FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14802
Calgene, Inc.
(Exact name of registrant as specified in its charter)
Delaware 68-0369863
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1920 Fifth Street,
Davis, California 95616
(Address of principal executive offices) (Zip Code)
(916) 753-6313
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding at May 2, 1997: 66,767,395 shares
<PAGE>
CALGENE, INC.
INDEX
Page No.
Part I. Financial Information (unaudited)
Item 1. Financial Statements....................................4
Condensed consolidated balance sheets -
March 31, 1997 and December 31, 1996 ...................4
Condensed consolidated statements of operations -
three months ended March 31, 1997 and 1996..............5
Condensed consolidated statements of cash flows -
three months ended March 31, 1997 and 1996 .............6
Notes to condensed consolidated financial statements ...7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................9
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K.......................17
Signatures...............................................................18
<PAGE>
PART I. FINANCIAL INFORMATION
<PAGE>
<TABLE>
<CAPTION>
Calgene Inc.
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
March 31 December 31
Assets 1997 1996
------------- -------------
Current assets:
<S> <C> <C>
Cash and equivalents $ 1,769 $ 1,908
Available-for-sale securities -- 1,382
Accounts receivable, net of allowances 45,084 16,748
Inventories 28,923 37,272
Prepaid expenses and other current assets 1,868 1,327
-------- --------
Total current assets 77,644 58,637
Property, plant and equipment:
Land 18,258 18,258
Buildings 19,276 18,418
Leasehold improvements 8,458 8,330
Furniture, fixtures and equipment 34,104 33,971
Construction in progress 761 1,411
-------- --------
80,857 80,388
Less accumulated depreciation and amortization 21,168 19,642
-------- --------
Property, plant and equipment, net 59,689 60,746
Product rights, patents and other intangible
assets, less accumulated amortization 20,091 20,461
Costs in excess of fair values assigned to net
assets acquired, less accumulated amortization 25,228 25,680
Assets held for sale 5,075 5,185
Other non-current assets 4,625 3,171
-------- --------
$192,352 $173,880
======== ========
Liabilities and shareholders' equity Current liabilities:
Notes payable $ 20,323 $ 9,402
Accounts payable 14,566 13,920
Accrued payroll and related expenses 4,130 3,470
Accrued grower payments 377 1,364
Amounts due customers 1,652 317
Accrued restructure expenses 2,193 2,525
Other current liabilities 3,478 3,193
Current portion of long-term debt 5,043 5,139
-------- --------
Total current liabilities 51,762 39,330
Research and development advance from affiliate 10,000 10,000
Note payable to affiliate 24,760 24,760
Interest payable to affiliate 2,538 1,912
Accrued restructure expenses, long-term 3,860 3,860
Long-term debt 14,626 14,195
Commitments and contingencies
Minority interest 263 263
Shareholders' equity:
Common stock, $.001 par value; 100,000,000
shares authorized; 66,765,586 and 66,714,636
shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively 67 67
Additional paid-in capital 417,824 417,581
-------- --------
Accumulated deficit (333,348) (338,088)
Total shareholders' equity 84,543 79,560
-------- --------
$192,352 $173,880
======== ========
See accompanying notes
</TABLE>
<PAGE>
Calgene, Inc.
Condensed Consolidated Statements of Operations
($ in thousands, except per share amounts)
(Unaudited)
Three Months
Ended March 31
--------------------------
1997 1996
---------- ----------
Revenues:
Product sales, net $ 59,709 $ 17,326
Product development revenues 1,669 225
---------- ----------
61,378 17,551
Costs and expenses:
Cost of goods sold 45,116 13,173
Research and development 3,721 3,404
Selling, general and administrative 7,157 4,550
In-process research and development
acquired -- 59,200
Write-off of assets -- 14,574
---------- ----------
55,994 94,901
Interest expense (1,329) (341)
Other income, net 699 754
---------- ----------
Income (loss) from operations before
income taxes 4,754 (76,937)
Provision for income taxes 14 18
---------- ----------
Net income (loss) $ 4,740 $ (76,955)
========== ==========
Net income (loss) per share $ 0.07 $ (2.52)
========== ==========
Shares used in per share calculations 69,588,306 30,578,620
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Calgene, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
($ in Thousands)
(Unaudited)
Three Months Ended
March 31
-----------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,740 $(76,955)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 2,888 1,278
In-process research and development acquired -- 59,200
Write-off of assets -- 14,574
Other 21 (545)
Net changes in:
Operating assets (20,528) (5,701)
Operating liabilities 2,233 (455)
------- ------
Net cash used in operating activities (10,646) (8,604)
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 1,393 1,923
Purchase of available-for-sale securities -- (418)
Capital expenditures for property, plant and equipment (880) (494)
Purchases of product rights, patents and
other intangible assets (163) (147)
Payment for purchase of subsidiary, net of cash
and equivalents acquired -- (1,219)
Other noncurrent assets (1,068) 883
------- ------
Net cash (used in) provided by investing activities (718) 528
Cash flows from financing activities:
Proceeds from notes payable 18,841 4,125
Payments on notes payable (7,920) (163)
Increase in securities-pledged (250) (9)
Increase in borrowings of long-term debt 1,500 --
Principal payments on long-term debt (1,175) (243)
Proceeds on notes payable to affiliate 5,000 5,000
Payments on notes payable to affiliate (5,000) --
Sale of common stock 229 87
------- ------
Net cash provided by financing activities 11,225 8,797
------- ------
Net increase (decrease) in cash and equivalents (139) 721
Cash and equivalents at beginning of period 1,908 3,124
------- ------
Cash and equivalents at end of period $ 1,769 $ 3,845
======= ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 681 $ 550
Income taxes $ 49 $ 24
See accompanying notes.
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the interim periods. These financial statements should
be read in conjunction with the Company's audited financial statements contained
in the Company's Annual Report on Form 10-K for the six month period ended
December 31, 1996. The Company changed its fiscal year end from June 30 to
December 31 beginning with the period ended December 31, 1996.
In the opinion of management, the interim financial statements reflect all
adjustments necessary, consisting only of normal recurring adjustments, to
present fairly the Company's consolidated financial position at March 31, 1997,
and the consolidated results of operations and cash flows for the fiscal
quarters ended March 31, 1997 and 1996. Results for the period ended March 31,
1997, are not necessarily indicative of results to be expected for the entire
year.
Net income (loss) per share has been computed by dividing the net income
(loss) by the weighted average number of common shares outstanding during each
period. Common shares issuable from stock options and convertible debt have been
excluded from the computation of net income (loss) per share if their inclusion
would be antidilutive.
Certain amounts reported as of December 31, 1996 and for the fiscal quarter
ended March 31, 1996, have been reclassified to conform with the presentation of
the fiscal quarter ended March 31, 1997.
Product rights are stated at cost and are amortized on a straight-line
basis over the lesser of their contractual lives or their estimated useful lives
(generally 10 to 20 years). External costs incurred in obtaining patents are
capitalized. The costs of successful patent applications are amortized on a
straight-line basis over the lesser of their statutory lives or their estimated
useful lives (generally 17 years). External costs incurred in defense of patents
are capitalized and amortized on a straight-line basis over the remaining life
of the patent. The costs of unsuccessful patent applications or patent defense
are charged to expense in the period in which the patent applications are denied
or the patent defense is unsuccessful.
2. Accounting Pronouncement
------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," ("SFAS 128") which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of SFAS 128 on
the calculation of earnings per share is not expected to be material.
3. Inventories
-----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value. Inventories consist of the following (in
thousands):
March 31, 1997 December 31, 1996
---------------- -----------------
Growing crops $ 14,157 $ 17,958
Supplies and seed
inventories 6,179 5,836
Finished goods 4,643 5,689
Work in progress 1,736 2,631
Raw materials 2,208 5,158
---------- -----------
$ 28,923 $ 37,272
========== ===========
4. Patent and Legal Proceedings
----------------------------
See Part II - Other Information
Item 1. Legal Proceedings
5. Tender Offer and Subsequent Events
----------------------------------
In January 1997, the Company received an unsolicited proposal from Monsanto
Company ("Monsanto") to acquire all of the outstanding shares of the Company's
common stock that Monsanto does not already own. On March 31, 1997 Monsanto and
the Company entered into an Agreement and Plan of Merger whereby Monsanto would
acquire the remaining shares of Calgene for $8 per share in cash ("Agreement").
The Agreement was approved by a special committee composed of Calgene's
directors who are neither designees of Monsanto nor Calgene employees.
Pursuant to the Agreement, Monsanto commenced a tender offer on April 7,
1997. The tender offer was conditional upon the tender of a majority of the
outstanding Calgene shares not owned by Monsanto and other customary conditions.
The tender offer expired on May 2, 1997. The obligation of Monsanto to accept
for payment and pay for shares tendered pursuant to the offer was conditional
upon there being validly tendered and not withdrawn prior to the expiration of
the offer (i) not less than a majority of the publicly held shares and (ii) at
least the number of shares that when added to the shares owned by Monsanto shall
constitute ninety percent of the shares then outstanding, and certain other
conditions. Approximately 26.8 million or 88% of the publicly held shares were
tendered. As a result of the tender offer, Monsanto will own approximately 94%
of the outstanding Calgene Shares. Monsanto is in the process of completing the
merger of Calgene pursuant to which Monsanto will acquire the remaining shares
at the same $8 per share price.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
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.
The Company changed its fiscal year-end from June 30 to December 31
beginning with the period ended December 31, 1996.
Revenues
Calgene's product sales in the quarter ended March 31, 1997 increased 245%
to $59.7 million from $17.3 million in the corresponding period of the prior
year. The increase is due to the inclusion of Gargiulo's revenues which
increased produce sales by $40.9 million, and higher specialty chemical sales of
$1.6 million. Gargiulo's product sales in the quarter were $43.3 million and
were largely comprised of tomato sales of $26.6 million, berry sales of $5.7
million and pepper sales of $4.6 million.
Product development revenues in the current quarter increased by $1.4
million as compared to the corresponding period of the prior year. The increase
reflects a $750,000 technology license sale and the recognition of benchmark
milestone payments totalling $550,000.
Gross Profit
Calgene's gross profit on net product sales was $14.6 million in the
quarter ended March 31, 1997, as compared to a gross profit of $4.2 million in
the comparable period of the prior year. The $10.4 million improvement is
attributable to the inclusion of Gargiulo's gross profit on net product sales of
$9.5 million, and higher volumes of specialty chemical sales which resulted in
an increase of $608,000. Gargiulo's gross profit reflects higher than usual unit
prices for tomatoes due to the impact of the January 1997 Florida freeze.
Although Florida tomato production was significantly reduced in February and
March, the Company's Mexico and Puerto Rico operations were not impacted by the
Florida freeze and were able to generate higher than normal margins.
Research and Development Expenses
Research and development expenses increased by $317,000 or 9.3% to $3.7
million in the quarter ended March 31, 1997, as compared to the corresponding
period of the prior year. The increase was primarily due to the inclusion of
Gargiulo variety development expenses.
Selling, General and Administrative Expenses
Calgene's selling, general and administrative expenses increased by $2.6
million or 57.3% to $7.2 million in the quarter ended March 31, 1997, as
compared to the corresponding period of the prior year. The increase reflects
$2.9 million in higher expenses for the Company's fresh market produce
operations attributable to the inclusion of Gargiulo.
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 first quarter of 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
In the quarter ended March 31, 1996, the Company recorded a charge of
approximately $14.6 million for the write-off of assets, including $9.4 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 quarter ended March
31, 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.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank lines
of credit and long-term debt obligations, increased $988,000 to $1.3 million in
the quarter ended March 31, 1997, as compared to the corresponding period of the
prior year. The increase was due to interest expense of $966,000 attributable to
Gargiulo's debt obligations.
Pre-Tax Income (Loss) from Operations
In the quarter ended March 31, 1997, Calgene recorded pre-tax income of
$4.8 million as compared to a pre-tax loss of $77.0 million incurred in the
corresponding period of the prior year. The $81.7 million difference reflects
charges of $73.8 for in-process research and development expense and asset
write-downs that were recorded in the first quarter of the prior year. In
addition, the improvement reflects the favorable impact from the inclusion of
Gargiulo's pre-tax income in the first quarter of the current year, higher
product development revenues, and higher gross profits on sales of specialty
chemicals.
Provision for Income Taxes
For federal income tax return purposes, as of December 31, 1996 the Company
has a net operating loss carryover of approximately $234 million which expires
between 1997 and 2012, and a general business tax credit carryover of
approximately $4 million which expires between 1997 and 2012. In addition, as of
December 31, 1996 the Company has a net operating loss carryover of
approximately $143 million for state income tax purposes which expires between
1997 and 2012. 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 $118.4 million has been
recognized at December 31, 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 March 31, 1997 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $1.8 million, excluding $1.1
million in securities pledged as collateral for certain obligations. This was a
decrease of $1.5 million from December 31, 1996. Uses of cash include a $20.5
million increase in operating assets; payments of $1.2 million on long-term
debt; a $1.1 million increase in other noncurrent assets; and the acquisition of
$880,000 in property, plant and equipment. Sources of cash included a $10.9
million net increase in notes payable; income from the Company's operations; a
$2.2 million increase in operating liabilities; and a $1.5 million increase in
long-term debt. The Company's investment policy is to invest excess cash in high
quality, liquid, short-term fixed income securities.
Accounts receivable at March 31, 1997 increased by $28.3 million as
compared to December 31, 1996 primarily due to higher sales of fresh produce and
higher seasonal sales of cottonseed. Correspondingly, inventories decreased by
$8.3 million due to lower tomato growing costs and the reduction of bulk
cottonseed.
Current liabilities increased $12.4 at March 31, 1997 as compared to
December 31, 1996 largely due to a $10.9 million increase in notes payable; a
$1.3 million increase in amounts due customers for cotton seed returns
consistent with industry practice, and increases in trade accounts payable and
accrued payroll. These increases were partly offset by a $987,000 decrease in
accrued grower payments.
Net working capital increased $6.6 million from $19.3 million at December
31, 1996 to $25.9 million at March 31, 1997 primarily due to a $28.3 million
increase in accounts receivable. This increase was partly offset by a $12.4
million increase in current liabilities, and a $8.3 million decrease in
inventories.
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
$5.1 million at March 31, 1997.
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 March 31, 1997, the amount of these unamortized
costs was $5.6 million.
Monsanto is obligated, subject to certain terms and conditions, to lend
up to $40 million to Gargiulo ("Gargiulo Credit Facility"). As of March 31,
1997, $24.8 million of the Gargiulo Credit Facility was outstanding. The credit
facility agreement contains various covenants precluding Calgene and its
subsidiaries from taking certain actions without the approval of Monsanto.
Calgene had a $13 million line of credit with Harris Trust and Savings Bank
(the "Harris Credit Facility") which expired on February 28, 1997. During the
quarter ended March 31, 1997 the Company replaced this line of credit with a $20
million working capital line of credit with Bank of America ("the B of A
Facility"). The B of A Facility expires on December 1, 1999. Available credit
increases to $30 million after December 31, 1997 and to $40 million after
December 31, 1998. Borrowings under this line of credit bear interest at one
quarter percent below the bank's reference rate unless the Company elects
optional negotiable fixed rates or the LIBOR rate plus one and one-half
percentage points. On March 31, 1997 the bank's reference rate was 8.5%. The
effective annual interest rate for this line of credit was 7.51% for the three
month period ended March 31, 1997. As of March 31, 1997, $16.6 million of
indebtedness was outstanding on the bank line of credit.
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 this
line bear interest at prime. This credit line expires on September 30, 1997. On
March 31, 1997, the bank's prime rate was 8.5%. As of March 31, 1997, there was
$3.5 million outstanding on the line of credit.
In January 1997, the Company received an unsolicited proposal from Monsanto
Company ("Monsanto") to acquire all of the outstanding shares of the Company's
common stock that Monsanto does not already own. On March 31, 1997 Monsanto and
the Company entered into an Agreement and Plan of Merger whereby Monsanto would
acquire the remaining shares of Calgene for $8 per share in cash ("Agreement").
The Agreement was approved by a special committee composed of Calgene's
directors who were neither designees of Monsanto nor Calgene employees.
Pursuant to the Agreement, Monsanto commenced a tender offer on April 7,
1997. The tender offer was conditional upon the tender of a majority of the
outstanding Calgene shares not owned by Monsanto and other customary conditions.
The tender offer expired on May 2, 1997. The obligation of Monsanto to accept
for payment and pay for shares tendered pursuant to the offer was conditional
upon there being validly tendered and not withdrawn prior to the expiration of
the offer (i) not less than a majority of the publicly held shares and (ii) at
least the number of shares that when added to the shares owned by Monsanto shall
constitute ninety percent of the shares then outstanding, and certain other
conditions. Approximately 26.8 million or 88% of the publicly held shares were
tendered. As a result of the tender offer, Monsanto will own approximately 94%
of the outstanding Calgene Shares. Monsanto is in the process of completing the
merger of Calgene pursuant to which Monsanto will acquire the remaining shares
at the same $8 per share price.
<PAGE>
PART II. OTHER INFORMATION
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
On April 31, 1997, Fletcher Capital Markets, Inc. ("Fletcher") filed suit
in the United States District Court of Delaware alleging that Calgene, Inc.
failed to honor its obligation to sell 2,352,942 shares of Common Stock of
Calgene to Fletcher for $10 million or $4.25 per share pursuant to a Common
Stock Purchase Agreement dated May 31, 1994 (the "Stock Purchase Agreement").
Fletcher is seeking damages of at least $8.8 million representing the difference
between the fair value of the shares, which is not less than the $8 per share
consideration offered in the tender offer and merger by Monsanto Company, and
Fletcher's cost of the shares, which Fletcher contends is $4.25 per share, plus
attorney fees and other costs. No discovery has occurred to date in this action.
The Company believes it has meritorious defenses to the allegations set forth in
the complaint.
Shortly after the January 28, 1997 announcement by Monsanto Company that it
proposed to acquire the remaining Calgene publicly held shares, several putative
class actions were filed in the Delaware Court of Chancery challenging the
fairness of the proposed transaction to the minority stockholders. These actions
have been consolidated for all purposes (the "Consolidated Action"). In
substance, the complaints allege that because of Monsanto's ownership of
approximately 54.5% of the Company and control of the Calgene Board, no
independent group of Company directors exists and no independent advisor can be
chosen to properly consider Monsanto's acquisition proposal. The plaintiffs also
claim that the defendants - Monsanto, the Company, and several individuals
serving as directors of one or more of these companies - breached their
fiduciary duties to the public stockholders by failing to take adequate steps to
determine the fair value of the shares or to condition the offer on acceptance
by holders of a majority of the publicly held shares. The relief sought by the
plaintiffs includes an injunction against the acquisition by holders of a
majority of the publicly held shares. The relief sought by the plaintiffs
includes an injunction against the acquisition by Monsanto; a declaration that
each of the defendants have breached their fiduciary duties; compensatory and/or
rescissory damages plus costs, disbursements and attorneys' and experts' fees in
unspecified amounts. On March 31, 1997, the parties to the Consolidated Action
entered into a memorandum of understanding reflecting their agreement in
principle to settle the Consolidated Action. To resolve the Consolidated Action,
Monsanto will seek to acquire the Company pursuant to the offer and the merger
at the offer price of $8.00 per share. The consummation of the settlement is
subject to a number of conditions, including the completion by plaintiff of any
additional necessary discovery satisfactory to plaintiffs, the drafting and
execution of a definitive stipulation of settlement, consummation of the offer
and the merger and final court approval of the settlement and dismissal of the
Consolidated Action, with prejudice. If such conditions are met, plaintiffs'
counsel intends to apply for court awarded attorneys' fees and disbursements to
be paid by Monsanto in an amount not to exceed $795,000. Defendants will not
oppose such application. In the event settlement of the Consolidated Action is
not consummated and plaintiffs' counsel continues the Consolidated Action, such
litigation could result in substantial expense to the Company and significant
diversion of efforts to the Company's management team. The Company believes that
all of such lawsuits are without merit, and would vigorously defend such
actions. There can be no assurance, however, that in such event the plaintiffs
will not be successful.
On February 11, 1997, three named plaintiffs filed a Class Action Complaint
against Gargiulo, Inc. in the United States District Court for the Northern
District of California, San Jose Division. The Complaint arose from the
employment relationship between the named and unnamed plaintiffs and Gargiulo,
Inc. The plaintiffs allege certain violations of the Migrant and Seasonal
Agricultural Worker Protection Act ("MSPA"), California's IWC Wage Order, The
California Labor Code, and the California Business and Professions Code; and
Breach of Contract. The plaintiffs seek damages including all unpaid wages,
statutory damages under the California Labor Code; a declaration that Gargiulo
violated MSPA, monetary damages pursuant to MSPA; and for an order enjoining
Gargiulo, Inc. from violations of MSPA. Gargiulo's insurance carriers were
contacted regarding this lawsuit. As of March 27, 1997, Gargiulo has answered
the Class Action Complaint, and is initiating discovery regarding class
certification. Gargiulo, Inc. is also waiting for the response from its
insurance carrier. While the results of the Class Action Complaint cannot be
predicted, the Company believes that the ultimate outcome will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
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 $5.6 million at March 31, 1997.
On October 18, 1995, two groups of Plaintiffs filed separate complaints
against various Defendants including Gargiulo & Associates in the United States
District Court for the Eastern District of California. Both complaints arose
from the same set of facts and allege the same three theories of recovery. These
actions were consolidated. The cases involve personal injury claims relating to
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, Albertano Alberto
Jimenez; et al. v. Gargiulo & Associates; Pat Kreger, Inc., Manuel Vegas; Robles
Rios; Jesus Loza and Samuel Santiago Vasquez, and Jose Vasquez; et al. v.
Gargiulo & Associates; Pat Kreger, Inc., Manuel Vegas; Robles Rios; Jesus Loza
and Samuel Santiago Vasquez, were both filed on October 18, 1995. The plaintiffs
sought 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. As of March 12, 1997, Gargiulo was granted its Motion for Summary
Judgment as to all of the claims against it. This matter is now subject to
appeal after judgment enters. Judgment will not be entered unless the court
grants Gargiulo's motion for entry of judgment which is expected to be filed by
June 1, 1997, or until the matter is determined as to all remaining defendants.
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 material adverse
effect on its consolidated financial position or results of operations.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
11 Schedule of Computation of Per Share Income (Loss)
27 Financial Data Schedule (EDGAR)
B. Reports on Form 8-K
None.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALGENE, INC.
Date: May 15, 1997
By: /s/ Christian Leleu
-------------------
Christian Leleu
Chief Financial Officer
<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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,769
<SECURITIES> 0
<RECEIVABLES> 45,084
<ALLOWANCES> 0
<INVENTORY> 28,923
<CURRENT-ASSETS> 77,644
<PP&E> 80,857
<DEPRECIATION> 21,168
<TOTAL-ASSETS> 192,352
<CURRENT-LIABILITIES> 51,762
<BONDS> 14,626
0
0
<COMMON> 67
<OTHER-SE> 84,476
<TOTAL-LIABILITY-AND-EQUITY> 192,352
<SALES> 59,709
<TOTAL-REVENUES> 61,378
<CGS> 45,116
<TOTAL-COSTS> 48,837<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,329
<INCOME-PRETAX> 4,754
<INCOME-TAX> 14
<INCOME-CONTINUING> 4,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,740
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<FN>
<F1>Total cost includes expenses for both funded and unfunded R&D projects.
</FN>
</TABLE>
CALGENE, INC.
EXHIBIT 11.0
SCHEDULE OF COMPUTATION OF PER SHARE INCOME (LOSS)
(In Thousands, Except Share and per Share Data)
Three Months Ended
March 31, 1997
------------------
Primary
Average shares outstanding 66,729,530
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 2,858,776
Total 69,588,306
Net income $ 4,740
===========
Per share amount $ .07
===========
Fully Diluted
Average shares outstanding 66,729,530
Net effect of dilutive stock options -
based on the treasury stock method
using the quarter-end market price, if
higher than average market price 3,890,019
Assumed conversion of convertible
term loan and accrued interest
payable to affiliate 5,334,400
Total 75,953,949
Net income $ 4,740
Add convertible term note interest, net
of federal income tax effect 626
-----------
Total $ 5,366
===========
Per share amount $ .07
===========
