<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1999
REGISTRATION NO. 333-72141
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SEMINIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
ILLINOIS 0181 36-0769130
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1905 LIRIO AVENUE
SATICOY, CALIFORNIA 93004-4206
ATTN: ALEJANDRO RODRIGUEZ GRAUE
(805) 647-1572
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
IT IS REQUESTED THAT COPIES OF COMMUNICATIONS BE SENT TO:
<TABLE>
<S> <C>
HOWARD S. KELBERG, ESQ. GERALD S. TANENBAUM, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY LLP CAHILL GORDON & REINDEL
ONE CHASE MANHATTAN PLAZA 80 PINE STREET
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10005
(212) 530-5000 (212) 701-3000
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act, check
the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1)(2) REGISTRATION FEE(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock........................ $339,968,750 $94,520
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- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) The shares of Class A Common Stock are not being registered for the purpose
of sales outside of the United States.
(3) $91,920 of which was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated May 27, 1999.
13,750,000 Shares
SEMINIS, INC.
[SEMINIS LOGO]
Class A Common Stock
----------------------
This is an initial public offering of shares of Class A common stock of
Seminis, Inc. This prospectus relates to an offering of 11,000,000 shares in the
United States. In addition, 2,750,000 shares are being offered outside the
United States in an international offering.
Prior to the offering, there has been no public market for the common
stock. It is currently estimated that the initial offering price will be between
$17.50 and $21.50 per share. The shares of Class A common stock have been
approved for listing on the Nasdaq National Market under the symbol "SMNS".
See "Risk Factors" on page 8 to read about factors you should consider
before buying shares of the Class A common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts...................................... $ $
Proceeds, before expenses, to Seminis....................... $ $
</TABLE>
The U.S. underwriters may, under certain circumstances, purchase up to an
additional 1,650,000 shares from Seminis at the initial public offering price
less the underwriting discount. The international underwriters may similarly
purchase up to an aggregate of an additional 412,500 shares.
----------------------
GREENHILL & CO., LLC
has acted as financial advisor to Seminis in connection with the offering.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO. J.P. MORGAN & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
VECTORMEX INCORPORATED
----------------------
Prospectus dated , 1999.
<PAGE> 3
[INSIDE FRONT COVER
Collage of pictures with black background. Larger picture of the globe with
other pictures laying on top. Other pictures include:
- Three open cans of seeds
- Person reviewing illuminated research material above which is the
caption "RESEARCH"
- Person examining vegetables and fruits in laboratory above which is the
caption "NUTRITION"
- Person examining seeds, with farm equipment in background, upon which is
superimposed a pair of hands holding an onion above which is the caption
"GLOBAL SUPPLY"
- Person in greenhouse, upon which is superimposed a person looking
through a microscope along the side of which is the word "DEVELOPING" and
along the bottom at which is the word "SOLUTIONS"
- Two people in field of growing produce along the side of which is the
caption "CREATING VALUE"
- Collection of vegetables and fruits along the side of which is the word
"QUALITY" and along the bottom of which is the word "CONVENIENCE"
- Three infant faces along the side of which is the caption "SUSTENANCE"
Along the bottom of page is the word "SEMINIS".]
<PAGE> 4
[Inside Front Cover Folds Out
Fold out page will have a map of the world. Countries in which Seminis does
business will be highlighted with a color different from all other countries.
The map includes a series of different colored circles indicating the
approximate location of each production, research and distribution/sales sites.
The map contains a legend detailing the following:
Red Circle -- Production Sites
Yellow Circle -- Research Sites
Blue Circle -- Distribution Center/Sales Sites
Circled Number -- Reflects Multiple Sites
Darker Green Square -- Country with Sales
Lighter Green Square -- Unpenetrated Market
Along the bottom of the map is the word "Seminis".]
<PAGE> 5
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the consolidated financial
statements and related notes, before making a decision to purchase our Class A
common stock offered through this prospectus. Please note that the meanings of
certain technical words relating to our business are provided in the glossary
located on page G-1 of this prospectus. All of the brand names and trademarks
appearing in this prospectus are our property, except Asgrow(R), which we have a
license to use, Roundup Ready(R) and SAP/R3(R).
THE COMPANY
Seminis is the largest developer, producer and marketer of vegetable and
fruit seeds in the world. We use seeds as the delivery vehicle for innovative
agricultural technology. We develop seeds designed to do one or more of the
following:
- - reduce the need for chemicals;
- - increase crop yield;
- - reduce spoilage;
- - offer longer shelf life;
- - create tastier foods; and
- - create foods with better nutritional content.
We produce more than 8,000 distinct products covering most species of
vegetables and fruits. We market our seeds through three international brands
with broad product offerings -- Asgrow, Petoseed and Royal Sluis -- and nine
specialty regional brands.
We have established a worldwide presence and a global distribution system.
We market our seeds in over 120 countries and have 70 research and development
stations in 19 countries and production sites in 32 countries. This allows us to
remain close to local markets around the world, adapt our products to any local
climate and meet the preferences of local consumers. In fiscal 1998, we had
approximately $383.8 million in net seed sales. This represents an approximate
19% share of the global commercial vegetable and fruit seed market, which is
generally highly fragmented.
We focus our research and development activities on products that are
likely to have practical market uses, create significant market value, command
premium pricing and capture leading local market share. Our product development
effort focuses on input traits, such as resistance to pests and adverse weather
conditions, and output traits, such as crop yield, color, texture, flavor and
ready-to-eat convenience. Information on these traits is contained in our
germplasm, our key technology asset. Over the last three fiscal years, we have
spent approximately 11% of our net sales, or approximately $132.8 million, on
research and development.
We augment our internal product development efforts with technology
alliances with more than 100 companies, including the Monsanto Company, research
institutions and universities. In the United States and Europe, we currently own
or have pending over 60 patents and patent applications and have protected more
than 360 varieties under plant variety protection laws.
The development of seeds that produce pest-resistant, higher yielding
vegetables and fruits with better nutritional value is of growing importance
because of expected increases in consumption of vegetables and fruits, increased
health consciousness and a steady decline in available arable land. By using
vegetable and fruit seeds that resist diseases and insects, growers will
increase their yield and save significant costs by reducing pesticide use.
Processors and distributors benefit from products with longer shelf-lives which
reduce spoilage. Consumers benefit from healthier, tastier vegetables and fruits
that last longer and offer ready-to-eat convenience. We attempt to enhance our
profitability by expanding the global vegetable and fruit market and capturing a
premium price for the benefit our products create throughout this production and
distribution chain.
3
<PAGE> 6
HISTORY
Seminis was formed in 1994 to consolidate various industry-leading
vegetable and fruit seed brands into one consumer-oriented, agrobiotechnology
company. Our core business was created through the acquisition of the Asgrow
seed business from the Upjohn Company in December 1994 and the subsequent
combination of the Asgrow business with the Petoseed and Royal Sluis businesses
in October 1995. Each of these full-line brands has a long history--Asgrow for
143 years, Petoseed for 49 years and Royal Sluis for 172 years.
We have been at the forefront of the consolidation of the vegetable and
fruit seed industry and have completed nine acquisitions since our formation in
1994. We have historically used acquisitions as a cost efficient way to gain
access to or ownership of key technologies, patents and germplasm collections,
to add developed and proven products to our portfolio and to enter new and
established markets. In fiscal 1998, we completed four acquisitions, including
the purchase of a 50% stake in LSL PlantScience LLC to add a new line of tomato
varieties, the acquisition of two South Korean companies, Hungnong Seed Co.,
Ltd. and Choong Ang Seed Co., Ltd., to enhance our product lines for the Asian
market, and the acquisition of Nath Sluis to broaden our product lines in India.
In November 1998, we completed the acquisition of the vegetable seed business of
Sementes Agroceres S.A., a Brazilian company, to strengthen our presence and
product lines in South America.
Our principal executive offices are located at 1905 Lirio Avenue, Saticoy,
California 93004. Our telephone number is (805)647-1572.
4
<PAGE> 7
THE OFFERING
The following information is based on no shares of Class A common stock
outstanding and 46,074,386 shares of Class B common stock outstanding on the
date of this prospectus. This excludes the 267,181 shares of Class A common
stock issuable upon the exercise of stock options outstanding on the date of
this prospectus and an additional 3,409,969 shares of Class A common stock
reserved as of that date for future issuance under our employee benefit plans.
<TABLE>
<S> <C>
Common Stock Offered by Seminis.............. 13,750,000 shares of Class A common stock
Common Stock to be Outstanding After the
Offering................................... 13,750,000 shares of Class A common stock;
46,074,386 shares of Class B common stock;
59,824,386 total shares of Class A common
stock and Class B common stock; 61,886,886
shares if the underwriters' over-allotment
option is exercised in full
Over-Allotment Option........................ 2,062,500 shares of Class A common stock from
Seminis
Use of Proceeds.............................. To redeem preferred stock and repay certain
indebtedness
Voting Rights................................ Holders of Class B common stock are entitled
to three votes per share and holders of Class
A common stock are entitled to one vote per
share
Nasdaq National Market Symbol................ "SMNS"
</TABLE>
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
Income (loss) from continuing operations available for common stockholders
in fiscal 1998 reflects the optional repurchase by Seminis of a portion of its
mandatorily redeemable common stock at an amount in excess of the redemption
value. Seminis is required to deduct this difference, which totalled $134.3
million, from income (loss) from continuing operations for purposes of
determining income (loss) from continuing operations available for common
stockholders and related per share amounts. The loss from operations in fiscal
1996 includes the write-off of acquired research in-process of $36.7 million in
connection with the Petoseed acquisition. Gross profit in fiscal 1996 includes
the effects of the purchase accounting step-up of the Petoseed and Royal Sluis
inventories in excess of historical value of $60.0 million. Gross profit in
fiscal 1995 includes the effects of the purchase accounting step-up of the
Asgrow inventories in excess of historical value of $11.8 million.
Supplemental pro forma summary consolidated results of operations data for
fiscal 1998 and for the six months ended March 31, 1999 assume the following
transactions occurred effective October 1, 1997:
- - the acquisition of Hungnong;
- - the conversion of $35.9 million of convertible subordinated debt due our
majority stockholder Savia, S.A. de C.V., or Savia, to 1,916,462 shares of
Class B common stock, and the assumed related reduction in interest expense;
- - the application of net proceeds of $250.0 million from the offering of
13,750,000 shares of Class A common stock by Seminis, assuming an initial
public offering price of $19.50 per share, the midpoint of the range set forth
on the cover page of this prospectus, and borrowings of $266.5 million under
Seminis' new $350.0 million credit facility to redeem preferred stock and
repay indebtedness, and the assumed related reduction in preferred stock
dividends and interest expense; and
- - the conversion of 6,771,500 shares of Class B redeemable common stock of
Seminis, Inc., an Illinois corporation and predecessor to Seminis, into
3,385,750 shares of Class B common stock, followed immediately by a
one-for-one stock dividend, and the assumed elimination of both the related
accretion of redemption value and the related excess of repurchase price over
the redemption value for the repurchase of the Class B redeemable common
stock.
Historical data for income (loss) from continuing operations available for
common stockholders reflect deductions for dividends on mandatorily redeemable
preferred stock, for accretion of the redemption value of mandatorily redeemable
common stock and, in fiscal 1998, for the excess of purchase price over
redemption value of the mandatorily redeemable common stock repurchased. These
deductions are not reflected in supplemental pro forma data.
Supplemental pro forma as adjusted summary consolidated balance sheet data
as of March 31, 1999 assume that the application of net proceeds from the
offering and borrowings under the new credit facility, the recapitalization as
described in the third and fourth bulleted items above and the automatic
conversion of Class A preferred stock into Class B preferred stock, occurred
effective March 31, 1999. This data also give effect to borrowings by Seminis of
$473.0 million under its current credit agreement and the repayment of the
current credit agreement from the proceeds of the offering and borrowings under
the new credit facility.
6
<PAGE> 9
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------------------------------------------- SUPPLEMENTAL ------------------- SUPPLEMENTAL
PRO FORMA SIX MONTHS PRO FORMA
NINE MONTHS FISCAL YEAR ENDED FISCAL YEAR ENDED SIX MONTHS
ENDED SEPTEMBER 30, ENDED MARCH 31, ENDED
SEPTEMBER 30, ------------------------------ SEPTEMBER 30, ------------------- MARCH 31,
1995 1996 1997 1998 1998 1998 1999 1999
------------- ---- ---- ---- ------------- ---- ---- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales................... $101,833 $381,398 $379,544 $428,423 $455,987 $222,339 $282,311 $282,311
Gross profit................ 48,916 167,267 229,437 265,617 278,153 137,681 175,700 175,700
Research and development
expenses.................. 14,250 42,300 41,039 49,416 51,700 21,117 31,225 31,225
Selling, general and
administrative expenses... 34,822 134,990 136,438 158,588 169,328 69,966 100,113 100,113
Management fees paid to
Savia..................... -- -- 6,200 8,465 8,465 4,422 -- --
Amortization of intangible
assets.................... 350 14,785 12,394 14,457 21,985 6,115 13,657 13,657
Income (loss) from
operations................ (506) (61,508) 33,366 34,691 26,675 36,061 30,705 30,705
Income (loss) from
continuing operations..... (5,315) (56,085) 11,325 6,762 7,569 17,312 4,086 11,340
Income (loss) from
continuing operations
available for common
stockholders.............. (5,315) (64,418) 2,089 (133,367) 4,569 (119,685) 1,224 9,790
Income (loss) from
continuing operations
available for common
stockholders per common
share, basic and
diluted................... $ (0.18) $ (2.15) $ 0.07 $ (4.23) $ 0.08 $ (3.99) $ 0.03 $ 0.16
Weighted average shares
outstanding, basic and
diluted................... 30,000 30,000 30,000 31,536 58,264 30,000 38,025 59,824
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
PRO FORMA
HISTORICAL AS ADJUSTED
------------------------------------------------------ ------------
AS OF SEPTEMBER 30, AS OF AS OF
------------------------------------------ MARCH 31, MARCH 31,
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....................... $ (22,940) $158,467 $200,792 $272,097 $334,601 $389,976
Total assets.................................... 349,769 632,463 519,673 862,189 983,097 980,189
Intercompany advance from Savia................. -- -- -- -- 20,000 --
Long-term debt.................................. 20 234,356 80,331 394,446 442,572 276,697
Subordinated debt due Savia..................... -- -- -- 35,857 -- --
Mandatorily redeemable stock
Common........................................ -- 114,875 122,111 48,416 49,940 --
Preferred..................................... -- 25,000 25,000 25,000 25,000 25,000
Total stockholders' equity...................... 174,241 112,772 159,681 160,421 230,310 503,022
</TABLE>
7
<PAGE> 10
RISK FACTORS
Before you invest in the shares, you should be aware that there are various
risks, including those described below. You should consider carefully these risk
factors together with all of the other information included in the prospectus
before you decide to purchase the Class A common stock.
COMPANY RISKS
OUR RESEARCH AND DEVELOPMENT MAY NOT BE SUCCESSFUL
Our success is based, in part, upon our ability to discover and develop
new products which customers will want. As a result, we continue to invest in
research and development in order to enable us to identify and develop new
products to meet consumer demands. In fiscal 1998, our investment in research
and development represented 12% of net sales. Despite investments in this area,
our research and development may not result in the discovery or successful
development of new products which will be accepted by our customers.
LOSS OF THE BENEFITS OF LICENSE AND TECHNOLOGY AGREEMENTS COULD HARM OUR
BUSINESS
We have the benefit of license and technology agreements through Savia.
Generally, Savia has the right to provide technology to us as long as we are
controlled by Savia. In the event that Savia no longer controls us, or loses the
right to give technology to us, and we fail to obtain similar technology on our
own, the loss of such technology could have a material adverse effect on our
business, results of operations or financial condition.
SAVIA WILL EFFECTIVELY CONTROL OUR COMPANY
Following the offering, Savia will own approximately 67.9% of our
outstanding common stock and control 80.2% of the vote of our common stock.
Accordingly, Savia will control us and have the power to approve all actions
requiring the approval of our stockholders, including the power to elect all of
our directors. Therefore, Savia will effectively control our management.
SAVIA COLLATERIZED ITS RECENT BORROWINGS WITH SHARES OF OUR COMMON STOCK
Savia recently borrowed money from some financial institutions and pledged
as collateral shares of our common stock which it owns. These pledged shares
constitute 49% of our issued and outstanding common stock prior to the offering.
Savia also placed additional shares of our common stock that it owns into a
trust, which shares constitute 2% of our issued and outstanding shares of common
stock prior to the offering. Upon completion of the offering, Savia will be
required to pledge and put into trust additional shares of common stock to
maintain these percentages. If Savia defaults on its obligations, the lenders
could sell the pledged shares to recover the borrowed money. Upon the
foreclosure of the pledged shares, the shares will automatically convert to
Class A common stock, which only have one vote per share. The sale of the
foreclosed stock could depress the market price of the Class A common stock and
could result in there being a new controlling stockholder.
THE INABILITY TO IDENTIFY AND COMPLETE ACQUISITIONS COULD HARM OUR BUSINESS
We have historically grown through acquisitions and may continue to grow
through strategic acquisitions. We may not be able to identify or acquire
additional businesses, or do so on acceptable terms, to meet our acquisition
strategy.
USING COMMON STOCK FOR FUTURE ACQUISITIONS MAY CAUSE DILUTION OF OUR COMMON
STOCK
The availability of financing for our acquisition efforts cannot be
readily predicted. If we use common stock for future acquisitions, the
purchasers of shares of Class A common stock in the offering may experience
dilution.
8
<PAGE> 11
OUR FAILURE TO ACCURATELY FORECAST AND MANAGE INVENTORY COULD RESULT IN AN
UNEXPECTED SHORTFALL OR SURPLUS OF SEEDS WHICH COULD HARM OUR BUSINESS
We monitor our inventory levels based on our own projections of future
demand. Because of the length of time necessary to produce commercial quantities
of seed, we must make production decisions well in advance of sales. An
inaccurate forecast of demand for any seed variety can result in the
unavailability of seeds in high demand. This may depress sales volumes and
adversely affect customer relationships. Conversely, an inaccurate forecast can
result in an over-supply of seeds which may increase costs, negatively impact
cash flow, reduce the quality of inventory and ultimately create write-offs of
inventory, any of which could have a material adverse effect on our business,
results of operations or financial condition.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY
A substantial portion of our products are hybrid seed varieties which may
be copied through the acquisition of very small quantities of germplasm. A
competitor could obtain our germplasm or information identifying the origin of
our seeds and produce seeds with similar or identical characteristics to those
of our products. Attempting to protect our intellectual property, through
litigation or otherwise, can be time consuming and expensive, have uncertain
results and, in some countries, be ineffective.
A CHANGE IN UNITED STATES LAW PROTECTING PLANT PATENTS COULD TAKE AWAY PATENT
PROTECTION FOR OUR PATENTED SEEDS
In a recent lawsuit in a United States federal court, a party challenged
whether utility patents could cover living plants and seeds. If the court rules
that plants and seeds cannot be protected by patents, we could lose patent
protection for many of our patented seeds, which could have a material adverse
effect on our business, results of operations or financial condition.
WE MAY NOT BE ABLE TO OBTAIN INTELLECTUAL PROPERTY RIGHTS FROM THIRD PARTIES
Our ability to commercialize seed products may depend on whether we have
the right to use applicable technologies. We often use a large number of
technologies to develop a single product. Obtaining the right to use the
technologies can be complicated because:
- - technologies may be subject to proprietary intellectual property rights, many
of which have been patented;
- - pending patent applications, overlapping patent claims and litigation over
issued patents means ownership of technologies is uncertain; and
- - licenses for proprietary technologies may be unavailable on terms acceptable
to us or because exclusive rights to use are given to other companies.
IMPLEMENTATION OF OUR NEW BUSINESS INFORMATION SYSTEM MAY DELAY THE COLLECTION
OF FINANCIAL AND OPERATIONAL INFORMATION
We are currently implementing a new business information system to manage
our financial reporting and operating systems on a worldwide basis. While our
main facilities in California and The Netherlands have been using this system
since July 1998, we are still integrating our other subsidiaries and units. The
collection of operational information on a worldwide basis takes more time and
effort than we formerly experienced, which may delay management decisions on
operational matters.
INDUSTRY RISKS
TECHNOLOGICAL ADVANCES BY OUR COMPETITORS COULD HARM OUR BUSINESS
We face substantial competition due to technological advances by
competitors such as other seed companies, pharmaceutical and chemical companies
and biotechnology companies. Many of these companies have substantially greater
resources than we. If a competitor introduces a competitively successful
product, it could take us a number of years to develop a competitive seed
variety, which could have a material adverse
9
<PAGE> 12
effect on our business, results of operations or financial condition.
BETTER PRICING AND FINANCIAL TERMS OFFERED BY OUR COMPETITORS COULD HARM OUR
BUSINESS
We compete on the basis of pricing and financial terms. From time to time,
our competitors may offer better pricing and financial terms causing our market
share or profitability to decline, which could have a material adverse effect on
our business, results of operations or financial condition.
EXTREME WEATHER CONDITIONS, DISEASE AND PESTS COULD HARM OUR BUSINESS
Seed production is subject to a variety of agricultural risks. Extreme
weather conditions, disease and pests can materially and adversely affect the
quality and quantity of seeds produced. There can be no assurance that these
factors will not affect a substantial portion of our production facilities in
any year and have a material adverse effect on our business, results of
operations or financial condition.
DEFECTIVE SEEDS COULD RESULT IN WARRANTY CLAIMS AND NEGATIVE PUBLICITY
Seeds may contain adverse characteristics that are difficult to detect
prior to their sale and use. The large number of varieties that we produce can
result in deliveries of the wrong type of seed or contamination of one type of
seed by another. Any defects that may be found in our seeds in the future could
result in losses to growers. Losses claimed by growers may include the value of
lost crops, which could greatly exceed the value of the seeds we sell. If we
sell defective or contaminated seeds, large numbers of growers may experience
crop failures during the same growing season. Further, growers may attribute
poor crop yields or crop failure to perceived seed defects that may not exist,
which could still result in claims against us. Any claims, whether valid or not,
could result in negative publicity, which could have a material adverse effect
on our business, results of operations or financial condition.
INSURANCE COVERING WARRANTY CLAIMS MAY BECOME UNAVAILABLE OR BE INADEQUATE
We maintain third-party seedsmen's errors and omissions insurance covering
warranty claims. However, these policies are subject to annual renewal and
revision and have deductibles and coverage limits. As a result, we may not be
offered continued coverage in the future. Even if coverage is offered, it may be
at a price and on terms not acceptable to us. If claims exceed coverage limits,
or insurance is not available to us, the occurrence of significant claims could
have a material adverse effect on our business, results of operations or
financial condition.
GENETICALLY ENGINEERED PRODUCTS MAY NOT BE ACCEPTED BY THE PUBLIC
While less than 1% of our existing products are genetically engineered, we
expect that these products will represent a larger percentage of our sales in
the future. The commercial success of our genetically engineered products will
depend, in part, on public acceptance of the growth and consumption of
genetically engineered plants and plant products. Recently, there has been
much-publicized opposition in Europe to the sale of genetically engineered
products. Claims that genetically engineered plant products are unsafe or pose a
danger to the environment may cause additional negative publicity and influence
public attitudes and governmental regulation, which could have a material
adverse effect on our business, results of operations or financial condition.
GENETICALLY ENGINEERED PRODUCTS MAY BECOME SUBJECT TO ADDITIONAL FUTURE
REGULATION
The field testing, production and marketing of genetically engineered
seeds by us is subject to federal, state, local and foreign governmental
regulation. Regulatory agencies administering existing or future laws may not
allow us to produce and market our genetically engineered products in a timely
manner or under technically or commercially feasible conditions. Regulatory
action or private litigation could result in expenses, delays or other
impediments to our product development programs or the commercial
10
<PAGE> 13
sale of resulting products which could have a
material adverse effect on our business, results of operations or financial
condition.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS AND CONTROLS COULD HARM OUR
BUSINESS
Our products are subject to government regulations and controls such as:
- - national certification requirements;
- - import approval requirements;
- - plant or seed health certifications;
- - labeling regulations; and
- - trade regulations and changes in tariffs.
Governmental agricultural programs that encourage or discourage the
planting of crops may also affect seed demand. Failure to comply with such
regulations could adversely affect our ability to deliver our products on a
competitive and timely basis and have a material adverse effect on our business,
results of operations or financial condition.
OFFERING RISKS
FUTURE SALES OF COMMON STOCK COULD DEPRESS THE PRICE OF OUR CLASS A COMMON STOCK
After this offering, Savia will own 40,615,619 of the outstanding shares
of common stock and our other stockholders owning stock prior to the offering
will own 5,458,767 shares of common stock. A decision by Savia or our other
stockholders to sell this stock could depress the market price of the Class A
common stock.
PURCHASERS OF SHARES OF CLASS A COMMON STOCK IN THE OFFERING WILL EXPERIENCE
SUBSTANTIAL DILUTION
Purchasers of shares of Class A common stock will experience immediate and
substantial dilution of $14.56 in net tangible book value per share, or
approximately 74.7% of the offering price, assuming an initial public offering
price of $19.50 per share, the midpoint of the range set forth on the cover page
of this prospectus. In contrast, existing stockholders paid an average price of
$8.57 per share.
-------------------------
This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "expects," "anticipates," "intends" and "plans" and
similar expressions. Our actual results could differ materially from those
discussed in these statements. Factors that could contribute to such differences
include, but are not limited to, those discussed above and elsewhere in this
prospectus.
11
<PAGE> 14
USE OF PROCEEDS
The net proceeds to Seminis from the offering are estimated to be
approximately $250.0 million, $287.9 million if the underwriters' over-allotment
option is exercised in full, assuming an initial public offering price of $19.50
per share, the midpoint of the range set forth on the cover page of this
prospectus.
Seminis has entered into a commitment letter with the Bank of Montreal and
Harris Trust and Savings Bank providing for an underwritten credit facility for
up to $350.0 million. Seminis anticipates that the funds under the new credit
facility will be available at the time the offering is consummated. Seminis
intends to use the net proceeds of the offering and funds available under the
new credit facility to redeem outstanding shares of preferred stock, repay
indebtedness of Seminis and pay $3.5 million of fees and expenses relating to
its new credit facility.
- - Seminis will redeem 2,000 shares of its Class C preferred stock, which shares
are owned by Savia, for an aggregate redemption price of $20.0 million, plus
accrued dividends.
- - Seminis will repay the following indebtedness:
-- borrowings of $473.0 million under its current credit agreement
comprised of a $28.0 million secured revolving credit note, bearing
interest at the rate of 9.8% per annum as of May 7, 1999 and due June
30, 2000, and a $445.0 million secured term loan, bearing interest at a
rate of 9.8% per annum as of May 7, 1999 and due June 30, 2000, and
-- an intercompany advance of $20.0 million from Savia accruing interest
at the rate of 10.0% per annum.
Seminis entered into its current credit agreement on April 30, 1999. The
proceeds of the current credit agreement were used to repay Seminis' old credit
agreement, to repay a $10.0 million bank demand note and to finance working
capital. The proceeds of the old credit agreement were used to repurchase Class
B mandatorily redeemable common stock of Seminis' predecessor, Seminis, Inc., an
Illinois corporation, acquire the South Korean seed companies Hungnong and
Choong Ang, acquire assets and distribution rights of LSL PlantScience and
acquire assets comprising the Agroceres brand vegetable seed business in Brazil.
The proceeds from the Savia intercompany advance and the bank demand note were
used to finance working capital requirements.
Pending such uses, Seminis may invest the net proceeds in U.S. government
obligations, short-term debt securities and other money market instruments.
DIVIDEND POLICY
Seminis intends to retain future earnings for use in Seminis' business and
does not anticipate declaring or paying any cash dividends on its common stock
in the foreseeable future. Further, any determination to declare and pay cash
dividends will be made by the board of directors of Seminis in light of Seminis'
earnings, financial condition, capital requirements and contractual agreements,
and other factors deemed relevant by the board of directors at that time. In
addition, Seminis' old credit agreement contains, and its new credit facility is
expected to contain, certain restrictive covenants, including covenants that
directly or indirectly prohibit Seminis' ability to pay dividends and make other
distributions.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth, as of March 31, 1999, the consolidated pro
forma capitalization of Seminis giving effect to the recapitalization referred
to in note 16 of the notes to consolidated financial statements of Seminis. The
consolidated supplemental pro forma capitalization of Seminis gives effect to
borrowings by Seminis of $473.0 million under the current credit agreement and
the repayment of its old credit agreement and the bank demand note. Unamortized
loan fees of $4.0 million, net of tax, relating to the old credit agreement were
charged to accumulated deficit. The consolidated supplemental pro forma as
adjusted capitalization of Seminis shows the capitalization after the sale by
Seminis of 13,750,000 shares of Class A common stock offered hereby, assuming an
initial public offering price of $19.50 per share, the midpoint of the range set
forth on the cover page of this prospectus, and borrowings of $266.5 million
under Seminis' new $350.0 million credit facility and the application of the net
proceeds therefrom, as described in "Use of Proceeds," the charge to accumulated
deficit of the unamortized loan fees of $3.3 million, net of tax, relating to
the current credit agreement and the automatic conversion of Class A preferred
stock into Class B preferred stock as if these transactions had occurred on
March 31, 1999.
The unamortized loan fees of $6.4 million relating to the old credit
agreement were charged to results of operations as an extraordinary item of $4.0
million, net of tax, on April 30, 1999. The unamortized loan fees of $5.3
million relating to the current credit agreement will be charged to results of
operations as an extraordinary item of $3.3 million, net of tax, upon repayment
of the current credit agreement using the net proceeds of the offering and
borrowings under the new credit facility.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------
SUPPLEMENTAL
PRO SUPPLEMENTAL PRO FORMA
FORMA PRO FORMA AS ADJUSTED
----- ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Demand note due bank........................ $ 10,000 $ -- $ --
Intercompany advance from Savia............. 20,000 20,000 --
Other short-term borrowings................. 16,869 16,869 16,869
Current maturities of long-term debt........ 24,246 12,396 17,396
--------- --------- ---------
Total short-term debt............... $ 71,115 $ 49,265 $ 34,265
========= ========= =========
LONG-TERM DEBT:
Old credit agreement........................ $ 427,375 $ -- $ --
Current credit agreement.................... -- 473,000 --
New credit facility......................... -- -- 261,500
Other long-term debt........................ 15,197 15,197 15,197
--------- --------- ---------
Total long-term debt................ 442,572 488,197 276,697
--------- --------- ---------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------------
SUPPLEMENTAL
PRO SUPPLEMENTAL PRO FORMA
FORMA PRO FORMA AS ADJUSTED
----- ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
MANDATORILY REDEEMABLE STOCK:
Class A redeemable preferred stock, $.01 par
value; 25 shares authorized; 25 shares
issued and outstanding pro forma, 25
shares issued and outstanding
supplemental pro forma and no shares
issued and outstanding supplemental pro
forma as adjusted........................ $ 25,000 $ 25,000 $ --
--------- --------- ---------
Class B redeemable preferred stock, $.01 par
value; 25 shares authorized; no shares
issued and outstanding pro forma, no
shares issued and outstanding
supplemental pro forma and 25 shares
issued and outstanding supplemental pro
forma as adjusted........................ -- -- 25,000
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Class C preferred stock, $.01 par value; 6
shares authorized; 3 shares issued and
outstanding pro forma, 3 shares issued
and outstanding supplemental pro forma
and 1 shares issued and outstanding
supplemental pro forma as adjusted....... 1 1 1
Class A common stock, $.01 par value; 91,000
shares authorized; no shares issued and
outstanding pro forma, no shares issued
and outstanding supplemental pro forma
and 13,750 shares issued and outstanding
supplemental pro forma as adjusted....... -- -- 138
Class B common stock, $.01 par value; 67,000
shares authorized; 46,074 shares issued
and outstanding pro forma, 46,074 shares
issued and outstanding supplemental pro
forma and 46,074 shares issued and
outstanding supplemental pro forma as
adjusted................................. 461 461 461
Additional paid-in capital.................. 433,873 433,873 663,735
Accumulated deficit......................... (143,215) (147,188) (150,443)
Accumulated other comprehensive loss........ (10,870) (10,870) (10,870)
--------- --------- ---------
Total stockholders' equity.......... 280,250 276,277 503,022
--------- --------- ---------
Total capitalization........... $ 747,822 $ 789,474 $ 804,719
========= ========= =========
</TABLE>
14
<PAGE> 17
DILUTION
Pro forma net tangible book value per share is determined by dividing the
pro forma tangible net book value of Seminis, its total assets less intangible
assets and total liabilities, by the aggregate number of shares of common stock
outstanding after giving effect to the recapitalization and the conversion of
subordinated debt due to Savia referred to in note 16 of the consolidated
financial statements of Seminis. After giving effect to the sale of 13,750,000
shares of Class A common stock by Seminis hereby at an assumed initial public
offering price of $19.50 per share, the midpoint of the range set forth on the
cover page of this prospectus, pro forma net tangible book value of Seminis as
of March 31, 1999 would have been approximately $295.3 million, or $4.94 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.37 per share to the current stockholders of Seminis and an immediate
dilution in pro forma net tangible book value of $14.56 per share to purchasers
of Class A common stock in the offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $19.50
Pro forma net tangible book value per share of common stock
at March 31, 1999......................................... $1.57
Increase in pro forma net tangible book value per share of
common stock attributable to purchasers in the offering... 3.37
-----
Pro forma net tangible book value per share of common stock
after the offering........................................ 4.94
------
Dilution in pro forma net tangible book value per share to
purchasers of Class A common stock in the offering........ $14.56
======
</TABLE>
The following table summarizes, on the pro forma basis described above, as
of March 31, 1999, the number of shares purchased, the total consideration paid
or to be paid and the average price per share paid or to be paid by the existing
stockholders and the purchasers of Class A common stock in the offering, at an
assumed initial public offering price of $19.50 per share, the midpoint of the
range set forth on the cover page of this prospectus, before the deduction of
underwriting discounts and estimated expenses payable by Seminis:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -------
(in thousands, except percentages and per share data)
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 46,074 77.0% $394,686 59.5% $ 8.57
Purchasers of Class A common stock
in the offering................. 13,750 23.0 268,125 40.5 19.50
------ ----- -------- -----
Total........................... 59,824 100.0% $662,811 100.0%
====== ===== ======== =====
</TABLE>
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated results of operations and consolidated balance
sheet data of Seminis as of and for each of the years in the three-year period
ended September 30, 1998 were derived from the audited consolidated financial
statements of Seminis, including the notes thereto, appearing elsewhere in this
prospectus. The selected consolidated results of operations and balance sheet
data of Seminis as of and for the nine months ended September 30, 1995 were
derived from audited financial statements which do not appear in this
prospectus. The selected financial data as of and for the six months ended March
31, 1998 and 1999 are derived from unaudited financial statements of Seminis,
which in the opinion of management includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information set forth therein. Selected financial data for periods prior to
January 1, 1995 and the beginning of Seminis' operations has not been presented,
as such information is not available and cannot be reliably determined. The data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements, including the notes thereto, and unaudited pro forma data
appearing elsewhere in this prospectus.
Income (loss) from continuing operations available for common stockholders
in fiscal 1998 reflects the optional repurchase by Seminis of a portion of its
mandatorily redeemable common stock at an amount in excess of the redemption
value. Seminis is required to deduct this difference, which totalled $134.3
million, from income (loss) from continuing operations for purposes of
determining income (loss) from continuing operations available for common
stockholders and related per share amounts. The loss from operations in fiscal
1996 includes the write-off of acquired research in-process of $36.7 million in
connection with the Petoseed acquisition. Gross profit in fiscal 1996 includes
the effects of the purchase accounting step-up of the Petoseed and Royal Sluis
inventories in excess of historical value of $60.0 million. Gross profit in
fiscal 1995 include the effects of the purchase accounting step-up of the Asgrow
inventories in excess of historical value of $11.8 million.
Supplemental pro forma summary consolidated results of operations data for
fiscal 1998 and the six months ended March 31, 1999 assume that the following
transactions occurred effective October 1, 1997:
- - the acquisition of Hungnong;
- - the conversion of $35.9 million of convertible subordinated debt due to Savia
to 1,916,462 shares of Class B common stock, and the assumed related reduction
in interest expense;
- - the application of net proceeds of $250.0 million from the offering of
13,750,000 shares of Class A common stock by Seminis assuming an initial
public offering price of $19.50 per share, the midpoint of the range set forth
on the cover page of this prospectus, and borrowings of $266.5 million under
Seminis' new $350.0 million credit facility to redeem preferred stock and
repay indebtedness and the assumed related reduction in preferred stock
dividends and interest expense; and
- - the conversion, of 6,771,500 shares of Class B redeemable common stock of
Seminis, Inc., an Illinois corporation and predecessor to Seminis, into
3,385,750 shares of Class B common stock, followed immediately by a
one-for-one stock dividend, and the assumed elimination of both the related
accretion of redemption value and the related excess of repurchase price over
the redemption value for the repurchase of the Class B redeemable common
stock.
Historical data for income (loss) from continuing operations available for
common stockholders reflect deductions for dividends on preferred stock,
mandatorily redeemable preferred stock, for accretion of the redemption value of
mandatorily redeemable common stock and, in fiscal 1998, for the
16
<PAGE> 19
excess of purchase price over redemption value of the mandatorily redeemable
common stock repurchased. These deductions are not reflected in supplemental pro
forma data.
Supplemental pro forma as adjusted summary consolidated balance sheet data
as of March 31, 1999 assume that the application of net proceeds from the
offering and borrowings under the new credit facility, the recapitalization
described in the third and fourth bulleted items above, and the automatic
conversion of Class A preferred stock into Class B preferred stock, occurred
effective March 31, 1999. This data also give effect to borrowings by Seminis of
$473.0 million under its current credit agreement and the repayment of the
current credit agreement from the proceeds of the offering and borrowings under
the new credit facility.
ACQUISITIONS AND EFFECTS OF PURCHASE ACCOUNTING. Seminis was formed in 1994 to
consolidate various industry-leading vegetable and fruit seed brands into one
consumer-oriented, agrobiotechnology company. Seminis' core business was created
through the acquisition of the Asgrow seed business from the Upjohn Company in
December 1994 and the subsequent combination of the Asgrow vegetable and fruit
seed business with the Petoseed and Royal Sluis businesses in October 1995. In
fiscal 1998, Seminis completed four acquisitions, including the purchase of a
50% stake in LSL PlantScience, the acquisition of two South Korean companies,
Hungnong and Choong Ang, and the acquisition of Nath Sluis. In November 1998,
Seminis completed the acquisition of the vegetable seed business of Agroceres, a
Brazilian company. As a result of these transactions, the results of operations
and consolidated financial position reflect the effects of purchase accounting,
as more fully described above.
17
<PAGE> 20
<TABLE>
<CAPTION>
SUPPLEMENTAL SUPPLEMENTAL
HISTORICAL
HISTORICAL --------------------
----------------------------------------------- PRO FORMA SIX MONTHS PRO FORMA
NINE MONTHS FISCAL YEAR ENDED SIX MONTHS
ENDED FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31, ENDED
SEPTEMBER 30, ------------------------------- SEPTEMBER 30, -------------------- MARCH 31,
1995 1996 1997 1998 1998 1998 1999 1999
------------- ---- ---- ---- ------------- ---- ---- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales................. $101,833 $381,398 $379,544 $ 428,423 $455,987 $ 222,339 $282,311 $282,311
Gross profit.............. 48,916 167,267 229,437 265,617 278,153 137,681 175,700 175,700
Research and development
expenses................. 14,250 42,300 41,039 49,416 51,700 21,117 31,225 31,225
Selling, general and
administrative expenses.. 34,822 134,990 136,438 158,588 169,328 69,966 100,113 100,113
Management fees paid to
Savia.................... -- -- 6,200 8,465 8,465 4,422 -- --
Amortization of intangible
assets................... 350 14,785 12,394 14,457 21,985 6,115 13,657 13,657
Income (loss) from
operations............... (506) (61,508) 33,366 34,691 26,675 36,061 30,705 30,705
Income (loss) from
continuing operations.... (5,315) (56,085) 11,325 6,762 7,569 17,312 4,086 11,340
Income (loss) from
continuing operations
available for common
stockholders............. (5,315) (64,418) 2,089 (133,367) 4,569 (119,685) 1,224 9,790
Income (loss) from
continuing operations
available for common
stockholders per common
share, basic and
diluted.................. $ (0.18) $ (2.15) $ 0.07 $ (4.23) $ 0.08 $ (3.99) $ 0.03 $ 0.16
Weighted average shares
outstanding, basic and
diluted.................. 30,000 30,000 30,000 31,536 58,264 30,000 38,025 59,824
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
PRO FORMA
HISTORICAL AS ADJUSTED
------------------------------------------------------ ------------
AS OF SEPTEMBER 30, AS OF AS OF
------------------------------------------ MARCH 31, MARCH 31,
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (22,940) $158,467 $200,792 $272,097 $334,601 $389,976
Total assets.............................................. 349,769 632,463 519,673 862,189 983,097 980,189
Intercompany advance from Savia........................... -- -- -- -- 20,000 --
Long-term debt............................................ 20 234,356 80,331 394,446 442,572 276,697
Subordinated debt due Savia............................... -- -- -- 35,857 -- --
Mandatorily redeemable stock
Common................................................... -- 114,875 122,111 48,416 49,940 --
Preferred................................................ -- 25,000 25,000 25,000 25,000 25,000
Total stockholders' equity................................ 174,241 112,772 159,681 160,421 230,310 503,022
</TABLE>
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and consolidated financial statements,
including the notes thereto, appearing elsewhere in this prospectus. The
following discussion and analysis contains certain "forward-looking statements"
which are subject to certain risks, uncertainties and contingencies, including,
but not limited to, those set forth under the heading "Risk Factors", which
could cause Seminis' actual business, results of operations or financial
condition to differ materially from those expressed in, or implied by, such
statements.
OVERVIEW
Seminis is the largest developer, producer and marketer of vegetable and
fruit seeds in the world. Seminis uses seeds as the delivery vehicle for its
innovative agricultural technology. Seminis develops seeds designed to do one or
more of the following: reduce the need for chemicals, increase crop yield,
reduce spoilage, offer longer shelf life and create tastier foods with better
nutritional content. As a result, Seminis is creating the foundation to obtain
premium pricing at all steps of the vegetable and fruit production and
distribution chain: growers, distributors, processors, retailers and end-
consumers.
Seminis produces more than 60 species and 8,000 distinct varieties of
vegetable and fruit seeds. Seminis markets its seeds through three full-line
brands -- Asgrow, Petoseed and Royal Sluis -- and nine specialty brands.
Seminis was formed in 1994 to consolidate various industry-leading
vegetable and fruit seed brands into one consumer-oriented, agrobiotechnology
company. Its core business was created through the acquisition of the Asgrow
seed business from the Upjohn Company in December 1994 and the subsequent
combination of the Asgrow business with the Petoseed and Royal Sluis businesses
in October 1995. Each of these full-line brands has a long history -- Asgrow for
143 years, Petoseed for 49 years and Royal Sluis for 172 years. In January 1997,
in order to focus on more profitable vegetable and fruit seed production,
Seminis sold its Asgrow agronomics business to Monsanto. In the summer of 1998,
Seminis acquired, for an aggregate of approximately $163.1 million, a 50%
interest in LSL PlantScience and the distribution rights for specific varieties
of long shelf life tomatoes and 70% of Hungnong and 100% of Choong Ang, both
South Korean organizations. Seminis' consolidated financial statements include
the results of operations of these companies since their acquisition.
In order to achieve its position as the premier vegetable and fruit seed
company, Seminis has completed nine acquisitions since its formation in 1994 and
has incurred significant expenses related to the development of its
infrastructure, including its human resource capability, information systems and
brand marketing teams, and its research and development capability. Seminis
expenses its investments in research and development and in the creation of its
worldwide sales capability. The comparability of Seminis' results of operations
from year to year has also been affected by the impact of acquisition accounting
under purchase accounting principles, write-offs of in-process research and
development projects acquired through acquisitions, interest expense
attributable to acquisition financings, exposure to foreign currency
fluctuations and charges for management fees paid to Savia.
RESULTS OF OPERATIONS
The table below sets forth Seminis' results of operations data expressed
as a percentage of net sales. In fiscal 1996, gross profit before the effects of
purchase accounting would have been 59.6% of net sales.
19
<PAGE> 22
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
----------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Gross profit.................................... 43.9 60.5 62.0 61.9 62.2
Research and development expenses............... 11.1 10.8 11.5 9.5 11.1
Selling, general and administrative expenses.... 35.4 35.9 37.0 31.5 35.5
Management fees paid to Savia................... -- 1.6 2.0 2.0 --
Amortization of intangible assets............... 3.9 3.4 3.4 2.7 4.7
Write-off of acquired research in-process....... 9.6 -- -- -- --
----- ----- ----- ----- -----
Income (loss) from operations................... (16.1) 8.8 8.1 16.2 10.9
Interest expense, net........................... (6.3) (2.8) (6.3) (4.1) (8.4)
Other non-operating income (loss), net.......... (0.5) (2.0) 0.6 (0.1) (0.1)
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes.................................. (22.9) 4.0 2.4 12.0 2.4
Income tax benefit (expense).................... 8.2 (1.0) (0.8) (4.2) (1.0)
----- ----- ----- ----- -----
Income (loss) from continuing operations........ (14.7) 3.0 1.6 7.8 1.4
Income from and gain on disposal of discontinued
operations.................................... 1.6 13.4 -- -- --
----- ----- ----- ----- -----
Net income (loss)............................... (13.1)% 16.4% 1.6% 7.8% 1.4%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1999 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1998
NET SALES
Net sales increased 27.0% to $282.3 million for the six months ended March
31, 1999 from $222.3 million for the six months ended March 31, 1998. The sales
increase was primarily due to $33.7 million in sales generated by the newly
acquired South Korean subsidiaries, Hungnong and Choong Ang, which were acquired
in July 1998. The balance of the increase reflected higher net sales mainly
through increases in volume in all geographic regions and for each of our major
brands -- Asgrow, Petoseed and Royal Sluis.
GROSS PROFIT
Gross profit increased 27.6% to $175.7 million for the six months ended
March 31, 1999 from $137.7 million for the six months ended March 31, 1998.
Gross margin increased to 62.2% for the six months ended March 31, 1999 from
61.9% for the six months ended March 31, 1998. This increase in gross margin was
primarily due to an increase in sales of higher margin, long shelf-life tomato
seeds and a decrease in sales of lower margin varieties to food processors in
North America.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 47.9% to $31.2 million for the
six months ended March 31, 1999 from $21.1 million for the six months ended
March 31, 1998. This increase was primarily due to $3.2 million of expenses
incurred by the newly acquired South Korean subsidiaries and a $2.1 million
charge as the first of three equal planned installments of Seminis' research
incentive program, the next two installments of which are due in the fourth
20
<PAGE> 23
quarter of fiscal 1999 and the first quarter of fiscal 2000. This incentive
program is a part of Seminis' continuing efforts to attract and retain industry
leading breeders and research personnel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 43.1% to $100.1
million for the six months ended March 31, 1999 from $70.0 million for the six
months ended March 31, 1998. Selling expenses increased primarily due to
acquisitions, establishment of a worldwide marketing force, the implementation
of a multi-brand sales strategy in the Middle East and the addition of new
direct sales programs in both South America and Eastern Europe. General and
administrative expenses increased due to the expensing of costs of the SAP/R3(R)
management information system, acquisitions and increased investment in our
management information systems infrastructure. Management believes that the
increase of selling, general and administrative expenses as a percentage of net
sales for the six months ended March 31, 1999 as compared with the prior period
was necessary to enhance Seminis' future growth and organizational efficiency.
MANAGEMENT FEES PAID TO SAVIA
The management fee paid to Savia was $4.4 million for the six months ended
March 31, 1998. This fee was discontinued effective October 1, 1998.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased 123.3% to $13.7 million for
the six months ended March 31, 1999 from $6.1 million for the six months ended
March 31, 1998. This increase was due to amortization of goodwill and intangible
assets relating to the acquisitions of Hungnong, Choong Ang and LSL PlantScience
in July 1998 and the acquisition of Agroceres in November 1998.
INTEREST EXPENSE, NET
Interest expense, net, increased 155.2% to $23.7 million for the six
months ended March 31, 1999 from $9.3 million for the six months ended March 31,
1998. This increase was primarily due to increased borrowings used to finance
the repurchase of shares of common stock in January 1998 for $211.8 million, to
finance acquisitions and to support working capital requirements, and due to
higher interest rates under Seminis' existing credit facility.
OTHER NON-OPERATING INCOME (LOSS), NET
Seminis had other non-operating loss, net, of $0.2 million for both the
six months ended March 31, 1999 and March 31, 1998. Non-operating loss, net,
recorded in the six months ended March 31, 1999 includes a foreign currency gain
of $1.7 million which was more than offset by a minority interest provision of
$1.6 million, reflecting primarily the minority interest in Hungnong, and other
non-operating losses of $0.3 million. The foreign currency gain is primarily due
to a gain on an intercompany loan to Hungnong.
INCOME TAX BENEFIT (EXPENSE)
Income tax expense decreased 70.1% to $2.8 million for the six months
ended March 31, 1999 from $9.3 million for the six months ended March 31, 1998.
Seminis' effective tax rate was 40.4% for the six months ended March 31, 1999
compared to 34.9% for the six months ended March 31, 1998. The increase in the
effective tax rate was primarily due to increased minority interest expense,
which is not deductible for tax purposes.
NET INCOME (LOSS)
Net income decreased 76.4% to $4.1 million for the six months ended March
31, 1999 from $17.3 million for the six months ended March 31, 1998. This
decrease was primarily due to increased operating expenses, including a
significant increase in the amortization of intangible assets, and interest
expense, net.
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<PAGE> 24
YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1997
NET SALES
Net sales increased 12.9% to $428.4 million in fiscal 1998 from $379.5
million in fiscal 1997. Of the $48.9 million increase, $17.2 million was due to
sales generated by companies acquired during fiscal 1998. The balance of the
increase was primarily due to increased Petoseed brand sales in all geographic
regions and increased Asgrow brand sales to food processors in North America.
GROSS PROFIT
Gross profit increased 15.8% to $265.6 million in fiscal 1998 from $229.4
million in fiscal 1997. Gross margin increased to 62.0% in fiscal 1998 from
60.5% in fiscal 1997. The increase in gross profit was primarily due to
increased gross profit in Brazil that resulted from the replacement of an
independent distributor with Seminis' own direct sales force and lower
provisions for seed claims because of improved quality assurance and expanded
seedsman's errors and omissions insurance coverage worldwide. The increase in
gross margin was partially offset by an increase in sales to food processors in
North America and wholesalers in Northern Europe, which bear lower margins.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 20.4% to $49.4 million in
fiscal 1998 from $41.0 million in fiscal 1997. This increase was due to
expansion of breeding programs to support Seminis' brand marketing strategy and
increased biotechnology costs including increased expenditures in Seminis'
molecular marker program and increased costs associated with third-party
technology. The increase was, to a lesser extent, associated with increased
costs to support new research stations in Spain and Turkey, as well as newly
acquired research stations in South Korea and India.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 16.2% to $158.6
million in fiscal 1998 from $136.4 million in fiscal 1997. This increase was
part of our continuing investment in building Seminis' infrastructure, including
costs associated with brand marketing, implementation of the SAP/R3(R)
management information system, creation of a human resources function and
expansion of quality assurance programs. The increase was also, to a lesser
extent, due to specific allowances for receivables from Eastern Europe, Jordan
and South Korea. The allowance for doubtful accounts increased to 8.4% of gross
receivables in 1998 from 6.9% of gross receivables in 1997. Based on Seminis'
ongoing evaluations of its customers' financial condition, the increase in
allowance is not expected to continue.
MANAGEMENT FEES PAID TO SAVIA
The management fee paid to Savia increased 36.5% to $8.5 million in fiscal
1998 from $6.2 million in fiscal 1997. The management fee was discontinued
effective October 1, 1998.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased 16.6% to $14.5 million in
fiscal 1998 from $12.4 million in fiscal 1997. This increase was due to the
amortization of goodwill and other intangibles relating to the July 1998
Hungnong and Choong Ang acquisitions.
INTEREST EXPENSE, NET
Interest expense, net, increased 157.0% to $27.1 million in fiscal 1998
from $10.5 million in fiscal 1997. This increase was primarily due to higher
interest rates and increased borrowings used to fund the repurchase of shares of
mandatorily redeemable common stock in January 1998 for $211.8 million, to
finance acquisitions and to support working capital requirements.
OTHER NON-OPERATING INCOME (LOSS), NET
Seminis had other non-operating income, net, of $2.6 million in fiscal
1998 as
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<PAGE> 25
compared to other non-operating loss, net, of $7.7 million in fiscal 1997. The
other non-operating income, net, in fiscal 1998 was primarily due to currency
gains on intercompany loans to Seminis' subsidiaries. The other non-operating
loss, net, in fiscal 1997 was primarily due to currency losses on intercompany
loans to Seminis' subsidiaries.
INCOME TAX BENEFIT (EXPENSE)
Seminis' income tax expense decreased 10.5% to $3.4 million in fiscal 1998
from $3.8 million in fiscal 1997 due to lower taxable income. Seminis' effective
tax rate was 33.7% in fiscal 1998 compared to 25.3% in fiscal 1997. The increase
in the effective tax rate was primarily due to an increase in goodwill
amortization which is non-deductible for tax purposes.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income from continuing operations decreased to $6.8 million in fiscal 1998
from $11.3 million in fiscal 1997. This decrease was primarily due to an
increase in the net interest expense of $16.5 million and an increase in the
management fee paid to Savia of $2.3 million.
NET INCOME (LOSS)
Net income decreased to $6.8 million in fiscal 1998 from $62.2 million in
fiscal 1997. This decrease was principally due to the $48.3 million after-tax
gain on the sale of the Seminis' agronomics business in January 1997.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996
NET SALES
Net sales decreased by 0.5% to $379.5 million in fiscal 1997 from $381.4
million in fiscal 1996. Net sales, excluding the effect of currency
translations, increased 4.0% during this period, largely as a result of
increased sales to the Middle East region and also increased Incotec sales in
Northern Europe. Incotec is a Seminis subsidiary that provides seed enhancement
technology to the seed industry. This increase was more than offset by the
effects of currency translation in fiscal 1997 when the U.S. dollar was stronger
relative to fiscal 1996.
GROSS PROFIT
Gross profit increased 37.2% to $229.4 million in fiscal 1997 from $167.3
million in fiscal 1996. Gross margin increased to 60.5% in fiscal 1997 from
43.9% in fiscal 1996. Fiscal 1996 results were adversely impacted by purchase
accounting adjustments of $60.0 million relating to inventories acquired in the
Petoseed acquisition. Excluding the effects of purchase accounting, gross profit
in fiscal 1996 would have been $227.3 million. The slight increase in gross
profit is primarily due to the increase in higher margin Incotec sales.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 3.0% to $41.0 million in
fiscal 1997 from $42.3 million in fiscal 1996 primarily due to Seminis'
consolidation of its European research facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 1.1% to $136.4
million in fiscal 1997 from $135.0 million in fiscal 1996. This increase was
primarily due to expanded quality assurance testing programs.
MANAGEMENT FEES PAID TO SAVIA
The management fee paid to Savia in fiscal 1997 was $6.2 million and no
management fee was paid in fiscal 1996.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets decreased 16.2% to $12.4 million in
fiscal 1997 from $14.8 million in fiscal 1996. This decrease was due to use of a
declining balance amortization method.
WRITE-OFF OF ACQUIRED RESEARCH IN-PROCESS
In connection with the Petoseed and Royal Sluis acquisitions in 1996,
$36.7 million of the purchase price was allocated to in-process research and
development projects that had not reached technological feasibility
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<PAGE> 26
and had no probable alternative future uses, which the Company expensed at the
date of acquisition. There were no acquisitions in 1997 which resulted in
write-offs of acquired research in-process.
INTEREST EXPENSE, NET
Interest expense, net, decreased 56.2% to $10.5 million in fiscal 1997
from $24.1 million in fiscal 1996. This decrease was primarily due to the
repayment of debt using the proceeds from the January 1997 sale of Seminis'
agronomics business.
OTHER NON-OPERATING INCOME (LOSS), NET
Other non-operating loss, net, increased 302.8% to $7.7 million in fiscal
1997 from $1.9 million in fiscal 1996. This increase was primarily due to
currency losses on intercompany loans to Seminis' subsidiaries.
INCOME TAX BENEFIT (EXPENSE)
For continuing operations Seminis' income tax expense increased to $3.8
million in fiscal 1997 from a benefit of $31.4 million in fiscal 1996. Seminis'
effective tax rate was 25.3% in fiscal 1997. In fiscal 1996, Seminis realized a
tax benefit from its pre-tax loss from continuing operations.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Seminis had income from continuing operations of $11.3 million in fiscal
1997 as compared to a loss from continuing operations of $56.1 million in fiscal
1996. This change was due primarily as a result of the previously described
purchase accounting adjustments combined with reduced interest expense.
NET INCOME (LOSS)
Net income was $62.2 million in fiscal 1997 as compared to a net loss of
$50.0 million in fiscal 1996. This change was due to the application of purchase
accounting adjustments of $60.0 million and a write-off of $36.7 million for
acquired research in-process relating to the acquisition of Petoseed and Royal
Sluis in the first quarter of fiscal 1996 and a gain of $48.3 million on the
sale of Seminis' agronomics business in the second quarter of fiscal 1997.
SEASONALITY
The seed business is highly seasonal. Generally, net sales are highest in
the second fiscal quarter due to increased demand from northern hemisphere
growers who plant seed in the early spring. Seminis recorded 35.2% of its fiscal
1998 net sales during its second fiscal quarter. Seminis has historically
operated at a loss the first and third fiscal quarters due to lower sales during
such quarters and Seminis expects to incur a net loss in the third quarter of
fiscal 1999. Seminis' results in any particular quarter should not be considered
indicative of those to be expected for a full year.
The following table sets forth results of operations data for the last ten
fiscal quarters. Income (loss) from continuing operations includes management
fees paid to Savia which began in the second quarter of fiscal 1997 and
continued through the quarter ended September 30, 1998.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------
FISCAL 1997 FISCAL 1998 FISCAL 1999
-------------------------------------- --------------------------------------- -------------------
DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $63,459 $139,654 $81,129 $95,302 $71,395 $150,944 $92,817 $113,267 $ 84,861 $197,450
Gross profit............ 39,237 86,671 44,942 58,587 44,045 93,636 55,341 72,595 53,010 122,690
Income (loss) from
continuing operations.. (6,943) 18,561 (3,797) 3,504 (6,112) 23,424 (5,790) (4,760) (18,399) 22,485
</TABLE>
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<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Seminis has historically relied on commercial bank borrowings to finance
its operations and internal infrastructure, on commercial bank borrowings and
equity investments by its stockholders to finance its acquisition and internal
investment program and loans from Savia to finance working capital requirements.
Net cash used in operating activities increased to $25.7 million in fiscal
1998 from $3.0 million in fiscal 1997 mainly to support increased inventory
levels. Capital expenditures increased to $28.5 million in fiscal 1998 from
$19.3 million in fiscal 1997. The increase was due to increased investment in
greenhouse production facilities and research equipment technologies and
facilities.
Seminis has budgeted capital expenditures for fiscal 1999 of approximately
$50.0 million, including $16.0 million for a new office and operating facility
in Oxnard, California, and $11.0 million for investments in research and
development facilities and equipment. While Seminis is always exploring
acquisition opportunities, it has not designated any of its capital budget for
acquisitions. Although not part of its capital budget, Seminis paid $19.5
million for the November 1998 Agroceres acquisition and $8.6 million for the
December 1998 purchase of 5% of the shares of Hungnong.
In January 1997, Seminis sold its Asgrow agronomics business for $240.0
million to provide greater focus on its core vegetable and fruit seed business.
The proceeds of the sale were used to repay long-term debt. In January 1998,
Seminis repurchased shares of mandatorily redeemable common stock for $211.8
million. Seminis entered into its old credit agreement in order to finance the
repurchase. In July 1998, Savia and two of its affiliates made additional equity
investments of $138.2 million. The proceeds of the stock issuance and the
proceeds from an additional $75.0 million borrowing provided by an amendment to
the term-loan provisions of the old credit agreement were used to finance the
acquisition of Hungnong and Choong Ang, to advance working capital to the
acquired companies, to purchase a 50% interest in LSL PlantScience and to reduce
outstanding revolving debt borrowings.
As part of the acquisition of its 70% interest in Hungnong, Seminis gave
Savia a convertible subordinated note in exchange for a loan of approximately
$35.9 million to provide financing for an unrelated company, Young Il Chemical
Company, owned by the minority shareholders of Hungnong. Seminis received a note
receivable for $35.6 million from Young Il Chemical, which is secured by common
stock owned by the minority shareholders representing a 25% interest in
Hungnong. The convertible note to Savia was converted by Savia into 1,916,462
shares of Class B common stock on February 1, 1999.
Seminis' total indebtedness as of September 30, 1998 was $456.9 million,
of which $384.5 million was borrowings under the old credit agreement, $35.9
million was the subordinated debt borrowing from Savia, $18.3 million was
borrowings by the newly acquired South Korean subsidiaries and $18.2 million was
borrowings primarily by other foreign subsidiaries. The old credit agreement
consisted of a $75.0 million revolver portion and term credits of $370.5 million
as of September 30, 1998. As of September 30, 1998, Seminis had borrowed $14.0
million under the revolver, leaving $61.0 million in available borrowings.
In December 1998, Savia made an equity investment in Seminis of $10.0
million in exchange for 1,000 shares of Class C preferred stock to finance the
purchase of shares of Hungnong which Seminis was obligated to purchase from the
minority shareholders of Hungnong in connection with the acquisition of
Hungnong. In March 1999, Savia made an additional equity investment of $20.0
million in exchange for 2,000 shares of Class C preferred stock to finance
working capital requirements.
Seminis borrowed an additional $20.0 million from Savia in January 1999 as
an intercompany advance. The intercompany advance was used to finance working
capital requirements. Seminis entered into its current credit agreement on April
30, 1999, which
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<PAGE> 28
includes a $445.0 million term loan and a
$28.0 million revolving credit facility. The proceeds of the current credit
agreement were used to repay the old credit agreement, to repay a $10.0 million
bank demand note and to finance working capital.
Seminis' total indebtedness as of March 31, 1999 was $513.7 million, of
which $439.2 million was borrowings under the old credit agreement, $20.0
million was an intercompany advance from Savia, $10.0 million was borrowings
under a bank demand note, $20.7 million was borrowings by the newly acquired
South Korean subsidiaries and $23.8 million was borrowings primarily by other
foreign subsidiaries. Seminis incurred additional indebtedness of $23.8 million
as a result of entering into the current credit agreement on April 30, 1999.
The old credit agreement placed and the current credit agreement places
limits on dividends, foreign debt, leasing, capital expenditures and
acquisitions and also required Seminis to meet quarterly financial ratio
covenants including fixed charge coverage and minimum net worth. In February
1999, Seminis and the lenders under the old credit agreement entered into a
waiver and amendment of the old credit agreement to waive compliance with the
debt coverage ratio covenant for the periods ended December 31, 1998 and March
31, 1999. In March 1999, Seminis and the same lenders entered into a waiver and
amendment of the fixed charge coverage ratio covenant for the periods ended
December 31, 1998 and March 31, 1999. The borrowings under the old credit
agreement and the bank demand note were repaid on April 30, 1999 with the
proceeds of the current credit agreement. The current credit agreement will be
repaid with the proceeds of this offering and borrowings under the new credit
facility.
On May 6, 1999, Seminis entered into a commitment letter with Bank of
Montreal and Harris Trust and Savings Bank providing for an underwritten credit
facility. Seminis anticipates that the new credit facility will be for $350.0
million, consisting of a term loan in the amount of $200.0 million and a
revolving line of credit in the amount of $150.0 million. The term loan will
amortize semi-annually with the balance due on June 30, 2004 and the revolving
line of credit will mature on June 30, 2004. Seminis anticipates that the new
credit facility will bear interest in accordance with a grid pricing formula
based on the achievement of a specific debt ratio, with such interest ranging
from the prime rate to the prime rate plus 0.5%, or, at the option of Seminis,
ranging from LIBOR plus 1.25% to LIBOR plus 2.0%. Seminis will also pay
commitment fees quarterly on the unused amount of the revolver.
Seminis expects the new credit facility to contain a number of financial
covenants, including net worth and indebtedness tests, and limitations on its
ability to make acquisitions, transfer or sell assets, create liens, pay
dividends, enter into transactions with its affiliates or enter into a merger,
consolidation or sale of substantially all of its assets or take other actions.
The new credit facility may be secured, depending upon the amount of net
proceeds of the offering and Seminis' debt ratio after the offering. Seminis
also expects that its new credit facility will provide for events of default
typical of facilities of its type, as well as an event of default if Pulsar
Internacional, S.A. de C.V., together with its affiliates, which includes Savia,
fails to hold a majority of the board of directors or direct the management of
Seminis or control at least 51% of the voting rights of Seminis.
Under Seminis' new $350.0 million credit facility, Seminis anticipates
borrowings of $266.5 million as of the closing of this offering. Seminis
currently believes that the cash proceeds from the offering, together with
existing cash balances and available borrowings under the new credit facility,
will be sufficient to meet anticipated cash requirements for the foreseeable
future based on Seminis' current level of operations. There can be no assurance
that additional capital beyond the amounts currently forecasted by Seminis will
not be required or that any such required additional capital will be available
on reasonable terms, if at all, at such time as required by Seminis.
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<PAGE> 29
Seminis' exposure to foreign currency fluctuations is primarily foreign
currency gains or losses that occur from intercompany loans between Seminis and
its foreign subsidiaries. The only material hedging contract to which Seminis or
any of its subsidiaries is a party is a contract executed in December 1998 to
hedge approximately $31.3 million of a $48.0 million loan taken by SVS Holland
B.V., a subsidiary of Seminis, which loan was in United States dollars. SVS
Holland B.V. entered into the hedging contract in order to reduce the exposure
to foreign currency fluctuations because SVS Holland's functional currency is
the Dutch Guilder.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue involves the potential for system and processing
failures of date-related information resulting from computer-controlled systems
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software 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, an inability to process transactions, send invoices or engage in similar
normal business activities.
Seminis is currently installing a new corporate-wide management
information system to coordinate all aspects of sales, marketing, distribution,
production and finance, which is Year 2000 compliant. Seminis is focusing its
effort for Year 2000 compliance on the verification of existing systems.
Seminis' business applications will be compliant by July 1999 in its two main
facilities in the United States and The Netherlands. Seminis' remaining
subsidiaries will be Year 2000 compliant by November 1999, with its worldwide
telecommunications systems compliant by August 1999 and its office software
compliant by November 1999. Seminis' computer hardware, such as servers for
business applications, are also currently Year 2000 compliant in the United
States. Seminis will not be required to make any major equipment upgrades or
system replacements in its compliance effort.
Seminis expects that costs to implement new software as well as to become
Year 2000 compliant will be approximately $25.0 million upon completion, of
which approximately $21.0 million has been spent as of March 31, 1999.
Seminis' most critical vendors are growers who produce seed, often located
in developing countries. Such vendors are not highly reliant on information
technology and therefore will only be minimally affected by the Year 2000 issue.
The vendors are able to accept contracts, produce, harvest and ship seeds
without the use of information systems. If a few growers in developed countries
are unable to produce seed, production will shift to unaffected growers,
resulting in only limited shortages. In the case of our non-seed vendors,
supplies can be substituted with other products if necessary. For example,
although Seminis uses cans to package products, they can be replaced with pouch
packaging if needed without affecting Seminis' customers.
If Year 2000 problems arise in chips that are embedded in Seminis
processing equipment, then the equipment can be disconnected from automatic
control and run manually. In this event, the impact on Seminis operations would
be minor at most. If some of the subsidiaries cannot use their information
systems, invoicing and inventory management can be done manually.
27
<PAGE> 30
BUSINESS
OVERVIEW
Seminis is the largest developer, producer and marketer of vegetable and
fruit seeds in the world. Seminis uses seeds as the delivery vehicle for
innovative agricultural technology. For example, Seminis develops seeds designed
to do one or more of the following: reduce the need for chemicals, increase crop
yield, reduce spoilage, offer longer shelf life and create tastier foods with
better nutritional content. Seminis focuses its research and development
activities on products that are likely to have practical market uses, create
significant market value, command premium pricing and capture leading local
market share. As a result, Seminis is creating and setting the foundation to
capture value through premium pricing at all steps of the vegetable and fruit
production and distribution chain: growers, distributors, processors, retailers
and end-consumers.
Seminis produces more than 60 species and 8,000 distinct varieties of
vegetable and fruit seeds. Seminis markets its seeds through three full-line
brands -- Asgrow, Petoseed and Royal Sluis -- and nine specialty brands. The
product lines marketed under these brands cover most species of vegetables and
fruits, including beans, broccoli, cabbage, carrots, cauliflower, celery,
Chinese cabbage, cucumbers, eggplant, leeks, lettuce, melons, onions, peas,
peppers, pumpkin, radish, spinach, squash, sweet corn, tomatoes, and watermelon.
Seminis has established a worldwide presence and a global distribution
system. Seminis markets seeds in over 120 countries and has 70 research and
development stations in 19 countries and production sites in 32 countries. This
allows Seminis to remain close to local markets around the world, adapt its
products to any microclimate and meet the preferences of local consumers. In
fiscal 1998, Seminis had approximately $383.8 million in net seed sales. This
represents an approximate 19% share of the global commercial vegetable and fruit
seed market, which is generally highly fragmented.
The total worldwide vegetable and fruit commercial seed sales in 1998 are
estimated at $2.0 billion. However, given new advances in agricultural
technology, Seminis believes that the achievable market for vegetable and fruit
seeds, as well as its share of the market, can be expanded. These technological
advances, such as Roundup Ready(R) Weed Control, virus resistance, Bt based
insect control and fungal disease resistance, enable Seminis to price its
products based on the incremental benefit they provide to growers, distributors,
processors, retailers and end-consumers.
INDUSTRY OVERVIEW
Over the past several decades, improvements in farm productivity have
allowed the agricultural industry to keep pace with growing food demand. While
many of the steps in agriculture -- tilling, planting and harvesting -- have
remained the same for centuries, yield-enhancing technologies such as
mechanization and the use of hybrid seed and crop protection chemicals have
allowed farmers to meet the ever-growing demand for food. More recently, the
application of genetic improvements to crop plants has provided greater value to
growers which can be captured by the seed industry through higher prices and
greater demand.
One of the biggest challenges of the 21st century will be to further
develop sustainable agricultural production systems that can meet the food and
nutritional requirements of the world's growing population. The United Nations
is projecting that world population will increase by 35% to 7.7 billion from
1995 to 2020, with 95% of the population increase expected in developing
countries. Given the limited amount of arable land, which is decreasing,
increases in agricultural production must come from improvements in agricultural
productivity through technology. In addition, there is significant resistance,
particularly in developed countries, to agricultural production growth achieved
through increases in chemical inputs such as pesticides. Consequently, the
burden of meeting
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<PAGE> 31
increased demand for food rests primarily on the emergence of new technologies
and farming methods that facilitate improvements in crop yields and replace
existing agricultural chemicals.
In developing countries, which have a relatively large vegetarian
population, vegetable and fruit consumption has grown over 75% from 1985 to
1996. Consumption of vegetables and fruits worldwide has increased approximately
50% in the same time period. However, vegetable and fruit yields have not kept
pace with consumption increases, growing only 18% per hectare since 1985. Given
current population estimates and consumption rates, consumption of vegetables
and fruits is expected to increase by 60% from 1996 to 2010. World production of
vegetables and fruits must increase to meet expected demand.
Two breakthroughs in plant science occurred in the 1980's that may
facilitate increased productivity and higher quality vegetables and fruits. The
first was the understanding of how genes, the fundamental components of the
genetic code, work in plants to produce traits such as disease resistance or
higher nutritional content. The second was the development of transformation
technology, which is a process to introduce new genes into plants. By using
developments in plant breeding, biotechnology and genomics, leading vegetable
and fruit seed companies are creating the changes in productivity and quality
necessary to provide sustainable vegetable and fruit production growth.
In addition, vegetables and fruits are proven to be valuable in meeting
basic nutritional needs and in preventing disease. They also have very little
fat, are low in calories and contain vitamins and other nutritional compounds.
Diets high in vegetables and fruits protect against obesity and, thus, against
the risk of cardiovascular disease and stroke, and can also protect against
diabetes, iron-deficiency anemia and cataracts. According to the World Cancer
Research Fund and the American Institute for Cancer Research, there is also a
strong and consistent pattern showing that diets high in vegetables and fruits
can significantly reduce the risk of cancer. Seminis believes that vegetables
and fruits represent nature's most direct delivery mechanism for improved health
and nutrition.
The world's vegetable and fruit seed industry, with its unique combination
of nutritional benefits, local market adaptability, yield enhancing
technologies, year-round availability and streamlined production and
distribution system, is positioned to meet the world's growing need for healthy
and nutritious food products. Seminis' development of seeds that produce
disease-resistant, higher-yielding and healthier vegetables and fruits are of
growing importance for regional and global markets because of expected
increasing consumption of vegetables and fruits, along with a steady decline in
arable land.
THE VEGETABLE AND FRUIT SEED MARKET OPPORTUNITY
Total worldwide vegetable and fruit commercial seed sales in 1998 are
estimated at $2.0 billion, of which $409.5 million represented sales in the
United States. Given new advances in agricultural technology, such as Roundup
Ready(R) weed control, virus resistance, Bt based insect control and fungal
disease resistance, Seminis believes that the achievable market for vegetable
and fruit seeds, as well as its share of the market, can be expanded. These
technological advances enable Seminis to develop new products which provide
benefits throughout the vegetable and fruit production and distribution
chain -- growers, distributors, processors, retailers and end-consumers -- by,
for instance, reducing growers' costs, reducing spoilage or having better
appearance and taste. As a result, Seminis prices its products based on the
incremental value they provide to growers, distributors, processors, retailers
and end-consumers.
GROWERS
Grower sales of vegetables and fruits in the United States in 1997 were
estimated at $9.2 billion. Seed costs to growers represented approximately 4% of
their sales.
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<PAGE> 32
Reducing growers non-seed costs is a means for Seminis to increase its
profitability. New seed products with enhanced input traits -- including
herbicide tolerance and disease and insect resistance -- are already displacing
other farm input costs, such as fertilizers, pesticides and labor, resulting in
higher seed prices.
The model for pricing seeds to reflect the displacement of the farmer's
input costs is one that has been well established in agronomic crops in recent
years. Because seed products with genetic enhancements can substantially reduce
other input costs, as well as the chemical load on the environment, they are
able to drive a reallocation of grower spending. Insect resistant corn seed
eliminated $15 to $20 of agrochemical costs per acre. As a result, these seeds
are sold, on average, at a 21% premium to traditional corn seed and still
provide the grower with a 26% overall savings of input costs. Similarly,
herbicide tolerant soybean seeds eliminated approximately $12 of agrochemical
costs per acre. These seeds are sold, on average, at a 33% premium to
traditional soybean seed, but provide the grower with a 26% overall input cost
savings. In 1998, approximately 20% of the total corn and 35% of the total
soybean acreage, or over 40 million acres in the United States, was planted with
corn and soybeans genetically resistant to insects and/or herbicides.
The chemical cost-displacement potential in vegetable and fruit crops may
be more attractive than in agronomic crops. Whereas agronomic crops occupy much
larger planted acreage in the United States, vegetables and fruits typically
require higher expenditures on crop protection chemicals and fertilizers given
their relatively high end-market value. In fact, the average tomato grower in
Florida spends $1,500 per acre on chemicals and $3,800 per acre on all
production inputs, versus $73 and $160, respectively, for a typical acre of
corn. In the United States, chemical costs represent between 20% and 35% of
vegetable and fruit grower's total production expenditures, with labor and water
representing the two other largest components of the cost structure. The
vegetable and fruit grower's input intensive cost structure makes growers
particularly receptive to new products, like genetically improved seeds, which
reduce input costs and improve the economics of growing vegetables and fruits.
DISTRIBUTION
Vegetable and fruit sales by distributors in the United States in 1996
were estimated at $30.0 billion. The production and distribution chain for fresh
vegetables and fruits in the United States is relatively simple. Products move
from the grower to the packer/shipper to the distributor and, ultimately, to the
retailer. Alternatively, products move directly from the grower to the
processor. Cost is added at each stage in the chain, reflecting both the profit
margin and product shrinkage due primarily to spoilage. On average, shrinkage
across the entire production and distribution chain accounts for approximately
25% of the cost of fresh vegetables and fruits to the retailer -- or more than
$7.0 billion annually.
Reducing spoilage presents a clear opportunity for seed companies to
achieve premium pricing. Through traditional breeding and biotechnology, Seminis
has developed new seed varieties with enhanced shelf life characteristics. These
new seed varieties sell at a significant premium to traditional offerings and,
in most cases, capture a substantial portion of the savings from reduced
spoilage. For example, Seminis' long shelf life tomato seeds sell for $5,200 per
pound versus $1,400 per pound for a traditional variety. Because these product
enhancements can increase profitability at each step in the production and
distribution chain, demand for these products is driven by all production and
distribution chain participants, not just growers.
PROCESSORS
Processor sales in the United States were greater than $13.0 billion in
1992. Processors of vegetables and fruits freeze, dehydrate, make into paste or
can fresh vegetables and fruits into shelf-stable containers. Processors either
produce their
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own vegetables and fruits or contract for their production with growers.
In many cases, processors either purchase seeds directly from seed
companies or approve the seed purchases of their contract growers. A large
portion of costs associated with processing fresh vegetables and fruits is the
vegetable and fruit itself and the energy costs to freeze or heat the vegetable
or fruit or to evaporate water. During processing, flavor components can be lost
or inactivated. Developing new varieties for processors with higher yield or
which require less processing time or heat required to process vegetables and
fruits or which conserve flavor are important objectives for seed companies.
Seminis has focused its efforts on improving the processing
characteristics of vegetables and fruits. For example, Seminis has an agreement
with Zeneca to develop tomatoes which can be made into an improved paste. This
genetically modified product is the top selling tomato paste in the United
Kingdom. Similarly, Seminis' collaboration with carrot growers and processors
has pioneered the development of a carrot suitable for processing into ready-to-
eat baby carrots.
RETAIL
Retail sales of fresh and frozen vegetables and fruits in the United
States in 1996 are estimated at $50.0 billion. Seminis is developing new seed
varieties with enhanced output or quality traits to expand the grocery market
for vegetables and fruits and capture a larger portion of consumer spending.
Seminis continuously emphasizes the development of new vegetable and fruit seed
products with desirable consumer qualities, including enhanced color, texture,
sweetness and taste, which may command a premium price on the grocery store
shelf. In addition, Seminis is producing seeds for ready-to-eat products, such
as baby carrots and prepackaged lettuce.
Direct consumption of vegetables and fruits by the end-consumer in the
form that the farmer produces them facilitates premium pricing for higher
quality products. In contrast, agronomic crops typically undergo a variety of
processing steps prior to their use as ingredients in the commoditized animal
feed sector.
The trend toward healthier lifestyles and emphasis on nutrition is further
expanding the market potential for vegetable and fruit seeds. Vegetables and
fruits with enhanced nutritional content will likely command a premium at the
grocery store. The challenge for the vegetable and fruit seed industry will be
to develop an integrated grower-packaging-distribution-marketing system that
allows the seed producer to benefit from pricing increases at each step of the
production and distribution chain.
SEMINIS BUSINESS STRATEGY
Seminis' vision is to apply technology to vegetable and fruit seeds to
enhance profitability throughout the vegetable and fruit production and
distribution chain. To realize this vision, Seminis expects to capitalize on its
competitive strengths, which include its ability to consistently introduce new
technology through product innovation, a strong germplasm bank, well established
brand names and a worldwide distribution system. Seminis distinguishes itself
from its competitors by having a global strategy that addresses local needs.
Seminis intends to enhance its leadership position in the global vegetable and
fruit seed industry by expanding its existing product lines and introducing
high-quality, technologically innovative seeds tailored to local preferences.
- - Enhance leadership position in worldwide vegetable and fruit seed
market -- Seminis is the global leader in the vegetable and fruit seed
business with $383.8 million in net seed sales during fiscal 1998. Seminis has
achieved its premier global position through its high-quality seeds, its
innovative technology, its multi-brand marketing strategy and its world-wide
distribution capabilities. Seminis' full-line brands--Asgrow, Petoseed and
Royal Sluis--have been available in their home markets for at least 45 years
and, collectively, enjoy an approximate 19% share of the global commercial
vegetable
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and fruit seed market. Seminis intends to enhance its position as leader in
the vegetable and fruit seed industry through the production and supply of
current products, expansion of existing product lines and introduction of
high-quality, technologically innovative seeds tailored to local preferences.
- - Expand technology leadership position through continuous new product
innovations -- Seminis' new product development efforts utilize traditional
breeding, proprietary technology, biotechnology, biochemistry, genomics and
plant pathology to introduce innovative products to the marketplace in an
efficient and cost-effective manner. Seminis has more than 4,500 products in
its development pipeline. Seminis augments its internal product development
efforts with more than 100 technological agreements and arrangements with
leading companies, research institutions and universities. Seminis intends to
remain at the forefront of seed innovation by coupling its internal product
development capability, technology alliances and extensive germplasm bank with
its intimate knowledge of the evolving demands and preferences of growers,
distributors, processors and end-consumers.
- - Further consolidate the vegetable and fruit seed industry -- Seminis has led
the consolidation of the vegetable and fruit seed industry and has consummated
nine mergers or acquisitions to date. Seminis expects to augment its market
position through continued strategic acquisitions to expand its business and
further internal growth. Seminis will target strategic acquisitions that
provide it with access to new technology, supplement its product line or
improve its market position.
- - Capture enhanced value created by proprietary seeds -- As a result of its
innovative product development efforts, Seminis expects to introduce products
which will reduce input costs to growers and provide enhanced consumer value.
Seminis' seeds can increase yields and crop uniformity, reduce the grower's
dependence on chemicals and fertilizers and improve the appearance, taste and
nutritional value of foods. By expanding the global vegetable and fruit market
through premium pricing along the production and distribution chain, Seminis
can enhance its profitability.
PRODUCTS
Seminis develops and produces vegetable and fruit seeds adapted to the
local conditions in which they will be grown. Local requirements are largely
dictated by environmental conditions, such as temperature or rainfall, retail
demand for traits, such as shelf life, and consumer preferences for flavor,
ready-to-eat convenience and quality. Seminis' depth of product lines enables
growers to meet local market demands.
DEVELOPED COUNTRIES
In developed countries, the growth of the vegetable and fruit seed market
is primarily driven by a demand for foods with enhanced nutritive qualities and
increased consumer awareness of the health benefits of vegetables and fruits.
According to a 1996 consumer survey in the United States, 89% of consumers cited
nutritional reasons as to why they eat vegetables and 73% said that they would
pay more for healthier versions of the foods they eat. Seeds for the production
of vegetables and fruits in developed countries are predominantly hybrids to
ensure crop uniformity and productivity. Seminis estimates that, in the United
States, 85% of all vegetable and fruit seeds are hybrids.
DEVELOPING COUNTRIES
In developing countries the growth of the vegetable and fruit seed market
is largely driven by rapidly expanding population growth and conversion from the
use of open-pollinated seed to hybrid seed varieties. Growers are realizing the
value of hybrids and are increasingly converting to hybrid seeds to obtain
higher yields per acre, greater uniformity, greater resistance to pests,
diseases and environmental conditions and improved quality, flavor and nutrition
for
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consumers. Seminis develops and sells new hybrids specifically designed for the
local markets in developing countries. Given the benefits of hybrid seeds,
growers are often willing to pay a substantially higher price for hybrid seeds
than for open-pollinated seeds.
MULTI-BRAND STRATEGY
Through its customer-focused, multi-brand strategy, Seminis provides
choices to growers with respect to product, price, promotion and service. It
also furthers Seminis' goal of providing growers with information to enable
growers to anticipate change in consumer trends rather than react to them.
Seminis has three full-line brands, Asgrow, Petoseed and Royal Sluis, each with
its own identity and positioning. Each brand features independent products with
varying strengths and market fit. Seminis also markets nine specialized brands,
which enables it to respond quickly to changing market needs, dietary
preferences or regional growing practices. These brands may focus on specialized
growing practices, such as greenhouse or protected culture, specific customer
segments within a sub-market, such as large lettuce growers in the southwestern
United States, or regional and cultural preferences, such as Asian vegetables or
fruited crops for the Middle East. With differentiated Seminis brands, growers
can exercise their options for choice while staying within the Seminis family.
Seminis believes that it can maintain and reinforce its competitive advantage
through the careful positioning of its brands.
FULL-LINE BRANDS
Seminis markets a full-line of seeds under its Asgrow, Petoseed and Royal
Sluis brands. These brands are well recognized for consistently developing and
marketing high quality seeds for most major vegetable and fruit species. Seminis
believes that its brands rank among the leading brands worldwide in the
vegetable and fruit seed market.
Asgrow and Petoseed enjoy high brand awareness in the United States
vegetable and fruit seed industry. According to a 1996 study, Asgrow has a 99%
brand-awareness rating among growers, while 88% of growers and dealers have a
high awareness of the Petoseed brand. In Europe, growers and dealers also have
high brand awareness of Seminis' brands. According to a 1997 independent
industry study of over 1,000 growers and distributors, there is a "high" to
"very high" awareness of Royal Sluis in many European countries, including
France, Italy, The Netherlands, the United Kingdom and Turkey. Similarly, Asgrow
and Petoseed have high brand awareness in many European markets, including
Asgrow in Italy and Petoseed in Spain.
ASGROW -- Asgrow was established in 1856 and was acquired by Seminis in
December 1994 from the Upjohn Company for $304.0 million. After the acquisition,
Seminis sold the Asgrow agronomics seed business for $240.0 million. Asgrow is
known for providing seeds that possess traits satisfying end-user demands such
as flavor, ready-to-eat convenience and quality. Its strong reputation has been
enhanced through its success with hybrids such as carrots and onions. Asgrow is
also strong in large seed varieties such as green beans, where Seminis believes
it has a U.S. market share of over 70%. Asgrow also has a strong presence in
many European countries.
PETOSEED -- Petoseed was established in 1950 and was combined with the
Asgrow seed business in 1995 for $133.5 million. Petoseed has built its
reputation through pioneering work in hybrid tomato development, but expanded
its presence in the industry through its full-line of market-driven, innovative
products. This brand has strengths in many areas, including hot peppers. Seminis
believes that, worldwide, growers currently plant more Petoseed hybrid jalapeno
peppers than all other hybrid jalapeno brands combined. Petoseed is known for
consistently introducing new hybrids with multiple disease resistance enhanced
traits and increased field productivity.
ROYAL SLUIS -- Royal Sluis was established in 1827 and was acquired by
Seminis in 1995 along with Petoseed. The acquisition of Royal Sluis, one of
Europe's
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largest vegetable seed companies, expanded Seminis' European presence. Royal
Sluis focuses on high-quality, cool season crops such as beans, broccoli,
cabbage, carrots, cauliflower, leeks, lettuce and spinach. In addition to its
strong reputation for service and quality, Royal Sluis pioneered new seed
technology to improve seed quality and germination.
As shown in the table below, each of Seminis' full-line brands is distinct
in terms of leading species, brand strategy, pricing strategy and brand
identity.
<TABLE>
<CAPTION>
BRAND LEADING SPECIES BRAND STRATEGY PRICING STRATEGY BRAND IDENTITY
----- ---------------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Asgrow Beans Maintain strong Price at premium Focus on desirable
Broccoli links to growers, to market output (quality)
Carrots distributors and traits
Fresh Market Tomatoes retailers
Melons
Onions
Peas
Pickling Cucumbers
Squash
Sweet Peppers
Petoseed Broccoli Focus on extending Price for value Enhance grower
Cucumbers the product line success through
Fresh Market Tomatoes through additional innovative hybrids
Hot Peppers disease resistance
Lettuce and hybrid
Melons conversion in new
Processing Tomatoes markets
Squash
Sweet Peppers
Royal Sluis Beans Provide service/ Price at premium Provide service
Cabbage expertise to enhance to market through knowledge
Lettuce grower benefits about local growing
Radish and market
Spinach conditions
</TABLE>
REGIONAL OR SPECIALTY BRANDS
In addition to its full-line brands, Seminis markets seeds through
regional or specialty brands, which are targeted to respond to the needs of
local markets. These needs are driven by dietary preferences, desire for local
products, specialized farm growing practices and local environmental and
climatic conditions.
BRUINSMA -- Bruinsma was established in 1934 and was acquired by Seminis
in December 1994 along with Asgrow. Bruinsma's reputation was built on its high-
quality, protected crop varieties. Protected farming is a practice in which
crops are grown from high-value seed in greenhouses or tunnels. This practice
continues to expand worldwide and is particularly reflected in European markets,
where protected growing is an effective means of meeting consumer demand for
vegetables and fruits with premium appearance. Bruinsma focuses on the
development and marketing of cucumber, eggplant, pepper and tomato varieties.
CALIFORNIA -- California was established in 1972 by Petoseed. California
is best known for seeds bred to meet the consumer preferences and farming
practices of the Middle East. The California brand concentrates on cucumber,
melon, pepper varieties, squash and tomato.
CHOONG ANG -- Choong Ang was established in 1946 and was acquired by
Seminis in 1998 for $20.5 million. Choong Ang is one of the top vegetable and
fruit seed brands in South Korea. This brand has
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market strength in Chinese cabbage, hot peppers, oriental melon, radish and
watermelon.
GENECORP -- Genecorp was established in 1982 and was acquired along with
Asgrow in December 1994. Genecorp is a lettuce seed specialist with a
significant market share in the western United States, a region that contains
95% of domestic lettuce acreage.
HORTICERES -- Horticeres, as a brand of the Agroceres vegetable seed
business, was acquired by Seminis in 1998 for $19.5 million. Horticeres is a
leading brand in Brazil where it is known for beans, lettuce, okra, tomato and
tropical cauliflower.
HUNGNONG -- Hungnong was established in 1936 and was acquired by Seminis
in 1998 for $120.6 million. Hungnong is a leading vegetable seed brand in South
Korea. Hungnong is known for its strength in broccoli, cabbage, Chinese cabbage,
hot peppers and oriental radishes. Twenty-five percent of Hungnong's sales occur
outside of South Korea, with five percent outside Asia, primarily in the United
States.
LSL PLANTSCIENCE -- LSL PlantScience was formed in 1998 through an
alliance between Seminis and LSL Biotechnologies with an investment by Seminis
of $22.0 million. LSL PlantScience is known for its DiVine Ripe brand of
tomatoes which offer delayed ripening characteristics for vine-ripened flavor
and increased shelf-life. In addition to marketing LSL PlantScience's tomato
varieties, Seminis obtained access to LSL PlantScience's existing research and
technology agreements. LSL PlantScience varieties are marketed worldwide.
NATH SLUIS -- Seminis acquired a 90% equity interest in Nath Sluis in 1998
for $2.0 million. Nath Sluis breeds, produces and markets vegetables and fruits
specifically for the Indian market.
SENECA -- Seneca was acquired by Seminis in 1997 for $1.7 million. Seneca
focuses on hybrid sweet corn for the United States and Canadian markets.
YATES -- In 1997, Seminis acquired a 20% interest in the Yates Vegetable
Seed Company for $1.7 million. This company breeds cauliflower, lettuce and
onions for the Australian, European and North American markets. Yates also
distributes the Asgrow and Genecorp brands in Australia.
SALES AND MARKETING
Seminis' product sales are widely diversified geographically, with Europe
representing the largest percentage of total sales outside of North America. The
table below illustrates the breadth of Seminis' products and sales for each
geographic region.
FISCAL 1998 NET SEED SALES BY REGION
<TABLE>
<CAPTION>
FISCAL 1998
FISCAL 1998 NET SEED SALES
NET SEED SALES GROWTH VS.
AS A PERCENTAGE FISCAL 1997
FISCAL 1998 OF TOTAL NET SEED SALES
GEOGRAPHIC REGION NET SEED SALES NET SALES AS A PERCENTAGE
- ----------------- -------------- --------------- ---------------
(in millions)
<S> <C> <C> <C>
North America........................... $155.2 36.2% 11.0%
Southern Europe......................... 88.1 20.6 5.8
Northern & East Europe.................. 50.2 11.7 21.6
Middle East/North Africa................ 35.5 8.3 19.6
South America........................... 24.9 5.8 34.2
Asia/Rest of World...................... 29.9 7.0 67.7
</TABLE>
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Seminis reinforces its brands' market positions through strategic
planning, pricing and communications. Seminis believes that, with its strong
brands, it has an advantage in the marketplace when introducing new products.
The reliability and trust associated with its brands can lend credibility to new
product claims.
Seminis' strategy of providing differentiated products and services to its
customers through its multiple brands is reflected in its approach to sales and
marketing. Each brand has its own separate and distinct sales force, product
managers and marketing team. Along with separate breeding and product
development, each brand team focuses on offering differentiated products and
services to meet the needs of a wide range of customers.
Seminis sells its brands worldwide by using a multi-level distribution
strategy involving direct sales, dealers, distributors and importers. Largely
driven by local market needs, Seminis' distribution strategy for each geographic
region is designed to maximize the market penetration of its brands. Seminis'
North American sales are mainly concentrated in the Asgrow and Petoseed brands.
The Petoseed brand is sold primarily through dealers and the Asgrow brand is
sold primarily direct to growers. Each brand has a distinct North American sales
force. In Europe, Royal Sluis, Petoseed and Asgrow are typically sold through
direct sales groups. In the Middle East, Petoseed is Seminis' top brand and is
sold through distributors.
While the majority of its sales are direct to growers, Seminis also
fosters close relationships with dealers and distributors. Where there is a
market need, Seminis uses these dealers as an outside direct sales force.
Dealers extend the Seminis brands' ability to reach growers in areas where there
are geographic or other limitations to direct sales efforts. Seminis is highly
selective in the dealers and distributors chosen to represent its brands.
Dealers are selected based on shared vision, technical expertise, local market
knowledge and financial stability. In addition, Seminis builds
dealer/distributor loyalty through an emphasis on service, access to breeders,
joint trials, ongoing training and extensive promotional material support.
Seminis' marketing communications department coordinates all advertising,
public relations and publicity activities for Seminis and its brands and
provides highly targeted promotional support to its sales and marketing efforts
worldwide.
ACQUISITIONS
All of the sectors of the agricultural industry have experienced
significant consolidation during the past several years. Consolidation at the
upstream end of the production chain--among chemical, seed and biotechnology
companies--has been driven primarily by developments in agricultural technology
and the need to secure access to the best available seed germplasm.
In agronomic crops such as corn, cotton, soybeans, wheat and rice, the
consolidation has been led by major agrochemical/ biotechnology companies such
as Monsanto, Dow, DuPont and Hoechst (AgrEvo). These companies have invested in
the seed industry to access delivery systems for their biotechnology products.
Access to the best available germplasm has become a key competitive priority in
the industry. In vegetable and fruit crops, access to germplasm is an equally
important competitive issue. The company with access to the best available
germplasm will have the strongest position in the delivery system for future
generations of biotechnology products.
Seminis has been at the forefront of the consolidation of the vegetable
and fruit seed industry and has completed nine acquisitions to date. Seminis has
historically used acquisitions as a cost-efficient means of adding developed and
proven products to its portfolio, gaining access to or ownership of key
technology, patents and germplasm collections and entering new and established
markets. The transactions completed in fiscal 1998 exemplify this point. First,
the purchase of a 50% stake in LSL PlantScience added a new line of tomato
varieties. Similarly in fiscal 1998, the acquisition of two South Korea-based
companies, Hungnong and Choong
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<PAGE> 39
Ang, strongly enhanced Seminis' line of products for the Asian market and
provides products to meet the growing worldwide demand for Asian vegetables and
fruits. Also in 1998, Seminis' purchase of 90% of the equity of Nath Sluis
significantly increased Seminis' presence in India. Finally, in November 1998,
the acquisition of the Agroceres vegetable seed business strengthened Seminis'
presence and product lines in Brazil, a region that requires special varieties
developed for tropical and subtropical climates.
As the leading vegetable and fruit seed company, Seminis believes it is
well positioned to benefit from continued consolidation of the vegetable and
fruit seed industry. In order to expand the breadth and depth of its product
line, Seminis expects to continue targeting strategic acquisitions and alliances
that supplement its product line and expand its customer base.
NEW PRODUCT DEVELOPMENT
Seminis utilizes both traditional breeding and biotechnology to create
continuous new product innovations. Seminis focuses its internal product
development activities on products that are likely to have practical market
applications, create significant market value, command premium pricing and
capture leading local market share.
Seminis currently owns or has pending over 60 patents in such areas as
virus resistance, product quality, breeding technology, gene expression, cell
selection and resistance genes. In addition, Seminis has protected more than 360
varieties under plant variety protection laws.
Principal new products are listed in the following table.
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<PAGE> 40
PRINCIPAL NEW PRODUCTS INTRODUCED IN THE LAST THREE FISCAL YEARS
<TABLE>
<CAPTION>
SPECIES TARGET REGION DIRECT BENEFICIARY BENEFIT/ADDED TRAIT
------- ------------- ------------------ -------------------
<S> <C> <C> <C>
Bean Europe Grower/consumer Darker color, better uniformity
Europe Grower/consumer Darker color, disease resistance
USA/Italy Trader/consumer Improved appearance
Broccoli CA/Europe Grower/trader Improved export quality
CA/Mexico Grower/trader Better export quality
Carrot CA Consumer Better taste for consumer
Fresh Market Tomato Europe Grower Disease resistance
Mexico Grower Higher yield
South Europe/Spain Grower Disease resistance
Florida Trader Fruit firmness-shippability
Middle East Trader Longer shelf life
West Africa/East Africa Trader Longer shelf life
Hot Pepper Mexico Grower/trader Early maturity of jumbo size fruit
Mexico Grower Larger fruit, higher yield
Lettuce CA/AZ Grower Disease resistance
Italy/France Grower Disease resistance, larger size
Long Cucumber Northwest Europe Grower/trader/consumer Better vigor, higher quality fruit
Long Day Onion Northwest USA Trader/consumer Longer storability
Pea USA/Italy/France Trader/consumer Improved color/appearance
USA/UK/Italy/France Trader Improved processor traits
Pickling Cucumber Eastern Europe Trader/consumer Improved fruity quality
USA Trader Better size
USA Trader Improved processing traits
USA/Brazil/Mexico Trader/consumer Improved fruit quality
USA/Mexico/North Africa Grower Higher yield
Processing Tomato Spain Trader Improved peeling/dicing capabilities
Short Day Onion Texas/Mexico/South America Grower/consumer Higher yield, lower pungency
Spinach Europe Grower Disease resistance
Europe Grower/trader Disease resistance, higher quality leaf
Sweet Corn USA/Canada Consumer Improved taste
Sweet Pepper Florida Grower Bacterial disease resistance
Florida Grower Disease resistance
Watermelon USA/South America/Italy Consumer Seedless
</TABLE>
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The following table outlines selected products under development for
production over the next two to three years.
SELECTED PRODUCTS IN DEVELOPMENT
<TABLE>
<CAPTION>
SPECIES FEATURE EXPECTED BENEFIT DIRECT BENEFICIARY
- ------- ------- ---------------- ------------------
<S> <C> <C> <C>
Broccoli Cytoplasmic male sterility Lower production costs; increased product uniformity Grower
Cabbage Cytoplasmic male sterility Increased yield; lower production costs; increased
product uniformity Grower
Fungal disease resistance Increased yield; lower production costs; increased
product quality Grower
Carrot Disease resistance Increased yield; lower production costs Grower
Improved flavor Consumer benefit Consumer
Lettuce Fungal disease resistance Increased yield; lower production costs Grower
Melon Multiple virus resistance Increased yield; lower production costs; increased
product uniformity Grower
Extended shelf-life Consumer benefit; reduced spoilage Consumer/trader
Onion Disease resistance Increased yield; lower production costs Grower
Pea High sugar Better taste Consumer
Pepper Bacterial disease resistance Increased yield; lower production costs Grower
Spinach Tolerance to yellowing and New market opportunity Grower
over-wintering
Squash Multiple virus resistance Increased yield of marketable quality fruit Grower/trader/consumer
Tomato Virus resistance Increased yield; market expansion Grower
Multiple disease resistance Increased yield; lower production costs Grower
High (Beta)-carotene Consumer health benefit Consumer
High lycopene Consumer health benefit Consumer
Watermelon Genetic male sterility Increased product uniformity Grower/trader/consumer
</TABLE>
PRODUCT DEVELOPMENT STRATEGY
Seminis' new product development efforts utilize traditional breeding,
proprietary technology, biotechnology, genomics and plant pathology to introduce
innovative products to the marketplace in an efficient and cost-effective
manner. Seminis augments its internal product development efforts through
technological alliances with leading companies, research institutions and
universities. Seminis believes that its internal research and development
capability and access to innovative technology, coupled with its extensive
germplasm bank, position it to best meet the changing demands and preferences of
growers and end-consumers and increase its market share and global reach.
PRODUCT DEVELOPMENT PLATFORM
Seminis conducts research and development activities in 70 locations
throughout the world, including 20 in North America, 16 in Europe, three in the
Middle East, three in South America and 28 in Asia. By diversifying its research
and development geographically, Seminis is able to take advantage of local
breeding characteristics and many different microclimates. It is also better
able to tailor its products to local tastes and preferences.
Each region of the world has unique requirements for the production of
vegetables and fruits. These requirements are driven by local environmental
conditions such as temperature or rainfall as well as local consumer preference
such as that for very sweet pink tomatoes in Japan or more acidic red tomatoes
in Italy. Seminis maintains an internally developed, proprietary database that
contains information on local production and local consumer needs. Seminis has
compiled the information in this database to enable its plant breeders and
marketing and sales personnel to design new products to meet the needs of the
local market.
Seminis believes it has the largest research and development staff in the
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vegetable and fruit seed industry, with over 850 people employed in research and
development functions, including over 150 professionals with Ph.D. or M.S.
degrees, with 114 plant breeders, 22 biotechnologists and 21 pathologists.
Seminis' plant breeding staff is structured by brand and, within each brand, by
species, to maintain brand focus and adequately respond to changing consumer
demands and preferences. All plant breeders regardless of their brand
affiliation have access to technology developed from Seminis' biotechnology,
biochemistry and pathology laboratories. Seminis fosters competition among its
brands and breeders to ensure that new product development is achieved in an
aggressive timeframe.
GERMPLASM
Seminis owns what it believes is the largest vegetable and fruit germplasm
bank in the world. Seminis' germplasm bank is its key strategic asset.
Germplasm, Seminis' bank of genetic information, is contained in millions of
seeds. These seeds capture the characteristics of vegetables and fruits grown
for Seminis' customers in different regions of the world, including input
traits, such as resistance to pests and adverse weather conditions, and output
traits, such as crop yield, color, texture, flavor and ready-to-eat convenience.
This extensive germplasm bank is extremely difficult to replicate, having been
developed through more than 100 years of intense research and development
effort.
The merger of the Petoseed, Asgrow and Royal Sluis germplasm, plus the
additions of germplasm from Bruinsma, Seneca, Hungnong, Choong Ang, Nath Sluis,
LSL PlantScience and the Agroceres vegetable seed business, has created a very
diverse germplasm bank. The strength of Seminis' germplasm bank is its diversity
of materials available and the gene characteristics contained in the materials.
Seminis' breeders utilize its germplasm, as well as its proprietary
technologies, to develop innovative products suitable to the needs of different
markets and conditions. Seminis' extensive germplasm bank is the basis for its
continued growth.
TECHNOLOGY
Seminis' product development technology positions it as one of the leaders
in agricultural innovation. The time and capital required for the development of
new products represent the most formidable barrier to entry in the vegetable and
fruit seed industry. On average, it takes five to twelve years for a proprietary
variety to reach commercial viability. Seminis works to minimize failure in the
market by focusing on identifiable market needs, while reducing time-to-market
and development costs. Seminis employs biotechnology, biochemistry, tissue
culture, dihaploids, cytoplasmic male sterility and molecular markers to enhance
its traditional breeding programs and improve the efficiency of its new product
development efforts.
BREEDING -- Seminis maintains significant breeding programs for over 60
major vegetable and fruit species that yield over 300 different varieties each
year. No other company produces as many products in the vegetable and fruit
line. Seminis' breeding strategy is to create vegetable and fruit hybrids and
varieties with combinations of traits that are superior to principal competitor
hybrids and varieties and that meet or anticipate the changing demands of the
market. These improved traits include varieties that are economical to produce,
have high field and marketable yields, possess superior disease resistance,
environmental tolerance and nutritional content and have long shelf lives,
superior processing characteristics and consumer benefits such as improved
taste, appearance and nutrition and ready-to-eat convenience.
PLANT AND GENETIC TECHNOLOGY -- Through the use of its proprietary
processes, Seminis enhances the efficiency of its breeding programs by enabling
its breeders to identify and incorporate important traits into the breeding
line, while significantly reducing the lead-time necessary to introduce
commercially viable products. These proprietary processes include the use of
tissue culture, dihaploid breeding, cytoplasmic male sterility, molecular
markers and biotechnology and genomics.
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- - Tissue Culture -- Tissue culture is a laboratory technique that enables plants
to be grown from plant tissue, such as a leaf or bud, rather than a seed.
Tissue culture reduces the loss of plants, speeds up breeding cycles, reduces
costs and allows the maintenance of parental inbreds that have difficulty in
producing seeds. Tissue culture is used in the following breeding programs:
broccoli, brussel sprouts, cabbage, carrots, cauliflower, celery, cucumbers,
leeks, lettuce, melon, onions and squash.
- - Dihaploid Breeding -- Plants with two identical sets of chromosomes --
dihaploids -- are highly desirable in plant breeding due to the uniformity of
their genetic information. The formation of dihaploids typically occurs only
under laboratory conditions. When dihaploids are used in a breeding program,
all future progeny will be genetically identical, thereby increasing the
uniformity of the crop. Using dihaploids in a breeding program reduces the
breeding cycle by up to 50%. For example, a dihaploid breeding program for
biennial crops can reduce breeding from 16 years to 8 years; with annual
crops, a dihaploid program reduces a normal breeding program from 11 years to
7 years. Seminis currently utilizes dihaploids in the commercial development
of its hybrid products including broccoli, cabbage, cauliflower, Chinese
cabbage, eggplant, lettuce, melon, onion, pepper and radish.
- - Cytoplasmic Male Sterility -- Cytoplasmic male sterility is a genetic feature
that blocks development of the male (pollen) part of flowers. The resulting
plants are only female fertile, which allow them to be efficiently crossed
with pollen from another plant ensuring the proper cross is made. The use of
cytoplasmic male sterility technology during commercial seed production
increases hybrid purity, accelerates the production time for a seed crop and
improves product uniformity. The grower also benefits by having a more
consistent and uniform crop. Seminis currently utilizes cytoplasmic male
sterility technology commercially to produce broccoli, cauliflower and hot
pepper hybrids. Since the hybrids are usually sterile, this technology also
protects Seminis' germplasm by preventing its reproduction in second
generations.
- - Molecular Markers -- Molecular marker technology integrates molecular biology
and information systems with plant breeding to identify important genetic
sequences and "tag" them so that they can be readily found in seeds or plant
tissue without growing the plant itself. Molecular markers are used for
genetic identification of proprietary products and verification that the
correct product was produced. They are also used to increase the precision and
speed of developing superior varieties through selection. Seminis employs
molecular markers in five species.
- - Biotechnology and Genomics -- Biotechnology, or genetic engineering, allows
for the identification and direct transfer of a specific gene into a plant. An
individual company's competitive position in biotechnology is reflected in its
ability to access genes that determine specific characteristics and to develop
efficient gene transfer systems to create transgenic plants.
Seminis has focused its initial biotechnology efforts in Roundup Ready(R), or
herbicide tolerant, weed control, virus resistance, insect resistance, fungal
disease resistance and quality traits, such as long shelf life. Seminis'
principal sources of genes, or traits, are technology licensing agreements or
research collaborations with private companies, research institutions and
universities.
Given the large number of different species of vegetables and fruits in
Seminis' product line, Seminis has focused its efforts in biotechnology on
developing rapid and reliable methods to introduce new genes into a wide array
of species. Seminis employs scientists with expertise in biology,
biochemistry, molecular biology and plant sciences to develop techniques to
introduce new genes into plants and produce viable progeny. Seminis believes
that it has the world's leading capability in gene transfer techniques in
vegetables and fruits.
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Genomics, the next wave of biotechnology, allows for the expansion of
biotechnology's application from single genes to families of genes. Many
important traits involve gene families such as yield, fruit development and
flavor. Genomics integrates knowledge about a gene family structure and its
function or trait, thereby allowing for the trait to be more easily bred into
related plant species or transferred by way of genetic engineering to other
plant species. Seminis' activity in genomics is largely concentrated in its
molecular markers program.
PLANT PATHOLOGY -- Vegetables and fruits are susceptible to diseases that
can affect yield as well as quality of the final product. In order for Seminis'
plant breeders to develop vegetable and fruit varieties resistant to diseases,
Seminis believes it has established the largest plant pathology group in the
industry to identify and understand diseases important in vegetables and fruits.
With 18 scientists in a network of laboratories throughout the world, Seminis is
currently working on more than 100 different diseases, targeting those that have
the greatest impact on commercial vegetable and fruit production.
As a result of these efforts, Seminis leads the industry with the widest
range of disease resistant hybrids that require reduced or no chemical
applications while enhancing growers' yield potential. Its plant pathology
resources also enable Seminis to maintain rigorous quality control standards.
All seed-lots are screened for a wide variety of diseases that could be carried
on the seed. Lots that may be contaminated are treated to destroy the disease
organisms or are destroyed.
STRATEGIC RELATIONSHIPS
Seminis actively seeks access to technology applicable to vegetables and
fruits from companies, research institutions and leading universities. Either
directly or through Savia, Seminis has over 100 technology agreements providing
it access to germplasm, genes, technology, patents and proprietary knowledge.
Seminis' major strategic relationships include technology agreements with
Monsanto, the John Innes Center, Bionova Holding Corporation, an affiliate of
Savia, and Mendel Biotechnology, Inc. As a result of its broad technology
alliances, Seminis has relative freedom to operate in the vegetable and fruit
seed market.
MONSANTO TECHNOLOGY COLLABORATION AGREEMENT. Monsanto is a worldwide
manufacturer and seller of a diversified line of agricultural products,
nutrition and consumer products and pharmaceuticals, with leading agricultural
biotechnology. Monsanto has made significant investments in the development of
technologies useful in the identification, transfer and expression of genes in
plants. Monsanto and Savia executed a worldwide, non-exclusive agreement in
January 1997 which provides Seminis access to Monsanto biotechnology applied to
vegetables and fruits. Seminis gains early insight into new technologies being
developed by Monsanto for agronomic crops that can also improve the input and
quality characteristics of vegetables and fruits.
Through the agreement, Seminis has access to numerous Monsanto patents and
pending patents covering the use of selectable markers, a range of promoters
which control gene expression and the agrobacterium transformation system, a
common means of transferring genes into plants. It also has access to a range of
valuable traits such as Roundup Ready(R) weed control, Bt insect resistance and
genes for disease control and quality traits. By partnering with Seminis,
Monsanto is able to leverage its research and development investment across the
broadest spectrum of crops.
JOHN INNES CENTER TECHNOLOGY AGREEMENT. The John Innes Center and
Sainsbury Laboratory are premier agricultural research institutions located in
Norwich, England. John Innes has built a substantial technology position for
traits involved in improving plant yield, quality and growth characteristics of
vegetable crops. On December 1, 1997, John Innes and Savia entered a five-year
agreement which provides Savia and its affiliates with access to
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significant plant disease control technology that will improve its capability to
develop broad fungal disease resistance and enhanced nutritional and health
benefits from vegetables.
BIONOVA HOLDING CORPORATION RESEARCH AGREEMENT. Bionova, an affiliate of
Savia, is a biotechnology company focused on developing novel genes for seed and
vegetatively propagated plants like strawberries, bananas and grapes. Under the
research agreement between Bionova and Seminis, Seminis funds research at
Bionova for specific vegetable and fruit crop projects, principally in early
stage molecular biology research related to the introduction of Monsanto genes
into vegetables and fruits. The agreement also provides access to other genes
and technologies including transwitch technology, pea and pepper transformation
and agrobacterium transformation. The results of this funded research are the
exclusive property of Seminis. Under the terms of the agreement, Seminis pays
royalties on all products that are commercialized using Bionova technology.
MENDEL BIOTECHNOLOGY EQUITY PARTICIPATION AND RESEARCH AGREEMENT. Mendel
Biotechnology studies the structure and function of genes using a mustard plant
species, Arabidopsis thaliana. This plant is particularly well suited for basic
discovery research due to its small size and simple genetic structure. Seminis
has a license agreement with Mendel Biotechnology to access genes for the
improvement of plant growth and development. In conjunction with Savia's equity
stake in Mendel Biotechnology, Savia and Mendel Biotechnology have a technology
agreement which provides Seminis access to genes and technology developed by
Mendel Biotechnology's genomics effort in vegetables and fruits.
OTHER TECHNOLOGY AGREEMENTS AND COLLABORATIONS. Seminis actively develops
collaborations and acquires technologies from private corporations, research
institutions and leading universities. Seminis believes that its investment in
technology agreements and collaborations reduces the cost and risk normally
associated with new product development, as Seminis utilizes collaborators for
most of its basic research. Seminis typically shares the value created as a
result of its agreements and collaborations with its partners once a product
reaches commercialization.
PRODUCTION AND OPERATIONS
Seminis typically contracts with seed growers to produce its seeds. It
also produces seed on company-owned farms. Seminis provides the producer with
male and female "parent" lines, which are multiplied into commercial quantities
of hybrid seed. The producer returns the hybrid seed to Seminis for cleaning and
packaging prior to sale to the customer.
Seminis' seeds are produced both domestically and internationally in over
30 countries in the Northern and Southern Hemispheres to mitigate growing risks
associated with weather or disease in any one region. In the United States,
Seminis produces seed in Arizona, California, Idaho, Oregon and Washington
through contract production with high-quality, dependable growers. Seeds are
produced internationally through subsidiaries in Argentina, Canada, Chile,
China, Ecuador, France, Germany, Guatemala, Hungary, Italy, Latvia, Mexico, New
Zealand, Peru, South Africa, South Korea, Thailand and The Netherlands, and
through exclusive agents using proprietary Seminis technology in Australia,
China, Czech Republic, Denmark, France, Germany, Hungary, India, Israel, Italy,
Japan, Moldova, New Zealand, Romania, Slovakia, South Africa, Taiwan, Tanzania,
Thailand, Turkey and Vietnam.
By geographically diversifying its production facilities, Seminis can
schedule its planting on a year-round basis, maximize yield, reduce inventory
requirements and ensure adequate supplies. In addition, Seminis ensures
availability of quality products throughout the world by maintaining production
capabilities for each variety in two locations in each hemisphere. For example,
a new variety with strong, unanticipated demand in the Northern Hemisphere can
be supplied by using additional production from
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the Southern Hemisphere. Alternatively, acreage that was planned to produce
tomato seed could be switched into pepper seed production if excess tomato seed
enters the marketplace.
Seminis controls contract production by providing on-site management and
technical personnel to oversee the production process. Seminis also supplies
producers with stock seed, specialized hybridizing techniques and specialized
sowing and harvesting equipment to ensure product quality. Production is split
among numerous species, ranging from hand-labor intensive hybrid crops such as
peppers and tomatoes, to machine planted and harvested seed crops such as peas,
beans and corn. Product quantities are determined by a three-year sales
forecast, product safety stock in inventory and the production history for the
region and product.
Seminis has its main processing facilities in California, Chile, Idaho and
The Netherlands, and auxiliary processing centers in New Zealand and South
Korea. The location of seed processing centers is intended to facilitate the
flow of seed from production areas to major markets. Seminis has recently
employed a logistics system integrating the planning functions in production,
operations and sales. The implementation of this system is expected to provide
real time information about inventory from crop in ground to finished and
available inventory for sales over a three-year time horizon. Using better
information systems and efficient capacity utilization, Seminis expects to
complete the consolidation and rationalization of its operations over the next
two years.
INCOTEC
Incotec Inc., a subsidiary of Seminis, provides sophisticated seed
enhancement technology to the seed industry. Incotec offers products for precise
sowing, improved seed emergences and germination. Incotec enhances seed
performance by applying fungicides or other chemicals and protective coatings to
protect against disease or improve a seed's germination behavior. Incotec also
pelletizes seeds to make them uniform and, therefore, more suitable for
precision sowing equipment. This technology helps growers worldwide increase
their productivity and profits by allowing them to obtain better crop
uniformity, even under inconsistent climate and field conditions.
Incotec pioneered seed priming -- a technology that accelerates
germination -- nearly 30 years ago. Today, Incotec offers diversified technology
to serve the vegetable and fruit, flower and tobacco seed industries. Incotec
expects to achieve future growth through investment in new seed enhancement
technology and product development, a stronger presence in the agronomic seed
enhancement market and the pursuit of strategic alliances with outside
technology suppliers and the agricultural chemical industry.
QUALITY ASSURANCE
Seminis' extensive quality assurance program provides growers with
confidence in seed performance. Seminis' seeds undergo a rigorous quality
assurance program, which includes extensive field and greenhouse variety
identification trials, physiological and pathology tests and other sophisticated
laboratory techniques using genetic marker technology. Seed quality is monitored
thoroughly through methods ranging from inspection of the parent plants for
health and genetic purity to harvest and sale of only the most vigorous seed.
Once harvested and conditioned, seeds are evaluated and certified by
technicians, pathologists and other scientists for characteristics such as
genetic purity, physical purity, germination, moisture content, vigor and the
absence of seed-borne diseases. This program ensures that Seminis seeds produce
plants that have high yields, are tolerant to drought, insects and diseases and
efficiently use soil and water nutrients.
Seminis has begun an ISO 9000 certification effort, which will result in
standardized quality systems throughout Seminis. ISO 9000 is a series of
international standards for the development and implementation of quality
systems for all types of industries, as issued by the
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International Organization for Standardization in Geneva, Switzerland. These
quality systems are aimed at building quality into the product at each stage of
research, production and operations. Seminis expects to earn ISO 9000
certification for most of its operations in mid-1999.
COMPETITION
Seminis faces substantial competition from technological advances by
competitors such as other seed companies, chemical and pharmaceutical companies
and biotechnology companies, many of which have substantially greater resources
than Seminis. To remain competitive, Seminis expends substantial resources for
research and development and strives to maintain technological alliances.
Seminis also competes on the basis of pricing and financial terms.
INTELLECTUAL PROPERTY
Seminis uses a wide array of technological and proprietary processes to
enhance its germplasm and product development programs. These technologies and
proprietary processes enable Seminis to create novel product concepts and reduce
the time to market by, in many cases, two to five years. Seminis files for
patents on technology that is patentable, although it does not file for patents
on all potentially patentable technologies. Seminis currently owns or has
pending patents in such areas as virus resistance, product quality, breeding
technology, gene expression, cell selection and resistance genes, including 63
issued or allowed patents in Australia, Austria, Belgium, Canada, Denmark,
France, Germany, Great Britain, Italy, Luxembourg, Spain, Sweden, Switzerland,
The Netherlands and the United States. Seminis currently has 135 patent
applications filed, or pending, in Argentina, Australia, Brazil, Canada, Chile,
China, the Czech Republic, the European Union, Hungary, India, Indonesia,
Israel, Japan, Macedonia, Mexico, New Zealand, Norway, Poland, Romania, Russia,
South Korea, Saudi Arabia, Spain, Thailand, Turkey, Ukraine and the United
States.
Intellectual property rights protect Seminis products and technologies
from use by competitors and others. Intellectual property rights of importance
for Seminis include utility patents, registrations under plant variety
protection laws and trade secrets. Intellectual property rights focus on
open-pollinated varieties, parental lines, traits and gene technologies related
to hybrid varieties, novel traits, novel breeding technologies, molecular
markers and disease resistance.
In many countries, including the United States, most of the European Union
and Japan, plant varieties can be protected under laws which grant rights to
plant breeders to protect their seeds, including the right to prevent third
parties from importing or exporting, storing, processing, reproducing or selling
protected varieties within the territory of protection. Seminis has protected
368 plant varieties under plant variety protection certificates or plant variety
right certificates in the United States, the European Union, Kenya and Israel.
Seminis has filed another 75 applications for plant variety protection in the
United States and the European Union.
Seminis intends to continue developing comprehensive intellectual property
and protection through utility patents, including key varieties and parent
lines. Seminis will also aggressively expand protection of its varieties and
parent lines through plant variety rights. Proprietary technologies not
protected under these mechanisms are protected under trade secret laws.
REGULATION
The developing, testing and commercialization of seed products are subject
to legislation and regulation in various countries. These regulations may govern
genetic exclusivity, environmental concerns, product viability, performance and
labeling. While regulation adds a cost of doing business to the industry, it
also provides protection for research and development investment in new
products, thereby encouraging continued new product development.
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REGISTRATION PROCESS
Variety registration varies from country to country, but generally each
variety must be phenotypically unique. That is, the size, color, maturity and
quality must be verifiably different from the varieties that already exist in
the market. Once a variety is registered it cannot be changed. In the United
States, the registration process is voluntary and determination that a variety
is unique is left to the breeder. In Europe the registration process is
regulated and determination of uniqueness is made in official trials.
PHYTOSANITARY CERTIFICATION
The purpose of phytosanitary requirements is to prevent the spread of
plant diseases that can be carried on seed or other plant tissue. Each
seed-producing country has agricultural inspectors that check the seed crops for
the presence of specified diseases. After these crops are harvested, laboratory
tests are also conducted to ensure that the seed is clean. Having passed the
inspection and lab tests, the department or ministry of agriculture of the
producing country issues a phytosanitary certificate stating that the seed is
free of specified diseases. Importing countries then allow the seed to cross
their borders on the basis of these certificates.
LABELING OF GENETICALLY ENGINEERED PRODUCTS
There are no worldwide, accepted regulations for genetically engineered
products. Consequently, Seminis is required to seek and obtain regulatory
approvals in each country where seeds will be sold and where the harvested
produce will be exported. In the European Union and Switzerland, labeling of
genetically engineered products is mandatory, whereas in other countries, such
as Canada and the United States, labeling is required only if there is a
compositional change or a health risk associated with the product. Japan,
Australia and New Zealand are considering labeling requirements. Other regions
where Seminis sells products either have labeling requirements similar to the
United States or have no labeling requirements. Seminis will comply with the
labeling requirements of each country in which it conducts business.
ENVIRONMENTAL REGULATION
Seminis' business is not sensitive to, or highly regulated by,
environmental laws. Seminis uses various equipment which is subject to federal,
state and local clean air and water regulations. Also, Seminis' research and
quality assurance divisions conduct various agricultural growing operations
utilizing chemicals routinely used in any farming operation. Seminis' foreign
operations are also subject to laws of foreign jurisdictions as to environmental
matters. Seminis believes it is in full compliance with these laws.
In its operations, Seminis uses very limited amounts of materials or
matters which have been categorized as "hazardous substances." Seminis believes
that its use has always been in full compliance with all applicable laws, rules
and regulations.
Seminis has no knowledge of any current, pending or threatened citation or
complaint, civil or criminal, relating to any alleged violation of any law, rule
or regulation relating to any environmental matter.
PROPERTIES/FACILITIES
Seminis' principal office is located in a company-owned facility in
Saticoy, California and plans to relocate this facility to Oxnard, California in
1999. Seminis directly controls significant, open-field production capacity in
Chile, Mexico and Peru on land predominantly owned by Seminis. Seminis' main
greenhouse production facilities are located in France and Mexico on sites owned
by Seminis, and in Chile and The Netherlands on sites owned by Seminis and
contracted out to third parties who grow seeds exclusively for Seminis.
Seminis maintains several processing facilities throughout the world,
equipped to handle seed cleaning, sizing, treating, testing and packaging.
Seminis owns and operates processing facilities in California, Idaho,
Washington, Chile, France, New Zealand, South Africa, South Korea, Thailand and
The Netherlands.
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Seminis conducts its research primarily at six company-owned research
centers in France, Italy, South Korea, The Netherlands and the United States.
Seminis owns 49 and leases 21 additional research facilities.
EMPLOYEES
As of December 31, 1998, Seminis had approximately 3,000 employees.
Seminis believes it has good relations with its employees.
LEGAL PROCEEDINGS
Seminis is involved from time to time as a defendant in various lawsuits
arising in the normal course of business. Seminis believes that no current
claims, individually or in the aggregate, will have a material adverse effect on
Seminis' business, results of operations or financial condition.
In November 1998, Seminis received notice from Monsanto of a complaint
filed by Pioneer Hi-Bred International, Inc. in the United States District Court
for the Southern District of Iowa against Asgrow Seed Company LLC. The complaint
alleges violations of the Lanham Act, misappropriation of trade secrets and
other common law causes of action. Monsanto claimed that indemnities provided by
Seminis to Monsanto in connection with Seminis' sale of the Asgrow agronomics
business to Monsanto covered the claims in Pioneer's complaint. Also in November
1998, Seminis provided notice to Pharmacia & Upjohn that in connection with
Seminis' acquisition of the Asgrow Seed Company and the subsequent sale of the
Asgrow agronomics business Upjohn agreed to indemnify Seminis and Monsanto in
connection with the matters asserted in Pioneer's complaint. Seminis is
currently investigating this matter and is in discussion with Pharmacia & Upjohn
and Monsanto. Seminis does not believe that it has any material exposure in
connection with this matter.
As part of the formation of LSL PlantScience, LSL Biotechnologies
contributed certain agreements between LSL Biotechnologies and a third party.
These agreements contain provisions that permanently restrict the third party
from engaging in the development or marketing of open field tomato seeds having
long-shelf-life characteristics in certain areas in the world, including North
America. In addition, these agreements restrict the third party from engaging in
the production of such seeds until the year 2000. Seminis understands that the
staff of the Antitrust Division of the United States Department of Justice has
informed LSL Biotechnologies' counsel that the Department of Justice staff has
recommended the filing of a complaint against LSL Biotechnologies to ask a court
to delete the restrictive provisions in those agreements. Seminis believes that
there will not be a material impact upon its business if the Department of
Justice is successful in deleting the restrictive covenants.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the directors
and executive officers of Seminis as of May 1, 1999.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Alfonso Romo Garza.................. 48 Director and Chairman of the Board
Alejandro Rodriguez Graue........... 48 Director, President and Chief Operating
Officer
Francisco Gonzalez Sebastia......... 67 Director
Bernardo Jimenez Barrera............ 46 Director
G. Carl Ball........................ 77 Director
George Carl Ball, Jr................ 47 Director
Dr. Peter Davis..................... 55 Director
Timothy M. George................... 46 Director
Frank J. Pipp....................... 73 Director
Dr. Eli Shlifer..................... 68 Director
Eugenio Najera Solorzano............ 51 Director
Christopher J. Steffen.............. 57 Director
Octavio Hernandez................... 45 Vice President and Chief Financial Officer
Dr. Allen Stevens................... 63 Vice President -- Research and Development
Jordi Majo.......................... 48 Vice President -- Europe, Middle East, and
North Africa, Sales
James H. Hulbert.................... 44 Vice President -- North America
Dr. Mark D. Stowers................. 42 Vice President -- Business Development
</TABLE>
ALFONSO ROMO GARZA has been the Chairman of the Board of Seminis since
October 1995. Mr. Romo has been Chief Executive Officer of Pulsar Internacional,
S.A. de C.V., an affiliate of Savia, since 1984. Mr. Romo has also been the
Chairman of the Board and Chief Executive Officer of Savia since 1988, the
Chairman of the Board and Chief Executive Officer of Seguros Comercial America,
S.A. de C.V., a majority owned subsidiary of Savia, since 1989 and the Chairman
of the Board of Empaques Ponderosa, S.A. de C.V., a majority owned subsidiary of
Savia, since 1995. Mr. Romo is a director of Cementos Mexicanos, S.A. de C.V.
ALEJANDRO RODRIGUEZ GRAUE has been a director of Seminis since May 1998.
Mr. Rodriguez has been President of Seminis since February 1999. Mr. Rodriguez
has been President and Chief Operating Officer of Seminis Vegetable Seeds, Inc.,
a subsidiary of Seminis, since February 1997. From 1992 to 1997, Mr. Rodriguez
was the General Director (Chief Operating Officer) of Agro Industrias Moderna,
S.A. de C.V., a subsidiary of Savia.
FRANCISCO GONZALEZ SEBASTIA has been a director of Seminis since October
1995. Mr. Gonzalez has served as an advisor to Savia since February 1997. From
October 1995 to February 1997, he served as the Chief Executive Officer of
Seminis. From January 1994 to October 1995, Mr. Gonzalez served as Chief
Executive Officer for the Agrobiotechnology Division of Savia. Mr. Gonzalez is a
director of Savia and Bionova Holding Corporation, a majority owned subsidiary
of Savia and an affiliate of Seminis.
BERNARDO JIMENEZ BARRERA has been a director of Seminis since October
1995. Mr. Jimenez has been the Chief Executive Officer, Chairman of the Board
and a director of Bionova since October 1996. From October
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1995 to October 1996, Mr. Jimenez was Chief Financial Officer of Savia. From
March 1993 to October 1995, Mr. Jimenez served as head of the Industrial Banking
Division of the Vector Group, a financial services company in Mexico which is
affiliated with Savia. Mr. Jimenez is a director of Savia.
G. CARL BALL has been a director of Seminis since October 1995. Mr. Ball
was Chairman of the Board of Geo. J. Ball, Inc. from 1962 until its merger with
Seminis in October 1995. G. Carl Ball is the father of George C. Ball, Jr.
GEORGE C. BALL, JR. has been a director of Seminis since October 1995. Mr.
Ball has been President of Burpee Holding Company since 1993. Mr. Ball was a
director of Geo J. Ball, Inc. from 1989 until its merger with Seminis in October
1995. Mr. Ball also served a two year term as Chairman of the Board of Petoseed.
George C. Ball, Jr. is the son of G. Carl Ball.
DR. PETER DAVIS has been a director of Seminis since October 1995. From
1975 to 1994, Dr. Davis was a member of the faculty of the Wharton School of the
University of Pennsylvania. Dr. Davis has been President of the Family Business
Group Inc., a consulting firm specializing in strategic issues for closely-held
companies, since May 1986. Dr. Davis is a member of the executive committee of
Pulsar and a director of Bionova.
TIMOTHY M. GEORGE has been a director of Seminis since May 1999. Mr.
George has been a Managing Director of Greenhill & Co., LLC since February 1997.
From August 1984 to February 1997, Mr. George served as a Managing Director of
Morgan Stanley Dean Witter, Inc. Mr. George also has a membership interest in
Greenhill & Co., LLC, which has been retained by Seminis to act as financial
advisor in connection with the offering.
FRANK J. PIPP has been a director of Seminis since December 1995. Mr. Pipp
has been a consultant to Xerox Corporation since 1988. From 1980 to 1988, Mr.
Pipp was Corporate Officer, Group Vice President of Xerox responsible for
worldwide product development and manufacturing. Mr. Pipp is a director of
Advanced Hi-Tech, Inc., AAVID Thermal Technologies Inc. and Nypro, Inc.
DR. ELI SHLIFER has been a director of Seminis since January 1997. Dr.
Shlifer is self employed and has served as a consultant for Pulsar for more than
five years. Dr. Shlifer is a director of Bionova.
EUGENIO NAJERA SOLORZANO has been a director of Seminis since May 1998.
Since August 1997, Mr. Najera has been in charge of new business development at
Savia. From November 1992 to September 1997, Mr. Najera was the Chief Operating
Officer of Cigarrera La Moderna, S.A. de C.V. Mr. Najera is a director of Savia
and Bionova.
CHRISTOPHER J. STEFFEN has been a director of Seminis since January 1997.
Since December 1996, Mr. Steffen has been a business consultant. From May 1993
to December 1996, Mr. Steffen was Vice Chairman and a director of Citicorp,
predecessor to CitiGroup, N.A. and its principal subsidiary, Citibank, N.A.
OCTAVIO HERNANDEZ has been Vice President and Chief Financial Officer of
Seminis since April 1999. Mr. Hernandez served as Director of Business
Development of Seminis from October 1997 until the time he took his current
position. For more than three years prior to being with Seminis, Mr. Hernandez
was Director of Business Development for Savia, focusing on the agro-
biotechnology industry.
DR. ALLEN STEVENS has been Vice President -- Research and Development of
Seminis since February 1999. Dr. Stevens has been Vice President of Research of
Seminis Vegetable Seeds since October 1995 when Petoseed was acquired as part of
Seminis' merger into Geo. J. Ball, Inc. Dr. Stevens joined Petoseed as Vice
President of Research in 1989.
JORDI MAJO has been Vice President -- Europe, Middle East and North
Africa, Sales of Seminis Vegetable Seeds since October 1998. Mr. Majo served as
Vice President and General Manager, South Europe, Middle East and North Africa
from 1981 to 1998, General Manager of Petosluis Iberica from 1995 to
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<PAGE> 52
1996 and General Manager of Petoseed Iberica from 1981 to 1995.
JAMES H. HULBERT has been Vice President -- North America of Seminis since
February 1999. Mr. Hulbert has also served as Vice President of Sales and
Marketing for the Americas and Strategic Planning of Seminis Vegetable Seeds
since 1996. From 1993 to 1996, Mr. Hulbert served as Vice President, Sales for
North America and Asia for Seminis and Petoseed which was acquired as part of
Seminis' merger into Geo. J. Ball, Inc.
DR. MARK D. STOWERS has been Vice President -- Business Development of
Seminis since February 1999. From 1996 to 1999 Dr. Stowers was Vice President
World Wide Marketing of Seminis Vegetable Seeds. From 1995 to 1996, Dr. Stowers
served as Vice President of Operations and Information of Gargiulo, Inc., a
wholly-owned subsidiary of Monsanto. Dr. Stowers was Business Director/Business
Development Director for Monsanto Company from 1989 to 1995.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The board of directors is classified into three classes with each class
elected to a term of three years, except during an initial phase-in period. The
terms of Messrs. Gonzalez, Jimenez, Davis and Shlifer will expire at the 2000
annual meeting. The terms of Messrs. G. Carl Ball, George Carl Ball, Pipp and
Steffen will expire at the 2001 annual meeting. The terms of Messrs. Romo,
Najera, Rodriguez and George will expire at the 2002 annual meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has appointed an audit committee and a compensation
committee. The current members of the audit committee are Messrs. George, Pipp
and Steffen, with Mr. George serving as chairman of the committee. The audit
committee makes recommendations concerning the engagement of independent public
accountants, reviews the results of Seminis' annual audit and reviews with
Seminis' independent public accountants Seminis' internal controls and financial
management policies. The current members of the compensation committee are
Messrs. George, Pipp and Steffen, with Mr. George serving as chairman of the
committee. The compensation committee establishes Seminis' general compensation
and benefits policy and recommends to the board of directors compensation for
Seminis' officers and key employees.
COMPENSATION OF DIRECTORS
Seminis anticipates that following the consummation of the offering,
Seminis' outside directors will be paid an annual board membership fee of
$25,000, a fee of $2,500 for each meeting of the board of directors attended and
a fee of $750 for each committee meeting attended. Committee chairmen will be
paid an additional annual fee of $2,000 and an additional fee of $250 for each
committee meeting attended. Outside directors will also be eligible to receive
options under the Seminis stock option plan.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents summary information concerning compensation
paid or accrued by Seminis for services rendered in all capacities during the
fiscal year ended September 30, 1998 for (1) the President and Chief Operating
Officer and (2) the four other most highly compensated executive officers of
Seminis who were serving at the end of fiscal 1998. Mr. Larkin retired from
Seminis in April 1999.
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<PAGE> 53
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Alejandro Rodriguez Graue......................... 1998 352,910 628,093 35,046
President and Chief Operating Officer
James M. Larkin................................... 1998 249,933 201,940 13,476
Vice President and Chief Financial Officer
Dr. Allen Stevens................................. 1998 222,848 107,182 15,251
Vice President--Research and Development
James H. Hulbert.................................. 1998 187,443 152,303 12,828
Vice President--North America
Jordi Majo........................................ 1998 194,947 99,551 8,095
Vice President--Europe, Middle East and North
Africa, Sales of Seminis Vegetable Seeds, a
subsidiary of Seminis
</TABLE>
OPTIONS GRANTED IN FISCAL 1998
The table below sets forth information regarding stock options granted
pursuant to the Seminis, Inc. 1998 Stock Option Plan during the fiscal year
ended September 30, 1998 to each of the named executive officers.
The percent of total options granted to employees in the last fiscal year
is based on an aggregate of 267,181 options granted, net of forfeitures, to
employees in fiscal 1998, including options granted to the named executive
officers. The exercise price per share of each option was equal to the fair
market value of the Class A common stock on the date of the grant as determined
by the board of directors.
Potential realizable values are computed by:
- - multiplying the number of shares of Class A common stock subject to a given
option by the assumed initial public offering price of $19.50 per share, the
midpoint of the range specified on the cover page of this prospectus;
- - assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire term
of the option; and
- - subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent Seminis' estimate or projection of future Class A common stock prices.
Actual gain, if any, resulting from stock option exercises and Class A common
stock holdings are dependent on the future performance of the Class A common
stock, overall stock market conditions and the option holder's continued
employment with Seminis through the vesting period. There can be no assurance
that the amounts reflected in the table will be achieved.
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<PAGE> 54
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
---------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS EXERCISE OF STOCK PRICE
SECURITIES GRANTED TO OR BASE FOR APPRECIATION
UNDERLYING EMPLOYEES PRICE PER FOR OPTION TERM
OPTIONS IN LAST SHARE EXPIRATION ----------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ------------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Alejandro Rodriguez Graue........... 35,046 13.1% 18.71 6/30/08 404,431 955,704
James M. Larkin..................... 13,476 5.0 18.71 6/30/08 155,513 367,491
Dr. Allen Stevens................... 15,251 5.7 18.71 6/30/08 175,997 415,895
James H. Hulbert.................... 12,828 4.8 18.71 6/30/08 148,035 349,820
Jordi Majo.......................... 8,095 3.0 18.71 6/30/08 93,416 220,751
</TABLE>
FISCAL 1998 YEAR END OPTION VALUES
The following table sets forth information concerning unexercised options
held by the named executive officers as of September 30, 1998. The values of
unexercised in-the-money options represent the positive spread between the
respective exercise prices of outstanding stock options and assumed initial
public offering price of $19.50 per share, the midpoint of the range set forth
on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alejandro Rodriguez Graue............... 8,762 26,284 6,922 20,764
James M. Larkin......................... 3,369 10,107 2,662 7,985
Dr. Allen Stevens....................... 3,813 11,438 3,012 9,036
James H. Hulbert........................ 3,207 9,621 2,534 7,601
Jordi Majo.............................. 2,024 6,071 1,599 4,796
</TABLE>
THE 1998 STOCK OPTION PLAN
In early 1998, Seminis adopted a stock option plan, the Seminis, Inc. 1998
Stock Option Plan. The plan provides for the issuance of up to 3,677,150 shares
of Class A common stock pursuant to options granted to key employees. If any
options granted under the plan expire or terminate prior to exercise, the shares
subject to the portion of the option not exercised will be available for
subsequent grants. The number of shares and the exercise price per share of
Class A common stock that may be issued pursuant to outstanding stock options
will be subject to adjustment upon the occurrence of events described in the
plan. Individuals eligible for awards under the plan shall be key employees,
consultants, advisors and members of the board of directors or those who will
become key employees, consultants, advisors and members of the board of
directors of Seminis or any subsidiary.
The plan is administered by the board of directors, or by a committee of
two or more directors of Seminis, as may be appointed by the board of directors.
The board of directors or the committee has broad powers to administer and
interpret the plan, including the authority:
- to establish rules for the administration of the plan;
- to select the participants in the plan;
- to determine the types of awards to be granted and the number of shares
covered by such awards; and
- to set the terms and conditions of such awards.
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<PAGE> 55
All determinations and interpretations of the board of directors or the
committee are binding on all interested parties.
Options granted under the plan may be either "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, or "nonqualified stock options" that do not qualify for special tax
treatment under Section 422 or similar provisions of the Internal Revenue Code.
No stock option may be granted with a per share exercise price less than the
fair market value, as defined below, of a share of the underlying Class A common
stock on the date the stock option is granted. Fair market value of a share of
Class A common stock for a particular day means the fair market value of a share
of Class A common stock, as determined in good faith by the board of directors
in its sole discretion, using the most recent prior annual valuation of Seminis,
as defined in the plan.
In general, unless otherwise provided in the participant's award agreement
or employment agreement, stock options shall become exercisable in four equal
annual installments, commencing on the first anniversary of the date of the
grant. The terms of each option granted under the plan will expire ten years, or
five years for 10% stockholders, after the date immediately preceding the date
on which the option was granted. If a participant's employment with Seminis or
any subsidiary is terminated for cause, any then unexercised options shall be
forfeited and canceled by Seminis. If a participant's employment is terminated
without cause by Seminis or voluntarily by the participant, all options
exercisable on the date of termination may be exercised by the participant for
ninety and thirty days, respectively. If a participant dies or becomes disabled,
all stock options exercisable on the date of death or termination due to
disability may be exercised for six months thereafter. The board of directors
has discretion to lengthen these post-termination exercise periods. All
unexercisable stock options are forfeited upon termination of employment for any
reason. In addition, in the event a participant's employment is terminated for
any reason prior to the closing of the offering, all shares of Class A common
stock acquired by the participant are subject to the right of Seminis to buy
these shares within 270 days after any such employment termination.
In general, awards under the plan may not be transferred by the
participant other than by will or the laws of distribution, and options may be
exercised, during the participant's lifetime, only by the participant. In
addition, prior to the closing of the offering, shares of Class A common stock
acquired upon the exercise of a stock option are transferable only to trust
arrangements established for the benefit of a participant's immediate family
members. Notwithstanding the above, if Savia decides to sell all or
substantially all of its interest in Seminis to a third party, Savia can compel
a participant to sell the participant's Class A common stock to the third party
buyer on the same terms and conditions upon which Savia is selling its interest.
The board of directors may terminate or amend the plan at any time except
that the terms of any option agreements then outstanding may not be materially
adversely affected without the consent of the individual.
Currently, options to acquire approximately 267,181 shares of Class A
common stock have been awarded under the plan with an exercise price of $18.71
per share. Upon the closing of the offering, no additional awards will be made
under the plan on the terms described above. However, after the offering, awards
may be made pursuant to the plan, as amended, as described below.
THE AMENDED AND RESTATED PLAN
Prior and subject to the closing of the offering, the board of directors
approved, and adopted, and Seminis adopted, amendments to and a restatement of
the stock option plan. The primary purposes of the amendment and restatement of
the plan were to eliminate provisions of the plan that would be inappropriate
for a publicly-held corporation, to qualify awards under the plan as "qualified
performance-based compensation" under Section 162(m) of the Internal Revenue
Code and to facilitate obtaining Securities Exchange Act Rule 16b-3 exemptions
for awards made
53
<PAGE> 56
under the plan. The amended and restated plan will, after the closing of the
offering, be administered only by a committee of the board of directors
comprised of non-employee directors. The material terms of the amended and
restated plan are substantially similar to the terms of the plan prior to its
amendment and restatement, except that under the amended and restated plan:
- - The fair market value of the shares of Class A common stock will, in the
normal course, no longer be determined by Seminis' board of directors on an
annual basis or otherwise, but rather by reference to the closing price of the
Class A common stock as reported for the Nasdaq National Market;
- - The amended and restated plan will be administered solely by an administrative
committee of non-employee directors;
- - Annual maximum award limitations have been incorporated into the amended and
restated plan precluding any participant from receiving stock options covering
more than 750,000 shares of the Class A common stock in any one calendar year;
- - The administrative committee will have the discretion to award transferable
stock options;
- - Seminis will no longer have the right to purchase from a terminated
participant the Class A common stock acquired by such participant upon the
exercise of a stock option;
- - The shares of Class A common stock acquired by a participant upon the exercise
of a stock option will no longer be subject to any plan-based transfer or lock
up restrictions;
- - Savia will no longer possess any rights to require a participant to sell his
or her shares of Class A common stock acquired pursuant to the exercise of any
stock option; and
- - In the event of a merger, reorganization or consolidation of Seminis, it will
be able to elect to redeem unexercised stock options in exchange for a cash
payment equal to the excess, if any, of the fair market value of the shares
underlying the stock options over the aggregate exercise price of the stock
options.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of common stock, as of the date of this prospectus, by each of Seminis'
directors, the President and Chief Operating Officer and the other named
executive officers, each person known to Seminis to own beneficially more than
5% of the outstanding shares of common stock, and all directors and executive
officers of Seminis as a group.
As of the date of this prospectus, there are no shares of Class A common
stock outstanding. The number of shares of Class A common stock reflect options
that are exercisable within 60 days of the date of this prospectus, and the
calculation of percentage beneficial ownership of Class A common stock assumes
the exercise of these options only by the respective named stockholder.
The calculation of percentage beneficial ownership of Class B common stock
is based on 46,074,386 shares of Class B common stock outstanding prior to the
offering. In addition, the number of shares of Class B common stock for each
person in the table assumes such persons do not convert any Class B common stock
into Class A common stock. The number of shares beneficially owned by Alfonso
Romo Garza includes shares beneficially owned by Savia and other entities
controlled by Mr. Romo as well as shares directly owned by Mr. Romo. The number
of shares beneficially owned by Savia includes shares beneficially owned by
entities controlled by Savia as well as shares directly owned by Savia. As of
the date of this prospectus, Seminis had no holders of Class A common stock and
18 holders of Class B common stock.
The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as those beneficially owned by them.
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
COMMON STOCK COMMON STOCK COMMON STOCK
---------------- -------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------------------------------------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Alfonso Romo Garza............................. -- --% 42,823,515 92.9% 42,823,515 92.9%
Chairman of the Board and Director
c/o Pulsar International, S.A. de C.V
Ave. Roble No. 300
Torre Alta
Col. Valle del Campestre
66265 Garza Garcia, N.L. Mexico
Savia, S.A. de C.V. ........................... -- -- 40,615,619 88.2 40,615,619 88.2
Av. Batallon de San Patricio
No. 111-40 Piso
Colonia Valle Oriente
66269 San Pedro, Garza Garcia, N.L
G. Carl Ball................................... -- -- 1,042,362 2.3 1,042,362 2.3
George C. Ball, Jr. ........................... -- -- 180,131 * 180,131 *
Francisco Gonzalez Sebastia.................... -- -- -- -- -- --
Bernardo Jimenez Barrera....................... -- -- -- -- -- --
Dr. Peter Davis................................ -- -- -- -- -- --
Timothy M. George.............................. -- -- -- -- -- --
Frank J. Pipp.................................. -- -- -- -- -- --
Dr. Eli Shlifer................................ -- -- -- -- -- --
Eugenio Najera Solorzano....................... -- -- -- -- -- --
Christopher J. Steffen......................... -- -- -- -- -- --
Alejandro Rodriguez Graue...................... 8,762 100.0 -- * 8,762 *
James M. Larkin................................ 6,738 100.0 -- * 6,738 *
Dr. Allen Stevens.............................. 3,813 100.0 -- * 3,813 *
James H. Hulbert............................... 3,207 100.0 -- * 3,207 *
Jordi Majo..................................... 2,024 100.0 -- * 2,024 *
All directors and executive officers of
Seminis as a group (16 persons).............. 24,544 100.0 44,046,008 95.6 44,070,552 95.6
</TABLE>
- ---------------
* Less than 1%.
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<PAGE> 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement between Seminis and Bionova, Seminis pays Bionova
a minimum fee of $2.5 million per year for access to the results of Bionova's
biotechnology research. This agreement will end pursuant to its terms on January
1, 2007. Savia is the majority stockholder in Bionova.
In connection with the sale of the agronomic segment in fiscal 1997,
Seminis paid $8.0 million in fees to Savia for investment banking and other
professional fees and services provided in connection with the sale.
Seminis paid management fees to Savia of $8.5 million in fiscal 1998 and
$6.2 million in fiscal 1997. This management fee was discontinued as of October
1, 1998.
As part of the financing provided by Savia to Seminis in connection with
the acquisition of Hungnong, Savia loaned Seminis $35.9 million evidenced by a
subordinated convertible note bearing interest at a rate of 10% per annum,
payable quarterly, which was due in annual installments through July 2001. Savia
converted this note into 1,916,462 shares of Class B common stock on February 1,
1999.
In December 1998, Savia made an equity investment in Seminis of $10.0
million in exchange for 1,000 shares of Class C preferred stock. Seminis issued
33.8 shares of Class C preferred stock as required dividend payments through
April 1, 1999. In March 1999, Savia made an additional equity investment in
Seminis of $20.0 million in exchange for 2,000 shares of Class C preferred
stock. These 2,000 shares will be redeemed for $20.0 million, plus accrued and
unpaid dividends, from the proceeds of the offering.
In January 1999, Savia made an intercompany advance to Seminis of $20.0
million for working capital requirements. The advance will be repaid with the
proceeds of the offering and Seminis' new credit facility.
In March 1999, as part of a financing, Savia pledged as collateral shares
of Class B common stock it owns. These shares constitute 49% of the issued and
outstanding common stock of Seminis prior to the offering. Savia also placed
additional shares of Class B common stock into a trust, which shares constitute
2% of the issued and outstanding shares of common stock of Seminis prior to the
offering. Upon completion of the offering, Savia will be required to pledge, or
put into the trust, additional shares of Class B common stock that it owns to
maintain an aggregate collateral deposit of 51%.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Seminis will have a total of 13,750,000
shares of Class A common stock outstanding. All shares of Class A common stock
sold in the offering will be freely tradable by persons other than "affiliates"
of Seminis without restriction under the Securities Act. All shares of Class B
common stock, and any shares of Class A common stock issued upon conversion of
shares of the Class B common stock or issued upon exercise of outstanding
options, will be "restricted" securities within the meaning of Rule 144 under
the Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including the
exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person, or persons whose shares are aggregated, who has
beneficially owned "restricted" shares for at least one year, including a person
who may be deemed an affiliate of Seminis, is entitled to sell within any
three-month period a number of shares of Class A common stock that does not
exceed the greater of 1% of the then-outstanding shares of Class A common stock
of Seminis or the average weekly trading volume of the Class A common stock on
the Nasdaq National Market during the four calendar weeks preceding such sale.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about Seminis. A
person who is not an affiliate of Seminis and has not been such at any time
during the 90 days preceding a sale, and who
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<PAGE> 59
has beneficially owned "restricted" shares for at least two years, would be
entitled to sell such shares immediately following the offering without regard
to the volume limitations, manner of sale provisions or notice or other
requirements of Rule 144 of the Securities Act. However, the transfer agent may
require an opinion of counsel that a proposed sale of "restricted" shares comes
within the terms of Rule 144 of the Securities Act prior to effecting a transfer
of such shares. Such opinion would be provided by and at the cost of the
transferor.
Seminis has agreed that it will not sell, offer to sell, contract to sell
or otherwise dispose of any shares of common stock or any securities convertible
into or exchangeable for shares of common stock, without the prior consent of
Goldman, Sachs & Co., for a period of 180 days from the date of this prospectus.
This agreement does not apply to options or shares issued pursuant to its
existing employee benefit plans. In addition, Seminis may issue shares of common
stock to fund future acquisitions, provided that the recipient enters into a
similar lock-up arrangement.
Savia, the directors and executive officers of Seminis and other
stockholders holding in the aggregate shares of common stock have
agreed that they will not dispose of or hedge any of Seminis' common stock or
any securities convertible into or exchangeable for shares of common stock for a
period of 180 days from the date of this prospectus, without the prior written
consent of Goldman, Sachs & Co. In addition, Savia may pledge additional shares
of common stock to the extent necessary to comply with its recent borrowings.
The other stockholders have agreed in a registration rights agreement between
them and Seminis that they will not sell publicly shares of common stock for 180
days from the date of this prospectus. See the "Underwriting" section for a
detailed description of these agreements.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Seminis' certificate of incorporation provides that it has authority to
issue 10,000,000 shares of preferred stock, par value $.01 per share. Of these
10,000,000 shares, Seminis has authorized 25,000 shares of Class A mandatorily
redeemable preferred stock, 25,000 shares of Class B mandatorily redeemable
preferred stock and 6,000 shares of Class C preferred stock. For the remaining
9,944,000 shares of preferred stock reserved for issuance by Seminis, the board
of directors may fix the relative rights and preferences in a resolution of the
board of directors.
Seminis' certificate of incorporation also provides that it has authority
to issue 158,000,000 shares of common stock, par value $.01 per share. The
common stock is divided into two classes, consisting of 91,000,000 shares of
Class A common stock and 67,000,000 shares of Class B common stock. Upon
consummation of the offering, 13,750,000 shares of Class A common stock and
46,074,386 shares of Class B common stock will be issued and outstanding and,
after the redemption of 2,000 shares of Class C preferred stock, 25,000 shares
of Class B mandatorily redeemable preferred stock and 1,033.8 shares of Class C
preferred stock will be issued and outstanding.
COMMON STOCK
VOTING RIGHTS
Holders of Class B common stock are entitled to three votes per share and
holders of Class A common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders. Class A common stock and Class B
common stock shall vote as a single class on all matters to be voted on by
Seminis' stockholders, including, without limitation, any consolidation or
merger of Seminis into or with any other corporation or the sale or transfer by
Seminis of all or substantially all of its assets. With the approval of a
majority of the shares of the Class B common stock, voting separately as a
class, Seminis may lower the number of votes per share each share of Class B
common stock shall be entitled to vote.
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<PAGE> 60
DIVIDENDS
Holders of common stock are entitled to receive ratably dividends payable
in cash, in stock or otherwise if, as and when declared by the board of
directors out of assets legally available therefor, subject to any preferential
rights of any outstanding preferred stock.
CONVERSION RIGHTS
Each share of Class B common stock shall automatically be converted into
one share of Class A common stock, without any action by Seminis or further
action by the holder thereof, upon the transfer of such share, other than the
following transfers:
- - to any other holder of Class B common stock or an affiliate of a holder of
Class B common stock which holder is a "Business Organization," as defined in
the certificate of incorporation;
- - to a trust for the sole benefit of a holder of Class B common stock who is a
natural person;
- - to a spouse, sibling, parent, grandparent or descendant, whether natural or
adopted, of a holder of Class B common stock;
- - to a trust for the sole benefit of a spouse, sibling, parent, grandparent or
descendant, whether natural or adopted, of a holder of Class B common stock;
- - by will to a spouse, sibling, parent, grandparent or descendant, whether
natural or adopted, of a holder of Class B common stock;
- - pursuant to the laws of descent and distribution to a spouse, sibling, parent,
grandparent or descendant, whether natural or adopted, of a holder of Class B
common stock;
- - to any charitable foundation or other organization qualified under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended; or
- - to Seminis.
Each share of Class B common stock shall, at the option of the holder
thereof, be convertible into one share of Class A common stock at any time. For
purposes of this paragraph, "Affiliate" means, with respect to any Business
Organization, any natural person or Business Organization that, directly or
indirectly through one of more intermediaries, controls, or is controlled by, or
is under common control with, such Business Organization.
OTHER RIGHTS
On liquidation, dissolution or winding up of Seminis, after payment in
full of the amounts required to be paid to the holders of any outstanding
preferred stock, all holders of common stock are entitled to receive ratably any
assets available for distribution to holders of shares of common stock after the
payment of all debts and other liabilities of Seminis. No shares of common stock
have preemptive rights to purchase additional shares of common stock. All the
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are, and the shares
offered by Seminis will be, subject to and may be adversely affected by the
rights of holders of outstanding preferred stock. All shares of Class A common
stock and Class B common stock which are acquired by Seminis shall be available
for reissuance by Seminis at any time.
PREFERRED STOCK
GENERALLY
The board of directors of Seminis is authorized, subject to limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 10,000,000 shares of preferred stock, in one or more
series, and to determine or alter the designations, preferences, rights, and any
qualifications, limitations, or restrictions of the shares of each such series
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, including sinking fund provisions, redemption price
or prices, liquidation preferences and the number of shares constituting any
series or designations of such series. The exercise of this authority eliminates
delays associated with a stockholder vote in specific instances. The ability of
the board of directors to issue preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third
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<PAGE> 61
party from acquiring, a majority of the outstanding voting stock of Seminis.
The voting and other rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future.
CONVERSION
Upon consummation of the offering, the Class A mandatorily redeemable
preferred stock will automatically convert to Class B mandatorily redeemable
preferred stock. Except for the issuance of Class B mandatorily redeemable
preferred stock resulting from this automatic conversion, Seminis has no plans
to issue any shares of preferred stock. See "Use of Proceeds."
DIVIDENDS
The Class A mandatorily redeemable preferred stock and the Class B
mandatorily redeemable preferred stock will accrue dividends at a rate of 8% per
annum and shall be paid on the first day of January, April, July and October of
each year. The Class C preferred stock will accrue dividends at a rate of 10%
per annum and shall be paid on the first day of January, April, July and October
of each year, except that each quarterly payment until and including the
quarterly payment due January 2001 shall be paid by issuing additional shares of
Class C preferred stock.
REDEMPTION
The Class A mandatorily redeemable preferred stock and the Class B
mandatorily redeemable preferred stock may be redeemed, at the option of
Seminis, at any time after the completion of the offering. On the earlier of
October 1, 2005 or the date of a "Company Sale," as defined in the certificate
of designations setting forth the terms of the Class A and Class B preferred
stock, Seminis shall be required to redeem all of the outstanding shares of
Class A and Class B mandatorily redeemable preferred stock. The Class C
preferred stock may be redeemed, at any time, at the option of Seminis.
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Provisions of the certificate of incorporation and by-laws could
discourage potential acquisition proposals and could delay or prevent a change
in control of Seminis. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the board of directors and in
the policies formulated by the board of directors and to discourage types of
transactions that may involve an actual or threatened change of control of
Seminis.
BOARD OF DIRECTORS
The certificate of incorporation and by-laws of Seminis provide that the
number of directors be fixed by a board of directors resolution and that the
board of directors be divided into three classes of directors, with the classes
to be as nearly equal in number of directors as possible and each class to be
elected to a term of three years, except that during the initial phase-in
period, one class shall be initially elected for a term expiring at the 2000
annual meeting, one class shall be initially elected for a term expiring at the
2001 annual meeting and one class shall be initially elected for a term expiring
at the 2002 meeting. At each annual meeting of stockholders, the class of
directors to be elected at such meeting will be elected for a three-year term
and the directors in the other classes will continue in office.
The classification of directors has the effect of making it more difficult
to change the composition of the board of directors. At least two annual
meetings of stockholders, instead of one, generally will be required to effect a
change in the majority of the board of directors. A director may be removed only
for cause by the vote of holders of at least a majority of the votes cast by the
holders of capital stock of Seminis entitled to vote generally in the election
of directors, voting together as a single class.
The by-laws of Seminis provide that a vacancy in the board of directors
occurring from an increase in the number of directors or otherwise may be filled
by the vote of a majority of directors then in office, though less than a
quorum. This precludes a third party or a majority stockholder from removing
59
<PAGE> 62
incumbent directors without cause and simultaneously gaining control of the
board of directors by filling, with its own nominees, the vacancies created by
removal.
STOCKHOLDER ACTION AND SPECIAL MEETINGS
The certificate of incorporation provides that all stockholder action must
be effected at a duly called meeting. The certificate of incorporation also does
not permit stockholders of Seminis to call special meetings of stockholders.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The by-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the board of directors or a committee
thereof, of candidates for election as directors as well as for other
stockholder proposals to be considered at stockholders' meetings. A notice
regarding any nomination must contain, as to each nominee, all information
relating to such person that is required to be disclosed in solicitations of
proxies for the election of directors, or that is otherwise required, in each
case pursuant to Regulation 14A of the Securities Exchange Act of 1934,
including each such person's written consent to serving as a director if
elected. A notice regarding any business, including nomination of directors, to
be brought before an annual meeting must contain the following:
- - a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting;
- - the name and address of the stockholder proposing such business;
- - the class and number of shares of Seminis' stock beneficially owned by the
stockholder; and
- - any material interest of the stockholder in such business.
Although the notice provisions do not give the board of directors any
power to approve or disapprove stockholders' nominations or proposals for action
by Seminis, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the procedures
established by the by-laws of Seminis are not followed and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
Seminis and its stockholders. The purpose of requiring advance notice is to
afford the board of directors an opportunity to consider the qualifications of
the proposed nominees or the merits of other stockholder proposals and, to the
extent deemed necessary or desirable by the board of directors, to inform
stockholders about those matters.
STOCKHOLDER RIGHTS
The certificate of incorporation authorizes the board of directors to
create and issue, whether or not in connection with the issuance and sale of any
of its securities or property, rights entitling the holders thereof to purchase
securities of Seminis or any other corporation. The times at which and the terms
upon which such rights are to be issued are to be determined by the board of
directors and set forth in the contracts or other instruments that evidence such
rights. The authority of the board of directors with respect to such rights
shall include, without limitation, the determination of the initial purchase
price, the times and circumstances under which such rights may be exercised,
provisions denying holders of a specified percentage of the outstanding capital
stock of Seminis the right to exercise such rights and provisions to permit
Seminis to redeem or exchange such rights. This provision in the certificate of
incorporation could have the effect of discouraging third parties from seeking,
or impairing their ability to seek, to acquire a significant portion of the
outstanding securities of Seminis, to engage in any transaction which might
result in a change of control of Seminis or to enter into any agreement,
arrangement or understanding with another party to accomplish the foregoing or
for the purpose of acquiring, holding, voting or disposing of any securities of
Seminis.
60
<PAGE> 63
DELAWARE TAKEOVER STATUTE
Seminis is subject to Section 203 of the General Corporation Law of
Delaware which, subject to exceptions, prohibits a Delaware corporation from
engaging in any "business combination" with any "interested stockholder" for a
period of three years following the time that such stockholder became an
interested stockholder, unless:
- - prior to such time, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- - upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers, and by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
- - at or subsequent to such time, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
In general, Section 203 defines as interested stockholder as (x) any
entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and (y) any affiliate or associate of the corporation that
beneficially owned 15% or more of the outstanding voting stock of the
corporation at any time within the three year period immediately prior to the
date on which it is sought to determine whether such person or entity is an
interested stockholder. Section 203 defines business combination generally to
include:
- - any merger or consolidation involving the corporation and the interested
stockholder;
- - any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- - subject to exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder;
- - any transaction involving the corporation which has the effect of increasing
the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or
- - the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, dated as of October 1,
1995, by and among Seminis and some of its stockholders, if Seminis, at any time
up to the fifth anniversary of such date, proposes to register any of its
securities under the Securities Act solely for its own account, such
stockholders will be entitled, subject to limitations and restrictions, to
include in such registration, on no more than four occasions, up to 3,894,500
shares of common stock held by such stockholders. Seminis will be required to
bear all registration and selling expenses, except for underwriting discounts,
selling expenses and fees and expenses of counsel representing the registering
stockholders, in connection with such registrations. The stockholders who are
parties to the registration rights agreement are prohibited from making,
entering into or participating in a public sale or distribution of common stock
for 180 days following the offering. The foregoing registration rights are
transferable and may be amended or waived only with the written consent of
Seminis, Savia and a representative of the stockholders holding common stock
subject to the registration rights agreement.
LIMITATION ON DIRECTORS' LIABILITY
Seminis' certificate of incorporation contains a provision which limits
the personal
61
<PAGE> 64
liability of each of Seminis' directors for monetary damages for breaches of
fiduciary duty as a director to Seminis or its stockholders, except for
liability of a director for the following:
- - breach of the duty of loyalty to Seminis or its stockholders;
- - acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law;
- - any transaction from which the director derived an improper personal benefit;
or
- - under Section 174 of the Delaware General Corporation Law, which relates to
unlawful payments of dividends or unlawful stock purchases or redemptions.
The inclusion of this provision in the certificate of incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited Seminis and its
stockholders. Seminis' by-laws also contain provisions indemnifying its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. Management believes that these provisions will assist Seminis
in attracting and retaining qualified individuals to serve as directors.
INDEMNIFICATION AND INSURANCE
The by-laws provide that Seminis will indemnify each person who was or is
made a party or threatened to be made a party to or is otherwise involved in any
action, suit or proceeding whether civil, criminal, administrative or
investigative, by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director or an officer of Seminis,
to the fullest extent allowed by the Delaware General Corporation Law. This
right of indemnification shall include the right to be paid by Seminis the
expenses, including attorneys' fees, incurred in defending any such proceeding
in advance of its final disposition. However, if Delaware law so requires, the
advancement of such expenses will only be made upon the delivery to Seminis of
an undertaking by or on behalf of such person to repay all amounts so advanced
if it shall ultimately be determined by final judicial decision, from which
there is no further right to appeal, that such person is not entitled to be
indemnified for such expenses by Seminis.
In addition, the by-laws provide that Seminis may maintain insurance to
protect itself and any director, officer, employee or agent of Seminis against
any expense, liability or loss, whether or not Seminis would have the power to
indemnify a person against any expense, liability or loss under Delaware law.
The by-laws further provide that Seminis may, to the extent permitted by the
board of directors, grant rights to indemnification, and rights to advancement
to expenses, to any employee or agent of Seminis. Seminis has obtained insurance
through Savia for the benefit of Seminis' officers and directors insuring such
persons against liabilities, including liabilities under the securities laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Seminis pursuant to the foregoing provisions, Seminis has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
LISTING
The shares of Class A common stock have been approved for listing, subject
to official notice of issuance, on the Nasdaq National Market under the symbol
"SMNS."
TRANSFER AGENT
The transfer agent and registrar for the Class A common stock is American
Stock Transfer & Trust Company.
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<PAGE> 65
LEGAL MATTERS
The validity of the Class A common stock offered hereby will be passed
upon for Seminis by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
Howard S. Kelberg is a partner in the firm of Milbank, Tweed, Hadley & McCloy
LLP and is Secretary to Seminis since 1995. Legal matters in connection with the
offering will be passed upon for the underwriters by Cahill Gordon & Reindel, a
partnership including a professional corporation, New York, New York.
EXPERTS
The consolidated financial statements of Seminis, Inc. as of September 30,
1997 and 1998 and for each of the three years in the period ended September 30,
1998 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of Hungnong Seed Co., Ltd. as of
December 31, 1997 and for the year then ended included in this prospectus have
been so included in reliance on the report of Seonjin Accounting Corporation,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
Seminis has filed with the Securities and Exchange Commission, or the SEC,
a registration statement on Form S-1 for the Class A common stock being offered
by this prospectus. This prospectus does not contain all of the information set
forth in the registration statement and its exhibits and schedules. For more
information regarding Seminis and the shares of Class A common stock offered by
this prospectus, read the registration statement, including the exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete. For each contract which
is an exhibit to the registration statement, any statement regarding such
contract is qualified by the provisions of such exhibit. Interested persons may
read the registration statement and any other document Seminis may file with the
SEC at the SEC's Public Reference Section, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the SEC's Regional Offices located at 500 West
Madison Street, Suite 1400, Chicago, IL and 7 World Trade Center, 13th Floor,
New York, NY 10048 or on the Internet at http://www.sec.gov. Copies of all or a
portion of the registration statement can be obtained from the Public Reference
Section of the SEC upon payment of a prescribed fee.
As a result of the offering, Seminis will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended. Seminis will fulfill its obligations with respect to those
requirements by filing periodic reports, proxy statements and other information
with the SEC. Upon approval of the Class A common stock for listing on the
Nasdaq National Market, such reports, proxy and information statements and other
information concerning Seminis may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing
audited financial statements and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each fiscal year.
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<PAGE> 66
SEMINIS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SEMINIS, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of September 30, 1997 and
1998, and March 31, 1999.................................. F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997 and 1998 and for the six months
ended March 31, 1998 and 1999............................. F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1996, 1997 and 1998 and for the
six months ended March 31, 1999........................... F-6
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998 and for the six months
ended March 31, 1998 and 1999............................. F-7
Notes to Consolidated Financial Statements.................. F-8
HUNGNONG SEED CO., LTD.
Report of Independent Accountants........................... F-28
Consolidated Balance Sheet as of December 31, 1997.......... F-29
Consolidated Statements of Operations for the Year Ended
December 31, 1997 and the Six Months Ended June 30, 1998
(unaudited)............................................... F-30
Consolidated Statements of Stockholders' Deficit for the
Year Ended December 31, 1997.............................. F-31
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1997 and the Six Months Ended June 30, 1998
(unaudited)............................................... F-32
Notes to Consolidated Financial Statements.................. F-33
PRO FORMA FINANCIAL DATA
Unaudited Pro Forma Consolidated Statement of Operations for
the Year Ended September 30, 1998......................... F-39
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Seminis, Inc.
The Recapitalization described in Note 16 to the financial statements has not
been consummated at May 27, 1999. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of Seminis, Inc. and its subsidiaries at September 30, 1997 and
1998, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 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
Los Angeles, California
December 18, 1998, except as to Notes 16 and 17,
which are as of May 27, 1999
F-2
<PAGE> 68
SEMINIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF PRO FORMA AS OF
------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
---- ---- --------- ---------------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents................................. $ 30,271 $ 28,895 $ 28,213 $ 28,213
Accounts receivable, less allowance for doubtful accounts
of $8,116, $12,451 and $13,691, respectively............ 109,013 134,701 204,927 204,927
Inventories............................................... 162,145 245,319 269,769 269,769
Current maturities from Young Il Chemical Company note.... -- 7,000 7,000 7,000
Refundable income taxes................................... 8,457 4,376 2,335 2,335
Prepaid expenses and other current assets................. 2,547 5,024 4,870 4,870
-------- --------- --------- ---------
Total current assets................................ 312,433 425,315 517,114 517,114
Note receivable from Young Il Chemical Company.............. -- 28,612 28,612 28,612
Property, plant and equipment, net.......................... 128,180 189,255 202,152 202,152
Intangible assets, net...................................... 69,092 191,272 207,701 207,701
Other assets................................................ 9,968 27,735 27,518 27,518
-------- --------- --------- ---------
$519,673 $ 862,189 $ 983,097 $ 983,097
======== ========= ========= =========
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
Current liabilities
Demand note due bank...................................... $ -- $ -- $ 10,000 $ 10,000
Short-term borrowings..................................... 12,631 6,819 16,869 16,869
Intercompany advance from Savia........................... -- -- 20,000 20,000
Current maturities of long-term debt...................... 1,011 19,825 24,246 24,246
Current maturities of convertible subordinated debt due
Savia................................................... -- 7,000 -- --
Accounts payable.......................................... 47,517 41,049 42,358 42,358
Accrued liabilities....................................... 50,482 78,525 69,040 69,040
-------- --------- --------- ---------
Total current liabilities........................... 111,641 153,218 182,513 182,513
Long-term debt.............................................. 80,331 394,446 442,572 442,572
Convertible subordinated debt due Savia..................... -- 28,857 -- --
Deferred income taxes....................................... 20,585 34,850 35,984 35,984
Minority interest in subsidiaries........................... 324 16,981 16,778 16,778
-------- --------- --------- ---------
Total liabilities................................... 212,881 628,352 677,847 677,847
-------- --------- --------- ---------
Commitments and contingencies (Note 12)
Mandatorily Redeemable Stock
Class A Redeemable Preferred Stock, $.01 par value; 25
shares authorized; 25 shares issued and outstanding..... 25,000 25,000 25,000 25,000
Class B Redeemable Preferred Stock, $.01 par value; 25
shares authorized; none issued and outstanding.......... -- -- -- --
Old Class B Redeemable Common Stock, $.01 par value;
20,000 shares authorized as of September 30, 1997 and
6,772 shares authorized as of September 30, 1998 and
March 31, 1999; 18,091 shares issued and outstanding as
of September 30, 1997, 6,772 shares issued and
outstanding as of September 30, 1998 and March 31, 1999
and none issued and outstanding on a pro forma basis.... 122,111 48,416 49,940 --
-------- --------- --------- ---------
Total mandatorily redeemable stock.................. 147,111 73,416 74,940 25,000
-------- --------- --------- ---------
</TABLE>
F-3
<PAGE> 69
SEMINIS, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF PRO FORMA AS OF
------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
---- ---- --------- ---------------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Stockholders' Equity
Class C Preferred Stock, $.01 par value; no shares
authorized as of September 30, 1997 and 2 shares
authorized as of September 30, 1998 and 6 shares
authorized as of March 31, 1999; no shares issued and
outstanding as of September 30, 1997 and September 30,
1998, 3 shares issued and outstanding as of March 31,
1999 and on a pro forma basis........................... $ -- $ -- $ 1 $ 1
Class A Common Stock, $.01 par value; no shares authorized
as of September 30, 1997, 91,000 shares authorized as of
September 30, 1998 and March 31, 1999; none issued and
outstanding............................................. -- -- -- --
Class B Common Stock, $.01 par value; 55,000 shares
authorized as of September 30, 1997 and 60,229 shares
authorized as of September 30, 1998; 30,000 shares
issued and outstanding as of September 30, 1997, 37,386
shares issued and outstanding as of September 30, 1998;
39,302 shares issued and outstanding as of March 31,
1999 and 46,074 shares issued and outstanding on a pro
forma basis............................................. 1 374 393 461
Additional paid-in capital................................ 179,999 317,826 384,001 433,873
Accumulated deficit....................................... (11,072) (144,439) (143,215) (143,215)
Accumulated other comprehensive loss...................... (9,247) (13,340) (10,870) (10,870)
-------- --------- --------- ---------
Total stockholders' equity.......................... 159,681 160,421 230,310 280,250
-------- --------- --------- ---------
$519,673 $ 862,189 $ 983,097 $ 983,097
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 70
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
--------------------------------- --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales................................................... $381,398 $379,544 $ 428,423 $ 222,339 $282,311
Cost of goods sold.......................................... 214,131 150,107 162,806 84,658 106,611
-------- -------- --------- --------- --------
Gross profit............................................ 167,267 229,437 265,617 137,681 175,700
-------- -------- --------- --------- --------
Operating expenses
Research and development expenses......................... 42,300 41,039 49,416 21,117 31,225
Selling, general and administrative expenses.............. 134,990 136,438 158,588 69,966 100,113
Management fees paid to Savia............................. -- 6,200 8,465 4,422 --
Amortization of intangible assets......................... 14,785 12,394 14,457 6,115 13,657
Write-off of acquired research in-process................. 36,700 -- -- -- --
-------- -------- --------- --------- --------
Total operating expenses............................ 228,775 196,071 230,926 101,620 144,995
-------- -------- --------- --------- --------
Income (loss) from operations............................... (61,508) 33,366 34,691 36,061 30,705
-------- -------- --------- --------- --------
Other income (expense)
Interest income........................................... 1,147 1,177 1,952 325 2,580
Interest expense.......................................... (25,222) (11,714) (29,034) (9,607) (26,264)
Foreign currency gain (loss).............................. (154) (8,656) 3,205 (213) 1,665
Minority interest......................................... (630) (9) (219) (36) (1,544)
Other, net................................................ (1,119) 1,000 (397) 54 (283)
-------- -------- --------- --------- --------
(25,978) (18,202) (24,493) (9,477) (23,846)
-------- -------- --------- --------- --------
Income (loss) from continuing operations before income
taxes..................................................... (87,486) 15,164 10,198 26,584 6,859
Income tax benefit (expense)................................ 31,401 (3,839) (3,436) (9,272) (2,773)
-------- -------- --------- --------- --------
Income (loss) from continuing operations.................... (56,085) 11,325 6,762 17,312 4,086
-------- -------- --------- --------- --------
Discontinued operations
Income from operations (net of income tax of $3,960 and
$1,558 for 1996 and 1997, respectively)................. 6,060 2,542 -- -- --
Gain on disposal (net of income tax of $29,602)........... -- 48,298 -- -- --
-------- -------- --------- --------- --------
6,060 50,840 -- -- --
-------- -------- --------- --------- --------
Net income (loss)........................................... (50,025) 62,165 6,762 17,312 4,086
Preferred stock dividends................................... (2,000) (2,000) (2,000) (1,000) (1,338)
Accretion of Old Class B Redeemable Common Stock............ (6,333) (7,236) (3,840) (1,708) (1,524)
Excess of repurchase price over redemption value for
repurchase of Old Class B Redeemable Common Stock......... -- -- (134,289) (134,289) --
-------- -------- --------- --------- --------
Net income (loss) available for common stockholders......... $(58,358) $ 52,929 $(133,367) $(119,685) $ 1,224
======== ======== ========= ========= ========
Income (loss) available for common stockholders per common
share, basic and diluted
Income (loss) from continuing operations................ $ (2.15) $ 0.07 $ (4.23) $ (3.99) $ 0.03
Discontinued operations................................. 0.20 1.69 -- -- --
-------- -------- --------- --------- --------
Net income (loss) available for common stockholders..... $ (1.95) $ 1.76 $ (4.23) $ (3.99) $ 0.03
======== ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 71
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS C CLASS B ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- ---------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL DEFICIT LOSS EQUITY
------ ------ ------ ------ ---------- ----------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995..... -- $ -- 30,000 $ 1 $179,999 $ (5,643) $ (116) $ 174,241
Comprehensive loss
Net loss.................... -- -- -- -- -- (50,025) -- (50,025)
Translation adjustment...... -- -- -- -- -- -- (3,111) (3,111)
---------
(53,136)
Dividends on Class A Redeemable
Preferred Stock............... -- -- -- -- -- (2,000) -- (2,000)
Accretion of Old Class B
Redeemable
Common Stock.................. -- -- -- -- -- (6,333) -- (6,333)
--- ---- ------ ------- -------- --------- -------- ---------
Balance, September 30,
1996...................... -- -- 30,000 1 179,999 (64,001) (3,227) 112,772
---------
Comprehensive income
Net income.................. -- -- -- -- -- 62,165 -- 62,165
Translation adjustment...... -- -- -- -- -- -- (6,020) (6,020)
---------
56,145
Dividends on Class A Redeemable
Preferred Stock............... -- -- -- -- -- (2,000) -- (2,000)
Accretion of Old Class B
Redeemable
Common Stock.................. -- -- -- -- -- (7,236) -- (7,236)
--- ---- ------ ------- -------- --------- -------- ---------
Balance, September 30,
1997...................... -- -- 30,000 1 179,999 (11,072) (9,247) 159,681
---------
Comprehensive income
Net income.................. -- -- -- -- -- 6,762 -- 6,762
Translation adjustment...... -- -- -- -- -- -- (4,093) (4,093)
---------
2,669
Dividends on Class A Redeemable
Preferred Stock............... -- -- -- -- -- (2,000) -- (2,000)
Accretion of Old Class B
Redeemable
Common Stock.................. -- -- -- -- -- (3,840) -- (3,840)
Excess of repurchase price over
redemption value for
repurchase of Old Class B
Redeemable Common Stock....... -- -- -- -- -- (134,289) -- (134,289)
Increase in par value following
stock split................... -- -- -- 299 (299) -- -- --
Issuance of shares.............. -- -- 7,386 74 138,126 -- -- 138,200
--- ---- ------ ------- -------- --------- -------- ---------
Balance, September 30,
1998...................... -- -- 37,386 374 317,826 (144,439) (13,340) 160,421
--- ---- ------ ------- -------- --------- -------- ---------
Comprehensive income
Net income.................. -- -- -- -- -- 4,086 -- 4,086
Translation adjustment...... -- -- -- -- -- -- 2,470 2,470
---------
6,556
Dividends on Class C
Preferred Stock............. -- -- -- -- 338 (338) -- --
Dividends on Class A
Redeemable Preferred
Stock..................... -- -- -- -- -- (1,000) -- (1,000)
Accretion of Old Class B
Redeemable Common Stock..... -- -- -- -- -- (1,524) -- (1,524)
Issuance of shares.............. 3 1 -- -- 29,999 -- -- 30,000
Conversion of
Subordinated Debt due
Savia..................... -- -- 1,916 19 35,838 -- -- 35,857
--- ---- ------ ------- -------- --------- -------- ---------
Balance, March 31, 1999..... 3 $ 1 39,302 $ 393 $384,001 $(143,215) $(10,870) $ 230,310
=== ==== ====== ======= ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 72
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED SEPTEMBER 30, ENDED MARCH 31,
--------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ (50,025) $ 62,165 $ 6,762 $ 17,312 $ 4,086
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................... 29,702 26,746 31,341 14,085 23,177
Write-off of acquired research in process........ 36,700 -- -- -- --
Deferred income tax expense (benefit)............ (39,725) 5,521 (108) (590) (1,722)
Net income from Agronomics Segment............... (6,060) (50,840) -- -- --
Unrealized foreign currency loss................. -- 8,653 -- -- --
Other............................................ 1,944 (1,562) 2,414 435 1,313
Changes in assets and liabilities
Accounts receivable............................ (4,696) (11,907) 125 (50,164) (74,910)
Inventories.................................... 49,181 (27,192) (57,347) (25,678) (25,396)
Prepaid expenses and other assets.............. (4,015) (4,971) (1,591) (10,276) 1,059
Current income taxes........................... (9,453) (4,528) 3,457 17,972 2,419
Accounts payable............................... 6,041 11,746 (10,975) (24,990) 2,274
Other liabilities.............................. 7,405 (16,794) 204 (5,750) (9,608)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities..................................... 16,999 (2,963) (25,718) (67,644) (77,308)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of fixed and intangible assets........... (15,192) (19,260) (61,123) (15,058) (19,837)
Proceeds from disposition of assets................ 1,515 3,773 869 -- 992
Discontinued operations, Agronomics Segment........ -- 196,475 -- -- --
Net cash receipts from Agronomics Segment.......... 3,344 -- -- -- --
Acquisition of minority interests in
subsidiaries..................................... (8,500) (7,669) -- -- --
Cash acquired in Ball Merger....................... 48,820 -- -- -- --
Hungnong acquisition, net of cash acquired......... -- -- (33,933) -- --
Loan to Young Il Chemical Company.................. -- -- (35,612) -- --
Choong Ang acquisition, net of cash acquired....... -- -- (19,388) -- --
Pre-acquisition advances to acquired companies..... -- -- (34,975) -- --
Agroceres acquisition, net of cash acquired........ -- -- -- -- (19,455)
Exercise of Hungnong put option.................... -- -- -- -- (8,673)
Other.............................................. (509) (6,425) (136) 1,216 (755)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities..................................... 29,478 166,894 (184,298) (13,842) (47,728)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt....................... 271,981 165,471 402,172 388,888 62,822
Repayments of long-term debt....................... (27,820) (333,319) (109,905) (100,000) (8,951)
Repurchase of Old Class B Redeemable Common
Stock............................................ -- -- (211,824) (211,824) --
Demand note from bank.............................. -- -- -- -- 10,000
Net short-term borrowings (repayments)............. (303,502) 653 (44,048) (8,561) 11,080
Intercompany advance from Savia.................... -- -- -- -- 20,000
Preferred stock dividends.......................... (1,500) (2,000) (2,000) (1,000) (1,000)
Subordinated loan from Savia....................... -- -- 35,857 -- --
Issuance of Class B Common Stock................... -- -- 138,200 -- --
Issuance of Class C Preferred Stock................ -- -- -- -- 30,000
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities..................................... (60,841) (169,195) 208,452 67,503 123,951
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash.............. (1,710) (3,382) 188 (360) 403
--------- --------- --------- --------- ---------
Decrease in cash and cash equivalents................ (16,074) (8,646) (1,376) (14,343) (682)
Cash and cash equivalents, beginning of period....... 54,991 38,917 30,271 30,271 28,895
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period............. $ 38,917 $ 30,271 $ 28,895 $ 15,928 $ 28,213
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 73
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Seminis, Inc. is the largest developer, producer and marketer of vegetable
and fruit seeds in the world. The Company is a majority-owned subsidiary of
Savia, S.A. de C.V. ("Savia") and effectively began operations when it purchased
Asgrow Seed Company ("Asgrow") in December 1994.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its majority controlled and owned subsidiaries. Investments in
unconsolidated entities, representing ownership interests between 20% and 50%,
are accounted for using the equity method of accounting. All material
intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to prior years' financial statements to
conform to fiscal year 1998 presentation.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the fiscal year, including estimates and assumptions related to
customer discounts and allowances. Actual results could differ from those
estimates.
INTERIM FINANCIAL INFORMATION
Seminis generally operates on a thirteen week calendar closing on the
Friday closest to the natural calendar quarter. For convenience, all quarters
are described by their natural calendar dates. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) considered necessary to fairly
present the Company's financial position, results of operations and cash flows
for the periods presented. Information as of and for the six months ended March
31, 1998 and 1999 included in the footnotes is unaudited. The results of
operations for the six months ended March 31, 1999 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
year ending September 30, 1999.
REVENUE RECOGNITION
Product sales are recognized upon shipment of goods and are reduced by
provisions for discounts and allowances based on the Company's historical
experience.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments
purchased with an original maturity of three months or less. The Company invests
its excess cash in deposits with major international banks, in government
securities and in money market accounts with financial institutions. Such
investments are considered cash equivalents for purposes of reporting cash flows
and bear minimal risk.
ACCOUNTS RECEIVABLE
Accounts receivable are valued net of reserves for bad debts, discounts
and allowances. Calculations of reserves are based on historical experience and
anticipated market conditions and are adjusted as management determines
necessary. The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral. The Company's
diversified customer base limits the amount of credit exposure to any one
customer.
F-8
<PAGE> 74
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
No customer accounts for more than 10% of accounts receivable or sales.
INVENTORIES
Inventories are stated at the lower of cost or estimated net realizable
value. Costs for substantially all inventories are determined using the
first-in, first-out ("FIFO") method and include the cost of materials, direct
labor and the applicable share of overhead costs. Unharvested crop-growing costs
are included as part of inventory and represent costs incurred to plant and
maintain seed crops which will be harvested during the subsequent fiscal year.
Inventories are periodically reviewed and reserves established for deteriorated,
excess and obsolete items.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Provisions for
depreciation have been made using the straight-line and accelerated methods for
financial reporting purposes and accelerated methods for tax purposes. Estimated
useful lives generally range from 5 to 40 years for buildings and improvements
and from 3 to 20 years for machinery and equipment.
INTANGIBLE ASSETS
Intangible assets consist of the excess of purchase price over the fair
market value of net assets acquired in purchase acquisitions, and the costs of
acquired germplasm patents and trademarks. Goodwill is amortized over 15 years
on a straight-line basis. The costs of acquired germplasm, patents and
trademarks are being amortized over 10 to 20 years on an accelerated basis.
Software costs and other intangibles are amortized over 3 to 5 years and 10
years, respectively, on straight-line bases.
CAPITALIZED SOFTWARE COSTS
Costs of computer software developed and obtained for internal use are
capitalized and amortized over respective license periods or expected useful
lives, which range from three to five years. Capitalized computer software costs
include external direct costs for licenses and services, and payroll and
payroll-related costs for employees who are directly associated with developing
or installing such software.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors its long-lived assets to determine
whether any impairment of these assets has occurred. In making such
determination, the Company evaluates the performance of the underlying
businesses, products and product lines. The Company recognizes impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. No material
impairments have been experienced.
SEEDMEN'S ERRORS AND OMISSIONS
The Company maintains third party seedmen's errors and omissions insurance
covering claims by growers for losses incurred as a result of seed quality or
errors arising in fulfilling customer orders. Such policies are subject to
annual renewal and revision and have coverage limits, deductibles and other
terms. Provisions are made for anticipated losses in excess of coverage amounts
provided by insurance based on historical experience and expected resolution.
The Company performs ongoing evaluations of such claims and adjusts reserves as
necessary to reflect expected settlements.
ACCRETION OF REDEMPTION OBLIGATION FOR REDEEMABLE COMMON STOCK
Redeemable common stock is recorded at redemption value; annual accretion
of the redemption obligation is based on the terms
F-9
<PAGE> 75
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
of the Shareholders' Agreement, dated as of October 1, 1995 by and among the
Company, Savia and certain of the Company's stockholders, and is charged
directly to accumulated deficit.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are charged to operations as incurred.
Costs attributable to in-process research and development activities acquired in
a purchase transaction are written-off at the date of acquisition.
INCOME TAXES
Deferred income taxes are determined using the liability method. A
deferred tax asset or liability is determined based on the difference between
the financial statement and tax basis of assets and liabilities as measured by
the enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in the asset and liability for
deferred taxes.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The financial statements of the Company's foreign subsidiaries are
generally measured using the local currency as the functional currency. Assets
and liabilities of these subsidiaries are translated at the rates of exchange at
the balance sheet date. Income and expense items are translated at average
quarterly rates of exchange prevailing during the fiscal year. The resultant
translation adjustments are included in accumulated other comprehensive loss as
a separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in the statement of operations.
Subsidiaries operating in highly inflationary economies or primarily using
the United States dollar as their functional currency include gains and losses
from foreign currency transactions and balance sheet translation adjustments in
the statement of operations.
The fiscal year 1997 foreign currency loss of $8,656 included in the
statement of operations was primarily due to the effect of exchange rate
fluctuations on the relative values of certain intercompany loans among the
Company's various operating subsidiaries.
FINANCIAL INSTRUMENTS
The Company uses interest rate swap and collar agreements to manage
interest costs and risks associated with changing interest rates. Amounts
currently due to or from interest rate swap counterparties are recorded in
interest expense in the period in which they accrue. Counterparties to the
interest rate swap and collar agreements are major financial institutions.
Credit loss from counterparty non-performance is not anticipated.
The Company's other financial instruments consist primarily of cash,
accounts receivable, notes receivable, accounts payable, accrued liabilities,
debt and mandatorily redeemable securities. These balances are carried in the
financial statements at amounts that approximate fair market value unless
separately disclosed in the Notes to Consolidated Financial Statements.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For the Company, comprehensive income consists of its
reported net income or loss and the change in the foreign currency translation
adjustment during a period.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
F-10
<PAGE> 76
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Under APB No. 25, compensation cost is
recognized based on the difference, if any, on the date of grant between the
fair market value of the Company's stock and the amount an employee must pay to
acquire the stock.
STOCK SPLIT
In May 1998, the Company's board of directors approved a 500 for 1 stock
split for all common shares. All common share information set forth in the
consolidated financial statements and notes thereto has been restated to reflect
the stock split.
SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
----------------------------- --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid for interest................ $23,876 $15,175 $21,590 $5,049 $30,178
Cash paid (refunded) for income
taxes............................... 17,777 2,847 87 (8,110) 2,076
Supplemental non-cash transactions
Issuance of preferred stock in
payment of Class C Preferred Stock
dividends......................... -- -- -- -- 338
</TABLE>
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share has been computed pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share." Basic income (loss) per common share is computed by dividing income
(loss) available to common stockholders by the average number of common shares
outstanding during each period. Income (loss) available to common stockholders
represents reported net income less preferred dividend requirements, accretion
of redemption value for redeemable common stock, and the excess of the
repurchase price paid over the redemption value of mandatorily redeemable common
stock. Diluted income (loss) per common share reflects the potential dilution
that could occur if dilutive securities and other contracts were exercised or
converted into common stock or resulted in the issuance of common stock. The
following table provides a reconciliation of income (loss) from continuing
operations and sets forth the
F-11
<PAGE> 77
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
computation for basic and diluted earnings
per share (before discontinued operations):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
NUMERATOR FOR BASIC AND DILUTED:
Income (loss) from continuing
operations.............................. $(56,085) $ 11,325 $ 6,762 $ 17,312 $ 4,086
Preferred stock dividends................. (2,000) (2,000) (2,000) (1,000) (1,338)
Accretion of Old Class B Redeemable Common
Stock................................... (6,333) (7,236) (3,840) (1,708) (1,524)
Excess of repurchase price over redemption
value for repurchase of Old Class B
Redeemable Common Stock................. -- -- (134,289) (134,289) --
-------- -------- --------- --------- --------
Income (loss) from continuing
operations available to common
stockholders........................ $(64,418) $ 2,089 $(133,367) $(119,685) $ 1,224
======== ======== ========= ========= ========
DENOMINATOR--SHARES:
Weighted average common shares outstanding
(basic)................................. 30,000 30,000 31,536 30,000 38,025
Add potential common shares:
Old Class B Redeemable Common Stock..... 18,091 18,091 9,602 12,432 6,772
Less antidilutive effect of potential
common shares........................... (18,091) (18,091) (9,602) (12,432) (6,772)
-------- -------- --------- --------- --------
Weighted average common shares
outstanding (diluted)............... 30,000 30,000 31,536 30,000 38,025
======== ======== ========= ========= ========
INCOME (LOSS) PER COMMON SHARE FROM
CONTINUING OPERATIONS:
Basic and diluted....................... $ (2.15) $ 0.07 $ (4.23) $ (3.99) $ 0.03
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair market value. It also requires that gains or losses resulting from changes
in the values of those derivatives be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company is
required to adopt SFAS No. 133 for its fiscal year beginning October 1, 1999.
Management believes the adoption of SFAS No. 133 will not have a material impact
on the Company's consolidated financial position or results of operations.
NOTE 2--MERGERS AND ACQUISITIONS
PETOSEED CO, INC.
On October 1, 1995, the Company acquired Petoseed Co, Inc. ("Petoseed")
through a tax-free merger (the "Merger") with George J. Ball, Inc. ("Ball"). As
part of the transaction, Seminis exchanged redeemable common and redeemable
preferred shares of Seminis for Ball's interest in Petoseed as described in Note
9. Following the Merger and exchange of stock, Savia owned approximately 62% of
Seminis and the Ball stockholders owned approximately 38%.
F-12
<PAGE> 78
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The total purchase price ascribed to the transaction was approximately
$133,542 and was based on the fair market value of the securities exchanged
which consisted of the following:
<TABLE>
<S> <C>
Old Class B Redeemable Common Stock issued to Ball
Stockholders.............................................. $108,542
Class A Redeemable Preferred Stock issued to Ball
Stockholders.............................................. 25,000
--------
Total consideration............................... $133,542
========
</TABLE>
The Merger was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based
on their estimated fair market values. The fair market value of the assets
acquired and liabilities assumed was $370,678 and $237,136, respectively.
The results of operations of Petoseed have been combined with those of the
Company since the date of acquisition. Cost of sales for the year ended
September 30, 1996 includes costs in excess of historical value of $60,000
relating to the step-up of the Petoseed inventories. In addition, $36,700 of the
purchase price was allocated to in-process research and development projects
that had not reached technological feasibility and had no probable alternative
future uses; the Company expensed such amount at the date of the acquisition.
HUNGNONG SEED CO., LTD
In July 1998, the Company acquired newly and previously issued common
stock of Hungnong Seed Co., Ltd. ("Hungnong"), a South Korean vegetable seed
company, representing a 70% ownership interest, for $120,620. The acquisition
was funded by capital contributions by the Company's stockholders (Note 9) and
borrowings under the Company's long-term debt facility (Note 8). The results of
Hungnong's operations have been combined with those of the Company since the
date of acquisition. The gross acquisition cost of $120,620 includes $86,687 of
acquired cash.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair market values. The fair market value of
assets acquired and liabilities assumed was $196,176 and $144,513 respectively.
The balance of the purchase price, $68,957, was recorded as excess of cost over
net assets acquired (i.e. goodwill) and is being amortized over 15 years on a
straight-line basis.
In connection with the purchase of its 70% interest in Hungnong, Seminis
loaned $35,612 to Young Il Chemical Company which is owned by minority
stockholders of Hungnong. The U.S. dollar denominated note receivable bears
interest at 10% per year, payable quarterly, and is due in installments of
$7,000 in July 1999, $7,000 in July 2000 and $21,612 in July 2001. The note
receivable is secured by common stock owned by minority stockholders
representing ownership of a 25% interest of Hungnong and is held in trust by an
independent trustee (the "Collateral Shares"). Under terms of the note
agreement, in the event of payment default or the occurrence of certain other
events such as the bankruptcy or insolvency, among others, of Young Il Chemical
Company, maturity of the note receivable accelerates. Transfer of ownership of
the Collateral Shares satisfies payment of the note in accordance with formula
provisions of the note agreement. The note agreement provides that, in
determining the payment to
F-13
<PAGE> 79
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
be applied, each one percent of equity interest has a 2 billion South Korean won
value (based on the fair market value of Hungnong at acquisition) and is
applied, at the then-current exchange rate, to reduce the outstanding balance
due until paid in full. Any remaining unpaid amounts are due on demand.
Seminis has pledged the note receivable from Young Il Chemical Company as
security for the subordinated debt due Savia (see Note 15). In the event of
default and transfer of shares to Seminis in payment of the note receivable,
Seminis is obligated under the convertible subordinated debt agreement to
transfer such shares to Savia and apply such shares as payments on the
subordinated debt.
HUNGNONG PUT OPTION
The Hungnong minority shareholders have the option to put their 30%
interest in Hungnong to the Company at a price of 2 billion South Korean won for
each 1% of outstanding shares plus accrued interest which accrues at 10% per
annum from July 15, 1998. This option expires on July 15, 2001. On November 15,
1998, the Hungnong minority shareholders exercised their put option for 5% of
the outstanding shares of Hungnong. As a result, on December 15, 1998, the
Company paid $8,673 to increase its ownership in Hungnong from 70% to 75%. As of
March 31, 1999, the remaining potential obligation in U.S. dollars related to
the put option is approximately $40,883.
CHOONG ANG SEED COMPANY
In July 1998, the Company acquired all of the outstanding shares of Choong
Ang Seed Company ("Choong Ang"), a South Korean vegetable seed company, for
$20,500. The acquisition was funded by capital contributions by the Company's
stockholders (Note 9) and borrowings under long-term debt facilities (Note 8).
The results of Choong Ang's operations have been combined with those of the
Company since the date of acquisition. The gross acquisition cost of $20,500
excludes $1,112 of acquired cash.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair market values. The fair market value of
assets acquired and liabilities assumed was $35,272 and $21,589, respectively.
The balance of the purchase price, $6,817, was recorded as excess of cost over
net assets acquired (goodwill) and is being amortized over 15 years on a
straight-line basis.
Unaudited pro forma consolidated results of operations are presented in
the table below for each of the two years in the period ended September 30,
1998. The pro forma results reflect the Hungnong and Choong Ang acquisitions as
if they had
F-14
<PAGE> 80
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
occurred at the beginning of each respective
fiscal year:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Total revenues....................................... $462,911 $466,054
Income (loss) from continuing operations............. 2,407 (1,292)
Income (loss) from continuing operations available
for common stockholders............................ (6,829) (141,421)
Income (loss) from continuing operations available
for common stockholders per common share
Basic and diluted.................................. $ (0.20) $ (4.05)
Weighted average common shares outstanding
Basic and diluted.................................. 33,757 34,912
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations may not necessarily be indicative of the actual results that would
have occurred had the acquisition been consummated at the beginning of fiscal
year 1997 or 1998 or of future operations of the combined companies under the
ownership and management of the Company.
AGROCERES
On November 10, 1998 the Company purchased the assets, subject to certain
liabilities, of the vegetable division of Sementes Agroceres, S.A.
("Agroceres"), a Brazilian company, for $19,455. Agroceres produces and
distributes vegetable seeds throughout Brazil. The acquisition was financed
through borrowings on the Company's revolving line of credit.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair market values. The fair value of assets
acquired and liabilities assumed was $8,802 and $987, respectively. The balance
of the purchase price, $11,640, was recorded as excess of cost over net assets
acquired (goodwill) and is being amortized over 15 years on a straight-line
basis.
NOTE 3--INVENTORIES
Inventories consist of the following at September 30, 1997 and 1998:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
-------------------- MARCH 31,
1997 1998 1999
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Seed................................ $138,293 $209,928 $231,481
Unharvested crop growing costs...... 15,424 20,405 23,608
Supplies............................ 8,428 14,986 14,680
-------- -------- --------
$162,145 $245,319 $269,769
======== ======== ========
</TABLE>
F-15
<PAGE> 81
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30,
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Land................................................. $ 26,695 $ 65,156
Buildings and improvements........................... 70,198 95,989
Machinery and equipment.............................. 49,273 60,637
-------- --------
146,166 221,782
Less: accumulated depreciation....................... (17,986) (32,527)
-------- --------
$128,180 $189,255
======== ========
</TABLE>
NOTE 5--INTANGIBLES
Intangible assets at September 30, 1997 and 1998 consist of the following
and are net of accumulated amortization for the respective fiscal years as
parenthetically noted:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Goodwill (net of $1,313 and $3,521)................... $12,208 $ 85,066
Software costs (net of $342 and $492)................. 2,212 12,681
Trademarks (net of $2,831 and $4,038)................. 12,069 10,862
Germplasm (net of $22,824 and $32,388)................ 40,576 59,999
Other intangible assets (net of $1,050 and $2,260).... 2,027 22,664
------- --------
$69,092 $191,272
======= ========
</TABLE>
NOTE 6--SHORT-TERM BORROWINGS
Short-term borrowings consist of the following at September 30, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Italian bank borrowing.................................. $ 9,851 $ --
Other borrowings........................................ 2,780 6,819
------- ------
$12,631 $6,819
======= ======
</TABLE>
In March 1998, the Company repaid the Italian bank borrowing and canceled
a stand-by letter of credit which guaranteed this foreign borrowing. Other
borrowings relate primarily to non-U.S. borrowings and bear interest rates
ranging from approximately 4% to 12% at September 30, 1997 and 4% to 18% at
September 30, 1998.
F-16
<PAGE> 82
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--ACCRUED LIABILITIES
Accrued liabilities consist of the following at September 30, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Employee salaries and related benefits................. $20,173 $35,082
Seedmen's errors and omissions......................... 8,586 7,346
Interest............................................... 519 7,963
Other.................................................. 21,204 28,134
------- -------
$50,482 $78,525
======= =======
</TABLE>
NOTE 8--LONG-TERM DEBT
Long-term borrowings consist of the following at September 30, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Credit agreement borrowings........................... $74,000 $384,525
South Korean bank borrowings due in annual
installments through 2007........................... -- 18,339
Other borrowings...................................... 7,342 11,407
------- --------
81,342 414,271
Less current portion.................................. (1,011) (19,825)
------- --------
$80,331 $394,446
======= ========
</TABLE>
Other borrowings consist of various domestic and foreign, government and
non-government loans of less than $2,000 each, bearing interest annually at
rates ranging from 0% to 13% through 2007.
At September 30, 1997, the Company's credit agreement consisted of a
$100,000 revolving line of credit. Concurrent with the repurchase of 11,319
shares of Old Class B Redeemable Common Stock from the former Ball stockholders
(Note 9) and the retirement of the previous credit agreement, the Company
entered into a $375,000 credit agreement consisting of a $75,000 revolving line
of credit and $300,000 in term loans (the "Credit Facility"). The revolving line
of credit expires on December 31, 2002 and the term loans have varying
maturities ranging from December 31, 2002 to December 31, 2004. The Credit
Facility was amended in July 1998 in conjunction with the Hungnong and Choong
Ang acquisitions (Note 2) to include an additional $75,000 term portion expiring
December 31, 2004.
The Company, at its option, may elect to pay interest on Credit Facility
borrowings based on either the prime rate or the London interbank offered rate
("LIBOR") plus defined margins ranging from 0.75% to 2.75%. The Company is
required to pay a commitment fee, up to a maximum of 0.5%, on the unused portion
of the revolving line of credit. Interest rate margins and commitment fee rates
are reset quarterly based upon a defined leverage ratio. For the fiscal year
ended September 30, 1998, the Company incurred interest at a weighted-average
rate of 8.6% per annum under the Credit Facility.
In fiscal year 1998, loan origination fees of $7,713 were capitalized and
are being amortized to interest expense using the
F-17
<PAGE> 83
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
straight-line method over the life of the agreement. Interest expense includes
loan origination fees of $208 in fiscal year 1996, $514 in fiscal year 1997 and
$891 in fiscal year 1998.
The Company uses interest rate hedge agreements to effectively convert
variable rate Credit Facility debt to a fixed basis. The fair values of the
hedge agreements are not recognized in the financial statements. At September
30, 1998, the Company had outstanding interest rate hedge agreements with
notional amounts of $226,000 and an unrecognized loss of approximately $5,950.
Under the Credit Facility, the Company is required to maintain certain
financial ratios and meet certain net worth and indebtedness tests. The Credit
Facility also places limits on dividends, foreign debt, leasing, capital
expenditures and acquisitions. The Company was in compliance with all covenants
associated with the Credit Facility at September 30, 1998. The indebtedness
under the Credit Facility is secured by the majority of the Company's domestic
assets and by the majority of the shares of certain foreign subsidiaries.
SUBSEQUENT EVENT (UNAUDITED)
In February 1999, Seminis and the lenders under the old credit agreement
entered into a waiver and amendment of the old credit agreement to waive
compliance with certain financial ratio covenants as of December 31, 1998 and
March 31, 1999 and to revise the March 31, 1999 covenants. The amendment of the
old credit agreement also required Seminis to issue and sell no later than May
31, 1999 subordinated debt securities, common equity securities or any
combination thereof for an aggregate sales price of not less than $150,000. See
Note 17.
As of September 30, 1998, long-term debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
- ------------
<S> <C>
1999.......................... $ 19,825
2000.......................... 22,824
2001.......................... 19,908
2002.......................... 21,880
2003.......................... 33,074
Thereafter...................... 296,760
--------
$414,271
========
</TABLE>
NOTE 9--CAPITAL STOCK AND MANDATORILY REDEEMABLE EQUITY SECURITIES
CLASS A REDEEMABLE PREFERRED STOCK
As part of the Ball Merger, the Company issued 25 shares of Class A
Redeemable Preferred Stock to the stockholders of Ball. Holders of the Class A
Redeemable Preferred Stock have the right to cause the Company to redeem the
shares at any time prior to October 1, 2000. The redemption price shall be
$1,000 per share.
Each share of Class A Redeemable Preferred Stock will be automatically
converted into one share of Class B Redeemable Preferred Stock upon the earlier
of the occurrence of an initial public offering, October 1, 2000 or the
occurrence of certain other events. In addition, each share of Class A
Redeemable Preferred Stock will be convertible at the option of the holder at
any time into one share of Class B Redeemable Preferred Stock.
The Class A Redeemable Preferred Stock has no voting rights. The Company
pays quarterly dividends on all issued shares of Class A Redeemable Preferred
Stock at a rate of 8% per year. Dividends are cumulative if unpaid and are added
to the redemption value of the shares. The liquidation value of the shares is
equal to the redemption value at any point in time.
F-18
<PAGE> 84
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CLASS B REDEEMABLE PREFERRED STOCK
The Company is authorized to issue up to 25 shares of its Class B
Redeemable Preferred Stock. No shares have been issued to date. Terms of Class B
Redeemable Preferred Stock are identical to the Class A Redeemable Preferred
Stock with respect to dividends and liquidation preferences, however, Class B
Redeemable Preferred Stock is not redeemable at the option of the holder. The
Company shall redeem all outstanding shares of the Class B Redeemable Preferred
Stock on October 1, 2005.
OLD CLASS B REDEEMABLE COMMON STOCK
The Company also issued 18,091 shares of Old Class B Redeemable Common
Stock to the Ball stockholders as part of the Ball Merger. Holders of Old Class
B Redeemable Common Stock have the right to cause the Company to redeem the
shares on October 1, 2000, or earlier if an early redemption event occurs. The
redemption price accretes at an annual rate of approximately 6% up to a maximum
of $8.05 per share at October 1, 2000. The redemption price was $6.35 per share
on October 1, 1996, $6.75 per share on October 1, 1997 and $7.15 per share on
October 1, 1998.
Each share of Old Class B Redeemable Common Stock is automatically
convertible into one share of Class B Common Stock upon the consummation of an
initial public offering, October 1, 2000 or the occurrence of certain other
events. In addition, each share of Old Class B Redeemable Common Stock will be
convertible at the option of the holder at any time into one share of Class B
Common Stock; however, upon such conversion, the Old Class B Redeemable Common
Stock will lose its redemption rights and dilute other protections.
If any of the classes of mandatorily redeemable stock are required to be
redeemed, Savia is obligated to make a capital contribution to the Company in an
amount equal to the redemption price the Company is required to pay. In the
event Savia fails to make this capital contribution or the Company fails to
complete any redemption, whether or not Savia makes the capital contribution,
the holders of Old Class B Redeemable Common Stock will be entitled to 100 votes
per share and to elect a majority of the board of directors.
In January 1998, the Company repurchased 11,319 shares of Old Class B
Redeemable Common Stock from the former Ball stockholders for $211,824. Such
shares were canceled upon repurchase. Prior to this transaction, Savia purchased
3,895 shares of Old Class B Redeemable Common Stock from the former Ball
stockholders at the same price of $18.71 per share. Such shares remain
outstanding.
CLASS A COMMON STOCK
The Company is authorized to issue up to 91,000 shares of Class A Common
Stock. No shares have been issued, however, 3,677 shares were reserved for
issuance for options granted to employees in fiscal year 1998. Class A Common
Stock is entitled to one vote per share.
CLASS B COMMON STOCK
Following the Ball Merger, Savia owned all 30,000 outstanding shares of
the Company's Class B Common Stock. Holders of the Class B Common Stock are
entitled to three votes per share.
During fiscal year 1998, the Company issued 7,386 shares of Class B Common
Stock to Savia or its affiliates for cash in the amount of $138,200. The share
price of $18.71 was based on the fair market value of the Company at the time of
the transaction.
CLASS C PREFERRED STOCK (UNAUDITED)
The Company is authorized to issue up to 6 shares of its Class C Preferred
Stock. In
F-19
<PAGE> 85
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 1998, Savia made an equity
investment in Seminis of $10,000 in exchange for 1 shares of Class C Preferred
Stock to finance the purchase of shares of Hungnong which Seminis was obligated
to purchase from the minority shareholders of Hungnong in connection with the
acquisition of Hungnong and to provide working capital. In March 1999, Savia
made an additional equity investment in Seminis of $20,000 in exchange for 2
shares of Class C Preferred Stock to finance working capital requirements.
Shares of Class C Preferred Stock have no voting rights and are redeemable
at the option of the Company. Dividends accrue cumulatively at the rate of 10%
per year and are payable quarterly. Dividends payable through January 2001 are
payable by issuing additional fully paid and non assessable shares of Class C
Preferred Stock.
NOTE 10--INCOME TAXES
Consolidated pre-tax income (loss) consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
U.S. operations............................... $(82,596) $(18,455) $(28,771)
Foreign operations............................ (4,890) 33,619 38,969
-------- -------- --------
$(87,486) $ 15,164 $ 10,198
======== ======== ========
</TABLE>
The expense (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
Current: ---- ---- ----
<S> <C> <C> <C>
Federal..................................... $ (1,479) $ (7,420) $ (7,049)
State....................................... 582 (833) (691)
Foreign..................................... 9,221 6,571 11,284
-------- -------- --------
8,324 (1,682) 3,544
-------- -------- --------
Deferred:
Federal..................................... (26,168) (306) (2,833)
State....................................... (2,457) 27 (264)
Foreign..................................... (11,100) 5,800 2,989
-------- -------- --------
(39,725) 5,521 (108)
-------- -------- --------
$(31,401) $ 3,839 $ 3,436
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax
F-20
<PAGE> 86
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
assets and liabilities as of September 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Reserve for doubtful accounts............................. $ 1,573 $ 3,902
Inventories............................................... 5,149 7,492
Other accruals............................................ 6,977 6,698
Net operating loss carryforwards and other credits........ 11,040 8,154
-------- --------
Total deferred tax assets......................... 24,739 26,246
Valuation allowance....................................... (5,610) (7,246)
-------- --------
Net deferred tax assets........................... 19,129 19,000
-------- --------
Deferred tax liabilities:
Depreciation and amortization............................. (30,021) (42,212)
Accrued taxes on undistributed foreign earnings........... (9,693) (11,638)
-------- --------
Total deferred tax liabilities.................... (39,714) (53,850)
-------- --------
$(20,585) $(34,850)
======== ========
</TABLE>
The valuation adjustment for deferred tax assets as of September 30, 1998
and September 30, 1997 was $7,246 and $5,610, respectively. The net change in
the total valuation allowance for the years ended September 30, 1998 and
September 30, 1997 was an increase of $1,636 and a decrease of $2,154,
respectively.
The Company's net operating loss carryforwards balance primarily relates
to a Netherlands net operating loss carryforward that has an indefinite life.
Based on management's assessment, it is more likely than not that the net
deferred tax assets will be realized through future taxable earnings or
alternative tax strategies.
The Company provides for Federal income taxes on the undistributed
earnings of certain foreign subsidiaries. The earnings for all other foreign
subsidiaries will only be distributed to the United States to the extent any
Federal income tax can be fully offset by foreign tax credits.
The expense (benefit) for income taxes varies from income taxes based on
the federal statutory rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income tax at statutory Federal rate............... $(30,400) $ 5,311 $ 3,569
State and local income tax benefit, net of Federal
income tax effect................................ (2,617) (334) (180)
Research and other tax credits..................... (1,003) (1,083) (977)
Foreign earnings taxed at different rates.......... 1,552 969 959
Net reduction in valuation allowances.............. -- (1,303) (1,009)
</TABLE>
F-21
<PAGE> 87
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Goodwill amortization.............................. 152 239 825
Other.............................................. 915 40 249
-------- ------- -------
$(31,401) $ 3,839 $ 3,436
======== ======= =======
</TABLE>
NOTE 11--EMPLOYEE BENEFITS
PENSION PLANS
U.S. PLANS. The Company maintains a Company-sponsored defined contribution
savings plan covering eligible employees. Company contributions are based on a
percentage of employee contributions and on employee salaries. Company
contributions totaled $665, $1,797 and $2,050 in fiscal years 1996, 1997 and
1998, respectively. The Company also maintains a qualified profit sharing plan.
Annual contributions are made at the discretion of the Company's board of
directors and totaled $899, $1,660 and $1,284, in fiscal years 1996, 1997 and
1998, respectively.
FOREIGN PLANS. In accordance with the local statutory requirements, the
Company sponsors retirement and severance plans at several of its foreign
locations. The Company has recorded an accrual of $3,405 at September 30, 1997
and $10,509 at September 30, 1998 for anticipated payments to be made to foreign
employees upon retirement or termination.
The Company provides defined-benefit pension plans in certain foreign
countries where required by statute. The Company's funding policy for foreign
defined-benefit plans is consistent with the local requirements in each country.
The funded status of these plans as of September 30, 1997 and 1998 was as
follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Vested benefit obligation................................... $24,455 $28,090
======= =======
Accumulated benefit obligation.............................. $24,455 $28,090
======= =======
Projected benefit obligation................................ $32,606 $39,356
Fair market value of plan assets............................ 31,323 36,712
------- -------
Projected benefit obligations in excess of plan assets...... (1,283) (2,644)
Unrecognized net loss....................................... 4,377 7,035
------- -------
Prepaid pension asset....................................... $ 3,094 $ 4,391
======= =======
</TABLE>
F-22
<PAGE> 88
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The components of net pension expense for the foreign plans, based on the
most recent valuation dates, were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost........................................ $ 1,764 $ 1,069 $ 1,096
Interest cost....................................... 1,817 1,908 1,956
Actual gain on plan assets.......................... (1,908) (2,291) (1,596)
Net amortization and deferral....................... 221 156 (593)
------- ------- -------
$1,894.. $ 842 $ 863
======= ======= =======
</TABLE>
Assumptions used in the above calculations were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate.............................. 6.0% 6.0% 6.0%
Rate of future compensation increases....................... 4.0 4.0 4.0
Long-term rate of return on plan assets..................... 7.5 7.5 7.5
</TABLE>
STOCK OPTION PLAN
In 1998, the Company adopted the Seminis 1998 Stock Option Plan (the
"Stock Option Plan") under which key employees and those who will become key
employees may be granted options to purchase shares of the Company's authorized
but unissued Class A Common Stock. The board of directors reserved 3,677 shares
for issuance under the plan and, in July 1998, awarded options to acquire 267
shares by plan participants at $18.71 per share (Note 9). Under the Stock Option
Plan, the option exercise price is equal to fair market value at the date of
grant, as determined by independent appraisal.
Options currently expire no later than ten years from the grant date and
generally vest over four years. Proceeds received by the Company from exercises
will be credited to common stock and additional paid-in capital.
Stock option plan activity during the fiscal year was as follows:
<TABLE>
<CAPTION>
OPTIONS GRANTED
SHARES ---------------------
AVAILABLE NUMBER EXERCISE
FOR OPTIONS OF SHARES PRICE
----------- --------- --------
<S> <C> <C> <C>
Reserved..................................... 3,677 -- $ --
Grants....................................... (267) 267 18.71
Exercises.................................... -- -- --
Cancellations................................ -- -- --
----- --- ------
September 30, 1998........................... 3,410 267 $18.71
===== === ======
</TABLE>
As of September 30, 1998, no options were exercisable. Options outstanding
at September 30, 1998 will expire if not exercised on or before June 30, 2008.
F-23
<PAGE> 89
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro forma information regarding net income is required by SFAS No. 123.
This information is required to be determined as if the Company had accounted
for its employee stock options granted under the fair market value method of
that statement. The fair market value of options granted in fiscal year 1998 was
$16.41 per share using a minimum value method assuming a risk-free interest rate
of 5.48%, an expected life of four years and no projected dividend yields.
Unlike other permitted option pricing models, the minimum value method excludes
stock price volatility, which cannot be reasonably estimated for the Company.
For purposes of pro forma disclosures, the estimated fair market value of
the options is amortized to expense over the options' vesting periods. There is
no difference in net loss per share in applying the pro forma provisions of SFAS
No. 123 for the year ended September 30, 1998.
NOTE 12--COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases land, buildings, machinery and equipment under
operating leases. Rental expenses aggregated approximately $8,080, $6,685 and
$9,788 in fiscal years 1996, 1997 and 1998, respectively.
Minimum annual lease commitments under non-cancelable operating leases at
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
- ------------
<S> <C>
1999............................. $3,779
2000............................. 1,916
2001............................. 678
2002............................. 368
2003............................. 218
Thereafter........................ 643
------
$7,602
======
</TABLE>
CONTINGENCIES
The Company has been named as a defendant in various lawsuits arising out
of alleged seedmen's errors and omissions. The Company maintains third-party
seedsmen's errors and omissions insurance covering these types of claims, thus
policies are subject to annual renewal and revisions and house deductibles and
coverage limits. An accrual for management's estimate of exposure related to
such claims has been recorded in the financial statements and is disclosed in
Note 7. It is the opinion of management that the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
Historically, resolution of asserted claims has been in line with
management's expectations.
NOTE 13--DISCONTINUED OPERATIONS
At the time Asgrow was purchased from the Upjohn Company in 1995, the
Company operated in two distinct business segments, Vegetable Seeds and
Agronomics Seeds (the "Agronomics Segment"). On October 1, 1996, management
elected to dispose of its Agronomics Segment and on January 31, 1997, the
Agronomics Segment was sold to Monsanto for a gross sales price of $240,000. As
a result of this transaction, the Agronomics Segment has been accounted for as a
discontinued operation and, accordingly, its operations are segregated in the
accompanying statements of operations. Net revenues for the Agronomics Segment
were $194,074 and $77,637 in fiscal years 1996 and 1997, respectively.
F-24
<PAGE> 90
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14--GEOGRAPHIC INFORMATION
The Company operates principally in one business segment consisting of the
development, production and marketing of vegetable and fruit seeds. Revenues
derived from sales to external customers attributed to the Company's country of
domicile, to individual countries representing more than 10% of the Company's
consolidated net sales and to all other foreign countries in total are
summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales
United States................................. $113,164 $117,015 $132,274
Italy......................................... 48,779 47,411 47,376
Spain......................................... 24,433 22,891 24,749
Mexico........................................ 23,625 28,637 31,355
Other foreign................................. 171,397 163,590 192,669
-------- -------- --------
Consolidated net sales..................... $381,398 $379,544 $428,423
======== ======== ========
</TABLE>
Long-lived assets other than financial instruments and deferred tax assets
located in the Company's country of domicile, located in individual foreign
countries representing more than 10% of the Company's consolidated long-lived
assets and located in all other foreign countries in total in which the Company
holds assets are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Long-lived assets
United States............................................. $116,704 $152,242
The Netherlands........................................... 44,006 43,032
South Korea............................................... -- 156,974
Other foreign............................................. 46,530 56,014
-------- --------
Consolidated long-lived assets......................... $207,240 $408,262
======== ========
</TABLE>
NOTE 15--RELATED PARTIES
Balances and transactions with related parties included in the
consolidated financial statements are as follows:
a) Research and development expenses include $2,500 in both fiscal years
1997 and 1998 in biotechnology research fees incurred pursuant to an
agreement between the Company and Bionova Holding Corporation, a
publicly traded company. Savia is the majority stockholder in Bionova.
b) Operating expenses for fiscal years 1997 and 1998 include $6,200 and
$8,465, respectively, in management fees paid to Savia.
c) Gain on disposal of the Agronomics Segment includes $8,000 in fees paid
in fiscal year 1997 to Savia for investment banking and other
professional fees and services provided in connection with the sale.
d) Convertible subordinated debt of $35,857 at September 30, 1998 is
payable to Savia, bears interest at 10% per year and was due in
installments of $7,000 in July 1999, $7,000 in July 2000 and $21,857 in
F-25
<PAGE> 91
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
July 2001. Advances to Young Il Chemical Company (Note 2) secured the
convertible subordinated debt. On February 1, 1999, the convertible
subordinated debt was converted into 1,916 shares of Class B Common
Stock at $18.71 per share.
e) Other accrued liabilities at September 30, 1998 include $2,286
representing accrued management fees and interest on the subordinated
debt.
f) Unaudited -- In December 1998, Savia made an equity investment in the
Company of $10,000 in exchange for 1 shares of Class C Preferred Stock
to finance the purchase of shares of Hungnong which the Company was
obligated to purchase from the minority shareholders of Hungnong in
connection with the acquisition of Hungnong and to provide working
capital. Through April 1999 an additional 0.0338 shares of Class C
Preferred Stock has been issued as dividends.
g) Unaudited -- In January 1999, Seminis borrowed $20,000 from Savia as an
intercompany advance to finance working capital requirements. This
intercompany advance bears interest at 10.0% per year.
h) Unaudited -- In March 1999, Savia made an additional equity investment
in the Company of $20,000 in exchange for 2 shares of Class C Preferred
Stock to finance working capital requirements.
NOTE 16--RECAPITALIZATION
Prior to the effective date of the registration statement, the board of
directors of Seminis, Inc., an Illinois corporation, authorized the
reincorporation of the Company in Delaware. In conjunction with the
reincorporation, the holders of certain securities agreed to a plan for the
recapitalization of the Company (the "Recapitalization") to occur concurrently.
The Recapitalization provides for the exchange of shares of the Illinois
corporation for shares of the Delaware corporation as follows: (i) all preferred
stock is to be exchanged for like preferred stock; (ii) all 6,772 shares of
Class B Redeemable Common Stock ("Old Class B Redeemable Common Stock") are to
be converted into one-half the number of such shares of Class B Common Stock;
(iii) all Class A Common Stock is to be exchanged for one-half the number of
such shares of Class B Common Stock; and (iv) all options to purchase Class C
Common Stock are to be exchanged for options to purchase Class A Common Stock.
Immediately following the Recapitalization, the Company shall pay a 1-for-1
stock dividend to all holders of Class B Common Stock. These consolidated
financial statements reflect the pending Recapitalization and stock dividend as
described above with the exception of the conversion of Old Class B Redeemable
Common Stock into Class B Common Stock.
The unaudited pro forma information presented in the consolidated balance
sheet at March 31, 1999 reflects the conversion of Old Class B Redeemable Common
Stock into Class B Common Stock as if the conversion had occurred on March 31,
1999.
NOTE 17--SUBSEQUENT EVENT--CURRENT CREDIT AGREEMENT (UNAUDITED)
On April 30, 1999 Seminis entered into a credit agreement (the "Current
Credit Agreement") with Bank of Montreal and Harris Trust and Savings Bank which
includes a $445,000 secured term loan and a $28,000 secured revolving credit
facility. The Company borrowed $473,000 under the Current Credit Agreement to
repay the $10,000 bank demand note and $439,225 outstanding under Seminis' old
credit agreement. The remaining $23,775 of borrowings were for payment of loan
origination fees of $5,250 and working
F-26
<PAGE> 92
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
capital. The loan origination fees relating to the Current Credit Agreement were
capitalized and will be amortized as interest expense using the straight line
method over the term of the agreement. Unamortized loan fees of $6,408 relating
to the old Credit Facility were charged to operations as an extraordinary item
of $3,973, net of tax.
The Company, at its option, may elect to pay interest on the Current
Credit Agreement borrowings based on either LIBOR plus defined margins of 4%
through June 30, 1999, 5% from July 1, 1999 through August 30, 1999 and 6%
thereafter until maturity on June 30, 2000, or the prime rate plus defined
margins of 2.5% through June 30, 1999, 3.5% from July 1, 1999 through August 30,
1999 and 4.5% thereafter until maturity on June 30, 2000. The Company is
required to pay a commitment fee of 0.5% on the unused portion of the revolving
line of credit.
Under the Current Credit Agreement the Company is required to apply the
net proceeds of debt or equity offerings to repay borrowings outstanding. The
Company is required to meet a minimum interest coverage ratio and a minimum net
worth test. The Current Credit Agreement also places limits on dividends,
foreign debt, leasing, capital expenditures, transactions with affiliates and
acquisitions.
If the Current Credit Agreement is not repaid by July 31, 1999, Seminis is
required to pay a non-refundable fee of 3% of the used and unused portions, as
defined in the agreement, of the revolving credit and term loan portions of the
Current Credit Agreement and issue to the lenders warrants to purchase, at a
nominal price, shares of Seminis' common stock aggregating 3% of the outstanding
shares of common stock on July 31, 1999, determined on a fully diluted basis. As
part of the use of proceeds from the offering and funds available under the new
credit facility, the Company will repay all borrowings under the Current Credit
Agreement.
On May 6, 1999, Seminis entered into a commitment letter with Bank of
Montreal and Harris Trust and Savings Bank providing for an underwritten credit
facility. Seminis anticipates that the new credit facility will be an unsecured
credit facility for $350.0 million, consisting of a term loan in the amount of
$200.0 million and a revolving line of credit in the amount of $150.0 million.
The term loan will amortize semi-annually with the balance due on June 30, 2004
and the revolving line of credit will mature on June 30, 2004. Seminis
anticipates that the new credit facility will bear interest in accordance with a
grid pricing formula based on the achievement of a specific debt ratio, with
such interest ranging from the prime rate to the prime rate plus 0.5% or, at the
option of Seminis, ranging from LIBOR plus 1.25% to LIBOR plus 2.0%. Seminis
will also pay commitment fees quarterly on the unused amount of the revolver.
Seminis expects the new credit facility to contain a number of financial
covenants, including net worth and indebtedness tests, and limitations on its
ability to make acquisitions, transfer or sell assets, create liens, pay
dividends, enter into transactions with its affiliates or enter into a merger,
consolidation or sale of substantially all of its assets, among other actions.
The new credit facility may be secured, depending upon the amount of net
proceeds of the offering and Seminis' debt ratio after the offering. Seminis
also expects that its new credit facility will provide for events of default
typical of facilities of its type, as well as an event of default if Pulsar
Internacional, S.A. de C.V., together with its affiliates, which includes Savia,
fails to hold a majority of the board of directors or direct the management of
Seminis or control at least 51% of the voting rights of Seminis.
F-27
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hungnong Seed Co., Ltd
We have audited the accompanying consolidated balance sheet of Hungnong
Seed Co., Ltd and its subsidiaries (collectively referred to as the "Company")
as of December 31, 1997 and the related consolidated statements of operations,
of stockholders' equity and of cash flows for the year then ended (all expressed
in South Korean Won). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1997, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
As described in Note 1, the Company's functional currency is the South
Korean Won, however, solely for the convenience of readers outside of South
Korea, the consolidated financial statements have been translated into U.S.
dollars. Our audits examined the translation of the South Korean Won amounts
into U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1.
As described in Note 1, in July 1998, Seminis, Inc. acquired a controlling
interest in the Company.
As described in Note 1, the consolidated statements of operations and of
cash flows for the six month period ended June 30, 1998 are unaudited and are
presented solely for comparative purposes.
SEONJIN ACCOUNTING CORPORATION
Seoul, South Korea
October 28, 1998
F-28
<PAGE> 94
HUNGNONG SEED CO., LTD
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(in thousands of U.S.
dollars, except per
share data)
<S> <C>
ASSETS:
Current assets
Cash and cash equivalents................................. $ 2,144
Marketable securities..................................... 422
Accounts receivable, less allowance for doubtful accounts
of $2,250.............................................. 10,023
Inventories............................................... 22,272
Prepaid expenses and other current assets................. 1,951
--------
Total current assets.............................. 36,812
Property, plant and equipment, net.......................... 19,488
Deferred income taxes....................................... 3,175
Other assets................................................ 7,001
--------
Total assets...................................... $ 66,476
========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities
Short-term borrowings (includes $6,700 due to related
party)................................................. $ 37,277
Current maturities of long-term debt...................... 11,839
Accounts payable.......................................... 3,833
Accrued liabilities....................................... 22,486
--------
Total current liabilities......................... 75,435
Long-term debt, net of current maturities................... 18,167
Minority interest in subsidiaries........................... 453
Net obligations of discontinued operations.................. 5,395
--------
Total liabilities................................. 99,450
--------
Commitments and contingencies (Note 8)
Stockholders' deficit
Common stock, $6.34 par value; 2,000 shares authorized;
1,000 shares issued and outstanding.................... 6,340
Accumulated deficit....................................... (59,363)
Unrealized loss on marketable securities.................. (1,294)
Foreign currency translation.............................. 21,343
--------
Total stockholders' deficit....................... (32,974)
--------
Total liabilities and stockholders' deficit....... $ 66,476
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 95
HUNGNONG SEED CO., LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
(unaudited)
(in thousands of U.S. dollars)
<S> <C> <C>
Net sales......................................... $ 58,126 $17,317
Cost of goods sold................................ 26,531 8,258
-------- -------
Gross profit............................ 31,595 9,059
-------- -------
Operating expenses
Research and development expenses............... 4,514 1,326
Selling, general and administrative expenses.... 23,406 5,771
-------- -------
Total operating expenses................ 27,920 7,097
-------- -------
Income from continuing operations................. 3,675 1,962
Other income (expense)
Interest income................................. 1,436 341
Interest expense................................ (13,749) (6,540)
Foreign currency gain (loss).................... 1,340 (433)
Minority interest............................... (428) (116)
Other, net...................................... (257) (519)
-------- -------
(11,658) (7,267)
-------- -------
Loss from continuing operations before income
taxes........................................... (7,983) (5,305)
Income tax benefit................................ 282 1,060
-------- -------
Loss from continuing operations................... (7,701) (4,245)
-------- -------
Discontinued operations (Note 9):
Loss from operations before income taxes........ (10,698) (2,016)
Income tax benefit.............................. -- --
-------- -------
Loss from discontinued operations............ (10,698) (2,016)
-------- -------
Net loss.......................................... $(18,399) $(6,261)
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 96
HUNGNONG SEED CO., LTD
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK LOSS ON FOREIGN TOTAL
--------------- ACCUMULATED MARKETABLE CURRENCY STOCKHOLDERS'
NUMBER AMOUNT DEFICIT SECURITIES TRANSLATION DEFICIT
------ ------ ----------- ---------- ----------- -------------
(in thousands of U.S. dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996...... 1,000 $6,340 $(40,964) $ (857) $ (129) $(35,610)
Net loss........................ (18,399) (18,399)
Unrealized loss on marketable
securities.................... (783) (783)
Foreign currency translation.... 346 21,472 21,818
----- ------ -------- ------- ------- --------
Balance, December 31, 1997...... 1,000 $6,340 $(59,363) $(1,294) $21,343 $(32,974)
===== ====== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 97
HUNGNONG SEED CO., LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1997 JUNE 30, 1998
------------ -------------
(unaudited)
(in thousands of U.S.
dollars)
<S> <C> <C>
Cash flows from operating activities Net loss.............. $(18,399) $ (6,261)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 1,450 419
Deferred income tax benefit........................... (2,164) (1,165)
Net loss from discontinued operations................. 10,698 2,016
Minority interest..................................... 428 116
Other................................................. 701 333
Changes in assets and liabilities
Accounts receivable................................. (3,773) 3,240
Inventories......................................... (5,295) (454)
Prepaid expenses and other assets................... 1,307 1,013
Accounts payable.................................... (1,672) (1,793)
Accrued liabilities................................. 7,332 (9,320)
-------- --------
Net cash used in operating activities............ (9,387) (11,856)
-------- --------
Cash flows from investing activities
Purchases of fixed assets................................ (2,199) (633)
Proceeds from disposition of assets...................... 1,727 165
Other assets............................................. (216) 2,078
Discontinued operations advances account................. (3,217) (4,429)
-------- --------
Net cash used in investing activities............ (3,905) (2,819)
-------- --------
Cash flows from financing activities
Proceeds from long-term debt............................. 18,280 8,797
Repayments of long-term debt............................. (8,655) (212)
Net short-term borrowings................................ 224 6,141
-------- --------
Net cash provided by financing activities........ 9,849 14,726
-------- --------
Effect of exchange rate changes on cash.................... (1,879) 49
-------- --------
(Decrease) increase in cash and cash equivalents........... (5,322) 100
Cash and cash equivalents, beginning of period............. 7,466 2,144
-------- --------
Cash and cash equivalents, end of period................... $ 2,144 $ 2,244
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 98
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND CHANGE IN OWNERSHIP
Hungnong Seed Co., Ltd ("Hungnong") is a South Korean-based vegetable seed
company. As of December 31, 1997, the shares of Hungnong were primarily held by
certain members of a Korean family (the "Korean Family"). In July 1998, Seminis,
Inc., an Illinois Corporation hereinafter referred to as Seminis, purchased 70%
of the outstanding shares of Hungnong from the Korean Family (the "Seminis
Acquisition"). See Note 10 for further discussion of the Seminis Acquisition.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The Company's consolidated financial statements included herein have been
prepared in accordance with accounting principles generally accepted in the
United States of America and include the accounts of Hungnong Seed Co., Ltd and
its majority controlled and owned subsidiaries ("the Company"). All material
intercompany transactions and balances have been eliminated in consolidation.
See Note 9 for discussion of the Company's discontinued operations.
The Company's functional currency is the South Korean Won and the
Company's monetary accounts are predominately denominated in South Korean Won.
The consolidated financial statements have been translated into U.S. dollar
amounts in accordance with the provisions of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation."
To enhance the comparability of the financial information, consolidated
statements of operations and of cash flows for the six months ended June 30,
1998, which are unaudited, are presented with those for the year ended December
31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the fiscal year, including customer returns and allowances.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Product sales are recognized upon shipment of goods and are reduced by
management's estimates for the effect of discounts and allowances. Customer
payments received in advance of shipment are recorded as advances from
customers.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments
purchased with an original maturity of three months or less. The Company invests
its excess cash in deposits with financial institutions. Such investments are
considered cash equivalents for purposes of reporting cash flows and bear
minimal risk.
MARKETABLE SECURITIES
The Company considers its investment portfolio available-for-sale as
defined in Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and accordingly, these
investments are recorded at fair value. Adjustments for changes in unrealized
appreciation or depreciation are recorded as Unrealized Loss on Marketable
Securities in the Statement of Stockholders' Deficit.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of reserves for bad debts, discounts
and
F-33
<PAGE> 99
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
allowances. Determination of reserves are based on historical experience and
anticipated market conditions and are adjusted by management as deemed
necessary. The Company performs ongoing credit evaluations of its customers'
financial condition and does not require collateral. The Company's diversified
customer base limits the amount of credit exposure to any one customer.
INVENTORIES
Inventories are stated at the lower of cost or estimated realizable value.
Costs for inventories are determined using the average cost method and include
the costs of materials, direct labor and the applicable share of overhead costs.
Unharvested crop-growing costs are included as part of inventory cost and
represent costs incurred to plan and maintain seed crops that will be harvested
during the subsequent fiscal year. Inventories are periodically reviewed and
reserves established for deteriorated, excess and obsolete items.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Provisions for
depreciation of plant and equipment have been made using the straight-line and
accelerated method for financial reporting and tax purposes. Estimated useful
lives generally range from 8 to 40 years for buildings and improvements, from 5
to 18 years for machinery and equipment and from 3 to 20 years for office
furniture and equipment.
SEVERANCE AND RETIREMENT BENEFITS
In accordance with South Korean law, employees who have been with the
Company for more than one year are entitled to lump-sum payments based on
current rates of pay and length of service when they leave the Company. The
Company's liability as of December 31, 1997 for these benefits is included in
accrued liabilities.
RESEARCH AND DEVELOPMENT AND OTHER COSTS
Research and development costs are charged to operations as incurred.
SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Cash paid for interest............ $13,947
Cash paid for income taxes........ $ 1,852
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, inventories and debt. These balances are carried in the financial
statements at amounts that approximate fair value unless separately disclosed in
the Notes to Consolidated Financial Statements.
RELATED PARTIES
Balances and transactions with related parties that are included in the
consolidated financial statements are not material except for short-term
borrowings from shareholders of $6,700 which accrues interest at 15% and was
repaid in July 1998.
NOTE 2--INVENTORIES
Inventories as of December 31, 1997 are comprised of the following:
<TABLE>
<S> <C>
Seed........................................................ $19,033
Unharvested crop-growing costs.............................. 1,714
Supplies.................................................... 1,525
-------
Total inventories................................. $22,272
=======
</TABLE>
F-34
<PAGE> 100
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 includes the following:
<TABLE>
<S> <C>
Land and improvements....................................... $ 5,839
Building and improvements................................... 18,413
Machinery and equipment..................................... 3,693
-------
Total cost........................................ 27,945
Accumulated depreciation.......................... (8,457)
-------
Net property, plant and equipment............ $19,488
=======
</TABLE>
NOTE 4--OTHER ASSETS
Other assets as of December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Restricted cash and deposits................................ $2,371
Restricted deposit for payments of retirement benefits...... 2,860
Long-term bank deposits..................................... 1,483
Other....................................................... 287
------
$7,001
======
</TABLE>
Restricted cash and deposits consist primarily of cash advanced to
financial institutions as per certain borrowing agreements. Restricted deposits
for payment of retirement benefits consist primarily of advances to financial
institutions to be used to settle Company severance obligations.
NOTE 5--ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Accrued severance and other................................. $ 6,667
Advances from customers..................................... 7,296
Seedmen's errors and omissions liability.................... 3,230
Other....................................................... 5,293
-------
$22,486
=======
</TABLE>
NOTE 6--DEBT
Short-term borrowings as of December 31, 1997 consist primarily of
borrowings from various South Korean financial institutions. Interest accrues at
fixed interest rates ranging from 10% to 42%.
Except for the non-South Korean Won borrowings of $1,798 below, long-term
debt consist of South Korean Won borrowings which were translated to U.S.
dollars using an exchange rate of 1,415 South Korean Won to 1 U.S. Dollar.
Substantially all loans are secured by the Company's assets. Long-term
F-35
<PAGE> 101
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
debt as of December 31, 1997 consist of the
following:
<TABLE>
<S> <C>
9.0%-13.25% bank borrowings due 1998 through 2000........... $ 7,809
11.5% bank loan due in 1998................................. 5,654
5.0% South Korean government research loans due 1998 through
2007...................................................... 1,553
8.0%-8.8% non-South Korean Won borrowings due 2001 through
2005...................................................... 1,798
10.0%-13.0% subordinated debentures due 1998 through 2000... 13,192
--------
30,006
Less current portion................................... (11,839)
--------
$ 18,167
========
</TABLE>
For the year ended December 31, 1997 the Company incurred interest at a
weighted-average rate of 14% per annum on its outstanding borrowings.
As of December 31, 1997, long-term debt matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31:
- ------------
<S> <C>
1998............................ $11,839
1999............................ 8,995
2000............................ 6,271
2001............................ 596
2002............................ 591
Thereafter........................ 1,714
-------
$30,006
=======
</TABLE>
In July 1998, the Company significantly reduced its short-term borrowings
and long-term debt through the issuance of common stock and borrowings from
Seminis, Inc. in conjunction with the Seminis Acquisition. See Note 10 for
further discussion on the Seminis Acquisition.
NOTE 7--INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Current expense................... $(1,840)
Deferred benefit.................. 2,122
-------
Income tax benefit................ $ 282
=======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
F-36
<PAGE> 102
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
components of the Company's deferred tax
accounts are as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Deferred tax assets:
Accounts receivable....................................... $ 1,981
Accrued liabilities....................................... 1,758
Research and development costs............................ 580
Fixed assets.............................................. 1,246
Other, net................................................ 4
-------
Deferred tax assets............................... 5,569
Deferred tax asset valuation allowance...................... (2,394)
-------
Net deferred tax asset............................ $ 3,175
=======
</TABLE>
Management believes net deferred tax assets will be realized through
future taxable earnings or alternative tax strategies.
As of December 31, 1997, the Company's Chinese subsidiary had unremitted
earnings of $1,253. The Company has not made a South Korean tax provision on
these unremitted earnings as such undistributed earnings are expected to be
reinvested indefinitely in China.
A reconciliation of the income tax benefit at the statutory income tax
rate and the recorded income tax benefit for the year ended December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Income tax benefit at South Korean statutory rate........... $2,327
Unrealizable deferred tax assets............................ (1,824)
Foreign tax rate differential............................... (199)
Other, net.................................................. (22)
------
$ 282
======
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases land, buildings, machinery and equipment under
operating leases. Rental expenses aggregated approximately $633 for the year
ended December 31, 1997.
Minimum annual lease commitments under existing non-cancelable operating
leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31:
- ------------
<S> <C>
1998............................... $375
1999............................... 309
2000............................... 156
2001............................... 6
----
$846
====
</TABLE>
F-37
<PAGE> 103
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
CONTINGENCIES
The Company has been named as a defendant in various lawsuits arising out
of alleged seedmen's errors and omissions. An accrual related to such claims has
been recorded in the financial statements based on management's estimate of the
ultimate resolution of these matters.
NOTE 9--DISCONTINUED OPERATIONS
As part of its strategy and plan of acquisition of the Company, in July
1998, Seminis discontinued the Company's non-vegetable seed operations. The
non-seed operations primarily include Handock Electronics, a South Korean based
automotive parts supplier and Hungnong Industrial, a South Korean based
agricultural equipment manufacturer. The non-vegetable seed operations are
accounted for as discontinued operations, and accordingly, their operations are
segregated in the accompanying Consolidated Statement of Operations. The
accompanying Consolidated Balance Sheet has also been restated to separately
reflect the net obligations of discontinued operations.
Net sales of discontinued operations were approximately $19,742 and $5,145
for the year ended December 31, 1997 and six months ended June 30, 1998
(unaudited), respectively. Seminis plans to wind down operations by June 1999.
NOTE 10--SUBSEQUENT EVENT
SEMINIS ACQUISITION
In July 1998, Seminis acquired 70% of the shares of the Company through
the purchase of 1,428,000 newly issued shares of the Company (for cash in the
amount of $82,537) and 271,585 previously issued shares from the South Korean
Family. Below is the Hungnong share ownership prior to and after the Seminis
Acquisition.
<TABLE>
<CAPTION>
SHARES HELD BY
-----------------------------------
KOREAN
FAMILY SEMINIS TOTAL
------ ------- -----
<S> <C> <C> <C>
As of June 30, 1998......................................... 1,000,000 -- 1,000,000
Company issued shares in July 1998.......................... -- 1,428,000 1,428,000
Seminis July 1998 purchase shares from South Korean
Family.................................................... (271,585) 271,585 --
--------- --------- ---------
As of July 31, 1998......................................... 728,415 1,699,585 2,428,000
========= ========= =========
</TABLE>
F-38
<PAGE> 104
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
Effective July 1, 1998, Seminis acquired for cash certain assets and
assumed certain liabilities of Hungnong Seed Co. in a transaction accounted for
under the purchase method of accounting. The total purchase price paid was
$120,620. A portion of the purchase price was allocated to the net assets
acquired based on their estimated fair market values. The fair market value of
assets acquired and liabilities assumed were $196,176 and $144,513,
respectively. The balance of the purchase price, $68,957, was recorded as excess
of cost over net assets acquired (i.e., goodwill) and is being amortized over 15
years on a straight-line basis. A summary of the purchase price allocation is as
follows:
<TABLE>
<CAPTION>
BOOK FAIR
VALUE ADJUSTMENT VALUE
----- ---------- -----
(in thousands of U.S. dollars)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 86,687 $ -- $ 86,687
Accounts receivable............................... 12,508 -- 12,508
Inventories....................................... 19,293 -- 19,293
Property, plant and equipment, net................ 21,089 23,148 44,237
Germplasm......................................... -- 27,000 27,000
Goodwill.......................................... -- 68,957 68,957
Other............................................. 6,451 -- 6,451
-------- -------- --------
Total assets............................ 146,028 119,105 265,133
Current liabilities............................... (93,391) -- (93,391)
Non-current liabilities........................... (15,213) (18,555) (33,768)
Minority interest................................. -- (17,354) (17,354)
-------- -------- --------
Net assets acquired..................... $ 37,424 $ 83,196 $120,620
======== ======== ========
</TABLE>
The following unaudited pro forma consolidated results of operations
assume the acquisition was effective October 1, 1997. Seminis' historical
results of operations include the results of operations of Hungnong from the
date of acquisition (July 1, 1998) to September 30, 1998, including the effects
of purchase accounting. Hungnong's historical results of operations represents
its results of operations for the period prior to acquisition (October 1, 1997
through June 30, 1998). Pro forma adjustments are made to reflect those expenses
for the period October 1, 1997 through June 30, 1998 which are recurring in
nature and are not otherwise reflected in the historical results of operations
of either Seminis or Hungnong. As more fully described below and in the Notes to
Seminis' Consolidated Financial Statements, the pro forma adjustments include
the assumed amortization of the effects of purchase accounting adjustments,
assumed interest income from the note receivable from Young II Chemical Company,
the net elimination of interest expense based on Seminis' assumed capitalization
of Hungnong at October 1, 1997, the assumed reduction in interest expense
related to the subordinated debt held by Savia due to conversion to common
shares effective October 1, 1997, assumed minority interest benefit and the
assumed income tax effects of pro forma adjustments.
F-39
<PAGE> 105
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 -- (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------------------ FOR THE FOR THE
SEMINIS(1) HUNGNONG(2) ACQUISITION ACQUISITIONS
---------- ----------- ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................................... $ 428,423 $27,564 $ -- $ 455,987
Cost of goods sold.......................... 162,806 15,028 -- 177,834
--------- ------- ------- ---------
Gross profit....................... 265,617 12,536 -- 278,153
--------- ------- ------- ---------
Operating expenses
Research and development expenses......... 49,416 2,284 -- 51,700
Selling, general and administrative
expenses................................ 158,588 10,740 -- 169,328
Management fees paid to Savia............. 8,465 -- -- 8,465
Amortization of intangible assets......... 14,457 -- 7,528(3) 21,985
--------- ------- ------- ---------
Total operating expenses........... 230,926 13,024 7,528 251,478
--------- ------- ------- ---------
Income (loss) from operations............... 34,691 (488) (7,528) 26,675
Other income (expense)
Interest income........................... 1,952 646 2,689(4) 5,287
Interest expense.......................... (29,034) (9,459) 3,871(5) (34,622)
Foreign currency gain (loss).............. 3,205 (148) -- 3,057
Minority interest......................... (219) (207) 2,942(6) 2,516
Other, net................................ (397) (574) -- (971)
--------- ------- ------- ---------
(24,493) (9,742) 9,502 (24,733)
--------- ------- ------- ---------
Income (loss) from continuing operations
before income taxes....................... 10,198 (10,230) 1,974 1,942
Income tax benefit (expense)................ (3,436) 1,120 (918)(7) (3,234)
--------- ------- ------- ---------
Income (loss) from continuing operations.... $ 6,762 $(9,110) $ 1,056 $ (1,292)
========= ======= ======= =========
Income (loss) from continuing operations
available for common stockholders......... $(133,367) $(9,110) $ 1,056 $(141,421)
========= ======= ======= =========
Loss from continuing operations available
for common stockholders per common
share..................................... $(4.23) $ -- $ -- $ (4.05)
========= ======= ======= =========
Weighted average common shares
outstanding............................... 31,536 -- -- 34,912
========= ======= ======= =========
</TABLE>
- ---------------
(1) Includes results of operations of Hungnong from July 1, 1998.
(2) Reflects operations of Hungnong for the period from October 1, 1997 through
June 30, 1998.
(3) To reflect nine months of amortization of Hungnong purchase accounting
adjustments which include fair value step-ups for intangible assets,
goodwill, and buildings. The intangible assets step-up is being amortized
over approximately a 10 year period on an accelerated basis. The goodwill
and building step-ups are being amortized over approximately 15 and 20 year
periods, respectively, on a straight-line basis.
(4) To reflect assumed interest income from the note receivable from Young II
Chemical Company for the period October 1, 1997 through June 30, 1998. See
Note 2 -- Hungnong Seed Co. Ltd. of Seminis' Notes to Consolidated Financial
Statements for discussion of the note receivable.
F-40
<PAGE> 106
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998 -- (CONTINUED)
(5) To reflect assumed elimination of interest expense of $2,975 due to assumed
capitalization of Hungnong by Seminis effective October 1, 1997 and assumed
reduction of interest expense of $896 related to subordinated debt due to
Savia due to assumed conversion of debt to Class B common shares effective
October 1, 1997. See Note 2 -- Hungnong Seed Co. Ltd. and Note 15 -- Related
Parties of Seminis' Notes to Consolidated Financial Statements for
discussion of the subordinated debt due to Savia.
(6) To reflect assumed allocation of net loss to minority interest based on 30%
minority interest in Hungnong for the nine months ended June 30, 1998,
including applicable pro forma adjustments.
(7) To reflect assumed income tax expense at a 37% effective tax rate applied to
taxable pro forma adjustments.
F-41
<PAGE> 107
GLOSSARY OF TERMS
AGRONOMIC--(1) a description of crop characteristics related to yield,
disease, insect resistance, virus resistance and tolerance to adverse
environmental conditions or (2) related to cereal or oilseed crops.
ARABLE--well-suited for the growing of crops.
GENES--a part of DNA or RNA that contains information needed to make a
particular protein (e.g. an enzyme) or control or influence an inherited
physical trait or activity (e.g. eye color).
GENOMICS--an understanding of the structure and function of the genetic
make-up of plants.
GERMPLASM--the genetic resources used for crop improvements (e.g. plants,
seeds, pollen, DNA).
HYBRID--seeds produced using genetically different parents.
INPUT COSTS--grower costs of production (e.g. fertilizer, crop protection
chemicals).
INPUT TRAITS--genetic traits or characteristics that reduce or eliminate
certain input costs or make crop plants resistant to pests or disease.
OPEN-POLLINATED--seeds produced using a single parent.
OUTPUT TRAITS--genetic traits or characteristics that enhance crop yield,
color, texture, flavor and ready-to-eat convenience.
PHENOTYPICALLY--a visible or detectable characteristic of a plant.
PHYTOSANITARY--plant material that is free of disease.
PLANT BREEDING--the cross-fertilization of two like plants and selection
of desired offspring.
PLANT PATHOLOGY--the study of plant diseases.
TRANSWITCH TECHNOLOGY--complementary, recombinant DNA that prevents gene
function.
G-1
<PAGE> 108
UNDERWRITING
Seminis, Savia and the underwriters for the U.S. offering named below have
entered into an underwriting agreement with respect to the shares being offered
in the United States. Subject to certain conditions, each U.S. underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., J.P. Morgan Securities Inc., ING Baring Furman Selz
LLC, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc. and VECTORMEX
Incorporated are the representatives of the U.S. underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
J.P. Morgan Securities Inc. ................................
ING Baring Furman Selz LLC..................................
Morgan Stanley & Co. Incorporated...........................
Salomon Smith Barney Inc. ..................................
VECTORMEX Incorporated......................................
-----------
Total..................................................... 11,000,000
===========
</TABLE>
----------------------
If the U.S. underwriters sell more shares than the total number set forth
in the table above, the U.S. underwriters have an option to buy up to an
additional 1,650,000 shares from Seminis to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the U.S. underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. underwriters by Seminis. Such amounts are
shown assuming both no exercise and full exercise of the U.S. underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Seminis
---------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share............ $ $
Total................ $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Seminis and Savia have entered into underwriting agreements with the
underwriters for the sale of 2,750,000 shares outside of the United States. The
terms and conditions of both offerings are the same and the sale of shares in
both offerings are conditioned on each other. Goldman Sachs International, J.P.
Morgan Securities Ltd., ING Barings Limited as agent for ING Bank N.V., London
Branch, Morgan Stanley & Co. International Limited and Salomon Brothers
International Limited are representatives of the underwriters for the
international offering outside the United States. Seminis has granted the
international underwriters a
U-1
<PAGE> 109
similar option to purchase up to an aggregate of an additional 412,500 shares.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters also have agreed that they may sell shares among each
of the underwriting groups.
Seminis and its directors and executive officers, Savia and other
stockholders of Seminis have agreed with the underwriters not to dispose of or
hedge any of their common stock or securities convertible into or exchangeable
for shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co. This agreement does not
apply to options or shares issued pursuant to Seminis' existing employee benefit
plans. In addition, Seminis may issue shares of common stock to fund future
acquisitions provided that the recipient enters into a similar lock-up
arrangement and Savia may pledge additional shares of common stock to the extent
necessary to comply with its recent borrowings. See "Shares Available for Future
Sale" for a discussion of certain transfer restrictions.
Prior to the offerings, there has been no public market for the shares.
The initial public offering price has been negotiated among Seminis and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Seminis' historical performance, estimates of the business
potential and earnings prospects of Seminis, an assessment of Seminis'
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The shares of Class A common stock have been approved for listing, subject
to official notice of issuance, on the Nasdaq National Market under the trading
symbol "SMNS".
In connection with the offerings, the underwriters may purchase and sell
shares of Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
common stock while the offerings are in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the underwriters at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Seminis estimates that its share of the total expenses of the offerings,
excluding underwriting discounts and commissions, will be approximately $2.7
million.
Seminis and Savia have agreed to indemnify the several underwriters
against certain liabilities, including liabilities under the Securities Act of
1933. However, Savia's indemnity obligations will not exceed $40.0 million.
At Seminis' request, the underwriters have reserved shares of Class A
common stock for sale to directors, officers, employees and retirees of Seminis
who have
U-2
<PAGE> 110
expressed an interest in participating in the offering. Seminis expects these
persons to purchase no more than 5% of the Class A common stock offered in the
offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares.
Alfonso Romo Garza, chairman of the board and director of Seminis and
beneficial owner of approximately 92.9% of the outstanding common stock, is one
of the principal shareholders of VECTORMEX Incorporated. Eugenio Najera
Solorzano, a director of Seminis, is also a director of Vector Casa de Bolsa,
S.A. de C.V., the indirect parent of VECTORMEX Incorporated.
In view of the fact that VECTORMEX Incorporated is an affiliate of
Seminis, the offerings are being conducted in accordance with Conduct Rule 2720
of the National Association of Securities Dealers, Inc., which provides that the
offering price to the public may not be higher than that recommended by a
"qualified independent underwriter" who has participated in the preparation of
the registration statement and prospectus and has exercised the usual standards
of "due diligence" with respect thereto. Goldman, Sachs & Co. has agreed to
serve as "qualified independent underwriter" and the offering price to the
public will not be higher than the price recommended by Goldman, Sachs & Co.
From time to time in the ordinary course of their respective businesses,
certain of the underwriters and their affiliates have engaged in and may in the
future engage in commercial banking and/or investment banking transactions with
Seminis and its affiliates.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offering being made outside of the
United States, to persons located in the United States.
Greenhill & Co., LLC, a National Association of Securities Dealers, Inc.
member, has agreed with Seminis to act as its financial advisor in connection
with the offerings. For these services, Seminis has agreed to pay Greenhill &
Co., LLC an advisory fee of $500,000, a portion of which will be paid to
Greenhill & Co., LLC by the underwriters out of the gross underwriting
discounts. Timothy M. George, a director of Seminis, is also a member and a
Managing Director of Greenhill & Co., LLC.
U-3
<PAGE> 111
[Inside Back Cover]
[Logo of Seminis]
[Logo of Asgrow]
[Logo of Petoseed]
[Logo of Royal Sluis]
[Logo of Bruinsma]
[Logo of California]
[Logo of Choong Ang]
[Logo of Genecorp]
[Logo of Horticeres]
[Logo of Hungnong]
[Logo of LSL PlantScience]
[Logo of Seneca]
<PAGE> 112
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Use of Proceeds........................ 12
Dividend Policy........................ 12
Capitalization......................... 13
Dilution............................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 28
Management............................. 48
Principal Stockholders................. 55
Certain Relationships and Related
Transactions......................... 56
Shares Eligible for Future Sale........ 56
Description of Capital Stock........... 57
Legal Matters.......................... 63
Experts................................ 63
Available Information.................. 63
Index to Consolidated Financial
Statements........................... F-1
Glossary of Terms...................... G-1
Underwriting........................... U-1
</TABLE>
----------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
13,750,000 Shares
SEMINIS, INC.
Class A Common Stock
----------------------
[SEMINIS LOGO]
----------------------
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
VECTORMEX INCORPORATED
Representatives of the Underwriters
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- -------
<S> <C>
SEC Registration Fee $94,520
-------
NASD Filing Fee 30,500
-------
Nasdaq National Market Listing Fee *
Blue Sky Fees and Expenses *
Printing Costs *
Transfer Agent Fees *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Miscellaneous Costs *
-------
Total $ *
=======
</TABLE>
All amounts are estimated except for the SEC Registration Fee and the NASD fee.
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Seminis is incorporated under the laws of the State of Delaware. Section
145 ("Section 145") of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who is, 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 such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include 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, provided such
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
person's conduct was illegal. A Delaware corporation may indemnify any person
who was, is, 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 by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify the person against
the expenses which such officer or director has actually and reasonably
incurred.
Seminis' Certificate of Incorporation limits the personal liability of
directors and officers of Seminis for breaches of fiduciary duty to Seminis or
its stockholder, except in certain circumstances including (1) breach of the
duty of loyalty to Seminis or its stockholders, (2) acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(3) any transaction from which the director derived an improper personal benefit
or (4) under
II-1
<PAGE> 114
Section 174 of the DGCL, which relates to unlawful payments of dividends or
unlawful stock or redemptions.
The By-Laws of Seminis provide that Seminis shall indemnify each person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director or officer of
Seminis or is or was serving, at the request of Seminis, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise to the fullest extent allowed by the DGCL. This right shall
include the right to be paid by Seminis the expenses (including attorney's
fees), in defending any such proceeding in advance of its final disposition.
However, if the DGCL so requires, the advancement of such expenses will only be
made upon the delivery to Seminis of an undertaking by or on behalf of such
person to repay all amounts so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right to appeal that such
person is not entitled to be indemnified for such expenses by Seminis.
In addition, the By-Laws provide that Seminis may maintain insurance to
protect itself and any director, officer, employee or agent of Seminis against
any expense, liability or loss, whether or not Seminis would have the power to
indemnify a person against any expense, liability or loss under the DGCL. The
By-Laws further provide that Seminis may, to the extent permitted by the board
of directors, grant rights to indemnification, and rights to advancement to
expenses, to any employee or agent of Seminis.
Seminis has obtained insurance through Savia for the benefit of Seminis'
officers and directors insuring such persons against certain liabilities,
including liabilities under the securities laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following provides information as to securities of the Registrant sold
by the Registrant with in the past 36 months which were not registered under the
Securities Act.
Between June 1, 1998 and December 31, 1998, Seminis Illinois granted
267,181 options to purchase shares of Old Class C common stock at an exercise
price of $18.71 per share to certain officers and employees pursuant to the
Seminis, Inc. 1998 Stock Option Plan. As of the date of this prospectus none of
the granted options have been exercised. The issuance of such shares was
effected in reliance on the exemption from registration under Section 4(2) of
the Securities Act.
On July 14, 1998, Seminis sold 7,386,424 shares of Old Class A common
stock to Savia and Asesorias Administrativas Moderna, S.A. de C.V., an affiliate
of Savia, for an aggregate purchase price of $138,200,000. These shares were
issued for investment purposes. The shares in such transaction were sold in
reliance on the exemptions from registration provided by Section 4(2) of the
Securities Act of 1933.
On July 14, 1998, Savia loaned $35,857,000 to Seminis in exchange for a
subordinated convertible note. The principal amount of this note, plus accrued
and unpaid interest, was convertible into shares of Class B common stock at the
option of Savia. Savia converted the note into 1,916,462 shares of Class B
common stock on February 1, 1999. The issuance of such shares was effected in
reliance on the exemption from registration under Section 3(a)(9).
On December 1, 1998, Seminis issued and sold 1,000 shares of Old Class C
preferred stock to Savia for an aggregate purchase price of $10.0 million. These
shares were issued for investment purposes. The shares in such transaction were
sold in reliance on exemptions from registration provided by Section 4(2) of the
Securities Act of 1933. Through April 1, 1999 an additional 33.8 shares of Class
C Preferred Stock has been issued as dividends.
In February 1999, Seminis issued and sold 100 shares of common stock to
Seminis Illinois for an aggregate purchase price of $1 in connection with
Seminis Illinois' formation
II-2
<PAGE> 115
of Seminis for purposes of the
reincorporation in Delaware. The shares were issued for investment purposes. The
issuance of such shares was effected in reliance on the exemption from
registration under Section 4(2) of the Securities Act.
In March 1999, Savia made an additional equity investment in Seminis of
$20.0 million in exchange for 2,000 shares of Class C preferred stock. The
shares were issued for investment purposes. The issuance of such shares was
effected in reliance on the exemption from registration under Section 4(2) of
the Securities Act.
On , 1999, Seminis Illinois was reincorporated as a Delaware
corporation through the merger of Seminis Illinois with and into Seminis.
Pursuant to the terms of the merger, each share of Old Class A common stock of
Seminis Illinois was automatically converted into one-half share of Class B
common stock of Seminis and each share of Old Class B mandatorily redeemable
common stock of Seminis Illinois was automatically converted into one-half share
of Class B common stock of Seminis. Each share of Old Class A mandatorily
redeemable preferred stock of Seminis Illinois was automatically converted into
one share of Seminis' Class A mandatorily redeemable preferred stock. Upon
consummation of the offering, each share of Seminis' issued and outstanding
Class A mandatorily redeemable preferred stock will automatically convert into
one share of Seminis' Class B mandatorily redeemable preferred stock. Also
pursuant to the reincorporation merger, each option to purchase one share of Old
Class C common stock of Seminis Illinois was automatically converted and changed
into an option to purchase one share of Class A common stock of Seminis. The
issuance of such shares was effected in reliance on the exemption from
registration under Section 3(a)(9).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1 Form of Underwriting Agreement
+2 Merger Agreement by and between Seminis, Inc., an Illinois
corporation and Seminis, Inc., a Delaware corporation
+3.1 Certificate of Incorporation
+3.2 Certificate of Designations of Class A Mandatorily
Redeemable Preferred Stock and Class B Mandatorily
Redeemable Preferred Stock of Seminis, Inc.
+3.3 Certificate of Designations of Class C Redeemable Preferred
Stock of Seminis, Inc.
+3.4 By-Laws
*4.1 Form of Class A Common Stock Certificate
**4.2 Registration Rights Agreement by and among Seminis, Inc. and
certain shareholders of Seminis, dated October 1, 1995
*5 Opinion of Milbank, Tweed, Hadley & McCloy LLP
**10.1 Seminis, Inc. 1998 Stock Option Plan
10.2 Form of Amended and Restated Seminis, Inc. 1998 Stock Option
Plan
**10.3 Share Subscription Agreement by and between Seminis, Inc.
and Hungnong Seed Co., Ltd., dated June 12, 1998
*10.4 New Credit Facility
*10.5 Form of Letter Agreement between Savia, S.A. de C.V. and
Seminis, dated as of , 1999
21 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
II-3
<PAGE> 116
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
*23.2 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in
its opinion filed as Exhibit 5 hereto)
23.3 Consent of Seonjin Accounting Corporation
**24 Power of Attorney (included on signature pages hereto)
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ To be filed by amendment in connection with the formation of Seminis, Inc.,
the new Delaware corporation.
(b) Financial Statement Schedules.
None.
All other schedules have been omitted as they are inapplicable, or the
other information is included in the financial statements.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide the
underwriters at the Closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission,
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel that matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall
be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State of
New York on May 27, 1999.
SEMINIS, INC.
By:/s/ ALEJANDRO RODRIGUEZ GRAUE
------------------------------------
Name: Alejandro Rodriguez Graue
Title: President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board May 27, 1999
- ---------------------------------------------------
Alfonso Romo Garza
* Director May 27, 1999
- ---------------------------------------------------
Francisco Gonzalez Sebastia
/s/ ALEJANDRO RODRIGUEZ GRAUE Director and President May 27, 1999
- --------------------------------------------------- (Principal Executive Officer)
Alejandro Rodriguez Graue
* Director May 27, 1999
- ---------------------------------------------------
Bernardo Jimenez Barrera
* Director May 27, 1999
- ---------------------------------------------------
G. Carl Ball
* Director May 27, 1999
- ---------------------------------------------------
George Carl Ball, Jr.
* Director May 27, 1999
- ---------------------------------------------------
Peter Davis
* Director May 27, 1999
- ---------------------------------------------------
Frank J. Pipp
* Director May 27, 1999
- ---------------------------------------------------
Dr. Eli Shlifer
</TABLE>
II-5
<PAGE> 118
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director May 27, 1999
- ---------------------------------------------------
Eugenio Najera Solorzano
* Director May 27, 1999
- ---------------------------------------------------
Christopher J. Steffen
* Chief Financial Officer May 27, 1999
- --------------------------------------------------- (Principal Financial Officer)
Octavio Hernandez
* Controller May 27, 1999
- --------------------------------------------------- (Principal Accounting Officer)
Michael Pigott
*By: /s/ ALEJANDRO RODRIGUEZ GRAUE
---------------------------------------------
Alejandro Rodriguez Graue
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1 Form of Underwriting Agreement
+2 Merger Agreement by and between Seminis, Inc., an Illinois
corporation and Seminis, Inc., a Delaware corporation
+3.1 Certificate of Incorporation
+3.2 Certificate of Designations of Class A Mandatorily
Redeemable Preferred Stock and Class B Mandatorily
Redeemable Preferred Stock of Seminis, Inc.
+3.3 Certificate of Designations of Class C Redeemable Preferred
Stock of Seminis, Inc.
+3.4 By-Laws
*4.1 Form of Class A Common Stock Certificate
**4.2 Registration Rights Agreement by and among Seminis, Inc. and
certain shareholders of Seminis, dated October 1, 1995
*5 Opinion of Milbank, Tweed, Hadley & McCloy LLP
**10.1 Seminis, Inc. 1998 Stock Option Plan
10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan
**10.3 Share Subscription Agreement by and between Seminis, Inc.
and Hungnong Seed Co., Ltd., dated June 12, 1998
*10.4 New Credit Facility
*10.5 Form of Letter Agreement between Savia, S.A. de C.V. and
Seminis, dated as of , 1999
21 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in
its opinion filed as Exhibit 5 hereto)
23.3 Consent of Seonjin Accounting Corporation
**24 Power of Attorney (included on signature pages hereto)
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ To be filed by amendment in connection with the formation of Seminis, Inc.,
the new Delaware corporation.
II-7
<PAGE> 1
SEMINIS, INC.
CLASS A COMMON STOCK
PAR VALUE $0.01 PER SHARE
UNDERWRITING AGREEMENT
(U.S. VERSION)
June [ ], 1999
Goldman, Sachs & Co.,
J.P. Morgan Securities Inc.,
ING Baring Furman Selz LLC,
Morgan Stanley & Co. Incorporated,
Salomon Smith Barney Inc.,
VECTORMEX Incorporated,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Seminis, Inc., a Delaware corporation (the "Company") and a
majority-owned subsidiary of Savia, S.A. de C.V., a Mexican company (the
"Principal Stockholder"), proposes, subject to the terms and conditions stated
herein, to issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 11,000,000 shares (the "Firm Shares") and, at
the election of the Underwriters, up to 1,650,000 additional shares (the
"Optional Shares") of Class A Common Stock, par value $0.01 per share ("Class A
Common Stock"), of the Company (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 3 hereof being collectively
called the "Shares").
On June [ ], 1999, Seminis, Inc., an Illinois corporation (the
"Predecessor Company"), was merged (the "Merger") with and into the Company.
Pursuant to the terms of the Merger, all issued and outstanding shares of Class
A Common Stock, par value $0.01 per share, of the Predecessor Company and all
issued and outstanding shares of Class B Common Stock, par value $0.01 per
share, of the Predecessor Company were converted into one-half the number of
such shares of Class B Common Stock, $0.01 par value ("Class B Common Stock"
and, together with the Class A Common Stock, "Stock"), of the Company followed
immediately thereafter by a one-for-one stock dividend. As used herein, the
"Com-
<PAGE> 2
pany" shall be deemed to include the Predecessor Company prior to the effective
time of the Merger.
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 3,162,500
shares of Class A Common Stock (the "International Shares"), including the
overallotment option thereunder, through arrangements with certain underwriters
outside the United States (the "International Underwriters"), for whom Goldman
Sachs International, J.P. Morgan Securities Ltd., ING Barings Limited as agent
for ING Bank N.V., London branch, Morgan Stanley & Co. International Limited and
Solomon Brothers International Limited acting as lead managers. Anything herein
or therein to the contrary notwithstanding, the respective closings under this
Agreement and the International Agreement are hereby expressly made conditional
on one another. The Underwriters hereunder and the International Underwriters
are simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 3, 4, 6, 12 and 14
herein, and except as the context may otherwise require, references hereinafter
to the Shares shall include all the shares of Class A Common Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
The Company and the Underwriters, in accordance with the requirements
of Rule 2720 ("Rule 2720") of the National Association of Securities Dealers,
Inc. (the "NASD") and subject to the terms and conditions stated herein, also
hereby confirm the engagement of the services of Goldman, Sachs & Co. as a
"qualified independent underwriter" (in its capacity thereof, the "Independent
Underwriter") within the meaning of Section (b)(15) of Rule 2720 in connection
with the offering and sale of the Shares.
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-72141)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
the Initial Registration State-
2
<PAGE> 3
ment, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened
by the Commission (any preliminary prospectus included in the
Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of
the Commission under the Act is hereinafter called a "Preliminary
Prospectus"); the various parts of the Initial Registration Statement
and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 6(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as
amended at the time such part of the Initial Registration Statement
became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under
the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(c) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the
3
<PAGE> 4
capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries (a
"Material Adverse Effect"), otherwise than as set forth or contemplated
in the Prospectus;
(e) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property (other than purchase money liens) and do not materially
interfere with the use made and proposed to be made of such property by
the Company and its subsidiaries; and any real property and buildings
held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
are not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company and
its subsidiaries;
(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
listed in Exhibit 21 of the Registration Statement (each a "Material
Subsidiary") has been duly organized and is validly existing as a
corporation or other business entity in good standing under the laws of
its jurisdiction of formation;
(g) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description of the Stock
contained in the Prospectus; and all of the issued shares of capital
stock of each Material Subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
(except for directors' qualifying shares and except as set forth in the
Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(h) The Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein and
under the International Underwriting Agreement, will be duly and
validly issued and fully paid and non-assessable and will conform to
the description of the Class A Common Stock contained in the
Prospectus;
(i) The issue and sale of the Shares by the Company hereunder
and under the International Underwriting Agreement and the compliance
by the Company
4
<PAGE> 5
with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(j) Neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound;
(k) The statements set forth in the Prospectus under the
captions "Description of Capital Stock," "Certain Relationships and
Related Transactions" and "Shares Eligible for Future Sale" and in the
Registration Statement in Items 14 and 15, insofar as such statements
constitute a summary of the terms of the capital stock, legal matters,
documents or proceedings referred to therein, are accurate, complete
and fair;
(l) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect; and,
to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(m) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company,"
as such term is defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act");
(n) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
5
<PAGE> 6
(o) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries, and Seonjin
Accounting Corporation, who have certified certain financial statements
of Hungnong Seed Co., Ltd., are, to the best of the Company's
knowledge, each independent public accountants as required by the Act
and the rules and regulations of the Commission thereunder;
(p) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to
which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of
such review, the Company has no reason to believe, and does not
believe, that the Year 2000 Problem will have a Material Adverse Effect
or result in any material loss or interference with the Company's
business or operations. The "Year 2000 Problem" as used herein means
any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000;
(q) The consolidated financial statements, and the related
notes thereto, included in the Registration Statement and the
Prospectus present fairly the consolidated financial position of the
Predecessor Company and its consolidated subsidiaries and of Hungnong
Seed Co., Ltd. and its consolidated subsidiaries as of the dates
indicated and the results of their respective operations and changes in
their respective consolidated cash flows for the periods indicated;
said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis,
and the supporting schedules, if any, included in the Registration
Statement present fairly the information required to be stated therein;
and the pro forma financial statements, and the related notes thereto,
included in the Registration Statement and the Prospectus have been
prepared in accordance with the applicable requirements of the Act and
are based upon good faith estimates and assumptions believed by the
Company to be reasonable;
(r) No person has the right to require the Company to register
any securities for offering and sale under the Act by reason of the
filing of the Registration Statement with the Commission or the issue
and sale of the Shares to be sold by the Company hereunder, except for
rights which have been waived;
(s) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns which have been required to be
filed and have paid all taxes shown thereon and all assessments
received by them or any of them to the extent that such taxes have
become due and are not being contested in good faith, except where the
failure to file such state, local or foreign returns or pay such state,
local or foreign taxes, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect; and there is
no material tax deficiency which has been or might reasonably be
expected to be asserted or threatened against the Company or any of its
subsidiaries;
6
<PAGE> 7
(t) The statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
(u) The Company and each of its subsidiaries owns, is licensed
to use or otherwise possesses adequate rights to use the patents,
patent rights, licenses, inventions, trademarks, service marks, trade
names, copyrights and know-how, including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures, including, without limitation, the germplasm
used or to be used in its products (collectively, the "Intellectual
Property"), reasonably necessary to carry on the business conducted by
it, except to the extent that the failure to own, be licensed to use or
otherwise possess adequate rights to use such Intellectual Property
would not have a Material Adverse Effect; the Company has not received
any notice of infringement of or conflict with, and to the best of the
Company's knowledge there is no infringement of or conflict with,
asserted rights of others with respect to the Intellectual Property
which could reasonably be expected to result in a Material Adverse
Effect; the discoveries, inventions, products or processes of the
Company referred to in the Registration Statement and the Prospectus do
not, to the best of the Company's knowledge, infringe or conflict with
any right or patent of any third party, or any discovery, patent
product or process which is the subject of a patent application filed
by any third party;
(v) The Company and each of its subsidiaries owns, possesses
or has obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations
and filings with, all federal, state, local and other governmental
authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals,
domestic or foreign, necessary to own or lease, as the case may be, and
to operate its properties and to carry on its business as conducted as
of the date hereof, and neither the Company nor any such subsidiary has
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except (i) as described in the
Registration Statement and the Prospectus or (ii) where (1) the failure
to obtain, or modification or revocation of, any such license, permit,
certificate, consent, order, approval or authorization, or (2) the
failure to make any such declaration or filing, would not have a
Material Adverse Effect; and each of the Company and its subsidiaries
is in compliance with all laws and regulations relating to the conduct
of its business as conducted as of the date hereof, except where such
noncompliance would not have a Material Adverse Effect;
(w) There are no existing or, to the best of the Company's
knowledge, threatened labor disputes with the employees of the Company
or any of its subsidiaries which could reasonably be expected to result
in a Material Adverse Effect;
(x) The Company and each of its subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have
7
<PAGE> 8
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance
with Environmental Laws, failure to have received required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not,
individually or in the aggregate, have a Material Adverse Effect;
(y) To the best of the Company's knowledge, there are no
existing, threatened or potential claims which could result in costs or
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with any Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential
liabilities to third parties) which could, individually or in the
aggregate, result in a Material Adverse Effect;
(z) Each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the
Company or any of its affiliates for employees or former employees of
the Company and its affiliates has been maintained in compliance with
its terms and the requirements of any applicable statutes, orders,
rules and regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"), except where
the failure to maintain such plans would not, individually or in the
aggregate, have a Material Adverse Effect; no prohibited transaction,
within the meaning of Section 406 of ERISA or Section 4975 of the Code,
has occurred with respect to any such plan excluding transactions
effected pursuant to a statutory or administrative exemption; and for
each such plan which is subject to the funding rules of Section 412 of
the Code or Section 302 of ERISA, no "accumulated funding deficiency"
as defined in Section 412 of the Code has been incurred, whether or not
waived, and the fair market value of the assets of each such plan
(excluding for these purposes accrued but unpaid contributions)
exceeded the present value of all benefits accrued under such plan
determined using reasonable actuarial assumptions;
(aa) The Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the
price of the Class A Common Stock;
(bb) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company; and
(cc) The Company, the surviving corporation of the Merger with
the Predecessor Company, has the status, rights and liabilities of a
surviving corporation set forth in Section 259 of the Delaware General
Corporation Law (the "DGCL"); and the Merger was duly authorized by all
necessary corporate and stockholder action on the part of each
constituent corporation and complied with all applicable provisions of
the DGCL and the Illinois Business Corporation Act of 1983 (the
"IBCA").
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<PAGE> 9
2. The Principal Stockholder represents and warrants to, and agrees with, each
of the Underwriters that:
(a) The Principal Stockholder has been duly incorporated and
is validly existing as a company in good standing under the laws of
Mexico;
(b) The issue and sale of the Shares by the Company hereunder
and under the International Underwriting Agreement and the compliance
by the Company and the Principal Stockholder with all of the provisions
of this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any material
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Principal Stockholder or any of
its subsidiaries is a party or by which the Principal Stockholder or
any of its subsidiaries is bound or to which any of the property or
assets of the Principal Stockholder or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions
of the charter or by-laws of the Principal Stockholder or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Principal Stockholder or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company and the Principal
Stockholder of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except the registration under the
Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the International
Underwriters;
(c) The Principal Stockholder has not taken nor will it take,
directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or
manipulation of the price of the Class A Common Stock;
(d) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Principal Stockholder; and
(e) The representations and warranties of the Company
contained in Section 1 of this Agreement are true and correct.
3. Subject to the terms and conditions herein set forth, (a) the Company agrees
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at a purchase
price per share of $[ ], the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto and (b) in the event and to the extent
that the Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 3, that portion of the number of Optional Shares as to which
such election shall have been ex-
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<PAGE> 10
ercised (to be adjusted by you so as to eliminate fractional shares) determined
by multiplying such number of Optional Shares by a fraction, the numerator of
which is the maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum number of Optional
Shares that all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 1,650,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the purpose of covering sales of shares in
excess of the number of Firm Shares. Any such election to purchase Optional
Shares may be exercised only by written notice from you to the Company, given
within a period of 30 calendar days after the date of this Agreement, setting
forth the aggregate number of Optional Shares to be purchased and the date on
which such Optional Shares are to be delivered, as determined by you but in no
event earlier than the First Time of Delivery (as defined in Section 6 hereof)
or, unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
4. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
5. (a) The Company hereby confirms its engagement of the services of
the Independent Underwriter as, and the Independent Underwriter hereby confirms
its agreement with the Company to render services as, a "qualified independent
underwriter" within the meaning of Section (b)(15) of Rule 2720 with respect to
the offering and sale of the Shares.
(b) The Independent Underwriter hereby represents and warrants to,
and agrees with, the Company and the Underwriters that with respect to the
offering and sale of the Shares as described in the Prospectus:
(i) The Independent Underwriter constitutes a
"qualified independent underwriter" within the meaning of
Section (b)(15) of Rule 2720;
(ii) The Independent Underwriter has participated in
the preparation of the Registration Statement and the
Prospectus and has exercised the usual standards of "due
diligence" in respect thereto;
(iii) The Independent Underwriter has undertaken the
legal responsibilities and liabilities of an underwriter under
the Act specifically including those inherent in Section 11
thereof;
(iv) Based upon (A) a review of the Company,
including an examination of the Registration Statement,
information regarding the earnings, assets, capital structure
and growth rate of the Company and other pertinent financial
and statistical data, (B) inquiries of and conferences with
the management of the Company and its counsel and independent
public accountants regarding the business and operations of
the Company, (C) consideration of
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<PAGE> 11
the prospects for the industry in which the Company competes,
estimates of the business potential of the Company,
assessments of its management, the general condition of the
securities markets, market prices of the capital stock and
debt securities of, and financial and operating data
concerning, companies believed by the Independent Underwriter
to be comparable to the Company with equity securities of
maturity and seniority similar to the Shares and the demand
for securities of comparable companies similar to the Shares,
and (D) such other studies, analyses and investigations as the
Independent Underwriter has deemed appropriate, and assuming
that the offering and sale of the Shares is made as
contemplated herein and in the Prospectus, the Independent
Underwriter recommends, as of the date of the execution and
delivery of this Agreement, that the initial public offering
price of the Shares be not lower than $[ ], which offering
price should in no way be considered or relied upon as an
indication of the value of the Shares; and
(v) Subject to the provisions of Section 10 hereof,
the Independent Underwriter will furnish to the Underwriters
and to the NASD at the Time of Delivery a letter, dated the
Time of Delivery, in form and substance satisfactory to the
Underwriters, to the effect of clauses (i) through (iv) above.
(c) The Independent Underwriter hereby agrees with the Company, the
Principal Stockholder and the Underwriters that, as part of its services
hereunder, in the event of any amendment or supplement to the Prospectus,
the Independent Underwriter will render services as a "qualified independent
underwriter" within the meaning of Section (b)(15) of Rule 2720 with respect
to the offering and sale of the Shares as described in the Prospectus as so
amended or supplemented that are substantially the same as those services
being rendered with respect to the offering and sale of the Shares as
described in the Prospectus (including those described in subsection (b)
above).
(d) The Company, the Principal Stockholder, the Underwriters and the
Independent Underwriter agree to comply in all material respects with all of
the requirements of Rule 2720 applicable to them in connection with the
offering and sale of the Shares. The Company agrees to cooperate with the
Underwriters and the Independent Underwriter to enable the Underwriters to
comply with Rule 2720 and the Independent Underwriter to perform the
services contemplated by this Agreement.
(e) As compensation for the services of the Independent Underwriter
hereunder, the Company agrees to pay the Independent Underwriter $10,000 at
the First Time of Delivery. In addition, the Company agrees promptly to
reimburse the Independent Underwriter for all out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in
connection with this Agreement and the services to be rendered hereunder.
(f) The Independent Underwriter hereby consents to the references to it
as set forth under the caption "Underwriting" in the Prospectus and in any
amendment or supplement thereto made in accordance with Section 7(a) hereof.
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<PAGE> 12
6. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company, shall be delivered by
or on behalf of the Company to Goldman, Sachs & Co., through the
facilities of the Depository Trust Company, ("DTC") for the account of
such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by wire transfer of Federal (same-day)
funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the
certificates representing the Shares to be made available for checking
and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York City time, on June [ ], 1999 or such other time and
date as Goldman, Sachs & Co. and the Company may agree upon in writing,
and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase such
Optional Shares, or such other time and date as Goldman, Sachs & Co.
and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the "First Time of
Delivery," such time and date for delivery of the Optional Shares, if
not the First Time of Delivery, is herein called the "Second Time of
Delivery," and each such time and date for delivery is herein called a
"Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 10 hereof,
including the cross receipt for the Shares and any additional documents
requested by the Underwriters pursuant to SECTIONS 10(o) AND 10(p)
hereof, will be delivered at the offices of Cahill Gordon & Reindel, 80
Pine Street, New York, New York 10005 (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 5:00 p.m.,
New York City time, on the New York Business Day next preceding such
Time of Delivery, at which meeting the final drafts of the documents to
be delivered pursuant to the preceding sentence will be available for
review by the parties hereto. For the purposes of this Section 6, "New
York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to
close.
7. The Company covenants and agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by you
promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been
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<PAGE> 13
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies
thereof; to advise you, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process or
become subject to taxation in any such jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with
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<PAGE> 14
Section 11(a) of the Act and the rules and regulations thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without your
prior written consent; provided, however, that the Company may issue
shares of Stock as consideration for any future acquisition after the
date of the Prospectus, provided that any person that receives such
Stock delivers to the Underwriters executed copies of an agreement
substantially to the effect set forth in this subsection (e) in form
and substance satisfactory to you;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), to make available to its stockholders consolidated summary
financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed, and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement and the International
Underwriting Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of
issuance, the Shares on The Nasdaq National Market ("Nasdaq");
(j) To file with the Commission such information on Form 10-Q
or Form 10-K as may be required by Rule 463 under the Act;
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<PAGE> 15
(k) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 p.m., Washington,
D.C. time, on the date of this Agreement, and the Company shall at the
time of filing either pay to the Commission the filing fee for the Rule
462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act; and
(l) Not to, without your prior written consent, waive or
amend, rescind or otherwise modify Section 4(c) of the Registration
Rights Agreement dated as of October 31, 1995 by and among the
Predecessor Company and the shareholders of the Predecessor Company
signatory thereto.
8. The Principal Stockholder covenants and agrees with each of the
Underwriters that, during the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
not to (a) offer, sell, contract to sell, pledge, grant any option to purchase,
make any short sale or otherwise dispose of any shares of Stock of the Company,
or any options or warrants to purchase any shares of Stock of the Company, or
any securities convertible into, exchangeable for or that represent the right to
receive shares of Stock of the Company, whether now owned or hereinafter
acquired, owned directly by the Principal Stockholder (including holding as a
custodian) or with respect to which the Principal Stockholder has beneficial
ownership within the rules and regulations of the Commission or (b) make any
demand for or exercise any right with respect to, the registration of any shares
of Stock of the Company, or any securities convertible into, exchangeable for or
that represent the right to receive shares of Stock of the Company, without your
prior written consent; provided, however, that this Section 8 shall not prohibit
any transaction required by the Note Acquisition Agreement dated as of March 22,
1999 by and among the Principal Stockholder, DNAP Holding Corporation, the
Holders referred to therein, Morgan Guaranty Trust Company of New York,
Citibank, N.A. and Bankers Trust Company.
9. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement Between Syndicates, the Selling Agreement, the Blue Sky
Memorandum, closing documents (including compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 7(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing of the Shares on Nasdaq;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to
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<PAGE> 16
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 9. It is understood, however, that,
except as provided in this Section 9, and Sections 11 and 14 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
10. The respective obligations of the Underwriters and the Independent
Underwriter hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in the discretion of the Representatives and the
Independent Underwriter, as the case may be, to the condition that all
representations and warranties and other statements of the Company and the
Principal Stockholder herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and the Principal Stockholder shall have
performed all of their respective obligations hereunder theretofore to be
performed, and the condition (in the case of the Underwriters) that the
Independent Underwriter shall have furnished to the Underwriters and the NASD
the letter referred to in clause (v) of Section 5(b) hereof, and the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 6(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 p.m., Washington, D.C. time, on the date of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened
by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Cahill Gordon & Reindel, counsel for the Underwriters,
shall have furnished to you such written opinion (a draft of such
opinion is attached as Annex I(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (iii), (iv) and
(viii) of subsection (d) below as well as such other related matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Ronald Colton, Esq., General Counsel for the Company,
shall have furnished to you his opinion (a draft of such opinion is
attached as Annex I(b) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) Each of the Material Subsidiaries of the Company
has been duly organized and is validly existing as a
corporation or other business entity in good standing under
the laws of its jurisdiction of formation; and all of the
issued shares of capital stock of each such Material
Subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and (except for directors'
qualifying shares and except as otherwise set forth in the
Prospectus) are owned directly or indirectly by the Company,
free and clear of
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<PAGE> 17
all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect to
matters of fact upon certificates of officers of the Company
or its subsidiaries, provided that such counsel shall state
that he believes that both you and he are justified in relying
upon such opinions and certificates and that copies of such
opinions and certificates be delivered to you upon your
request);
(ii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material
liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that
such counsel shall state that he believes that both you and he
are justified in relying upon such opinions and certificates
and that copies of such opinions and certificates be delivered
to you upon your request);
(iii) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by
them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed
to be made of such property by the Company and its
subsidiaries; and any real property (other than purchase money
liens) and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material
and do not materially interfere with the use made and proposed
to be made of such property and buildings by the Company and
its subsidiaries (in giving the opinion in this clause, such
counsel may state that no examination of record titles for the
purpose of such opinion has been made, and that he is relying
upon a general review of the titles of the Company and its
subsidiaries, upon opinions of local counsel and abstracts,
reports and policies of title companies rendered or issued at
or subsequent to the time of acquisition of such property by
the Company or its subsidiaries, upon opinions of counsel to
the lessors of such property and, in respect to matters of
fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that he
believes that both you and he are justified in relying upon
such opinions, abstracts, reports, policies and certificates
and that copies of such opinions, abstracts, reports, policies
and certificates be delivered to you upon your request);
(iv) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of
the Company or any of its subsidiaries is the subject which,
if
17
<PAGE> 18
determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a
Material Adverse Effect; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(v) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the compliance by
the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of
its subsidiaries is subject; nor will such action result in
any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any Federal or
State of CALIFORNIA statute or any Federal or State of
California order, rule or regulation known to such counsel of
any Federal or State of CALIFORNIA court or governmental
agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties;
(vi) Neither the Company nor any of its subsidiaries
is in violation of its charter or by-laws or in default in the
performance or observance of any material obligation,
agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement, lease or
other material agreement or instrument to which it is a party
or by which it or any of its properties may be bound;
(vii) The Company and each of its subsidiaries owns,
is licensed to use or otherwise possesses adequate rights to
use the Intellectual Property reasonably necessary to carry on
the business conducted by it, except to the extent that the
failure to own, be licensed to use or otherwise possess
adequate rights to use such Intellectual Property would not
have a Material Adverse Effect; the Company has not received
any notice of infringement of or conflict with, and to the
best of the such counsel's knowledge there is no infringement
of or conflict with, asserted rights of others with respect to
the Intellectual Property which could reasonably be expected
to result in a Material Adverse Effect; the discoveries,
inventions, products or processes of the Company referred to
in the Registration Statement and the Prospectus do not, to
the best of such counsel's knowledge, infringe or conflict
with any right or patent of any third party, or any discovery,
patent product or process which is the subject of a patent
application filed by any third party;
(viii) To the best of such counsel's knowledge, the
Company and each of its subsidiaries owns, possesses or has
obtained all licenses, permits, certificates, consents,
orders, approvals and other authorizations from, and has made
all declarations and filings with, all federal, state, local
and other
18
<PAGE> 19
governmental authorities (including foreign regulatory
agencies), all self-regulatory organizations and all courts
and other tribunals, domestic or foreign, necessary to own or
lease, as the case may be, and to operate its properties and
to carry on its business as conducted as of the date hereof;
neither the Company nor any such subsidiary has received any
actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate,
consent, order, approval or other authorization, except (1) as
described in the Registration Statement and the Prospectus or
(2) where (a) the failure to obtain, or modification or
revocation of, any such license, permit, certificate, consent,
order, approval or authorization, or (b) the failure to make
any such declaration or filing, would not have a Material
Adverse Effect; and to the best of such counsel's knowledge
each of the Company and its subsidiaries is in compliance with
all laws and regulations relating to the conduct of its
business as conducted as of the date hereof, except where such
noncompliance would not have a Material Adverse Effect;
(ix) There are no existing or, to the best of such
counsel's knowledge, threatened labor disputes with the
employees of the Company or any of its subsidiaries which
could reasonably be expected to result in a Material Adverse
Effect; and
(x) To the best of such counsel's knowledge, the
Company and each of its subsidiaries are in compliance with
all Environmental Laws, except where such noncompliance would
not, individually or in the aggregate, have a Material Adverse
Effect; there are no legal or governmental proceedings pending
or, to the best of such counsel's knowledge, threatened
against or affecting the Company or any of its subsidiaries
under any Environmental Law which, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
State of California and the Federal law of the United States;
(d) Milbank, Tweed, Hadley & McCloy LLP, special counsel for
the Company and the Principal Stockholder, shall have furnished to you
their opinion (a draft of such opinion is attached as Annex I(c)
hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company (but not including the Predecessor
Company) has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to
own its properties and conduct its business as described in
the Prospectus;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the Shares being
delivered at such Time of Delivery) have
19
<PAGE> 20
been duly and validly authorized and issued and are fully paid
and nonassessable; and the Shares conform to the description
of the Class A Common Stock contained in the Prospectus;
(iii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Company;
(iv) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the compliance by
the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, (1) the
[Credit Agreement] dated as of the date hereof by and among
the Company and [ ], (2) the Collaboration Agreement dated as
of January 31, 1997 by and between THE PRINCIPAL STOCKHOLDER
(FORMERLY KNOWN AS Empresas La Moderna, S.A. de C.V. ("ELM"))
and Monsanto Company ("Monsanto"), (3) the Research Funding
and Commercialization Agreement dated as of October 31, 1997
by and between ELM and Mendel Biotechnology, Inc. ("Mendel"),
(4) the Technology Evaluation and Option Agreement dated as of
December 1, 1997 by and between ELM and John Innes Centre
Innovations Limited, (5) the Long Term Funded Research
Agreement dated as of January 1, 1997 by and between DNA Plant
Technology Corporation and Seminis Vegetable Seeds, Inc.
"SVS"), (6) the Limited Liability Company Agreement of RDCO,
LLC dated as of May 29, 1998 by and between SVS and LSL
Biotechnologies, Inc., (7) the Share Sale and Purchase
Agreement dated as of June 17, 1998 by and between the Company
and Shareholders of Choong Ang Seed Co., Ltd, (8) the Share
Sale and Purchase Agreement dated as of June 12, 1998 by and
between the Company and Shareholders of Hungnong Seed Co.,
Ltd, (9) the Seminis, Inc. 1998 Stock Option Plan (As Amended
and Restated) and (10) the Credit Agreement dated as of April
30, 1999 by and among the Company, Seminis Vegetable Seeds,
Inc., a wholly owned subsidiary of the Company, SVS Holland
B.V., a wholly owned subsidiary of the Company, Harris Trust
and Savings Bank and Bank of Montreal, Chicago Branch; nor
will such action result in any violation of the provisions of
the Certificate of Incorporation or By-laws of the Company or
the DGCL or any Federal statute or any Federal order, rule or
regulation known to such counsel of any Federal court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties;
(v) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company and the
Principal Stockholder of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except
the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign
20
<PAGE> 21
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters and the
International Underwriters;
(vi) The statements set forth in the Prospectus under
the captions "Description of Capital Stock," "Certain
Relationships and Related Transactions" and "Shares Eligible
for Future Sale" and in the Registration Statement in Items 14
and 15, insofar as such statements constitute a summary of the
terms of the capital stock, legal matters, document or
proceedings referred to therein, are accurate, complete and
fair;
(vii) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act and
the rules and regulations thereunder, although they do not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in
the opinion in subsection (vii) of this Section 10(d); they
have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of such Time
of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed
or described as required;
(viii) The Company is not an "investment company," as
such term is defined in the Investment Company Act; and
(ix) The Company is the surviving corporation of the
Merger with the Predecessor Company and has the status, rights
and liabilities of a sur-
21
<PAGE> 22
viving corporation set forth in Section 259 of the DGCL; and
the Merger was duly authorized by all necessary corporate and
stockholder action on the part of the Surviving Corporation
and complied with all applicable provisions of the DGCL.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
State of New York, the Federal laws of the United States and the DGCL;
(e) JOSE LUIS MARTINEZ, special counsel for the Principal
Stockholder, shall have furnished to you their opinion (a draft of such
opinion is attached as Annex II(d) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) The Principal Stockholder has been duly
incorporated and is validly existing as a company in good
standing under the laws of Mexico;
(ii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Principal Stockholder; and
(iii) The issue and sale of the Shares being
delivered at such Time of Delivery by the Company hereunder
and the compliance by the Company and the Principal
Stockholder with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which the Principal
Stockholder or any of its subsidiaries (other than the
Company) is a party or by which the Principal Stockholder or
any of its subsidiaries (other than the Company) is bound or
to which any of the property or assets of the Principal
Stockholder or any of its subsidiaries (other than the
Company) is subject; nor will such action result in any
violation of the provisions of the charter or by-laws of the
Principal Stockholder or any statute or order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Principal Stockholder or any of its
subsidiaries (other than the Company) or any of their
properties.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside of Mexico.
(f) Mayer, Brown & Platt, Illinois counsel for the Company,
shall have furnished to you their opinion (a draft of such opinion is
attached as Annex II(e) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that the Merger was
duly authorized by all necessary corporate and stockholder action on
the part of the Predecessor Company and complied with all applicable
provisions of the IBCA.
22
<PAGE> 23
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the State
of Illinois;
(g) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished
to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex II(a) hereto (the executed copy of the letter delivered
prior to the execution of this Agreement is attached as Annex II(b)
hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex II(c)
hereto);
(h) On the date of the Prospectus at a time prior to the
execution of this Agreement, Seonjin Accounting Corporation shall have
furnished to you a letter, dated the date of delivery thereof, in form
and substance satisfactory to you, to the effect set forth in Annex
II(d) hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex II(e) hereto;
(i) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving
a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(j) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or
preferred stock by any "nationally recognized statistical rating
organization," as that term is defined by the Commission for purposes
of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with
possible negative implications, its rating of any of the Company's debt
securities or preferred stock;
(k) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on
Nasdaq; (ii) a suspension or material limitation in trading in the
Company's securities on Nasdaq; (iii) a general moratorium on
commercial banking activities declared by either Federal or New York
State authorities; or
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<PAGE> 24
(iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this clause (iv)
in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(l) The Shares to be sold at such Time of Delivery shall have
been duly listed, subject to notice of issuance, on Nasdaq;
(m) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the directors and
executive officers of the Company, Asesorias Administrativas Moderna,
S.A. de C.V. and the stockholders of the Company listed on Schedule II
hereto, substantially to the effect set forth in subsection 7(e) hereof
in form and substance satisfactory to you;
(n) The Company shall have complied with the provisions of
Section 7(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
(o) The Company shall have furnished or caused to be furnished
to you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of its obligations hereunder
to be performed at or prior to such Time of Delivery, as to the matters
set forth in subsections (a) and (i) of this Section 10 and as to such
other matters as you may reasonably request; and
(p) The Principal Stockholder shall have furnished or caused
to be furnished to you at such Time of Delivery certificates of
officers of the Principal Stockholder satisfactory to you as to the
accuracy of the representations and warranties of the Principal
Stockholder herein at and as of such Time of Delivery, as to the
performance by the Principal Stockholder of all of its obligations
hereunder to be performed at or prior to such Time of Delivery and as
to such other matters as you may reasonably request.
11. (a) The Company and the Principal Stockholder, jointly and
severally, will indemnify and hold harmless each Underwriter and the
Independent Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or the
Independent Underwriter, as the case may be, may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
or the Independent Underwriter, as the case may be, for any legal or
other expenses reasonably in-
24
<PAGE> 25
curred by such Underwriter or the Independent Underwriter, as the case
may be, in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that the
Company and the Principal Stockholder shall not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through
Goldman, Sachs & Co. or the Independent Underwriter expressly for use
therein or constitute a reference to the Independent Underwriter
consented to by it pursuant to Section 5(f) hereof.
(b) Each Underwriter will indemnify and hold harmless the
Company, the Principal Stockholder and the Independent Underwriter, as
the case may be, against any losses, claims, damages or liabilities to
which the Company, the Principal Stockholder or the Independent
Underwriter, as the case may be, may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs &
Co. expressly for use therein; and will reimburse the Company, the
Principal Stockholder and the Independent Underwriter, as the case may
be, for any legal or other expenses reasonably incurred by the Company,
the Principal Stockholder or the Independent Underwriter, as the case
may be, in connection with investigating or defending any such action
or claim as such expenses are incurred.
(c) The Independent Underwriter will indemnify and hold
harmless the Company, the Principal Stockholder and each Underwriter
against any losses, claims, damages or liabilities to which the
Company, the Principal Stockholder or such Underwriter, as the case may
be, may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company by the
Independent Underwriter expressly for use therein or constitutes
25
<PAGE> 26
a reference to the Independent Underwriter consented to by it pursuant
to Section 5(f) hereof; and will reimburse the Company, the Principal
Stockholder or each Underwriter, as the case may be, for any legal or
other expenses reasonably incurred by the Company, the Principal
Stockholder or each Underwriter, as the case may be, in connection with
investigating or defending any such action or claim as such expenses
are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify
the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or
any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to,
any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified party is an actual or potential party to such action or
claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a), (b) or (c) above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company, the Principal Stockholder, the Underwriters and the
Independent Underwriter from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give
the notice required under subsection (d) above, then each indemnifying
party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company,
the Principal Stockholder, the Underwriters and the Independent
Under-
26
<PAGE> 27
a reference to the Independent Underwriter consented to by it pursuant
to Section 5(f) hereof; and will reimburse the Company, the Principal
Stockholder or each Underwriter, as the case may be, for any legal or
other expenses reasonably incurred by the Company, the Principal
Stockholder or each Underwriter, as the case may be, in connection with
investigating or defending any such action or claim as such expenses
are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify
the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or
any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to,
any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified party is an actual or potential party to such action or
claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a), (b) or (c) above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company, the Principal Stockholder, the Underwriters and the
Independent Underwriter from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give
the notice required under subsection (d) above, then each indemnifying
party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company,
the Principal Stockholder, the Underwriters and the Independent
Underwriter in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Principal Stockholder, the Underwriters and the Independent Under-
26
<PAGE> 28
writer in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Principal Stockholder, the Underwriters and the Independent Under-
writer shall be deemed to be in the same proportion as the total net
proceeds from the sale of the Shares (before deducting expenses)
received by the Company in the offering, the total underwriting
discounts and commissions payable to the Underwriters with respect to
the Shares purchased under this Agreement as set forth in the table on
the cover page of the Prospectus and the fee payable to the Independent
Underwriter pursuant to the first sentence of Section 5(e) hereof,
respectively, bear to the sum of the total proceeds from the sale of
the Shares (before deducting expenses) in the offering and the fee
payable to the Independent Underwriter pursuant to the first sentence
of Section 5(e) hereof. The relative fault 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 Company
and the Principal Stockholder on the one hand or either the
Underwriters or the Independent Underwriter on the other and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company, the Principal Stockholder, the Underwriters and the
Independent Underwriter agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were determined by pro
rata allocation (even if the Underwriters and the Independent
Underwriter were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (e). The amount
paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred
to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter
nor the Independent Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to
the public and the Independent Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price
at which the Shares underwritten by the Underwriters and distributed to
the public were offered to the public, exceeds the amount of any
damages which such Underwriter or the Independent Underwriter, as the
case may be, has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (e) to contribute are
several in proportion to their respective underwriting obligations and
not joint.
(f) The obligations of the Company and the Principal
Stockholder under this Section 11 shall be in addition to any liability
which the Company and the Principal Stockholder may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter or the Independent Underwriter within
the meaning of the Act; the obligations of the Underwriters under
27
<PAGE> 29
this Section 11 shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company
and to each person, if any, who controls the Company or the Independent
Underwriter within the meaning of the Act; and the obligations of the
Independent Underwriter under this Section 11 shall be in addition to
any liability which the Independent Underwriter may otherwise have and
shall extend, upon the same terms and conditions to each officer and
director of the Company and to each person, if any, who controls the
Company or any Underwriters within the meaning of the Act.
(g) Anything herein to the contrary notwithstanding, until two
business days after a claim for indemnification or contribution
pursuant to this Section 11 is made to the Company by any indemnified
party AND SUCH CLAIM IS NOT PAID, no claim shall be made to the
Principal Stockholder with regard to the subject of such claim.
(h) In no event shall the aggregate of (i) the amounts of any
obligations for indemnification or contribution paid by the Principal
Stockholder to any indemnified party pursuant to this Section 11 or
Section 10 of the International Underwriting Agreement and (ii) the
amounts paid by the Principal Stockholder to any Underwriter, any
International Underwriter or the Independent Underwriter due to a
breach of any representation or warranty herein or in the International
Underwriting Agreement other than those contained in subsection (a),
(b), (c) and (d) of Section 2 hereof or subsection (a), (b), (c) and
(d) of Section 2 of the International Underwriting Agreement, as the
case may be, exceed $40,000,000.
12. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time
of Delivery, you may in your discretion arrange for you or another
party or other parties to purchase such Shares on the terms contained
herein. If within forty-eight hours after such default by any
Underwriter you do not arrange for the purchase of such Shares, then
the Company shall be entitled to a further period of forty-eight hours
within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within
the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies
you that it has so arranged for the purchase of such Shares, you or the
Company shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
you and the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains
28
<PAGE> 30
unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
number of Shares which such Underwriter agreed to purchase hereunder)
of the Shares of such defaulting Underwriter or Underwriters for which
such arrangements have not been made; but nothing herein shall relieve
a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
you and the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh
of the aggregate number of all the Shares to be purchased at such Time
of Delivery, or if the Company shall not exercise the right described
in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell
the Optional Shares) shall thereupon terminate, without liability on
the part of any non-defaulting Underwriter or the Independent
Underwriter or the Company or the Principal Stockholder, except for the
expenses to be borne by the Company and the Underwriters as provided in
the second sentence of Section 5(e) hereof and in Section 9 hereof and
the indemnity and contribution agreements in Section 11 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability
for its default.
13. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Principal Stockholder, the several
Underwriters and the Independent Underwriter, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
the Independent Underwriter or any controlling person of any Underwriter or the
Independent Underwriter or the Company or the Principal Stockholder, or any
officer or director or controlling person of the Company or the Principal
Stockholder, and shall survive delivery of and payment for the Shares.
Anything herein to the contrary notwithstanding, the indemnity
agreement of the Company in subsection (a) of Section 11 hereof, the
representations and warranties in subsections (b) and (c) of Section 1 hereof
and any representation or warranty as to the accuracy of the Registration
Statement or the Prospectus contained in any certificate furnished by the
Company pursuant to Section 10 hereof, insofar as they may constitute a basis
for indemnification for liabilities (other than payment by the Company or the
Principal Stockholder of expenses incurred or paid in the successful defense of
any action, suit or proceeding) arising under the Act, shall not extend to the
extent of any interest therein of a controlling person or partner of an
Underwriter who is a director, officer or controlling person of the Company when
the Registration Statement has become effective, except in each case to the
extent that an interest of such character shall have been determined by a court
of appropriate jurisdiction as not against public policy as expressed in the
Act. Unless in the opinion
29
<PAGE> 31
of counsel for the Company and the Principal Stockholder the matter has been
settled by controlling precedent, the Company and the Principal Stockholder
will, if a claim for such indemnification is asserted, submit to a court of
appropriate jurisdiction the question of whether such interest is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
14. If this Agreement shall be terminated pursuant to Section 12
hereof, the Company and the Principal Stockholder shall not then be under any
liability to any Underwriter or the Independent Underwriter except as provided
in the second sentence of Section 5(e) hereof and Sections 9 and 11 hereof; but,
if for any other reason, any Shares are not delivered by or on behalf of the
Company as provided herein, the Company will reimburse the Underwriters through
you for all out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company shall then be under no further liability to any Underwriter or
the Independent Underwriter in respect of the Shares not so delivered except as
provided in the second sentence of Section 5(e) hereof and Sections 9 and 11
hereof.
15. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters or the Independent Underwriter shall be
delivered or sent by mail, telex or facsimile transmission to you as the
representatives in care of Goldman, Sachs & Co., 32 Old Slip, 21st Floor, New
York, New York 10005, (facsimile: [ ]), Attention: Registration Department; if
to the Company shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Registration
Statement, Attention: Ronald Colton; and if to the Principal Stockholder shall
be delivered or sent by mail, telex or facsimile transmission to it at its
office at Ave. Batallon de San Patricio No. 111, Cuarto piso, Col. Valle Oriente
C.D. 66269, San Pedro Garza Garcia, N.L. Mexico (facsimile: 528-399-5629),
Attention: Jose Luis Martinez; provided, however, that any notice to an
Underwriter pursuant to Section 11(d) hereof shall be delivered or sent by mail,
telex or facsimile transmission to such Underwriter at its address set forth in
its Underwriters' Questionnaire, or telex constituting such Questionnaire, which
address will be supplied to the Company and the Principal Stockholder by you
upon request. Any such statements, requests, notices or agreements shall take
effect at the time of receipt thereof. Copies of notices given to the Company
and the Principal Stockholder shall be delivered or sent by mail, telex or
facsimile transmission to Milbank, Tweed, Hadley & McCloy LLP, 1 Chase Manhattan
Plaza, New York, New York 10005-1413 (facsimile: 212-530-5219), Attention:
Howard S. Kelberg, Esq.
16. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Independent Underwriter, the Principal
Stockholder, the Company and, to the extent provided in Sections 11 and 13
hereof, the officers and directors of the Company and each person who controls
the Company, the Independent Underwriter or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
30
<PAGE> 32
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
17. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
18. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
19. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
31
<PAGE> 33
If the foregoing is in accordance with your understanding, please sign
and return to us eleven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters,
the Independent Underwriter, the Company and the Principal Stockholder. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the Company
for examination upon request, but without warranty on your part as to the
authority of the signers thereof.
Very truly yours,
Seminis, Inc.
By:
----------------------------------
Name:
Title:
Savia, S.A. de C.V.
By:
----------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
J.P. Morgan Securities Inc.
ING Baring Furman Selz LLC
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
VECTORMEX Incorporated
By:
------------------------------------------
(Goldman, Sachs & Co.)
Goldman, Sachs & Co.,
as Independent Underwriter
By:
------------------------------------------
(Goldman, Sachs & Co.)
32
<PAGE> 34
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Firm Purchased if Maximum
Underwriter Shares to be Purchased Option Exercised
----------- ---------------------- --------------------
<S> <C> <C>
Goldman, Sachs & Co............................................
J.P. Morgan Securities Inc.....................................
ING Baring Furman Selz LLC.....................................
Morgan Stanley & Co. Incorporated..............................
Salomon Smith Barney Inc.......................................
VECTORMEX Incorporated.........................................
---------------------- --------------------
Total........................................ 11,000,000 1,650,000
====================== ====================
</TABLE>
<PAGE> 35
SCHEDULE II
<PAGE> 1
EXHIBIT 10.2
SEMINIS, INC.
1998 STOCK OPTION PLAN
(AS AMENDED AND RESTATED, EFFECTIVE ________ __, 1999)
* * * * *
1. PURPOSE. The purpose of the Seminis, Inc. 1998 Stock Option Plan
(the "Plan") is to further and promote the interests of Seminis, Inc. (the
"Company"), its Subsidiaries and its shareholders by enabling the Company and
its Subsidiaries to attract, retain and motivate key employees, consultants,
advisors and members of the Board, or those who will become key employees,
consultants, advisors and members of the Board, and to align the interests of
those individuals and the Company's shareholders.
2. CERTAIN DEFINITIONS. For purposes of the Plan, the following terms
shall have the meanings set forth below:
2.1 "AFFILIATE" means any person or entity of any kind
effectively controlling, effectively controlled by or under common control with
Savia, S.A. de C.V., a corporation organized under the laws of Mexico ("Savia").
2.2 "AWARD AGREEMENT" means the agreement executed by a
Participant pursuant to Sections 3.2 and 11.5 of the Plan in connection with the
granting of a Stock Option (as defined in Section 6.1 below).
2.3 "BOARD" means the Board of Directors of the Company, as
constituted from time to time.
2.4 "CAUSE" means (a) the commission of an act of fraud or
embezzlement, or the commission of any other crime by a Participant; (b) serious
misconduct by a Participant that brings the Company, or any Subsidiary, or any
officer, director, employee or owner of the Company or any Subsidiary, into
disrepute; (c) a Participant's breach of any confidentiality agreement or any
other contractual agreement with the Company or any Subsidiary, or the
unauthorized disclosure or use of confidential or proprietary information of the
Company or any Subsidiary; (d) a Participant's abandonment or neglect in respect
of any assigned duties or responsibilities; or (e) a Participant's failure to
comply with or carry out the instructions or expressed expectations of his or
her supervisors or the Board.
2.5 "CODE" means the Internal Revenue Code of 1986, as in
effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated thereunder
or with respect thereto.
<PAGE> 2
-2-
2.6 "COMMITTEE" means the committee of the Board established
to administer the Plan, as described in Section 3 of the Plan.
2.7 "COMMON STOCK" means the Class A Common Stock, par value
$.01 per share, of the Company or any security of the Company issued by the
Company in substitution or exchange therefor.
2.8 "COMPANY" means Seminis, Inc., a Delaware corporation, or
any successor corporation to Seminis, Inc.
2.9 "DISABILITY" means any physical or mental disability which
is reasonably likely to prevent the Participant from performing the
Participant's assigned duties or responsibilities for the Company or any
Subsidiary for more than six months, as determined by the Board or the Committee
in good faith.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as in effect and as amended from time to time, or any successor statute thereto,
together with any rules, regulations and interpretations promulgated thereunder
or with respect thereto.
2.11 "FAIR MARKET VALUE" means on, or with respect to, any
given date(s), the closing price of the Common Stock, as reported on the
consolidated reporting system for the New York Stock Exchange for such date(s),
or if the Common Stock was not traded on such date(s), on any of the next
preceding day or days on which the Common Stock was traded. If at any time the
Common Stock is not traded on such exchange, the Fair Market Value of a share of
Common Stock shall be determined in good faith by the Board.
2.12 "INCENTIVE STOCK OPTION" means any stock option granted
pursuant to the provisions of Section 6 of the Plan (and the relevant Award
Agreement) that is intended to be (and is specifically designated as) an
"incentive stock option" within the meaning of Section 422 of the Code.
2.13 "NON-QUALIFIED STOCK OPTION" means any stock option
granted pursuant to the provisions of Section 6 of the Plan (and the relevant
Award Agreement) that is not (and is specifically designated as not being) an
Incentive Stock Option.
2.14 "PARTICIPANT" means any individual who is selected from
time to time under Sections 5 and 6 to receive an award under the Plan.
2.15 "PLAN" means the Seminis, Inc. 1998 Stock Option Plan, as
set forth herein and as in effect and as amended from time to time (together
with any rules and regulations promulgated by the Committee with respect
thereto).
2.16 "SUBSIDIARY(IES)" means any corporation (other than the
Company) in an unbroken chain of corporations, including and beginning with the
Company, if each of such
<PAGE> 3
-3-
corporations, other than the last corporation in the unbroken chain, owns,
directly or indirectly, more than fifty percent (50%) of the voting stock in one
of the other corporations in such chain.
3. ADMINISTRATION.
3.1 GENERAL. The Plan shall be administered by the Committee.
The Committee shall be appointed from time to time by the Board and shall be
comprised of not less than two of the then members of the Board who are
Non-Employee Directors (within the meaning of SEC Rule 16b-3(b)(3)) of the
Company and Outside Directors (within the meaning of Section 162(m) of the
Code). Consistent with the Bylaws of the Company, members of the Committee shall
serve at the pleasure of the Board and the Board, subject to the immediately
preceding sentence, may at any time and from time to time remove members from,
or add members to, the Committee.
3.2 PLAN ADMINISTRATION AND PLAN RULES. The Committee is
authorized to construe and interpret the Plan and to promulgate, amend and
rescind rules and regulations relating to the implementation and administration
of the Plan. Subject to the terms and conditions of the Plan, the Committee
shall make all determinations necessary or advisable for the implementation and
administration of the Plan including, without limitation, (a) selecting the
Plan's Participants, (b) making awards in such amounts and form as the Committee
shall determine, (c) imposing such restrictions, terms and conditions upon such
awards as the Committee shall deem appropriate, and (d) correcting any technical
defect(s) or technical omission(s), or reconciling any technical
inconsistency(ies), in the Plan and/or any Award Agreement. The Committee may
designate persons other than members of the Committee to carry out the
day-to-day ministerial administration of the Plan under such conditions and
limitations as it may prescribe, except that the Committee shall not delegate
its authority with regard to the selection for participation in the Plan and/or
the granting of any awards to Participants. The Committee's determinations under
the Plan need not be uniform and may be made selectively among Participants,
whether or not such Participants are similarly situated. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, or implementation of the Plan shall be final,
conclusive and binding upon all Participants and any person(s) claiming under or
through any Participants. The Company shall effect the granting of awards under
the Plan, in accordance with the determinations made by the Committee, by
execution of written agreements and/or other instruments in such form as is
approved by the Committee.
3.3 LIABILITY LIMITATION. Neither the Board nor the Committee,
nor any member of either, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with the Plan (or
any Award Agreement), and the members of the Board and the Committee shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including, without limitation, attorneys' fees)
arising or resulting therefrom to the fullest extent permitted by law and/or
under any directors and officers liability insurance coverage which may be in
effect from time to time.
<PAGE> 4
-4-
4. TERM OF PLAN/COMMON STOCK SUBJECT TO PLAN.
4.1 TERM. The Plan shall terminate on April 15, 2008, except
with respect to awards then outstanding. After such date no further awards shall
be granted under the Plan.
4.2 COMMON STOCK. The maximum number of shares of Common Stock
in respect of which awards may be granted under the Plan, subject to adjustment
as provided in Section 9.2 of the Plan, shall not exceed 3,677,150. In the event
of a change in the Common Stock of the Company that is limited to a change in
the designation thereof to "Capital Stock" or other similar designation, or to a
change in the par value thereof, or from par value to no par value, without
increase or decrease in the number of issued shares, the shares resulting from
any such change shall be deemed to be the Common Stock for purposes of the Plan.
Common Stock which may be issued under the Plan may be either authorized and
unissued shares or issued shares which have been reacquired by the Company (in
the open-market or in private transactions) and which are being held as treasury
shares. No fractional shares of Common Stock shall be issued under the Plan.
4.3 COMPUTATION OF AVAILABLE SHARES. For the purpose of
computing the total number of shares of Common Stock available for awards under
the Plan, there shall be counted against the limitations set forth in Section
4.2 of the Plan the maximum number of shares of Common Stock potentially subject
to issuance upon exercise or settlement of awards of Stock Options granted under
Section 6 of the Plan, determined as of the date on which such awards are
granted. If any awards expire unexercised or are forfeited, surrendered,
cancelled, terminated or settled in cash in lieu of Common Stock, the shares of
Common Stock which were theretofore subject (or potentially subject) to such
awards shall again be available for awards under the Plan to the extent of such
expiration, forfeiture, surrender, cancellation, termination or settlement of
such awards.
5. ELIGIBILITY. Individuals eligible for awards under the Plan shall
consist of key employees, consultants, advisors and members of the Board, or
those who will become such key employees, consultants, advisors and members of
the Board, of the Company or any Subsidiary whose performance or contribution,
in the sole discretion of the Board or the Committee benefits or will benefit
the Company or any Subsidiary.
6. STOCK OPTIONS.
6.1 TERMS AND CONDITIONS. Stock options granted under the Plan
shall be in respect of Common Stock and may be in the form of Incentive Stock
Options or Non-Qualified Stock Options (sometimes referred to collectively
herein as the "Stock Option(s)"). Such Stock Options shall be subject to the
terms and conditions set forth in this Section 6 and any additional terms and
conditions, not inconsistent with the express terms and provisions of the Plan,
as the Board or the Committee shall set forth in the relevant Award Agreement.
6.2 GRANT. Stock Options may be granted under the Plan in such
form as the Board or the Committee may from time to time approve. Special
provisions shall apply to
<PAGE> 5
-5-
Incentive Stock Options granted to any employee who owns (within the meaning of
Section 422(b)(6) of the Code) more than ten percent of the total combined
voting power of all classes of stock of the Company or its parent corporation or
any Subsidiary of the Company, within the meaning of Sections 424(e) and (f) of
the Code (a "10% Shareholder").
6.3 EXERCISE PRICE. The exercise price per share of Common
Stock subject to an Incentive Stock Option or a Non-Qualified Stock Option shall
not be less than one hundred percent (100%) of the Fair Market Value of the
Common Stock on the date of the grant of such Stock Option; provided, however,
that, in the case of a 10% Shareholder, the exercise price of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the date of grant.
6.4 TERM. The term of each Stock Option shall expire ten years
(five years, in the case of a 10% Shareholder) after the date immediately
preceding the date on which the Stock Option is granted.
6.5 METHOD OF EXERCISE. A Stock Option may be exercised, in
whole or in part, by giving written notice of exercise to the Secretary of the
Company specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the exercise price in cash, by certified
check, bank draft or money order payable to the order of the Company. Payment
instruments shall be received by the Company subject to collection. The proceeds
received by the Company upon exercise of any Stock Option may be used by the
Company for general corporate purposes. Any portion of a Stock Option that is
exercised may not be exercised again. The Committee may also permit Participants
(either on a selective or group basis) to simultaneously exercise Stock Options
and sell the Shares of Common Stock thereby acquired, pursuant to a brokerage
"cashless exercise" arrangement, selected by and approved of in all respects in
advance by the Committee.
6.6 EXERCISABILITY. In respect of any Stock Option granted
under the Plan, unless otherwise (a) determined by the Committee (in its sole
discretion) at any time and from time to time in respect of any such Stock
Option, or (b) provided in the Participant's Award Agreement or in the
Participant's employment agreement in respect of any such Stock Option, such
Stock Option shall become exercisable as to the aggregate number of shares of
Common Stock underlying such Stock Option, as determined on the date of grant,
as follows:
- 25%, on the first anniversary of the date of grant of
the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries;
- 50%, on the second anniversary of the date of grant
of the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries;
<PAGE> 6
-6-
- 75%, on the third anniversary of the date of grant of
the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries; and
- 100% on the fourth anniversary of the date of grant
of the Stock Option, provided the Participant is then
employed by the Company and/or one of its
Subsidiaries.
Notwithstanding anything to the contrary contained in this Section 6.6, any such
Stock Option shall become one hundred percent (100%) exercisable as to the
aggregate number of shares of Common Stock underlying such Stock Option upon the
occurrence of a Change in Control of the Company. For purposes of this Section
6.6, "Change in Control" means, and shall be deemed to have occurred on the date
that Savia and/or its Affiliates own less than 50% of the combined voting power
of the voting securities of the Company entitled to vote generally in the
election of directors.
6.7 MAXIMUM YEARLY AWARDS. All Participants in the aggregate
may not receive in any calendar year awards of Stock Options, exceeding
1,800,000 underlying shares of Common Stock. Each individual Participant may not
receive in any calendar year awards of Stock Options exceeding 750,000
underlying shares of Common Stock. The maximum annual Common Stock amounts
indicated above are subject to adjustment under the terms of the Plan and are
subject to the maximum number of shares of Common Stock available for grant
under Section 4.2 of the Plan.
7. TERMINATION OF EMPLOYMENT.
7.1 GENERAL. If a Participant's employment with the Company or
any Subsidiary terminates for any reason any then unexercisable Stock Options
shall be forfeited and canceled by the Company, except as otherwise provided in
the Participant's Award Agreement or in the Participant's Employment Agreement.
7.2 FOR CAUSE. If a Participant's employment with the Company
or any Subsidiary is terminated for Cause, such Participant's rights, if any, to
exercise any then exercisable Stock Options shall terminate on the date of such
termination for Cause and such Stock Options shall be forfeited and canceled by
the Company, except as otherwise provided in the Participant's Award Agreement
or in the Participant's Employment Agreement.
7.3 VOLUNTARY TERMINATION. If a Participant voluntarily
terminates employment with the Company or any Subsidiary (other than a
termination due to death or Disability), such Participant's rights, if any, to
exercise any then exercisable Stock Options shall terminate thirty days after
the date of such voluntary termination (but not beyond the stated term of any
such Stock Option as determined under Section 6.4) and thereafter such Stock
Options shall be forfeited and canceled by the Company, except as otherwise
provided in the Participant's Award Agreement or in the Participant's Employment
Agreement.
<PAGE> 7
-7-
7.4 DEATH/DISABILITY.If a Participant's employment is
terminated due to death or Disability, such Participant (and such Participant's
estate, designated beneficiary or other legal representative, as the case may be
and as determined by the Board or the Committee) shall have the right to
exercise any then exercisable Stock Options at any time within the six month
period following such termination due to death or Disability (but not beyond the
term of any such Stock Option as determined under Section 6.4) and thereafter
such Stock Options shall be forfeited and canceled by the Company, except as
otherwise provided in the Participant's Award Agreement or in the Participant's
Employment Agreement.
7.5 WITHOUT CAUSE. If a Participant's employment with the
Company or any Subsidiary is terminated without Cause, such Participant's
rights, if any, to exercise any then exercisable Stock Options shall terminate
ninety days after the date of such termination (but not beyond the stated term
of any such Stock Options as determined under Section 6.4) and thereafter such
Stock Options shall be forfeited and canceled by the Company, except as
otherwise provided in the Participant's Award Agreement or in the Participant's
Employment Agreement.
7.6 BOARD OR COMMITTEE DISCRETION. The Committee, in their
sole discretion, may determine that any Participant's Stock Options, to the
extent exercisable immediately prior to any termination of employment or as a
result thereof, may remain exercisable for an additional specified time period
after the period specified above in this Section 7 expires (subject to any other
applicable terms and provisions of the Plan and the relevant Award Agreement),
but not beyond the stated term of any such Stock Option.
8. NON-TRANSFERABILITY OF AWARDS. Unless otherwise provided in the
Participant's Award Agreement, no award under the Plan or any Award Agreement,
and no rights or interests herein or therein, shall or may be assigned,
transferred, sold, exchanged, encumbered, pledged, or otherwise hypothecated or
disposed of by a Participant or any beneficiary(ies) of any Participant, except
by testamentary disposition by the Participant or pursuant to the laws of
intestate succession. No such interest shall be subject to execution, attachment
or similar legal process, including, without limitation, seizure for the payment
of the Participant's debts, judgements, alimony, or separate maintenance. Except
in the case of a transferable Non-Qualified Stock Option, during the lifetime of
a Participant, Stock Options are exercisable only by the Participant.
9. CHANGES IN CAPITALIZATION AND OTHER MATTERS.
9.1 NO CORPORATE ACTION RESTRICTION. The existence of the
Plan, any Award Agreement and/or the awards granted hereunder shall not limit,
affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the Company's or any
Subsidiary's capital structure or its business, (b) any merger, consolidation or
change in the ownership of the Company or any Subsidiary, (c) any issue of
bonds, debentures, capital, preferred or prior preference stocks ahead of or
affecting the Company's or any Subsidiary's capital stock or the rights thereof,
(d) any dissolution or liquidation of the Company or any
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Subsidiary, (e) any sale or transfer of all or any part of the Company's or any
Subsidiary's assets or business, or (f) any other corporate act or proceeding by
the Company or any Subsidiary. No Participant, beneficiary or any other person
shall have any claim against any member of the Board or the Committee, the
Company or any Subsidiary, or any employees, officers or agents of the Company
or any subsidiary, as a result of any such action.
9.2 RECAPITALIZATION ADJUSTMENTS. In the event of any change
in capitalization affecting the Common Stock of the Company, including, without
limitation, a stock dividend or other distribution, stock split, reverse stock
split, recapitalization, consolidation, subdivision, split-up, spin-off,
split-off, combination or exchange of shares or other form of reorganization or
recapitalization, or any other change affecting the Common Stock, the Board or
the Committee shall authorize and make such proportionate adjustments, if any,
as the Board or the Committee deems appropriate to reflect such change,
including, without limitation, with respect to the aggregate number of shares of
the Common Stock for which awards in respect thereof may be granted under the
Plan, the number of shares of the Common Stock covered by each outstanding
award, the maximum number of shares of Common Stock which may be granted or
awarded to any Participant, and the exercise price per share of Common Stock in
respect of outstanding awards.
9.3 MERGERS.
9.3.1 If the Company enters into or is involved in
any merger, reorganization or other business combination with any person or
entity (such merger, reorganization or other business combination to be referred
to herein as a "Merger Event"), a Participant, if so determined by the Board or
the Committee, shall be entitled, with respect to both exercisable and
unexercisable Stock Options (but only to the extent not previously exercised),
to receive substitute stock options in respect of the shares of the surviving
corporation on such terms and conditions, as to the number of shares, pricing
and otherwise, which shall substantially preserve the value, rights and benefits
of any affected Stock Options granted hereunder as of the date of the
consummation of the Merger Event. Notwithstanding anything to the contrary in
the Plan, if any Merger Event or Change in Control (as defined in Section 6.6 of
the Plan) occurs, the Company shall have the right, but not the obligation, to
pay to each affected Participant an amount in cash or certified check equal to
the excess of the Fair Market Value of the Common Stock as of the date of the
Merger Event underlying any unexercised Stock Options (whether then exercisable
or not) over the aggregate exercise price of such unexercised Stock Options.
However, the Company shall not make any such payments where the consummation of
the Merger Event is pursuant to a written agreement between the Company and
another party conditioned upon the availability of "pooling of interests"
accounting treatment (within the meaning of A.P.B. No. 16 or any successor
thereto).
9.3.2 If, in the case of a Merger Event in which the
Company will not be, or is not, the surviving corporation, and the Company
determines not to make the cash or certified check payment described in Section
9.3.1 of the Plan, the Company shall compel and obligate, as a condition of the
consummation of the Merger Event, the surviving or resulting corporation and/or
the other party to the Merger Event, as necessary, or any parent, subsidiary or
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acquiring corporation thereof, to grant, with respect to both exercisable and
unexercisable Stock Options and/or Stock Appreciation Rights (but only to the
extent not previously exercised), substitute stock options or stock appreciation
rights in respect of the shares of common or other capital stock of such
surviving or resulting corporation on such terms and conditions, as to the
number of shares, pricing and otherwise, which shall substantially preserve the
value, rights and benefits of any affected Stock Options and/or Stock
Appreciation Rights previously granted hereunder as of the date of the
consummation of the Merger Event.
9.3.3 Upon receipt by any affected Participant of any
such substitute stock options as a result of any such Merger Event, such
Participant's affected Stock Options for which such substitute options were
received shall be thereupon cancelled without the need for obtaining the consent
of any such affected Participant.
9.3.4 The foregoing adjustments and the manner of
application of the foregoing provisions, including, without limitation, the
issuance of any substitute stock options, shall be determined in good faith by
the Board or the Committee in its sole discretion. Any such adjustment may
provide for the elimination of fractional shares.
10. AMENDMENT, SUSPENSION AND TERMINATION.
10.1 IN GENERAL. The Board may suspend or terminate the Plan
(or any portion thereof) at any time and may amend the Plan at any time and from
time to time in such respects as the Board may deem advisable to insure that any
and all awards conform to or otherwise reflect any change in applicable laws or
regulations, or in any other respect the Board may deem to be in the best
interests of the Company or any Subsidiary. No such amendment, suspension or
termination shall (a) materially adversely affect the rights of any Participant
under any outstanding Stock Options, without the consent of such Participant, or
(b) make any change that would disqualify the Plan, or any other plan of the
Company or any Subsidiary intended to be so qualified, from the benefits
provided under Section 422 of the Code, or any successor provisions thereto.
10.2 AWARD AGREEMENT MODIFICATIONS. The Board or the Committee
may (in their sole discretion) amend or modify at any time and from time to time
the terms and provisions of any outstanding Stock Options in any manner to the
extent that the Board or the Committee under the Plan or any Award Agreement
could have initially determined the restrictions, terms and provisions of such
Stock Options, including, without limitation, changing or accelerating the date
or dates as of which such Stock Options shall become exercisable. No such
amendment or modification shall, however, materially adversely affect the rights
of any Participant under any such award without the consent of such Participant.
11. MISCELLANEOUS.
11.1 TAX WITHHOLDING. The Company shall have the right to
deduct from any payment or settlement under the Plan, including, without
limitation, the exercise of any Stock Option, any federal, state, local, foreign
or other taxes of any kind which the Board or the
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Committee, in their sole discretion, deems necessary to be withheld to comply
with the Code and/or any other applicable law, rule or regulation.
11.2 NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan,
the granting of any award, nor the execution of any Award Agreement, shall
confer upon any employee of the Company or any Subsidiary any right to continued
employment with the Company or any Subsidiary, as the case may be, nor shall it
interfere in any way with the right, if any, of the Company or any Subsidiary to
terminate the employment of any employee at any time for any reason.
11.3 UNFUNDED PLAN. The Plan shall be unfunded and the Company
shall not be required to segregate any assets in connection with any awards
under the Plan. Any liability of the Company to any person with respect to any
award under the Plan or any Award Agreement shall be based solely upon the
contractual obligations that may be created as a result of the Plan or any such
award or agreement. No such obligation of the Company shall be deemed to be
secured by any pledge of, encumbrance on, or other interest in, any property or
asset of the Company or any Subsidiary. Nothing contained in the Plan or any
Award Agreement shall be construed as creating in respect of any Participant (or
beneficiary thereof or any other person) any equity or other interest of any
kind in any assets of the Company or any Subsidiary or creating a trust of any
kind or a fiduciary relationship of any kind between the Company, any Subsidiary
and/or any such Participant, any beneficiary thereof or any other person.
11.4 LISTING, REGISTRATION AND OTHER LEGAL COMPLIANCE. No
awards or shares of the Common Stock shall be required to be issued or granted
under the Plan unless legal counsel for the Company shall be satisfied that such
issuance or grant will be in compliance with all applicable securities laws and
regulations and any other applicable laws or regulations. The Board or the
Committee may require, as a condition of any payment or share issuance, that
certain agreements, undertakings, representations, certificates, and/or
information, as the Board or the Committee may deem necessary or advisable, be
executed or provided to the Company to assure compliance with all such
applicable laws or regulations. Certificates for shares of Common Stock
delivered under the Plan may bear appropriate legends and may be subject to such
stock-transfer orders and such other restrictions as the Board or the Committee
may deem advisable under the rules, regulations, or other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is listed, and any applicable securities law. In addition, if, at any time
specified herein (or in any Award Agreement or otherwise) for (a) the making of
any award, or the making of any determination, (b) the issuance or other
distribution of Common Stock, or (c) the payment of amounts to or through a
Participant with respect to any award, any law, rule, regulation or other
requirement of any governmental authority or agency shall require either the
Company, any Subsidiary or any Participant (or any estate, designated
beneficiary or other legal representative thereof) to take any action in
connection with any such determination, any such shares to be issued or
distributed, any such payment, or the making of any such determination, as the
case may be, shall be deferred until such required action is taken. With respect
to persons subject to Section 16 of the Exchange Act, transactions under the
Plan are intended to comply with all applicable conditions of SEC Rule
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16b-3. To the extent any provision of the Plan or any action by the
administrators of the Plan fails to so comply with such rule, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
Committee.
11.5 AWARD AGREEMENTS. Each Participant receiving an award
under the Plan shall enter into an Award Agreement with the Company in a form
specified by the Board or the Committee. Each such Participant shall agree to
the restrictions, terms and conditions of the award set forth therein and in the
Plan.
11.6 DESIGNATION OF BENEFICIARY. Each Participant to whom an
award has been made under the Plan may designate a beneficiary or beneficiaries
to exercise any option or to receive any payment which under the terms of the
Plan and the relevant Award Agreement may become exercisable or payable on or
after the Participant's death. At any time, and from time to time, any such
designation may be changed or cancelled by the Participant without the consent
of any such beneficiary. Any such designation, change or cancellation must be on
a form provided for that purpose by the Board or the Committee and shall not be
effective until received by the Board or the Committee. If no beneficiary has
been designated by a deceased Participant, or if the designated beneficiaries
have predeceased the Participant, the beneficiary shall be the Participant's
estate. If the Participant designates more than one beneficiary, any payments
under the Plan to such beneficiaries shall be made in equal shares unless the
Participant has expressly designated otherwise, in which case the payments shall
be made in the shares designated by the Participant.
11.7 LEAVES OF ABSENCE/TRANSFERS. The Board or the Committee
shall have the power to promulgate rules and regulations and to make
determinations, as it deems appropriate, under the Plan in respect of any leave
of absence from the Company or any Subsidiary granted to a Participant. Without
limiting the generality of the foregoing, the Board or the Committee may
determine whether any such leave of absence shall be treated as if the
Participant has terminated employment with the Company or any such Subsidiary.
If a Participant transfers within the Company, or to or from any Subsidiary,
such Participant shall not be deemed to have terminated employment as a result
of such transfers.
11.8 GOVERNING LAW. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware, without reference to the principles of conflict of laws thereof. Any
titles and headings herein are for reference purposes only, and shall in no way
limit, define or otherwise affect the meaning, construction or interpretation of
any provisions of the Plan.
11.9 EFFECTIVE DATES. The Plan, as amended and restated, shall
be effective in respect of awards or grants made hereunder on or after its
approval by the Board and adoption by the Company (the "1999 Amended and
Restated Date"), subject to the closing of the Company's initial public offering
and the approval of the Plan by the Company's shareholders in accordance with
Section 422 of the Code. If the Amendment and Restated Plan becomes and stays
effective, any awards or grants made prior to the 1999 Amended and Restated Date
shall be governed by the terms of the Plan in effect prior to that date (other
than Sections 3.2 and 9.4 of the Plan, as in
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effect prior to the 1999 Amended and Restated Date, which Sections shall not
apply to any future or currently outstanding Stock Option awards).
IN WITNESS WHEREOF, this Plan, as amended and restated, is
adopted by the Company on this _____ day of ________, 1999.
SEMINIS, INC.
By: ________________________
Name:
Title:
<PAGE> 1
Exhibit 21
Subsidiaries
Seminis Vegetable Seeds, Inc., a corporation organized under the laws of the
State of California
Peto International, Inc., a corporation organized under the laws of the State of
California
Incotec, Inc., a corporation organized under the laws of the State of
California
SVS Holland, B.V., a corporation organized under the laws of Holland
SVS Europe, B.V., a corporation organized under the laws of Holland
Asgrow Italia Vegetable Seeds, S.r.L., organized under the laws of Italy
Peto Italiana, S.r.L., an entity organized under the laws of Italy
Royal Sluis Italia, S.r.L., an entity organized under the laws of Italy
Hungnong Seed Co., Ltd., an entity organized under the laws of the Republic
of South Korea
Choong Ang Seed Co., Ltd., an entity organized under the laws of the
Republic of South Korea
Seminis Vegetable Seeds Iberica, S.A., a corporation organized under the laws
of Spain
Asgrow Spain, S.r.L., an entity organized under the laws of Spain
A.V. Seeds Iberica, S.L., an entity organized under the laws of Spain
Petoseed Iberica Montornes, S.L., an entity organized under the laws of Spain
Royal Sluis Seeds Iberica, S.L., an entity organized under the laws of Spain
Seminis Vegetable Seeds Mexicana, S. de R.L. de C.V., an entity organized under
the laws of Mexico
MBS, Inc., a corporation organized under the laws of the State of Iowa
Semillas Seminis SudAmerica LTDA., an entity organized under the laws of Chile
Bruinsma Seeds B.V., a corporation organized under the laws of Holland
SVS Mexicana S.A. de C.V., an entity organized under the laws of Mexico
Peto Mexico International, S.A. de C.V., an entity organized under the laws of
Mexico
Asgrow Hortalizas, S.A. de C.V., an entity organized under the laws of Mexico
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 18, 1998, except
as to Notes 16 and 17 which are as of May 27, 1999, relating to the financial
statements of Seminis, Inc., which appears in such Prospectus. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
May 27, 1999
- -----------
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Exhibit 23.3
[SEONJIN ACCOUNTING CORPORATION LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTS
To the Board of Directors and
Stockholders of Hungnong Seeds Co.
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 28, 1998,
relating to the financial statements of Hungnong Seeds Co., Ltd, which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Seonjin Accounting Corporation
SEONJIN ACCOUNTING CORPORATION
Seoul, Korea
May 27, 1999
