<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SEMINIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<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:
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<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>
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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
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Class A Common Stock............ $250,000,000 $69,500
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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.
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<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE
NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
DATED , 1999
PROSPECTUS
Shares
[LOGO]
SEMINIS, INC.
Class A Common Stock
Seminis, Inc. is selling all of the shares of Class A common stock in this
offering.
Prior to the offering, there has been no public market for our common stock. It
is currently anticipated that the initial offering price will be between $
and $ per share. We intend to apply to have the shares of Class A common
stock listed on the New York Stock Exchange under the symbol "VEG."
INVESTING IN SHARES OF CLASS A COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION 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.
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT SEMINIS
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<S> <C> <C> <C>
Per Share $ $ $
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Total $ $ $
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</TABLE>
We have agreed to grant the underwriters the right to purchase up to an
additional shares of Class A common stock to cover
over-allotments.
It is expected that delivery of the shares will be made to investors on or about
, 1999.
J.P. MORGAN & CO.
, 1999
<PAGE> 3
[Inside Front Cover]
[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> 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 will also have a star indicating the approximate location of each
research and development site and a circle indicating the approximate location
of each production facility.]
<PAGE> 5
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the shares of Class A common stock.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 4
Risk Factors.......................... 9
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 23
Management............................ 38
</TABLE>
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PAGE
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Principal Stockholders................ 44
Certain Relationships and Related
Transactions........................ 45
Shares Eligible for Future Sale....... 45
Description of Capital Stock.......... 45
Underwriting.......................... 51
Legal Matters......................... 53
Experts............................... 53
Available Information................. 53
Index to Consolidated Financial
Statements.......................... F-1
Glossary of Terms..................... G-1
</TABLE>
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Until , 1999, all dealers that effect transactions in the Class A
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
We intend to furnish to our stockholders annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
------------------------
All of the brand names and trademarks appearing in this prospectus are our
property, except Roundup Ready(R) and SAP/R3(R).
3
<PAGE> 6
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.
THE COMPANY
Seminis is the largest developer, producer and marketer of fruit and vegetable
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 and create tastier foods. 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. As a result, we are creating and setting the
foundation to capture value at all steps of the fruit and vegetable distribution
chain: growers, distributors, processors, retailers and end-consumers.
We produce more than 60 species and 8,000 distinct varieties of fruit and
vegetable seeds. Our seeds generally have been tailored to satisfy local market
needs. Our product lines cover most species of fruits and vegetables, 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. We market our
seeds through three full-line brands--Asgrow, Petoseed and Royal Sluis--and nine
specialty 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 31 countries. This allows us to
remain close to local markets around the world, adapt our products to any
microclimate and meet the preferences of local consumers. In fiscal 1998, we had
approximately $383.8 million in net seed sales. This represents an approximate
22% share of the global commercial fruit and vegetable seed market, which is
generally highly fragmented.
We expand and develop our product lines through our significant commitment to
research and development. Over the last three fiscal years, we have spent
approximately 11% of our total sales, or approximately $132.8 million, on
research and development. We have introduced over 300 new products during these
three fiscal years. These new products accounted for approximately 18% of net
seed sales in fiscal 1998.
We augment our internal product development efforts with worldwide technology
alliances with more than 100 companies, research institutions and universities,
including Mendel Biotechnology, Monsanto, Zeneca, the John Innes Center, Texas
A&M University and the University of California. These alliances, coupled with
our own internal research and development capabilities and germplasm, enable us
to create innovative and value-added fruit and vegetable seed products. In the
United States and Europe, we currently own or have pending over 90 patents and
have protected more than 145 varieties under plant variety protection laws.
THE MARKET
We believe that fruits and vegetables represent nature's most direct delivery
mechanism for improved health and nutrition. Worldwide fruit and vegetable
consumption has increased approximately 50% from 1985 to 1996. In developed
countries, the growth of the fruit and vegetable seed market is primarily driven
by a demand for foods with better nutritional qualities and increased consumer
awareness of the health benefits of fruits and vegetables. In developing
countries, which have a relatively large vegetarian population, the growth of
the fruit and vegetable seed market is largely driven by rapidly expanding
population growth and conversion from open-pollinated seed to hybrid seed
varieties. Because of expected increases in consumption of fruits and vegetables
and a steady decline in arable land, the development of seeds that produce
disease-resistant, higher-yielding fruits and vegetables with better nutritional
value is of growing importance.
BUSINESS STRATEGY
Our vision is to apply technology to fruit and vegetable seeds to create and
capture value throughout the fruit and vegetable distribution chain. To realize
our vision, we expect to capitalize on our competitive strengths, which include
our technological leadership, ability to consistently introduce new technology
through product innovation, well established brand names and worldwide
distribution system. In addition, our germplasm bank is our key strategic asset.
Germplasm, our bank of genetic information, is contained in millions of seeds.
These seeds capture the characteristics of fruits and vegetables grown for our
customers in different regions of the world, including input traits (resistance
to pests and adverse weather conditions) and
4
<PAGE> 7
output traits (crop yield, color, texture, flavor and ready-to-eat convenience).
Our breeders utilize our germplasm, as well as our proprietary technologies, to
develop innovative products suitable to the needs of different markets and
conditions.
We attempt to enhance our profitability by expanding the global fruit and
vegetable market and capturing a large percentage of the value we create along
the fruit and vegetable distribution chain. By using fruit and vegetable seeds
that contain disease and insect resistance, growers will increase their yields
and save significant costs by reducing pesticide and insecticide use. Processors
and distributors benefit from products with longer shelf-lives which reduce
spoilage. Consumers benefit from healthier, tastier fruits and vegetables that
last longer and offer ready-to-eat convenience.
We have led the consolidation of the fruit and vegetable seed industry and have
consummated nine mergers or acquisitions to date. We expect to augment our
market position through continued strategic acquisitions to expand our business
and further internal growth. We will target strategic acquisitions that provide
us with access to new technology, supplement our product line or improve our
market position in certain geographic regions.
HISTORY
Seminis was formed in 1994 to consolidate various industry-leading fruit and
vegetable 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 fruit and vegetable
seed industry and have completed nine acquisitions to date. We have historically
used acquisitions as a cost efficient way to gain access to or ownership of key
technology, 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 line of products 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.
5
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THE OFFERING
The following information is based on shares of Class A common
stock and 46,074,386 shares of Class B common stock outstanding on
, 1999. This excludes shares of Class A
common stock issuable upon the exercise of stock options outstanding on
, 1999 and an additional shares of Class A
common stock reserved as of that date for future issuance under our employee
benefit plans.
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COMMON STOCK OFFERED BY SEMINIS...................... shares of Class A common stock
COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING.... shares of Class A common stock
46,074,386 shares of Class B common stock
total shares of Class A common stock and Class B common
stock; shares if the underwriters'
over-allotment option is exercised in full
OVER-ALLOTMENT OPTION................................ 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.
PROPOSED NEW YORK STOCK EXCHANGE SYMBOL.............. "VEG"
</TABLE>
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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 the
mandatorily redeemable common stock held by certain stockholders 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. In fiscal 1996, income (loss)
from operations reflects the effects of purchase accounting adjustments
amounting to $96.7 million arising from the acquisitions of Petoseed and Royal
Sluis.
Pro forma summary consolidated results of operations data for the year ended
September 30, 1998 assume the following transactions occurred effective October
1, 1997: (1) the acquisition of Hungnong Seed Co., Ltd.; (2) the conversion of
$35.9 million of convertible subordinated debt due ELM to 1,916,462 shares of
Class B common stock, and the assumed related reduction in interest expense; and
(3) the application of net proceeds of $ from the offering of
shares of Class A common stock by Seminis and borrowings of $ under
Seminis' new credit facility to redeem preferred stock and repay certain
indebtedness, and the assumed related reduction in preferred stock dividends and
interest expense, all as described in "Use of Proceeds."
Supplemental pro forma income (loss) data for the year ended September 30, 1998
assume the conversion, effective October 1, 1997, of 6,771,500 shares of Class B
redeemable common stock of Seminis, Inc., an Illinois corporation and
predecessor to Seminis, to an equal number of shares of Class B common stock,
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.
Pro forma summary consolidated balance sheet data as of September 30, 1998
assume the transactions referred to in clauses (2) and (3) above and the
conversion of the Class B redeemable common stock were effective as of September
30, 1998.
<TABLE>
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HISTORICAL SUPPLEMENTAL
----------------------------------------------- PRO FORMA PRO FORMA
NINE MONTHS FISCAL YEAR FISCAL YEAR
ENDED FISCAL YEAR ENDED SEPTEMBER 30, ENDED ENDED
SEPTEMBER 30, ------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1998 1998 1998
In thousands, except per share data ------------- -------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales............................. $101,833 $381,398 $379,544 $ 428,423 $455,987 $455,987
Gross profit(1)....................... 48,916 167,267 229,437 265,617 278,153 278,153
Research and development expenses..... 14,250 42,300 41,039 49,416 51,700 51,700
Selling, general and administrative
expenses............................ 34,822 134,990 136,438 158,588 169,328 169,328
Management fees paid to ELM........... -- -- 6,200 8,465 8,465 8,465
Amortization of intangible assets..... 350 14,785 12,394 14,457 21,985 21,985
Income (loss) from operations(2)...... (506) (61,508) 33,366 34,691
Income (loss) from continuing
operations.......................... (5,315) (56,085) 11,325 6,762
Income (loss) from continuing
operations available for common
stockholders(3)..................... (5,643) (64,418) 2,089 (133,367)
Income (loss) from continuing
operations available for common
stockholders per common share
Basic............................... $ (0.19) $ (2.15) $ 0.07 $ (4.23) $ $
Diluted............................. (0.19) (2.15) 0.07 (4.23)
Shares outstanding
Basic............................... 30,000 30,000 30,000 31,536
Diluted............................. 30,000 30,000 30,000 31,536
</TABLE>
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AS OF SEPTEMBER 30,
----------------------------------------------------------
HISTORICAL
------------------------------------------ PRO FORMA
1995 1996 1997 1998 1998
In thousands --------- -------- -------- -------- -------------
In thousands, except per share data ------------- -------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................... $ (22,940) $158,467 $200,792 $272,097 $
Total assets........................................ 349,769 632,463 519,673 862,189
Long-term debt...................................... 20 234,356 80,331 394,446
Subordinated debt due ELM........................... -- -- -- 35,857 --
Mandatorily redeemable stock
Common............................................ -- 114,875 122,111 48,416 --
Preferred......................................... -- 25,000 25,000 25,000 --
Total stockholders' equity.......................... 174,241 112,772 159,681 160,421
</TABLE>
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(1) Includes effects of purchase accounting of $11.8 million of costs in excess
of historical value in fiscal 1995 relating to the step-up of the Asgrow
inventories and of $60.0 million of costs in excess of historical value in
fiscal 1996 relating to the step-up of the Petoseed and Royal Sluis inventories.
(2) Includes $36.7 million representing the write-off of acquired research
in-process in fiscal 1996 in connection with the Petoseed acquisition.
(3) Historical and pro forma data 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 mandatorily redeemable common stock
repurchased. Such amounts are not included in supplemental pro forma data.
8
<PAGE> 11
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 11.5% 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 CERTAIN OF OUR LICENSE AND TECHNOLOGY AGREEMENTS COULD
HARM OUR BUSINESS
We have the benefit of certain license and technology agreements through our
majority stockholder, Empresas La Moderna, S.A. de C.V., or ELM. Generally, ELM
has the right to provide this technology to us as long as we are controlled by
ELM. In the event that ELM no longer controls us, or loses the right to give
this 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.
ELM WILL EFFECTIVELY CONTROL OUR COMPANY
Following the offering, ELM will own approximately % of the outstanding
common stock and control % of the vote of the common stock. Accordingly,
ELM 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, ELM will effectively control our management.
UNSUCCESSFUL ACQUISITIONS OR THE INABILITY TO IDENTIFY AND FINANCE ACQUISITIONS
COULD ADVERSELY AFFECT US
We have historically grown through acquisitions and may continue to grow through
strategic acquisitions. Any failure by us to integrate acquired companies
without substantial costs, delays or other difficulties could have a material
adverse effect on our business, results of operations or financial condition. We
may not be able to identify or acquire additional businesses or do it on
acceptable terms to meet our acquisition strategy.
The timing, size and success of our acquisition efforts and the availability of
associated financing 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.
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. We try to
maintain strict security for our parent line germplasm. Despite these efforts to
maintain security, a competitor could obtain our germplasm, or information
identifying the parent lines of the seed variety, and produce seeds with similar
or identical characteristics to those of our varieties. We vigorously protect
our proprietary rights through patents, trademarks, breeder's rights and
licenses to use germplasm and intellectual property. We will pursue litigation
when necessary. However, such litigation can be time consuming, expensive and
ineffective in certain countries and can have uncertain results.
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WE MAY NOT BE ABLE TO OBTAIN INTELLECTUAL PROPERTY RIGHTS FROM THIRD PARTIES
Our ability to commercialize certain 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 patented 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 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 usually experience. As a result, management decisions on
operational matters may be delayed.
INDUSTRY RISKS
TECHNOLOGICAL ADVANCES AND BETTER PRICING AND FINANCIAL TERMS BY 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 us. To remain competitive, we expend substantial resources for
research and development and strive to maintain technological alliances.
However, 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 effect on our business, results of operations or
financial condition.
We also 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, INSECTS AND PESTS COULD HARM OUR BUSINESS
Seed production is subject to a variety of agricultural risks. Extreme weather
conditions, disease, insects 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. Although we make great efforts to inspect our products and to control
quality, 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. Although compensation to customers for
defects has been immaterial in the past, 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.
We maintain third-party seedsmen's errors and omissions insurance covering these
types of 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.
10
<PAGE> 13
GENETICALLY ENGINEERED PRODUCTS MAY NOT BE ACCEPTED BY THE PUBLIC AND MAY BECOME
SUBJECT TO ADDITIONAL FUTURE REGULATION
While only a small percentage 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 growing and consuming
of genetically engineered plants and plant products. While we believe our
genetically engineered products are safe, claims that genetically engineered
plant products are unsafe for consumption or pose a danger to the environment
may cause negative publicity and influence public attitudes which could have a
material adverse effect on our business, results of operations or financial
condition.
In addition, 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 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 ADVERSELY
AFFECT OUR BUSINESS
Our products are subject to government regulations and controls such as (a)
national certification requirements, (b) import approval requirements, (c) plant
or seed health certifications, (d) labeling regulations and (e) trade
regulations and changes in tariffs. Governmental agricultural programs that
encourage or discourage the planting of certain crops may also affect seed
demand. We have begun an ISO 9000 certification effort which will result in
standardized quality systems throughout our operations to enable us to comply
more easily with these regulations and controls. 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 CLASS A COMMON STOCK COULD AFFECT OUR STOCK PRICE
After this offering, ELM will own of the outstanding shares of
common stock and our other stockholders owning stock prior to the offering will
own shares of common stock. A decision by ELM 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 $ in net tangible book value per share, or
approximately % of the offering price, assuming an initial public offering
price of $
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 $
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
$ ($ if the underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $ per share (the
midpoint of the range set forth on the cover page of this prospectus).
Seminis is currently negotiating a new credit facility for approximately $ .
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 and repay certain indebtedness
of Seminis.
- - Pursuant to the terms of Seminis' Class A mandatorily redeemable preferred
stock, upon consummation of the offering, the outstanding shares of such stock
will convert into Class B mandatorily redeemable preferred stock. Seminis will
redeem all outstanding shares of its Class B mandatorily redeemable preferred
stock for an aggregate redemption price of $25.0 million, plus accrued
dividends.
- - Seminis will redeem all outstanding shares of its Class C preferred stock,
which shares are owned by ELM, for an aggregate redemption price of $10.0
million, plus accrued dividends.
- - Seminis will repay certain of its indebtedness including: (1) borrowings under
its old credit agreement comprised of (a) a $75.0 million secured revolving
credit note, bearing interest at the rate of 7.7% per annum as of February 10,
1999 and due December 31, 2002, and (b) term loans aggregating approximately
$370.0 million, bearing interest at a weighted average rate of 8.4% per annum
as of February 10, 1999 and due in installments through December 31, 2004, (2)
a $20.0 million loan from ELM accruing interest at the rate of 10.0% per annum
as of February 10, 1999 and due May 31, 1999 and (3) a $50.0 million bridge
loan accruing interest at the rate of % per annum as of ,
1999 and due May 31, 1999.
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 Seed Co.,
Ltd. and Choong Ang Seed Co., Ltd., acquire assets and distribution rights of
LSL PlantScience LLC and acquire assets comprising the Agroceres brand vegetable
seed business in South America. The proceeds from the ELM loan and the bridge
loan 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Consolidated Financial Statements."
12
<PAGE> 15
CAPITALIZATION
The following table sets forth as of September 30, 1998: (1) the consolidated
pro forma capitalization of Seminis giving effect to the recapitalization and
the conversion of $35.9 million of subordinated debt due ELM into 1,916,462
shares of Class B common stock referred to in note 17 of the consolidated
financial statements of Seminis, (2) the consolidated supplemental pro forma
capitalization of Seminis giving effect to certain capitalization events that
occurred after September 30, 1998 and prior to the offering, including (a)
borrowings of $50.0 million under the bridge loan, (b) borrowings of $20.0
million from ELM and (c) the issuance to ELM of $10.0 million of Class C
preferred stock, and (3) the consolidated supplemental pro forma capitalization
of Seminis as adjusted for the sale by Seminis of shares of Class
A common stock offered hereby and borrowings of $ under Seminis' new
credit facility and the application of the net proceeds therefrom as described
in "Use of Proceeds," as if these transactions had occurred on September 30,
1998.
<TABLE>
<CAPTION>
-----------------------------------------
SEPTEMBER 30, 1998
-----------------------------------------
SUPPLEMENTAL
SUPPLEMENTAL PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
In thousands, except per share data --------- ------------ ------------
<S> <C> <C> <C>
Short-term debt:
Bridge loan............................................... $ -- $ 50,000 --
Short-term borrowings due ELM............................. -- 20,000 --
Other short-term borrowings............................... 6,819 6,819 $ 6,819
Current maturities of long-term debt...................... 19,825 19,825
--------- --------- ---------
Total short-term debt............................. $ 26,644 $ 96,644 $
========= ========= =========
Long-term debt:
Old credit agreement...................................... $ 374,675 $ 374,675 $ --
New credit facility....................................... -- --
Other long-term debt...................................... 19,771 19,771 19,771
--------- --------- ---------
Total long-term debt.............................. 394,446 394,446
--------- --------- ---------
Mandatorily redeemable stock:
Class A mandatorily 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 --
--------- --------- ---------
Stockholders' equity:
Class C preferred stock, $.01 par value; 2 shares
authorized; no shares issued and outstanding pro forma,
1 shares issued and outstanding supplemental pro forma
and no shares issued and outstanding supplemental pro
forma as adjusted...................................... -- 10,000 --
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 shares issued and outstanding supplemental
pro forma as adjusted.................................. -- --
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................................ 402,012 402,012
Accumulated deficit....................................... (144,439) (144,439) (144,439)
Accumulated other comprehensive loss...................... (13,340) (13,340) (13,340)
--------- --------- ---------
Total stockholders' equity........................ 244,694 254,694
--------- --------- ---------
Total capitalization......................... $ 664,140 $ 674,140 $
========= ========= =========
</TABLE>
13
<PAGE> 16
DILUTION
Pro forma net tangible book value per share is determined by dividing the pro
forma tangible net worth of Seminis (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 ELM referred to in note 17 of the consolidated financial statements
of Seminis. After giving effect to the sale of shares of Class A
common stock by Seminis hereby at an assumed initial public offering price of
$ 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 September 30,
1998 would have been approximately $ , or $ per share. This represents
an immediate increase in pro forma net tangible book value of $ per share to
the current stockholders of Seminis and an immediate dilution in pro forma net
tangible book value of $ per share to purchasers of Class A common stock in
the offering. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
-----------------
<S> <C> <C> <C> <C>
Assumed initial public offering price per share................................ $
Pro forma net tangible book value per share of common stock at September 30,
1998......................................................................... $
Increase in pro forma net tangible book value per share of common stock
attributable to purchasers in the offering...................................
-------
Pro forma net tangible book value per share of common stock after the
offering.....................................................................
-------
Dilution in pro forma net tangible book value per share to purchasers of Class
A common stock in the offering............................................... $
=======
</TABLE>
The following table summarizes, on the pro forma basis described above, as of
September 30, 1998, 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 $
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>
---------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
In thousands
Existing stockholders........................... % $ % $
Purchasers of Class A common stock in the
offering......................................
-------- -------- -------- --------
Total......................................... % $ %
======== ======== ======== ========
</TABLE>
14
<PAGE> 17
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. 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 the
mandatorily redeemable common stock held by certain stockholders 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. In fiscal 1996, income (loss)
from operations reflects the effects of purchase accounting adjustments
amounting to $96.7 million arising from the acquisitions of Petoseed and Royal
Sluis.
Pro forma summary consolidated results of operations data for the year ended
September 30, 1998 assume that the following transactions occurred effective
October 1, 1997: (1) the acquisition of Hungnong Seed Co., Ltd.; (2) the
conversion of $35.9 million of convertible subordinated debt due to ELM to
1,916,462 shares of Class B common stock, and the assumed related reduction in
interest expense; and (3) the application of net proceeds of $ from the
offering of shares of Class A common stock by Seminis and borrowings
of $ under Seminis' new credit facility to redeem preferred stock and
repay certain indebtedness and the assumed related reduction in preferred stock
dividends and interest expense, all as described in "Use of Proceeds."
Supplemental pro forma income (loss) data for the year ended September 30, 1998
assume the conversion, effective October 1, 1997, of 6,771,500 shares of Class B
redeemable common stock of Seminis, Inc., an Illinois corporation and
predecessor to Seminis, to an equal number of shares of Class B common stock,
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.
Pro forma summary consolidated balance sheet data as of September 30, 1998
assume the transactions referred to in clauses (2) and (3) above and the
conversion of the Class B redeemable common stock were effective as of September
30, 1998.
Acquisitions and Effects of Purchase Accounting.
Seminis was formed in 1994 to consolidate various industry-leading fruit and
vegetable 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 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 LLC, the acquisition of two South
Korean companies, Hungnong Seed Co., Ltd. and Choong Ang Seed Co., Ltd., and the
acquisition of Nath Sluis. In November 1998, Seminis completed the acquisition
of the vegetable seed business of Sementes Agroceres S.A., 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 in the footnotes below.
15
<PAGE> 18
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
HISTORICAL SUPPLEMENTAL
----------------------------------------------- PRO FORMA PRO FORMA
NINE MONTHS FISCAL YEAR FISCAL YEAR
ENDED FISCAL YEAR ENDED SEPTEMBER 30, ENDED ENDED
SEPTEMBER 30, ------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1998 1998 1998
In thousands, except per share data ------------- -------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales............................ $101,833 $381,398 $379,544 $ 428,423 $455,987 $455,987
Gross profit(1)...................... 48,916 167,267 229,437 265,617 278,153 278,153
Research and development expenses.... 14,250 42,300 41,039 49,416 51,700 51,700
Selling, general and administrative
expenses........................... 34,822 134,990 136,438 158,588 169,328 169,328
Management fees paid to ELM.......... -- -- 6,200 8,465 8,465 8,465
Amortization of intangible assets.... 350 14,785 12,394 14,457 21,985 21,985
Income (loss) from operations(2)..... (506) (61,508) 33,366 34,691
Income (loss) from continuing
operations......................... (5,315) (56,085) 11,325 6,762
Income (loss) from continuing
operations available for common
stockholders(3).................... (5,643) (64,418) 2,089 (133,367)
Income (loss) from continuing
operations available for common
stockholders per common share
Basic.............................. $ (0.19) $ (2.15) $ 0.07 $ (4.23) $ $
Diluted............................ (0.19) (2.15) 0.07 (4.23)
Shares outstanding
Basic.............................. 30,000 30,000 30,000 31,536
Diluted............................ 30,000 30,000 30,000 31,536
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
AS OF SEPTEMBER 30,
----------------------------------------------------------
HISTORICAL
------------------------------------------ PRO FORMA
1995 1996 1997 1998 1998
In thousands --------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................... $ (22,940) $158,467 $200,792 $272,097 $
Total assets........................................ 349,769 632,463 519,673 862,189
Long-term debt...................................... 20 234,356 80,331 394,446
Subordinated debt due ELM........................... -- -- -- 35,857 --
Mandatorily redeemable stock
Common............................................ -- 114,875 122,111 48,416 --
Preferred......................................... -- 25,000 25,000 25,000 --
Total stockholders' equity.......................... 174,241 112,772 159,681 160,421
</TABLE>
- ---------------
(1) Includes effects of purchase accounting of $11.8 million of costs in excess
of historical value in fiscal 1995 relating to the step-up of the Asgrow
inventories and of $60.0 million of costs in excess of historical value in
fiscal 1996 relating to the step-up of the Petoseed and Royal Sluis inventories.
(2) Includes $36.7 million representing the write-off of acquired research
in-process in fiscal 1996 in connection with the Petoseed acquisition.
(3) Historical and pro forma data 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 mandatorily redeemable common stock
repurchased. Such amounts are not included in supplemental pro forma data.
16
<PAGE> 19
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 fruit and vegetable
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. As a result,
Seminis is creating and setting the foundation to capture value at all steps of
the fruit and vegetable distribution chain: growers, distributors, processors,
retailers and end-consumers.
Seminis produces more than 60 species and 8,000 distinct varieties of fruit and
vegetable 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 fruit and
vegetable 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 fruit and vegetable seed production, Seminis sold
its Asgrow agronomics business to Monsanto Company. In the summer of 1998,
Seminis acquired, for an aggregate of approximately $151.5 million: (1) a 50%
interest in LSL PlantScience and the distribution rights for specific varieties
of long shelf life tomatoes, and (2) 70% of Hungnong Seed Co. and 100% of Choong
Ang Seed Co. (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 fruit and vegetable seed
company, Seminis has completed nine acquisitions to date 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 certain in-process research and development projects
acquired through acquisitions, interest expense attributable to acquisition
financings, exposure to foreign currency fluctuations, changes in its customer
and product mix and charges for management fees paid to ELM.
17
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth Seminis' statements of operations data expressed
as a percentage of net sales:
<TABLE>
<CAPTION>
-------------------------
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
------- ----- -----
Gross profit................................................ 43.9(a) 60.5 62.0
Research and development expenses........................... 11.1 10.8 11.5
Selling, general and administrative expenses................ 35.4 35.9 37.0
Management fees paid to ELM................................. -- 1.6 2.0
Amortization of intangible assets........................... 3.9 3.4 3.4
Write-off of acquired research in-process................... 9.6 -- --
------- ----- -----
Income (loss) from operations............................... (16.1) 8.8 8.1
Interest expense, net....................................... (6.3) (2.8) (6.3)
Other non-operating income (loss), net...................... (0.5) (2.0) 0.6
------- ----- -----
Income (loss) from continuing operations before income
taxes..................................................... (22.9) 4.0 2.4
Income tax benefit (expense)................................ 8.2 (1.0) (0.8)
------- ----- -----
Income (loss) from continuing operations.................... (14.7) 3.0 1.6
Income from and gain on disposal of discontinued
operations................................................ 1.6 13.4 --
------- ----- -----
Net income (loss)........................................... (13.1)% 16.4% 1.6%
======= ===== =====
</TABLE>
- ---------------
(a) Gross profit before the effects of purchase accounting would have been 59.6%
of net sales in fiscal 1996.
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 due to improved product pricing worldwide, as well as increased sales
volume, primarily in North America and Brazil.
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 higher
sales prices in Northern Europe and Brazil 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.
18
<PAGE> 21
Management Fees Paid to ELM
The management fee paid to ELM 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 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.
Other Non-Operating Income (Loss), Net
Seminis had other non-operating income, net, of $2.6 million in fiscal 1998 as
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 ELM 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 6.5% during this period, largely as a result of increases in prices
and volumes. 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 reflects improved pricing and product mix.
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.
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<PAGE> 22
Management Fees Paid to ELM
The management fee paid to ELM 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' acquisition in 1996, $36.7
million 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, 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. 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 certain statement of operations data for each
quarter of fiscal 1997 and fiscal 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
QUARTER ENDED
--------------------------------------------------------------------------------
FISCAL 1997 FISCAL 1998
-------------------------------------- ---------------------------------------
DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands
Net sales................................... $63,459 $139,654 $81,129 $95,302 $71,395 $150,944 $92,817 $113,267
Gross profit................................ 39,237 86,671 44,942 58,587 44,045 93,636 55,341 72,595
Income (loss) from continuing
operations(1)............................. (6,943) 18,561 (3,797) 3,504 (6,112) 23,424 (5,790) (4,760)
</TABLE>
- ---------------
(1) Includes management fees paid to ELM which began in the second quarter of
fiscal 1997.
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<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
Seminis has historically relied on cash flow from operations and commercial bank
borrowings to finance its operations and capital expenditures, and on commercial
bank borrowings and equity investments by its stockholders to finance its
acquisition and internal investment program.
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 $65.0 million, including $25.0 million for a new office and
operating facility in Oxnard, California and increased investments in research
facilities and technology.
In January 1997, Seminis sold its Asgrow agronomics business for $240.0 million
to provide greater focus on its core fruit and vegetable 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
from certain of its shareholders. Seminis entered into its old credit agreement
in order to finance the repurchase. In July 1998, certain of Seminis' existing
stockholders 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 ELM 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 ELM was converted by ELM 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 ELM, $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 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, ELM made an equity investment in Seminis of $10 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 January 1999, Seminis borrowed $20.0 million from ELM to finance short-term
working capital requirements, which will mature on May 31, 1999. Seminis is
currently negotiating to borrow $50.0 million from certain lenders under the old
credit agreement as a bridge loan to finance short-term working capital
requirements, which is expected to mature on May 31, 1999. 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 to change the financial ratio
covenants for the period ended March 31, 1999. The amendment of the old credit
agreement also requires 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 $150.0 million. The
proceeds of this offering would satisfy this requirement.
Under Seminis' new credit facility, Seminis anticipates obtaining financing of
$ . 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.
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
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<PAGE> 24
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.
In August 1997, Seminis began the project of replacing its computer software
with software that is Year 2000 compliant. The software became operational in
Seminis' business units in the United States and The Netherlands in July 1998.
Seminis has developed an implementation plan for its remaining business units.
Seminis expects to complete such implementation for all material business units
before the year 2000. The remaining locations, which are not material to the
consolidated results of operations of Seminis, are expected to be Year 2000
compliant early in the year 2000. 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 $15.0 million has been spent as
of September 30, 1998. Since Seminis expects its computer systems to be Year
2000 compliant before the year 2000, it currently has no contingency plans.
Should Seminis' evaluation of its computer systems prove otherwise, Seminis will
establish contingency plans as necessary.
Vendors and suppliers of Seminis are largely contract growers and are not
believed to be highly reliant on information technology. Seminis' distributors
and dealers in distribution channels are small local companies operating within
small geographic regions, and are not believed to be highly reliant on
information technology. However if Seminis' vendors, suppliers, distributors and
dealers become more reliant on information technology or if Seminis aligns with
new vendors, suppliers, distributors and dealers with their own systems that are
not Year 2000 compliant, or if Seminis experiences difficulties in finding
replacements for new vendors, suppliers, distributors and dealers, then as a
result, Seminis' business could be materially adversely affected. The failures
to correct material Year 2000 problems by Seminis' vendors, suppliers,
distributors and dealers could result in an interruption in, or a failure of,
certain normal business activities or operations of Seminis. Such failures could
have a material adverse effect on Seminis' business, results of operations and
financial condition.
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<PAGE> 25
BUSINESS
OVERVIEW
Seminis is the largest developer, producer and marketer of fruit and vegetable
seeds in the world. Seminis uses seeds as the delivery vehicle for 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. 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 at all steps of the fruit and vegetable
distribution chain: growers, distributors, processors, retailers and
end-consumers.
Seminis produces more than 60 species and 8,000 distinct varieties of fruit and
vegetable seeds. Seminis' seeds generally have been tailored to satisfy local
market needs. The product lines marketed under the Seminis brands cover most
species of fruits and vegetables, 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 markets its seeds through three full-line
brands -- Asgrow, Petoseed and Royal Sluis -- and nine specialty brands.
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 31 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 22% share of the global commercial fruit and vegetable seed market,
which is generally highly fragmented.
The total worldwide fruit and vegetable 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 fruit and vegetable
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 develop new
products which add value at all stages of the fruit and vegetable production and
distribution chain by, for instance, reducing growers costs or providing higher
quality characteristics/traits for consumers and therefore commanding premium
pricing on the grocery store shelf. As a result, Seminis prices its products
based on the incremental value 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 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,
fruit and vegetable consumption has grown over 75% from 1985 to 1996.
Consumption of fruits and vegetables worldwide has increased approximately 50%
in the same time period. However, fruit and vegetable yields have not kept pace
with consumption increases, growing only 18% per hectare since 1985. Given
current population estimates and consumption rates, consumption of fruits and
vegetables is expected to increase by 60% from 1996 to 2010. World production of
fruits and vegetables must increase to meet expected demand.
Two breakthroughs in plant science occurred in the 1980's that may facilitate
increased productivity and higher quality fruits and vegetables. The first was
the understanding of how genes, the fundamental components of the genetic code,
work in plants
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<PAGE> 26
to produce traits such as disease resistance or higher nutritional value. 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 fruit and vegetable seed companies are
creating the changes in productivity and quality necessary to provide
sustainable fruit and vegetable production growth.
In addition, fruits and vegetables 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 fruits and vegetables 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 fruits and vegetables can
significantly reduce the risk of cancer. Seminis believes that fruits and
vegetables represent nature's most direct delivery mechanism for improved health
and nutrition.
The world's fruit and vegetable 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 fruits and vegetables are of growing importance
for regional and global markets because of expected increasing consumption of
fruits and vegetables, along with a steady decline in arable land.
VALUE CREATION ALONG THE FRUIT AND VEGETABLE DISTRIBUTION CHAIN
The total worldwide fruit and vegetable commercial seed sales in 1998 are
estimated at $2.0 billion (of which $410.0 million represented sales in North
America). 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 fruit and
vegetable seeds, as well as its share of the market, can be expanded. These
technological advances enable Seminis to develop new products which add value
throughout the fruit and vegetable distribution chain-- growers, distributors,
processors, retailers and end-consumers--by, for instance, reducing growers'
costs, reducing spoilage or commanding premium pricing on the grocery store
shelf. 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 fruits and vegetables in the United States in 1997 were
estimated at $9.2 billion. The costs associated with seeds represented
approximately 4% of grower sales. Reducing growers non-seed costs is a means for
Seminis to capture value. 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 capturing value from 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 fruit and vegetable crops may be
more attractive than in agronomic crops. Whereas agronomic crops occupy much
larger planted acreage in the United States, fruits and vegetables 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 $158, respectively, for a typical acre of
corn. In the United States, chemical costs represent between 20-50% of the
grower's total production expenditures, with labor and water representing the
two other largest components of the cost structure. The fruit and vegetable
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 fruits and vegetables.
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Distribution
Fruit and vegetable sales by distributors in the United States in 1996 were
estimated at $30.0 billion. The distribution chain for fresh fruits and
vegetables 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 distribution chain accounts for approximately 25% of the cost
of fresh fruits and vegetables to the retailer--or more than $7.0 billion
annually.
Reducing spoilage presents a clear opportunity for seed companies to capture
value by displacing costs in the downstream distribution chain. 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 seed sells 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 distribution chain, demand for these products
is driven by all distribution chain participants, not just growers.
Processors
Processor sales in the United States were greater than $13.0 billion in 1992.
Processors of fruits and vegetables freeze, dehydrate, comminute (make into
paste) or can fresh fruits and vegetables into shelf-stable containers.
Processors either produce their own fruits and vegetables or contract for their
production with growers.
In many cases, processors either purchase seed directly from seed companies or
approve the seed purchases of their contract growers. A large portion of costs
associated with processing fresh fruits and vegetables is the fruit and
vegetable itself and the energy costs to freeze or heat the fruit or vegetable
or to evaporate water. Many times during this process, certain flavor components
are lost or inactivated. Developing new varieties for processors with higher
yield or which require less processing time or heat required to process fruits
and vegetables or which conserve flavor are important objectives for seed
companies.
Seminis has focused its efforts on improving the processing characteristics of
fruits and vegetables. For example, Seminis has a partnership with Zeneca to
produce 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 fruits and vegetables 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 increase the grocery value of fruits
and vegetables and capture a larger portion of consumer spending. Seminis
continuously emphasizes the development of new fruit and vegetable 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.
Capturing value from output trait products is more straightforward for fruits
and vegetables than for agronomic crops because most fruits and vegetables are
consumed directly in the form that the farmer produces them without further
processing. Direct consumption of fruits and vegetables by the end-consumer
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.
Beyond the traditional fruit and vegetable value chain, the trend toward
healthier lifestyles and emphasis on nutrition is further expanding the market
potential for fruit and vegetable seeds. Fruits and vegetables with enhanced
nutritional qualities will likely command a premium at the grocery store. The
challenge for the fruit and vegetable seed industry will be to develop an
integrated grower-packaging-distribution-marketing system that allows the seed
producer to capture value created at each step of the production and
distribution chain.
SEMINIS BUSINESS STRATEGY
Seminis' vision is to apply technology to fruit and vegetable seeds to create
value throughout the fruit and vegetable 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
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<PAGE> 28
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 fruit and vegetable seed industry
by expanding its existing product lines and introducing high-quality,
technologically innovative seeds tailored to local preferences.
- - Enhance leadership position in worldwide fruit and vegetable seed
market--Seminis is the global leader in the fruit and vegetable 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 and its multi-brand marketing strategy. 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 22%
global commercial market share. Seminis intends to enhance its position as
leader in the fruit and vegetable 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 fruit and vegetable seed industry--Seminis has led the
consolidation of the fruit and vegetable 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 in certain geographic regions.
- - 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 fruit and vegetable market
and capturing a larger percentage of the value along the distribution chain,
Seminis can enhance its profitability.
PRODUCTS AND DELIVERY
Seminis is the largest developer, producer and marketer of fruit and vegetable
seeds in the world. Seminis produces seeds for more than 8,000 distinct
varieties in over 60 fruit and vegetable species. The product lines marketed
under the Seminis brands cover most species of fruits and vegetables, 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 develops and produces fruit and vegetable 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 fruit and vegetable seed market is
primarily driven by a demand for foods with enhanced nutritive qualities and
increased consumer awareness of the health benefits of fruits and vegetables.
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 fruits and vegetables in developed countries are predominantly hybrids to
ensure crop uniformity and productivity. Seminis estimates that, in the United
States, 85% of all fruit and vegetable seeds are hybrids.
Developing Countries
In developing countries the growth of the fruit and vegetable 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,
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<PAGE> 29
diseases and environmental conditions and improved quality, flavor and nutrition
for 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 seed
than for open-pollinated seed.
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, which feature 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 fruit and vegetable species. Seminis
believes that its brands rank among the leading brands worldwide in the fruit
and vegetable seed market.
Asgrow and Petoseed enjoy high brand awareness in the United States fruit and
vegetable 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. 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. 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 became part of the combined
business of Seminis in 1995. The acquisition of Royal Sluis, one of Europe's
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.
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As shown in the table below, each of Seminis' full-line brands is distinct in
terms of product, price, promotion and brand identity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
BRAND LEADING SPECIES BRAND STRATEGY PRICING STRATEGY BRAND IDENTITY
- ----- ---------------------- ------------------------------ ----------------- ------------------------------
<S> <C> <C> <C> <C>
Asgrow Beans Maintain strong links to Price at premium Focus on desirable output
Broccoli growers, distributors and to market (quality) traits
Carrots retailers
Fresh Market Tomatoes
Melons
Onions
Peas
Pickling Cucumbers
Squash
Sweet Peppers
Petoseed Broccoli Focus on extending the product Price for value Enhance grower success through
Cucumbers line through additional innovative hybrids
Fresh Market Tomatoes disease resistance and hybrid
Hot Peppers conversion in new markets
Lettuce
Melons
Processing Tomatoes
Squash
Sweet Peppers
Royal Sluis Beans Provide service/expertise to Price at premium Provide service through
Cabbage enhance grower benefits to market knowledge about local growing
Lettuce and market conditions
Radish
Spinach
</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
fruits and vegetables 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. Choong Ang is one of the top fruit and vegetable seed brands in South
Korea. This brand has 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. 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.
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.
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LSL PlantScience--LSL PlantScience was formed in 1998 through an alliance with
LSL Biotechnologies. 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. Nath
Sluis breeds, produces and markets fruits and vegetables specifically for the
Indian market.
Seneca--Seneca was acquired by Seminis in 1997. 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. 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. FISCAL 1997
FISCAL 1998 AS A PERCENTAGE OF NET SEED SALES
IN MILLIONS NET SEED SALES TOTAL NET SALES AS A PERCENTAGE
GEOGRAPHIC REGION -------------- ------------------ ----------------------
<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>
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.
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Seminis' marketing communications department coordinates all advertising, public
relations and publicity activities for Seminis and its brands. Seminis believes
it has the fruit and vegetable seed industry's largest in-house communications
arm, enabling it to provide 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 fruit and vegetable 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 fruit and
vegetable 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 Ang, strongly enhanced Seminis' line of products
for the Asian market and provides products to meet the growing worldwide demand
for Asian fruits and vegetables. Also in 1998, Seminis' purchase of 90% of the
equity of Nath Sluis significantly increased Seminis' presence in India.
Finally, in October 1998, the acquisition of the Agroceres vegetable seed
business strengthened Seminis' presence and product lines in South America, a
region that requires special varieties developed for tropical and subtropical
climates.
As the leading fruit and vegetable seed company, Seminis believes it is well
positioned to benefit from continued consolidation of the fruit and vegetable
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 90 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 145
varieties under plant variety protection laws.
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Through its research and development efforts, Seminis has introduced over 300
new products in its last three fiscal years. Principal new products are listed
in the following table.
Principal New Products Introduced in Last Three Fiscal Years
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BRAND SPECIES VARIETY TARGET REGION
- ----- ------------------- ------------- -----------------------------------------
<S> <C> <C> <C>
Asgrow Beans Carlo United States/Italy
Broccoli Legacy California/Europe
Carrot Snakpak California
Fresh Market Tomato Florida 47 Florida
Pea Cabree United States/United Kingdom/Italy/France
Pea Kalamo United States/Italy/France
Pickling Cucumber Discover United States
Pickling Cucumber Excel United States
Pickling Cucumber Vlaspik United States/Brazil/Mexico
Pickling Cucumber Vlasstar United States/Mexico/North Africa
Processing Tomato Carpio Spain
Sweet Corn Temptation United States/Canada
Sweet Pepper Enterprise Florida
Watermelon Starbrite United States/South America/Italy
Bruinsma Lettuce Tibet Italy/France
Slicing Cucumber Bronco Northwest Europe
Petoseed Broccoli CMS Liberty California/Mexico
Fresh Market Tomato Bond Europe
Fresh Market Tomato Ginan Middle East
Fresh Market Tomato Synergie Europe
Fresh Market Tomato Yaqui Mexico
Hot Pepper Grande Mexico
Hot Pepper Tula Mexico
Lettuce Sharp Shooter California/Arizona
Long Day Onion Vision Northwest United States
Short Day Onion Mercedes Texas/Mexico/South America
Sweet Pepper X3R Camelot Florida
Royal Sluis Bean Lausanne Europe
Beans Valence Europe
Fresh Market Tomato Bodar South Europe/Spain
Fresh Market Tomato RS 912824 West Africa/East Africa
Pickling Cucumber Mathilde Eastern Europe
Spinach Chica Europe
Spinach Laska Europe
</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
- ------- -------------------------- ---------------------------------------------------------------------
<S> <C> <C>
Broccoli Cytoplasmic male sterility Lower production costs; increased product uniformity
Cabbage Cytoplasmic male sterility Increased yield; lower production costs; increased product uniformity
Fungal disease resistance Increased yield; lower production costs; increased product quality
Carrot Disease resistance Increased yield; lower production costs
Improved flavor Consumer benefit
Lettuce Fungal disease resistance Increased yield; lower production costs
Melon Multiple virus resistance Increased yield; lower production costs; increased product uniformity
Extended shelf-life Consumer benefit; reduced spoilage
Onion Disease resistance Increased yield; lower production costs
Pea High sugar Better taste
Pepper Bacterial disease Increased yield; lower production costs
resistance
Spinach Tolerance to yellowing and New market opportunity
over-wintering
Squash Multiple virus resistance Increased yield of marketable quality fruit
Tomato Virus resistance Increased yield; market expansion
Multiple disease Increased yield; lower production costs
resistance
High (LOGO)-carotene Consumer health benefit
High lycopene Consumer health benefit
Watermelon Genetic male sterility Increased product uniformity
</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 world area has unique requirements for the production of fruits and
vegetables. 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 a proprietary database that contains information on local production
and local consumer needs. From this database, plant breeders and marketing and
sales personnel design new products to meet the needs of the market.
Seminis has the largest research and development staff in the fruit and
vegetable seed industry, with over 850 people employed in research and
development functions, including over 150 professionals with Ph.D. or M.S.
degrees, with 103 plant breeders, 20 biotechnologists and 18 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.
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Germplasm
Seminis owns what it believes is the largest fruit and vegetable 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 fruits and vegetables grown for Seminis'
customers in different regions of the world, including input traits (resistance
to pests and adverse weather conditions) and output traits (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 fruit and
vegetable seed industry. On average, it takes eight generations of crossing and
selection (between 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
fruit and vegetable species that yield over 300 different varieties each year.
No other company produces as many products in the fruit and vegetable line.
Seminis' breeding strategy is to create fruit and vegetable 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 traits 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.
- - 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 seed. 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 or CMS -- CMS 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 CMS
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 CMS technology commercially to produce
broccoli, cauliflower and
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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)(herbicide tolerant) weed control, virus resistance, insect
resistance, fungal disease resistance and quality traits, such as long shelf
life. Seminis' principal sources of genes (traits) are technology licensing
agreements or research collaborations with private companies, research
institutions and universities.
Given the large number of different species of fruits and vegetables 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
fruits and vegetables.
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 -- Fruits and vegetables are susceptible to diseases that can
affect yield as well as quality of the final product. In order for Seminis'
plant breeders to develop fruit and vegetable varieties resistant to diseases,
Seminis believes it has established the largest plant pathology group in the
industry to identify and understand diseases important in fruits and vegetables.
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 fruit and vegetable 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 fruits and vegetables
from companies, research institutions and leading universities. Either directly
or through ELM, 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, DNAP Holding Corporation, an ELM affiliate, and Mendel
Biotechnology, Inc. As a result of its broad technology alliances, Seminis has
relative freedom to operate in the fruit and vegetable 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 ELM executed a worldwide, non-exclusive agreement in
January 1997 which provides Seminis access to Monsanto biotechnology applied to
fruits and vegetables. Seminis gains early insight into new technologies being
developed by Monsanto for agronomic crops that can also improve the input and
quality characteristics of fruits and vegetables.
Through the agreement, Seminis has access to numerous Monsanto patents and
pending patents covering the use of certain 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
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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 (collectively, "JIC") are premier agricultural research institutions
located in Norwich, England. JIC has built a substantial technology position for
traits involved in improving plant yield, quality and growth characteristics of
vegetable crops. On December 1, 1997, JIC and ELM entered a five-year agreement
which provides ELM and its affiliates with access to significant plant disease
control technology that will improve its capability to develop broad fungal
disease resistance and enhanced nutritional and health benefits from vegetables.
DNAP Holding Corporation Research Agreement. DNAP 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 DNAP
and Seminis, Seminis funds research at DNAP for specific fruit and vegetable
crop projects, principally in early stage molecular biology research related to
the introduction of Monsanto genes into fruits and vegetables. 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 DNAP 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 certain genes for
the improvement of plant growth and development. In conjunction with ELM's 10%
equity stake in Mendel Biotechnology, ELM and Mendel Biotechnology have a
technology agreement which provides Seminis with access to genes and technology
developed by Mendel Biotechnology's genomics effort in fruits and vegetables.
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, Czech Republic, Ecuador, France, Germany, Guatemala, Hungary, Italy,
Japan, Latvia, Mexico, Moldova, New Zealand, Peru, Romania, Slovakia, South
Africa, South Korea, Thailand, The Netherlands and Turkey, and through exclusive
agents using proprietary Seminis technology in Australia, Canada, China,
Denmark, India, Israel, Italy, Taiwan, Tanzania 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 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
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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 fruit and vegetable, 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. These 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 certain 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 currently owns
or has pending over 90 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 145 varieties under plant
variety protection laws.
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.
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.
36
<PAGE> 39
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 and performance.
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.
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.
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' main open-field production facilities are located in Chile, Mexico and
Peru. Seminis' main greenhouse production facilities are located in Chile,
France, Mexico and The Netherlands.
Seminis maintains several processing facilities throughout the world, equipped
to handle seed cleaning, sizing, treating, testing and packaging. Seminis' main
processing facilities are in California, Idaho, Washington and The Netherlands.
Seminis also owns nine other facilities in six countries.
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 certain 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.
37
<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the directors
and executive officers of Seminis as of January 31, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NAME AGE TITLE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alfonso Romo Garza......................... 47 Director and Chairman of the Board
Alejandro Rodriguez Graue.................. 47 Director, President and Chief Operating Officer
Francisco Gonzalez Sebastia................ 66 Director
Bernardo Jimenez Barrera................... 43 Director
G. Carl Ball............................... 76 Director
George Carl Ball, Jr....................... 46 Director
Dr. Peter Davis............................ 54 Director
Frank J. Pipp.............................. 73 Director
Dr. Eli Schlifer........................... 67 Director
Eugenio Najera Solorzano................... 51 Director
Christopher J. Steffen..................... 56 Director
James M. Larkin............................ 49 Vice President and Chief Financial Officer
Dr. Allen Stevens.......................... 63 Vice President--Research and Development
Jordi Majo................................. 49 Vice President--Europe, Middle East, and North
Africa, Sales
James H. Hulbert........................... 43 Vice President--North America
Dr. Mark D. Stowers........................ 41 Vice President--Business Development
</TABLE>
ALFONSO ROMO GARZA has been Chairman of the Board and a director of Seminis
since October 1995. Mr. Romo has been Chief Executive Officer of Pulsar
Internacional, S.A. de C.V., a holding company and affiliate of ELM, since
. Mr. Romo is a director of ELM.
ALEJANDRO RODRIGUEZ GRAUE has been a director of Seminis since May 1998. Mr.
Rodriguez has been President of Seminis since . Mr. Rodriguez has been
President and Chief Operating Officer of Seminis Vegetable Seeds, Inc. ("SVS"),
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 ELM.
FRANCISCO GONZALEZ SEBASTIA has been a director of Seminis since October 1995.
Mr. Gonzalez has served as an advisor to ELM 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 ELM. Mr. Gonzalez is a director of ELM and
DNAP.
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 DNAP since October 1997. Since , he has also served
as the General Director (Chief Operating Officer) of the Agrobiotechnology
Division of ELM. From 1993 to 1996, Mr. Jimenez served as head of the Industrial
Banking Division of the Vector Group, a financial services company in Mexico
which is affiliated with ELM, the Vice President of New Business Development for
Pulsar and the Chief Financial Officer of ELM.
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
is currently President and Chief Executive Officer of W. Atlee Burpee Company.
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
38
<PAGE> 41
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 DNAP.
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., Nypro, Inc., Juran Institute and
is Chairman of the Board of Optical Dynamics Corporation.
DR. ELI SCHLIFER has been a director of Seminis since January 1997. Dr. Schlifer
has been a member of the executive committee of Pulsar since .
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 ELM.
From to October 1995, Mr. Najera was the Chief Executive Officer of
Cigarrera La Moderna, S.A. de C.V. Mr. Najera is a director of ELM.
MR. 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..
Prior to that, Mr. Steffen served as Senior Vice President and Chief Financial
Officer of the Eastman Kodak Company from February 1993 to May 1993 and
Executive Vice President, Chief Financial and Administrative Officer and a
director of Honeywell, Inc. from April 1989 to February 1993.
JAMES M. LARKIN has been Vice President and Chief Financial Officer of Seminis
since October 1995 when Petoseed was acquired as part of Seminis' merger into
Geo. J. Ball, Inc. From 1989 until such merger, Mr. Larkin served as Vice
President and Chief Financial Officer of Petoseed.
DR. ALLEN STEVENS has been Vice President--Research and Development of Seminis
since 1999. Dr. Stevens has been Vice President of Research of SVS
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 SVS 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 1996 and General Manager of Petoseed
Iberica from 1981 to 1995.
JAMES H. HULBERT has been Vice President--North America of Seminis since
1999. Mr. Hulbert has also served as Vice President of Sales and
Marketing for the Americas and Strategic Planning of SVS 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 1999. From 1996 to 1999 Dr. Stowers was Vice President World
Wide Marketing of SVS. From 1995 to 1996, Dr. Stowers served as Vice President
of Operations and Information of Gargiulo, Inc., a wholly-owned subsidiary of
Monsanto. Prior thereto, Dr. Stowers was business director, new products
division from Monsanto from 1993 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 Schlifer 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 and
Rodriguez 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. Pipp, Steffen
and . 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. Pipp, Steffen and . The
compensation committee establishes Seminis'
39
<PAGE> 42
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 $250 for each committee
meeting attended. Outside directors will also be eligible to receive options
under the Seminis stock option plan.
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning compensation
paid or accrued by Seminis for services rendered in all capacities during the
fiscal year ended September 30, 1998 for (1) the President and Chief Operating
Officer and (2) the four other most highly compensated executive officers of
Seminis who were serving at the end of fiscal 1998 (collectively, the "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
---------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING
YEAR SALARY($) BONUS($) OPTIONS(#)
NAME AND PRINCIPAL POSITION ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Alejandro Rodriguez Graue................................... 1998 352,910 706,870 35,046
President and Chief Operating Officer
James M. Larkin............................................. 1998 249,933 201,940 13,476
Vice President and Chief Financial Officer
Dr. Allen Stevens........................................... 1998 222,848 107,182 15,251
Vice President--Research and Development
Jordi Majo.................................................. 1998 194,947 99,551 8,095
Vice President--Europe, Middle East and North Africa,
Sales
James H. Hulbert............................................ 1998 187,443 152,303 12,828
Vice President--North America
</TABLE>
40
<PAGE> 43
The following table sets forth information regarding stock options granted
pursuant to the Seminis, Inc. 1998 Stock Option Plan during the fiscal year
ended September 30, 1998 to each of the Named Executive Officers.
Options Granted in Fiscal 1998
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS EXERCISE OF STOCK PRICE
SECURITIES GRANTED TO OR BASE FOR APPRECIATION
UNDERLYING EMPLOYEES PRICE PER FOR OPTION TERM(3)
OPTIONS IN LAST SHARE EXPIRATION --------------------
GRANTED(#) FISCAL YEAR(1) ($/SHARE)(2) DATE 5%($) 10%($)
NAME ---------- -------------- ------------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Alejandro Rodriguez Graue..................... 35,046 13.1% 18.71 6/30/08
James M. Larkin............................... 13,476 5.0 18.71 6/30/08
Dr. Allen Stevens............................. 15,251 5.7 18.71 6/30/08
Jordi Majo.................................... 8,095 3.0 18.71 6/30/08
James H. Hulbert.............................. 12,828 4.8 18.71 6/30/08
</TABLE>
- ---------------
(1) Based on an aggregate of 267,181 options granted (net of forfeitures) to
employees in the year ended September 30, 1998, including options granted to
Named Executive Officers.
(2) 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.
(3) Potential realizable values are computed by (1) multiplying the number of
shares of Class A common stock subject to a given option by the initial
public offering price of $ per share (the midpoint of the range specified on
the cover of this prospectus), (2) 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 (3) subtracting from that result
that 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.
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 the initial public
offering price of $ per share (the midpoint of the range set forth on the
cover page of this prospectus).
Fiscal 1998 Year End Option Values
<TABLE>
<CAPTION>
--------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
------------------------------ ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Alejandro Rodriguez Graue................................ 0 35,046 0
James M. Larkin.......................................... 0 13,476 0
Dr. Allen Stevens........................................ 0 15,251 0
Jordi Majo............................................... 0 8,095 0
James H. Hulbert......................................... 0 12,828 0
</TABLE>
41
<PAGE> 44
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 certain 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 committee) has broad powers to administer and interpret
the plan, including the authority (1) to establish rules for the administration
of the plan, (2) to select the participants in the plan, (3) to determine the
types of awards to be granted and the number of shares covered by such awards,
and (4) to set the terms and conditions of such awards. All determinations and
interpretations of the board of directors (or 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
(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
otherwise 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 certain
trust arrangements established for the benefit of a participant's immediate
family members. Notwithstanding the above, if ELM decides to sell all or
substantially all of its interest in Seminis to a third party, ELM 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 ELM 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 (1) to eliminate provisions of the plan that would be
inappropriate for a publicly-held corporation, (2) to qualify
42
<PAGE> 45
awards under the plan as "qualified performance-based compensation" under
Section 162(m) of the Internal Revenue Code, and (3) to facilitate obtaining
Securities Exchange Act Rule 16b-3 exemptions for awards made 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 New York Stock Exchange.
- - 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 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.
- - ELM 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.
- - 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.
43
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of common stock as of February , 1999 (1) immediately prior to the
consummation of the offering of and (2) as adjusted to reflect the sale of the
shares of Class A common stock pursuant to the offering by (a) each of Seminis'
directors, the President and Chief Operating Officer and the other Named
Executive Officers, (b) each person known to Seminis to own beneficially more
than 5% of the outstanding shares of common stock, and (c) all directors and
executive officers of Seminis as a group.
The calculation of percentage beneficial ownership is based on
shares of Class A common stock and 46,074,386 shares of Class B common stock
outstanding prior to the offering and shares of Class A common
stock and 46,074,386 shares of Class B common stock outstanding after the
offering, assuming no exercise of the underwriters' over-allotment option. The
calculation of percentage of beneficial ownership also assumes the exercise of
all options only by the respective named stockholder. 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 listed for Alfonso Romo Garza includes shares held directly by Mr. Romo,
shares held by ELM and shares held by other entities controlled by Mr. Romo.
This table does not give effect to purchases, if any, by such persons in the
offering.
Except as noted below, 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 B COMMON STOCK TOTAL COMMON STOCK
--------------------------------------------- ---------------------------------
OWNED PRIOR TO OWNED AFTER OWNED AFTER VOTING POWER
THE OFFERING THE OFFERING THE OFFERING AFTER THE OFFERING
-------------------- ---------------------- ------------ ------------------
NAME AND ADDRESS OF NUMBER PERCENT NUMBER PERCENT PERCENT PERCENT
BENEFICIAL OWNERS ---------- ------- ------------ ------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Alfonso Romo Garza.......................... 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
Empresas La Moderna, S.A. de C.V. .......... 39,504,174 85.7
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
George C. Ball, Jr. ........................ 180,131 *
Francisco Gonzalez Sebastia................. *
Bernardo Jimenez Barrera.................... *
Dr. Peter Davis............................. *
Frank J. Pipp............................... *
Dr. Eli Schlifer............................ *
Eugenio Najera Solorzano.................... *
Christopher J. Steffen...................... *
James M. Larkin............................. *
Alejandro Rodriguez Graue................... *
Dr. Allen Stevens........................... *
Jordi Majo.................................. *
James H. Hulbert............................ *
All directors and executive officers of
Seminis as a group (16 persons)........... 44,046,008 95.6
</TABLE>
- ---------------
* Less than 1%.
As of February 10, 1999, Seminis had no holders of Class A common stock and 18
holders of Class B common stock.
44
<PAGE> 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See also "Management," "Principal Stockholders" and "Underwriting."
Pursuant to an agreement between Seminis and DNAP, Seminis pays DNAP a minimum
fee of $2.5 million per year for access to the results of DNAP's biotechnology
research. This agreement will end pursuant to its terms on January 1, 2007. ELM
is the majority stockholder in DNAP.
In connection with the sale of the agronomic segment in fiscal 1997, Seminis
paid $8.0 million in fees to ELM for investment banking and other professional
fees and services provided in connection with the sale.
Seminis paid management fees to ELM 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 ELM to Seminis in connection with the
acquisition of Hungnong, ELM loaned Seminis $35.9 million evidenced by a
subordinated convertible note bearing interest at a rate of 10% per annum,
payable quarterly, which is due in annual installments through July 2001. ELM
converted this note into 1,916,462 shares of Class B common stock on February 1,
1999.
In December 1998, ELM made an equity investment in Seminis of $10.0 million in
exchange for 1,000 shares of Class C preferred stock. This preferred stock will
be redeemed for $10.0 million, plus accrued dividends, from the proceeds of the
offering.
In January 1999, ELM loaned Seminis $20.0 million for short-term working capital
requirements. This loan will be repaid with the proceeds of this offering and
Seminis' new credit facility.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Seminis will have a total of
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 New York
Stock Exchange during the four calendar weeks preceding such sale. Sales under
Rule 144 are subject to certain 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 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 and its directors, officers and existing stockholders have agreed,
pursuant to the underwriting agreement, that they will not sell any of their
shares of capital stock, either publicly or privately, without the prior consent
of J.P. Morgan Securities Inc., for a period of days from the date of this
prospectus. See "Underwriting."
DESCRIPTION OF CAPITAL STOCK
GENERAL
Seminis' certificate of incorporation provides that it has authority to issue
(A) 10,000,000 shares of preferred stock, par value $.01 per share, of which (1)
25,000 shares of Class A mandatorily redeemable preferred stock, (2) 25,000
shares of Class B
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<PAGE> 48
mandatorily redeemable preferred stock and (3) 2,000 shares of Class C preferred
stock have been designated by the board of directors with the relative rights
and preferences set forth in certificates of designations adopted by the board
of directors and filed with the Secretary of State of Delaware, leaving an
additional 9,948,000 shares of preferred stock reserved for issuance by Seminis
with the relative rights and preferences as may be designated in a resolution of
the board of directors, and (B) 158,000,000 shares of common stock, par value
$.01 per share, divided into two classes, consisting of (1) 91,000,000 shares of
Class A common stock and (2) 67,000,000 shares of Class B common stock. Upon
consummation of the offering, 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 the Class B mandatorily redeemable preferred stock and
Class C preferred stock, no shares of preferred stock will be issued and
outstanding. Following the offering, the certificates of designations
designating the Class A mandatorily redeemable preferred stock, the Class B
mandatorily redeemable preferred stock and the Class C preferred stock shall be
eliminated. See "Use of Proceeds."
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.
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 a transfer
(1) 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), (2) to a trust for the sole benefit of a
holder of Class B common stock who is a natural person, (3) to a spouse,
sibling, parent, grandparent or descendant, whether natural or adopted, of a
holder of Class B common stock who is a natural person, (4) 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 who is a natural person,
(5) by will to a spouse, sibling, parent, grandparent or descendant, whether
natural or adopted, of a holder of Class B common stock who is a natural person,
(6) 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 who is a natural person, (7) to any charitable foundation
or other organization qualified under Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, or (8) 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.
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<PAGE> 49
PREFERRED STOCK
Generally
The board of directors of Seminis is authorized, subject to certain 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 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 which will be redeemed by Seminis from the proceeds of the offering.
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 CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW
PROVISIONS
Certain 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 certain
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
47
<PAGE> 50
third party or a majority stockholder from removing 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 persons' 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 (1) 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, (2) the name and address of the stockholder proposing such business,
(3) the class and number of shares of Seminis' stock beneficially owned by the
stockholder and (4) 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' nomination 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.
DELAWARE TAKEOVER STATUTE
Seminis is subject to Section 203 of the General Corporation Law of Delaware
which, subject to certain 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: (1) 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; (2) 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 (x) by persons who are directors and also
officers, and (y) 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 (3) 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.
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<PAGE> 51
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: (1) any merger or consolidation involving the corporation and the
interested stockholder; (2) any sale, transfer, pledge or other disposition
involving the interested stockholder of 10% or more of the assets of the
corporation; (3) subject to certain exceptions, any transaction which results in
the issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder; (4) 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 (5) 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 certain 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 certain 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 foregoing registration
rights are transferable in certain circumstances and may be amended or waived
only with the written consent of Seminis, ELM 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 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 (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 Section 174
of the Delaware General Corporation Law, which relates to unlawful payments of
dividends or unlawful stock 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
contains 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. See "Management--Directors, Executive
Officers and Significant Employees."
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 ELM for the benefit of Seminis' officers and directors insuring such
persons against certain liabilities, including liabilities under the securities
laws.
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<PAGE> 52
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
Application will be made to list the Class A common stock on the New York Stock
Exchange under the symbol "VEG."
TRANSFER AGENT
The transfer agent and registrar for the Class A common stock is
.
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<PAGE> 53
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom J.P. Morgan Securities Inc., and are acting as
representatives, have severally agreed to purchase, and Seminis has agreed to
sell to them, the respective number of shares of Class A common stock set forth
opposite their names below. Under the terms and conditions of the underwriting
agreement, the underwriters are obligated to take and pay for all such shares of
Class A common stock, if any are taken. Under certain circumstances, the
commitments of nondefaulting underwriters may be increased as set forth in the
underwriting agreement.
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
J.P. Morgan Securities Inc. ................................
--------
Total.............................................
========
</TABLE>
The shares of Class A common stock are being offered by the underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
underwriters. The underwriters propose initially to offer the Class A common
stock directly to the public at the price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial offering of the Class A common stock, the public offering price and such
concession may be changed.
Pursuant to the underwriting agreement, Seminis has granted the underwriters an
option, exercisable for 30 days from the date of this prospectus, to purchase up
to an additional shares of Class A common stock on the same terms
and conditions as set forth on the cover page hereof. The underwriters may
exercise such option solely for the purpose of covering of over-allotments, if
any, made in connection with the sale of the Class A common stock offered
hereby. To the extent such option is exercised, each underwriter will have a
commitment, subject to certain conditions, to purchase approximately the same
percentage of such additional Class A common stock as the number set forth next
to such underwriter's name in the preceding table bears to the total number of
shares of Class A common stock set forth in the preceding table.
The following table shows the per share and total underwriting discounts to be
paid to the underwriters by Seminis. Such amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase up to an
additional shares.
<TABLE>
<CAPTION>
----------------------------
PAID BY SEMINIS
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total.......................................................
</TABLE>
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A common
stock. Specifically, the underwriters may over-allot in connection with this
offering, creating a syndicate short position. In addition, the underwriters may
bid for, and purchase, shares of Class A common stock in the open market to
cover syndicate short positions or to stabilize the price of the Class A common
stock. Finally, the underwriting syndicate may reclaim selling concessions
allowed for distributing the Class A common stock in this offering if the
syndicate repurchases previously distributed Class A common stock in syndicate
covering transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Class A common
stock above independent
51
<PAGE> 54
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time. These transactions may be
effected on the New York Stock Exchange, in the over-the-counter market or
otherwise.
Prior to the offering, there has been no public market for the Class A common
stock. The initial public offering price will be determined by negotiations
among Seminis and the representatives. Among the factors to be considered in
determining the initial public offering price are prevailing market conditions,
the market valuations of certain publicly traded companies, Seminis' past and
present financial performance and revenues and earnings of comparable companies
in recent periods, estimates of the business potential and prospects of Seminis,
the experience of Seminis' management and the position of Seminis in its
industry.
The underwriters have informed Seminis that the underwriters will not confirm,
without prior specific written approval, sales to their customer accounts as to
which they have discretionary trading power.
Seminis estimates that the total expenses of this offering, excluding
underwriting discounts will be $ .
Seminis has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.
Seminis and its directors, officers and existing stockholders have agreed, with
limited exceptions, that, during the period beginning on the date of this
prospectus and continuing to and including the date days after the date of
this prospectus, that they will not (1) offer, pledge, announce the intention to
sell, sell, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of
common stock or any securities of Seminis which are substantially similar to the
common stock, or any securities convertible into or exercisable or exchangeable
for common stock, (2) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the common stock or any securities of Seminis which are
substantially similar to the common stock, including, but not limited to, any
security convertible into or exercisable or exchangeable for common stock or (3)
make any demand for, or exercise any right with respect to, the registration of
any shares of common stock or any substantially similar securities of Seminis,
including, but not limited to, any security convertible into or exercisable or
exchangeable for common stock, without the prior written consent of J.P. Morgan
Securities Inc.
Seminis intends to apply to have the Class A common stock listed on the New York
Stock Exchange under the trading symbol "VEG."
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 and/or investment banking transactions with Seminis and its
affiliates.
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<PAGE> 55
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 and had been Secretary of Seminis Illinois since 1995.
Certain 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 a registration
statement on Form S-1 with respect to 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 the exhibits and schedules thereto. For
further information with respect to Seminis and the shares of Class A common
stock offered hereby, reference is made to the registration statement, including
the exhibits and schedules thereto. Statements contained in this prospectus as
to the contents of any contract or other document referred to herein are not
necessarily complete and, where such contract is an exhibit to the registration
statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which such reference is hereby made. Copies of the registration
statement, including the exhibits and schedules thereto, may be examined without
charge at the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
Securities and Exchange Commission'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 Securities and Exchange Commission 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 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the Class A common
stock for listing on the New York Stock Exchange, such reports, proxy and
information statements and other information concerning Seminis may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, NY 10005.
53
<PAGE> 56
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...................................................... F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997 and 1998......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1996, 1997 and 1998............. F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998......................... F-6
Notes to Consolidated Financial Statements.................. F-7
HUNGNONG SEED CO., LTD.
Report of Independent Accountants........................... F-22
Consolidated Balance Sheet as of December 31, 1997.......... F-23
Consolidated Statements of Operations for the Year Ended
December 31, 1997 and the Six Months Ended June 30, 1998
(unaudited)............................................... F-24
Consolidated Statements of Stockholders' Deficit for the
Year Ended December 31, 1997.............................. F-25
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1997 and the Six Months Ended June 30, 1998
(unaudited)............................................... F-26
Notes to Consolidated Financial Statements.................. F-27
PRO FORMA FINANCIAL DATA
Unaudited Pro Forma Consolidated Statement of Operations for
the Year Ended September 30, 1998......................... F-33
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Seminis, Inc.
The Recapitalization described in Note 17 to the financial statements has not
been consummated at February 10, 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 February 10, 1999
F-2
<PAGE> 58
SEMINIS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------
PRO FORMA AS OF
AS OF SEPTEMBER 30, SEPTEMBER 30,
-------------------- 1998
1997 1998 (NOTE 17)
-------- --------- ---------------
In thousands, except per share data (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents................................. $ 30,271 $ 28,895 $ 28,895
Accounts receivable, less allowance for doubtful accounts
of $8,116 in 1997 and $12,451 in 1998................... 109,013 134,701 134,701
Inventories............................................... 162,145 245,319 245,319
Current maturities from Young Il Chemical Company note.... -- 7,000 7,000
Refundable income taxes................................... 8,457 4,376 4,376
Prepaid expenses and other current assets................. 2,547 5,024 5,024
-------- --------- ---------------
Total current assets............................... 312,433 425,315 425,315
Note receivable from Young Il Chemical Company.............. -- 28,612 28,612
Property, plant and equipment, net.......................... 128,180 189,255 189,255
Intangible assets, net...................................... 69,092 191,272 191,272
Other assets................................................ 9,968 27,735 27,735
-------- --------- ---------------
$519,673 $ 862,189 $ 862,189
======== ========= ===============
LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY:
Current liabilities
Short-term borrowings..................................... $ 12,631 $ 6,819 $ 6,819
Current maturities of long-term debt...................... 1,011 19,825 19,825
Current maturities of convertible subordinated debt due
ELM..................................................... -- 7,000 --
Accounts payable.......................................... 47,517 41,049 41,049
Accrued liabilities....................................... 50,482 78,525 78,525
-------- --------- ---------------
Total current liabilities.......................... 111,641 153,218 146,218
Long-term debt.............................................. 80,331 394,446 394,446
Convertible subordinated debt due ELM....................... -- 28,857 --
Deferred income taxes....................................... 20,585 34,850 34,850
Minority interest in subsidiaries........................... 324 16,981 16,981
-------- --------- ---------------
Total liabilities.................................. 212,881 628,352 592,495
-------- --------- ---------------
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
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; 18,091
shares issued and outstanding as of September 30, 1997,
6,772 shares issued and outstanding as of September 30,
1998 and none issued and outstanding on a pro forma
basis................................................... 122,111 48,416 --
-------- --------- ---------------
Total mandatorily redeemable stock................. 147,111 73,416 25,000
-------- --------- ---------------
Stockholders' Equity
Class A Common Stock, $.01 par value; 91,000 shares
authorized as of September 30, 1998; 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
and 46,074 shares issued and outstanding on a pro forma
basis................................................... 1 374 461
Additional paid-in capital................................ 179,999 317,826 402,012
Accumulated deficit....................................... (11,072) (144,439) (144,439)
Accumulated other comprehensive loss...................... (9,247) (13,340) (13,340)
-------- --------- ---------------
Total stockholders' equity......................... 159,681 160,421 244,694
-------- --------- ---------------
$519,673 $ 862,189 $ 862,189
======== ========= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 59
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1997 1998
In thousands, except per share data -------- -------- ---------
<S> <C> <C> <C>
Net sales................................................... $381,398 $379,544 $ 428,423
Cost of goods sold.......................................... 214,131 150,107 162,806
-------- -------- ---------
Gross profit............................................ 167,267 229,437 265,617
-------- -------- ---------
Operating expenses
Research and development expenses......................... 42,300 41,039 49,416
Selling, general and administrative expenses.............. 134,990 136,438 158,588
Management fees paid to ELM............................... -- 6,200 8,465
Amortization of intangible assets......................... 14,785 12,394 14,457
Write-off of acquired research in-process................. 36,700 -- --
-------- -------- ---------
Total operating expenses........................... 228,775 196,071 230,926
-------- -------- ---------
Income (loss) from operations............................... (61,508) 33,366 34,691
-------- -------- ---------
Other income (expense)
Interest income........................................... 1,147 1,177 1,952
Interest expense.......................................... (25,222) (11,714) (29,034)
Foreign currency gain (loss).............................. (154) (8,656) 3,205
Minority interest......................................... (630) (9) (219)
Other, net................................................ (1,119) 1,000 (397)
-------- -------- ---------
(25,978) (18,202) (24,493)
-------- -------- ---------
Income (loss) from continuing operations before income
taxes..................................................... (87,486) 15,164 10,198
Income tax benefit (expense)................................ 31,401 (3,839) (3,436)
-------- -------- ---------
Income (loss) from continuing operations.................... (56,085) 11,325 6,762
-------- -------- ---------
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
Preferred stock dividends................................... (2,000) (2,000) (2,000)
Accretion of Old Class B Redeemable Common Stock............ (6,333) (7,236) (3,840)
Excess of repurchase price over redemption value for
repurchase of Old Class B Redeemable Common Stock......... -- -- (134,289)
-------- -------- ---------
Net income (loss) available for common stockholders......... $(58,358) $ 52,929 $(133,367)
======== ======== =========
Income (loss) available for common stockholders per common
share
Basic
Income (loss) from continuing operations................ $ (2.15) $ 0.07 $ (4.23)
Discontinued operations................................. 0.20 1.69 --
-------- -------- ---------
Net income (loss) available for common stockholders..... $ (1.95) $ 1.76 $ (4.23)
======== ======== =========
Diluted
Income (loss) from continuing operations................ $ (2.15) $ 0.07 $ (4.23)
Discontinued operations................................. 0.20 1.69 --
-------- -------- ---------
Net income (loss) available for common stockholders..... $ (1.95) $ 1.76 $ (4.23)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 60
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
CLASS B ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
NUMBER AMOUNT CAPITAL DEFICIT LOSS EQUITY
In thousands ------ ------ ---------- ----------- ------------- -------------
<S> <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
====== ==== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 61
SEMINIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------
1996 1997 1998
In thousands, except per share data --------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (50,025) $ 62,165 $ 6,762
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 29,702 26,746 31,341
Write-off of acquired research in process.............. 36,700 -- --
Deferred income tax expense (benefit).................. (39,725) 5,521 (108)
Net income from Agronomics Segment..................... (6,060) (50,840) --
Unrealized foreign currency loss....................... -- 8,653 --
Other.................................................. 1,944 (1,562) 2,414
Changes in assets and liabilities
Accounts receivable.................................. (4,696) (11,907) 125
Inventories.......................................... 49,181 (27,192) (57,347)
Prepaid expenses and other assets.................... (4,015) (4,971) (1,591)
Current income taxes................................. (9,453) (4,528) 3,457
Accounts payable..................................... 6,041 11,746 (10,975)
Other liabilities.................................... 7,405 (16,794) 204
--------- --------- ---------
Net cash provided by (used in) operating activities.... 16,999 (2,963) (25,718)
--------- --------- ---------
Cash flows from investing activities:
Purchases of fixed and intangible assets.................. (15,192) (19,260) (61,123)
Proceeds from disposition of assets....................... 1,515 3,773 869
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)
Other acquisitions, net of cash acquired.................. (509) (6,425) (136)
--------- --------- ---------
Net cash provided by (used in) investing activities.... 29,478 166,894 (184,298)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 271,981 165,471 402,172
Repayments of long-term debt.............................. (27,820) (333,319) (109,905)
Repurchase of Old Class B Redeemable Common Stock......... -- -- (211,824)
Net short-term borrowings (repayments).................... (303,502) 653 (44,048)
Preferred stock dividends................................. (1,500) (2,000) (2,000)
Subordinated loan from ELM................................ -- -- 35,857
Issuance of Class B Common Stock.......................... -- -- 138,200
--------- --------- ---------
Net cash provided by (used in) financing activities.... (60,841) (169,195) 208,452
--------- --------- ---------
Effect of exchange rate changes on cash..................... (1,710) (3,382) 188
--------- --------- ---------
Decrease in cash and cash equivalents....................... (16,074) (8,646) (1,376)
Cash and cash equivalents, beginning of year................ 54,991 38,917 30,271
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 38,917 $ 30,271 $ 28,895
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 62
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 fruit and
vegetable seeds in the world. The Company is a majority-owned subsidiary of
Empresas La Moderna, S.A. de C.V. ("ELM") 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.
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.
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.
F-7
<PAGE> 63
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Intangibles
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
patents and trademarks. Intangible assets are amortized using accelerated
methods reflecting the underlying products' expected performance over 10 to 20
years.
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 of the Shareholders' Agreement,
dated as of October 1, 1995 by and among the Company, ELM 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.
F-8
<PAGE> 64
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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
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>
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Cash paid for interest............................ $23,876 $15,175 $21,590
Cash paid for income taxes........................ 17,777 2,847 87
</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
F-9
<PAGE> 65
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
table provides a reconciliation of income (loss) from continuing operations and
sets forth the computation for basic and diluted earnings per share (before
discontinued operations):
<TABLE>
<CAPTION>
-------------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
NUMERATOR FOR BASIC AND DILUTED:
Income (loss) from continuing operations.................... $(56,085) $ 11,325 $ 6,762
Preferred stock dividends................................... (2,000) (2,000) (2,000)
Accretion of Old Class B Redeemable Common Stock............ (6,333) (7,236) (3,840)
Excess of repurchase price over redemption value for
repurchase of Old Class B Redeemable Common Stock......... -- -- (134,289)
-------- -------- ---------
Income (loss) available to common stockholders......... $(64,418) $ 2,089 $(133,367)
======== ======== =========
DENOMINATOR--SHARES:
Weighted average common shares outstanding (basic).......... 30,000 30,000 31,536
Add potential common shares:
Old Class B Redeemable Common Stock....................... 18,091 18,091 9,602
Less antidilutive effect of potential common shares......... (18,091) (18,091) (9,602)
-------- -------- ---------
Weighted average common shares outstanding (diluted)... 30,000 30,000 31,536
======== ======== =========
INCOME (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS:
Basic..................................................... $ (2.15) $ 0.07 $ (4.23)
Diluted................................................... (2.15) 0.07 (4.23)
</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, ELM owned approximately 62% of
Seminis and the Ball stockholders owned approximately 38%.
F-10
<PAGE> 66
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>
<CAPTION>
--------
<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 be applied, each
one percent of equity interest has a 2 billion 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 ELM (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 ELM and apply such shares as payments on the
subordinated debt.
See Note 16 for discussion of the Hungnong minority stockholders' right to put
to Seminis their 30% interest in Hungnong and the related subsequent event.
F-11
<PAGE> 67
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 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..................................................... $ (0.20) $ (4.05)
Diluted................................................... (0.20) (4.05)
Weighted average common shares outstanding
Basic..................................................... 33,757 34,912
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.
NOTE 3--INVENTORIES
Inventories consist of the following at September 30, 1997 and 1998:
<TABLE>
<CAPTION>
--------------------
1997 1998
-------- --------
<S> <C> <C>
Seed........................................................ $138,293 $209,928
Unharvested crop growing costs.............................. 15,424 20,405
Supplies.................................................... 8,428 14,986
-------- --------
$162,145 $245,319
======== ========
</TABLE>
F-12
<PAGE> 68
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-13
<PAGE> 69
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
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 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.
F-14
<PAGE> 70
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 is in compliance with all covenants associated with
the Credit Facility. 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.
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.
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
F-15
<PAGE> 71
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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, ELM 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 ELM fails to make this capital contribution or the Company fails to
complete any redemption, whether or not ELM 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, ELM 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, ELM 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 ELM 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.
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>
F-16
<PAGE> 72
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 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 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)
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.
F-17
<PAGE> 73
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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>
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. 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.
F-18
<PAGE> 74
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
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. The pro forma
impact of applying SFAS No. 123 was not significant to the Company's results of
operations for the year ended September 30, 1998.
NOTE 12--COMMITMENTS AND CONTINGENT LIABILITIES
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
seedsman'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. 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.
F-19
<PAGE> 75
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
NOTE 14--GEOGRAPHIC INFORMATION
The Company operates principally in one business segment consisting of the
development, production and marketing of fruit and vegetable seeds. Revenues
derived from sales to external customers attributed to the Company's country of
domicile and to all 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
Foreign................................................... 268,234 262,529 296,149
-------- -------- --------
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 and located in all foreign
countries in total in which the Company holds assets are summarized as follows:
<TABLE>
<CAPTION>
--------------------
1997 1998
-------- --------
<S> <C> <C>
United States............................................... $122,948 $181,434
Foreign..................................................... 84,292 226,828
-------- --------
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 DNAP Holding Corporation, a publicly
traded company. ELM is the majority stockholder in DNAP.
b) Operating expenses for fiscal years 1997 and 1998 include $6,200 and
$8,465, respectively, in management fees paid to ELM.
c) Gain on disposal of the Agronomics Segment includes $8,000 in fees paid
in fiscal year 1997 to ELM for investment banking and other professional
fees and services provided in connection with the sale.
d) Convertible subordinated debt of $35,857 is payable to ELM, bears
interest at 10% per year and is due in installments of $7,000 in July
1999, $7,000 in July 2000 and $21,857 in July 2001. Advances to Young Il
Chemical Company (Note 2) secure the convertible subordinated debt. The
convertible subordinated debt may be converted into Class B Common Stock
at the sole discretion of ELM at $18.71 per share. See Note 17.
e) Other accrued liabilities at September 30, 1998 include $2,286
representing accrued management fees and interest on the subordinated
debt.
F-20
<PAGE> 76
SEMINIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16--SUBSEQUENT EVENTS
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 approximately $20,000. Agroceres
produces and distributes vegetable seeds throughout Brazil. The acquisition,
which was financed through borrowings on the Company's revolving line of credit,
will be accounted for as a purchase.
Hungnong
The Hungnong minority shareholders have the option to put their 30% interest in
Hungnong to the Company at a price of 2 billion 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 approximately $8,600 to increase its ownership in Hungnong from 70% to 75%.
Additional financing
In December 1998, ELM made an equity investment in Seminis of $10,000 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 January 1999, Seminis borrowed $20,000 from ELM to finance short-term working
capital requirements, which will mature on May 31, 1999. Seminis is currently
negotiating to borrow $50,000 from certain lenders under the old credit
agreement as a bridge loan to finance short-term working capital requirements,
which is expected to mature on May 31, 1999. 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 to change the financial ratio covenants
for the period ended March 31, 1999. The amendment of the old credit agreement
also requires 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.
NOTE 17--RECAPITALIZATION AND CONVERSION OF SUBORDINATED DEBT DUE ELM
Prior to the effective date of this prospectus, 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 6,772 shares of Class
B Common Stock; (iii) all Class A Common Stock is to be exchanged for 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. These consolidated
financial statements reflect the pending recapitalization as described above
with the exception of the conversion of Old Class B Redeemable Common Stock into
Class B Common Stock.
Also on February 1, 1999, ELM elected to convert their subordinated debt note of
$35,857 into 1,916 shares of Class B Common Stock. The unaudited pro forma
information presented on the consolidated balance sheets reflects both the
conversion of Old Class B Redeemable Common Stock into Class B Common Stock and
the conversion of the ELM subordinated debt note into Class B Common Stock as if
these conversions had occurred on September 30, 1998.
F-21
<PAGE> 77
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
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-22
<PAGE> 78
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-23
<PAGE> 79
HUNGNONG SEED CO., LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
In thousands of U.S. Dollars (UNAUDITED)
<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-24
<PAGE> 80
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-25
<PAGE> 81
HUNGNONG SEED CO., LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
In thousands of U.S. dollars
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-26
<PAGE> 82
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
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.
F-27
<PAGE> 83
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
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>
<CAPTION>
-------
<S> <C>
Seed and unharvested crop-growing costs..................... $20,747
Supplies.................................................... 1,525
-------
Total inventories................................. $22,272
=======
</TABLE>
F-28
<PAGE> 84
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>
<CAPTION>
-------
<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>
<CAPTION>
------
<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>
<CAPTION>
-------
<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%.
F-29
<PAGE> 85
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
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 debt as of December 31,
1997 consist of the following:
<TABLE>
<CAPTION>
--------
<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>
F-30
<PAGE> 86
HUNGNONG SEED CO., LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
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 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-31
<PAGE> 87
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 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 Korean Family........ (271,585) 271,585 --
--------- --------- ---------
As of July 31, 1998......................................... 728,415 1,699,585 2,428,000
========= ========= =========
</TABLE>
F-32
<PAGE> 88
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
---------------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
--------------------------- FOR THE FOR THE
SEMINIS(1) HUNGNONG(2) ACQUISITION ACQUISITIONS
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
In thousands, except per share data
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 ELM................. 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 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 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)
============= =========== =========== ============
Income (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.
(4) To reflect interest income from the note receivable from Young Il Chemical
Company for the period October 1, 1997 through June 30, 1998.
(5) To reflect net elimination of interest expense based on Seminis assumed
capitalization of Hungnong at October 1, 1997. Also includes assumed reduction
in interest expense related to ELM subordinated debt due to assumed conversion
of debt to Class B common shares effective October 1, 1997.
(6) To reflect assumed minority interest benefit based on 30% minority interest
in Hungnong loss for nine months ended June 30, 1998 including applicable pro
forma adjustments.
(7) To reflect income tax effect of pro forma adjustments.
F-33
<PAGE> 89
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> 90
[INSIDE BACK COVER]
[PICTURE OF FRUITS AND VEGETABLES]
<PAGE> 91
[BACK COVER]
[LOGO]
<PAGE> 92
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 $69,500
-------
NASD Fee 25,500
-------
New York Stock Exchange Filing Fee *
New York Stock Exchange Listing Fee *
Blue Sky Fees and Expenses *
Printing and Engraving 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
II-1
<PAGE> 93
transaction from which the director derived an improper personal benefit or (4)
under 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 ELM 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.
On July 14, 1998, Seminis sold 7,368,424 shares of Old Class A common stock to
ELM and Asesorias Administrativas Moderna, S.A. de C.V., an affiliate of ELM,
for an aggregate purchase price of $138,200,000. The shares in such transaction
were sold in reliance on the exemptions from registration provided by Section
3(a)(11) of the Securities Act of 1933.
On December 1, 1998, Seminis issued and sold 1,000 shares of Old Class C
Preferred Stock to ELM for an aggregate purchase price of $10 million. The
shares in such transaction were sold in reliance on exemptions from registration
provided by Section 3(a)(11) of the Securities Act of 1933.
In 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 of Seminis for purposes of the reincorporation in
Delaware.
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 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 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.
On July 14, 1998, ELM 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 A Common Stock at the
option of ELM. ELM converted the note into 1,916,462 shares of Class A Common
Stock on February 1, 1999.
In December, 1998 ELM made an equity investment in Seminis of $10 million in
exchange for 1,000 shares of Class C Preferred Stock.
II-2
<PAGE> 94
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 Empresas La Moderna, 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.
+ 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
II-3
<PAGE> 95
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> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on February 10, 1999.
SEMINIS, INC.
By: /s/ ALEJANDRO RODRIGUEZ GRAUE
------------------------------------
Name: Alejandro Rodriguez Graue
Title: President
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alfonso Romo Garza and Alejandro
Rodriguez Graue and each or any of them, as his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments or
post-effective amendments to this Registration Statement, and to file the same,
with all exhibits thereto, which amendments may make such changes in this
Registration Statement as such agent deems appropriate, and to file any new
registration statement (and any post-effective amendment thereto) which
registers additional securities of the same Class A common stock and for the
same offering as this Registration Statement in accordance with Rule 462(b)
under the Securities Act (each, a "462(b) Registration Statement"), and the
Registrant and each such person hereby appoints each such Agent as
attorney-in-fact to execute in the name and on behalf of the Registrant and each
such person, individually and in each capacity stated below, any such amendments
to this registration statement and any such 462(b) Registration Statements, and
other documents in connection therewith, with the Commission.
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>
/s/ ALFONSO ROMO GARZA Chairman of the Board February 10, 1999
- ---------------------------------------------------
Alfonso Romo Garza
/s/ FRANCISCO GONZALES SEBASTIA Director February 10, 1999
- ---------------------------------------------------
Francisco Gonzales Sebastia
/s/ ALEJANDRO RODRIGUEZ GRAUE Director and President February 10, 1999
- --------------------------------------------------- (Principal Executive
Alejandro Rodriguez Graue Officer)
/s/ BERNARDO JIMENEZ BARRERA Director February 10, 1999
- ---------------------------------------------------
Bernardo Jimenez Barrera
/s/ G. CARL BALL Director February 10, 1999
- ---------------------------------------------------
G. Carl Ball
/s/ GEORGE CARL BALL, JR. Director February 10, 1999
- ---------------------------------------------------
George Carl Ball, Jr.
</TABLE>
II-5
<PAGE> 97
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER DAVIS Director February 10, 1999
- ---------------------------------------------------
Peter Davis
/s/ FRANK J. PIPP Director February 10, 1999
- ---------------------------------------------------
Frank J. Pipp
/s/ DR. ELI SCHLIFER Director February 10, 1999
- ---------------------------------------------------
Dr. Eli Schlifer
/s/ EUGENIO NAJERA SOLORZANO Director February 10, 1999
- ---------------------------------------------------
Eugenio Najera Solorzano
/s/ CHRISTOPHER J. STEFFEN Director February 10, 1999
- ---------------------------------------------------
Christopher J. Steffen
/s/ JAMES M. LARKIN Chief Financial Officer February 10, 1999
- --------------------------------------------------- (Principal Financial
James M. Larkin Officer)
/s/ MICHAEL PIGOTT Controller February 10, 1999
- --------------------------------------------------- (Principal Accounting
Michael Pigott Officer)
</TABLE>
II-6
<PAGE> 98
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 Empresas La Moderna, 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.
+ To be filed by amendment in connection with the formation of Seminis, Inc.,
the new Delaware corporation.
II-7
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
DATED AS OF OCTOBER 1, 1995
BY AND AMONG
SEMINIS, INC.
AND
THE SHAREHOLDERS OF SEMINIS, INC. SIGNATORY HERETO
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of October 1, 1995
(the "Agreement") among Seminis, Inc. (formerly Geo. J. Ball, Inc.), an Illinois
corporation (the "Company"), and the shareholders of the Company signatory
hereto, whose names are set forth on the Schedule of Shareholders (each, a
"Shareholder" and, collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders, the Company and Seminis, Inc., a
Delaware corporation ("Seminis Delaware"), have entered into an Agreement and
Plan of Merger dated as of August 31, 1995 (the "Merger Agreement"), pursuant to
which the parties thereto have agreed, among other things, that Seminis Delaware
shall be merged with and into the Company, with the Company surviving such
merger and the outstanding shares of capital stock of Seminis Delaware and the
Company being converted into new shares of capital stock of the Company, all
upon the terms and conditions set forth in the Merger Agreement; and
WHEREAS, the Company and the Shareholders have entered into a
Shareholders Agreement of even date herewith (the "Shareholders Agreement")
pursuant to which the parties thereto have agreed, among other things, to
transfer their Shares only as permitted in the Shareholders Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. The following capitalized terms have the
following meanings:
Ball Shareholders: The Shareholders who are designated as such
on the Schedule of Shareholders.
Class A Common Stock: The Company's Class A Common Stock, par
value $.01 per share.
Class B Common Stock: The Company's Class B Common Stock, par
value $.01 per share.
Code: The Internal Revenue Code of 1986, as amended.
Commission: The United States Securities and Exchange
Commission or any other United States Federal agency administering the
Securities Act.
Common Stock: The Class A Common Stock and the Class B Common
Stock.
Exchange Act: The Securities Exchange Act of 1934 and the
rules and regulations of the Commission thereunder, as in effect from
time to time.
Exempt Transfer: A Transfer of shares of Common Stock (i) by a
Ball Shareholder (a) to another Ball Shareholder, to ELM or to any
Affiliate of ELM, (b) to a
2
<PAGE> 3
member of such Ball Shareholder's Family Group, (c) to a trust for the
sole benefit of such Ball Shareholder or such Ball Shareholder's Family
Group, (d) by will to a member of such Ball Shareholder's Family Group,
(e) pursuant to laws of descent and distribution to a member of such
Ball Shareholder's Family Group, (f) to any charitable foundation or
other organization qualified under Section 501(c)(3) of the Code and
(g) to the Company pursuant to Article Fourth of the Articles of
Incorporation and (ii) by ELM (a) to any Affiliate of ELM and (b) to
any Person in connection with such Person's capital contribution
pursuant to Section 6 of the Shareholders Agreement.
Family Group: With respect to any Ball Shareholder, such Ball
Shareholder's spouse, siblings, parents, grandparents and descendants,
whether natural or adopted.
Initial Public Offering: The closing of the last of one or
more firm commitment underwritten public offering(s) of Class A Common
Stock registered with the Commission under the Securities Act in which
(i) the net cumulative proceeds received by the Company and the
Shareholders is at least $100,000,000 and (ii) the Ball Shareholders
have the opportunity to sell shares of Class A Common Stock in such
offering(s) representing 30% (or such (a) lesser percentage of the
aggregate number of shares of Class A Common Stock included in such
offering(s) as is represented by the aggregate number of the shares of
Common Stock then held by the Ball Shareholders or (b) greater
percentage of the aggregate number of shares of Class A Common Stock
included in such offering(s) as is consented to by the Company in its
sole discretion) of the aggregate number of shares of Class A Common
Stock sold in such offering(s).
NASD: The National Association of Securities Dealers, Inc. and
any successor organization.
Person: An individual, corporation, partnership, association,
joint-stock company, trust where the interests of the beneficiaries are
evidenced by a security, unincorporated organization, estate,
governmental or political subdivision thereof or governmental agency.
Qualified Demand Shareholders: The Ball Shareholders which
hold, individually or in the aggregate, at least 3,333 shares of Common
Stock, and who demand registration of at least 3,333 shares of the
Registrable Securities them. In the event of any change in Common Stock
or Registrable Securities by reason of stock dividends, stock splits,
reverse stock splits, mergers, recapitalizations, combinations,
exchanges of shares or the like, such numbers of Common Stock or
Registrable Securities shall be adjusted appropriately to reflect such
change in the Registrable Securities.
Qualified Piggyback Shareholders: The Shareholders which hold,
individually or in the aggregate, at least 333 shares of Common Stock,
and who demand registration of at least 333 shares of the Registrable
Securities held by them. In the event of any change in Common Stock or
Registrable Securities by reason of stock dividends, stock splits,
reverse stock splits, mergers, recapitalizations, combinations,
exchanges of shares or the like, such numbers of Common Stock or
Registrable Securities shall be adjusted appropriately to reflect such
change in the Common Stock or Registrable Securities.
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Registrable Securities: Shares of Class A Common Stock which
(i) are (A) received pursuant to the Merger Agreement, (B) received
pursuant to a conversion of shares of Class B Common Stock (1) received
pursuant to the Merger Agreement or (2) received with respect to the
shares of Class B Common Stock referred to in clause (1) by way of a
stock dividend or stock split, or in connection with a combination of
shares, recapitalization, merger, consolidation or similar transaction,
as provided by Article Fourth of the Articles of Incorporation, and (C)
received with respect to the shares of Class A Common Stock referred to
in clauses (A) and (B) by way of a stock dividend or stock split, or in
connection with a combination of shares, recapitalization, merger,
consolidation or similar transaction, and (ii) have not at any time
been Transferred except pursuant to an Exempt Transfer.
Registration Date: The fifth anniversary of the date hereof.
Registration Statement: A registration statement provided for
in Section 6 of the Securities Act under which securities are
registered under the Securities Act, together with any preliminary,
final or summary prospectus contained therein, any amendment or
supplement thereto, and any document incorporated by reference therein.
Securities Act: The Securities Act of 1933 and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
Valuation of the Company: The aggregate value of the Company's
outstanding Common Stock, based upon the value of the Company as a
going concern (without discount for illiquidity) and assuming that any
control premium applies proportionately to all shareholders as
determined by two independent investment banking firms, one selected by
ELM and one selected by the Qualified Demand Shareholders which
requested such Demand Registration. If such investment banking firms
cannot agree on such valuation within 20 days, they shall jointly
select an independent investment banking firm which independent
investment banking firm shall make a determination within 20 days
following its appointment. If such third appraisal falls within the
range of the first two appraisals, the value determined by the third
appraisal shall be used. If such third appraisal falls outside of the
range of the first two appraisals, the average of the first two
appraisals shall be used.
Valuation Price per Share: The Valuation of the Company
divided by the aggregate number of shares of Common Stock outstanding.
Capitalized terms used herein and not defined herein have the meanings as
defined in the Shareholders Agreement. Terms defined in the Exchange Act or the
Securities Act and not otherwise defined herein have the meanings herein as
therein defined. References to any Shareholder, Ball Shareholder or ELM shall be
deemed to include such Person's successors pursuant to an Exempt Transfer;
provided, however, that no successor of a Ball Shareholder pursuant to clause
(i)(f) of the definition of Exempt Transfer shall be deemed to be a Ball
Shareholder.
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2. Demand Registration.
(a) Right to Demand. If an Initial Public Offering has not
been consummated on or prior to the Registration Date, then the Qualified Demand
Shareholders may on the Registration Date (or within five Business Days
thereafter), by written notice to the Company, request that the Company effect
the registration under the Securities Act of all or part (subject to the minimum
number of shares provided in the definition of Qualified Demand Shareholder) of
such Qualified Demand Shareholders' Registrable Securities (a "Demand
Registration").
If ELM has not purchased the Registrable Securities requested
to be registered by the Qualified Demand Shareholders as provided in Subsection
2(d), the Company shall promptly give written notice of such Demand Registration
to all other Shareholders, and thereupon shall use its best efforts to effect
the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been
requested to register by such Qualified Demand Shareholders, and
(ii) all other Registrable Securities which the Company has
been requested to register by the other Shareholders, by written
request given to the Company within 30 days after the giving of such
written notice by the Company,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered. All offerings pursuant to a Demand Registration
shall be underwritten offerings.
(b) Selection of Underwriters. The underwriters of any
offering pursuant to a Demand Registration shall be one or more
nationally-recognized investment banking firms selected by the Qualified Demand
Shareholders which requested such Demand Registration, subject, however, to the
Company's approval, which will not be unreasonably withheld.
(c) Priority in Demand Registrations. If the managing
underwriter advises the Company that, in its opinion, the number of Registrable
Securities requested to be included in a Demand Registration exceeds what can be
sold in such offering within a price range acceptable to the Qualified Demand
Shareholders which requested such Demand Registration, then the Company will
include in such Demand Registration the number of Registrable Securities
requested to be included in such Demand Registration which the Company is so
advised can be sold in such offering, pro rata among the holders thereof
requesting such registration on the basis of the number of Registrable
Securities requested to be included by such holders; provided that the Company
will include in any Demand Registration, prior to the inclusion of any
Registrable Securities which are not held by the Qualified Demand Shareholders
which requested such Demand Registration, the number of Registrable Securities
which are held by the Qualified Demand Shareholders which requested such Demand
Registration which the Company is so advised can be sold in such offering, pro
rata among such Qualified Demand Shareholders.
(d) Right of First Refusal. The Company shall, within five
Business Days after receipt of notice from the Qualified Demand Shareholders,
give ELM written notice of any requested Demand Registration, including the
names of the Qualified Demand Shareholders which requested such Demand
Registration and the number of Registrable Securities requested to be
registered. Thereupon, ELM shall have the right, exercisable by written notice
to the
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Company and the Qualified Demand Shareholders which requested such Demand
Registration within 15 days of the Company's notice, to request that the
Valuation Price per Share be determined and to delay for a period not to exceed
90 days any Demand Registration until such determination is made. At such time
as the Valuation Price per Share has been determined, ELM shall have the right,
exercisable by written notice to the Company and the Qualified Demand
Shareholders which requested such Demand Registration within 90 days of the date
of determination of the Valuation Price per Share, to elect to purchase, and the
Qualified Demand Shareholders agree to sell, on a date specified by ELM in such
notice (which date shall be not more than 150 days from the date of such
notice), the Registrable Securities which the Qualified Demand Shareholders have
requested to be included in such Demand Registration, at a price per share equal
to the Valuation Price per Share. On such purchase date specified by ELM, the
Qualified Demand Shareholders shall deliver to ELM the certificates representing
the Registrable Securities sold, duly endorsed or accompanied by a duly executed
stock power, against payment therefor, and ELM shall purchase, and acquire good
and valid title to, such Registrable Securities. Each Qualified Demand
Shareholder which sells Registrable Securities to ELM pursuant to this
Subsection 2(d) represents and warrants to ELM that ELM shall, pursuant to such
sale, acquire good and valid title to such Registrable Securities, free and
clear of any liens, charges, encumbrances or restrictions of any nature
whatsoever.
(e) Additional Demand Registration. If the Company effects the
registration of less than all of the Registrable Securities owned by the Ball
Shareholders pursuant to the Demand Registration pursuant to Subsection 2(a) (or
ELM purchases less than all of the Registrable Securities owned by the Ball
Shareholders in lieu of such registration pursuant to Subsection 2(d)), the
Qualified Demand Shareholders may, at any time after six months have elapsed
since the effective date of such Demand Registration (or the date of such
purchase by ELM) and prior to the eighth anniversary of the date hereof, request
a second Demand Registration if at such time an Initial Public Offering has not
been consummated. Any such Demand Registration shall be requested, effected and
in all other respects be in accordance with the terms of the first Demand
Registration.
(f) Restrictions on Demand Registrations. The Company may
postpone for up to six months the filing or the effectiveness of a Registration
Statement for a Demand Registration, whether pursuant to Subsection 2(a) or
2(e), if the Company's Board of Directors determines that such Demand
Registration might reasonably be expected to have an adverse effect on any
proposal or plan by the Company or any of its subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction. In such event, the
Qualified Demand Shareholders will be entitled to withdraw their request for the
Demand Registration. If the request for the Demand Registration is so withdrawn,
the Qualified Demand Shareholders shall have the right to request an additional
Demand Registration pursuant to Subsection 2(a) or 2(e), as the case may be, and
the time of any such postponement shall be added to the time within which a
request for a Demand Registration must be made pursuant to such Subsections.
(g) Effective Registration Statement. A Demand Registration
pursuant to this Section 2 shall not be deemed to have been effected (i) unless
a Registration Statement with respect thereto has become effective, (ii) if
after it has become effective, such Demand Registration is interfered with by
any stop order, injunction or other order or requirement of the
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Commission or other governmental agency or court for any reason, or (iii) if the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such Demand Registration are not
satisfied, other than by reason of some act or omission by the selling Ball
Shareholders.
3. Piggyback Registration.
(a) Right to Piggyback. Beginning on the date hereof and
continuing until the fifth anniversary of an Initial Public Offering, if the
Company at any time proposes to register any of its Class A Common Stock under
the Securities Act (other than registrations on Form S-4 or S-8 or the
equivalent thereof) with respect to an underwritten public offering solely for
its own account and the form of Registration Statement to be used may be used
for the registration of Registrable Securities, the Company will give prompt
written notice to all Shareholders of its intent to do so. Within 30 days after
receipt of such notice, the Qualified Piggyback Shareholders may by written
notice to the Company request the registration by the Company under the
Securities Act of Registrable Securities in connection with such proposed
registration by the Company under the Securities Act of its Class A Common Stock
(a "Piggyback Registration"). Such written notice to the Company shall specify
the Registrable Securities intended to be disposed of by such Qualified
Piggyback Shareholders. Upon receipt of such request, the Company will use its
best efforts to register under the Securities Act all Registrable Securities
which the Company has been so requested to register, to the extent requisite to
permit the disposition of the Registrable Securities so to be registered;
provided, however, that if at any time after giving notice of its intent to
register Class A Common Stock and before the effective date of the Registration
Statement filed in connection with such Piggyback Registration, the Company
determines for any reason not to register or to delay registration of such Class
A Common Stock, the Company may, at its election, give notice of such
determination to the Qualified Piggyback Shareholders, and, thereupon, (i) in
the case of a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
Piggyback Registration (but not from its obligation to pay registration expenses
pursuant to Section 5 hereof), and (ii) in the case of a determination to delay
registering, the Company may delay registering any Registrable Securities for
the same period as the delay in registering such Class A Common Stock. The
Qualified Piggyback Shareholders shall be entitled to request not more than four
Piggyback Registrations.
(b) Selection of Underwriters. The underwriters of any
offering pursuant to a Piggyback Registration shall be one or more
nationally-recognized investment banking firms selected by the Company.
(c) Priority in Piggyback Registrations. If the managing
underwriter informs the Company in writing of its judgment that including the
Registrable Securities in the Piggyback Registration creates a substantial risk
that the proceeds or price per unit to be received from such offering might be
reduced or that the number of Registrable Securities to be registered is too
large to be reasonably sold, then the Company will include in such Piggyback
Registration, to the extent of the number which the Company is so advised can be
sold in such offering: first, all Class A Common Stock proposed by the Company
to be sold for its own account; and second, such Registrable Securities
requested to be included in such Piggyback Registration pro rata on the basis of
the number of shares of such Registrable Securities so proposed to be sold and
so
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<PAGE> 8
requested to be included; provided, however, that in any public offering
constituting an Initial Public Offering, the number of Registrable Securities
owned by the Ball Shareholders included in such Piggyback Registration shall not
be reduced to a number less than 30% (or such lesser percentage of the aggregate
number of shares of Common Stock included in such offering as is represented by
the aggregate number of shares of Common Stock then held by the Ball
Shareholders) of the aggregate number of shares of Class A Common Stock the
Company is so advised can be sold in such offering.
4. Registration Procedures.
(a) Company Covenants. Whenever the Company is hereunder
required to use its best efforts to effect the registration under the Securities
Act of any Registrable Securities as provided in Section 2 or 3, the Company
will:
(i) prepare and file with the Commission the requisite
Registration Statement to effect such registration and thereafter use
its best efforts to cause such Registration Statement to become
effective, provided that the Company may discontinue any registration
of its securities which are not Registrable Securities (and, under the
circumstances specified in Subsection 3(a), its securities which are
Registrable Securities) at any time prior to the effective date of the
Registration Statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such Registration Statement until such securities have been
disposed of by the sellers thereof set forth in such Registration
Statement;
(iii) furnish to each seller of Registrable Securities covered
by such Registration Statement such number of conformed copies of the
Registration Statement, and of each amendment and supplement thereto,
such number of copies of the prospectus contained in such Registration
Statement and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents as such seller may reasonably request;
(iv) use its best efforts to register or qualify all
securities covered by such Registration Statement under such other
securities or blue sky laws of United States jurisdictions as each
seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as the Registration Statement
remains in effect, and to take any other action which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to (a) qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not be obligated to be
so qualified but for the requirements of this subsection; (b) subject
itself to taxation in any such jurisdiction; or (c) consent to general
service of process in any such jurisdiction;
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(v) use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities of United
States jurisdictions as may be necessary to enable the seller thereof
to consummate the disposition of such Registrable Securities;
(vi) furnish to each seller of Securities a signed
counterpart, addressed to such seller and the underwriters, of:
(x) an opinion of counsel for the Company dated the
effective date of the Registration Statement (and dated the
closing date under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(y) a "comfort letter" dated the effective date of
the Registration Statement (and dated the date of the closing
under the underwriting agreement), signed by the independent
public accountants who have certified the Company's financial
statements included in such Registration Statement,
covering substantially the same matters with respect to such
Registration Statement and, in the case of the "comfort letter," with
respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities, and, in the case of the legal opinion,
such other legal matters, and, in the case of the "comfort letter,"
such other financial matters, as such seller or the underwriter may
reasonably request;
(vii) at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, notify each seller
of Registrable Securities covered by such Registration Statement
promptly after the Company discovers that the prospectus included in
such Registration Statement as then in effect includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made, and at the request of any such seller promptly prepare and
furnish to such seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include 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 in the light of
the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such Registration
Statement from and after a date not later than the effective date of
such Registration Statement; and
(x) use its best efforts to list or cause to be quoted all
Registrable Securities covered by such Registration Statement on any
securities exchange on which or in any market in which similar
securities issued by the Company are then listed or quoted.
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The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as the
Company may reasonably request for the purpose of effecting such registration.
Any Person participating in any Demand Registration or Piggyback Registration
must (a) agree to sell their securities on the basis provided in the
underwriting agreement and (b) complete and execute all documents required under
this Agreement, the Shareholders Agreement or the underwriting agreement.
Each holder of Registrable Securities agrees that upon receipt
of any notice from the Company of the happening of any event of the kind
described in subparagraph (vii) of this Subsection 4(a), such holder will
discontinue immediately such holder's disposition of securities pursuant to the
Registration Statement until such holder receives copies of the supplemented or
amended prospectus contemplated by such subparagraph (vii) and, if so directed
by the Company, will deliver to the Company all copies, other than permanent
file copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
(b) Underwriting Agreements. The Company will enter into an
underwriting agreement with the underwriters for any offering pursuant to a
Demand Registration or Piggyback Registration if requested by the underwriters
so to do. The underwriting agreement will contain such representations and
warranties by the Company and such other terms as are generally prevailing at
such time in underwriting agreements. The holders of Registrable Securities to
be distributed by the underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations, warranties, and other agreements by the Company to and for the
benefit of the underwriters also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. No
holder of Registrable Securities shall be required to make representations or
warranties to, or agreements with, the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such holder's
Registrable Securities, such holder's intended method of distribution, any
representations required by law and any other customary representations.
(c) Holdback Agreements. (i) Each Shareholder agrees by
acquisition of shares of Common Stock not to effect any public sale or
distribution of any equity securities of the Company during the seven days prior
to and the 180 days after any Initial Public Offering, Demand Registration or
Piggyback Registration has become effective, except as part of such Initial
Public Offering, Demand Registration or Piggyback Registration, as the case may
be, unless the managing underwriter of the Initial Public Offering, Demand
Registration or Piggyback Registration otherwise agrees to such sale or
distribution.
(ii) The Company agrees not to effect any public
sale or distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven days
prior to and the 180 days after any Demand Registration or Piggyback
Registration has become effective, except as part of such Demand Registration or
Piggyback Registration, as the case may be, and except pursuant to registrations
on Form S-4, S-8 or any successor or similar forms thereto.
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(d) Preparation; Reasonable Investigation. In connection with
the preparation and filing of each Registration Statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of Registrable
Securities to be registered under such Registration Statement, the underwriters
and their respective counsel and accountants, the opportunity to participate in
preparing the Registration Statement. The Company will also give each of such
Persons such access to its books and records and opportunities to discuss the
business of the Company with the Company's officers and independent public
accountants who have certified the Company's financial statements as shall, in
the opinion of such holders' and such underwriters' respective counsel, be
necessary to conduct a reasonable investigation within the meaning of the
Securities Act.
(e) Rule 144. If the Company files a Registration Statement
pursuant to the Securities Act or Section 12 of the Exchange Act, the Company
will also file the reports required to be filed by it under the Securities Act
and the Exchange Act to enable the Shareholders to sell their Registrable
Securities without registration under the Securities Act and within the
exemptions provided under the Securities Act by Rule 144 or any similar rule or
regulation hereafter adopted by the Commission.
5. Registration Expenses. The Company will bear all expenses
incident to the Company's compliance with this Agreement, including, without
limitation, registration, filing and NASD fees, securities and blue sky
compliance fees and expenses, word processing expenses, duplicating expenses,
printing expenses, engraving expenses, messenger and delivery expenses, Company
general and administrative expenses, Company counsel and accountants fees and
disbursements, special audit costs, financial statement and reconstruction
costs, comfort letter costs, underwriter fees and disbursements customarily paid
by issuers or sellers of securities (including fees paid to a "qualified
independent underwriter" required by the rules of the NASD in connection with a
distribution), "road show" expenses and allocations and the expense for other
Persons retained by the Company, but excluding (x) fees and disbursements of the
Shareholders' counsel, and (y) discounts, commissions or fees of underwriters,
selling brokers, dealer managers, sales agents or similar securities industry
professionals relating to the distribution of Registrable Securities and
applicable transfer taxes, if any, which shall be borne by the sellers of the
Registrable Securities being registered in all cases.
6. Indemnification.
(a) Indemnification by the Company. In the event of any Demand
Registration or Piggyback Registration of any Registrable Securities under the
Securities Act, the Company shall, and hereby does, indemnify and hold harmless
each seller of any Registrable Securities covered by the Registration Statement
with respect thereto, such seller's partners, directors and officers, each
underwriter (including any "qualified independent underwriter" required by the
rules of the NASD) of the offering or sale of such securities, and each Person
who controls such seller or underwriter within the meaning of the Securities
Act, against any uninsured losses, claims, damages or liabilities to which such
seller, partner, director, officer, underwriter or controlling Person, as the
case may be, may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of material fact contained
in the Registration Statement
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under which such Registrable Securities were sold or an 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 the Company will
reimburse each such indemnified Person for expenses reasonably incurred by it in
connection with defending such loss, claim, damage, liability, action or
proceeding; provided that the Company shall not be liable in any such case for
any losses, claims, damages, liabilities (or actions or proceedings in respect
thereof) or expenses which arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made by the Company in
such Registration Statement in reliance upon information furnished to the
Company in writing by such Person for inclusion in the Registration Statement;
and provided further that the Company shall not be liable to and does not
indemnify any underwriter in the offering or sale of Registrable Securities, or
any Person who controls an underwriter within the meaning of the Securities Act,
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may be
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Person, if such statement or omission
was prospectus. This indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of an indemnified party, and shall
survive the transfer of such Registrable Securities by the seller thereof.
(b) Indemnification by the Sellers. The Company may require,
as a condition to including any Registrable Securities in any Registration
Statement, that the Company receive an undertaking satisfactory to it from the
prospective seller of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subsection
(a) of this Section 6) the Company, its directors, its officers, and each other
Person who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such Registration Statement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon information furnished to
the Company in writing by such seller for inclusion in the Registration
Statement. The prospective sellers' obligation to indemnify will be several, not
joint and several, among such sellers. This indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company,
its directors, officers or controlling Persons, and shall survive the transfer
of such Registrable Securities by the seller thereof.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Subsection 6(a) or (b), such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action. The
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 6, except to the extent that the indemnifying party
is materially prejudiced by the failure to give such notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and the indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to such indemnified party of its
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election so to assume the defense thereof, the indemnifying party shall not be
liable for any settlement made by the indemnified party without the indemnifying
party's consent (which consent will not be unreasonably withheld) or for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in this
Agreement is for any reason unavailable or insufficient to indemnify an
indemnified party under Subsection 6(a), (b) or (d) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof, or referred
to therein, then each indemnifying party shall, in lieu of indemnifying such
party, contribute to the amount payable by such indemnified party as a result of
such loss, claim, damage or liability, or action in respect thereof, in a
proportion which reflects: (i) the relative benefits received on the one hand by
the Company and on the other hand by the holders of the Registrable Securities
included in the offering; (ii) the relative fault with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, on the one hand of the Company and on the other hand of the
holders of the Registrable Securities included in the offering; and (iii) any
other relevant equitable considerations.
The relative benefits received shall be deemed to be in the
same proportion which the sum of the total subscription price paid to the
Company in respect of the Registrable Securities plus the total net proceeds
from the offering of the securities (before deducting expenses) received by the
Company bears to the amount by which the total net proceeds from the offering of
the securities (before deducting expenses) received by the holders of the
Registrable Securities with respect to such offering exceeds the subscription
price paid to the Company in respect of the Registrable Securities, and in each
case, the net proceeds received from such offering shall be determined as set
forth on the table of the cover page of the prospectus.
The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the holders of the Registrable Securities; the
intent of the parties; the parties' relative knowledge; the parties' access to
information; and the parties' opportunity to correct or prevent such statement
or omission. The Company and the Shareholders agree that it would not be just
and equitable if contribution
13
<PAGE> 14
pursuant to this Section 6 is determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein.
The amount paid or payable by an indemnified party as a result
of the loss, claim, damage or liability, or action in respect thereof, referred
to in this Subsection 6(f) shall be deemed to include, for purposes of this
Subsection 6(f), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim. No person guilty of "fraudulent misrepresentation" within the meaning of
Section 11 of the Securities Act shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
7. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended or
waived by consent of the Company, ELM and the Shareholder Representative. Each
Shareholder shall be bound by any consent authorized by this Subsection 7(a),
whether or not any certificates representing shares of Common Stock shall have
been marked to indicate such consent.
(b) Nominees for Beneficial Owners. If Registrable Securities
are held by a nominee for the beneficial owner thereof, the beneficial owner
thereof may, at its election, be treated as the holder of such Registrable
Securities for purposes of (i) any action by holders of Registrable Securities
pursuant to this Agreement and (ii) any determination of number of Registrable
Securities held by any holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances of such beneficial owner's ownership of such
Registrable Securities.
(c) Notices. All consents, notices and other communications
provided for hereunder shall be in writing and sent in the manner provided in
the Shareholders Agreement. Communications to a Shareholder must be addressed to
such Shareholder in the manner set forth in the Shareholders Agreement or at
such other address as such Shareholder communicates to the Company, or to the
address of the last holder of such security who has communicated an address to
the Company. Communications to the Company must be addressed to the Company in
the manner set forth in the Shareholders Agreement.
(d) Assignment. This Agreement is personal to the parties
hereto and not assignable and may not be enforced by any subsequent holder of
securities of the Company; provided, however, that (i) this Agreement shall be
assignable to, and shall bind and inure to the benefit of, each Transferee of
shares of Common Stock pursuant to an Exempt Transfer (other than pursuant to
clause (i)(f) of the definition thereof) and (ii) this Agreement shall bind and,
solely with respect to Section 3 hereof, inure to the benefit of, each
Transferee of shares of Common Stock other than pursuant to an Exempt Transfer
or pursuant to clause (i)(f) of the definition thereof.
(e) Descriptive Headings. The descriptive headings of the
sections and paragraphs of this Agreement are for reference only and shall not
limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by, and
construed and
14
<PAGE> 15
enforced in accordance with, the internal laws of the State of New York.
(g) Termination. This Agreement shall terminate and be of no
further force or effect on the earlier to occur of the eighth anniversary of the
date hereof and the fifth anniversary of the date of consummation of an Initial
Public Offering; provided, however, that Sections 1 and 6 shall not be so
terminated but shall survive without limitation.
(h) Submission to Jurisdiction; Service of Process.
(i) Each of the parties hereto irrevocably submits to the
jurisdiction of the Supreme Court of the State of New York, County of New York,
the U.S. District Court for the Southern District of New York and any appellate
court or body thereto (collectively, the "New York Courts"), over any suit,
action or proceeding arising out of or relating to this Agreement. In addition,
each party hereto irrevocably submits to the jurisdiction of the state and
federal courts located in the jurisdiction in which such party has been
organized or is domiciled in connection with any such suit, action or proceeding
that may be brought against such party as a defendant. Each party hereto
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in such court has been brought in an inconvenient forum,
and further agrees that a final judgment in any such suit, action or proceeding
brought in such court shall be conclusive and binding upon such party.
(ii) Each party hereto hereby irrevocably appoints CT
Corporation System, having offices on the date hereof at 1633 Broadway, New
York, New York 10019 (the "Process Agent"), as its authorized agent to accept
and acknowledge on its behalf service of any and all process which may be served
in any suit, action or proceeding of the nature referred to above in any New
York Court. Such designation and appointment shall be irrevocable until the
termination of this Agreement in accordance with the terms hereof. Each party
hereto covenants and agrees that it shall take any and all reasonable action,
including the execution and filing of any and all documents, that may be
necessary to continue the foregoing designations and appointments in full force
and effect and to cause the Process Agent to continue to act in such capacity.
If the Process Agent shall desire to cease so to act, each party hereto
covenants and agrees that prior to the Process Agent ceasing so to act it shall
irrevocably designate and appoint without delay another such agent in such
jurisdiction satisfactory to the Company, ELM and the Shareholder
Representative.
(iii) Each party hereto consents to process being served in
any suit, action or proceeding of the nature referred to in paragraph (ii) of
this Section by serving a copy thereof upon the Process Agent. Without prejudice
to the foregoing, each party hereto agrees that to the extent lawful and
possible, written notice of said service upon the Process Agent shall also be
mailed by registered or certified airmail, postage prepaid, return receipt
requested, to any party, as applicable, at its address provided in Section 7(c)
hereof or to any other address of which such party, as applicable, shall have
given written notice to the Company. If said service upon the Process Agent
shall not be possible or shall otherwise be impractical after reasonable efforts
to effect the same, each party hereto consents to process being served in any
suit, action or proceeding of the nature referred to in paragraph (ii) of this
Section by the mailing of a copy
15
<PAGE> 16
thereof by registered or certified airmail, postage prepaid, return receipt
requested, to the address of such party, as applicable, provided in Section 7(c)
hereof or to any other address of which such party shall have given written
notice to the Company, which service shall be effective 14 days after deposit in
the mail. Each party hereto irrevocably waives, to the fullest extent permitted
by law, all claim of error by reason of any such service and each party hereto
agrees that such service (A) shall be deemed in every respect effective service
of process upon such party, as applicable, in any such suit, action or
proceeding and (B) shall to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to such party, as
applicable.
(i) Counterparts. This Agreement may be executed in any number
of counterparts. Each counterpart is an original, but all counterparts shall
together constitute one and the same instrument.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
SEMINIS, INC.
By:______________________________
Name:
Title:
EMPRESAS LA MODERNA, S.A. DE C.V.
By:______________________________
Name:
Title:
17
<PAGE> 18
BALL SHAREHOLDERS:
By :______________________________
G. Carl Ball
18
<PAGE> 19
BALL SHAREHOLDERS:
By :______________________________
George C. Ball, Jr.
19
<PAGE> 20
BALL SHAREHOLDERS:
By :______________________________
G. Dexter Ball
20
<PAGE> 21
BALL SHAREHOLDERS:
By :______________________________
G. Dexter Ball, Custodian
for Sarah C. Ball
21
<PAGE> 22
BALL SHAREHOLDERS:
By :______________________________
G. Dexter Ball, Custodian
for Alexander G. Ball
22
<PAGE> 23
BALL SHAREHOLDERS:
By :______________________________
G. Victor Ball
23
<PAGE> 24
BALL SHAREHOLDERS:
By :______________________________
G. Victor Ball 1989 Family Trust
24
<PAGE> 25
BALL SHAREHOLDERS:
By :______________________________
Margaret D. Ball
25
<PAGE> 26
BALL SHAREHOLDERS:
By :______________________________
Vivian E. Ball
26
<PAGE> 27
BALL SHAREHOLDERS:
By :______________________________
Lelion D. Elledge, Jr.
27
<PAGE> 28
BALL SHAREHOLDERS:
By :______________________________
John S. Guenther
28
<PAGE> 29
BALL SHAREHOLDERS:
By :______________________________
Esther B. Hewlett,
Custodian for Benjamin
Victor Hewlett
29
<PAGE> 30
BALL SHAREHOLDERS:
By :______________________________
Esther B. Hewlett
Custodian for
Flora Berry Hewlett
30
<PAGE> 31
BALL SHAREHOLDERS:
By :______________________________
Esther B. Hewlett,
Custodian for
Elizabeth J. Stace
31
<PAGE> 32
BALL SHAREHOLDERS:
By :______________________________
Schmidt Family Trust
32
<PAGE> 33
BALL SHAREHOLDERS:
By :______________________________
Christopher D. Soper
TRUST NO. 2
33
<PAGE> 34
BALL SHAREHOLDERS:
By :______________________________
Katharine B. Soper
34
<PAGE> 35
BALL SHAREHOLDERS:
By :______________________________
Katharine P. Soper
TRUST NO. 2
35
<PAGE> 36
BALL SHAREHOLDERS:
By :______________________________
Margaret Tillman Ball Stace
Custodian for
Flora Berry Hewlett
36
<PAGE> 37
BALL SHAREHOLDERS:
By :______________________________
Margaret Tillman Ball Stace
37
<PAGE> 38
BALL SHAREHOLDERS:
By :______________________________
Margaret Tillman Ball Stace
Custodian for
Benjamin Victor Hewlett
38
<PAGE> 39
BALL SHAREHOLDERS:
By :______________________________
Margaret Tillman Ball Stace
Custodian for
Mary Ann Hewlett
39
<PAGE> 40
SCHEDULE OF SHAREHOLDERS
EMPRESAS LA MODERNA, S.A. DE C.V.
G. Carl Ball
George C. Ball, Jr.
G. Dexter Ball
G. Dexter Ball, Custodian for Sarah C. Ball
G. Dexter Ball, Custodian for Alexander G. Ball
G. Victor Ball
G. Victor Ball 1989 Family Trust
Margaret D. Ball
Vivian E. Ball
Lelion D. Elledge, Jr.
John S. Guenther
Esther B. Hewlett, Custodian for Benjamin Victor Hewlett
Esther B. Hewlett, Custodian for Flora Berry Hewlett
Esther B. Hewlett, Custodian for Elizabeth J. Stace
Schmidt Family Trust
Katharine B. Soper
Christopher D. Soper Trust No. 2
Katharine P. Soper Trust No. 2
Margaret Tillman Ball Stace
Margaret Tillman Ball Stace, Custodian for Benjamin Victor Hewlett
Margaret Tillman Ball Stace, Custodian for Flora Berry Hewlett
Margaret Tillman Ball Stace, Custodian for Mary Ann Hewlett
40
<PAGE> 1
Exhibit 10.1
SEMINIS, INC.
1998 STOCK OPTION PLAN
* * * * *
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, or those who
will become key employees, 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 Empresas La
Moderna S.A. de C.V., a corporation organized under the laws of Mexico ("ELM").
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.
2.6 "COMMITTEE" means the committee of the Board established from
time to time in the sole discretion of the Board to administer the Plan, as
described in Section 3 of the Plan.
<PAGE> 2
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2.7 "COMMON STOCK" means the Class C 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., an Illinois 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 "FAIR MARKET VALUE" means on, or with respect to, any given
date(s), the fair market value of a share of Common Stock, as determined in good
faith by the Board in its sole discretion, using the most recent prior annual
valuation of the Company (as determined pursuant to Section 3.4 of the Plan).
2.11 "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.
2.12 "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.
2.13 "PARTICIPANT" means any individual who is selected from time to
time under Sections 5 and 6 to receive an award under the Plan.
2.14 "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).
2.15 "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 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.
<PAGE> 3
-3-
3.1 GENERAL. The Plan shall be administered by the Board or a
Committee of the Board, as determined by the Board in its sole discretion. The
Committee may 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. 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 Board or 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 Board or 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 Board or the Committee shall determine, (c) imposing such restrictions,
terms and conditions upon such awards as the Board or 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 Board or the Committee may designate persons other than
members of the Board or 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 Board or 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 Board's or 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 Board or 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 Board or the Committee, by execution of written agreements and/or
other instruments in such form as is approved by the Board or 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.
3.4 ANNUAL VALUATION. An annual valuation of the Company shall be
performed in respect of each fiscal year of the Company during which awards are
granted or
<PAGE> 4
-4-
remain outstanding under the Plan. Such valuation shall be performed by a
valuation expert or an investment banking firm selected by the Board in good
faith. The final determination as to the annual valuation shall be made solely
by the Board in its sole discretion. The initial Fair Market Value of the
Company for purposes of initial option grants under the Plan shall be
$688,176,234.
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 ten percent of the
outstanding number of shares of Common Stock on the date the Plan is approved by
the Board. 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.
5. ELIGIBILITY. Individuals eligible for awards under the Plan shall
consist of key employees, or those who will become such key employees, 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 Incentive Stock Options granted to any employee who owns (within
the meaning of Section
<PAGE> 5
-5-
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.
6.6 EXERCISABILITY. In respect of any Stock Option granted under the
Plan, unless otherwise 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 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;
- 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
<PAGE> 6
-6-
- 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 ELM 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.
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.
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
<PAGE> 7
-7-
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 Board or 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.
8.1 STOCK OPTIONS. 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. During the lifetime of a Participant, Stock
Options are exercisable only by the Participant.
8.2 SHARES OF COMMON STOCK. No voluntary or involuntary sale,
transfer, pledge, encumbrance or other disposition or
hypothecation of shares of the Company after issuance thereof
to the Participant (or of any shares subsequently issued in
respect of such shares, whether as a stock dividend or
otherwise), shall or may, prior to the occurrence of the
Initial Public Offering (as defined below), be made or
suffered by the Participant or such Participant's estate,
designated beneficiary or other legal representative, other
than by the Participant to a trust for the sole benefit of the
Participant's Immediate Family (as defined below); provided,
however, that any such trust shall be subject to the
restrictions set forth in the Plan. For purposes of the Plan,
(a) "Initial Public Offering" means the sale in a public
offering by the Company of its ordinary common shares
<PAGE> 8
-8-
representing not less than 15% of its outstanding ordinary
shares (after giving effect to such offering), and (b)
"Immediate Family" means the Participant's spouse and/or
lineal descendants (including without limitation legally
adopted children).
8.3 PURCHASE RIGHT.
8.3.1 If, prior to the occurrence of the Initial Public
Offering, a Participant terminates employment with the Company or any Subsidiary
for any reason, all shares of the Common Stock acquired by such Participant upon
the exercise of any Stock Options under the Plan or otherwise are subject, at
the election of the Company, to purchase by the Company at a per share price
equal to their Fair Market Value (the "Purchase Right"). If the Company elects
to exercise such Purchase Right, the Company must make such election within 270
days after any such Participant terminates employment with the Company or any
Subsidiary. If the Company elects in a timely fashion to exercise the Purchase
Right hereunder to purchase such shares from the terminated Participant, the
Company shall notify the Participant in writing of its intention to do so (the
"Purchase Notice") and shall set forth in the Purchase Notice the aggregate
purchase price payable to such Participant, as determined in accordance with
this Section 8.3. Such aggregate purchase price shall be payable in accordance
with the following three sentences. No later than 90 days after the date on
which the Company notifies the Participant of its election to exercise its
Purchase Right (the "Election Date"), the Company shall pay to such Participant,
without interest, the lesser of (a) the aggregate purchase price payable by the
Company to purchase the shares of Common Stock pursuant to the Purchase Right,
and (b) an initial amount equal to the aggregate exercise price paid by such
Participant to acquire the shares of Common Stock being purchased by the Company
pursuant to the Purchase Right; provided, however, if the aggregate purchase
price payable by the Company to purchase the shares of Common Stock pursuant to
the Purchase Right exceeds the aggregate exercise price paid by such Participant
to acquire such shares, but is less than US$1,000,000, the Company shall pay the
total aggregate purchase price to the Participant in a lump sum within 90 days
after the Election Date. If the remaining aggregate purchase price payable, if
any, equals or exceeds US$1,000,000, the Company may elect to pay such remaining
purchase price in excess of the amount paid pursuant to (b) above to such
Participant in two substantially equal annual installments due and payable,
bearing simple interest at then prevailing rates, on the first and second
anniversaries, respectively, of the Election Date. The Company may prepay any
such installments, in whole or in part, at any time without penalty or premium.
8.3.2 The Purchase Notice shall specify the place, time and
date for the delivery of the shares of the Common Stock which are the subject of
the Purchase Notice. Such delivery shall take place at the principal executive
offices of the Company during normal business hours on a business day not fewer
than 15 nor more than 90 calendar days after delivery of the Purchase Notice. At
the place, time, and date so specified, the Participant (or his or her
<PAGE> 9
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estate, designated beneficiary or legal representative, as the case may be)
shall deliver certificates for such shares of the Common Stock, duly endorsed
for transfer, along with such other instruments of transfer pertaining to such
shares as may be reasonably required by the Board or the Committee.
8.3.3 If a Participant (or his or her estate, designated
beneficiary or legal representative, as the case may be) is obligated to sell
any shares of the Common Stock to the Company pursuant to the Purchase Right,
and such Participant fails to deliver the certificate(s) or otherwise comply
with the terms of this Section 8.3, the Company, upon delivery to such
Participant of payment therefor in accordance with this Section 8.3, shall
transfer on its records the certificate(s) representing such shares of the
Common Stock required to be sold pursuant to this Section 8.3 and such shares
shall thereupon cease to be held for any purpose by such Participant. Thereupon
all of the rights of such Participant in and to such shares shall be deemed
transferred to the Company and the Company may thereupon cancel the
certificate(s) representing such shares.
8.4 LOCK-UP. No shares of the Common Stock may be sold, transferred
pledged or otherwise disposed of or hypothecated in violation of or contrary to
any restrictions imposed on such sales or transfers by any underwriters in
connection with the offering for sale of any capital stock or other security of
the Company.
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 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
<PAGE> 10
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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, 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 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
underlying any unexercised Stock Options (whether then exercisable or not) over
the aggregate exercise price of such unexercised Stock Options.
9.3.2 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.
9.3.3 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.
9.4 DRAG-ALONG RIGHTS.
9.4.1 If ELM (the "Drag Shareholder") desires to sell all or
substantially all of the then outstanding shares of the Common Stock
beneficially or legally owned by ELM to any third party, other than an
Affiliate, at any time (a "Drag Sale"), then, if requested or required by any
such third party purchaser, each Participant or such Participant's permitted
transferee
<PAGE> 11
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under Section 8.2 of the Plan, estate, designated beneficiary or other legal
representative, who has acquired Common Stock pursuant to the exercise of Stock
Options granted under the Plan or otherwise (the "Drag Seller"), shall sell all
such shares of Common Stock, and all shares issued in respect of such shares,
whether as a stock dividend or otherwise, to such third party purchaser, in
accordance with the terms and provisions of this Section 9.4. All shares of
Common Stock sold or transferred pursuant to this Section 9.4.1 shall be sold at
the same price and upon the same terms and conditions as the shares of Common
Stock being sold by ELM.
9.4.2 The Company shall give each Drag Seller at least 15 days
prior written notice of any Drag Sale, containing a description of all material
terms and conditions of such Drag Sale. In connection with any Drag Sale, each
Drag Seller shall take such actions as may be reasonably required by the Drag
Shareholder and shall otherwise cooperate in good faith with the Drag
Shareholder. At the closing of a Drag Sale, each Drag Seller shall deliver to
the purchaser the certificates for all shares of the Common Stock being sold or
transferred by such Drag Seller, duly endorsed for transfer, against payment of
the appropriate purchase price.
9.4.3 Upon consummation of a Drag Sale, if a Drag Seller has
not delivered his or her certificates, as contemplated by this Section 9.4, such
Drag Seller shall no longer be considered a shareholder of the Company, and such
Drag Seller's sole rights shall be to receive the consideration receivable in
connection with such Drag Sale upon delivery of the certificates held by such
Drag Seller, as contemplated by Section 9.4.2.
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 or 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.
<PAGE> 12
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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 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
<PAGE> 13
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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.
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
Illinois, 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
<PAGE> 14
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interpretation of any provisions of the Plan.
11.9 EFFECTIVE DATE. The Plan shall be effective upon its approval
by the Board and adoption by the Company, subject to the approval of the Plan by
the Company's shareholders in accordance with Section 422 of the Code.
IN WITNESS WHEREOF, this Plan is adopted by the Company on this
_____ day of April, 1998.
SEMINIS, INC.
By: ________________________
Name:
Title:
<PAGE> 15
AMENDMENT NO. 1 TO THE
SEMINIS, INC.
1998 STOCK OPTION PLAN
WHEREAS, Seminis, Inc. (the "Company") maintains the Seminis, Inc. 1998
Stock Option Plan (the "Plan");
WHEREAS, pursuant to the authority reserved in Section 10.1 of the Plan,
the Board of Directors of the Company (the "Board") may amend the Plan from
time to time;
WHEREAS, the Company now wishes to amend the Plan to modify certain
matters relating to eligibility to participate therein; and
WHEREAS, the Board approved this amendment on November 4, 1998;
NOW, THEREFORE, pursuant to Section 10.1 of the Plan, the Plan is hereby
amended, effective upon approval by the Board and adoption by the Company of
this Amendment No. 1, in the following respect:
1. Section 1 of the Plan shall be amended in its entirety to read as
follows:
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. Section 5 of the Plan shall be amended in its entirety to read as
follows:
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.
IN WITNESS WHEREOF, this Amendment to the Seminis, Inc. 1998 Stock Option
Plan has been executed on behalf of Seminis, Inc. by its duly authorized
officer.
Seminis, Inc.
Date: By
----------------------------- -----------------------------
Title:
<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
Empresas La Moderna S.A. de C.V., a corporation organized under the laws of
Mexico ("ELM").
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
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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
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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
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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 [_____________]. 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
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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 ELM 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 [ ]
underlying shares of Common Stock. Each individual Participant may not receive
in any calendar year awards of Stock Options exceeding [ ] 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
<PAGE> 8
-8-
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
<PAGE> 9
-9-
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
<PAGE> 10
-10-
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
<PAGE> 11
-11-
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
<PAGE> 12
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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 10.3
[Execution Copy]
SEMINIS, INC.
- and -
HUNGNONG SEED CO., LTD.
SHARE SUBSCRIPTION AGREEMENT
June 12, 1998
KIM & CHANG
<PAGE> 2
SHARE SUBSCRIPTION AGREEMENT
This Share Subscription Agreement (the "Agreement") is entered into on this 12th
day of June, 1998 ("Effective Date") by and between:
(1) Seminis, Inc., a corporation duly organized and existing under the laws
of the state of Illinois, U.S.A. and having its principal office at
2901 N. Ventura Road, Suite 250, Oxnard, California 93030, U.S.A. (the
"Subscriber"); and
(2) Hungnong Seed Co., Ltd., a corporation duly organized and existing
under the laws of Korea and having its principal place of business at
1338-20 Seocho-Dong, Seocho-Ku Seoul, Korea (the "Company").
Witnesseth:
WHEREAS, the Subscriber and the shareholders of the Company have entered into a
Share Sale and Purchase Agreement as of even date herewith ("Share Sale and
Purchase Agreement"), the form of which is attached hereto as Attachment I,
whereby the Subscriber shall purchase 271,585 shares of the Company from all of
the shareholders of the Company and such shareholders shall cause the Company to
issue new shares to the Subscriber so that the Subscriber may acquire a 70%
interest in the Company on a fully diluted basis;
WHEREAS, the Company also desires to issue new shares of the Company to the
Subscriber as provided in the Share Sale and Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants stated
below, the Subscriber and the Company hereby agree as follows:
Article 1. Definitions
Unless otherwise defined herein, all capitalized terms shall have the same
meaning as in the Share Sale and Purchase Agreement.
Article 2. Subscription for and Issuance of the Shares
2.1 On the Closing Date, the Company shall issue to the Subscriber and the
Subscriber shall acquire from the Company, 1,428,050 shares of the
Company (the "New Shares") in accordance with the terms and conditions
of this Agreement and the Share Sale and Purchase Agreement.
2.2 The subscription price for the New Shares will be 107,793,000,000
("Subscription Price").
2.3 The Subscription price shall be paid to the Company on the Closing
Date.
2.4 The share certificates representing the New Shares shall bear the date
of the day immediately following the Closing Date.
<PAGE> 3
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Article 3. Conditions Precedent to Issuance of the Shares
All obligations of the Company to issue to the Subscriber, and of the Subscriber
to purchase from the Company, the New Shares pursuant hereto are subject to and
conditioned upon fulfillment of each of the following conditions:
(a) The Subscriber is satisfied that all representations and
warranties made by the Company under Article 4 were true when
made and are true and accurate in all respects on the Closing
Date;
(b) The Company is satisfied that all representations and
warranties made by the Subscriber under Article 5 were true
when made and are true and accurate in all respects on the
Closing Date;
(c) All conditions precedent under Article 9 of the Share Sale and
Purchase Agreement shall have been satisfied.
Article 4. Representations and Warranties of the Company
4.1 The Company hereby represents and warrants to the Subscriber as
follows:
(a) This Agreement has been duly authorized, executed and
delivered by the Company after respectively taking all
required corporate actions including approval by their
respective boards of directors and (assuming due
authorization, execution and delivery thereof by the
Subscriber) constitutes the valid and legally binding
obligations of the Company.
(b) The Company has full power and authority to enter into and
perform its obligations under this Agreement.
(c) There are no outstanding securities convertible into or
exchangeable for, or warrants, rights or options to purchase
from the Company, or obligations of the Company to issue,
capital stock.
(d) The execution and delivery of this Agreement and the issuance
of the New Shares will not infringe and will not be contrary
to any law or regulation of any Korean governmental or
regulatory body and will not result in any breach of the terms
of the Articles of Incorporation of the Company or constitute
a default under any deed, agreement, mortgage or other
instrument to which the Company is a party.
(e) Except as otherwise disclosed to the Subscriber, there is no
option, right to acquire, mortgage, charge, pledge, or lien or
other form of security or encumbrance on, over or affecting
the issued share capital of the Company and no agreement to
give or create any of the foregoing except for such statutory
pre-emotive rights to acquire shares as conferred by law.
(f) The New Shares, together with 271,585 shares purchased by the
Subscriber through the Share Sale and Purchase Agreement,
shall represent 70% of the total
<PAGE> 4
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number of issued and outstanding shares of the Company after
the subscription hereby, on a fully diluted basis.
Article 5. Representations and Warranties of the Subscriber
The Subscriber hereby represents and warrants as follows:
5.1 The Subscriber is a corporation duly organized and validly existing
under the laws of Illinois, U.S.A. with requisite corporate power and
authority to make, execute, deliver and perform this Agreement.
5.2 This Agreement has been duly authorized, executed and delivered by the
Subscriber and (assuming due authorization, execution and delivery
thereof by the Company) constitutes the valid and legally binding
obligations of the Subscriber.
Article 6. Covenants of the Company
The Company hereby covenants and warrants as follows:
(a) The Company shall take any and all actions necessary to issue
the New Shares as contemplated in this Agreement, including
but not limited to the adoption of its Board of Directors
resolution and amendment of its Articles of Incorporation to
restrict the pre-emptive rights of its existing shareholders.
(b) The Company shall perform, execute, and achieve those acts
which the Shareholders promised to "cause" Hungnong to do
under the Share Sale and Purchase Agreement.
Article 7. Indemnification
The Company agrees to indemnify, defend and hold harmless the Subscriber (and
its directors, officers, employees, Affiliates, agents, representatives,
successors and assigns) from and against any and all losses, liabilities,
damages, deficiencies, demands, claims, actions, judgments or causes of action,
assessments, costs or expenses (including, without limitation, bonds, interest,
penalties and reasonable attorneys' fees and disbursements) ("Losses") based
upon, arising out of or otherwise in respect of any inaccuracy in or any breach
of any representation, warranty, covenant or agreement of the Company contained
in this Agreement, or any document or other papers delivered by the Company or
its Affiliate(s) to the Subscriber in connection with this Agreement.
Article 8. Miscellaneous
8.1 The following Articles of the Share Sale and Purchase Agreement shall
be made a part hereof; provided, however, that the references to the
Shareholders in such Articles shall be considered references to the
Company for such purposes: Articles 15, 16, 18, 19, 20, 21, 22, 23, 24,
25, 26, 27, 28 and 29.
<PAGE> 5
-4-
8.2 If the Share Sale and Purchase Agreement is terminated for whatever
reason, this Agreement shall also terminate without any further action
by either party hereto.
<PAGE> 6
-5-
IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
SUBSCRIBER: Seminis, Inc.
- ----------------------------
Name: Octavio A. Hernandez
Attorney-in-fact
COMPANY: Hungnong Seed Co., Ltd.
- ----------------------------
Name: Duk-hoon Lee
Attorney-in-fact
<PAGE> 7
ATTACHMENT I
Share Sale and Purchase Agreement
<PAGE> 8
SHARE SALE AND PURCHASE AGREEMENT
This Share Sale and Purchase Agreement ("Agreement") is entered into on this
12th day of June, 1998 ("Effective Date") by and between:
(1) Seminis, Inc., a corporation duly organized and existing under the laws
of the state of Illinois, U.S.A. and having its principal office at
2901 N. Ventura Road, Suite 250, Oxnard, California 93030, U.SA.
("Seminis"); and
(2) the individuals identified on the signature page of this Agreement
(collectively referred to as ("Shareholders").
Witnesseth:
WHEREAS, Hungnong Seed Co., Ltd. ("Hungnong") is engaged in the development and
sales of seeds through various breeding centers, branch offices and subsidiaries
in Korea, China, Indonesia and the U.S.A.;
WHEREAS, the Shareholders own and control 1,000,000 common shares of Hungnong,
having a par value of five thousand (5,000) Korean Won per share, representing
100% of the shares of Hungnong issued and outstanding (these shares being owned
by the Shareholders are referred to as the "Existing Shares");
WHEREAS, Seminis wishes to acquired a 70% interest in Hungnong, and the
Shareholders desire that Seminis acquire a 70% interest in Hungnong on a fully
diluted basis; and
WHEREAS, Seminis and the Shareholders desire that Seminis acquire such 70%
interest in Hungnong through the purchase of 271,585 Existing Shares from the
Shareholders in accordance with this Agreement and the purchase of 1,428,050
newly issued shares of Hungnong ("New Shares") pursuant to this Agreement and a
share subscription agreement to be entered into between Seminis and Hungnong as
of even date herewith ("Share Subscription Agreement").
NOW, THEREFORE, in consideration of the mutual promises and covenants stated
below, the Shareholders and Seminis hereby agree as follows:
Article 1. Sale and Purchase of Sales
1.1. Subject to the terms and conditions of this Agreement, on the Closing
Date (as hereinafter defined) Shareholders shall sell, assign, convey,
and transfer to Seminis, and Seminis shall purchase from Shareholders,
271,585 Existing Shares which are set forth in detail in Attachment I
hereto (the Existing Shares so purchased shall hereinafter be referred
to as the "Purchased Shares"; of the Purchased Shares, the shares which
are pledged to Seminis pursuant to the Pledge Agreement between Seminis
and the Shareholders dated April 8, 1998, and amended on May 21, 1998,
are referred to as the "Pledged Purchased Shares" and listed in
Attachment I-1 hereto; of the Purchased Shares,
<PAGE> 9
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the shares which are not pledged are referred to as the "Non-Pledged
Purchased Shares" and listed in Attachment I-2 hereto).
1.2 In consideration for the sale and purchase of the Purchased Shares,
Seminis shall pay to Shareholders twenty billion five hundred million
(20,500,000,000) Korean Won (the "Purchase Price"); provided that
Purchase Price shall be paid to the Shareholders subject to the
Adjustments (as defined in Article 2) and other terms and conditions of
this Agreement.
Article 2. Adjustments
2.1 Except as provided in Attachment II, Seminis shall make adjustments to
the Purchase Price to the extent that it is determined by Seminis that
the Shareholders have breached any of the representations and
warranties in Attachment III hereof or any of the covenants and
agreements under this Agreement ("Adjustments"). The Adjustments may be
made any multitude of times, within nine months after the Closing Date.
The determination as to whether to make the Adjustments as well as the
amount thereof shall be determined by Seminis. After Seminis has
notified the Shareholders of its determination regarding the
Adjustments, the Shareholders shall respond within ten (10) calendar
days of such notice. If the Shareholders do not respond within ten (10)
calendar days, Seminis' proposed Adjustment shall be considered to be
accepted by the Shareholders and the Purchase Price shall be adjusted
in accordance with Seminis' determination. If the Shareholders timely
object to Seminis' proposed Adjustment, and the parties cannot reach a
mutually acceptable Adjustment within twenty (20) calendar days the
parties shall receive their differences in accordance with Section 15.2
hereof.
2.2 The adjustments shall be subject to the following:
(a) Adjustments shall include, but not be limited to: (i)
Hungnong's obsolete and slow moving inventories as of the
Closing Date, as defined under Korean GAAP and the
International seed industry practices ("Written-off
Inventories"), and (ii) Hungnong's receivables outstanding as
of the Closing Date which are not collected 90 days past the
contractual due date (if no contractual due date exists, 90
days past the date by which payments are customarily paid in
the Korean seed business) ("Written-off Receivables").
However, there shall be no Adjustment with respect to the
Written-Off Receivables and Written-Off Inventories if such
write-offs are not in the aggregate five hundred million
(500,000,000) won greater than the write-offs calculated as of
December 31, 1997. Written-off Receivables shall not include
those receivables which are proven upon due diligence to
Seminis' satisfaction to be fully secured with collateral.
(b) Hungnong's investments in, and loans (including advances and
receivables) to, its subsidiaries or affiliates, which are set
forth in detail in Attachment IV hereto (the companies listed
in the same Attachment being hereinafter referred to as
"Affiliate Companies" and together with Hungnong, "Hungnong
Companies"), shall not be considered in making the
Adjustments.
<PAGE> 10
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(c) Except as provided in Section 12.1 hereof, if any Adjustment
is made due to Losses (defined in Article 12 hereof) incurred
directly by Seminis as a result of any breach by the
Shareholders of any representation, warranty, covenant and
agreement hereto, the Adjustment shall equal the entire amount
of the Losses; however, if any Adjustment is made due to
Losses incurred by Hungnong, the Adjustment shall equal 70% of
the Losses, provided that the Shareholders' interest in
Hungnong falls below 30%, the Adjustments shall be increased
in inverse proportion to the Shareholders' interest).
Article 3. New Share Issuance
Subject to the terms of this Agreement and the Share Subscription Agreement, the
Shareholders shall cause Hungnong to arrange for the issuance of 1,428,050 New
Shares to Seminis at a price of approximately 75,483 Won per share, which
comprise of five thousand (5,000) Won par value per share plus a premium of
approximately 70,483 Won shall be referred to as "Subscription Price") so that
Seminis may subscribe and pay for such New Shares on the Closing Date. The New
Shares, together with the Purchased Shares, shall constitute 70% of the total
issued and outstanding shares of Hungnong after the issuance of New Shares on a
fully diluted basis.
Article 4. Closing
4.1 The closing of the purchase of the Existing Shares and subscription of
the New Shares provided hereunder, shall take place on July 15, 1998,
or on such other date (the "Closing Date"), at the offices of Kim &
Chang or on such other place as the Shareholders and Seminis may agree
(the "Closing").
4.2 On the Closing Date, the Shareholders shall (a) properly execute and
deliver to Seminis, the share certificates representing the Purchased
Shares, and take all other actions and deliver all other documents
necessary to transfer the Purchased Shares to Seminis, and (b) cause
Hungnong to duly issue the New Shares to Seminis in accordance with the
terms of this Agreement and the Share Subscription Agreement.
With respect to the Non-Pledged Purchased Shares, the Shareholders
shall physically deliver to Seminis the share certificates representing
such shares. With respect to the Pledged Purchased Shares, Seminis
shall continue to retain the share certificates representing such
shares for the purpose of acquiring such shares under this Agreement,
and the Shareholders shall be deemed to have delivered the share
certificates representing the Pledged Purchased Shares pursuant to this
Agreement.
4.3 On the Closing Date, in exchange for the Shareholders' transfer of the
Purchased Shares and Hungnong's issuance of New Shares, as set forth in
4.2 above, Seminis shall:
(a) Pay twelve billion and five hundred million (12,500,000,000)
Won to the Shareholders in an account designated in writing by
the Shareholders;
(b) Deposit eight billion (8,000,000,000) Won into an escrow
account ("Escrow Account") to be established pursuant to an
escrow agreement ("Escrow
<PAGE> 11
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Agreement") which shall be entered into by and among Seminis,
the Shareholders and Citibank, N.A., acting through its Seoul
Branch, or another an escrow agent to be appointed by mutual
consent Seminis and the Shareholders, on or prior to the
Closing Date. A form of the Escrow Agreement is attached
hereto as Attachment V. The funds in the Escrow Account shall
be released to the Shareholders and/or Seminis in accordance
with the terms of the Escrow Agreement;
(c) Pay to Hungnong the Subscription Price, in accordance with the
Share Subscription Agreement; and
(d) Except for the certificates representing the Pledged Purchased
Shares, release to the Shareholders the share certificates
representing the shares of Hungnong which were pledged to
Seminis pursuant to the Pledge Agreement and the Amendment
thereto, entered into by and among the Shareholders and
Seminis as of April 8, 1998 and May 21, 1998, respectively;
provided however, that the certificates shall be retained by
Seminis to the extent necessary for Seminis to receive the
securities with respect to the Young I1 Pledge Related Shares
(as defined below) under the Young I1 Guarantee and Pledge
Agreement.
Article 5. Representations and Warranties
5.1 Representations and Warranties of Shareholders. The Shareholders'
representations and warranties are set forth in Attachment III hereof.
5.2 Representations and Warranties of Seminis. Seminis' representations and
warranties are set forth in Attachment VI hereof.
Article 6. Restructuring of Affiliate Companies
6.1 Prior to the Closing Date, the Shareholders shall cause certain
Affiliate Companies to be restructured, as more fully described in this
Article. The Hungnong Companies set forth in subsections (b), (e), (f)
and (g) below, along with Hungnong, Hungnong U.S.A. Inc., Hungnong Seed
(Beijing) Co., Ltd., and Hanmi Plug Co., Ltd. shall be defined as the
"Remaining Hungnong Companies."
(a) Young Il Chemical Co., Ltd. ("Young Il")
The Shareholders shall cause Hungnong and Hungnong Industry
Co., Ltd. to transfer to the Shareholders all of the shares in
Young Il held by Hungnong and Hungnong Industry Co., Ltd.
(i.e., 169,228 common shares representing approximately 33.8%
of the total issued and outstanding shares).
(b) Hungnong International Co., Ltd.
The Shareholders shall transfer, or shall cause to be
transferred, all of the shares in Hungnong International Co.,
Ltd. held by the Shareholders, Young Il and
<PAGE> 12
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Handok Electronics Co., Ltd. (i.e., 44,390 common shares
representing approximately 37.7% of the total shares issued
and outstanding) to Hungnong.
(c) Simon Telecom Co., Ltd.
The Shareholders shall cause Hungnong to transfer to the
Shareholders all of Hungnong's shares in Simon Telecom Co.,
Ltd. (i.e., 5,000 common shares representing approximately
16.7% of the total shares issued and outstanding).
(d) Sehung Finance Co., Ltd.
The Shareholders shall cause Hungnong International Co., Ltd.
to transfer to the Shareholders all of the shares held by
Hungnong International Co., Ltd. in Sehung Finance Co., Ltd.
(i.e., 20,000 common shares representing approximately 20.0%
of the total shares issued and outstanding).
(e) Hungnong Soil Research Co., Ltd.
The Shareholders shall transfer to Hungnong all of the shares
in Hungnong Soil Research Co., Ltd. held by the Shareholders
(i.e., 8,000 common shares representing approximately 10.0% of
the total shares issued and outstanding).
(f) Hungnong Industry Co., Ltd.
The Shareholders shall transfer, and shall cause Young Il to
transfer, to Hungnong all of the shares in Hungnong Industry
Co., Ltd. held by the Shareholders and Young Il (i.e., 35,000
common shares representing approximately 11.7% of the total
shares issued and outstanding).
(g) Handock Electronics
The Shareholders shall transfer to Hungnong all of the shares
in Handock Electronics held by the Shareholders (i.e., 82,500
common shares representing approximately 14.6% of the total
shares issued and outstanding).
(h) The Nong Min Journal Co., Ltd.
Hungnong International Co., Ltd. shall transfer to the
Shareholders all of the shares in The Nong Min Journal Co.,
Ltd. held by Hungnong International Co., Ltd. (i.e., 9,000
common shares representing approximately 30% of the total
shares issued and outstanding).
6.2 The transfer of the shares set forth in Section 6.1 above shall be made
without payment of any further consideration other than as provided
herein. Any tax liability to be incurred by such share transfer shall
be borne by the party which is primarily liable for such tax under the
relevant tax laws and regulations. To the extent legal and practicable,
and without causing any undue burden, each party hereto shall cooperate
with the other parties to legally reduce taxes caused by this
transaction.
<PAGE> 13
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6.3 The parties agree that (i) Seminis shall provide a loan to Young Il in
the amount of approximately forty-three million (43,000,000) U.S.
Dollars on the Closing Date in accordance with a loan agreement entered
into by and between Seminis and Young Il as of the date hereof ("Young
Il Loan Agreement"), (ii) the Shareholders shall jointly and severally
guarantee Young Il's performance of its obligations under the Young Il
Loan Agreement and shall establish the first priority and perfected
pledge interest, among other things, over 607,013 shares of Hungnong
which are owned by the Shareholders, in accordance with a guarantee and
pledge agreement entered into by and between Seminis and the
Shareholders as of even date hereof ("Young Il Guarantee and Pledge
Agreement", the shares subject to such pledge as described in detail in
Young Il Guarantee and Pledge Agreement shall be referred to as the
"Young Il Pledge Related Shares"), (iii) under the Young Il loan
Agreement, Young Il is obliged to (x) repay the 6 billion loan provided
by Hungnong to Young Il under a loan agreement between Young Il and
Hungnong as of May 14, 1998 within one Banking Day from the Closing,
and (y) clear any and all of the guarantees provided by Hungnong in
connection with the debts owed by Young Il to certain financial
institutions in Korea within thirty (30) days from the Closing, (iv)
the failure by Young Il of its obligations under (iii) above shall
constitute an event of default under the Young Il Loan Agreement, which
in turn entitles the Seminis to enforce its pledge right in accordance
with Young Il Guarantee and Pledge Agreement, and (v) Seminis may
acquire title to the Young Il Pledge Related Shares, if it exercises
its pledge right under the Young Il Guarantee and Pledge Agreement.
6.4 Without waiving or adversely affecting Seminis' rights, under the Young
Il Loan Agreement and Young Il Guarantee and Pledge Agreement as
aforementioned, the Shareholders shall, within thirty (30) days from
the Closing, clear all the cross guarantees provided by Hungnong in
connection with Young Il's debts owed to financial institutions and
shall cause Young Il to repay the 6 billion loan to Hungnong. The
Shareholders shall provide to Seminis a certificate from the
appropriate banks certifying that aforementioned cross guarantees have
been cleared.
Article 7. Seminis' Covenant
7.1 On or soon after the Closing Date, Seminis shall cause Hungnong to
transfer the guest house, which is located in Chochiwon, as more fully
described in Attachment VII hereto (the "Guest House"), to Duk-hoon Lee
for no consideration. Notwithstanding any provision herein to the
contrary, the Shareholders shall bear all taxes imposed on the
Shareholders together with any and all transaction costs related to
such transfer. In consideration for the free transfer of the Guest
House to the Shareholders, Hungnong shall be permitted to use the Guest
House for no consideration provided Hungnong shall bear the costs to
maintain the Guest House, such as utility charges therefor. Further.
Hungnong's use shall be similar to the manner in which the Shareholders
and/or Hungnong used the guest house prior to the Closing, or such use
is reasonably necessary to carry out the business of Hungnong. Hungnong
shall also be permitted to use the Guest House for as long as it
desires. Furthermore, the Shareholders shall neither (i) sell the Guest
House to any third party unless they first offer to sell the Guest
House to Seminis or Hungnong for 116,287,073 Won nor (ii) allow any
encumbrances to be placed
<PAGE> 14
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on the Guest House. In addition, immediately after the title transfer
under this Section 7.1, Duk-hoon Lee shall allow a provisional
registration of the transfer of the title to the Guest House in favor
of Hungnong so that it may secure its priority with respect to the
Guest House.
7.2 As long as the Shareholders have not breached a representation or
warranty, covenants or agreement hereunder which requires an indemnity
obligation by the Shareholders in excess of ten (10) billion Won, for a
period of 2 years after Closing, Seminis shall not cause Hungnong to
dilute the Shareholders' interest in Hungnong.
7.3 On or soon after the Closing Date, Seminis shall cause Hungnong to pay
off the loans listed in Attachment VIII.
7.4 If Seminis desires to change the name of Hungnong during the first
three (3) year period after Closing, Seminis shall consult with the
Shareholders prior to such name change; provided however, that Seminis
shall not be bound by such consultation.
Article 8. Shareholders' Covenants
Except as otherwise consented to or approved by Seminis in writing, the
Shareholders covenant to and agree with Seminis as follows:
(a) From the Effective Date, the Shareholders shall cause Hungnong
Companies to conduct their businesses in the ordinary course
of business consistent with sound business practices and
preserve such businesses' structure and organization and their
relationships with their customers, employees, suppliers and
others with whom Hungnong Companies deal;
(b) From the Effective Date to and including the Closing Date, the
Shareholders covenant and agree that none of Hungnong
Companies shall (i) issue any shares or any instruments
convertible into shares (ii) incur any liability or
obligations of any nature (whether accrued, absolute,
contingent or otherwise) except in the ordinary course of
business consistent with sound business practice, (iii) permit
any of their assets to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of
any kind, (iv) except as otherwise provided herein, sell,
transfer or otherwise dispose of any assets, including to
Affiliate Companies, (v) make any capital expenditure or
commitment therefor, (vi) declare or pay any dividend or make
any distribution on any shares of their capital stock or
redeem, purchase or otherwise acquire any shares of their
capital stock or grant any option, warrant or other right to
purchase or acquire any such shares, (vii) make any bonus or
profit sharing distribution or payment of any kind except in
the ordinary course of business consistent with sound business
practices, (viii) increase their indebtedness for borrowed
money other than borrowing under existing lines of credit or
make any loan to any person, (ix) enter into any new service
or employment agreement, or any renewals thereof, with any
executive employees or other employees, or grant any increase
in the rate of wages, salaries, bonuses or other remuneration
of executive employees or other employees, (x)
<PAGE> 15
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cancel or waive any claims or rights of value, (xi) make any
change in any method of accounting or auditing practice, (xii)
extend any guarantees with respect to the obligations of any
of the other Hungnong Companies or of any third party, or make
any loans or investments in, or enter into any agreement or
arrangement with any of the other Hungnong Companies or third
parties, (xiii) breach any of the agreements entered into with
third parties, (xiv) enter into any transactions among
themselves and/or with the Shareholders, (xv) amend any of
their bylaws or Articles of Incorporation, (xvi) acquire by
merging or consolidating with, or by purchasing the assets of,
or by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof of otherwise acquire any assets (other than
inventory in the ordinary course of business consistent with
sound business practices), (xvii) agree, whether or not in
writing, to do any of the foregoing or (xviii) enter into any
other material transaction;
(c) Shareholders will, upon reasonable prior notice and during
normal business hours, (i) cause Hungnong Companies to give to
Seminis and its authorized representatives full access to all
plants, farms, offices, warehouses, breeding centers and other
facilities and properties and other assets, and such of the
books and records of Hungnong Companies as are necessary or
appropriate for review in connection with the transactions
contemplated hereby and (ii) cause their and/or Hungnong
Companies' officers, advisers and other representatives to
discuss with Seminis and its authorized representatives the
affairs of Hungnong Companies, as Seminis may from time to
time reasonably request;
(d) The Shareholders will, at any time and from time to time, at
the request of Seminis, make, execute and deliver such
assignments, deeds, bills of sale, fillings, conveyances and
other instruments, agreements, consents and assurances and
take or cause to be taken all action as Seminis may reasonably
request for the consummation or confirmation of the transfers
and other transactions contemplated by this Agreement;
(e) From the Effective Date until the Closing Date, Shareholders
shall not, and shall ensure that Hungnong Companies will not,
approve, assist, negotiate, or discuss with any third party to
purchase any shares in Hungnong Companies through whatever
means; and
(f) Shareholders shall cause Hungnong to issue the share
certificates representing the New Shares which shall bear the
date, and be delivered to Seminis, on the date immediately
following the Closing Date.
Article 9. Conditions Precedent to Closing
The Closing contemplated under this Agreement shall be subject to and
conditioned upon satisfaction of the following:
<PAGE> 16
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(a) the Government Approvals (as defined in Article 10) should
have been obtained in form and substance satisfactory to both
parties;
(b) all representations and warranties of the Shareholders and
Seminis contained in this Agreement were true when made and
shall be true in all respects as of the Closing Date as if
such representations and warranties were made at and as of
such Closing Date;
(c) Shareholders and Seminis should both have performed and
complied with and should not have breached any agreements and
covenants required by this agreement to be performed or
complied with by them on or prior to the Closing Date;
(d) no action or proceeding shall have been instituted or
threatened before any court or other governmental body or by
any public authority seeking to restrain or prohibit any of
the transactions contemplated by this agreement;
(e) since the Effective date, there shall not have been (i) any
material adverse change in the condition (financial or
otherwise) or prospects of Hungnong Companies, or (ii) any
change in political circumstances, laws and regulations that
will make the transactions contemplated by this agreement
impractical or illegal;
(f) Seminis shall have completed an initial review with respect to
the transactions contemplated by this Agreement, including,
without limitation, legal, financial, accounting,
environmental, operational and engineering matters concerning
Hungnong Companies;
(g) The Shareholders shall have completed the restructuring of
Affiliate Companies, as provided in Section 6.1, hereof, shall
have sent a written notice to Seminis of such restructuring,
and shall make available to Seminis satisfactory evidence of
such restructuring;
(h) The Shareholders shall cause all of the directors (registered
and non-registered) and the statutory auditors of Hungnong
Companies to submit the resignation letters as of the closing
Date and shall cause Hungnong to convene the shareholders
meeting as of the closing Date and shall, as proposed by
Seminis, elect new directors and statutory auditors, and amend
the articles of incorporation; and
(i) The Shareholders shall cause each of Young Il Chemical Co.,
Ltd., Simon telecom Co., Ltd., and Sehung Finance Co., Ltd.
and the Nong Min Journal Co., Ltd. to provide Seminis and the
Remaining Hungnong Companies with a release and
indemnification, the form of which is attached hereto as
Attachment IX.
Each party hereunder may, in its sole discretion, waive any one or more of the
conditions precedent required by this Article for such party's benefit. Such
waiver shall not have any effect on the other party's responsibilities and
liabilities under the representations, warranties, covenants and agreements made
hereunder.
<PAGE> 17
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Article 10. Government Approvals
10.1 Shareholders and Seminis shall cooperated in filing all necessary
reports with and obtaining approvals from the government agencies or
public authorities required for execution of this agreement and
consummation of any transaction contemplated hereunder, including but
not limited to the following:
(a) The approval of the transfer of the Purchased Shares from the
Ministry of finance and Economy ("MOFE") in accordance with
the Foreign Investment and Foreign capital Inducement Law;
(b) Filing of report with, and acceptance by, a foreign exchange
bank, in connection with Seminis; acquisition of New Shares in
accordance with the Foreign Investment and Foreign Capital
Inducement Law;
(c) The approval from the Fair Trade Commission for the
acquisition of the Purchased Shares pursuant to the Monopoly
Regulation and Fair Trade Law;
(d) The approval form MOFE for Young Il Loan Agreement and Young
Il Guarantee and Pledge Agreement.
The reports and approvals described in this Article are herein
collectively referred to as "Government Approvals.".
10.2 Notwithstanding any provision in this Agreement to the contrary, the
parties hereto agree to seek the approval from the Fair Trade
Commission set forth in Section 10.1(c) above after the Closing.
Therefore, although the Shareholders and Seminis shall fully cooperate
with each other to obtain such approval, it shall not be a condition
precedent for purposes of Article 9 hereof.
Article 11. Management of Hungnong
11.1 From the Effective Date until the closing Date, the Shareholders shall
ensure that a representative to be appointed by Seminis
("Representative") be consulted with before any of Hungnong Companies
makes any management decisions through their board of directors' or
shareholders' meetings or otherwise.
11.2 From the closing Date and for so long as the Shareholders maintain a
30% interest in Hungnong, (i) the shareholders shall have the right to
appoint up to but not exceeding 30% of the total board members of
Hungnong, (ii) there shall be at least four (4) directors on the board
of Hungnong, and (iii) the Shareholders and Seminis shall each appoint
one non-standing statutory auditor. The non-standing auditors shall not
receive any compensation from Hungnong.
11.3 Unless otherwise required by Korean law, board and shareholders'
resolutions of Hungnong shall be adopted by affirmative vote of the
simple majority of all directors and all outstanding shares,
respectively.
<PAGE> 18
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11.4 Seminis shall cause Hungnong to appoint Duk-hoon Lee as the Honorary
Chairman of Hungnong for a period of 7 years from the closing Date;
provided, however if the period of non-compete as provided in Article
13 hereof is reduced contractually or by operation of law, the period
of the Honorary Chairman shall be reduced likewise. The title of
Honorary chairman shall to confer upon Mr. Duk-hoon Lee any corporate
powers, such as the authority to represent for bind Hungnong or
Hungnong's board of director. During Mr. Duk-hoon Lee's tenure as
Honorary Chairman he will receive an annual compensation of 100 million
(100,000,000) Won, the use of a company car and driver, a secretary,
and an office.
Article 12. Indemnification
12.1 by Shareholders. With respect to the representations and warranties,
covenants and agreements provided herein, any breach thereto shall
first be resolved by making appropriate adjustments to the Purchase
Price in accordance with Article 2. The shareholders shall indemnify
and hold Seminis or Hungnong and their directors, officers, employees,
agents and representatives harmless from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable
legal fees and expenses), and taxes ("Losses") arising from any false
or misleading representation and warranty, a covenant or agreement made
by shareholders hereunder. Further, any Losses incurred directly by
Seminis as a result of any breach by the shareholders of any
representation, warranty, covenants and agreements hereto, shall be
fully indemnified by the Shareholders; however, if Hungnong incurs such
Losses, the shareholders shall either (i) fully indemnify Hungnong for
the entire amount of the Losses or (ii) fully indemnify Seminis for 70%
of the Losses of Hungnong provided the Shareholders have maintained a
30% interest in Hungnong (if the Shareholders' interest in Hungnong
falls below 30%, the Losses for which Seminis shall be indemnified
shall be increased in inverse proportion to the Shareholders'
interest). Notwithstanding any provision contained herein to the
contrary, if the shareholders breach any of the obligations as set
forth in Section 6.4, and paragraphs 1,2,5,6,7,16,29, and 30 of
Attachment III, any all Losses arising from such breach will not be
limited by the amount of the Purchase Price.
12.2 By Seminis. Seminis shall indemnify and hold Shareholders and their
directors officers, employees, agents and representatives harmless from
and against any and all reasonable legal fees and expenses), arising
from any false or misleading representation and warranty or breach of
covenant by Seminis under this Agreement.
12.3 Survival. The indemnities contained in this Article 12, as well as the
underlying representations and warranties, shall survive the closing of
this Agreement and any adjustments to the Purchase Price . Any claim by
any of the parties hereof for indemnification must be made in writing
an delivered to the other party allegedly liable for such damages.
Article 13. Non-Competition
The Shareholders shall not compete against the business of Remaining Hungnong
Companies, wither directly or indirectly, for a period of 7 years. Further, the
shareholders will dissolve,
<PAGE> 19
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transfer or otherwise terminate all companies or entities engaged in the seed
related businesses owned or controlled directly or indirectly, by the
Shareholders including but not limited to he Seohai Distribution Company.
Article 14. Right of First Refusal
14.1 If any party hereto desires to sell, assign or otherwise transfer all
or any portion of its shares in Hungnong, such party ("Selling Party")
shall offer all such shares by written notice first to the other party
("Offeree") specifying price, terms and conditions of sale.
(a) If Offeree does not accept the offer within sixty (60) days
from the date of the receipt of such offer ("Acceptance
Period"), then the Selling Party shall thereafter be free to
dispose of its shares within a period of sixty (60 ) days
("Free Sale Period") after the expiration of said acceptance
Period; provided, however, that the selling Party shall not
sell such shares to any third party either (i) at a lower
price than the price at which such shares were offered to
Offeree, or (ii) on other terms or conditions more favorable
than those on which shares were offered to Offeree, except for
such other terms and conditions as are reasonably necessary to
meet foreign exchange or foreign investment regulations of
Korea.
(b) If the shares are not sold or transferred to third parties
upon the terms established herein and within the Free Sale
Period, then they shall automatically become subject once more
to the terms of this Article 14 as if they had never before
been offered for sale.
(c) Offeree shall have the right to designate a third party
acceptable to the Korean Government who may exercise the right
granted to Offeree under this Article 14.
14.2 Notwithstanding anything to the contrary herein, any sale or transfer
contemplated by this Article 14 shall be subject to Government
Approval, if required. If necessary, the Acceptance period and/or the
Free Sale Period referred to in Section 14.1 above shall be extended
until such Government Approval has been obtained or officially and
finally denied, provided that the party seeking to extend such
Acceptance Period shall have used its reasonable efforts in soliciting
such Government Approval.
14.3 Notwithstanding any other rights which may be granted by this agreement
or otherwise, the shareholders hereby agree that they shall not sell or
otherwise transfer, or cause to be sold or transferred, its ownership,
or any part of its ownership, in Hungnong to a potential competitor of
Hungnong or Seminis or any other person or entity whose participation
in Hungnong might interfere with t he business of Hungnong and/or
Seminis.
14.4 If the selling Party shall sell or otherwise transfer all or any part
of his, her or its shares to a third party (other than Offeree's
designee), pursuant to the terms of this Article 14, such Selling Party
shall cause the third party acquiring such shares, as a condition of
such acquisition, to furnish written undertaking to Offeree and
Hungnong agreeing to observe and be bound by all provisions of this
agreement as if it had executed this agreement in place of the party
who sold the shares. In addition, such selling Party shall (so long as
he, she or they own(s) any shares in Hungnong) be responsible to
Offeree in respect of such
<PAGE> 20
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purchaser or transferee, to secure complete and timely observance of
the provisions of this Agreement by such purchaser or transferee.
14.5 Either party shall not pledge or hypothecate the shares of Hungnong or
otherwise use them as collateral or for any other purpose which could
result in an involuntary transfer or assignment of such party's shares
to third parties, endless consent to such pledge, hypothecation or
other application has been received in writing from the other party.
14.6 Notwithstanding any other provision contained herein to the contrary,
Seminis shall have the right to transfer its shares in Hungnong to
Seminis' affiliates ("Seminis' Affiliates") without having to comply
with this Article 14. "Seminis' Affiliates" shall mean any partnership,
joint venture, corporation or other form of enterprise that directly or
indirectly controls, is controlled by, or is under common control with,
such Seminis. For purposes of this Section 14.6, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, partnership,
joint venture, corporation or other form of enterprise, whether through
the ownership of voting securities, by contract or otherwise.
Article 15. Dispute Resolution
15.1 The parties hereto agree to carry out this Agreement in a spirit of
mutual cooperation and good faith, and that they shall attempt to
resolve any differences, disputes or controversies which may arise
between them amicably. As to any disagreement, dispute, controversy or
claim arising out of or relating this agreement, or the interpretation
hereof or any arrangements relating hereto or contemplated herein or
the breach, termination or invalidity thereof which cannot be resolved
amicably, both parties shall submit to the exclusive jurisdiction of
the Seoul District Court.
15.2 Notwithstanding the foregoing Section 15.1, if the parties hereto
cannot agree as to the amount of the Adjustments to the Purchase Price,
the parties shall resolve their differences in the following manner:
a. Seminis shall name two from the following Korean affiliates of
the six accounting firms: Arthur Andersen, Coopers & Lybrand,
Deloitte & Touch, Ernst & Young, KPMG, and Price Waterhouse;
provided, however, that Seminis shall not name those firms
which provided services to either party hereof in the
transactions contemplated herein.
b. The Shareholders shall choose one of the two accounting firms
selected by Seminis (the "Arbitrator") within one week after
Seminis' selection. If the shareholders fail to choose the
Arbitrator within such period of time, Seminis shall have the
right to choose the Arbitrator.
c. The Shareholders and Seminis shall each submit a report to the
Arbitrator indicating the proposed amount of Adjustments
within two weeks after the selection of the Arbitrator. If
either the Shareholders or Seminis fails to submit such a
report within such period of time, the other party's report
will be automatically adopted by the Arbitrator.
<PAGE> 21
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d. The Arbitrator shall select the report which is closer to the
Arbitrator's calculation of the Adjustments within one month
after the submission of the reports. The Arbitrator shall not
make any modifications to the reports submitted by the
parties, but shall select one of the reports as is.
e. The parties hereof shall be bound by the report which is
selected by the Arbitrator as the final decision as to the
Adjustments.
f. Notwithstanding Section 2.1 hereof, if an adjustment cannot be
completed within one year from Closing due to an unresolved
dispute as to the amount of the Adjustments, the period during
which Adjustments can be made shall be extended until such
time such dispute has been resolved in accordance with this
Section 15.2.
Article 16. Taxes
Each party shall be liable for taxes primarily attributable to that party, under
the relevant tax laws and regulations. If, for any reason, a party that is not
primarily liable is required to pay the other party's taxes (and costs
associated therewith), the party which paid the taxes shall be fully indemnified
by the other party for such taxes (and costs) paid.
Article 17. Relationship among the Shareholders
For purposes of this Agreement, the shareholders shall be considered one party.
Each of the Shareholders shall be jointly and severally responsible for all
obligations and covenants hereunder and jointly and severally liable for any and
all damages or liabilities relating to this agreement. The Shareholders hereby
irrevocably appoint Mr. Duk-hoon Lee as their representative with full power and
authority to act vis-a-vis Seminis on behalf each of them in relation to this
Agreement, including but not limited to conducting negotiations and entering
into agreements with, receiving payments from, and delivering or receiving any
notice to or from, Seminis. Any money or consideration payable to the
Shareholders under this agreement or under the Escrow Agreement shall be paid to
an account designated by the Shareholders. Seminis shall not bear any
responsibility connection with, the payment to Mr. Duk-hoon Lee or with respect
to the fairness or fraud in connection with the subsequent distribution among
the Shareholders.
Article 18. Entire Agreement
This Agreement, together with other agreements specifically mentioned herein,
contains the entire understanding between the parties hereto with respect to the
subject matter contained in the respective agreements and supersede all prior
agreements and undertaking s between the parties hereto.
Article 19. Confidentiality
Each party hereto shall keep confidential and not use, reveal, provide or
transfer to any person any information it obtains or has obtained concerning the
transactions contemplated by this Agreement, and in the case of the
Shareholders, any information related to the business and operation of Remaining
Hungnong Companies, except: (i) to the extent that disclosure to a third
<PAGE> 22
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party is required by applicable law or regulation; (ii) to the extent that
disclosures to a third party am be strictly necessary in connection with the
execution or performance of this Agreement; (iii) information which, at the time
of disclosure, is generally available to the public (other than as a result of a
beach of this Agreement), as evidenced by generally available documents or
publications; (iv) disclosures to their respective directors, officers,
employees, agents and advisors, who need to know or have access to such
information; (v) information that was in the possession of the recipient prior
to disclosure (as evidenced by appropriate written materials) and was not
acquired directly or indirectly from the disclosing party; (vi) Seminis may
release such confidential information to its subsidiaries and affiliates for the
purpose of developing the seed business of Hungnong.
The term "information" shall include information concerning the property,
operations, business and proprietary, confidential, trade secrets and other
non-public information and data.
Prior to closing, neither party may declare or conduct a press release
announcing the transactions contemplated herein without the consent of the other
party.
Article 20. Further Assurances
From time to time after the Effective Date, each party at the request of the
other party and without further consideration, agrees to execute and deliver at
its expense such other documents and instruments and take such other action as
reasonably may be requested so as to more effectively achieve the objectives of
this Agreement.
Article 21. Notices
All notices, consents and other communications under this agreement shall be in
writing and shall be deemed to have been duly given (a) when delivered by hand,
(b) when sent by telecopier (with receipt confirmed), provided that a copy is
promptly thereafter mailed by first class postage prepaid registered or
certified mail, return receipt requested, (c) when received by the addressee, if
sent by air courier (receipt requested) or by such other means as the parties
may agree from time to time or (d) twenty (20) business days after being mailed,
by first class postage prepaid registered or certified mail, return receipt
requested; in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate as to itself by notice to the other party):
(a) if to Shareholders:
Duk-hoon Lee
1338-20 Seocho-Dong
Seocho-Ku, Seoul, Korea
Telephone: (822) 3473-0971
Facsimile: (822) 3473-9659
<PAGE> 23
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(b) if to Seminis:
Octavio A. Hernandez
Seminis, Inc.
2901 N. Ventura Road,
Suite 250
Oxnard, California 93030, U.S.A.
Telephone: (805) 647-1188
Facsimile: (805) 278-0547
Article 22. Force Majeure
If the performance of any party is affected by any event of force majeure,
including act of God, actions or directive of a court or public authority or
government, war or civil disturbance, fire, explosion, flood, shortage of fuel,
power or raw materials, disruption of transportation or communications, strikes
or other labor disruption, failure or destruction of machinery or equipment, or
any other natural or man-made event beyond the reasonable control of such party,
such party shall immediately notify the other parties, in writing, giving
details of the majeure shall be suspended only for as long as the event of force
majeure continues, but the parties shall consult and will use their best efforts
to find alternative means of accomplishing such performance. Immediately upon
cessation of the event of force majeure, the part affected by force majeure will
notify the other parties in writing and will take steps to recommence or
continue the performance that was suspended.
Article 23. No Waiver
The delay or failure on the part of any party hereto to insist, in any one
instance or more, upon strict performance of any of the terms or conditions of
this agreement, or to exercise any right or privilege herein conferred shall not
be construed as a waiver of any such terms, conditions, rights or privileges but
the same shall continue and remain in full force and effect. All rights and
remedies shall be cumulative.
Article 24. Section Headings
The article, section and clause headings contained in this agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
Article 25. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument.
Article 26. Severability
In case any provision of this agreement shall be held invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions of this agreement will not in any way be affected or impaired
thereby.
<PAGE> 24
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Article 27. Parties in Interest
This Agreement shall insure to the benefit of and be binding upon the
shareholders and Seminis and their respective affiliates, successors and
assigns, but subject to Article 14, may not be assigned or otherwise transferred
by operation of law or otherwise without the prior written consent of ally the
parties hereto and except as specified herein shall not create any rights on the
part of any other person. Any such assignment or transfer without such consent
shall be void.
Article 28. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
republic of Korea.
Article 29. Language
The English language text of this Agreement shall prevail over any translation
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized representatives as of the date first hereinabove
set forth.
SHAREHOLDERS:
Name: Duk-hoon Lee
Name: Suk-chun Lym
Attorney-in-fact: Duk-hoon Lee
Name: Duk-in Lee
Attorney-in-fact: Duk-hoon Lee
Name: Duk-nam Lee
Attorney-in-fact: Duk-hoon Lee
Name: Deog-joon Lee
Attorney-in-fact: Duk-hoon Lee
<PAGE> 25
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Name: Ai-lim Lee
Attorney-in-fact: Duk-hoon Lee
Name: Won-joon Lee
Attorney-in-fact: Duk-hoon Lee
SEMINIS, INC.:
Name: Octavio A. Hernandez
Attorney-in-fact
Reviewed and Accepted:
HUNGNONG SEED CO., LTD.
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
<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 February 10, 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
February 10, 1999
<PAGE> 1
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
February 10, 1999
