SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended June 30,
1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
________ to ________.
For the Fiscal Year Ended Commission File Number
June 30, 1995 0-14802
CALGENE, INC.
(Registrant)
Delaware 68-0115089
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1920 Fifth Street, Davis, CA 95616
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (916) 753-6313
Securities registered pursuant to
Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $210,954,117 as of August 31, 1995 based upon the
closing price on the NASDAQ National Market System reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
30,250,408 shares of Common Stock were Issued and Outstanding as of August
31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held in December 1995, is incorporated by reference into Part III of
this Form 10-K to the extent stated herein.
<PAGE>
PART I
ITEM 1. BUSINESS
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Overview
Calgene is a biotechnology company that is developing a portfolio of
genetically engineered plants and plant products for the food, seed and
oleochemical industries. The Company's research and business efforts are focused
in three core crop areas--fresh market tomato, edible and industrial plant oils
(canola) and cotton--where Calgene believes biotechnology can provide
substantial added commercial value in consumer, industrial and seed markets.
Fresh Market Tomato. Calgene scientists have genetically engineered tomato
varieties with the FLAVR SAVR(TM) gene which delays softening and reduces
spoilage in order to enable the Company to provide vine-ripened tomatoes with
improved taste to the $4 billion U.S. fresh tomato market throughout the year.
Most fresh market tomatoes are bred for durability and harvested before they
have begun to ripen, which reduces spoilage and handling damage, but at the
expense of taste and texture. In contrast, tomato varieties bred for premium
flavor and texture have been genetically engineered by Calgene scientists with
the FLAVR SAVR gene which delays softening and thereby reduces spoilage, even
when harvested vine-ripened. In May 1994, in response to Calgene's request, the
U.S. Food and Drug Administration ("FDA") announced its determination that the
FLAVR SAVR tomato has not been significantly altered with respect to safety or
nutritive value when compared to conventional tomatoes. This action by the FDA
allowed Calgene to begin commercialization of the FLAVR SAVR tomato, the world's
first genetically engineered whole food product. Calgene has also recently
received regulatory clearance to commercialize the FLAVR SAVR tomato in Canada
and Mexico. The Company currently has 500 acres under contract located near its
California packing and distribution facility and 250 acres under contract in
Mexico. Calgene is currently selling FLAVR SAVR tomatoes and is marketing its
premium quality, vine-ripened tomatoes under its MacGregor's(R) brand.
Plant Oils. Calgene is developing genetically engineered rapeseed oils with
a broad range of food and industrial applications. Rapeseed is an efficient oil
producing plant, has certain biological characteristics that make it a good
candidate for genetic engineering, and is adaptable to a wide range of growing
regions. Calgene scientists have genetically engineered canola varieties that
produce substantial quantities of laurate, an important ingredient in detergents
that is not naturally present in canola or other non-tropical oil plants. In
July 1995, the Company sold one million pounds of Laurical(TM) canola oil and is
currently contracting for 10,000 to 15,000 acres of commercial production for
October 1995. The Company is also currently conducting its eighth season of
field trials with canola plants that have been genetically engineered to produce
oil with increased stearate levels, creating a potential substitute for
hydrogenated oils in margarine, shortening and confectionery products. The
Company's subsidiary Calgene Chemical manufactures and distributes plant
oil-based chemicals, and supplies Mobil Oil with plant oil-based biodegradable
fluids. The Company has established strategic relationships with Procter &
Gamble, Unilever and Pfizer Food Science ("Pfizer") to address potential
commercial opportunities for plant oil products.
Cotton. Calgene's cotton genetic engineering program focuses on reducing
farmers' growing costs through the development of cotton varieties that require
less pesticides, and cotton varieties that produce natural colors. U.S. cotton
farmers spend annually over $200 million on herbicides and $225 to $400 million
on insecticides. Herbicide resistant and insect resistant cotton varieties have
the potential to enable cotton farmers to significantly reduce the total volume
of herbicides and insecticides applied, resulting in substantial savings in
production costs, improved yields and benefits to the environment. Calgene
believes that the cost savings to farmers will enable Calgene to price
genetically engineered seed varieties at a premium to current cotton seed
prices. In April 1995, the Company commercially introduced two genetically
engineered cotton varieties ("BXN(TM) cotton"), which are resistant to the
herbicide bromoxynil. Bromoxynil is produced and sold by Calgene's strategic
cotton partner, Rhone-Poulenc Ag Company ("Rhone-Poulenc"), a leading
agrichemical company. The BXN cotton seed was sold at a 45% price premium over
Calgene's non-genetically engineered cotton seed. Calgene has also conducted
field trials since 1991 with BXN cotton varieties that are also genetically
engineered to contain a Bt gene for resistance to Heliothis, the principal
cotton insect pest. Company scientists are in the early stages of developing
cotton varieties having natural colors which will reduce or eliminate the need
for dyeing and provide unique color-fastness. Calgene intends to produce
identity-preserved genetically engineered cotton and sell premium-priced colored
cotton fiber to the fabric, apparel and houseware manufacturers. The Company is
currently selling genetically engineered BXN cotton seed through its subsidiary
Stoneville Pedigreed Seed Company.
Business Strategy
Calgene's business strategy is to build operating businesses in its core
crop areas to facilitate the market introduction of genetically engineered
proprietary products and to maximize the long-term financial return from such
products. Implementation of this strategy will provide the Company with direct
access to markets where it will sell fresh and processed plant products having
improved quality traits or cost of production advantages, or both and to markets
where it will sell seed that has been engineered with value-added agronomic
traits. Calgene has selected tomato, canola and cotton as its core crops on the
basis of the following criteria:
o Calgene has efficiently transformed and regenerated these crops with
proven plant transformation methods, thereby making the crops suitable
candidates for genetic engineering.
o These crops offer significant long-term profit opportunities for
genetically engineered products in seed (input) or crop and product
(output) markets, or both.
o Market characteristics offer the Company a realistic opportunity to
attain a leading market share in the input or output markets, or both.
Calgene addresses its core crop opportunities through a combination of
operating subsidiaries and commercial partnerships. In tomato, the Company has
developed and is growing and distributing genetically engineered, branded,
premium quality, fresh market tomatoes through its Calgene Fresh subsidiary. In
plant oils, the Company has developed and is growing genetically engineered high
laurate canola and is developing a portfolio of genetically engineered canola
oils, some of which it intends to distribute and process through its Calgene
Chemical subsidiary. Calgene Chemical currently distributes industrial and
edible vegetable oils, and manufactures vegetable oil-based specialty chemicals.
In certain market segments where the capital investment and other commitments
required to serve the markets exceed Calgene's resources, the Company has
established relationships with major corporations which have leading positions
in the targeted segments. These arrangements provide for the other company to
pay Calgene royalties based on genetically engineered product sales or usage, to
purchase genetically engineered and nongenetically engineered plant-based raw
materials from Calgene or to assist in Calgene's product and market development.
In cotton, the Company is currently developing and marketing conventional seed
varieties and genetically engineered herbicide resistant seed varieties through
its Stoneville subsidiary and is developing and intends to market genetically
engineered insect resistant cotton varieties.
Products and Product Development
Overview
The following table sets forth Calgene's primary genetically engineered
products and products under development, the potential commercial applications
for such products, and the development status of such products:
<TABLE>
<CAPTION>
Product
Product Applications Development Status
------- ------------ ------------------
TOMATO
<S> <C> <C>
FLAVR SAVR Tomato High quality fresh market tomato with Commercialization began in 1994.
delayed fruit degradation.
Ethylene Control Controlled ripening of produce. Tomato plants with delayed fruit
ripening are being evaluated.
OILS
High Laurate Oil Less expensive source of raw materials Commercialization began in 1995.
for soaps, detergents and cocoa butter
replacement fats.
High Stearate Oil Margarine and shortening ingredient Rapeseed plants with over 30% stearate
that requires no hydrogenation. Less in the oil have been produced and are in
expensive source of supply for cocoa field trials.
butter replacement fats.
High Myristate Oil Less expensive and more abundant Rapeseed plants containing 40% myristate
source of raw materials for milder in oil have been produced in the
soaps and personal care products. greenhouse.
Medium Chain Fatty Acids/ Less expensive source of raw Rapeseed plants with up to 38% medium
Medium Chain Triglycerides materials for high performance chain fatty acids have been produced in
lubricants, nutritional formulas and the greenhouse.
high energy foods.
COTTON
BXN Cotton Cotton plants that require less Commercialization began in 1995.
herbicide chemical usage.
BXN plus Bt Cotton Cotton plants that require less Initial varieties have been developed
herbicide and insecticide chemical and are in field trials. Commercial
usage. introduction planned for 1997.
</TABLE>
Tomato
Calgene scientists have genetically engineered the patented FLAVR SAVR gene
into flavorful tomato varieties to delay softening so that these varieties can
remain on the vine longer to allow full flavor and texture to develop before
harvest and be distributed with relatively low rates of spoilage. Market surveys
indicate that consumers' primary complaints about fresh market tomatoes are
their poor taste and texture. The inferior quality of most fresh market tomatoes
is primarily attributable to the industry practices of selecting tomatoes bred
for durability rather than for flavor, harvesting these tomatoes before they
have begun to ripen, and refrigerating them at low temperatures in transit and
storage. Generally, these tomatoes are harvested while still green and are
induced to ripen by the application of ethylene gas. These practices reduce
losses during transit and provide longer shelf life, but at the expense of
flavor and texture. In contrast to these industry standard "gas green" tomatoes,
Calgene tomato varieties are selected for premium flavor and texture. The FLAVR
SAVR tomato can be harvested at a later stage of ripening, thereby allowing full
development of flavor and reducing losses from spoilage in distribution.
Fresh market tomatoes represent an over $4 billion retail and food service
market in the U.S. An estimated 190,000 acres of fresh market tomatoes are grown
each year, primarily in California, Florida and Mexico, to supply this market.
Calgene is positioning the FLAVR SAVR tomato to compete with "gas green"
tomatoes as well as conventionally developed, vine-ripened tomatoes. Calgene
believes that by providing a reliable, year-round source of branded,
consistently flavorful, premium-quality fresh market tomatoes, it has the
potential to capture a significant share of the fresh tomato market at a premium
price to "gas green" tomatoes. The Company also expects that the delayed
softening and other features of the FLAVR SAVR tomato may provide a significant
unit cost advantage over conventionally developed, vine-ripened tomatoes.
Calgene has confirmed that introduction of the FLAVR SAVR gene results in
tomatoes with significantly delayed softening characteristics. Tests conducted
since 1992 confirmed that many fresh tomato varieties when harvested
"vine-ripened" versus "gas green" also have substantially improved flavor.
In January 1992, Calgene formed Calgene Fresh to develop, produce, market
and distribute genetically engineered, branded, premium-quality, fresh market
tomatoes. In April 1992, Calgene Fresh began sales of non-genetically engineered
vine-ripened tomatoes in order to establish a grower base, test distribution
logistics and validate brand recognition and premium pricing in advance of FDA
approval of the FLAVR SAVR tomato. Following FDA approval of the FLAVR SAVR
tomato in May 1994, the Company began selling limited quantities of FLAVR SAVR
varieties and increased availability beginning in the second quarter of 1995.
Calgene has exclusive rights to genetically engineer certain third-party
proprietary tomato lines bred for superior taste and agronomic performance, but
has not yet completed its plant breeding program to develop varieties which have
the agronomic characteristics required for certain growing regions and seasons,
and has not extensively tested the varieties which the Company has developed.
These factors are expected to constrain the scale-up of the Company's fresh
market tomato business.
The Company's fresh market tomato business is continuing to experience
negative gross margins and will not achieve positive gross margins unless the
Company realizes substantial reductions in the high unit cost that the Company
has continually incurred in the production, distribution and marketing of
vine-ripened tomatoes. The Company believes that such cost reduction will depend
primarily on (i) tomatoes with the FLAVR SAVR gene providing substantial cost
savings due to reduced spoilage; (ii) the Company achieving lower costs from
increased crop yields through the development and introduction of additional
FLAVR SAVR varieties, innovative production, packaging, handling and
distribution methods and from additional experience in the business; and (iii)
production and sales volumes reaching levels that will provide substantial
economies of scale. In order to reduce the handling damage and improve the
percentage of high quality tomatoes successfully transported to customers, the
Company established three fresh tomato packing and shipping facilities located
near its current primary crop growing regions. The Company's Florida facility
began operations in April 1995 and its Georgia and California facilities
commenced operations in May 1995. Calgene incurred low yields in fiscal 1995 in
its Florida and Georgia growing regions largely due to poor agronomic
performance from the Company's current FLAVR SAVR varieties and difficult
growing conditions. Consequently, the Company has deferred its decision to grow
FLAVR SAVR tomatoes in the Southeast for the Spring of 1996. Future plans to
produce FLAVR SAVR tomatoes in these regions will largely depend on the results
of the Company's variety development program. The Company's initial indications
are that yield and premium fruit packout at the California locations will be, in
the aggregate, consistent with the Company's expected output.
The quality of fresh market tomatoes varies based on variety selection,
growing practices, weather conditions, handling, packaging and other factors. A
majority of FLAVR SAVR tomatoes that Calgene Fresh produces will not meet the
MacGregor's brand premium quality standard. These vine-ripe tomatoes must be
sold under a secondary brand. Consequently, Calgene Fresh has developed a
multiple brand strategy to address the various segments of the U.S. fresh tomato
market. The MacGregor's brand is being positioned as a premium product that the
Company expects will be largely insulated from the price swings often associated
with commodity tomatoes. The FLAVR SAVR Select(TM) secondary brands are being
positioned to compete in the upper tier of the regular vine-ripe tomato market.
Tomatoes that do not meet the MacGregor's or FLAVR SAVR Select quality standards
will be sold in the commodity tomato market. The Company's limited marketing
experience to date indicates that consumers will pay significant premiums for
flavorful, premium quality, fresh market tomatoes.
Calgene Fresh is using the existing tomato industry marketing system to
sell its FLAVR SAVR tomatoes. Calgene Fresh is providing in-store support and
customer programs for marketing of MacGregor's tomatoes and will initially focus
these marketing efforts on the large chain and independent grocery stores.
Calgene's tomato research was co-funded by the Campbell Institute for
Research and Technology, a division of Campbell Soup Company ("Campbell"). This
research resulted in the patented PG gene, cloned by Calgene scientists and
referred to by Calgene as the FLAVR SAVR gene. In August 1991, Campbell licensed
to Calgene the exclusive North American rights to produce and sell fresh market
tomatoes containing the FLAVR SAVR gene. In February 1994, Calgene, Campbell and
Zeneca A.V.P., another company using PG gene technology, entered into an
agreement under which Calgene purchased exclusive worldwide royalty free rights
to produce and sell fresh market tomatoes with the FLAVR SAVR gene.
Calgene has a product development program to develop tomatoes with improved
disease resistance. See "Research-- Tomato."
The Company's longer term plan is to develop, produce, market and
distribute fruits and vegetables other than tomatoes. The Company has initiated
research programs in cooperation with private and university laboratories to
develop genetically engineered bananas, apples, berries and other fruits with
improved postharvest characteristics and continues to look for opportunities
relating to other produce items. The Company is unable to predict whether other
plants can be genetically engineered or the time and expenditures that would be
required to complete any such research and development programs.
Canola
Genetically Engineered Oils
Calgene has allocated the largest percentage of its research and
development expenditures to develop a portfolio of genetically modified canola
oils. Calgene selected canola because of its efficient oil producing capability
and its adaptability to a broad range of North American and European growing
regions. Canola also has certain biological characteristics that make it a good
candidate for genetic engineering. The objectives of Calgene's canola oil
modification program are to modify fatty acid chain length, the levels of
saturation and the triglyceride structure in oils produced from canola plants.
The oils and fatty acids so produced are targeted to address market segments and
opportunities not currently supplied by naturally occurring vegetable oils or to
provide a significantly lower cost source of supply for certain oils and fatty
acids that are currently supply constrained. In addition, Calgene has targeted
certain oils from plants which are not grown in the U.S. and must therefore be
obtained from overseas sources.
The discussion below describes the targets of Calgene's genetically
modified oil programs and the estimated size of the current product markets for
which Calgene's products, if developed, could serve as equivalents or
substitutes. It should be recognized that Calgene's potential products might not
be competitive with the entire market identified due to performance and pricing
considerations. With the exception of the Company's initial laurate canola
(Laurical(TM)) product currently being commercialized, Calgene's genetically
modified oil products are in various stages of development. These projects
involve substantial technical challenges and some are still in the "proof of
concept" phase. Most of Calgene's genetically engineered oil products are not
expected to be commercially available for several years, and their availability
will depend upon, among other things, achievement of certain technical
objectives in the product development process. See "Research."
High Laurate Oil. Laurate or C12 is a key raw material for the soap,
detergent, oleochemical, and personal care industries. In addition,
laurate-based fats are used in confectionery applications that are cost
sensitive or require specialized melting properties. Currently, commercial
sources of laurate are limited to coconut and palm kernel oils, which are
imported into the U.S. primarily from Southeast Asia. Calgene has isolated and
patented a C12 thioesterase gene responsible for producing laurate. DNA
constructs containing this thioesterase gene have been genetically engineered
into canola plants, some of which have more than 40% laurate in the oil. The
Company began commercial sales of its high laurate oil in 1995 and has sold the
Laurical oil to one of the largest laurate oil consumers in the U.S. Calgene is
currently evaluating the functional and commercial value of its laurate canola
oil in confectionery applications. Using a different gene that they have cloned,
Calgene scientists are also attempting to further elevate the percentage of
laurate in canola oil to increase its commercial usefulness.
High Stearate Oil. Margarines, shortenings and many fat based food
ingredients are currently manufactured from vegetable oils that are chemically
processed by hydrogenation to increase the level of solid fat in the oil to
provide suitable texture and consistency. Calgene has engineered genetic
constructs into canola plants to increase the levels of the fatty acid stearate.
These high stearate oils could have superior functionality with respect to
melting point, taste and texture and other characteristics. In addition,
Calgene's high stearate oils are free of the trans fatty acids associated with
hydrogenation, which many scientists believe promote the formation of
cholesterol. The high level of stearate will also allow for the production of
food products without chemical processing (hydrogenation). Calgene is evaluating
these genetically engineered canola plants in both field trials and in
greenhouses. Company scientists are currently attempting to increase the
functionality of its high stearate oils for potential use in margarines,
shortenings and food ingredients. The Company estimates that annual U.S.
consumption of vegetable oils used in premium margarines and shortenings is in
excess of several hundred million pounds. Calgene believes that it could capture
a portion of that market by producing canola oil with elevated levels of
stearate without the expense of hydrogenation and the resultant trans fatty
acids.
High Myristate Oil. Myristate and its derivatives are potential raw
materials for soaps and detergents because they show improved performance
properties as compared to laurate in certain usages. Currently myristic acid is
only available in limited quantities and is expensive compared to other fatty
acids. Calgene has cloned genes that produce myristate in canola. Using a
variety of thioesterase genes, Calgene scientists have genetically engineered
canola plants that produce oil containing over 40% myristate. Efforts are
underway to further elevate the level of myristate to commercial significance.
Medium Chain Fatty Acids. Medium chain fatty acids ("MCFA" or C8 and C10)
are components of high performance synthetic lubricant ingredients called
polyolesters. Currently available MCFA are byproducts of splitting and
fractionation of coconut and palm kernel oil for the production of other fatty
acids, which limits the supply of MCFA. The limited supply and high cost of MCFA
preclude the use of polyolesters in high volume applications such as automotive
lubricants, for which petroleum derivatives are currently used, even though
polyolesters often provide better functionality. The Company estimates that
annual U.S. consumption of polyolesters and of similar products exceeds 200
million pounds. Recent average prices for MCFA are approximately $.90 per pound.
Medium chain triglycerides ("MCT"), which are currently produced by
resynthesizing MCFA into triglycerides, are used as nutritional supplements to
treat dietary disorders and to provide a ready source of energy for hospital
patients recovering from post-surgical trauma. MCT have also been incorporated
into an increasing number of high-energy snack foods and beverages. The Company
estimates that annual U.S. consumption of MCT is over twelve million pounds.
Recent average prices for MCT are approximately $1.30 per pound.
Calgene has isolated and cloned a C8/C10 thioesterase gene responsible for
producing MCFA. DNA constructs containing this thioesterase gene have been
genetically engineered into canola plants, some of which have up to 38% MCFA in
the oil. Efforts are currently underway to further elevate the level of MCFA to
commercial significance.
Polyunsaturated Fatty Acids. Polyunsaturated fatty acids ("PUFA") are long
chain fatty acids witch are produced by a variety of organisms including algae
and fungi. These fatty acids are also found in fish oil. Recent clinical studies
have shown that certain PUFA have significant medical benefits, such as
cholesterol control and infant nutrition. Existing commercial sources of PUFA
are fish oils, which are costly, can contain toxins, and cannot be used as food
additives due to poor odor and taste. Calgene has begun a research program to
clone the genes that it believes will allow canola plants to produce PUFA.
Corporate Sponsored Projects. Some of the oils described above are being
developed by Calgene on behalf of Procter & Gamble, Unilever, and Pfizer, which
could use the oils or their derivatives in a broad range of branded consumer
products, including edible oils and other food products, detergents and personal
care products. Under collaborative agreements with Procter & Gamble, Unilever,
and Pfizer, if commercially viable products are developed, Calgene will have an
opportunity to supply the oils or derivatives used in such products or to
receive royalties on Procter & Gamble, Unilever or Pfizer purchases of such oils
or derivatives from others. See "Risk Factors--Corporate Relationships."
Nongenetically Engineered Oils
To ensure that it will be able to produce its transgenic oils cost
effectively in the U.S., Calgene, is developing canola varieties adapted to U.S.
growing regions. In addition to its own breeding program, the Company accesses
advanced germplasm through joint breeding and commercial agreements with leading
canola companies in Denmark, Germany, France and Canada. In 1993, 1994, and
1995, farmers under contract to Calgene grew and harvested 7,000 acres, 8,000
acres and 10,000 acres, respectively of proprietary canola. Calgene contracted
with third parties to collect and crush the canola crop and thereafter sold the
resulting oil and meal. The objective of this program is to demonstrate the
Company's ability eventually to produce identity-preserved genetically modified
oils under contract at a reasonable cost compared with commodity oils. Calgene
plans to grow 10,000 to 15,000 acres of proprietary canola and 10,000 to 15,000
acres of genetically modified high laurate canola under identity-preserved
contract production in the Fall of 1995.
Plant based oils are a major raw material for the specialty chemicals
industry, which consumes over two billion pounds of plant oils annually.
Products derived from plant oil based raw materials are known as oleochemicals.
Plant based industrial oils are used to produce amides, fatty acids, esters,
ethoxylates, alcohols and other chemical intermediates. Calgene's specialty
oleochemical manufacturer, Calgene Chemical, develops, manufactures and markets
a wide line of specialty esters, surfactants, ethoxylates and other
oleochemicals for the food, cosmetic, soap and detergent, sugar, lubricant and
textile markets. Calgene Chemical also provides a facility for processing
oleochemical feed stocks derived from genetically engineered canola. In
September 1992, Calgene entered into a multi-year agreement with Mobil to become
the exclusive producer of Mobil's proprietary canola oil based biodegradable
hydraulic fluids. These products are being produced at the Calgene Chemical
facility. The relationship with Mobil has positioned Calgene Chemical to be a
supplier of base oils and additives to the formulators of biodegradable
functional fluids. In addition to biodegradable functional fluids, Calgene
Chemical's manufacturing and marketing capabilities may enable it to obtain a
larger share of the agricultural adjuvant and specialty surfactant markets,
where the trend toward biodegradability and "natural" products has increased the
demand for the products Calgene Chemical produces.
Cotton
Calgene's cotton genetic engineering program is focused on the development
of herbicide resistant and insect resistant cotton varieties. The Company
believes that such products will enable cotton farmers to significantly reduce
the total quantities of herbicides and insecticides applied to cotton in the
field. As a result, Calgene expects significant environmental benefits as well
as substantial reductions in farmers' production costs and improved yields.
Calgene believes that such cost savings to farmers will enable Calgene to price
genetically engineered seed varieties at a premium to current cotton seed market
prices. In addition, Company scientists are in the early stages of developing
cotton varieties that produce colored fiber and varieties that exhibit improved
fiber quality. See "Research."
Cotton is the nations fifth largest field crop, with over fifteen million
acres planted in the U.S. in the 1995 planting season. Of this total acreage,
over eight million acres of "upland picker" cotton are planted in the southern,
southeastern and southwestern U.S., the balance being lower value "stripper"
cotton planted in the high plains of Texas and Oklahoma (four to five million
acres) and specialty "acala" and "pima" cotton grown in California and Arizona
(one to one and one-half million acres). Calgene estimates that the U.S. cotton
seed market has a value in excess of approximately $100 million per year and
produces cotton fiber having a value in excess of $6 billion per year at the
farm level. Cotton production requires the most intensive use of agricultural
chemicals of any major U.S. field crop. Cotton farmers spend over $200 million
per year on herbicides and $225 to $400 million per year on insecticides. The
majority of these herbicide and insecticide costs occur in areas planted with
upland picker cotton. Despite these costs the U.S. Cotton Council estimates that
U.S. cotton growers lose crop valued at over one billion dollars to weed and
insect damage each year.
Calgene has genetically engineered varieties of upland picker cotton to be
resistant to the herbicide bromoxynil (BXN cotton). Rhone-Poulenc manufactures
and sells bromoxynil under its Buctril(R) label. Farmers currently use Buctril
for broadleaf weed control in growing corn and wheat which are naturally
resistant to bromoxynil. However, cotton, a broadleaf plant, is not naturally
resistant to bromoxynil and is killed by the doses of bromoxynil which are
administered to control broadleaf weeds. Weed control in cotton fields is
currently constrained by the lack of post-emergent broadleaf herbicides, such as
bromoxynil, which are effective at low application rates. Cotton farmers are
therefore limited to using other herbicides, at high application rates, often
resulting in crop damage. Calgene estimates that conversion of the three to four
million broadleaf weed-plagued cotton acres to BXN cotton could save farmers up
to approximately $40 million annually by reducing total herbicide chemical usage
by as much as nine million pounds. Buctril is effective at low doses, generates
no residues in any of the food crops it is used on, and rapidly degrades in the
environment in less than two weeks, depending on field conditions.
In 1994 Calgene conducted large scale commercial tests on approximately 400
acres with 37 U.S. cotton growers. In April 1995 the Company commercially
introduced its first BXN cotton varieties, selling 225 tons of seed that is
currently growing on approximately 50,000 acres. The BXN cotton seed was sold at
a 45% premium over Calgene's non-genetically engineered cotton seed. BXN seed
production for 1996 commercial sales is currently in progress on approximately
2,800 acres.
Calgene has transformed certain of its proprietary cotton varieties with
both a gene from a strain of the Bacillus thuringiensis ("Bt") and BXN. These
plants produce a Bt toxin that has demonstrated the ability to achieve
significant levels of control of Heliothis (the principal cotton insect pest) in
laboratory, greenhouse and field tests. U.S. field trials with cotton containing
the Bt genes were conducted in five locations in 1994 and are currently being
conducted in sixteen locations in nine states. Counter-seasonal trials in South
Africa were completed in April 1995.
Calgene scientists are also genetically engineering cotton varieties that
produce cotton fiber having unique natural colors. These fibers are expected to
reduce or eliminate the need for dyeing and provide unique color-fasteness while
retaining superior spinning qualities. The annual U.S. market for dyed cotton
used in apparel and home furnishings is estimated to be in excess of $4 billion.
Calgene plans to market these cotton fibers directly to textile mills.
Stoneville, Calgene's cotton seed subsidiary with operations in
Mississippi, Arizona and South Carolina, holds the second largest share of the
U.S. upland picker cotton seed market with approximately 16% market share in
1995. See "Competition." Since it was acquired by Calgene in December 1986,
Stoneville has expanded its cotton seed processing capacity by acquiring an
Arizona based delinting and processing facility in 1987, and in 1989 by
constructing a highly efficient delinting facility constructed at its
Mississippi headquarters. In 1990, Stoneville acquired the cotton assets of
Northrup King Co., which include the Coker Pedigreed Seed Company ("Coker")
cotton seed label, the Coker cotton breeding program and Coker cotton sales
accounts, located primarily in the southeastern U.S. and in Spain, Greece and
certain Latin American countries. The Coker breeding material is contributing
substantially to Stoneville's breeding program.
Stoneville maintains a conventional cotton breeding program to develop new
cotton varieties with improved yield, earliness, fiber characteristics, insect
and disease resistance, and other important agronomic characteristics.
Stoneville's newest variety ST 495, which was developed by Stoneville and
introduced in 1995, combines excellent yield with "Smooth leaf" traits that
improve fiber grades. ST 474, which was introduced in 1994, continues to produce
superior yields and exceptional yield stability across different growing
regions. In 1993, Stoneville introduced varieties ST 132 and LA 887 (licensed
from Louisiana State University), which have demonstrated excellent agronomic
performance and superior fiber characteristics.
Potato Joint Venture
Calgene is involved in the production, distribution and marketing of seed
potatoes through a 65% owned joint venture with Kirin Brewery Co. Ltd. The joint
venture produces high quality, disease tested minitubers and seed potato stock
through tissue culture and contract growers.
Research
Overview
Calgene believes that it has one of the world's leading research programs
in the application of recombinant DNA technology to plants. Over the past ten
years, some of the most significant advances in plant biotechnology have been
reported by Calgene's science team, which is currently comprised of 103 research
and product development scientists and support personnel. The Company's research
scientists, whose expertise covers cell biology, molecular biology,
biochemistry, plant physiology, plant pathology, plant breeding and
microbiology, have published 231 papers in peer reviewed journals. Calgene
currently holds 32 issued U.S. utility patents and 23 foreign utility patents
and has over 160 utility patent applications currently pending in the U.S. and
abroad. See "Patents and Trade Secrets." Total research and development expenses
from continuing operations for fiscal 1995, 1994 and 1993 were approximately
$15.4 million, $15.6 million and $15.0 million, respectively. Research and
development expenses incurred under contract with others for fiscal 1995, 1994
and 1993 were $3.4 million, $2.7 million, and $4.7 million, respectively.
Calgene's research strategy has been to establish itself as a recognized
world leader in the application of recombinant DNA technology to plants by
concentrating its research efforts and resources on (i) developing broad-based
expertise in modification of the plant oils biosynthesis pathway and in fruit
and vegetable postharvest physiology; (ii) building a portfolio of potentially
useful agronomic genes from both internal discovery and external licensing;
(iii) developing the most effective and efficient plant transformation and
regeneration systems and gene expression systems applicable to targeted core
crops; and (iv) being the most proficient at integrating molecular techniques
with conventional plant breeding.
The plant genetic engineering process can generally be divided into five
major phases: (i) identification and isolation (cloning) of genes and gene
promoters (sequences of DNA that regulate gene expression); (ii) transfer and
integration of a gene or genes into the chromosomes of the recipient cell
(transformation); (iii) selection and regeneration of the transformed cells into
whole plants using cell culture methods; (iv) verification that the expressed
genes confer the desired trait (phenotype); and (v) genetic analysis to
determine that successive generations consistently inherit and express the
desired trait. Calgene scientists have developed efficient plant transformation
and regeneration systems for tomato, cotton and canola. Calgene has received
patents on promoters which selectively express plant genes in the tissue of
ripening tomatoes and promoters which selectively express plant genes in the
seeds of canola plants. These technical tools are necessary to assure the proper
expression of recombinant genes. The Company believes that patents on these
promoters may provide Calgene with a competitive advantage.
Calgene is investigating a novel method of plant transformation, termed
"plastid transformation." Research to date with this method indicates that a
high number of foreign gene copies can be introduced into plant cells using this
method resulting in a high level of foreign gene expression. Such high protein
levels are desired for a diverse array of potential applications in transgenic
plants, including the enhancement of agronomic traits. One advantage of this
technology derives from the fact that plastid-borne genes are inherited
exclusively from the maternal parent, and thus there is no pollen transmission.
This eliminates any possibility of outcrossing of inserted genes, and thereby
facilitates hybrid breeding strategies. Researchers at Calgene have used this
technology to obtain foreign protein expression levels that constitute 40% of
the total soluble protein in the leaves of transgenic plants. Although plastid
transformation generally results in plants containing the foreign gene in every
plant cell, Calgene scientists have developed a method to selectively express
foreign plastid-borne genes. Such selective gene expression permits the use of
this technology with a greater range of gene candidates. Opportunities in each
of Calgene's core crops for the plastid transformation method have been
identified.
Tomato
Calgene has identified and cloned or acquired rights to a portfolio of
genes which influence the ripening and post harvest physiology of many fruits
and vegetables. Calgene scientists were among the first to demonstrate the
ability to repress endogenous plant genes using antisense technology.
Specifically, they have achieved up to a 99% reduction of polygalacturonase
("PG"), a naturally-occurring enzyme involved in the softening of tomatoes,
resulting in tomatoes with delayed degradation and spoilage properties.
Calgene's efforts in this area have resulted in the issuance of a U.S. patent
covering antisense PG in tomatoes as well as a U.S. patent covering the broad
use of antisense technology in plants. See "Risk Factors--Patents and Trade
Secrets."
Calgene has rights to the l-aminocyclopropane-l-carboxylic acid deaminase
("ACCD") gene and from USDA to the l-aminocyclopropane-l-carboxylic acid
synthase ("ACC Synthase") gene. The expression of the ACCD gene or the antisense
expression of the ACC Synthase gene in plants has been shown to significantly
reduce the ability of the plant to produce ethylene, the plant hormone which
controls ripening and other aspects of plant development. Control of ethylene
may have significant commercial value in the production, sale and distribution
of fresh produce. ACCD may be useful in crops where antisense is not available
or useful.
Under a research collaboration with scientists from Rousell-Uclaf, S.A.,
Calgene scientists have cloned a high activity gene for sucrose phosphate
synthase, which is believed to play a major role in the production and transfer
of photosynthate (sugar) in plant leaves to storage in the fruit, tubers or
roots. This gene is being applied to alter the amount and quality of stored
sugars in tomato, and is applicable to a broad range of crops. In addition,
Calgene has entered into research agreements with several Universities to
genetically engineer tomato plants to be resistant to a wide range of viral
diseases. Viral diseases are a major cause of low tomato crop yield and poor
fruit quality.
Plant Oils
Calgene believes that it has a leading research program to modify plant oil
composition. The objectives of Calgene's canola oil modification program are to
modify the chain length, the levels of desaturation, and the triglyceride
structure of the fatty acids produced by canola plants, as well as to produce
oil derivatives in the seed. In 1990, Calgene cloned a gene for stearoyl-ACP
desaturase, a key enzyme in the formation of plant oils used in both food and
industrial applications. The Company has introduced the stearoyl-ACP desaturase
gene into canola in an antisense orientation and increased the level of
saturated fats (stearates) in the oil by more than ten times. This was the first
reported modification of vegetable oil by genetic engineering. Calgene is
currently conducting its eighth season of field trials to evaluate genetically
engineered canola plants with elevated levels of stearates. Trials have been
conducted in Michigan, Georgia, South Carolina, Alabama and California, as well
as in Canada and Scotland. Rapeseed oil with higher levels of stearates could be
a potential substitute for hydrogenated oils in margarine, shortening and
confectionery products.
In 1991, Calgene cloned the gene for lauroyl-ACP thioesterase, an enzyme
that plays an important role in the synthesis of laurate, a medium chain C12
fatty acid used in soap, detergent, oleochemical, personal care and food
industries. Oil containing laurate is naturally produced by coconut and oil palm
trees, but is absent in major European and North American oilseed crops such as
canola and soybean. Calgene has genetically engineered the lauroyl-ACP
thioesterase gene into canola and developed plants that produce oil containing
over 40% laurate. This was the first reported development of an oilseed plant
producing a fatty acid not naturally present in the seed. Calgene received a
U.S. patent on the lauroyl-ACP thioesterase gene in March 1994. Calgene is
currently working to further elevate the laurate level in canola oil and
increase the commercial usefulness. The Company has 10,000 to 15,000 acres of
commercial production planned for Fall 1995.
In February 1993, Calgene was granted a U.S. patent to genetically
engineered Brassica cells and in August 1993 to genetically engineered Brassica
cells in Europe. Brassica is the genus name for a family of plants which
includes canola, broccoli, cauliflower, cabbage and brussel sprouts. These
patents cover the most efficient transformation method for Brassica species in
the industry and is a key technology of Calgene's proprietary vegetable oils.
Calgene has sold licenses to other companies for use of this transformation
method in areas outside the Company's core crop areas. The European patent is
currently being challenged in opposition proceedings.
In June 1994, Calgene scientists announced the cloning of a gene encoding a
ketoacyl-CoA synthase which was used to convert canola rapeseed to rapeseed
producing a high erucic oil. Calgene believes that this and similar genes can be
used to develop oilseed varieties enriched in long chain fatty acids which have
value for industrial and edible applications.
In June 1994, Calgene scientists announced the purification and cloning of
the coconut LPAAT gene. This enzyme is efficient at placing short chain
saturated fatty acids into the middle position of triacylglycerol molecules
during their biosynthesis. Most oilseeds including canola, soybean, sunflower
and others cannot build triacylglycerol molecules with saturated fatty acids in
the middle position. Calgene anticipates that use of the LPAAT gene could result
in the development of oilseeds with levels of laurate, myristate, and other
medium chain fatty acids at levels as high as 75%.
Using a variety of thioesterase genes, Calgene scientists have genetically
engineered canola plants that produce oil containing over 40% myristate, a
medium chain C14 fatty acid. Myristate and its derivatives are potential raw
materials for soaps and detergents.
Calgene has isolated and cloned a C8/C10 thioesterase gene responsible for
producing MCFA. DNA constructs containing this thioesterase gene have been
genetically engineered into canola plants, some of which have up to 38% MCFA in
the oil. MCFA are components of high performance synthetic lubricants. Efforts
are underway to further elevate the level of MCFA to commercial significance
In May 1995, Calgene was granted a patent covering the seed specific
promoter napin, which is a key element in many of the Company's genetically
engineered plant oils products. Seed specific promoter technology is relevant to
almost every genetically modified oil and meal product by allowing specific
control of genes introduced into plant cells by genetic engineering. In the case
of oil modification, seed specific promoters ensure that only plant storage oils
are effected by transgenic oils genes, without otherwise affecting the plant.
Because of the timing and strength of expression, the napin promoter is the most
common promoter used in plant oils genetic engineering research.
Cotton
Under a research collaboration with Rhone-Poulenc, in 1986 Calgene
scientists cloned the BXN gene which encodes an enzyme that degrades bromoxynil,
a broadleaf herbicide produced and sold by Rhone Poulenc. For cotton farmers,
broadleaf weed control is currently inefficient and costly because post-emergent
broadleaf herbicides such as bromoxynil, which are effective at low application
rates, are lethal to cotton, a broadleaf plant. Cotton farmers are therefore
limited to using other herbicides at high application rates, often resulting in
crop damage. Calgene proprietary cotton varieties engineered with the BXN gene
show no adverse effects when bromoxynil is applied at up to ten times expected
field rates. By using BXN cotton seed and bromoxynil, Calgene believes cotton
farmers will reduce herbicide usage and crop damage and have more effective weed
control. Rhone-Poulenc owns the BXN gene patent, issued in March 1989 which is
licensed exclusively to Calgene for use in cotton. Stoneville, Calgene's cotton
seed subsidiary, commercially introduced its first BXN cotton varieties to U.S.
growers in April 1995.
Calgene has transformed certain of its proprietary cotton varieties with a
gene from a strain of Bt. These plants produce a toxin that has demonstrated the
ability to achieve significant levels of control of Heliothis, the principal
cotton insect pest. Cotton plants containing both BXN and Bt were developed by
Calgene in 1990 and first field tested in 1991. Patents covering Bt technology
have been applied for by other companies, two of which have granted Calgene the
right to obtain licenses to their technology.
Calgene is also conducting a research program to genetically engineer
cotton plants to produce fiber with improved or unique characteristics. Research
targets include developing colored cotton fibers that require little or no dye
while maintaining its quality spinning characteristics, as well as cotton fiber
with increased length, strength and absorbency. Efforts are underway to isolate,
characterize and test cotton fiber genes to determine if specific traits are
expressed. Calgene scientists have demonstrated expression of marker genes in
cotton fiber cells using Calgene's proprietary promoters.
Patents and Trade Secrets
Calgene currently holds 32 issued U.S. utility patents and 23 foreign
utility patents, three of which have been assigned to contract partners. Calgene
has 160 utility patent applications currently pending in the U.S. and abroad and
will continue to file patent applications in order to obtain proprietary
protection of certain genes, gene constructs, uses of genes in specific
applications and methods for genetic engineering of plants. There is no
assurance that patents can be obtained in a timely fashion, or if issued, will
afford Calgene any significant protections.
In April 1992, Calgene was granted a U.S. patent covering the use of
antisense technology in plants. Calgene is involved in litigation with Enzo, the
licensee of other patents intending to cover the use of antisense technology in
all cells. Calgene and the other company have each challenged the validity of
the other's patents. See "Legal Proceedings." In Europe, a patent intending to
cover antisense in all cells has been granted to Enzo. Calgene has filed an
opposition to the grant of that patent. Agracetus has been granted a European
patent with claims intending to cover the use of antisense in all plants.
Calgene has filed an opposition to the grant of that patent.
Also related to antisense technology, Calgene is a licensee under the
patent rights held by the Fred Hutchinson Cancer Research Center ("FHCRC"). The
patent application is pending and is seeking to provoke an interference with the
issued Enzo U.S. patent. As part of its agreement with the FHCRC, Calgene has
agreed to indemnify certain patent and litigation costs incurred by FHCRC.
Calgene's research efforts resulted in the issuance of a U.S. patent
covering the PG gene which Calgene refers to as the FLAVR SAVR gene. In August
1991, Campbell licensed to Calgene the exclusive North American rights to
produce and sell fresh market tomatoes containing the FLAVR SAVR gene. In
February 1994, Calgene, Campbell and Zeneca A.V.P., another company using PG
gene technology, entered into an agreement under which Calgene acquired
exclusive worldwide rights to produce and sell fresh market tomatoes with the
FLAVR SAVR gene.
In April 1993, Calgene announced the signing of several cross licensing
agreements with Monsanto Company. The agreements resolved several current and
potential patent conflicts between the two companies. Under the agreements,
Calgene received licenses to Monsanto's patent and patent applications pending
in the areas of plant transformation technologies, and selectable markers; and
the right to obtain certain licenses to Monsanto's Bt insect resistance
technology for use in cotton. Monsanto received licenses to Calgene's patents
and patents pending in the areas of plant transformation of certain plants and
antisense RNA technology. Calgene and Monsanto granted each other licenses to
certain of their respective patents pending in the area of ethylene repression,
and settled an interference proceeding at the U.S. Patent and Trademark Office
directed toward CaMV promoters which are broadly used by agricultural
biotechnology companies to control gene expression in genetically engineered
plants. In January 1994, Calgene acquired rights to obtain a license to Bt
technology owned by Plant Genetic Systems N.V.
In April 1995, Calgene acquired an option to obtain a non-exclusive,
worldwide license to Transwitch(R) from DNA Plant Technology Corporation for use
in the development of all products and for use in combination with the
polygalacturonase gene in fresh market tomatoes and for the production of high
stearate oil in canola.
In June 1995, Calgene entered into a letter of intent with Monsanto to
participate in Monsanto's direct licensing program for Bt cotton in the U.S.,
subject to the issuance of a patent to Monsanto which covers the Bt gene
currently used by Calgene in its product development efforts. The definitive
agreement was executed between the parties in September 1995. If one or more
patents issue to a party other than Monsanto covering use of the Bt gene(s) used
in Calgene's Bt products, it may be necessary for either Calgene and/or Monsanto
to obtain a license in order for Calgene to commercialize its Bt products. There
is no assurance that it will be possible to obtain licenses under such third
party patents on commercially reasonable terms, if at all.
Other patent applications filed by Calgene competitors and others could, if
patents are issued, preclude Calgene from using, without a license, technology
and techniques basic to genetic engineering and to areas of particular
importance to Calgene. The extent to which Calgene may be required to license
such patents and the cost and availability of such licenses are currently
unknown.
Some of the Company's product development contracts require Calgene to
transfer intellectual property rights, including patents, to the contract
sponsors, and for Calgene to receive certain license rights.
Plant varieties may also be protected under USDA's Plant Variety Protection
("PVP") program. Calgene has several PVP certificates issued and additional PVP
applications pending.
Calgene also seeks to strengthen its intellectual property position by
licensing technology developed at universities and other corporations. In some
instances, such licenses are necessary to enable the practice of fundamental DNA
technology. In other instances, licenses are used to obtain a competitive or
proprietary position or to enhance Calgene's technology.
In addition to patents, the Company seeks to protect its proprietary
know-how as trade secrets. Although Calgene takes precautionary measures to
maintain the confidentiality of its trade secrets, there is no assurance that
competitors will not gain access to Calgene's know-how or independently develop
substantially equivalent know-how.
Competition
The plant biotechnology industry is highly competitive. Competitors include
independent companies that specialize in biotechnology; chemical, pharmaceutical
and food companies that have biotechnology laboratories; universities; and
public and private research organizations. Some of these companies and
organizations have greater financial, technical and marketing resources than
Calgene. Calgene believes that maintaining its leadership position in plant
biotechnology will require achieving and retaining technological superiority,
attracting and retaining qualified personnel, developing production and
marketing expertise and developing proprietary products or processes.
Other companies are developing and seeking to commercialize
premium-quality, fresh market tomatoes developed with recombinant DNA or other
technologies. DNA Plant Technology Corporation, a competing biotechnology
company has developed a vine-ripened tomato using one such other technology,
somoclonal variation, which it is currently selling, and is test marketing a
tomato developed using recombinant DNA technology. Competition in the fresh
tomato market is expected to intensify as additional companies introduce
tomatoes developed through biotechnology and as existing "gas green" tomato
producers react to competitive pressures by growing and marketing traditionally
developed vine-ripe tomatoes.
Stoneville sells upland picker cotton seed which is grown in the southern,
southeastern and southwestern U.S., areas which constitute approximately
one-half of the U.S. cotton acreage. Stoneville's primary competitor is Delta
and Pine Land Company, which the Company believes has a market share of
approximately 70%. Stoneville has the second largest market share. Other
competitors have substantially smaller market shares. Calgene believes that a
farmer's decision to purchase a particular variety of cotton seed has
traditionally been based upon both price and performance criteria, including
yield, fiber length, strength and maturity. Calgene expects that the herbicide
and insecticide resistant characteristics of its BXN and Bt cotton varieties
will also be important factors in the farmer's decision.
Calgene Chemical manufactures and markets specialty oleochemicals and
surfactants and food ingredient products which are price sensitive. The market
for such products is highly competitive.
Government Regulation
Regulation by federal, state and local government authorities in the U.S.
and by foreign governmental authorities will be a significant factor in the
future production and marketing of Calgene's genetically engineered plants and
plant products.
The federal government has implemented a coordinated policy for the
regulation of biotechnology research and products. The USDA has primary federal
authority for the regulation of specific research, product development and
commercial applications of certain genetically engineered plants. The FDA has
principal jurisdiction over plant products that are used for human or animal
food. The EPA has jurisdiction over the field testing and commercial application
of plants genetically engineered to contain pesticides. Other federal agencies
have jurisdiction over certain other classes of products or laboratory research.
The USDA regulates the growing and transportation of most genetically
engineered plants and plant products. In October 1992 following a request from
Calgene, the USDA issued a determination that allows the growing and shipping of
the initial varieties of the FLAVR SAVR tomato anywhere in the U.S. in the same
manner as conventionally developed tomato. In February 1994, the USDA
deregulated Calgene's herbicide resistant (BXN) cotton, allowing the Company to
grow and ship seed of these varieties in the same manner as conventionally
developed cotton. Laurate canola was de-regulated by the USDA in October 1994.
In May 1992, the FDA announced its policy on foods developed through
genetic engineering (the "FDA Policy"). The FDA Policy provides that the FDA
will apply the same regulatory standards to foods developed through genetic
engineering as applied to foods developed through traditional plant breeding.
Under the FDA Policy, the FDA will not ordinarily require premarket review of
genetically engineered plant varieties of traditional foods unless their
characteristics raise significant safety questions, such as elevated levels of
toxicants, or the presence of allergens, or they are deemed to contain a food
additive.
In May 1994, the FDA announced its determination, based on its review of
extensive data submitted by Calgene, that the FLAVR SAVR tomato has not been
significantly altered with respect to safety or nutritive value when compared to
conventional tomatoes. The FDA also issued a food additive regulation permitting
the use of the kanr selectable marker gene, which encodes for the enzyme
APH(3')11 in genetically engineering tomatoes, cotton and canola.
Calgene has completed its consultation with the FDA on issues of safety
concerning BXN cotton and laurate canola. The FDA Policy does not require the
submission of data supporting the safety of a genetically engineered product,
but does require that the developing company ensure the safety of the product
guided by the FDA Policy and consultation with the FDA. The generation of data
supporting both products' safety has been completed.
The FDA Policy does not require that genetically engineered products be
labeled as such, provided that such products are as safe and have the same
nutritional characteristics as conventionally developed products. There can be
no assurance that the FDA will not reconsider its position, or that local and
state authorities will not enact labeling requirements, either of which could
have a material adverse effect on marketing of some future products.
The FDA is in the process of modifying its policy on foods developed
through genetic engineering to include a Premarket Notification ("PMN")
procedure. This policy modification will require companies that develop
genetically engineered foods to inform the FDA that its safety evaluation is
complete and that the company intends to commercialize the product. The
objective of the PMN is to make the FDA and the public aware of all new
genetically engineered food products entering the market. If PMN is required,
the Company believes it should not delay Calgene's plans to commercialize its
genetically engineered food products.
In June 1994, Calgene filed a request with Health Canada for permission to
sell FLAVR SAVR tomatoes in Canada. The request was filed pursuant to a proposed
Health Canada review process in which Health Canada is notified of Calgene's
intention to sell and to advertise for sale FLAVR SAVR tomatoes in Canada.
Canada notified Calgene in February 1995 that it has no objections to the
importation and sale of the FLAVR SAVR tomato. In addition, Calgene has received
permission from the Mexican Health and Agriculture authorities to grow and sell
the FLAVR SAVR tomato in Mexico.
Commercialization of BXN cotton required clearance from the EPA to allow
use of the herbicide bromoxynil on cotton plants. Bromoxynil is produced and
sold by Calgene's strategic partner, Rhone Poulenc. These clearances were
received by Rhone-Poulenc on May 5, 1995.
Calgene's activities will be subject to general FDA food regulations and
are, or may be, subject to regulation under various other laws and regulations
including, among others, the Occupational Safety and Health Act, the Toxic
Substances Control Act, the National Environmental Policy Act, other Federal
water air and environmental quality statutes, export control legislation,
antitrust and other laws. At the present time. most states are generally
deferring to federal agencies (USDA or EPA) for the approval of field trials,
although all states are provided a review period prior to the issuance of a
field trial permit. Failure to comply with applicable regulatory requirements
could result in enforcement action, including withdrawal of marketing approval,
seizure or recall of products, injunction or criminal prosecution.
Human Resources
At June 30, 1995 Calgene employed a total of 301 regular employees, of whom
103 were research and product development scientists and support personnel, 68
were production employees, 24 were sales and marketing personnel and 106 were in
administrative and general management positions. Calgene believes its relations
with its employees are good.
Environmental Matters
In connection with the removal of an underground petroleum storage tank at
a subsidiary's facility in Illinois, the Company discovered that the soil and
groundwater at the site were contaminated with petroleum hydrocarbons. The tank
was installed by a prior owner of the facility. Calgene is remediating the site
pursuant to the requirements of Illinois EPA. Based on currently available
information, the Company believes that the ultimate resolution of this matter
will not have a material adverse effect on its business, financial condition or
results of operations.
Executive Officers
The executive officers of the Company are as follows:
Name Age Position Since
Roger H. Salquist........53 Chairman and Chief Executive Officer.......1983
Roderick N. Stacey.......50 President and Chief Operating Officer......1992
Andrew Baum..............39 Vice President and President of Oils
Division.................................1987
Vic C. Knauf.............43 Vice President of Research.................1991
Danilo S. Lopez..........53 Chief Executive Officer, Calgene Fresh.....1994
Michael J. Motroni.......40 Vice President of Finance and Secretary....1992
The executive officers are elected by and serve at the discretion of the
Board of Directors of either the Company or Calgene Fresh.
Mr. Salquist has been a director of the Company since 1981, an executive
officer of the Company since September 1983 and its Chief Executive Officer
since November 1985. Mr. Salquist is a director of Collagen Corporation and
Chairman of the Board of Directors of Celtrix Laboratories, Inc., both medical
products companies.
Mr. Stacey has served as a director of Calgene since 1990, was elected its
President and Chief Operating Officer in December 1992, and was Chief Executive
Officer of Calgene Fresh from February 1994 until July 1994 when Mr. Lopez
assumed this position. He was the founder of United Agriseeds Inc., a hybrid
corn and soybean company, and was its President and Chief Executive Officer from
1982 until October 1989. United Agriseeds was acquired by Dow Chemical Company
in 1987. In November 1989, Mr. Stacey became the President and Chief Executive
Officer of Sunseeds Genetics Inc., a financially distressed vegetable seed
company which subsequently filed for protection under Chapter 11 of the
Bankruptcy Code. Mr. Stacey was the President of R. Matthew Neil & Co., Inc., a
business consulting company, from December 1990 until December 1992.
Mr. Baum joined Calgene as Director of Operations in 1981, became Vice
President of Operations in 1987 and became Senior Vice President of Operations
in 1991. Since November 1992, Mr. Baum has been the President of Calgene's Oils
Division. Mr. Baum is a founding member and is currently Secretary of the U.S.
Canola Association.
Dr. Knauf joined the Company in January 1983 as a Principal Scientist,
became a Senior Scientist in November 1987 and Director of Research (Oils
Division) in June 1990. In November 1991, Dr. Knauf was elected Vice President
of Research.
Mr. Lopez joined Calgene in July 1994 as Chief Executive Officer of Calgene
Fresh. He was President and Co-Founder of Lopez and Thomas Foods, Inc., which
was sold to Chiquita Frupas, Inc. in November, 1993. From May 1986 to June 1991
Mr. Lopez was Vice President and General Manager of the fresh products division
of Calavo Growers of California. He held various positions with Dole Food
Company, Inc. from July 1973 to April 1986, most recently as Vice President and
General Manager of Sun Country Produce, a Dole tomato joint venture.
Mr. Motroni joined the Company in August 1983 and became Controller in July
1986. He was elected Vice President of Finance and Secretary in May 1992.
Risk Factors
The following factors should be carefully considered in evaluating the
Company and its business prospects.
History of Losses; Uncertainty of Future Financial Results. Calgene has
incurred aggregate net losses of approximately $177 million from inception in
1981 through June 30, 1995, including research and development expenses in
excess of $126 million. The net loss in fiscal 1995 was $30.6 million. The
Company anticipates a substantial net loss in fiscal 1996. Calgene's ability in
future years to reduce losses and ultimately to become profitable will depend on
the successful commercialization of its genetically engineered products. There
is no assurance that Calgene will achieve profitability in the future.
Risks Related to Calgene's Entry Into the Fresh Market Tomato Business. The
production, distribution and sale of genetically engineered, branded, premium
quality, fresh market tomatoes involve many risks and uncertainties. Calgene has
only limited experience in the fresh market tomato business, based on growing
and test marketing conventionally developed, branded, vine-ripened tomatoes
commencing in fiscal 1994 and limited volume of FLAVR SAVR tomatoes in fiscal
1995. The Company's tomato business is dependent on a limited number of contract
growers, with whom Calgene has had relationships for only a short period of
time. Although Calgene's contract growers have substantial experience in
producing fresh market tomatoes, some of them have not previously grown tomatoes
using the field practices that Calgene will require for vine-ripened tomatoes.
Growing and harvesting vine-ripened tomatoes involve complexities not found in
the production of standard "gas green" tomatoes. These include the need to
differentiate among multiple stages of ripening and the greater vulnerability of
vine-ripened tomatoes to adverse weather conditions. Calgene plans to grow
vine-ripened tomatoes on a larger scale and in more geographic areas than has
been attempted by more experienced growers.
The Company's planned cost savings arising from delayed softening tomatoes
containing the FLAVR SAVR gene as compared to conventional vine-ripened tomatoes
have not yet been demonstrated in large-scale distribution. Moreover, the
Company has not yet completed its plant breeding program to develop tomato
varieties which have the agronomic characteristics required for different
growing regions and seasons, and has not extensively tested the varieties which
the Company has developed. This factor is expected to constrain the scale-up of
the Company's fresh market tomato business.
Based on limited sales in fiscal 1995, Calgene intends to price its
MacGregor's brand tomatoes at a significant premium over standard tomatoes.
However, consumers' willingness to pay higher prices for premium quality
tomatoes has not been demonstrated on a national level or over a prolonged
period.
The Company's fresh market tomato business has predominantly experienced
negative gross margins and will not achieve positive gross margins unless the
Company realizes substantial reductions in the high unit costs that the Company
has continually incurred in the production, distribution and marketing of
vine-ripened tomatoes. The Company believes that such cost reductions will
depend primarily on (i) tomatoes with the FLAVR SAVR gene providing substantial
cost savings due to reduced spoilage; (ii) the Company achieving lower costs
from increased crop yields through the development and introduction of
additional FLAVR SAVR varieties, innovative production, packaging, handling and
distribution methods and from additional experience in the business; and (iii)
production and sales volumes reaching levels that will provide substantial
economies of scale.
Calgene's fresh market tomato business is subject to various agronomic and
other risks in common with agribusinesses generally. See "Agribusiness Risks."
Competition is expected to intensify in the fresh tomato market as additional
companies introduce improved tomatoes and improved distribution methods to bring
conventional vine-ripened tomatoes to market. See "Technological Change and
Competition."
Patents and Trade Secrets. Calgene is currently engaged in litigation with
Enzo Biochem Inc. ("Enzo") a company licensed under three related U.S. patents
and counterpart foreign patents which purport to cover the use of antisense
technology in all cells, including plant cells. Some of Calgene's products,
including the FLAVR SAVR tomato, use antisense technology. Enzo claims that
Calgene is infringing the Enzo patents. Calgene has denied infringement and
challenged the validity of these patents in the litigation. If the court were to
determine that one or more of the Enzo patents validly cover plant cells and are
infringed by Calgene's sales of products incorporating antisense technology,
Calgene could be held liable for significant damages and could be precluded from
producing and selling the FLAVR SAVR tomato, as well as other products under
development. There is no assurance that a license, if necessary, could be
obtained by Calgene on commercially acceptable terms. In addition, the validity
of Calgene's patent directed to the use of antisense in plant cells has been
challenged by Enzo in the litigation. Although Calgene believes that its
antisense patent is valid and enforceable, if the court were to hold otherwise,
Calgene would be deprived of the competitive and licensing advantages afforded
by the patent. For additional information concerning the Enzo litigation see
"Legal Proceedings."
The European Patent Office ("EPO") has granted a patent to Enzo with claims
which are intended to cover the use of antisense in all cells, including plant
cells. The EPO has also granted a patent to Agracetus, Inc. ("Agracetus"), a
plant biotechnology company, with claims which are intended to cover the use of
antisense in all plants. Calgene has filed oppositions against each of these
patents. A preliminary decision from the EPO indicated that Calgene's opposition
to Enzo's patent should be rejected. Calgene has filed supplemental arguments
with the EPO responding to the EPO's reasoning and providing additional grounds
for invalidation based upon evidence which surfaced during the course of the
U.S. litigation. If opposition proceedings are not successful in limiting the
scope of the claims of these patents and if Calgene is unable to obtain licenses
from the respective patent holders to use such technology, Calgene could be
prevented from expanding some of Calgene's genetically engineered products,
including tomatoes engineered with the FLAVR SAVR gene, into Europe. There is no
assurance that licenses could be obtained on commercially reasonable terms, if
at all.
Other companies have applied for patents covering Bt technology. If patents
were to be issued to other companies, Calgene would be required to obtain a
license to employ the Bt gene in commercial product. Calgene has rights to
obtain certain licenses to Monsanto's Bt technology and has licensed Plant
Genetics Systems' issued Bt patent.
U.S. patents have been issued to Agracetus for the transformation of
cotton. Calgene has obtained a license from Agracetus for non-fiber uses. The
patents are now in reexamination before the U.S. Patent Office and some claims
have been indicated as allowable by the Examiner. Once the reexamination is
completed, Calgene may determine that a license under these patents are needed
for its genetically engineered cotton fiber products. There is no assurance that
licenses could be obtained on commercially reasonable terms, if at all.
A U.S. patent has been issued to a competitor for a genetic component which
is currently used in Calgene's FLAVR SAVR tomato. Although alternatives are
available, in the event that Calgene would be prevented from utilizing this
genetic element, it would cause disruption in the production of the FLAVR SAVR
tomatoes. Analysis of this patent is currently underway. In the event that it is
determined that a license is necessary, there is no assurance that a license can
be obtained on commercially reasonable terms, if at all.
Patent applications filed in the United States are not publicly available
for examination. Patent applications filed abroad may be available for
examination, but may not accurately reflect the applications filed in the United
States on the same claimed inventions. Patent applications filed or to be filed
in the future by Calgene's competitors or others could, if patents are issued,
preclude Calgene from using, in the patent issuing countries, technology and
techniques basic to genetic engineering and to areas of particular importance to
Calgene. If Calgene is unable to obtain licenses to use such technology, there
could be a delay in the introduction of some of Calgene's genetically engineered
products in those countries. Whether such patents will be issued, the extent to
which Calgene would be required to license such patents and the availability and
cost of such licenses are currently unknown.
Calgene has received U.S. and foreign utility patents and has filed and
will continue to file patent applications in order to obtain proprietary
protection of certain genes, gene constructs, uses of genes in specific
applications and methods for genetic engineering of plants. There is no
assurance that future patents can be obtained in a timely fashion or, if issued
will afford Calgene significant protection. In addition to patents, the Company
seeks to protect its proprietary know-how as trade secrets. Although Calgene
takes precautionary measures to maintain the confidentiality of its trade
secrets, there is no assurance that competitors will not gain access to
Calgene's know-how or independently develop substantially equivalent know-how.
Agribusiness Risks. A variety of agribusiness risks affect all of Calgene's
agricultural products. Calgene regularly incurs crop production costs for
tomatoes. The market price of fresh market tomatoes can experience substantial
fluctuations in short periods. These price fluctuations directly affect the
portion of Calgene's tomato production sold below premium prices and to a lesser
extent also can affect the prices obtained for premium MacGregor's brand
tomatoes. As a result, Calgene bears a significant risk with respect to its
gross margins.
Calgene is assuming most of the agronomic risk (such as crop failure) in
growing fresh market tomatoes and in the production of seed for Calgene's
transgenic tomatoes, cotton and canola. Seed and crop production is subject to
various hazards, including disease, frost (particularly a hazard to tomatoes),
drought, flood, hail and other causes of crop failure. Although Calgene
contracts with growers in different regions of the U.S. and abroad, there is no
assurance that during certain growing seasons the principal crop growing areas
will not be vulnerable to hazards, such as adverse weather, affecting wide
areas. This will especially be the case with respect to tomatoes, which until a
wider range of FLAVR SAVR varieties is developed, will not be grown in all the
principal growing areas.
Seed sales are affected by U.S. government agricultural policy, which
imposes varying limitations on planting acreage as a criterion for farmers'
eligibility to receive government subsidy payments and other benefits. There is
no assurance that current or future U.S. government agricultural policies will
not have a material adverse effect on the Company's financial results.
Possible Need to Raise Additional Capital. In June, 1995 the Company and
Monsanto Company ("Monsanto") signed a letter of intent for a transaction
whereby Monsanto will contribute to the Company $30 million, intellectual
property relating to certain fresh produce and plant oils research and
development, and ownership of a major U.S. based fresh tomato grower, packer and
shipper organization. Monsanto will also make available long-term credit
facilities for the Company. In exchange, the Company will issue to Monsanto
shares of its common stock representing a 49.9% equity interest. In June 1995,
Monsanto advanced to Calgene $10 million of the $30 million to be contributed
pursuant to the proposed transaction. This advance was evidenced by a
subordinated convertible note due on June 30, 1997. In September 1995, Monsanto
amended the subordinated convertible note to allow Calgene to receive additional
advances of up to $8 million. The additional $8 million advance together with
the Company's cash, equivalents and short-term investments at June 30, 1995 are
expected to be sufficient to meet Calgene's cash requirements through at least
fiscal 1996. However, this expectation is based on the Company's anticipated
future operating results, which are difficult to predict. If the transaction
with Monsanto is not consummated, the Company may be required to issue equity
securities, incur debt, or enter into other financing arrangements. The
Company's future liquidity is expected to depend largely on the level of profit
or losses generated by the Company's tomato business, at least until
commercialization of the Company's other genetically engineered product occurs.
In addition, the Company anticipates that, if its tomato, cotton, and plant oil
businesses expand significantly, they will require increasing levels of working
capital. There is no assurance that the Company will be successful in raising
sufficient additional capital or that the terms of any funding will be
favorable.
Government Regulation. The field testing, production and marketing of
genetically engineered plants and plant products are subject to federal, state,
local and foreign governmental regulation. There is no assurance that regulatory
agencies administering existing or future regulations or legislation will allow
Calgene to produce and market its genetically engineered products in a timely
manner or under technically or commercially feasible conditions. In addition,
regulatory action or private litigation could result in expenses, delays or
other impediments to Calgene's product development programs or the
commercialization of resulting products.
Although the FDA has announced in a policy statement that it will apply the
same regulatory standards to foods developed through genetic engineering as
applied to foods developed through traditional plant breeding, genetically
engineered food products will be subject to premarket review if they raise
safety questions or are deemed to be food additives. In May 1994, the FDA
announced its determination that the FLAVR SAVR tomato has not been
significantly altered with respect to safety or nutritive value when compared to
conventional tomatoes and also published a food additive regulation allowing the
use of the kanr marker gene in the development of new varieties of tomato,
cotton and canola. Calgene has subsequently completed the safety assessment of
its BXN cotton and laurate canola products in accordance with the FDA policy.
There is no assurance that future Calgene products will not be subject to
lengthy FDA reviews and unfavorable FDA determinations if they raise safety
questions or are deemed to be food additives.
The FDA has announced in a policy statement that it will not require that
genetically engineered products be labeled as such, provided that such products
are as safe and have the same nutritional characteristics as conventionally
developed products. There can be no assurance that the FDA will not reconsider
its position, or that local and state authorities will not enact labeling
requirements, either of which could have a material adverse effect on marketing
of some future products. In addition, the Mexican Health and Agriculture
authorities and Health Canada could reconsider their position regarding the
marketing of the FLAVR SAVR tomato.
The USDA prohibits genetically engineered plants from being grown and
transported except pursuant to a de-regulation, or under controls so burdensome
as to render commercialization impracticable. The only Calgene plants currently
exempted by the USDA are Calgene's initial tomato varieties engineered with the
FLAVR SAVR gene, the BXN cotton varieties and laurate canola. No assurance can
be given that additional Calgene products will be exempted by the USDA.
Public Acceptance of Genetically Engineered Products. The commercial
success of Calgene's genetically engineered products will depend in part on
public acceptance of the cultivation and consumption of genetically engineered
plants and plant products. Public attitudes may be influenced by claims that
genetically engineered plant products are unsafe for consumption or pose a
danger to the environment. There is no assurance that Calgene's genetically
engineered products, such as fresh market tomatoes, herbicide resistant cotton
and high laurate canola will gain broad public acceptance.
Product Development Uncertainties. Although Calgene has completed the
genetic engineering of FLAVR SAVR tomatoes, BXN cotton and Laurical Canola,
Calgene's other genetically engineered products are at various stages of
development. There are difficult scientific objectives to be achieved in certain
product development programs before the technological feasibility of such
products can be demonstrated. Even the more advanced programs could encounter
technological problems that could significantly delay or prevent product
development or product introduction.
Technological Change and Competition. The application of recombinant DNA
and related technologies to plants is complex and subject to rapid change. A
number of companies are engaged in research related to plant biotechnology,
including companies that rely on the use of recombinant DNA as a principal
scientific strategy and companies that rely on other technologies. Technological
advances by others could render Calgene's products less competitive. Calgene
believes that competition will intensify, particularly from agricultural
biotechnology firms and major agrichemical, seed and food companies with
biotechnology laboratories. Many of such companies, as well as competitors that
supply non-genetically engineered products, have substantially greater
financial, technical and marketing resources than Calgene.
Other companies are developing and seeking to commercialize premium
quality, fresh market tomatoes developed with recombinant DNA or other
technologies. DNA Plant Technology Corporation, a competing biotechnology
company, has developed a vine-ripened tomato using one such other technology,
somoclonal variation, which it is currently selling, and is test marketing a
tomato developed using recombinant DNA technology. Competition in the fresh
tomato market is expected to intensify as additional companies introduce
tomatoes developed through biotechnology and as existing tomato producers react
to competitive pressures by growing and marketing traditionally developed
vine-ripe tomatoes. Many competitors have substantially greater experience in
the fresh market tomato business and are well established in the industry.
One competitor in the cotton seed market in which Calgene competes, Delta
and Pine Land Company, has a market share of approximately 70%, compared with
the Company's market share of approximately 15%. Competition is intense in the
oleochemicals market, where Calgene competes with numerous companies.
Dependence on Certain Corporate Relationships. Calgene has relationships
with other corporations which have contributed, and in some cases continue to
contribute, resources to fund the development of certain products in exchange
for certain product rights. Calgene's contracts with some of these corporations
provide for Calgene to produce the developed products for sale or use
exclusively by the other corporation. Calgene's future success will depend, in
part, on its relationships with these corporations, their continued strategic
interest in the development of certain products and, eventually, their success
in marketing such products or willingness to purchase such products from
Calgene.
Volatility of Stock Price. The prices of Calgene's Common Stock and the
stock prices of other biotechnology companies have been extremely volatile. The
announcement of technological, patent or product developments by Calgene or its
competitors, events connected with the Company's fresh market tomato business,
announcements regarding the Company's financial results, litigation
developments, regulatory action, publicity concerning safety issues related to
genetic engineering, as well as general market conditions and other factors,
could have a significant impact on the market price of Calgene's stock.
ITEM 2. PROPERTIES
Calgene's principal research and development, executive and administrative
offices are located in three adjacent buildings in Davis, California, totaling
approximately 71,000 square feet. Each of the buildings is leased. Including
options to extend, the leases expire on 57,000 square feet in the year 2015 and
on 14,000 square feet in the year 2003.
The company owns a 24,000 square foot greenhouse facility located on ten
acres near its main facility. An additional 54,000 square feet of greenhouse
space is leased near Galt, California. Including options to extend, the two
leases in Galt expire in January 1997 and November 1996, respectively.
In Georgia, the Company leases approximately 9,300 square feet of office
and laboratory space. With options to extend, the lease expires in March 2002. A
3,000 square foot greenhouse was constructed in 1994 by the Company.
At Stoneville, Mississippi, the Company owns 223,000 square feet of
production and warehouse space, including a 16,000 square foot seed delinting
production facility, 47,450 square feet of administrative and research and
development facilities, and 123 acres of research land. Currently, the Company
is in the process of constructing 16,800 square feet of additional warehouse
space. The Company's Arizona operations are located on 15 acres of leased land
which, including options to extend, expire in the year 2018. The Company owns
83,000 square feet of production and warehouse space on this leased land. The
Company's Stoneville and Arizona facilities have the capacity to process up to
20,000 tons of bulk cotton seed.
At its Calgene Chemical facility in Illinois, the Company leases office,
production, laboratory and warehouse space located on approximately 4.5 acres.
Including options to extend, the lease expires in 2017.
PG-K leases 32,600 square feet of greenhouse, office and warehouse space in
Watsonville, California, under a lease expiring August 1995. The Company also
leases a 12,000 square foot potato storage warehouse and a 3,900 square foot
office/garage in Blackfoot, Idaho. These leases expire in 1996 and 1997,
respectively.
At its Calgene Fresh facilities in Illinois, the Company leases
approximately 48,000 square feet of production and warehouse space. With options
to extend, the lease expires in 2000. The Company also leases approximately
18,000 square feet of production and warehouse space and 4,500 square feet of
office space in California under leases expiring in January 1998.
The Company's facilities are suitable for their respective uses and are, in
general, adequate for its needs, at least through 1995. The research and
development, executive and administrative offices at the Davis facility will
accommodate planned growth beyond 1995.
ITEM 3. LEGAL PROCEEDINGS
Calgene currently is engaged in litigation with Enzo Biochem, Inc.
("Enzo"), a biotechnology company in the human health care product industry.
Enzo is the exclusive licensee of three U.S. patents issued in 1993 to the State
University of New York ("SUNY"). Enzo asserts that these patents (the "SUNY/Enzo
Patents") contain claims covering the use of antisense technology in all cells,
including plant cells. Antisense technology is used in some of Calgene's
products, including tomato varieties with the FLAVR SAVR gene. Calgene believes
that the claims in the SUNY/Enzo Patents (No. 5,190,931, No. 5,208,149 and No.
5,272,065) are invalid, unenforceable and not infringed. Calgene further
believes that even if the SUNY/Enzo Patents claims directed to the use of
antisense technology in all cells were valid and infringed, this would not
invalidate Calgene's patent (No. 5,107,065) directed to antisense in plant cells
(the "Calgene Antisense Patent") and that commercialization by any company of
products using antisense technology in plant cells would in such case require a
license under both the SUNY/Enzo Patent and Calgene Antisense Patent.
In 1993, Enzo filed patent litigation against Calgene in the United States
District Court in Delaware (Civ. No. 93-110-JJF) alleging willful patent
infringement of the first issued SUNY/Enzo patent (No. 5,190,931) and unfair
competition by Calgene, and requesting a declaratory judgment that the Calgene
Antisense Patent is invalid. Enzo claims that Calgene has threatened Enzo and
its prospective licensees, and that Calgene commenced frivolous litigation
against Enzo in California. Enzo's claims that Calgene conducted bad-faith
negotiations with Enzo regarding the possible granting of a license by Enzo
under its then pending application, and that Calgene has slandered Enzo have
been dismissed with prejudice by Enzo. Calgene has asserted that Calgene does
not infringe the SUNY/Enzo Patent No. 5,190,931 and that the SUNY/Enzo Patent
No. 5,190,931 is invalid and unenforceable. Calgene has also denied the other
claims in Enzo's complaint. Calgene has received a written opinion from its
patent counsel, Lyon & Lyon, that the SUNY/Enzo Patent No. 5,190,931 is invalid
and not infringed by Calgene.
On February 9, 1994, Enzo filed a second patent suit in the United States
District Court in Delaware alleging willful infringement by Calgene of SUNY/Enzo
Patent No. 5,208,149 (Civ. No. 94-57). The patent at issue in this litigation is
a daughter application of the SUNY/Enzo Patent No. 5,190,931 and contains claims
which are directed to antisense constructs having a particular stem and loop
structure. Calgene has answered the complaint by denying its essential
allegations and asserting that Patent No. 5,208,149 is invalid, unenforceable
and not infringed. Calgene has also counterclaimed requesting a declaratory
judgment that a third antisense patent exclusively licensed from SUNY (SUNY/Enzo
Patent No. 5,272,065) is invalid and unenforceable. Calgene has also received
written opinions from patent counsel, Lyon & Lyon, that the SUNY/Enzo Patent No.
5,208,149 and Patent No. 5,272,065 are invalid and not infringed by Calgene. The
two Delaware actions have now been consolidated. A bench trial was held before
Judge Farnan from April 4 through April 21, 1995. Enzo's claims for unfair
negotiations, reliance on improper science, unfair press release and slander
were dismissed with prejudice. It is not known when the judge will render a
decision.
On March 22, 1994, Enzo filed suit in the United States District Court for
the Western District of Washington naming Calgene and the Fred Hutchinson Cancer
Research Center ("FHCRC") as co-defendants. As amended by Enzo, the suit alleges
seven claims, only one of which is specifically directed to Calgene. In that
claim, which names Calgene and the FHCRC, Enzo seeks to have the sublicense
granted by the FHCRC to Calgene under a pending FHCRC patent application, which
is also directed to antisense technology, declared invalid as against public
policy. Enzo has requested a jury trial in its complaint.
Although Calgene believes that the SUNY/Enzo Patents are invalid,
unenforceable and not infringed, a court might not agree. If a court were to
determine that any claim validly covers plant cells and is infringed by
Calgene's sale of products using antisense technology, Calgene could be held
liable for significant damages and be precluded from producing and selling the
FLAVR SAVR tomato, as well as other products under development, without a
license. There is no assurance that a license, if necessary, could be obtained
by Calgene on commercially acceptable terms. If the court were to determine that
the Calgene Antisense Patent is invalid or unenforceable, Calgene would be
deprived of the competitive and licensing advantages afforded by its patent.
Moreover, the Company would have to expense the capitalized legal fees related
to the defense of the Calgene's Antisense Patent, which amounted to
approximately $6.5 million at June 30, 1995.
Although the results of litigation cannot be predicted with any assurance,
Calgene believes that the Enzo litigation will not have a materially adverse
effect on its consolidated financial position or results of operations, based on
Calgene's belief that the SUNY/Enzo Patents are invalid and not infringed by
Calgene and that the Calgene Antisense Patent is valid.
The Company is party to other pending litigation incidental to its business
and has from time to time been notified of various claims that are not the
subject of pending litigation. While the results of litigation and claims cannot
be predicted with certainty, the Company believes that the final outcome of all
such other litigation matters and claims will not have a materially adverse
effect on its consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
----------------------------------------------------------------------
Calgene's Common Stock is traded over-the-counter on the NASDAQ National
Market under the symbol CGNE. The following table sets forth for the periods
indicated the high and low sale prices of the Common Stock as reported by
NASDAQ.
High Low
Fiscal 1994
Quarter ended September 30, 1993 .................$ 14 1/2 $ 11
Quarter ended December 31, 1993.....................17 5/8 12 3/4
Quarter ended March 31, 1994........................14 1/2 10 1/4
Quarter ended June 30, 1994.........................15 3/8 10
Fiscal 1995
Quarter ended September 30, 1994 ...................12 3/8 8 5/8
Quarter ended December 31, 1994..................... 9 7/8 6 3/8
Quarter ended March 31, 1995.........................8 7/8 5 3/4
Quarter ending June 30, 1995.........................9 5/8 5 3/8
As of August 31, 1995, there were approximately 3,576 shareholders of
record of the Common Stock.
Calgene has never paid a dividend on its Common Stock and does not
anticipate doing so in the foreseeable future. In addition, certain debt and
capital lease covenants prohibit Calgene from paying cash dividends on the
Common Stock.
ITEM 5. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Consolidated statement of
operations data (1):
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 48,972 $ 35,408 $ 24,675 $ 18,211 $ 20,810
Product development 6,459 3,025 2,562 3,666 5,294
Interest/other 1,233 964 2,089 2,322 1,601
--------- --------- --------- --------- ---------
Total revenues $ 56,664 $ 39,397 $ 29,326 $ 24,199 $ 27,705
Loss from continuing operations $ (30,602) $ (42,801) $ (25,223) $ (18,616) $ (14,379)
Net loss $ (30,602) $ (42,801) $ (25,623) $ (19,916) $ (26,979)
Net loss per share (2):
Loss from continuing operations $ (1.04) $ (1.71) $ (1.11) $ (1.34) $ (1.43)
Net loss $ (1.04) $ (1.71) $ (1.13) $ (1.42) $ (2.54)
Consolidated balance sheet data:
Total assets $ 89,231 $ 78,312 $ 88,401 $ 85,223 $ 83,136
Long-term obligations $ 15,421 $ 5,704 $ 3,694 $ 4,378 $ 5,065
Preferred stock (3) -- -- -- $ 29,506 $ 29,627
Common stock $ 223,191 $ 190,961 $ 169,506 $ 111,119 $ 86,503
</TABLE>
(1) As described elsewhere herein, acquisitions during 1993 affect the
comparability of the selected financial data.
(2) Applicable to holders of common stock. (3) Includes additional paid-
in capital allocable to Preferred Stock. Substantially all the
Preferred Stock was converted to Common Stock in July 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
Overview of Calgene Fresh
Following FDA approval of the Company's FLAVR SAVR(TM) tomato in May 1994,
the Company began selling limited quantities of FLAVR SAVR varieties and began
planting increased acreage in order to increase availability in fiscal 1995.
Calgene has exclusive rights to genetically engineer certain third-party
proprietary tomato lines bred for superior taste and agronomic performance and
is currently developing varieties from these and other materials which are
expected to have the agronomic characteristics required for all growing regions
and seasons. The Company does not yet have suitable varieties from this program
for every growing region and has not yet completed the testing of such
varieties.
The Company's fresh market tomato business continued to experience negative
gross margins in fiscal 1995 and will not achieve positive gross margins until
the Company realizes substantial reductions in the high unit costs that the
Company has continually incurred in the production, distribution and marketing
of vine-ripened tomatoes. The Company believes that such cost reductions will
depend primarily on (i) tomatoes with the FLAVR SAVR gene providing substantial
cost savings due to reduced spoilage; (ii) the Company achieving lower costs
from increased crop yields through the development and introduction of
additional FLAVR SAVR varieties, innovative production, packaging, handling and
distribution methods and from additional experience in the business; and (iii)
production, and sales volumes reaching levels that will provide substantial
economies of scale.
The Company's financial results depend in large part on its yields of
vine-ripened tomatoes and the proportion that can be packed and sold as premium
tomatoes. As part of its continuous tomato production program, in fiscal 1995
the Company grew tomato crops containing the FLAVR SAVR gene in Florida, Georgia
and California. In order to reduce the handling damage and improve the
percentage of high quality tomatoes successfully packed and transported to
customers, the Company established fresh tomato packing and shipping facilities
located near these primary crop production areas. These facilities began
operations in the fourth quarter of fiscal 1995. Yields and packouts of premium
tomatoes harvested in Florida and Georgia were lower than expected by the
Company, and this lower output has resulted in lower than planned revenues, and
a higher than planned net loss, for fiscal 1995. There can be no assurance as to
the output levels of premium tomatoes that will be achieved nor the prices at
which non-premium vine-ripe tomatoes, which are subject to the market condition
for commodity tomatoes, will be sold. The superior quality of the Company's
premium tomato products has resulted in the sale of all available premium fruit
production to date at wholesale prices substantially higher than the prevailing
market price for commodity tomatoes. This trend is expected to continue.
Revenues
Calgene's product sales in fiscal 1995 increased 38.3% to $49.0 million
from $35.4 million in fiscal 1994. The increase reflects $6.8 million higher
tomato sales, $4.2 million higher cotton seed sales, and $2.3 million higher
specialty oleochemical sales. Product sales in fiscal 1994 increased 43.5% to
$35.4 million from $24.7 million in fiscal 1993. The increase reflects $6.2
million higher tomato sales, $2.0 million higher cotton seed sales, $1.2 million
higher sales of canola oil and meal, and $951,000 higher sales of specialty
oleochemical products.
Product development revenues in fiscal 1995 increased by 113.5% to $6.5
million from $3.0 million in the prior fiscal year. The increase was primarily
due to a $3.4 million increase in technology license sales reflecting a
non-recurring $3.8 million sale in fiscal 1995. Product development revenues in
fiscal 1994 increased by 18.1% to $3.0 million from $2.6 million in the prior
fiscal year. The increase was primarily due to a $700,000 non-recurring sale of
a technology license, and the renewal of a research contract with Procter &
Gamble at an increased revenue rate. These increases were partly offset by the
conclusion of certain other research contracts.
Interest income increased by $352,000 in fiscal 1995 as compared to fiscal
1994 primarily due to higher interest rates. Interest income decreased by
$850,000 in fiscal 1994 as compared to fiscal 1993 largely due to a reduction in
cash and equivalents and short-term investments which were used primarily to
fund operating losses. In addition, the decrease in fiscal 1994 reflected a
trend of lower interest rates during the two year period.
Gross Profit
Calgene's gross profit on net product sales was negative $4.7 million in
fiscal 1995 as compared to a negative gross profit of $8.6 million in fiscal
1994. The negative gross profit is attributable to the Company's fresh market
tomato operations. The positive gross profit variance of $3.9 million in fiscal
1995 is largely due to a gross profit increase of $2.3 million in cotton
operations primarily reflecting increased domestic seed sales. In addition,
tomato sales incurred a negative gross profit of $14.9 million in fiscal 1995,
compared with a negative gross profit of $16.4 million in fiscal 1994. Gross
profit in fiscal 1994 was negative $8.6 million as compared to a positive gross
profit of $2.8 million in fiscal 1993. The negative variance of $11.4 million is
attributable to a negative gross profit of $16.4 million on tomato sales in
fiscal 1994, compared with a negative gross profit of $2.2 million in fiscal
1993. The negative gross profit was partly offset by a gross profit increase of
$2.1 million in cotton operations reflecting increased domestic seed sales and
higher sale prices.
Research and Development Expenses
Research and development expenses decreased $195,000 in fiscal 1995 to
$15.4 million as compared to $15.6 million in fiscal 1994 primarily due to lower
distribution testing, consulting and product development expenses in the
Company's tomato operations. These decreases were partly offset by higher
expenses for licensing activities and higher product development expenses for
genetically modified canola oils. Research and development expenses increased by
$593,000 or 4.0% to $15.6 million in fiscal 1994 as compared to $15.0 million in
fiscal 1993 primarily due to higher expenditures for patent and licensing
activities. In addition, the increase reflects higher greenhouse and consulting
expenses. These increases were partly offset by lower expenses for testing
tomato distribution and packaging methods.
In January 1995, the Company implemented a program to reduce ongoing
research and selling, general and administrative expenses which is expected to
have a positive fiscal 1996 impact of approximately $2 million. This program
included staff reductions of approximately 10% of the Company's 320 regular full
time employees, and reflects a shift in resources from research into product
development to focus on commercialization of the Company's genetically
engineered products. Expenses associated with this reduction in force were
approximately $200,000.
Selling, General and Administrative Expenses
Calgene's selling, general and administration expenses decreased by $5.2
million or 24.4% to $16.1 million in fiscal 1995 as compared to fiscal 1994. The
decrease primarily reflects lower sales and marketing expenses and lower payroll
and consulting expenses in the Company's tomato operations. In addition, fiscal
1994 reflects a $1.0 million scale-back charge attributable to the reduction of
non-genetically engineered tomato marketing operations. The fiscal 1995 decrease
was partly offset by higher general corporate expenses which include a $483,000
write-off of costs associated with Calgene's decision to conclude discussions
with a potential strategic partner. Selling, general and administrative expenses
for fiscal 1994 were $21.3 million as compared to $16.5 million in fiscal 1993.
The increase reflects $3.8 million in higher expenses at Calgene Fresh for
fiscal 1994, largely due to a $1.2 million increase in selling expense and the
scale back charge described above. In addition, general corporate expenses
increased primarily due to the inclusion of a $697,000 stock compensation charge
in fiscal 1994.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank line
of credit and long-term debt obligations, increased $195,000 to $924,000 in
fiscal 1995. The increase was primarily due to higher interest rates and higher
borrowings on the Company's bank line of credit used to finance inventories and
receivables. Interest expense was essentially unchanged in fiscal 1994 as
compared to fiscal 1993.
Equity in Net Losses of Affiliates
In fiscal 1995, 1994 and 1993 Calgene recorded $213,000, $583,000 and
$583,000, respectively, in losses related to its investment in Osmotica Foods
Inc., a 50% owned affiliate which began operations in January 1993 to develop
and commercialize food-related applications of the natural sugar trehalose. The
lower fiscal 1995 loss reflects reduced business and product development
activities as Osmotica scaled back its operations to focus on technology
licensing activities.
Gain (Loss) on Disposition of Assets
Loss on disposition of assets in fiscal 1995 was $1.1 million as compared
to $38,000 in the comparable period of the prior year. The increased loss
reflects the write-off of obsolete assets by Calgene Fresh.
Pre-Tax Losses from Continuing Operations
In fiscal 1995, Calgene incurred a pre-tax loss of $30.6 million as
compared to a pre-tax loss of $42.7 million in the prior fiscal year. The
decreased fiscal 1995 pre-tax loss is primarily attributable to lower selling,
general and administration expenses at Calgene Fresh and higher product
development revenues. In addition, the decreased pre-tax losses reflect
increases in gross profits on net product sales from cotton seed and
oleochemical sales, and a reduction in gross losses on net product sales at
Calgene Fresh. These factors were partly offset by higher selling, general and
administrative expenses for general corporate purposes, and the loss on
disposition of obsolete assets. In fiscal 1994, Calgene incurred a pre-tax loss
of $42.7 million as compared to a pre-tax loss of $25.2 million in the prior
fiscal year. The increased fiscal 1994 pre-tax loss is primarily attributable to
negative gross profits and higher selling, general and administrative expenses
at Calgene Fresh. In addition, the increased pre-tax loss reflects higher
corporate selling, general and administrative expenses and lower interest
income. These factors were partly offset by increases in gross profits from
cotton seed sales and higher product development revenues.
The Company expects to continue to incur pre-tax losses in fiscal 1996.
Provision for Income Taxes
For federal income tax return purposes, as of June 30, 1995 the Company has
a net operating loss carryover of approximately $180 million which expires
between 1995 and 2010, and a general business tax credit carryover of
approximately $4 million which expires between 1995 and 2010. In addition, as of
June 30, 1995 the Company has a net operating loss carryover of approximately
$125 million for state income tax purposes which expires between 1995 and 2010.
Approximately $20 million and $3 million of the federal and state net operating
loss carryovers, respectively, and $700,000 of the general business tax credit
carryover, are available only to offset the separate federal and state taxable
income, if any, of Calgene Fresh. For financial reporting purposes, a valuation
allowance of approximately $72.8 million has been recognized at June 30, 1995 to
offset the deferred tax assets related to all of the aforementioned
carryforwards.
Because of the change in ownership provisions of the Tax Reform Act of
1986, a portion of the Company's federal net operating loss and tax credit
carryovers will be subject to an annual limitation regarding their utilization
against taxable income in future periods. The Company expects that the annual
limitation will not have a material adverse effect on the Company's ability to
utilize the net operating loss and credit carryovers prior to the expiration of
the carryover periods.
Seasonality
Tomato prices are generally higher and unit volume lower during winter
months due to adverse weather conditions. The opposite effects occur in the
summer months. Sales of planting seed are seasonal, causing significant
fluctuations in product sales and working capital requirements. Cotton seed
sales are concentrated in the quarters ending March 31 and June 30. Sales of
canola oil occur almost entirely in the quarter ending September 30. Specialty
oleochemical sales are generally not seasonal.
Patent Litigation
See "Legal Proceedings" regarding litigation in which another company has
claimed that Calgene's products developed with antisense technology, including
the FLAVR SAVR tomato, infringe the other company's patent rights and has
challenged the validity of Calgene's antisense patent.
Government Farm Legislation
Cotton seed sales are affected by changes in U.S. government agricultural
policy, which generally imposes limitations on planting acreage as a criterion
for farmers' eligibility to receive government subsidy payments and other
benefits. An increase in the acreage set-aside for a subsidized crop (such as
cotton) will generally reduce farmer demand for seed for that crop, and a
decrease in the set-aside will generally increase demand for the seed. In
situations where growing conditions give farmers the alternative of planting
either of two crops, an increase in the set-aside for one crop will tend to
increase farmer demand for the seed of the competing crop.
Inflation and Price Fluctuations
Calgene regularly incurs crop production costs for fresh market tomatoes.
The market price of fresh market tomatoes can experience substantial
fluctuations in short periods. These price fluctuations directly affect the
portion of Calgene's tomato production sold below premium prices and to a lesser
extent can affect the prices for premium MacGregor's brand tomatoes. As a
result, Calgene bears a significant risk with respect to its gross margin.
Calgene's plant oil and cotton operations can also be affected by changes in
prices of commodity plant oil and cotton seed oil and meal. The effects of
general inflation have not had a material impact on Calgene's consolidated
results of operations.
Liquidity and Capital Resources
At June 30, 1995 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $22.0 million, excluding $1.3
million in securities pledged as collateral for certain obligations. This was an
increase of $1.3 million from June 30, 1994. Sources of cash in fiscal 1995
included the Company's October 1994 and July 1994 offerings of Common Stock
which contributed net proceeds of $16.4 million and $14.8 million, respectively,
and a $10 million increase in borrowings of long-term debt. Uses of cash include
financing the Company's $30.6 million net loss, the acquisition of $5.6 million
in property, plant and equipment, payments of $4.8 million for product rights,
patents and other intangible assets (including capitalized patent legal defense
costs), a $4.1 million increase in operating assets and payments of $1.8 million
on long-term debt. The Company's investment policy is to invest excess cash in
high quality, liquid, short-term fixed income securities.
Current operating assets increased $4.1 million at June 30, 1995 (including
the effects of discontinued operations) as compared to June 30, 1994 due to a
$2.0 million increase in inventory and a $1.8 million increase in net
receivables. The increase reflects $2.7 million in higher tomato inventories,
primarily for crop growing, and higher specialty oleochemical inventories. These
increases in inventories were partly offset by a $1.1 million reduction of
consigned alfalfa seed. The increase in accounts receivable resulted primarily
from higher sales at Calgene Fresh and Calgene Chemical.
Current liabilities decreased $426,000 at June 30, 1995 as compared to June
30, 1994 largely due to a $1.4 million decrease in trade accounts payable and a
$889,000 decrease in notes payable. These decreases were partly offset by a $1.3
million increase in amounts due customers. The decrease in notes payable
reflects seasonal utilization of the Company's bank line of credit. The increase
in amounts due customers primarily reflects refunds due customers for cotton
seed returns consistent with current industry practice.
Net working capital increased $6.1 million from $4.7 million at June 30,
1994, to $10.8 million at June 30, 1995 primarily due to the $3.1 million
increase in inventories, a $1.9 million increase in receivables, a $1.3 million
increase in cash and equivalents and available-for-sale securities and a
$426,000 decrease in current liabilities.
A $13 million bank line of credit is used to help finance working capital
requirements for Calgene's subsidiaries. Borrowings under the line of credit
bear interest at the greater of one quarter percent over the bank's prime rate
or two and one half percent over the federal funds rate. On June 30, 1995 the
bank's prime rate was 9.0% and the federal funds rate was 6.11%. The weighted
average annual interest rates under the line of credit were 8.92% and 6.56% for
the fiscal years ended June 30, 1995 and 1994, respectively. As of June 30,
1995, $6.0 million of indebtedness was outstanding on the bank line of credit,
which expires in January 1996. The Company is not in compliance with certain
line of credit financial covenants and conditions at June 30, 1995. However, the
Company has obtained waivers from the bank extending through December 31, 1995.
The Company anticipates being in compliance with such covenants and conditions
prior to the expiration of the waiver.
In the normal course of business, the Company enters into various grower
contracts with third party growers. Pursuant to these contracts, the Company
contracts with growers to purchase their crop, subject to certain quality
standards, at the end of the growing cycle which is generally less than one
year. The amount of outstanding grower contract commitments was approximately
$6.3 million at June 30, 1995. Calgene Fresh is contracting with growers to
supply tomatoes which in many cases will require the Company to advance payments
through the growing season. These commitments are expected to increase as
Calgene Fresh expands its commercialization efforts.
The Company has capitalized the legal fees incurred in its lawsuit with
Enzo Biochem, Inc. related to Calgene's defense of its antisense patent. If the
defense of Calgene's patent is unsuccessful, the Company would have to expense
all of these unamortized legal costs. At June 30, 1995, the amount of these
unamortized costs was $6.5 million. The Company believes that future legal
defense costs may be substantial.
In connection with the removal of an underground petroleum storage tank at
a subsidiary's facility in Gibson City, Illinois, the Company discovered that
the soil and ground water at the site were contaminated with petroleum
hydrocarbons. The tank was installed by a prior owner of the facility. Calgene
is remediating pursuant to the requirements of the Illinois Environmental
Protection Agency ("Illinois EPA"). The Company believes that the ultimate
resolution of this matter will not have a material adverse effect on its
business, financial condition or results of operations.
The Company expects that capital expenditures in fiscal 1996 will be
approximately $4.7 million, a portion of which the Company expects to fund with
debt or lease financing. The Company's plans for capital expenditures may change
during the course of the year.
In June, 1995 the Company and Monsanto Company ("Monsanto") signed a letter
of intent for a transaction whereby Monsanto will contribute to the Company $30
million, intellectual property relating to certain fresh produce and plant oils
research and development, and ownership of a major U.S. based fresh tomato
grower, packer and shipper organization. Monsanto will also make available
long-term credit facilities for the Company if the proposed transaction is
completed. In exchange, the Company will issue to Monsanto shares of its common
stock representing a 49.9% equity interest. In June 1995, Monsanto advanced to
Calgene $10 million of the $30 million to be contributed pursuant to the
proposed transaction. This advance was evidenced by a subordinated convertible
note due on June 30, 1997. In the event the transaction is not closed as a
result of reasons within the control of the Company, or if the Company's
shareholders fail to approve the transaction, then the maturity date of the note
will be June 30, 1996. In addition, if the transaction is not closed for any
reason, the principal amount of the note plus accrued interest is convertible
into shares of the Company's common stock at Monsanto's option. The conversion
price will be equal to 85% of the average closing market price of the Company's
common stock during the ten trading days immediately preceding the conversion.
In September 1995, Monsanto amended the subordinated convertible note to allow
the Company to receive additional advances of up to $8 million. The additional
$8 million advance, together with the Company's cash, equivalents and short-term
investments at June 30, 1995, are expected to be sufficient to meet Calgene's
cash requirements through at least fiscal 1996. However, this expectation is
based on the Company's anticipated future operating results, which are difficult
to predict. If the transaction with Monsanto is not consummated, the Company may
be required to issue equity securities, incur debt, or enter into other
financing arrangements. The Company's future liquidity is expected to depend
largely on the level of profit or losses generated by the Company's tomato
business, at least until commercialization of the Company's other genetically
engineered product occurs. In addition, the Company anticipates that, if its
tomato, cotton, and plant oil businesses expand significantly, they will require
increasing levels of working capital. There is no assurance that the Company
will be successful in raising sufficient additional capital or that the terms of
any funding will be favorable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
Index to Consolidated Financial Statements
and Supplementary Data
Page
Report of Independent Auditors................................................29
Consolidated Balance Sheets - June 30, 1995 and 1994..........................30
Consolidated Statements of Operations - Years ended
June 30, 1995, 1994 and 1993..................................................32
Consolidated Statements of Shareholders' Equity -
Years ended June 30, 1995, 1994 and 1993......................................33
Consolidated Statements of Cash Flows - Years ended
June 30, 1995, 1994 and 1993..................................................34
Notes to Consolidated Financial Statements....................................35
Supplementary Data (Unaudited)................................................48
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Calgene, Inc.
We have audited the accompanying consolidated balance sheets of Calgene, Inc. as
of June 30, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended June 30, 1995. Our audits also included the financial statement
schedules listed in the Index at Item 14(a)2. These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Calgene, Inc. at June 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Sacramento, California
August 18, 1995
CALGENE, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ------- -------
<S> <C> <C>
Current assets:
Cash and equivalents $11,753 $ 5,286
Available-for-sale securities 10,283 15,457
Accounts receivable, primarily trade,
net of allowance for doubtful accounts
of $346 and $173 at June 30, 1995
and 1994, respectively 6,697 4,792
Inventories 8,148 5,068
Prepaid expenses and other
current assets 1,699 2,278
------- -------
Total current assets 38,580 32,881
Property, plant and equipment:
Land 763 763
Buildings 3,743 3,622
Leasehold improvements 9,643 8,486
Furniture, fixtures and equipment 22,436 18,600
Construction in progress 1,459 892
------- -------
38,044 32,363
Less accumulated depreciation and amortization 15,524 12,872
------- -------
Property, plant and equipment, net 22,520 19,491
Product rights, patents and other
intangible assets, less accumulated
amortization of $2,507 and $1,517
at June 30, 1995 and 1994,
respectively 16,199 13,100
Costs in excess of fair values assigned
to net assets acquired, less accumulated
amortization of $4,145 and $3,503 at
June 30, 1995 and 1994, respectively 10,025 10,577
Other non-current assets 1,907 2,263
------- -------
$89,231 $78,312
======= =======
</TABLE>
See accompanying notes.
CALGENE, INC.
CONSOLIDATED BALANCE SHEETS (continued)
June 30, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
------------------------------------ --------- ---------
<S> <C> <C>
Current liabilities:
Notes payable $ 7,761 $ 8,650
Accounts payable 6,487 7,916
Accrued payroll and related expenses 2,049 1,803
License contract payable 1,500 1,500
Amounts due customers 4,596 3,328
Other current liabilities 3,872 3,260
Current portion of long-term debt 1,494 1,728
--------- ---------
Total current liabilities 27,759 28,185
License contract payable, long-term 750 1,500
Long-term debt 14,671 4,204
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, $.001 par value; 5,000,000
authorized, no shares issued and outstanding -- --
Common stock, $.001 par value; 50,000,000
shares authorized, 30,244,226 and 26,506,312
shares issued and outstanding at June 30, 1995
and 1994, respectively 30 27
Additional paid-in capital 223,161 190,934
Accumulated deficit (177,140) (146,538)
--------- ---------
Total shareholders' equity 46,051 44,423
--------- ---------
$ 89,231 $ 78,312
========= =========
</TABLE>
See accompanying notes.
CALGENE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Product sales, net $ 48,972 $ 35,408 $ 24,675
Product development revenues 6,459 3,025 2,562
Interest income 1,079 727 1,577
Other income, net 154 237 512
---------- ---------- ----------
56,664 39,397 29,326
Costs and expenses:
Cost of goods sold 53,678 43,982 21,918
Research and development:
Contract 3,436 2,721 4,715
Other 11,937 12,847 10,260
Selling, general and administrative 16,081 21,279 16,494
Interest expense 924 729 673
---------- ---------- ----------
86,056 81,558 54,060
Minority interest share of net loss 116 46 50
Equity in net loss of affiliate (213) (583) (583)
Gain (loss) on disposition of assets (1,098) (38) 88
---------- ---------- ----------
Loss from continuing operations before
income taxes (30,587) (42,736) (25,179)
Provision for income taxes 15 65 44
---------- ---------- ----------
Loss from continuing operations (30,602) (42,801) (25,223)
Discontinued operations -- -- (400)
---------- ---------- ----------
Net loss $(30,602) $(42,801) $(25,623)
========== ========== ==========
Net loss per share:
Loss from continuing operations $ (1.04) $ (1.71) $ (1.11)
Loss from discontinued operations -- -- (0.02)
---------- ---------- ----------
Net loss $ (1.04) $ (1.71) $ (1.13)
========== ========== ==========
Shares used in per share calculations 29,439,008 24,987,513 22,786,057
========== ========== ==========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 30, 1995, 1994, and 1993
(Dollars in thousands, except per share amounts)
Preferred stock Common stock Additional Total
---------------------- ------------------- paid-in Accumulated shareholders'
Shares Amount Shares Amount capital deficit equity
---------- ------- ---------- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 1,243,516 $29,506 18,038,454 $18 $111,101 ($ 78,114) $ 62,511
Net loss -- -- -- -- -- (25,623) (25,623)
Sale of common stock, net of expenses -- -- 2,032,050 2 27,674 -- 27,676
Options exercised -- -- 278,006 -- 1,648 -- 1,648
Conversion and redemption of preferred
stock, net of expenses (1,243,516) (29,506) 4,063,272 4 29,059 -- (443)
---------- ------- ---------- --- -------- --------- --------
Balance at June 30, 1993 -- -- 24,411,782 24 169,482 (103,737) 65,769
Net loss -- -- -- -- -- (42,801) (42,801)
Sale of common stock, net of expenses -- -- 1,845,000 2 19,150 -- 19,152
Options exercised -- -- 249,530 1 1,605 -- 1,606
Stock compensation -- -- -- -- 697 -- 697
---------- ------- ---------- --- -------- --------- --------
Balance at June 30, 1994 -- -- 26,506,312 27 190,934 (146,538) 44,423
Net loss -- -- -- -- -- (30,602) (30,602)
Sale of common stock, net of expenses -- -- 3,683,262 3 31,419 -- 31,422
Options exercised -- -- 54,652 -- 340 -- 340
Stock compensation -- -- -- -- 452 -- 452
Unrealized gain on available-for-sale
securities -- -- -- -- 16 -- 16
---------- ------- ---------- --- -------- --------- --------
Balance at June 30, 1995 -- $ -- 30,244,226 $30 $223,161 ($177,140) $ 46,051
========== ======= ========== === ======== ========= ========
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
CALGENE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1995, 1994 and 1993
Increase (Decrease) in Cash and Equivalents
(Dollars in thousands)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(30,602) $(42,801) $(25,623)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest in net loss (116) (46) (50)
Depreciation and amortization 4,957 4,099 3,082
Loss (gain) on disposition of assets 1,098 38 (128)
Equity in net loss of affiliate 213 583 583
Stock compensation 452 697 --
Provision for loss on discontinued operations -- -- (502)
Net changes in operating assets and liabilities, excluding effect
of acquisition of subsidiaries:
Accounts receivable (1,992) (1,658) 2,152
Allowance for doubtful accounts 173 (78) (289)
Inventories (2,003) 1,320 (178)
Prepaid expenses and other current assets (303) 34 (368)
Accounts payable (1,429) 2,589 3,593
Accrued payroll and related expenses 246 241 186
Amounts due customers 1,268 1,740 (372)
Other current liabilities 612 1,637 407
Other 30 44 84
-------- -------- --------
Net cash used in operating activities (27,396) (31,561) (17,423)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of securities 22,904 24,904 55,435
Purchase of securities (17,714) (15,588) (48,460)
Collection of notes receivable -- 1,709 --
Investment in affiliate (73) (579) (175)
Capital expenditures for property, plant and equipment (5,649) (4,437) (4,607)
Decrease in cash and equivalents resulting from acquisition of
subsidiaries, net of cash and equivalents acquired and acquisition costs (90) (12) (2,322)
Purchases of product rights, patents and other intangible assets (4,782) (4,843) (2,041)
Proceeds from sale of assets 38 69 1,265
-------- -------- --------
Net cash provided by (used in) investing activities (5,366) 1,223 (905)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable 19,398 14,214 14,846
Payments on notes payable (20,322) (13,161) (17,042)
Decrease in securities-pledged 159 136 1,350
Increase in borrowings of long-term debt 10,000 -- --
Principal payments on long-term debt (1,768) (1,332) (3,398)
Sale of common stock 31,762 20,758 29,324
Preferred stock conversion expenses -- -- (554)
Dividends paid -- -- (700)
-------- -------- --------
Net cash provided by financing activities 39,229 20,615 23,826
-------- -------- --------
Net increase (decrease) in cash and equivalents 6,467 (9,723) 5,498
Cash and equivalents at beginning of year 5,286 15,009 9,511
-------- -------- --------
Cash and equivalents at end of year $ 11,753 $ 5,286 $ 15,009
======== ======== ========
See accompanying notes.
</TABLE>
CALGENE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
1. Summary of significant accounting policies
------------------------------------------
Organization and business
-------------------------
Calgene is a biotechnology company that is developing genetically
engineered plants and plant products for the seed, food and
oleochemical industries.
Consolidation and equity accounting
-----------------------------------
The consolidated financial statements include the accounts of Calgene,
its wholly-owned subsidiaries and its majority owned joint venture
(together the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Calgene uses the equity method to account for its investment in its 50
percent owned joint ventures. Under the equity method, Calgene
recognizes its proportionate share of the net income or loss of these
joint ventures currently, rather than when realized through dividends
or disposal.
Cash equivalents and available-for-sale securities
--------------------------------------------------
In May 1993 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of or acquired
after July 1, 1994. In accordance with the Statement, prior period
financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect as of July 1, 1994 of
adopting Statement 115 was not material.
Cash equivalents and available-for-sale securities, consisting
principally of certificates of deposit, bankers acceptances, commercial
paper, U.S. treasury and agency securities, and money market funds, are
stated at fair market value, and are adjusted for amortization of
premiums and accretion of discounts, which are recognized as
adjustments to interest income. Unrealized gains and losses, net of
tax, on available-for-sale securities are reported in shareholder's
equity. The aggregate fair market value of available-for-sale
securities at June 30, 1995 is $20,276,000 of which $9,993,000 is
included in cash and equivalents. The contractual maturities of
available-for-sale securities at June 30, 1995 are as follows:
$17,742,000 in fiscal 1996 and $2,534,000 in fiscal 1997.
Inventories
-----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value.
Property, plant and equipment
-----------------------------
Property, plant and equipment are stated at cost and depreciated or
amortized on a straight-line basis over the estimated useful lives of
the assets or the capital lease term, whichever is less. The estimated
useful lives range from 3 to 30 years.
Product rights, patents and other intangible assets
---------------------------------------------------
Product rights of approximately $7,827,000 at June 30, 1995 and
$7,749,000 at June 30, 1994 are stated at cost and are amortized on a
straight-line basis over the lesser of their contractual lives or their
estimated useful lives (generally 10 to 20 years).
External costs incurred in obtaining patents are capitalized. The costs
of successful patent applications are amortized on a straight-line
basis over the lesser of their statutory lives or their estimated
useful lives (generally 17 years). External costs incurred in defense
of patents are capitalized and amortized on a straight-line basis over
the remaining life of the patent. The costs of unsuccessful patent
applications or patent defense are charged to expense in the period in
which the patent applications are denied or the patent defense is
unsuccessful.
Costs in excess of fair values assigned to net assets acquired are
capitalized and amortized on a straight-line basis over periods of 10
to 25 years.
Revenue recognition and product development arrangements
--------------------------------------------------------
Revenue from product sales is recognized primarily at the time of
shipment net of estimated product returns. The Company performs
research under contracts for the development of certain products for
other entities. Revenue from product development contracts is
recognized according to the percentage of completion method. Funding
received in advance of research performed under these contracts is
recorded as deferred revenue. Related contract expenses are charged to
expense as incurred.
Income taxes
------------
Under Financial Accounting Standards No. 109, "Accounting For Income
Taxes", the liability method is used to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
General business tax credits will be accounted for as a reduction of
federal income taxes payable under the flow-through method.
Net loss per share
------------------
Net loss per share has been computed by dividing the net loss by the
weighted average number of common shares outstanding during each
period. Common equivalent shares related to stock options have been
excluded from the computation of net loss per share since their
inclusion would be antidilutive.
Statement of cash flows
-----------------------
For purposes of the consolidated statement of cash flows, the Company
considers highly liquid investments with original maturities of three
months or less to be cash equivalents. During fiscal 1995, 1994 and
1993, the Company paid cash for interest and income taxes as follows:
(In thousands)
1995 1994 1993
---- ---- ----
Interest $895 $621 $524
Income taxes 91 53 46
The Company maintains its cash and equivalents and short-term
investments in several different instruments. This diversification of
risk is consistent with the Company's policy to maintain liquidity and
ensure the safety of principal.
Reclassifications
-----------------
Certain amounts reported for prior years have been reclassified to
conform with the presentation of the fiscal 1995 financial statements.
2. Inventories
-----------
Inventories consist of the following at June 30, 1995 and 1994:
(In thousands)
1995 1994
Raw materials $ 897 $ 858
Work in progress 4,613 2,093
Finished goods 2,638 2,117
------- -------
$8,148 $5,068
====== ======
3. License Purchase Agreements
---------------------------
In August 1991, the Company acquired from Campbell Soup Company an
exclusive license to commercialize the FLAVR SAVR tomato in North
America. The license was purchased for $2 million plus future payments
contingent upon certain regulatory and commercialization milestones,
plus royalties on future sales of tomatoes with the FLAVR SAVR gene.
The license agreement was amended in February 1994, when Calgene,
Campbell Soup Company and Zeneca A.V.P. entered into agreements whereby
Calgene purchased the exclusive royalty-free rights to produce and sell
fresh market tomatoes containing the FLAVR SAVR gene. The agreement
expanded Calgene's commercialization rights from North America to
worldwide. The license was purchased from Campbell Soup Company for
$3.0 million, payable in installments of $1.5 million paid in July
1994, and $750,000 due in July 1995 and 1996, respectively.
4. Strategic Alliance
------------------
In June, 1995 the Company and Monsanto Company ("Monsanto") signed a
letter of intent for a transaction whereby Monsanto will contribute to
the Company $30 million, intellectual property relating to certain
fresh produce and plant oils research and development, and ownership of
Gargiulo L.P. and Gargiulo G.P. (collectively "Gargiulo"), a major U.S.
fresh tomato grower, packer and shipper organization. Monsanto Company
will also make available long-term credit facilities for the Company
and Gargiulo. In exchange, the Company will issue shares of its common
stock representing 49.9% equity interest in the Company.
Coincident with the letter of intent, in June 1995 Monsanto Company
advanced $10 million of the $30 million purchase price to the Company
in the form of a subordinated promissory note. If the transaction is
closed, the principal amount of the note will be credited against the
cash payment and the accrued interest on the note will be waived. The
note plus accrued interest is otherwise due in June 1997. In the event
the transaction is not closed as a result of reasons within the control
of the Company, or if the Company's shareholders fail to approve the
transaction, then the maturity date of the note will be June 30, 1996.
In addition, if the transaction is not closed for any reason, the
principal amount of the note plus accrued interest is convertible into
shares of the Company's common stock at Monsanto's option. The
conclusion price will be equal to 85% of the average closing market
price of the Company's common stock during the ten trading days
immediately preceding the conversion.
5. Long-term debt and notes payable
--------------------------------
Long-term debt consists of the following at June 30, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Note payable to bank; due in monthly installments of
approximately $3,000 including interest at 11.8% per annum,
through 2004; secured by a $300,000 certificate of deposit
and guaranteed by the Small Business Administration. $ 235 $ 248
Mortgage notes payable; due in quarterly installments of
approximately $31,000 including interest at 8.5% per annum,
through 1998; secured by land and buildings with a net book
value of approximately $665,200 at June 30, 1995. 377 466
Capitalized lease obligations; due in monthly installments of
approximately $55,000 including interest imputed at 5.4% to
11% per annum, through 2000; secured by equipment with a net
book value of approximately $3,079,000 at June 30, 1995 and
supported by a $150,000 irrevocable letter of credit issued
by a bank which is secured by a $150,000 certificate of
deposit. 2,960 2,068
Note payable to a corporate lender, originally due in monthly
installments of $17,741 including interest at 12.75% per
annum. Note paid in full July 1994. -- 568
Note payable to the former owner of an acquired business; due
in annual installments of $158,000, $231,400 and $316,000 at
July 17, 1995, 1996 and 1997, respectively; plus interest on
the unpaid principal balance at the prime rate (9.00% at June
30, 1995) over the term of the loan; secured by a $760,500
certificate of deposit. 705 673
Non-interest bearing note payable to the former owner of an
acquired business; due in monthly installments of $14,083
through June 30, 1997. 338 507
Mortgage note payable; interest only payable in monthly
installments of approximately $3,700, current interest at
8.75% per annum. Interest is adjustable effective each
November 1 to prime plus 1%, rate not to exceed 9% or be
lower than 6% during the term of the note. Final payment of
$506,000 plus unpaid interest due November 1, 1999; secured
by land with a net book value of approximately $605,000 at
June 30,1995. 506 506
Note payable to a corporate lender, due in monthly
installments of $25,550 including interest at 10.38% per
annum, through 1999; secured by equipment with a net book
value of approximately $842,900 at June 30, 1995. 673 896
Note payable to a corporate lender, due in quarterly
installments of $30,938 including interest imputed at 22.29%
per annum, through June 1, 1998. 371 --
Convertible note payable to a corporate lender; due on June
30, 1997, plus interest at prime (9.00% at June 30, 1995)
plus 2%(Note 4). 10,000 --
------- -------
16,165 5,932
Less amount due within one year 1,494 1,728
------- -------
$14,671 $ 4,204
======= =======
</TABLE>
The capitalized lease obligations listed above contain certain
restrictive covenants which, among other things, require the Company to
maintain a specified level of working capital. The Company has obtained
a waiver of default of certain of those covenants through December 31,
1995. The Company anticipates being in compliance with such covenants
and conditions prior to the expiration of the waiver. In addition,
certain debt and capital lease obligations prohibit the Company from
paying dividends on common stock.
At June 30, 1995 aggregate future principal payments by fiscal year on
long-term debt are due as follows:
(In thousands)
1996 $ 1,494
1997 11,604
1998 1,468
1999 348
2000 770
Thereafter 481
-------
$16,165
Notes Payable
-------------
A $13 million bank line of credit is used to help finance working
capital requirements for Calgene's subsidiaries. Borrowings under the
line bear interest at the greater of one quarter percent over the
bank's prime rate or two and one half percent over the federal funds
rate. On June 30, 1995 the bank's prime rate was 9.00% and the federal
funds rate was 6.11%. The weighted average annual interest rate under
the line of credit was 8.92% and 6.56% for the fiscal year ended June
30, 1995 and 1994, respectively. Borrowings are subject to certain
financial covenants which include prohibiting the Company from paying
cash dividends on its common stock. The Company is not in compliance
with certain line of credit financial covenants and conditions at June
30, 1995. However, the Company has obtained waivers from the bank
extending through December 31, 1995. The Company anticipates being in
compliance with such covenants and conditions prior to the expiration
of the waiver.
Borrowings are secured by qualifying accounts receivable and inventory
and must be repaid on a monthly basis to the extent they exceed
qualifying accounts receivable and inventory. As of June 30, 1995 and
1994 there was $5,973,400 and $6,799,000, respectively, outstanding on
the lines of credit.
At June 30, 1995, PG-K (a joint venture between the Company and Kirin
Brewery Co. Ltd.) had $1,450,000 in notes payable to Kirin which are
due June 30, 1996.
6. Commitments and contingencies
-----------------------------
Leasing arrangements
--------------------
The Company leases certain research and office equipment as well as
office and research space. These leases are accounted for as follows in
the accompanying consolidated financial statements:
Capital leases
--------------
The following amounts are included in property, plant and equipment as
assets recorded under capital leases:
(In thousands)
1995 1994
------- -------
Cost $4,192 $2,883
Less accumulated depreciation 1,113 833
------- -------
$3,079 $2,050
Depreciation expense charged to operations pursuant to these capital
leases amounted to approximately $537,000, $462,000 and $380,000 during
fiscal 1995, 1994 and 1993, respectively.
During fiscal 1995, 1994, and 1993, the Company capitalized equipment
of approximately $1,506,000, $773,000, and $1,399,000, respectively,
which represents the present value of the net minimum lease payments of
capital lease obligations entered into during such fiscal periods.
The future minimum lease payments by fiscal year under capital leases,
together with the present value of the net minimum lease payments are
as follows at June 30, 1995:
(In thousands)
1996 $906
1997 858
1998 857
1999 335
2000 289
Thereafter 338
------
3,583
Less amount representing interest 623
------
Present value of net minimum lease payments
(Note 5) $2,960
======
Operating leases
----------------
Future minimum payments by fiscal year under non-cancelable operating
leases are as follows at June 30, 1995:
(In thousands)
1996 $2,056
1997 1,546
1998 880
1999 731
2000 232
Thereafter 135
------
$5,580
======
Rental expense charged to operations for all operating leases was
approximately $3,259,000, $1,761,000 and $1,214,000 for fiscal 1995,
1994 and 1993, respectively.
Inventory purchase commitments
------------------------------
In the normal course of business, the Company has entered into various
grower contracts with third party growers. Pursuant to these contracts,
the Company has agreed to purchase the resulting crop, subject to
certain quality standards, at the end of the growing cycle which is
generally less than one year. Including discontinued operations, the
amount of outstanding grower contract commitments is approximately $6.3
million at June 30, 1995.
Patents
-------
Certain institutions and companies have been issued patents, have
patent applications pending or have otherwise obtained proprietary
rights to technology necessary or potentially useful to Calgene. These
patents or patent applications, if patents are issued, could delay
product introduction or preclude Calgene from using this technology
without a license. The extent to which Calgene would be required to
license such patents and cost and availability of such licenses are
currently unknown.
Legal proceedings and other contingencies
-----------------------------------------
Calgene currently is engaged in litigation with Enzo Biochem, Inc.
("Enzo"), a biotechnology company in the human health care product
industry. Enzo is the exclusive licensee of three U.S. patents issued
in 1993 to the State University of New York ("SUNY"). Enzo asserts
that these patents (the "SUNY/Enzo Patents") contain claims covering
the use of antisense technology in all cells, including plant cells.
Antisense technology is used in some of Calgene's products, including
tomato varieties with the FLAVR SAVR gene. Calgene believes that the
claims in the SUNY/Enzo Patents (No. 5,190,931, No. 5,208,149 and No.
5,272,065) are invalid, unenforceable and not infringed. Calgene
further believes that even if the SUNY/Enzo Patents claims directed to
the use of antisense technology in all cells were valid and infringed,
this would not invalidate Calgene's patent (No. 5,107,065) directed to
antisense in plant cells (the "Calgene Antisense Patent") and that
commercialization by any company of products using antisense
technology in plant cells would in such case require a license under
both the SUNY/Enzo Patent and Calgene Antisense Patent.
In 1993, Enzo filed patent litigation against Calgene in the United
States District Court in Delaware (Civ. No. 93-110-JJF) alleging
willful patent infringement of the first issued SUNY/Enzo patent (No.
5,190,931) and unfair competition by Calgene, and requesting a
declaratory judgment that the Calgene Antisense Patent is invalid.
Enzo claims that Calgene has threatened Enzo and its prospective
licensees, and that Calgene commenced frivolous litigation against
Enzo in California. Enzo's claims that Calgene conducted bad-faith
negotiations with Enzo regarding the possible granting of a license by
Enzo under its then pending application, and that Calgene has
slandered Enzo have been dismissed with prejudice by Enzo. Calgene has
asserted that Calgene does not infringe the SUNY/Enzo Patent No.
5,190,931 and that the SUNY/Enzo Patent No. 5,190,931 is invalid and
unenforceable. Calgene has also denied the other claims in Enzo's
complaint. Calgene has received a written opinion from its patent
counsel, Lyon & Lyon, that the SUNY/Enzo Patent No. 5,190,931 is
invalid and not infringed by Calgene.
On February 9, 1994, Enzo filed a second patent suit in the United
States District Court in Delaware alleging willful infringement by
Calgene of SUNY/Enzo Patent No. 5,208,149 (Civ. No. 94-57). The patent
at issue in this litigation is a daughter application of the SUNY/Enzo
Patent No. 5,190,931 and contains claims which are directed to
antisense constructs having a particular stem and loop structure.
Calgene has answered the complaint by denying its essential allegations
and asserting that Patent No. 5,208,149 is invalid, unenforceable and
not infringed. Calgene has also counterclaimed requesting a declaratory
judgment that a third antisense patent exclusively licensed from SUNY
(SUNY/Enzo Patent No. 5,272,065) is invalid and unenforceable. Calgene
has also received written opinions from patent counsel, Lyon & Lyon,
that the SUNY/Enzo Patent No. 5,208,149 and Patent No. 5,272,065 are
invalid and not infringed by Calgene. The two Delaware actions have now
been consolidated. A bench trial was held before Judge Farnan from
April 4 through April 21, 1995. Enzo's claims for unfair negotiations,
reliance on improper science, unfair press release and slander were
dismissed with prejudice. It is not known when the judge will render a
decision.
On March 22, 1994, Enzo filed suit in the United States District Court
for the Western District of Washington naming Calgene and the Fred
Hutchinson Cancer Research Center ("FHCRC") as co-defendants. As
amended by Enzo, the suit alleges seven claims, only one of which is
specifically directed to Calgene. In that claim, which names Calgene
and the FHCRC, Enzo seeks to have the sublicense granted by the FHCRC
to Calgene under a pending FHCRC patent application, which is also
directed to antisense technology, declared invalid as against public
policy. Enzo has requested a jury trial in its complaint.
Although Calgene believes that the SUNY/Enzo Patents are invalid,
unenforceable and not infringed, a court might not agree. If a court
were to determine that any claim validly covers plant cells and is
infringed by Calgene's sale of products using antisense technology,
Calgene could be held liable for significant damages and be precluded
from producing and selling the FLAVR SAVR tomato, as well as other
products under development, without a license. There is no assurance
that a license, if necessary, could be obtained by Calgene on
commercially acceptable terms. If the court were to determine that the
Calgene Antisense Patent is invalid or unenforceable, Calgene would be
deprived of the competitive and licensing advantages afforded by its
patent. Moreover, the Company would have to expense the capitalized
legal fees related to the defense of the Calgene's Antisense Patent,
which amounted to approximately $6.5 million at June 30, 1995.
Although the results of litigation cannot be predicted with any
assurance, Calgene believes that the Enzo litigation will not have a
materially adverse effect on its consolidated financial position or
results of operations, based on Calgene's belief that the SUNY/Enzo
Patents are invalid and not infringed by Calgene and that the Calgene
Antisense Patent is valid.
The Company is party to other pending litigation incidental to its
business and has from time to time been notified of various claims that
are not the subject of pending litigation. While the results of
litigation and claims cannot be predicted with certainty, the Company
believes that the final outcome of all such other litigation matters
and claims will not have a materially adverse effect on its
consolidated financial position or results of operations.
7. Shareholders' equity
--------------------
Stock option plans
------------------
The Company established a stock option plan in June 1991 (the "1991
Plan") under which all officers, employees and directors of the Company
may participate. Either incentive stock options or non-qualified stock
options can be granted under the 1991 Plan. 2,500,000 shares of the
Company's common stock have been reserved for issuance under the 1991
Plan. Options granted under the 1991 Plan generally have a term of ten
years from the date of grant. The exercise price of incentive stock
options granted under the 1991 Plan may not be less than 100% of the
fair market value of Calgene's common stock on the date of grant.
The administrative committee of the 1991 Plan has authority to provide
that options issued under the 1991 Plan may be exercised by either (1)
cash, (2) surrender by the optionee of other shares of common stock of
the Company of a value equal to the exercise price of the shares as to
which the option is being exercised, or (3) the optionee's issuance of
an interest-bearing, full-recourse promissory note. During fiscal 1995,
employees exercised 10,000 options through the surrender of 6,805
shares of the Company's common stock resulting in the issuance of 3,195
new common shares.
The Company also has a 1981 Stock Option Plan having terms generally
similar to the 1991 Plan. The 1981 Plan has been terminated subject to
the rights of holders of outstanding options.
The following is a summary of the activity, including the range of per
share exercise prices, in the 1981 Plan, the 1991 Plan, and certain
stock options assumed in connection with an acquisition during the
period from June 30, 1992 through June 30, 1995:
Outstanding at June 30, 1992 1,491,548
Granted 284,000
Canceled (29,141)
Exercised (at $5.25 to $11.125) (285,382)
---------
Outstanding at June 30, 1993 1,461,025
Granted 499,000
Canceled (13,759)
Exercised (at $5.25 to $12.375) (268,588)
---------
Outstanding at June 30, 1994 1,677,678
Granted 769,025
Canceled (119,968)
Exercised (at $5.875 to $12.375) (61,457)
---------
Outstanding at June 30, 1995 2,265,278
=========
Of the options outstanding at June 30, 1995, options to purchase
814,421 shares were immediately exercisable at prices ranging from
$5.25 to $15.25 per share on dates ranging from 1995 to 2005. At June
30, 1994, 895,678 options were exercisable at prices ranging from $5.25
to $15.75 per share. At June 30, 1995, there are 338,849 shares
available for grant under the 1991 plan.
In November 1994, the Board of Directors approved an amendment to all
outstanding options held by employees of the Company under the 1991
plan with exercise prices in excess of $7.50 per share. The amendment
allowed employees to elect to reduce the option exercise price to $7.50
per share in exchange for an extended vesting period. A total of
1,268,081 options with option prices ranging from $7.75 to $16.00 were
repriced.
Subsidiary option plan
----------------------
In May, 1992 Calgene's wholly-owned subsidiary Calgene Fresh, Inc.
("Subsidiary") adopted a stock option plan (the "Subsidiary Option
Plan") pursuant to which employees, consultants and directors of the
Subsidiary may be granted options to purchase shares of common stock of
the Subsidiary. In October 1994 the option plan was terminated and all
outstanding options were canceled.
Stock purchase plan
-------------------
The Company established a stock purchase plan in March 1990 (the "1990
Plan") under which most employees of the Company may participate. A
total of 500,000 shares of the Company's common stock have been
reserved for issuance under the 1990 Plan. The 1990 Plan is
administered by the Board of Directors or by a committee appointed by
the Board of Directors.
Employees can elect to have from two to ten percent of their monthly
gross salary deducted during each offering period and applied to the
purchase of stock. The purchase price is an amount equal to 85% of the
fair market value of a share of common stock of the Company on the
enrollment date or on the purchase date, whichever is lower. During the
fiscal years ended June 30, 1995, 1994 and 1993 the Company sold 31,462
shares of common stock for $216,179, 23,045 shares of common stock for
$223,144, and 18,414 shares of common stock for $175,080, respectively.
8. Income taxes
------------
The income tax provision for the years ended June 30, 1995, 1994 and
1993 is comprised of state franchise taxes.
Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes are as follows:
(In thousands)
June 30,
-----------------------
1995 1994
--------- ----------
Deferred tax assets:
Net operating loss carryforwards $66,200 $55,100
Research and other credits 3,800 3,300
Capitalized research and development 400 300
Inventory reserve - 800
Discontinued operations 300 300
Depreciation 100 100
Capitalized license fees 700 700
Other, net 1,500 700
-------- ---------
Total deferred tax assets 73,000 61,300
Valuation allowance for deferred tax assets (72,800) (61,100)
-------- ---------
Net deferred tax assets $200 $200
======== =========
Total deferred tax liabilities $200 $200
======== =========
At June 30, 1993 the valuation allowance for deferred tax assets was
$45 million.
For federal income tax return purposes, as of June 30, 1995, the
Company has a net operating loss carryover of approximately $180
million which expires between 1995 and 2010 and a general business tax
credit carryover of approximately $4 million which expires between 1995
and 2010. In addition, as of June 30, 1995, the Company has a net
operating loss carryover of approximately $125 million for state income
tax purposes which expires between 1995 and 2010.
Approximately $20 million and $3 million of the federal and state net
operating loss carryovers, respectively, and $700,000 of the general
business tax credit carryover, were generated by Plant Genetics prior
to its merger with Calgene. Such net operating loss and general
business tax credit carryovers are available only to offset the
separate federal and state taxable income, if any, of the Calgene Fresh
(Plant Genetics was renamed Calgene Fresh in January, 1992). For
financial reporting purposes, a valuation allowance of approximately
$72.8 million has been recognized to offset the deferred tax assets
related to all of the aforementioned carryforwards.
Because of "change in ownership" provisions of the Tax Reform Act of
1986, a portion of the Company's federal net operating loss and credit
carryovers will be subject to an annual limitation regarding their
utilization against taxable income in future periods. The Company
expects that this annual limitation will not have a material adverse
effect on the Company's ability to utilize the net operating loss and
credit carryovers prior to the expiration of the carryover periods.
9. Tax deferred investment plan
----------------------------
Substantially all full-time employees of the Company are eligible to
participate in a tax deferred investment plan (the "401(k) Plan"). The
401(k) Plan permits each employee to contribute 2% to 15% of
compensation on a pre-tax basis, to a maximum amount per calendar year.
For the years ended June 30, 1995, 1994 and 1993 matching contributions
by the Company were $179,000, $151,000 and $121,000, respectively.
10. License sale
------------
In December 1994, Calgene and a contractual partner sold a license to
two companies that allow them to use certain plant herbicide tolerance
technology developed by Calgene. Calgene recorded $3,750,000 from that
sale. The technology license sold was not related to Calgene's core
product areas.
CALGENE, INC.
SELECTED QUARTERLY FINANCIAL DATA
Unaudited
Fiscal 1995
- ----------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
Sep 30 Dec 31 Mar 31 June 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 6,263 $ 8,850 $ 18,399 $ 15,460
Product development 267 4,166 797 1,229
Interest/other 320 274 320 319
-------- -------- -------- --------
Total revenues $ 6,850 $ 13,290 $ 19,516 $ 17,008
Cost of goods sold $ 8,719 $ 10,336 $ 15,039 $ 19,584
Net loss $ (9,538) $ (5,648) $ (4,459) $(10,957)
Net loss per share $ (.35) $ (.19) $ (.15) $ (.36)
Fiscal 1994
- ----------------------------------------
(In thousands, except per share amounts)
Quarter Ended
---------------------------------------------
Sep 30 Dec 31 Mar 31 June 30
-------- -------- -------- --------
Revenues:
Product sales $ 5,304 $ 5,499 $ 12,739 $ 11,866
Product development 588 587 367 1,483
Interest/other 353 213 217 181
-------- -------- -------- --------
Total revenues $ 6,245 $ 6,299 $ 13,323 $ 13,530
Cost of goods sold $ 6,959 $ 7,244 $ 13,855 $ 15,924
Net loss $(10,424) $(10,768) $ (9,789) $(11,820)
Net loss per share $ (0.43) $ (0.44) $ (0.39) $ (0.46)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------------
AND FINANCIAL DISCLOSURE.
-------------------------
Not applicable.
PART III
Certain information required by Part III is omitted from this report in
that the registrant will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement")
for its annual meeting of shareholders to be held approximately in December 1995
and the information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The information required by this Item is incorporated by reference to the
information under the caption "Election of Directors", and "Filing of Reports by
Directors and Officers" in the Company's Proxy Statement. The information
concerning executive officers is contained in Item 1 under the caption
"Executive Officers"
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
The information required by this Item is incorporated by reference to the
captions "Executive Compensation," and "Compensation Committee Interlocks and
Insider Participation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information required by this Item is incorporated by reference to the
caption "Stock Ownership" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information required by this Item is incorporated by reference to the
information under the caption "Certain Transactions" in the Company's Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements. The following Consolidated Financial
Statements and Report of Independent Auditors are included
in Part II, Item 8, of this Report:
Report of Independent Auditors.
Consolidated Balance Sheets -- June 30, 1995 and 1994.
Consolidated Statements of Operations -- Years ended
June 30, 1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity -- Years
ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows -- Years ended June 30,
1995, 1994 and 1993.
2. Financial Statement Schedules. The following financial
statement schedule of Calgene, Inc. is filed as part of this
Report and should be read in conjunction with the
Consolidated Financial Statements of Calgene, Inc.
Schedule for the years ended June 30, 1995, 1994 and 1993:
Schedule Page
II Valuation and Qualifying Accounts...........................51
All other schedules have been omitted because they are not applicable
or because the required information is disclosed in the consolidated
financial statements and notes thereto.
3. Exhibits
--------
See index to exhibits.
(b) Reports on Form 8-K:
--------------------
None.
(c) Separate Financial Statements of Fifty Percent or Less Owned Persons:
---------------------------------------------------------------------
None.
<TABLE>
<CAPTION>
CALGENE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30 1995, 1994 and 1993
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- ------------ ---------------------------- -------------- ----------
Additions
----------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end of
Description period expenses accounts Deductions (1) period
----------- ------------ ---------------------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995
Allowance for doubtful accounts $173 $249 - $( 76) $346
Year ended June 30, 1994
Allowance for doubtful accounts $221 $ 42 - $( 90) $173
Year ended June 30, 1993
Allowance for doubtful accounts $337 $ 32 - $(148) $221
</TABLE>
(1) Represents accounts recovered or written-off.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CALGENE, INC.
By: /c/ Mike Motroni
-----------------------------
Vice President, Finance
Dated: September 28, 1995 (Principal Financial and Accounting
- ------------------------- Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roger H. Salquist and Michael J. Motroni,
substitution, for him in any and all capacities, to sign any amendments to other
documents in connection therewith, with the securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/c/ Roger H. Salquist Chairman of the Board and Chief
- ------------------------- Executive Officer (Principal
Roger H. Salquist Executive Officer) September 27, 1995
/c/ Michael J. Motroni Vice President of Finance
- ------------------------- (Principal Financial and
Michael J. Motroni Accounting Officer) September 27, 1995
/c/ Donald Helinski
- -------------------------
Donald Helinski Director September 27, 1995
/c/ Roderick N. Stacey Director, President and Chief
- ------------------------- Operating Officer
Roderick N. Stacey September 27, 1995
/c/ Carl V. Stinnett
- -------------------------
Carl V. Stinnett Director September 27, 1995
/c/ Howard D. Palefsky
- -------------------------
Howard D. Palefsky Director September 27, 1995
- -------------------------
Donald L. Baeder Director September 27, 1995
/c/ Allen J. Vangelos
- -------------------------
Allen J. Vangelos Director September 27, 1995
/c/ Robert E. Baker
- -------------------------
Robert E. Baker Director September 27, 1995
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Page
<S> <C> <C> <C>
3.1A Restated By-Laws of Registrant, as amended.................................................61
3.2A Certificate of Incorporation, as amended...................................................58
10.1A 1981 Stock Option Plan, as amended .......................................................(B)
10.1B 1991 Stock Option Plan....................................................................(J)
10.1C 1991 Stock Option Plan, as amended........................................................(I)
*10.12 Partnership Agreement dated January 31, 1986 between Registrant and Rhone-
Poulenc Agrochimie, together with Research Agreement dated March 15, 1984
and Amendment thereto dated January 31, 1985..............................................(A)
*10.12A Amendment One to the Partnership Agreement dated January 31, 1986
between Registrant and Rhone-Poulenc Agrochimie dated September 30, 1989..................(B)
*10.12B License Agreement between Registrant and Rhone-Poulenc Agrochimie dated October 1, 1989...(B)
*10.13 Agreements dated March 21, 1985 between Registrant and Roussel-Uclaf S.A..................(A)
*10.13A Agreement dated April 1, 1988 between Registrant and Roussel-Uclaf S.A. which amend the
Agreements dated March 21, 1985 between Registrant and Roussel-Uclaf S.A..................(B)
*10.14 Agreement dated August 1, 1984 and Agreement dated August 26, 1985 amending the
prior Agreement between Registrant and Campbell Soup Company .............................(A)
*10.14A Tomato Research Agreement 1988 to 1990 between Campbell Soup Company and Registrant
effective as of August 1, 1988 which supersedes the Agreements of August 1, 1984
and August 26, 1985 between Campbell Soup Company and the Registrant......................(B)
*10.15 Agreement dated March 20, 1986 between Registrant and The Procter and Gamble Company .....(A)
10.16 Commercial Lease dated August 17, 1987, as amended, covering property located at 1910
and 1920 Fifth Street, Davis, California .................................................(C)
10.17 Commercial Lease dated August 31, 1983, as amended, covering property located at
1970 Fifth Street, Davis, California .....................................................(A)
10.19 Commercial Lease dated August 22, 1983, as amended, covering property in Yolo County .....(A)
10.29 Commercial Lease dated May 21, 1987, as amended, covering property located at
1950 Fifth Street, Davis, California .....................................................(C)
10.32 Form of Directors and Officers Indemnification Agreement .................................(C)
10.37 401 (k) Tax Deferred Investment Plan .....................................................(D)
*10.77 Amendment to Agreement dated June 2, 1986, between Registrant and Ciba-Geigy Limited,
dated June 5, 1989 .......................................................................(F)
10.78 1989 Employee Stock Purchase Plan.........................................................(G)
10.79 Joint Venture and Partnership Agreement by and between Kirin Brewery Co. Ltd.
and Registrant dated March 14, 1990.......................................................(G)
10.80 Secured Revolving Credit Agreement Among Registrant and Harris Trust and Savings
Bank and Caisse Nationale De Credit Agricole Dated April 26, 1990.........................(G)
10.80A First Amendment to Secured Revolving Credit Agreement and Secured Revolving
Credit Note Among Registrant and Harris Trust and Savings Bank dated January 31, 1992.....(E)
10.80B Second Amendment to Secured Revolving Credit Agreement and Secured Revolving Credit
Note Among Registrant and Harris Trust and Savings Bank Dated January 31, 1993............(I)
*10.83 License Agreement between Registrant and Campbell Soup Company dated August 9, 1991.......(J)
10.84 Letter of Intent with Monsanto Company....................................................(L)
22.1 Subsidiaries of Registrant ...............................................................(I)
23.1 Consent of Independent Auditors...........................................................56
27 Article 5 of Financial Data Schedule for Fiscal Year Ended June 30, 1995..................57
(A) Incorporated by reference to Registrant's Form S-1 Registration No. 33-5921
(B) Incorporated by reference to Registrant's Form 10-K dated September 30, 1989
(C) Incorporated by reference to Registrant's Form 10-K dated September 30, 1987
(D) Incorporated by reference to Registrant's Form 10-K dated September 30, 1988
(E) Incorporated by reference to Registrant's Form 10-K dated June 30, 1992
(F) Incorporated by reference to Registrant's Form S-1 Registration No. 33-29822
(G) Incorporated by reference to Registrant's Form 10-K dated June 30, 1990
(H) Incorporated by reference to Registrant's Form 10-Q dated March 31, 1994
(I) Incorporated by reference to Registrant's Form 10-K dated June 30, 1993, as amended
(J) Incorporated by reference to Registrant's Form 10-K dated June 30, 1991
(K) Agreement intentionally omitted in reliance upon 5 U.S.C. Section 552(b)(3) and 35 U.S.C. Section 135(c)
(L) Incorporated by reference to Registrant's Form 8-K dated June 28, 1995
* Confidential treatment of certain portions of these documents has been granted
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
listed below of our report dated August 18, 1995, with respect to the
consolidated financial statements and schedules of Calgene, Inc. included in the
Annual Report (Form 10-K) for the year ended June 30, 1995:
Form S-8 Nos. 33-10308, 33-20670, and 33-32975 pertaining to the 1981 Stock
Option Plan of Calgene, Inc.
Form S-8 No. 33-34203 pertaining to the 1990 Employee Stock Purchase Plan of
Calgene, Inc.
Form S-8 Nos. 33-79232, 33-44146 and 33-85392 pertaining to the 1991 Stock
Option Plan of Calgene, Inc.
ERNST & YOUNG LLP
Sacramento, California
September 26, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000793931
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 11,753
<SECURITIES> 10,283
<RECEIVABLES> 7,043
<ALLOWANCES> 346
<INVENTORY> 8,148
<CURRENT-ASSETS> 38,580
<PP&E> 38,044
<DEPRECIATION> 15,524
<TOTAL-ASSETS> 89,231
<CURRENT-LIABILITIES> 27,759
<BONDS> 14,671
<COMMON> 30
0
0
<OTHER-SE> 46,051
<TOTAL-LIABILITY-AND-EQUITY> 89,231
<SALES> 48,972
<TOTAL-REVENUES> 55,431
<CGS> 53,678
<TOTAL-COSTS> 69,051<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 924
<INCOME-PRETAX> (30,490)
<INCOME-TAX> 15
<INCOME-CONTINUING> (30,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,602)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> 0
<FN>
<F1> TOTAL COSTS INCLUDE EXPENSES FOR BOTH FUNDED AND UNFUNDED R&D PROJECTS.
</FN>
</TABLE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF CALGENE, INC.
Calgene, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify:
FIRST: That the Board of Directors of the Corporation on May 19, 1993 duly
adopted a resolution setting forth a proposed amendment of the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable and
presenting said amendment to the stockholders of the corporation at the next
annual meeting for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED: That the Board of Directors of this corporation approves an
amendment to paragraph (a) of Section 4 of the Certificate of Incorporation
of this corporation to read in its entirety as follows:
" 4. (a) This corporation is authorized to issue two classes of shares,
designated "Common Stock" and "Preferred Stock." The total number of
shares which this corporation is authorized to issue is Fifty-Five
Million (55,000,000) of which Fifty Million (50,000,000) are Common
Stock and Five Million (5,000,000) are Preferred Stock. The aggregate
par value of all shares of Common Stock is $50,000 and the par value of
each such share is $.001. The aggregate par value of all shares of
Preferred Stock is $5,000 and the par value of each such share is
$.001."
SECOND: That pursuant to the above resolution, the matter was presented at
the annual meeting of the stockholders of the corporation which was duly called
and held on November 17, 1993, upon notice in accordance with Section 222 of the
General Corporation law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation law of the State of
Delaware.
IN WITNESS WHEREOF, Calgene, Inc. has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Roger H. Salquist, its
Chairman and Chief Executive Officer, and attested by Michael J. Motroni, its
Vice President of Finance and Secretary, this 27th day of January, 1994.
CALGENE, INC.
By: /c/ Roger H. Salquist
-----------------------
Chairman and Chief
Executive Officer
Attest:
By: /c/ Michael J. Motroni
----------------------
Vice President of Finance
and Secretary
VERIFICATION
The undersigned, the Chairman and Chief Executive Officer and the Vice
President of Finance and Secretary, respectively, of Calgene, Inc., a Delaware
corporation, each declare under penalty of perjury that the matters set forth in
this certificate are true and correct of his own knowledge.
Executed at Davis, California, on January 27, 1994.
By: /c/ Roger H. Salquist
-----------------------
Chairman and Chief
Executive Officer
By: /c/ Michael J. Motroni
----------------------
Vice President of Finance
and Secretary
BYLAWS
OF
CALGENE, INC.
As amended to February 24, 1994
TABLE OF CONTENTS
ARTICLE I - CORPORATE OFFICES
1.1 REGISTERED OFFICE
1.2 OTHER OFFICES
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
2.2 ANNUAL MEETING
2.3 SPECIAL MEETING
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
2.6 QUORUM
2.7 ANNUAL MEETING; NOTICE
2.8 CONDUCT OF BUSINESS
2.9 VOTING
2.10 WAIVER OF NOTICE
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING
2.12 RECORD DATE FOR STOCKHOLDER NOTICE;
VOTING; GIVING CONSENTS
2.13 PROXIES
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
ARTICLE III - DIRECTORS
3.1 POWERS
3.2 NUMBER OF DIRECTORS
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
3.4 RESIGNATION AND VACANCIES
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
3.6 REGULAR MEETINGS
3.7 SPECIAL MEETINGS; NOTICE
3.8 QUORUM
3.9 WAIVER OF NOTICE
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
3.11 FEES AND COMPENSATION OF DIRECTORS
3.12 APPROVAL OF LOANS TO OFFICERS
3.13 REMOVAL OF DIRECTORS
ARTICLE IV - COMMITTEES
4.1 COMMITTEES OF DIRECTORS
4.2 COMMITTEE MINUTES
4.3 MEETINGS AND ACTION OF COMMITTEES
ARTICLE V - OFFICERS
5.1 OFFICERS
5.2 APPOINTMENT OF OFFICERS
5.3 SUBORDINATE OFFICERS
5.4 REMOVAL AND RESIGNATION OF OFFICERS
5.5 VACANCIES IN OFFICES
5.6 CHAIRMAN OF THE BOARD
5.7 PRESIDENT
5.8 VICE PRESIDENTS
5.9 SECRETARY
5.10 CHIEF FINANCIAL OFFICER
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATION
5.12 AUTHORITY AND DUTIES OF OFFICERS
ARTICLE VI - INDEMNITY
6.1 THIRD PARTY ACTIONS
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
6.3 SUCCESSFUL DEFENSE
6.4 DETERMINATION OF CONDUCT
6.5 PAYMENT OF EXPENSES IN ADVANCE
6.6 INDEMNITY NOT EXCLUSIVE
6.7 INSURANCE INDEMNIFICATION
6.8 THE CORPORATION
6.9 EMPLOYEE BENEFIT PLANS
6.10 INDEMNITY FUND
6.11 INDEMNIFICATION OF OTHER PERSONS
6.12 SAVINGS CLAUSE
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
ARTICLE VII - RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
7.2 INSPECTION BY DIRECTORS
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
ARTICLE VIII - GENERAL MATTERS
8.1 CHECKS
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
8.4 SPECIAL DESIGNATION ON CERTIFICATES
8.5 LOST CERTIFICATES
8.6 CONSTRUCTION; DEFINITIONS
8.7 DIVIDENDS
8.8 FISCAL YEAR
8.9 SEAL
8.10 TRANSFER OF STOCK
8.11 STOCK TRANSFER AGREEMENTS
8.12 REGISTERED STOCKHOLDERS
ARTICLE IX - AMENDMENTS
BYLAWS
OF
CALGENE. INC.
As amended to February 24, 1994
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of Wilmington,
County of New Castle, State of Delaware. The name of the registered agent of the
corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place or
places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State
of Delaware, designated by the board of directors. In the absence of any such
designation, stockholders' meetings shall be held at the registered office of
the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at a
time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the board of
directors, or by the chairman of the board, or by the president or vice
president, or by one or more stockholders holding shares in the aggregate
entitled to cast not less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. NO business may be transacted at
such special meeting otherwise than specified in such notice. The officer
receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 4
and 5 of this Article II, that a meeting will be held at the time requested by
the person or persons who called the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing, or affecting
the time when a meeting of stockholders called by action of the board of
directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be sent
or otherwise given in accordance with Section 2.5 of these bylaws not less than
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the Chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING: NOTICE
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
The Chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.9, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the voting
and the stockholder requesting cumulative voting has given notice prior to
commencement of the voting of the stockholder's intention to cumulate votes. If
cumulative voting is properly requested, each holder of stock, or of any class
or classes or of a series or series thereof, who elects to cumulate votes shall
be entitled to as many votes as equals the number of votes which (absent this
provision as to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them, as he may see fit.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. If the action which is consented to is such as would have
required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE: VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is necessary, shall be the day on which the first written consent
is expressed.
(iii) The record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the board of directors adopts
the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and any
limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of 10 persons until changed by a proper
amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION. QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be elected at
each annual meeting of stockholders to hold office until the next annual
meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention of the
Secretary of the corporation. When one or more directors so resigns and the
resignation is effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these bylaws:
(i) Vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class may-be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the provisions of the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship, the
directors then in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), then the Court of Chancery
may, upon application of any stockholder or stockholders holding at least ten
(10) percent of the total number of the shares at the time outstanding having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office as aforesaid, which election
shall be governed by the provisions of Section 211 of the General Corporation
Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS: MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular and
special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these bylaws,
members of the board of directors, or any committee designated by the board of
directors, may participate in a meeting of the board of directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by the board.
3.7 SPECIAL MEETINGS: NOTICE
Special meetings of the board of directors for any purpose or purposes may be
called at any time by the chairman of the board, the president, or any two
directors.
Notice of the time and place of special meetings shall be delivered personally
or by telephone or telecopier (facsimile) to each director or sent by
first-class mail or telegram, charges prepaid, addressed to each director at
that director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
days before the time of the holding of the meeting. If the notice is delivered
personally or by telephone, telecopier (facsimile) or telegram, it shall be
delivered personally or by telephone or telecopier (facsimile) or to the
telegraph company at least forty-eight hours before the time of the holding of
the meeting. Any notice given personally or by telephone or telecopier
(facsimile) may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting, and need not specify the place of the meeting if it is
to be held at the principal executive office of the corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized number
of directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum is not present at any meeting of the board of directors, then the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
~ Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these bylaws,
any action required or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these bylaws,
the board of directors shall have the authority to fix the compensation of
directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or otherwise
assist any officer or other employee of the corporation or of its subsidiary,
including any officer or employee who is a director of the corporation or its
subsidiary, whenever, in the judgment of the directors, such loan, guaranty or
assistance may reasonably be expected to benefit the corporation. The loan,
guaranty or other assistance may be with or without interest and may be
unsecured, or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section contained shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the corporation at common law or under any
statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of incorporation or
by these bylaws, any director or the entire board of directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors; provided, however, that, so long as
shareholders of the corporation are entitled to cumulative voting, if less than
the entire board is to be removed, no director may be removed without cause if
the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the by-laws of the corporation; and, unless the board
resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the same to
the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken in
accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), and Section 3.10 (action without a meeting), with such
changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a chief
financial officer. The corporation may also have, at the discretion of the board
of directors, a chairman of the board, one or more vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and any such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be
appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint, such
other officers and agents as the business of the corporation may require, each
of whom shall hold office for such period, have such authority, and perform such
duties as are provided in these bylaws or as the board of directors may from
time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by an affirmative vote
of the majority of the board of directors at any regular or special meeting of
the board or, except in the case of an officer chosen by the board of directors,
by any officer upon whom such power of removal may be conferred by the board of
directors.
Any officer may resign at any time by giving written notice to the corporation.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice: and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, any, of the
corporation under any contract to which the officer a party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by the
board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may from time to time be assigned to him by the board
of directors or a~ may be prescribed by these bylaws. The chairman of the board
shall also be the chief executive officer of the corporation and shall have the
powers and duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any, in
order of their rank as fixed by the board of directors or, if not ranked, a vice
president designated by the board of directors, shall perform all the duties of
the president and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive office
of the corporation or such other place as the board of directors may direct, a
book of minutes of all meetings and actions of directors, committees of
directors, and stockholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office
of the corporation or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the
stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all his,
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the treasurer, the
secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or that such
director or officer is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise (collectively "Agent"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was an Agent (as defined in Section 6.1)
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
6.3 SUCCESSFUL DEFENSE
To the extent that an Agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the Agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of
Directors or the Executive Committee by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding or (2) or
if such quorum is not obtainable or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
6.5 .PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted pursuant to
the other subsections of this section shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was an Agent of the corporation, or is or was
serving at the request of the corporation, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall include,
in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors and officers, so that any person who is or was a
director or Agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under and subject to the provisions
of this Article VI (including, without limitation the provisions of Section 6.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation as referred to in this Article VI.
6.10 INDEMNITY FUND
Upon resolution passed by the Board, the Corporation may establish a trust or
other designated account, grant a security interest or use other means
(including, without limitation, a letter of credit), to ensure the payment of
certain of its obligations arising under this Article and/or agreements which
may be entered into between the Company and its officers and directors from time
to time.
6.11 INDEMNIFICATION OF OTHER PERSONS
The provisions of this Article VII shall not be deemed to preclude the
indemnification of any person who is not an Agent--(as defined in Section 6.1),
but whom the Corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware or otherwise.
The Corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The Corporation shall indemnify an employee, trustee or other agent
where required by law.
6.12 SAVINGS CLAUSE
If this Article or any portion thereof shall be invalidated on any ground by any
court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each Agent against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement with respect to any action, suit ,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the Corporation, to the full extent permitted
by any applicable portion of this Article that shall not have been invalidated,
or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the corporation's
stock ledger, a list of its stockholders, and its other books and records and to
make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock ledger, a
list of its stockholders, and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the corporation
to permit the director to inspect any and all books and records, the stock
ledger, and the stock list and to make copies or extracts therefrom. The Court
may, in its discretion, prescribe any limitations or conditions with reference
to the inspection, or award such other and further relief as the Court may deem
just and Proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any special
meeting of the stockholders when called for by vote of the stockholders, a full
and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES: PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided that
the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly paid and
subject to call for the remainder of the consideration to be paid therefor. Upon
the face or back of each stock certificate issued to represent any such partly
paid shares, upon the books and records of the corporation in the case of
uncertificated partly paid shares, the total amount of the consideration to be
paid therefor and the amount paid thereon shall be stated. Upon the declaration
of any dividend on fully paid shares, the corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or more
than one series of any class, then the powers,--the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights stock or series thereof and the qualifications, restrictions of such
preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificate for shares shall be
issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
of such new certificate or uncertificated shares.
8.6 CONSTRUCTION: DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in (i)
the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of the
corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve. Such purposes shall include but not be limited
to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of
directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at pleasure,
and may use the same by causing it or a facsimile thereof, to be impressed or
affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement with
any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and to vote
as such owner, shall be entitled to hold liable for calls and assessments the
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of another person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
