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
(MarkOne)
[ ] 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
[X] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
7/1/96 to 12/31/96.
For the Fiscal Period Ended Commission File Number
December 31, 1996 0-14802
CALGENE, INC.
(Registrant)
Delaware 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 $222,161,000 as of January 31, 1997, 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.
66,729,861 shares of Common Stock were Issued and Outstanding
as of February 28,1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
<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, packer, marketer and distributor of tomatoes, strawberries
and other produce with operations in Florida, California, Mexico and Puerto
Rico. In November 1996, Calgene and Monsanto closed a transaction whereby
Monsanto purchased 6,250,000 shares of Calgene common stock for $50 million. The
transaction brought Monsanto's equity investment in Calgene to approximately
54.6%. In January 1997, Calgene received an unsolicited proposal from Monsanto
Company to acquire all of the outstanding shares of Calgene that Monsanto does
not already own at a price of $7.25 per share. The proposal is under
consideration by a special committee of three disinterested Directors.
Fresh Produce. The Company is currently growing, packing, 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 approximately 70,000 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(R)
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 and cotton
varieties that produce natural colors. 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, added flexibility in crop rotation,
improved yields and benefits to the environment. The Company commercially sold
its genetically engineered BXN 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 plans to commercially
introduce cotton varieties genetically engineered to contain both the BXN gene
and a Bt gene for resistance to Heliothis, the principal cotton insect pest, in
1998. Company scientists are in the early stages of a development program
designed to create cotton varieties having natural fibers 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.
<PAGE>
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 Plants are currently in field trials for
certain RNA viruses.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Product
Product Applications Development Status
<S> <C> <C>
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%
expensive and more abundant source myristate in oil have been produced in the
of raw materials for milder soaps greenhouse.
and personal care products.
Medium Chain Fatty Acids/ Less expensive source of raw Rapeseed plants with up to 28% medium
Medium Chain Triglycerides materials for high performance chain fatty acids have been produced in
lubricants, nutritional formulas the greenhouse.
and 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 are conducted through Gargiulo Inc., which
was contributed by Monsanto to Calgene in 1996 as part of the Monsanto
Transaction. Gargiulo engages in the growing, packing, 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, Mexico and Puerto
Rico. 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. 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.
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 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 packing, marketing and distribution of
those products into the commodity markets.
<PAGE>
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. 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 the six month
period ended December 31, 1996, Gargiulo packed and shipped approximately 150
million pounds of fresh tomatoes, which it produced through its own farming
operations, through joint ventures or partnerships with other growers. For
Gargiulo's and its predecessors' fiscal years ended June 30, 1994, 1995 and,
1996 and the six month period ended December 31, 1996, product revenues from
Gargiulo's tomato operations were approximately $50.3 million, $60.1 million,
$77.3 million and $32.1 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 80% of the tomatoes produced by Gargiulo during calendar 1996
were harvested and processed as green tomatoes. Green tomatoes are typically
packed into 25 pound boxes and 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.
Pursuant to a plan approved by Calgene's Board of Directors in the quarter
ended December 31, 1996, Gargiulo intends to significantly reduce its produce
acreage in southwest Florida. The reduction in acreage is in response to
increased competitive pressure from Mexico produce.
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 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
<PAGE>
capabilities, geographic and product line diversification and operational skill
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 the six month period ended December 31, 1996, Gargiulo grew
approximately 2.1 million flats of fresh strawberries and cooled approximately
500,000 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, and the six month period ended December 31, 1996, product revenues
from Gargiulo's berry operations were approximately, $20.8 million, $23.4
million, $30.8 million, and $16.1 respectively.
Other Produce. Gargiulo grows 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. As part of its joint venture with a Mexican grower, Gargiulo
produces and distributes red, yellow and green peppers from Mexico from January
through May. 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.
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 1996 over 14.7 billion pounds of plant oils and oil based products with
a value of $3.7 billion were used in U.S. food products and approximately 17
billion pounds with a value of $4.25 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
<PAGE>
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 often 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 826 million pounds of
lauric oils worth $350 million in 1995 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. 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.
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.
<PAGE>
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 some 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 28% 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.
Genetically Engineered Oil Production
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. Over the
past three years, farmers under contract to Calgene planted over 35,000 acres of
genetically engineered Laurical Canola. 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. Calgene is currently
growing 16,000 acres of Laurical Canola under identity-preserved contract
production for harvest in 1997 and expects to contract for an additional 60,000
acres.
In December 1996, Calgene and Saskatchewan Wheat Pool ("SWP") executed a
broad agreement encompassing the development and production of value-added
genetically engineered oil products in Canada. SWP will use its breeding program
to develop Canadian adapted, specialty canola varieties by combining Calgene's
genetically engineered oils traits with SWP's germplasm. SWP will then utilize
its extensive distribution and crop-handling systems to produce crops in Canada
for Calgene using these varieties.
<PAGE>
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.
Kelco Agreement
In January 1997, Calgene and The Nutra Sweet Kelco Company ("Kelco")
entered into an agreement to collaborate on the development of two specialty
vegetable oil products. Kelco is a wholly owned subsidiary of Monsanto Company.
As part of the agreement, Kelco purchased from Calgene a nonexclusive license to
certain Calgene technology for use in research purposes, an option to expand the
reserach license to include commercialization rights, and certain product
distribution rights.
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 exclusive of genetically engineered traits 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. Buctril is effective at low doses, 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 was grown on over 50,000 acres. The BXN cotton seed
was sold at a 41% premium over Calgene's non-genetically engineered cotton seed.
Fiscal 1997 commercial seed sales are currently in progress with enough BXN
cotton seed to supply up to 400,000 acres.
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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.
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 December 31, 1996, was comprised of
168 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 47 issued U.S. utility patents and 20
foreign utility patents and has over 187 utility patent applications currently
pending in the U.S. and abroad. See "Patents and Trade Secrets." Total research
and development expenses for the six month period ended December 31, 1996, and
for fiscal years ended June 30, 1996, 1995 and 1994, were approximately $8.4
million, $14.0 million, $15.4 million and $15.6 million, respectively. Research
and development expenses incurred under contract with others for the six month
period ended December 31, 1996, and for fiscal years ended June 30, 1996, 1995
and 1994, were $1.7 million, $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
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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. In December 1996, Calgene was granted a third U.S.
patent for the system for the expression of foreign genes introduced in
plastids, and describes expression levels higher than those previously achieved.
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."
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.
<PAGE>
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 is currently being evaluated as an alternative 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 the saturated fat stearate 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.
<PAGE>
In June 1994, Calgene scientists announced the purification and cloning of
the coconut gene lysophosphatidic acid acyl transferases ("LPAAT"). 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%. In October 1996 Calgene was granted a U.S. patent that covers medium chain
LPAAT.
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 28% 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. In July 1996
Calgene was granted a U.S. patent covering the seed specific promoter BCE4. The
BCE4 gene was isolated to take advantage of its ability to express genes early
in canola seed development.
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, 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
BXN gene linked to 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. 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 47 issued U.S. utility patents and 20 foreign
utility patents, three of which have been assigned to contract partners. Calgene
has 187 utility patent applications currently pending in the U.S. and abroad and
<PAGE>
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 November, 1986, Calgene licensed to Kirin Brewery Co., Ltd.
exclusive commercial rights to the FLAVR SAVR gene in fresh market tomatoes for
Japan, Korea and Taiwan.
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
<PAGE>
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 Irvine,
California, such tomatoes represented only approximately 20% of Gargiulo's total
tomatoes produced during calendar 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
during the 1995/1996 winter season 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.
<PAGE>
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. Laurate canola was de-regulated by
the USDA in October 1994.
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. The Company intends to
commercialize cotton with both BXN and Bt in 1998. Three federal agencies have
authority over this product in the U.S., the Environmental Protection Agency,
the Department of Agriculture and the Food and Drug Administration. The Company
expects to complete the review process with these agencies prior to the 1998
season.
Certain Calgene products will require international approvals as such
products are either imported from the U.S. or grown and produced in specific
countries. Europe, through the European Union (EU), Japan and Australia are the
three regions with defined regulatory processes for genetically engineered
products. Calgene is working with the regulatory agencies in these countries in
an effort to gain approval for its current genetically engineered products.
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 engineered 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.
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
<PAGE>
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 December 31, 1996 Calgene employed a total of 745 regular employees, of
whom 168 were research and product development scientists and support personnel,
366 were production, farm and packing house employees, 44 were sales and
marketing personnel and 167 were in administrative and general management
positions. In addition Calgene employed approximately 1,809 seasonal workers.
None of Calgene's work force is presently unionized, although there is no
assurance that unions, especially for farm workers, may not unionize Calgene's
workers in the future. Calgene believes its relations with its employees are
good.
<PAGE>
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position Since
---- --- -------- -----
<S> <C>
Lloyd M. Kunimoto........43 Acting Chief Executive Officer.....................................1996
Richard J. Stonard.......42 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
William Higgins..........57 Vice President of Human Resources..................................1994
Thomas Hughes............38 President, Stoneville Pedigreed Seed Co............................1992
Michael J. Motroni.......41 Vice President of Finance and Secretary............................1992
Jeffrey D. Gargiulo......45 Chief Executive Officer, Gargiulo, Inc.............................1996
</TABLE>
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. Higgins joined Calgene in January 1994 as Human Resources Director and
was elected Vice President of Human Resources in May 1994. Prior to joining
Calgene, Mr. Higgins served as Vice President of Human resources for Tenera,
L.P. from January 1992 through December 1993. From April 1988 through December
1991 Mr. Higgins was President of Consultants in Managing Change. From February
1982 through March 1988 he served as Vice President of Human Resources for
Genetech, Inc.
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.
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. In November 1996, Monsanto purchased an additional
6,250,000 shares of Calgene common stock at a price of $8 per share. The
<PAGE>
transaction increased Monsanto's equity ownership interest to approximately
54.6%. 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.
Significant Influence by Monsanto and Possible Conflicts of Interest.
Monsanto owns 54.6% of the outstanding shares of Common Stock and has the right
to designate five 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. 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 the two year period
ended September 30, 1998, although not more than $15 million may be outstanding
thereunder at any one time. As of December 31, 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.
Possible Need for Additional Financing. Calgene expects its current cash
balances and the proceeds of the credit facility agreements and other bank lines
of credit expected to be available to Calgene, will be sufficient to fund its
operations for the foreseeable future. However, such expectation is based in
part on the achievement of the operating plans of Calgene and there can be no
assurance such operating plans will be achieved. Also, there can be no assurance
that all of Calgene's expected sources of funds will be available. On February
28, 1997, the Company replaced a $13 million line of credit with Harris Bank
with a $20 million line of credit with Bank of America ("B of A"). The B of A
facility expires on December 1, 1999. Credit increases to $30 million after
December 31, 1997 and to $40 million after December 31, 1998, are available.
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 until September 30, 1998, not more than $15 million may be outstanding
thereunder at any one time. Except as described above, Monsanto has no
obligation to loan or otherwise contribute additional cash to Calgene. 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 $338 million from inception in
1981 through December 31, 1996, including research and development expenses in
excess of $208 million. The net loss for Calgene in the six month period ended
December 31, 1996 was $63.9 million, including asset write-downs and reserves
totaling $32.6 million pursuant to a plan approved by Calgene's Board of
Directors to significantly reduce Gargiulo's produce acreage in Southwest
Florida. The reduction in acreage is in response to increased competitive
pressure from Mexico produce. Calgene expects to incur a net loss in the fiscal
year ended December 31, 1997. 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 the 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 basis. While Calgene believes the development of
<PAGE>
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 made 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
<PAGE>
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 can be affected by U.S. government agricultural
policy. 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 cotton, BXN cotton with Bt, 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
<PAGE>
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. If these proceedings
are not successful in limiting the scope of the claims of the Enzo patent and if
Calgene is unable to obtain a license 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 a license 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.
<PAGE>
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 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 182,000 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. 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 107,000 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.
<PAGE>
Gargiulo's principal properties presently consist of its executive offices
and sales offices and related tomato packing facility located in Naples,
Florida; a research facility in Bonita Springs, Florida; a transplant nursery in
Immokalee, Florida; tomato packing facilities in Quincy, Florida; Santa Isabela,
Puerto Rico; and Firebaugh, California; a sales office in Nogales, Arizona; and
various owned and leased farmland. Gargiulo owns or leases farmland in and
around Naples and Quincy, Florida; Watsonville, Oxnard, Santa Maria, Irvine, and
Firebaugh, California; Santa Isabela, Puerto Rico. The majority of Gargiulo's
land is leased.
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
On or about January 29, 1997, Hanna Obstfeld filed suit in Delaware
Chancery Court against the Company and certain of its directors alleging
unfairness in connection with the proposed acquisition by Monsanto Company of
those shares of the Company's common stock which Monsanto does not own. After
Ms. Obstfeld brought her suit, other essentially identical actions followed,
none of which have as yet been served upon the Company. It is anticipated that
the complaints will shortly be consolidated and the Company has no obligation to
answer, move or otherwise plead until such time as a consolidated complaint has
been filed and served. No discovery has occurred to date in this action. The
Company believes it has meritorious defenses to the allegations set forth in the
pending complaints.
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
certificaiton. 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
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 $5.7 million at December 31, 1996.
<PAGE>
On October 18, 1995, two groups of Plaintiffs filed separate complaints
against various Defendants including Gargiulo & Associates in the United
StatesDistrict 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 which must be filed by no later than 30 days from entry of judgment
which will not occur for a few weeks.
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 OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on November 12, 1996. The
following table shows voting information for each item voted upon:
Nominees for Election as Directors
For Withheld
--- --------
Patrick J. Fortune 56,946,111 1,435,104
Robert T. Fraley 56,936,666 1,444,549
Michael R. Hogan 56,947,316 1,433,899
Lloyd M. Kunimoto 56,974,189 1,407,026
Howard D. Palefsky 56,929,176 1,452,039
John E. Robson 56,978,916 1,402,299
Roger H. Salquist 56,800,715 1,580,500
Allen J. Vangelos 56,979,186 1,402,029
Hendrick A. Verfaillie 56,962,636 1,422,216
With respect to the approval of 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), (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") 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
vote was: For, 44,639,801; Against; 1,283,791; Abstain, 410,793; Broker
Non-Vote, 12,049,830.
With respect to the approval of an increase in the authorized number of
shares of Common Stock from 80,000,000 to 100,000,000, the vote was: For,
54,814,037; Against, 2,323,281; Abstain, 222,158; Broker Non-Vote, 1,021,739.
To confirm the appointment of Ernst & Young LLP as the Company's
independent auditors, the vote was: For, 57,989,243; Against, 237,423; Abstain,
154,549.
<PAGE>
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 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
Six Months Ended December 31, 1996
Quarter ended September 30, 1996 ....................6.875 4.250
Quarter ended December 31, 1996......................6.000 4.375
As of March 10, 1997, there were approximately 2,989 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.
Recent Sales of Unregistered Securities
On November 12, 1996, Calgene issued to the Monsanto Company an aggregate
of 6,250,000 shares of Calgene's Common Stock at a price of $8 per share. The
shares were issued in reliance upon the exemption from registration set forth in
Section 4(2) under the Securities Act of 1933, as amended.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Six Months Ended(4) Fiscal Year Ended June 30
---------------------- -------------------------------------------------------------
December 31, December 31,
1996 1995 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
Consolidated statement of
operations data (1):
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 69,780 $ 19,940 $ 95,723 $ 48,972 $ 35,408 $ 24,675 $ 18,211
Product development 729 850 9,272 6,459 3,025 2,562 3,666
--------- --------- --------- --------- --------- --------- ---------
Total revenues $ 70,509 $ 20,790 $ 104,995 $ 55,431 $ 38,433 $ 27,237 $ 21,877
Loss from continuing operations $ (63,934) $ (16,104) $ (97,014) $ (30,602) $ (42,801) $ (25,223) $ (18,616)
Net loss $ (63,934) $ (16,104) $ (97,014) $ (30,602) $ (42,801) $ (25,623) $ (19,916)
Net loss per share (2):
Loss from continuing operations $ (1.03) $ (.53) $ (2.56) $ (1.04) $ (1.71) $ (1.11) $ (1.34)
Net loss $ (1.03) $ (.53) $ (2.56) $ (1.04) $ (1.71) $ (1.13) $ (1.42)
Consolidated balance sheet
data:
Total assets $ 173,880 $ 78,960 $ 233,302 $ 89,231 $ 78,312 $ 88,401 $ 85,223
Long-term obligations $ 54,727 $ 23,853 $ 57,912 $ 15,421 $ 5,704 $ 3,694 $ 4,378
Preferred stock (3) $ -- $ -- $ -- $ -- $ -- $ -- $ 29,506
Common stock and additional
paid-in capital $ 417,648 $ 223,329 $ 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.
(4) Effective January 1, 1997, the Company changed its fiscal year end from June 30 to December 31.
</TABLE>
<PAGE>
ITEM 7. 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.
Effective January 1, 1997, Calgene changed its fiscal year from June 30 to
December 31. Accordingly, the financial presentation in this report for 1996 is
for the six month period from July 1, 1996, to December 31, 1996. Prior fiscal
year's operations are as previously reported and cover twelve month periods
ended June 30, 1996, 1995 and 1994.
Revenues
Calgene's product sales in the six month period ended December 31, 1996
increased 250% to $69.8 million from $19.9 million in the comparable period of
the prior year. The increase is due to the inclusion of Gargiulo's operations
which resulted in higher fresh market produce sales of $50.4 million. 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.
Product development revenues in the six month period ended December 31,
1996 decreased by 14.2% to $729,000 from $850,000 in the corresponding period of
the prior year due to the conclusion of several research contracts and a
$125,000 benchmark milestone payment which was recognized in the prior year.
This decrease was partly offset by the addition of several new research
contracts. 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 negative $2.3 million in
the six month period ended December 31, 1996 as compared to a negative gross
profit of $2.2 million in the comparable period of the prior year primarily due
to the Company's produce operations. Tomato production yields were reduced due
to adverse weather conditions in several growing regions, and gross profit on
strawberry production was negatively impacted by exceptionally low prices
experienced by the industry. 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
<PAGE>
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 increased by $1.9 million or 29.2% in the
six month period ended December 31, 1996 as compared to the corresponding period
of the prior year. The increase was primarily due to the inclusion of $1.3
million of Gargiulo variety development expenses, and higher costs incurred for
expanded research programs in the areas of produce and modified canola oils.
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 administrative expenses increased by $12.2
million or 162% to $19.7 million in the six month period ended December 31, 1996
as compared to the corresponding period of the prior year. The increase reflects
$9.6 million in higher expenses for the Company's fresh market produce
operations attributable to the inclusion of Gargiulo. The increase also reflects
a corporate severance expense of $905,000, higher cotton selling expenses,
higher marketing and application development expenses for genetically engineered
plant oils, and higher general corporate expenses. 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.
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 and Restructure Expenses
Pursuant to a plan approved by Calgene's Board of Directors in the quarter
ended December 31, 1996, Gargiulo intends to significantly reduce its produce
acreage in Southwest Florida. The reduction in acreage is in response to
increased competitive pressure from Mexico produce and is expected to be
accomplished over the next two to three years. As a consequence, during the
quarter ended December 31, 1996, the Company recorded a charge of approximately
$32.6 million for the write-off of assets, and other reserves. The write-offs
include $9.4 million for the write-down of tomato germplasm, an $8.3 million
asset impairment charge due to further consolidation of the Company's tomato
packing facilities, and a $10.4 million charge related to the excess purchase
price of net assets acquired allocated to the asset write-downs. The Company is
actively seeking buyers for the packing facilities. In addition, a reserve of
$4.5 million relating to other restructuring costs was recorded.
<PAGE>
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 credit, Monsanto credit facilities, and long-term debt obligations, increased
by $2.5 million to $3.8 million in the six month period ended December 31, 1996
as compared to $1.3 million in the corresponding period of the prior year. The
increase was due to interest of $3.2 million attributable to Gargiulo's debt
obligations. This increase was partly offset by a lower borrowings on the
Company's credit facility with Monsanto, and lower borrowings on its bank line
of credit. Interest expense 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 to 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 the six month period ended December 31, 1996 increased $1.6
million to $2.2 million as compared to $541,000 in the corresponding period of
the prior year. The increase is primarily due to a $1.5 million gain resulting
from the Company's sale of assets. This gain included $1.2 million realized from
the sale of a leased asset with a net book value of $2.9 million for a gross
sales price of $4.1 million. Commensurate with the sale, the Company paid off a
capitalized lease obligation of $3.1 million. 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
During the six month period ended December 31, 1996, Calgene incurred a
pre-tax loss of $63.9 million as compared to a pre-tax loss of $16.1 million in
the corresponding period of the prior year. The increased six month pre-tax loss
of $47.8 million reflects non-cash asset write-downs and other restructuring
expenses totaling $32.6 million at Gargiulo. In addition, the higher pre-tax
loss reflects higher selling, general and administrative expenses, higher
interest expense, and higher research expenses, primarily due to the inclusion
of Gargiulo. These factors were partly offset by an increase in other income due
primarily to a gain realized on sale of assets. 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
<PAGE>
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.
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
<PAGE>
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 December 31, 1996 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $3.3 million, excluding $878,000
in securities pledged as collateral for certain obligations. This was a decrease
of $25.3 million from June 30, 1996. Uses of cash in the six month period ended
December 31, 1996 include financing the Company's net loss (excluding non-cash
expenses of $28.0 for the write-off of assets and $6.4 million in depreciation
and amortization expense); payments of $26.6 million on long-term debt; a $12.9
million decrease in operating liabilities; a $7.4 million net decrease in notes
payable; the acquisition of $3.8 million in property, plant and equipment; and a
$3.2 million increase in operating assets. Sources of cash include the Company's
November 1996 offering of common stock to Monsanto which contributed $50 million
in net proceeds and $7.1 million received in proceeds for the sale of assets.
The Company's investment policy is to invest excess cash in high quality,
liquid, short-term fixed income securities.
Inventories at December 31, 1996 increased by $13.4 million as compared to
June 30, 1996 primarily due to seasonal buildup of bulk cottonseed and higher
tomato growing costs. Accounts receivable decreased by $9.4 million due to the
seasonality of sales at Gargiulo, and a $1.1 million reduction in receivables
for research contracts and corporate reimbursements.
Current liabilities decreased $42.4 million in the six month period ended
December 31, 1996 as compared to June 30, 1996 largely due to a $17.7 million
decrease in current portion of long term debt; a $7.4 million decrease in notes
payable; a $6.2 million decrease in trade accounts payable; a $4.7 million
decrease in amounts due customers; a $3.4 million decrease in other current
liabilities; and a $3.2 million decrease in accrued restructure expenses. The
decreases in current portion of long-term debt and notes payable reflect the
repayment by Gargiulo of a line of credit and four mortgage loans due
NationsBank which totaled $23.1 million at June 30, 1996. The decrease of $4.7
million in amounts due customers reflects seasonal cotton seed returns
consistent with industry practice.
Net working capital increased $20.3 million from a negative $959,000 at
June 30, 1996 to a positive $19.3 million at December 31, 1996 primarily due to
a $42.4 million decrease in current liabilities and a $13.4 million increase in
inventories. This increase was partly offset by a $25.3 million decrease in cash
and equivalents and available for sale securities, and a $9.4 million decrease
in accounts receivable.
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
$4.4 million at December 31, 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 December 31, 1996, the amount of these unamortized
costs was $5.7 million.
On November 12, 1996, Calgene and Monsanto Company consummated a
transaction whereby Monsanto purchased 6,250,000 shares of Calgene Common Stock
at a price of $50 million or $8 per share. The transaction increased Monsanto's
equity ownership interest in Calgene to approximately 54.6% and gave Monsanto
the right to designate five of the nine members of the Board.
Monsanto is obligated, subject to certain terms and conditions, to lend up
to $40 million to Gargiulo ("Gargiulo Credit Facility"), and up to $15 million
annually to Calgene until September 30, 1998 ("Calgene Credit Facility"),
although not more than $15 million may be outstanding thereunder at any one
time. As of December 31, 1996, $24.8 million of the Gargiulo Credit Facility was
outstanding. In addition, $1.9 million in interest payable under this credit
facility has been accrued. 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
<PAGE>
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.
During the six month period ended December 31, 1996, and the fiscal year
ended June 30, 1996, Calgene had a $13 million line of credit with Harris Bank
(the "Harris Credit Facility") which expired on February 28, 1997. Borrowings
under the line of credit bore interest at the greater of one half percent over
the bank's prime rate or two and one half percent over the federal funds rate.
On December 31, 1996 the bank's prime rate was 8.25% and the federal funds rate
was 6.26% The effective annual interest rates for the line of credit were 8.62%
and 8.90% for the six month period ended December 31, 1996 and the fiscal year
ended 1996, respectively. As of December 31, 1996, $6.5 million of indebtedness
was outstanding of the bank line of credit. Subsequent to December 31, 1996, the
Company replaced this line of credit with a $20 million working capital line of
credit with Bank of America ("B of A"). 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.
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, 1997. On
December 31, 1996, the bank's prime rate was 8.25%. As of December 31, 1996,
there was $2.5 million outstanding on the line of credit.
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 until September 30, 1998, not more than $15 million may be outstanding
thereunder at any one time. Except as described above, Monsanto has no
obligation to loan or otherwise contribute additional cash to Calgene.
Calgene believes its current cash balances together with 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 at least the
next twelve months. However, such expectation is based in part on the
achievement of the operating plans of Calgene and there can be no assurance such
operating plans will be achieved. Also, there can be no assurance that all of
Calgene's expected sources of funds 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.............................................33
Consolidated Balance Sheets - December 31, 1996 and
June 30, 1996 and 1995.....................................................34
Consolidated Statements of Operations - Six months
ended December 31, 1996 and years ended June 30, 1996,
1995 and 1994..............................................................36
Consolidated Statements of Shareholders' Equity -
Six months ended December 31, 1996 and years ended
June 30, 1996, 1995 and 1994...............................................37
Consolidated Statements of Cash Flows - Six months
ended December 31, 1996 and years ended June 30, 1996,
1995 and 1994..............................................................38
Notes to Consolidated Financial Statements.................................39
Supplementary Data (Unaudited).............................................60
<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 December 31, 1996, June 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the six
months ended December 31, 1996, and each of the three years in the period ended
June 30, 1996. Our audits also included the financial statement schedule listed
in the Index at Item 14(a)2. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule 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 December 31, 1996, June 30, 1996 and 1995, and the consolidated
results of its operations and its cash flows for the six months ended December
31, 1996, and 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 schedule, when considered in relation to be the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Sacramento, California
February 24, 1997
<PAGE>
CALGENE, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS December 31, June 30, June 30,
------ 1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and equivalents $ 1,908 $ 17,674 $ 11,753
Available-for-sale securities 1,382 10,919 10,283
Accounts receivable, primarily trade,
net of allowance for doubtful accounts
of $707, $487 and $346 at December 31, 1996
and June 30, 1996 and 1995, respectively 16,748 26,133 6,697
Inventories 37,272 23,865 8,148
Prepaid expenses and other
current assets 1,327 2,174 1,699
----------- ----------- -----------
Total current assets 58,637 80,765 38,580
Property, plant and equipment:
Land 18,258 22,755 763
Buildings 18,418 23,083 3,743
Leasehold improvements 8,330 8,556 9,643
Furniture, fixtures and equipment 33,971 40,398 22,436
Construction in progress 1,411 1,676 1,459
----------- ----------- -----------
80,388 96,468 38,044
Less accumulated depreciation and amortization 19,642 16,481 15,524
----------- ----------- -----------
Property, plant and equipment, net 60,746 79,987 22,520
Product rights, patents and other
intangible assets, less accumulated
amortization of $4,046, $3,060 and $2,507
at December 31, 1996 and June 30, 1996 and 1995,
respectively 20,461 30,642 16,199
Costs in excess of fair values assigned
to net assets acquired, less accumulated
amortization of $5,440, $4,612 and $4,145 at
December 31, 1996 and June 30, 1996 and 1995,
respectively 25,680 36,219 10,025
Assets held for sale 5,185 963 --
Other non-current assets 3,171 4,726 1,907
----------- ----------- -----------
$ 173,880 $ 233,302 $ 89,231
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CALGENE, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, June 30, June 30,
- - ------------------------------------ 1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current liabilities:
Notes payable $ 9,402 $ 16,789 $ 7,761
Accounts payable 13,920 20,111 6,487
Accrued payroll and related expenses 3,470 3,252 2,049
License contract payable -- 750 1,500
Accrued grower payments 1,364 615 942
Amounts due customers 317 5,028 4,596
Accrued restructure expenses 2,525 5,770 --
Other current liabilities 3,193 6,559 2,930
Current portion of long-term debt 5,139 22,850 1,494
----------- ----------- -----------
Total current liabilities 39,330 81,724 27,759
License contract payable, long-term -- -- 750
Research and development advance from affiliate 10,000 10,000 --
Note payable to affiliate 24,760 24,760 --
Interest payable to affiliate 1,912 509 --
Accrued restructure expenses, long-term 3,860 -- --
Long-term debt 14,195 22,643 14,671
Commitments and contingencies (Note 9)
Minority interest 263 266 --
Shareholders' equity:
Preferred stock, $.001 par value; 5,000,000
authorized, no shares issued and outstanding -- -- --
Common stock, $.001 par value; 100,000,000
shares authorized, 66,714,636, 60,443,115
and 30,244,226 shares issued and
outstanding at December 31, 1996
and June 30, 1996 and 1995, respectively 67 60 30
Additional paid-in capital 417,581 367,494 223,161
Accumulated deficit (338,088) (274,154) (177,140)
------------ ------------ ------------
Total shareholders' equity 79,560 93,400 46,051
----------- ----------- -----------
$ 173,880 $ 233,302 $ 89,231
=========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Years Ended June 30,
Ended ----------------------------------------------------
December 31,
1996 1996 1995 1994
---------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 69,780 $ 95,723 $ 48,972 $ 35,408
Product development revenues 729 9,272 6,459 3,025
------------ ------------ ------------ ------------
70,509 104,995 55,431 38,433
Costs and expenses:
Cost of goods sold 72,042 90,403 53,678 43,982
Research and development:
Contract 1,672 4,222 3,436 2,721
Other 6,743 9,801 11,937 12,847
Selling, general and administrative 19,677 21,705 16,081 21,279
In-process research and development
acquired -- 59,200 -- --
Write-off of assets and restructure
expenses 32,605 15,574 1,098 --
------------ ------------ ------------ ------------
132,739 200,905 86,230 80,829
Interest expense (3,822) (3,428) (924) (729)
Other income, net 2,163 2,345 1,136 389
------------ ------------ ------------ ------------
Loss from operations before provision
for income taxes (63,889) (96,993) (30,587) (42,736)
Provision for income taxes (45) (21) (15) (65)
------------ ------------ ------------ ------------
Net loss $ (63,934) $ (97,014) $ (30,602) $ (42,801)
============ ============ ============ ============
Net loss per share $ (1.03) $ (2.56) $ (1.04) $ (1.71)
============ ============ ============ ============
Shares used in per share calculations 62,155,384 37,883,871 29,439,008 24,987,513
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six months ended December 31, 1996 and Years Ended June 30, 1996, 1995 and 1994
(Dollars in thousands)
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, primarily for acquisition
of Gargiulo 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
Net loss -- -- -- (63,934) (63,934)
Sale of common stock, net of expenses 6,271,521 7 50,071 -- 50,078
Unrealized gain on available-for-sale securities -- -- 16 -- 16
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 66,714,636 $ 67 $ 417,581 ($ 338,088) $ 79,560
========== ========== ========== ========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Equivalents
(Dollars in thousands)
Years Ended June 30,
Six Months Ended --------------------------------------------------
December 31,
1996 1996 1995 1994
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(63,934) $(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 6,371 6,989 4,957 4,099
In-process research and development acquired -- 59,200 -- --
Gain on sale of assets (1,536) -- -- --
Write-off of assets and restructure expenses 28,039 15,574 1,098 --
Equity in net (gain) loss of affiliate (3) 1 213 583
Stock compensation -- -- 452 697
Net changes in operating assets and liabilities,
excluding effect of acquisition of subsidiaries:
Accounts receivable 9,165 8,912 (1,992) (1,658)
Inventories (13,407) 6,455 (2,003) 1,320
Accounts payable (6,191) (1,903) (1,429) 2,589
Amounts due customers (4,711) 432 1,268 1,740
Accrued restructure expenses 1,949 -- -- --
Other accrued liabilities (3,366) (6,736) 612 1,637
Interest payable to affiliate 1,403 509 -- --
Other 1,284 2,614 146 279
--------- -------- -------- --------
Net cash used in operating activities (44,937) (5,754) (27,396) (31,561)
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 10,515 11,787 22,904 24,904
Purchase of available-for-sale securities (955) (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 (3,800) (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 (1,343) (1,397) (4,782) (4,843)
Proceeds from sale of assets 7,136 489 38 69
Other noncurrent assets 1,366 -- -- --
-------- -------- -------- --------
Net cash provided by (used in) investing activities 12,919 (6,898) (5,366) 1,223
-------- --------- --------- --------
Cash flows from financing activities:
Proceeds from notes payable 36,364 8,453 19,398 14,214
Payments on notes payable (43,751) (19,489) (20,322) (13,161)
Decrease in securities-pledged 164 214 159 136
Increase in borrowings of long-term debt -- 25,057 10,000 --
Principal payments on long-term debt (26,603) (15,549) (1,768) (1,332)
Proceeds on notes payable to affiliate 15,000 2,680 -- --
Payments on notes payable to affiliate (15,000) -- -- --
Sale of common stock 50,078 7,207 31,762 20,758
Research and development advance from affiliate -- 10,000 -- --
-------- -------- -------- --------
Net cash provided financing activities 16,252 18,573 39,229 20,615
-------- -------- -------- --------
Net increase (decrease) in cash and equivalents (15,766) 5,921 6,467 (9,723)
Cash and equivalents at beginning of year 17,674 11,753 5,286 15,009
-------- -------- -------- --------
Cash and equivalents at end of year $ 1,908 $ 17,674 $ 11,753 $ 5,286
======== ======== ======== ========
See accompanying notes.
</TABLE>
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
Change in fiscal year
The Company has changed its fiscal year end from June 30 to December
31, beginning with the period ended December 31, 1996 to conform with the
fiscal year end of the Monsanto Company which holds an equity ownership in
Calgene of approximately 54.6% (Note 13).
Accordingly, the financial presentation in this report for 1996 is for
the six month period from July 1, 1996 to December 31, 1996. Prior fiscal
year's operations are as previously reported and cover twelve month periods
ended June 30.
Unaudited comparative information for the six months ended December
31, 1995, is as follows (in thousands, except per share amounts):
Revenues $ 20,790
Gross profit (loss) (1,309)
Net loss (16,104)
Net loss per share (0.53)
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
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies (continued)
Cash Equivalents and Available-for-sale Securities (continued)
securities at December 31, 1996 is $1,960,000 of which $578,000 is
included in cash and equivalents. The aggregate fair market value of
available-for-sale securities at June 30, 1996 is $28,288,000 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 December 31, 1996 are as
follows: $1,409,000 in 1997, $313,000 in 1998, and $238,000 in 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 $3,939,000 at December 31, 1996;
$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 $7,950,000, $7,908,000 and
$8,372,000 at December 31, 1996 and 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. See write-off of
other intangible assets in Note 7.
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
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition and Product Development Arrangements (continued)
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 the six month period ended
December 31, 1996 and fiscal year 1996, 1995 and 1994, the Company paid
cash for interest and income taxes as follows:
(In thousands)
1996 1996 1995 1994
---- ---- ---- ----
(six months)
Interest $3,282 $1,619 $895 $621
Income taxes 17 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 the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of
During the quarter ended September 30, 1996, the Company adopted the
provisions of the Financial Accounting Standards Board Statement of
Financial Accounting No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121
requires impairment losses to be recognized for long-lived assets and
identifiable intangibles used in operations when indicators of impairment
are present and the estimated undiscounted cash flows are not sufficient to
recover the assets' carrying amount. The impairment loss is measured by
comparing the fair value of the asset to
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies (continued)
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (continued)
its carrying amount. Costs in excess of fair values assigned to net
assets acquired in purchase business combinations are included in
impairment evaluations when events or circumstances exist that indicate the
carrying amount of the acquired assets may not be recoverable. SFAS 121
also requires that assets held for disposal be valued at the lower of
carrying amount or fair value less cost to sell.
Accounting for Stock Based Compensation
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with the provisions 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 a 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 to 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 fluctuations for the Company's products, and
adverse weather conditions which may 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 December 31, 1996 financial
statements.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
2. Receivables
Receivables consist of the following:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1996 June 30, 1996 June 30, 1995
--------------------------------- --------------------------------- ------------------
Trade Related Party Trade Related Party Trade
---------------- --------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Customer $ 13,771 $ -- $ 18,808 $ -- $ 6,708
Grower advances 2,993 -- 5,917 -- --
Other 452 239 923 972 335
-------- ------- -------- ------- --------
Total 17,216 239 25,648 972 7,043
Less allowance for
doubtful amounts (707) -- (487) -- (346)
--------- ------- --------- ------- --------
Total $ 16,509 $ 239 $ 25,161 $ 972 $ 6,697
======== ======= ======== ======= ========
</TABLE>
3. Inventories
Inventories consist of the following at December 31, 1996 and June 30,
1996 and 1995:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1996 June 30, 1996 June 30, 1995
----------------- ------------- -------------
<S> <C> <C> <C>
Growing crops $17,958 $11,208 $2,368
Supplies and seeds inventories 5,836 10,136 1,123
Finished goods 5,689 1,415 1,942
Work in progress 2,631 596 2,245
Raw materials 5,158 510 470
-------- -------- -------
$37,272 $23,865 $8,148
======= ======= ======
</TABLE>
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:
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
4. Strategic Alliance (continued)
(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.
On November 12, 1996, the Company entered into a Stock Purchase
Agreement with Monsanto (the "Stock Purchase Agreement"), pursuant to which
(i) the Company sold and issued to Monsanto, and Monsanto purchased
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 was amended to reflect the amendments to the Stockholders
Agreement contemplated by the Restated Stockholders Agreement. As a
consequence of the transaction, Monsanto owned 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.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
4. Strategic Alliance (continued)
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 for the year ended
June 30, 1996, 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)
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
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. 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.
7. Write-off of Assets and Restructuring Expenses
During the fiscal year ended June 30, 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.
Pursuant to a plan approved by Calgene's Board of Directors in the
quarter ended December 31, 1996, Gargiulo intends to significantly reduce
its produce acreage in Southwest Florida. The reduction in acreage is in
response to increased competitive pressure from Mexico produce and is
expected to be accomplished over the next two to three years. As a
consequence, during the quarter ended December 31, 1996, the Company
recorded a charge of approximately $32.6 million for the write-off of
assets, and other reserves. The write-offs include $9.4 million for the
write-down of tomato germplasm, an $8.3 million asset impairment charge due
to further consolidation of the Company's tomato packing facilities, and a
$10.4 million charge related to the excess purchase price of net assets
acquired allocated to the asset write-downs. The Company is actively
seeking buyers for the packing facilities. In addition, a reserve of $4.5
million relating to other restructuring costs was recorded.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
8. Long-term Debt and Notes Payable
Long-term debt consists of the following at December 31, 1996 and June
30, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands)
December 31, June 30, June 30,
1996 1996 1995
------------ -------- --------
<S> <C> <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 $220,000 certificate of deposit and
guaranteed by the Small Business Administration. $ 213 $ 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 $531,400 at December 31, 1996. 255 280 377
Capitalized lease obligations; due in monthly
installments of approximately $86,000 including
interest imputed at 5.4% to 11% per annum,
through 2001; secured by equipment with a net
book value of approximately $2,710,000 at
December 31, 1996 and supported by a $150,000 which
is secured by a $150,000 certificate ofdeposit. 2,581 6,030 2,960
Note payable to the former owner of an acquired
business; due in an annual installment of
$338,000 at July 17, 1997; plus interest on the
unpaid principal balance at the prime rate (8.25%
at December 31, 1996) over the term of the loan;
secured by a $338,000 certificate of deposit. 338 592 705
Non-interest bearing note payable to the former
owner of an acquired business; due in monthly
installments of $14,083 through June 30, 1997. 84 169 338
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 December 31, 1996. 506 506 506
</TABLE>
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
8. Long-term Debt and Notes Payable (continued)
<TABLE>
<CAPTION>
(In thousands)
December 31, June 30, June 30,
1996 1996 1995
------------ -------- --------
<S> <C> <C> <C>
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 $195,500 at December 31, 1996. $ 137 $ 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 December 31, 1996) per
annum, through 2005, secured by buildings and
equipment with a net book value of approximately
$2,372,000 at December 31, 1996. 1,566 1,644 --
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 December 31, 1996) through February
28, 2001, secured by assets with a net book value
of approximately $11,537,000 at December 31, 1996 4,688 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 December 31, 1996) through February
28, 2001, secured by assets with a net book value
of approximately $11,537,000 at December 31, 1996 3,724 4,162 --
Mortgage loan, payable in monthly principal and
interest installments of $9,595 with interest at
prime (8.25% at December 31, 1996), secured by
assets with a net book value of approximately
$753,000 at December 31, 1996 1,108 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 December
31, 1996), secured by assets with a net book value
of approximately $1,184,000 at December 31, 1996 1,175 1,377 --
</TABLE>
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
8. Long-term Debt and Notes Payable (continued)
<TABLE>
<CAPTION>
(In thousands)
December 31, June 30, June 30,
1996 1996 1995
------------ -------- --------
<S> <C> <C> <C>
Term loan payable to former partner in acquired
business, monthly principal and interest payments
of $37,981, with interest at 10% $ 975 $ 1,149 $ --
Note payable to a corporate lender, due in monthly
installments of $25,550 including interest at
10.38% per annum, through 1999, secured by
assets with a net book value of approximately
$481,000 at December 31, 1996 267 417 673
Various term loans payable with interest at rates
that range from 8% to 12%. Maturity dates
ranging from June 1998 through November 2001,
secured by assets with a net book value of
approximately $541,000 at December 31, 1996 1,717 1,794 --
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
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% -- 9,070 --
Mortgage loan, payable in annual principal
installments of $1,000,000 through August 1999,
with interest at prime -- 4,000 --
Mortgage loan, payable in annual principal
installments of $175,000, balance due November
30, 1996 -- 3,325 --
Mortgage loan, payable in annual principal
installments of $153,333, balance due November
30, 1996 -- 2,147 --
Mortgage loan, payable in annual principal
installments of $273,200, balance due on November
30, 1996 -- 1,658 --
Convertible note payable to a corporate lender;
converted to equity on March 31, 1996 (Note 4). -- -- 10,000
</TABLE>
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
8. Long-term Debt and Notes Payable (continued)
<TABLE>
<CAPTION>
(In thousands)
December 31, June 30, June 30,
1996 1996 1995
------------ -------- --------
<S> <C> <C> <C>
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
December 31, 1996) $24,760 $24,760 $ --
------- ------- -------
44,094 70,253 16,165
Less note payable to affiliate 24,760 24,760 --
Less amount due within one year 5,139 22,850 1,494
------- ------- -------
Long-term debt $14,195 $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 December 31, 1996 aggregate future principal payments by year on
long-term debt and note payable to affiliate are due as follows:
(In thousands)
1997 $5,139
1998 3,848
1999 4,580
2000 27,795
2001 797
Thereafter 1,935
--------
$44,094
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 December 31, 1996 the bank's prime rate was 8.25%
and the federal funds rate was 6.26%. The weighted average annual interest
rate under the line of credit was 8.62%, 8.90%, and 8.92% for the six month
period ended December 31, 1996 and 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
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
8. Long-term Debt and Notes Payable (continued)
Notes Payable (continued)
common stock. 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 December 31,
1996, and June 30, 1995 there was $6,500,000 and $5,973,000, respectively,
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 December 31, 1996). This credit facility expires on
September 30, 1998. As of December 31, 1996, the Company's advances under
this credit facility had been paid in full.
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,
1997. On December 31, 1996, the bank's prime rate was 8.25%. As of December
31, 1996, there was $2,500,000 outstanding on the line of credit.
9. 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)
December 31, 1996 June 30, 1996 June 30, 1995
----------------- ------------- -------------
Cost $4,235 $6,847 $4,192
Less accumulated
depreciation 1,525 1,245 1,113
------- ------- -------
$2,710 $5,602 $3,079
====== ====== ======
Depreciation expense charged to operations pursuant to these capital
leases amounted to approximately $294,000, $482,000, $537,000 and $462,000
during the six month period ended December 31, 1996 and the years ended
June 30, 1996, 1995 and 1994 respectively.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
9. Commitments and Contingencies (continued)
Capital Leases (continued)
During the six month period ended December 31, 1996 and the years
ended June 30, 1996, 1995 and 1994, the Company capitalized equipment of
approximately $334,000, $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 December 31, 1996:
(In thousands)
1997 $1,322
1998 621
1999 445
2000 555
2001 71
-------
3,014
Less amount representing interest 433
Present value of net minimum lease payments
(Note 8) $2,581
======
Operating Leases
Future minimum payments by fiscal year under non-cancelable operating
leases are as follows at December 31, 1996:
(In thousands)
1997 $ 6,379
1998 3,732
1999 3,153
2000 2,815
2001 1,436
Thereafter 637
--------
$ 18,152
========
Rental expense charged to operations for all operating leases was
approximately $3,445,000, $3,971,000, $3,259,000 and $1,761,000 for the six
month period ended December 31, 1996 and the years ended June 30, 1996,
1995 and 1994, respectively. Rent expense related to leases with related
parties was approximately $202,000 for the six month period ended December
31, 1996 and $143,000 for the year ended June 30, 1996.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
9. Commitments and Contingencies (continued)
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. The amount of outstanding grower contract commitments is
approximately $4.4 million at December 31, 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
On or about January 29, 1997, Hanna Obstfeld filed suit in Delaware
Chancery Court against the Company and certain of its directors alleging
unfairness in connection with the proposed acquisition by Monsanto Company
of those shares of the Company's common stock which Monsanto does not own.
After Ms. Obstfeld brought her suit, other essentially identical actions
followed, none of which have as yet been served upon the Company. It is
anticipated that the complaints will shortly be consolidated and the
Company has no obligation to answer, move or otherwise plead until such
time as a consolidated complaint has been filed and served. No discovery
has occurred to date in this action. The Company believes it has
meritorious defenses to the allegations set forth in the pending
complaints.
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 certificaiton. 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
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 $5.7 million at December
31, 1996.
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 which must be filed by no later than
30 days from entry of judgment which will not occur for a few weeks.
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
$2,125,000. In addition, one employment agreement provides for additional
compensation based on a percentage of the net profit of Gargiulo.
10. Shareholders' Equity
Stock Options
At December 31, 1996, the Company has three stock-based compensation
plans, which are described below. The Company applies APB 25 and related
interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under SFAS 123
requires use of option valuation models that were not developed for use in
valuing the stock options. Under APB 25, because the
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
10. Shareholders' Equity (continued)
Stock Options (continued)
exercise price of the Company's stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The Company established stock option plans in June 1991 (the "1991
Plan") and 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 that 100% of the fair market value
of Calgene's common stock on the date of grant.
The administrative committee of the option plans has 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.
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.
Pro forma information regarding net loss and net loss per share is
required by SFAS 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to June 30, 1995 under the fair value method of that
Statement. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended June 30, 1996, and the six
month period ended December 31, 1996: dividend yield of 0; volatility
factors of the expected market price of the Company's common stock of .44;
risk-free interest rate of 6.6%; and a weighted-average expected life of
the options of 3.5 years for certain option holders and five years for all
other option holders.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information, which includes the stock option plans and
the Employee Stock Purchase Plan, follows (in thousands except for net loss
per share information):
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
----------------- -------------
Net loss - actual $ (63,934) $ (97,014)
Net loss - pro forma (65,085) (97,564)
Net loss per share - actual (1.03) (2.56)
Net loss per share - pro forma (1.05) (2.58)
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
10. Shareholders' Equity (continued)
Stock Options (continued)
Because SFAS 123 is applicable only to options granted subsequent to
June 30, 1995, its pro forma effect will not be fully reflected until 1999.
A summary of the status of the Company's stock option plans and
changes during the periods is presented below:
<TABLE>
<CAPTION>
Options
---------
<S> <C> <C>
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) Weighted-Average
Exercised (at $5.875 to $12.375) (61,457) Exercise Price
----------- --------------
Outstanding at June 30, 1995 2,265,278 $ 7.57
Granted 2,000,929 5.72
Canceled (567,502) 7.47
Exercised (at $6.50) (6,182) 6.50
-----------
Outstanding at June 30, 1996 3,692,523 6.56
Granted 1,386,350 5.25
Canceled (135,327) 6.63
---------
Outstanding at December 31, 1996 4,943,546 6.18
=========
</TABLE>
The weighted-average fair value of options granted during the six
month period ended December 31, 1996, and the year ended June 30, 1996, was
$2.37 and $2.54, respectively.
The following table summarizes information about the stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Contractual Exercise Number of Exercise
Range of Exercise Prices Options Life Price Options Price
------------------------- ----------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$4.63 - $5.49 1,645,587 9.37 $5.23 225,147 $5.22
5.50 - 5.99 1,647,082 9.31 5.76 311,044 5.75
6.00 - 6.99 304,973 5.35 6.67 212,403 6.76
7.00 - 7.99 1,187,586 6.91 7.50 710,719 7.51
8.00-15.25 158,318 6.50 9.65 124,558 9.92
---------- --------
4,943,546 6.18 1,583,871 6.93
========= =========
</TABLE>
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
10. Shareholders' Equity (continued)
Stock Options (continued)
At June 30, 1995, 814,421 options were exercisable at prices ranging
from $5.25 to $15.25 per share. At June 30, 1996, 1,088,775 options were
exercisable at prices ranging from $4.75 to $15.25 per share. At December
31, 1996, there are 404,917 shares and 2,138,072 shares available for grant
under the 1991 plan and 1996 plan, respectively. Of the options outstanding
at December 31, 1996, options to purchase 1,583,871 shares were immediately
exercisable at prices ranging from $4.75 to $15.25 per share on dates
ranging from 1996 to 2006.
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.
Employee 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 December
31, 1996, June 30, 1996, 1995 and 1994, the Company sold 21,521 shares of
common stock for $91,464, 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. For purposes of calculating the pro forma
disclosures required by SFAS 123, the fair value of the employees' purchase
rights was estimated using the Black-Scholes option pricing model with the
following assumptions for the six month period ended December 31, 1996 and
the year ended June 30, 1996: dividend yield of 0; expected life of 6
months; expected volatility of .33; and risk-free interest rate of 5.81%.
The weighted-average fair value of those purchase rights granted during the
six month period ended December 31, 1996 and the year ended June 30, 1996,
was $1.60 and $1.97, respectively.
11. Income Taxes
The income tax provision for the six month period ended December 31,
1996 and years ended June 30, 1996, and 1995 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:
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
11. Income Taxes (continued)
<TABLE>
<CAPTION>
(In thousands)
---------------------------------------------------
December 31, June 30, June 30,
1996 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 85,200 $ 70,600 $ 66,200
Research and other credits 3,800 3,800 3,800
Capitalized research and development 400 400 400
Inventory reserves and allowances 1,000 1,500 --
Facility writedowns and restructuring 9,400 6,400 300
Development fee 4,000 4,000 --
Capitalized license fees 400 600 700
Increase in tax value of net assets from
business acquisition 15,000 4,200 --
Other, net 800 1,800 1,600
-------- -------- --------
Total deferred tax assets 120,000 93,300 73,000
Valuation allowance for deferred tax assets (118,400) (91,500) (72,800)
--------- --------- ---------
Net deferred tax assets $ 1,600 $ 1,800 $ 200
======== ======== ========
Deferred tax liabilities:
Depreciation $ 1,600 $ 1,800 $ --
Other, net -- -- 200
-------- -------- --------
Total deferred tax liabilities $ 1,600 $ 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 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, 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 Calgene Fresh (Plant Genetics was renamed
Calgene Fresh in January, 1992). For financial reporting purposes, a
valuation allowance of approximately $118.4 million has been recognized to
offset the deferred tax assets related to all of the aforementioned
carryforwards.
<PAGE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1996, 1995 and 1994
11. Income Taxes (continued)
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.
12. 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 six
month period ended December 31, 1996 and the years ended June 30, 1996,
1995 and 1994, matching contributions by the Company were $118,000,
$227,000, $179,000 and $151,000, respectively.
13. Subsequent Events
In January 1997, the Company received an unsolicited proposal from
Monsanto to acquire all of the outstanding shares of the Company's stock
that Monsanto does not already own at a price of $7.25 per share. Monsanto
currently owns approximately 54.6% of the Company's outstanding shares. The
proposal is under consideration by a special committee of three
disinterested Calgene Directors.
In February 1997, the Company replaced its $13 million bank line of
credit with a $20 million bank line of credit with a different bank. The
bank line is used to help finance working capital requirements for Calgene.
Borrowings are secured by accounts receivable, inventory and equipment. The
line of credit expires on December 1, 1999. Available credit increases to
$30 million after December 31, 1997 and to $40 million after December 31,
1998.
<PAGE>
<TABLE>
<CAPTION>
CALGENE, INC.
SELECTED QUARTERLY FINANCIAL DATA
Unaudited
Six Month Period Ended
December 31, 1996
- - --------------------------------------------
(In thousands, except per share amounts)
Quarter Ended
----------------------------------
Sep 30 Dec 31
-------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 36,821 $ 32,959
Product development 359 370
--------- ---------
Total revenues $ 37,180 $ 33,329
Cost of goods sold $ 38,883 $ 33,159
Net loss $ (17,854) $ (46,080)
Net loss per share $ (.30) $ (.72)
Fiscal 1996
- - --------------------------------------------
(In thousands, except per share amounts)
Quarter Ended
-------------------------------------------------------------------------
Sep 30 Dec 31 Mar 31 June 30
-------------- --------------- -------------- ---------------
Revenues:
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
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Board of Directors of Calgene, Inc. (the "Company") is as follows:
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since
<S> <C> <C>
Patrick J. Fortune.........49 Chief Information Officer of Monsanto Company 1996
Robert T. Fraley...........43 President of Ceregen (a business unit of Monsanto Company) 1996
Michael R. Hogan...........43 Vice President and Corporate Controller of Monsanto Company 1996
Lloyd M. Kunimoto..........43 President and Acting Chief Executive Officer of the Company 1996
Howard D. Palefsky.........49 Chairman of Collagen Corporation 1986
John E. Robson.............66 Senior Advisory of Robertson, Stephens & Company 1996
Roger H. Salquist 55 Principal of the Craves Group; Former Chairman and Chief Executive
Officer of the Company 1981
Allen J. Vangelos..........64 President and Chief Executive Officer of Calavo Growers of 1994
California
Hendrik A. Verfaillie......51 Executive Vice President of Monsanto Company 1996
</TABLE>
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 Gencare Health Systems, Inc. and its
predecessor organization from 1990 through 1994.
<PAGE>
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 Chairman of Collagen Corporation, a medical products
company, since 1995. Mr. Palefsky was Chief Executive Officer of Collagen
Corporation, from 1978 to 1997 and served as president 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 principal of the Craves Group, a private merchant
bank since February 1997. 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 Office 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.
Board Meetings, Committees and Director Compensation
The Board of Directors of the Company (the "Board") held five meetings
during the six month fiscal period ended December 31, 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.
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. Salquist, Fortune, Fraley, and
Hogan. The Audit Committee held three meetings in the last fiscal period. 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,
Palefsky and Robson. The Human Resources Committee held two meetings during the
fiscal period. 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 Retention/Replacement Committee consists of Messrs. Palefsky,
Verfaillie and Robson. 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 was 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.
<PAGE>
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 dates of grants. 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 $6.00 per share.
There we no consulting fees paid to directors in the six month fiscal
period ended December 31, 1996.
In addition to the fees listed above, Monsanto Company transferred to Mr.
Robson 15,000 shares of Common Stock of the Company pursuant to the terms of a
letter agreement dated May 6, 1996 between John E. Robson and Monsanto Company.
Such shares are subject to a three-year vesting period, under which 33 1/3% of
the total number of shares originally granted become non-forfeitable on each
March 31 commencing March 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table provides certain summary information concerning
compensation earned during the last two fiscal years and the six month fiscal
period ended December 31, 1996 by the Company's Chief Executive Officer and each
of the four other most highly compensated executive officers of the Company who
were serving at December 31, 1996 (the "named executive officers"). The table
also includes such information for one former executive officer who at December
31, 1996 was no longer employed by the Company or a subsidiary of the Company.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Compensation (1) Awards
----------------------------------------- ----------------
Other Annual Securities All Other
Fiscal Salary Bonus Compensation Underlying Compensation
Name and Principal Position Period (7) ($) ($) ($) Options (#) $(2)
--------------------------- -------------- ------------ --------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Salquist (3)(4) Transition 61,346 -- 905,000 -- 423
Former Chairman of the 1996 275,577 -- -- -- 3,596
Board and Chief Executive 1995 242,404 -- -- 100,000 1,212
Officer 1994 225,865 -- -- 104,762 --
Andrew M. Baum Transition 81,231 -- -- -- 738
Vice President 1996 160,046 -- -- 40,000 3,280
1995 162,600 10,000 -- 25,000 840
1994 154,592 -- -- -- --
Jeffrey D. Gargiulo Transition 165,125 -- -- -- --
Chief Executive Officer 1996 75,000 -- -- 100,000 --
Gargiulo, Inc.
Lloyd M. Kunimoto (5) Transition 97,615 -- -- -- 985
Chief Executive Officer 1996 140,000 50,000 -- 50,000 2,800
1995 140,538 10,000 -- 25,000 754
1994 135,519 4,808 -- -- --
Christian Leleu (6) Transition 73,673 -- 23,321 -- 1,227
Chief Financial Officer 1996 35,000 -- 90,834 100,000 --
Richard Stonard Transition 76,154 -- -- -- 1,500
Chief Technical Officer 1996 37,500 -- -- 100,000 --
</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 served as Acting Chief
Executive Officer. (6) Mr. Leleu's "other annual compensation" in the
transition period and fiscal 1996 consisted of reimbursement of relocation
expenses.
(7) The "Transition" fiscal period is for the six month period ended December
31, 1996.
Change of Control Employment Agreements
Mr. Salquist entered into a Change of Control Employment Agreement, dated
as of July 19, 1995, with the Company. The agreement became 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 he resigns upon the six-month of 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 Company.
In connection with his resignation in August 1996, Mr. Salquist and the
Company entered into an amendment to his Change of Control Employment Agreement
<PAGE>
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 or
$100,000. In addition, the amended agreement provides for the payment to Mr.
Motroni of $335,000 upon the earliest of (i) the cessation of his employment for
any reason after May 31, 1997, (ii) the termination of his employment without
Cause (as defined) or by reason of death, or (iii) his resignation as a result
of the occurrence of any event that constitutes Good Reason.
Stock Option Tables
No stock options were granted in the six month fiscal period ended December
31, 1996 to the named executive officers in the Summary Compensation Table.
Options Exercises and Fiscal Period-End Values
The following table shows stock options exercised by the named executive
officers in the Summary Compensation Table during the six month fiscal period
ended December 31, 1996, the aggregate value of gains on the dates of exercise,
the number of shares covered by both exercisable and non-exercisable stock
options as of fiscal year-end, and the year-end values for such options.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1996 (#) December 31, 1996 ($)(1)
------------------------------ -------------------------------
Shares Value
Acquired on Realized
Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
-------------- ------------- ------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Roger Salquist -- -- 217,262 77,500 -- --
Andrew M. Baum -- -- 45,098 54,902 -- --
Jeffrey Gargiulo -- -- 11,667 88,333 -- --
Lloyd M. Kunimoto -- -- 35,848 64,152 -- --
Christian Leleu -- -- 6,667 93,333 -- --
Richard Stonard -- -- 18,333 81,667 930 3,720
</TABLE>
(1) Value is based on market value of the Common Stock at exercise date (for
value realized), or at December 31, 1996 (for value of unexercised
options), minus the option exercise price.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of Common Stock of
the Company as of February 28, 1997, 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.
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Approximate
Owned (1) Percent Owned (2)
--------------------- -------------------
<S> <C> <C>
Andrew M. Baum .................................................. 57,780 *
Patrick J. Fortune .............................................. -- --
Robert T. Fraley ................................................ -- --
Jeffrey D. Gargiulo ............................................. 16,667 *
Michael R. Hogan ................................................ -- --
Lloyd M. Kunimoto ............................................... 42,226 *
Christian Leleu ................................................. 30,833 *
Howard D. Palefsky .............................................. 17,000 *
John E. Robson .................................................. 30,000 *
Roger H. Salquist ............................................... 248,340 *
Richard Stonard ................................................. 23,333 *
Allen J. Vangelos ............................................... 21,600 *
Hendrik A. Verfaillie ........................................... -- --
All executive officers and directors as a group (16 persons) .... 598,654 *
Monsanto Company................................................. 36,396,114 54.5%
800 North Lindbergh Boulevard
St. Louis, MO 63137
Travelers Group Inc.............................................. 4,076,654 6.1%
388 Greenwich Street
New York, NY 10013(3)
</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 January 31, 1997, by exercise of any stock option for which the Company
has knowledge. The shares subject to such options are as follows: Mr. Baum;
49,079: Mr. Gargiulo; 16,667: Mr. Leleu; 20,833: Mr. Stonard; 23,333: Mr.
Kunimoto; 35,329: Mr. Palefsky; 17,000: Mr. Robson; 15,000: Mr. Salquist;
224,762: Mr. Vangelos; 21,000: and all executive officers and directors as
a group; 531,804.
(2) Percent of the 66,729,861 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) Based on a Schedule 13G filed on January 22, 1997, with respect to
beneficial ownership as of December 31, 1996. The total includes 4,076,654
shares beneficially owned by Smith Barney Holdings Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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
<PAGE>
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."
Stock Purchase Agreement. On September 27, 1996, the Company entered into a
Stock Purchase Agreement with Monsanto (the "Stock Purchase Agreement"),
pursuant to which (i) the Company sold and issued to Monsanto, and Monsanto
purchased 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
was amended to reflect the amendments to the Stockholders Agreement contemplated
by the Restated Stockholders Agreement. As a consequence of the transaction,
Monsanto owned 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.
Stockholders Agreement and Restated Stockholders Agreement. On March 31,
1996, the Company and Monsanto entered into a Stockholders Agreement. On
November 12, 1996, Calgene and Monsanto entered into the Restated Stockholders
Agreement which amends and restates the existing Stockholders Agreement. The
following is a summary of the Stockholders Agreement as amended by the Restated
Stockholders Agreement ("the Stockholders Agreement").
Composition of the Calgene Board.
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 be an Independent Director.
(b) 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.
If an when Monsanto's Percentage Interest is less than 40%, 20%, 10% or 5%,
the number of directors designated by Monsanto is reduced to three, two, one and
zero, respectively.
The 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.
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
<PAGE>
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.
Limitations on Monsanto's Ownership of Calgene Securities. The Stockholders
Agreement provides that until September 30, 1998 Monsanto may not increase its
Percentage Interest above 54.6% 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) A tender offer for 100% of the publicly held shares, provided that the
price must be approved by disinterested directors and supported by a
fairness opinion by an investment banking firm.
Limitations on Monsanto's Resale of Calgene Securities. 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" ).
Approval Required for Certain Actions.
The Restated Stockholder Agreement provides that:
(a) 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: (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 more than 10% of the Company'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 the Company, except pursuant to
a security interest granted in connection with borrowings permitted
under the Restated Stockholders Agreement or the pledge or granting of
a security interest in certain intangible property as further described
in the Restated Stockholders Agreement; (iii) 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; (iv) the election, appointment
or removal of the Chief Executive Officer, Chief Operating Officer or
Chief Financial Officer of the Company 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 the Company and a controller reporting to
the Chief Financial Officer of the Company; (v) approval of the
Operating Plan and Strategic Plan of the Company and its Affiliates, as
<PAGE>
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; (vi) any modification of
the Transaction Agreements; or (vii) any transaction between the
Company (and its Affiliates) and Monsanto or any Affiliate of Monsanto.
(b) From and after March 31, 1999, and until Monsanto's Percentage Interest
is at least 99%, neither Monsanto nor any of the Affiliates shall enter
into any transaction with Calgene or any of its Affiliates without the
approval of at least two Company Directors.
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 totaling 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 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
<PAGE>
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.
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.
As of December 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.
<PAGE>
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, 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.
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
<PAGE>
(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 December 31, 1996, the outstanding balance of principal and interest
under the Gargiulo Credit Facility Agreement was $24.8 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.
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("ADP GPP")Gene. The ADP GPP 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 ADP GPP 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 ADP GPP 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 nonexclusive, perpetual, royalty-free
rights under Monsanto's patents and know-how for use in certain oilseed crops.
<PAGE>
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.
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.
Kelco Agreement
In January 1997, Calgene and The Nutra Sweet Kelco Company ("Kelco")
entered into an agreement to collaborate on the development of two specialty
vegetable oil products. Kelco is a wholly owned subsidiary of Monsanto Company.
As part of the agreement, Kelco purchased from Calgene a nonexclusive license to
certain Calgene technology for use in research purposes, an option to expand the
reserach license to include commercialization rights, and certain product
distribution rights.
<PAGE>
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 -- December 31, 1996 and June 30,
1996 and 1995.
Consolidated Statements of Operations -- Six month period ended
December 31, 1996 and years ended June 30, 1996, 1995 and
1994.
Consolidated Statements of Shareholders' Equity -- Six month
period ended December 31, 1996 and years ended June 30,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows -- Six month period ended
December 31, 1996 and 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 six month period ended December 31, 1996 and
years ended June 30, 1996, 1995 and 1994:
Schedule Page
II Valuation and Qualifying Accounts...........................75
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:
None
(c) Separate Financial Statements of Fifty Percent or Less Owned Persons:
None.
<PAGE>
<TABLE>
<CAPTION>
CALGENE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Six Months Ended December 31, 1996 and Years ended June 30 1996, 1995 and 1994
(In thousands)
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>
Six months ended December 31, 1996
- - ----------------------------------
Allowance for doubtful accounts $487 $356 - $(136) $707
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
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: /s/Christian Leleu
------------------------------
Chief Financial Officer
Dated: March 31, 1997 (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) March 31, 1997
/s/ Christian Leleu Chief Financial Officer
Christian Leleu (Principal Financial and March 31, 1997
Accounting Officer)
Robert Fraley Director March 31, 1997
/s/ John E. Robson
John E. Robson Director March 31, 1997
/s/ Hendrik A. Verfaillie
Hendrik A. Verfaillie Director March 31, 1997
/s/ Howard D. Palefsky
Howard D. Palefsky Director March 31, 1997
/s/ Allen J. Vangelos
Allen J. Vangelos Director March 31, 1997
Patrick Fortune Director March 31, 1997
/s/ Roger H. Salquist
Roger H. Salquist Director March 31, 1997
/s/ Michael Hogan
Michael Hogan Director March 31, 1997
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
-------- ----
2.1 Agreement and Plan of Reorganization Between
Calgene, Inc. and Monsanto Company dated as of
October 13, 1995.........................................(P)
2.2 Stock Purchase Agreement dated as of September
27, 1996, between Calgene, Inc. and Monsanto
Company...................................................82
3.1 Restated Certificate of Incorporation of the
Registrant, as amended....................................92
3.3 By-Laws of the Registrant................................(P)
10.0 Amended and Restated Stockholders Agreement
between the Registrant and Monsanto Company..............129
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)
<PAGE>
Exhibits Page
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 Gargiulo Mexico, 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)
<PAGE>
Exhibits Page
10.32 Commercial Lease dated August 22, 1983, as
amended, covering property inYolo 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 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)
<PAGE>
Exhibits Page
**10.50 Oilseed Development Agreement between Registrant
and Monsanto Company dated May 8, 1996...................(Q)
10.51 1981 Stock Option Plan as amended........................(B)
10.52 1991 Stock Option Plan...................................(J)
10.53 1996 Stock Option Plan...................................(P)
10.54 Tenth Amendment to the Secured Revolving
Credit Agreement and Secured Revolving Credit
Note Among Calgene, Inc. and Harris Trust
and Savings Bank dated September 30, 1996................(R)
10.57 Bank of America Revolver.................................168
21.1 Subsidiaries of Registrant...............................(I)
23.1 Consent of Independent Auditors..........................204
27 Article 5 of Financial Data Schedule for the
Six Month Period ended December 31, 1996.................205
(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
(Q) Incorporated by reference to Registrant's Form 10-K dated June 30, 1996
(R) Incorporated by reference to Registrant's Form 10-Q dated September 30, 1996
* Confidential treatment of certain portions of these documents has been
granted
** Confidential treatment has been requested as to portions thereof
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,908
<SECURITIES> 1,382
<RECEIVABLES> 17,455
<ALLOWANCES> 707
<INVENTORY> 37,272
<CURRENT-ASSETS> 58,637
<PP&E> 80,388
<DEPRECIATION> 19,642
<TOTAL-ASSETS> 173,880
<CURRENT-LIABILITIES> 39,330
<BONDS> 14,195
0
0
<COMMON> 67
<OTHER-SE> 79,493
<TOTAL-LIABILITY-AND-EQUITY> 173,880
<SALES> 69,780
<TOTAL-REVENUES> 70,509
<CGS> 72,042
<TOTAL-COSTS> 80,457<F1>
<OTHER-EXPENSES> 32,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,822
<INCOME-PRETAX> (63,889)
<INCOME-TAX> 45
<INCOME-CONTINUING> (63,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,934)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> 0
<FN>
<F1>TOTAL COST INCLUDES EXPENSES FOR BOTH FUNDED AND UNFUNDED R&D PROJECTS.
</FN>
</TABLE>
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 February 24, 1997, with respect to the
consolidated financial statements and schedule of Calgene, Inc. included in the
Annual Report (Form 10-K) for the six months ended December 31, 1996.
ERNST & YOUNG LLP
Sacramento, California
March 26, 1997
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:
<PAGE>
"'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 12, 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 in
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."
(g) The definition of "Registrable Securities" shall be amended and
restated to read in its entirety as follows:
<PAGE>
"'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 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 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
<PAGE>
(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.
(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
<PAGE>
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
<PAGE>
committees of the Board of Directors contemplated by this Section C(2).
(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
<PAGE>
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;
(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
<PAGE>
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
<PAGE>
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;
(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."
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment to
be signed by its President on this 12th day of November, 1996.
CALGENE, INC.
BY:/s/ Lloyd M. Kunimoto
Lloyd M. Kunimoto
President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CALGENE, INC.
Pursuant to Section 242 of the
General 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 Section 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 the first paragraph of Article FOURTH of the Restated
Certificate of Incorporation of the Corporation be and hereby is
deleted and the following paragraph is inserted in lieu thereof:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 110,000,000 shares,
consisting of 100,000,000 shares of Common Stock, $.001 par value per
share (the "Common Stock"), and 10,000,000 shares of Preferred
Stock, $.001 par value per share (the "Preferred Stock").
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
signed by its President this 13th day of March, 1997.
CALGENE, INC.
BY: /s/ Lloyd M. Kunimoto
Lloyd M. Kunimoto
President
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CALGENE II, INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
Calgene II, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies as follows:
(a) The name of the Corporation is Calgene II, Inc., which is its original
name. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on November 21, 1995.
(b) This Restated Certificate of Incorporation restates, integrates and
further amends the provisions of the Certificate of Incorporation of the
Corporation, as heretofore amended, and was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
(c) The text of the Certificate of Incorporation, as heretofore amended, is
hereby restated, integrated, and further amended to read in its entirety as
follows:
FIRST. The name of the corporation is Calgene, Inc. (the "Corporation").
SECOND. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware (the
"General Corporation Law").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 90,000,000 shares, consisting of
80,000,000 shares of Common Stock, $.001 par
- 1-
<PAGE>
value per share (the "Common Stock"), and 10,000,000 shares of Preferred Stock,
$.001 par value per share (the "Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. Except as otherwise provided in Article FIFTH, the holders of
the Common Stock are entitled to one vote for each share held on all matters
voted upon by the stockholders.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding shares of Preferred Stock.
4. Liquidation. Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
shares of Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
- 2-
<PAGE>
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law. Without limiting the
generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior to or
rank on a parity with or be junior to the Preferred Stock of any other series to
the extent permitted by law. Except as otherwise provided in this Restated
Certificate of Incorporation, no vote of the holders of the Preferred Stock or
Common Stock shall be a prerequisite to the designation or issuance of any
shares of any series of the Preferred Stock authorized by and complying with the
conditions of this Restated Certificate of Incorporation.
Part A. SERIES A REDEEMABLE, NON-VOTING PREFERRED STOCK
A.1 Designation and Amount. The designation of this series of capital stock
shall be Series A Redeemable, Non-Voting Preferred Stock (the "Series A Stock").
The number of shares, powers, terms, conditions, designations, preferences and
privileges, relative, participating, optional and other special rights and
qualifications, limitations and restrictions, if any, of the Series A Stock
shall be as set forth herein. The number of authorized shares of Series A Stock
is 1,000.
A.2 Voting Rights. The Series A Stock shall have no voting rights, except
as otherwise required by law.
A.3 Redemption. The Series A Stock may be redeemed by the Corporation at
any time on or prior to December 31, 1999 for $1.00 per share. In the event of
any redemption of only a part of the then outstanding Series A Stock, the
Corporation shall effect such redemption pro rata among the holders thereof
based on the number of shares of Series A Stock held by such holders on the date
that notice of redemption is given by the Corporation. At least 30 days prior to
the date fixed for any redemption of Series A Preferred Stock (a "Redemption
Date"), written notice shall be mailed, by first class or registered mail,
postage prepaid, to each holder of record of Series A Stock to be redeemed, at
his or its address last shown on the records of the Corporation, notifying such
- 3-
<PAGE>
holder of the election of the Corporation to redeem such shares and specifying
the Redemption Date. Any failure to give the notice of redemption, or any defect
in the giving of such notice, pursuant to the preceding sentence shall not
affect the validity of the redemption of shares of Series A Stock which
otherwise comply with the provisions of this Section A.3. On or prior to the
Redemption Date, each holder of shares of Series A Stock to be redeemed shall
surrender his or its certificate or certificates representing such shares to the
Corporation in the manner and at the place designated in the notice of
redemption, and thereupon the redemption price of such shares shall be payable
to the order of the person whose name appears on such certificate or
certificates as the owners thereof, and each surrendered certificate shall be
cancelled. From and after the Redemption Date, all rights of the holders of
Series A Stock designated for redemption in the notice of redemption as holders
of Series A Stock (except to receive the redemption price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be deemed to be outstanding for any
purpose whatsoever.
A.4 Conversion. The Series A Stock may not be converted into shares of
Common Stock or any other class or series of capital stock of the Corporation.
A.5 Liquidation. In the event of any liquidation, dissolution or winding-up
of the Corporation (collectively, a "Liquidation"), the holders of shares of
Series A Stock shall be entitled to receive out of the assets of the Corporation
legally available for distribution to stockholders, whether from capital,
earnings or surplus, before payment shall be made to the holders of Common Stock
or any class or series of stock ranking on Liquidation junior to such Series A
Stock, $1.00 per share.
A.6 Dividends. Dividends may be declared and paid on the Series A Stock
from funds lawfully available therefor, as and when determined by the Board of
Directors.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
A. CERTAIN DEFINITIONS
As used in this Article FIFTH, the following terms shall have the following
respective meanings (all terms defined in this Section A or in other provisions
of this Article FIFTH in the singular shall have the same meaning when used in
the plural and vice versa):
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<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
Corporation except where the context otherwise requires.
"Calgene" means Calgene, Inc., a Delaware corporation, as the entity
existed prior to the Effective Date.
"Calgene Board" means the Board of Directors of Calgene.
"Calgene Director" means a member of the Calgene Board.
"Common Stock" means the Common Stock, $.001 par value, of the Corporation.
"Corporation Director" means an Independent Director who is nominated for
such position by the Corporation in accordance with Section C(1) hereof.
"Corporation Management Directors" means the Chief Executive Officer of the
Corporation (or, if there is none at any time, a Director nominated by a
majority of the Corporation Directors) and a second Director who shall be
nominated by a majority of the Corporation Directors.
"Director" means a member of the Board of Directors of the Corporation.
"Effective Date" means March 31, 1996.
"Equity Security" means (i) any Common Stock or other Voting Stock (ii),
any securities of the Corporation 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 Corporation to acquire Common Stock or other
Voting Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
- 5-
<PAGE>
"Gargiulo" means Gargiulo, G.P. and Gargiulo, L.P., as such entities
existed prior to the Effective Date.
"Gargiulo Business" means the business transacted by Tomato Associates
after the Effective Date, which business was transacted by Gargiulo prior to the
Effective Date.
"Gargiulo Credit Facility" means the Gargiulo Credit Facility Agreement
dated as of March 31, 1996 by and between the Corporation and Monsanto.
"Gargiulo G.P." means Gargiulo G.P., Inc., a Delaware corporation.
"Gargiulo L.P." means Gargiulo, L.P., a Delaware limited partnership.
"Governance Agreement" means the Stockholders Agreement dated as of March
31, 1996 by and between the Corporation and Monsanto.
"hereto", "hereunder", "herein", "hereof" and the like mean and refer to
this Article FIFTH as a whole and not merely to the specific article, section,
paragraph or clause in which the respective word appears.
"Holder" means Monsanto and any subsequent holder of outstanding
Registrable Securities.
"Independent Director" means a Director or Calgene Director (i) who is not
and has never been an officer or employee of Calgene, the Corporation, any
Affiliate or Associate of Calgene or the Corporation 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 Corporation or any Affiliate or
Associate of Calgene or the Corporation; (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 Corporation, Monsanto,
Gargiulo or any of their respective Affiliates or Associates or any other Person
such that a reasonable person would regard such Director as likely to be unduly
- 6-
<PAGE>
influenced by management of Calgene, the Corporation 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 Corporation. 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.
"Monsanto" means Monsanto Company, a Delaware corporation.
"Monsanto Director" means a Director or Calgene Director, including any
Monsanto Management Director, who is nominated for such position by Monsanto in
accordance with Section C(1) hereof.
"Monsanto Disclosure Letter" means the disclosure letter from Monsanto to
Calgene dated June 27, 1995.
"Monsanto Management Director" means a Director or Calgene Director who is
nominated for such position by Monsanto in accordance with Section C(1) hereof
and who is or was an employee of Monsanto.
"Operating Plan" has the meaning set forth in Section D(1)(a)(ix) hereof.
"Percentage Interest" means the percentage of outstanding Voting Stock that
is controlled directly or indirectly 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.
"Registrable Securities" means shares of Common Stock issued or issuable
pursuant to the Transaction Agreements and all such other securities of the
Corporation acquired by a Holder.
"Reorganization Agreement" means the Agreement and Plan of Reorganization
dated as of October 13, 1995 between Calgene and Monsanto.
- 7-
<PAGE>
"Section 16 Officers" has the meaning set forth in Section C(2)(b)(iii)
hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Strategic Plan" has the meaning set forth in Section D(1)(a)(ix) hereof.
"Subsidiary" has the same meaning as in Rule 12b-2 promulgated under the
Exchange Act.
"Substantial Part" means more than ten percent (10%) of the total
consolidated assets of the Corporation as shown on the Corporation'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" means Tomato Investment Associates, Inc., a Delaware
corporation.
"Transaction Agreements" has the meaning set forth in the Reorganization
Agreement.
"Trigger Event" means the earlier of any time that (i) Monsanto's
Percentage Interest is at least fifty-five percent (55%) or (ii) the Corporation
elects to convert borrowings made from Monsanto into Equity Securities and
Monsanto's Percentage Interest is as least fifty percent (50%) after such
conversion.
"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 Corporation (other than solely by reason of the
occurrence of an event).
B. DIRECTOR ELECTIONS; BY-LAWS; BOOKS AND RECORDS
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or repeal
the By-laws of the Corporation.
3. The books of the Corporation may be kept at such place within or without
the State of Delaware as the By-laws of the Corporation may provide or as may be
designated by the Board of Directors.
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4. At all elections of directors of the Corporation, each holder of stock
or of any class or classes or of a series thereof shall be entitled to as many
votes as shall equal the number of votes which (except for this provision as to
cumulative voting) he would be entitled to cast for the election of directors
with respect to his shares of stock multiplied by the number of directors to be
elected, and he may cast all of such votes for a single candidate or may
distribute them among such number to be elected, or for any two or more of them
as he may see fit.
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 as 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. The number of such Directors may be
increased only in accordance with Section C(1)(c) or Section D(1)(a)(xii) below.
(b) Until the occurrence of a Trigger Event, the Corporation shall nominate
for election as Directors: (i) two (2) Corporation Management Directors, (ii)
three (3) Corporation Directors, and (iii) four (4) Directors designated by
Monsanto, at least one (1) of which shall be an Independent Director.
(c) At and after the occurrence of a Trigger Event, the Board of Directors
shall be comprised of eleven (11) Directors and the Corporation shall nominate,
subject to paragraph (d) below, two (2) additional Directors designated by
Monsanto, for a total of six (6) nominees to be designated by Monsanto.
(d) At any time that Monsanto's Percentage Interest is at least seventy
percent (70%), the Corporation shall nominate: (i) eight (8) Directors
designated by Monsanto, which shall consist of the two (2) Corporation
Management Directors and six (6) 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 eleven (11) Directors designated by Monsanto.
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(e) Notwithstanding anything in the foregoing paragraphs (b), (c) 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 the Corporation Directors
then in office. In the event that no Corporation Directors are in office at such
time, such Independent 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
Corporation Directors.
(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.
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(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 the Corporation Directors then in office
(or, in the event no Corporation Directors are then in office, upon the request
of a majority 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
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for any reason, then upon the request of either Monsanto or a majority of the
Corporation Directors then in office (or, in the event no Corporation Directors
are then in office, upon the request of a majority 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.
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).
(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) until the occurrence of a Trigger Event, a Retention/Replacement
Committee, consisting of the Independent Directors then serving on the
Board, responsible for the retention and/or replacement of all of the
executive officers of the Corporation, to be based on the financial
and behavioral criteria established by the Retention/Replacement
Committee; in the event that such committee decides to replace any
executive officer, Monsanto shall have the right to nominate a
replacement for such executive officer for consideration by the
committee along with any other candidates identified by such
committee; the rights of the Retention/Replacement Committee shall be
subject to the provisions set forth in Section D(1)(a)(viii), below;
(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
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Section 16 of the Exchange Act ("Section 16 Officers"), (c) the
policies, limitations and procedures under which the Stock Option Plan
Administration Committee shall operate and (d) the granting under the
Corporation's employee benefit plans of stock options and other equity
rights to Section 16 Officers, and consisting solely of the
Independent Directors then serving on the Board of Directors provided
each such Independent Director is (A) a disinterested person (as such
term is defined in Rule 16b-3(d) under the Exchange Act) and (B) an
"independent director" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended; 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(1)(a)(vi), below.
For purposes of clause (ii) above, "executive officers" shall have the same
meaning as in Rule 3b-7 promulgated under the Exchange Act.
(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
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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.
D. APPROVAL REQUIRED FOR CERTAIN ACTIONS
1. Approvals Required
(a) Until the earlier of a Trigger Event or such date on which Monsanto's
Percentage Interest is less than twenty-five percent (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 to the
Monsanto Disclosure Letter.
(iii)any dividend by or return of capital by the Corporation or Tomato
Associates (other than such distributions by Tomato Associates 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);
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(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 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 (the "Operating Plan") and
long-term strategic plan (the "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;
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(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 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
(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)matters covered in Article 5 of the Governance Agreement, including,
without limitation, any changes in the composition of the Tomato
Associates' Board of Directors other than with respect to Messrs.
Salquist and Stacey;
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(xvii) any press release which mentions or directly or indirectly refers to
Monsanto, except as required by law and where approval of the Board of
Directors 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 Corporation
or any of its Affiliates; or
(xix)the removal or election of the directors, subject to Section 5.1 of
the Governance Agreement, of Tomato Associates.
(b) After a Trigger Event and until the earlier of (i) the third
anniversary of the Effective Date or (ii) 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) except as provided in Section D(1)(a)(xvi), above, the matters set
forth in subsections (i), (ii), (vi), (viii), (ix) and (xi) of
paragraph D(1)(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) the
third anniversary of the Effective Date, 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.
SIXTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
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application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law as the
same exists or may hereafter be amended. No amendment to or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
EIGHTH. 1. Actions, Suits and Proceedings other than by or in the Right of
the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
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the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The Corporation
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and, to the extent permitted by law, amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
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such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice) without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his right
to be indemnified, the Indemnitee must notify the Corporation in writing as soon
as practicable of any action, suit, proceeding or investigation involving him
for which indemnity will or could be sought. With respect to any action, suit,
proceeding or investigation of which the Corporation is so notified, the
Corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee. After notice from the Corporation to the
Indemnitee of its election so to assume such defense, the Corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
below in this Section 4. The Indemnitee shall have the right to employ his own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
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Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. Advancement of Expenses. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), whether or
not a quorum, (b) a majority vote of a quorum of the outstanding shares of stock
of all classes entitled to vote in an election of directors, voting as a single
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class, which quorum shall consist of stockholders who are not at that time
parties to the action, suit or proceeding in question, (c) independent legal
counsel (who may, to the extent permitted by law, be regular legal counsel to
the Corporation), or (d) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advancement of expenses as
granted by this Article shall be enforceable by the Indemnitee in any court of
competent jurisdiction if the Corporation denies such request, in whole or in
part, or if no disposition thereof is made within the 60-day period referred to
in Section 6 above. Unless otherwise required by law, the burden of proving that
the Indemnitee is not entitled to indemnification or advancement of expenses
under this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification or advancement of expenses under the provisions
hereof with respect to any action, suit, proceeding or investigation arising out
of or relating to any actions, transactions or facts occurring prior to the
final adoption of such amendment, termination or repeal.
9. Other Rights. The rights to indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
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<PAGE>
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or of another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and advance expenses to each Indemnitee
as to any expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with any action, suit, proceeding or
investigation, whether civil, criminal or administrative, including an action by
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<PAGE>
or in the right of the Corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the fullest extent permitted by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law shall have the respective meanings
assigned to such terms in such Section 145(h) and Section 145(i).
15. Subsequent Legislation. If the General Corporation Law is amended after
adoption of this Article to expand further the indemnification and advancement
of expenses permitted to Indemnitees, then the Corporation shall indemnify and
advance expenses to such persons to the fullest extent permitted by the General
Corporation Law, as so amended.
NINTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
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<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation,
which restates, integrates and amends the provisions of the Certificate
of Incorporation of the Corporation, and which has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, has been signed by its
President this __ day of March, 1996.
CALGENE II, INC.
By: /s/ Roger H. Salquist
President
STOCK PURCHASE AGREEMENT
Agreement dated as of September 27, 1996 between Monsanto Company, a
Delaware corporation ("Monsanto"), and Calgene, Inc., a Delaware corporation
("Calgene").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Sale of Shares. Subject to the terms and conditions of this Agreement,
at the Closing (as defined below), Calgene will sell and issue to Monsanto, and
Monsanto will purchase, 6,250,000 shares (the "Shares") of Common Stock, $.001
par value per share, of Calgene ("Common Stock") for an aggregate purchase price
of $50,000,000. The number of Shares shall be appropriately adjusted for any
stock splits, stock dividends or similar events affecting the Common Stock after
the date hereof and prior to the Closing.
2. The Closing.
(a) The closing ("Closing") of the sale and purchase of the Shares under
this Agreement shall take place at the offices of Hale and Dorr, 60 State
Street, Boston, Massachusetts at 9:00 a.m. on the first date on which all of the
conditions set forth in Sections 6 and 7 have been satisfied or duly waived. At
the Closing, Calgene shall deliver to Monsanto a certificate for the Shares,
registered in the name of Monsanto, against payment to Calgene of the purchase
price therefor, by wire transfer.
(b) Either Monsanto or Calgene may terminate this Agreement if the
conditions set forth in Sections 6 and 7 have not been satisfied or duly waived
prior to January 31, 1997, other than by reason of a breach of this Agreement by
the terminating party.
3. Representations of Calgene. Subject to and except as disclosed by
Calgene in the disclosure schedule provided by Calgene to Monsanto on the date
hereof (the "Disclosure Schedule"), Calgene hereby represents and warrants as
follows:
3.1 Organization and Standing. Calgene is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to conduct its business as presently
conducted and as proposed to be conducted by it and to enter into and perform
this Agreement and to carry out the transactions contemplated by this Agreement.
Calgene is duly qualified to do business as a foreign corporation and is in good
standing in the State of California and in every other jurisdiction in which the
failure to so qualify would have a material adverse effect on the assets,
business, results of operations or financial condition of Calgene. Calgene has
furnished to Monsanto true and complete copies of its Certificate of
Incorporation and By-Laws, each as amended to date and presently in effect.
<PAGE>
3.2 Capitalization. The authorized capital stock of Calgene consists of
80,000,000 shares of Common Stock, of which 60,443,115 shares were issued and
outstanding as of August 31, 1996, and 10,000,000 shares of Preferred Stock,
$.001 par value per share, none of which shares are issued or outstanding. All
of the issued and outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
Section 3.2 of the Disclosure Schedule hereto or provided in this Agreement, (i)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any shares of capital stock of
Calgene is authorized or outstanding, (ii) Calgene has no obligation (contingent
or otherwise) to issue any subscription, warrant, option, convertible security
or other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of Calgene, and (iii)
Calgene has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof.
3.3 Issuance of Shares. The Shares, when issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement, will be
duly and validly issued, fully paid and non-assessable.
3.4 Authority for Agreement. The execution, delivery and performance by
Calgene of this Agreement and the Amended and Restated Stockholders Agreement
attached hereto as Exhibit A (the "Amendment"), and the consummation by Calgene
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action, subject to (i) approval of the Certificate of
Amendment attached hereto as Exhibit B (the "Certificate of Amendment") by the
stockholders of Calgene holding a majority of the shares of Common Stock
outstanding, and (ii) approval of the issuance of the Shares to Monsanto, the
Amendment and this Agreement by the holders of a majority of the outstanding
shares of Common Stock present or represented at the meeting of stockholders to
be held for such purpose (the "Stockholders Meeting"), excluding broker
non-votes and shares held by Monsanto; (such approvals being referred to
collectively as the "Requisite Stockholder Approval"). This Agreement has been,
and the Amendment as of the Closing will be, duly executed and delivered by
Calgene. This Agreement constitutes, and the Amendment will constitute as of the
Closing, valid and binding obligations of Calgene, enforceable in accordance
with their respective terms. The execution of and performance of the
transactions contemplated by this Agreement and the Amendment and compliance
with their provisions by Calgene will not violate any provision of law and will
not conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or ByLaws (each as amended to date) or
<PAGE>
any indenture, lease, agreement or other instrument to which Calgene is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to Calgene.
3.5 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
governmental authority is required on the part of Calgene in connection with the
execution and delivery of this Agreement, the issuance, sale and delivery of the
Shares, or the other transactions to be consummated at the Closing, as
contemplated by this Agreement, except (i) the filing with the Secretary of
State of Delaware of the Certificate of Amendment and (ii) compliance with
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iii) compliance with the applicable requirements of the Securities
Exchange Act of 1934 (the "Exchange Act").
3.6 Reports and Financial Statements. Calgene has previously furnished to
Monsanto complete and accurate copies, as amended or supplemented, of its (a)
Annual Report on Form 10-K for the fiscal year ended June 30, 1995, as filed
with the Securities and Exchange Commission (the "SEC"), (b) proxy statements
relating to all meetings of its stockholders (whether annual or special) since
June 30, 1995 and (c) all other reports or registration statements, other than
Registration Statements on Form S-8, filed by Calgene with the SEC since June
30, 1995 (such annual reports, proxy statements, registration statements and
other filings, together with any amendments or supplements thereto, are
collectively referred to herein as the "Calgene Reports"). The Calgene Reports
constitute all of the documents filed or required to be filed by Calgene with
the SEC since June 30, 1995, other than any Registration Statement on Form S-8.
As of their respective dates, the Calgene Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of Calgene included in the
Calgene Reports (together, the "Financial Statements") (i) comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act), and (iii) fairly present in all material respects the consolidated
financial condition, results of operations and cash flows of Calgene as of the
respective dates thereof and for the periods referred to therein.
<PAGE>
3.7 Litigation. Section 3.7 of the Disclosure Schedule identifies, and
contains a brief description of, (a) any unsatisfied judgment, order, decree,
stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any court or governmental agency
or before any arbitrator to which Calgene or any subsidiary is a party or, to
the knowledge of Calgene, is threatened to be made a party, in each case which
could have a material adverse effect on the assets, business, financial
condition or results of operations of Calgene.
4. Representations of Monsanto. Monsanto represents and warrants as
follows:
4.1 Investment. Monsanto is acquiring the Shares for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same.
4.2 Authority. Monsanto has full power and authority to enter into and to
perform this Agreement and the Amendment in accordance with their respective
terms.
4.3 Experience. Monsanto has sufficient knowledge and experience in
investing in companies similar to Calgene so as to be able to evaluate the risks
and merits of its investment in Calgene and is able financially to bear the
risks thereof.
5. Covenants.
5.1 Best Efforts.
(a) Each of the parties shall use its respective best efforts to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement. Without limiting the foregoing,
Monsanto shall vote all of its shares of Common Stock in favor of the
Certificate of Amendment at the Stockholders Meeting.
(b) At the Closing, Monsanto and Calgene shall execute and deliver the
Amendment.
(c) At the Closing, Monsanto and Calgene shall execute a certificate
setting forth the "Effective Date Percentage" as defined in the Amendment.
5.2 Stockholders Meeting, Proxy Statement.
(a) As soon as practicable, Calgene shall prepare and file with the SEC
under the Exchange Act preliminary proxy materials (the "Proxy Statement") for
the purpose of soliciting proxies from its stockholders to vote in favor of (i)
the issuance of the Shares, (ii) the Certificate of Amendment, and (iii) the
<PAGE>
election of the directors contemplated by the Amendment (the "Proposals") at the
Stockholders Meeting. Calgene shall promptly respond to any SEC comments on the
Proxy Statement and shall otherwise use its best efforts to resolve as promptly
as practicable all SEC comments to the satisfaction of the SEC. Calgene shall
furnish to Monsanto and its counsel copies of the preliminary Proxy Statement
prior to filing it with the SEC and copies of the final Proxy Statement prior to
mailing it to stockholders.
(b) Promptly following the resolution to the satisfaction of the SEC of all
SEC comments on the Proxy Statement (or the expiration of the ten-day period
under Rule 14a-6(a) under the Exchange Act, if no SEC comments are received by
such date), Calgene shall distribute the Proxy Statement to its stockholders and
solicit proxies from its stockholders to vote in favor of the Proposals.
(c) Calgene shall comply with all applicable provisions of and rules under
the Exchange Act and all applicable provisions of the Delaware General
Corporation Law in the preparation, filing and distribution of the Proxy
Statement, the solicitation of proxies thereunder, and the calling and holding
of the Stockholders Meeting. Without limiting the foregoing, Calgene shall
ensure that the Proxy Statement does not, as of the date on which it is
distributed to its stockholders, and as of the date of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading (provided that Calgene shall not be
responsible for the accuracy or completeness of any information furnished by
Monsanto in writing for inclusion in the Proxy Statement).
5.3 HSR Act. Each of the parties shall promptly file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, shall use its best efforts to obtain an
early termination of the applicable waiting period, and shall make any further
filings or information submissions pursuant thereto that may be necessary,
proper or advisable.
5.4 Pending Closing. Pending Closing Calgene shall carry on the business of
Calgene and its subsidiaries in the ordinary and regular course of business.
6. Conditions to the Obligations of Monsanto. The obligation of Monsanto to
purchase Shares at the Closing is subject to the fulfillment, or the waiver by
Monsanto, of each of the following conditions on or before the Closing:
<PAGE>
6.1 Accuracy of Representations and Warranties. Each representation and
warranty contained in Section 3 shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representation and warranty had been made on and as of that date (except for
representations and warranties made as of a specific date, which shall be true
and correct as of such date).
6.2 Performance. Calgene shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by Calgene prior to or at the Closing.
6.3 Stockholder Agreement. The Amendment shall have been executed and
delivered by Calgene.
6.4 Certificate of Amendment. The Certificate of Amendment shall have been
filed with the Secretary of State of Delaware.
6.5 HSR Act. All applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated.
6.6 No Injunctions or Other Proceedings. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court or other
legal or regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall have been issued and remain outstanding.
No investigation, action, suit or proceeding by any governmental or regulatory
commission, agency, body or authority, and no action, suit or proceeding by any
other person or entity shall be pending on the Closing Date which challenges, or
might result in a challenge to, this Agreement or any transactions contemplated
hereby, or which claims, or might give rise to a claim for, damages in a
material amount as a result of the consummation of this Agreement.
6.7 NASDAQ. The Shares shall have been authorized for listing on the Nasdaq
National Market, subject to official notice of issuance.
6.8 Opinion of Counsel. Monsanto shall have received an opinion from Hale
and Dorr, counsel for Calgene, dated the Closing Date, substantially in the form
attached hereto as Exhibit C.
6.9 Stockholder Approval. The issuance of the Shares and the Certificate of
Amendment shall have received the Requisite Stockholder Approval and the
directors contemplated by the Amendment shall have been elected.
6.10 Material Adverse Change. Between the date of this Agreement and the
Closing Date there shall have been no materially adverse change in the position,
financial or otherwise, or the operations, assets, liabilities or results of
<PAGE>
operations of Calgene or its subsidiaries, provided that such a material adverse
change shall not be deemed to have occurred as a result of any change in the
customers, pricing or sales volume of Calgene or any outcome of the litigation
between Calgene and Enzo Biochem, Inc.
6.11 No Change in Capitalization. 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 Calgene
directors designated by Monsanto in writing.
7. Conditions to the Obligations of Calgene. The obligations of Calgene
under this Agreement are subject to fulfillment, or the waiver by Calgene, of
the following conditions on or before the Closing:
7.1 Accuracy of Representations and Warranties. The representations and
warranties of Monsanto contained in Section 4 shall be true and correct on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
7.2 Performance. Monsanto shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by Monsanto prior to or at the Closing.
7.3 Stockholder Agreement. The Amendment shall have been executed and
delivered by Monsanto.
7.4 HSR Act. All applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated.
7.5 No Injunction or Other Proceedings. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court or other
legal or regulatory restraint or prohibition preventing the consummation of the
transaction contemplated hereby shall have been issued and remain outstanding.
No investigation, action, suit or proceeding by any governmental or regulatory
commission, agency, body or authority, and no action, suit or proceeding by any
other person or entity shall be pending on the Closing Date which challenges, or
might result in a challenge to, this Agreement or any transactions contemplated
hereby, or which claims, or might give rise to a claim for, damages in a
material amount as a result of the consummation of this Agreement.
<PAGE>
7.6 Stockholder Approval. The issuance of the Shares and the Certificate of
Amendment shall have received the Requisite Stockholder Approval.
8. Miscellaneous.
8.1 Press Releases and Announcements. No party shall issue any press
release or public disclosure relating to the subject matter of this Agreement
without the prior written approval of the other party; provided, however, that
any party may make any public disclosure it believes in good faith is required
by law or regulation (in which case the disclosing party shall advise the other
party and provide it with a copy of the proposed disclosure prior to making the
disclosure).
8.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties.
8.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, with respect to the subject matter hereof.
8.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective
successors. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other party.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Delaware.
8.8 Amendments and Waivers. The parties may mutually amend any provision of
this Agreement at any time prior to the Closing Date, provided, however, that
any amendment effected subsequent to the Requisite Stockholder Approval shall be
subject to the restrictions contained in the Delaware General Corporation Law.
No waiver by any party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
<PAGE>
8.9 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8.10 Specific Performance. Each of the parties acknowledges and agrees that
the other party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the parties agrees that the other
party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity.
8.11 Construction. The language used in this Agreement shall be deemed to
be the language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CALGENE, INC.
By:/s/ Lloyd M. Kunimoto
Title: President
<PAGE>
MONSANTO COMPANY
By:/s/ Hendrik A. Verfaillie
Title: Executive Vice President
BUSINESS LOAN AGREEMENT
This Agreement dated as of February 28, 1997, is between BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and CALGENE, INC. (the
"Borrower").
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement:
1.1 "Acceptable Inventory" means inventory which satisfies the following
requirements:
(a) The inventory is owned by the Pledgor free of any title defects or
any liens or interests of others except the security interest in favor of
the Bank; and the Pledgor is the Borrower; Stoneville Pedigreed Seed
Company; Delinting and Seed Treating Co.; Gargiulo, Inc.; or Calgene
Chemical, Inc. This does not prohibit any statutory liens which may exist
in favor of the growers of agricultural products which are purchased by the
Pledgor. Goods sold by the Borrower as a broker for other parties
("Brokered Goods") will not be considered owned by the Borrower for these
purposes.
(b) The inventory is located at locations which the Pledgor has
disclosed to the Bank and which are acceptable to the Bank. If the
inventory is covered by a negotiable document of title (such as a warehouse
receipt) that document must be delivered to the Bank. Inventory which is in
transit is not acceptable.
(c) The inventory is held for sale or use in the ordinary course of
the Pledgor's business and is of good and merchantable quality. Display
items, work-in-process and packing and shipping materials are not
acceptable. Inventory which is obsolete, unsalable, damaged, defective,
discontinued or slow-moving, or which has been returned by the buyer and is
not otherwise saleable, is not acceptable. Inventory will be considered
slow-moving if it is aged more than 18 months from its production date. In
addition, carryover cotton seed inventory exceeding 30% of the projected
sales for the year will not be acceptable. "Carryover" cotton seed
inventory means cotton seed inventory produced in the prior calendar year.
(d) The inventory has not been manufactured to the specifications of a
particular account debtor.
(e) The inventory is not subject to any licensing agreements which
would prohibit or restrict in any way the ability of the Bank to sell the
inventory to third parties.
(f) The inventory is not placed on consignment.
(g) The inventory is otherwise acceptable to the Bank.
1.2 "Acceptable Receivable" means an account receivable which satisfies the
following requirements:
(a) The account has resulted from the sale of goods or the performance
of services by the Pledgor in the ordinary course of the Pledgor's
business; and the Pledgor is the Borrower; Stoneville Pedigreed Seed
Company; Delinting and Seed Treating Co.; Gargiulo, Inc.; or Calgene
Chemical, Inc.
(b) There are no conditions which must be satisfied before the Pledgor
is entitled to receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment
of the account, whether well founded or otherwise.
(d) The account balance does not include the amount of any
counterclaims or offsets which have been or may be asserted against the
Pledgor by the account debtor (including offsets for any "contra accounts"
owed by the Pledgor to the account debtor for goods purchased by the
Pledgor or for services performed for the Pledgor). To the extent any
counterclaims, offsets, or contra accounts exist in favor of the debtor,
such amounts shall be deducted from the account balance.
(e) The account represents a genuine obligation of the debtor for
goods sold and accepted by the debtor, or for services performed for and
accepted by the debtor. To the extent any credit balances exist in favor of
the debtor, such credit balances shall be deducted from the account
balance.
(f) The Pledgor has sent an invoice to the debtor in the amount of the
account.
(g) The Pledgor is not prohibited by the laws of the state where the
account debtor is located from bringing an action in the courts of that
state to enforce the debtor's obligation to pay the account. The Pledgor
has taken all reasonable actions to ensure access to the courts of the
state where the account debtor is located, including, where necessary, the
filing of a Notice of Business Activities Report or other similar filing
with the applicable state agency or the qualification by the Pledgor as a
foreign corporation authorized to transact business in such state.
(h) The account is owned by the Pledgor free of any title defects or
any liens or interests of others except the security interest in favor of
the Bank. Accounts arising from the sale of Brokered Goods will not be
considered to be owned by the Borrower for these purposes.
(i) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of the Pledgor,
or an entity which has common officers or directors with the Pledgor.
(ii) the U.S. government or any agency or department of the U.S.
government unless the Bank agrees in writing to accept the obligation,
the Pledgor complies with the procedures in the Federal Assignment of
Claims Act of 1940 (41 U.S.C. section 15) with respect to the
obligation, and the underlying contract expressly provides that
neither the U.S. government nor any agency or department thereof shall
have the right of set-off against the Pledgor.
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a country or area other than
the United States unless either (A) the account is supported by an
irrevocable letter of credit issued by a bank acceptable to the Bank,
or (B) the account debtor carries an investment grade rating from Dun
& Bradstreet of BBB or higher.
(j) The account is not in default. An account will be considered in
default if any of the following occur:
(i) The account is not paid within 60 days from its due date;
(ii) The debtor obligated upon the account suspends business,
makes a general assignment for the benefit of creditors, or fails to
pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated
upon the account under any bankruptcy law or any other law or laws for
the relief of debtors;
(k) The account does not arise from the sale of goods which remain in
the Pledgor's possession or under the Pledgor's control.
(l) The account is not evidenced by a promissory note or chattel
paper, nor is the account debtor obligated to the Pledgor under any other
obligation which is evidenced by a promissory note.
(m) The account is otherwise acceptable to the Bank.
In addition to the foregoing limitations, the dollar amount of accounts included
as Acceptable Receivables which are the obligations of a single debtor shall not
exceed the concentration limit established for that debtor. To the extent the
total of such accounts exceeds a debtor's concentration limit, the amount of any
such excess shall be excluded. The concentration limit for each debtor shall be
equal to 20% of the total amount of the aggregate of all Pledgors' accounts at
that time. It is provided, however, if the debtor obligated upon an account is
Terra Industries, Inc., the concentration limit applicable to such debtor will
be the amount of $7,500,000.
1.3 "Borrowing Base" means the sum of:
(a) 80% of the balance due on Acceptable Receivables; and
(b) 60% of the value of Acceptable Inventory consisting of finished
goods comprised of cotton seed (including bulk cotton seed) and plant oil
and plant oil-based products (including, but not limited to, canola, palm,
and soybean oils).
In determining the value of Acceptable Inventory to be included in the
Borrowing Base, the Bank will use the lowest of (i) the Pledgor's cost,
(ii) the Pledgor's estimated market value, or (iii) the Bank's independent
determination of the resale value of such inventory in such quantities and
on such terms as the Bank deems appropriate. Prior to multiplying the value
of Acceptable Inventory by the percentage rate specified above, the Bank
will deduct any amounts the Pledgor owes to growers of agricultural
products which the Pledgor has purchased for processing or for use in
producing the inventory. In addition, prior to multiplying the value of
Acceptable Receivables by the percentage rate specified above, the Bank
will deduct any amounts the Pledgor owes to growers of perishable
agricultural products (to the extent that such grower payables have not
already been subtracted from Acceptable Inventory under the preceding
sentence) if such growers would, by timely filing of notice, be entitled to
the benefits of the federal Perishable Agricultural Commodities Act of 1930
(7 USC section 499a et seq.) Amounts owed to the growers of Brokered Goods
need not be deducted under this paragraph.
1.4 "Credit Limit" means the amount indicated for each period set forth
below:
Period Amount
From the date of this
Agreement until 12/31/97 $20,000,000
From 1/1/98 until 12/31/98 $30,000,000
From 1/1/99 until the
Expiration Date (as
defined below) $40,000,000
1.5 "Guarantors" means the following subsidiaries of the Borrower, together
with any future subsidiary of the Borrower unless the Bank, in its discretion,
waives the requirement of a guaranty from such subsidiary: Stoneville Pedigreed
Seed Company; Delinting and Seed Treating Co.; Gargiulo, Inc.; or Calgene
Chemical, Inc.
1.6 "Monsanto Sub Debt" means Subordinated Debt owed by the Borrower to
Monsanto Company, including the Monsanto Line of Credit.
1.7 "Monsanto Line of Credit" means the existing line of credit from
Monsanto Company to the Borrower, with terms and conditions as previously
disclosed to the Bank.
1.8 "Pledgor" means, with respect to collateral pledged under this
Agreement, the Borrower or Guarantor which owns the collateral.
1.9 "Subordinated Debt" means indebtedness subordinated, in a manner
acceptable to the Bank, to all of the Borrower's obligations to the Bank
pursuant to this Agreement.
2. LINE OF CREDIT AMOUNT AND TERMS
2.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line of credit
(the "Commitment") is equal to the lesser of (i) the Credit Limit or (ii)
the Borrowing Base.
(b) This is a revolving line of credit providing for cash advances and
financing overdrafts. During the availability period, the Borrower may
repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit plus the amount of the
Overdraft Limit (as defined below), to exceed the Commitment. If the
Borrower exceeds this limit, the Borrower will immediately pay the excess
to the Bank upon the Bank's demand. The Bank may apply payments received
from the Borrower under this Paragraph to the obligations of the Borrower
to the Bank in the order and the manner as the Bank, in its discretion, may
determine.
2.2 Availability Period. The line of credit is available between the date
of this Agreement and December 1, 1999 (the "Expiration Date") unless the
Borrower is in default.
2.3 Interest Rate
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Reference Rate minus one-quarter
(0.25) of one percentage point.
(b) The Reference Rate is the rate of interest publicly announced from
time to time by the Bank in San Francisco, California, as its Reference
Rate. The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some loans.
The Bank may price loans to its customers at, above, or below the Reference
Rate. Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
2.4 Repayment Terms
(a) The Borrower will pay interest on the first day of each month
until payment in full of any principal outstanding under this line of
credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no later
than the Expiration Date.
2.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect the optional interest rates listed
below during interest periods agreed to by the Bank and the Borrower. The
optional interest rates shall be subject to the terms and conditions described
later in this Agreement. Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "Portion." The following optional
interest rates are available, as described in Article 3:
(a) Fixed Rates.
(b) the LIBOR Rate plus one and one-half (1.5) percentage points.
2.6 Overdraft Financing Facility
(a) This line of credit may be used to pay overdrafts in the
Borrower's checking accounts. The total amount of all unreimbursed
overdrafts outstanding at any one time may not exceed One Million Dollars
($1,000,000) (the "Overdraft Limit"). This portion of the line of credit
may only be accessed through this overdraft facility. The total amount of
all other credit outstanding at any time may not exceed the Commitment,
minus the Overdraft Limit.
(b) The checking accounts which the Borrower may overdraw are listed
below, together with the allocated Overdraft Limit for each account:
Account Number Overdraft Limit
14899-02502 $1,000,000
(c) As part of the monthly calculation of service charges to be
assessed against the Borrower's account, the Bank will include an interest
charge calculated on the daily amount of unreimbursed overdrafts
outstanding in the account. The interest rate will be an annual rate of the
Bank's Reference Rate minus one-quarter (0.25) of one percentage point.
(d) If items are presented against an account covered by this
overdraft facility which, if paid, would exceed the allocated Overdraft
Limit for that account, the Bank will have no obligation to pay those
items, but may at its discretion pay any or all of the items. The excess
amount of unreimbursed overdrafts outstanding which exceeds the applicable
limits will incur interest at the greater of (i) the rate specified for
overdrafts above or (ii) 120% of the Bank's Reference Rate.
(e) The Bank or the Borrower may, at its discretion, at any time upon
10 days written notice to the other party, terminate this overdraft
facility and require repayment of all outstanding overdrafts. The Borrower
will in any event repay all outstanding overdrafts no later than the
Expiration Date.
(f) For the purposes of this Agreement, the amount of unreimbursed
overdrafts outstanding on any day will equal the daily net collected
balance of the account on any day when such balance is negative. In
calculating the amount of interest accruing under this facility, the daily
net collected balance will not include provisional credits for items in the
process of collection ("Uncollected Items") as determined under the Bank's
normal practices for the Borrower's account. However, in determining
whether the Borrower has exceeded the Overdraft Limit, the Commitment, or
any other dollar limits on borrowing established in this Agreement, the
Borrower shall be given credit for such Uncollected Items. The negative
daily net collected balance may include fees and charges which have been
posted to the Borrower's account, including overdraft interest charges.
This may result in compounding of interest.
(g) The Borrower agrees that overdraft interest charges and other fees
and charges relating to its accounts may be directly debited from its
accounts.
(h) The Bank may terminate this overdraft facility if a levy is
imposed on any account covered by this facility.
3. OPTIONAL INTEREST RATES
3.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and, if the
interest period is longer than one month, then on the first day of each month
during the interest period. At the end of any interest period, the interest rate
will revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the Portion. No Portion will be
converted to a different interest rate during the applicable interest period.
Upon the occurrence of an event of default under this Agreement and so long as
such default has not been cured, the Bank may terminate the availability of
optional interest rates for interest periods commencing after the default
occurs.
3.2 Fixed Rate. The election of Fixed Rates shall be subject to the
following terms and requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the
Borrower agree will apply during the applicable interest period.
(b) The interest period during which the Fixed Rate will be in effect
will be one year or less.
(c) Each Fixed Rate Portion will be for an amount not less than the
following:
(i) for interest periods of 14 days or longer, Five Hundred
Thousand Dollars ($500,000).
(ii) for interest periods of between 1 and 13 days, an amount
which, when multiplied by the number of days in the applicable
interest period, is not less than fifteen million (15,000,000)
dollar-days.
(d) Each prepayment of a Fixed Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee as described
below. A "prepayment" is a payment of an amount on a date earlier than the
scheduled payment date for such amount as required by this Agreement. The
prepayment fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been prepaid,
exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the domestic certificate
of deposit market, the eurodollar deposit market, or other appropriate
money market selected by the Bank for a period starting on the date on
which it was prepaid and ending on the last day of the interest period
for such Portion (or the scheduled payment date for the amount
prepaid, if earlier).
3.3 LIBOR Rate. The election of the LIBOR Rate shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in effect
will be one, two, three, four, five, six, seven, eight, nine, ten, eleven,
or twelve months. The first day of the interest period must be a day other
than a Saturday or a Sunday on which the Bank is open for business in
California, New York and London and dealing in offshore dollars (a "LIBOR
Banking Day"). The last day of the interest period and the actual number of
days during the interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The "LIBOR Rate" means the average per annum interest rate,
rounded upward to the nearest 1/100 of one percent, of rates at which U.S.
dollar deposits would be offered for the applicable interest period by
major banks in the London inter-bank market, as shown on the Telerate Page
3750 (or such other page as may replace it) at approximately 11:00 a.m.
London time two (2) London Banking Days before the commencement of the
interest period. If such rate does not appear on the Telerate Page 3750 (or
such other page that may replace it), the rate for that interest period
will be determined by such alternate method as reasonably selected by Bank.
A "London Banking Day" is a day on which the Bank's London Branch is open
for business and dealing in offshore dollars. All amounts in the
calculation will be determined by the Bank as of the first day of the
interest period.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no
later than 12:00 noon San Francisco time on the LIBOR Banking Day preceding
the day on which the London Inter-Bank Offered Rate will be set, as
specified above.
(e) Any Portion of the principal balance already bearing interest at
the LIBOR Rate will not be converted to a different rate during its
interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described
below. A "prepayment" is a payment of an amount on a date earlier than the
scheduled payment date for such amount as required by this Agreement. The
prepayment fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been prepaid,
exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the domestic certificate
of deposit market, the eurodollar deposit market, or other appropriate
money market selected by the Bank, for a period starting on the date
on which it was prepaid and ending on the last day of the interest
period for such Portion (or the scheduled payment date for the amount
prepaid, if earlier).
(g) The Bank will have no obligation to accept an election for a LIBOR
Rate Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a LIBOR Rate Portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a
LIBOR Rate Portion.
4. FEES, AND EXPENSES
4.1 Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Credit Limit and the amount of credit it actually uses,
determined by the weighted average credit outstanding during the specified
period. The fee will be calculated at 0.20% per year. This fee is due on the
first day of each month until the Expiration Date.
4.2 Expenses. The Borrower agrees to immediately repay the Bank for
reasonable expenses that include, but are not limited to, filing, recording and
search fees, and title report fees.
4.3 Reimbursement Costs.
(a) The Borrower agrees to reimburse the Bank for any reasonable
expenses it incurs in the preparation of this Agreement and any agreement
or instrument required by this Agreement. Expenses include, but are not
limited to, reasonable attorneys' fees, including any allocated costs of
the Bank's in-house counsel.
(b) The Borrower agrees to reimburse the Bank for the reasonable cost
of periodic audits of the collateral securing this Agreement, at such
intervals as the Bank may reasonably require; provided, however, that the
Borrower shall not be required to reimburse the Bank for more than 2 such
audits (in addition to the pre-closing audit) unless there has been an
event of default under this Agreement, with each such audit costing no more
than $10,000.
5. COLLATERAL
The Borrower's and the Guarantors' obligations to the Bank under this
Agreement will be secured by personal property the Borrower and Guarantors now
own or will own in the future as listed below. The collateral is further defined
in security agreement(s) executed by the Borrower and Guarantors. In addition,
all personal property collateral securing this Agreement shall also secure all
other present and future obligations of the Borrower to the Bank. All personal
property collateral securing any other present or future obligations of the
Borrower to the Bank shall also secure this Agreement.
(a) A blanket lien on machinery and equipment.
(b) Inventory.
(c) Receivables.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
6.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
(b) made for the account of the Bank's branch selected by the Bank
from time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may,
at its discretion, require the Borrower to sign one or more promissory
notes.
6.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances
or repayments or for the designation of optional interest rates given by
any one of the individuals authorized to sign loan agreements on behalf of
the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn
from the Borrower's account number 14899-02502, or such other of the
Borrower's accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax instructions it
reasonably believes are made by any individual authorized by the Borrower
to give such instructions; except to the extent that such liability, loss
or costs arises from the Bank's gross negligence or willful misconduct.
This indemnity and excuse will survive this Agreement's termination.
6.4 Direct Debit (Pre-Billing)
(a) The Borrower agrees that the Bank will debit the Borrower's
account number 14899-02502, or such other of the Borrower's accounts with
the Bank as designated in writing by the Borrower (the "Designated
Account") on the date each payment of interest and any fees from the
Borrower becomes due (the "Due Date"). If the Due Date is not a banking
day, the Designated Account will be debited on the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail
to the Borrower a statement of the amounts that will be due on that Due
Date (the "Billed Amount"). The calculation will be made on the assumption
that no new extensions of credit or payments will be made between the date
of the billing statement and the Due Date, and that there will be no
changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued Amount"). If
the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by the
amount of the discrepancy. The Borrower will not be in default by
reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by the
amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank will
not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated
Account to cover each debit. If there are insufficient funds in the
Designated Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
6.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
6.6 Taxes.
(a) If any payments to the Bank under this Agreement are made from
outside the United States, the Borrower will not deduct any foreign taxes
from any payments it makes to the Bank. If any such taxes are imposed on
any payments made by the Borrower (including payments under this
paragraph), the Borrower will pay the taxes and will also pay to the Bank,
at the time interest is paid, any additional amount which the Bank
specifies as necessary to preserve the after-tax yield the Bank would have
received if such taxes had not been imposed. The Borrower will confirm that
it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date.
(b) Payments made by the Borrower to the Bank will be made without
deduction of United States withholding or similar taxes. If the Borrower is
required to pay U.S. withholding taxes, the Borrower will pay such taxes in
addition to the amounts due to the Bank under this Agreement. If the
Borrower fails to make such tax payments when due, the Borrower indemnifies
the Bank against any liability for such taxes, as well as for any related
interest, expenses, additions to tax, or penalties asserted against or
suffered by the Bank with respect to such taxes.
6.7 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
6.8 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear interest at a rate which is one (1.0)
percentage point higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default. Installments of
principal which are not paid when due under this Agreement shall continue to
bear interest until paid. Any interest, fees or costs which are not paid when
due shall bear interest at the Bank's Reference Rate plus three-quarters of one
(0.75) percentage point. This may result in compounding of interest.
6.9 Payments in Kind. If the Bank requires delivery in kind of the proceeds
of collection of the Borrower's accounts receivable, such proceeds shall be
credited to interest, principal, and other sums owed to the Bank under this
Agreement in the order and proportion determined by the Bank in its sole
discretion. All such credits will be conditioned upon collection and any
returned items may, at the Bank's option, be charged to the Borrower.
7. CONDITIONS
The Bank must receive the following items, in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
7.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower (and each Guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
7.2 Governing Documents. A copy of the Borrower's and each Guarantor's
articles of incorporation.
7.3 Security Agreements. Signed original security agreements, assignments,
and financing statements (together with collateral in which the Bank requires a
possessory security interest), which the Bank requires.
7.4 Evidence of Priority. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
7.5 Consent to Removal. For any personal property collateral located on
real property which is subject to a mortgage or deed of trust or which is not
owned by the grantor of the security interest, if the Bank so requires in its
discretion, a Consent to Removal from the owner of the real property and the
holder of any mortgage or deed of trust.
7.6 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
7.7 Guaranties. Guaranties signed by each Guarantor, covering the entire
amount of the Borrower's obligations to the Bank.
7.8 Subordination Agreement. A subordination agreement in favor of the Bank
signed by Monsanto Company, covering the Monsanto Line of Credit and other
obligations of the Borrower to Monsanto Company, together with evidence that the
outstanding principal amount of the Monsanto Sub Debt is not less than Twenty
Four Million Seven Hundred Sixty Thousand Dollars ($24,760,000).
7.9 Payment of Fees. Payment of all accrued and unpaid expenses incurred by
the Bank as required by the paragraph entitled "Reimbursement Costs."
7.10 Equity Contribution. Evidence that Monsanto Company has contributed an
additional Fifty Million Dollars ($50,000,000) of cash equity to the Borrower,
as approved by the shareholders in November, 1996.
7.11 Other Items. Any other items that the Bank reasonably requires.
8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
8.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
8.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
8.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
8.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
8.5 No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
8.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank, including the Borrower's consolidated
financial statement dated as of December 31, 1996, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's and Guarantors' financial condition.
(b) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the business condition (financial or otherwise),
operations, properties or prospects of the Borrower or any Guarantor.
8.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
8.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects and, with respect to
accounts receivable and inventory, free of any liens or interests of others.
8.9 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
8.10 Other Obligations. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation, except as have been disclosed in
writing to the Bank.
8.11 Income Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
8.12 No Tax Avoidance Plan. The Borrower's obtaining of credit from the
Bank under this Agreement does not have as a principal purpose the avoidance of
U.S. withholding taxes.
8.13 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
8.14 Merchantable Inventory. All inventory which is included in the
Borrowing Base is of good and merchantable quality and free from defects.
8.15 ERISA Plans.
(a) Each Plan (other than a multiemployer plan) is in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other federal or state law. Each Plan has received a favorable
determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower has fulfilled its obligations, if any, under
the minimum funding standards of ERISA and the Code with respect to each
Plan, and has not incurred any liability with respect to any Plan under
Title IV of ERISA.
(b) There are no claims, lawsuits or actions (including by any
governmental authority), and there has been no prohibited transaction or
violation of the fiduciary responsibility rules, with respect to any Plan
which has resulted or could reasonably be expected to result in a material
adverse effect.
(c) With respect to any Plan subject to Title IV of ERISA:
(i) No reportable event has occurred under Section 4043(c) of
ERISA for which the PBGC requires 30 day notice.
(ii) No action by the Borrower or any ERISA Affiliate to
terminate or withdraw from any Plan has been taken and no notice of
intent to terminate a Plan has been filed under Section 4041 of ERISA.
(iii) No termination proceeding has been commenced with respect
to a Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement
of such a proceeding.
(d) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
(iii) "ERISA Affiliate" means any trade or business (whether or
not incorporated) under common control with the Borrower within the
meaning of Section 414(b) or (c) of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation.
(v) "Plan" means a pension, profit-sharing, or stock bonus plan
intended to qualify under Section 401(a) of the Code, maintained or
contributed to by the Borrower or any ERISA Affiliate, including any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
8.16 Location of Borrower. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
8.17 Environmental Matters. Except as has been disclosed to the Bank in
writing, the Borrower (a) is not in violation of any health, safety, or
environmental law or regulation regarding hazardous substances and (b) is not
the subject of any claim, proceeding, notice, or other communication regarding
hazardous substances. "Hazardous substances" means any substance, material or
waste that is or becomes designated or regulated as "toxic," "hazardous,"
"pollutant," or "contaminant" or a similar designation or regulation under any
federal, state or local law (whether under common law, statute, regulation or
otherwise) or judicial or administrative interpretation of such, including
without limitation petroleum or natural gas.
9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
9.1 Use of Proceeds. To use the proceeds of the credit only for general
working capital purposes.
9.2 Financial Information. To provide the following financial information
and statements in form and content acceptable to the Bank, and such additional
information as reasonably requested by the Bank from time to time:
(a) Copies of the Borrower's Form 10-K Annual Report within 90 days
after the date of filing with the Securities and Exchange Commission.
(b) Copies of the Borrower's Form 10-Q Quarterly Report and Form 8-K
Current Report within 45 days after the date of filing with the Securities
and Exchange Commission.
(c) Within 45 days of the period's end, the Borrower's quarterly
financial statements. These financial statements may be Borrower prepared.
The statements shall be prepared on a consolidated and consolidating basis.
(d) Within 30 days of each month end, a borrowing certificate setting
forth the amount of Acceptable Receivables and Acceptable Inventory as of
the last day of such month.
(e) Within 30 days of each month end, a compliance certificate of the
Borrower signed by an authorized financial officer of the Borrower setting
forth (i) the information and computations (in sufficient detail) to
establish that the Borrower is in compliance with all financial covenants
at the end of the period covered by the financial statements then being
furnished and (ii) whether there existed as of the date of such financial
statements and whether there exists as of the date of the certificate, any
default under this Agreement and, if any such default exists, specifying
the nature thereof and the action the Borrower is taking and proposes to
take with respect thereto.
(f) By December 31 of each year, projected income statements, balance
sheets and cash flow statements for (i) the Borrower on a consolidated
basis; (ii) Gargiulo, Inc.; and (iii) all subsidiaries other than Gargiulo,
Inc. The projections shall include an annual projection by month covering
the subsequent year, as well as a five year projection.
(g) promptly upon receipt, copies of all notices, orders, or other
communications regarding (i) any material enforcement action by any
governmental authority relating to health, safety, the environment, or any
hazardous substances with regard to the Borrower's property, activities, or
operations, or (ii) any material claim against the Borrower regarding
hazardous substances.
(h) Statements showing an aging of the Borrower's receivables within
thirty (30) days after the end of each month.
(i) A statement showing an aging of accounts payable within thirty
(30) days after the end of each month.
(j) If the Borrower purchases agricultural products from growers for
use in the Borrower's business, a listing of accounts payable to growers
within 30 days after the end of each month.
(k) An inventory listing, covering cotton seed (including bulk seed)
and plant oil and plant oil-based products (including, but not limited to,
canola, palm, and soybean oils) within thirty (30) days after the end of
each month; the listing must include a description of the inventory, its
location and cost, and such other information as the Bank may require.
(l) Promptly upon the Bank's reasonable request, such other
statements, lists of property and accounts, budgets, forecasts or reports
as to the Borrower and as to each Guarantor of the Borrower's obligations
to the Bank as the Bank may request.
9.3 Limitation on Losses. Not to incur on a consolidated basis a net loss
after taxes and extraordinary items in excess of the following:
(a) In any one fiscal year, the sum of:
(i) Ten Million Dollars ($10,000,000); plus
(ii) the increase, since the beginning of the fiscal year, in the
principal amount outstanding under the Monsanto Sub Debt; plus
(iii) cash received during the fiscal year from the sale of the
Borrower's stock; plus
(iv) the increase, since the beginning of the fiscal year, in the
amount of accrued but unpaid interest on the Subordinated Debt.
(b) From the date of this Agreement through any calculation date up to
and including December 1, 1999, the sum of:
(i) Fifteen Million Dollars ($15,000,000); plus
(ii) the increase, since December 31, 1996, in the principal
amount outstanding under the Monsanto Sub Debt; plus
(iii) cash received, since December 31, 1996, from the sale of
the Borrower's stock; plus
(iv) the increase, since December 31, 1996, in the amount of
accrued but unpaid interest on Subordinated Debt.
9.4 Adjusted Tangible Net Worth. To maintain on a consolidated basis
Adjusted Tangible Net Worth equal to at least Fifty Million Dollars
($50,000,000).
"Adjusted Tangible Net Worth" means Tangible Net Worth, plus Subordinated Debt,
plus Monsanto R&D Advances.
"Monsanto R&D Advances" means the amount of cash research and development
advances made by Monsanto Company to the Borrower and accounted for as deferred
revenue.
"Tangible Net Worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, capitalized or deferred
research and development costs, deferred marketing expenses, deferred
receivables, and other like intangibles, and monies due from affiliates,
officers, directors, employees, or shareholders of the Borrower) plus
Subordinated Debt, less total liabilities, including but not limited to accrued
and deferred income taxes, and any reserves against assets.
9.5 Leverage. To maintain on a consolidated basis a ratio of (a) Total
Liabilities, minus Subordinated Debt, minus Monsanto R&D Advances, to (b)
Adjusted Tangible Net Worth, not exceeding 1.50:1.0.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
9.6 Adjusted Cash Flow. To maintain on a consolidated basis for each fiscal
year Adjusted Cash Flow not less than negative Three Million Dollars
($-3,000,000).
"Adjusted Cash Flow" means the sum of net income from operations and
investments, after taxes, plus the increase in the principal amount outstanding
under the Monsanto Sub Debt, plus depreciation, depletion, amortization and
other non-cash charges, plus accrued but unpaid interest on Subordinated Debt,
minus Unfinanced Acquisitions of Fixed or Capital Assets.
"Unfinanced Acquisitions of Fixed or Capital Assets" means acquisitions of fixed
or capital assets with cash or with the proceeds of revolving lines of credit.
9.7 Other Debts. Not to have outstanding or incur (or permit any Guarantor
to have outstanding or incur) any direct or contingent liabilities or lease
obligations (other than those to the Bank), or become liable for the liabilities
of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities and lines of credit and leases in existence on the
date of this Agreement disclosed in writing to the Bank in the Borrower's
financial statement dated December 31, 1996.
(e) Additional debts and lease obligations for the acquisition of
fixed or capital assets (to the extent permitted in paragraph 9.9 below) in
an amount not exceeding Six Million Dollars ($6,000,000) outstanding at any
one time.
(f) Subordinated Debt acceptable to the Bank in its sole discretion.
(g) Debts and lease obligations, acceptable to the Bank in its sole
discretion, which are assumed by the Borrower or Guarantor in an
acquisition permitted under paragraph 9.21(d) below.
(h) Operating leases.
9.8 Other Liens. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower or any Guarantor now or
later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement.
(d) Additional purchase money security interests in fixed assets or
equipment acquired after the date of this Agreement, if the total principal
amount of debts secured by such liens does not exceed Six Million Dollars
($6,000,000) at any one time.
(e) Additional liens on fixed assets or equipment with a net book
value of no more than Six Million Dollars ($6,000,000) to secure purchase
money financing permitted by the foregoing paragraphs.
(f) Liens arising by operation of law and in the ordinary course of
the Borrower's or Guarantor's business securing amounts the Borrower or
Guarantor owes to growers of agricultural products purchased by the
Borrower or Guarantor for resale, processing, or use in producing the
Borrower's or Guarantor's inventory, provided such obligations are not past
due.
9.9 Monsanto Line of Credit. To continue to maintain the Monsanto Line of
Credit in an amount not less than Fifteen Million Dollars ($15,000,000), with
terms and conditions substantially identical to those in the existing credit
agreement dated March 31, 1996.
9.10 Dividends. Not to declare or pay any dividends on any of its shares
except dividends payable in capital stock of the Borrower, and not to purchase,
redeem or otherwise acquire for value any of its shares, or create any sinking
fund in relation thereto.
9.11 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit claiming damages of over Two Hundred Fifty Thousand
Dollars ($250,000) against the Borrower or any Guarantor.
(b) any substantial dispute between the Borrower (or any Guarantor)
and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any Guarantor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
(e) any change in the Borrower's or any Guarantor's name, legal
structure, or chief executive office.
(f) the receipt of any notice or communication regarding (i) any
threatened or pending investigation or enforcement action by any
governmental authority or any other claim relating to health, safety, the
environment, or any hazardous substances with regard to the Borrower's or
any Guarantor's property, activities, or operations or (ii) any knowledge
on the part of the Borrower that hazardous substances exist on or under the
Borrower's or any Guarantor's real property.
9.12 Books and Records. To maintain, and cause each Guarantor to maintain,
adequate books and records.
9.13 Audits.
(a) To allow the Bank and its agents, upon ten days' notice, to
inspect the Borrower's and each Guarantor's properties (including taking
and removing samples related to any investigation regarding hazardous
substances) and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's or Guarantor's properties, books
or records are in the possession of a third party, the Borrower authorizes
that third party to permit the Bank or its agents to have access to perform
inspections or audits and to respond to the Bank's requests for information
concerning such properties, books and records.
(b) The Bank has no duty to inspect the Borrower's or Guarantor's
properties or to examine, audit or copy books and records and the Bank
shall not incur any obligation or liability by reason of not making any
such inspection or inquiry. In the event that the Bank inspects the
Borrower's or Guarantor's properties or examines, audits or copies books
and records, the Bank will be acting solely for the purposes of protecting
the Bank's security and preserving the Bank's rights under this Agreement.
Neither the Borrower nor any other party is entitled to rely on any
inspection or other inquiry by the Bank. The Bank owes no duty of care to
protect the Borrower, the Guarantor or any other party against, or to
inform the Borrower, the Guarantor or any other party of, any adverse
condition that may be observed as affecting the Borrower's or Guarantor's
properties or premises, or the Borrower's or Guarantor's business.
(c) The Bank shall hold all nonpublic information concerning the
Borrower obtained from the Borrower through such audits and inspections,
including information obtained through the Bank's agents, confidential
pursuant to the Bank's normal practices and procedures for handling
confidential information of such nature, provided that the Bank shall not
be precluded from making disclosure regarding such information: (i) to
counsel of the Bank, accountants and other professional advisors of the
Bank; (ii) in response to a subpoena or order of a court or governmental
agency; (iii) at the request of any bank regulatory authority or in
connection with an examination of the Bank by such authority; (iv) as
required by law or applicable regulation; or (v) to the extent required in
connection with the exercise of any remedy hereunder. Notwithstanding the
foregoing, the Bank may in its discretion disclose to the Borrower, the
Guarantor or any other party any findings relating to hazardous substances
(as defined in paragraph 10 below) made as a result of, or in connection
with, any inspection of the Borrower's or Guarantor's properties.
9.14 Compliance with Laws. To comply (and cause each Guarantor to comply)
with the laws (including any fictitious name statute), regulations, and orders
of any government body with authority over the Borrower's or the Guarantor's
business.
9.15 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower and each Guarantor now has.
9.16 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's and each Guarantor's properties in good
working condition.
9.17 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related reasonable costs it incurs to
protect its security interests and liens.
9.18 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.
9.19 Insurance.
(a) Insurance Covering Collateral. To maintain all risk property
damage insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be for the full replacement cost of
the collateral and include a replacement cost endorsement, and may have a
deductible of up to $25,000. The insurance must be issued by an insurance
company acceptable to the Bank and must include a lender's loss payable
endorsement in favor of the Bank in a form acceptable to the Bank.
(b) General Business Insurance. To maintain insurance satisfactory to
the Bank as to amount, nature and carrier covering property damage
(including loss of use and occupancy) to any of the Borrower's or
Guarantor's properties, public liability insurance including coverage for
contractual liability, product liability and workers' compensation, and any
other insurance which is usual for the Borrower's or Guarantor's business.
(c) Evidence of Insurance. Upon the request of the Bank, to deliver to
the Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.20 Additional Negative Covenants. Not to, without the Bank's written
consent (and not permit any Guarantor to):
(a) engage in any business activities substantially different from the
Borrower's or Guarantor's present business.
(b) liquidate or dissolve the Borrower's or Guarantor's business.
(c) enter into any consolidation, merger, or other combination.
(d) sell, assign, lease, transfer or otherwise dispose of all or a
substantial part of the Borrower's or Guarantor's business or the
Borrower's or Guarantor's assets.
(e) sell, assign, lease, transfer or otherwise dispose of any material
assets, or enter into any agreement to do so, except as follows: (i) with
respect to accounts receivable, for a consideration at least equal to the
balance outstanding thereunder; (ii) with respect to inventory, for a
consideration at least equal to the Borrower's or Guarantor's cost thereof;
(iii) with respect to fixed assets or equipment, sales or dispositions in
the ordinary course of business, including dispositions of used, worn-out
or surplus equipment; and (iv) the sale of equipment to the extent that
such equipment is exchanged for credit against the purchase price of
similar replacement equipment, or the proceeds of such sale are reasonably
promptly applied to the purchase price of such replacement equipment.
(f) enter into any sale and leaseback agreement covering any of its
fixed or capital assets, except to the extent permitted by paragraphs 9.7
and 9.8 above.
(g) voluntarily suspend its business for more than one day (except for
weekends and state or federal holidays).
9.21 ERISA Plans. With respect to a Plan subject to Title IV of ERISA, to
give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(c) of
ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower or any ERISA Affiliate to terminate or
withdraw from a Plan or the filing of any notice of intent to terminate
under Section 4041 of ERISA.
(c) The commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.
9.22 Compliance with Environmental Requirements. With regard to the
Borrower's and each Guarantor's property, activities, or operations, to comply
with the recommendations of any qualified environmental engineer or orders or
directions issued by any governmental authority relating to health, safety, the
environment, or any hazardous substances including those orders or directives
requiring the investigation, clean-up, or removal of hazardous substances.
9.23 Loans and Investments. Not to (and not permit any Guarantor to) make
any loans or other extensions of credit to, or make any investments in, or make
any capital contributions or other transfers of assets to, any individual or
entity, or acquire or purchase a business or its assets, or become a partner in
any partnership or member of any joint venture (collectively, "Investments"),
except for:
(a) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business.
(b) investments in any of the following:
(i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the federal
government;
(iii) other investments in accordance with the Borrower's
investment policy previously provided to the Bank;
(c) intercompany loans among the Borrower and the Guarantors;
(d) Investments not covered by (a) through (c) above, for an aggregate
consideration (including assumption of liabilities) not exceeding the
following:
(i) Five Million Dollars ($5,000,000) in 1997; and
(ii) Ten Million Dollars ($10,000,000) from the date of this
Agreement through December 1, 1999.
10. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to reasonable attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys and assigns. "Hazardous substances" means any
substance, material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrower's obligations to the Bank.
11. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then, the
entire debt outstanding under this Agreement will automatically be due
immediately.
11.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement within 5 days after the date when due.
11.2 Lien Priority. The Bank fails to have an enforceable first lien
(except for liens on equipment and except for any prior liens to which the Bank
has consented in writing) on or security interest in any property given as
security for this loan. If, in the Bank's reasonable opinion, the breach is
capable of being remedied, the breach will not be considered an event of default
under this Agreement for a period of five (5) days after the date on which the
Bank gives written notice of the breach to the Borrower; provided, however, that
the Bank will not be obligated to extend any additional credit to the Borrower
during that period.
11.3 False Information. The Borrower (or any Guarantor) has given the Bank
materially false or misleading information or representations.
11.4 Bankruptcy. The Borrower (or any Guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any Guarantor)
or the Borrower (or any Guarantor) makes a general assignment for the benefit of
creditors.
11.5 Receivers. A receiver or similar official is appointed for the
Borrower's (or any Guarantor's) business, or the business is terminated.
11.6 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower in an aggregate amount of Four Million
Dollars ($4,000,000) or more in excess of any insurance coverage, and the
lawsuit(s) are not dismissed within thirty (30) days of the date of filing.
11.7 Judgments. Any judgments or arbitration awards are entered against the
Borrower (or any Guarantor), or the Borrower (or any Guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Four Million Dollars ($4,000,000) or more in excess of any
insurance coverage.
11.8 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any Guarantor's)
financial condition or ability to repay.
11.9 Material Adverse Change. A material adverse change occurs in the
Borrower's (or any Guarantor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
11.10 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower, any Guarantor, or any of the Borrower's related
entities or affiliates (except Monsanto Company) has obtained from anyone else
or which the Borrower, any Guarantor, or any of the Borrower's related entities
or affiliates has guaranteed in the amount of Two Hundred Fifty Thousand Dollars
($250,000) or more in the aggregate, if (a) any applicable cure period in the
relevant credit agreement has expired, and (b) the default either consists of
failing to make a payment when due or gives the other lender the right to
accelerate the obligation.
11.11 Default under Related Documents. Any guaranty, subordination
agreement, security agreement, or other document in favor of the Bank required
by this Agreement is defaulted or no longer in effect. If, in the Bank's
reasonable opinion, the breach is capable of being remedied, the breach will not
be considered an event of default under this Agreement for a period of thirty
(30) days after the date on which the Bank gives written notice of the breach to
the Borrower; provided, however, that the Bank will not be obligated to extend
any additional credit to the Borrower during that period.
11.12 Other Bank Agreements. The Borrower, any Guarantor, or any of the
Borrower's related entities or affiliates (except Monsanto Company) materially
fails to meet the conditions of, or fails to perform any material obligation
under any other agreement such company has with the Bank or any affiliate of the
Bank. If, in the Bank's reasonable opinion, the breach is capable of being
remedied, the breach will not be considered an event of default under this
Agreement for a period of thirty (30) days after the date on which the Bank
gives written notice of the breach to the Borrower; provided, however, that the
Bank will not be obligated to extend any additional credit to the Borrower
during that period.
11.13 ERISA Plans. The occurrence of any one or more of the following
events with respect to a Plan subject to Title IV of ERISA, provided such event
or events could reasonably be expected, in the judgment of the Bank, to subject
the Borrower to any tax, penalty or liability (or any combination of the
foregoing) which, in the aggregate, could have a material adverse effect on the
financial condition of the Borrower:
(a) A reportable event shall occur under Section 4043(c) of ERISA with
respect to a Plan.
(b) Any Plan termination (or commencement of proceedings to terminate
a Plan) or the full or partial withdrawal from a Plan by the Borrower or
any ERISA Affiliate.
11.14 Change of Ownership. Monsanto Company ceases to own a majority of the
capital stock of the Borrower.
11.15 Monsanto Agreements. Any term or condition of the Monsanto Sub Debt
or any credit agreement or technology licensing agreement between the Borrower
and Monsanto Company is modified, amended or waived, or any such agreement is
terminated, if such action would have a material adverse effect on the financial
condition or prospects of the Borrower or the Borrower's ability to repay the
credit.
11.16 Financial Covenants. The Borrower breaches the terms of paragraph
9.3, 9.4, 9.5 or 9.6; whether such failure is evidenced by financial statements
delivered to the Bank or is otherwise known to the Borrower or the Bank. If
there is credit available to the Borrower under the Monsanto Sub Debt line of
credit in an amount sufficient to cure such breach, there shall be no event of
default if the Borrower cures the breach by obtaining an advance under such line
of credit within five (5) business days after the date on which the breach of
the covenant is first known; provided, however, that such advance must be used
by the Borrower to reduce any amounts outstanding under this Agreement.
11.17 Other Breach Under Agreement. The Borrower materially fails to meet
the conditions of, or fails to perform any material obligation under, any term
of this Agreement not specifically referred to in this Article. If, in the
Bank's reasonable opinion, the breach is capable of being remedied, the breach
will not be considered an event of default under this Agreement for a period of
thirty (30) days after the date on which the Bank gives written notice of the
breach to the Borrower; provided, however, that the Bank will not be obligated
to extend any additional credit to the Borrower during that period.
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
12.2 California Law. This Agreement is governed by California law.
12.3 Successors and Assigns. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
12.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, including but not limited to
those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies
or claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply even
though this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any
such claim or controversy is barred by the statute of limitations and, if
so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises from
or relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a
panel of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are selected
in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil Procedure
Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be
an active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or
the panel) will be entered as a judgment in the court that appointed
the referee, in accordance with the provisions of California Code of
Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional
or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to the
Bank which is secured by real property located in California at the
time of the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both the
Borrower and the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing
this Agreement, the Bank has the option to exercise the power of sale
under the deed of trust or mortgage, or to proceed by judicial
foreclosure.
12.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
12.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
12.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. In
the event that any case is commenced by or against the Borrower under the
Bankruptcy Code (Title 11, United States Code) or any similar or successor
statute, the Bank is entitled to recover costs and reasonable attorneys' fees
incurred by the Bank related to the preservation, protection, or enforcement of
any rights of the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel.
12.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
12.9 Disposition of Schedules, Reports, Etc. Delivered by Borrower. The
Bank will not be obligated to return any schedules, invoices, statements,
budgets, forecasts, reports or other papers delivered by the Borrower. The Bank
will destroy or otherwise dispose of such materials at such time as the Bank, in
its discretion, deems appropriate.
12.10 Returned Merchandise. Until the Bank exercises its rights to collect
the accounts receivable as provided under any security agreement required under
this Agreement, the Borrower may continue its present policies for returned
merchandise and adjustments. Credit adjustments with respect to returned
merchandise shall be made immediately upon receipt of the merchandise by the
Borrower or upon such other disposition of the merchandise by the debtor in
accordance with the Borrower's instructions. If a credit adjustment is made with
respect to any Acceptable Receivable, the amount of such adjustment shall no
longer be included in the amount of such Acceptable Receivable in computing the
Borrowing Base.
12.11 Verification of Receivables. The Bank may at any time, either orally
or in writing, request confirmation from any debtor of the current amount and
status of the accounts receivable upon which such debtor is obligated.
12.12 Waiver of Confidentiality. The Borrower authorizes the Bank to
discuss the Borrower's financial affairs and business operations with any
accountants, auditors, business consultants, or other professional advisors
employed by the Borrower, and to request from such parties such financial and
business information or reports (including management letters) concerning the
Borrower as the Bank deems appropriate.
12.13 Indemnification. The Borrower will indemnify and hold the Bank
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of (a) this Agreement or any
document required hereunder, (b) any credit extended or committed by the Bank to
the Borrower hereunder, (c) any claim, whether well-founded or otherwise, that
there has been a failure to comply with any law regulating the Borrower's sales
or leases to or performance of services for debtors obligated upon the
Borrower's accounts receivable and disclosures in connection therewith, and (d)
any litigation or proceeding related to or arising out of this Agreement, any
such document, any such credit, or any such claim. This indemnity includes but
is not limited to attorneys' fees (including the allocated cost of in-house
counsel). This indemnity extends to the Bank, its parent, subsidiaries and all
of their directors, officers, employees, agents, successors, attorneys, and
assigns. This indemnity will survive repayment of the Borrower's obligations to
the Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower, due and payable immediately without demand. This indemnity shall not
apply to any liability, loss or costs which arise from the Bank's gross
negligence or willful misconduct.
12.14 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing.
12.15 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
12.16 Counterparts. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL CALGENE, INC.
TRUST AND SAVINGS ASSOCIATION
By /s/ Robert L. Munn, Jr. By /s/ Christian Leleu
Typed Name Robert L. Munn, Jr. Typed Name Christian Leleu
Title V.P. Title Chief Financial Officer
By By /s/ Lloyd M. Kunimoto
Typed Name Typed Name Lloyd M. Kunimoto
Title Title President
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
555 Capital Mall, Suite 150 1920 Fifth Street
Sacramento, CA 95814 Davis, CA 95616
CALGENE, INC.
(formerly Calgene II, Inc.)
AND
MONSANTO COMPANY
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 Effect of this Agreement .............................. 2
1.1 Effect of this Agreement ........................................ 2
ARTICLE 2 Compliance with Securities Act ........................ 2
2.1 Certain Definitions ............................................. 2
2.2 Requested Registration .......................................... 8
2.3 Company Registration ............................................ 11
2.4 Expenses of Registration ........................................ 12
2.5 Registration Procedures ......................................... 13
2.6 Indemnification ................................................. 14
2.7 Information by Holder ........................................... 16
2.8 Rule 144 Reporting .............................................. 17
2.9 Transfer of Registration Rights ................................. 17
2.10 Limitations on Subsequent Registration Rights .............. 18
2.11 Termination of Registration Rights ......................... 18
2.12 "Market Stand-off" Agreement ............................... 18
ARTICLE 3 Anti-Dilution Rights and Limitations on Owner ......... 18
3.1 Anti-Dilution Rights ............................................ 18
3.2 Private Offering ................................................ 19
3.3 Public Offering ................................................. 19
3.4 Limitations ..................................................... 20
3.5 Open Market Purchases to Maintain Ownership Percentage .......... 20
3.6 Limitations on Holder's Ownership ............................... 20
3.7 Limitations on Holder's Resale of Company Securities ............ 21
ARTICLE 4 Company and Calgene Corporate Governance .............. 22
4.1 Composition of the Board of Directors and Calgene Board ......... 22
4.2 Solicitation and Voting of Shares ............................... 25
4.3 Committees ...................................................... 26
4.4 Approval Required for Certain Actions ........................... 28
4.5 Enforcement of this Agreement ................................... 31
4.6 Certificate of Incorporation and By-laws ........................ 31
4.7 Advisors ........................................................ 31
4.8 Injunctive Relief ............................................... 31
ARTICLE 5 Governance of Gargiulo ................................ 32
<PAGE>
ARTICLE 6 Miscellaneous ......................................... 32
6.1 Governing Law ................................................... 32
6.2 Successors and Assigns .......................................... 32
6.3 Entire Agreement; Amendment ..................................... 32
6.4 Notices ......................................................... 32
6.5 Delays or Omissions ............................................. 33
6.6 Counterparts .................................................... 33
6.7 Severability .................................................... 33
6.8 Stock Legends ................................................... 34
6.9 [This section intentionally left blank.] ........................ 34
6.10 Audits, Consultants and Inspections ........................ 34
6.11 No Third Party Beneficiaries ............................... 35
6.12 Sections and Articles ...................................... 35
6.13 Headings ................................................... 35
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AGREEMENT made as of the 12th 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 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 premises and the mutual covenants
and conditions herein contained, the Company and Monsanto hereby agree as
follows:
<PAGE>
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):
"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.
<PAGE>
"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 12, 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.
"Gargiulo" means Gargiulo, Inc. formerly known as Tomato Investment
Associates, Inc.
<PAGE>
"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
<PAGE>
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 in 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.
"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.
<PAGE>
"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.
<PAGE>
"Requesting Holder" means a Holder requesting any registration
pursuant to Section 2.2 hereof.
"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).
<PAGE>
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.
(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
<PAGE>
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
<PAGE>
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 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.
<PAGE>
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
<PAGE>
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 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.
<PAGE>
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
<PAGE>
(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
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,
<PAGE>
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 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
<PAGE>
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
<PAGE>
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
(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.
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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:
(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:
<PAGE>
(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 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
<PAGE>
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:
(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
<PAGE>
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
<PAGE>
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 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.
<PAGE>
(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
<PAGE>
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.
(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;
<PAGE>
(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
<PAGE>
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) 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
<PAGE>
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;
<PAGE>
(xi) any modification of the Transaction Agreements;
(xii)any amendment of the By-laws or Certificate of
Incorporation of the Company, 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 Company 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 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:
<PAGE>
(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.
<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
<PAGE>
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 95616
Attention: Chairman and Chief Executive
Officer
Telecopy 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.
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 12, 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.
<PAGE>
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.
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.
<PAGE>
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: /s/ Lloyd M. Kunimoto
Lloyd M. Kunimoto
President
MONSANTO COMPANY
By: /s/ Hendrik A. Verfaillie
Hendrik A. Verfaillie
Executive Vice President
<PAGE>
dansz/borden/103884.212/amstkag5.wpf
