FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1995 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14802
Calgene, Inc.
(Exact name of registrant as specified in its charter)
Delaware 68-0115089
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1920 Fifth Street,
Davis, California 95616
(Address of principal executive offices) (Zip Code)
(916) 753-6313
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
- ----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock Outstanding at January 31, 1996: 30,264,257 shares
<PAGE>
CALGENE, INC.
INDEX
Page No.
Part I. Financial Information (unaudited)
Condensed consolidated balance sheets -
December 31, 1995 and June 30, 1995 ..................................4
Condensed consolidated statements of operations -
three months ended December 31, 1995 and 1994
and six months ended December 31, 1995 and 1994.......................5
Condensed consolidated statements of cash flows -
six months ended December 31, 1995 and 1994 ..........................6
Notes to condensed consolidated financial statements .................7
Management's discussion and analysis of financial
condition and results of operations ..................................9
Part II. Other Information
Item 1. Legal Proceedings 16........................................16
Item 6. Exhibits and Reports on Form 8-K............................16
Signatures....................................................................17
<PAGE>
PART I. FINANCIAL INFORMATION
<PAGE>
Calgene Inc.
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31 June 30
Assets 1995 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and equivalents $ 3,124 $ 11,753
Available-for-sale securities 5,218 10,283
Accounts receivable, net of allowances 5,590 6,697
Inventories 13,161 8,148
Prepaid expenses and other current assets 1,152 1,699
-------- --------
Total current assets 28,245 38,580
Property, plant and equipment:
Land 763 763
Buildings 5,048 3,743
Leasehold improvements 9,745 9,643
Furniture, fixtures and equipment 23,276 22,436
Construction in progress 542 1,459
-------- --------
39,374 38,044
Less accumulated depreciation and amortization 16,900 15,524
-------- --------
Property, plant and equipment, net 22,474 22,520
Product rights, patents and other intangible
assets, less accumulated amortization 16,112 16,199
Costs in excess of fair values assigned to net
assets acquired, less accumulated amortization 9,688 10,025
Other non-current assets 2,441 1,907
-------- --------
78,960 89,231
======== ========
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 9,602 $ 7,761
Accounts payable 4,832 6,487
Accrued payroll and related expenses 1,957 2,049
License contract payable 750 1,500
Accrued grower payments 2,106 942
Amounts due customers 487 4,596
Other current liabilities 4,015 2,930
Current portion of long-term debt 1,273 1,494
-------- --------
Total current liabilities 25,022 27,759
License contract payable, long-term -- 750
Long-term debt 23,853 14,671
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; 50,000,000
shares authorized; 30,264,257 and 30,244,226
shares issued and outstanding at
December 31, 1995 and June 30, 1995, respectively 30 30
Additional paid-in capital 223,299 223,161
Accumulated deficit (193,244) (177,140)
-------- --------
Total shareholders' equity 30,085 46,051
-------- --------
$ 78,960 $ 89,231
======== ========
See accompanying notes.
</TABLE>
<PAGE>
Calgene, Inc.
Condensed Consolidated Statements of Operations
($ in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31 Ended December
-------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 11,128 $ 8,850 $ 19,940 $ 15,113
Product development revenues 550 4,166 850 4,433
Interest income 179 242 430 540
Other income, net 122 32 247 54
----------- ----------- ----------- -----------
11,979 13,290 21,467 20,140
Costs and expenses:
Cost of goods sold 9,958 10,336 22,099 19,055
Research and development 3,290 4,703 6,513 8,509
Selling, general and administrative 3,630 3,702 7,522 7,342
Interest expense 752 173 1,265 357
----------- ----------- ----------- -----------
17,630 18,914 37,399 35,263
Minority interest share of net
(income) loss (13) (4) 9 26
Equity in net loss of affiliate -- (11) (4) (65)
Gain (loss) on disposition of assets (45) 8 (141) 9
----------- ----------- ----------- -----------
Loss from operations before
income taxes (5,709) (5,631) (16,068) (15,153)
Provision for income taxes 21 17 36 33
----------- ----------- ----------- -----------
Net loss $ (5,730) $ (5,648) $ (16,104) $ (15,186)
=========== =========== =========== ===========
Net loss per share $ (0.19) $ (0.19) $ (0.53) $ (0.53)
=========== =========== =========== ===========
Shares used in per share calculations 30,264,159 29,683,717 30,256,875 28,650,108
</TABLE>
See accompanying notes.
<PAGE>
Calgene, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31
1995 1994
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(16,104) $(15,186)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,404 2,257
Stock compensation -- 226
Other (357) 84
Net changes in:
Operating assets (2,857) (10,500)
Operating liabilities (3,536) (5,489)
-------- --------
Net cash used in operating activities (20,450) (28,608)
Cash flows from investing activities:
Proceeds from sales of securities 8,629 16,732
Purchase of securities (3,544) (5,416)
Capital expenditures for property, plant and equipment (1,710) (2,373)
Purchases of product rights, patents and
other intangible assets (2,704) (2,108)
Other 55 (57)
-------- --------
Net cash provided by investing activities 726 6,778
Cash flows from financing activities:
Proceeds from notes payable 4,328 10,912
Payments on notes payable (2,487) (11,535)
Decrease in securities-pledged 175 84
Increase in borrowings of long-term debt 9,649 --
Principal payments on long-term debt (688) (1,260)
Sale of common stock 118 31,581
-------- --------
Net cash provided by financing activities 11,095 29,782
-------- --------
Net increase (decrease) in cash and equivalents (8,629) 7,952
Cash and equivalents at beginning of period 11,753 5,286
-------- --------
Cash and equivalents at end of period $ 3,124 $ 13,238
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 870 $ 346
Income taxes $ 45 $ 28
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the interim periods. These financial statements should
be read in conjunction with the Company's audited financial statements contained
in the Company's Annual Report on Form 10-K, as amended, for the fiscal year
ended June 30, 1995.
In the opinion of management, the interim financial statements reflect all
adjustments necessary, consisting only of normal recurring adjustments, to
present fairly the Company's consolidated financial position at December 31,
1995 and the consolidated results of operations and cash flows for the fiscal
quarters and six month periods ended December 31, 1995 and 1994. Results for the
period ended December 31, 1995 are not necessarily indicative of results to be
expected for the entire fiscal year.
Calgene's quarterly operating performance is affected by seasonal factors.
Cottonseed sales normally occur primarily in the third and fourth fiscal
quarters.
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
shares issuable upon the exercise of stock options have been excluded from the
computation of net loss per share since their inclusion would be antidilutive.
Certain amounts reported in the fiscal quarter and six month period ended
December 31, 1994 have been reclassified to conform with the presentation of the
fiscal quarter and the six month period ended December 31, 1995.
2. Inventories
-----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value. Inventories consist of the following (in
thousands):
December 31, 1995 June 30, 1995
----------------- -------------
Raw materials $4,332 $ 897
Work in progress 3,289 4,613
Finished goods 5,540 2,638
------- -------
$13,161 $8,148
======= ======
3. Patent and Legal Proceedings
----------------------------
See Part II - Other Information
Item 1. Legal Proceedings
4. Strategic Alliance
------------------
In October 1995, the Company and Monsanto Company ("Monsanto") signed a
definitive agreement for a transaction whereby Monsanto will contribute to the
Company ownership of a major U.S. based fresh tomato grower, packer and shipper
organization, $30 million, and intellectual property relating to certain fresh
produce and plant oils research and development. 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. At December 31, 1995,
Monsanto advanced to Calgene $18 million of the $30 million to be contributed
pursuant to the proposed transaction. These advances were evidenced by a
subordinated convertible note due on June 30, 1997. Borrowings under the note
bear interest at two percent over Citibank's prime rate which was 8.5% at
December 31, 1995. The weighted average annual interest rate under the note was
10.88% for the six month period ended December 31, 1995. 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.
5. PGI-Kirin Partnership
---------------------
In March 1990, the Company and Kirin Brewery Co., Ltd. established
PGI-Kirin Partnership ("PGK"), a joint venture to develop and commercialize new
potato varieties. In January 1996 management decided, subject to approval by
Calgene's Board of Directors, to cease PGK operations and sell its remaining
assets. Consequently, Calgene will record an estimated write-off of its
investment in PGK of $1.0 million in the third fiscal quarter. PGK's revenues in
fiscal 1995 and for the six month period ended December 31, 1995 were $1.5
million and $381,000, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview of Calgene Fresh
The Company's fresh market tomato business continued to experience negative
gross margins in the first six months of fiscal 1996 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(TM) 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.
Most of the FLAVR SAVR varieties the Company had available for production
did not have acceptable yield and disease resistance performance. Consequently,
the Company plans to temporarily limit its tomato growing operations beginning
in the Spring of 1996 until it is able to complete development of FLAVR SAVR
varieties that have enhanced commercial agronomic qualities. Calgene has
exclusive rights to genetically engineer certain third-part 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.
Also, the Company has entered into a proposed transaction with Monsanto Company
("Monsanto"), subject to shareholder approval and satisfaction of closing
conditions relating to the Hart-Scott-Rodino Antitrust Improvements Act, that
will result in Calgene obtaining Gargiulo LP, a major fresh market tomato
growing, production and distribution company with proprietary tomato germplasm
and tomato breeding expertise. In the event that this transaction with Monsanto
is not consummated, tomato sales are expected to significantly decrease over the
remainder of fiscal 1996.
Revenues
Calgene's product sales in the second quarter of fiscal 1996 increased
25.7% to $11.1 million from $8.9 million in the comparable period of the prior
year. The increase reflects $2.4 million in higher sales of fresh market
tomatoes and higher sales of specialty oleochemical products. These increases
were partly offset by a $883,000 decrease in cottonseed sales primarily due to
the timing of domestic seed shipments. In the second quarter of fiscal 1996,
tomato sales were $5.5 million and plant based oil sales were $3.8 million.
Product sales for the six month period ended December 31, 1995 increased 31.9%
to $19.9 million from $15.1 million in the comparable period of the prior year.
Tomato sales increased by $4.7 million and specialty oleochemical products by
$398,000. These increases were partly offset by a $588,000 decrease in
cottonseed sales primarily as a result of the timing of domestic seed shipments.
Product development revenues decreased by $3.6 million in both the second
quarter and first six months of fiscal 1996 as compared to the corresponding
periods of the prior year due to a non-recurring $3,750,000 technology license
sale that occurred in fiscal 1995. In addition, the decrease reflects the
conclusion of a research contract. The decreases in the second quarter and first
six months of fiscal 1996 were partly offset by the addition of three new
research contracts.
Interest income in fiscal 1996 decreased by $63,000 in the second quarter
and by $110,000 in the first six months as compared to the corresponding periods
in the prior year largely due to a decrease in cash and equivalents and
short-term investments which were used primarily to fund operating losses. The
decreases were partly offset by higher interest rates.
Gross Profit
Calgene's gross profit on net product sales was $1.2 million in the second
quarter of fiscal 1996 as compared to a negative gross profit of $1.5 million in
the prior year. The $2.7 million improvement is attributable to a negative gross
profit of $15,000 on tomato sales during the second quarter of fiscal 1996,
compared with a negative gross profit of $2.9 million in the corresponding
period of 1995. The increase in gross profit was partly offset by a gross profit
decrease of $358,000 in cottonseed sales primarily reflecting a timing delay in
domestic sales. Gross loss in the first six months of fiscal 1996 was $2.2
million as compared to $3.9 million in the corresponding period of the prior
year. The year-to-date reduction in gross loss reflects a $1.9 million decrease
in the gross loss from tomato sales.
Research and Development Expenses
Research and development expenses decreased by $1.4 million or 30.0% in the
second quarter of fiscal 1996 and by $2.0 million or 23.5% in the first six
months as compared to the same periods of the prior year. The decreases
primarily reflect the positive fiscal 1996 impact of the Company's third quarter
fiscal 1995 implementation of a program to reduce ongoing research expenses.
This program included staff reductions of approximately 10% of the Company's 320
regular full time employees, and reflected a shift in resources from research
into product development to focus on commercialization of the Company's
genetically engineered products. In addition, the second quarter and
year-to-date decreases reflect lower expenses for licensing activities.
Selling, General and Administrative Expenses
Calgene's selling, general and administrative expenses in the second
quarter of fiscal 1996 were generally unchanged as compared to the corresponding
period of the prior year. Selling, general and administrative expenses in the
first six months of fiscal 1996 increased $180,000 or 2.5% to $7.5 million from
$7.3 million in the comparable period of the prior year. The increase primarily
reflects higher administrative expenses in the Company's tomato operations, an
increase in cotton selling expenses, and increased expenses for the marketing
and business development of genetically engineered plant oils. These factors
were partly offset by the inclusion of a $226,000 stock compensation charge in
the first six months of fiscal 1995.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank line
of credit and long-term debt obligations, increased by $579,000 in the second
quarter of fiscal 1996 and by $908,000 in the first six months as compared to
the corresponding periods of the prior year. The higher interest expense was
predominantly due to a $18 million loan made by Monsanto in the form of a
subordinated convertible note due on June 30, 1997, and to a lesser extent
higher borrowings on the Company's bank line of credit to finance inventories
and receivables
Loss Before Income Taxes
In the second quarter of fiscal 1996, Calgene incurred a pre-tax loss of
$5.7 million as compared to a pre-tax loss of $5.6 million in the corresponding
period of the prior fiscal year. In the first six months of fiscal 1996, Calgene
incurred a pre-tax loss of $16.1 million as compared to a $15.2 million in the
comparable period of the prior year. The increased fiscal 1996 second quarter
and year-to-date losses reflect lower product development revenues due to a
non-recurring $3,750,000 technology license sale that occurred in fiscal 1995,
increases in interest expense, and decreases in gross profit from cottonseed
sales. These factors were partly offset by a reduction in gross losses on net
product sales for tomatoes, and lower research and development expenses.
The Company expects to incur another substantial pre-tax loss 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. Cottonseed 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
Cottonseed 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 cottonseed oil and meal. The effects of
general inflation have not had a material impact on Calgene's consolidated
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $8.3 million, excluding $1.1
million in securities pledged as collateral for certain obligations. This was a
decrease of $13.7 million from June 30, 1995. Uses of cash include financing the
Company's $16.1 million net loss, a $3.5 million decrease in operating
liabilities, a $2.9 million increase in operating assets, payments of $2.7
million for product rights, patents and other intangible assets (including
capitalized patent legal defense costs), the acquisition of $1.7 million in
property, plant and equipment, and payments of $688,000 on long-term debt.
Sources of cash included a $9.6 million increase in borrowings of long-term debt
and a $1.8 million net increase in notes payable. The Company's investment
policy is to invest excess cash in high quality, liquid, short-term fixed income
securities.
Operating assets increased by $2.9 million at December 31, 1995 as compared
to June 30, 1995 due to a $5.0 million increase in inventories, partly offset by
a $1.3 million decrease in accounts receivable and a decrease in prepaid
expenses and other current assets. Inventories increased due to the seasonal
build-up of cottonseed. This increase was partly offset by a $1.6 million
decrease in tomato inventory, and a reduction of specialty canola oil inventory.
The decrease in accounts receivable was primarily due to lower tomato sales and
lower seasonal sales of potato tubers. Prepaids and other current assets
decreased $757,000 primarily due to lower prepaid tomato growing costs.
Current liabilities decreased $2.7 million at December 31, 1995 as compared
to June 30, 1995 largely due to a $4.1 million decrease in amounts due
customers, a $1.7 million decrease in trade accounts payable, and a $750,000
decrease in license contract payable. These decreases were partly offset by a
$1.8 million net increase in notes payable, a $1.2 million increase in accrued
grower payments and a $1.1 million increase other current liabilities. The
decrease in amounts due customers primarily reflects seasonal incentive payments
and refunds due customers for prior year cottonseed returns consistent within
current industry practice. The decrease in license contract payable reflects a
partial payment for the acquisition of a technology license. The increase in
notes payable reflects seasonal utilization of the Company's bank line of
credit. The $1.2 million increase in accrued grower payments is largely due to a
seasonal inventory increase for the purchase of bulk cottonseed. This increase
was partly offset by a $615,000 decrease in grower commitments for tomato
inventory purchases. The increase in other current liabilities primarily is a
$763,000 increase in accrued interest attributable to the $18 million Monsanto
note payable, and an increase in deferred research contract revenue.
Net working capital decreased $7.6 million from $10.8 million at June 30,
1995, to $3.2 million at December 31, 1995 primarily due to the $13.7 million
decrease in cash and equivalents and available-for-sale securities , partly
offset by the $2.7 million decrease in current liabilities, and the $3.4 million
increase in current operating assets.
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 December 31, 1995
the bank's prime rate was 8.50% and the federal funds rate was 6.25%. The
weighted average annual interest rate under the line of credit was 8.92% for the
fiscal year ended June 30, 1995 and 9.11% for the six month period ended
December 31, 1995. As of December 31, 1995, $7.9 million of indebtedness was
outstanding on the bank line of credit, which expires on March 31, 1996. The
Company is not in compliance with certain line of credit financial covenants and
conditions at December 31, 1995. However, the Company has obtained waivers from
the bank extending through March 31, 1996. There can be no assurance that the
waivers will be extended or that the bank line of credit will be renewed.
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
$3.0 million at December 31, 1995.
The Company has capitalized the legal fees incurred in its lawsuit with
Enzo Biochem, Inc. related to Calgene's defense of its antisense patent. On
February 2, 1996, the court ruled on behalf of the Company and held that
Calgene's patent was valid. If the defense of Calgene's patent is unsuccessful
as a result of potential appeals, the Company would have to expense all of these
unamortized legal costs. At December 31, 1995, the amount of these unamortized
costs was $6.5 million.
In January 1996 management decided, subject to approval by Calgene's Board
of Directors, to cease PGK operations and sell its remaining assets.
Consequently, Calgene will record an estimated write-off of its investment in
PGK of $1.0 million in the third fiscal quarter. PGK's revenues in fiscal 1995
and for the six month period ended December 31, 1995 were $1.5 million and
$381,000, respectively.
The Company expects that remaining capital expenditures in fiscal 1996 will
be approximately $1.0 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 October 1995, the Company and Monsanto signed a definitive agreement for
a transaction whereby Monsanto will contribute to the Company ownership of a
major U.S. based fresh tomato grower, packer and shipper organization, $30
million, and intellectual property relating to certain fresh produce and plant
oils research and development. 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. As of December 31, 1995, Monsanto advanced
to Calgene $18 million of the $30 million to be contributed pursuant to the
proposed transaction. These advances were evidenced by a subordinated
convertible note due on June 30, 1997. Borrowings under the note bear interest
at two percent over Citibank's prime rate which was 8.50% at December 31, 1995.
The weighted average annual interest rate under the note was 10.88% for the six
month period ended December 31, 1995. 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.
The Company's cash and equivalents and short-term investments at December 31,
1995, and amounts expected to be available under its current bank line of credit
are expected to be sufficient to meet Calgene's cash requirements until the end
of fiscal 1996. However, this expectation is based on the Company's anticipated
future operating results, which are difficult to predict. The Company's future
liquidity is expected to depend largely on the level of profit or losses
generated by the Company's operating businesses. In addition, the Company
anticipates that, if its tomato, cotton, and plant oil businesses expand
significantly, they will require increasing levels of working capital.
If the transaction with Monsanto is not consummated, or if the Company's
bank line of credit is not extended beyond March 31, 1996, the Company would be
required to issue equity securities, incur debt, or enter into other financing
arrangements. There is no assurance that the Company would be successful in
raising sufficient additional funds to finance its operations or that the terms
of any funding would be favorable.
<PAGE>
PART II. OTHER INFORMATION
<PAGE>
ITEM 1. Legal Proceedings
-----------------
Since 1992, Calgene has been engaged in litigation with Enzo Biochem, Inc.
("Enzo") a company licensed under three related U.S. patents and counterpart
foreign patents (the "Enzo Patents") which purport to cover the use of antisense
technology in all cells, including plant cells. Some of Calgene's products,
including the FLAVR SAVR tomato, use antisense technology. Enzo claimed that
Calgene infringed the Enzo Patents. Calgene denied infringement and challenged
the validity of the Enzo Patents. On February 2, 1996, the District Court ruled
that the Enzo Patents are invalid. In addition, the validity of a patent owned
by Calgene directed to the use of antisense in plant cells was upheld by the
District Court. Enzo has indicated that it intends to appeal the decision. If on
appeal a court were to determine that one or more of the Enzo Patents validly
covers plant cells and that such patents are infringed by Calgene's sales of
products incorporating such antisense technology, Calgene could be held liable
for significant damages and could be precluded from producing and selling the
FLAVR SAVR tomato, as well as other products currently under development. There
is no assurance that a license, if necessary, could be obtained by Calgene on
commercially acceptable terms, if at all. If the court were to determine that
the Calgene Antisense Patent is invalid or unenforceable, Calgene would be
deprived of the competitive and licensing advantages afforded by its patent.
Moreover, the Company would have to expense the capitalized legal fees related
to the defense of the Calgene's Antisense Patent, which amounted to
approximately $6.5 million at December 31, 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 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
10.40 Seventh Amendment to Secured Revolving Credit
Agreement and Waiver Among Calgene, Inc. and
Harris Trust and Savings Bank Dated December 29, 1995...........18
10.41 Eighth Amendment to Secured Revolving Credit
Agreement and Secured Revolving Credit Note Among
Calgene, Inc. and Harris Trust and Savings Bank
Dated January 23, 1996..........................................22
B. Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALGENE, INC.
Date: February 14, 1996
/s/ Michael J. Motroni
---------------------------
Michael J. Motroni
Vice President of Finance
(Principal Financial and
Accounting Officer)
CALGENE, INC.
SEVENTH AMENDMENT TO
SECURED REVOLVING CREDIT AGREEMENT AND WAIVER
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Secured Revolving Credit Agreement
dated as of April 26, 1990, as amended (the "Credit Agreement") originally among
the undersigned, CALGENE, INC., a Delaware corporation (the "Company"), Harris
Trust and Savings Bank (the "Bank") and Caisse Nationale de Credit Agricole,
acting through its Grand Cayman Branch ("Credit Agricole") and Harris Trust and
Savings Bank as agent thereunder (the "Agent"). All defined terms used herein
shall have the same meaning as in the Credit Agreement unless otherwise defined
herein.
The Bank has extended a revolving credit facility to the Company on the
terms and conditions set forth in the Credit Agreement. Credit Agricole has
assigned to Harris, and Harris has assumed all of Credit Agricole's rights and
obligations under the Credit Agreement. The Company and Harris now wish to amend
certain terms of the Credit Agreement, all in the manner and on the terms and
conditions set forth in this Amendment.
SECTION 1. AMENDMENTS.
Upon satisfaction of all the conditions precedent set forth in Section 3
hereof, the Credit Agreement shall be amended, effective as of December 14,
1995, as follows:
Section 1.1. Section 7.11 of the Credit Agreement shall be amended by
replacing the figure "$10,000,000" appearing therein with the figure
"$5,000,000".
2. WAIVER.
Upon satisfaction of the conditions precedent set forth in Section 3
hereof:
Section 2.1. The Banks hereby waive non-compliance by the Company with
Sections 7.8, 7.9 and 7.10 of the Credit Agreement during the period from
January 1, 1996 through the Termination Date.
Section 2.2. The waiver contained in Section 2.1 of this Amendment is
limited to matters set forth in that Section, and the Company agrees that it
remains obligated to comply with the terms of the Credit Agreement and the other
Loan Documents, including Sections 7.8, 7.9 and 7.10 of the Credit Agreement,
and that the Banks shall not be obligated in the future to waive any provision
of the Credit Agreement or the other Loan Documents.
SECTION 3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
Section 3.1. The Company and the Banks shall have executed this Amendment
(such execution may be in several counterparts and the several parties hereto
may execute on separate counterparts).
Section 3.2. Each of the representations and warranties set forth in
Section 5 of the Credit Agreement shall be true and correct.
Section 3.3. The Company shall be in full compliance with all of the terms
and conditions of the Credit Agreement and no Event of Default or Potential
Default shall have occurred and be continuing thereunder or shall result after
giving effect to this Amendment, except in each case for any non-compliance,
Event of Default or Potential Default that is cured by the waiver contained in
Section 2.1 of this Amendment.
4. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents to the Bank that as of the date hereof, each of
therepresentations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.2 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Bank) and the Company is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing thereunder or shall
result after giving effect to this Amendment, except in each case for any
non-compliance, Event of Default or Potential Default that is cured by the
waiver contained in Section 2.1 of this Amendment.
5. MISCELLANEOUS.
Section 5.1. The Company has heretofore executed and delivered to the Agent
that certain Security Agreement Re: Inventory and Receivables and various
separate Pledge and Security Agreements, each dated as of April 26, 1990 (the
"Security Documents") and the Company hereby agrees that notwithstanding the
execution and delivery of this Amendment, the Security Documents shall be and
remain in full force and effect and that any rights and remedies of the Agent
thereunder, obligations of the Company thereunder and any liens and security
interests created or provided for thereunder shall be and remain in full force
and effect and shall not be affected, impaired or discharged thereby. Nothing
herein contained shall in any manner affect or impair the priority of the liens
and security interests created and provided for by the Security Documents as to
the indebtedness which would be secured thereby prior to giving effect to this
Amendment.
Section 5.2. The Company agrees to pay on demand all costs and expenses of
or incurred by the Bank in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Bank.
Section 5.3. Except as specifically amended herein the Credit Agreement and
the Note shall continue in full force and effect in accordance with their
original terms. Reference to this specific Amendment need not be made in any
note, document, letter, certificate, the Credit Agreement itself, the Note, or
any communication issued or made pursuant to or with respect to the Credit
Agreement or the Note, any reference to the Credit Agreement or Note being
sufficient to refer to the Credit Agreement as amended hereby.
Section 5.4. This Amendment may be executed in any number of counterparts,
and by the different parties on different counterparts, all of which taken
together shall constitute one and the same agreement. Any of the parties hereto
may execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Illinois.
Dated as of December 29, 1995.
CALGENE, INC.
BY /s/ Mike Motroni
Its Vice President, Finance
Accepted as of the date last written above.
HARRIS TRUST AND SAVINGS BANK
BY /s/ Brian J. Moeller
Its Vice President
CALGENE, INC.
EIGHTH AMENDMENT TO
SECURED REVOLVING CREDIT AGREEMENT AND
SECURED REVOLVING CREDIT NOTE
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Secured Revolving Credit Agreement
dated as of April 26, 1990, as amended (the "Credit Agreement") originally among
the undersigned, CALGENE, INC., a Delaware corporation (the "Company"), Harris
Trust and Savings Bank (the "Bank") and Caisse Nationale de Credit Agricole,
acting through its Grand Cayman Branch ("Credit Agricole") and Harris Trust and
Savings Bank as agent thereunder (the "Agent" ). All defined terms used herein
shall have the same meaning as in the Credit Agreement unless otherwise defined
herein.
The Bank has extended a revolving credit facility to the Company on the
terms and conditions set forth in the Credit Agreement. Credit Agricole has
assigned to Harris, and Harris has assumed all of Credit Agricole's rights and
obligations under the Credit Agreement. The Company and Harris now wish to
extend the termination date of the Credit Agreement to March 31, 1996, and amend
certain terms of the Credit Agreement, all in the manner and on the terms and
conditions set forth in this Amendment.
SECTION 1. AMENDMENTS.
Upon satisfaction of all the conditions precedent set forth in Section 3
hereof, the Credit Agreement shall be amended as follows:
Section 1.1. The Termination Date of the Credit Agreement shall be extended
to March 31, 1996.
Section 1.2. Section l.l(a) of the Credit Agreement shall be amended by
replacing the date "January 31, 1996" appearing therein with the date "March 31,
1996".
Section 1.3. Exhibit A to the Credit Agreement and the Revolving Note of
the Company payable to the order of Harris Trust and Savings Bank (the "Note")
shall each be amended by deleting the date "January 31, 1996" appearing twice in
the first paragraph therein and inserting in lieu thereof the date "March 31,
1996".
Section 1.4. Harris Trust and Savings Bank shall type the following legend
on its Note:
"This Note has been amended pursuant to the terms of an Eighth
Amendment to Secured Revolving Credit Agreement and Secured Revolving
Credit Note dated as of January ___, 1996, including an extension of
the maturity date hereof, to which reference is hereby made for a
statement of terms thereof."
SECTION 2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
Section 2.1. The Company and the Bank shall have executed this Amendment
(such execution may be in several counterparts and the several parties hereto
may execute on separate counterparts).
Section 2.2. Each of the representations and warranties set forth in
Section 5 of the Credit Agreement shall be true and correct.
Section 2.3. The Company shall be in full compliance with all of the terms
and conditions of the Credit Agreement and no Event of Default or Potential
Default shall have occurred and be continuing thereunder or shall result after
giving effect to this Amendment.
Section 2.4. All legal matters incident to the execution and delivery
hereof and the instruments and documents contemplated hereby shall be
satisfactory to the Bank.
Section 2.5. The Bank shall have received copies (executed or certified as
may be appropriate) of all legal documents or proceedings taken in connection
with the execution and delivery of this Amendment, all other instruments and
documents contemplated hereby and an opinion of Downey, Brand, Seymour & Rohwer,
counsel to the Company, in the form attached hereto as Exhibit A.
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents to the Bank that as of the date hereof, each of the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.2 shall be deemed to refer to the most recent financial
statements of the Company delivered to the Bank) and the Company is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing thereunder or shall
result after giving effect to this Amendment.
4. MISCELLANEOUS.
Section 4.1. The Company has heretofore executed and delivered to the Agent
that certain Security Agreement Re: Inventory and Receivables and various
separate Pledge and Security Agreements, each dated as of April 26, 1990 (the
"Security Documents") and the Company hereby agrees that notwithstanding the
execution and delivery of this Amendment, the Security Documents shall be and
remain in full force and effect and that any rights and remedies of the Agent
thereunder, obligations of the Company thereunder and any liens and security
interests created or provided for thereunder shall be and remain in full force
and effect and shall not be affected, impaired or discharged thereby. Nothing
herein contained shall in any manner affect or impair the priority of the liens
and security interests created and provided for by the Security Documents as to
the indebtedness which would be secured thereby prior to giving effect to this
Amendment.
Section 4.2. The Company agrees to pay on demand all costs and expenses of
or incurred by the Bank in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Bank.
Section 4.3. Except as specifically amended herein the Credit Agreement and
the Note shall continue in full force and effect in accordance with their
original terms. Reference to this specific Amendment need not be made in any
note, document, letter, certificate, the Credit Agreement itself, the Note, or
any communication issued or made pursuant to or with respect to the Credit
Agreement or the Note, any reference to the Credit Agreement or Note being
sufficient to refer to the Credit Agreement as amended hereby.
Section 4.4. This Amendment may be executed in any number of counterparts,
and by the different parties on different counterparts, all of which taken
together shall constitute one and the same agreement. Any of the parties hereto
may execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Illinois.
Dated as of January 23, 1996.
CALGENE, INC.
By /s/ Mike Motroni
Its Vice President
Accepted as of the date last written above.
HARRIS TRUST AND SAVINGS BANK
By /s/ Brian J. Moeller
Its Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,124
<SECURITIES> 5,218
<RECEIVABLES> 5,590
<ALLOWANCES> 0
<INVENTORY> 13,161
<CURRENT-ASSETS> 28,245
<PP&E> 39,374
<DEPRECIATION> 16,900
<TOTAL-ASSETS> 78,960
<CURRENT-LIABILITIES> 25,022
<BONDS> 23,853
<COMMON> 30
0
0
<OTHER-SE> 30,055
<TOTAL-LIABILITY-AND-EQUITY> 78,960
<SALES> 19,940
<TOTAL-REVENUES> 20,790
<CGS> 22,099
<TOTAL-COSTS> 28,612 <F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,265
<INCOME-PRETAX> (16,073)
<INCOME-TAX> 36
<INCOME-CONTINUING> (16,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,104)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> 0
<FN>
<F1>
TOTAL COSTS INCLUDE EXPENSES FOR BOTH FUNDED AND UNFUNDED R&D PROJECTS.
</FN>
</TABLE>
