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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-12177
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DNAP HOLDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 75-2632242
(State of incorporation) (I.R.S. Employer Identification
No.)
6701 SAN PABLO AVENUE
OAKLAND, CALIFORNIA 94608
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 547-2395
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 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. Yes /X/ No / /
Aggregate market value of Common Stock held by nonaffiliates as of March 9,
1999: $19,260,034
Number of shares of Common Stock outstanding as of March 9, 1999: 23,588,031
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's
definitive proxy statement to be filed for its 1999 annual meeting of
stockholders.
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TABLE OF CONTENTS
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PART I.................................................................................................... 3
ITEM 1. BUSINESS........................................................................................ 3
Overview.............................................................................................. 3
Background............................................................................................ 3
Production............................................................................................ 4
Marketing and Distribution............................................................................ 5
Research and Development.............................................................................. 5
Technology Alliances and Acquisitions................................................................. 6
Fresh Produce Proprietary Product Development......................................................... 7
Proprietary Protection................................................................................ 7
Governmental Regulation............................................................................... 8
Competition........................................................................................... 9
Employees............................................................................................. 10
Controlling Stockholder; Conflicts of Interest........................................................ 10
ITEM 2. PROPERTIES...................................................................................... 10
ITEM 3. LEGAL PROCEEDINGS............................................................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 14
EXECUTIVE OFFICERS OF THE COMPANY....................................................................... 14
PART II................................................................................................... 15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................... 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................................................ 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 17
Overview.............................................................................................. 17
Results of Operations................................................................................. 17
Capital Expenditures.................................................................................. 20
Liquidity and Capital Resources....................................................................... 20
Year 2000 Update...................................................................................... 21
New Accounting Pronouncements......................................................................... 22
Disclosure Regarding Forward Looking Statements....................................................... 22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................... 28
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 60
PART III.................................................................................................. 60
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................................................ 60
ITEM 11. EXECUTIVE COMPENSATION......................................................................... 60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................. 60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS........................................... 60
PART IV................................................................................................... 60
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................ 60
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FRESHWORLD FARMS-REGISTERED TRADEMARK-, ENDLESS
SUMMER-REGISTERED TRADEMARK-, AND TRANSWITCH-REGISTERED TRADEMARK- ARE
REGISTERED TRADEMARKS OF DNAP OR ITS SUBSIDIARIES. MASTER'S
TOUCH-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF CERTAIN SUBSIDIARIES OF
DNAP HOLDING. PREMIER SELECCION-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK
THAT HAS BEEN LICENSED TO CERTAIN SUBSIDIARIES BY AN AFFILIATE.
PETOSEED-REGISTERED TRADEMARK-, ASGROW-REGISTERED TRADEMARK-, AND ROYAL
SLUIS-REGISTERED TRADEMARK- ARE REGISTERED TRADEMARKS OF SEMINIS VEGETABLE
SEEDS, INC.
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PART I
ITEM 1. BUSINESS
OVERVIEW
DNAP Holding Corporation, a Delaware corporation (together with its
subsidiaries, unless the context requires otherwise, "DNAP Holding" or the
"Company"), was formed in January 1996, and acts as a holding company for (i)
Agricola Batiz, S.A. de C.V., a corporation organized under the laws of the
United Mexican States, of which the Company owns 80.0% ("ABSA"), (ii)
International Produce Holding Company, a Delaware corporation, of which the
Company owns 100.0% ("IPHC"), (iii) DNA Plant Technology Corporation, a Delaware
corporation, of which the Company owns 100.0% ("DNAP"), and (iv) VPP
Corporation, a Delaware corporation, of which the Company owns 100.0% ("VPP").
The Company acquired majority interests in ABSA and IPHC on July 1, 1996, by
means of a capital contribution from Bionova S.A. de C.V. ("Bionova Mexico"),
and on October 7, 1997, acquired all of the minority interests in IPHC and
increased its ownership interest in ABSA to 80.0%. DNAP became a wholly-owned
subsidiary of the Company on September 26, 1996, as a result of the merger (the
"Merger") of Bionova Acquisition, Inc., a Delaware corporation that was a
wholly-owned subsidiary of the Company, with and into DNAP. VPP was formed as a
wholly-owned subsidiary of the Company on August 18, 1997. Approximately 76.6%
of the outstanding common stock of the Company is indirectly owned by Savia,
S.A. de C.V., formerly known as Empresas La Moderna, S.A. de C.V. ("Savia").
ABSA engages in the business of growing fresh fruits and vegetables,
primarily tomatoes and peppers, in Mexico and exporting fresh produce to the
United States and other markets. ABSA owns a 50.01% interest in Interfruver de
Mexico, S.A. de C.V., a corporation organized under the laws of the United
Mexican States ("Interfruver"), which engages in the business of marketing and
distributing fresh produce in Mexico, including fruits and vegetables produced
by ABSA. ABSA also owns 98.0% of Siembra Cultivo y Cosecha del Noroeste, S.A. de
C.V., a corporation organized under the laws of the United Mexican States
("Siembra"), which provides labor and administrative services to ABSA. IPHC is a
holding company whose subsidiaries are in the business of marketing and
distributing fresh produce primarily in the United States and Canada, including
fruits and vegetables produced by ABSA. DNAP is an agribusiness biotechnology
company focused on the development and application of genetic engineering and
transformation technologies in plants and, together with its subsidiaries
(including FreshWorld Farms, Inc.), the development and marketing of premium,
differentiated, fresh and processed, branded fruits and vegetables. VPP, the
Company's most recently formed subsidiary, is an agribusiness biotechnology
company focused on the development and application of genetic engineering and
transformation technologies in vegetatively propagated plants.
Financial information relating to each of the Company's industry segments is
set forth in Note 15 to the Company's financial statements contained in this
report. Financial information relating to foreign and domestic operations and
export sales is set forth in Note 15 to the Company's financial statements.
The corporate headquarters of the Company are located at 6701 San Pablo
Avenue, Oakland, California 94608, and the telephone number is (510) 547-2395.
BACKGROUND
Savia, the Company's indirect 76.6% owner, is a holding company. Savia owns
88% of Seminis, Inc. ("Seminis"), the leading vegetable seed company in the
world. Savia's subsidiary, Empaques Ponderosa, S.A. de C.V., is the leading
producer of folding boxboard and folding and flexible packaging in Mexico. Savia
recently acquired a majority interest in Seguros Comercial America, S.A. de
C.V., the largest insurance company in Mexico.
Through its Bionova Mexico subsidiary, Savia entered the fresh produce
industry in 1993 by agreeing to a series of business relationships with Raul
Batiz Echavarria and members of his family (the "Batiz
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Family"). In February 1993, Bionova Mexico and the Batiz Family established
ABSA, to which the Batiz Family transferred land and other assets used for
growing and packing fresh produce. Bionova Mexico and the Batiz Family then
negotiated the structure of their joint ownership of the Batiz Family's fresh
produce distribution business. In December 1994, this relationship was
formalized with the organization of IPHC. In 1997, DNAP Holding purchased all of
the minority interests held by the Batiz family in IPHC, and together with
Bionova Mexico, acquired the Batiz family interests in ABSA.
Significant market developments over the past five years have included the
continuation of market deregulation in Mexico, the passage of the North American
Free Trade Agreement which codifies low tariff levels for certain goods traded
among Mexico, the United States and Canada, the Suspension Agreement adopted in
1996 and revised in August, 1998 that sets a floor price on tomatoes entering
the United States at $5.17 per box (20.68 cents per pound) for the months of
November through June and $4.61 per box for the months of July through October,
a growing market for fresh produce in the United States, and beginning in 1999
the ability for Mexican trucks to travel through the United States to their
final destinations. The Company believes that the deregulation in Mexico, the
North American Free Trade Agreement, the Suspension Agreement, and the freedom
for Mexican trucks to travel in the United States all have been, or will be of
benefit to the Company's strategic direction and operations. The Company further
believes there is potential for growth in the U.S. market both for commodity
fresh produce and for branded produce that can command a premium price on a
sustained basis, provided it consistently meets consumer expectations for taste,
appearance, texture, freshness and quality. Product and regional diversification
have enabled the Company to establish a strong commercial offering of quality
year-round supply under the "Master's Touch" and "Premier Seleccion" trademarks.
PRODUCTION
ABSA is a leading grower of fresh produce in Mexico, primarily tomatoes and
peppers, and, to a lesser extent, melons, cucumbers, grapes and other fruits and
vegetables. Most of ABSA's farming operations are located in the Mexican states
of Sinaloa, Sonora and Baja California. Advanced technology is used to ensure
consistent quality and yields, including special hybrid varieties, integrated
pest management control, and computerized drip irrigation. ABSA's produce is
distributed in the United States, Mexico and Canada under the "Master's Touch"
and "Premier Seleccion" brands as well as other labels, depending on produce
grades.
ABSA's supply derives from (i) produce grown on land owned or leased by
ABSA, (ii) produce grown by producers with whom ABSA enters into a distribution
contract and (iii) produce grown by producers with whom ABSA enters into both a
production association agreement and a distribution contract. When ABSA enters
into a distribution contract only, it agrees to provide the grower limited
financial assistance for harvesting and packing in exchange for exclusive
distribution rights. ABSA does not share any of the growing risk under these
distribution contracts. When ABSA enters into a production association
agreement, ABSA finances up to 100% of the production cost in a joint venture
with the grower. ABSA provides technical support and agrees to handle the
distribution. Net proceeds are shared according to the terms of the association
agreement after ABSA recoups its investment.
In 1998, approximately 51% of ABSA's supply was sourced from production
associations with growers. The majority of these growers are located in the
states of Baja California Norte and Sonora. Almost 49% of ABSA's supply in 1998
came from land owned or leased by ABSA. ABSA owns approximately 3,041 acres in
Sinaloa and Sonora, and ABSA leases approximately 2,595 acres in Sinaloa and
Baja California Sur. During 1998, a very limited amount of produce was sourced
through distribution contracts.
In 1998, approximately 54% of ABSA's sales was tomatoes, 30% was peppers, 6%
was cucumbers, 5% was grapes and the remaining 5% was melons and mixed
vegetables. In 1997 and 1996, respectively, ABSA's sales were allocated
approximately as follows: tomatoes--47% and 49%, peppers--32% and 26%,
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cucumbers--11% and 15%, and grapes, melons and mixed vegetables (including
eggplant and squash)-- 10% and 10%.
MARKETING AND DISTRIBUTION
The Company's marketing and distribution activities are carried out by a
network of national and regional distributors. The Company's national
distributors are R.B. Packing in the United States (including R.B. Packing,
Inc., R.B. Packing of California, Inc. and R.B. Packing of Texas, Inc., each of
which is a wholly-owned subsidiary of IPHC, and referred to collectively as
"R.B. Packing"), and Interfruver in Mexico. The Company's regional distributors
are Tanimura Distributing, Inc. in Los Angeles, California ("TDI"), Premier
Fruits and Vegetables BBL Inc. in Montreal, Quebec ("Premier"), and FreshWorld
Farms, Inc. in Eddystone, Pennsylvania ("FWF").
NATIONAL DISTRIBUTORS. R.B. Packing had revenues of $71 million in 1998.
The majority of R.B. Packing's sales were made by R.B. Packing, Inc. which is
located in Nogales, Arizona, a major point of entry for Mexican produce into the
United States. Approximately 79% of the produce distributed by R.B. Packing,
Inc. is provided by ABSA (including produce grown by ABSA and produce grown by
growers with whom ABSA enters into distribution contracts and/or production
arrangements). No single customer accounted for more than 10% of R.B. Packing,
Inc.'s sales in 1998. In 1998, its sales were 36% to supermarkets, 39% to
wholesalers and 25% to brokers. Its main selling season is December through May.
R.B. Packing of California, Inc. is located in San Diego, California and
distributes produce grown in California and the Mexican states of Baja
California Norte and Baja California Sur. In 1998, its sales were 29% to
supermarkets, 38% to wholesalers, and 33% to brokers. Its main selling season is
July through November. R.B. Packing of Texas, Inc. is a distributor located in
McAllen, Texas that began operations in the Fall of 1995. R.B. Packing of Texas,
Inc. distributes produce grown in Mexico and currently is concentrating on the
importation and distribution of mango, papaya, and melons.
Interfruver is one of Mexico's largest fresh produce distributors. Based in
Guadalajara, Interfruver distributes produce from ABSA and other Mexican
producers. Interfruver also imports produce from the United States and other
countries. Approximately 77% of its sales is to wholesalers and other
intermediaries and 23% is to supermarkets. Interfruver's sales totaled $88
million in 1998.
REGIONAL DISTRIBUTORS. TDI is a 75%-owned subsidiary of IPHC. In 1998,
TDI's sales of $39 million were 61% to supermarkets, 12% to food service and 27%
to other wholesalers.
Premier is an 80%-owned subsidiary of IPHC. Premier distributes produce
throughout eastern Canada and its sales were approximately 53% to supermarkets,
29% to independent retailers, and 18% to wholesalers in 1998. Sales in 1998 were
approximately U.S. $30 million.
FWF, a wholly-owned subsidiary of DNAP, sources tomatoes and vegetables,
including its branded line of cherry tomatoes and peppers, from various growers
in the eastern United States. FWF also markets orange and yellow mini-peppers.
Its 1998 revenues were $22 million.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are carried out by DNAP, a
wholly owned subsidiary acquired in September 1996 as a result of the Merger.
DNAP was incorporated in Delaware in 1981 and is an agribusiness biotechnology
company focused on the development and application of genetic engineering in
fruits and vegetables. Since the Merger the Company's research and development
activities have undergone significant realignment that reflects the investment
being made in new business initiatives. In 1998, the Company spent approximately
$2.7 million on Company-sponsored research and development
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activities and approximately $3.1 million on customer-sponsored research and
development activities. DNAP's major research activities are as follows:
- Under a Long Term Funded Research Agreement between Seminis and DNAP,
dated January 1, 1997, DNAP is conducting a series of research programs in
support of product development at Seminis. The research program for
Seminis includes plant genetic engineering developments in fungal disease,
viral disease, nematode, and herbicide resistance. DNAP will receive
royalties on sales of products by Seminis which are developed under the
agreement using DNAP technology.
- The Company is implementing a proprietary business based on biotechnology
developments in certain vegetatively propagated crops. Through its new
subsidiary, VPP, the objective is to build a global, value added and
proprietary business based on the sale of starting plants of vegetatively
propagated, commercial horticultural species differentiated through
biotechnology inputs, including genetic engineering, advanced tissue
culture and diagnostic methods. The initial business focus is on
strawberries. Research and product development being conducted for VPP
includes the development of fungal disease and nematode resistance.
- DNAP maintains research and development activities in support of the
Company's fresh produce business. Research includes the development of
fruits and vegetables which retain freshness longer through genetic
engineering focused on ripening or softening control. DNAP scientists are
also working on the retention of freshness and color in cut leafy
vegetables.
- DNAP continues to pursue research contracts with third party companies,
particularly when the knowledge gained from these activities will create
opportunities in internal strategic research and development programs.
DNAPs research and development facility is located in Oakland, California.
The research team of 47 full-time scientists, including 23 with Ph.D. degrees,
and support staff includes scientists in the fields of cell biology, plant
genetic engineering, plant genetics, biochemistry, agronomy, plant pathology and
food science. DNAP's scientists have published over 300 articles in
peer-reviewed scientific literature and are named inventors on more than fifty
United States patents owned by DNAP or FWF.
TECHNOLOGY ALLIANCES AND ACQUISITIONS
To meet the technical challenges of new product development in these areas,
DNAP has benefited from certain collaborative and licensing arrangements, both
at the DNAP and the Savia level. A collaborative agreement between Savia and
Monsanto Company provides the Company with access to enabling technology
important in the genetic transformation of plants and "trait" technology in the
areas of viral and fungal disease resistance, herbicide resistance and insect
resistance. The acquisition of the technology assets of United Agricorp, Inc.
("UAC") has provided VPP with rights to improve University of California
strawberry germplasm and trait technology involved in sweetness and texture
enhancement of fruits. An agreement with the John Innes Center in the United
Kingdom provides DNAP with broad testing rights to a range of trait
technologies, including disease resistance and flowering manipulation, and a
range of enabling technologies. The Company has entered into licensing
agreements with other research institutes, companies and universities to broaden
its technical strength in the areas of nematode resistance, viral disease in
grape and certain aspects of fruit quality.
Consistent with the Company's strategy to build a global business in the
development and sale of vegetatively propagated fruit species, including berries
differentiated through transgenic technology, on December 30, 1998, DNAP
Holding, through its subsidiary, VPP, acquired Monsanto Company's strawberry
development program. The program includes exclusive rights to most of Monsanto's
genetic and gene technology for berry development, and a non-exclusive right to
future Monsanto berry technology, including strawberries, cranberries,
raspberries, blackberries, boysenberries, and blueberries. The package includes
a breeding program with a strawberry variety expected to be commercially
available in the United
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States in 1999 as well as multiple strawberry varieties planned for commercial
introduction over the next few years.
FRESH PRODUCE PROPRIETARY PRODUCT DEVELOPMENT
The Companys strategy in the fresh produce area is to focus its research and
development efforts on products which meet identified consumer needs not
satisfied by existing products. The Company will seek to deliver consistently
superior products, thereby building brand name awareness, and which are expected
to sell at premium prices.
The Company is currently marketing two products it developed through
advanced biotechnological techniques to distributors, supermarkets and food
service outlets. These two products are marketed under the FreshWorld Farms and
Master's Touch brand names. The Masters Touch and FreshWorld Farms cherry tomato
is a proprietary hybrid with a deep red color, sweet flavor and an extended
shelf life of up to fifteen days. The FreshWorld Farms sweet mini-pepper has a
novel sweet taste, deep red color and a low number of seeds. This new variety of
pepper was developed through anther culture, an advanced breeding technique that
captures and genetically stabilizes preferred characteristics such as taste,
texture and low seed count. The Company is testing in supermarkets a number of
varieties of its proprietary peppers of various shapes and colors in the United
States.
DNAP's scientists are using genetic engineering to enhance the Company's
existing product line and develop new products. Plant genetic engineering
involves either the suppression of specific genes, for example those that
control ripening, or the over-expression of certain genes controlling
characteristics such as sweetness. One of DNAP's most significant technological
developments in this area is its Transwitch gene suppression technology. Using
Transwitch technology, DNAP has grown tomatoes with a shelf life of up to 90
days in the laboratory, while preserving desirable characteristics such as
taste, color and texture. DNAP has received approval from the U.S. Department of
Agriculture (the "USDA") and the Food and Drug Administration (the "FDA") to
grow and ship initial varieties of its second generation tomatoes anywhere in
the United States. DNAP has also received the requisite government approvals in
Canada and Mexico. In the first half of 1995, DNAP conducted a test market of
delayed ripening tomatoes developed by using the Transwitch gene suppression
technology to switch off the ACC synthase gene. These tomatoes were sold under
the Endless Summer tomato brand name and labeled as "farm grown from
genetically-modified seed." The market test demonstrated that there was consumer
acceptance of these genetically-modified fresh market tomatoes and validated the
use of this technology for extending tomato shelf life both on the vine and
after harvest. In 1997, DNAP completed an operations test to evaluate shipping
characteristics of the Endless Summer tomato. This test validated the long shelf
life and reduced spoilage of these tomatoes under commercial shipping and
handling conditions. DNAP is currently expanding production of the Endless
Summer tomato while continuing to collect data on the performance of the tomato.
Transwitch technology has also been used to turn off ethylene biosynthesis and
extend shelf life to 8 to 9 weeks in DNAP's cherry tomato varieties.
The texture of DNAP's mini-pepper is being further enhanced through the use
of Transwitch technology to inhibit the gene responsible for hemicellulase.
Hemicellulase causes the breakdown of the cell walls in peppers, a process which
triggers softening when peppers reach their maximum sweetness. The hemicellulase
trait is being evaluated in a wide range of pepper varieties.
PROPRIETARY PROTECTION
In order to develop and maintain its competitive position, DNAP seeks to
protect its intellectual property through patent filings in the United States
and abroad, maintenance of trade secrets and ongoing technological innovation.
DNAP and FWF have over fifty issued patents in the United States.
DNAP has obtained United States patent protection for key plant genetic
engineering technologies in the areas of gene isolation through transposon
tagging; transformation/regeneration methods for pepper,
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pea and corn; promoter systems; and selectable marker systems. DNAP has also
established a patent position for important gene systems developed by DNAP,
including issued U.S. patents directed to genes for control of disease,
sweetness, color and acidity.
One of DNAP's most significant technological assets in the area of plant
genetic engineering is its proprietary Transwitch gene suppression technology.
DNAP has received three United States patents and a European patent directed to
methods of using this technology for suppressing plant genes.
DNAP has pursued patents and plant variety protection ("PVP") certificates
specific to certain DNAP products. DNAP has filed patent applications in the
United States claiming certain FWF parent and hybrid tomato lines, resulting in
two issued U.S. patents. In addition, DNAP has a granted United States patent
directed to a ripening controlled cherry tomato line and pending patent
applications directed to ripening controlled tomato and cherry tomato lines.
DNAP also has a granted United States patent directed to the method of
somaclonal variation in tomato. DNAP has been granted a United States patent
covering a broad class of low seed peppers, including the FWF sweet mini-pepper.
DNAP additionally has four issued United States patents directed to the method
of processing carrots. PVP certificates, which are issued by the USDA, have also
been pursued for specific fruit and vegetable varieties. DNAP was issued two PVP
certificates for tomato varieties and two for pepper varieties. FWF has two
pending PVP applications for watermelon varieties developed by DNAP.
DNAP has strengthened its proprietary position by obtaining license rights
from third parties, either to secure freedom to operate via non-exclusive
licenses or to create additional areas of exclusivity through exclusive
licenses. DNAP has obtained license rights from several third parties under
patent filings related to plant molecular biology methods. These license rights
include non-exclusive rights from the Max Planck Institute under patent filings
directed to certain methods of plant transformation using Agrobacterium
(although the rights of the Max Planck Institute under certain of these patent
filings are in dispute), and from Mogen International N.V. under filings also
directed to certain methods of plant transformation using Agrobacterium. DNAP
also has license rights from the USDA under patent filings directed to the ACC
synthase gene. Suppression of this gene, e.g. with Transwitch technology, has
been shown by DNAP to permit control of the ripening process. DNAP's license
from the USDA is co-exclusive for tomato, and exclusive for 25 other crops
including peppers, bananas, peas, strawberries, grapes, pineapples and
watermelons. As a result of the agreement between Savia and Monsanto Company
dated January 31, 1997, DNAP also has access to key enabling technologies,
including promoters, marker genes and transformation methods, as well as genes
for agronomic and quality traits, held by Monsanto Company.
The Company uses trade secret protection for certain of IPHC's distribution
companies and FWF which market produce under the Master's Touch, Premier
Seleccion, FreshWorld Farms and Endless Summer brand names. ABSA and R.B.
Packing, Inc. have registered the Master's Touch name as a trademark in Mexico
and the United States, respectively. Bionova Mexico has registered the Master's
Touch name as a trademark in the Benelux countries, the European Community, Hong
Kong, Indonesia, Japan, Sweden and the United Kingdom. Savia has registered the
Premier Seleccion name in Mexico and has licensed rights to such name on a
royalty-free basis to various of IPHC's subsidiaries. In addition, trademark
registrations of the name "Master's Touch" are pending in Canada, Malaysia,
Singapore and South Korea. FWF has registered the Endless Summer and FreshWorld
Farms names in the United States.
GOVERNMENTAL REGULATION
The agribusiness industry witnessed the continued growth in the number of
U.S. government approvals for genetically engineered plant products in 1998 and
additional approvals of genetically engineered products in Europe and Japan.
DNAP believes these events signal maturation of the regulatory approval
processes in the U.S. and growing opportunities for agricultural biotechnology
products in the United States and abroad.
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Regulation by federal, state and local government authorities in the United
States and foreign countries will be a factor in the future production and
marketing of DNAP's genetically-engineered plants and plant products. The
process of obtaining government approvals can be costly and time consuming, and
there can be no assurance that necessary approvals will be granted in a timely
manner, if at all. The extent of government regulation of biotechnology that
might arise from future legislative or administrative actions and the potential
consequences to DNAP are not known and cannot be predicted with certainty.
The U.S. federal government has implemented a coordinated policy for
regulating biotechnology research and products in the United States. The USDA
has jurisdiction over specific research and pre-commercial activities involving
genetically engineered plants, in particular the growing and interstate shipment
of genetically engineered plants and plant products. The FDA has jurisdiction
over plant products that are used for human or animal food. The EPA has asserted
jurisdiction over the field testing and commercial use of plants genetically
engineered to resist pests and diseases, so-called plant pesticides, as well as
administering various federal environmental quality statutes. Failure to comply
with applicable regulatory requirements could result in enforcement action,
including withdrawal of marketing approval, seizure or recall of product,
injunction or criminal prosecution.
In January 1995, DNAP received USDA approval for unrestricted production and
distribution of the initial varieties of its genetically engineered Endless
Summer tomato. That approval closely followed successful completion in October
1994 of consultations with the FDA concerning the safety, nutrition and
composition of Endless Summer tomatoes. In 1995, DNAP also received clearances
from Agriculture and Agri-Food Canada and Health Canada to import and sell
Endless Summer tomatoes in Canada. Together, these approvals allow DNAP to grow
and ship initial varieties of Endless Summer tomatoes anywhere in the U.S. and
Canada in the same manner as conventionally developed tomatoes. DNAP has also
received approval from the Mexican Secretaria de Agricultura y Recursos
Hidraulicas for semi-commercial production of its Endless Summer tomatoes and to
conduct field trials of genetically engineered cherry tomatoes and peppers. In
December 1998, DNAP received approval from the Mexican Secretaria de Salud for
commercial sales of Endless Summer tomatoes in Mexico.
DNAP is continuing consultations with the FDA, begun in 1994, on additional
products, including delayed-ripening cherry tomatoes and peppers with improved
texture. DNAP has also received permission from the USDA to field test
genetically engineered strawberry and grape plants.
COMPETITION
Though the fresh produce industry in general, and the tomato industry in
particular, are characterized by numerous competitors and low barriers to entry
at the production level, DNAP Holding believes that a small group of
participants distributes over one-third of the tomatoes sold in the United
States. In the United States, the Company competes directly with the larger
tomato and pepper growers in Florida during the winter, and in California in the
summer and fall. Both the Mexican and the U.S. tomato industries are
characterized by numerous competitors. Major Florida growers include Six L's,
DiMare and NTGargiulo, which was acquired by Monsanto Company. The major growers
in California include DiMare, NTGargiulo, Live Oak, and Central Tomato Growers.
ABSA believes it has advantages over its competitors because, among other
things, (i) the vine ripe tomato ABSA farms has different and generally more
desirable attributes than the gas-green tomato typically produced by most U.S.
growers and (ii) ABSA's production occurs in Mexico where the climate is often
more favorable and labor costs are lower than in the United States.
There are also many companies engaged in research and product development
activities based on agricultural biotechnology. Competitors include specialized
biotechnology firms, as well as major pharmaceutical, food and chemical
companies that have biotechnology divisions, many of which have considerably
greater financial, technical, and marketing resources than DNAP Holding.
Competition may intensify as technological developments occur at a rapid rate in
the agricultural biotechnology industry.
9
<PAGE>
EMPLOYEES
The Company and its subsidiaries have a total of 588 employees.
ABSA has no employees. Siembra provides labor and administrative services to
ABSA pursuant to a contractual agreement, and ABSA pays a fee to Siembra based
on Siembra's costs incurred in connection with providing such services. The
number of persons providing such services through Siembra to ABSA ranges from a
minimum of 1,700 to a maximum during the harvesting season (January-April) of
approximately 12,000.
CONTROLLING STOCKHOLDER; CONFLICTS OF INTEREST
Approximately 76.6% of the outstanding shares of common stock of the Company
are owned of record by Bionova International, Inc., an indirect, wholly-owned
subsidiary of Savia. Pursuant to a Governance Agreement dated as of September
26, 1996, between Savia and the Company, Savia (together with its affiliates)
may acquire additional shares of common stock of the Company so long as their
aggregate beneficial ownership of the Company's common stock does not exceed
80.1%, subject to applicable law. This restriction and most of the other
provisions of the Governance Agreement terminate on April 27, 1999, the day
before the Company's annual meeting of stockholders. Also, Savia has the power
to elect a majority of the Company's board of directors and to determine the
outcome of any action requiring the approval of the holders of the Company's
common stock. This ownership and management structure will inhibit the taking of
any action by the Company which is not acceptable to the controlling
stockholder.
Certain of the Company's directors and executive officers are also currently
serving as board members or executive officers of Savia or companies related to
Savia, and it is expected that each will continue to do so. Such management
interrelationships and intercorporate relationships may lead to possible
conflicts of interest.
The Company and other entities that may be deemed to be controlled by or
affiliated with Savia sometimes engage in (i) intercorporate transactions such
as guarantees, management and expense sharing arrangements, shared fee
arrangements, joint ventures, partnerships, loans, options, advances of funds on
open account and sales, leases and exchanges of assets, including securities
issued by both related and unrelated parties and (ii) common investment and
acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties. The
Company continuously considers, reviews and evaluates, and understands that
Savia and related entities consider, review and evaluate, transactions of the
type described above. Depending upon the business, tax and other objectives then
relevant, it is possible that the Company might be a party to one or more of
such transactions in the future in addition to those currently in force, such as
the Long Term Funded Research Agreement dated January 1, 1997, between Seminis
and DNAP. In connection with these activities the Company might consider issuing
additional equity securities or incurring additional indebtedness. The Company's
acquisition activities may in the future include participation in the
acquisition or restructuring activities conducted by other companies that may be
deemed to be controlled by Savia.
ITEM 2. PROPERTIES
ABSA owns approximately 3,041 acres of agricultural land in Sinaloa and
Sonora. ABSA leases approximately 2,595 acres of land in Sinaloa and Baja
California Sur. See "Legal Proceedings."
R.B. Packing, Inc. and Batiz and Sons, Inc. own warehouse and office space
in Nogales, Arizona. The other subsidiaries of IPHC lease office and warehouse
space. Interfruver leases office and warehouse space
10
<PAGE>
in Jalisco. Interfruver also leases warehouse space in Mexico City, Sinaloa,
Sonora, Chihuahua and Nuevo Leon. FWF leases office space in Eddystone,
Pennsylvania.
DNAP leases 41,000 square feet of laboratory and office space and 7,500
square feet of greenhouse space in Oakland, California. DNAP also owns 12,700
square feet of greenhouse and warehouse space, including farm land for field
trials, in Brentwood, California. DNAP also has arrangements in various
locations throughout the United States for field evaluations of improved plant
varieties which DNAP is developing. DNAP's current facilities are not adequate
for large scale growing, processing operations or distribution. Depending on the
needs for its products, DNAP contracts for the requisite facilities with third
parties.
ITEM 3. LEGAL PROCEEDINGS
On January 21, 1997, a class action lawsuit styled GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district
court for the Northern District of California. The plaintiffs allege that, prior
to the merger (the "Merger") of DNAP with a subsidiary of DNAP Holding on
September 26, 1996, they owned shares of DNAP's $2.25 Convertible, Exchangeable
Preferred Stock ("Preferred Stock"). In connection with the Merger, all of the
shares of common stock and Preferred Stock of DNAP were converted into the
number of shares of common stock of DNAP Holding specified in the Merger
Agreement. The plaintiffs allege that they were denied certain rights they
allegedly had under the terms of the Preferred Stock and that certain
individuals (the "Individual Defendants"), each of whom was a director of DNAP
prior to the Merger and in some cases later served as a director of DNAP
Holding, breached fiduciary duties of loyalty, candor and care allegedly owed to
DNAP and its stockholders. The plaintiffs claim to have been damaged by the
alleged actions of the defendants and therefore the plaintiffs seek unspecified
actual and punitive damages as well as reimbursement of their litigation costs
and expenses. On August 27, 1997, the court granted motions to dismiss all of
the claims pending against all of the defendants, except the claims of breach of
the fiduciary duty of loyalty against the Individual Defendants. The court also
gave the plaintiffs leave to amend the complaint against certain other named
defendants, including DNAP Holding, as to a claim for aiding and abetting the
alleged breach of fiduciary duty of loyalty. On January 14, 1999, the court
granted plaintiffs motion to reinstate the claims for breach of contract and
tortious interference arising from Plaintiffs claim that the preferred
stockholders should have had the opportunity to vote on the Merger. DNAP Holding
and DNAP deny any wrongdoing or liability in this matter and intend to
vigorously contest this lawsuit.
On August 13, 1997, a lawsuit styled GRACE BROTHERS, LTD. V. DNAP HOLDING
CORPORATION, DNA PLANT TECHNOLOGY CORPORATION AND DOES 1 THROUGH 20 INCLUSIVE
was filed in the United States District Court for the Northern District of
California. This claim arose out of the private placement of common stock and
warrants made by DNAP in August of 1995. The plaintiff alleged that DNAP failed
to disclose material non-public information relating to DNAP's efforts to enter
into a strategic relationship with a third party in violation of federal and
state securities laws and the terms of the contract relating to the private
placement. On November 17, 1997, the plaintiff dismissed DNAP Holding from the
lawsuit. The Court dismissed the plaintiff's claim for federal securities fraud.
In February, 1999 the Court granted DNAP's Motion for Summary Judgment and
dismissed all of the remaining claims.
On August 29, 1997, a lawsuit styled GRACE BROTHERS, LTD. V. DNAP HOLDING
CORPORATION, DNA PLANT TECHNOLOGY CORPORATION AND DOES 1 THROUGH 20 INCLUSIVE
was filed in the Superior Court of the State of California, County of Alameda.
This claim arose out of the Merger on September 26, 1996 of DNAP with a
wholly-owned subsidiary of DNAP Holding. In the Merger, shares of DNAP's
Preferred Stock were converted into the right to receive shares of common stock
of DNAP Holding. The plaintiff alleged that it owned shares of Preferred Stock,
that it was entitled to special conversion privileges under the terms of the
Certificate of Designation that established the Preferred Stock and that DNAP
breached its contractual obligations to the plaintiff by not providing those
special conversion privileges. The Plaintiff also alleged that the former
holders of DNAP common stock were unjustly enriched by DNAP's alleged breach of
the
11
<PAGE>
Certificate of Designation. On February 17, 1999, the Court granted DNAP
Holding's and DNAP's Motion for Summary Judgment and dismissed all of the
plaintiff's claims.
On January 7, 1999, a class action lawsuit styled GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district
court for the Northern District of California. The plaintiffs allege that, prior
to the Merger of DNAP with a subsidiary of DNAP Holding on September 26, 1996,
they owned shares of DNAP's Preferred Stock. In connection with the Merger, all
of the shares of common stock and Preferred Stock of DNAP were converted into
the number of shares of common stock of DNAP Holding specified in the Merger
Agreement. The plaintiffs allege that the Proxy Statement/ Prospectus
distributed to DNAP's stockholders in connection with the merger contained
material misrepresentations and omitted to state material facts, including
alleged facts relating to the preferred stockholders' alleged right to vote on
the merger. Both DNAP and DNAP Holding, as well as certain former and current
directors of DNAP and DNAP Holding, have been named as defendants in this
matter. The plaintiffs claim to have been damaged by the alleged actions of the
defendants and therefore the plaintiffs seek unspecified actual damages,
reimbursement of their litigation costs and expenses, and equitable relief,
including rescission of the Merger. The plaintiffs also allege that they were
entitled to receive, and seek specific performance of, special conversion
privileges under the terms of the Certificate of Designation that established
the Preferred Stock. DNAP Holding and DNAP deny any wrongdoing and liability in
this matter and intend to vigorously contest this lawsuit.
On January 28, 1999, a class action lawsuit styled ROBERT KACZAK V. EMPRESAS
LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district court
for the Northern District of California. The complaint is substantially
identical to the above-described complaint filed on January 7, 1999 by the AARON
plaintiffs. DNAP Holding and DNAP deny any wrongdoing and liability in this
matter and intend to vigorously contest this lawsuit.
In July of 1997, DNAP was formally notified by the U.S. Department of
Justice ("DOJ") that a federal grand jury in Washington, D.C. was investigating
possible violations of federal law by individuals associated with DNAP arising
from the FDA's investigation of the tobacco industry. In December, 1997, DNAP
entered into an agreement with DOJ (the "Plea Agreement") pursuant to which,
among other things DNAP pled guilty to one count of conspiracy to violate the
tobacco seed export law, a Class A misdemeanor, and DNAP agreed to cooperate
with the federal government in connection with the United States' investigations
involving the tobacco industry. DNAP fulfilled its obligations under the Plea
Agreement and paid a fine of $100,000 in 1998.
In a complaint filed on March 31, 1998, in the Superior Court of the State
of California, County of San Mateo, U.A. Local No. 467 Health and Welfare Trust
Fund sued numerous defendants including DNAP and various manufacturers and
distributors of tobacco products. Since March 31, 1998, DNAP has been named as a
defendant in twenty-three additional cases brought on behalf of union trust
funds and benefit trusts in the California state courts. In each of these cases,
the plaintiff alleges that the defendants engaged in improper business and
advertising practices; committed fraud and deceit, conspiracy to commit fraud,
and aiding and abetting fraud; made negligent misrepresentations; and violated
California's anti-trust laws. DNAP's involvement in these suits arises from
allegations regarding research it performed for a major tobacco company from
1983 through 1994. In each of these suits, the plaintiff is seeking economic
damages and injunctive relief. These cases have been consolidated in the
Superior Court of the State of California, County of San Diego. DNAP filed a
demurrer (a motion to dismiss all of the claims against it) to all of these
cases and on March 9, 1999, the court sustained DNAP's demurrer and dismissed
all claims against DNAP in all of the cases except claims relating to improper
business practices. The plaintiffs were given the right to attempt to amend
their complaints only with respect to certain of the claims. DNAP denies any
wrongdoing or liability in this matter and intends to vigorously contest all of
these lawsuits.
12
<PAGE>
On October 30, 1998, a class action lawsuit styled PECHANGA BAND OF LUISENO
MISSION INDIANS ET AL. V. PHILIP MORRIS, INC., ET AL. was filed in the Superior
Court of the State of California, County of San Diego. The Plaintiffs sued
numerous defendants including DNAP and various manufacturers and distributors of
tobacco products. The plaintiff's allegations are substantially identical to the
claims made in the above-described cases brought on behalf of union trust funds
and benefit trusts (the "Union Cases"). This case has been coordinated with the
Union Cases, and proceedings in this case have been stayed pending the court's
ruling on the demurrers pending in the Union Cases. DNAP denies any wrongdoing
or liability in this matter and intends to vigorously contest this lawsuit.
On May 19, 1998, Patricia Henley filed a lawsuit in the Superior Court of
the State of California, County of San Francisco, against six tobacco companies
and certain other defendants, including DNAP. In
this lawsuit, the plaintiff alleged that the defendants engaged in improper
business and advertising practices, committed fraud and deceit, and made
negligent misrepresentations in the course of manufacturing, marketing, and
distributing cigarettes. DNAP's involvement in this suit arose from allegations
regarding research it performed for a major tobacco company from 1983 through
1994. The plaintiff sought economic damages and injunctive relief. On June 22,
1998, DNAP filed a demurrer and on July 22 the court sustained the demurrer, but
gave the plaintiff leave to amend her complaint. Shortly thereafter, DNAP was
voluntarily dismissed with prejudice from this lawsuit.
ABSA owns one hundred hectares (approximately 247 acres) of rural land in
the State of Sinaloa, Mexico, which is the subject of a judicial proceeding
pending in Mexico initiated by a group of campesinos. The petitioners asserted
that a previous owner of the subject land, Miguel Angel Suarez, owned rural land
in excess of the maximum that was then allowed by law and that therefore the
land rightfully belonged to them. On September 25, 1996, the court upheld the
petition and ordered the land turned over to the petitioners. The court also
ruled that the transfer of the property to Olga Elena Batiz Esquer on June 2,
1990 was null and void, which would mean that the transfer of the land by Ms.
Batiz to ABSA in 1993 was ineffective. On October 23, 1996, Ms. Batiz, who was a
party to the trial court proceeding, filed a challenge to the judicial
determination based on alleged violations of her constitutional rights and
procedural and substantive errors in the trial court proceedings. If ABSA is
ultimately required to transfer the subject land, which constitutes
approximately 8% of the total agricultural land owned by ABSA, Mexican law gives
ABSA indemnification rights against the State of Sinaloa and Ms. Batiz.
ABSA owns seventy-five hectares (approximately 185 acres) of rural land in
the State of Sinaloa, Mexico, which is the subject of a judicial proceeding
pending in Mexico initiated by a group of campesinos. The petitioners requested
that ownership of the land be transferred to them based on the fact that, at
some time prior to ABSA's ownership of the land, the land was not cultivated for
more than two consecutive years without good reason. On March 18, 1997, the
court upheld the petition and ordered the land transferred to the petitioners.
On August 28, 1997, ABSA and other affected parties filed a challenge to the
judicial determination based on alleged violations of their constitutional
rights and procedural and substantive errors in the trial court proceedings. If
ABSA is ultimately required to transfer the subject land, which constitutes
approximately 6% of the total agricultural land owned by ABSA, Mexican law gives
ABSA limited indemnification rights against the State of Sinaloa.
ABSA owns two hundred seventy-four hectares (approximately 677 acres) of
rural land in the State of Sinaloa, Mexico, which is the subject of a judicial
proceeding pending in Mexico initiated by a group of campesinos. The petitioners
asserted that a previous owner of the subject land owned rural land in excess of
the maximum that was then allowed by law and that therefore the land rightfully
belonged to them. On August 27, 1997, the court denied the petition and ruled in
favor of ABSA. On May 25, 1998, the petitioners filed a challenge to the
judicial determination based on alleged violations of their constitutional
rights. If ABSA is ultimately required to transfer the subject land, which
constitutes approximately 22% of the total agricultural land owned by ABSA,
Mexican law gives ABSA limited indemnification rights against the State of
Sinaloa.
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<PAGE>
In addition to the foregoing, from time to time the Company is involved in
various legal actions that arise in the ordinary course of business. Such legal
actions are not expected, individually or in the aggregate, to have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Information regarding DNAP Holding's executive officers including their
respective ages at March 1, 1999, is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Mr. Bernardo Jimenez 45 Chief Executive Officer and Director
Dr. John R. Bedbrook 49 Executive Vice President
Mr. Jorge Fenyvesi 48 Executive Vice President
Mr. Arthur H. Finnel 48 Executive Vice President, Treasurer, and Chief Financial Officer
</TABLE>
Mr. Bernardo Jimenez was appointed Chief Executive Officer of DNAP Holding
in October 1997. He has been Chairman of the Board of DNAP Holding since
September, 1996. Mr. Jimenez also serves as the Chief Operating Officer of the
agrobiotechnology division of Savia, which includes DNAP Holding and several
other smaller Mexican companies. From 1993 to 1996, Mr. Jimenez served as the
head of the Industrial Banking Division at the Vector Group, a financial
services company in Mexico which is affiliated with Savia, the Vice President of
New Business Development for Pulsar Internacional, S.A. de C.V., and the Chief
Financial Officer of Savia. Mr. Jimenez is a director of Savia.
Dr. John R. Bedbrook, Ph.D. has been an Executive Vice President responsible
for technology and research and development of the Company since October, 1997.
Dr. Bedrook also serves as a co-President of DNAP. Dr. Bedbrook was Executive
Vice President and Director of Science of DNAP from 1988 through 1997.
Mr. Jorge Fenyvesi has been an Executive Vice President of the Company
responsible for planning and business development since October, 1997 and has
been with DNAP Holding since July, 1997. He also serves as a co-President of
DNAP. From 1994 to 1997, Mr. Fenyvesi was Commercial Director for Dow Elanco,
Latin America and from 1992 to 1994 he was Research and Development Director for
Dow Elanco, Latin America.
Mr. Arthur H. Finnel has been an Executive Vice President since October,
1997, and has been the Treasurer and Chief Financial Officer of the Company
since 1996. From 1995 to 1996, he was a financial planning consultant to Savia
and Bionova Mexico. From 1982 to 1995 he was an executive with Mars,
Incorporated, where he held positions of General Manager and President of its
Canadian pet food division and Vice President of Finance of Uncle Ben's, Inc.
All executive officers of DNAP Holding are elected annually by the Board of
Directors to serve until the next annual meeting of the Board and until their
respective successors are chosen and qualified.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "DNAP." Public trading of the Common Stock commenced on September 27,
1996, the date after the Company acquired DNAP. Prior to that date, there was no
public market for the Common Stock.
The following table sets forth the high and low closing sales prices per
share for the Common Stock as reported on the Nasdaq National Market for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
1998
First Quarter........................................................................................ 4 1/2 3 7/8
Second Quarter....................................................................................... 4 5/8 3 3/4
Third Quarter........................................................................................ 4 3/8 3 1/8
Fourth Quarter....................................................................................... 3 7/8 3 1/8
1997
First Quarter........................................................................................ 6 3 5/8
Second Quarter....................................................................................... 4 3/4 3 1/2
Third Quarter........................................................................................ 5 3/8 3 5/8
Fourth Quarter....................................................................................... 5 4
</TABLE>
On March 9, 1999 the last reported sale price of the Common Stock on the
Nasdaq National Market was $3 1/2 per share. As of March 12, 1999 there were
1,015 record holders of the Common Stock.
The Company has never paid cash dividends. Management intends to retain any
future earnings for payment of outstanding indebtedness and for the operation
and expansion of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
years in the five year period ended December 31, 1998, are derived from the
consolidated financial statements of DNAP Holding. The consolidated financial
statements and related notes as of December 31, 1998 and 1997, and the three
years in the period ended December 31, 1998, are included elsewhere in this Form
10-K, and the selected consolidated financial information set forth below should
be read in conjunction with such financial statements and notes. The selected
consolidated financial data of DNAP Holding include financial data for ABSA,
IPHC, Interfruver, DNAP, VPP, and Royal Van Namen as from their respective dates
of acquisition.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ----------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $ 262,111 $ 281,198 $ 192,985 $ 197,586 $ 64,112
Gross profit................................ 26,509 18,485 16,632 19,703 (1,648)
Selling and administrative expenses......... (25,151) (26,660) (16,195) (14,608) (9,509)
Write-off of purchased research and
development............................... -- (2,815) (12,900) -- --
Research and development expenses........... (5,846) (5,072) (1,244) -- --
Amortization of goodwill, patents and
trademarks................................ (2,940) (2,407) (1,008) (538) (404)
Operating (loss) income..................... (7,428) (18,469) (14,715) 4,557 (11,561)
Interest expense, net....................... (6,697) (3,740) (3,482) (5,031) (1,254)
Exchange (loss) gain, net................... (1,762) (481) 569 (4,748) (1,473)
Other non-operating (expense) income........ 137 (182) 2,058 -- --
Loss before income taxes.................... (15,750) (22,872) (15,570) (5,222) (14,288)
Income tax (expense) benefit................ (456) (1,426) (2,738) (2,132) 1,842
Minority interests.......................... 601 3,986 1,274 3,510 5,673
Net loss.................................... (15,605) (20,312) (17,034) (3,844) (6,773)
Net loss per common share--basic and
diluted................................... $ (0.80) $ (1.11) $ (1.19) $ (0.35) $ (0.70)
Weighted average number of common shares
outstanding............................... 19,603,320 18,370,640 14,286,318 10,967,299 9,677,384
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 15,405 $ 6,600 $ 10,735 $ 1,580 $ 2,540
Accounts receivable, net.................... 40,406 38,088 36,322 32,526 22,649
Inventories, net............................ 16,478 17,779 20,139 14,730 10,450
Total current assets........................ 74,052 63,085 68,354 48,978 35,761
Total assets................................ 167,686 147,249 141,137 88,108 71,682
Bank loans and current portion of long-term
debt...................................... 81,309 53,805 41,214 33,103 27,977
Total current liabilities................... 120,095 109,384 80,939 54,725 40,992
Long-term debt.............................. 4,225 7,215 2,423 10,515 2,223
Stockholders' equity........................ 42,117 28,356 48,690 14,725 17,839
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with the selected
financial information of DNAP Holding and the financial statements and related
notes of DNAP Holding included elsewhere in this Form 10-K.
OVERVIEW
DNAP Holding engages in the production, distribution, and sale of fresh
produce to wholesalers and retailers primarily in Mexico, the United States, and
Canada. The business strategy of the Company consists of (i) vertical
integration within the produce/agronomics industry, (ii) growth by acquisition
of complementary businesses and (iii) access to basic technology to separate
itself from others in the fresh produce business, as exemplified by the Merger
with DNAP.
DNAP, which was incorporated in Delaware in 1981, is an agribusiness
biotechnology company focused on the development and application of genetic
engineering and transformation technologies in plants, as well as development
and marketing of premium, differentiated, fresh and processed, branded fruits
and vegetables. DNAP uses advanced breeding, genetic engineering, and other
biotechniques to achieve improvements in the taste, texture, product form,
color, and shelf life of produce and to improve production characteristics, such
as disease resistance and production or processing yields.
DNAP Holding expects to capitalize on the combination of production,
distribution, and technology strengths by focusing its longer-term business
strategy on the development and commercialization of value-added, proprietary
differentiated products that are developed with DNAP's technology.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues declined from $281.2 million for the year ended December 31, 1997
to $262.1 million for the year ended December 31, 1998. This decline in revenues
was a direct consequence of the divestiture of Royal Van Namen ("RVN") during
the first quarter of 1998, which contributed full year revenues of $55.0 million
in 1997. Revenues in the U.S., Canadian, and Mexican distribution operations
increased by $35.9 million from 1997 to 1998 due to a higher volume of shipments
and the better pricing environment that prevailed, particularly during the
fourth quarter of 1998. DNAP's revenues increased from 1997 to 1998 by $3.3
million due to higher licensing and contract revenues.
Gross profit (sales less cost of sales) increased from $18.5 million in 1997
to $26.5 million in 1998. ABSA's gross profit improved by $2.3 million due to
the higher volumes shipped and better prices it received for its products, along
with a reduction in write offs taken for inventory obsolesence as was recorded
in 1997. The U.S. and Canadian distribution companies reflected an improvement
of $3.1 million in gross profit from 1997 to 1998, which offset the loss of
RVN's gross profit from 1997. DNAP's gross profit improved by $3.3 million from
1997 to 1998 due to the higher licensing and contract revenues recorded in 1998.
Selling and administrative expenses declined from $26.7 million in 1997 to
$25.2 million in 1998. The reduction in selling and administrative expenses
associated with the divestiture of RVN was offset in part by higher corporate
overhead expenses. The higher corporate expenses in 1998 emanated from the legal
costs incurred in connection with the Company's defense against shareholder
suits, employee termination costs, and other general corporate expenses.
Research and development expenses increased from $5.1 million in 1997 to
$5.8 million in 1998 due to the increased level of activity at DNAP.
17
<PAGE>
During 1997, the Company wrote off $2.8 million of purchased research and
development in connection with the acquisition of the intellectual property
assets of UAC. Product programs in UAC were considered in-process since the
products being developed were in various stages of development, have not been
commercially introduced, and require additional research and development before
such products can be produced and introduced to the marketplace. Accordingly,
consistent with generally accepted accounting principles, purchased research and
development must be charged off immediately to current income.
The non-cash charge for amortization of goodwill, patents and trademarks
increased by $0.5 million in 1998 as compared with 1997 due to the recognition
of a complete year of goodwill amortization related to the DNAP Holding's
purchase of the minority interests in ABSA and IPHC.
Interest expense increased by $2.3 million in 1998 as compared with 1997 due
to the higher rates of interest that prevailed on the Company's debt obligations
during the second half of 1998 and an increase in the average level of debt
outstanding that was required to fund working capital and fixed asset
investments in 1998.
Interest income decreased by $0.7 million in 1998 as compared with 1997 due
primarily to certain reclassifications.
In 1998, DNAP Holding experienced a net foreign exchange loss of $1.8
million as compared to a loss of $0.5 million in 1997. The very high level of
volatility that affected worldwide financial and currency markets in the third
and fourth quarters of 1998 impacted significantly the peso/dollar exchange
rate. As a consequence, both ABSA and Interfruver experienced large exchange
losses during the fourth quarter of 1998 due to their net peso montetary
positions, reversing a small gain through the first three quarters of the year.
Income tax expense decreased from $1.4 million in 1997 to $0.5 million in
1998. This variance was primarily attributable to the elimination of R.B.
Packing's tax liability due to its consolidation for tax purposes into DNAP
Holding, beginning in the third quarter of 1997 which followed the Company's
acquisition of the minority interests in IPHC.
For 1998, the share of losses allocable to minority interests was $0.6
million as compared with minority interest losses of $4.0 million in 1997. These
allocations of losses for the years of 1998 and 1997, respectively, were
consistent with the minority positions held across the operating subsidiaries of
the Company. These allocations were affected significantly by the increase in
the Company's interests in ABSA and IPHC (effective August 1, 1997), and the
divestiture of its entire interest in RVN, and profit distributions made by
Interfruver to its owners during 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997, increased by 45.7%, or $88.2
million, as compared with 1996. Contributing most significantly to this increase
were $26.3 million in revenues generated by the inclusion of DNAP and FWF, which
were not part of the Company during the first nine months of 1996, and $51.6
million in revenues generated by the inclusion of RVN, which was not part of the
Company during the first eleven months of 1996. Revenues were also positively
affected by a $16.6 million increase at Interfruver, the Company's Mexican
distribution subsidiary, which increased its revenues from $55.2 million in 1996
to $71.8 million in 1997. Revenues in the Company's U.S. and Canadian
distribution businesses declined by $6.2 million. This decline was due primarily
to two factors--(i) weather and insect infestation problems severely affected
ABSA's production during the second and third quarters of 1997 and (ii) a
greater portion of the fresh produce from the Company's Mexican farming
operations that might otherwise have been exported to the United States was sold
in Mexico through Interfruver in the third and fourth quarters of 1997 due to
the relatively higher fresh produce prices that prevailed in Mexico during this
time period.
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Gross profit (sales less cost of sales) increased from $16.6 million in 1996
to $18.5 million in 1997. DNAP and FWF contributed $5.5 million and RVN
contributed $2.4 million to the gross profit increase. Interfruver's gross
profit increased by $0.7 million due to its higher sales. The gross profit of
the U.S. distribution businesses declined by $0.5 million due primarily to
ABSA's production shortfalls, and the effect of the production that was sold in
the Mexican market because of the relatively higher price that prevailed during
the third and fourth quarters. ABSA's decline in gross profit of $6.3 million
stemmed from weather related problems during the first half of 1997 and the
write down of inventories, receivables and property, plant and equipment
recorded during the second and fourth quarters of 1997.
Selling and administrative expenses increased from $16.2 million in 1996 to
$26.7 million in 1997. This increase was primarily associated with the
operational expenses of $5.3 million incurred by DNAP, FWF and RVN, which were
not part of the Company during the three first quarters of 1996, and expenses of
$5.2 million incurred by DNAP Holding, associated primarily with its legal,
accounting, investor relations, and other overhead.
Research and development expenses appeared in the Company's results of
operations for the first time in the fourth quarter of 1996 after the merger
with DNAP. This $5.1 million charge in 1997 as compared with a $1.2 million
expense in 1996 reflects DNAP's research and product development costs for 1997.
During 1997, the Company wrote off $2.8 million of purchased research and
development in connection with the acquisition of the intellectual property
assets of UAC, while in 1996 the Company wrote off $12.9 million of purchased
research and development resulting from the merger with DNAP. Product programs
in these companies were considered in-process since the products being developed
were in various stages of development, have not been commercially introduced,
and require additional research and development before such products can be
produced and introduced to the marketplace. Accordingly, consistent with
generally accepted accounting principles, purchased research and development
must be charged off immediately to current income.
The non-cash charge for amortization of goodwill, patents and trademarks
increased by $1.4 million in 1997 as a result of recognizing a complete year of
goodwill amortization related to the DNAP and RVN acquisitions in 1996 and the
goodwill amortization associated with the 1997 purchase of the minority
interests in ABSA and IPHC.
Interest expense increased by $0.1 million in 1997 as compared with 1996 due
to a higher average level of debt outstanding during 1997.
Interest income decreased by $0.2 million in 1997 as compared with 1996 due
to a lower interest rate generated by ABSA on its short-term investments and a
lower level of advances to growers.
In 1997, DNAP Holding experienced a net foreign exchange loss of $0.5
million as compared to a gain of $0.6 million in 1996. During 1997, the
peso/dollar exchange rate remained relatively stable until the end of September,
but in the fourth quarter the peso declined in value due to the volatility of
the international currency markets. As a consequence, an exchange loss was
experienced in 1997 by ABSA, whose functional currency is the U.S. dollar, due
to its net peso monetary position.
Other non-operating income in 1997 declined by $1.9 million due to
reductions in subsidies received in connection with the special incentive
program established in 1996 by various Mexican government and banking
institutions for companies in the agriculture, fishing and forestry industries
and the loss recorded on the sale of RVN. The special incentive program was
terminated in June, 1997.
Income tax expense decreased from $2.7 million in 1996 to $1.4 million in
1997. The decrease in income tax expense was due primarily to reduced income in
the Company's U. S. and Mexican operations partially offset by taxes from income
generated from European operations and additional taxes charged in
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<PAGE>
connection with an expected settlement with the Internal Revenue Service
regarding prior years' tax filings of R.B. Packing.
For 1997, the share of losses allocable to minority interests was $4.0
million as compared with minority interest losses of $1.3 million in 1996. These
allocations of losses for the years of 1997 and 1996, respectively, were
consistent with the minority positions held across the operating subsidiaries of
the Company. The minority interest loss in 1997 includes an allocation of a
portion of ABSA's and IPHC's results through July 31, 1997 (the effective date
of the transaction agreed to by the parties) to the Batiz family, and of ABSA's
results from August 1, 1997 through December 31, 1997 to Bionova Mexico.
CAPITAL EXPENDITURES
During 1998, the Company made capital investments of $9.8 million in
property, plant and equipment. The majority of the funds were spent on three
investment projects at ABSA--the installation of new irrigation systems on
agricultural land owned by the ABSA, additional cooling room capacity required
for product quality, and initial investments for a new packaging facility at
ABSA's production site in Culiacan, Mexico.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998, the Company used $23.4 million of cash
in operating activities. The great majority of this cash usage in operations was
associated with the losses sustained by the Company ($15.6 million), offset to
some extent by non-cash items ($6.0 million). The increase in accounts
receivable ($0.7 million) was consistent with the higher sales in December. The
increase in advances to growers ($6.8 million) reflected new projects initiated
during the second half of the year and the impact of cold weather on the
Company's joint venture in Baja California Norte, which caused part of this
joint venture's outstanding advance to be carried over to 1999. Inventories
declined by $1.1 million reflecting another impact of the cold weather in
Mexico. Acounts payable and accrued expenses decreased by $2.1 million during
1998 as the Company paid off certain obligations outstanding from year-end 1997
in 1998.
In addition to the capital investments discussed above, investment
requirements reflected in the the cash flows included the payment of the 1997
earn-out to Interfruver ($0.5 million).
Cash provided by financing activities in 1998 included the investment made
by Bionova International, Inc. in connection with the re-capitalization of the
Company ($29.3 million) and the proceeds received from additional short-term
bank debt ($30.0 million). This additional short-term bank debt was used to
repay outstanding short-term debt to Savia, and the balance was used to fund the
operations of the Company
On March 22, 1999, the Company completed a refinancing of its $85 million in
consolidated debt. This refinancing culminated in a three year $100 million
credit facility enabling the Company to correct the significant working capital
imbalance that has persisted for several years and relieve the risk associated
with the need to continuously refinance large short-term lines of credit. The
key provisions of this credit arrangement consist of (i) a payment of the entire
principal amount on the third anniversary following closing, (ii) prepayments at
the option of the Company with no penalties, (iii) an interest rate of LIBOR
plus 7%, (iv) up front fees of $3 million to the lead banks which have arranged
the financing, and (v) requirements that the Company must keep one year's worth
of interest in an interest bearing reserve account and that all existing
short-term financing must be paid off with the proceeds of this loan. The
contract also provides that the Company is permitted to obtain up to $30 million
in new financing for working capital purposes. This credit facility will be
fully guaranteed by Savia. Certain restrictions will be placed on DNAP Holding
with respect to capital investments, acquisitions, and use of proceeds from
asset sales. While there are no financial covenants in the contract insofar as
DNAP Holding is concerned, Savia and some of its other affiliates are obligated
to meet certain covenants.
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YEAR 2000 ("Y2K") UPDATE
BACKGROUND
The "Year 2000 Issue" is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
THE PROJECT
The Company's Y2K project includes both information technology ("IT") and
non-IT systems and has been divided into four principal sections. These sections
are (1) hardware, (2) software, (3) non-IT systems, and (4) third parties
(suppliers, customers, and other). Sections 1, 2, and 3 have, or will go through
seven phases, as follows: (i) an inventory of all items relevant to Y2K, (ii)
assignment of priorities regarding each of these items for the Company's
activities in the Y2K, (iii) determination of the Company's current Y2K
capability and compliance with regard to each of these items, (iv) preliminary
testing of Y2K capability, (v) maintenance and or replacement of items that fail
to meet Y2K requirements, (vi) validation that maintenance and replacement
changes meet Y2K requirements, and (vii) design of contingency plans.
The Company has completed the first two phases--the inventory and assignment
of priorities--for all four sections of the project. Progress on the other
sections has not been quite as rapid as had been anticipated at the end of the
third quarter, 1998. The Company now expects to have completed the entire
project by July 31, 1999, as discussed below.
The hardware section includes personal computers, servers, routers, central
telephone systems, printers, faxes, etc. The Company has determined that 80
percent of the hardware already is compliant and has moved on to the testing,
maintenance and/or replacement, and validation phases. The balance of the
hardware and non-IT systems, such as alarm systems, are expected to be 100
percent compliant by March 31, 1999. The contingency plan for this section is
scheduled to be complete by March 31, 1999.
The software section includes both purchased and internally developed
software. These software applications are in the preliminary testing phase, and
the Company estimates that about 85 percent of all applications software being
used today already is compliant. The software that is not Y2K compliant will be
converted, upgraded or replaced. Software applications are scheduled to be 100
percent compliant by July 31, 1999 and the contingency plan for this section is
expected to be complete by July 31, 1999.
The third parties section includes suppliers and customers. This section
consists of identifying those parties that are critical to the normal operations
of the Company and contacting each of the critical parties, determining the
extent to which these parties are vulnerable to Y2K issues, and identifying any
exposure the Company might therefore have in its operations. Once this
evaluation has been completed, contingency plans will be developed to deal with
any Y2K issues emanating from this section. Both the evaluation process and the
contingency plans for this section are scheduled to be complete by March 31,
1999.
COST TO ADDRESS THE COMPANY'S Y2K ISSUES
Costs incurred by the Company to date with respect to its Y2K activities
have been immaterial. It is expected that the most significant expenses
associated with completion of the project will be any replacement or conversion
of software that is required. The current estimate of the cost to complete the
project is $150,000.
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<PAGE>
THE RISK OF THE COMPANY TO Y2K ISSUES
The failure to identify and/or correct properly a Y2K problem could result
in an interruption in, or a failure of certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity or financial condition. The Company's Y2K
project is proceeding ahead and is expected to be completed by July 31, 1999.
With the completion of this project as scheduled, the Company believes that the
possibility of significant interruptions of normal business activities and
operations will be reduced.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities ("FAS 133"), which the Company will be required to adopt for its 2000
annual financial statements. This statement establishes a new model for
accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company historically has conducted a limited number of hedging
transactions by using forward contracts. The Company has not determined the
impact of the adoption of this new accounting standard on its consolidated
financial position or results of operations at this time.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K includes "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-K, including
without limitation statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and under "Notes to
the Consolidated Financial Statements" located elsewhere herein regarding the
Company's financial position, business strategy, prospects, plans and objectives
of management of the Company for future operations, and industry conditions, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. In addition to
important factors described elsewhere in this report, the following significant
factors, among others, sometimes have affected, and in the future could affect,
the Company's actual results and could cause such results during 1999, and
beyond, to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company:
MANAGEMENT INFORMATION SYSTEMS AND CONTROLS. The Company's business has
undergone rapid growth. As a result of this rapid growth, significant strains
have been placed on the management, operations and financial resources of the
Company's subsidiaries. The realization of the business strategy for the Company
and its subsidiaries will be dependent upon, among other things, the ability of
the Company to adapt management information systems and controls and to hire,
train and retain qualified employees to allow the operations thereof to be
effectively managed. The geographic separation of the operations of the
Company's subsidiaries exacerbates these issues.
HISTORICAL LOSSES AND ACCUMULATED DEFICITS. DNAP Holding sustained losses in
1996, 1997, and 1998. There is no assurance that some of the factors that caused
these historical losses will not be present in future periods or that the
Company will be profitable in the future.
POSSIBLE NEED FOR ADDITIONAL FINANCING. The projected cash flows from
operations and existing capital resources of the Company, including existing
credit lines, may not be sufficient to permit the Company to pursue proposed
business strategies to acquire additional producers, distributors, marketers and
additional rights to technologies. Therefore, the ability to pursue such
acquisitions may be dependent upon the Company's ability to obtain additional
capital, which could result in the incurrence of additional debt or potentially
dilutive issuances of additional equity securities. There can be no assurance
that the Company will be successful in obtaining such capital and, as a result,
may be restricted in its pursuit of its future growth and acquisition
strategies.
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<PAGE>
RISKS ASSOCIATED WITH OWNERSHIP OF RURAL LAND IN MEXICO. ABSA owns a
substantial amount of rural land in Mexico. Historically, the ownership of rural
land in Mexico has been subject to legal limitations and claims by residents of
rural communities, which in some cases could lead to the owner being forced to
surrender such land. Though ABSA is in compliance with all applicable legal
limitations, ABSA has been, and continues to be, involved in such proceedings as
part of its ordinary course of business. ABSA has not lost any land as a result
of such proceedings.
GOVERNMENTAL AND ECONOMIC RISKS ASSOCIATED WITH FOREIGN OPERATIONS. Nearly
all of the growing and approximately one-third of the Company's sales occur in
Mexico. Approximately 11% of the Company's sales occurs in Canada. Foreign
operations such as those conducted by the Company, especially in countries with
volatile economies, are subject to political and economic risks, including
political instability, currency controls, currency devaluations, exchange rate
fluctuations, increased credit risks, inflation, foreign tax laws, changes in
import/export or other regulations and tariff and freight rates. Political and
other factors beyond the Company's control, including without limitation those
factors discussed below, could have a materially adverse effect on the Company's
operations.
CURRENCY FLUCTUATIONS AND INFLATION. The currency exchange rates in Mexico
have historically been volatile. For example, in December 1994, the Mexican
government announced its intention to float the Mexican peso against the United
States dollar and, as a result, the peso devalued over 40% relative to the
dollar during that month. Such exchange rate fluctuations impact the business of
the Company's subsidiaries. If the value of the peso decreases relative to the
value of the dollar, then (i) imports of produce into Mexico for distribution by
the Company's subsidiaries become more expensive in peso terms and therefore
more difficult to sell in the Mexican market and (ii) inflation that generally
accompanies reductions in the value of the peso reduces the purchasing power of
Mexican consumers, which reduces the demand for all products including produce
and, in particular, imported, branded or other premium-quality produce.
Conversely, if the value of the peso increases relative to the value of the
dollar, Mexican production costs increase in dollar terms, which results in
lower margins or higher prices with respect to produce grown in Mexico and sold
in the United States and Canada.
INTEREST RATES. Historically, interest rates in Mexico have been volatile,
particularly in times of economic unrest and uncertainty. High interest rates
restrict the availability and raise the cost of capital for the Company's
subsidiaries that are Mexican companies and for growers and other Mexican
parties with whom they do business, both for borrowings denominated in pesos and
for borrowings denominated in dollars. Costs of operations for these Mexican
entities are higher as a result.
TRADE SANCTIONS. Notwithstanding the enactment of the North American Free
Trade Agreement, Mexico and the United States from time to time are involved in
trade disputes. On occasion, the United States has imposed tariffs, quotas, and
importation bans on products produced in Mexico. Such actions, if taken, could
subject the Company to an additional financial burden, some or all of which may
not be able to be passed on to consumers.
AGRIBUSINESS RISKS. A variety of risks are inherent in the agribusiness
industry, including, without limitation, the following:
SUPPLY AND DEMAND. The fresh produce business is particularly sensitive to
fluctuations in supply and demand. When the supply of produce 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 affect the prices
obtained for premium quality produce. Oversupply can result from, among other
reasons, an increase in the number of growers, an increase in the acreage
allocated by growers to a particular crop, unusually favorable growing
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conditions or increased supply from foreign competitors (which could be caused
by a variety of economic and climatic factors in such competitors' home
countries).
LIMITED BARRIERS TO ENTRY. The relatively low capital requirements for
farming and produce distribution permit relatively easy entrance into the fresh
produce business, which in turn can result in oversupply.
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 a 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. Conversely, unusually favorable weather conditions can
result in oversupply that drives down the prices realized by producers,
including ABSA.
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 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 affected because the costs
to plant and cultivate the entire crop will have been incurred although only a
portion of it can be sold.
LABOR SHORTAGES AND UNION ACTIVITY. The production of fresh produce is
heavily dependent upon the availability of a large labor force to harvest crops.
The turnover rate among the labor force is high due to the strenuous work, long
hours, necessary relocation and relatively low pay. To the extent it becomes
necessary to pay more to attract labor to farm work, labor costs can be expected
to increase.
The Mexican farm work force retained by ABSA is unionized. If the union
attempted to disrupt production and were 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. In Mexico, truck
deliveries are sometimes less reliable than in the United States due to, among
other factors, the unreliability of some Mexican trucking companies and drivers
to make deliveries on schedule, inconsistent quality and maintenance of the
trucks used by Mexican trucking companies and poor road conditions in some
areas. In the United States and in Mexico, the trucking industry is largely
unionized and therefore susceptible to labor disturbances. Delivery delays
caused by labor disturbances in the trucking industry or any other reason limit
the ability to get fresh produce to market before it spoils.
AVAILABILITY OF SUPPLY. ABSA relies on agricultural land leased from others
and production associations with other growers for a large part of its supply.
If the other parties to these leases and other arrangements were to choose not
to renew their agreements with ABSA, ABSA would be required to locate alternate
sources of supply and/or land or, in some cases, to pay increased rents for
land. In addition to increased rental rates, increases in land costs could
result from increases in water charges, property taxes and related expenses.
DEPENDENCE ON ONE SUPPLIER. One grower in Baja California, Santa Cruz
Empacadora, S. de R.L. de C.V., accounted in 1998 for approximately 12% of the
Company's consolidated sales. ABSA recently has entered into a five-year
production association agreement with this grower that extends through 2003.
GOVERNMENTAL REGULATION. The U.S. activities of the Company's subsidiaries
are subject to extensive regulation by the Food and Drug Administration, the
United States Department of Agriculture, the Environmental Protection Agency,
and other federal and state regulatory agencies in the United States. Similarly,
the Mexican activities of the Company's subsidiaries are subject to extensive
regulation by
24
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the Secretaria de Agricultura, Ganaderia y Desarrollo Rural, the Secretaria de
Salud, and other federal and state regulatory agencies in Mexico. Also, certain
of the Company's products may require regulatory approval or notification in the
United States or in other countries in which they are tested, used or sold. The
regulatory process may delay research, development, production, or marketing and
require more costly and time-consuming procedures, and there can be no assurance
that requisite regulatory approvals or registration of certain of its current or
future genetically engineered products will be granted on a timely basis.
PRODUCT LIABILITY. Certain of the products being marketed and developed by
the Company entail a risk of product liability. While the Company has taken what
it believes are adequate precautions, there can be no assurance that it will
avoid significant product liability exposure.
NUMEROUS COMPETITORS. The fresh produce industry in general, and the tomato
industry in particular, are characterized by a large number of competitors at
both the production and distribution levels. In the past some of these
competitors have sought to limit the importation of Mexican-grown tomatoes and
peppers into the United States. DNAP is one of many companies engaged in
research and product development activities based on agricultural biotechnology.
Competitors include specialized biotechnology firms, as well as major
pharmaceutical, food and chemical companies, many of which have substantial
financial, technical and marketing resources.
MARKETING OF PREMIUM QUALITY PRODUCE. The Company's subsidiaries are
currently producing and distributing premium quality fresh fruits and
vegetables. The success of these and future products depends on many variables,
including the ability to produce and make available to the market consistent,
premium quality fruits and vegetables on a year-round basis, consumers'
willingness to pay higher prices for premium quality fruits and vegetables, and
retailers' willingness to carry such fruits and vegetables.
NO ASSURANCE OF COMMERCIAL SUCCESS OF PRODUCTS BEING DEVELOPED AND MARKETED.
Marketing of several products currently developed by DNAP is in the early
stages, and there can be no assurance that any of these products will be
successful or will produce significant revenues or profits. In addition, a
number of DNAP's product development projects are in the early stages, and there
can be no assurance that these projects will be successful or that any resulting
products will be commercially successful or profitable. In particular, although
DNAP has produced and sold a limited amount of its products, there can be no
assurance that it will be able to produce or market such products on a larger
scale.
NO ASSURANCE OF PUBLIC ACCEPTANCE OF GENETICALLY ENGINEERED PRODUCTS. DNAP's
second generation products are being developed through the use of genetic
engineering. The commercial success of these products will depend in part on
public acceptance of the cultivation and consumption of genetically engineered
products. There can be no assurance that such products will gain sufficient
public acceptance to be profitable, even if such products obtain the required
regulatory approvals.
POSSIBLE DEVELOPMENT OF SUPERIOR TECHNOLOGY BY COMPETITORS. 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 the Company's products less
competitive. Some of these companies, as well as competitors that supply
non-genetically-engineered products, have substantial resources.
PROPRIETARY PROTECTION. The Company's success will depend, in part, on its
ability to obtain patents, maintain trade secret protection, and conduct its
business without infringing the proprietary rights of others. There can be no
assurance that others will not develop competing technologies and market
25
<PAGE>
competing products or that DNAP will be able to enforce the patents which it
currently possesses or will be able otherwise to obtain or enforce any patents
for which it has filed an application. DNAP also relies upon unpatented
proprietary and trade secret technology.
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements disclosed in this section and otherwise in
this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The table below provides information about the Company's financial
instruments consisting primarily of debt obligations that are sensitive to
changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected (contractual)
maturity dates. Notional amounts are used to calculate the contractual payments
to be exchanged under the contracts. Weighted average variable rates are based
on implied forward rates in the yield curve on December 31, 1998. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars and Mexican pesos, and are indicated accordingly in the tables
below.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
--------- --------- --------- --------- --------- ------------- ---------
Short-term debt:
($US EQUIVALENT IN MILLIONS)
U.S. dollar variable rate............... $ 79.3 $ 79.3
Average interest rate................. 12%
Peso fixed rate (in $US)................ 0.5 0.5
Average interest rate................. 29%
Long-term debt:...........................
U.S. dollar fixed rate.................. $ 1.3 $ 3.7 $ 5.0
Average interest rate................. 10% 10%
U.S. dollar variable rate............... $ 0.2 $ 0.2 $ 0.3 $ 0.7
Average interest rate................. 12% 12% 12%
<CAPTION>
<S> <C>
FAIR
VALUE
---------
Short-term debt:
($US EQUIVALENT IN MILLIONS)
U.S. dollar variable rate............... $ 79.3
Average interest rate.................
Peso fixed rate (in $US)................ 0.5
Average interest rate.................
Long-term debt:...........................
U.S. dollar fixed rate.................. $ 5.0
Average interest rate.................
U.S. dollar variable rate............... $ 0.7
Average interest rate.................
</TABLE>
The Company tries to use the most cost-effective means to fund its operating
and capital needs. Fixed or variable debt will be borrowed in both U.S. Dollars
and Mexican pesos. The Company borrows Mexican pesos to provide for its working
capital needs in its Mexican operations. To minimize exchange risk associated
with the importation of products, the Company will enter into forward exchange
contracts where the functional currency to be used in the transaction is
dollars. At December 31, 1998 approximately 87% of the Company's long-term debt
is fixed rate debt and 13% is variable rate debt. All of the fixed rate
long-term debt is denominated in U.S. dollars. All of the variable rate debt is
denominated in U.S. dollars.
The Company recently completed a transaction to refinance its short-term
variable rate debt, as discussed in the liquidity and capital resources section
of Management's Discussion and Analysis of Financial Condition and Results of
Operations. This new credit facility will bear a variable interest rate of
between 12% to 15%.
26
<PAGE>
EXCHANGE RATE RISK
The table below provides information about the Company's financial
instruments by functional currency that are subject to exchange rate risk. This
information is presented in U.S. dollar equivalents. The table summarizes
information on instruments that are sensitive to foreign currency exchange
rates, including peso-denominated debt obligations. For debt obligations, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 THEREAFTER
--------- ----- ----- ----- ----- -----------------
On-Balance sheet
Financial Investments
($US Equivalent in millions)
Peso short-term debt:
Variable rate (in $US).................... $ 0.5
Average interest rate..................... 29%
Expected maturity or transaction date..... Dec. 31
<CAPTION>
<S> <C> <C>
FAIR
TOTAL VALUE
--------- ---------
On-Balance sheet
Financial Investments
($US Equivalent in millions)
Peso short-term debt:
Variable rate (in $US).................... $ 0.5 $ 0.5
Average interest rate.....................
Expected maturity or transaction date.....
</TABLE>
The Company had no firmly committed forward sales contracts in Mexican pesos
as of December 31, 1998.
The Company is exposed to U.S. dollar-to-Mexican peso currency exchange risk
due to revenues and costs denominated in Mexican pesos associated with its
Mexican subsidiaries, ABSA and Interfruver. The Company expects it will continue
to be exposed to currency exchange risks in the near future.
The Company's subsidiary, Interfruver, from time to time enters into foreign
exchange forward contracts to manage its exposure to fluctuations in foreign
currency denominated payables. These contracts generally mature within three
months. As of December 31, 1998, the Company did not have any foreign exchange
forward contracts outstanding. Company management believes that these financial
instruments do not subject the Company to material risk due to foreign exchange
movements because gains or losses on these contracts will offset gains or losses
on the assets, liabilities, and transactions being hedged.
COMMODITY PRICE RISK
The table below provides information about the Company's fresh produce
growing crops inventory and fixed price contracts that are sensitive to changes
in commodity prices. For inventory, the table presents the carrying amount and
fair value at December 31, 1998. For the Fixed price contracts, the table
presents the notional amounts in Boxes, the weighted average contract prices,
and the total dollar contract amount by expected maturity dates, the latest of
which occurs within one year from the reporting date. Contract amounts are used
to calculate the contractual payments and quantity of fresh produce to be
exchanged under futures contracts.
<TABLE>
<CAPTION>
CARRYING FAIR
AT DECEMBER 31, 1998 AMOUNT VALUE
- ----------------------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
On-balance sheet commodity position:
Fresh produce crops in process inventory ($US in millions)................................... $ 8.0 $ 8.0
Fixed price contracts:
Contract volumes (1,349,100 boxes)
Weighted average unit price (per 1,349,100 boxes)............................................ $ 7.62 $ 7.62
Contract amount ($US in millions)............................................................ $ 10.2 $ 10.2
</TABLE>
27
<PAGE>
In order to manage the exposure to commodity price sensitivity associated
with fresh produce products, the Company enters into fixed price contracts with
certain customers which guarantee specified volumes for the growing season or
the year at a fixed price. The Company believes that its efforts to assure a
high level of product quality along with efforts to develop and market
differentiated, added value products also reduce to some extent its exposure to
commodity price sensitivity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants, and the consolidated financial
statements of the Company and the notes thereto appear on the following pages.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
DNAP Holding Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income and loss, of
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of DNAP Holding Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
March 23, 1999
29
<PAGE>
DNAP HOLDING CORPORATION
CONSOLIDATED BALANCE SHEET
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 15,405 $ 6,600
Accounts receivable, net.................................................................. 28,220 32,777
Advances to growers....................................................................... 12,186 5,311
Inventories, net.......................................................................... 16,478 17,779
Other current assets...................................................................... 1,763 618
---------- ----------
Total current assets................................................................ 74,052 63,085
---------- ----------
Property, plant and equipment, net........................................................ 38,611 36,520
Patents and trademarks, net............................................................... 17,025 13,258
Goodwill, net............................................................................. 29,539 30,792
Deferred income taxes..................................................................... 4,174 3,279
Other assets.............................................................................. 4,285 315
---------- ----------
Total assets........................................................................ $ 167,686 $ 147,249
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans..................................................................... $ 79,751 $ 51,217
Current portion of long-term debt......................................................... 1,558 2,588
Accounts payable and accrued expenses..................................................... 26,075 28,915
Accounts due to related parties........................................................... 7,396 21,949
Deferred income taxes..................................................................... 5,315 4,715
---------- ----------
Total current liabilities........................................................... 120,095 109,384
Long-term debt............................................................................ 4,225 7,215
---------- ----------
Total liabilities................................................................... 124,320 116,599
---------- ----------
Minority interest......................................................................... 1,249 2,294
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and
outstanding............................................................................. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 23,588,031 shares issued and
outstanding............................................................................. 236 184
Additional paid-in capital................................................................ 107,918 78,720
Accumulated deficit....................................................................... (65,845) (50,240)
Accumulated other comprehensive income (loss)............................................. (192) (308)
---------- ----------
Total stockholders' equity................................................................ 42,117 28,356
---------- ----------
Total liabilities and stockholders' equity.......................................... $ 167,686 $ 147,249
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
DNAP HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME AND LOSS
THOUSANDS OF U.S. DOLLARS
(EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Total revenues...................................................... $ 262,111 $ 281,198 $ 192,985
------------- ------------- -------------
Cost of sales....................................................... (235,602) (262,713) (176,353)
Selling and administrative expenses................................. (25,151) (26,660) (16,195)
Research and development expenses................................... (5,846) (5,072) (1,244)
Purchased research and development.................................. -- (2,815) (12,900)
Amortization of goodwill, patents and trademarks.................... (2,940) (2,407) (1,008)
------------- ------------- -------------
(269,539) (299,667) (207,700)
------------- ------------- -------------
Operating (loss) income............................................. (7,428) (18,469) (14,715)
------------- ------------- -------------
Interest expense.................................................... (7,982) (5,704) (5,651)
Interest income..................................................... 1,285 1,964 2,169
Exchange (loss) gain, net........................................... (1,762) (481) 569
Other non-operating (expense) income................................ 137 (182) 2,058
------------- ------------- -------------
(8,322) (4,403) (855)
------------- ------------- -------------
Loss before income tax.............................................. (15,750) (22,872) (15,570)
Income tax expense.................................................. (456) (1,426) (2,738)
------------- ------------- -------------
Loss before minority interest....................................... (16,206) (24,298) (18,308)
Minority interest in net loss of subsidiaries, net.................. 601 3,986 1,274
------------- ------------- -------------
Net loss............................................................ (15,605) (20,312) (17,034)
Other comprehensive income (expense) net of tax:
Foreign currency translation adjustment......................... 116 (207) 128
------------- ------------- -------------
Comprehensive income (loss)......................................... $ (15,489) $ (20,519) $ (16,906)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share--basic and diluted............................... $ (0.80) $ (1.11) $ (1.19)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 19,603,320 18,370,640 14,286,318
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
DNAP HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
ACCUMULATED
COMMON ADDITIONAL OTHER TOTAL
SHARES COMMON PAID-IN CONTRIBUTED COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL CAPITAL INCOME (LOSS) DEFICIT EQUITY
----------- ----------- ----------- ----------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995....................... $ 27,848 $ (229) $ (12,894) $ 14,725
Issuance of shares for cash
upon the formation of
Bionova, U.S. Inc.......... 25,000 $ 25 25
Issuance of shares for cash
and upon transfer of
Bionova, S.A. de C.V.'s
interests in the Bionova
subsidiaries............... 270,922 $ 3 32,845 (27,848) 5,000
Issuance of shares to
Bionova, S.A. de C.V. prior
to the merger.............. 52,800 1 5,279 5,280
Shares issued to DNA Plant
Technology stockholders
upon consummation of the
merger..................... 5,511,192 55 32,511 32,566
Shares issued to Bionova
International, Inc. in
connection with merger and
capital contribution....... 12,510,726 125 7,875 8,000
Net loss..................... (17,034) (17,034)
Cumulative translation
adjustment................. 128 128
----------- ----- ----------- ----------- ----- ------------ -------------
Balance at December 31,
1996....................... 18,370,640 184 78,535 -- (101) (29,928) 48,690
Options issued in conjunction
with UAC acquisition....... 185 185
Net loss..................... (20,312) (20,312)
Cumulative translation
adjustment................. (207) (207)
----------- ----- ----------- ----------- ----- ------------ -------------
Balance at December 31,
1997....................... 18,370,640 184 78,720 -- (308) (50,240) 28,356
Shares issued to Bionova
International, Inc., net of
expenses................... 5,217,391 52 29,198 29,250
Net loss..................... (15,605) (15,605)
Cumulative translation
adjustment................. 116 116
----------- ----- ----------- ----------- ----- ------------ -------------
Balance at December 31,
1998....................... 23,588,031 $ 236 $ 107,918 -- $ (192) $ (65,845) $ 42,117
----------- ----- ----------- ----------- ----- ------------ -------------
----------- ----- ----------- ----------- ----- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
DNAP HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
THOUSANDS OF U.S. DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (15,605) $ (20,312) $ (17,034)
Items not affecting cash:
Minority interest............................................................. (601) (3,986) (1,274)
Depreciation.................................................................. 4,136 3,938 2,244
Amortization of goodwill, patents and trademarks.............................. 2,940 2,407 1,008
Purchased research and development............................................ -- 2,815 12,900
Deferred income taxes......................................................... (295) 882 1,986
Write-off of property, plant and equipment.................................... -- 943 --
Loss (gain) from sale of property, plant and equipment........................ (137) (321) (325)
Net changes (exclusive of acquisitions) in:
Accounts receivable and advances to growers, net.............................. (7,504) (1,766) 5,675
Inventories................................................................... 1,059 2,360 (4,951)
Other assets.................................................................. (5,263) 1,524 (35)
Accounts payable and accrued expenses......................................... (2,120) (2,690) 5,627
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES............................. (23,390) (14,206) 5,821
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of intellectual property.......................................... -- (2,630) --
Advances to DNAP prior to merger, net of cash acquired........................ -- -- (6,664)
Acquisitions, net of cash acquired............................................ -- (8,188) (1,221)
Purchases of property, plant and equipment.................................... (9,775) (6,444) (7,104)
Proceeds from sale of property, plant and equipment........................... 479 564 535
Payments for purchases of companies........................................... (476) (627) --
Proceeds from divestiture of Van Namen, net of cash divested.................. 637 -- --
Loss on divestiture of subsidiary............................................. (832) 832 --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES........................................... (9,967) (16,493) (14,454)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net changes in short-term borrowings.......................................... 29,955 19,107 (2,142)
Proceeds from bank loans and other debtors.................................... 256 267 34,556
Repayment of long-term debt................................................... (2,746) (9,211) (35,451)
Accounts due to related parties............................................... (14,553) 16,401 2,520
Investment by Bionova International, Inc., net of expenses.................... 29,250 -- 18,305
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES....................................... 42,162 26,564 17,788
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents............................ 8,805 (4,135) 9,155
Cash at beginning of year....................................................... 6,600 10,735 1,580
--------- --------- ---------
Cash at end of year............................................................. $ 15,405 $ 6,600 $ 10,735
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW DATA
Interest paid................................................................... $ 7,439 $ 4,915 $ 4,438
Income taxes paid............................................................... 954 294 1,693
NON-CASH INVESTING AND FINANCING ACTIVITIES
Contribution of Bionova, S.A. de C.V. investment in subsidiaries for common
stock......................................................................... -- -- 27,848
Patents and trademarks resulting from merger with DNA Plant Technology
Corporation................................................................... -- -- 14,800
Options issued in connection with UAC acquisition............................... -- 185 --
Issuance of promissory notes in the acquisition of the minority interests of
ABSA and IPHC................................................................. -- 7,220 --
Acquisition of Monsanto Company's strawberry development program................ 5,000 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
DNAP Holding Corporation, a Delaware corporation (together with its
subsidiaries, "DNAP Holding" or the "Company"), a subsidiary of Bionova, S.A. de
C.V. ("Bionova Mexico"), a Mexican corporation, was formed on January 12, 1996,
and originally named Bionova U.S. Inc., to be the holding company of a
consolidated group, which includes certain former subsidiaries of Bionova Mexico
(the "Bionova Subsidiaries") and, after consummation of the merger discussed
below effective September 26, 1996, DNA Plant Technology Corporation and its
subsidiaries (DNAP). Today, the Company acts as a holding company for (i)
Agricola Batiz, S.A. de C.V., of which the Company owns 80.0% ("ABSA"), (ii)
International Produce Holding Company, of which the Company owns 100.0%
("IPHC"), (iii) DNA Plant Technology Corporation, of which the Company owns
100.0% ("DNAP"), and (iv) VPP Corporation, of which the Company owns 100.0%
("VPP"). As of July 1, 1996 and the date of the Merger, the Bionova Subsidiaries
consisted of majority interests in ABSA and IPHC. On October 7, 1997, the
Company acquired all of the minority interests in IPHC and increased its
ownership interest in ABSA to 80.0%.
THE COMPANY AND THE BIONOVA SUBSIDIARIES
On January 26, 1996, the Company issued 25,000 shares to Bionova Mexico in
exchange for a capital contribution of $25,000 and borrowed $5 million from
Bionova Mexico under a demand note agreement, at a fixed interest rate of
10.25%.
On July 1, 1996, Bionova Mexico transferred its interest in the Bionova
Subsidiaries to the Company and $5 million in cash in exchange for 270,922
common shares and acquired an additional 2,800 common shares of the Company for
$280,000 on August 1, 1996. Additionally, Bionova Mexico contributed the $5
million demand note in exchange for 50,000 common shares on August 2, 1996. On
August 5, 1996, Bionova Mexico contributed its shares of the Company's common
stock to its wholly-owned subsidiary, Bionova International, Inc.
The consolidated financial statements included herein have been prepared
giving retroactive effect to the contribution of the Bionova Subsidiaries in a
manner similar to a pooling of interest.
DNAP MERGER
On September 26, 1996, the merger of Bionova Acquisition, Inc., a
wholly-owned subsidiary of the Company, with and into DNAP (the "Merger") was
approved by DNAP stockholders and was consummated. Upon consummation of the
Merger, Bionova International, Inc. contributed an additional $8 million to the
Company for 12,510,726 common shares, and the former DNAP stockholders received
5,511,192 common shares. The name of the Company was changed to DNAP Holding
Corporation immediately prior to the Merger.
The value of the shares of the Company's common stock issued in connection
with the Merger was determined based on the number of shares of DNAP's common
stock and DNAP's $2.25 Convertible Exchangeable Preferred Stock outstanding, at
the fair value of the securities based on their respective
34
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
closing prices as quoted on the Nasdaq National Market at July 30, 1996, the
date of the second amendment to the merger agreement.
<TABLE>
<CAPTION>
SHARES
OUTSTANDING FAIR MARKET FAIR MARKET
(000'S OF VALUE PER VALUE
SHARES) SHARE ($000'S)
--------------- ----------- -----------
<S> <C> <C> <C>
DNAP common stock..................................................... 45,676 $ 0.531 $ 24,254
DNAP $2.25 Convertible Exchangeable Preferred Stock................... 1,380 3.125 4,312
-----------
28,566
Costs incurred by Bionova Mexico associated with the Merger........... 4,000
-----------
$ 32,566
-----------
-----------
</TABLE>
The purchase price was allocated to the following items based on a valuation
of the intangibles by an independent appraiser.
<TABLE>
<CAPTION>
($000'S)
---------
<S> <C>
Patents and trademarks............................................................. $ 14,800
Research and development........................................................... 12,900
Goodwill........................................................................... 10,528
Net liabilities of DNAP at fair value.............................................. (5,662)
---------
$ 32,566
---------
---------
</TABLE>
DNAP HOLDING CORPORATION CAPITAL INCREASE DURING 1998
On October 6, 1998, DNAP Holding announced a re-capitalization program
whereby all common shareholders as of the record date will be issued rights to
acquire 3 shares of common stock for every 4 shares they own at an exercise
price of $5.75 per share. Rights associated with partial shares will be rounded
up to the next higher whole number of shares equivalent.
At DNAP Holding's 1999 Annual Meeting of Stockholders, stockholders will be
asked to approve a proposal to amend DNAP Holding's Certificate of Incorporation
to increase the number of authorized shares of common stock to 50 million.
Bionova International, Inc., holder of 76.6% of the shares outstanding, has
agreed to vote all of its shares in favor of this proposal. An increase in the
number of authorized shares is required to issue all of the rights under this
capitalization program. Upon this affirmative vote to increase the number of
authorized shares, the rights to acquire the stock will be issued and
exercisable immediately and will expire on May 31, 2000.
As a part of the re-capitalization program, Bionova International, Inc.,
made a capital contribution of $30 million in October 6, 1998, and received in
exchange 5,217,391 shares of DNAP Holding Corporation common stock at a price of
$5.75 per share. Bionova International, Inc. agreed that, upon issuance of the
13,557,630 rights it will be due to receive following the shareholders meeting
on April 28, 1999, it will surrender back to DNAP Holding the equivalent number
of rights (9,130,435) corresponding to the number of shares it purchased in
October. Approximately 4,133,390 rights will be issued to all other stockholders
in accordance with their share holdings.
35
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Consolidation
The consolidated financial statements include DNAP Holding Corporation and
all of its wholly-owned and majority-owned subsidiaries (the Company). All
significant intercompany accounts and transactions have been eliminated.
Acquired businesses are included in the results of operations since their
acquisition dates. Divested businesses are included in the results of operations
until their divestiture dates. The minority stockholders' interest in the
majority-owned subsidiaries' financial position and results of operations is
presented as a minority interest in the Company's consolidated financial
statements.
b. Management's estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from such estimates.
c. Revenue recognition
PRODUCE SALES
The Company sells produce on its own account and on behalf of growers and
other parties on a commissioned basis. Revenue from such sales is recognized
when the produce is shipped, net of an allowance for estimated returns. Since
the Company bears the risk of loss for collection of sales proceeds for sales on
behalf of growers and other parties on which commissions are earned, the
associated sales are recognized at the gross sales amounts, net of an allowance
for estimated returns or other credits. In the consolidated results of
operations, 1998, 1997, and 1996 sales recognized on a commissioned basis and
the related commissions earned were as follows:
<TABLE>
<CAPTION>
($000'S)
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Sales....................................................... $ 148,079 $ 98,882 $ 30,455
Commissions earned.......................................... 13,695 9,132 3,253
</TABLE>
PRODUCT DEVELOPMENT ACTIVITIES
Revenue from product development activities is recognized during the period
the Company performs the development efforts in accordance with the term of the
agreements and activities undertaken. The revenue is recognized as earned over
the term of the agreement, in accordance with the performance effort. Revenue
that is related to future performance under such agreements is deferred and
recognized as revenue when earned.
d. Cash and cash equivalents
Cash equivalents are stated at cost, which approximates the fair value. The
Company considers all highly liquid and temporary cash investments with original
maturities of three months or less to be cash equivalents. The Company's policy
is to place its cash and cash equivalents with large creditworthy financial
institutions to limit the amount of credit exposure.
36
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Advances to growers
Advances to growers are made for supplies, seed, and other growing and
harvesting costs. The advances are interest bearing and repaid from amounts
withheld from sales proceeds due to growers.
f. Association agreements
The Company has entered into certain participation agreements with growers
under which the Company shares in the profits and losses associated with growing
activities. The Company records these participation agreements under the equity
method of accounting.
One grower in Baja California, Santa Cruz Empacadora, S. de R.L. de C.V.,
accounted in 1998 for approximately 12% of Company's consolidated sales. ABSA
recently has entered into a five-year production association agreement with this
grower that extends through 2003.
g. Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
using the first-in, first-out method for finished produce. Cost of growing crops
includes direct material and labor and an allocation of indirect costs and are
accumulated until the time of the harvest, subject to lower of cost or market
adjustments.
h. Property, plant and equipment
Property, plant and equipment are stated at their acquisition cost.
Additions to property, plant and equipment, including significant improvements
and renewals, are capitalized. Maintenance and repair costs are charged to
expense as incurred. Depreciation is computed using straight-line methods over
the estimated useful lives of the assets.
i. Goodwill
Goodwill consists principally of excess purchase price over net tangible
assets of businesses acquired. Goodwill is amortized on a straight-line basis
over twenty years. Amortization of goodwill amounted to $1.708 million, $1.174
million, and $0.700 million in 1998, 1997 and 1996, respectively. Accumulated
amortization was $4.857 million and $3.149 million at December 31, 1998 and
1997, respectively.
j. Patents and trademarks
The costs of obtaining patents are expensed as incurred. Acquired patents
and trademarks are capitalized and amortized using the straight-line method over
their estimated useful lives. During 1998 and 1997, the Company recorded
amortization expense of $1.233 million for both years.
k. Research and product development costs
All research and product development costs incurred or acquired are
expensed.
l. Stock based compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income (loss) and earnings (loss) per share as if the fair
value-based method had been applied in measuring compensation expense.
37
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
m. Concentration of credit risks
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables and
advances to growers. Credit risk associated with trade receivables is limited
due to the large number of customers comprising the Company's customer base.
There can be no assurance that an event outside of the Company's control will
not occur and cause these trade receivables or advances to be at risk. The
Company performs ongoing credit evaluations of its customers' and growers'
financial condition to determine the need for an allowance for uncollectible
accounts.
n. Impairment of long-lived assets
Management periodically reviews for impairment the long-lived assets and
certain identifiable intangibles held and used by the Company whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss is recognized whenever it is determined that
recoverability is impaired. Measurement of an impairment loss for long-lived
assets and identifiable intangibles that management expects to hold and use is
based on the fair value of the asset.
o. Income taxes
Current income tax expense or benefit represents the amount of income taxes
expected to be payable or refundable for the current year. A deferred income tax
liability or asset is established for the expected future tax consequences of
temporary differences between the financial reporting and income tax bases of
assets and liabilities. Deferred income tax expense or benefit represents the
net change during the year in the deferred income tax liabilities or assets.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be more likely than not realized in future tax
returns.
p. Fair value of financial instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents, trade receivables and payables, and advances to growers,
approximate their fair market value due to their short-term maturities. The
carrying value of the Company's long-term debt is estimated to approximate its
fair value.
q. Translation of financial statements
The financial statements for subsidiaries whose functional currency is not
the U.S. dollar are translated in the following manner: assets and liabilities
at the year end rates; stockholders' equity at historical rates and results of
operations at the monthly average exchange rates. The effects of exchange rate
changes are reflected as a separate component of stockholders' equity.
For subsidiaries whose activities are recorded in currencies which are not
their functional currency and any subsidiaries located in a hyperinflationary
environment, i.e. countries with inflation exceeding
38
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
100% over the prior three years (which in the case of DNAP Holding includes all
Mexican subsidiaries), the components of the financial statements are translated
as follows:
<TABLE>
<S> <C>
BALANCE SHEET:
Current assets, except inventories......................... year-end
Inventories................................................ historical
Liabilities................................................ year-end
Property, plant and equipment.............................. historical
Stockholders' equity....................................... historical
RESULTS OF OPERATIONS:
Sales...................................................... historical
Cost of sales.............................................. historical
Depreciation and amortization.............................. historical
Interest................................................... monthly average
Other expenses and income.................................. monthly average
Income taxes............................................... monthly average
</TABLE>
Gains and losses in re-measurement arise mainly from the effect of exchange
rate fluctuations on net monetary items denominated in pesos and are included in
results of operations.
r. Net loss per common share
Basic net income (loss) per common share is computed as net income (loss)
divided by the weighted average number of common shares outstanding during the
period. Diluted net income (loss) per common share is computed as net income
(loss) divided by the weighted average number of common shares and potential
common shares, using the treasury stock method, outstanding during the period.
There are no reconciling items in calculating the numerator and denominator for
basic and diluted net income (loss) per share for any periods presented.
s. Employee benefit plan
DNAP has a savings and retirement plan and trust (the "401(k) Plan")
available to all eligible employees of DNAP. An eligible employee may elect to
defer, in the form of contributions to the 401(k) Plan, between 1% and 15% (in
1% increments) of the total compensation that would otherwise be paid to the
employee, subject to annual contribution limitations. An employee's
contributions are invested at the direction of the employee in various
investment options and are fully vested and non-forfeitable immediately upon
contribution. The 401(k) Plan provides for DNAP contributions in the form of
common stock or cash, not to exceed 3% of elective salary deferral
contributions. During 1998, 1997, and 1996, DNAP's cash contributions to the
401(k) Plan were approximately $0.110 million, $0.082 million, and $0.017
million, respectively.
Effective January 1, 1998, Tanimura Distributing, Inc. ("TDI"), implemented
a 401(k) profit sharing plan (the "TDI Plan") available to all eligible
employees of TDI. An eligible employee may elect to defer, in the form of
contributions to the TDI Plan, up to 15% of the total compensation that would
otherwise be paid to the employee, subject to annual contribution limitations.
An employee's contributions are invested at the direction of the employee in
various investment options and are fully vested and non-forfeitable immediately
upon contribution. The TDI Plan provides for TDI matching contributions at the
discretion of
39
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the employer (TDI). For 1998, TDI agreed to match employee contributions up to a
maximum of $500 per employee. During 1998, TDI's employer contributions amounted
to approximately $0.013 million.
t. Comprehensive income
The Company adopted Statement of Financial Accounting Standard No. 130 ("FAS
130"), "Reporting Comprehensive Income," for fiscal 1998 and retroactively
restated all prior periods to conform with FAS 130 as required. FAS 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. Comprehensive income is defined as "the
change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners."
u. Segment reporting
The company adopted Statement of Financial Accounting Standard No. 131 ("FAS
131"), "Disclosures about Segments of an Enterprise and Related Information,"
for fiscal 1998 and retroactively restated all prior periods to conform with FAS
131 as required. FAS 131 requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate, and their major customers.
v. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities ("FAS 133") which the Company will be required to adopt for its 2000
annual financial statements. This statement establishes a new model for
accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company historically has conducted a limited number of hedging
transactions in foreign currencies by using forward contracts. The Company has
not determined the impact of the adoption of this new accounting standard on its
consolidated financial position or results of operations at this time.
w. Reclassification of costs
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 3--ACQUISITIONS, MERGERS, AND DIVESTITURES
In 1994 and 1995, Bionova Mexico and its subsidiaries acquired control of
the following companies:
- During 1994, Bionova Mexico made a capital contribution toward the
formation of Premier Fruits & Vegetables BBL, Inc. ("Premier") in the
amount of $0.161 million in cash, representing an 80% share of the capital
stock. This investment was contributed to IPHC in December, 1994.
- During December 1994, Bionova Mexico acquired 51% of IPHC for $2.2 million
in cash. This U.S. company distributes fresh produce in the United States
and Canada through its subsidiaries, R.B. Packing, Inc., R.B. Packing of
California, Inc., R.B. Packing of Texas, Inc. (all 100% owned), TDI (75%
owned), and Premier (80% owned). The goodwill resulting from this 1994
acquisition amounted to $0.675 million.
40
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS, MERGERS, AND DIVESTITURES (CONTINUED)
- In January 1995, ABSA acquired a 50.01% stake in Interfruver de Mexico,
S.A. de C.V. ("Interfruver"), a Mexican distributor of fresh produce, for
$2.055 million in cash, resulting in the recognition of goodwill of $1.94
million. The agreement to acquire Interfruver established that, in
addition to the purchase price mentioned above, a contingent pay out of
$2.0 million could be due to the sellers (the minority stockholders) on an
earn out basis over a four-year period beginning in 1995. This contingent
payment has resulted in an adjustment of the original purchase price and a
corresponding increase in goodwill and related amortization. Amounts paid
under this contingent payment arrangement were $0.476 million, $0.350
million and $0.0 million in 1998, 1997 and 1996 respectively. While the
amount has not yet been determined by the Company, a payment could be made
in the second quarter of 1999 representing the earn out for 1998.
The following table summarizes the net investment by Bionova Mexico in the
subsidiaries acquired through December 31, 1995, which were contributed to the
Company in 1996.
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------------
COMPANY ACQUIRED 1996 1995
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
ABSA.................................................................... $ 25,296 $ 24,360
Tanimura................................................................ 191 191
IPHC.................................................................... 2,200 2,200
Premier................................................................. 161 161
--------- ---------
Total................................................................... $ 27,848 $ 26,912
--------- ---------
--------- ---------
</TABLE>
These acquisitions were accounted for under the purchase method. The
companies are included in the consolidated financial statements since the date
of their acquisition. Tanimura and Premier had no operations prior to their
formation with Bionova Mexico as the controlling stockholder.
In 1996, 1997 and 1998, the Company and its subsidiaries made the following
acquisitions and divestitures:
- In November 1996, IPHC acquired a 51% stake in Royal Van Namen ("RVN"), a
distributor of fresh produce located in The Netherlands, for $1.475
million in cash, resulting in the recognition of minimal goodwill. In
addition, the Company made an earn-out payment in 1997 for 1996
performance of $0.277 million. In February 1998, the Company sold its
entire 51% interest in RVN for $0.9 million. The loss on the sale was
recognized in the 1997 accounts, and amounted to $0.832 million. Revenues,
operating profit, and income before income tax recorded in the the
consolidated statement of operations for RVN in 1997 were $54.843 million,
$0.486 million, and $0.355 million, respectively.
- In August 1997, the Company, through its wholly owned subsidiary, VPP
Corporation, acquired the intellectual property assets of United Agricorp,
Inc. ("UAC"), including all of UAC's rights to and under technology,
issued patents, trademarks, trade secrets, know-how and all similar
rights. DNAP had been performing work under a research agreement with UAC
since 1995 in the area of genetic modifications of strawberries to improve
various traits. The purchase price for UAC's technology assets was $2.8
million. In connection with the transaction, in consideration for certain
41
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--ACQUISITIONS, MERGERS, AND DIVESTITURES (CONTINUED)
non-competition and indemnification commitments made by UAC's major
stockholder, the Company issued options to purchase 100,000 shares of the
Company's common stock. The exercise price of these options was the market
price of the common stock on August 27, 1997.
- In October 1997, the Company completed its acquisition of the minority
interests in IPHC and increased its ownership in ABSA to 80.0% (the
effective date of the transaction agreed to by the parties was July 31,
1997 for purposes of allocating minority income and losses). The price for
acquiring these interests was $14.7 million. The goodwill resulting from
the acquisition of these interests was $12.1 million.
- In December 1998, the Company, through its wholly owned subsidiary, VPP
Corporation, acquired Monsanto Company's strawberry development program.
The program includes exclusive rights to most of Monsanto's existing
genetic and gene technology for berry development, and a non-exclusive
right to future Monsanto berry technology, including strawberries,
cranberries, raspberries, blackberries, boysenberries and blueberries. The
package includes a breeding program with a strawberry variety expected to
be commercially available in the United States in 1999, as well as
multiple strawberry varieties planned for commercial introduction over the
next few years. This acquisition complements the research that DNAP had
been conducting since 1995 in the area of genetic modifications of
strawberries to improve various traits. The purchase price for Monsanto's
technology assets was $5.0 million and was paid in January, 1999. These
technology assets will be amortized over a period of ten years. In
consideration for certain additional licenses and assets the Company could
be obligated to the payment of an additional $7.0 million, which will be
recorded as additions to the purchase price if and when they occur.
The following unaudited pro forma results of operations assume that the
Merger had been consummated on January 1, 1995 and the acquisition of the
minority interests in ABSA and IPHC had been consummated on January 1, 1996.
Further, as RVN was sold in February 1998, the 1996 and 1997 results have been
adjusted to exclude its results of operations.
<TABLE>
<CAPTION>
($000'S)
PRO FORMA
(UNAUDITED)
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... 227,184 200,448 211,935
Net loss (1)............................................................ (20,949) (14,566) (18,347)
Loss per common share--basic and diluted................................ $ (1.14) $ (1.02) $ (1.67)
Pro forma weighted average common shares outstanding.................... 18,370,640 14,286,318 10,967,299
</TABLE>
- ------------------------
(1) does not include the $2.8 million and $12.9 million write-off of purchased
research and development in 1997 and 1996, respectively.
42
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE
Accounts receivable were comprised of the following:
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Trade....................................................................................... $ 21,960 $ 28,871
Recoverable value-added tax................................................................. 1,960 1,305
Officers and employees...................................................................... 286 121
Sundry debtors.............................................................................. 2,688 4,517
Related parties............................................................................. 2,484 690
--------- ---------
29,378 35,504
Allowance for doubtful accounts and returns................................................. (1,158) (2,727)
--------- ---------
$ 28,220 $ 32,777
--------- ---------
--------- ---------
</TABLE>
The Company sells its produce primarily to retailers and wholesalers in the
United States, Mexico and Canada. No single customer accounted for more than 5%
of the Company's sales, and there were no significant accounts receivable from a
single customer at December 31, 1998 or 1997.
NOTE 5--ADVANCES TO GROWERS
Advances to growers were comprised of the following:
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Advances to growers.......................................................................... $ 13,901 $ 5,283
Advances to related parties.................................................................. 760 1,016
--------- ---------
14,661 6,299
Allowance for doubtful accounts.............................................................. (2,475) (988)
--------- ---------
$ 12,186 $ 5,311
--------- ---------
--------- ---------
</TABLE>
The Company has agreements with certain produce growers in Mexico and in the
United States, whereby a significant portion of growing costs are paid in
advance by the Company. The growing costs are recorded as advances to growers
and are recognized as a component of cost of produce sales when the produce is
sold. The advances in Mexico ($7.572 million and $4.569 million at December 31,
1998 and 1997, respectively) in some cases are secured by promissory notes
and/or the right to use the acreage of the grower if the advances are not
repaid. Advances to growers in the United States ($4.614 million and $0.742
million at December 31, 1998 and 1997, respectively) are generally not
collateralized.
Advances earned interest at 14% per annum in 1998 and 1997, and 12% per
annum in 1996. Interest income from these advances amounted to $0.609 million,
$0.651 million, and $0.884 million during the years ended December 31, 1998,
1997 and 1996, respectively.
43
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INVENTORIES
Inventories were comprised of the following:
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------------
<S> <C> <C> <C>
1998 1997
--------- ---------
Finished produce................................................................ $ 2,756 $ 1,815
Growing crops................................................................... 8,020 9,974
Advances to suppliers........................................................... 299 316
Spare parts and materials....................................................... 3,977 4,821
Merchandise in transit and other................................................ 1,566 980
--------- ---------
16,618 17,906
Allowance for slow moving inventory............................................. (140) (127)
--------- ---------
$ 16,478 $ 17,779
--------- ---------
--------- ---------
</TABLE>
NOTE 7--PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment was comprised of the following:
<TABLE>
<CAPTION>
($000'S)
--------------------
<S> <C> <C> <C>
DECEMBER 31,
-------------------- ESTIMATED
1998 1997 USEFUL LIFE
--------- --------- -----------
Land............................................................................ $ 9,422 $ 10,993
Buildings....................................................................... 14,699 10,672 25 years
Machinery and equipment......................................................... 14,567 13,364 15 years
Office equipment................................................................ 2,232 2,232 4 years
Transportation equipment........................................................ 3,906 3,383 10 years
Vineyards and agricultural tools................................................ 2,459 2,471 3 years
Land improvements and others.................................................... 3,315 2,638 13 years
--------- ---------
50,600 45,753
Accumulated depreciation and amortization....................................... (11,989) (9,233)
--------- ---------
$ 38,611 $ 36,520
--------- ---------
--------- ---------
</TABLE>
Equipment amounting to $2.414 million and $2.150 million at December 31,
1998 and 1997, respectively, has been recorded under capitalized leases and
included above. Related accumulated depreciation amounted to $0.822 million and
$0.582 million at December 31, 1998 and 1997, respectively, and the related
depreciation expense amounted to $0.175 million, $0.192 million and $0.126
million for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 8--BANK LOANS AND LONG-TERM DEBT
SHORT-TERM LOANS
Short-term bank loans consist of amounts due to banks, denominated in U.S.
dollars, under various lines of credit facilities. The lines of credit contain
certain covenants which, among other things, require maintenance of certain
ratio levels and tangible net worth levels. The lines of credit bear interest at
prime (9.7% and 7.5% at December 31, 1998 and 1997, respectively). Various
credit facilities are available with
44
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--BANK LOANS AND LONG-TERM DEBT (CONTINUED)
banks whereby the Company may borrow upon such terms as the subsidiaries and
banks mutually agree. At December 31, 1998, such bank credit facilities amounted
to $93.3 million, of which $13.5 million was not used. The amounts due under
bank credit facilities with Mexican banks are generally renewable at the
discretion of the banks. The Company has informal arrangements with these banks,
which permit additional borrowings, subject to the availability of funds by the
banks.
The Company completed a $30 million one-year term credit facility with Bank
of Montreal which matures on November 23, 1999. Such credit facility is included
in the short-term debt outstanding of $79.8 million at December 31, 1998. This
loan is guaranteed by Savia, S.A. de C.V., formerly known as Empresas La
Moderna, S.A. de C.V. ("Savia"). The interest rate assigned to this loan is
LIBOR plus 5% or PRIME plus 2.5% (10.25% on December 31, 1998); its continued
funding is subject to the maintenance of certain financial and other covenants
by both DNAP Holding and Savia.
At December 31, 1998, Savia, the parent company of Bionova Mexico,
guaranteed $79.8 million of this debt. Savia is obligated under the terms of the
Merger through September, 1999 to provide under certain conditions a guarantee
of indebtedness of the Company of up to $20 million to a financial institution
under a loan or a line of credit.
45
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--BANK LOANS AND LONG-TERM DEBT (CONTINUED)
LONG-TERM LOANS
Consolidated obligations under long-term debt arrangements are denominated
in U.S. dollars and were comprised of:
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------
<S> <C> <C> <C>
1998 1997
------ ------
Bank loan that bore interest at a rate equivalent to Libor plus 1% and which was secured with first
mortgage on land and buildings in The Netherlands................................................ -- $1,342
Capital lease obligations secured by the related equipment acquired, bearing interest at variable
annual rates (14% at December 31, 1998 and 1997)................................................. $ 306 473
Mortgage notes payable to banks secured by the related real estate, interest at prime plus 1.5%
(10.0% and 8.75% at December 31, 1998 and 1997, respectively), interest payable monthly and
maturing on dates through October, 2001.......................................................... 234 273
Notes to former minority stockholders of ABSA and IPHC, bearing interest at 10% and payable
annually in installments in 1999 and 2000........................................................ 4,972 7,220
Other.............................................................................................. 271 495
------ ------
5,783 9,803
Less current portion............................................................................... (1,558) (2,588)
------ ------
Long-term debt..................................................................................... $4,225 $7,215
------ ------
------ ------
</TABLE>
The maturities of the long-term debt at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, ($000'S)
- --------------------------------------------------------------------------------------------------------- -----------
<S> <C>
1999..................................................................................................... $ 1,558
2000..................................................................................................... 3,908
2001..................................................................................................... 277
2002..................................................................................................... 37
2003..................................................................................................... 3
Thereafter............................................................................................... --
-----------
$ 5,783
-----------
-----------
</TABLE>
46
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses were comprised of the following:
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Trade....................................................................................... $ 8,528 $ 16,119
Payables to growers......................................................................... 6,889 6,106
Accrued compensation........................................................................ 1,749 2,606
Accrued interest............................................................................ 996 1,433
Income taxes payable........................................................................ 578 635
Accrual for purchase of strawberry development program...................................... 5,000 --
Sundry creditors............................................................................ 2,335 2,016
--------- ---------
$ 26,075 $ 28,915
--------- ---------
--------- ---------
</TABLE>
NOTE 10--INCOME TAXES
The (charges) credits for income taxes are summarized as follows:
<TABLE>
<CAPTION>
($000'S)
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
CURRENT
United States
Federal........................................................................... $ (118) $ (313) $ (606)
State............................................................................. (1) (85) (146)
Foreign............................................................................. (632) (146) --
--------- --------- ---------
(751) (544) (752)
--------- --------- ---------
DEFERRED
United States
Federal........................................................................... 3 (160) 21
State............................................................................. (2) 21 --
Foreign............................................................................. 294 (743) (2,007)
--------- --------- ---------
295 (882) (1,986)
--------- --------- ---------
Income tax expense.................................................................. $ (456) $ (1,426) $ (2,738)
--------- --------- ---------
--------- --------- ---------
</TABLE>
47
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
Income tax (expense) benefit differs from the amounts computed by applying
the statutory federal income tax rate (34% in both Mexico and the United States)
to pretax income as a result of the following:
<TABLE>
<CAPTION>
($000'S)
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Tax benefit at statutory rate in the United States (34%)........................... $ 5,355 $ 7,776 $ 5,294
Effect of lower tax rate of 17% for agricultural businesses in Mexico.............. (1,949) (1,650) (316)
Write-off of purchased research and development.................................... -- -- (4,386)
Change in valuation allowance of deferred tax assets............................... (1,679) (5,872) (2,384)
Taxable inflationary gains in Mexico............................................... (1,243) (944) (548)
Depreciation on inflation-indexed value of property, plant, and equipment in
Mexico........................................................................... 215 501 328
Expected settlement of prior years' income taxes................................... -- (519) --
State taxes........................................................................ 2 -- (97)
Other.............................................................................. (1,157) (718) (629)
--------- --------- ---------
$ (456) $ (1,426) $ (2,738)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
at December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
($000'S)
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Tax loss carryforwards.................................................................... $ 21,912 $ 19,680
Non-deductible provisions................................................................. 748 350
Other..................................................................................... -- 56
--------- ---------
Total deferred tax assets................................................................... 22,660 20,086
Valuation allowance......................................................................... (18,486) (16,807)
--------- ---------
Net deferred tax assets..................................................................... $ 4,174 $ 3,279
--------- ---------
--------- ---------
DEFERRED TAX LIABILITIES
Inventories............................................................................... (3,209) (2,875)
Other..................................................................................... (2,106) (1,840)
--------- ---------
Total deferred tax liabilities.............................................................. (5,315) (4,715)
--------- ---------
Net deferred tax liabilities................................................................ $ (1,141) $ (1,436)
--------- ---------
--------- ---------
</TABLE>
The Mexican asset tax of 1.8% on certain net assets is not applied during
the first three years after an asset in placed in operation. This tax, once
applied, is due if federal income taxes are not in excess of the asset tax. It
can be recovered in future years from taxes on future income in excess of future
asset tax.
During 1998 ABSA applied its investment tax credits generated from its fixed
asset investments against the asset tax. Starting in 1999, ABSA, due to changes
in the tax law in Mexico, will compute its federal income taxes on the basis of
a simplified tax filing scheme (i.e., a cash basis). Under this approach,
48
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
ABSA will not have taxable income until profits are distributed to its
stockholders as dividends. The Company has not determined the impact of this
change on ABSA's tax loss carryforwards.
At December 31, 1998, the Company had total tax loss carryforwards of
approximately $74.3 million. Tax loss carryforwards from the Company's Mexican
subsidiaries can be inflation-indexed in Mexico until the date of their
application against future taxable profits. The tax loss carryforwards expire
from 2003 to 2008. The tax loss carryforwards are contained in the Company's
Mexican subsidiaries ($26.6 million), U.S. subsidiaries ($46.5 million), and
other foreign subsidiaries ($1.2 million).
DNAP had tax loss carryforwards at the date of the Merger whose utilization
is limited to $27.8 million. A full valuation allowance has been provided with
respect to these tax loss carryforwards.
A settlement was reached between R.B. Packing, Inc. and the Internal Revenue
Service regarding a dispute relating to commissions charged and certain travel
and expense charges relating to an audit of the 1991 through 1995 tax years. The
Company made a provision in 1996 and 1997 amounting to $0.650 million for the
five years in dispute, which included interest and state income taxes and
further provided for the effect of this settlement.
NOTE 11--STOCK OPTIONS AND WARRANTS
STOCK OPTION PLANS
As a result of the Merger the Company assumed DNAP's existing stock option
plans. The number of shares and option exercise prices were adjusted to give
effect to the exchange ratio stipulated in the merger agreement. The six plans
are the 1982 Stock Option Plan, 1986 Stock Option Plan, 1994 Stock Option Plan,
the Non-Employee Directors Stock Option Plan, the Incentive Stock Option Plan,
and the Non-Qualified Stock Option Plan. Approximately 65,782 options were
outstanding at December 31, 1998 under all of these stock option plans. The
Company does not expect to award any new options under any of these plans.
The 1986 Plan and the 1994 Plan provided for the granting of incentive stock
options, as defined under the Internal Revenue Code, and non-qualified stock
options, restricted stock and stock appreciation rights to officers and
employees of, and consultants and advisors to DNAP (and now the Company), at
prices which were generally not less than the fair market value of the common
stock on the date of grant and expiring ten years from the date of grant.
The Directors' Plan provided for initial and annual grants of non-qualified
stock options to each non-employee director at prices which were equal to 90%
and 100%, respectively, of the fair market value of DNAP's (and now the
Company's) common stock on the date of grant and expiring ten years from the
date of grant. An initial director's option became exercisable in five equal
annual installments, beginning one year from the date of grant, and the annual
awards became fully exercisable within one year from the date of grant.
In addition to the options plans assumed at the time of the Merger, at the
1998 Annual Meeting of Shareholders, DNAP Holding Corporation's 1998 Long-Term
Incentive Plan was approved. This plan provides for the issuance of stock
options and other forms of stock-based awards to all employees and directors of
the Company. The maximum number of shares of common stock that are available for
grant of awards under this plan is not to exceed 2,000,000 shares. No options or
other stock-based awards were issued under this plan during 1998.
49
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of the activity under all of the Company's stock option plans
during 1996, 1997, 1998 is as follows:
<TABLE>
<S> <C>
Outstanding, at the effective date of the Merger on September 26, 1996........... 134,959
Granted........................................................................ --
Exercised...................................................................... --
Expired and canceled........................................................... (191)
---------
Outstanding on December 31, 1996................................................. 134,768
Granted........................................................................ --
Exercised...................................................................... --
Expired and canceled........................................................... (10,745)
---------
Outstanding on December 31, 1997................................................. 124,023
Granted........................................................................ --
Exercised...................................................................... --
Expired and canceled........................................................... (58,241)
---------
Outstanding on December 31, 1998................................................. 65,782
---------
Available for grant at December 31............................................... 2,001,228
---------
Exercisable at December 31....................................................... 65,372
---------
Option prices per share
Granted........................................................................ None
Exercised...................................................................... None
Expired or canceled.................................................... $13.75 to $52.50
Outstanding............................................................ $20.31 to $76.25
</TABLE>
The following table summarizes information about the outstanding stock
options at December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE NUMBER OF AVERAGE
OPTIONS CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE OPTIONS PRICE
- ---------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$20.31--$29.94...................................... 5,218 6.32 Yrs. $ 21.34 4,888 $ 21.22
$30.00--$38.75...................................... 23,658 4.63 Yrs. $ 34.00 23,578 $ 34.01
$41.25--$50.00...................................... 19,995 3.99 Yrs. $ 47.10 19,996 $ 47.10
$51.25--$76.25...................................... 16,911 3.81 Yrs. $ 54.98 16,910 $ 54.98
----------- -----------
Total............................................... 65,782 4.36 Yrs. $ 42.37 65,372 $ 42.48
----------- -----------
----------- -----------
</TABLE>
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, the Company's net loss and net loss per
share would not have been materially different than the reported amounts.
50
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTIONS AND WARRANTS (CONTINUED)
WARRANTS AND OTHER OPTIONS
At December 31, 1998 the Company had the following warrants and options
outstanding, which it assumed in connection with the merger:
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES PRICE PER SHARE EXPIRATION DATE
- -------------- --------------- --------------------------------------
<C> <C> <S>
40,000 $ 66.50 January, 1999
407,018 25.00 Third and fourth quarters of 2000
100,000 4.38 August, 1999
</TABLE>
During 1995, DNAP issued common stock with warrants that expire during the
third and fourth quarters of 2000, and which entitle the holders to purchase an
additional 407,018 shares of common stock at $25.00 per share. In 1997, DNAP
Holding granted UAC's majority stockholder options to purchase 100,000 shares at
an exercise price of 4 3/8, which was the fair market value on the date of the
grant, in consideration for certain non-competition and indemnification
commitments. These options expire in August, 1999.
NOTE 12--BALANCES AND TRANSACTIONS WITH RELATED PARTIES
SAVIA CREDIT LINE
The short-term accounts due to related parties shown in the consolidated
balance sheet bears interest at variable rates comparable to those prevailing in
the market place. The debt with related parties arose from the long-term credit
line made available to affiliates of Savia and bears interest at variable rates
similar to those prevailing in the market place. At December 31, 1998, such
credit facility amounted to $27.0 million, of which $26.8 million was not used.
At December 31, 1997, $15.429 million was outstanding under this arrangement.
During 1998, 1997, and 1996, the Company incurred interest expense of $0.883
million, $0.519 million, and $0.310 million, respectively.
INSURANCE AND FACTORING ARRANGEMENTS
The Company contracts for insurance and factoring services with a related
party. During 1998, 1997 and 1996, the Company incurred insurance expense of
$0.213 million, $0.289 million, and $0.591 million, respectively. Amounts due
under factoring arrangements were $0.0 million and $0.868 million at December
31, 1998 and 1997, respectively, and interest expense incurred in connection
with factoring arrangements was $0.035 million, $0.0 million, and $0.123 million
in 1998, 1997, and 1996, respectively.
LABOR AND ADMINISTRATIVE SERVICES
From 1995 through October, 1997 ABSA had a contractual arrangement with
Copropriedad Agricola Batiz Hermanos ("CABH") pursuant to which CABH provided
labor and administrative services to ABSA, and ABSA paid a fee to CABH based on
CABH's costs incurred in connection with providing such services. Both Raul
Batiz G. and Guillermo Batiz G., former executive officers of ABSA, owned in
excess of 10% of CABH and were deemed, by virtue of their positions with ABSA,
to be executive officers of DNAP Holding. In 1997 and 1996, ABSA paid a total of
approximately $14.094 million and $13.208 million, respectively, to CABH under
this arrangement. As of October 31, 1997, ABSA terminated its relationship with
CABH. Labor and administrative services are now being provided by Siembra
Cultivo y Cosecha del Noroeste, S.A. de C.V., which is a subsidiary of ABSA.
51
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
ADMINISTRATIVE SERVICES AGREEMENT
An Administrative Services Agreement between the Company and Bionova Mexico
was entered into on July 1, 1996. This agreement provides that Bionova Mexico
will render certain administrative and clerical services to the Company and its
direct and indirect subsidiaries in return for payment equivalent to the
compensation, benefits, and other overhead attributable to the employees of
Bionova Mexico performing these services, all of which will be performed in
Mexico. The initial term of the agreement was extended to December 31, 1998 and
will continue thereafter for successive one-year terms unless either the Company
or Bionova Mexico elects to terminate the agreement. Amounts billed in 1998,
1997 and 1996 by Bionova Mexico under this agreement were $3.050 million, $1.000
million and $0.616 million, respectively. As of December 31, 1998, 1997 and
1996, the Company had a payable to Bionova Mexico outstanding of $4.530, $3.001
and $1.845 million, respectively. The outstanding balances bear interest at
variable rates comparable to those prevailing in the market place.
ADVANCES TO GROWER RELATED PARTIES
The Company has agreements with certain related party produce growers in
Mexico, whereby a significant portion of growing costs are paid in advance by
the Company. The growing costs are recorded as advances to growers and are
recognized as a component of cost of produce sales when the produce is sold.
These advances in some cases are secured by promissory notes and/or the right to
use the acreage of the grower if the advances are not repaid.
LOANS AND CAPITAL CONTRIBUTIONS
In connection with the acquisition of DNAP, Bionova Mexico loaned $5 million
to the Company on January 26, 1996 and contributed $5 million to the capital of
the Company on July 1, 1996. The interest rate on the loan was 10.25% per annum.
The loan was capitalized by Bionova Mexico on August 2, 1996. Interest expense
for the period that the loan was outstanding during 1996 amounted to $0.264
million. Pursuant to a loan agreement dated January 26, 1996 between the Company
and DNAP, the Company made two loans to DNAP in equal amounts of $5 million on
January 26, 1996 and July 1, 1996. These loans are secured by the assignment to
the Company of DNAP's right, title, and interest in the patents relating to
DNAP's Transwitch gene suppression technology, and the Company may require
additional security under certain circumstances. These loans, which were
originally due to mature in January 1999, have been extended with the principal
plus accrued interest due in full on January 31, 2001.
LONG-TERM FUNDED RESEARCH AGREEMENT
On September 26, 1996, in connection with the merger, DNAP and Savia entered
into a long-term funded research agreement, which provided that DNAP and Savia,
directly or through its affiliates, will use their best efforts to agree on
research projects to be conducted by DNAP for Savia or its affiliates and which
will result in payments to DNAP of $30 million over a 10-year period, with
minimum funding (subject to carry forwards) of $9 million in any three-year
period. Unless otherwise agreed by the parties, payments of at least $0.625
million in respect of Savia's obligation to fund research projects are to be
paid at the beginning of each calendar quarter. In the fourth quarter of 1996,
Seminis Vegetable Seed, Inc. ("Seminis"), a subsidiary of Savia, commenced work
under this long-term research agreement with DNAP. Through December 31, 1998
Seminis paid DNAP $5.625 million in cash. Work performed during 1998, 1997 and
1996 earned revenue in the amounts of $2.775 million, $2.008 million, and $0.100
million, respectively. The remaining $0.742 million of deferred revenue has been
included in accounts due to
52
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
related parties. Several other affiliates of Savia are in discussions with DNAP
to identify additional research projects to be worked on under the long-term
funded research agreement.
LEGAL REPRESENTATION
The Secretary of the Company is a shareholder in the law firm which provides
legal services to the Company and several subsidiaries. During 1998, 1997, and
1996 the law firm billed approximately $0.684 million, $0.694 million, and
$0.100 million respectively, to the Company.
NOTE 13--OTHER NON-OPERATING INCOME (LOSS)
During 1998, 1997, and 1996 the Company recorded a gain upon sale of
property, plant and equipment of $0.137 million, $0.321 million, and $0.325
million, respectively, and received subsidies of $0.0 million, $0.520 million,
and $1.733 million, respectively, in connection with a special incentive program
sponsored by the various Mexican government and banking institutions for
companies in the agriculture, fishing, and forestry industries. The subsidy
received was determined using specified formulas based on ABSA's debt
outstanding as of June 30, 1996 and the repayments of principal and interest
made by ABSA from July 1996 through June 1997. The special incentive program was
terminated in June 1997.
A provision of $0.832 million was recorded by the Company in 1997 as a
result of the divestiture of RVN in February 1998.
NOTE 14--COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
On January 21, 1997, a class action lawsuit STYLED GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district
court for the Northern District of California. The plaintiffs allege that, prior
to the merger (the "Merger") of DNAP with a subsidiary of DNAP Holding on
September 26, 1996, they owned shares of DNAP's $2.25 Convertible, Exchangeable
Preferred Stock ("Preferred Stock"). In connection with the Merger, all of the
shares of common stock and Preferred Stock of DNAP were converted into the
number of shares of common stock of DNAP Holding specified in the Merger
Agreement. The plaintiffs allege that they were denied certain rights they
allegedly had under the terms of the Preferred Stock and that certain
individuals (the "Individual Defendants"), each of whom was a director of DNAP
prior to the Merger and in some cases later served as a director of DNAP
Holding, breached fiduciary duties of loyalty, candor and care allegedly owed to
DNAP and its stockholders. The plaintiffs claim to have been damaged by the
alleged actions of the defendants and therefore the plaintiffs seek unspecified
actual and punitive damages as well as reimbursement of their litigation costs
and expenses. On August 27, 1997, the court granted motions to dismiss all of
the claims pending against all of the defendants, except the claims of breach of
the fiduciary duty of loyalty against the Individual Defendants. The court also
gave the plaintiffs leave to amend the complaint against certain other named
defendants, including DNAP Holding, as to a claim for aiding and abetting the
alleged breach of fiduciary duty of loyalty. On January 14, 1999, the court
granted plaintiffs motion to reinstate the claims for breach of contract and
tortious interference arising from Plaintiffs claim that the preferred
stockholders should have had the opportunity to vote on the Merger. DNAP Holding
and DNAP deny any wrongdoing or liability in this matter and intend to
vigorously contest this lawsuit.
53
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
On January 7, 1999, a class action lawsuit STYLED GORDON K. AARON ET AL. V.
EMPRESAS LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district
court for the Northern District of California. The plaintiffs allege that, prior
to the Merger of DNAP with a subsidiary of DNAP Holding on September 26, 1996,
they owned shares of DNAP's Preferred Stock. In connection with the Merger, all
of the shares of common stock and Preferred Stock of DNAP were converted into
the number of shares of common stock of DNAP Holding specified in the Merger
Agreement. The plaintiffs allege that the Proxy Statement/Prospectus distributed
to DNAP's stockholders in connection with the merger contained material
misrepresentations and omitted to state material facts, including alleged facts
relating to the preferred stockholders' alleged right to vote on the merger.
Both DNAP and DNAP Holding, as well as certain former and current directors of
DNAP and DNAP Holding, have been named as defendants in this matter. The
plaintiffs claim to have been damaged by the alleged actions of the defendants
and therefore the plaintiffs seek unspecified actual damages, reimbursement of
their litigation costs and expenses, and equitable relief, including rescission
of the Merger. The plaintiffs also allege that they were entitled to receive,
and seek specific performance of, special conversion privileges under the terms
of the Certificate of Designation that established the Preferred Stock. DNAP
Holding and DNAP deny any wrongdoing and liability in this matter and intend to
vigorously contest this lawsuit.
On January 28, 1999, a class action lawsuit styled ROBERT KACZAK V. EMPRESAS
LA MODERNA, S.A. DE C.V., ET AL. was filed in the U.S. federal district court
for the Northern District of California. The complaint is substantially
identical to the above-described complaint filed on January 7, 1999 by the AARON
plaintiffs. DNAP Holding and DNAP deny any wrongdoing and liability in this
matter and intend to vigorously contest this lawsuit.
In a complaint filed on March 31, 1998, in the Superior Court of the State
of California, County of San Mateo, U.A. Local No. 467 Health and Welfare Trust
Fund sued numerous defendants including DNAP and various manufacturers and
distributors of tobacco products. Since March 31, 1998, DNAP has been named as a
defendant in twenty-three additional cases brought on behalf of union trust
funds and benefit trusts in the California state courts. In each of these cases,
the plaintiff alleges that the defendants engaged in improper business and
advertising practices; committed fraud and deceit, conspiracy to commit fraud,
and aiding and abetting fraud; made negligent misrepresentations; and violated
California's anti-trust laws. DNAP's involvement in these suits arises from
allegations regarding research it performed for a major tobacco company from
1983 through 1994. In each of these suits, the plaintiff is seeking economic
damages and injunctive relief. These cases have been consolidated in the
Superior Court of the State of California, County of San Diego. DNAP filed a
demurrer (a motion to dismiss all of the claims against it) to all of these
cases and on March 9, 1999, the court sustained DNAP's demurrer and dismissed
all claims against DNAP in all of the cases except claims relating to improper
business practices. The plaintiffs were given the right to attempt to amend
their complaints with respect to certain of the claims. DNAP denies any
wrongdoing or liability in this matter and intends to vigorously contest all of
these lawsuits.
On October 30, 1998, a class action lawsuit STYLED PECHANGA BAND OF LUISENO
MISSION INDIANS ET AL. V. PHILIP MORRIS, INC., ET AL. was filed in the Superior
Court of the State of California, County of San Diego. The Plaintiffs sued
numerous defendants including DNAP and various manufacturers and distributors of
tobacco products. The plaintiff's allegations are substantially identical to the
claims made in the above-described cases brought on behalf of union trust funds
and benefit trusts (the "Union Cases"). This case has been coordinated with the
Union Cases, and proceedings in this case have been stayed pending the
54
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
court's ruling on the demurrers pending in the Union cases. DNAP denies any
wrongdoing or liability in this matter and intends to vigorously contest this
lawsuit.
ABSA owns one hundred hectares (approximately 247 acres) of rural land in
the State of Sinaloa, Mexico, which is the subject of a judicial proceeding
pending in Mexico initiated by a group of campesinos. The petitioners asserted
that a previous owner of the subject land, Miguel Angel Suarez, owned rural land
in excess of the maximum that was then allowed by law and that therefore the
land rightfully belonged to them. On September 25, 1996, the court upheld the
petition and ordered the land turned over to the petitioners. The court also
ruled that the transfer of the property to Olga Elena Batiz Esquer on June 2,
1990 was null and void, which would mean that the transfer of the land by Ms.
Batiz to ABSA in 1993 was ineffective. On October 23, 1996, Ms. Batiz, who was a
party to the trial court proceeding, filed a challenge to the judicial
determination based on alleged violations of her constitutional rights and
procedural and substantive errors in the trial court proceedings. If ABSA is
ultimately required to transfer the subject land, which constitutes
approximately 8% of the total agricultural land owned by ABSA, Mexican law gives
ABSA indemnification rights against the State of Sinaloa and Ms. Batiz.
ABSA owns seventy-five hectares (approximately 185 acres) of rural land in
the State of Sinaloa, Mexico, which is the subject of a judicial proceeding
pending in Mexico initiated by a group of campesinos. The petitioners requested
that ownership of the land be transferred to them based on the fact that, at
some time prior to ABSA's ownership of the land, the land was not cultivated for
more than two consecutive years without good reason. On March 18, 1997, the
court upheld the petition and ordered the land transferred to the petitioners.
On August 28, 1997, ABSA and other affected parties filed a challenge to the
judicial determination based on alleged violations of their constitutional
rights and procedural and substantive errors in the trial court proceedings. If
ABSA is ultimately required to transfer the subject land, which constitutes
approximately 6% of the total agricultural land owned by ABSA, Mexican law gives
ABSA limited indemnification rights against the State of Sinaloa.
ABSA owns two hundred seventy-four hectares (approximately 677 acres) of
rural land in the State of Sinaloa, Mexico, which is the subject of a judicial
proceeding pending in Mexico initiated by a group of campesinos. The petitioners
asserted that a previous owner of the subject land owned rural land in excess of
the maximum that was then allowed by law and that therefore the land rightfully
belonged to them. On August 27, 1997, the court denied the petition and ruled in
favor of ABSA. On May 25, 1998, the petitioners filed a challenge to the
judicial determination based on alleged violations of their constitutional
rights. If ABSA is ultimately required to transfer the subject land, which
constitutes approximately 22% of the total agricultural land owned by ABSA,
Mexican law gives ABSA limited indemnification rights against the State of
Sinaloa.
In addition to the indemnification rights referred to in the paragraphs
above with regard to the land in Sinaloa, Mexico, the Company, as a part of its
agreement with the Batiz family on the sale of their interests in ABSA to the
Company in October 1997, is entitled to recover from the Batiz family 100% of
the value of any losses of agricultural land held by ABSA prior to the sale.
COMMITMENTS
The Company leases certain facilities and land under non-cancelable
operating lease agreements. The leases expire at various dates through 2003 and
provide that the Company pay the taxes, insurance and maintenance expenses
related to the leased facilities. The monthly rental payments are subject to
periodic
55
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--COMMITMENTS AND CONTINGENCIES (CONTINUED)
adjustments. Certain leases contain fixed escalation clauses, and rent under
these leases is charged ratably over the lease term.
The aggregate future minimum lease obligations under capital and operating
leases are as follows:
<TABLE>
<CAPTION>
($000'S)
FOR THE YEAR ENDING DECEMBER 31, CAPITAL OPERATING
- --------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1999......................................................................................... $ 118 $ 1,369
2000......................................................................................... 113 594
2001......................................................................................... 86 542
2002......................................................................................... 37 514
2003......................................................................................... -- 465
----- -----------
Total future minimum lease payments.......................................................... 354 $ 3,484
-----------
-----------
Amount representing interest................................................................. (48)
-----
$ 306
-----
-----
</TABLE>
Rent expense incurred under the non-cancelable operating leases totaled
$0.426 million, $0.692 million, and $0.570 million during the years ended
December 31, 1998, 1997 and 1996, respectively.
NOTE 15--INFORMATION ON SEGMENTS AND OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
Effective December 31, 1998, the Company adopted FAS 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company classifies its
business into three fundamental areas: FARMING, which consists principally of
interests in 100% Company-owned fresh produce production facilities and joint
ventures with other growers; DISTRIBUTION, consisting principally of interests
in sales and distribution companies in Mexico, the United States, and Canada;
and RESEARCH AND DEVELOPMENT consisting of business units focused on the
development of fruits and vegetables and intellectual properties associated with
these development efforts.
Information pertaining to the operations of these different business
segments is set forth below. The Company evaluates performance based on several
factors. The most significant financial measure used to evaluate business
performance is business segment operating income. The accounting policies for
each of the business segments are the same as those described in the summary of
significant accounting policies in Note 2. Inter-segment sales are accounted for
at fair value as if the sales were to third parties. Segment information
includes the allocation of corporate overhead to the various segments, as looked
at from the
56
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--INFORMATION ON SEGMENTS AND OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
(CONTINUED)
point of view of the segment presidents, and all acquired goodwill has been
pushed down to the companies and segments that have made the acquisitions.
<TABLE>
<CAPTION>
($000'S)
TOTAL OF
RESEARCH AND REPORTABLE
FARMING DISTRIBUTION DEVELOPMENT SEGMENTS
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1998
Revenues from unaffiliated customers....................... $ 1,022 $ 253,040 $ 8,049 $ 262,111
Inter-segment revenues..................................... 71,279 86 -- 71,365
--------- ----------- ------------ -----------
Total revenues............................................. 72,301 253,126 8,049 333,476
--------- ----------- ------------ -----------
--------- ----------- ------------ -----------
Operating income (loss).................................... (5,560) 535 (2,403) (7,428)
Depreciation and amortization.............................. 3,952 1,178 1,946 7,076
Identifiable assets (2).................................... 75,940 56,934 39,363 172,237
Acquisition of long-lived assets........................... 8,543 1,427 5,280 15,250
1997
Revenues from unaffiliated customers....................... $ 798 $ 275,696 $ 4,704 $ 281,198
Inter-segment revenues..................................... 71,597 -- -- 71,597
--------- ----------- ------------ -----------
Total revenues............................................. 72,395 275,696 4,704 352,795
--------- ----------- ------------ -----------
--------- ----------- ------------ -----------
Operating income (loss).................................... (7,933) (2,755) (7,781)(1) (18,469)
Depreciation, amortization & write-offs.................... 3,270 1,196 4,694(1) 9,160
Identifiable assets (2).................................... 65,320 58,726 34,769 158,815
Acquisition of long-lived assets........................... 11,675 7,687 335 19,697
1996
Revenues from unaffiliated customers....................... $ 355 $ 191,524 $ 1,106 $ 192,985
Inter-segment revenues..................................... 68,784 122 -- 68,906
--------- ----------- ------------ -----------
Total revenues............................................. 69,139 191,646 1,106 261,891
--------- ----------- ------------ -----------
--------- ----------- ------------ -----------
Operating income (loss).................................... (1,198) 943 (14,460)(1) (14,715)
Depreciation, amortization & write-offs.................... 1,964 826 13,362(1) 16,152
Identifiable assets (2).................................... 59,008 44,289 26,902 130,199
Acquisition of long-lived assets........................... 3,335 4,530 25,531 33,396
</TABLE>
NOTES:
1. Operating losses for the research and development segment included $2.8
million and $12.9 million of write-offs of purchased research and
development for the years ended December 31, 1997 and 1996, respectively.
2. Identifiable assets for segments are defined as total assets less cash in
banks, deferred income taxes and investment in shares.
57
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--INFORMATION ON SEGMENTS AND OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
(CONTINUED)
Reconciliation of the segments to total consolidated amounts is set forth
below:
<TABLE>
<CAPTION>
($000'S)
1998 1997 1996
----------- ----------- --------
<S> <C> <C> <C>
REVENUES
Total segment revenues...................................................................... $ 333,476 $ 352,795 $261,891
Elimination of inter-segment revenues....................................................... (71,365) (71,597) (68,906)
----------- ----------- --------
Consolidated revenues....................................................................... $ 262,111 $ 281,198 $192,985
----------- ----------- --------
----------- ----------- --------
INCOME BEFORE TAXES
Total operating income (loss) from reportable segments $ (7,428) $ (18,469) $(14,715)
Interest, net............................................................................... (6,697) (3,740) (3,482)
Exchange gain (loss), net................................................................... (1,762) (481) 569
Other non-operating income (loss), net...................................................... 137 (182) 2,058
----------- ----------- --------
Consolidated income (loss) before taxes..................................................... $ (15,750) $ (22,872) $(15,570)
----------- ----------- --------
----------- ----------- --------
ASSETS
Total segment identifiable assets........................................................... $ 172,237 $ 158,815 $130,199
Unallocated and corporate assets............................................................ 23,318(1) 10,676(1) 13,585
Eliminations................................................................................ (27,869)(2) (22,242)(2)(2,647)
----------- ----------- --------
Consolidated assets......................................................................... $ 167,686 $ 147,249 $141,137
----------- ----------- --------
----------- ----------- --------
</TABLE>
NOTES:
1. Includes DNAP Holding's and segments' cash in banks, deferred income taxes
and other corporate assets.
2. Consists principally of inter-segment intercompany balances.
Revenue from external customers by product / service category is set forth
below:
<TABLE>
<CAPTION>
($000'S)
TOTAL OF
RESEARCH AND REPORTABLE
FARMING DISTRIBUTION DEVELOPMENT SEGMENTS
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
1998
Core vegetables (1)............................................ $ 156,812 $ 156,812
Fruits and other fresh produce (2)............................. $ 1,022 96,228 97,250
Contracted R&D revenue......................................... $ 3,198 3,198
Licensed technology and royalties.............................. 4,851 4,851
1997
Core vegetables (1)............................................ 176,562 176,562
Fruits and other fresh produce (2)............................. 798 99,134 99,932
Contracted R&D revenue......................................... 2,799 2,799
Licensed technology and royalties.............................. 1,905 1,905
1996
Core vegetables (1)............................................ 123,283 123,283
Fruits and other fresh produce (2)............................. 355 68,241 68,596
Contracted R&D revenue......................................... 1,072 1,072
Licensed technology and royalties.............................. 34 34
</TABLE>
NOTES:
1. Core vegetables include tomatoes, bell peppers and cucumbers.
2. Fruits and other fresh produce include papayas, mangoes, grapes, melons,
watermelons and others.
58
<PAGE>
DNAP HOLDING CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--INFORMATION ON SEGMENTS AND OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
(CONTINUED)
Information about the Company's operations by geographic area is summarized
below:
<TABLE>
<CAPTION>
($000'S)
MEXICO U.S. CANADA EUROPE CONSOLIDATED
--------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
1998
Revenues from unaffiliated customers.................. $ 92,367 $ 139,752 $ 29,992 -- $ 262,111
Identifiable long-lived assets........................ $ 47,237 $ 37,588 $ 350 -- $ 85,175
1997
Revenues from unaffiliated customers.................. $ 72,441 $ 135,691 $ 19,052 $ 54,014 $ 281,198
Identifiable long-lived assets........................ $ 42,326 $ 34,661 $ 358 $ 3,225 $ 80,570
1996
Revenues from unaffiliated customers.................. $ 56,868 $ 117,504 $ 16,712 $ 1,901 $ 192,985
Identifiable long-lived assets........................ $ 34,957 $ 30,719 $ 381 $ 3,204 $ 69,261
</TABLE>
NOTE 16--SUBSEQUENT EVENT--BANK FINANCING
On March 22, 1999, the Company completed a refinancing of its $85 million in
consolidated debt. This refinancing culminated in a three year $100 million
credit. The key provisions of this credit arrangement consist of (i) a payment
of the entire principal amount on the third anniversary following closing, (ii)
prepayments at the option of the Company with no penalties, (iii) an interest
rate of LIBOR plus 7%, (iv) up front fees of $3 million to the lead banks which
have arranged the financing, and (v) requirements that the Company must keep one
year's worth of interest in an interest bearing reserve account and that all
existing short-term financing must be paid off with the proceeds of this loan.
The contract also provides that the Company is permitted to obtain up to $30
million in new financing for working capital purposes. This credit facility will
be fully guaranteed by Savia. Certain restrictions will be placed on DNAP
Holding with respect to capital investments, acquisitions, and use of proceeds
from asset sales. While there are no financial covenants in the contract insofar
as DNAP Holding is concerned, Savia is obligated to meet certain covenants.
59
<PAGE>
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The section entitled "Election of Directors" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on April 28,
1999 sets forth certain information with respect to the directors of the Company
and is incorporated herein by reference. Certain information with respect to
persons who are or may be deemed to be executive officers of the Company is set
forth under the caption "Executive Officers of the Company" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on April 28,
1999 sets forth certain information with respect to the compensation of
management of the Company and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Security Ownership of Certain Beneficial Owners" and
"Security Ownership of Directors and Executive Officers" appearing in the
Company's proxy statement for the annual meeting of stockholders to be held on
April 28, 1999 sets forth certain information with respect to the ownership of
the Company's Common Stock and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions"
appearing in the Company's proxy statement for the annual meeting of
stockholders to be held on April 28, 1999 sets forth certain information with
respect to certain business relationships and transactions between the Company
and its directors and officers and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements included in Item 8 herein:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations and Comprehensive Income and
Loss for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules included in Item 8 herein:
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
60
<PAGE>
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Certificate of Incorporation of the Company
3.2 Certificate of Amendment to the Certificate of Incorporation of the Company (filed as an exhibit to the
Company's quarterly report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated
herein by reference)
3.3 Bylaws of the Company
4.1 Note Acquisition Agreement dated as of March 22, 1999 among Savia, S.A. de C.V., the Company, the
Holders referred to therein, Morgan Guaranty Trust Company of New York, as Administrative Agent and
Documentation Agent, Bankers Trust Company, as Paying Agent and Registrar, and Citibank, N.A., as
Collateral Agent.
10.1* Loan Agreement dated as of January 26, 1996, between the Company and DNAP
10.2* Assignment of Patents dated January 26, 1996, between the Company and DNAP
10.3* Sole Patent License Agreement dated as of January 26, 1996, between the Company and DNAP
10.4* Non-Exclusive Patent License Agreement dated as of January 26, 1996, between the Company and DNAP
10.5 Promissory Note made January 25, 1999, by DNAP in favor of the Company
10.6 Governance Agreement dated as of September 26, 1996, between Savia and the Company (filed as an exhibit
to the Company's current report on Form 8-K dated September 26, 1996 and incorporated herein by
reference)
10.7 Long-Term Funded Research Agreement dated as of September 26, 1996, between Savia and DNAP (filed as an
exhibit to the Company's current report on Form 8-K dated September 26, 1996 and incorporated herein by
reference)
10.8 Stock Purchase Agreement dated as of August 12, 1997, by and among International Produce Holding
Company, DNAP Holding Corporation, Raul Batiz E., Pedro Batiz G., J. Guillermo Batiz G., and Raul Batiz
G. (filed as an exhibit to the Company's current report on Form 8-K dated October 6, 1997 and
incorporated herein by reference).
10.9 First Amendment to Stock Purchase Agreement dated as of October 6, 1997, by and among International
Produce Holding Company, DNAP Holding Corporation, Raul Batiz E., Pedro Batiz G., J. Guillermo Batiz G.,
and Raul Batiz G. (filed as an exhibit to the Company's current report on Form 8-K dated October 6, 1997
and incorporated herein by reference).
10.10 English-language summary of the CONVENIO RELATIVO AL EJERCICIO DEL DERECHO DE RETIRO TOTAL DE
APORTACIONES (Agreement Concerning the Exercise of the Right of Withdrawal of all Contributions) dated
August 29, 1997, by and among Agricola Batiz, S.A. de C.V., certain of its shareholders, and DNAP
Holding Corporation (filed as an exhibit to the Company's current report on Form 8-K dated October 6,
1997 and incorporated herein by reference).
10.11 Long-Term Funded Research Agreement dated as of January 1, 1997, between Seminis Vegetable Seeds, Inc.
and DNAP.
10.12 Stock Purchase Agreement dated as of October 1, 1998, between the Company and Bionova International,
Inc. (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarterly period ended
September 30, 1998 and incorporated herein by reference).
10.13 Amendment to Stock Purchase Agreement dated as of January 14, 1999, between the Company and Bionova
International, Inc.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.14 Amendment to Governance Agreement dated as of January 14, 1999, between Savia and the Company.
10.15 DNAP Holding Corporation 1998 Long-Term Incentive Plan (filed as an exhibit to the Company's proxy
statement for the annual meeting of stockholders held on May 28, 1998 and incorporated herein by
reference).
21.1 Subsidiaries
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed as an exhibit to the Company's Registration Statement on Form S-4 (No.
333-09975) and incorporated herein by reference.
(b) Reports on Form 8-K
On October 14, 1998, the Company filed a Report on Form 8-K dated October 6,
1998 relating to the capitalization transaction pursuant to which Bionova
International, Inc. made an investment in the Company. The Form 8-K included an
unaudited pro forma condensed balance sheet of the Company presenting the pro
forma effect of the capitalization transaction assuming that it occurred as of
August 31, 1998.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, DNAP Holding Corporation has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Date: March 24, 1999 DNAP HOLDING CORPORATION
By: /s/ BERNARDO JIMENEZ
-----------------------------------------
Bernardo Jimenez
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------
<C> <S> <C>
Chief Executive Officer
/s/ BERNARDO JIMENEZ and Chairman of the
- ------------------------------ Board March 24, 1999
Bernardo Jimenez (Principal Executive
Officer)
/s/ ARTHUR H. FINNEL Chief Financial Officer
- ------------------------------ (Principal Financial and March 24, 1999
Arthur H. Finnel Accounting Officer)
/s/ EVELYN BEREZIN
- ------------------------------ Director March 24, 1999
Evelyn Berezin
/s/ PETER DAVIS
- ------------------------------ Director March 24, 1999
Peter Davis
/s/ CARLOS HERRERA
- ------------------------------ Director March 24, 1999
Carlos Herrera
/s/ ERIK C. JURGENSEN
- ------------------------------ Director March 24, 1999
Erik C. Jurgensen
/s/ EUGENIO NAJERA
- ------------------------------ Director March 24, 1999
Eugenio Najera
/s/ GERALD LAUBACH
- ------------------------------ Director March 24, 1999
Gerald Laubach
/s/ ALEJANDRO PEREZ
- ------------------------------ Director March 24, 1999
Alejandro Perez
/s/ CHRISTOPHER SOMERVILLE
- ------------------------------ Director March 24, 1999
Christopher Somerville
</TABLE>
63
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Certificate of Incorporation of the Company
3.2 Certificate of Amendment to the Certificate of Incorporation of the Company (filed as an exhibit to the
Company's quarterly report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated
herein by reference)
3.3 Bylaws of the Company
4.1 Note Acquisition Agreement dated as of March 22, 1999 among Savia, S.A. de C.V., the Company, the
Holders referred to therein, Morgan Guaranty Trust Company of New York, as Administrative Agent and
Documentation Agent, Bankers Trust Company, as Paying Agent and Registrar, and Citibank, N.A., as
Collateral Agent.
10.1* Loan Agreement dated as of January 26, 1996, between the Company and DNAP
10.2* Assignment of Patents dated January 26, 1996, between the Company and DNAP
10.3* Sole Patent License Agreement dated as of January 26, 1996, between the Company and DNAP
10.4* Non-Exclusive Patent License Agreement dated as of January 26, 1996, between the Company and DNAP
10.5 Promissory Note made January 25, 1999, by DNAP in favor of the Company
10.6 Governance Agreement dated as of September 26, 1996, between Savia and the Company (filed as an exhibit
to the Company's current report on Form 8-K dated September 26, 1996 and incorporated herein by
reference)
10.7 Long-Term Funded Research Agreement dated as of September 26, 1996, between Savia and DNAP (filed as an
exhibit to the Company's current report on Form 8-K dated September 26, 1996 and incorporated herein by
reference)
10.8 Stock Purchase Agreement dated as of August 12, 1997, by and among International Produce Holding
Company, DNAP Holding Corporation, Raul Batiz E., Pedro Batiz G., J. Guillermo Batiz G., and Raul Batiz
G. (filed as an exhibit to the Company's current report on Form 8-K dated October 6, 1997 and
incorporated herein by reference).
10.9 First Amendment to Stock Purchase Agreement dated as of October 6, 1997, by and among International
Produce Holding Company, DNAP Holding Corporation, Raul Batiz E., Pedro Batiz G., J. Guillermo Batiz G.,
and Raul Batiz G. (filed as an exhibit to the Company's current report on Form 8-K dated October 6, 1997
and incorporated herein by reference).
10.10 English-language summary of the CONVENIO RELATIVO AL EJERCICIO DEL DERECHO DE RETIRO TOTAL DE
APORTACIONES (Agreement Concerning the Exercise of the Right of Withdrawal of all Contributions) dated
August 29, 1997, by and among Agricola Batiz, S.A. de C.V., certain of its shareholders, and DNAP
Holding Corporation (filed as an exhibit to the Company's current report on Form 8-K dated October 6,
1997 and incorporated herein by reference).
10.11 Long-Term Funded Research Agreement dated as of January 1, 1997, between Seminis Vegetable Seeds, Inc.
and DNAP.
10.12 Stock Purchase Agreement dated as of October 1, 1998, between the Company and Bionova International,
Inc. (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarterly period ended
September 30, 1998 and incorporated herein by reference).
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Amendment to Stock Purchase Agreement dated as of January 14, 1999, between the Company and Bionova
International, Inc.
10.14 Amendment to Governance Agreement dated as of January 14, 1999, between Savia and the Company.
10.15 DNAP Holding Corporation 1998 Long-Term Incentive Plan (filed as an exhibit to the Company's proxy
statement for the annual meeting of stockholders held on May 28, 1998 and incorporated herein by
reference).
21.1 Subsidiaries
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed as an exhibit to the Company's Registration Statement on Form S-4 (No.
333-09975) and incorporated herein by reference.
65
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
DNAP HOLDING CORPORATION
(formerly Bionova U.S. Inc.)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Bionova U.S. Inc.
(hereinafter called the "Corporation") in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle 19801, and the registered agent in charge thereof shall be The
Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the Corporation require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders of the
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board of Directors, the Chairman of the Board or the Chief
Executive Officer.
Section 2. Annual Meetings. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the second
Thursday in May in each year, if not a legal holiday under the laws of the place
where the meeting is to be held, and, if a legal holiday, then on the next
succeeding day not a legal holiday under the laws of such place, or on such
other date and at such hour as may from time to time be fixed by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer.
In order for business to be properly brought before the meeting by a
stockholder, the business must be legally proper and written notice thereof must
have been filed with the Secretary of the Corporation not less than 60 nor more
than 120 days prior to the meeting. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the proposal as the same
appear in the Corporation's records; (b) the class and number of shares of stock
of the Corporation that are beneficially owned, directly or indirectly, by such
stockholder; and (c) a clear and concise statement of the proposal and the
stockholder's reasons for supporting it.
The filing of a stockholder notice as required above shall not, in and of
itself, constitute the making of the proposal described therein.
-1-
<PAGE>
If the chairman of the meeting determines that any proposed business has
not been properly brought before the meeting, he shall declare such business out
of order; and such business shall not be conducted at the meeting.
Section 3. Special Meetings. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders for any purpose or purposes may be called only by
(i) the Chairman of the Board, (ii) the Chief Executive Officer or (iii) a
majority of the entire Board of Directors. Only such business as is specified in
the notice of any special meeting of the stockholders shall come before such
meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall waive notice thereof as provided in Article X of these
Bylaws. Notice of adjournment of a meeting of stockholders need not be given if
the time and place to which it is adjourned are announced at such meeting,
unless the adjournment is for more than 30 days or, after adjournment, a new
record date is fixed for the adjourned meeting.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, the holders of a majority of
the votes entitled to be cast by the stockholders entitled to vote, which if any
vote is to be taken by classes shall mean the holders of a majority of the votes
entitled to be cast by the stockholders of each such class, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at any meeting of the stockholders.
Section 6. Adjournments. In the absence of a quorum, the holders of a
majority of the votes entitled to be cast by the stockholders, present in person
or represented by proxy, may adjourn the meeting from time to time. At any such
adjourned meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 7. Order of Business. At each meeting of the stockholders, the
Chairman of the Board, or, in the absence of the Chairman of the Board, the
Chief Executive Officer, shall act as chairman. The order of business at each
such meeting shall be as determined by the chairman of the meeting. The chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts and things as are necessary
or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and closing of the
voting polls. The chairman of the meeting shall announce at each such meeting
the date and time of the opening and the closing of the voting polls for each
matter upon which the stockholders will vote at such meeting.
Section 8. List of Stockholders. It shall be the duty of the Secretary or
other officer of the Corporation who has charge of the stock ledger to prepare
and make, at least 10 days before each meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, arranged in alphabetical
-2-
<PAGE>
order, and showing the address of each stockholder and the number of shares
registered in such stockholder's name. Such list shall be produced and kept
available at the times and places required by law.
Section 9. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, each stockholder of record of
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation shall be entitled at each
meeting of stockholders to such number of votes for each share of such stock as
may be fixed in the Certificate of Incorporation or in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of such
stock, and each stockholder of record of Common Stock shall be entitled at each
meeting of stockholders to one vote for each share of such stock, in each case,
registered in such stockholder's name on the books of the Corporation:
(a) on the date fixed pursuant to Section 6 of Article VII of these
Bylaws as the record date for the determination of stockholders entitled
to notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the date on which notice of
such meeting is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact. Any such
proxy shall be delivered to the secretary of such meeting at or prior to the
time designated for holding such meeting but, in any event, not later than the
time designated in the order of business for so delivering such proxies. No such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
At each meeting of the stockholders, all corporate actions, other than the
election of directors, to be taken by vote of the stockholders (except as
otherwise required by law and except as otherwise provided in the Certificate of
Incorporation) shall be authorized by a majority of the votes cast by the
stockholders entitled to vote thereon, present in person or represented by
proxy. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of the directors. Where a separate vote by a class or classes is
required, the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
Unless required by law or determined by the chairman of the meeting to be
advisable, the vote on any matter, including the election of directors, need not
be by written ballot. In the case of a vote by written ballot, each ballot shall
be signed by the stockholder voting, or by such stockholder's proxy, and shall
state the number of shares voted.
Section 10. Inspectors of Election. Either the Board of Directors or, in
the absence of an appointment of inspectors by the Board, the Chairman of the
Board or the Chief Executive Officer shall, in advance of each meeting of the
stockholders, appoint one or more inspectors to act at such meeting and make a
written report thereof. In connection with any such appointment, one or more
persons may, in the discretion of the body or person making such appointment, be
designated as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at any meeting of stockholders, the
chairman of such meeting shall appoint one or more inspectors to act at such
meeting. Each such inspector shall perform such duties as are required by law
and as shall be specified by the Board, the Chairman of the Board, the Chief
Executive Officer or the chairman of the meeting. Each such inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with
-3-
<PAGE>
strict impartiality and according to the best of his ability. Inspectors need
not be stockholders. No director or nominee for the office of director shall be
appointed such an inspector.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation of the
Corporation directed or required to be exercised or done by the stockholders.
Section 2. Number, Qualification and Election. Except as otherwise
provided for in any resolution or resolutions adopted by the Board of Directors
pursuant to the provisions of Article IV of the Certificate of Incorporation of
the Corporation relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, the number of directors of the Corporation shall be fixed from time
to time by resolution adopted by vote of a majority of the entire Board of
Directors, provided that the number so fixed shall not be less than five.
The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the Common Stock
as to dividends or upon liquidation pursuant to the terms of any resolution or
resolutions providing for the issuance of such stock adopted by the Board, shall
hold office until the annual meeting of the stockholders of the Corporation and
until their successors shall have been elected and qualified. At each annual
meeting of the stockholders, the stockholders entitled to vote in an election of
the directors shall elect directors to hold office until the next succeeding
annual meeting of the stockholders. Subject to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, each director shall hold office for the term for
which he is elected, and until his successor shall be elected and qualified or
until his death, resignation or removal if earlier.
Each director shall be at least 21 years of age. A person shall be
eligible to be elected a director of the Corporation until the annual meeting of
stockholders of the Corporation next succeeding such person's 70th birthday, and
any person serving as a director on such director's 70th birthday shall be
eligible to complete such director's term as such. Directors need not be
stockholders of the Corporation.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
Section 3. Notification of Nominations. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors. Any stockholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of stockholders, 90 days
in advance of such meeting, and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the Corporation entitled
-4-
<PAGE>
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
Section 4. Quorum and Manner of Acting. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation or these Bylaws, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board, and, except as so provided,
the vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board. In the absence of a quorum, a majority
of the directors present may adjourn the meeting to another time and place. At
any adjourned meeting at which a quorum is present, any business that might have
been transacted at the meeting as originally called may be transacted.
Section 5. Place of Meeting. The Board of Directors may hold its meetings
at such place or places within or without the State of Delaware as the Board may
from time to time determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board shall from time to time by
resolution determine. If any day fixed for a regular meeting shall be a legal
holiday under the laws of the place where the meeting is to be held, the meeting
that would otherwise be held on that day shall be held at the same hour on the
next succeeding business day.
Section 7. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board, the Chief Executive
Officer or by a majority of the directors.
Section 8. Notice of Meetings. Notice of regular meetings of the Board of
Directors or of any adjourned meeting thereof need not be given. Notice of each
special meeting of the Board shall be mailed or transmitted by delivery service
to each director, addressed to such director at such director's residence or
usual place of business, at least two days before the day on which the meeting
is to be held or shall be sent to such director at such place by telegraph or
facsimile telecommunication or be given personally or by telephone, not later
than the day before the meeting is to be held, but notice need not be given to
any director who shall, either before or after the meeting, submit a signed
waiver of such notice or who shall attend such meeting without protesting, prior
to or at its commencement, the lack of notice to such director. Every such
notice shall state the time and place but need not state the purpose of the
meeting.
Section 9. Rules and Regulations. The Board of Directors may adopt such
rules and regulations not inconsistent with the provisions of law, the
Certificate of Incorporation of the Corporation or these Bylaws for the conduct
of its meetings and management of the affairs of the Corporation as the Board
may deem proper.
Section 10. Participation in Meeting by Means of Communication Equipment.
Any one or more members of the Board of Directors or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
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Section 11. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if all of the members of the Board or of any such
committee consent thereto in writing and the writing or writings are filed with
the minutes of proceedings of the Board or of such committee.
Section 12. Resignations. Any director of the Corporation may at any time
resign by giving written notice to the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon receipt thereof; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 13. Removal of Directors. Unless otherwise restricted by the
Certificate of Incorporation of the Corporation or Bylaw, any director or the
entire Board of Directors may be removed, with or without cause, by the holders
of a majority of shares entitled to vote at an election of directors. In the
case of a director who is elected by the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
the removal without cause of such director so elected is subject to the vote of
the holders of the outstanding shares of that class or series and not the vote
of the outstanding shares as a whole.
Section 14. Vacancies. Subject to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation, any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall be filled by the Board of Directors,
or if not so filled, by the stockholders at the next annual meeting thereof or
at a special meeting called for that purpose in accordance with Section 3 of
Article II of these Bylaws.
Section 15. Compensation. Each director who shall not at the time also be
a salaried officer or employee of the Corporation or any of its subsidiaries
(hereinafter referred to as an "outside director"), in consideration of such
person serving as a director, shall be entitled to receive from the Corporation
such amount per annum and such fees for attendance at meetings of the Board of
Directors or of committees of the Board, or both, as the Board shall from time
to time determine. In addition, each director, whether or not an outside
director, shall be entitled to receive from the Corporation reimbursement for
the reasonable expenses incurred by such person in connection with the
performance of such person's duties as a director. Nothing contained in this
Section 15 shall preclude any director from serving the Corporation or any of
its subsidiaries in any other capacity and receiving proper compensation
therefor.
Section 16. Directors Emeritus. The Board of Directors may appoint one or
more directors emeritus as it shall from time to time determine. Each director
emeritus appointed shall hold office at the pleasure of the Board of Directors.
A director emeritus shall be entitled, but shall have no obligation, to attend
and be present at the meetings of the Board of Directors, although a meeting of
the Board of Directors may be held without notice to any director emeritus and
no director emeritus shall be considered in determining whether a quorum of the
Board of Directors is present. A director emeritus shall advise and counsel the
Board of Directors on the business and operations of the Corporation as
requested by the Board of Directors; however, a director emeritus shall not be
entitled to vote on any matter presented to the Board of Directors. A director
emeritus, in consideration of such person serving as a director emeritus, shall
be entitled to receive from the Corporation such fees for attendance at meetings
of the Board of Directors as the Board shall from time to time determine. In
addition, a director emeritus shall be entitled to receive from the Corporation
reimbursement for the reasonable expenses incurred by such person in connection
with the performance of such person's duties as a director emeritus.
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ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate annually three or more of
its members to constitute members or alternate members of an Executive
Committee, which Committee shall have and may exercise, between meetings of the
Board, all the powers and authority of the Board in the management of the
business affairs of the Corporation, including, if such Committee is so
empowered and authorized by resolution adopted by a majority of the entire
Board, the power and authority to declare a dividend and to authorize the
issuance of stock, and may authorize the seal of the Corporation to be affixed
to all papers that may require it, except that the Executive Committee shall not
have such power or authority in reference to:
(a) amending the Certificate of Incorporation of the Corporation;
(b) adopting an agreement of merger or consolidation involving the
Corporation;
(c) recommending to the stockholders the sale, lease or exchange of
all or substantially all of the property and assets of the Corporation;
(d) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) amending any Bylaw;
The Board shall have power at any time to change the membership of the Executive
Committee, to fill all vacancies in it and to discharge it, either with or
without cause.
Section 2. Other Committees. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate from among its members one
or more other committees, each of which shall, except as otherwise prescribed by
law, have such authority of the Board as may be specified in the resolution of
the Board designating such committee. A majority of all the members of such
committee may determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide. The Board shall have power at any time
to change the membership of, to fill all vacancies in and to discharge any such
committee, either with or without cause.
Section 3. Procedure; Meetings; Quorum. Regular meetings of the Executive
Committee or any other committee of the Board of Directors, of which no notice
shall be necessary, may be held at such times and places as shall be fixed by
resolution adopted by a majority of the members thereof. Special meetings of the
Executive Committee or any other committee of the Board shall be called at the
request of any member thereof. Notice of each special meeting of the Executive
Committee or any other committee of the Board shall be sent by mail, delivery
service, facsimile telecommunication, telegraph or telephone, or be delivered
personally to each member thereof not later than the day before the day on which
the meeting is to be held, but notice need not be given to any member who shall,
either before or after the meeting, submit a signed waiver of such notice or who
shall attend such meeting without protesting, prior to or at its commencement,
the lack of such notice to such member. Any special meeting of the Executive
Committee or any other committee of the Board shall be a legal meeting without
any notice thereof having been given, if all the members thereof shall be
present thereat. Notice of any adjourned meeting of any committee of the Board
need not be given. The Executive Committee or any other committee of the Board
may adopt such rules and regulations not inconsistent with the provisions of
law, the Certificate of Incorporation of the Corporation or these Bylaws for the
conduct of its meetings as the Executive Committee or any other
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committee of the Board may deem proper. A majority of the Executive Committee or
any other committee of the Board shall constitute a quorum for the transaction
of business at any meeting, and the vote of a majority of the members thereof
present at any meeting at which a quorum is present shall be the act of such
committee. The Executive Committee or any other committee of the Board of
Directors shall keep written minutes of its proceedings and shall report on such
proceedings to the Board.
ARTICLE V
OFFICERS
Section 1. Number; Term of Office. The officers of the Corporation shall
be a Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents, a Treasurer, a Secretary and such other officers or agents with such
titles and such duties as the Board of Directors may from time to time
determine, each to have such authority, functions or duties as in these Bylaws
provided or as the Board may from time to time determine, and each to hold
office for such term as may be prescribed by the Board and until such person's
successor shall have been chosen and shall qualify, or until such person's death
or resignation, or until such person's removal in the manner hereinafter
provided. The Chairman of the Board and the Chief Executive Officer shall be
elected from among the directors. One person may hold the offices and perform
the duties of any two or more of said officers; provided, however, that no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Certificate of Incorporation
of the Corporation or these Bylaws to be executed, acknowledged or verified by
two or more officers. The Board may from time to time authorize any officer to
appoint and remove any such other officers and agents and to prescribe their
powers and duties. The Board may require any officer or agent to give security
for the faithful performance of such person's duties.
Section 2. Removal. Any officer may be removed, either with or without
cause, by the Board of Directors at any meeting thereof called for that purpose,
or, except in the case of any officer elected by the Board, by any committee or
superior officer upon whom such power may be conferred by the Board.
Section 3. Resignation. Any officer may resign at any time by giving
notice to the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the Secretary of the Corporation. Any such resignation shall take
effect at the date of receipt of such notice or at any later date specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these Bylaws for election to such
office.
Section 5. The Chief Executive Officer. The Chief Executive Officer shall
be the chief executive officer of the Corporation and as such shall have general
supervision and direction of the business and affairs of the Corporation,
subject to the control of the Board of Directors. The Chief Executive Officer
shall, if present and in the absence of the Chairman of the Board, preside at
meetings of the stockholders, meetings of the Board and meetings of the
Executive Committee. The Chief Executive Officer shall perform such other duties
as the Board may from time to time determine. The Chief Executive Officer may
sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments authorized by the Board or any committee thereof
empowered to authorize the same.
Section 6. The Chairman of the Board. The Chairman of the Board shall, if
present, preside at meetings of the stockholders, meetings of the Board and
meetings of the Executive Committee. The
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Chairman of the Board shall counsel with and advise the Chief Executive Officer
and perform such other duties as the Chief Executive Officer or the Board or the
Executive Committee may from time to time determine.
Section 7. Vice Presidents. Each Vice President shall have such powers and
duties as shall be prescribed by the Chief Executive Officer, the Chairman of
the Board or the Board of Directors. Any Vice President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board or any committee thereof empowered to
authorize the same.
Section 8. Treasurer. The Treasurer shall perform all duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to the Treasurer by the Chief Executive Officer, the Chairman of the
Board or the Board of Directors.
Section 9. Secretary. It shall be the duty of the Secretary to act as
secretary at all meetings of the Board of Directors, of the Executive Committee
and of the stockholders and to record the proceedings of such meetings in a book
or books to be kept for that purpose; the Secretary shall see that all notices
required to be given by the Corporation are duly given and served; the Secretary
shall be custodian of the seal of the Corporation and shall affix the seal or
cause it to be affixed to all certificates of stock of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized in accordance with the
provisions of these Bylaws. The Secretary shall have charge of the stock ledger
and also of the other books, records and papers of the Corporation and shall see
that the reports, statements and other documents required by law are properly
kept and filed; and the Secretary shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to such person by the Chairman of the Board and Chief Executive
Officer or the Board of Directors.
Section 10. Assistant Treasurers and Secretaries. The Assistant Treasurers
and the Assistant Secretaries shall perform such duties as shall be assigned to
them by the Treasurer or Secretary, respectively, or by the Chief Executive
Officer, the Chairman of the Board or the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. Third Party Actions. The Corporation shall indemnify any 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 such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person 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 no reasonable cause to believe his or her 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 such person 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 or her
conduct was unlawful.
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Section 2. Derivative Actions. The Corporation shall indemnify any person
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 such person is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person 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
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of Delaware or such
other court shall deem proper.
Section 3. Determination of Indemnification. Any indemnification under
Section 1 or 2 of this Article VI (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth in Section 1 or 2 of this Article VI. Such determination shall be made
(i) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
Section 4. Right to Indemnification. Notwithstanding the other provisions
of this Article VI, to the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 1 or 2 of this Article VI, or
in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
Section 5. Advancement of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any civil, criminal,
administrative or investigative action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding, provided, however, that
the payment of expenses incurred by a director, officer, employee or agent in
advance of the final disposition of the action, suit or proceeding shall be made
only upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay all amounts advanced if it should be ultimately
determined that such person is not entitled to be indemnified under this Article
VI or otherwise.
Section 6. Indemnification and Advancement of Expenses Not Exclusive. The
indemnification and advancement of expenses provided by, or granted pursuant to
the other Sections of this Article VI shall not be deemed exclusive of any other
rights to which any person seeking indemnification may be entitled under any
law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office. All rights to indemnification under this
Article VI shall be deemed to be provided by a contract between the Corporation
and the director, officer, employee or agent who served in such capacity at any
time while these Bylaws and other relevant provisions of the Delaware General
Corporation Law and other applicable law, if any, are in effect. Any repeal or
modification thereof shall not affect any rights or obligations then existing.
Section 7. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against such
person and incurred by
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such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the applicable provisions of the Delaware
General Corporation Law.
Section 8. Definitions of Certain Terms. For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if its
separate existence had continued.
For purposes of this Article VI, references to "other enterprise" shall
include employee benefit plans; references to "fines" shall include any excise
tax assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VI.
Section 9. Continuation and Successors. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article VI
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 10. Exclusive Jurisdiction. The Delaware Court of Chancery is
vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this Article VI or
under any statute, agreement, vote of stockholders or disinterested directors,
or otherwise. The Delaware Court of Chancery may summarily determine the
Corporation's obligation to advance expenses (including attorneys' fees).
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates for Shares. Certificates representing shares of
stock of each class of the Corporation, whenever authorized by the Board of
Directors, shall be in such form as shall be approved by the Board. The
certificates representing shares of stock of each class shall be signed by, or
in the name of, the Corporation by the Chairman of the Board or the Chief
Executive Officer, and by the Treasurer or the Secretary, of the Corporation,
and sealed with the seal of the Corporation, which may be by a facsimile
thereof. Any or all such signatures may be facsimiles if countersigned by a
transfer agent or registrar. Although any officer, transfer agent or registrar
whose manual or facsimile signature is affixed to such a certificate ceases to
be such officer, transfer agent or registrar before such certificate has been
issued, it may nevertheless be issued by the Corporation with the same effect as
if such officer, transfer agent or registrar were still such at the date of its
issue.
The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer or
agent designated by the Board.
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Section 2. Transfer of Shares. Transfer of shares of stock of each class
of the Corporation shall be made only on the books of the Corporation by the
holder thereof, or by such holder's attorney thereunto authorized by a power of
attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent for such stock, if any, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. The person in whose
name shares stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation; provided, however, that
whenever any transfer of shares shall be made for collateral security and not
absolutely, and written notice thereof shall be given to the Secretary or to
such transfer agent, such fact shall be stated in the entry of the transfer. No
transfer of shares shall be valid as against the Corporation, its stockholders
and creditors for any purpose, except to render the transferee liable for the
debts of the Corporation to the extent provided by law, until it shall have been
entered in the stock records of the Corporation by an entry showing from and to
whom transferred.
Section 3. Address of Stockholders. Each stockholder shall designate to
the Secretary or transfer agent of the Corporation an address at which notices
of meetings and all other corporate notices may be served or mailed to such
person, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon such person by mail directed to such person at such
person's post office address, if any, as the same appears on the share record
books of the Corporation or at such person's last known post office address.
Section 4. Lost, Destroyed and Mutilated Certificates. The holder of any
share of stock of the Corporation shall immediately notify the Corporation of
any loss, theft, destruction or mutilation of the certificate therefor; the
Corporation may issue to such holder a new certificate or certificates for
shares, upon the surrender of the mutilated certificate or, in the case of loss,
theft or destruction of the certificate, upon satisfactory proof of such loss,
theft or destruction; the Board of Directors, or a committee designated thereby,
or the transfer agents and registrars for the stock, may, in their discretion,
require the owner of the lost, stolen or destroyed certificate, or such person's
legal representative, to give the Corporation a bond in such sum and with such
surety or sureties as they may direct to indemnify the Corporation and said
transfer agents and registrars against any claim that may be made on account of
the alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate.
Section 5. Regulations. The Board of Directors may make such additional
rules and regulations as it may deem expedient concerning the issue and transfer
of certificates representing shares of stock of each class of the Corporation
and may make such rules and take such action as it may deem expedient concerning
the issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
Section 6. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action. A determination of stockholders entitled to notice of or to vote
at a meeting of the stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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ARTICLE VIII
SEAL
The Board of Directors shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation and the
words and figures "Corporate Seal Delaware 1939", or such other words or figures
as the Board of Directors may approve and adopt. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these Bylaws, by
the Certificate of Incorporation of the Corporation or by law, the person
entitled thereto may, either before or after the meeting or other matter in
respect of which such notice is to be given, waive such notice in writing, which
writing shall be filed with or entered upon the records of the meeting or the
records kept with respect to such other matter, as the case may be, and in such
event such notice need not be given to such person and such waiver shall be
deemed equivalent to such notice.
ARTICLE XI
AMENDMENTS
Any Bylaw may be adopted, repealed, altered or amended by a majority of
the entire Board of Directors at any meeting thereof, provided that such
proposed action in respect thereof shall be stated in the notice of such
meeting. The stockholders of the Corporation shall have the power to adopt,
repeal, alter or amend any provision of these Bylaws only to the extent and in
the manner provided in the Certificate of Incorporation of the Corporation.
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ARTICLE XII
MISCELLANEOUS
Section 1. Execution of Documents. The Board of Directors or any committee
thereof shall designate the officers, employees and agents of the Corporation
who shall have power to execute and deliver deeds, contracts, mortgages, bonds,
debentures, notes, checks, drafts and other orders for the payment of money and
other documents for and in the name of the Corporation and may authorize such
officers, employees and agents to delegate such power (including authority to
redelegate) by written instrument to other officers, employees or agents of the
Corporation. Such delegation may be by resolution or otherwise and the authority
granted shall be general or confined to specific matters, all as the Board or
any such committee may determine. In the absence of such designation referred to
in the first sentence of this Section 1, the officers of the Corporation shall
have such power so referred to, to the extent incident to the normal performance
of their duties.
Section 2. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board of Directors or any committee thereof or any officer of
the Corporation to whom power in that respect shall have been delegated by the
Board or any such committee shall select.
Section 3. Checks. All checks, drafts and other orders for the payment of
money out of the funds of the Corporation, and all notes or other evidence of
indebtedness of the Corporation, shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board
of Directors or of any committee thereof.
Section 4. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board of Directors or any committee thereof shall designate
the officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the Corporation the powers and rights that the Corporation may have as
the holder of stock or other securities in any other corporation, and to vote or
consent in respect of such stock or securities; such designated officers may
instruct the person or persons so appointed as to the manner of exercising such
powers and rights; and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
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Exhibit 4.1
[CONFORMED COPY]
$650,000,000
NOTE ACQUISITION AGREEMENT
dated as of
March 22, 1999
among
SAVIA, S.A. de C.V.,
as Issuer and Guarantor
and
DNAP HOLDING CORPORATION,
as Issuer
The HOLDERS Referred to Herein,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative and Documentation Agent,
CITIBANK, N.A.,
as U.S. Collateral Agent,
and
BANKERS TRUST COMPANY,
as Registrar and Paying Agent
---------------
J.P. MORGAN SECURITIES INC.,
BANK OF MONTREAL
ING BARING (U.S.) CAPITAL LLC,
SALOMON SMITH BARNEY INC.
as Arrangers
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TABLE OF CONTENTS
PAGE
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ARTICLE 1 DEFINITIONS
SECTION 1.01. Definitions.....................................................2
SECTION 1.02. Accounting Terms and Determinations............................21
SECTION 1.03. Interests in Global Notes......................................21
SECTION 1.04. English Language...............................................22
ARTICLE 2 PURCHASE OF THE NOTES
SECTION 2.01. Commitments to Purchase Notes; Expiration......................22
SECTION 2.02. Method of Issuance.............................................23
SECTION 2.03. Maturity of Notes; Mandatory Prepayments of Notes..............24
SECTION 2.04. Interest Rates.................................................25
SECTION 2.05. Fees...........................................................28
SECTION 2.06. Optional Prepayments...........................................28
SECTION 2.07. General Provisions as to Payments..............................29
SECTION 2.08. Funding Losses.................................................29
SECTION 2.09. Computation of Interest and Fees...............................30
ARTICLE 3 CONDITIONS
SECTION 3.01. Conditions.....................................................30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power..................................35
SECTION 4.02. Corporate and Governmental Authorization;
No Contravention...............................................35
SECTION 4.03. Binding Effect.................................................36
SECTION 4.04. Financial Information..........................................36
SECTION 4.05. Compliance with Laws...........................................37
SECTION 4.06. Litigation.....................................................37
SECTION 4.07. Environmental Matters..........................................37
SECTION 4.08. Taxes..........................................................37
SECTION 4.09. Subsidiaries...................................................37
SECTION 4.10. Regulatory Restrictions on Borrowing or on the
Reorganization.................................................38
SECTION 4.11. Full Disclosure................................................38
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SECTION 4.12. Solvency.......................................................39
SECTION 4.13. No Restrictions on Dividends...................................39
SECTION 4.14. Listing of Shares..............................................39
SECTION 4.15. Insurance Industry or Regulatory-Specific Representations......39
SECTION 4.16. Legal Form; No Immunity........................................39
SECTION 4.17. Collateral Documents; Collateral...............................40
SECTION 4.18. Year 2000 Compliance...........................................41
ARTICLE 5 COVENANTS
SECTION 5.01. Information....................................................41
SECTION 5.02. Payment of Obligations.........................................43
SECTION 5.03. Maintenance of Property; Insurance.............................43
SECTION 5.04. Conduct of Business and Maintenance of Existence...............43
SECTION 5.05. Compliance with Laws...........................................44
SECTION 5.06. Inspection of Property, Books and Records......................44
SECTION 5.07. Maintenance of Registration....................................44
SECTION 5.08. Mergers and Sales of Assets...................................45
SECTION 5.09. Negative Pledge................................................45
SECTION 5.10. Limitation on Additional Debt..................................46
SECTION 5.11. Investments....................................................47
SECTION 5.12. Savia Subordinated Debt........................................48
SECTION 5.13. Restricted Payments............................................48
SECTION 5.14. Transactions with Affiliates...................................48
SECTION 5.15. Use of Proceeds................................................49
SECTION 5.16. Intellectual Property Licenses.................................49
SECTION 5.17. Certain Matters Relating to Collateral and Interest
Reserve Account................................................49
SECTION 5.18. Further Assurances.............................................51
ARTICLE 6 DEFAULTS
SECTION 6.01. Events of Default..............................................52
SECTION 6.02. Notice of Default..............................................56
ARTICLE 7 THE AGENTS
SECTION 7.01. Appointment and Authorization..................................57
SECTION 7.02. Agents and Affiliates..........................................57
SECTION 7.03. Action by Agents...............................................57
SECTION 7.04. Actions by Paying Agent........................................58
SECTION 7.05. Consultation with Experts......................................58
SECTION 7.06. Liability of Agents............................................59
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SECTION 7.07. Indemnification................................................59
SECTION 7.08. Credit Decision................................................60
SECTION 7.09. Successor Agents...............................................60
SECTION 7.10. Agents' Fee....................................................60
ARTICLE 8 CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.......61
SECTION 8.02. Illegality.....................................................61
SECTION 8.03. Increased Cost and Reduced Return..............................62
SECTION 8.04. Mexican Taxes..................................................63
SECTION 8.05. U.S. Taxes.....................................................66
SECTION 8.06. Alternative Rate Substituted for Euro-Dollar Rate..............68
SECTION 8.07. Substitution of Holder.........................................68
ARTICLE 9 GUARANTY
SECTION 9.01. The Guaranty...................................................68
SECTION 9.02. Guaranty Unconditional.........................................69
SECTION 9.03. Discharge Only Upon Payment In Full; Reinstatement In
Certain Circumstances..........................................69
SECTION 9.04. Waiver by the Guarantor........................................70
SECTION 9.05. Subrogation....................................................70
SECTION 9.06. Stay of Acceleration...........................................70
ARTICLE 10 MISCELLANEOUS
SECTION 10.01. Notices.......................................................71
SECTION 10.02. No Waivers....................................................71
SECTION 10.03. Expenses; Indemnification.....................................71
SECTION 10.04. Sharing of Set-offs...........................................73
SECTION 10.05. Amendments and Waivers; Certain Collateral Releases...........74
SECTION 10.06. Successors and Assigns........................................75
SECTION 10.07. Collateral....................................................79
SECTION 10.08. Governing Law; Submission to Jurisdiction; Service of
Process.......................................................79
SECTION 10.09. Counterparts; Integration; Effectiveness......................80
SECTION 10.10. WAIVER OF JURY TRIAL..........................................81
SECTION 10.11. Conversion of Currencies......................................81
SECTION 10.12. Waiver of Immunity............................................81
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SCHEDULES AND EXHIBITS
Schedule 1 - Commitment Schedule
Schedule 2 - Existing Swaps
Schedule 5.11 - Investments
Exhibit A - Tranche A Note
Exhibit B - Tranche B Note
Exhibit C - Tranche C Note
Exhibit D-1 - Opinion of New York Counsel for the Issuers
Exhibit D-2 - Opinion of Mexican Counsel for Savia
Exhibit E-1 - Opinion of Special New York Counsel for the Agents
Exhibit E-2 - Opinion of Special Mexican Counsel for the Agents
Exhibit F - Assignment Agreement
Exhibit G - Mexican Pledge Agreement
Exhibit H - U.S. Pledge and Interest Reserve Agreement
Exhibit I - Mexican Collateral Reserve Agreement
Exhibit J - U.S. Collateral Reserve Agreement
Exhibit K - Notice of Issuance
Exhibit L - Secretary's Certificate of Savia
Exhibit M - Officer's Certificate of Savia
Exhibit N - Secretary's Certificate of DNAP
Exhibit O - Officer's Certificate of DNAP
Exhibit P - Form of Secretary's Certificate of Grantor under
Mexican Trust Agreements
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AGREEMENT dated as of March 22, 1999 among SAVIA, S.A. de C.V., DNAP
HOLDING CORPORATION, the HOLDERS party hereto, MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Administrative Agent and Documentation Agent, CITIBANK, N.A., as
U.S. Collateral Agent, and BANKERS TRUST COMPANY, as Paying Agent and Registrar.
RECITALS:
Savia, S.A. de C.V., a Mexican limited liability company (sociedad anonima
de capital variable) (with its successors, "Savia"), and DNAP Holding
Corporation, a Delaware corporation (with its successors, "DNAP") and a 76.6%
indirect subsidiary of Savia, desire to issue three tranches of floating rate
notes substantially as follows:
(a) Savia desires to issue on the Closing Date Tranche A Notes and
Tranche B Notes in an aggregate principal amount not to exceed the Tranche
A Commitments and the Tranche B Commitments, respectively, hereunder, and
to use the proceeds thereof (i) to refinance certain indebtedness assumed
by Savia in connection with a proposed corporate reorganization (the
"Reorganization") pursuant to which Savia will become the direct or
indirect owner of certain shares of Seguros Comercial America S.A. de
C.V., a Mexican limited liability company (sociedad anonima de capital
variable) (with its successors, "SCA") currently owned by Conglomerado
Pulsar, S.A. de C.V. ("Pulsar") and its Affiliates, and after giving
effect to which Savia shall own at least 70% of the outstanding capital
and voting stock of SCA and (ii) for general corporate purposes including
working capital; and
(b) DNAP desires to issue on the Closing Date Tranche C Notes in an
aggregate principal amount not to exceed the Tranche C Commitments
hereunder, and to use the proceeds thereof to refinance existing Debt of
DNAP and its Subsidiaries in an aggregate principal amount of not less
than $85,000,000 and for general corporate purposes, including working
capital.
In consideration of and as a condition to the purchase by the Holders of
the Notes hereunder, Savia has agreed to guarantee the obligations of DNAP under
the Tranche C Notes and this Agreement and to grant a security interest in
certain of Savia's assets to secure its obligations under such guaranty, the
Tranche A Notes, the Tranche B Notes and this Agreement, subject to the terms
and conditions set forth in the Collateral Documents.
Therefore, the parties hereto agree as follows:
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ARTICLE 1
DEFINITIONS
SECTION 1.01 Definitions. The following terms, as used herein, have the
following meanings:
"AAP" or "Applicable Accounting Principles" has the meaning set forth in
Section 1.02.
"Acquisition" means the proposed acquisition by Savia of 60.2% of the
outstanding capital and voting stock of SCA owned, directly or indirectly by
certain affiliates of Savia, which, together with 10.6% of the outstanding and
voting stock of SCA already owned by Savia, will result in Savia owning,
directly or indirectly, approximately 70.8% of the capital and voting stock of
SCA.
"Additional Debt Incurrence" means the incurrence of any Debt of the type
referred to under clause (i), (ii) or (viii) of the definition thereof by any
Issuer, whether denominated in Dollars, Pesos or any other currency, other than
such Debt permitted by clauses (i) through (vi) of Section 5.10(a), and clauses
(i) and (ii) of Section 5.10(b).
"Adjusted Margin" has the meaning set forth in Section 2.04.
"Administrative Agent" means Morgan Guaranty Trust Company of New York, in
its capacity as administrative agent for the Holders hereunder, and its
successors in such capacity.
"Administrative Questionnaire" means, with respect to each Holder, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Issuers and the
Paying Agent) duly completed by such Holder.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls Savia (a "Controlling Person") or (ii) any
Person (other than Savia or any of its Subsidiaries) which is controlled by or
is under common control with a Controlling Person. As used herein, the term
"control" means possession, directly or indirectly, of the power to vote 20% or
more of any class of voting securities of a Person or to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agents" means the Administrative Agent, the Paying Agent, the
Documentation Agent, the Registrar and the Collateral Agents.
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"Alternative Rate" means, for any day and for Notes of any Tranche to
which it is to apply, a rate per annum equal to the sum of (i) the Adjusted
Margin applicable to such Tranche on such day plus (ii) the higher of (A) the
Prime Rate for such day and (B) the sum of 1/2 of 1% plus the Federal Funds Rate
for such day.
"Applicable Lending Office" means, with respect to any Holder, its
Euro-Dollar Lending Office or, if at any time at which the Notes shall bear
interest at the Alternative Rate, its Domestic Lending Office.
"Applicable Premium Amount" means for any Tranche B Note at any date, an
amount equal to the following percentage of the principal amount of such Tranche
B Note to be prepaid corresponding to the period in which such date occurs: (i)
prior to March 31, 2000, 2%, (ii) from March 31, 2000 to but excluding March 31,
2001, 1% and (iii) from and after March 31, 2001, 0%.
"Arrangers" means J.P. Morgan Securities Inc., ING Baring (U.S.) Capital
LLC, Bank of Montreal and Salomon Smith Barney Inc., in their respective
capacities as Arrangers hereunder.
"Asset Sale" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation) (a "disposition")
by either Issuer of any asset, including without limitation any sale-leaseback
transaction, whether or not involving a capital lease and any sale by Savia of
any Seminis Shares pursuant to the Seminis IPO, but excluding dispositions of
inventory, cash, cash equivalents and other cash management investments and
obsolete, unused or unnecessary equipment and undeveloped real estate, in each
case in the ordinary course of business.
"Assignee" has the meaning set forth in Section 10.06.
"Assumed Debt" has the meaning set forth in clause (x) of Section 3.01(e).
"Bank" means any Holder that is a commercial or investment bank with
assets of not less than U.S. $50,000,000 or its equivalent (in any relevant
currency) or any affiliate of the foregoing, that has as a significant part of
its business the making of, or holding of interests in, bank loans or, in the
case of the Notes, has funded or is maintaining the funding of its interest in
the Notes through funding in the London Interbank Offered Market.
"Bolsa Mexicana" means Bolsa Mexicana de Valores, S.A. de C.V., the
Mexican Stock Exchange.
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"Calculation Agent" at any time means the Administrative Agent at such
time, but solely in its role as "Calculation Agent" under the Share Appreciation
Rights.
"Closing Date" means the date on or after the Effective Date on which the
conditions specified in Section 3.01 shall first have been satisfied and on
which the Issuances shall occur.
"CNBV" means the National Banking and Securities Commission (Comision
Nacional Bancaria y de Valores) of Mexico or any entity succeeding to any or all
of its functions.
"CNSF" means the National Insurance and Bonding Commission (Comision
Nacional de Seguros y Fianzas) of Mexico or any entity succeeding to any or all
of its functions.
"Collateral" means the collateral subject to the Collateral Documents.
"Collateral Agent" means the U.S. Collateral Agent or the Mexican Trustee,
and "Collateral Agents" means both of them.
"Collateral Documents" means, collectively, the Mexican Trust Agreements
and the U.S. Pledge and Interest Reserve Agreement.
"Collateral Value" means at any date of determination and for any portion
of the Share Collateral, an amount equal to:
(i) the number of such shares in such Share Collateral of the
relevant issuer, multiplied by
(ii) the average closing price for the most recent five trading days
preceding the relevant date of determination, as published by or on (x) if
such portion of the Share Collateral consists of SCA or Empaques Shares,
the Bolsa Mexicana multiplied by the Exchange Ratio for such date, (y) if
such portion of the Share Collateral consists of Seminis Shares, The New
York Stock Exchange or other principal stock exchange or quotation system
on or through which such stock is then traded and (z) if such Share
Collateral consists of DNAP Shares, the Automated Quotation system of the
National Association of Securities Dealers, Inc.
As used in this definition, "Exchange Ratio" means for any date the exchange
rate for the satisfaction of foreign currency denominated liabilities payable in
Mexico (tipo de cambio para solventar obligaciones denominadas en moneda
extranjera pagaderas en la Republica Mexicana) published by Banco de Mexico
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on the Domestic Business Day (in Mexico City) immediately preceding such date
(or, if no such rate is published on such date, such rate as most recently
published prior to such date) and in effect on such date of determination, which
shall be a Domestic Business Day.
"Commitment" means, with respect to each Holder, the amount set forth
opposite the name of such Holder on the Commitment Schedule under the heading
"Holder's Total Commitments".
"Commitment Schedule" means the Commitment Schedule attached as Schedule 1
hereto and identified as such.
"Consolidated Debt" means for any Person at any date the aggregate Debt of
such Person and its Consolidated Subsidiaries at such date, determined on a
consolidated basis, including without limitation any Derivatives Obligations
that constitute Debt, all determined at such date.
"Consolidated EBITDA" means, for any Person and for any fiscal period,
Consolidated Operating Income for such Person for such period plus, to the
extent deducted in determining such Consolidated Operating Income for such
period, the aggregate amount of depreciation and amortization expenses of such
Person and its Consolidated Subsidiaries, determined on a consolidated basis for
such period.
"Consolidated Operating Income" means, for any Person and for any fiscal
period, operating income of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis for such period.
"Consolidated Subsidiary" means, at any date and for any Person, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with AAP, (v) all non-contingent obligations (and, for purposes of
Section 5.09 and the definition of Material Debt, all contingent obligations) of
such Person to reimburse any bank or other Person in respect of amounts paid
under a letter of credit or similar instrument, (vi) all obligations of such
Person to purchase securities (or other property) which arise out of or in
connection with the sale of the same or substantially similar securities or
property, (vii) all Debt secured by a
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Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person, (viii) all Derivatives Obligations of such Person
(valued, for purposes of any determination hereunder, after giving effect to any
contractually permitted netting), but excluding (except in the case of the
definition of Material Debt) Derivatives Obligations pursuant to interest rate
or currency hedges entered into by such Person for the bona fide purpose of
hedging such Person's exposure under other Debt or similar obligations of such
Person and (ix) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Dividend Payment" means, with respect to either Issuer, payments received
by such Issuer from any of its Subsidiaries in respect of dividends or
distributions on, purchases or redemptions of, or similar payments with respect
to, capital stock, other equity securities, or options, warrants or other rights
to acquire any such capital stock or other equity securities of such Subsidiary.
"DNAP" has the meaning set forth in the recitals to this Agreement.
"DNAP Prepayment Amount" means, with respect to any Asset Sale, Equity
Issuance or Additional Debt Incurrence by DNAP, or any Dividend Payment received
by DNAP, 100% of the Net Cash Proceeds thereof, provided that:
(i) the DNAP Prepayment Amount shall exclude the Net Cash Proceeds
of the rights offering by DNAP for subscriptions to its common stock
initiated in October, 1998 except to the extent that the aggregate Net
Cash Proceeds received by DNAP with respect thereto exceed $49,200,000;
and
(ii) in addition to the amounts referred to in clause (i) above, if
at the time of receipt of any Net Cash Proceeds no Default is then
continuing, DNAP may elect to reduce the DNAP Prepayment Amount of
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any relevant transaction by an amount (not to exceed $25,000,000 for all
such transactions as a whole, net of any amounts similarly retained by
Savia pursuant to clause (ii) in the proviso of the definition of "Savia
Prepayment Amount", and net of any management fees or royalty payments to
Savia), solely for the purpose of making required payments on outstanding
Debt of DNAP required prior the Maturity Date.
"DNAP Shares" means common stock of DNAP, $0.01 par value per share.
"Documentation Agent" means Morgan Guaranty Trust Company of New York, in
its capacity as documentation agent for the Holders hereunder, and its
successors in such capacity.
"Dollar", "$" or "Dollars" means U.S. Dollars.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City or Mexico City are authorized by
law to close.
"Domestic Lending Office" means, as to each Holder, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Holder may hereafter designate as its Domestic Lending Office by
notice to the Issuers and the Administrative Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 10.09.
"Eligible Collateral" means any SCA Shares, Empaques Shares, DNAP Shares
or Unencumbered Cash.
"Empaques" means Empaques Ponderosa, S.A. de C.V., a Mexican limited
liability company (sociedad anonima de capital variable), and its successors.
"Empaques Shares" means the common stock of Empaques.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, technical
standards (normas tecnicas), judgments, orders, decrees, plans, injunctions,
permits, concessions, grants, franchises, licenses, agreements and other
governmental restrictions relating to the environment, the effect of the
environment on human health or to emissions, discharges or releases of
pollutants,
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contaminants, Hazardous Substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, Hazardous
Substances or wastes or the clean-up or other remediation thereof. As used in
this definition, "Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"Equity Issuance" means the issuance and sale by either Issuer of any
equity securities of, or any other equity interests in, such Issuer, whether
denominated in Dollars, Pesos or any other currency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means Savia, any Subsidiary of Savia and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with Savia (if Savia has
employees that are so subject) or any such Subsidiary, are treated as a single
employer under Section 414 of the Internal Revenue Code; provided that so long
as Savia itself does not have any trades or businesses with employees subject to
ERISA, Savia shall not be included in the definition of "ERISA Group".
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
Dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Holder, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Holder as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Issuers and the Administrative Agent.
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Swaps" means the equity swaps or derivatives between Savia and
(i) The Chase Manhattan Bank and NationsBank, N.A., (ii) Bancomer, S.A., (iii)
Banco Nacional de Mexico, S.A. and (iv) Banco Inverlat, S.A., respectively (or
their respective successors), as counterparties, as set forth on Schedule 2.
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"Existing Swaps Debt" means Debt in an aggregate principal amount not in
excess of $312,000,000 under the Existing Swaps.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day; provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Administrative Agent.
"Financing Documents" means this Agreement, the Notes, the Collateral
Documents, the Mexican Collateral Reserve Trust Agreement, the U.S. Collateral
Reserve Agreement, the Share Appreciation Rights and any ancillary documents
relating thereto, and "Financing Document" means any one of the foregoing.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person (including an aval) and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means Savia in its capacity as guarantor under Article 9 of
this Agreement.
"Holder" means (i) each entity listed as a "Holder" on the signature pages
hereof, (ii) each Assignee and (iii) their respective successors (subject to
Section 1.03).
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"IMSS" means Instituto Mexicano del Seguro Social.
"Indemnitee" has the meaning set forth in Section 10.03.
"INFONAVIT" means Instituto del Fondo Nacional de la Vivienda para los
Trabajadores.
"Initial Outstanding Amount" means the aggregate outstanding principal
amount of all the Notes on the Closing Date (after giving effect to all
Issuances made on the Closing Date).
"Interest Period" means, with respect to each Note, (x) in the case of the
first Interest Period, the period commencing on the Closing Date and ending on
the last Euro-Dollar Business Day of April, 1999, (y) in the case of each of the
next two Interest Periods, the period commencing on the last day of the
immediately preceding Interest Period and ending on the last Euro-Dollar
Business Day of the next succeeding calendar month and (z) thereafter, the
period commencing on the last day of the immediately preceding Interest Period
and ending on the last Euro-Dollar Business Day of September, December, March or
June next occurring after the first day of such period; provided that:
(i) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day, unless (except in the case of the first Interest
Period) such Euro-Dollar Business Day falls in another calendar month, in
which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(ii) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) below, end on the last
Euro-Dollar Business Day of a calendar month;
(iii) if any Interest Period includes a date on which a scheduled
payment of principal of Notes is required to be made under Section 2.03(b)
but does not end on such date, then (i) the principal amount of each Note
or portion thereof required to be repaid on such date shall have an
Interest Period ending on such date and (ii) the remainder (if any) of
each such Note shall have an Interest Period determined as set forth
above; and
(iv) any Interest Period which would otherwise end after the
Maturity Date shall end on the Maturity Date.
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"Interest Reserve Amount" has the meaning set forth in Section 5.17(d).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, Guarantee, time deposit or otherwise (but
not including any demand deposit) or by the acquisition of a business or all or
substantially all of the assets of another Person comprising a business or
business division.
"Issuance" shall mean an issuance of a Note by any Issuer to any Holder.
"Issuer" means (i) when used solely with respect to the Tranche A Notes or
Tranche B Notes, Savia and (ii) when used solely with respect to the Tranche C
Notes, DNAP; and "Issuers" means both of them (including, in any case as the
context may require, Savia as Guarantor).
"LIBOR" has the meaning set forth in Section 2.04(a).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, Savia or
any of its Subsidiaries shall be deemed to own subject to a Lien any asset which
it has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"Luxembourg Agent" means Kredietbank S.A. Luxembourgeoise Societe Anonyme
in its capacity as listing agent and paying agent in Luxembourg.
"Material Adverse Effect" means with respect to any Person, (i) a material
adverse effect on the condition (financial or otherwise), business, results of
operations, properties, liabilities or prospect of such Person and its
Subsidiaries, taken as a whole, (ii) a material adverse effect on the ability of
either Issuer to consummate the transactions contemplated to occur on the
Closing Date or (iii) a material adverse effect on the ability of either Issuer
to perform its obligations, or the rights and remedies of the Agents and/or
Holders, under the Financing Documents. Unless otherwise specified, "Material
Adverse Effect" means a Material Adverse Effect with respect to Savia.
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"Material Debt" means Debt (other than the Notes) of one or both Issuers
and/or one or more of their Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal or face amount exceeding
$10,000,000 regardless of the currency in which it may be denominated.
"Material Plan" means, at any time, a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"Maturity Date" means March 31, 2002 or, if such date is not a Euro-Dollar
Business Day, the next preceding Euro-Dollar Business Day.
"Mexican Collateral Reserve Trust Agreement" means the Mexican Share
Collateral Reserve Trust Agreement with respect to certain Empaques Shares among
Savia, certain subsidiaries of Savia and the Mexican Trustee dated the Closing
Date and substantially in the form of Exhibit I, as amended from time to time.
"Mexican GAAP" has the meaning set forth in Section 1.02.
"Mexican Trust Agreements" means each of the trust agreements with respect
to the SCA Shares and the Empaques Shares, respectively, among Savia, certain
subsidiaries of Savia and the Mexican Trustee dated the Closing Date and
substantially in the form of Exhibits G-1 and G-2, as amended from time to time.
"Mexican Trustee" means Bancomer, S.A., as trustee under the Mexican Trust
Agreements and as trustee under the Mexican Collateral Reserve Agreement, and
its successors in such capacity.
"Mexico" means the United Mexican States.
"Mexico Spread Increase" and "Mexico Spread Decrease" have the respective
meanings set forth in Section 2.04(a).
"Ministry of Finance" means the Ministry of Finance and Public Credit
(Secretaria de Hacienda y Credito Publico) of Mexico or any entity succeeding to
all or any of its functions.
"Multiemployer Plan" means, at any time, an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
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"NASDAQ" means the Automated Quotation System maintained by the National
Association of Securities Dealers, Inc.
"Net Cash Proceeds" means, (i) with respect to any Asset Sale, an amount
equal to the cash proceeds received by any Issuer from or in respect of such
Asset Sale (including any cash proceeds received as income or other proceeds of
any noncash proceeds of any Asset Sale), less (x) any expenses reasonably
incurred by such Person in respect of such Asset Sale, (y) the amount of any
Debt secured by a Lien on any asset disposed of in such Asset Sale and
discharged from the proceeds thereof and (z) any net taxes reasonably estimated
by the chief financial officer or treasurer of such Issuer actually to be paid
with respect to such Asset Sale during or with respect to the fiscal year in
which such Asset Sale occurs; (ii) with respect to any Additional Debt
Incurrence or Equity Issuance, an amount equal to the cash proceeds received by
such Issuer from or in respect of such event, less any underwriting fees and
discounts and any other expenses reasonably incurred by such Issuer in respect
thereof; and (iii) with respect to any Dividend Payment, an amount equal to the
cash proceeds received by such Issuer from or in respect of such Dividend
Payment less any net taxes reasonably estimated by the chief financial officer
or treasurer of such Issuer actually to be paid with respect to such Dividend
Payment during or with respect to the fiscal year in which such Dividend Payment
occurs.
"New York Courts" has the meaning set forth in Section 10.08(b).
"New York Stock Exchange" means the New York Stock Exchange, Inc.
"Notes" means the Tranche A Notes, the Tranche B Notes and the Tranche C
Notes or any combination of the foregoing, and "Note" means any of the
foregoing, in each case subject to Section 1.03.
"Notice of Issuance" has the meaning set forth in Section 2.02(a).
"Offering Memorandum" means the Offering Memorandum dated as of March 16,
1999 relating to the offering of the Notes.
"Other Pledgors" means (i) each of the pledgors other than Savia party to
the Mexican Pledge Agreement with respect to the SCA Shares and (ii) Bionova
International, Inc., as a pledgor under the U.S. Pledge Agreements with respect
to the DNAP Shares.
"Parent" means, with respect to any Holder, any Person controlling such
Holder.
"Participant" has the meaning set forth in Section 10.06.
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"Paying Agent" means Bankers Trust Company, as registrar and paying agent
for the Holders hereunder and as registrar under the Share Appreciation Rights,
and its successors in such capacity.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Peso" or "Pesos" means the lawful currency of Mexico.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Process Agent" has the meaning set forth in Section 10.08(c) hereof.
"Pulsar" has the meaning set forth in the first recital to this Agreement.
"Reference Banks" means the principal London office of Morgan Guaranty
Trust Company of New York and any other Holder that is Bank designated as a
"Reference Bank" by the Issuers and the Administrative Agent for purposes of
this Agreement.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Regulatory Accounting Principles" has the meaning set forth in Section
1.02.
"Reorganization" has the meaning set forth in the first recital to this
Agreement.
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"Required Holders" means, at any time, Holders having more than 50% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing more than 50% of the aggregate unpaid
principal amount of the Notes.
"Reserve Stock" has the meaning set forth in the U.S. Collateral Reserve
Agreement.
"Reserved Asset Sale Amount" has the meaning set forth in the definition
of Savia Prepayment Amount.
"Restricted Payment" means (a) any dividend or other distribution on any
shares of capital stock of Savia (except dividends payable solely in shares of
its capital stock) or (b) any payment on account of the purchase, redemption,
retirement or acquisition of (i) any shares of capital stock of Savia or (ii)
any option, warrant or other right to acquire shares of capital stock of Savia
(but not including payment made with respect to convertible debt securities
prior to conversion).
"SAR" means Sistema de Ahorro para el Retiro, or mandatory retirement fund
system.
"Savia" has the meaning set forth in the recitals to this Agreement.
"Savia Prepayment Amount" means, with respect to any Asset Sale, Equity
Issuance or Additional Debt Incurrence by Savia or any Other Pledgor, or any
Dividend Payment received by Savia or any Other Pledgor, 100% of the Net Cash
Proceeds thereof, provided that:
(i) if at the time of receipt of any Net Cash Proceeds from
any Asset Sale, which would otherwise be required to be prepaid
pursuant to Section 2.04(c), no Default is then continuing, the
Savia Prepayment Amount shall be reduced by an amount (the "Reserved
Asset Sale Amount") equal to the amount by which all Savia
Prepayment Amounts previously applied (including after giving effect
to any partial application thereof pursuant to such Asset Sale) from
Asset Sales by Savia and/or any Other Pledgors prior to March 31,
2000 exceeds $325,000,000 (but the aggregate amount of all Reserved
Asset Sale Amounts shall in no event exceed $100,000,000);
(ii) in addition to the amounts referred to in clause (i)
above, if at the time of receipt of any Net Cash Proceeds no Default
is then continuing, Savia may elect to reduce the Savia
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Prepayment Amount of any relevant transaction by an amount (not to
exceed $25,000,000 for all such transactions as a whole, net of any
amounts similarly retained by DNAP pursuant to clause (ii) in the
proviso of the definition of "DNAP Prepayment Amount"), solely for
the purpose of (x) making required payments on outstanding Debt of
Savia required prior the Maturity Date or (y) paying corporate
expenses of Savia; and
(iii) in the case of issuances or sales by Savia pursuant to
the Savia Repurchase Program, the Savia Prepayment Amount for all
such issuances or sales after the Closing Date shall be zero for so
long as Savia remains in compliance with the limitations set forth
in Section 5.13.
"Savia Repurchase Program" means the stock repurchase and reissuance
program of Savia in effect on the date hereof.
"Savia Subordinated Debt" has the meaning set forth in clause (x) of
Section 3.01(e).
"SCA" has the meaning set forth in the first recital to this Agreement.
"SCA A Shares" means the Class I, Series A common stock of SCA, no par
value per share.
"SCA B Shares" means the Class I, Series B common stock of SCA, no par
value per share.
"SCA Shares" means the SCA A Shares and SCA B Shares.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations promulgated by the United States
Securities and Exchange Commission thereunder.
"Seminis" means Seminis Inc., an Illinois corporation, and its successors.
"Seminis IPO" means the initial underwritten public offering of Seminis
Shares.
"Seminis Shares" means the common stock of Seminis, par value $.01 per
share.
"Share Appreciation Rights" means the Share Appreciation Rights issued by
Savia on the Closing Date in connection with the Issuance of the Notes, as
amended from time to time.
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"Share Collateral" means initially (i) 50.8% of the issued and outstanding
capital and voting stock of SCA, (ii) 49% of the issued and outstanding capital
and voting stock of Seminis, subject to the provisions of the U.S. Collateral
Reserve Agreement, (iii) 49% of the issued and outstanding capital and voting
stock of DNAP subject to the provisions of the U.S. Collateral Reserve
Agreement, and (iv) 49% of the issued and outstanding capital and voting stock
of Empaques subject to the provisions of the Mexican Collateral Reserve Trust
Agreement, each pledged or transferred in trust as security in favor of the
Agents and the Holders as security for the Issuers' obligations under the Notes.
"Share Collateral Reduction Period" means the first date on which (and
Savia shall have delivered to the Administrative Agent and the Collateral Agents
a certificate of its chief financial officer demonstrating in reasonable detail
that) both
(A) (i) the total Debt of Savia on an unconsolidated basis is
not greater than $600,000,000 and (ii) the Consolidated Debt of
Savia is not greater than $1,100,000,000 and
(B) either: (I) (x) the aggregate outstanding principal amount
of the Notes shall have been reduced to not more than $325,000,000,
(y) Seminis Shares shall be listed on the New York Stock Exchange or
any other stock exchange or other automated quotation system in the
United States and (z) the total market capitalization (determined
for any date in the relevant manner specified in the definition of
Collateral Value) of Seminis shall be at least $2,000,000,000; or
(II) the aggregate outstanding principal amount of the Notes shall
have been reduced to not more than $250,000,000.
"Significant Subsidiary" means, at any time with respect to either Issuer,
any Subsidiary or Subsidiaries of such Issuer that in the aggregate would
constitute a "Significant Subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date hereof, except that, in the case of any individual
Subsidiary, all references to "10 percent" in such definition shall be changed
to "5 percent."
"Subsidiary" means, as to any Person, (i) any Consolidated Subsidiary of
such Person and (ii) any other corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by such Person or any corporation or other
entity of more than 50% of its outstanding securities are at the time directly
or indirectly owned by such Person; provided that (x) each of SCA and each Other
Pledgor
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shall in all events be deemed a Subsidiary of Savia and (y) unless otherwise
specified, "Subsidiary" means a Subsidiary of Savia.
"Temporary Cash Investment" means:
(a) any Dollar-denominated Investment in (i) direct obligations of
the United States or any agency thereof, or obligations guaranteed by the
United States or any agency thereof, (ii) time deposits with, including
certificates of deposit issued by, any office located in the United States
of (A) any bank or trust company which is organized under the laws of the
United States or any state thereof, or any country that is a member of the
Organization for Economic Cooperation and Development and has capital,
surplus and undivided profits aggregating at least $1,000,000,000 or (B)
any Holder or (iii) repurchase agreements with respect to securities
described in clause (a)(i) above entered into with an office of a bank or
trust company meeting the criteria specified in clause (a)(ii) above;
provided in each case that such Investment matures within one month from
the date of acquisition thereof by the Person making such Investment,
(b) any Peso- or Dollar-denominated Investment in (i) direct
obligations of Mexico or obligations guaranteed expressly by Mexico, (ii)
commercial paper issued by a Mexican issuer and rated at least A1 or
equivalent by Standard & Poor's de Mexico, S.A. de C.V. or another Mexican
rating agency of recognized standing, (iii) time deposits with, including
certificates of deposit issued by, (x) any office located in Mexico of
Banco Nacional de Mexico, S.A., Bancomer, S.A., Banco Mercantil del Norte,
S.A., Banco Inbursa, S.A., Citibank Mexico, S.A., Grupo Financiero
Citibank or Banco Santander Mexicano, S.A. or (y) any branch located in
Mexico of any bank or trust company which is organized under the laws of
the United States or any state thereof or any country that is a member of
the Organization for Economic Cooperation and Development and has capital,
surplus and undivided profits aggregating at least $1,000,000,000, or (iv)
repurchase agreements (including reportos) with respect to securities
described in clause (b)(i) above entered into with an office or branch of
any bank referred to in clause (b)(iii) above; provided in each case that
such Investment matures within 180 days from the date of acquisition
thereof by the Person making such Investment, or
(c) any Investment in a money market mutual fund (including a money
market fund or money market mutual fund for which the U.S. Collateral
Agent in its individual capacity or any of its affiliates is investment
manager or advisor or from which the U.S. Collateral Agent in
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its individual capacity or any of its affiliates charges or collects fees
and expenses for services rendered) that has a long-term debt rating by
each relevant rating agency at the time at which such Investment is made
in one of the three highest long-term rating categories for such rating
agency (e.g. for Standard & Poor's Ratings Services, AAA+, AAA or AAA-).
"Total Collateral Value" means at any date the aggregate Collateral Value
of all Collateral subject to the security interests created by the Collateral
Documents at such date.
"Tranche" means any of Tranche A, Tranche B or Tranche C.
"Tranche A" means the financing provided to Savia by the Tranche A Holders
pursuant to Section 2.01(a).
"Tranche A Commitment" means, with respect to each Holder, the amount (if
any) set forth opposite the name of such Holder on the Commitment Schedule under
the heading "Tranche A Commitments".
"Tranche A Notes" means Savia's Notes, issued in respect of Tranche A,
substantially in the form set forth in Exhibit A hereto.
"Tranche A Holder" means (i) each Holder with a Tranche A Commitment, (ii)
each Assignee of a Tranche A Note and (iii) their respective successors.
"Tranche B" means the financing provided to Savia by the Tranche B Holders
pursuant to Section 2.01(b).
"Tranche B Commitment" means, with respect to each Holder, the amount (if
any) set forth opposite the name of such Holder on the Commitment Schedule under
the heading "Tranche B Commitments".
"Tranche B Notes" means Savia's Notes, issued in respect of Tranche B,
substantially in the form set forth in Exhibit B hereto.
"Tranche B Holder" means (i) each Holder with a Tranche B Commitment, (ii)
each Assignee of a Tranche B Note and (iii) their respective successors.
"Tranche C" means the financing provided to DNAP by the Tranche C Holders
pursuant to Section 2.01(c).
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"Tranche C Commitment" means, with respect to each Holder, the amount (if
any) set forth opposite the name of such Holder on the Commitment Schedule under
the heading "Tranche C Commitments".
"Tranche C Notes" means DNAP's Notes, issued in respect of Tranche C,
substantially in the form set forth in Exhibit C hereto.
"Tranche C Holder" means (i) each Holder with a Tranche C Commitment, (ii)
each Assignee of a Tranche C Note and (iii) their respective successors.
"Unencumbered Cash" means, with respect to any Person, any cash or
Temporary Cash Investments of the type referred to in clause (a) of the
definition thereof denominated in Dollars owned legally and beneficially by such
Person free and clear of any Liens other than Liens created under the Collateral
Documents.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" or "U.S." means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
"U.S. Collateral Agent" means Citibank, N.A. in its capacity as collateral
agent under the U.S. Pledge and Interest Reserve Agreement and as agent under
the U.S. Collateral Reserve Agreement, and its successors in each such capacity.
"U.S. Collateral Reserve Agreement" means the U.S. Share Collateral
Reserve Agreement, with respect to certain DNAP Shares and certain Seminis
Shares, among Savia, certain subsidiaries of Savia and the U.S. Collateral Agent
dated the Closing Date and substantially in the form of Exhibit J, as amended
from time to time.
"U.S. GAAP" has the meaning set forth in Section 1.02.
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"U.S. Pledge and Interest Reserve Agreement" means the U.S. Pledge and
Interest Reserve Agreement, with respect to certain DNAP Shares and certain
Seminis Shares, among Savia, certain subsidiaries of Savia and the U.S.
Collateral Agent dated the Closing Date and substantially in the form of Exhibit
H, as amended from time to time.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder by any Person shall be prepared (A) in the
case of any of the foregoing with respect to SCA and any other Person subject to
the jurisdiction of CNSF or otherwise required to report in accordance with the
rules and practices established by the CNSF in respect of accounting for
insurance companies subject to its jurisdiction, as in effect from time to time,
applied on a basis consistent with the most recent audited financial statements
of such Person delivered to the Holders ("Regulatory Accounting Principles"),
(B) in the case of Seminis and DNAP, generally accepted accounting principles as
in effect from time to time in the United States, applied (in the case of any
such Person) on a basis consistent (except for changes concurred in by such
Person's independent public accountants) with the most recent audited
consolidated financial statements of such Person delivered to the Holders ("U.S.
GAAP") and (C) in any case not covered by clause (A) or (B) above (including any
determination of Savia and its Consolidated Subsidiaries on a consolidated
basis), in accordance with generally accepted accounting principles in Mexico in
effect from time to time, applied (in the case of any Person) on a basis
consistent (except for changes concurred in by such Person's independent public
accountants) with the most recent audited financial statements of such Person
delivered to the Holders ("Mexican GAAP") (any of Regulatory Accounting
Principles, U.S. GAAP or Mexican GAAP, as applicable to any Person or other
determination, "Applicable Accounting Principles" or "AAP"); provided that if
the Issuers notify the Documentation Agent that they wish to amend any covenant
in Article 5 or any Event of Default in clause (j), (k), (l) or (m) of Section
6.01 to eliminate the effect of any change in AAP on the operation of such
covenant (or if the Documentation Agent notifies the Issuers that the Required
Holders wish to amend any covenant in Article 5 or any Event of Default in
clause (j), (k), (l) or (m) of Section 6.01 for such purpose), then compliance
with such covenant shall be determined on the basis of AAP in effect immediately
before the relevant change in AAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Issuers
and the Required Holders..
SECTION 1.03. Interests in Global Notes. Certain of the Notes will be
issued and represented in the form of one or more "global notes" (each, a
"Global Note") registered in the name of a nominee of The Depository Trust
Company as
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a depository for the accounts of certain participants, which participants will
hold for the accounts of certain additional beneficial owners, and references
herein to "Notes" and any "Holder" of a Note shall include such beneficial
owners in the relevant Global Note, to the extent so registered with the Paying
Agent pursuant to the terms hereof, and each such beneficial owner's interest
therein.
SECTION 1.04. English Language. All certificates, reports, financial
statements, instruments, certificates and other documents delivered or to be
delivered by either Issuer or any of its respective Subsidiaries pursuant hereto
or in connection herewith (other than reports required to be delivered to
regulators or to the Bolsa Mexicana in Spanish and other corporate documents,
reports, memoranda and the like prepared in Spanish in the ordinary course of
business) shall, unless otherwise expressly specified, be in the English
language.
ARTICLE 2
PURCHASE OF THE NOTES
SECTION 2.01. Commitments to Purchase Notes; Expiration.
(a) Tranche A Notes. Each Tranche A Holder severally agrees, on the terms
and conditions set forth in this Agreement, to purchase a single Tranche A Note
from Savia on the Closing Date in an amount not to exceed such Tranche A
Holder's Tranche A Commitment. The Issuance of Tranche A Notes shall be made to
the several Tranche A Holders ratably in proportion to their respective Tranche
A Commitments.
(b) Tranche B Notes. Each Tranche B Holder severally agrees, on the terms
and conditions set forth in this Agreement, to purchase a single Tranche B Note
from Savia on the Closing Date in an amount not to exceed such Tranche B
Holder's Tranche B Commitment. The Issuance of Tranche B Notes shall be made to
the several Tranche B Holders ratably in proportion to their respective Tranche
B Commitments.
(c) Tranche C Notes. Each Tranche C Holder severally agrees, on the terms
and conditions set forth in this Agreement, to purchase a single Tranche C Note
from DNAP on the Closing Date in an amount not to exceed such Tranche C Holder's
Tranche C Commitment. The Issuance of Tranche C Notes shall be made to the
several Tranche C Holders ratably in proportion to their respective Tranche C
Commitments.
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(d) Expiration of Commitments. Each of the Tranche A Commitments,
Tranche B Commitments and Tranche C Commitments shall expire on the Closing
Date immediately after giving effect to the Issuances on the Closing Date or,
if the Closing Date has not theretofore occurred, at the close of business
(New York City time) on March 31, 1999 (regardless of whether any Issuances
have occurred). None of the Tranches contains any revolving feature and
amounts repaid or prepaid with respect thereto may not be reissued.
SECTION 2.02. Method of Issuance. (a) Each Issuer shall give the
Administrative Agent and the Paying Agent irrevocable notice in the form of
Exhibit K hereto (each such notice, a "Notice of Issuance") not later than 10:30
A.M. (New York City time) on the fifth Euro-Dollar Business Day before each
Issuance by such Issuer, specifying:
(i) the date of such Issuance, which shall be the Closing Date and a
Euro- Dollar Business Day; and
(ii) the aggregate principal amount, and the Tranche, of the Notes to
be issued in such Issuance.
(b) Upon receipt of a Notice of Issuance, the Paying Agent shall promptly
notify the Holders of the contents thereof and of such Holder's ratable share of
the relevant Tranche of the Notes to be issued pursuant thereto and such Notice
of Issuance shall not thereafter be revocable by the relevant Issuer.
(c) Not later than 12:00 Noon (New York City time) on the Closing Date,
each Holder shall make available its ratable share of such Issuance, in Federal
or other funds immediately available in New York City, to the Administrative
Agent at its address referred to in Section 10.01. Unless the Administrative
Agent determines that any applicable condition specified in Article 3 has not
been satisfied, the Administrative Agent will make the funds so received from
the Holders available to the relevant Issuer at the Administrative Agent's
aforesaid address.
(d) Unless the Administrative Agent shall have received notice from a
Holder prior to the Closing Date that such Holder will not make available to the
Administrative Agent such Holder's share of such Issuance, the Administrative
Agent may assume that such Holder has made such share available to the
Administrative Agent on the Closing Date in accordance with Section 2.02(c) and
the Administrative Agent may, in reliance upon such assumption, make available
to the relevant Issuer on such date a corresponding amount. If and to the extent
that such Holder shall not have so made such share available to the
Administrative Agent, such Holder and the Issuers severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to an Issuer until the date such amount is repaid to the Administrative
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Agent, at (i) in the case of the Issuers, a rate per annum equal to the higher
of the Federal Funds Rate and the interest rate applicable thereto (as if such
amount were a Note) pursuant to Section 2.04 and (ii) in the case of such
Holder, the Federal Funds Rate. If such Holder shall repay to the Administrative
Agent such corresponding amount, such amount so repaid shall constitute such
Holder's purchase of a Note of the relevant Tranche for purposes of this
Agreement.
(e) On the Closing Date, against payment as set forth in subsection (c) of
this Section, each Issuer shall deliver to the Paying Agent, with respect to
each Tranche of Notes issued by such Issuer, a Note of such Tranche registered
in the name of each Holder and representing the aggregate principal amount of
Notes of such Tranche to be purchased from such Issuer on the Closing Date by
such Holder.
SECTION 2.03. Maturity of Notes; Mandatory Prepayments of Notes. (a) Each
Note of each Tranche shall mature, and the outstanding principal amount thereof
shall be due and payable (together with accrued interest thereon), on the
Maturity Date.
(b) On each of the dates set forth below, there shall become due and
payable, and Savia shall repay, Tranche A Notes and Tranche B Notes in an
aggregate principal amount equal to the amount set forth opposite such date,
together with accrued interest thereon to the date of payment:
Date Amount
---- ------
December 31, 1999 $100,000,000
March 31, 2001 $225,000,000
Such repayment shall be allocated pro rata between the Tranche A Notes and the
Tranche B Notes then outstanding, in accordance with their respective principal
amounts. Amounts set forth above shall be reduced, in forward chronological
order, by the amount of any prepayments made pursuant to clause (c) below.
(c) Savia shall prepay the Tranche A Notes and Tranche B Notes
within three Euro-Dollar Business Days after the date of any receipt by
Savia after the date hereof of any Savia Prepayment Amount.
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(d) DNAP shall prepay the Tranche C Notes within three Euro-Dollar
Business Days after the date of any receipt by DNAP after the date hereof of
any DNAP Prepayment Amount.
(e) Notwithstanding the provisions of subsections (c) and (d), (i) if any
Savia Prepayment Amount or DNAP Prepayment Amount that would otherwise be
required to be applied to prepay the Notes under subsection (c) or (d),
respectively, aggregates less than $1,000,000, such repayment shall only be
required upon receipt of other Savia Prepayment Amounts or DNAP Prepayment
Amounts, as the case may be, which, together with all other Savia Prepayment
Amounts or DNAP Prepayment Amounts not previously so applied, respectively, are
greater than $1,000,000, and (ii) if no Notes can then be prepaid without the
Issuer thereof incurring costs pursuant to Section 2.08, such Savia Prepayment
Amount or DNAP Prepayment Amount, as the case may be, may instead be pledged
with the Paying Agent on terms satisfactory to the Paying Agent and such
prepayment may be deferred to the last day of the Interest Period applicable to
such Notes next ending after the date of such receipt.
(f) Each prepayment of the Notes pursuant to subsections (c) or (d) shall
be applied ratably to payment of the Notes of the relevant Tranche held by the
Holders in proportion to the aggregate outstanding principal amounts of such
Notes; provided that any prepayment pursuant to subsection (c) after the date on
which all scheduled repayments required by subsection (b) above have been made
(or reduced to $0 pursuant to the last sentence thereof) shall be applied first
to the repayment of Tranche A Notes and second, after the Tranche A Notes have
been repaid in full, to the Tranche B Notes, in each case in proportion to the
aggregate outstanding principal amounts of the Notes of such Tranche. Each
prepayment of the Notes pursuant to subsection (c) made on or prior to the
second anniversary of the Closing Date shall reduce any subsequent scheduled
amortization payments of Notes of such Tranche to be made pursuant to subsection
(b).
(g) Each Issuer shall give the Administrative Agent and the Paying
Agent at least five Euro-Dollar Business Days' prior notice of each
prepayment required to be made by such Issuer (or of any permitted election
to retain all or any portion of any Savia Prepayment Amount or DNAP
Prepayment Amount, as the case may be) pursuant to subsections (c) or (d).
Upon receipt of a notice of prepayment pursuant to this Section, the Paying
Agent shall promptly notify each affected Holder of the contents thereof and
such notice shall not thereafter be revocable by such Issuer.
SECTION 2.04. Interest Rates. (a) Each Note shall bear interest on the
outstanding principal amount thereof, for each day during each Interest Period
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applicable to such Note, from the date such Note is issued until it becomes due,
at a rate per annum equal to the sum of (i) LIBOR for such Interest Period plus
(ii) the Base Margin for Notes of such Tranche plus (iii) the Mexico Spread
Increase (or minus the Mexico Spread Decrease, as relevant) for such Interest
Period (the sum of (ii) and (iii) at any time and for any Note, the "Adjusted
Margin"); provided that (A) the interest rate determined for any Note pursuant
to this clause (a) shall at no time exceed 20% and (B) the Adjusted Margin
determined for any Note shall at no time be less than 6%. Such interest shall be
payable for each Interest Period on the last day thereof.
As used above:
"Mexico Spread Increase" and "Mexico Spread Decrease" mean for any
Interest Period the amount of increase or decrease, respectively, if any, of (i)
the Mexican Bond Spread for such Interest Period when compared with (ii) the
Mexican Bond Spread for the first Interest Period.
"Mexican Bond Spread" means, for any Interest Period, the number,
expressed as a percentage, equal to the positive difference, if any, of (i) the
Mexican Bond Yield to Maturity applicable to such Interest Period minus (ii) the
Reference Treasury Yield to Maturity applicable to such Interest Period.
"Mexican Bond Yield to Maturity" means, for any Interest Period, the bid
side yield to maturity of the Reference Mexican Bond, as it appears on Bloomberg
Screen "MEX 8 _ 03/12/08 Corp DES" (or any successor screen displaying the
information displayed thereon on the date hereof) as of the close of business in
New York City on the
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Determination Day for such Interest Period. If the Mexican Bond Yield to
Maturity is not published on such Bloomberg Screen or any successor screen on
the relevant Determination Day, then the Administrative Agent shall determine
the Mexican Bond Yield to Maturity for the related Interest Period in its sole
discretion.
"Reference Treasury Yield to Maturity" means, for any Interest Period, the
bid side yield to maturity of the Reference Treasury, as it appears on Bloomberg
Screen "T 5 1/2 02/15/08 Govt DES" (or any successor screen displaying the
information displayed thereon on the date hereof) as of the close of business in
New York City on the Determination Day for such Interest Period. If the
Reference Treasury Yield to Maturity is not published on such Bloomberg Screen
or any successor screen on the relevant Determination Day, then the
Administrative Agent shall determine the Mexican Bond Yield to Maturity for the
related Interest Period in its sole discretion.
"Reference Mexican Bond" means the United Mexican States 8_% Bond due
March 12, 2008; provided that if in the good faith judgment of the
Administrative Agent, such Bond has been redeemed, converted, repurchased,
called or exchanged in full or the aggregate outstanding principal amount
thereof has been materially reduced by redemption, repurchase or otherwise, then
the Administrative
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Agent shall identify a substitute security issued or guaranteed by Mexico to
replace such Bond (and such replacement shall be the "Reference Mexican Bond")
and, if necessary, shall make such adjustments to the determination of Mexican
Bond Spread (including for purposes of both clauses (i) and (ii) of the
definition of Mexican Spread Increase and Mexican Spread Decrease as determined
thereby) as may be necessary to preserve the value of adjustments to the
different interest rates intended by the parties hereto to be made hereunder.
"Reference Treasury" means the U.S. Treasury 5 1/2% Bond due February 15,
2008; provided that if in the good faith judgment of the Administrative Agent,
such Bond has been redeemed, converted, repurchased, called or exchanged in full
or the aggregate outstanding principal amount thereof has been materially
reduced by redemption, repurchase or otherwise, then the Administrative Agent
shall identify a substitute security issued or guaranteed by the United States
to replace such Bond (and such replacement shall be the "Reference Treasury")
and, if necessary, shall make such adjustments to the determination of Mexican
Bond Spread (including for purposes of both clauses (i) and (ii) of the
definition of Mexican Spread Increase and Mexican Spread Decrease as determined
thereby) as may be necessary to preserve the value of adjustments to the
different
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interest rates intended by the parties hereto to be made hereunder.
"Base Margin" means (i) for Tranche A Notes, 6.50%, (ii) for Tranche B
Notes, 6.75% and (iii) for Tranche C Notes, 7.00%.
"Determination Date" means, for any Interest Period, the second
Euro-Dollar Business Day prior to the first day of such Interest Period.
"LIBOR" for any Interest Period means (i) the arithmetic mean (rounded
upward, if necessary, to the nearest 1/100 of 1%) of the offered rates for
deposits in Dollars, for a period approximately equal to such Interest Period
and in an amount approximately equal to the average principal amount of the
applicable Notes of the Tranche to which such Interest Period applies, quoted on
the Determination Date for such Interest Period (a) as such rates appear on the
Reuters Screen LIBO page (or such other page as may replace the designated page
on the Reuters Screen) (the "Reuters Screen LIBO Page") as of 11:00 A.M. (London
time) on such date, or (b) if, as of 11:00 A.M. (London time) on any such date
at least two such rates do not appear on the Reuters Screen LIBO Page, as such
rate appears on the Dow Jones Service Page 3750 (or such other page as may
replace the designated page on the Telerate Service or such other service as may
be nominated by the British Bankers' Association) ("Dow Jones Page 3750") as of
11:00 A.M. (London time) on such date, or (ii) if, as of 11:00 A.M. (London
time) on any such date fewer than two such rates appear on the Reuters Screen
LIBO Page and no such rate appears on Dow Jones Page 3750, the arithmetic mean
(calculated as mentioned above) of the respective rates per annum at which
deposits in Dollars are offered to the Administrative Agent in the London
interbank market at 11:00 A.M. (London time) on the Determination Date for such
Interest Period for a period equal to such Interest Period and in an amount
approximately equal to the principal amount of the Notes of such Tranche to
which such Interest Period is to apply.
(b) During the continuance of any Event of Default (a "Payment Default
Period"), all principal of and interest on any Note shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the higher
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of (i) the sum of the Alternative Rate for such day plus the Adjusted Margin
plus 1% and (ii) the rate otherwise applicable to such Note pursuant to
subsection (a) plus 2%.
(c) The Administrative Agent shall determine each interest rate applicable
to each Note hereunder. The Administrative Agent shall give prompt notice to the
Issuers, the Paying Agent (which shall promptly (and no more than one Business
Day following receipt of notice) notify the Holders) and the Luxembourg Agent of
each rate of interest so determined, and the Administrative Agent's
determination thereof shall be conclusive in the absence of manifest error.
SECTION 2.05. Fees. (a) On the Closing Date, the Issuers shall pay to
JPMSI for the account of the Arrangers the fees specified in the Commitment
Letter to be so paid on or prior to the Closing Date.
(b) On each of the dates and subject to the conditions set forth below,
the Issuers shall pay to the Paying Agent, for the accounts of the Holders
ratably in accordance with the respective outstanding principal amounts of the
Notes thereof, a duration fee in an amount equal to 1.00% on the aggregate
outstanding principal amount of the Notes on such date:
(i) September 30, 1999, if the aggregate outstanding principal amount of
the Notes on such date exceeds $550,000,000;
(ii) June 30, 2000, if the aggregate outstanding principal amount of the
Notes on such date exceeds $450,000,000; and
(iii) December 31, 2001, if the aggregate outstanding principal amount
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the Notes on such date exceeds $225,000,000.
SECTION 2.06. Optional Prepayments. (a) Subject to Section 2.08, each
Issuer may, upon at least three Euro-Dollar Business Days' notice to the
Administrative Agent and the Paying Agent, prepay or redeem the Notes of such
Issuer, in whole at any time, or from time to time in part in principal amounts
aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the
principal amount of such Notes to be prepaid or redeemed together with accrued
interest thereon to the date of prepayment plus, in the case of any prepayment
of the Tranche B Notes, the Applicable Premium Amount of such Tranche B Notes
for the date on which such prepayment is made. Each such optional prepayment
shall be applied to prepay ratably the Notes of each Tranche of the Issuer
making such prepayment then outstanding (in the case of Savia, the Tranche A
Notes and the Tranche B Notes), in proportion to the aggregate outstanding
principal amounts of such Notes.
(b) Upon receipt of a notice of prepayment pursuant to this Section, the
Paying Agent shall promptly notify each Holder of the contents thereof and of
such Holder's ratable share of such prepayment and such notice shall not
thereafter be revocable by the Issuer.
SECTION 2.07. General Provisions as to Payments. (a) Each Issuer shall
make each payment of principal of, and interest and premium on, the Notes and
of fees hereunder, not later than 10:00 a.m. (New York City time) on the date
when due, in Federal or other funds immediately available in New York City,
to the Paying Agent at its address referred to in Section 10.01. The Paying
Agent will promptly distribute to each Holder its ratable share of each such
payment received by the Paying Agent for the account of the Holders. Whenever
any payment of principal of, or interest or premium on, any Note shall be due
on a day which is not a Euro-Dollar Business Day, the date for payment
thereof shall be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding
Euro-Dollar Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable
for such extended time.
(b) Unless the Administrative Agent and the Paying Agent shall have
received notice from an Issuer prior to the date on which any payment is due to
the Holders hereunder from such Issuer that such Issuer will not make such
payment in full, the Paying Agent may assume that such Issuer has made such
payment in full to the Paying Agent on such date and the Paying Agent may, in
reliance upon such assumption, cause to be distributed to each Holder on such
due
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date an amount equal to the amount then due such Holder. If and to the extent
that such Issuer shall not have so made such payment, each Holder shall repay to
the Paying Agent forthwith on demand such amount distributed to such Holder
together with interest thereon, for each day from the date such amount is
distributed to such Holder until the date such Holder repays such amount to the
Paying Agent, at the Federal Funds Rate.
SECTION 2.08. Funding Losses. If an Issuer makes any payment of principal
with respect to any Note or a Note is required to bear interest at the
Alternative Rate (pursuant to Article 2, 6, 8 or otherwise) on any day other
than the last day of an Interest Period applicable thereto, or if any Issuer
fails to issue or prepay any Notes after notice has been given to any Holder in
accordance with Sections 2.02(b), 2.04(h) or 2.06(b), such Issuer shall
reimburse each Holder within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Note), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to issue or prepay;
provided that such Holder shall have delivered to such Issuer a certificate as
to the amount of such loss or expense, which certificate shall be conclusive in
the absence of manifest error.
SECTION 2.09. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest,
premium and fees shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the first day but
excluding the last day).
ARTICLE 3
CONDITIONS
SECTION 3.01. Conditions. The closing hereunder, and the obligation of
any Holder to purchase any Notes on the Closing Date, are subject to the
satisfaction of the following conditions (with respect to each document,
dated the Closing Date unless otherwise indicated), it being understood that
with respect to the conditions set forth in clauses (e), (f), (g), (k) and
(l), each Holder shall be deemed to have determined that such conditions
shall have been satisfied unless the Administrative Agent shall have received
notice from such Holder prior to the Closing Date that such Holder does not
consider such conditions to have been satisfied:
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(a) receipt by the Administrative Agent and the Paying Agent of the
Notice of Issuance with respect to such Notes pursuant to Section 2.02;
(b) receipt by the Paying Agent of such Notes, complying with the
provisions of Section 2.02(e);
(c) receipt by the Administrative Agent of opinions of Milbank,
Tweed, Hadley & McCloy, New York counsel for the Issuers, and Lic. Jose
Luis Martinez, Mexican counsel for the Issuers, substantially in the forms
of Exhibits D-1 and D-2 hereto, respectively, and covering such additional
matters relating to the transactions contemplated hereby as the Required
Holders may reasonably request;
(d) receipt by the Administrative Agent of opinions of Davis Polk &
Wardwell, special New York counsel for the Administrative Agent, and
Ritch, Heather y Mueller, S.C., special Mexican counsel for the
Administrative Agent, substantially in the forms of Exhibits E-1 and E-2
hereto, respectively;
(e) (x) evidence satisfactory to the Documentation Agent that the
Reorganization shall be consummated substantially simultaneously with the
issuance of the Notes, not later than March 31, 1999, on terms and
conditions, and pursuant to documentation, satisfactory in form and
substance to the Holders, including without limitation the following: (i)
immediately after giving effect to the Reorganization, Savia shall own not
less than 70% of the issued and outstanding capital and voting stock of
SCA, (ii) Savia shall have used not more than $92,000,000 of its cash on
hand to pay the cash portion of the merger consideration required to
consummate the Reorganization, (iii) in connection with the
Reorganization, Savia shall have assumed Debt in an aggregate principal
amount of approximately $500,000,000, together with interest accrued
thereon from a date not earlier than January 1, 1999 (the "Assumed Debt"),
which Assumed Debt shall include all Debt outstanding under the Credit
Agreement dated as of October 26, 1998 among Pulsar and the other
Depositors referred to therein, the Banks referred to therein and Morgan
Guaranty Trust Company of New York, as Agent and the Credit Agreement
dated as of March 8, 1995 between Pulsar and ING (US) Capital Corporation,
as amended, (iv) contemporaneously with (or prior to) the consummation of
the Reorganization, Savia shall have incurred and/or assumed subordinated
Debt (the "Savia Subordinated Debt") in a principal amount of
approximately $214,000,000 to Pulsar and affiliates in form and substance
(including without limitation interest rate, maturity date, subordination
provisions and convertibility into Savia stock, if any)
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previously approved by the Arrangers, and Savia shall have canceled Debt
in an aggregate principal amount of approximately $94,000,000 owed to
Savia by the entities merging with Savia pursuant to the Reorganization,
and (v) Pulsar and its affiliates shall have received (A) an opinion
rendered by a law firm reasonably acceptable to the Arrangers or (B) a
confirmation from the Ministry of Finance, in either case in form and
substance acceptable to the Arrangers as to the tax-free status of the
Reorganization and (C) an opinion of counsel setting forth that the
Reorganization (including the spin-offs and mergers) is effective, (y)
receipt by the Administrative Agent of a certificate of the chief
financial officer of Savia certifying that the conditions described in
clauses (i) through (v), inclusive, of clause (x) of this subsection have
been satisfied, and setting forth in reasonable detail the basis upon
which such certification has been made and (z) an approval in respect of
the Reorganization issued by the Ministry of Finance, in effect and in
form and substance satisfactory to the Agents and a favorable resolution
in respect of the Reorganization issued by the Federal Competition
Commission;
(f) receipt by the Holders of evidence satisfactory to them that
after giving effect to the Reorganization and immediately after giving
effect to the Issuances of the Notes, Savia (on an unconsolidated basis)
shall have (i) no Debt other than Debt permitted hereunder and (ii) not
less than $120,000,000 in Unencumbered Cash or Temporary Cash Investments
on its pro forma balance sheet, free and clear of any Liens other than the
Lien created pursuant to the Interest Account Agreement;
(g) receipt by the Administrative Agent of duly executed
counterparts of each of the Collateral Documents, together with evidence
satisfactory to the Administrative Agent of the creation and perfection of
the Liens purported to be created thereby, including without limitation
delivery to the U.S. Collateral Agent of the stock certificates of the
Seminis Shares and the DNAP Shares comprising the Collateral on the
Closing Date;
(h) receipt by the Administrative Agent of evidence in writing
satisfactory to it that the CNBV has approved the registration of the
Tranche A and Tranche B Notes in the Special Section of the National
Registry of Securities and Intermediaries maintained by the National
Banking and Securities Commission,
(i) receipt by the Administrative Agent of evidence in writing from
the Ministry of Finance, satisfactory to the Administrative Agent,
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that the Mexican Trustee may hold in trust for the benefit of the Holders
shares representing 51% of the issued and outstanding shares of SCA;
(j) receipt by the Administrative Agent of evidence satisfactory to
it that all filings, consents and approvals, if any, required to be made
with, or obtained from, any governmental authority in connection with the
Financing Documents and the transactions contemplated thereby (including
without limitation the Issuances of the Notes and the creation of the
Liens under the Collateral Documents), including without limitation any
such filings required to be made with, and consents and approvals required
to be obtained from, the CNBV, the Ministry of Finance and the Federal
Competition Commission shall have been made or obtained and shall be, in
each case, in full force and effect on and as of the Closing Date;
(k) satisfaction of the Required Holders in their sole good faith
discretion as to the absence of (i) any material adverse change in the
condition, financial or otherwise, results of operations, business,
properties, liabilities, or prospects of either Issuer, Empaques, SCA or
Seminis and its respective Subsidiaries, in each case taken as a whole,
since December 31, 1998, except as disclosed in the Offering Memorandum,
(ii) any event or condition (including without limitation any litigation
or threatened litigation) which draws into question, or is reasonably
likely to draw into question, in the judgement of the Holders, the
solvency (as defined under relevant Mexican or United States federal or
state law) of either Issuer or (iii) any change in or disruption affecting
international or Mexican financial, bank syndication or capital markets
conditions that in the good faith judgment of the Arrangers could
adversely affect the syndication of the Notes or the refinancing thereof
in the international capital markets;
(l) satisfaction of the Required Holders in their sole good faith
discretion as to the absence of any pending or threatened litigation in
which there is a reasonable likelihood of a decision which could
reasonably be expected to materially adversely affect (i) Savia and its
Subsidiaries, considered as a whole, (ii) the ability of either Issuer to
perform any of its obligations under the Financing Documents, or (iii) the
Holders' rights, or their ability to exercise such rights, under the
Financing Documents;
(m) the receipt by the Process Agent and the Administrative Agent of
a notarized power of attorney from Savia appointing the Process Agent to
act on Savia's behalf in accordance with Section 10.08(c) hereof
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and the acceptance by the Process Agent to act as agent for the service of
process for each Issuer in accordance with Section 10.08(c) hereof;
(n) payment of the fees and expenses payable with respect to the
Financing Documents (and the credit facilities evidenced thereby) and the
Collateral to (i) the Arrangers, each for its own account, (ii) the
Collateral Agents, each for its own account, (iii) the Administrative
Agent for its own account and (iv) the Paying Agent for its own account
and for the several accounts of the Holders on or prior to the Closing
Date (including without limitation the fees referred to in Sections 2.05
and 7.10 and all fees and expenses of special New York and Mexican counsel
for the Agents for which the Issuers has received notice on or prior to
the Closing Date);
(o) receipt of all documents the Administrative Agent may reasonably
request relating to the existence of each Issuer, certain affiliates of
the Issuers and SCA, the corporate authority for each Issuer to enter
into, and the validity of, the Financing Documents, and any other matters
relevant hereto, all in form and substance satisfactory to the
Administrative Agent, including, without limitation, the following:
(i) a Secretary's Certificate of Savia in the form of Exhibit
L hereto duly executed by an authorized officer of Savia, attaching
(x) the estatutos sociales of Savia, certified by a Mexican notary
public as true and correct and in full force and effect in its
delivered form on the Closing Date, and (y) a power of attorney,
certified by a Mexican notary public, (A) authorizing the relevant
officers of Savia to execute the Financing Documents to which it is
a party and any other document or certificate to be delivered by
Savia on or prior to the Closing Date in connection with the
transactions contemplated hereby and (B) appointing the Process
Agent to act as such on behalf of Savia; and
(ii) an Officer's Certificate in the form attached as Exhibit
M hereto duly executed by an authorized officer of Savia;
(iii) a Secretary's Certificate of DNAP in the form of Exhibit
N hereto duly executed by an authorized officer of DNAP, attaching
(x) the certificate of incorporation and by-laws of DNAP, which
certificate shall certify that the attached certificate of
incorporation and by-laws are true and correct and in full force and
effect in their delivered form on the Closing Date, and (y)
resolutions of the board of directors of DNAP, (A) authorizing the
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offering of the Tranche C Notes and related transactions, (B)
approving the form of the Offering Memorandum, the form of Note
Acquisition Agreement and related documentation and (C) authorizing
relevant officers of DNAP to execute the Financing Documents to
which it is a party and any other document or certificate to be
delivered by DNAP on or prior to the Closing Date in connection with
the transactions contemplated hereby; and
(iv) an Officer's Certificate in the form attached as Exhibit
O hereto duly executed by an authorized officer of DNAP;
(p) receipt of all documents the Administrative Agent may reasonably
request relating to the existence of each grantor (fideicomitente) under
each Mexican Trust Agreement, the corporate authority for each such
grantor to enter into, and the validity of, the relevant Mexican Trust
Agreement, and any other matters relevant hereto, all in form and
substance satisfactory to the Administrative Agent, including, without
limitation, a Secretary's Certificate of each grantor in the form of
Exhibit P hereto duly executed by an authorized officer of such grantor,
attaching (i) the estatutos sociales of such grantor, certified by a
Mexican notary public as true and correct and in full force and effect in
its delivered form on the Closing Date, and (ii) a power of attorney,
certified by a Mexican notary public, authorizing the relevant officers of
such grantor to execute the Mexican Trust Agreements to which it is a
party and any other document or certificate to be delivered by such
grantor on or prior to the Closing Date in connection with the
transactions contemplated hereby;
(q) the fact that, immediately before and after such Issuance, no
Default shall have occurred and be continuing; and
(r) the fact that the representations and warranties of the Issuers
contained in the Financing Documents shall be true on and as of the
Closing Date.
Each Issuance hereunder shall be deemed to be a representation and
warranty by the Issuers on the Closing Date as to the facts specified in clauses
(q) and (r) above. The Administrative Agent shall promptly notify the Paying
Agent, which shall promptly notify the Holders of the Closing Date, and such
notice shall be conclusive and binding on all parties hereto.
ARTICLE 4
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REPRESENTATIONS AND WARRANTIES
Each Issuer represents and warrants that:
SECTION 4.01. Corporate Existence and Power. Savia is a sociedad
anonima de capital variable duly incorporated and validly existing under the
laws of Mexico. DNAP is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. Each Issuer has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by such Issuer of each Financing
Document to which it is a party (including the granting and perfecting of the
security interests thereunder, if any) (i) are within the corporate powers of
such Issuer, (ii) have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (including, without limitation, the Ministry of Finance or
the CNSF), other than (x) the registration of the Notes with the CNBV, (y) the
listing of the Notes on the Luxembourg Stock Exchange and (z) the approval of
the Ministry of Finance referred to in Section 3.01(i) and (iii) do not
contravene, or constitute a default under, any provision of applicable law or
regulation (including, without limitation, IMSS, INFONAVIT and SAR and any
limitation administered or imposed by the Ministry of Finance or the CNSF) or of
the estatutos sociales or certificate of incorporation or bylaws, as applicable,
of such Issuer or of any agreement, judgment, injunction, order, decree or other
instrument binding upon such Issuer or any of its Subsidiaries or (iv) result in
the creation or imposition of any Lien on any asset of such Issuer or any of its
Subsidiaries, other than the Liens created under the Collateral Documents.
SECTION 4.03. Binding Effect. Each of the Financing Documents (other than
the Notes) constitutes a valid and binding agreement of such Issuer party
thereto, enforceable in accordance with its terms, and each Note of each Issuer,
when executed and delivered by such Issuer in accordance with this Agreement,
will constitute a valid and binding obligation of such Issuer, enforceable in
accordance with its terms.
SECTION 4.04. Financial Information. (a) The consolidated balance sheet of
Savia and its Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, changes in stockholders' equity and changes
in financial position for the fiscal year then ended, reported on by Price
Waterhouse, a copy of which has been delivered to each of the Holders, fairly
present, in conformity with Mexican GAAP, the consolidated financial position of
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Savia and its Consolidated Subsidiaries as of such date and their consolidated
results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of Savia and its Consolidated
Subsidiaries as of the fiscal quarter ended September 30, 1998 and the related
unaudited consolidated statements of income and changes in financial position
for the nine months ended at the end of such fiscal quarter, a copy of which has
been delivered to each of the Holders, fairly present, in conformity with
Mexican GAAP, the consolidated financial position of Savia and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such nine month period (subject to normal year-end adjustments).
(c) Except as disclosed in the Offering Memorandum, since September 30,
1998, there has been no material adverse change in the business, financial
position, results of operations or prospects of either Issuer and its
Consolidated Subsidiaries, taken as a whole.
(d) The unaudited pro forma consolidated balance sheet of Savia and its
Consolidated Subsidiaries as of September 30, 1998, a copy of which has been
delivered to each of the Holders, fairly presents the consolidated financial
position of Savia and its Consolidated Subsidiaries as of such date, adjusted to
give effect (as if such events had occurred on such date) to (i) the
Acquisition, (ii) the issuance of the Notes and the use of proceeds thereof and
(iii) the payment of all income tax, legal, accounting and other fees related
thereto to the extent known at the time of the preparation of such balance
sheet.
SECTION 4.05. Compliance with Laws. Except for such non-compliance which
could not reasonably be expected to have a Material Adverse Effect on such
Issuer, such Issuer and its Subsidiaries is in compliance in all material
respects with all applicable laws, ordinances, rules, regulations and
requirements of governmental authorities (including, without limitation,
Environmental Laws, insurance laws, IMSS, INFONAVIT, SAR and ERISA and the rules
and regulations thereunder), except where the necessity of compliance therewith
is contested in good faith by appropriate proceedings.
SECTION 4.06. Litigation. Except as disclosed in the Offering Memorandum,
there is no action, suit or proceeding pending against, or to the knowledge of
either Issuer threatened against or affecting, either Issuer or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could have a Material Adverse Effect on such Issuer, or which in any manner
draws into question the validity of any Financing Document or the solvency of
either Issuer.
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SECTION 4.07. Environmental Matters. Such Issuer has reasonably concluded
that the liabilities and costs associated with, including the costs of
compliance with, Environmental Laws, could not reasonably be expected to have a
Material Adverse Effect on such Issuer.
SECTION 4.08. Taxes. Such Issuer has filed all material tax returns which
are required to be filed by it and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by such Issuer or any of its
Subsidiaries, except where the same may be contested in good faith by
appropriate proceedings, and where such Issuer has maintained and caused each of
its Subsidiaries to maintain, in accordance with AAP, appropriate reserves for
the accrual of any of the same. The charges, accruals and reserves on the books
of such Issuer and its Subsidiaries in respect of taxes or other governmental
charges are, in the opinion of such Issuer, adequate.
SECTION 4.09. Subsidiaries. Each of such Issuer's Subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, except to the extent that the failure
of which could not in the aggregate reasonably be expected to have a Material
Adverse Effect with respect to such Issuer.
SECTION 4.10. Regulatory Restrictions on Borrowing or on the
Reorganization. Neither Issuer is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, a "holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or
otherwise subject to any regulatory scheme which restricts, or requires any
notice or filing in connection with, its incurrence or issuance of debt
(pursuant to this Agreement or otherwise) or creation of Liens on, or other
interests in, any of its assets. Neither Issuer nor any of its respective
Subsidiaries is (a) subject to any regulatory scheme which restricts its ability
to consummate the Reorganization or (b) required to obtain any consent,
authorization or approval of any governmental body, agency or official or third
party in order to consummate the Reorganization, except for (i) the approval of
the Ministry of Finance to permit Savia to hold the SCA Shares, (ii) the absence
of objection of the Federal Competition Commission as to anti-competitive and
concentration matters and (iii) the approval of a majority of holders of Savia A
Shares at a duly held shareholders meeting, as required by the Bolsa Mexicana.
SECTION 4.11. Full Disclosure. All information heretofore furnished by
either Issuer or any of its Subsidiaries or any Affiliates to the Administrative
Agent or the Paying Agent, on behalf of the Holders, for purposes of or in
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connection with any Financing Document or any transaction contemplated thereby
is, and all such information hereafter furnished by either Issuer or any of its
Subsidiaries or any Affiliates to the Administrative Agent or the Paying Agent,
on behalf of the Holders, will be, true and accurate in all material respects on
the date as of which such information is stated or certified. Such Issuer has
disclosed to the Holders in writing any and all facts which have or may have a
Material Adverse Effect on such Issuer (to the extent such Issuer can now
reasonably foresee) or which may adversely affect such Issuer's ability to
perform its obligations under the Financing Documents to which it is a party.
SECTION 4.12. Solvency. As of the Closing Date, after giving effect to the
transactions contemplated by the Financing Documents (including, without
limitation, the issuance of the Notes by each Issuer), such Issuer and each
grantor (fideicomitente) under each of the Mexican Trust Agreements is solvent
(within the meaning of applicable Mexican law or United States law, as the case
may be), and no event or combination of events (including, without limitation,
any pending or threatened litigation) has occurred which could reasonably be
expected to draw such solvency into question.
SECTION 4.13. No Restrictions on Dividends. No Subsidiary of Savia is
party to, bound by or otherwise subject to, any agreement with any Person which
prohibits or limits the ability of such Subsidiary to (i) pay dividends or make
other distributions, (ii) pay any Debt owed to Savia or any other Subsidiary or
(iii) make loans or advances to Savia or any other Subsidiary, other than the
agreements governing Debt of any Subsidiary of Savia not prohibited by Section
5.10, as in effect on the date hereof.
SECTION 4.14. Listing of Shares. All SCA Shares and all Empaques Shares
issued and outstanding as of the Closing Date have been duly listed on the Bolsa
Mexicana in accordance with the rules and regulations thereof. All DNAP Shares
issued and outstanding as of the Closing Date have been duly listed on NASDAQ,
in accordance with the rules and regulations thereof.
SECTION 4.15. Insurance Industry or Regulatory-Specific Representations.
SCA and its Subsidiaries are in compliance in all respects with all applicable
laws and regulatory requirements of the CNSF and the Ministry of Finance and any
other regulatory authority having jurisdiction over any of them, except for such
non-compliance which could not reasonably be expected to have a Material Adverse
Effect with respect to SCA.
SECTION 4.16. Legal Form; No Immunity. (a) Each of the Financing Documents
is in proper legal form under all applicable laws for the enforcement thereof in
accordance with its terms against the parties thereto under such laws. To ensure
the legality, validity, enforceability or admissibility into evidence of the
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Financing Documents, it is not necessary that any of such Financing Documents or
any other document be filed or recorded with any governmental body, agency or
official or that any stamp or similar tax be paid on or in respect of such
Financing Document or other document, except that if any legal proceedings are
brought in the courts of Mexico, a Spanish translation of the documents required
in such proceedings prepared by a court-approved translator would have to be
approved by the court after the defendant had been given an opportunity to be
heard with respect to the accuracy of the translation, and proceedings would
thereafter be based on the translated documents.
(b) Neither of the Issuers or any of its respective Subsidiaries or any of
their respective revenues, assets or properties have any right of immunity, on
the ground of sovereignty or otherwise, from service of process or the
jurisdiction of any court in connection with any suit, action or proceeding
arising out of or relating to its obligations under the Financing Documents or
from the execution or enforcement of any judgment resulting therefrom, and if
either Issuer or any of its revenues, assets or properties should become
entitled to any such right of immunity, such Issuer has effectively waived such
right pursuant to Section 10.12.
(c) It is not necessary (i) in order for the Administrative Agent, the
Paying Agent, the Collateral Agents or any Holder to enforce any rights or
remedies under the Financing Documents or (ii) solely by reason of the
execution, delivery and performance by either Issuer of the Financing Documents,
that any Agent or any Holder be licensed or qualified with any governmental
body, agency or official or be entitled to carry on business in any
jurisdiction.
SECTION 4.17. Collateral Documents; Collateral. (a) Each of the
representations and warranties contained in the Collateral Documents is true and
correct.
(b) The provisions of each Collateral Document, subject to performance in
accordance therewith, are effective to create in favor of the Collateral Agent
party thereto, for the benefit of such Collateral Agent and the Holders, legal,
valid and enforceable security interests in all right, title and interest of the
Issuer party to such Collateral Document in the Collateral purportedly in pledge
thereunder, which security interests constitute and shall continue to constitute
fully perfected and continuing first priority Liens on and security interests in
all right, title and interest of such Issuer in such Collateral. Except for SCA
A Shares, which may only be owned by Mexican investors (unless otherwise
approved by the Foreign Investment Commission and the Ministry of Finance), all
of the Collateral may be owned by foreign investors (including without
limitation the U.S. Collateral Agent and the Holders) pursuant to the estatutos
sociales and other constitutional
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documents of SCA, Seminis, DNAP and Empaques, as applicable, the Mexican Foreign
Investment Law, the Mexican Insurance Law and other applicable laws, subject to
(i) the approval of the Ministry of Finance, if the SCA Shares to be acquired by
a single foreign or Mexican investor upon foreclosure under the Mexican Trust
Agreement amount to 10% or more of the capital stock of SCA, (ii) the absence of
objection of the Federal Competition Commission, if the amount of the
transaction arising from the foreclosure exceeds the threshold amount specified
under applicable law or such transaction otherwise raises competition issues,
and (iii) the approval of the Ministry of Finance and of the Foreign Investment
Commission, if upon foreclosure under the Mexican Trust Agreement non-Mexican
investors are to acquire control of SCA.
SECTION 4.18. Year 2000 Compliance. Such Issuer has (i) initiated a review
and assessment of all areas within the business and operations of such Issuer
and its Subsidiaries (including those areas affected by suppliers and vendors)
that could be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer applications used by such Issuer or its Subsidiaries (or their
respective suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in
accordance with such timetable. Such Issuer reasonably believes that all
computer applications (including those of suppliers and vendors) that are
material to the business or operations of such Issuer or its Subsidiaries will
on a timely basis be able to perform properly date-sensitive functions for all
dates before and from and after January 1, 2000, except to the extent that a
failure to do so could not reasonably be expected to have a Material Adverse
Effect on such Issuer.
ARTICLE 5
COVENANTS
Savia agrees that, so long as any Holder has any Commitment hereunder or
any amount payable under any Note remains unpaid; and DNAP agrees that so long
as any amount payable under any Tranche C Note remains unpaid, each with respect
to itself (and, if specified, its Subsidiaries):
SECTION 5.01. Information. The Issuers will deliver to each of the
Administrative Agent and the Paying Agent:
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(a) as soon as available and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year of each
Issuer, a consolidated balance sheet or equivalent statement of financial
position of such Issuer and its Consolidated Subsidiaries as of the end of
such fiscal quarter and the related consolidated statements of income and
changes in financial position for the portion of such Issuer's fiscal year
ended at the end of such fiscal quarter, setting forth in each case in
comparative form the figures for the corresponding portion of the Issuer's
previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, AAP and consistency by such
Issuer's chief financial officer or the chief accounting officer;
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of each Issuer, a consolidated balance sheet or
equivalent statement of financial position of each Issuer and its
Consolidated Subsidiaries as of the end of such fiscal year and the
related consolidated statements of consolidated statements of income,
changes in stockholders' equity and changes in financial position for such
fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all reported on as to fairness of
presentation, AAP and consistency, and otherwise in a manner acceptable to
the U.S. Securities and Exchange Commission (if the standards of such
Commission are applicable to such Issuer), by Price Waterhouse or other
independent public accountants of internationally recognized standing;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of Savia (i)
setting forth in reasonable detail the calculations required to (x)
establish whether Savia was in compliance with the requirements of Article
5 and (y) determine whether any Event of Default under clause (j), (k),
(l) or (m) of Section 6.01 has occurred, in each case on the date of such
financial statements and (ii) stating whether any Default exists on the
date of such certificate and, if any such Default then exists, setting
forth the details thereof and the action which is being taken or is
proposed to be taken with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (b) above, a statement of the relevant
firm of independent public accountants which reported on such statements
(i) stating whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and (ii)
confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith pursuant to clause (c) above;
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(e) within five days after any officer of either Issuer obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer
of such Issuer setting forth the details thereof and the action which is
being taken or is proposed to be taken with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of Savia
or any of its Subsidiaries generally, copies of all financial statements,
reports and proxy statements so mailed;
(g) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q,
8-K, 20-F or 6-K (or their equivalents) which Savia or any of its
Subsidiaries shall have filed with the Securities and Exchange Commission
and (ii) all reports and other documents which any such Person shall have
filed with the Bolsa Mexicana; and
(h) from time to time such additional information regarding the
financial position or business of either Issuer or its respective
Subsidiaries as the Paying Agent, at the request of any Holder, may
reasonably request, including without limitation any report filed by SCA
with the CNSF or any other applicable regulatory authority or governmental
agency (including the reports of SCA's statutory investment surplus,
solvency margin surplus and investment portfolio).
SECTION 5.02. Payment of Obligations. Except for such non-payments that
(i) could not in the aggregate reasonably be expected to have a Material
Adverse Effect on such Issuer or (ii) are being contested in good faith by
appropriate proceedings, the Issuers will pay and discharge, and will cause
each of their respective Subsidiaries to pay and discharge, at or before
maturity, all their respective material obligations and liabilities
(including, without limitation, tax liabilities and claims of materialmen,
warehousemen and the like which if unpaid might by law give rise to a Lien),
and will maintain, and will cause each of their respective Subsidiaries to
maintain, in accordance with AAP appropriate reserves for the accrual of any
of the same.
SECTION 5.03. Maintenance of Property; Insurance. (a) The Issuers will
keep, and will cause each of their respective Subsidiaries to keep, all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted, except to the extent that any such failures
could not in the
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aggregate reasonably be expected to have a Material Adverse Effect on such
Issuer.
(b) The Issuers will, and will cause each of their respective Subsidiaries
to, maintain (either in the name of such Issuer or in such Subsidiary's own
name) with financially sound and responsible insurance companies, insurance on
all their respective properties in at least such amounts, against at least such
risks and with such risk retention as are, considered as a whole, usually
maintained, insured against or retained, as the case may be, in the same general
area by companies of established repute engaged in the same or a similar
business; and will furnish to the Holders, upon request from the Paying Agent,
information presented in reasonable detail as to the insurance so carried.
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Issuers will continue, and will cause each of their respective Subsidiaries
to continue, to engage in business of the same general type as now conducted
by such Issuers and their respective Subsidiaries, and will preserve, renew
and keep in full force and effect, and will cause each of their respective
Subsidiaries to preserve, renew and keep in full force and effect their
respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business; provided
that nothing in this Section shall prohibit (i) the termination of the
corporate existence of any Subsidiary of either Issuer (other than either
Issuer) if such Issuer in good faith determines that such termination is in
its best interest and is not materially disadvantageous to the Holders or
(ii) any permitted action under Section 5.08 hereof.
SECTION 5.05. Compliance with Laws. Except where failure to do so could
not reasonably be expected to have a Material Adverse Effect on either
Issuer, the Issuers will comply, and will cause each of their respective
Subsidiaries to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws, insurance laws, IMSS,
INFONAVIT, SAR and ERISA and the rules and regulations thereunder) except
where the necessity of compliance therewith is contested in good faith by
appropriate proceedings.
SECTION 5.06. Inspection of Property, Books and Records. The Issuers will
keep, and will cause each of their respective Subsidiaries to keep, proper books
of record and account in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities; and
will permit, and will cause each such Subsidiary to permit, representatives of
any Agent or any Material Holder, at such Agent's or Material Holder's expense
to visit and inspect any of their respective properties, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective
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officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired, subject to each Issuer's
reasonable requirements for confidentiality and protection of its trade secrets,
other intellectual property and other confidential information. As used herein,
"Material Holder" means any Holder, or group of Holders agreeing to act together
solely for purposes of exercising their rights under this Section 5.06, holding
Notes with an aggregate principal amount corresponding to an initial principal
amount of $20,000,000 or more.
SECTION 5.07. Maintenance of Registration. The Issuers will (i) maintain
the registration of the Tranche A and the Tranche B Notes with the Special
Section of the National Registry of Securities and Intermediaries maintained by
the CNBV and (ii) will as promptly as possible after the Closing Date have the
Notes approved for listing on the Luxembourg Stock Exchange and shall maintain
such listing thereafter, in the case of both clause (i) and (ii), in accordance
with the rules and regulations thereunder.
SECTION 5.08. Mergers and Sales of Assets. (a) Neither Issuer will
consolidate or merge with or into, or transfer all or substantially all of its
assets to any other Person; provided that either Issuer may merge with another
Person if (i) such Issuer is the corporation surviving such merger and (ii)
after giving effect to such merger, no Default shall have occurred and be
continuing. The Issuers will not, and will not permit any of their respective
Subsidiaries to, sell, lease, license or otherwise transfer, directly or
indirectly, all or substantially all of the assets of either Issuer or of such
Issuer and its Subsidiaries, taken as a whole, to, any other Person; provided
that nothing in this Section 5.08 will prevent DNAP and its Subsidiaries from
licensing their proprietary technology and other intellectual property in the
ordinary course of business.
(b) Neither any Issuer nor any Other Pledgor will conduct or consummate
any Asset Sale with respect to any Collateral or otherwise sell, lease, license
or otherwise transfer (any of the foregoing, a "Transfer") any Collateral,
except for Transfers (other than leases or licenses) (i) for fair value to a
Person or Persons other than the Issuers and their Subsidiaries and Affiliates,
(ii) for consideration not less than 90% of which is in the form of cash
received by the relevant Issuers and/or Other Pledgors at the closing of such
Transfer and (iii) the Net Cash Proceeds of which are paid promptly upon the
receipt thereof in accordance with Section 2.03. Without limitation of the
foregoing, (A) unless the Share Collateral Reduction Period is then in effect
and the Total Collateral Value after giving effect thereto will be not less than
300% of the aggregate outstanding principal amount of the Notes at such time (in
each case, determined immediately after giving effect to the application of the
Net Cash Proceeds of any such Transfer), no
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Transfer of any Share Collateral consisting of shares of Empaques, SCA or DNAP
shall be made unless all of the shares owned by Savia and its Subsidiaries of
such Person are sold simultaneously as part of the same transaction and (B) in
no event shall Savia sell, lease, license or otherwise transfer any Seminis
Shares held as Share Collateral unless all of the shares of Seminis owned by
Savia and its Subsidiaries are sold simultaneously as part of the same
transaction.
SECTION 5.09. Negative Pledge. (a) Neither of the Issuers nor any of their
respective Subsidiaries, other than Seminis and its Subsidiaries, will create,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by it, except, subject to subsection (b):
(i) Liens created under the Collateral Documents;
(ii) Liens (x) existing on the date of this Agreement securing Debt
(other than the Notes) outstanding on the date of this Agreement in an
aggregate principal or face amount on the date hereof (or, in the case of
any Derivative Obligation that is Debt but is not fully secured, the
aggregate fair value of cash or other collateral securing such obligations
at such date) not exceeding $322,000,000, and (y) on additional assets to
satisfy "top ups" or similar obligations to the extent required pursuant
to the terms of the agreement or agreements, as in effect on the date
hereof, governing the Debt referred to in clause (x) of this clause (ii);
(iii) any Lien (a "Refinancing Lien") arising out of the
refinancing, extension, renewal or refunding of any Debt secured by any
Lien permitted by clause (ii) of this Section; provided that (A) such
Refinancing Lien shall be created within 30 days of the expiration of the
Debt refinanced, extended, renewed or refunded and (B) such Debt is not
increased thereby, and (y) on additional assets to satisfy "top ups" or
similar obligations to the extent required pursuant to the terms of the
agreement or agreements governing the Debt referred to in clause (x) of
this clause (iii);
(iv) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset;
provided that such Lien attaches to such asset concurrently with or within
180 days after the acquisition thereof;
(v) any Lien securing any Debt of DNAP permitted by Section 5.10(b);
and
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(vi) Liens arising in the ordinary course of its business which (x)
do not secure any obligation that, individually or in the aggregate
together with all other outstanding obligations secured by Liens permitted
under this clause (vi), exceeds $30,000,000 and (y) do not in the
aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business.
(b) Neither of the Issuers nor any of their respective Subsidiaries will
create, assume or suffer to exist any Lien on the Collateral (or any portion
thereof), other than the Liens created under the Collateral Documents.
SECTION 5.10. Limitation on Additional Debt. (a) Savia will not directly
or indirectly, create, incur, assume, Guarantee or otherwise become or remain
directly or indirectly liable with respect to any Debt (including without
limitation Derivatives Obligations) other than (i) Debt under the Financing
Documents, (ii) Savia Subordinated Debt, (iii) the Existing Swaps Debt, (iv)
Debt existing on the Closing Date (excluding Debt under clauses (i), (ii) and
(iii)) and Debt not otherwise permitted by any clause of this Section, in an
aggregate principal amount (for all Debt under this clause (iv)) at any time
outstanding not to exceed $20,000,000, (v) Debt of Savia incurred to refinance
any Debt referred to in clauses (iii) or (iv), provided that the aggregate
principal amount thereof is not increased and the obligors with respect thereto
are not changed, (vi) Debt not included in the foregoing clauses including (A)
up to $30,000,000 in the form of Guarantees of DNAP Debt referred to in clause
(b)(ii) below and (B) additional Debt in an aggregate principal amount
outstanding at any time not exceeding $50,000,000, (vii) Assumed Debt repaid on
or within 60 days after the Closing Date with the proceeds of the Notes and
(viii) other Debt so long as (x) the Net Cash Proceeds thereof are applied to
repay the Notes to the extent required in accordance with Section 2.03 and (y)
such Debt has a final maturity date that is at least one year after the final
maturity date of the Notes and does not require any prepayments or repayments of
principal thereof prior to such date.
(b) DNAP will not directly or indirectly, create, incur, assume, Guarantee
or otherwise become or remain directly or indirectly liable with respect to any
Debt (including without limitation Derivatives Obligations) other than (i) Debt
under the Financing Documents, (ii) Debt in an aggregate amount outstanding at
any time not exceeding $30,000,000 and (iii) other Debt so long as (A) the Net
Cash Proceeds thereof are applied to repay the Notes to the extent required in
accordance with Section 2.03 and (B) such Debt has a final maturity date that is
at least one year after the final maturity date of the Notes and does not
require any prepayments or repayments of principal thereof prior to such date.
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SECTION 5.11. Investments. (a) Savia will not, and will not permit any of
its Subsidiaries (other than SCA and its Subsidiaries) to, hold, make or acquire
any Investment in any Person other than:
(i) Temporary Cash Investments;
(ii) Investments in Persons that are Subsidiaries on the date hereof
(including without limitation SCA) which Investments are in existence on
the date hereof;
(iii) any Investment by Savia in its own shares of capital stock
pursuant to the Savia Repurchase Program, or by Empaques in its own shares
of capital stock, provided that the aggregate amount of Investments at any
time outstanding pursuant to this clause (iii) does not exceed
$40,000,000;
(iv) any Investment by Savia or its Subsidiaries in shares of
Empaques, Seminis, DNAP and SCA;
(v) in the case of Savia, Seminis, DNAP or Empaques or any of their
respective Subsidiaries, Investments not permitted by the foregoing
clauses of this Section solely in the seed, seed-related,
agrobiotechnology, packaging and fresh-produce and insurance businesses of
the type currently conducted by such Persons and their respective
Subsidiaries;
(vi) any Investment by Desarrollo Inmobiliario Omega, S.A. de C.V.
consisting solely of a contribution of real property to the capital of a
joint venture company formed primarily for the purpose of financing
improvements on and development of such real property, in exchange for
equity of such joint venture company; and
(vii) Investments not permitted by the foregoing clauses of this
Section in Persons listed on Schedule 5.11 hereto or in other listed
companies of similar standing in an aggregate amount for all such
Investments at any time outstanding not to exceed $279,000,000.
(b) Without limitation of the foregoing, any Net Cash Proceeds received by
Savia as a Reserved Asset Sale Amount and not used to prepay Savia Subordinated
Debt in accordance with Section 5.12 shall be invested solely in Investments
permitted by clauses (i), (iv) and (v) of clause (a) above.
SECTION 5.12. Savia Subordinated Debt. The Issuers will not, and will not
permit any of their respective Subsidiaries to, prepay, defease, redeem or
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otherwise make any optional payment with respect to, or amend or modify the
terms of, any Savia Subordinated Debt, except that (i) Savia may pay in-kind
interest on Savia Subordinated Debt to the extent required pursuant to the terms
thereof solely in the form of additional Savia Subordinated Debt and (ii) if no
Default is then continuing, Savia may prepay up to $30,000,000 of principal
amount of Savia Subordinated Debt solely out of any Reserved Asset Sale Amount.
SECTION 5.13. Restricted Payments. The Issuers will not, and will not
permit their respective Subsidiaries to, declare or make any Restricted Payment,
other than Restricted Payments made by Savia pursuant to the Savia Repurchase
Program in a net outstanding amount not exceeding $40,000,000.
SECTION 5.14. Transactions with Affiliates. Neither Issuer will, or will
permit any of its Subsidiaries to, directly or indirectly, pay any funds to or
for the account of, make any Investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect,
any transaction with, any Affiliate except, in any case, on an arms-length basis
on terms at least as favorable to such Issuer or such Subsidiary as could have
been obtained from a third party who was not an Affiliate; provided that,
subject to Section 5.13, the foregoing provisions of this Section shall not
prohibit any such Person from declaring or paying any lawful dividend or other
payment ratably in respect of all of its capital stock of the relevant class so
long as, after giving effect thereto, no Default shall have occurred and be
continuing.
SECTION 5.15. Use of Proceeds. The proceeds of the Issuance of the Tranche
A Notes and the Issuance of the Tranche B Notes will be used by Savia solely to
repay the Assumed Debt and other fees and expenses in connection with the
Restructuring and for general corporate purposes, including working capital. The
proceeds of the Issuance of the Tranche C Notes will be used by DNAP solely to
repay existing Debt of DNAP and its Subsidiaries in an aggregate principal
amount not less than $85,000,000 (less up to $30,000,000 of Debt permitted to
remain outstanding after the Closing Date pursuant to clause (b)(ii) of Section
5.10) and for general corporate purposes, including working capital. None of
such proceeds referred to above will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
SECTION 5.16. Intellectual Property Licenses. Savia shall at all times
afford Seminis, DNAP and their respective Subsidiaries the right of access to,
and to have all of the material benefits of technology sharing agreements with
Monsanto Co. and its affiliates, to the extent permitted under the terms of such
agreements and shall use its best efforts to cause such right of access and
benefits
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to continue, when and to the extent relevant in connection with any foreclosure
under the Collateral Documents, notwithstanding Seminis, DNAP or such Subsidiary
shall no longer be an "affiliate" or otherwise has any affiliation with Savia or
its Subsidiaries that may, on the date hereof, be a condition to such access or
benefits.
SECTION 5.17. Certain Matters Relating to Collateral and Interest Reserve
Account.
(a) Promptly after receiving instructions from the Required Holders at any
time during the continuance of an Event of Default, the Administrative Agent
shall direct the Collateral Agents that all Reserve Stock shall thereafter be
subject to the Lien created by the U.S. Pledge and Interest Reserve Agreement
and the Mexican Collateral Reserve Trust Agreement, respectively.
(b) On the following dates during any Share Collateral Reduction Period,
the U.S. Collateral Agent, the Administrative Agent and Savia shall act as
follows:
(i) On the first day of the Share Collateral Reduction Period (if
any), the U.S. Collateral Agent shall advise the Administrative Agent of
the largest number of SCA Shares, DNAP Shares and Empaques Shares (in that
order) as may be released such that, after giving effect to such release,
the Total Collateral Value (including all Seminis Shares, which shall not
be subject to any release) is at least 300% of the aggregate outstanding
principal amount of the Notes at such time. Upon receipt of such notice,
but only if the Administrative Agent has not received any notice of the
occurrence and continuance at such time of any Default, the Administrative
Agent shall direct the Collateral Agents to release such shares as may be
specified in such notice.
(ii) On the last Domestic Business Day of any week, if the U.S.
Collateral Agent determines that the Total Collateral Value is 280% or
less of the aggregate outstanding principal amount of the Notes at such
time, Savia will pledge, deposit or otherwise transfer such additional
Eligible Collateral pursuant to the Collateral Documents such that,
immediately after giving effect to such pledge and deposit, the Total
Collateral Value shall be at least 300% of the aggregate outstanding
principal amount of the Notes at such time.
(iii) On the last Domestic Business Day of any week, the U.S.
Collateral Agent shall notify the Administrative Agent if the Total
Collateral Value is 320% or more of the aggregate outstanding principal
amount of the Notes at such time. Upon receipt of any such notice, but
only if Share Collateral other than Seminis Shares is then held under the
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Collateral Documents and the Administrative Agent has not received any
notice of the occurrence and continuance at such time of any Default, the
Administrative Agent will instruct the relevant Collateral Agent to cause
the Mexican Trustee and the U.S. Collateral Agent to release from
Collateral the maximum number of SCA Shares, DNAP Shares and Empaques
Shares (in that order) such that, after giving effect to such release, the
Total Collateral Value (including all Seminis Shares then held as
Collateral, which shall not be subject to any release) is at least 300% of
the aggregate outstanding principal amount of the Notes at such time.
(iv) On the first day of the Share Collateral Reduction Period (if
any), the Administrative Agent shall instruct the Mexican Trustee to
provide to the U.S. Collateral Agent all information that the U.S.
Collateral Trustee may reasonably request from time to time during the
Share Collateral Reduction Period in order to determine Total Collateral
Value as of any date during such period, in accordance with the terms of
this section 5.17(b).
(c) Any deposit, transfer or release required pursuant to this Section
5.17 shall be made not later than the second Domestic Business Day after the
date on which the relevant notice is given by the Collateral Agent. In the case
of any pledge, deposit or transfer of additional Eligible Collateral so
required, Savia shall first, pledge, deposit or otherwise transfer any Empaques
Shares then available to be pledged, deposited or transferred pursuant to the
Collateral Documents, second, pledge, deposit or transfer any DNAP Shares then
available to be pledged, deposited or otherwise transferred pursuant to the
Collateral Documents, and third, pledge and deposit any SCA Shares then
available to be pledged and deposited pursuant to the Collateral Documents, all
as may be required to satisfy the foregoing requirement; and fourth, pledge and
deposit Unencumbered Cash with the U.S. Collateral Agent pursuant to a Cash
Collateral Agreement in form and substance reasonably satisfactory to the U.S.
Collateral Agent. SCA Shares, Empaques Shares and DNAP Shares shall be deemed to
be "available" to be pledged, deposited or transferred pursuant to the
Collateral Documents at any time if such shares are owned by Savia and not
required, by the terms of any other document governing the obligations of Savia,
to be held subject to a Lien in favor of another Person permitted pursuant to
the terms of this Agreement, and the chief accounting officer or chief financial
officer of Savia shall provide to the Administrative Agent, upon delivery of any
Eligible Collateral a certificate setting forth in reasonable detail the
Eligible Collateral owned by Savia and not pledged, deposited or transferred
hereunder, and not "available" (as so defined) to be so pledged and deposited.
If Unencumbered Cash shall be deposited as additional Eligible Collateral, the
relevant Issuers shall enter into the Cash Collateral Agreement and comply with
Section 5.17(a) with respect thereto.
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(d) On the first day of each Interest Period, the Administrative Agent
shall determine the amount of interest expense to be paid on the Notes during
the next twelve months (on any day, for the next such period, the "Interest
Reserve Amount") assuming that (i) the interest rate determined with respect to
each Tranche of Notes on such day will continue to apply in all respects to such
Tranche of Notes for the next twelve months in all respects and (ii) any
scheduled payments of principal on the Notes will be made on the dates so
provided (including without limitation any payments of Notes of any Tranche upon
maturity, but not including any optional or unscheduled mandatory payments). The
Administrative Agent shall promptly inform the Company and the U.S. Collateral
Agent of the Interest Reserve Amount as determined on such date, and the Company
shall forthwith deposit into the Interest Reserve Account (as defined in the
U.S. Pledge and Interest Reserve Agreement), or, if the Administrative Agent has
not received any notice of the occurrence and continuance at such time of any
Default, the Administrative Agent shall instruct the U.S. Collateral Agent to
release to the Company, as appropriate, an amount of cash such that after such
deposit or withdrawal, as relevant, the amount of cash and Investments in the
Interest Reserve Account is equal to the Interest Reserve Amount.
SECTION 5.18. Further Assurances. (a) Such Issuer will, at its sole cost
and expense, do, execute, acknowledge and deliver all such further acts, deeds,
conveyances, assignments, notices of pledges, liens, statements, notices,
assignment and transfers as the Administrative Agent or either Collateral Agent
shall from time to time request, which may be necessary in the reasonable
judgment of the Administrative Agent or the relevant Collateral Agent, as the
case may be, from time to time to assure, perfect, convey, assign and transfer
to the relevant Collateral Agent the property and rights conveyed or assigned
pursuant to the Collateral Documents, or which may facilitate the performance of
the terms of the Collateral Documents, or the filing, registering or recording
of the Collateral Documents (including without limitation any acknowledgment of
the Mexican Trust Agreement by the Mexican Foreign Investment Registry).
(b) All costs and expenses in connection with the grant of any security
interests, the calculation of any Collateral Value or the pledge and deposit of
any additional Eligible Collateral under the Collateral Documents (or other
obligations under Sections 5.17 and 5.18), including without limitation
reasonable legal fees and other reasonable costs and expenses in connection with
the granting, perfecting and maintenance of any security interests, the
calculation of any Collateral Value or the pledge and deposit of any additional
Eligible Collateral under the Collateral Documents, or the preparation,
execution, delivery, recordation or filing of documents and any other acts as
the Administrative Agent, the Collateral Agent or either Collateral Agent may
reasonably request in
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connection with the grant of such security interests, calculation of such
Collateral Value or pledge and deposit of such additional Eligible Collateral,
shall be paid by Savia promptly upon demand.
(c) Neither Issuer will, or will permit any of its Subsidiaries to, enter
into or become subject to any agreement that restricts or impairs (i) the
ability of such Issuer to comply with the provisions of this Agreement or (ii)
the ability of such Issuer or such Subsidiary to consummate the Reorganization
or any financing contemplated in connection therewith.
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) any Issuer shall fail to pay (i) any principal of any Note when
due and such failure shall continue for three days or (ii) any interest
on, or any fee or any other amount payable hereunder or under any
Financing Document when due and such failure shall continue for ten days;
(b) any Issuer shall fail to observe or perform any covenant
contained in Sections 5.07 through 5.15 hereof, inclusive, or Section
5.17, and any such failure shall continue for ten Domestic Business Days;
(c) either Issuer shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
(a) or (b) above) or any other Financing Document for 30 days after
written notice thereof has been given to such Issuer by the Administrative
Agent at the request of any Holder;
(d) any representation, warranty, certification or statement made by
either Issuer in any Financing Document or in any certificate, financial
statement or other document delivered pursuant to any Financing Document
shall prove to have been incorrect in any material respect when made (or
deemed made), and, if capable of remedy, shall not have been remedied
within 15 days of such Issuer becoming aware that such representation,
warranty, certification or statement was incorrect in a material respect
when made (or deemed made);
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(e) either Issuer or any of its respective Subsidiaries shall fail
to make any payment in respect of any Material Debt when due (whether or
not at final maturity) or within any applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables the holder of
such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof;
(g) either Issuer or any of its Significant Subsidiaries shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization, suspension of payments or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
sindico, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against either Issuer or any of its Significant Subsidiaries seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, sindico,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days;
or an order for relief shall be entered against either Issuer or any of
its Significant Subsidiaries under any applicable bankruptcy laws as now
or hereafter in effect;
(i) the license or licenses of SCA to engage in the insurance
business in Mexico shall be revoked or materially restricted; or an
intervenor, receiver, custodian or other similar official shall be
appointed by the CNSF (or any other competent authority) to manage the
business or affairs of SCA;
(j) SCA shall at any time fail to comply with (i) any minimum
paid-in capital requirement, technical reserve requirement (or investment
requirement thereof) or minimum solvency margin prescribed by the CNSF or
the Ministry of Finance and applicable to SCA, or (ii) any other
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financial ratios or covenants so prescribed and applicable, which failure
to comply could, individually or in the aggregate (in the case of any and
all such failures to comply referred to herein), reasonably be expected to
result in any material limitation on its ability to conduct its business
substantially as conducted on the date hereof, and shall fail to cure such
failure to comply within 30 days after receipt of notice from the CNSF or
Ministry of Finance, as applicable, or, if earlier, the time period
permitted in writing by the CNSF or Ministry of Finance;
(k) the ratio of (x) Consolidated Debt of Empaques (excluding
Special Dividend Debt) determined at any date to (y) Consolidated EBITDA
of Empaques for the four consecutive fiscal quarters ended on or more
recently prior to such date, shall at any time exceed 3.0 to 1 (as used
herein, "Special Dividend Debt" means Debt for borrowed money incurred by
Empaques after the Closing Date all of the Net Cash Proceeds of which are
used forthwith upon receipt to pay a special dividend by Empaques pro rata
to all of its shareholders, including without limitation Savia, and by
Savia to prepay the Notes to the extent required in accordance with
Section 2.03);
(l) the ratio of (x) Consolidated Debt of Empaques (including
Special Dividend Debt) determined at any date to (y) Consolidated EBITDA
of Empaques for the four consecutive fiscal quarters ended on or more
recently prior to such date, shall at any time exceed 5.0 to 1;
(m) the ratio of (i) Consolidated Debt of Seminis at any date to
(ii) Consolidated EBITDA of Seminis for the four consecutive fiscal
quarters ended on or most recently prior to such date, shall at any date
exceed (x) if such date is prior to the last day of the fiscal quarter of
Seminis ended most nearly on December 31, 1999, 7.5 to 1 and (y) if such
date is on or after such last day, 5.0 to 1;
(n) either Issuer shall become insolvent (within the meaning of
applicable law);
(o) any Lien created by the Collateral Documents shall at any time
fail to constitute a valid, perfected, first priority Lien on all of the
Collateral purported to be subject thereto, securing the obligations
purported to be secured thereby, to the extent provided therein, or either
Issuer shall so assert in writing;
(p) the Guarantee set forth in Article 9 hereof shall cease at any
time to be in full force and effect, or any party shall so assert in
writing;
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(q) judgments or orders for the payment of money shall be rendered
against either Issuer or any of its Subsidiaries, in excess of $10,000,000
or the equivalent in one or more currencies, and such judgments or orders
shall continue unsatisfied and unstayed for a period of 30 days;
(r) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $10,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there shall occur a complete
or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a
current payment obligation in excess of $10,000,000; or failure to pay
when due any and all amounts payable as required under IMSS, SAR or
INFONAVIT;
(s) Alfonso Romo Garza ("ARG"), members of his immediate family, his
estate and heirs, and trusts solely for the benefit of ARG and such family
members shall cease to have the right to elect a majority of the board of
directors, or other Persons performing similar functions of Savia, or to
control Savia;
(t) (i) the government of Mexico shall take any action, including a
moratorium, having an effect on the schedule of payments of any Issuer
under any Financing Document, the currency in which any Issuer may pay its
obligations under any Financing Document or the availability of foreign
currencies in exchange for Pesos or otherwise, (ii) any Issuer shall,
voluntarily or involuntarily, participate or take any action to
participate in any facility or exercise involving the rescheduling of such
Issuer's debts or the restructuring of the currency in which such Issuer
may pay its obligations; provided that if any such participation is
involuntary, such participation shall continue and not be rescinded for
five consecutive Domestic Business Days or (iii) any governmental
authority, agency or official shall nationalize, expropriate, seize or
otherwise compulsorily acquire all or a substantial part of the assets of
Savia and its Subsidiaries, taken as a whole; or
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(u) (i) at any time, any Empaques Shares or SCA Shares issued and
outstanding as of the Closing Date shall cease to be listed on the Bolsa
Mexicana, in accordance with the rules and regulations thereunder or (ii)
at any time from and after the consummation of the Seminis IPO, any
Seminis Shares sold pursuant to the Seminis IPO shall cease to be listed
on the New York Stock Exchange or other principal stock exchange or
quotation system on or through which such stock is then traded, in
accordance with the rules and regulations thereunder;
then, and in every such event, the Administrative Agent shall, if requested by
the Required Holders, by notice to the Issuers declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by each Issuer; provided that in the
case of any of the Events of Default specified in clause (g) or (h) above with
respect to each Issuer, without any notice to each Issuer or any other act by
the Administrative Agent or the Holders, the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Issuer.
SECTION 6.02. Notice of Default. The Administrative Agent shall give
notice to each Issuer under Section 6.01 promptly upon being requested to do
so by any Holder and shall there upon instruct the Paying Agent to notify
promptly all the Holders thereof.
ARTICLE 7
THE AGENTS
SECTION 7.01. Appointment and Authorization. Each Holder irrevocably
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers under the Financing Documents as are delegated to
such Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
SECTION 7.02. Agents and Affiliates. Morgan Guaranty Trust Company of New
York, Bankers Trust Company, Bancomer and Citibank, N.A. shall each have the
same rights and powers under the Financing Documents as any other Holder and may
exercise or refrain from exercising the same as though each were not an Agent,
and Morgan Guaranty Trust Company of New York, Bankers Trust Company, Bancomer
and Citibank, N.A. and each of their respective affiliates
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may accept deposits from, lend money to, and generally engage in any kind of
business with any Issuer or its Subsidiaries or Affiliates as if it were not an
Agent.
SECTION 7.03. Action by Agents. (a) Each Agent undertakes to perform such
duties and only such duties as are specifically set forth in the Financing
Documents. No Agent shall have any duties or responsibilities except those
expressly set forth in the Financing Documents with respect to such Agent or,
except for the Collateral Agents and solely to the extent required by applicable
law, be a trustee or have any fiduciary obligation to any party hereto. Without
limiting the generality of the foregoing, the Administrative Agent shall not be
required to take any action with respect to any Default, except as expressly
provided in Article 6.
(b) No Agent shall be liable for any error of judgment made in good faith
by an officer or officers of such Agent, unless it shall be conclusively
determined by a court of competent jurisdiction that such Agent was grossly
negligent in ascertaining the pertinent facts.
(c) None of the provisions of the Financing Documents shall require any
Agent, acting in its capacity as Agent, to expend or risk its own funds or
otherwise to incur any liability, financial or otherwise, in the performance of
any of its duties thereunder, or in the exercise of any of its rights or powers
if it shall have reasonable grounds for believing that repayment of such funds
or indemnity satisfactory to it against such risk or liability is not assured to
it.
(d) Each Agent may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(e) Whenever in the administration of the provisions of the Financing
Documents any Agent shall deem it necessary or desirable that a matter be
provided or established prior to taking or suffering any action to be taken
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of gross negligence or bad faith on
the part of such Agent, be deemed to be conclusively proved and established by a
certificate signed by the officers of the relevant Person or Persons, as the
case may be, and delivered to such Agent and such certificate or certificates,
in the absence of gross negligence or bad faith on the part of such Agent, shall
be full warrant to such Agent for any action taken, suffered or omitted by it
under the provisions of the Financing Documents upon the faith thereof.
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(f) Each Agent may execute any of the trusts or powers under the Financing
Documents or perform any duties hereunder either directly or by or through
agents, attorneys, custodians or nominees appointed with due care, and shall not
be responsible for any willful misconduct or gross negligence on the part of any
agent, attorney, custodian or nominee so appointed.
(g) Any corporation or other Person into which any Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Agent shall be a
party, or any Person succeeding to the business of such Agent shall be the
successor of such Agent hereunder without the execution or filing of any paper
with any party hereto or any further act on the part of any of the parties
hereto except where an instrument of transfer or assignment is required by law
to effect such succession, anything herein to the contrary notwithstanding.
SECTION 7.04. Actions by Paying Agent. The Paying Agent expressly agrees
that it shall accept delivery of any notice, information, instruction or other
communication delivered pursuant to the terms of this Agreement for and on
behalf of the Holders and agrees that it shall promptly deliver any such notice,
information, instruction or other communication to the Holders following receipt
thereof. The Paying Agent shall not be liable for the content of any such
notice, information, instruction or communication nor for any delay caused by
the Paying Agent's failure to receive timely delivery of any such communication.
SECTION 7.05. Consultation with Experts. Each Agent may consult with legal
counsel (who may be counsel for either Issuer), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
SECTION 7.06. Liability of Agents. (a) No Agent, its affiliates and their
respective directors, officers, agents and employees shall be liable for any
action taken or not taken by it in connection with the Financing Documents (i)
with the consent or at the request of the Required Holders (or such different
number of Holders as any provision hereof expressly requires for such consent or
request) or (ii) in the absence of its own gross negligence or willful
misconduct, the existence of which must be determined by the final judgment of a
court of competent jurisdiction, no longer subject to appeal or review. No
Agent, its affiliates and their respective directors, officers, agents and
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
the Financing Documents or any issuance hereunder; (ii) the performance or
observance of any of the covenants or agreements of either Issuer; (iii) the
satisfaction of any condition specified in Article 3, except receipt of items
required to be delivered to the Administrative
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Agent; (iv) the validity, effectiveness or genuineness of the Financing
Documents or any other instrument or writing furnished in connection herewith;
or (v) the existence or sufficiency of any Collateral. No Agent shall incur any
liability by acting in reliance upon any notice, consent, certificate, statement
or other writing (which may be a bank wire, telex, facsimile or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
Without limiting the generality of the foregoing, the use of the term
"administrative agent" in this Agreement with reference to the Administrative
Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable law. Instead, such
term is used merely as a matter of market custom and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
(b) Each of the Holders (for itself and any Person or entity claiming
through it) hereby releases, waives, discharges, exculpates and covenants not to
sue any Agent for any action taken or omitted under the Financing Documents
except to the extent caused by such Agent's gross negligence or willful
misconduct. Anything in the Financing Documents to the contrary notwithstanding,
in no event shall any Agent be liable for special, indirect or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if such Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action.
SECTION 7.07. Indemnification. The Holders shall, ratably in proportion to
their Commitments, indemnify each Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Issuers) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with the Financing Documents or any action taken
or omitted by such indemnitees hereunder. The obligations of the Holders under
this Section 7.07 to indemnify each Agent shall survive the satisfaction and
discharge of this Agreement or the earlier resignation or removal of any Agent.
SECTION 7.08. Credit Decision. Each Holder acknowledges that it has,
independently and without reliance on any Agent or any other Holder, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Holder also
acknowledges that it will, independently and without reliance on any Agent or
any other Holder, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Financing Documents.
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SECTION 7.09. Successor Agents. Any Agent may resign at any time by giving
notice thereof to the Holders and the Issuers. Upon any such resignation, the
Required Holders shall have the right to appoint a successor Agent to such
Agent. If no such successor Agent shall have been so appointed by the Required
Holders, and shall have accepted such appointment, within 30 days after the
retiring Agent gives notice of resignation, then the retiring Agent may, on
behalf of the Holders, appoint a successor Agent, which shall be a commercial
bank organized or licensed under the laws of the United States or of any State
thereof (or, in the case of the Mexican Trustee, the laws of Mexico) and having
a combined capital and surplus of at least $100,000,000 (or, in the case of the
Mexican Trustee, $50,000,000). Upon the acceptance of its appointment as an
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent resigns as an Agent hereunder,
the provisions of this Article shall inure to its benefit as to actions taken or
omitted to be taken by it while it was such an Agent.
SECTION 7.10. Agents' Fee. The Issuers shall pay to each Agent for its own
account and each Agent shall be entitled to, the fees and expenses agreed in
writing between the Issuers and such Agent, and will further pay or reimburse
such Agent upon its request for all reasonable expenses, disbursements and
advances incurred or made by such Agent in accordance with any of the provisions
hereof or any other document executed in connection herewith (including the
reasonable compensation and the reasonable expenses and disbursements of its
counsel and of all persons not regularly in its employ), including, with respect
to the Administrative Agent, an agency fee for its role as Administrative Agent
in an amount of $25,000 per annum payable quarterly in arrears. The obligations
of the Issuers under this Section 7.10 to compensate each Agent and to pay or
reimburse each Agent for reasonable expenses, disbursements and advances shall
survive the satisfaction and discharge of this Agreement or the earlier
resignation or removal of such Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to
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the Reference Banks in the London interbank market for such Interest
Period, or
(b) Holders which are Banks having 50% or more of the aggregate
principal amount of the affected Notes advise the Administrative Agent
that LIBOR as determined by the Administrative Agent will not adequately
and fairly reflect the cost to such Holders of funding their Notes for
such Interest Period,
the Administrative Agent shall forthwith notify each Issuer and shall instruct
the Paying Agent promptly to give notice to the Holders, whereupon until the
Administrative Agent notifies each Issuer that the circumstances giving rise to
such suspension no longer exist, (i) the obligations of the Holders to have
Notes bear interest at the Euro-Dollar Rate shall be suspended and (ii) each
outstanding Note shall bear interest at the Alternative Rate from and after the
last day of the then current Interest Period applicable thereto.
SECTION 8.02. Illegality. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Holder which is a Bank (or its Euro-Dollar Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for any Holder which is a Bank (or its Euro-Dollar Lending Office) to
make, maintain or fund Notes at the Euro-Dollar Rate and such Holder shall so
notify the Administrative Agent and the Paying Agent, the Administrative Agent
shall forthwith give notice thereof to each Issuer and shall instruct the Paying
Agent promptly to notify the other Holders, whereupon until such Holder notifies
each Issuer, the Administrative Agent and the Paying Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Holder to make or maintain Notes at the Euro-Dollar Rate shall be
suspended. Before giving any notice to the Administrative Agent and the Paying
Agent pursuant to this Section, such Holder shall designate a different
Euro-Dollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Holder, be otherwise
disadvantageous to such Holder. If such notice is given, each Note of such
Holder then outstanding shall begin to bear interest at the Alternative Rate
either (a) on the last day of the then current Interest Period applicable to
such Note if such Holder may lawfully continue to maintain and fund such Note to
such day or (b) immediately if such Holder shall determine that it may not
lawfully continue to maintain and fund such Note to such day.
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SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Holder which is a Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System), special
deposit, insurance assessment or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Holder which is a Bank
(or its Applicable Lending Office) or shall impose on any Holder which is a Bank
(or its Applicable Lending Office) or the London interbank market any other
condition affecting its Notes or its obligation to make or maintain Notes at the
Euro-Dollar Rate and the result of any of the foregoing is to increase the cost
to such Holder (or its Applicable Lending Office) of making or maintaining any
Note at the Euro-Dollar Rate, or to reduce the amount of any sum received or
receivable by such Holder (or its Applicable Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed by such
Holder to be material, then, within 15 days after demand by such Holder (with a
copy to the Administrative Agent and the Paying Agent), each Issuer shall pay to
such Holder such additional amount or amounts as will compensate such Holder for
such increased cost or reduction.
(b) If any Holder which is a Bank shall have determined that, after the
date hereof, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Holder (or its Parent) as a consequence of such Holder's
obligations hereunder to a level below that which such Holder (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Holder to be material, then from time to time, within 15 days
after demand by such Holder (with a copy to the Administrative Agent and the
Paying Agent), the relevant Issuer shall pay to such Holder such additional
amount or amounts as will compensate such Holder (or its Parent) for such
reduction.
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(c) Each Holder will promptly notify each Issuer and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Holder to compensation pursuant to this Section and will
designate a different Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment of
such Holder, be otherwise disadvantageous to such Holder. A certificate of any
Holder claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such amount, such Holder may use any
reasonable averaging and attribution methods.
SECTION 8.04. Mexican Taxes. All payments of principal, premium and
interest in respect of each Note or the Guarantee shall be made free and clear
of, and without withholding or deduction for, any taxes, duties, assessments or
governmental charges or penalties or interest related thereto of whatever nature
imposed, levied, collected, withheld or assessed by or within Mexico or any
political subdivision or taxing authority thereof or therein ("Mexican Taxes"),
unless such withholding or deduction is required by law or by regulation. In the
event that any such withholding or deduction in respect of principal, premium or
interest is so required, the Issuers or the Guarantor, as the case may be, shall
pay such additional amounts ("Additional Amounts") as will result in receipt by
each holder of any Note of such amounts as would have been received by such
holder with respect to such Note or Guarantee, as applicable, had no such
withholding or deduction been required, except that no Additional Amounts shall
be payable for or on account of:
(1) any tax, duty, assessment or other governmental charge imposed
by reason of
(A) the existence of any present or former connection between
such holder or the beneficial owner of such Note and Mexico (or any
political subdivision or taxing authority thereof or therein) other
than merely holding such Note or the receipt of payments, or
enforcement of rights, under the Guarantee or the Notes, including,
without limitation, such holder or the beneficial owner of such Note
being or having been a national, domiciliary or resident thereof or
being or having been present or engaged in a trade or business
therein or having had a permanent establishment therein; or
(B) the presentation of such Note (where presentation is
required) more than 30 days after the date on which the payment in
respect of such Note became due and payable or provided for,
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whichever is later, except to the extent that such holder would have
been entitled to such Additional Amounts if it had presented such
Note for payment on the last day of such period of 30 days;
(2) any estate, inheritance, gift, sale, transfer, personal property
or similar tax, assessment or other governmental charge;
(3) (A) any Mexican Taxes imposed at a rate in excess of the 10%
uniformly applicable in respect of payments made by the Issuers or the
Guarantor to all holders or beneficial owners as a result of the failure
of the holder or beneficial owner of such Note to comply with any
certification, identification, information, documentation or other
reporting requirement if (i) such compliance is required by law,
regulation or administrative practice as a precondition to exemption from,
or reduction in the rate of, deduction or withholding of Mexican Taxes,
(ii) at least 60 days prior to the first interest payment date with
respect to which the Issuers or the Guarantor shall apply this paragraph
(3)(A), the Issuers or the Guarantor shall have notified the holders of
the Notes, in writing, that such holders or beneficial owners of the Notes
will be required to comply with such requirement and (iii) the
notification described in clause (ii) shall have been furnished to holders
of the Notes through DTC (or its custodian, if applicable) or by other
comparable means in such a manner as to have reasonably afforded such
holders or beneficial owners a reasonable time and opportunity to so
comply;
(B) any Mexican Taxes imposed at a rate in excess of the 15%
uniformly applicable in respect of payments made by the Issuers or
the Guarantor to all holders or beneficial owners eligible for the
benefits of a treaty for the avoidance of double taxation to which
Mexico is a party and which is in effect, but only to the extent
that (i) such holder or beneficial owner has failed to provide on a
timely basis, at the reasonable request of the Issuers or the
Guarantor (subject to the conditions set forth below), information,
documentation or other evidence (not described in paragraph (3)(A)
above) concerning whether
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such holder or beneficial owner is eligible for benefits under a
treaty for the avoidance of double taxation to which Mexico is a
party and which is in effect if necessary to determine the
appropriate rate of deduction or withholding of Mexican Taxes under
such treaty or under any law, (ii) at least 60 days prior to the
first payment date with respect to which the Issuers or the
Guarantor shall make such reasonable request, the Issuers or the
Guarantor shall have notified the holders of the Notes, in writing,
that such holders or beneficial owners of the Notes will be required
to provide such information, documentation or other evidence and
(iii) the notification described in clause (ii) shall have been
furnished to holders of the Notes through DTC (or its custodian, if
applicable) or by other comparable means in such a manner as to have
reasonably afforded such holders or beneficial owners a reasonable
time and opportunity to provide the information, documentation or
other evidence required by this paragraph; or
(4) any combination of items (1), (2) or (3).
For purposes of the provisions described in paragraph (3), the term
"holder" shall mean the direct nominee of such beneficial owner, which holds
such beneficial owner's interest in the Notes. Notwithstanding the foregoing,
the limitations on the Issuers and Guarantor's obligation to pay Additional
Amounts set forth in paragraph (3) above shall not apply if (a) the provision of
information, documentation or other evidence described in such paragraph (3)
would be materially more onerous, in form, in procedure or in the substance of
information disclosed, to a holder or beneficial owner of a Note (taking into
account any relevant differences between U.S. and Mexican law, regulation or
administrative practice) than comparable information or other reporting
requirements imposed
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under U.S. tax law, regulation and administrative practice (such as IRS Forms
1001, W-8 and W-9) or (b) Rule 3.32.9 issued by the Ministry of Finance on March
3, 1999 or a substantially similar successor of such rule is in effect, unless
the provision of the information, documentation or other evidence described in
paragraph (3) is expressly required by statute, regulation, rule or
administrative practice in order to apply Rule 3.32.9 (or a substantially
similar successor of such rule), the Issuers or the Guarantor cannot obtain such
information, documentation or other evidence on its own through reasonable
diligence and the Issuers or the Guarantor otherwise would meet the requirements
for application of Rule 3.32.9 (or such successor of such rule). In addition,
such paragraph (3) shall not be construed to require that a non-Mexican pension
or retirement fund or a non-Mexican financial institution or any other holder
register with the Ministry of Finance and Public Credit for the purpose of
establishing eligibility for an exemption from or reduction of Mexican
withholding tax. Furthermore, compliance with any such requirements under
paragraph (3)(A) or requests under paragraph (3)(B) shall not require the
disclosure to the Issuers, the Guarantor, the Administrative Agent and the
Paying Agent or any governmental authority of the nationality, residence or
identity of the beneficial owner of a Note that is not eligible for any
exemption from withholding or deduction of all or any part of such Mexican Taxes
(other than such compliance that can be satisfied by a custodian, nominee or
other agent of such beneficial owner certifying to the effect that such
beneficial owner is not eligible for any exemption from withholding or deduction
of all or any part of such Mexican Taxes, provided that payment by such
custodian, nominee or agent to such beneficial owner is not otherwise subject to
any such requirement).
Whenever there is mentioned in any context, the payment of principal,
premium or interest in respect of any Note or the net proceeds received on the
sale or exchange of any Note, such mention shall be deemed to include the
payment of Additional Amounts provided for herein to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof
pursuant to this Agreement.
The Issuers or the Guarantor, as the case may be, will provide to the
Administrative Agent and the Paying Agent documentation evidencing payment of
withholding taxes within 30 days after payment thereof. Copies of such
documentation shall be provided to holders requesting them.
The Issuers or the Guarantor, as the case may be, will pay any present or
future stamp, issue, registration or documentary taxes, or any other excise or
property taxes, charges or similar levies which arise in any jurisdiction from
the execution, delivery or registration of the Notes or the Guarantee, except
for any such taxes, charges or similar levies imposed by any jurisdiction
outside of
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Mexico (other than those resulting from, or required to be paid in connection
with, the enforcement of the Notes or the Guarantee following the occurrence of
any Event of Default with respect to the Notes). Notwithstanding the foregoing,
no service charge will be made for any registration of transfer or exchange of
Notes, but the Issuer may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith. For the avoidance of doubt, Issuers' obligations in respect of the
payment of additional amounts shall in no event be reduced or offset as a result
of any tax or other benefits accruing to Holders relating to the payment of
withholding taxes.
SECTION 8.05. U.S. Taxes. All payments of principal, premium and interest
in respect of each Tranche C Note and the Guarantee shall be made free and clear
of, and without withholding or deduction for, any taxes, duties, assessments or
governmental charges or penalties or interest related thereto of whatever nature
imposed, levied, collected, withheld or assessed by or within the United States
or any political subdivision or taxing authority thereof or therein ("U.S.
Taxes"), unless such withholding or deduction is required by law or by
regulation. In the event that any such withholding or deduction in respect of
principal, premium or interest is so required, DNAP or the Guarantor, as the
case may be, shall pay such Additional Amounts as will result in receipt by each
holder of any Tranche C Note of such amounts as would have been received by such
holder with respect to such Tranche C Note or Guarantee, as applicable, had no
such withholding or deduction been required, except that no Additional Amounts
shall be payable for or on account of:
(a) any tax, duty, assessment or other governmental charge imposed
by reason of
(i) the existence of any present or former connection between
such holder or the beneficial owner of such Tranche C Note and the
United States (or any political subdivision or taxing authority
thereof or therein) other than merely holding such Tranche C Note or
the receipt of payments, or enforcement of rights, under the
Guarantee or the Tranche C Notes, including, without limitation,
such holder or the beneficial owner of such Tranche C Note being or
having been a national, domiciliary or resident thereof or being or
having been present or engaged in a trade or business therein or
having had a permanent establishment therein; or
(ii) the presentation of such Tranche C Note (where
presentation is required) more than 30 days after the date on which
the payment in respect of such Tranche C Note became due and
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payable or provided for, whichever is later, except to the extent
that such holder would have been entitled to such Additional Amounts
if it had presented such Tranche C Note for payment on the last day
of such period of 30 days;
(b) any estate, inheritance, gift, sale, transfer, personal property
or similar tax, assessment or other governmental charge or any tax imposed
other than by withholding;
(c) any withholding taxes imposed at a rate in excess of 3.0% of
such taxable payments unless such excess is the result of a change in law
that becomes effective after the Closing Date; and
(d) any taxes imposed by reason of the holder's failure (or, if the
holder is not the beneficial owner, the beneficial owner's failure) to
provide upon reasonable request addressed to such holder or beneficial
owner either (i) a duly completed Form W-8 (or successor form) and
certification that it is not (A) a bank within the meaning of Internal
Revenue Code section 881(c), (B) a 10% shareholder of DNAP within the
meaning of Internal Revenue Code section 871(h)(3)(B) nor (C) a controlled
foreign corporation related to DNAP within the meaning of Internal Revenue
Code section 864(d)(4) or (ii) a duly completed Form 4224 or Form 1001 (or
successor forms) entitling the holder to a complete exemption from, or
reduction in, the rate of withholding tax.
SECTION 8.06. Alternative Rate Substituted for Euro-Dollar Rate. If (i)
the obligation of any Holder to make or maintain Notes at the Euro-Dollar
Rate has been suspended pursuant to Section 8.02 or (ii) any Holder has
demanded compensation under Section 8.03, 8.04 or 8.05 with respect to its
Notes with respect to the Euro-Dollar Rate and the relevant Issuer shall, by
at least five Euro-Dollar Business Days' prior notice to such Holder through
the Administrative Agent, have elected that the provisions of this Section
shall apply to such Holder, then, unless and until such Holder notifies such
Issuer that the circumstances giving rise to such suspension or demand for
compensation no longer exist, all Notes of such Holder shall bear interest at
the Alternative Rate (on which interest and principal shall be payable
contemporaneously with the related payments of interest to the other
Holders). If such Holder notifies an Issuer that the circumstances giving
rise to such notice no longer apply, each applicable Note shall again bear
interest at the Euro-Dollar Rate from and after the first day of the next
succeeding Interest Period applicable to such Note.
SECTION 8.07. Substitution of Holder. If (a) the obligation of any Holder
to purchase or maintain Notes bearing interest at the Euro-Dollar Rate has been
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suspended pursuant to Section 8.02 or (b) any Holder has demanded compensation
under Sections 8.03, 8.04 or 8.05, the Issuers shall have the right, with the
assistance of the Administrative Agent, to seek a mutually satisfactory
substitute bank or banks (which may be one or more of the Holders) to purchase
the affected Notes and assume the Commitments of such Holder.
ARTICLE 9
GUARANTY
SECTION 9.01. The Guaranty. The Guarantor hereby unconditionally
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Tranche C
Note issued by DNAP pursuant to this Agreement, and the full and punctual
payment of all other amounts payable by DNAP under this Agreement. Upon
failure by DNAP to pay punctually any such amount, the Guarantor shall
forthwith on demand pay the amount not so paid at the place and in the manner
specified in this Agreement.
SECTION 9.02. Guaranty Unconditional. The obligations of the Guarantor
hereunder shall be unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of DNAP under this Agreement or any
Tranche C Note, by operation of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement
or any Note;
(c) any release, impairment, non-perfection or invalidity of any
direct or indirect security for any obligation of Company under this
Agreement or any Tranche C Note;
(d) any change in the corporate existence, structure or ownership of
DNAP, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting DNAP or its assets or any resulting release or
discharge of any obligation of DNAP contained in this Agreement or any
Tranche C Note;
(e) the existence of any claim, set-off or other rights which the
Guarantor may have at any time against DNAP, any Agent, any Holder or
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any other Person, whether in connection with this Agreement or any
unrelated transactions; provided that nothing herein shall prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against DNAP
for any reason of this Agreement or any Tranche C Note, or any provision
of applicable law or regulation purporting to prohibit the payment by DNAP
of the principal of or interest on any Tranche C Note or any other amount
payable by DNAP under this Agreement; or
(g) any other act or omission to act or delay of any kind by DNAP,
any Agent, any Holder or any other Person or any other circumstance
whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of or defense to the Guarantor's
obligations hereunder.
SECTION 9.03. Discharge Only Upon Payment In Full; Reinstatement In
Certain Circumstances. The Guarantor's obligations hereunder shall remain in
full force and effect until the principal of and interest on the Tranche C
Notes and all other amounts payable by DNAP under this Agreement shall have
been paid in full. If at any time any payment of the principal of or interest
on any Tranche C Note or any other amount payable by DNAP under this
Agreement is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of DNAP or otherwise, the
Guarantor's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
SECTION 9.04. Waiver by the Guarantor. The Guarantor irrevocably waives:
(a) acceptance hereof, presentment, demand, protest and any notice
not provided for herein, as well as any requirement that at any time any
action be taken by any Person against DNAP or any other Person;
(b) any right to which it may be entitled in connection with any
obligation of any Lender to sue and/or complete an action against DNAP
prior to a claim being made against the Guarantor hereunder; and
(c) any right to which it may be entitled to have the assets of DNAP
first be used and/or applied in full as payment of DNAP's or the
Guarantor's obligations hereunder prior to any amounts being claimed from
or paid by the Guarantor hereunder.
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SECTION 9.05. Subrogation. Upon making full payment with respect to any
obligation of DNAP hereunder, the Guarantor shall be subrogated to the rights of
the payee against DNAP with respect to such obligation; provided that the
Guarantor shall not enforce any payment by way of subrogation so long as any
amount payable by DNAP hereunder remains unpaid.
SECTION 9.06. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by DNAP under this Agreement or the Tranche C
Notes is stayed upon the insolvency, bankruptcy or reorganization of DNAP,
all such amounts otherwise subject to acceleration under the terms of this
Agreement shall nonetheless be payable by the Guarantor hereunder forthwith
on demand by the Administrative Agent made at the request of the Required
Holders.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile or similar writing) and shall be given to such party: (i) in the
case of either Issuer, the Administrative Agent, the Paying Agent or either
Collateral Agent, at its address or facsimile number set forth on the
signature pages hereof, (ii) in the case of any Holder, by notice to the
Paying Agent or at such Holder's address or facsimile number set forth in its
Administrative Questionnaire or (iii) in the case of any party, at such other
address or facsimile number as such party may hereafter specify for the
purpose by notice to the Administrative Agent, the Paying Agent and the
Issuers. Each such notice, request or other communication shall be effective
(i) if given by facsimile, when transmitted to the facsimile number referred
to in this Section and confirmation of receipt is received or (ii) if given
by any other means, when delivered at the address referred to in this
Section; provided that notices to the Administrative Agent under Article 2 or
Article 8 shall not be effective until received.
SECTION 10.02. No Waivers. No failure or delay by any Agent or any Holder
in exercising any right, power or privilege hereunder or under any other
Financing Document shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
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SECTION 10.03. Expenses; Indemnification. (a) The Issuers shall pay (i)
all out-of-pocket expenses of the Agents and Arrangers, including reasonable
fees and disbursements of special counsel for the Agents and Arrangers, in
connection with the preparation and administration of the Financing
Documents, any waiver or consent thereunder or any amendment thereof or any
Default or alleged Default hereunder, (ii) all expenses referred to in the
Financing Documents and (iii) if an Event of Default occurs, all
out-of-pocket expenses incurred by each Agent and each Holder, including
(without duplication) the reasonable fees and disbursements of outside
counsel and the allocated cost of inside counsel, in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Issuers agree to indemnify each Agent and each Holder, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, settlement costs and the
reasonable fees and disbursements of counsel, which may be incurred by such
Indemnitee (i) in connection with any investigative, administrative or judicial
proceeding (whether or not such Indemnitee shall be designated a party thereto)
brought or threatened relating to or arising out of any Financing Document or
any actual or proposed use of the Commitments or the proceeds of Notes hereunder
(except with respect to matters expressly set forth in paragraph (c) below,
which shall be governed by the provisions of paragraph (c) and (ii) in the case
of the Agents, their respective affiliates and their respective directors,
officers, agents and employees only, as a result of such Agent's administration
of, and performance of its obligations under, the Financing Documents; provided
that no Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as determined by a court
of competent jurisdiction.
(c) The Issuers agree to indemnify and hold harmless each Holder and each
person, if any, who controls any Holder within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including without limitation
the legal fees and other expenses incurred in connection with any suit, action
or proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum (and
any amendment or supplement thereto if the Issuers shall have furnished any
amendments or supplements thereto) or any preliminary offering memorandum, or
caused by 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, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made
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in reliance upon and in conformity with information relating to any Holder
furnished to the Issuers in writing by such Holder through the Agents expressly
for use therein.
(d) If the indemnification provided for in Section 10.03(c) is unavailable
to any Indemnitee or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each Issuer under such paragraph, in lieu
of indemnifying such Indemnitee thereunder, shall contribute to the amount paid
or payable by such Indemnitee as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Issuers on the one hand and the Holders on the other
hand from the offering of the Notes or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Issuers on the one hand and the Holders
on the other in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Issuers on the
one hand and the Holders on the other shall be deemed to be in the same
respective proportions as the net proceeds from the offering (before deducting
expenses) received by the Issuers and the total discounts and commissions
received by the Holders, in each case as set forth in the table on the cover of
the Offering Memorandum, bear to the aggregate offering price of the Notes. The
relative fault of the Issuers on the one hand and the Holders on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuer or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
SECTION 10.04. Sharing of Set-offs. (a) Each Holder agrees, subject to
clause (b) below, that if it shall, by exercising any right of set-off or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest due with respect to any Note held by it which
is greater than the proportion received by any other Holder in respect of the
aggregate amount of principal and interest due with respect to any Note held by
such other Holder, the Holder receiving such proportionately greater payment
shall purchase such participations in the Notes held by the other Holders, and
such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Notes held by the Holders
shall be shared by the Holders pro rata; provided that nothing in this Section
shall impair the right of any Holder to exercise any right of set-off or
counterclaim against all deposits (general or special, time or demand,
provisional or final at any time held it may have and to apply the amount
subject to such exercise to the payment of indebtedness of
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any Issuer other than its indebtedness hereunder. Each Issuer agrees, to the
fullest extent it may effectively do so under applicable law, that (i) any
Holder which is a Bank may exercise all rights of set-off or counterclaim with
respect to any obligation owed to either Issuer, whether or not matured or due
at the time of such exercise, with respect to principal of and interest on its
Notes and other amounts owing to such Holder hereunder, whether or not such
Holder shall have first made any demand hereunder and (ii) any holder of a
participation in a Note, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of such Issuer in the amount of such participation.
(b) If at any time there shall occur and be continuing a Monetary Control
Condition, then one or more Holders (each, an "Accepting Holder") may agree to
receive payment of principal of and all accrued and unpaid interest on one or
more of its Notes in Pesos (each Note so paid, an "Affected Note"), and such
Accepting Holder (and each other Holder becoming an Additional Accepting Holder
as referred to below) shall not be required to purchase a participation from, or
make such other adjustments with, any other Holder in respect of the other Notes
of the same Tranche as the Affected Notes. Prior to accepting any such payment
as described above with respect to any prospective Affected Note, each Accepting
Holder shall provide reasonable notice to the Administrative Agent, the Paying
Agent and the Registrar (who shall promptly notify each other Holder thereof) of
such proposed payment in Pesos, setting forth the proposed terms thereof, and
each other Holder that elects, by notice delivered promptly to the Issuers,
Administrative Agent, Paying Agent and Registrar, to receive the same such
payment in Pesos with respect to one or more of its Notes (an "Additional
Accepting Holder") shall receive a payment with respect thereto pro rata to that
received by the initial Accepting Holder. Any such payment in Pesos pursuant to
this clause (b), including the calculation of the exchange rate with respect to
Dollars, shall be binding on any Holder agreeing to such payment and shall
constitute full and final payment with respect to the amounts of the Affected
Notes so paid. Nothing in this clause (b) shall be construed as a waiver by any
Holder, including any Holder not accepting payment in Pesos, of the obligations
of the Issuers to make payment in Dollars in accordance with Section 2.07 and
Section 10.11 of the Note Acquisition Agreement or any other remedies under the
same. As used herein, a "Monetary Control Condition" shall exist at any time if
at such time (i) an Event of Default under clause (t) of Section 6.01 has
occurred and is continuing as a result of the imposition of monetary or exchange
controls, the effect of which is to prevent or materially delay payment by the
Issuers of principal of and/or interest on any Notes in U.S. Dollars, but not to
prevent such payment in Pesos, and (ii) no Event of Default under any other
clause of Section
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6.01 is continuing at such time (except for any Event of Default occurring under
clause (a) thereof solely as a result thereof).
SECTION 10.05. Amendments and Waivers; Certain Collateral Releases . Any
provision of this Agreement or the Notes may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by each Issuer and the
Required Holders (and, if the rights or duties of any Agent are affected
thereby, by such Agent); provided that no such amendment or waiver shall, unless
signed by all the Holders, (i) increase or decrease the Commitment of any Holder
(except for a ratable decrease in the Commitments of all Holders) or subject any
Holder to any additional obligation, (ii) reduce the principal of or rate of
interest on any Note, or any fees hereunder, (iii) postpone the date fixed for
any payment of principal of or interest on any Note, or any fees hereunder or
for any reduction or termination of any Commitment, (iv) release either Issuer
from its obligations hereunder, (v) change the currency of payment of any
obligation hereunder or under any other Financing Document, (vi) release the
Guarantor from its obligations or (vii) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Holders, which shall be required for the Holders or any of them to take any
action under this Section or any other provision of this Agreement. Any
provision of any Collateral Document may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the relevant parties
prescribed therein (including the Collateral Agents) with the consent of the
Required Holders; provided that no such amendment or waiver shall, unless signed
by all the Holders, release all or substantially all of the Collateral from the
Liens created by the Collateral Documents. The Collateral Agents may release
(and the Administrative Agent may instruct either Collateral Agent to release)
any Collateral sold or otherwise transferred in compliance with Section 5.09(b),
subject to the provisions thereof, and may execute and deliver, at Savia's sole
cost and expense, such documents to evidence such release as Savia may
reasonably request.
SECTION 10.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that neither
Issuer may assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all Holders.
(b) Any Holder may at any time grant to one or more Holders or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Notes. In the event of any such grant by a Holder of a
participating interest to a Participant, whether or not upon notice to the
Issuers and the Agent, such Holder shall remain responsible for the performance
of its obligations hereunder, and each Issuer and the Agent shall continue to
deal solely
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and directly with such Holder in connection with such Holder's rights and
obligations under this Agreement. Any agreement pursuant to which any Holder may
grant such a participating interest shall provide that such Holder shall retain
the sole right and responsibility to enforce the obligations of the relevant
Issuers hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such participation agreement may provide that such Holder will not agree to
any modification, amendment or waiver of this Agreement relating to changes in
any fees hereunder, or the principal of or term of or rate of interest on any
Note, in any case that requires the consent of all Holders, without the consent
of the Participant. Each Issuer agrees that each Participant shall, to the
extent provided in its participation agreement, be entitled to the benefits of
Article 8 with respect to its participating interest. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Holder may at any time assign to one or more Holders or other
institutions (each an "Assignee"), all, or any part (such portion to comprise an
aggregate outstanding principal amount of Commitments and/or interests in Notes
of not less than $1,000,000) of all, of its Notes of any Tranche together with a
proportionate part of its other rights and obligations under this Agreement, and
such Assignee shall assume such rights and obligations, pursuant to an
Assignment Agreement in substantially the form of Exhibit F hereto executed by
such Assignee and such transferor Holder (or, in the case of any Note held
through a global note, as described in Section 1.03, pursuant to such procedures
as may be required by the depository or nominee thereof), with notice to Savia
and the Paying Agent. Upon execution and delivery of such instrument and payment
by such Assignee to such transferor Holder of an amount equal to the purchase
price agreed between such transferor Holder and such Assignee, such Assignee
shall be a Holder party to this Agreement and shall have all the rights and
obligations of a Holder with a Commitment and/or Notes as set forth in such
instrument of assumption, and the transferor Holder shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Holder, the Paying Agent and
Savia shall make appropriate arrangements so that, if required, a new Note is
issued to the Assignee. In connection with any such assignment, the transferor
Holder shall pay to the Paying Agent an administrative fee for processing such
assignment in the amount of $3,000.
(d) Maintenance of Registry. Each Issuer hereby designates the Paying
Agent to serve as such Issuer's agent, solely for purposes of this subsection
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10.06(d), to maintain a register (the "Register") on which the Paying Agent will
record the name of each Holder, the aggregate principal amount of Notes
purchased by each Holder and each repayment in respect of the principal amount
of the Notes held by each Holder. Failure to make any such recordation, or any
error in such recordation, shall not affect either Issuer's obligations in
respect of such Notes. The entries in the Register shall be presumed correct
absent evidence to the contrary, and the Issuers, the Agents and the Holders
shall treat each Person in whose name a Note is registered as the owner thereof
for all purposes of this Agreement. With respect to any Holder, the assignment
or other transfer of the Commitments and/or Notes of such Holder and the rights
to the principal of, and interest on, any Note issued pursuant to this Agreement
shall not be effective until such assignment or other transfer is recorded on
the Register and, except to the extent provided in this subsection 10.06(d),
otherwise complies with Section 10.06, and prior to such recordation all amounts
owing to the transferor Holder with respect to such Commitments and Notes shall
remain owing to the transferor Holder. The registration of assignment or other
transfer of all or part of any Commitments and Notes for a Holder shall be
recorded by the Paying Agent on the Register. The Register shall be available at
the offices where kept by the Paying Agent for inspection by the Issuers and any
Holder at any reasonable time upon reasonable prior notice to the Paying Agent.
The Issuers may not replace any Holder pursuant to Section 8.06, unless, with
respect to any Notes held by such Holder, the requirements of this Section have
been satisfied.
(e) Certain Additional Restrictions on Transfer. In addition to the other
restrictions on transfers set forth herein, each Holder and Holder of an
interest in a Note (each participation or other interest in a Note, a "Note
Interest", and each Holder and other holder thereof, an "Interestholder"), by
its acceptance thereof, hereby agree to the following additional restrictions on
transfer with respect to the Notes and Note Interests, without regard to whether
the Notes or any Note Interests are "securities" as defined under the Securities
Act:
(i) Each Interestholder understands that the Notes are being offered
only in a transaction not involving any public offering within the meaning
of the Securities Act, and that, if in the future such Interestholder
decides to resell, pledge or otherwise transfer any of the Notes, such
Notes may not be reoffered, resold, pledged or otherwise transferred
except (i) to a person whom the Holder reasonably believes is a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule
144A, (ii) in an offshore transaction complying with Rule 904 of
Regulation S, (iii), pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available), (iv) to the
Issuer of such Note or (v) pursuant to an effective registration statement
under the Securities Act, and, in each case, in accordance with all
applicable U.S. state securities laws.
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(ii) Each Interestholder may hold its interests in any Note through
Euroclear, Cedel or another depository; provided no such Interestholder
may grant any Participations in the interest so held through a depository.
It is acknowledged that neither Euroclear nor Cedel will undertake to
enforce the restrictions on transfer contained in this Section 10.06(e).
Each Holder understands that the Notes will, unless otherwise agreed by
the Issuer and the Interestholder thereof, bear a legend to the following
effect:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE
HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) (A "QIB"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"U.S. PERSONS" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM
BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT.
(iii) Each Interestholder (i) represents that it is not an
"affiliate" (as defined in Rule 144 under the Securities Act) of the
Company or acting on behalf of either Issuer and it is a Qualified
Institutional Buyer within the meaning of the Rule 144A promulgated under
the Securities Act and is aware that any sale of Notes to it will be made
in reliance on Rule 144A. Such acquisition will be for its own account or
for the account of another Qualified Institutional Buyer and (ii)
represents that it is relying on the information contained in the Offering
Memorandum in making its investment decision with respect to the Notes. It
acknowledges that no representation or warranty is made by the Arrangers
as to the accuracy or completeness of such materials. It further
acknowledges that neither Issuer nor any of the Arrangers or any person
representing the Issuers or the Arrangers have made any representation to
it with respect to the Issuers or the offering or sale of any Notes other
than the information contained in the Offering Memorandum. It has had
access to such financial and other information concerning the Issuers and
the Notes as it has deemed necessary in connection with its decision to
purchase any
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of the Notes, including an opportunity to ask questions of and request
information from the Issuers.
(f) Any Holder may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Holder from its obligations hereunder.
(g) No Assignee, Participant or other transferee of any Holder's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04,
8.05 than such Holder would have been entitled to receive with respect to the
rights transferred, unless such transfer is an assignment made with Savia's
prior written consent or is made by reason of the provisions of Section 8.02 or
8.03 requiring such Holder to designate a different Applicable Lending Office
under certain circumstances or at a time when the circumstances giving rise to
such greater payment did not exist.
SECTION 10.07. Collateral. Each of the Holders represents to the Agent and
each of the other Holders that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 10.08. Governing Law; Submission to Jurisdiction; Service of
Process. (a) This Agreement and the Notes shall be governed by and construed in
accordance with the laws of the State of New York.
(b) Each of the parties hereto irrevocably submits to the jurisdiction of
the Supreme Court of the State of New York, County of New York, the U.S.
District Court for the Southern District of New York and any appellate court or
body thereto (collectively, the "New York Courts") and to the courts of its own
corporate domicile with respect to actions brought against it as a defendant,
over any suit, action or proceeding arising out of or relating to this Agreement
or the Notes. Each party hereto irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding brought in any such court,
any claim that any such suit, action or proceeding brought in such court has
been brought in an inconvenient forum and any right to which it may be entitled
on account of place of residence or domicile, and further agrees that a final
judgment in any such suit, action or proceeding brought in such court shall be
conclusive and binding such party.
(c) Each Issuer hereby irrevocably appoints CT Corporation System, having
offices on the date hereof at 1633 Broadway, New York, New York 10019 (the
"Process Agent"), as its authorized agent to accept and acknowledge on its
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behalf service of any and all process which may be served in any suit, action or
proceeding of the nature referred to above in any New York Court. Such
designation and appointment shall be irrevocable until all principal of and
interest on the Notes and other sums payable hereunder shall have been paid in
full in accordance with the provisions thereof and the Commitments shall have
been reduced to zero. Such Issuer covenants and agrees that it shall take any
and all reasonable action, including the execution and filing of any and all
documents, that may be necessary to continue the foregoing designations and
appointments in full force and effect and to cause the Process Agent to continue
to act in such capacity. Such Issuer covenants and agrees that, if the Process
Agent shall desire to cease so to act, prior to the Process Agent ceasing so to
act it shall irrevocably designate and appoint without delay another such agent
in such jurisdiction satisfactory to the Administrative Agent and, if requested
by the Administrative Agent, shall promptly deliver to the Administrative Agent
evidence in writing of such other agent's acceptance of such appointment in form
and substance reasonably acceptable to the Administrative Agent.
(d) Each Issuer consents to process being served in any suit, action or
proceeding of the nature referred to in subsection (b) of this Section by
serving a copy thereof upon the Process Agent. Without prejudice to the
foregoing, the Administrative Agent agrees that to the extent lawful and
possible, written notice of said service upon the Process Agent shall also be
mailed by registered or certified airmail, postage prepaid, return receipt
requested, to such Issuer at its address specified in Section 10.01 hereof or to
any other address of which such Issuer shall have given written notice to the
Administrative Agent. If said service upon the Process Agent shall not be
possible or shall otherwise be impractical after reasonable efforts to effect
the same, such Issuer consents to process being served in any suit, action or
proceeding of the nature referred to in subsection (b) of this Section by the
mailing of a copy thereof by registered or certified airmail, postage prepaid,
return receipt requested, to the address of such Issuer specified in Section
10.01 hereof or to any other address of which such Issuer shall have given
written notice to the Administrative Agent, which service shall be effective 14
days after deposit in the United States Postal Service. Such Issuer irrevocably
waives, to the fullest extent permitted by law, all claim of error by reason of
any such service and such Issuer agrees that such service (i) shall be deemed in
every respect effective service of process upon such Issuer in any such suit,
action or proceeding and (ii) shall to the fullest extent permitted by law, be
taken and held to be valid personal service upon and personal delivery to such
Issuer.
(e) Nothing in this Section shall affect any right of the Administrative
Agent to serve process in any manner permitted by law.
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SECTION 10.09. Counterparts; Integration; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject
matter hereof. This Agreement shall become effective upon receipt by the
Administrative Agent of counterparts hereof signed by each of the parties
hereto (or, in the case of any party as to which an executed counterpart
shall not have been received, receipt by the Administrative Agent in form
satisfactory to it of telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 10.10. WAIVER OF JURY TRIAL. EACH ISSUER, THE AGENTS AND THE
HOLDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER FINANCING
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 10.11. Conversion of Currencies. (a) If, for the purpose of
obtaining judgment in any court, it is necessary to convert a sum due hereunder
in Dollars into another currency, the parties hereto agree, to the fullest
extent that they may legally and effectively do so, that the rate of exchange
used shall be that at which in accordance with normal banking procedures the
Administrative Agent could purchase Dollars with such other currency in New
York, New York, on the Domestic Business Day immediately preceding the day on
which final judgment is given.
(b) The obligation of each Issuer in respect of any sum due to any Holder
in Dollars shall, to the extent permitted by applicable law, notwithstanding any
judgment in a currency other than Dollars, be discharged only to the extent that
on the Domestic Business Day following receipt of any sum adjudged to be so due
in the judgment currency such Holder may in accordance with normal banking
procedures purchase Dollars in the amount originally due to such Holder with the
judgment currency. If the amount of Dollars so purchased is less than the sum
originally due to such Holder, each Issuer agrees, as to amounts owed by it
under this Agreement, as a separate obligation and notwithstanding any such
judgment, to indemnify such Holder against the resulting loss; and if the amount
of Dollars so purchased is greater than the sum originally due to such Holder,
such Holder agrees to repay such excess.
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SECTION 10.12. Waiver of Immunity. To the extent that either Issuer has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service or notice, attachment prior to judgment,
attachment in aid or execution, or otherwise) with respect to itself or its
property, such Issuer hereby irrevocably waives such immunity in respect of its
obligations hereunder and under the Notes to the extent permitted by applicable
law and, without limiting the generality of the foregoing, agrees that the
waivers set forth in this Section shall have effect to the fullest extent
permitted under the Foreign Sovereign Immunities Act of 1976 of the United
States of America and are intended to be irrevocable for purposes of such Act.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SAVIA, S.A. de C.V.
By: /s/ Heriberto S. Muzza-Cavazos
----------------------------------------------
Title: Attorney-in-Fact
By: /s/ Francisco J. Garza Barbosa
----------------------------------------------
Title: Attorney-in-Fact
Address: Ave. Batallon de San Patricio No. 111
Cuarto piso Col. Valle Oriente C.P.
66269 San Pedro Garza Garcia,
N.L. Mexico
With a copy to:
Milbank, Tweed, Hadley and McCloy
1 Chase Manhattan Plaza
New York, NY 10005
Attention: Howard S. Kelberg
Telephone: (212) 530-5000
Facsimile: (212) 530-5219
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DNAP HOLDING CORPORATION
By: /s/ Bernardo Jimenez
------------------------------------------
Title: Chief Executive Officer
By: /s/ Arthur H. Finnel
------------------------------------------
Title: Executive Vice President
Address: 6701 San Pablo Ave.
Oakland, CA 94608
With a copy to:
Thompson & Knight, P.C.
1700 Pacific Ave.
Suite 3300
Dallas, TX 75201
Attention: Joe A. Rudberg
Telephone: (214) 969-1700
Facsimile: (214) 969-1751
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HOLDERS
J.P. MORGAN SECURITIES INC.
By: /s/ Kathryn Collins
----------------------------------------
Title: Vice President
BANCO INBURSA, S.A., INSTITUCION
DE BANCA MULTIPLE
GRUPO FINANCIERO INBURSA --
GRAND CAYMAN BRANCH
By: /s/ Jose Heredia Breton
----------------------------------------
Title: International Director
By: /s/ Luis Frias Humphrey
----------------------------------------
Title: Vice President International
NESBITT BURNS SECURITIES INC.,
a subsidiary of Bank of Montreal
By: /s/ Ian Thompson
----------------------------------------
Title: Business Manager
BANK OF MONTREAL
By: /s/ Peter Vaky
----------------------------------------
Title: Managing Director
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CITIBANK MEXICO, S.A.
GRUPO FINANCIERO CITIBANK
By: /s/ Pedro Cedillo
----------------------------------------
Title: Regional Director
SALOMON SMITH BARNEY INC.
By: /s/ Mario Espinosa
----------------------------------------
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Michael A. Gaudino
----------------------------------------
Title: Vice President & General Manager
ING BANK, N.V. acting through its
Curacao Branch
By: /s/ W.A. Rademaker
----------------------------------------
Title: Assistant General Manager
By: /s/ H.F.J. ten Holt
----------------------------------------
Title: Financial Controller
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COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By: /s/ Edward Peyser
----------------------------------------
Title: Senior Vice President
By: /s/ O.T. Quast
----------------------------------------
Title: Vice President
GLOBAL FINANCIAL SERVICES, L.L.C.
By: /s/ Gerardo Chapa
----------------------------------------
Title: Managing Director
BANCA SERFIN, S.A. INSTITUCION DE
BANCA MULTIPLE, GRUPO
FINANCIERO SERFIN
By: /s/ Gerardo Abramo Martinez
----------------------------------------
Title:Vice President Corporate Banking
By: /s/ Carlos A. Rodriguez Velasgez
----------------------------------------
Title: Senior Executive
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KZH CRESCENT LLC
By: /s/ Virginia Conway
----------------------------------------
Title: Authorized Agent
KZH CRESCENT-2 LLC
By: /s/ Virginia Conway
----------------------------------------
Title: Authorized Agent
KZH CRESCENT-3 LLC
By: /s/ Virginia Conway
----------------------------------------
Title: Authorized Agent
ORIX USA CORPORATION
By: /s/ John Roudabush
----------------------------------------
Title: Senior Vice President
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MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Administrative and Documentation
Agent
By: /s/ Luisamaria Ruiz Carlile
----------------------------------------
Title: Vice President
Address: 60 Wall Street
New York, NY 10260-0060
Attention: Edward Wirth (Operations)
Facsimile: (302) 634-4267
BANKERS TRUST COMPANY,
as Registrar and Paying Agent
By: /s/ Peter M. Lagatta
----------------------------------------
Title: Assistant Vice President
Address: Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Trust and Agency
Services
Facsimile: (212) 250-0933
CITIBANK, N.A., as U. S. Collateral Agent
By: /s/ Wafaa Orfy
----------------------------------------
Title: Senior Trust Officer
Address: 111 Wall Street, 5th Floor
New York, NY 10005
Attention: Wafaa Orfy
Corporate Agency & Trust
Facsimile: (212) 657-3862
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EXHIBIT 10.5
PROMISSORY NOTE
$10,000,000.00 Dallas, Texas January 25, 1999
FOR VALUE RECEIVED, the undersigned, DNA PLANT TECHNOLOGY CORPORATION, a
Delaware corporation (herein called the "Borrower"), hereby promises to pay to
the order of DNAP Holding Corporation, formerly known as BIONOVA U.S. INC., a
Delaware corporation (herein called the "Lender", which term shall also include
any subsequent transferee of this Note), the principal sum of Ten Million and
No/100 Dollars U.S. ($10,000,000.00), with interest on the unpaid balance
thereof from the date of advancement thereof pursuant to the Loan Agreement (as
hereinafter defined) until maturity at the rate or rates hereinafter provided,
both principal and interest payable as hereinafter provided funds in lawful
money of the United States of America at 6701 San Pablo Avenue, Oakland, CA
94608, or at such other place as from time to time may be designated in writing
by the holder of this Note.
Borrower promises to pay interest on the principal amount hereof from time
to time outstanding, from the date hereof at the rate of 10.25% per annum (the
"Loan Rate"), compounded annually. Interest shall accrue but not be payable
until the unpaid principal amount hereof or any portion hereof which is prepaid
is due and payable in full to Lender. Such interest shall be payable in like
coin or currency as the principal amount hereof. Anything to the contrary
notwithstanding, if at any time the Loan Rate exceeds the Maximum Rate (as
hereinafter defined), the Loan Rate shall be limited to the Maximum Rate, but
any subsequent reductions in the Loan Rate shall not reduce the rate of interest
which the unpaid principal balance of this Note bears below the Maximum Rate
until such time as the total amount of interest accrued on this Note equals the
amount of interest that would have accrued under this Note if the Loan Rate had
at all times been in effect. All past due principal and/or interest hereunder
shall bear interest from maturity at the Maximum Rate. All interest calculations
hereunder shall be made on the basis of a 365 day year and the actual number of
days elapsed. Any payment made by Borrower to Lender hereunder shall be credited
first to accrued and unpaid expenses hereunder or under the Loan Agreement, next
to accrued and unpaid interest hereunder, and last to unpaid principal
hereunder.
Unless sooner demanded by Lender as permitted under the Loan Agreement,
the entire unpaid principal amount hereof, together with interest accrued
hereon, shall, without notice, be due and payable in full to Lender in
immediately available funds on January 31, 2001. Upon the occurrence of an
"Event of Default" under the Loan Agreement, Lender may elect to declare and may
at any time declare the entire unpaid principal amount hereof, together with
interest accrued hereon, to be immediately due and payable.
As provided in the Loan Agreement, this Note is secured by an Assignment
of Patents dated as of January 26, 1996 evidencing a transfer of an interest in
certain patent rights by Borrower to Lender as described therein.
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This Note may be prepaid in whole or in part at any time without bonus or
penalty, subject to the terms and conditions of the Loan Agreement.
This Note (a) is issued and delivered under that certain Loan Agreement
dated as of January 26, 1996 between Borrower and Lender (herein, as from time
to time supplemented, amended or restated, called the "Loan Agreement"), and is
the Note as defined therein, and (b) is subject to the terms and provisions of
the Loan Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events.
It is the intent of Borrower and Lender in the execution of this Note and
all other instruments now or hereafter executed in connection with this Note to
contract in strict compliance with applicable usury law. In furtherance thereof,
Borrower and Lender stipulate and agree that none of the terms and provisions
contained in this Note, or in any other instrument executed in connection
herewith, shall ever be construed to create a contract to pay for the use,
forbearance or detention of money, interest at a rate in excess of the maximum
interest rate permitted to be charged by applicable law (the "Maximum Rate").
Neither the Borrower nor any guarantors, endorsers or other parties now or
hereafter becoming liable for payment of this Note shall ever be required to pay
interest on this Note at a rate in excess of the Maximum Rate and the provisions
of this paragraph shall control over all other provisions of this Note and any
other instruments now or hereafter executed in connection herewith which may be
in apparent conflict herewith. Lender expressly disavows any intention to charge
or collect excessive unearned interest or finance charges in the event the
maturity of this Note is accelerated. If the maturity of this Note shall be
accelerated for any reason or if the principal of this Note is paid prior to the
end of the term of this Note, and as a result thereof the interest received for
the actual period of existence of the loan evidenced by this Note exceeds the
Maximum Rate, Lender shall refund to Borrower the amount of such excess or shall
credit the amount of such excess against the principal balance of this Note then
outstanding. In the event that Lender shall collect monies which are deemed to
constitute interest which would increase the effective interest rate on this
Note to a rate in excess of the Maximum Rate, all such sums deemed to constitute
interest in excess of the Maximum Rate shall, upon such determination, at the
option of Lender, be either immediately returned to Borrower or credited against
the principal balance of this Note then outstanding, without further penalty to
Lender. By execution of this Note Borrower acknowledges that it believes the
loan evidenced by this Note to be non-usurious and agrees that if, at any time,
Borrower should have reason to believe that such loan is in fact usurious, it
will give Lender notice of such condition and Borrower agrees that Lender shall
have ninety (90) days in which to make appropriate refund or other adjustment in
order to correct such condition if in fact such exists. The term "applicable
law" as used in this Note shall mean the laws of the State of New York or the
laws of the United States, whichever laws allow the greater rate of interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity or through any bankruptcy, receivership, probate
or other court proceedings or if this Note is placed in the hands of attorneys
for collection after default, Borrower and all endorsers,
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guarantors and sureties of this Note jointly and severally agree to pay in
addition to the principal and interest due and payable hereon reasonable
attorneys' and collection fees.
Borrower and all endorsers, guarantors and sureties of this Note and all
other persons liable or to become liable on this Note severally waive
presentment for payment, demand, notice of demand and of dishonor and nonpayment
of this Note, notice of intention to accelerate the maturity of this Note,
protest and notice of protest, diligence in collecting, and the bringing of suit
against any other party, and agree to all renewals, extensions, modifications,
partial payments, releases or substitutions of security, in whole or in part,
with or without notice, before or after maturity.
This Note and the rights and duties of the parties hereunder shall be
governed for all purposes by the law of the State of New York and the law of the
United States applicable to transactions within such state.
This Note is given in renewal and extension, but not in novation or
extinguishment, of that certain Promissory Note of Borrower to the order of
Lender in the original principal amount of $10,000,000.00 dated as of January
26, 1996.
DNA PLANT TECHNOLOGY CORPORATION
By: /s/ ARTHUR H. FINNEL
------------------------------------
Name: Arthur H. Finnel
Title: Chief Financial Officer
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Exhibit 10.11
LONG TERM FUNDED RESEARCH AGREEMENT
This LONG TERM FUNDED RESEARCH AGREEMENT ("Agreement") is effective as of
the 1st day of January, 1997, and is by and between DNA PLANT TECHNOLOGY
CORPORATION ("DNAP"), a corporation duly organized and existing under the laws
of the State of Delaware, and SEMINIS VEGETABLE SEEDS, INC., a corporation
organized under the laws of the State of California ("SEMINIS")
WITNESSETH
WHEREAS, DNAP has expertise, personnel, facilities, equipment, technology
and intellectual property useful in the development of improved plants using
biotechnological techniques; and
WHEREAS, SEMINIS is, among other things, a leading developer and marketer
of improved varieties of fruits, vegetables and agronomic crops; and
WHEREAS, the parties desire to enter a long term relationship whereby the
parties will consult with each other regarding utilization of biotechnology in
the seed industry and SEMINIS will fund research and development projects to be
conducted by DNAP;
NOW, THEREFORE, the parties hereto agree as follows:
Article I. Definitions
For the purposes of this Agreement, the following terms shall have
the following meanings:
1.1 "DNAP" means DNA Plant Technology Corporation, a Delaware
Corporation, and its Affiliates.
1.2 "SEMINIS" means Seminis Vegetable Seeds, Inc., a California
corporation and its subsidiaries and/or its Affiliates.
1.3 "Affiliates" means, with respect to a particular party, persons
or entities controlling, controlled by or under common control with the party,
as well as any majority owned entities of the party and of its other affiliates.
Control shall mean the right to control or actual control of management of such
other entity, whether by ownership of voting securities, by agreement or
otherwise.
1.4 "Research Program" means the research and development program
described in Article II of this Agreement, and includes Projects.
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1.5 "Funded Intellectual Property" or "Funded IP" means inventions,
discoveries, know-how, trade secrets, confidential information, biomaterials,
patents, plant variety protection act rights, breeders' rights, or other
intellectual or industrial property on a worldwide basis arising our of or
developed in the course of the Research Program or any Project.
1.6 "Project" means a particular research or development project to
be carried out by DNAP for SEMINIS as approved and accepted by the parties
pursuant to paragraph 2.2 of this Agreement.
1.7 "DNAP Intellectual Property" or "DNAP IP" shall mean the
intellectual property (including, but not limited to, know-how, trade secrets,
confidential information, biomaterials, patents, plant variety protection
rights, breeders' rights, and rights under licenses) owned in whole or in part,
controlled or licensable by DNAP from time to time.
1.8 "SEMINIS Intellectual Property" or "SEMINIS IP" means the
intellectual property (including, but not limited to, know-how, trade secrets,
confidential information, biomaterials, patents, plant variety protection
rights, breeders' rights, and rights under licenses) owned in whole or in part,
controlled or licensable by SEMINIS from time to time.
1.9 "Product" means any product or process which incorporates DNAP
IP, SEMINIS IP, or Funded IP.
1.10 "Field" means, for a given Project, crops which are being sold
or developed by SEMINIS at the time the Project is agreed to or renewed.
1.11 "Value Added" means the increase in the value of a Product
resulting from a Project.
1.12 "Net Sales" means the revenue received by DNAP and its
Affiliates or SEMINIS and its Affiliates on the sales of Products, after
deduction of the following items provided and to the extent such items are
actually incurred and do not exceed reasonable and customary amounts in the
market in which such sale occurred: (i) trade, quantity and cash discounts and
rebates; (ii) credits or allowance given or made for rejection or return of
previously sold Products; (iii) any tax or government charge levied on the sale
other than an income tax or value added tax; (iv) any charges for freight or
insurance; (v) all bona fide distributor commissions paid by DNAP and its
Affiliates or SEMINIS and its Affiliates in connection with the sales of
Products.
1.13 "Fiscal Year" means each twelve (12) month period beginning on
the 1st of October.
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1.14 "DNAP Developed Intellectual Property" or "DNAP Developed IP"
shall mean inventions, discoveries, know-how, trade secrets, confidential
information, biomaterials, patents, plant variety protection rights, breeder's
rights, or other intellectual or industrial property on a worldwide basis
arising out of or developed by DNAP as a result of its research with the Funded
IP within the Field and where such research is outside the Research Program and
not otherwise funded by SEMINIS.
1.15 "Added Value" shall mean the increase in value of a product
resulting from DNAP Developed IP.
Article II. Research Program
2.1 The Research Program
Pursuant to the terms and conditions set forth in this
Agreement, DNAP shall carry out Projects for SEMINIS. The Research Program shall
have a ten (10) -year term, commencing with the date of this Agreement.
2.2 Research Projects
a. Projects. During the term of the Agreement, the parties
will discuss potential Projects. Either party may propose such Projects. SEMINIS
shall approve all Projects and Project Plans as set forth in paragraph 2.2b of
this Agreement. DNAP shall not unreasonably refuse to agree to the terms of the
Project Plan for any Project proposed by SEMINIS, including any confidentiality
restrictions regarding the subject matter and scope of a Project.
b. Project Plan. Each such Project shall have a Project Plan,
which requires the approval of SEMINIS and shall include: (i) the goals of the
Project, (ii) the research plan, including benchmarks to be used in judging the
Project's progress and timeliness therefor, (iii) a budget and payment schedule,
(iv) a listing prepared by DNAP of the DNAP IP to be used in the Project, (v) a
listing prepared by SEMINIS of the SEMINIS IP is to be used in the Project, (vi)
the identification of the members of the Research Management Team for such
Project and (vii) such other information as SEMINIS may request. Any
modification of the Research Plan shall require the approval of SEMINIS.
c. Research Management Team. A Research Management Team
comprised of an appropriate number of DNAP and SEMINIS employees, which may from
time to time be equal, will be established. The Research Management Team will be
responsible for creating the Project Plan, evaluating the research and
activities on Projects under the Project Plan, and reviewing the progress of the
Projects under the Project Plan.
d. Project Termination. SEMINIS may terminate any Project at
any time for any reason, upon payment of Project costs prior to the date of
termination. Upon
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termination of a Project, any unused budgeted funds for the Project shall be
applied to a future Project to fulfill SEMINIS minimum project funding
requirements under Paragraph 3.2.
2.3 Records and Reports
DNAP shall keep complete and accurate records of the research
conducted pursuant to each Project. Such records shall be made available to
SEMINIS to inspect upon prior written notice to DNAP and during normal business
hours during the term of this Agreement. DNAP shall also provide SEMINIS with
written reports on the progress of each Project, on a quarterly basis or more
often if requested by SEMINIS. The reports shall contain: (a) the progress of
the Project in relation to the timelines established in the Project Plan; (b)
the problems encountered to date with the Project and proposed solutions; (c)
costs incurred to date on the Project and their relationship to the budget; (d)
a description of all Funded IP, germplasm, improvements or other technology
developed to date, and (e) any such other information as SEMINIS may request.
2.4 Oversight
SEMINIS shall have the right to oversee each Project,
including access to the DNAP employees and facilities being utilized in the
Project during normal business hours.
2.5 License to Existing IP
a. License. Subject to royalty payments in accordance with
Paragraph 4.2 e(iv), SEMINIS shall have a worldwide non-exclusive license under
this Agreement with respect to DNAP IP solely to the extent necessary or
reasonably appropriate for SEMINIS to commercialize the Funded IP, including the
right to make, have made, use, offer for sale and sell any Product resulting
from a Project.
b. Exclusivity.
DNAP agrees that it will not undertake to perform for a
third party a research and development program directed to the same gene/Plant
Family combination as any Project without the prior written consent of SEMINIS.
2.6 License to SEMINIS IP
a. License. If SEMINIS IP is utilized in a Project and
incorporated in Funded IP, DNAP shall have a royalty bearing non-exclusive
license under this Agreement with respect to SEMINIS IP solely to the extent
necessary or reasonably appropriate for DNAP to exercise its rights with respect
to the Funded IP pursuant to Section 4.2.
b. Royalty.
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(i) DNAP shall pay a royalty to SEMINIS for Products
sold by DNAP which incorporate SEMINIS IP. The royalty shall be at standard
industry rates, with the specific amount to be negotiated as Projects are
identified. Each party shall execute a formal license containing the customary
terms with respect to DNAP's and SEMINIS' rights and obligations under this
Section 2.6.
(ii) With each royalty payment, DNAP will provide to
SEMINIS a written royalty statement verified by the President or Chief Financial
Officer of DNAP, setting forth the total sales identified by Product designation
or other basis upon which royalties are calculated during the period covered by
the statement. SEMINIS shall have the right once per year to designate an
independent certified public accountant to inspect DNAP's books and records
relating to the basis upon which royalties are calculated.
2.7 Consultation. The parties specifically understand that the
modification of phenotypic traits through biotechnology and genetic engineering
is of potential significant competitive importance to the industry. The parties
shall work closely together to create and define appropriate Projects. DNAP will
use its best efforts to continually apprise SEMINIS of scientific developments
relating to SEMINIS' products.
Article III. Research Program Funding
3.1 Payment by SEMINIS
SEMINIS shall pay DNAP in accordance with the payment schedule
established for each Project in the Project Plan, provided that if DNAP fails to
provide the resources it is committed to provide to a Project, then, in addition
to its other remedies provided for herein, such payments shall be equitably
adjusted.
3.2 Minimum Project Funding
SEMINIS and DNAP shall undertake Projects with payment
schedules chat will generate payments to DNAP of at least $7,500,000 each three
years, up to a maximum of $25,000,000 during the ten-year period beginning on
the effective date hereof, with the understanding that if the minimum payments
made by SEMINIS in any year exceed the amounts due and payable for research
services provided by DNAP hereunder, then such excess shall be credited towards
future services provided by DNAP in future years but shall not reduce SEMINIS'
obligation to continue minimum funding. Unless otherwise agreed by the parties,
minimum funding of $625,000 shall be paid to DNAP at the beginning of each
calendar quarter during the term of this Agreement until the maximum of
$25,000,000 has been reached.
3.3 Payment Level
Unless otherwise agreed in the Project Plan, SEMINIS shall pay
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DNAP all of DNAP's direct costs (including direct R&D overhead) plus an industry
standard operating margin, but in no event more than 200% of DNA-P's modified
direct costs, as customarily computed by DNAP to include only salaries,
benefits, supplies and travel for Project personnel.
Article IV. Rights to Results of Research Program
4.1 Ownership Rights
Subject to paragraph 4.2, SEMINIS will own the entire right,
title and interest in all Funded IP, as well as other inventions, discoveries,
germplasm, improvements or other technology, arising out of each Project and the
Research Program, whether or not patentable, together with all patent
applications or patents based thereon, regardless of whether the Funded IP are
made by employees of SEMINIS or employees of DNAP. SEMINIS shall have the right
to file, prosecute and maintain patent applications for all Funded IP at
SEMINIS' expense. DNAP will promptly disclose to SEMINIS in writing the
conception and the reduction to practice of Funded IP. DNAP hereby represents
and agrees that all employees and other persons acting on its behalf in
performing its obligations under this Agreement will be obligated under a
binding written agreement or applicable law to assign to SEMINIS, as directed,
all Funded IP made or developed by such employee or other person. DNAP agrees to
make available to SEMINIS or to SEMINIS' authorized attorneys, agents or
representatives, at DNAP's expense, DNAP employees as necessary or appropriate
to enable SEMINIS to file, prosecute and maintain patent applications and
resulting patents with respect to all Funded IP, for a period of time sufficient
for SEMINIS to obtain the assistance it needs from such personnel. DNAP also
agrees to cause its employees to cooperate with SEMINIS by executing any
documents that SEMINIS may request in connection with the filing, prosecution or
maintenance of patent applications and resulting patents involving the Funded
IP.
4.2 License Rights to Funded IP and Developed IP
a. DNAP's License Rights to Funded IP for Research Purposes
and For Development of Products Outside the Field. Unless otherwise agreed in a
Project Plan for Projects, SEMINIS hereby grants to DNAP (i) a royalty-free
non-exclusive license, with no rights to grant sublicenses, to use the Funded IP
for research purposes within the Field and outside a Project, and (ii) a royalty
bearing, sole license (subject to SEMINIS' retained rights to use the Developed
IP outside the Field), with rights to grant sublicenses, to use the Funded IP
outside the Field for any purpose, including the right to import, make, have
made, use, offer for sale and sell throughout the world Products outside the
Field.
b. Royalty Payable by DNAP. DNAP shall pay a royalty to
SEMINIS for any Products sold by DNAP outside the field containing the Funded IP
pursuant to Section 4.2a of this Agreement. The royalty shall be a royalty of 3%
of Net Sales, based on sales of seed or starter plants, for Products where the
contribution of the Funded IP to the Product is a patentable advance which
enables efficacy and which has not been independently made by DNAP
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in a DNAP-funded program. With each royalty payment, DNAP will provide to
SEMINIS a written royalty statement verified by the President or Chief Financial
Officer of DNAP, setting forth the total sales identified by Product designation
or other basis upon which royalties are calculated during the period covered by
the statement. SEMINIS shall have the right once per year to designate and
independent certified public accountant to inspect DNAP's books and records
relating to the basis upon which royalties are calculated.
c. DNAP's License Rights to Funded IP in the Field. If agreed
to in a Project Plan, DNAP shall have an option to acquire an exclusive license,
with no right to grant sublicenses, solely to import, make, have made, use,
offer for sale and sell throughout the world Products containing the Funded IP
inside the Field ("License"). The License granted to DNAP shall be for a period
of three (3) years from the date DNAP exercises the option. This exclusive
License shall be renewable for one (1) year terms upon the written agreement of
SEMINIS. Rights under this Paragraph 4.2c become non-exclusive after any
exclusive period.
d. Value Added. As consideration for the license granted to
DNAP under Paragraph 4.2c of this Agreement, DNAP shall pay SEMINIS, on a yearly
basis, fifty percent (50%) of the Value Added based upon the Net Sales by DNAP
of each Product in the Field, provided that, DNAP shall have most favored
nations status subsequent to DNAP's exclusivity period. If subsequent to DNAP's
exclusivity period SEMINIS grants a third party a license to the Funded IP in
the Field with terms which provide for the third party to pay SEMINIS either (i)
less than 50% of the Value Added or (ii) compensation based on a formula other
than a share of Value Added, hereinafter referred to as "Compensation
Arrangement", SEMINIS shall, within thirty (30) days, inform DNAP of the same in
writing and provide DNAP with the opportunity to convert the compensation
arrangement between SEMINIS and DNAP under this Paragraph 4.2 (d) to the more
favorable Compensation Arrangement between SEMINIS and the third party, with
such conversion being effective as of the effective date of the agreement
between SEMINIS and the third party. In the event that DNAP does not accept the
more favorable Compensation Arrangement within thirty (30) days after it
receives notice from SEMINIS, DNAP's option to substitute the different
Compensation Arrangement shall be deemed forever waived. The sums due hereunder
shall be payable in U.S. currency within forty-five (45) days after the end of
each Fiscal year. With each payment, DNAP will provide to SEMINIS a written
statement verified by product designation or other basis upon which the Value
Added is calculated during the year. SEMINIS shall have the right once per year,
at SEMINIS' expense, to designate an independent certified public accountant to
inspect DNAP's books and records relating to the calculation of the Value Added
due herewith.
e. DNAP Developed IP. DNAP shall own the entire right, title
and interest in all DNAP Developed IP, as well as all other inventions,
discoveries, germplasm, improvements, or other technology arising out of DNAP's
research with the Funded IP within the Field and outside a Project, whether or
not patentable. DNAP shall have the right to file, prosecute and maintain patent
applications for all Intellectual property at DNAP's expense.
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(i). License to Funded IP. DNAP shall have a worldwide
non-exclusive license under this Agreement, with no rights to grant sublicenses,
with respect to the Funded IP solely to the extent necessary for DNAP to
commercialize the DNAP Developed IP, including the right to import, make, have
made, use, offer for sale, and sell any product containing DNAP Developed IP.
(ii). Value Added. As consideration for the license
granted to DNAP under Paragraph 4.2e(i) of this Agreement, DNAP shall pay
SEMINIS, a royalty of 3% of Net Sales by DNAP of each Product in the Field
containing DNAP Developed IP. The sums due hereunder shall be payable in U.S.
currency within forty-five (45) days after the end of each Fiscal year. With
each payment, DNAP will provide to SEMINIS a written statement verified by
product designation or other basis upon which the Value Added is calculated
during the year. SEMINIS shall have the right once per year, at SEMINIS'
expense, to designate an independent certified public accountant to inspect
DNAP's books and records relating to the calculation of the Value Added due
herewith.
(iii). License to SEMINIS of DNAP Developed IP. If DNAP
does not commercialize the DNAP Developed IP or discontinues commercialization
of the DNAP Developed IP pursuant to paragraph 4.2e(i) of this Agreement, DNAP
shall grant SEMINIS a worldwide non-exclusive license under the Agreement to the
DNAP Developed IP, to import, make, have made, use, offer for sale, and sell any
seed product in the Field containing the DNAP Developed IP.
(iv.) Royalty. As consideration for the license rights
granted to SEMINIS under Paragraph 2.5(a) and 4.2(iii) of this Agreement,
SEMINIS shall pay DNAP, a royalty as follows for Products which SEMINIS has the
right to commercialize under this Agreement:
1. A royalty of 0% of Net Sales for a Product, where the contribution of the
Funded IP, DNAP IP or DNAP Developed IP to the Product is purely
analytical, for example, where DNAP is carrying out biochemical or
molecular biological characterization of existing material, such as
characterization of pea starch mutants.
2. A royalty of 1% of Net Sales for a Product which contains or is made using
Funded IP, DNAP IP or DNAP Developed IP, where the contribution of the
Funded IP, DNAP IP or DNAP Developed IP to the Product is not the basis of
the efficacy of the Product, for example, a Product containing- a
35S-driven Bt gene in a DNAP vector.
3. A royalty of 2% of Net Sales for a Product which contains or is made using
Funded IP, where the contribution of the Funded IP to the Product is a
patentable advance to enable efficacy.
4. A royalty of 3% of Net Sales for a Product which contains or is made using
DNAP IP or DNAP Developed IP where the contribution of the DNAP IP or DNAP
Developed IP to the
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Product is the basis of the efficacy of the Product, including
contributions in the form of promoters, gene suppression technology or
genes.
The sums due hereunder shall be payable in U.S. currency within forty-five (45)
days after the end of each Fiscal year. With each payment, SEMINIS will provide
to DNAP a written statement verified by product designation or other basis upon
which the Royalty is calculated during the year. DNAP shall have the right once
per year, at DNAP's expense, to designate an independent certified public
accountant to inspect SEMINIS' books and records relating to the calculation of
the Royalty due herewith.
f. Further Assurances. Each party shall execute a formal
license containing the customary terms with respect to DNAP's and SEMINIS'
rights and obligations under this Section 4.2.
4.3 Notice of Patents Affecting Commercialization Rights
During the term of the Research Program, DNAP shall use all
reasonable efforts to inform SEMINIS of:
(a) any patent owned by or patent application filed by a
third party of which DNAP is aware which claims a technology that DNAP is
considering for use in a Project, and that requires or may require one or both
of the parties to license rights thereunder in order to commercialize the
results of the Project; and
(b) any possible alternative to such a patented
technology of which DNAP is aware. In each such instance where DNAP is aware of
an alternative technology, the parties shall consider and discuss the
feasibility of using the alternative technology in place of the patented
technology.
Article V. Confidentiality
5.1 Confidentiality
All information supplied by one party to the other concerning the
Research Program, a Project, Project Plan, Developed Intellectual Property, DNAP
Intellectual Property, SEMINIS Intellectual Property, Products and any
biomaterials supplied by one party to the other shall be considered confidential
("Confidential Information"). The Confidential Information shall be utilized
only pursuant to this Agreement. During the term of this Agreement and for a
period of five (5) years thereafter, neither party shall disclose to any third
party any Confidential Information of the other Party without the specific
written consent of such party.
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5.2 Exceptions
The duties of confidentiality, provided by paragraph 5.l(a) above
shall not apply to information received by one party ("Receiving Party") from
the other party ("Disclosing Party") if the information:
(a) is public information at the time of disclosure by the
Disclosing Party to the Receiving Party;
(b) subsequently becomes public information other than by act
or omission of the Receiving Party;
(c) is already in the lawful possession of the Receiving
Party, as can reasonably be demonstrated by documentary evidence from the
Receiving Party, at the time of the first disclosure by the Disclosing Party to
the Receiving Party;
(d) is independently developed by employees of the Receiving
Party who did not have access to the information; or
(e) is required by law to be disclosed to a governmental
agency.
Article VI. Event of Default/Remedies/Other Termination Rights
6.1 Event of Default
It shall be an Event of Default hereunder if either party (i) fails
to pay any sums payable pursuant to this Agreement as and when they are due; or
(ii) materially breaches this Agreement.
6.2 Termination
The non-defaulting party shall have the right to terminate this
Agreement upon the occurrence of an Event of Default unless (i) the Event of
Default is cured within thirty (30) days after written notice thereof, or (ii)
the Event of Default is remediable but is not reasonably susceptible to cure
within such thirty (30) day period, then within such period of time as may be
required to cure the same if the defaulting party promptly commences to cure
such Event of Default within such thirty (30) day period and diligently
prosecutes such cure to completion as soon as is reasonably practicable; or
(iii) if such Event of Default is not one that can be remedied, the defaulting
party shall have taken reasonable steps within such thirty (30) day period to
prevent a recurrence of such breach; provided, however, that if such Event of
Default that cannot be remedied recurs in the same calendar year, the
nondefaulting party may, at its
10
<PAGE>
option, terminate this Agreement immediately upon the recurrency by written
notice to the other party. SEMINIS shall have the right to terminate this
Agreement if there is a change in control of DNAP. For the purposes, "change in
control of DNAP" shall mean that DNAP ceases to be greater than 50% owned,
directly or indirectly, or otherwise controlled by ELM or by an existing or
future ELM Affiliate. Each party's rights to Developed IP shall survive any
termination pursuant to this Agreement.
6.3 Other Remedies
In addition to all other remedies specified in Article 6, the
non-defaulting party shall have the right to pursue any and all available legal
or equitable remedies for the breach.
6.4 No Consequential Damages
In no event will either party be liable to the other or any
third party for any indirect, incidental or consequential damages with respect
to the performance or non-performance of this Agreement, whether arising out of
breach of warranty, breach of contract, tort (including negligence), strict
products liability or otherwise, even if advised of the possibility of such
damage or if such damage could have been reasonably foreseen, except only in
case of personal injury where applicable law requires such liability.
Article VII. Miscellaneous
7.1 Notices
All notices, demands, requests, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given when received by DNAP or SEMINIS, as the case may be, at the
following address, or such other address as DNAP or SEMINIS may from time to
time designate by written notice to the other as herein required:
SEMINIS VEGETABLE SEEDS
37437 State Highway 16
Woodland, California 95695
Attn: Vice President Research
DNA PLANT TECHNOLOGY CORPORATION
6701 San Pablo Avenue
Oakland, California 94608-1239
Attn: Vice President, Business Development with
a copy to DNAP Legal Department at same
address
11
<PAGE>
7.2 Choice of Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of California, United States of America,
without giving effect to conflict of law principles.
7.3 Severability
In the event that any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable because it is invalid or in
conflict with any law of any, relevant jurisdiction, the validity of the
remaining provisions shall not be affected, and the rights and obligations of
the parties shall be construed and enforced as if the Agreement did not contain
the particular provision held to be unenforceable, and any provision that is
held not to be enforceable in shall nevertheless be enforceable to the full
extent permitted by law.
7.4 Amendments
No Amendment or modification of this Agreement shall be valid
or binding unless in writing signed by the parties.
7.5 Assignment
Neither party may assign this Agreement without the prior
written consent of the other except to an Affiliate or to an entity acquiring
the party or all of the party's business in the subject area.
7.6 Arbitration
(a) The parties hereby undertake to use good faith efforts to
settle all disputes arising under this Agreement. Failing settlement, all
disputes, including without limitation, claims of breach of contract, fraud in
the inducement and negligence shall be referred to binding arbitration in
Dallas, Texas, if arbitration is initiated by DNAP, or in San Francisco,
California, if the arbitration is initiated by SEMINIS, in accordance with the
Commercial Rules of Arbitration of the American Arbitration Association.
(b) It within seven (7) days after receipt by one party of the
other party's notice of intention to arbitrate, the parties are unable to agree
on a single arbitrator, each party shall have seven (7) days to appoint its own
arbitrator from a list selected by the American Arbitration Association, and the
arbitrators thus chosen shall together, within seven (7) days of their
appointment, appoint a third arbitrator from the list selected by the American
Arbitration Association. If either party fails to appoint its own arbitrator
within the specified period, the arbitrator appointed by the other party shall
be the sole arbitrator. if both parties fail to appoint arbitrators within the
specified period, or if the arbitrators appointed by the parties fail to
12
<PAGE>
appoint a third arbitrator within the specified period, the American Arbitration
Association shall make the appointment. The parties shall use their best efforts
to appoint arbitrators who are knowledgeable in the biotechnology industry. The
decision of the arbitrator(s) shall be final and may be enforced in any court of
competent jurisdiction. The prevailing party in any proceeding shall be
reimbursed by the other party for all expenses incurred in connection with
arbitration.
7.7 No Joint Venture
The parties perform their obligations under this Agreement as
independent contractors and each party shall be solely responsible for its own
financial obligations. Nothing contained in this Agreement shall be construed to
imply a joint venture or principal and agent relationship between the parties
and neither shall have the right to create any obligation, express or implied,
on behalf of the other.
7.8 Counterparts
This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which will constitute one
and the same instrument.
IN WITNESS WHEREOF the parties have executed this Agreement in
duplicate originals as of the date first above written, as evidence by the
signature below of the authorized representatives.
DNA PLANT TECHNOLOGY SEMINIS VEGETABLE
CORPORATION SEEDS, INC.
By: /s/ Bernardo Jimenez By: /s/ Alejandro Rodriguez
--------------------------------- ---------------------------------
Name: Bernardo Jimenez Name: Alejandro Rodriguez
------------------------------- -------------------------------
Title: Chairman of the Board Title: President
------------------------------ ------------------------------
13
<PAGE>
EXHIBIT 10.13
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement, dated as of January 14, 1999
(this "Amendment"), is entered into by and among Bionova International, Inc., a
Delaware corporation ("Investor"), and DNAP Holding Corporation, a Delaware
corporation (the "Company").
Background
The Company and the Investor entered into a Stock Purchase Agreement dated
as of October 1, 1998 (the "Stock Purchase Agreement") pursuant to which the
Investor invested $30,000,000 in the Company to purchase 5,217,391 shares of
common stock, par value $0.01 per share ("Common Stock"), of the Company.
Section 6.2 of the Stock Purchase Agreement generally provides that, subject to
certain conditions, the Company will issue to its stockholders rights (the
"Rights") to purchase shares of Common Stock having the characteristics
described in that section. Section 6.3 of the Stock Purchase Agreement provides,
among other things, that "During the period in which the Rights are exercisable,
the Investor and its affiliates will not make any loan or capital contribution
to the Company until all rights held by the Investor and its affiliates have
been exercised in full" (the "Loan Restriction").
The Loan Restriction was intended to assure that additional capital
received by the Company from the Investor and its affiliates (the "Investor
Parties") would be in the form of capital contributions so that the Company's
total indebtedness to the Investor Parties would not be increased until the
Investor Parties had exercised all of their Rights. The Company and the Investor
Parties desire to convert certain of the Company's indebtedness to the Investor
Parties to a revolving financing arrangement which would allow the Company to
repay funds to the Investor Parties and, if necessary, re-borrow those funds in
the future without violating the Loan Restriction. Though these future
borrowings may occur while the Rights are exercisable, the total amount of
indebtedness to the Investor Parties would not exceed the level contemplated by
the Stock Purchase Agreement and therefore would be consistent with the intent
of the parties to the Stock Purchase Agreement. Therefore, the parties desire to
modify Section 6.3 of the Stock Purchase Agreement to permit a revolving
financing arrangement.
In consideration of the foregoing and the mutual promises and agreements
contained herein, the Company and the Investor agree as follows:
1. The last sentence of Section 6.3 of the Stock Purchase Agreement is
hereby amended to read in its entirety as follows:
During the period in which the Rights are exercisable, the Investor
and its affiliates will not make any New Loan or capital
contribution to the Company until all Rights held by the Investor
and its affiliates have been exercised in full. For purposes of this
Section 6.3, "New Loan" means any loan which would result in the
Company's indebtedness to the Investor and its affiliates to exceed
(x) the amount of such indebtedness immediately following the
Closing minus (y) $13 million.
<PAGE>
2. The Stock Purchase Agreement, as amended by this Amendment, is hereby
ratified and confirmed in all respects as the agreement of the parties and shall
continue in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized representatives as of the day and
year first above written.
DNAP HOLDING CORPORATION BIONOVA INTERNATIONAL, INC.
By: /s/ ARTHUR H. FINNEL By: /s/ BERNARDO JIMENEZ
------------------------------- -------------------------------
Name: Arthur H. Finnel Name: Bernardo Jimenez
Title: Executive Vice President Title: Chief Executive Officer
AMENDMENT TO STOCK PURCHASE AGREEMENT - Page 2
<PAGE>
EXHIBIT 10.14
AMENDMENT TO GOVERNANCE AGREEMENT
This Amendment to Governance Agreement, dated as of January 14, 1999 (this
"Amendment"), is entered into by and among Empresas La Moderna, S.A. de C.V., a
corporation organized under the laws of the United Mexican States ("ELM"), and
DNAP Holding Corporation, a Delaware corporation (the "Company").
Background
WHEREAS, ELM and the Company entered into that certain Governance
Agreement dated as of September 26, 1996 (the "Agreement") in connection with
the merger effected on that date of a wholly-owned subsidiary of the Company
with and into DNA Plant Technology Corporation, a Delaware corporation ("DNAP"),
pursuant to which DNAP became a wholly-owned subsidiary of the Company and the
issued and outstanding shares of capital stock of DNAP were converted into
shares of common stock of the Company; and
WHEREAS, Section 6.02 of the Agreement provides that the Agreement may be
amended by the agreement of the parties, but that such amendment shall not be
effective until it has been approved by a majority of the Independent Directors
(as defined in the Agreement), which approval is also required by Section
1.09(f) of the Agreement; and
WHEREAS, ELM and the Company desire to modify certain provisions of the
Agreement relating to the termination of the Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements contained herein, the parties hereto agree as follows:
1. Section 6.07 of the Agreement is hereby amended to read in its entirety
as follows:
6.07 Termination. Except for the provisions of Article V and
the provisions of ss. 1.10, which provisions shall survive for the
periods set forth therein, this Agreement shall terminate upon the
first to occur of (i) ELM and its Affiliates becoming the beneficial
owner of 100% of the voting stock of the Company, and (ii) the day
immediately preceding the 1999 annual meeting of Company
stockholders, which annual meeting shall be held no earlier than
April 28, 1999.
2. The Agreement, as amended by this Amendment, is hereby ratified and
confirmed in all respects as the agreement of the parties and shall continue in
full force and effect in accordance with its terms.
3. This Amendment shall become effective upon its execution by the parties
and by a majority of the persons serving as Independent Directors as of the date
hereof, who by signing below evidence their approval of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized representatives as of the day and
year first above written.
DNAP HOLDING CORPORATION EMPRESAS LA MODERNA, S.A. DE C.V.
By: /s/ ARTHUR H. FINNEL By: /s/ BERNARDO JIMENEZ
----------------------------- -----------------------------
Arthur H. Finnel Name: Bernardo Jimenez
Executive Vice President Title: Attorney-in-Fact
AMENDMENT TO GOVERNANCE AGREEMENT - 2
<PAGE>
BY SIGNING BELOW, the undersigned, each of whom is an Independent Director
of the Company, evidences his or her approval of this Amendment to the
Agreement.
Date: March 16, 1999 /s/ EVELYN BEREZIN
------------------------------------
Evelyn Berezin
Date: March 17, 1999 /s/ GERALD D. LAUBACH
------------------------------------
Dr. Gerald D. Laubach
Date: March 16, 1999 /s/ CHRISTOPHER SOMERVILLE
------------------------------------
Dr. Christopher R. Somerville
AMENDMENT TO GOVERNANCE AGREEMENT - 3
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
NAME OF JURISDICTION OF
SUBSIDIARY INCORPORATION
- ---------- -------------
DNA Plant Technology Corporation (1) Delaware
DNAP Technologies, Inc. (2) Delaware
FreshWorld Farms, Inc. (2) Delaware
DNAP Diagnostics, Inc. (2) Delaware
VPP Corporation (1) Delaware
International Produce Holding Company (1) Delaware
R.B. Packing, Inc. (3) Arizona
R.B. Packing of California, Inc. (3) California
R.B. Packing of Texas, Inc. (3) Texas
Batiz & Sons, Inc. (3) Arizona
Tanimura Distributing, Inc. (4) California
Premier Fruits & Vegetables BBL, Inc. (5) Quebec, Canada
Agricola Batiz, S.A. de C.V. (6) United Mexican States
Comercializadora Premier, S.A. de C.V. (7) United Mexican States
Interfruver de Mexico, S.A. de C.V. (8) United Mexican States
Premier del Pacifico, S.A. de C.V. (9) United Mexican States
Asesoria y Servicios del Noreste, S.A. de C.V. (9) United Mexican States
Siembra Cultivo y Cosecha del Noroeste, S.A. de C.V. (10) United Mexican States
<PAGE>
(1) Wholly-owned subsidiary of DNAP Holding Corporation
(2) Wholly-owned subsidiary of DNA Plant Technology Corporation
(3) Wholly-owned subsidiary of International Produce Holding Company
(4) 75% owned by International Produce Holding Company
(5) 80% owned by International Produce Holding Company
(6) 80% owned by DNAP Holding Corporation
(7) Wholly-owned subsidiary of Agricola Batiz, S.A. de C.V.
(8) 50.01% owned by Agricola Batiz, S.A. de C.V.
(9) Wholly-owned by Interfruver de Mexico, S.A. de C.V.
(10) 98% owned by Agricola Batiz, S.A. de C.V.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS AT AND FOR THE YEAR ENDED DECEMBER 31, 1998 INCLUDED IN THE
COMPANY'S FORM 10-K ANNUAL REPORT FOR SUCH PERIOD AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,405
<SECURITIES> 0
<RECEIVABLES> 44,039
<ALLOWANCES> 3,633
<INVENTORY> 16,478
<CURRENT-ASSETS> 74,052
<PP&E> 50,600
<DEPRECIATION> 11,989
<TOTAL-ASSETS> 167,686
<CURRENT-LIABILITIES> 120,095
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 41,881
<TOTAL-LIABILITY-AND-EQUITY> 167,686
<SALES> 262,111
<TOTAL-REVENUES> 262,111
<CGS> 235,602
<TOTAL-COSTS> 269,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,982
<INCOME-PRETAX> (15,750)
<INCOME-TAX> 456
<INCOME-CONTINUING> (16,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,605)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
