 1995, there was $5,973,400 outstanding on the line
of credit.
A $17.5 million line of credit with another bank is used to help
finance working capital requirements at Gargiulo. Borrowings under the
line bear interest at prime plus .85%. On June 30, 1996, the bank's
prime rate was 8.25%. Borrowings are subject to certain financial
covenants, some of which Gargiulo is not in compliance with at June 30,
1996. However, Gargiulo has obtained waivers from the bank through
November 30, 1996. Borrowings are secured by Gargiulo's accounts
receivable, inventory and crops and cash and non-cash proceeds
therefrom, and certain Gargiulo real estate and other personal
property. The bank has indicated that it does not intend to renew its
credit agreement with Gargiulo beyond November 30, 1996. At June 30,
1996 there was $12,775,000 outstanding on the line of credit.
During fiscal year 1996 the Company entered into a credit
facility agreement with Monsanto. Monsanto is obligated, subject
to certain terms and conditions, to lend up to $15 million annually
for a period of three years 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 June 30, 1996). This credit
facility expires on September 30, 1998. As of June 30, 1996, the
Company had not requested any advances under this credit facility.
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
September 30, 1996. On June 30, 1996, the bank's prime rate was 8.25%.
As of June 30, 1996, there was $3,500,000 outstanding on the line of
credit.
10. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leasing Arrangements
--------------------
The Company leases certain research and office equipment as well as
office and research space. These leases are accounted for as follows in
the accompanying consolidated financial statements:
Capital Leases
--------------
The following amounts are included in property, plant and equipment as
assets recorded under capital leases:
(In thousands)
1996 1995
---- ----
Cost $6,847 $4,192
Less accumulated depreciation 1,245 1,113
------ ------
$5,602 $3,079
====== ======
Depreciation expense charged to operations pursuant to these capital
leases amounted to approximately $482,000, $537,000 and $462,000 during
fiscal 1996, 1995 and 1994, respectively.
During fiscal 1996, 1995, and 1994, the Company capitalized equipment
of approximately $489,000, $1,506,000, and $773,000, respectively,
which represents the present value of the net minimum lease payments of
capital lease obligations entered into during such fiscal periods.
The future minimum lease payments by fiscal year under capital leases,
together with the present value of the net minimum lease payments are
as follows at June 30, 1996:
(In thousands)
1997 $1,803
1998 1,591
1999 1,335
2000 1,069
2001 1,578
-----
7,376
Less amount representing interest 1,346
-----
Present value of net minimum lease payments
(Note 9) $6,030
======
Operating Leases
----------------
Future minimum payments by fiscal year under non-cancelable operating
leases are as follows at June 30, 1996:
(In thousands)
1997 $ 6,211
1998 4,482
1999 3,912
2000 3,069
2001 2,326
Thereafter 570
-------
$20,570
=======
Rental expense charged to operations for all operating leases was
approximately $3,971,000, $3,259,000 and $1,761,000 for fiscal 1996,
1995 and 1994, respectively. Rent expense related to leases with
related parties was approximately $143,000 for fiscal 1996.
Inventory Purchase Commitments
------------------------------
In the normal course of business, the Company has entered into various
grower contracts with third party growers. Pursuant to these contracts,
the Company has agreed to purchase the resulting crop, subject to
certain quality standards, at the end of the growing cycle which is
generally less than one year. Including discontinued operations, the
amount of outstanding grower contract commitments is approximately $7.6
million at June 30, 1996.
Patents
-------
Certain institutions and companies have been issued patents, have
patent applications pending or have otherwise obtained proprietary
rights to technology necessary or potentially useful to Calgene. These
patents or patent applications, if patents are issued, could delay
product introduction or preclude Calgene from using this technology
without a license. The extent to which Calgene would be required to
license such patents and cost and availability of such licenses are
currently unknown.
Legal Proceedings and Other Contingencies
-----------------------------------------
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 June 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 Vazquez, were both filed on October 18,
1995, in the United States District Court for the Eastern District of
California. The company hiring and 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
on results of operations.
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.
Employment Agreements
---------------------
Calgene has various employment and consulting agreements with certain
key individuals. The aggregate fixed commitment under these agreements
is $5,335,000. In addition, two employment agreements provide for
additional compensation based on a percentage of the net profit of
Gargiulo and a third agreement is based on the amount of seed sold by
Gargiulo to certain entities.
11. SHAREHOLDERS' EQUITY
--------------------
Stock Option Plans
------------------
The Company established stock option plans in June 1991 (the "1991
Plan") and in March 1996 (the "1996 Plan"), under which all officers,
employees and directors of the Company may participate. Either
incentive stock options or non-qualified stock options can be granted
under both plans. 2,500,000 and 5,000,000 shares of the Company's
common stock have been reserved for issuance under the 1991 plan, and
the 1996 plan, respectively. Options granted under the plans generally
have a term of ten years from the date of grant. The exercise price of
incentive stock options granted under the plans may not be less than
100% of the fair market value of Calgene's common stock on the date of
grant.
The administrative committee of the option plans have the authority to
provide that options issued may be exercised by either (1) cash, (2)
surrender by the optionee of other shares of common stock of the
Company of a value equal to the exercise price of the shares as to
which the option is being exercised, or (3) the optionee's issuance of
an interest-bearing, full-recourse promissory note. During fiscal 1996,
employees did not exercise options from either plan.
The Company also has a 1981 Stock Option Plan having terms generally
similar to the 1991 Plan. The 1981 Plan has been terminated subject to
the rights of holders of outstanding options. During fiscal 1996,
employees exercised 6,182 options issued under the 1981 Plan.
The following is a summary of the activity, including the range of per
share exercise prices, in the 1981 Plan, the 1991 Plan and the 1996
Plan:
Outstanding at June 30, 1993 1,461,025
Granted 499,000
Canceled (13,759)
Exercised (at $5.25 to $12.375) (268,588)
----------
Outstanding at June 30, 1994 1,677,678
Granted 769,025
Canceled (119,968)
Exercised (at $5.875 to $12.375) (61,457)
----------
Outstanding at June 30, 1995 2,265,278
Granted 2,000,929
Canceled (567,502)
Exercised (at $6.50) (6,182)
----------
Outstanding at June 30, 1996 3,692,523
==========
Of the options outstanding at June 30, 1996, options to purchase
1,088,775 shares were immediately exercisable at prices ranging from
$4.75 to $15.25 per share on dates ranging from 1996 to 2006. At June
30, 1995, 814,421 options were exercisable at prices ranging from $5.25
to $15.25 per share. At June 30, 1996, there are 349,436 shares and
3,454,445 shares available for grant under the 1991 plan and 1996 plan,
respectively.
In November 1994, the Board of Directors approved an amendment to all
outstanding options held by employees of the Company under the 1991
plan with exercise prices in excess of $7.50 per share. The amendment
allowed employees to elect to reduce the option exercise price to $7.50
per share in exchange for an extended vesting period. A total of
1,268,081 options with option prices ranging from $7.75 to $16.00 were
repriced.
Stock Purchase Plan
-------------------
The Company established a stock purchase plan in March 1990 (the "1990
Plan") under which most employees of the Company may participate. A
total of 500,000 shares of the Company's common stock have been
reserved for issuance under the 1990 Plan. The 1990 Plan is
administered by the Board of Directors or by a committee appointed by
the Board of Directors. Employees can elect to have from two to ten
percent of their monthly gross salary deducted during each offering
period and applied to the purchase of stock. The purchase price is an
amount equal to 85% of the fair market value of a share of common stock
of the Company on the enrollment date or on the purchase date,
whichever is lower. During the fiscal years ended June 30, 1996, 1995
and 1994 the Company sold 31,593 shares of common stock for $166,183,
31,462 shares of common stock for $216,179, and 23,045 shares of common
stock for $223,144, respectively.
12. INCOME TAXES
------------
The income tax provision for the years ended June 30, 1996, 1995 and
1994 is comprised of state franchise taxes.
Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands)
June 30,
---------------------
1996 1995
-------- --------
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards $ 70,600 $ 66,200
Research and other credits 3,800 3,800
Capitalized research and development 400 400
Inventory reserves and allowances 1,500 --
Facility writedowns and restructuring 6,400 300
Depreciation -- 100
Development fee 4,000 --
Capitalized license fees 600 700
Increase in tax value of net assets from business acquisition 4,200 --
Other, net 1,800 1,500
-------- -------
Total deferred tax assets 93,300 73,000
Valuation allowance for deferred tax assets (91,500) (72,800)
-------- -------
Net deferred tax assets $ 1,800 $ 200
======== =======
Deferred tax liabilities:
Depreciation $ 1,800 $ --
Other, net -- 200
-------- -------
Total deferred tax liabilities $ 1,800 $ 200
======== =======
</TABLE>
At June 30, 1994 the valuation allowance for deferred tax assets was
$61.1 million.
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, were generated by Plant Genetics prior
to its merger with Calgene. Such net operating loss and general
business tax credit carryovers are available only to offset the
separate federal and state taxable income, if any, of the Calgene Fresh
(Plant Genetics was renamed Calgene Fresh in January, 1992). For
financial reporting purposes, a valuation allowance of approximately
$91.5 million has been recognized to offset the deferred tax assets
related to all of the aforementioned carryforwards.
Because of "change in ownership" provisions of the Tax Reform Act of
1986, a portion of the Company's federal net operating loss and credit
carryovers will be subject to an annual limitation regarding their
utilization against taxable income in future periods. The Company
expects that this 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.
13. TAX DEFERRED INVESTMENT PLAN
----------------------------
Substantially all full-time employees of the Company are eligible to
participate in a tax deferred investment plan (the "401(k) Plan"). The
401(k) Plan permits each employee to contribute 2% to 15% of
compensation on a pre-tax basis, to a maximum amount per calendar year.
For the years ended June 30, 1996, 1995 and 1994 matching contributions
by the Company were $227,000, $179,000 and $151,000, respectively.
14. SUBSEQUENT EVENT
----------------
In July 1996, the Company's Virginia facilities and operations suffered
damage caused by a hurricane. The Company estimates the loss, which
occurred primarily to growing crops, at $2,000,000.
<PAGE>
CALGENE, INC.
SELECTED QUARTERLY FINANCIAL DATA
Unaudited
<TABLE>
<CAPTION>
Fiscal 1996
- ----------------------------------------
(In thousands, except per share amounts)
Quarter Ended
-------------------------------------------------------------------------
Sep 30 Dec 31 Mar 31 June 30
-------------- -------------- -------------- ---------------
Revenues:
<S> <C> <C> <C> <C>
Product sales $ 8,812 $ 11,128 $ 17,326 $ 58,457
Product development 300 550 225 8,197
-------------- -------------- -------------- --------------
Total revenues $ 9,112 $ 11,678 $ 17,551 $ 66,654
Cost of goods sold $ 12,141 $ 9,958 $ 13,173 $ 55,131
Net loss $ (10,374) $ (5,730) $ (76,955) $ (3,955)
Net loss per share $ (.34) $ (.19) $ (2.52) $ (0.07)
Fiscal 1995
- ----------------------------------------
(In thousands, except per share amounts)
Quarter Ended
-------------------------------------------------------------------------
Sep 30 Dec 31 Mar 31 June 30
-------------- -------------- -------------- ---------------
Revenues:
Product sales $ 6,263 $ 8,850 $ 18,399 $ 15,460
Product development 267 4,166 797 1,229
-------------- -------------- -------------- --------------
Total revenues $ 6,530 $ 13,016 $ 19,196 $ 16,689
Cost of goods sold $ 8,719 $ 10,336 $ 15,039 $ 19,584
Net loss $ (9,538) $ (5,648) $ (4,459) $ (10,957)
Net loss per share $ (.35) $ (.19) $ (.15) $ (.36)
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
Not applicable.
PART III
Certain information required by Part III is omitted from this report in
that the registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its annual meeting of shareholders to be held approximately in November 1996
and the information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The information required by this Item is incorporated by reference to the
information under the caption "Election of Directors", and "Filing of Reports by
Directors and Officers" in the Company's Proxy Statement. The information
concerning executive officers is contained in Item 1 under the caption
"Executive Officers"
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated by reference to the
captions "Executive Compensation," and "Compensation Committee Interlocks and
Insider Participation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information required by this Item is incorporated by reference to the
caption "Stock Ownership" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information required by this Item is incorporated by reference to the
information under the caption "Certain Transactions" in the Company's Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements. The following Consolidated Financial
Statements and Report of Independent Auditors are included in
Part II, Item 8, of this Report:
Report of Independent Auditors.
Consolidated Balance Sheets -- June 30, 1996 and 1995.
Consolidated Statements of Operations -- Years ended June 30,
1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity -- Years ended
June 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows -- Years ended June 30,
1996, 1995 and 1994.
2. Financial Statement Schedules. The following financial statement
schedule of Calgene, Inc. is filed as part of this Report and
should be read in conjunction with the Consolidated Financial
Statements of Calgene, Inc.
Schedule for the years ended June 30, 1996, 1995 and 1994:
Schedule Page
II Valuation and Qualifying Accounts.............................61
All other schedules have been omitted because they are not applicable
or because the required information is disclosed in the consolidated
financial statements and notes thereto.
3. Exhibits
See index to exhibits.
(b) Reports on Form 8-K:
Form 8-K dated May 7, 1996, announcing that the Company's Board of
Directors approved a change in the fiscal year of the corporation and
its consolidated subsidiaries from June 30 to December 31.
(c) Separate Financial Statements of Fifty Percent or Less Owned Persons:
None.
<PAGE>
CALGENE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------- --------------- ------------------------------- --------------- ---------------
Additions
-------------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end of
Description period expenses accounts Deductions (1) period
----------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996
- ------------------------
Allowance for doubtful accounts $346 $146 $540(2) $(545) $487
Year ended June 30, 1995
- ------------------------
Allowance for doubtful accounts $173 $249 - $(76) $346
Year ended June 30, 1994
- ------------------------
Allowance for doubtful accounts $221 $42 - $(90) $173
(1) Represents accounts recovered or written-off.
(2) Represents the allowance for doubtful accounts acquired in connection with the acquisition of Gargiulo, Inc. in March 1996.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
By: /c/ Christian Leleu
------------------------------
Chief Financial Officer
Dated: September 30, 1996 (Principal Financial and
------------------ Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lloyd M. Kunimoto and Christian Leleu,
substitution, for him in any and all capacities, to sign any amendments to other
documents in connection therewith, with the securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
- ------------------------- Director and Acting Chief
/s/ Lloyd M. Kunimoto Executive Officer (Principal
Lloyd M. Kunimoto Executive Officer) September 27, 1996
- -------------------------
/s/ Christian Leleu Chief Financial Officer
Christian Leleu (Principal Financial and September 27, 1996
Accounting Officer)
- -------------------------
/s/ Robert Fraley
Robert Fraley Director September 27, 1996
- -------------------------
/s/ John E. Robson
John E. Robson Director September 27, 1996
- -------------------------
/s/ Hendrik A. Verfaillie
Hendrik A. Verfaillie Director September 27, 1996
- -------------------------
/s/ Howard D. Palefsky
Howard D. Palefsky Director September 27, 1996
- -------------------------
/s/ Allen J. Vangelos
Allen J. Vangelos Director September 27, 1996
- -------------------------
/s/ Robert E. Baker
Robert E. Baker Director September 27, 1996
- -------------------------
/s/ Roger H. Salquist
Roger H. Salquist Director September 27, 1996
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Page
-------- ----
<S> <C> <C> <C>
2.1 Agreement and Plan of Reorganization Between Calgene, Inc. and Monsanto
Company dated as of October 13, 1995......................................................(P)
3.1 Certificate of Incorporation of the Registrant............................................(P)
3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant...............(P)
3.3 By-Laws of the Registrant.................................................................(P)
10.0 Form of Stockholders Agreement between the Registrant and Monsanto Company................(P)
10.1 Form of Credit Facility Agreement between the Registrant and Monsanto Company.............(P)
10.2 Form of Gargiulo Credit Facility Agreement between the Registrant and
Monsanto Company..........................................................................(P)
10.3 Form of ACC Deaminase License Agreement between the Registrant and Monsanto Company.......(P)
10.4 Form of ADPGPP License Agreement between the Registrant and Monsanto Company..............(P)
10.5 Form of CMV License Agreement between the Registrant and Monsanto Company.................(P)
*10.6 Form of FAD 3 License Agreement between the Registrant and Monsanto Company...............(P)
10.7 Form of Fruit Specific Promoter License Agreement between the Registrant
and Monsanto Company......................................................................(P)
10.8 Form of Gemini Virus License Agreement between the Registrant and Monsanto Company........(P)
10.9 Form of Insect Resistance License Agreement between the Registrant and
Monsanto Company..........................................................................(P)
10.10 Form of Oil License Agreement between the Registrant and Monsanto Company.................(P)
10.11 Form of Letter Agreement between Calgene, Inc. and Monsanto Company with
respect to license of Recombinant ACC Synthase............................................(P)
10.12 Form of Insect-Protected Cotton License and Seed Services Agreement between
Calgene, Inc. and Monsanto Company........................................................(P)
10.13 Second Amended and Restated Employment Agreement dated October 16, 1995
between Gargiulo, L.P. and Jeffrey D. Gargiulo............................................(P)
10.14 Joint Venture Agreement dated as of December 15, 1992 between Gargiulo,
L.P. and Dresick Farms, as amended June 1, 1993...........................................(P)
10.15 Joint Venture Agreement dated as of January 1, 1981 between Gargiulo L.P.
and Harllee-Gargiulo, Inc., as amended October 31, 1989 and October 31, 1994..............(P)
10.16 Joint Venture Agreement dated as of October 31, 1994 between
GargiuloMexico, L.L.C. and Hermanos Ley...................................................(P)
10.17 Marketing Agreement dated as of September 1, 1988 between Gargiulo, Inc.
and Harllee-Gargiulo, Inc.................................................................(P)
10.18 Change of Control Employment Agreement dated as of July 19, 1995, between
Calgene, Inc. and Roger H. Salquist.......................................................(P)
10.19 Change of Control Employment Agreement dated as of July 19, 1995 between
Calgene, Inc. and Roderick N. Stacey......................................................(P)
10.20 Change of Control Employment Agreement dated as of July 19, 1995 between
Calgene, Inc. and Michael J. Motroni.....................................................(P)
10.21 Asset Purchase Agreement dated as of December 29, 1995 between Gargiulo,
L.P. and Collier Enterprises..............................................................(P)
*10.22 Partnership Agreement dated January 31, 1986 between Registrant and
Rhone-Poulenc Agrochimie, together with Reserach Agreement dated March 15,
1984 and Amendment thereto dated January 31,
1985......................................................................................(A)
*10.23 Amendment One to the Partnership Agreement dated January 31, 1986 between
Registrant and Rhone-Poulenc Agrochimie dated September 30, 1989..........................(B)
*10.24 License Agreement between Registrant and Rhone-Poulenc Agrochimie dated
October 1, 1989...........................................................................(B)
*10.25 Agreements dated March 21, 1985 between Registrant and Roussel-Uclaf S.A..................(A)
*10.26 Agreement dated April 1, 1988 between Registrant and Roussel-Uclaf S.A.
which amend the Agreements dated March 21, 1985 between Registrant and
Roussel-Uclaf S.A.........................................................................(B)
*10.27 Agreement dated August 1, 1984 and Agreement dated August 26, 1985 amending
the prior Agreement between Registrant and Campbell Soup Company .........................(A)
*10.28 Tomato Research Agreement 1988 to 1990 between Campbell Soup Company and
Registrant effective as of August 1, 1988 which supersedes the Agreements
of August 1, 1984 and August 26, 1985 between Campbell Soup Company and the
Registrant................................................................................(B)
*10.29 Agreement dated March 20, 1986 between Registrant and The Procter and
Gamble Company ...........................................................................(A)
10.30 Commercial Lease dated August 17, 1987, as amended, covering
property located at 1910 and 1920 Fifth Street, Davis,
California ...............................................................................(C)
10.31 Commercial Lease dated August 31, 1983, as amended, covering property
located at 1970 Fifth Street, Davis, California ..........................................(A)
10.32 Commercial Lease dated August 22, 1983, as amended, covering property in
Yolo County ..............................................................................(A)
10.33 Commercial Lease dated May 21, 1987, as amended, covering property located
at 1950 Fifth Street, Davis, California ..................................................(C)
10.34 Form of Directors and Officers Indemnification Agreement .................................(C)
10.35 401 (k) Tax Deferred Investment Plan .....................................................(D)
10.36 Secured Revolving Credit Agreement Among Registrant and Harris Trust and
Savings Bank and Caisse Nationale De Credit Agricole Dated April 26, 1990.................(G)
10.37 First Amendment to Secured Revolving Credit Agreement and Secured Revolving
Credit Note Among Registrant and Harris Trust and Savings Bank dated
January 31, 1992..........................................................................(E)
10.38 Second Amendment to Secured Revolving Credit Agreement and Secured
Revolving Credit Note Among Registrant and Harris Trust and Savings Bank
Dated January 31, 1993....................................................................(I)
10.39 Third Amendment to Secured Revolving Credit Agreement Among Registrant and
Harris Trust and Savings Bank Dated August 26,1993........................................(O)
10.40 Fourth Amendment to Secured Revolving Credit Agreement and Secured
Revolving Credit Note Among Registrant and Harris Trust and Savings Bank
Dated February 26, 1994...................................................................(O)
10.41 Fifth Amendment to Secured Revolving Credit Agreement and Secured Revolving
Credit Note Among Registrant and Harris Trust and Savings Bank Dated March 15, 1995.......(O)
10.42 Sixth Amendment to Secured Revolving Credit Agreement and Secured Revolving
Credit Note Among Registrant and Harris Trust and Savings Bank Dated August 8, 1995.......(O)
10.43 Seventh Amendment to the Secured Revolving Credit Agreement and Waiver
among Calgene, Inc. and Harris Trust and Savings Bank dated December 29, 1995.............(M)
10.44 Eighth Amendment to the Secured Revolving Credit Agreement and Secured
Revolving Credit Note Among Calgene, Inc. and Harris Trust and Savings Bank
dated January 23,1996.....................................................................(M)
10.45 Ninth Amendment to the Secured Revolving Credit Agreement and Secured
Revolving Credit Note Among Calgene, Inc. and Harris Trust and Savings Bank
dated March 28, 1996......................................................................(N)
10.46 1989 Employee Stock Purchase Plan.........................................................(G)
10.47 Joint Venture and Partnership Agreement by and between Kirin Brewery Co.
Ltd. and Registrant dated March 14, 1990..................................................(G)
*10.48 License Agreement between Registrant and Campbell Soup Company dated August
9, 1991...................................................................................(J)
10.49 Letter of Intent with Monsanto Company....................................................(L)
**10.50 Oilseed Development Agreement between Registrant and Monsanto Company dated
May 8, 1996................................................................................68
10.51 1981 Stock Option Plan as amended.........................................................(B)
10.52 1991 Stock Option Plan....................................................................(J)
10.53 1996 Stock Option Plan....................................................................(P)
21.1 Subsidiaries of Registrant................................................................(I)
23.1 Consent of Independent Auditors............................................................96
27 Article 5 of Financial Data Schedule for Fiscal Year Ended June 30,
1996.......................................................................................97
(A) Incorporated by reference to Registrant's Form S-1 Registration No. 33-5921
(B) Incorporated by reference to Registrant's Form 10-K dated September 30, 1989
(C) Incorporated by reference to Registrant's Form 10-K dated September 30, 1987
(D) Incorporated by reference to Registrant's Form 10-K dated September 30, 1988
(E) Incorporated by reference to Registrant's Form 10-K dated June 30, 1992
(F) Intentionally omitted
(G) Incorporated by reference to Registrant's Form 10-K dated June 30, 1990
(H) Intentionally omitted
(I) Incorporated by reference to Registrant's Form 10-K dated June 30, 1993, as amended
(J) Incorporated by reference to Registrant's Form 10-K dated June 30, 1991
(K) Intentionally omitted
(L) Incorporated by reference to Registrant's Form 8-K dated June 28, 1995
(M) Incorporated by reference to Registrant's Form 10-Q dated December 31, 1995
(N) Incorporated by reference to Registrant's Form 10-Q dated March 31, 1996
(O) Incorporated by reference to Registrant's Form 10-K/A dated October 30, 1995
(P) Incorporated by reference to Registrant's Registration Statement on Form S-4 dated February 6, 1996
* Confidential treatment of certain portions of these documents has been granted
** Confidential treatment has been requested as to portions thereof
</TABLE>
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
OILSEED DEVELOPMENT AGREEMENT
This Agreement is made and entered into effective as of this 8th day of
May, 1996, by and between Calgene, Inc. and Monsanto Company. Based upon
the mutual consideration between the Parties recited below, the Parties do
hereby agree as follows:
ARTICLE 1. BACKGROUND AND PARTIES
1.01 Calgene, Inc., ("Calgene") is a Delaware corporation, having a
principal place of business at 1920 Fifth Street, Davis, California 95616.
1.02 Monsanto Company ("Monsanto") is a Delaware corporation,
having a principal place of business at 800 North Lindbergh Boulevard,
St. Louis, Missouri 63167.
1.03 Calgene owns certain technology useful in manipulating seed oil
composition, and other technology applicable to the expression of traits in
plants which can be used to express genes for oil modification, meal
modification or the introduction of useful agronomic traits into oilseed
crops.
1.04 Calgene is willing to grant, and Monsanto desires to obtain, a
license under such Calgene technology to manufacture, have manufactured,
use and sell oilseed products in accordance with the terms and conditions
set forth herein.
1.05 Monsanto has proprietary rights to certain technology applicable
to the engineering of plants and in plant expression, as well as technology
for introducing agronomic traits, which is useful in the improvement of
oilseeds and in modifying oil composition.
1.06 Monsanto is willing to grant, and Calgene desires to obtain, a
license under such Monsanto technology to manufacture, have manufactured,
use and sell oilseed products in accordance with the terms and conditions
set forth herein.
ARTICLE 2. DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
2.01 "Affiliates" shall mean a Calgene Affiliate or a Monsanto
Affiliate.
-1-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
2.02 "Agronomic Genes" shall mean genes encoding for disease
resistance, herbicide tolerance, cold tolerance, shatter resistance, yield
improvement, earliness, insect tolerance, drought resistance and heat
resistance and other genes that reduce the net unit cost of production of
agricultural crop plants.
2.03 "Calgene Affiliate" shall mean any company or other legal entity
which controls, or is controlled by, or is under common control with
Calgene, control meaning the holding , directly or indirectly, of more than
twenty percent (20%) of (i) the capital and/or (ii) the voting rights
and/or (iii) the right to elect or appoint directors; provided, however,
that this Paragraph 2.03 shall not include Monsanto or any Monsanto
Affiliates.
2.04 "Calgene Chemical, Inc." shall mean the wholly owned subsidiary of
Calgene located at 7247 North Central Park Drive, Skokie, IL 60076.
2.05 "Calgene Patent Rights" shall mean the patent applications listed
in Exhibit D as well as any and all patents maturing from the respective
applications or maturing from applications that are divisionals,
continuations, continuations-in-part of these applications and any and all
reissues or extensions of any of the foregoing, and as added from time to
time per Paragraph 3.04 herein.
2.06 *************************** shall mean each of: (a)
********************* which produce *********** which produces: (i) ***
which (A) is within the ***************** described in Exhibit B hereto for
such **** and (B) does not **************************
***************************************************************** and (ii)
*** which is a *********************************************** **** of the
following *********** from the ***************** of such ****: (A)
********************************************************* or (B)
********************************************* or (C) *********
************************* of any ********* that is ******************* in
the *************************************************;
(b) ******************************** described in (a) above; and
(c) ******************************** described in (b) above.
2.07 ***************************************** shall mean *****
*********************** that ***************************************
*********.
-2-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
2.08 **************************** shall mean each of: (a)
************************************************************** which
produce: (i) ***** which (A) is within ********************* described in
Exhibit A hereto for such ****; and (B) does not ******************
********************************* from the ***************** of such ****
and (ii) **** which is a ***************** of the ************* **** or
with one or more of the ********************* from the
******************************** (A) *******************************
************************** or (B) **********************************
********** or (C) ********************************** of any ******** that
is ******************* in the *********************************
**************** or (D) ******************************************** the
************************ that are *********************** in the
*************************** provided that the **********************
*************************** than the ***** in the ****************** for
the ***** provided, however, that with respect to paragraphs 2.08 (a) (ii),
(A), (B), (C), and (D) above, Monsanto and Calgene shall both be
************************************ should ************ have
********************************* and should ************************ be in
the interest of both Parties;
(b) ******************************** described in (a) above; and
(c) ******************************** described in (b) above.
2.09 "Cost of Goods Sold" shall mean a Party's direct and indirect
costs, which are reasonable and necessary, incurred by Monsanto or a
Monsanto Affiliate in producing a Licensed Product or incurred by the Oils
Division in producing all products, as the case may be, in accordance with
general accepted accounting principles consistently applied and with
general industry practices, but excluding amounts included in Overhead
Allocation, Research Expenses or Selling, Administration and General
Expenses.
2.10 "Effective Date" shall mean the date first above written.
2.11 ******************************* shall mean each of: (a)
********************* which produce *********** which produce: (i) ****
which (A) is within the ***************** described in Exhibit C hereto
************* and (B) does not **************************
************************* from the ****************************** and (ii)
**** which is a ******************************** or with one or more of the
following ************************************** of such ***** (A)
********************************************************* or (B)
*********************************************
(b) ******************************** described in (a) above; and
(c) ******************************** described in (b) above.
-3-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
2.12 "Licensed Method" shall mean any method whose use or practice
would, in the absence of a license, infringe one or more claims of a patent
application or an unexpired patent included in the Calgene Patent Rights or
Monsanto Patent Rights, respectively, which has not been finally
adjudicated to be invalid by a court of competent
jurisdiction.
2.13 "Licensed Products" shall mean materials, or materials produced by
a Licensed Method, including but not limited to vectors, bacterial cells,
plant cells, plants or seeds, in each case containing a transgene or
otherwise modified by genetic engineering, or products of such transgenic
materials, plant cells, plants or seeds which in the course of their
manufacture, use or sale would, in the absence of a license, infringe one
or more claims of an unexpired patent included in the Calgene Patent
Rights, which has not been finally adjudicated to be invalid by a court of
competent jurisdiction.
2.14 ************************************ shall mean, through
******************** either: (a) **********************************
******************************************* or (b) ********** the
********************** which is ************************************
****************************************** Any such ***************
******************************************************** are specifically
excluded from this definition.
2.15 "Monsanto Affiliate" shall mean any company or other legal entity
which controls, or is controlled by, or is under common control with
Monsanto, control meaning the holding, directly or indirectly, of more than
twenty percent (20%) of (i) the capital and/or (ii) the voting rights
and/or (iii) the right to elect or appoint directors; provided, however,
that this Paragraph 2.15 shall not include Calgene or any Calgene
Affiliates.
2.16 "Monsanto Patent Rights" shall mean the patent applications listed
in Exhibit E as well as any and all patents maturing from the respective
applications or maturing from applications that are divisionals,
continuations, continuations-in- part of these applications and any and all
reissues or extensions of any of the foregoing, and as added from time to
time per Paragraph 3.04 herein.
2.17 "Net Profits for Licensed Products" shall mean, for each
Licensed Product, (a) the Net Sales of such Licensed Product minus (b)
with respect to such Licensed Product, the sum of : (i) Cost of Goods
Sold; (ii) the Selling, Administration and General Expenses; (iii)
-4-
<PAGE>
the Overhead Allocation; (iv) interest expenses; and (v) other expenses,
all determined under generally accepted accounting principles consistently
applied.
2.18 "Net Profits of the Oils Division" shall mean, for all of its
products, (a) the Net Sales of such products minus (b) with respect to such
products, the sum of : (i) Cost of Goods Sold; (ii) the Research Expenses;
(iii) Selling, Administration and General Expenses; (iv) the Overhead
Allocation; (v) interest expenses; and (vi) other expenses, all determined
under generally accepted accounting principles consistently applied.
2.19 "Net Sales" shall mean the gross invoiced sales price charged by a
Party, its Affiliates and sublicensees for all Licensed Products in the
case of Monsanto and for all products in the case of the Oils Division,
after deduction of the following items, provided and to the extent such
items are incurred and do not exceed reasonable and customary amounts in
the market in which such sale occurred: (i) trade and quantity discounts
and rebates; (ii) credits or allowances given or made for rejection or
return of previously sold Licensed Products or products as the case may be;
(iii) any tax or government charge (other than an income tax or value added
tax) levied on the sale; and (iv) any charges for freight or insurance. Net
Sales shall include all revenues earned by the Oils Division from Third
Parties which are directly attributable to: (A) contracted research; or (B)
royalties and licensing fees. Other revenues not collected directly by
Monsanto from seed company licensees and any grower license revenues shall
not be included within Net Sales. For example, if Monsanto collects grower
license fees from a farmer and royalty revenues from a seed company,
Calgene shall receive the benefit of direct profits attributable only from
the royalty charged to the seed company. If any gross invoiced sales price
of a Licensed Product or a product, as the case may be, is not determined
on an arm's length basis, then such gross invoiced sales price shall, for
the purposes of this Agreement, be deemed to be equal to the most recent
gross invoiced sales price of such Licensed Product or product to a Third
Party on an arms length basis.
2.20 "Oils Division" shall mean that portion of Calgene's business
operations having responsibility for research, development and/or
commercialization of improved oilseed crops or modified oil, and/or selling
of oilseed, oil or derivative oil products. Such business operations shall
include, without limitation, Calgene Chemical, Inc.
-5-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
2.21 "Overhead Allocation" shall mean the actual costs (without markup)
reasonably allocated from a Party's corporate overhead to the business of
Monsanto in making, using or selling Licensed Products or to the Oils
Division in making, using or selling its products, for such expenses as:
(a) facilities; (b) utilities, maintenance and depreciation; (c) regulatory
services; (d) patent filing and prosecution and legal services; (e)
royalties on expensed technology licenses; (f) human resource services; (g)
financial, accounting, risk and treasury management services; (h) use of
office and laboratory space, equipment and supplies at such locations which
Calgene may maintain from time to time; (i) laboratory supplies and
procurement services; (j) greenhouse and growth chamber facilities,
services and supplies; and (k) other services reasonably charged by
Monsanto or Calgene (including without limitation library services,
laboratory services, information system and telecommunication services).
Overhead Allocation shall exclude amounts included in Cost of Goods Sold,
Research Expenses, or Selling, Administration and General Expenses.
2.22 "Party" shall mean Monsanto or Calgene; "Parties" shall mean both
Monsanto and Calgene.
2.23 "Patent Rights" shall mean the Calgene Patent Rights and
the Monsanto Patent Rights.
2.24 "Research Expenses" shall mean research and development expenses
determined in accordance with general accepted accounting principles
consistently applied and with general industry practices, for the
development of all of the products of the Oils Division, but excluding
amounts included in either Overhead Allocation or Cost of Goods Sold.
2.25 "Selling, Administration and General Expenses" shall mean selling,
marketing, administrative and general expenses determined in accordance
with general accepted accounting principles consistently applied and with
general industry practices, for the commercialization of the Licensed
Products for Monsanto and of all of the products of the Oils Division, but
excluding amounts included in either Overhead Allocation or Cost of Goods
Sold.
2.26 *************************** shall mean ******************* ****
that are ******************************************************** *******
and which have been ************************************ of a
*************************************************************** from
*********** that are ***********************************************
*********** provided, however, that Monsanto and Calgene shall both
*************************************** should either Party have a
-6-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
******************************* and should *************************
in the interest of both Parties. *********************************
******************* are specifically excluded from this definition.
2.27 ************************************ shall be **********
that has the composition of Exhibit C and that has a ***************
********************************************************************
*******************************************
2.28 ***************************************** shall mean ****
************************ that contain *******************************
*****
2.29 "Technical Information" shall mean all trade secrets, know-how,
knowledge, technology, means, methods, processes, practices, formulas,
techniques, procedures, technical assistance, data, specifications,
biological materials and other valuable information and materials of
whatever nature, whether confidential or not, and whether proprietary or
not, which is now in (or hereafter during the term of this Agreement comes
into) the possession of the licensing Party and which is relevant to the
development of any Licensed Product or products of the Oils Division, as
the case may be.
2.30 Third Party shall mean any person, corporation or other business
entity other than Calgene, Monsanto and their respective Affiliates.
2.31 "Valid Claim" means a claim of any unexpired patent or patent
application in any country in the world, which shall not have been
withdrawn, canceled or disclaimed, nor held invalid by a court of competent
jurisdiction in an unappealed or unappealable decision.
ARTICLE 3. RIGHTS & OBLIGATIONS
3.01 Grant to Monsanto. Subject to the terms and conditions of
this Agreement, Calgene grants to Monsanto during the term of this
Agreement: (a) a worldwide, **********************************
****************************************************************
****************************************************************
************ royalty bearing (in accordance with Paragraph 4.02) license to
make, have made, use and sell ************************** using Calgene
Patent Rights, with rights to sublicense pursuant to Paragraph 3.01(e);
(b) a worldwide, ************* royalty bearing (in accordance with
Paragraph 4.02) license to make, have made, use and sell (i) any
************************* and (ii) subject to Calgene obtaining
-7-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
*******************************************************************
****************************** so long as the products described in (i) and
(ii) ****************************************** using Calgene Patent
Rights, with rights to sublicense pursuant to Paragraph 3.01(e);
(c) a worldwide, ************ with Calgene *******************
**************************************************************
**************************************************************
************ royalty bearing (in accordance with Paragraph 4.02) license to
make, have made, use and sell (i) ***************** and (ii) subject to
Calgene obtaining ************************
**************************************************************
so long as the products described in (i) and (ii) ************
*********************** using Calgene Patent Rights, with rights to
sublicense pursuant to Paragraph 3.01(e); and
(d) a worldwide, ************* royalty free license, with no right to
sublicense, to make, have made and use, for research purposes only, oilseed
products other than *************************************
*********************************************************** using
Calgene Patent Rights;
(e) For **********************************************************
************ the limited right to sublicense only transgenic plant
germplasm produced by Monsanto (with the right to develop, use and sell new
varieties and/or hybrids produced therefrom by traditional plant breeding)
containing genes developed or in-licensed by Monsanto to any Third Party or
any Monsanto Affiliate, provided that Monsanto shall not be permitted to
in-license or otherwise acquire a gene from a Third Party and ************
license to that Third Party or an affiliate of that Third Party transgenic
plant germplasm containing said gene falling within the scope of the
Licensed Patents, and provided further that Monsanto shall provide notice
of such sublicense to Calgene within a reasonable period before entering
into such sublicense with a Third Party.
3.02 Grant to Calgene. Subject to the terms and conditions of
this Agreement, Monsanto grants to Calgene during the term of this
Agreement: (a) a worldwide, *************************************
******************************************************************
******************************************************************
*************** and (ii) other agreements or options which are not limited
as to field of use and which are signed as of the effective date hereof),
royalty bearing (in accordance with Paragraph 4.03) license to make, have
made, use and sell *************************
*************************************** using Monsanto Patent Rights, with
rights to sublicense pursuant to Paragraph 3.02(d);
-8-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
(b) a worldwide, ************** royalty bearing (in accordance with
Paragraph 4.03) license to make, have made, use and sell **********
********************************************************** using Monsanto
Patent Rights, without the right to sublicense (unless such sublicense was
granted before such product became a ****************
***************************************************
(c) a worldwide, ************* royalty bearing (in accordance with
Paragraph 4.03) license, with no right to sublicense, to make, have made
and use, for research purposes only, oilseed products other than
*******************************************************************
*******************************************************************
using Monsanto Patent Rights;
(d) for ************************************************************
********* the limited right to sublicense only transgenic plant germplasm
produced by Calgene (with the right to develop, use and sell new varieties
and/or hybrids produced therefrom by traditional plant breeding) containing
genes developed or in-licensed by Calgene to any Third Party or Calgene
Affiliate, provided that Calgene shall not be permitted to in-license or
otherwise acquire a gene from a Third Party and *********** license to that
Third Party or affiliate of that Third Party transgenic plant germplasm
containing said gene falling within the scope of the Licensed Patents, and
provided further that Calgene shall provide notice of such sublicense to
Monsanto within a reasonable period before entering into such sublicense
with a Third Party;
(e) Any licenses granted herein and any sublicensees granted a sublicense
under Paragraph 3.02 to any **************** shall be required by Calgene
to *********************************************
*********************************** including but not limited to
****************************************************************
****************************************************************
******************* covering such **************** and
(f) No license is granted herein to commercialize an ************** in
any country in which *********************************** said
***************
3.03 ************************************ With respect to the rights
granted under Paragraph 3.01 (c), Calgene shall not grant any additional
licenses or sublicenses to Third Parties under Calgene Patent Rights for
********************************************* *********************** that
***********************************
-9-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
3.04 Other Rights and Obligations (a) Calgene and Monsanto shall
consult from time to time regarding Monsanto and Calgene technology,
patents and patent applications, which shall be ******************* ******
on the following basis: (i) US patents or applications and their foreign
counterparts shall be ******************************* ********* shall
include ******************************************* ****** (to the extent
that such technology can be ***********), that are applicable to the
development of ***************************
*********************************************************************
and (ii) US patents or applications and their foreign counterparts shall be
************************************* and shall include
*************************************************** (to the extent that
such technology can be ***********), that are applicable to the development
of ***************************************************
******************************************************************
*****************
(b) With respect to the research rights granted under Paragraphs 3.01 (d)
and 3.02 (c), each Party agrees to consider granting licenses covering
additional products in the event that the other Party develops a
commercially useful application;
(c) Each Party grants to the other Party a ************* right during the
term of this Agreement to use the Technical Information in connection with
such Party's exercise of its rights and licenses granted hereunder. If a
Party reasonably requests, the other Party shall provide to the requesting
Party free of charge (other than reimbursement for reasonable out-of-pocket
costs) all of the Technical Information.
3.05 No Other Rights. Except as expressly provided herein, no other
license, right or license is granted by this Agreement (by implication or
otherwise) by either Party to the other Party to any other patent rights.
ARTICLE 4. CONSIDERATION, PAYMENTS & RECORDS
4.01 Monsanto Fees. Except as provided for in Paragraph 10.13, in
consideration for the licenses to Calgene Patent Rights granted hereunder,
Monsanto shall pay to Calgene the following: (a) a *** ******,
non-refundable licensing fee for licenses under Calgene Patent Rights
granted under this Agreement, due upon signing of this agreement; (b) a
*********** funded research and development payment to further the
development of plant expression or oil modification technologies which may
be added to Exhibit D under Paragraph 3.04, due upon signing of this
agreement, such payment to be used by Calgene to fund research and
development during the 3 year period beginning from
-10-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
the effective date of this Agreement; and (c) for any lump-sum license fee
received on sublicenses granted by Monsanto under Paragraph 3.01(e) of this
Agreement, **** of any such fees to Calgene at the time the fees are
collected.
4.02 Monsanto Royalties Due. (a) Except as provided for in Paragraph
10.13, in further consideration for the licenses to Calgene Patent Rights
granted hereunder, Monsanto shall pay to Calgene a royalty equal to **** of
the Net Profits for each Licensed Product calculated for such Licensed
Product sold by Monsanto and Monsanto Affiliates; provided, however, that
(i) Monsanto shall use reasonable efforts to obtain information as to Net
Profits for each Licensed Product sold by Monsanto Affiliates, but Calgene
recognizes that, for some Monsanto Affiliates, such information will not be
available to Monsanto; and (ii) where such information is not available,
Calgene and Monsanto shall negotiate in good faith on an alternative
methodology to determine the compensation due to Calgene on such Net
Profits;
(b) Except as provided for in Paragraph 10.13, for Net Sales of Licensed
Products by sublicensees of Monsanto or a Monsanto Affiliate, further
consideration for the licenses to Calgene Patent Rights granted hereunder
shall be paid to Calgene based on the greater of: (i) **** of any net
license fees, royalties or other income received by Monsanto or a Monsanto
Affiliate resulting from Third Party sales of Commodity Oilseed Products,
Commodity Canola Products and Commodity High Stearate Canola Products that
utilize Calgene Patent Rights under sublicenses granted by Monsanto or a
Monsanto Affiliate. In no event will the definition of Net Profits of
Licensed Products include items in this subparagraph; (ii) either: (A) ****
of net sales of such sublicensees, provided that Monsanto's direct grower
license revenues (or other revenues not collected from seed company
licensees) are at least **** of such net sales; or (B) **** of Monsanto's
direct grower license revenues (or other revenues not collected from seed
company licensees) in the event that such revenues are less than **** of
such net sales. In no event will the definition of Net Profits of Licensed
Products include items in this subparagraph;
(c) Earned royalties shall accrue to Calgene, subject to the provisions of
Paragraph 4.06, when Licensed Products are invoiced, or if not invoiced,
when delivered to a Third Party;
(d) If a Licensed Product and several other items are sold and invoiced
together, the discount on such sale shall be computed as a fraction, the
numerator of which is the gross invoiced sales price of such Licensed
Product and items as a bundle and the denominator of which is the sum of
the then-current list prices of Monsanto, the
-11-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
Monsanto Affiliate or their respective sublicensee, as the case may be, for
such Licensed Product and items. Upon the invoicing or delivery of such
bundle, the gross invoiced sales price for such Licensed Product shall be
deemed to be: (i) the then-current list price of Monsanto, the Monsanto
Affiliate or their respective sublicensee, as the case may be, for such
Licensed Product; multiplied by (ii) the discount, as computed above.
4.03 Calgene Royalties Due. In consideration for paying to Calgene the
amount described in Paragraph 4.01(b) above, the licenses of Paragraph 3.02
and sharing Technical Information as provided in Paragraph 3.04(c), Calgene
shall pay to Monsanto **** of the positive Net Profits of the Oils
Division. If the Oils Division acquires new business operations,
facilities, technologies and/or license rights after the Effective Date,
then Monsanto shall have the option either: (i) to contribute **** of the
amounts paid by the Oils Division for such acquisition; or (ii) to not
contribute any such amount, in which case Monsanto's **** share of the
positive Net Profits of the Oils Division shall be reduced accordingly.
4.04 First Commercial Sale. (a) Monsanto shall promptly advise Calgene
in writing of the first commercial sale of Licensed Products in each
country. (b) The earned royalties described in Paragraph 4.02 shall be
deemed to be payable for Licensed Products invoiced or delivered in each
country of the world so long as the Calgene Patent Rights covering such
Licensed Products have not expired or have not been declared invalid in
such country.
4.05 Royalty Reports (a) Beginning December 31, 1996, and annually
thereafter, Monsanto shall submit to Calgene a progress report covering the
activities related to the development and testing of all Licensed Products
and the obtaining of the governmental approvals necessary for marketing
them. These progress reports shall be made for each Licensed Product until
the first commercial sale of that Licensed Product occurs in the United
States.(b) After the first commercial sale of a Licensed Product anywhere
in the world, Monsanto will make annual royalty reports to Calgene on or
before February 28th of each year. Each such royalty report will cover the
most recently completed calendar year and will show: (i) the gross sales
and Net Profits for each Licensed Product; (ii) the number of each type of
Licensed Product sold; (iii) the royalties, in U.S. dollars, payable
hereunder with respect to such sales; (iv) the method used to calculate the
royalty; and (v) the exchange rates used.(c) For each calendar year
(commencing with calendar year 1997), Calgene will make annual reports to
Monsanto on or before February 28th following each such year. Each such
report will cover the most recently completed calendar year and will show:
(i) the gross sales and Net Profits of
-12-
<PAGE>
the Oils Division; (ii) the number of each type of product sold by the Oils
Division; (iii) the payments, in U.S. dollars, payable hereunder with
respect to such sales; (iv) the method used to calculate the payments; and
(v) the exchange rates used. (d) If no sales have been made during any
calendar year, a statement to this effect shall be required.
4.06 Manner of Payment (a) Concurrent with the submission of reports
pursuant to Paragraph 4.05, Monsanto shall make the earned royalty payments
then due and Calgene shall make the payments then due pursuant to Paragraph
4.03. All payments hereunder shall be made by deposit of United States
Dollars in the requisite amount to such bank account in the United States
as the receiving Party may from time to time designate by notice to the
other. As to the royalty payments payable to Calgene, amounts shall first
be calculated in the currency in which the sale of a Licensed Product took
place and then converted to U.S. Dollars at the closing buying rate for the
last business day of the calendar year for which such payment is due, as
set by Chase Manhattan Bank of New York. Payments shall be without set off
and free and clear of any taxes, duties, fees or charges other than
withholding taxes, if any.(b) If at any time legal restrictions prevent the
prompt remittance of part or all royalties by Monsanto with respect to any
country where a Licensed Product is sold, Monsanto shall have the right and
option to make such payments by depositing the amount thereof in local
currency to Calgene's account in a bank or other depository in such
country. If, after one year, these legal restrictions still exist, Monsanto
shall pay the royalties owed to Calgene in interest from its source of
funds in the U.S.
4.07 No Non-Monetary Consideration for Sales. Neither Party shall
accept or solicit any non-monetary consideration in the sale of any
Licensed Product or products, other than as would be reflected in the
calculation of Net Sales. The use by a Party of commercially reasonable
amounts of Licensed Products or products for promotional sampling shall not
violate this prohibition.
4.08 Records Retention. (a) Monsanto agrees to keep, and shall cause
Monsanto Affiliates and sublicensees to keep, records showing all Licensed
Products manufactured, used and/or sold and licensing of all Licensed
Products in sufficient detail to permit Calgene to confirm the accuracy of
Monsanto's earned royalty calculations. Calgene agrees to keep, and shall
cause Calgene Affiliates and sublicensees to keep, records showing all
products manufactured, used and/or sold by the Oils Division and licensing
of all products by the Oils Division in sufficient detail to permit
Monsanto to confirm the accuracy of Calgene's payment calculations. All
determinations related to royalties and payments due under this Agreement
shall be
-13-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
made in accordance with generally accepted accounting principles as is
normal industry practice. (b) At the request of a Party, the other Party
shall permit an independent, certified public accountant appointed by the
requesting Party and reasonably acceptable to such other Party to examine,
upon reasonable notice, and at reasonably times, records solely to the
extent necessary to verify the other Party's calculations. Such records
shall be kept and examination thereof shall be limited to a period of time
no more than two (2) calendar years.(c) Prompt adjustment shall be made by
the Parties to reflect the results of any such audit. The audit of a
Party's records shall be at the auditing Party's expense provided that if a
net aggregate discrepancy in the audited Party's favor of more than five
percent (5%) is found, then the audited Party shall be obligated to
reimburse the auditing Party for the cost of the audit. (d) The Parties
agree that any dispute arising from an audit of a Party's records and which
can not be resolved by the Parties shall be subject to the following
arbitration procedure; (i) the Parties shall first have their respective
CEO's meet to review the issues raised by the audit, provided that, in the
event that Monsanto has acquired a majority of the outstanding Calgene
stock, an independent director of the Calgene board shall stand in for the
Calgene CEO in such audit review; and (ii) should the procedure in
4.08(d)(i) fail to resolve the dispute, the parties shall appoint an
outside arbitrator which is acceptable to both parties, with authority to
resolve the dispute.
4.09 Late Payment. Notwithstanding any other remedy available to either
Party under the provisions of this Agreement, if any sum of money owned to
a Party hereunder is not paid when due, the unpaid amount shall bear
interest at the lesser of: (a) a rate of 10% per annum or (b) maximum
interest rate under applicable law, calculated from the date payment was
due until actually received by such Party.
4.10 ********************************. If the **************
***************************************************************** to be
***************************** which becomes *********************
***************************************************************** or
****************************** or through ***********************
****************************** (hereinafter referred to as an
**********************), then ***************************************
************ which shall ********************************************
********************* would have been ******************************* *****
pursuant to this Agreement, *********************************.
-14-
<PAGE>
ARTICLE 5. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
5.01 Representations and Warranties. (a) Calgene represents and
warrants that: (i) it has the right to grant the licenses described herein;
(ii) it has not previously granted (except for agreements with Third
Parties described in Paragraph 3.01(a)), and will not grant to any Third
Party during the term of this Agreement, any rights and licenses under the
Calgene Patent Rights that are inconsistent with the rights granted to
Monsanto herein; and (iii) it has full power, right and authority to enter
into and carry out its obligations under this Agreement;
(b) Monsanto represents and warrants that: (i) it has the right to grant
the licenses described herein; (ii) it has not previously granted (except
for agreements with Third Parties described in Paragraph 3.01(b)), and will
not grant to any Third Party during the term of this Agreement, any rights
and licenses under the Monsanto Patent Rights that are inconsistent with
the rights granted to Calgene herein; and (iii) it has full power, right
and authority to enter into and carry out its obligations under this
Agreement;
(c) The Parties, upon execution of this Agreement, shall diligently proceed
with their respective development, manufacture and sale of Licensed
Products or products, as the case may be, and shall earnestly and
diligently endeavor to market the same within a reasonable time after
execution of this Agreement and in quantities sufficient to meet the market
demands therefore; and
(d) The Parties and their respective Affiliates and sublicensees shall
respectively endeavor to obtain all necessary government approval for the
manufacture, use and sale of Licensed Products or products that a Party or
its respective sublicensees plan to sell.
5.02 No Warranties. EXCEPT FOR THE EXPRESS WARRANTIES IN PARAGRAPH
5.01, NEITHER PARTY MAKES ANY WARRANTIES TO THE OTHER REGARDING THE PATENT
RIGHTS (INCLUDING, WITHOUT LIMITATION, THE VALIDITY OR SCOPE OF THE PATENT
RIGHTS) OR THE LICENSED PRODUCTS OR PRODUCT (INCLUDING, WITHOUT LIMITATION,
THE NONINFRINGEMENT OF THE LICENSED PRODUCTS OR PRODUCTS ON THIRD PARTY
PATENT RIGHTS) OR OTHERWISE, EXPRESS OR IMPLIED, EITHER IN FACT OR BY
OPERATION OF LAW.
5.03 Indemnification. (a) Except to the extent caused by the other
Party's gross negligence or willful misconduct, each Party (the
"Indemnifying Party's ) shall defend and indemnify against, and hold the
other Party (the "indemnitee") and its employees, directors, officers and
agents harmless from, any loss, cost, liability or expense (including court
costs and reasonable fees of attorneys and
-15-
<PAGE>
other professionals) incurred from a claim (other than a claim of
infringement of a patent right) arising or alleged to arise out of the
manufacture, use, distribution or sale of, where Monsanto is the
indemnifying Party, any Licensed Product by Monsanto or any Monsanto
Affiliate or sublicensee of Monsanto, and where Calgene is the indemnifying
Party, any product by the Oils Division or any sublicensee of the Oils
Division; provided, however, that (i) the indemnifying Party shall have
sole control of such defense, and (ii) the indemnitee shall provide notice
promptly to the indemnifying Party of any actual or threatened claim of
which the indemnitee becomes aware.(b) Calgene indemnifies Monsanto and
holds Monsanto harmless for and against any claims arising out of a breach
of the representation and warranty made in Paragraph 5.01(a).(c) Monsanto
indemnifies Calgene and holds Calgene harmless for and against any claims
arising out of a breach of the representation and warranty made in
Paragraph 5.01(b).
ARTICLE 6. CONFIDENTIALITY
6.01 Confidential Information. It is anticipated that it will be
necessary, in connection with their obligations under this Agreement, for
Monsanto and Calgene to disclose to each other confidential propriety
business and/or technical information ("Confidential Information") relating
to their respective business, products and technologies. The Confidential
Information shall include information disclosed in writing or other
tangible form, including electronic transmissions and samples of materials.
If disclosed orally, the Confidential Information shall be summarized in
written form within thirty (30) days by the disclosing Party and a copy
provided to the recipient.
6.02 Confidentiality and Limited Use.(a) With respect to all
Confidential Information, both Monsanto and Calgene agree as follows, it
being understood that "recipient" indicates the Party receiving the
Confidential Information from the other "disclosing" Party. Confidential
Information disclosed to the recipient shall remain the property of the
disclosing Party and shall be maintained in confidence by the recipient and
shall not be disclosed to third parties by the recipient and, further,
shall not be used by the recipient except for purposes contemplated in this
Agreement. All confidentiality and limited use obligations with respect to
the Confidential Information shall terminate ten (10) years after the
disclosure of such Confidential Information.(b) Notwithstanding any
provision to the contrary, a Party may disclose Confidential Information of
the other: (i) in connection with the order of a court or other
governmental body or as required by or in compliance with laws or
regulations; (ii) in confidence, to attorneys, accountants, banks and
financing sources and
-16-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
their advisors; or (iii) in confidence, in connection with a proposed
sublicense, merger or acquisition, or the like, so long as, in each case,
the entity to which disclosure is made binds itself to confidentiality on
terms consistent with those set forth herein, in an agreement in which the
Party whose Confidential Information is to be disclosed is expressly named
as a third party beneficiary.
6.03 Exceptions. The obligations of confidentiality and limited use
shall not apply to any of the Confidential Information which: (a) is
publicly available by publication or other documented means or later
becomes likewise publicly available through no act or fault of recipient;
or (b) is already known to recipient before receipt from the disclosing
Party, as demonstrated by recipient's written records; or (c) is made known
to recipient by a third party who did not breach confidentiality
obligations to the disclosing Party and which third party does not obligate
recipient to hold it in confidence.Specific information should not be
deemed to be within any of these exclusions merely because it is embraced
by more general information falling within these exclusions.
6.04 Disclosures to Personnel. Recipient agrees to advise those of its
officers, directors, stockholders, employees, associates, agents,
consultants, Affiliates, and sublicensees who become aware of the
Confidential Information, of these confidentiality and limited use
obligations and agrees, prior to any disclosure of Confidential Information
to such individuals or entities, to make them bound (by written agreement
or otherwise) by obligations of confidentiality and limited use of the same
stringency as those contained in this Agreement.
6.05 Confidential Status of Agreement. The terms of this Agreement
including the royalty rate shall be deemed to be Confidential Information
and shall be dealt with according to the confidentiality requirements of
this Article 6. Both Parties agree furthermore, that neither Party will
make public disclosures concerning other specific terms of this Agreement
without obtaining the prior written consent of the other Party, which
consent shall not be unreasonably withheld, except to the extent required
by law or regulation.
ARTICLE 7. PATENT PROSECUTION, ENFORCEMENT AND INFRINGEMENT
7.01 Patent Prosecution. (a) Calgene shall have the *********
*********************************************************************
******************************** (b) Monsanto shall have the
*********************************************************************
*****************************************.
-17-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
7.02 Patent Enforcement. (a) Calgene and Monsanto shall each
give prompt notice to the other of any infringement of the Patent
Rights which may come to its attention; (b) The Party holding such
Patent Rights shall *************************************************
*********************************************************************
of a ************* and to ************************************* as it may
deem appropriate. The Party holding such Patent Rights shall
********************************************************* to this Paragraph
7.02; (c) If the infringing activities of the Third Party result in a
************************************************** relating to
***************** and at the *************** from the ***************** by
such Party of such infringement, the Third Party
***************************************************************
********* which are an infringement of the Patent Rights, and the Party
which owns and/or controls the involved Patent Rights *******
*******************************************************************
************************ (i) when such affected Party is Monsanto, it
*************************************************************
hereunder with **************************************************
*****************************************************************
*****************and (ii) when such affected Party is Calgene, Calgene
********************************************************************
************** in the **********************************************
********************************************************************
********************************************************************.
************************* as the case may be, ************ shall arise
********************************************************************
********************************************** and shall ***********
**************************************************************** and
to so ******** with the Licensed Products; (d) Neither Party shall
****************************************************************
****************************************************************
licensed hereunder *****************************.
7.03 Infringement. In the event of any claim or suit against Calgene or
Monsanto for infringement of any intellectual property right of any Third
Party as the result of the manufacture, use or sale of the Licensed
Products or products by a Party or distributors, agents or customers of
such Party, the Parties shall cooperate in good faith in determining how to
respond to such claim or suit.
ARTICLE 8. TERM
8.01 Term. The term of this Agreement shall commence on the Effective
Date and, shall continue for fifteen (15) years, which term is
automatically extended until the expiration of any patent listed on
Exhibits D and E hereto.
-18-
<PAGE>
8.02 No Right to Terminate for Breach. In the event of a breach or
default of any of the provisions hereof by either Party, the non-breaching
non-defaulting Party may seek to recover monetary damages against the
breaching or defaulting Party (after giving such Party written notice and a
reasonable opportunity to cure) or to seek specific performance, injunctive
or other equitable relief, other than termination of this Agreement. The
non-breaching non-defaulting Party shall not have the right to terminate
this Agreement.
ARTICLE 9. PATENT MARKING/USE OF NAMES/TRADEMARKS
9.01 The Parties agree to mark all Licensed Products and products, as
the case may be, made, used or sold under the terms of this Agreement, or
their containers, in accordance with the applicable patent marking laws.
9.02 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, service mark or other
designation of either Party hereto (including contraction, abbreviation or
simulation of any of the foregoing).
ARTICLE 10. GENERAL PROVISIONS
10.01 Notices. All notices and other communications required or
permitted under this Agreement shall be deemed to be properly given when in
writing and sent by registered or certified mail, postage prepaid or by
reputable courier service or by telefax with receipt confirmation, to the
other Party at the address set forth below, or at such other address as
either Party may be in writing designate from time to time for these
purposes.
If to CALGENE: Calgene, Inc.
1920 Fifth Street, Davis, CA 95616
Attention: Roger Salquist, Chief Executive Officer
Copy to: Calgene, Inc., 1920 Fifth Street, Davis, CA 95616
Attention: Lloyd Kunimoto, Vice President
If to MONSANTO: Monsanto Company
700 Chesterfield Parkway North, St. Louis, MO 63198
Attention: President
Ceregen Copy to: Monsanto Company, 800 North Lindbergh Blvd.,
St. Louis, MO 63167
Attention: Group Patent Counsel
The Agricultural Group
-19-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
10.02 Assignability. The rights and obligations acquired herein by
either Party ******************************************************
*******************************************************************
************** of the other Party. ************************** of the
other Party, which ******************************************* a Party
***************************************** under this Agreement in
**********************************************************
******************************* to which this Agreement pertains to a
******************** provided that the ***************** shall agree
***************************************************************** of
this Agreement. **********************************************
********* in violation of this Paragraph 10.02 shall be void and of no
effect.
10.03 Entire Agreement; Amendments; Waiver. This Agreement constitutes
the full understanding of the Parties, and supersedes any and all prior
agreements as they may relate to licenses granted herein, with the
exception that for sales of Glyphosate tolerant products by Monsanto the
agreements between the Parties regarding Glyphosate tolerant genes, dated
December 20, 1994, (Settlement Agreement ) and transgenic technologies,
dated April 22, 1993, (Transgenic Plants Agreement ) shall be treated in
accordance with paragraph 10.13 (b) hereto. Except as otherwise
specifically provided in this Agreement, no conditions, understanding or
agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in
writing and signed by the Party to be bound and no modification shall be
effected by the acknowledgment or acceptance of documents containing terms
or conditions at variance with or in addition to those set forth in this
Agreement. No waiver by any Party with respect to any breach or default or
of any right or remedy and no course of dealing or performance, shall be
deemed to constitute a continuing waiver of any other breach or default or
of any right or remedy, unless such waiver be expressed in writing signed
by the Party to be bound. Failure of a Party to exercise any right shall
not be deemed a waiver of such right or rights in the future.
10.04 Severability. In case any one or more of the provisions contained
in this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, but this
Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
10.05 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original with the same effect as if
the signatures thereto and hereto were upon the same instrument.
-20-
<PAGE>
10.06 Headings. Headings as to the contents of particular Articles and
Paragraphs are for convenience only and are in no way to be construed as
part of this Agreement or as a limitation of the scope of the particular
Articles and Paragraphs to which they refer.
10.07 Agreement References. All paragraphs and subparagraphs
referred to herein are paragraphs and subparagraphs of this Agreement.
10.08 Exhibits. The appended Exhibits form an integral part of
this Agreement.
10.09 Choice of Law. IT IS THE INTENTION OF THE PARTIES HERETO THAT ALL
QUESTIONS WITH RESPECT TO THE CONSTRUCTION OF THIS AGREEMENT AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO BUSINESS ARRANGEMENTS
ENTERED INTO AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
10.10 Export Control. Notwithstanding any other provisions of this
Agreement, each Party agrees to make no disclosure or use of any
information or technology of the other Party furnished or made known to
such Party pursuant to this Agreement, except in compliance with the laws
and regulations promulgated by the Office of Export Administration,
International Trade Administration, United States Department of Commerce;
and in particular, the Parties agree not to export, directly or indirectly,
either: (a) the technical data or technical information furnished or made
known to either Party by the other pursuant to this Agreement; or (b) the
"direct product" thereof or (c) any commodity produced using such technical
data to any country or countries unless a general or validated license is
first obtained pursuant to the Export Administration Regulations. The term
"direct product", as used above, is defined to mean the immediate product
(including process and services) produced directly by the use of the
technical data.
10.11 Force Majeure (a) Except for payments of money, neither of the
Parties shall be liable for any default or delay in performance of any
obligation under this Agreement caused by any of the following: Act of God,
war, riot, fire, explosion, accident, flood, sabotage, compliance with
governmental requests, laws, regulations, orders or actions, national
defense requirements or any other event beyond the reasonable control of
such part; or labor trouble, strike, lockout or injunction (provided that
neither of the Parties shall be required to settle a labor dispute against
its own best judgment);(b) The Party invoking this Paragraph 10.11 shall
give the other Party notice and full particulars of each force majeure
event by telephone, telegram, telex or telecopier as soon as possible after
the occurrences of the
-21-
<PAGE>
cause upon which said Party is relying. Telephone, telegram, telex and
telecopier notices shall be confirmed in writing by the sending Party
within 5 days.
10.12 Negation of Agency. It is agreed and understood by the Parties
hereto that each of Monsanto and Calgene, in its performance of its
obligations and responsibilities under this Agreement, is an independent
contractor and that nothing herein contained shall be deemed to create an
agency, partnership, joint venture or like relationships between the
Parties. The manner in which each of Monsanto and Calgene carry out its
performance under this Agreement is within each of Monsanto's and Calgene's
sole discretion and control.
10.13 Existing Agreements. Subject to the provisions of this paragraph,
to the extent that rights provided under existing agreements between the
Parties are not in conflict with this Agreement, this Agreement shall not
terminate rights under such existing agreements.(a) For any Licensed
Product, other than sales of Glyphosate tolerant canola by Monsanto, if a
Party would have an obligation to pay royalties to the other Party both
under this Agreement and under a prior agreement between the parties, the
payment due the other Party shall be determined only under this
Agreement.(b) Royalties and fees for a Glyphosate tolerant canola Licensed
Product produced by Monsanto shall be determined as follows:(i) if all
necessary Calgene Patent Rights utilized by Monsanto in conferring
glyphosate tolerance to such Licensed Product is covered by the Settlement
Agreement and/or the Transgenic Plants Agreement, the royalties payable to
Calgene shall be determined pursuant to such Settlement Agreement and/or
Transgenic Plants Agreement, as the case may be;(ii) if such Licensed
Product incorporates a Calgene Patent Right for any purpose other than
conferring glyphosate tolerance to such Licensed Product the royalties
payable to Calgene shall be determined pursuant to this Agreement.For
example: if Monsanto sells glyphosate tolerant genetically transformed
canola with a non- genetically engineered oil composition the royalties
would be those called for in the Transgenic Plants Agreement; if Monsanto
sells Glyphosate tolerant canola which also produces an oil which has been
modified using Calgene Technology licensed under this agreement, the
royalty payable to Calgene for such Licensed Product shall be determined
pursuant to this Agreement.
-22-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective duly authorized officers as of the day and
year first above written.
CALGENE, INC. MONSANTO COMPANY
By: /s/Roger H. Salquist By: /s/H.A. Verfaillie
Print Name Roger H. Salquist Print Name H.A. Verfaillie
Title: Chmn and CEO Title: Executive VP
-23-
<PAGE>
Exhibit A
EXHIBIT A CONTAINS CONFIDENTIAL MATERIALS WHICH HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-24-
<PAGE>
Exhibit B
EXHIBIT B CONTAINS CONFIDENTIAL MATERIALS WHICH HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-25-
<PAGE>
Exhibit C
EXHIBIT C CONTAINS CONFIDENTIAL MATERIALS WHICH HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-26-
<PAGE>
Exhibit D
EXHIBIT D CONTAINS CONFIDENTIAL MATERIALS WHICH HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-27-
<PAGE>
Exhibit E
EXHIBIT E CONTAINS CONFIDENTIAL MATERIALS WHICH HAVE BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-28-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-06591) pertaining to the 1981 Stock Option Plan, 1990 Employee
Stock Purchase Plan, 1991 Stock Option Plan, and 1996 Stock Option Plan of
Calgene, Inc. of our report dated September 12, 1996, with respect to the
consolidated financial statements and schedules of Calgene, Inc. included in the
Annual Report (Form 10-K) for the year ended June 30, 1996.
ERNST & YOUNG LLP
Sacramento, California
September 23, 1996
<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> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,674
<SECURITIES> 10,919
<RECEIVABLES> 26,620
<ALLOWANCES> 487
<INVENTORY> 23,865
<CURRENT-ASSETS> 80,765
<PP&E> 96,468
<DEPRECIATION> 16,481
<TOTAL-ASSETS> 233,302
<CURRENT-LIABILITIES> 82,233
<BONDS> 22,643
0
0
<COMMON> 60
<OTHER-SE> 93,340
<TOTAL-LIABILITY-AND-EQUITY> 233,302
<SALES> 95,723
<TOTAL-REVENUES> 104,995
<CGS> 90,403
<TOTAL-COSTS> 104,426<F1>
<OTHER-EXPENSES> 74,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,428
<INCOME-PRETAX> (96,993)
<INCOME-TAX> 21
<INCOME-CONTINUING> (97,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,014)
<EPS-PRIMARY> (2.56)
<EPS-DILUTED> 0
<FN>
<F1>total costs include expenses for both funded and unfunded R&D projects.
</FN>
</TABLE>
