<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For fiscal year ended August 31, 1996.
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 ______________.
Commission File Number: 0-15881
MYCOGEN CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3802654
(State or other jurisdiction (I.R.S. Employer
or incorporation or Identification No.)
organization)
5501 Oberlin Drive, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 453-8030
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 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
---- ----
1
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) 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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of September 30, 1996, was approximately $156,325,079. For the
purposes of this calculation, shares owned by officers, directors and 5%
stockholders known to the Registrant have been deemed to be owned by affiliates.
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 1996, was 30,695,850.
Documents Incorporated by Reference
- -----------------------------------
Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
Annual Meeting of Stockholders scheduled to be held on December 12, 1996, are
incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
Mycogen Corporation, a California corporation (the "Company" or the
"Registrant") is a diversified agricultural biotechnology company that develops
and markets technology-based products and provides crop protection services to
control agricultural pests and improve food and fiber production. The Company
has two business segments, both wholly-owned subsidiaries: Agrigenetics, Inc.,
doing business as Mycogen Seeds ("Mycogen Seeds") and Mycogen Crop Protection,
Inc. ("Mycogen Crop Protection"). Mycogen Seeds produces and markets seeds for
major agricultural crops and uses biotechnology and traditional and marker-
assisted breeding techniques to develop improved crop varieties with genetically
enhanced pest-resistance and other value-added characteristics. Mycogen Crop
Protection develops, manufactures and markets microbial and fatty acid based
biopesticide products and operates Soilserv, Inc. ("Soilserv"), a wholly-owned
subsidiary of Mycogen Crop Protection. Detailed financial information regarding
Mycogen Seeds and Mycogen Crop Protection can be found in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Mycogen was originally incorporated in California in December 1982. In
November 1986, the Company reincorporated in Delaware. In October 1995, it
again reincorporated in California. Mycogen's headquarters are located at 5501
Oberlin Drive, San Diego, California 92121-1718; its telephone number is (619)
453-8030. Unless otherwise indicated by the context, "Mycogen" and the
"Company" refer to Mycogen Corporation and its consolidated subsidiaries.
RECENT ACQUISITIONS - In February 1996, Mycogen acquired United AgriSeeds, Inc.,
a Delaware corporation ("UAS"), and a subsidiary of DowElanco. The acquisition
of United AgriSeeds strengthened Mycogen's platform for commercializing
proprietary, genetically-enhanced seed products. In September 1996, after the
end of the Company's fiscal year 1996, Mycogen purchased all of the common stock
of Santa Ursula S.A.A.I.C. e I., the third largest seed company in Argentina,
which does business as Morgan Seeds ("Morgan Seeds"). The acquisition of Morgan
Seeds provides a base from which the Company can develop and commercialize seed
products under the Morgan(R) brand in South America.
STRATEGIC ALLIANCES - In December 1995, the Company entered into a technology
collaboration with Pioneer Hi-Bred International, Inc. ("Pioneer") to develop
multiple transgenic crops with pest resistance.
2
<PAGE>
In February 1996, the Company, DowElanco and The Lubrizol Corporation
("Lubrizol") completed transactions through which Mycogen acquired DowElanco's
seed business, United AgriSeeds, and DowElanco took a 46% equity interest in
Mycogen. As part of this alliance, Mycogen and DowElanco entered into a
technology agreement to develop and commercialize transgenic traits targeting
agricultural inputs, such as insect resistance, and agricultural outputs, such
as specialty oils and grain.
In October 1996, the Company signed a letter of intent to enter into a
strategic alliance with Verneuil Holding, S.A. ("Verneuil"), a major European
seed company. Under such letter of intent, Mycogen and Verneuil have agreed to
form separate joint ventures to develop and commercialize oil seed crops and
seed corn resistant to European corn borer. The agreements call for Mycogen to
exchange its existing European Seed business and other assets for an 18.75%
interest in Verneuil and to obtain an option to purchase another 16.25% of
Verneuil stock owned by DowElanco.
Further information regarding the Company's strategic alliances and
acquisitions of strategic assets and steps towards developing a global seeds
business is contained in the Summary section of Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company also is pursuing opportunities to use its intellectual property
technology and expertise to obtain seed germ plasm and other strategic assets.
COMPANY TRADEMARKS - The following are trademarks of the Company:
Mycogen(TM), Mycogen Corporation(R), CellCap(R), Cocciprobe(TM), CropServ(TM),
DeMoss(TM), M(R) and design, Mattch(TM), M-C(TM), M-Pede(R), M-Peril(R), M-
Press(TM), M-Trak(R), MVP(R), Parasitix(TM), ParaVet(TM), Safecide(TM),
Scythe(TM), SoilServ(R), Thinex(TM), XCP(TM) and XPO(TM) are trademarks of
Mycogen Crop Protection.
Agrigenetics(R), Allegro(TM), Chieftan(R), Field and Future(TM), Flavor
Runner(TM), Fresh Runner(TM), G&A(R) and design, Golden Acres(R), GroAgri(R),
Growers(R), Heritage(R), K(R) and design, Keltgen(R), Kow Kandy(R), Lynks(R),
M(R) and design, Mycogen(R), NatureGard(TM), ORO(R), Sigco(R), Totally Managed
Forages(R), Totally Managed Feedstuffs(R) and TMF(TM) are trademarks of Mycogen
Seeds.
Morgan(R) is a trademark of Morgan Seeds.
BUSINESS STRATEGY
The Company's strategy is to continue using biotechnology and other advanced
techniques to develop new and improved products for its seed and crop protection
businesses, and to leverage its technology through strategic transactions to
strengthen and expand those businesses. Mycogen is using its proprietary
Bacillus thuringiensis ("Bt") biotoxin gene technology both to develop
transgenic crop varieties with built-in insect resistance and to expand its
portfolio of biopesticide products. The Company also is using other advanced
plant science technology to develop crop varieties with improved oil,
nutritional and other agronomic characteristics. Mycogen believes that it has a
strong proprietary position for its Bt and plant science technology.
INDUSTRY BACKGROUND
Agricultural biotechnology is creating products that improve crop production;
extend product shelf life; enhance protein, starch and other nutritional
properties; improve yield of compounds such as waxes, esters and oils for
industrial applications and reduce production costs and risks. Mycogen believes
that current and future biological crop protection will manifest itself
principally through genetically engineered, pest-resistant
3
<PAGE>
crop varieties for large acreage crops such as corn, cotton, soybean, sunflower,
canola and alfalfa, and through spray-on biopesticide products for smaller
acreage crops such as fruits, vegetables and vines.
Seeds that carry built-in pest resistance reduce or eliminate the need for
pesticide applications, significantly reducing production input and labor costs.
Mycogen believes that farmers will use both pest-resistant crop varieties and
spray-on pesticides, including biopesticides, as part of integrated pest
management programs to control pests and to avoid or delay the development of
pest tolerance to any single pest control mechanism.
The Company estimates that U.S. farmers annually purchase approximately $3.5
billion of planting seed, including approximately $1.9 billion of hybrid seed
corn, $890 million of soybean seed, $140 million of alfalfa seed, $100 million
of cotton seed, $74 million of hybrid sorghum seed and $18 million of hybrid
sunflower seed. U.S. farmers annually spend over $6 billion on pesticides to
protect their crops, including $600 million on insecticides to protect corn and
cotton crops alone. Despite these pesticide expenditures, destructive pests
cost U.S. farmers billions of dollars each year in lost yields.
Many chemical pesticides have efficacy, environmental or regulatory
disadvantages. Virtually all major pests have developed tolerance to one or
more classes of chemical insecticides that previously were effective in
controlling them. In addition, chemical pesticides often suppress beneficial
insect populations. As pest populations develop pesticide tolerance, and as
beneficial insect populations are reduced, farmers must apply more chemical
pesticides. This raises environmental and food and worker safety concerns and
ultimately renders the pesticides obsolete.
The Company believes that the use of genetically engineered pest-resistant
crop varieties and biopesticides will continue to increase because they offer
four major advantages over chemical pesticides: 1) they do not contaminate the
environment, soil or ground water; 2) they do not harm beneficial insects that
naturally suppress pest populations; 3) they have unique modes of action that
make them effective against pests that have developed tolerance to chemical
pesticides and 4) they do not leave undesirable residues in food crops.
Furthermore, genetically engineered pest-resistant crop varieties do not require
application of chemical pesticides, thereby saving farmers fuel and labor costs,
reducing trips over the field which decreases the chance of soil compaction and
eliminating the need to coordinate timing of pesticide applications.
Concerns over the safety of chemical pesticides and their impact on the food
supply, environment and agricultural workers have led the EPA to prohibit or
restrict the use of many chemical pesticides. This has created opportunities for
replacement products, including pest-resistant plants and biopesticides.
SEED BUSINESS
Mycogen Seeds is the sixth largest producer and marketer of planting seeds in
the United States. Hybrid seed corn accounts for the majority of Mycogen Seeds'
planting seed sales. Other key seed products include soybean, hybrid sunflower,
hybrid sorghum and alfalfa. Most of these seeds are produced under annual
contracts with independent growers. The seed is dried and treated at Company-
owned production facilities and on a contract basis with third parties and
packaged and sold through an extensive seed sales organization. In North
America and in certain other regions of the world, the Company markets its seeds
under the single brand of "Mycogen(R)".
Mycogen uses traditional and marker-assisted plant breeding to obtain pest
resistance and other value-added characteristics from native plant sources, and
is breeding those characteristics into elite plant parent lines for its seed
products. Seed products incorporating pest resistance and other value-added
characteristics are being commercialized through Mycogen Seeds.
4
<PAGE>
Mycogen's primary near-term seed product development focus is on corn, cotton,
soybean, sunflower, canola, sorghum and alfalfa, all of which generate
significant seed and/or pesticide sales. In August 1995, the Company received
U.S. Environmental Protection Agency (the "EPA") approval to commercialize corn
hybrids genetically engineered with a Bt gene that causes the plants to produce
a protein that makes them resistant to European corn borer.
RESEARCH, PRODUCTION AND MARKETING - Mycogen Seeds owns or leases research and
production facilities in California, Georgia, Illinois, Indiana, Iowa, Michigan,
Minnesota, Mississippi, Nebraska, Puerto Rico, Texas and Wisconsin. These
facilities, along with contract growing arrangements in the U.S. and Canada,
give the Company the geographic dispersion required to produce and market crop
varieties suitable for virtually all important North American agricultural
regions. Mycogen Seeds markets its seed products in North America through a
network of more than 100 sales managers and approximately 6,300 farmer/sales
representatives and professional agricultural retail outlets. Outside North
America, the Company markets seeds primarily through local distributors. In
France, Italy and Argentina, Mycogen Seeds also produces and markets its
products through wholly-owned subsidiaries.
PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company's business strategy is
to develop differentiated, value-added seed products to meet the needs of the
agriculture and food industries. Mycogen believes that by providing seed
products such as corn, cotton, soybean, sunflower, canola and alfalfa with pest-
resistance and other value-added characteristics, it can expand its market
share. The Company also produces specialty vegetable oil from sunflower for AC
Humko Corp. ("AC Humko"), a major supplier of specialty oils and food
ingredients.
In addition to extensive plant breeding programs in corn, soybean, cotton and
sunflower to improve yield and other agronomic characteristics, the Company is
pursuing numerous plant product development and applied technology opportunities
as follows:
<TABLE>
<CAPTION>
PROGRAM COMMERCIAL OPPORTUNITY TARGET CROPS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pest Resistance Via Plant Yield improvement and displacement Corn, cotton, soybean,
Transformation and of certain chemical pesticides sunflower, alfalfa, canola
Marker Assisted Breeding and sorghum
- ------------------------------------------------------------------------------------------------------------------------------------
Herbicide Tolerance Via Improved efficiency and weed control Corn, cotton and canola
Plant Transformation
- ------------------------------------------------------------------------------------------------------------------------------------
Nutritional Improvement Nutritional improvement of animal Corn
of Animal Feedstuffs feedstuffs and specialized corn for silage
production
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Oils Specialty oil and food ingredients Sunflower, corn and
canola
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PEST RESISTANCE VIA PLANT TRANSFORMATION AND MARKER ASSISTED BREEDING - This
program uses advanced plant science and gene technology to transform genetic
material from bacteria, plants and other sources into the genomes of target
crops. Mycogen's primary current focus is on genes isolated from strains of Bt
that cause transformed plants to produce proteins that are toxic to pests. Bt
genes that produce proteins toxic to certain insects and non-insect pests,
including Lepidoptera (worms and moths) and Coleoptera (beetles), have been
isolated, restructured for efficient plant expression and inserted into several
crop varieties. The first product of this development effort is hybrid seed
corn with Bt-based resistance to European corn borer, a pest that costs farmers
in the United States and Europe hundreds of millions of dollars in yield losses
each year. Mycogen Seeds introduced these seeds commercially in 1996 and has
produced significantly larger quantities available for sale in 1997.
5
<PAGE>
Mycogen, in 1995, entered into a 10-year technology collaboration with Pioneer
to develop Bt-based pest resistance in corn, soybean, canola, sunflower, sorghum
and wheat, which collaboration has allowed Mycogen to accelerate product
development programs in such crops. The Bt gene sequences that produce these
pest-resistance traits are covered by issued or pending patents.
The Company also is developing and marketing products with pest resistance
derived from native plant sources. Using marker-assisted breeding technology,
Mycogen has identified and tracked separate multigenetic resistance traits for
European corn borer. The Company has bred the multigenetic trait for European
corn borer into its elite commercial corn parent lines, and resulting resistant
corn hybrids have been sold commercially for the past four years.
HERBICIDE TOLERANCE VIA PLANT TRANSFORMATION - This program uses advanced plant
science and gene technology to insert genetic material into the genomes of
target crops to enable them to withstand herbicide treatments used to kill weeds
that interfere with production and reduce yield. In April 1996, the California
Court of Appeal affirmed Mycogen Seeds' right to exercise options to license
Monsanto's Roundup Ready(R) herbicide tolerance technology for corn, cotton and
oilseed rape (canola). The Company is in the process of obtaining that
technology from Monsanto and negotiating commercial licenses.
NUTRITIONAL IMPROVEMENT OF ANIMAL FEEDSTUFFS - This program has developed and
launched a new hybrid corn product developed especially for the silage corn
market. Silage corn is used directly as an animal feedstuff. Prior to the
Company's development of these products, it was necessary for farmers interested
in producing corn silage to utilize grain hybrids poorly adapted for this
purpose. The newly developed TMF(TM) (for Totally Managed Feedstuffs) corn
hybrids are characterized by their tall stature, additional leaf material
produced on each stalk and high biomass production per acre. In addition, these
varieties produce large ears and have a high relative proportion of grain in the
resulting silage. Farmers have reported to the Company that silage produced
from these varieties has superior nutritional qualities that contribute to
increased milk and beef production.
SPECIALTY OILS - Mycogen Seeds has developed sunflower, rape (canola) and corn
with genetically enhanced oil properties. In 1996, the Company acquired rights
to oilseed technology for those three crops that it had developed jointly with
SVO Specialty Products, a subsidiary of Lubrizol. In addition to producing and
marketing seeds for these crops, Mycogen has forward-integrated into production
of crude high oleic sunflower oil for AC Humko. Also in 1996, Mycogen entered
into a collaborative program with DowElanco Canada, Inc., a wholly owned
subsidiary of DowElanco, to conduct a joint breeding program and investigate and
develop value-added traits in canola. The Company has targeted other specialty
oil opportunities that would be of interest to food ingredient
suppliers/purchasers. These projects, currently in a research phase, address
opportunities for reduced or no saturate vegetable oils, new feedstocks for all
natural hard butters where chemical modification (such as hydrogenation) of the
fats, can be reduced or eliminated, and fats tailored for use by the confection
industry as substitutes for cocoa butter.
CROP PROTECTION BUSINESS
Biopesticide products embodying Mycogen's core technology are sold to crop
protection markets through Mycogen Crop Protection. Mycogen intends to broaden
its participation in the crop protection industry by continuing to refine and
apply its technology to better meet the needs of the market and by pursuing
strategic transactions and acquisitions.
BIOPESTICIDE PRODUCTS - The Company currently markets seven environmentally
compatible biopesticide products. These products are based on natural agents
such as microorganisms and fatty acid compounds that, in general, have specific
toxic activity on target pests and are not harmful to mammals, fish, birds and
6
<PAGE>
beneficial insects. In addition, because biopesticides have unique modes of
action, they often are effective in controlling pests that have developed
tolerance to chemical pesticides.
The Company's Bt-based biopesticides are derived from strains of Bt that
produce proteins that are toxic to specific pests. Mycogen's Bt-based
biopesticides utilize the Company's proprietary CellCap(R) technology, which
encapsulates Bt toxin proteins inside cells of genetically engineered bacteria.
The Company believes that its CellCap(R) encapsulation technology offers two
important advantages over conventional Bt products: 1) it prolongs insecticidal
activity, resulting in superior crop protection and 2) it yields superior
product formulations that facilitate production and application.
The Company's fatty acid based biopesticides are derived from generally
inexpensive natural sources, such as coconut, palm, sunflower and tall oil and
tallow from animal fats. Fatty acid pesticides disrupt or destroy membranes of
soft-bodied insects, weeds and microbial plant pathogens.
BIOPESTICIDE MARKETING AND COMMERCIAL DEVELOPMENT - Mycogen Crop Protection's
marketing and commercial development staff is responsible for commercializing
Mycogen's biopesticides worldwide, and for cooperative development and marketing
efforts in Japan through collaborations with Kubota Corporation ("Kubota") and
Japan Tobacco, Inc. Biopesticide products are sold through established
agricultural product distributors in the U.S. and many other countries. Also,
the Company has entered into a distribution agreement with Farnam Companies,
Inc. to sell its Scythe(R) Herbicide into the U.S. home and garden market.
PRODUCT DEVELOPMENT AND APPLIED TECHNOLOGY - The Company has used two distinct
technologies to develop its biopesticides: Microbial Biopesticide Technology
and Fatty Acid Technology.
MICROBIAL BIOPESTICIDE TECHNOLOGY - Mycogen's microbial bioinsecticide products
and technology are based on two key components: 1) discovery, selection and
enhancement of biotoxins that are active against commercially important pests
and 2) the Company's proprietary CellCap(R) encapsulation delivery system.
Certain naturally occurring microorganisms produce biotoxins that are toxic to
specific pests when ingested. The primary current source of such biotoxins is
varietal strains of Bt. Mycogen researchers have found Bt strains with
pesticidal activity against a broad range of pests. Several Bt strains
discovered by Mycogen and others are active ingredients for commercial pesticide
products.
Unlike chemical pesticides, Bt biotoxins are active only when consumed by the
target pest. Field experience has demonstrated that these products are
effective in controlling some pests that have developed tolerance to certain
chemical pesticides and extensive toxicology testing has shown that Bt biotoxins
are nontoxic to mammals, wildlife and other non-target species, including
certain beneficial insects.
Biotoxins generally degrade rapidly, leaving little or no residue in food,
ground water or soil. While this short duration of activity makes them
environmentally compatible, historically it has limited their practical use as
commercial pesticides. To prolong biotoxin activity in the field, Mycogen
developed and patented the CellCap(R) delivery system, which employs cells that
have been killed and stabilized to serve as microcapsules to protect fragile
biotoxin crystals that have been produced by and accumulated within the cells.
Mycogen has identified Bt strains with pesticidal activity against
caterpillars, beetles, weevils, parasitic plant and animal nematodes, protozoan
pathogens, grubs, mites, liver flukes and adult houseflies.
FATTY ACID TECHNOLOGY - Fatty acids disrupt or destroy cellular membranes of
soft-bodied insects, plants and microbial plant pathogens, such as fungi. The
pesticidal benefits of fatty acids are based on four key properties: 1) they act
rapidly on contact, 2) they have a unique mode of action, 3) they use naturally
7
<PAGE>
occurring active ingredients and 4) treated areas require limited worker safety
re-entry restrictions. These characteristics make fatty acid pesticides useful
in targeted markets. For example, the contact activity of fatty acids has been
shown to enhance the efficacy of certain synthetic chemical pesticides. By
using tank mixes of fatty acids and other chemicals, growers can reduce
treatment costs, lower the synthetic chemical load on the environment and
prolong the usefulness of their pest control tools by managing resistance.
MICROBIAL BIOPESTICIDE MANUFACTURING - Mycogen's microbial biopesticide products
are manufactured through a large-scale fermentation process. After
fermentation, the mass-produced microorganisms are killed and harvested for
product formulation. These products use virtually the entire fermentation
biomass, very little, if any, purification is required. The concentrated
microorganisms can be processed in either a liquid or dry product formulation.
Product formulations and manufacturing processes for all microbial
biopesticides are developed at Mycogen's San Diego research facility. Once the
basic process is developed, it is scaled up in the Company's pilot plant. This
facility has sufficient capacity to produce quantities of material required for
small scale field trials. Once a process is proven at the pilot plant scale it
is available for transfer to Mycogen's manufacturing facility for commercial
scale-up. To implement a high-yield fermentation process, Mycogen entered into
a long-term exclusive manufacturing agreement with Enzyme Bio-Systems, Ltd.
("EB"), a wholly-owned subsidiary of CPC International, Inc. Under the
manufacturing agreement, EB added dedicated fermentation capacity and certain
equipment at its Beloit, Wisconsin, facility to support the production,
recovery, formulation and packaging of Mycogen's microbial products. Capital
funding of $11.2 million was provided by Mycogen. Mycogen pays EB the actual
costs of manufacturing, plus a fee based on the number of units produced.
BIOPESTICIDE PRODUCTS REGISTERED BY THE EPA FOR COMMERCIAL USE
<TABLE>
<CAPTION>
PRODUCT AND BIOTOXIN TARGET PEST MARKET
<S> <C> <C>
M-C(TM)1 (Bt) Army worm, diamond back moth, Various, including vegetables
common cut worm and cotton and cotton
leafworm
- ------------------------------------------------------------------------------------------------------------------------------------
MVP(R) (Bt) Leaf-eating caterpillar pests Cotton, tree fruits and vines
- ------------------------------------------------------------------------------------------------------------------------------------
M-Peril(R) (Bt) European corn borer Corn
(solid granules)
- ------------------------------------------------------------------------------------------------------------------------------------
Mattch(TM) (Bt) Leaf-eating caterpillar pests Vegetables and nursery crops
- ------------------------------------------------------------------------------------------------------------------------------------
M-Pede(R) (Fatty acid) Soft-bodied insects and Fruits, vegetables, grapes and
powdery mildew ornamentals
-----------------------------------------------------------------------------------------------------------------------------------
Scythe(R) Herbicide Broad spectrum of weeds Horticulture and landscape
(fatty acid) management
- ------------------------------------------------------------------------------------------------------------------------------------
Thinex(TM) (fatty acid) Blossom thinner Apples, pears and stone fruits
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ EPA registration pending.
FATTY ACID PRODUCT MANUFACTURING - Mycogen manufactures its fatty acid based
biopesticide products under short-term toll manufacturing agreements.
MANUFACTURING CAPACITY - The Company believes that its current manufacturers
have adequate capacity to meet Mycogen's product needs for the foreseeable
future, and that the required raw materials for all of its biopesticides are
readily available. Shortages of these raw materials that might materially
affect availability or cost are not anticipated.
8
<PAGE>
SOILSERV - CROP PROTECTION SERVICES - Soilserv, founded in 1945 and acquired by
Mycogen in 1991, provides customized crop protection services to growers of high
value crops in California and Arizona. Soilserv monitors fields, recommends and
supplies pest control products and applies such products, principally in the
Salinas Valley, California, and Yuma, Arizona, regions, and provides
notifications and files documents regarding pesticide applications as required
by state and local agencies.
Soilserv has developed customized spray rigs and other application equipment
for specific vegetable crops, and uses a proprietary database system to verify
that pesticide recommendations made by its licensed pest control advisors to its
grower customers comply with EPA, state and local government regulations.
Mycogen is evaluating opportunities to provide crop protection services
similar to those offered by Soilserv in other geographic areas where high value
crops are grown.
PATENTS AND PROPRIETARY TECHNOLOGY
As of August 31, 1996, Mycogen held 123 U.S. patents and more than 271 foreign
patents not including patents that have been reassigned or abandoned. The
Company has filed and is pursuing 115 additional patent applications in the
U.S., with corresponding applications pending in other countries. In addition
to patents, the Company relies on trade secrets and proprietary information to
protect its technology.
PLANT SCIENCE PATENTS - As a result of research conducted by Agrigenetics
Corporation, a Delaware corporation (now Mycogen Seeds) in the 1980's, the
Company has applied for, and in some cases been granted, fundamental patents in
key technical areas. Mycogen's patents and patent applications include claims
to a number of plant science inventions and discoveries, such as insect-
resistant plants utilizing Bt genes, plant transformation systems and the
synthesis of Bt genes to optimize expression of pesticidal proteins in plants.
In January 1995, Mycogen received a broad U.S. patent covering its method of
modifying Bt gene sequences to make them resemble those of the plants into which
they are to be inserted. Such modifications improve Bt genes' efficiency in
producing pesticidal proteins. In December 1995, the Company received European
patents covering Mycogen's method of modifying Bt genes to resemble plant genes
and to modified genes and transgenic plant cells developed by using such a
method. Several major crop plants, including corn, cotton, canola, potatoes and
tomatoes, have been transformed with synthetic Bt genes by Mycogen and other
companies, and Bt corn seeds were introduced commercially in 1996. On October
22, 1996, Mycogen received two additional patents relating to synthetic Bt genes
technology. The patents include "composition of matter" claims to modified Bt
genes, plant cells transformed with such genes and transgenic plants and
resulting planting seeds containing the modified genes.
BIOPESTICIDE PATENTS - A number of the Company's issued U.S. patents relate to
its CellCap(R) encapsulation technology. Mycogen's issued patents and patent
applications also include claims to more than 30 specific protein biotoxins and
associated genes, certain insecticidal and nematicidal microorganisms, plant
colonizing microbial delivery systems and certain bioherbicides and related
technology. The Company has a number of issued patents and patent applications
covering certain pesticidal uses of fatty acids by themselves and in combination
with certain chemical pesticides. The Company has licensed certain rights to
its patents and technology in specific fields to corporate partners. Mycogen
has exclusive licenses to a number of issued patents and patent applications in
the U.S. and other countries, and certain trade secret technology relating to
fatty acid pesticides and their use.
PROPRIETARY SEED PRODUCTS - Mycogen's seed products are either hybrid seeds
resulting from a cross of inbred parent lines or varieties produced from a
single parent line. In the case of hybrids, the Company can
9
<PAGE>
maintain a proprietary position because hybrid seeds progressively lose their
agronomic advantage from generation to generation, and the inbred parent lines
from which hybrids are produced generally are not sold to growers. In the case
of crops that are not produced as hybrids, the Company sells varieties that
breed true from generation to generation. For these crops, the Company relies on
Plant Variety Protection certificates granted by the U.S. government pursuant to
the Plant Variety Protection Act (the "PVPA"), or similar rights granted by
foreign governments. These certificates give the holder certain exclusive rights
for a period of time (18 years under the PVPA) to reproduce the covered variety
and sell it for planting.
Mycogen has filed applications for utility patent protection for certain of
its crop varieties and plant materials to obtain broader utility patent
protection for unique plants that the Company has developed or bioengineered.
UNCERTAINTY OF BIOTECHNOLOGY PATENTS - The status of biotechnology patents is
highly uncertain. A substantial number of patent applications have been filed.
Some issued and pending patents claim basic aspects of genetic engineering
technology related to transformed plants, biopesticides and other areas of
agriculture. Mycogen has royalty-bearing nonexclusive licenses relating to the
use of certain processes employed in recombinant DNA technology, plant
transformation, microbial biopesticide production and other aspects of the
Company's business. If the broad claims of existing and future genetic
engineering patents are upheld, the holders of such patents may be in a position
to require other companies to obtain licenses. There can be no assurance that
licenses the Company may need for its processes or products will be available on
reasonable terms, if at all.
GOVERNMENTAL REGULATION AND PRODUCT REGISTRATION
Agricultural biotechnology comes under the jurisdiction of three federal
regulatory agencies: the Food and Drug Administration ("FDA"), the EPA and the
United States Department of Agriculture ("USDA"). Agency jurisdiction generally
is a function of three factors: 1) the particular substances or products
involved (for example, grains), 2) the uses and other purposes of such products
and 3) the commercial activities involved (for example, research, field testing,
production and distribution).
FDA review of biotechnology products focuses on their intended uses, and is
conducted on a case-by-case basis. Unless a food product or food additive is
generally recognized as safe, based on scientific evaluation by qualified
experts, under the conditions of its intended use, FDA must approve a petition
for the product's intended use before it can be introduced into commerce. FDA's
approval generally includes specified conditions under which the product may be
used.
Field testing, production and marketing of pesticide products are regulated by
federal, state, local and foreign governments. The EPA regulates pesticides in
the U.S. under the Federal Insecticide, Fungicide and Rodenticide Act, as
amended ("FIFRA"). Pesticides also are regulated by the states. Field testing
of nonindigenous microbial biopesticides requires approval of both the EPA and
the USDA's Animal and Plant Health Inspection Service.
The Federal Seed Act defines USDA's regulatory authority over importation and
interstate shipment of agricultural and vegetable seeds. In general, seeds may
not be imported or shipped interstate if they are deemed by USDA to be "noxious
weed" seeds or to contain "noxious weed" seeds above levels prescribed by USDA
or individual states. Thus, to the extent that a seed resulting from a
biotechnology process is adulterated with a "noxious weed" seed, it would be
subject to these regulations. In addition, USDA regulates importation and
interstate movement of "plant pests" and plants that may be or contain "plant
pests" under the Plant Quarantine Act and the Federal Plant Pest Act. Shipment
and field release of a plant that is
10
<PAGE>
genetically engineered to contain a "plant pest" is subject to the regulatory
oversight of USDA and of individual states.
USDA and various states also regulate production and distribution of crop
seeds under the Federal Seed Act and state seed acts, which require that
commercial seed products meet certain purity and labeling requirements.
Similarly, plant inoculants are subject to regulation under various state acts
that establish labeling and effectiveness standards.
Genetically altered plants that have pesticidal traits, such as the ability to
produce pesticidal proteins, are regulated by the EPA under FIFRA with respect
to their pesticidal properties. The EPA requires completion of certain tests
prior to registration of a pesticidal plant to ensure that such plants pose no
risk to human health or the environment.
SEASONALITY OF BUSINESS
Information regarding the seasonality of Mycogen's business can be found in
the Summary section of Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
BACKLOG
Mycogen's distribution and marketing practices do not require an extraordinary
amount of working capital. The Company maintains inventory to meet customer
requirements. Mycogen Crop Protection and Mycogen Seeds do not manufacture
biopesticide and seed products against a backlog of firm orders, and instead,
inventory levels are geared primarily to projections of future demand. The
Company generally is not dependent upon one customer or a group of customers and
has no material contracts with the U.S. government or with any state, local or
foreign government.
RESEARCH AND DEVELOPMENT
Mycogen's product development programs involve a significant level of research
and development activity. Company sponsored research and development expenses
totaled $19.2 million for Mycogen's fiscal year ended August 31, 1996. For the
two comparable fiscal years ended August 31, the Company-sponsored research and
development expenses were $18.2 million in 1995, and $13.5 million in 1994.
COMPETITION
The Company faces intense competition. Competition in planting seeds is based
primarily on price, crop yields, other crop performance characteristics,
including crop resistance to disease and pests, and customer service.
Competition in biopesticides is based primarily on efficacy, price, ease of
application and safety.
COMPETITION IN SEEDS - Mycogen believes that it has three categories of
competitors in planting seeds: large, multinational seed companies, smaller
regional seed companies and agricultural biotechnology companies engaged in the
development of new, genetically engineered crop varieties.
The planting seed industry is dominated by large multinational companies
located in the U.S. and Europe. These include Pioneer, the world's largest seed
company, DeKalb Genetics Corporation ("DeKalb"), Sandoz Holding AG, Ciba-Geigy
Corporation, Limagrain and others. These firms generally operate throughout the
world and have substantial financial and marketing resources, as well as
extensive research, plant breeding and production facilities and expertise.
Some of these companies and a number of others have significant
11
<PAGE>
plant biotechnology research programs to develop new crop varieties that are
genetically enhanced for increase yield, pest- or disease-resistance and other
value-added characteristics.
COMPETITION IN BIOPESTICIDES - Mycogen believes that it has three categories of
competitors in biopesticides: large chemical pesticide companies, established
companies with biopesticide product lines and other companies developing new
biopesticide products. The pesticide industry is dominated by large chemical
companies located in the U.S. and Europe. These firms generally operate
throughout the world and have extensive financial and marketing resources as
well as extensive product registration experience and highly efficient
manufacturing capabilities. Some chemical pesticide companies have added
biopesticide products to their product lines. These include Abbott
Laboratories, Sandoz A.G. and Ciba-Geigy Corporation, all of which are large
multinational firms with substantial financial resources and, in certain cases,
large-scale fermentation manufacturing capabilities and extensive experience in
formulating biopesticide products.
HUMAN RESOURCES
As of August 31, 1996, the Company had 887 employees. The Company's
management believes that it maintains positive relations with its employees.
ITEM 2. PROPERTIES
The Company owns its principal executive and administrative facilities located
in San Diego, California. In addition, Mycogen owns its principal biopesticide
research and development facilities located in San Diego, California, that are
used by Mycogen Crop Protection. The Company also owns office, warehouse and
formulation facilities located in Salinas, California, as well as several
smaller satellite facilities in the Salinas area, that are used by Soilserv.
Mycogen's seed production, conditioning and storage facilities are located in
the U.S., Argentina, France and Italy. The Company owns and maintains seed
research, production, warehouse, distribution or administrative space in the
U.S. at the following principal locations which are used primarily by Mycogen
Seeds: Marshalltown and Vinton, Iowa; Breckenridge, Hastings and Olivia,
Minnesota; Leland, Mississippi; York, Nebraska; Dumas, Texas and Prescott,
Wisconsin. Mycogen is currently building executive and administrative
facilities for Mycogen Seeds in Eagan, Minnesota, which is scheduled to be
completed in November 1996. In addition, Mycogen Seeds leases field plant
research and storage facilities in Woodland, California; Griffin, Georgia;
Lincoln and Savoy, Illinois; Indianapolis, Indiana; Huxley and Schaller, Iowa;
Grand Island, Nebraska; Plainview, Texas and Arlington and DeForest, Wisconsin.
Mycogen Seeds also operates facilities for seed research, production,
warehouse, distribution or administrative space at the following foreign
locations: Buenos Aires, Colon, Laguna Blanca, Sampacho, San Isidro and Venado
Tuerto, Argentina; Chatham, Ontario, Canada; Blois, Pau, and Toulouse, France;
Ferrara, Italy and Santa Isabel, Puerto Rico.
The Company believes that its present facilities are adequate to maintain its
businesses.
ITEM 3. LEGAL PROCEEDINGS
On May 19, 1995, Mycogen's subsidiary, Mycogen Plant Science, Inc. ("MPSI"),
filed suit in Federal District Court in San Diego, California, claiming that
Monsanto Company's ("Monsanto") use of synthetic Bt genes to develop and sell
seeds for insect-resistant plants infringes Mycogen's U.S. patent covering the
process used to synthesize Bt genes. Certain claims within that suit were
dismissed by the court in 1995, and others still are pending.
12
<PAGE>
On October 31, 1995, Plant Genetic Systems NV ("PGS") filed suit in the
Central District of North Carolina, claiming that Bt corn seed products
developed by Mycogen and Ciba Seeds infringe PGS's U.S. patent covering plants
containing truncated Bt genes. On August 13, 1996, PGS amended its lawsuit
against Mycogen by adding newly issued patent 5,545,565 relating to the
truncated Bt(2) gene sequence.
On March 19, 1996, Monsanto filed suit in Federal District Court in
Wilmington, Delaware, claiming that Mycogen's and Ciba Seeds' Bt corn products
infringe Monsanto's U.S. patent covering a modified Bt DNA sequence used to make
plants insect-resistant.
On April 30, 1996, DeKalb filed suit in Federal District Court in Rockford,
Illinois, claiming that Mycogen's, Ciba Seeds' and Pioneer's Bt seed corn
products infringe DeKalb's patents covering Bt insect resistance and glufosinate
herbicide tolerance in corn. On May 1, 1996, Mycogen Seeds filed a declaratory
judgment action in Federal District Court in San Diego, stating that its Bt seed
corn does not infringe DeKalb's patents. That case was transferred to Rockford,
Illinois, for consolidation with the DeKalb lawsuits against Mycogen.
On April 3, 1996, the California Court of Appeal, Fourth Appellate District,
reversed a San Diego County Superior Court ruling in a case brought by MPSI
against Monsanto in December 1993, and affirmed that MPSI is entitled to
exercise options to license certain herbicide tolerance and insect resistance
technology for plants from Monsanto. On May 8, 1996, Mycogen filed suit in
Superior Court in San Diego, seeking actual and punitive damages for breach of
contract and interference with Mycogen's seed business as a result of Monsanto's
refusal to honor a contract to license certain herbicide tolerance and insect
resistance technology to Mycogen Seeds.
On July 23, 1996, DeKalb filed suit in Rockford, Illinois, against Mycogen and
Ciba Seeds for infringement of US Patents 5,538,877 and 5,538,880 relating to
insect resistant and herbicide resistant corn. On August 27, 1996, DeKalb
amended its July 23rd lawsuit to add newly issued patent 5,550,318.
On October 22, 1996, Mycogen filed suit in Federal District Court in
Wilmington, Delaware, claiming that insect-resistant seed products developed and
marketed by Monsanto, DeKalb and Delta & Pine Land Company ("DP&L") infringe new
U.S. patents issued to Mycogen that cover modification of Bt genes for plant
expression, introduction of modified Bt genes into plant cells, and to plants
and seeds produced from cells transformed with modified Bt genes. The suit
seeks an injunction to bar development or sale of Bt seed products as well as
damages arising out of sales of those companies' Bt seed products.
This litigation is not expected to have a material adverse effect on the
Company's business or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal year 1996.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Mycogen Corporation trades on The Nasdaq Stock Market
under the symbol "MYCO." Following are high and low trade prices for Mycogen
Corporation common stock, as reported by Nasdaq.
<TABLE>
<CAPTION>
Year ended August 31, 1996 High Low
<S> <C> <C>
4th Quarter............. 18 1/2 13
3rd Quarter............. 20 15
2nd Quarter............. 19 1/2 11 3/4
1st Quarter............. 14 1/4 9 1/2
Year ended August 31, 1995 High Low
4th Quarter............. 11 1/4 7 3/4
3rd Quarter............. 10 3/4 8
2nd Quarter............. 12 7 7/8
1st Quarter............. 10 1/2 9 1/4
</TABLE>
At September 30, 1996, there were 3,555 holders of record of the Company's
common stock. No dividends have been declared or paid on the common stock. The
Company has no intention of paying dividends on common stock in the foreseeable
future.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
EIGHT
MONTHS
ENDED YEAR ENDED
YEARS ENDED AUGUST 31,/1/ AUGUST 31, DECEMBER 31,
----------------------------------------------- ----------- ------------
1996/2/ 1995 1994/2/ 1993/2/ 1992 1991/2/
-------- -------- -------- -------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Operating Revenues $146,800 $106,169 $104,383 $112,583 $ 23,427 $ 13,218
Total Revenue 155,589 113,218 112,760 118,011 24,630 18,312
Net Loss Applicable to
Common Shares (47,636)/3/ (15,946) $(33,234)/3/ (27,514)/3/ (3,030)/4/ (3,305)
Net Loss Per Common Share (1.81)/3/ (.83) (1.81)/3/ (1.69)/3/ (.21)/4/ (.27)
Cash, Cash Equivalents and
Securities Available-for-Sale 68,038 17,600 37,887 66,314 66,456 75,835
Total Assets 227,469 159,608 165,726 201,533 112,714 114,540
Long-Term Liabilities 5,228 3,291 1,207 1,141 1,256 1,041
Redeemable Preferred Stock - - - 40,897 - -
Stockholders' Equity 181,194 113,703 125,406 107,885 105,207 107,011
</TABLE>
/1/ In May 1995, Mycogen Corporation changed its fiscal year end from December
31 to August 31 and has elected to restate the results for the three ended
August 31, 1995 .
/2/ The acquisitions of UAS in 1996, Mycogen Seeds in 1993, 1994 and 1996 and
Soilserv in 1991 affect the comparability of the Selected Financial Data.
/3/ Net loss in 1996, 1994 and 1993 includes special charges of $25.2 million,
36.4 million and $23.7 million, respectively, as discussed in further
detail in the Notes to Consolidated Financial Statements.
/4/ Net loss in 1992 includes charges of $2.1 million for a patent litigation
settlement.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from
projections in forward-looking statements as a result of many factors. Varying
climatic conditions can shift revenues between quarter. Weather also can affect
operating revenues, seed costs, pest populations, the effectiveness of
pesticides and seeds, seed production yields, commodity prices and growers'
planting decisions. Operating revenues also depend on a number of other factors,
including market acceptance of products, competition and U.S. and foreign
government policies that affect crop acreage and farm income. Planted acreage is
a key factor in determining volumes of seed, crop protection services and
biopesticide products purchased by growers.
These and other factors may affect Mycogen's ability to increase operating
revenues and achieve profitability. The Company also must continue to invest in
commercializing existing products and in discovery and development of new
products, so the trend in losses from operations may continue.
The Company's businesses are highly seasonal. Seed operating revenues are
concentrated mainly in the second and third fiscal quarters which end February
and May. Crop Protection operating revenues are concentrated mainly in the
third and fourth quarters which end in May and August.
RESULTS OF OPERATIONS
SUMMARY
Mycogen develops and markets value-added planting seeds for major
agricultural crops and environmentally compatible biopesticide products and
provides crop protection services to control pests and improve food and fiber
production. The Company is organized into two business units, Seed and Crop
Protection.
Mycogen's Seed business, doing business as Mycogen Seeds, markets a complete
line of planting seeds for major agricultural crops. It ranks fourth in North
America hybrid seed corn sales and among the top five in soybean, hybrid
sunflower, hybrid sorghum and alfalfa. Using both traditional breeding and
advanced biotechnology techniques, the Company is moving rapidly to augment and
improve the genetic makeup of major corps to produce seed products that give
growers value-added performance characteristics.
Mycogen's Cop Protection business, Mycogen Crop Protection, develops,
manufactures and markets biopesticide products and provides crop protection
services to growers of high value crops in California and Arizona.
In December 1982, Mycogen was formed to use genetic engineering to develop
environmentally compatible biological alternatives to chemical pesticides. In
January 1990, the Company acquired a line of fatty acid based pesticides to
complement its line of microbial products. In August 1991, it acquired Soilserv,
a provider of crop protection services to growers in California and Arizona, to
establish a revenue base and to gain experience in crop protection practices.
During this time, Mycogen continued to discover and develop a library of Bt
genes sequences that code for production of protein biotoxins with pesticidal
activity.
In December 1992, Mycogen acquired 51% of the Agrigenetics division of
Lubrizol, which now does business as Mycogen Seeds. The acquisition was driven
by the opportunity to pool Mycogen's and Lubrizol's
16
<PAGE>
respective Bt gene technology and plant science patent estates and technological
expertise to develop pest resistant crops. Such crops are developed by inserting
synthetic Bt genes into plant cells. Plants regenerated from those transformed
cells produce proteins that protect them from damage by certain pests. Once
fixed in plant parent lines, this pest-resistance trait is carried in planting
seeds that are produced and marketed as value-added products.
In December 1993, the Company acquired an additional 29.5% of Mycogen Seeds,
and in January 1996, the Company acquired Lubrizol's remaining 19.5% ownership
interest in Mycogen Seeds. As a result of the additional acquisition in 1993,
the Company expensed, as special charges, certain acquired in-process
technologies which totaled $26.6 million for the fiscal year ended August 1994.
In August 1993, the Company combined certain biopesticide discovery and plant
science research programs to accelerate development of pest-resistant crops and
completely restructured Mycogen Seeds. When Mycogen acquired Agrigenetics, Inc.,
it consisted of four independent seed companies selling products under ten
different brand names. In some areas, these independent seed companies competed
against each other with the same products. Their businesses were based mainly on
marketing seed products developed from publicly available parent lines as lower
priced alternatives to premium priced seed products sold by other companies.
Volumes and margins had declined each year and inventory was increasing and
aging. Mycogen decided to consolidate these separate companies into one, Mycogen
Seeds. The Company consolidated administration, production, sales, marketing and
general management at the headquarters of the largest of the four companies in
Prescott, Wisconsin. Mycogen also decided to eliminate all of the existing brand
names and commercialize all seed products under the Mycogen(R) brand, to
eliminate overlapping sales territories and to replace older, lower value
generic products with new, proprietary, value-added products. These changes
resulted in restructuring charges totaling $9.8 million for the fiscal year
ended August 1994.
This consolidation in 1993 improved efficiency and reduced expenses. The
number of separate seed corn products was reduced from 270 to approximately 90,
and the number of farmer/dealers, at that time, was reduced from more than 5,000
to approximately 2,600. However, the elimination of familiar brands, heavy
turnover in the sales force and repositioning of Mycogen Seeds from a discounter
to a marketer of proprietary, value-added products under a new brand created
significant disruption in the business, and seed volumes and market share
declined in 1995. Additionally, Mycogen Seeds' 1995 sales performance was
adversely affected by a reduction in planted acres in many keys territories and
crops. All of these negative factors contributed to lower sales in 1995.
Mycogen entered into two major strategic alliances during fiscal year 1996:
. In December 1995, Mycogen and Pioneer completed a technology sharing
agreement which will allow Mycogen to accelerate development of seed
products for several pest-resistant crops. Under the agreement, Pioneer
purchased three million shares of the Company's common stock for $30 million
and has provided $10 million in research and development funding. Pioneer
will provide an additional $11 million in funding near the end of 1998. The
two companies also agreed to conduct a joint program to develop Bt pest-
resistance technology for corn, soybean, sunflower, sorghum, canola and
wheat.
17
<PAGE>
. In February 1996, Mycogen and DowElanco entered into a strategic alliance
to build a global seeds business capable of conventional breeding as well
as genetic engineering and to develop seed products with value added
performance characteristics and qualities important to down-stream users of
grain and vegetable oils. Mycogen received $26.4 million in cash and all of
the shares of UAS, DowElanco's seed subsidiary, in exchange for 4,453,334
shares of common stock. As a result of this transaction, DowElanco's
purchase of 9,502,348 shares of Mycogen stock from Lubrizol and subsequent
purchases in the open market totaling 658,420 shares, DowElanco owns, as of
August 31, 1996, approximately 48% of the Company's outstanding common
stock.
These collaborations provided resources that allowed Mycogen to acquire other
strategic assets and accelerate steps toward its objective of developing a
global seeds business, as follows:
. In January 1996, the Company purchased rights from a subsidiary of Lubrizol
for $8.0 million, giving Mycogen freedom to commercialize its technology in
certain oil seed crops.
. During fiscal 1996, Mycogen spent $8.7 million to upgrade seed production
facilities. These upgrades will allow the Company to produce high quality
seed products and reduce production costs.
. In September 1996, the Company entered into a long-term supply agreement
with AC Humko to provide crude high oleic sunflower oil. High oleic oil
increases product shelf life, which is an important quality for food
processors. In conjunction with this agreement, Mycogen acquired Lubrizol's
remaining interest in oil seed technology and related assets for $7.6
million in cash.
. In September 1996, Mycogen purchased all of the common stock of Morgan
Seeds for $27 million in cash. Morgan Seeds is the third largest seed
company in Argentina, and will provide a base from which Mycogen can
develop and commercialize seed products under the Morgan(R) brand in South
America.
. In October 1996, Mycogen signed a letter of intent to enter into a
strategic alliance with Verneuil, a major European seed company. Mycogen
and Verneuil agreed to form separate joint ventures to develop and
commercialize oil seed crops and seed corn resistant to European corn
borer. Additionally, Mycogen will exchange its European seeds business and
other assets for an 18.75% ownership interest in Verneuil. The alliance
would provide a platform for commercializing Mycogen's seed technology in
Europe.
Mycogen's goals for fiscal 1996 were to reverse the decline in Seed operating
revenues by increasing sales of new, proprietary, value-added corn hybrids, and
to take advantage of its improved biopesticide cost position of its microbial
products. Seed operating revenues, excluding the acquisition of UAS, increased
20% due to an estimated 12% increase in planted U.S. corn acres and higher sales
of its new NatureGard(TM) hybrid seed corn with genetically enhanced insect-
resistance and Totally Managed Feedstuffs(TM) silage corn. Crop protection
operating revenues were up 12% and revenues from microbial based biopesticide
products were up 31%.
18
<PAGE>
However, Mycogen's initiatives to build a global seeds company had a negative
effect on 1996 financial results in the following areas:
. Seed quality has become very important as Mycogen transitions from
discount-priced generics to premium priced, value-added, proprietary
products. Therefore, the Company raised quality standards to enhance
performance of its new products. As a result, seed discards were higher
than anticipated and the Company experienced shortages in some of its new
premium products. The amount of quality discards recorded in 1996 totaled
$3.0 million; the demand for these products was high, therefore, revenues
and profits were adversely affected by the Company's inability to provide
more seed.
. Mycogen recorded special charges totaling $25.2 million, related mainly to
write-offs of in-process technology and obsolete or redundant facilities as
a result of its acquisitions. Charges for amortization of other intangibles
acquired also were higher.
. Mycogen recorded over $6.7 million in excess and obsolete seed inventory
write-downs as a result of replacing older generic products with the new
proprietary products.
. Mycogen also incurred increased expenses related to bringing the Mycogen
Seeds and UAS organizations together and upgrading the Mycogen Seeds'
management team to bring experience in managing value-added, proprietary
products. Mycogen Seeds spent approximately $5.4 million in unbudgeted
operating expenses for items such as recruiting, relocation and severance,
publicity, training and other programs supporting this effort.
Mycogen will continue to pursue acquisitions and joint ventures to build its
seeds business globally. The Company's strategy is focused on establishing and
strengthening its presence in the world's largest and most productive growing
regions by the year 2000, so that it will have production and distribution in
place to broadly commercialize second generation insect-resistant and other
value-added products coming out of its R&D pipeline.
19
<PAGE>
SEGMENT OPERATING REVENUES AND OPERATING LOSS
<TABLE>
<CAPTION>
Years ended August 31,
(In thousands) 1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues
Seed
Corn $ 52,855 $ 28,537 $ 32,020
Soybean 16,136 8,794 10,386
Sunflower 6,576 10,376 9,888
Sorghum 8,950 4,042 4,903
Other 5,634 3,506 4,591
International 11,884 10,074 8,541
------------- ---------- ----------
102,035 65,329 70,329
------------- ---------- ----------
Crop Protection
Soilserv 36,019 32,887 29,139
Biopesticides 9,867 7,953 4,915
------------- ---------- ----------
45,886 40,840 34,054
------------- ---------- ----------
Intersegment (1,121) - -
------------- ---------- ----------
------------- ---------- ----------
Total Operating Revenues $ 146,800 $ 106,169 $ 104,383
============= ========== ==========
Operating Income (Loss)
Seed (47,818)* (11,922) (45,052)*
Crop Protection 316 (2,336) (859)
Corporate (2,527) (1,259) (2,894)
Intersegment (120) - -
------------- ---------- ----------
Total Operating Loss $ (50,149) $ (15,517) $ (48,805)
============= ========== ==========
</TABLE>
*The net operating loss for the Seed segment includes special charges of $25.2
million and $36.4 million in 1996 and 1994, respectively.
SEED SEGMENT
FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995
OPERATING REVENUES: Seed operating revenues for the fiscal year ended August
1996, were $102 million, compared to $65.3 million for fiscal 1995. The
acquisition of UAS accounted for $23.6 million of the increase, primarily in
corn and soybean seed sales. The remaining increase of $13.1 million or 20% is
attributable mainly to higher volumes, as follows:
. Higher planted corn acreage in 1996 and increased sales of NatureGard(TM)
corn hybrids with Bt or native corn borer resistance and Totally Managed
Feedstuffs(TM) silage corn accounted for the majority of a $7.6 million, or
20%, increase in seed corn revenue.
20
<PAGE>
. Sorghum volumes increased over 80%, generating $4.6 million in increased
revenue. This increase is largely attributable to droughts in Texas, Kansas
and North Dakota that damaged winter wheat crops, causing wheat acreage to
be replanted with sorghum.
. Soybean revenues increased $1.8 million, largely due to a more aggressive
sales and marketing focus in 1996 and cooler, wetter weather in certain
areas, which caused some farmers to plant soybean instead of corn.
. Offsetting these increases were lower domestic sunflower sales of $3.9
million due to lower acreage planted in 1996 as a result of heavy disease
pressure in North Dakota and higher wheat and corn prices.
. International operating revenues increased $1.8 million, or 18%, mainly due
to higher sales of sunflower seed in Argentina and seed corn in Europe.
OPERATING LOSS: Seed operating losses for the fiscal year ended August 1996,
excluding special charges of $25.2 million, increased $10.7 million compared to
fiscal 1995. This deterioration in operating results, excluding UAS, is
attributable primarily to a $5.2 million increase in sales and promotional
expenses associated with the increase in sales volumes, legal fees of $2.4
million incurred to enforce the Company's patent position and lower gross
margins of $1.8 million.
Excluding UAS, higher gross margins from higher sales volumes were reduced by
higher seed costs and higher product discards and obsolescence ("D&O"). Corn
seed costs were $3 per unit higher due to low production yields. D&O increased
by $5.8 million due to higher quantities of seed that did not pass quality
standards and higher quantities of excess and obsolete seed inventory.
The Company currently is a party to seven separate litigations arising out of
disputes over patent and license rights for insect resistance and herbicide
tolerance technology in plants. The Company will continue to assert and defend
its positions in these matters, and therefore, will continue to incur
significant legal expenses.
SPECIAL CHARGES: Special charges recognized during 1996 totaled $25.2 million.
Those charges are mainly comprised of impairment losses and exit costs of $14.4
million related to the disposal and sale of certain corn production plant assets
and write-offs of acquired in-process technology totaling $10.3 million,
including $7.2 million for oil seed technology rights acquired from Lubrizol and
$3.1 million related to the acquisition of UAS. The Company is still evaluating
programs related to that oil seed technology and has not yet committed
significant funding. The Company expects that it will need to spend
approximately $2.5 million over the next three to five years to commercialize
the UAS technology. The estimated funding and related efforts are within the
normal course of research efforts typically required by UAS's breeding and
development programs.
21
<PAGE>
FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994
OPERATING REVENUES: Seed operating revenues for the fiscal year ended August
1995, were $65.3 million compared to $70.3 million for the fiscal year ended
August 1994. The net $5.0 million decrease in revenues was attributable mainly
to lower volumes, as follows:
. Corn acres planted industry-wide decreased 10% from 1994 to 1995, due to a
cool, wet spring which caused growers either to not plant or to shift to
other crops. The Company's corn volumes decreased 12%. Although soybean
acres industry-wide were estimated to have been flat from 1994 to 1995, the
Company's soybean volumes were down 15%. Corn and soybean seed were the
products most impacted by the Company's decisions to consolidate marketing
under a single brand and reduce the number of hybrids offered and the size
of its farmer/dealer network.
. Sunflower revenues increased a net 5%, or $.5 million. Higher sales of
confection sunflower and high oleic sunflower to a related party more than
offset a 13% decline in oil sunflower volume. This decline in oil sunflower
was due to disease and government programs which caused growers in certain
territories where the Company has a strong market presence to shift
plantings from sunflower to wheat and canola.
. Sales volumes for other seed products, mainly sorghum and alfalfa, also
were lower. Sorghum acreage continued to decline and shift to other crops,
such as cotton. The Company believes that, as a result of the relatively
mild winter in fiscal 1995, an unusual amount of pasture survived the
normal winter kill, which resulted in lower alfalfa sales.
. International revenues increased 18%, or $1.5 million, due to higher corn
and sunflower sales, mainly in France.
OPERATING LOSS: Seed operating loss for the fiscal year ended August 1995, was
$11.9 million compared to $8.7 million (excluding special charges of $36.4
million) for the fiscal year ended August, 1994. Gross profit was $4.3 million
lower, due mainly to lower sales volumes and higher cost of operating revenues
as a percent of sales. Cost of operating revenues was higher, due mainly to
obsolescence as a result of repositioning corn inventory from non-proprietary
hybrids to new value-added hybrids. Lower sales volumes were also responsible
for increased unit fixed costs and costs incurred to dispose of excess and poor
quality inventory. Expenses were slightly lower. Higher research and
development expenses were partially offset by lower selling, marketing, general
and administrative expenses resulting from a company-wide restructuring and
lower provisions for doubtful accounts.
CROP PROTECTION SEGMENT
FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995
OPERATING REVENUES: Crop Protection operating revenues increased by $5 million
from 1995 to 1996, as follows:
. Soilserv operating revenues were $3.1 million higher than last year due to
heavy insect pressure in Salinas Valley that increased sales of aerial
applications and higher penetration of crop protection markets in Arizona.
22
<PAGE>
. Biopesticide operating revenues were up $1.9 million, due to sales of new
products, Mattch(TM) bioinsecticide and Scythe(R) bioherbicide, higher
international sales of MVP(R) bioinsecticide and higher sales of MVP(R)
concentrate to Kubota Corporation ("Kubota"). Lower sales of M-Pede(R) and
M-Trak(R) bioinsecticides in North America, attributable to the
introduction of new products by competitors, partially offset those
increases.
OPERATING INCOME: 1996 operating results improved $2.7 million due to improved
gross margins of $3.8 million attributable to higher sales volumes coupled with
lower biopesticide manufacturing costs. Higher operating expenses reduced
operating income by $.8 million.
FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994
OPERATING REVENUES: Crop Protection operating revenues for the fiscal year
ended August 1995, were $40.8 million compared to $34.1 million for fiscal 1994,
as follows:
. Soilserv operating revenues were up $3.7 million in fiscal 1995 due to the
flooding in California's Salinas Valley during the second quarter,
resulting in heavy insect and disease pressure that increased the demand
for Soilserv's aerial pesticide applications.
. Biopesticide operating revenues were up $3.0 million, or 62%, due to the
introduction of Scythe(R) herbicide and increases in sales of MVP(R) for
control of heliothis in cotton and M-Peril(R) for control of European corn
borer in corn. International sales of biopesticides increased due to
expanded sales of MVP(R) liquid in Asia and MVP(R) concentrate to Kubota.
OPERATING LOSS: Crop Protection operating losses for the fiscal year ended
August, 1995, were $2.3 million, compared to $.9 million for fiscal 1994. The
increase in operating losses was due mainly to a $1.6 million write-down of crop
protection technology resulting from the discontinuation of a certain product
development program. Contract and other revenues declined $1.5 million. These
decreases were partially offset by higher margins. Soilserv margins improved in
total and as a percent of sales due to higher volumes.
CORPORATE
FISCAL YEAR ENDED AUGUST 1996 COMPARED TO 1995
The increase of $1.3 million in the Corporate operating loss was due to higher
compensation and bonuses and expenses related to general research and
development activities.
FISCAL YEAR ENDED AUGUST 1995 COMPARED TO 1994
The reduction of $1.6 million in the Corporate operating loss from $2.9
million in 1994 to $1.3 million in 1995 was due to lower general and
administrative expenses resulting from the consolidation and allocation of
Corporate general and administrative resources to the Seed business during the
1993 restructuring of Mycogen Seeds' operations.
23
<PAGE>
NON-OPERATING ITEMS
INTEREST INCOME AND EXPENSE, NET
Interest income and expense, net, increased $1.5 million to $2.4 million in
fiscal 1996 due to higher net interest income as a result of more cash available
for investment during the year. Interest income and expense, net, decreased
$1.4 million to $.9 million in 1995. The decrease was due mainly to less cash
available for investment and higher levels of borrowing under the Company's line
of credit during 1995.
OTHER INCOME
Other income of $.7 million was recognized in 1996 upon receipt of a
litigation settlement.
MINORITY INTEREST
Effective December 31, 1993, the Company agreed to purchase the remaining
19.46% ownership interest in Mycogen Seeds from Lubrizol. Lubrizol's minority
interest in Mycogen Seeds was recorded at the minimum agreed upon purchase price
and Mycogen Seeds operating results have been recognized since that time as if
the Company owned 100% of Mycogen Seeds. Therefore, no minority interest was
recognized for periods after December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and securities available-for-sale
increased by $50.4 million to $68 million during the fiscal year ended August
1996. This increase was primarily due to proceeds of $30 million, $26.4 million
and $3.5 million from the sale of common stock to Pioneer, DowElanco and
employees, respectively, and $10 million in research funding from Pioneer.
These proceeds were reduced by cash used to pay off $4.7 million of long-term
debt, cash paid to Lubrizol for technology rights of $2 million, cash paid to
DowElanco of $1.8 million in connection with the acquisition of UAS and capital
expenditures which totaled $13.9 million. The Company has a $25 million bank
line of credit facility, which expires November 30, 1996. The credit facility
is used to fund portions of the Company's seasonal working capital needs; $23.5
million was unused as of August 31, 1996. The Company is currently
renegotiating the terms, including an extension, of its credit facility.
In December 1995, the Company signed a definitive agreement for a technology
collaboration with Pioneer. Under the agreement, Pioneer purchased three
million shares of the Company's common stock for $30 million and provided $10
million in research and development funding. Pioneer will provide an additional
$11 million in funding near the end of 1998.
In January 1996, Lubrizol converted its entire interest in shares of preferred
stock into 1,815,274 shares of Mycogen common stock and sold its 19.46%
ownership interest in Mycogen Seeds to the Company for 1,538,008 shares of
common stock. The Company also purchased certain rights in oil seed technology
from a subsidiary of Lubrizol for $8.0 million. The Company made an initial
payment of $2.0 million and will pay $2.5 million and $3.5 million in January
1997 and 1998, respectively. In February 1996, the Company issued common stock
to DowElanco in exchange for $26.4 million in cash and all of the shares in UAS.
During fiscal 1996, the Company invested $8.7 million to upgrade seed
production facilities, and expects to invest another $19.8 million during fiscal
1997 to add additional seed processing capacity. The Company also invested $1.1
million in fiscal 1996 to build a new headquarters for Mycogen Seeds and expects
to spend about $3.0 million during the first quarter of fiscal 1997 to complete
construction. Other capital expenditures totaled $4.1 million for fiscal 1996,
and are expected to total $6.0 million during fiscal 1997.
24
<PAGE>
In September 1996, the Company purchased all of the common stock of Morgan
Seeds for $27 million in cash and acquired Lubrizol's remaining interest in oil
seed technology and certain related assets for $7.6 million in cash. The
Company will continue to pursue an aggressive acquisition and joint venture
strategy for both the Seed and Crop Protection business units.
The Company is involved in various actions related to its patent positions and
plans to continue to spend resources as required to enforce its intellectual
property rights. The Company's success will depend in part on its ability to
obtain U.S. and foreign patent protection for its products. To date, Mycogen
has obtained numerous patents and has filed a large number of patent
applications in the United States and foreign jurisdictions relating to the
Company's technology. There can be no assurance that issued patent claims will
be sufficient to protect the Company's technology. The commercial success of
the Company also will depend in part on the Company's ability to avoid
infringing patents issued to competitors. If licenses are required, there can
be no assurance that the Company will be able to obtain such licenses on
commercially favorable terms, if at all. Litigation, which can result in
substantial cost to the Company, may also be necessary to enforce the Company's
intellectual property rights or to determine the scope and validity of third-
party proprietary rights.
The Company anticipates that its current cash position, revenue from
operations and contract and other revenues, and funds from its existing line of
credit will be sufficient to finance working capital and capital requirements
for the immediate future. However, the Company's capital requirements may vary
as a result of competitive and technological developments, the timing of
regulatory approval for new products and the terms and conditions of any future
strategic transactions. If such requirements change, the Company may need to
raise additional capital. However, there can be no assurance that the Company
can raise additional capital under favorable terms, if at all.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements appearing after the signature
page of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
25
<PAGE>
PART III
Certain information required by Part III is omitted from this report in that
the Company will file the Proxy Statement pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report, and
certain information included therein is incorporated herein by reference. Only
those sections of the Proxy Statement which specifically address the items set
forth herein are incorporated by reference. Such incorporation does not include
the Compensation Committee Report or the Performance Graph included in the Proxy
Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. The information under the caption "Election
of Directors," appearing in the Proxy Statement, is incorporated herein by
reference.
(b) Identification of Executive Officers. The information under the headings
"Executive Officers" and "Responsibilities and Business Experience of Executive
Officers," appearing in the Proxy Statement, is incorporated herein by
reference.
(c) Compliance with Section 16(a) of the Exchange Act. Based solely upon a
review of Forms 3, 4 and 5 and amendments thereto furnished to the Registrant
and upon written representations of all individuals required to file forms
pursuant to Section 16(a), the Registrant knows of no such individual that
failed to file Forms 3, 4 and 5 on a timely basis during the last fiscal year,
except as set forth under the heading "Compliance with Section 16(a) of the
Exchange Act" appearing in the Proxy Statement. The information under such
heading is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" appearing in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the headings "Principal Stockholders" and "Executive
Compensation-Security Ownership of Directors and Management as of September 30,
1996," appearing in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the headings "Election of Directors," "Executive
Compensation" and "Certain Relationships and Related Transactions" appearing in
the Proxy Statement is incorporated herein by reference.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Report of Ernst and Young LLP, Independent
Auditors. See Index to Financial Statements at page 32 of this Form 10-K.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(c) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
DESCRIPTION PAGE
<C> <S> <C>
2.1 Agreement and Plan of Merger of Mycogen Corporation, a --
Delaware corporation, and Mycogen California, Inc., a California
corporation. Incorporated by reference from Exhibit 3.4 to the
Registrant's Form 8-K, filed on November 28, 1995.
3.1 Articles of Incorporation of the Registrant. Incorporated by --
reference from Exhibit 2.1 to the Registrant's Form 8-K, filed on
November 28, 1995.
3.2 Bylaws of the Registrant. Incorporated by reference from Exhibit --
3.2 to the Registrant's Form 8-K, filed on
November 28, 1995.
4.1 Reference is made to Exhibits 3.1 and 3.2 above. --
4.2 Specimen Common Stock Certificate, $0.001 par value.
Incorporated by reference from Exhibit 4.1 to the Registrant's Form --
8-K, filed on November 28, 1995.
4.3 Amended and Restated Rights Agreement by and between Registrant --
and Bank of Boston. Incorporated by reference from Exhibit 4.2 to
the Registrant's Form 8-K, filed on November 28, 1995.
4.4 Amendment to the Rights Agreement. Incorporated by reference
from Exhibit 4.1 to the Registrant's Form 8-K, filed on March 22,
1996. --
10.1 Registration Rights Agreement under Stock Purchase Agreement
dated March 6, 1989. Incorporated by reference from Exhibit 10.2
to the Registrant's Form 10-K for the year ended September 30,
1989, filed on December 28, 1989. --
10.2 Limited Partnership Agreement of MJT BH/BT Partnership, L.P.,
dated March 6, 1989, between Mycosub/BH, Inc. and JT Biotech
USA, Inc., with certain confidential portions omitted. Incorporated
by reference from Exhibit 10.9 to the Registrant's Form 10-K for
the year ended September 30, 1989, filed on December 28, 1989. --
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.3 Limited Partnership Agreement of MJT BA Partnership, L.P., dated
March 6, 1989, between Mycosub/BA, Inc. and JT Biotech USA
Inc., with certain confidential portions omitted. Incorporated by
reference from Exhibit 10.15 to the Registrant's Form 10-K for the
year ended September 30, 1989, filed on December 28, 1989. --
10.4 Registrant's 1995 Employee Stock Purchase Plan. Incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 333-00901, filed on
February 13, 1996. --
10.5 Employee Stock Purchase Plan Summary and Prospectus.
Incorporated by reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8, Registration No. 333-00901,
filed on February 13, 1996. --
10.6 Registrant's Restricted Stock Issuance Plan. Incorporated by
reference from Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 33-40349, filed on May 3,
1991. --
10.7 Form of Agreements pertaining to Restricted Stock Issuance Plan.
Incorporated by reference from exhibit 28.2 to the Registrant's
Registration Statement on form S-8, Registration No. 33-40349,
filed on May 3, 1991. --
10.8 Amendment No. 1 to Registrant's Restricted Stock Issuance Plan.
Incorporated by reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8, Registration No. 333-00899,
filed on February 13, 1996. --
10.9 Form of Indemnity Agreement between the Registrant and each of
its directors. Incorporated by reference from Exhibit 10.1 to the
Registrant's Form 8-K, filed on November 28, 1995. --
10.10 Manufacturing Agreement dated September 15, 1988 between the
Registrant and International Bio-Synthetics, Inc. (with certain
confidential portions omitted). Incorporated by reference from
Exhibit 10.19 to the Registrant's Form 10-K for the year ended
September 30, 1988, filed on December 23, 1988. --
10.11 Registrant's 1992 Stock Option Plan. Incorporated by reference
from Exhibit 28.1 to the Registrant's Registration Statement on
Form S-8, Registration Statement No. 33-55508, filed on
December 9, 1992. --
10.12 Form of Agreements pertaining to 1992 Stock Option Plan.
Incorporated by reference from Exhibits 28.2, 28.3, 28.4 and 28.5
to the Registrant's Registration Statement on
Form S-8, Registration No. 33-55508, filed on
December 9, 1992. --
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.13 Amendment No. 1 to 1992 Stock Option Plan. Incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8, Registration No. 333-00899, filed on
February 13, 1996. --
10.14 Revolving Credit Note of the Registrant to Harris Trust and Savings
Bank ("Harris Bank") dated August 5, 1994. Incorporated by
reference from Exhibit 10.34 to the Registrant's Form 10-K for
the year ended December 31, 1994, filed on March 3, 1995. --
10.15 Revolving Credit Agreement between the Registrant and Harris
Bank dated August 5, 1994. Incorporated by reference from Exhibit
10.35 to the Registrant's Form 10-K for the year ended December
31, 1994, filed on March 3, 1995. --
10.16 Guaranty Agreement from the Registrant to Harris Bank dated
August 5, 1994. Incorporated by reference from Exhibit 10.36 to
the Registrant's Form 10-K for the year ended December 31, 1994,
filed on March 3, 1995. --
10.17 Form of Employment/Severance Agreement between the Registrant
and certain executive officers of the Registrant. 55
10.18 Manufacturing Agreement dated December 1, 1993, between the
Registrant and EB,with certain confidential portions omitted.
Incorporated by reference from Exhibit 10.44 to the Registrant's
Form 10-K for the year ended December 31, 1994, filed on
March 3, 1995. --
10.19 Agreement for Exchange of Insect Control Technology and Patent
Rights dated July 14, 1993, between the Registrant and Ciba Seeds
with certain confidential portions omitted. Incorporated by
reference from Exhibit 10.45 to the Registrant's Form 10-K for
the year ended December 31, 1994, filed
on March 3, 1995. --
10.20 Collaboration Agreement dated as of December 13, 1995, by and
between Mycogen Seeds and Pioneer. Confidential treatment has
been requested regarding certain portions of this agreement. 73
10.21 Mycogen Corporation Common Stock Purchase Agreement dated as
of December 13, 1995, by and between the Registrant and Pioneer
Overseas Corporation, an Iowa corporation ("Pioneer Overseas"). 108
10.22 Registration Rights Agreement dated December 13, 1995, by and
between the Registrant and Pioneer Overseas. 121
10.23 Exchange and Purchase Agreement dated as of January 15, 1996, by
and among the Registrant, Mycogen Seeds, DowElanco and UAS.
Incorporated by reference from Exhibit 2.1 to the Registrant's
Form 8-K, filed on February 27, 1996. --
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
21.1 Soilserv, Inc., a California corporation. --
21.2 Mycogen Plant Science, Inc., a Delaware corporation. --
21.3 Agrigenetics, Inc., a Delaware corporation, doing business as
Mycogen Seeds. --
21.4 Mycogen Crop Protection, Inc., a California corporation. --
21.5 United AgriSeeds, Inc., a Delaware corporation. --
21.6 Santa Ursula, S.A.A.I.C. e I., an Argentina corporation, doing
business as Morgan Seeds. --
* The Company's Notice of Annual Meeting and Proxy Statement
dated on or about November 3, 1996. --
23 Consent of Ernst & Young LLP, Independent Auditors. 136
24 Power of Attorney. 138
27 Financial Data Schedule. 52
99 Purchase Agreement dated February 15,1995, by and among the
Registrant, Mycogen Seeds and DP&L. Incorporated by reference
from Exhibit 99.1 to the Registrant's Form 8-K, filed on
April 20, 1995. --
</TABLE>
* Supplemental Information: Copies of the Registrant's Proxy Statement for the
Annual Meeting of Stockholders and copies of the form of proxy to be used at
such Annual Meeting will be furnished to the Securities and Exchange Commission
prior to the time they are distributed to the stockholders.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MYCOGEN CORPORATION
Date: November 8, 1996 By:/s/ JERRY CAULDER
------------------
Jerry Caulder
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ JERRY CAULDER Chairman, Chief November 8, 1996
- ----------------------------- Executive Officer and Director
(Jerry Caulder) (Principal Executive Officer)
/s/ THOMAS J. CABLE Director November 8, 1996
- -----------------------------
(Thomas J. Cable*)
/s/ PERRY GEHRING Director November 8, 1996
- -----------------------------
(Perry Gehring*)
/s/ JOHN. L. HAGAMAN Director November 8, 1996
- -----------------------------
(John L. Hagaman*)
/s/ DAVID H. RAMMLER Director November 8, 1996
- -----------------------------
(David H. Rammler*)
/s/ WILLIAM C. SCHMIDT Director November 8, 1996
- -----------------------------
(William C. Schmidt*)
/s/ A. JOHN SPEZIALE Director November 8, 1996
- -----------------------------
(A. John Speziale*)
/s/ G. WILLIAM TOLBERT Director November 8, 1996
- -----------------------------
(G. William Tolbert*)
/s/ W. WAYNE WITHERS Director November 8, 1996
- -----------------------------
(W. Wayne Withers*)
/s/ JAMES A. BAUMKER Vice President and Chief November 8, 1996
- ----------------------------- Financial Officer
(James A. Baumker) (Principal Financial and
Accounting Officer)
*By James A. Baumker under power of attorney.
</TABLE>
31
<PAGE>
MYCOGEN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Operations for the years ended
August 31, 1996, 1995 and 1994...................................................... 33
Consolidated Balance Sheets as of August 31, 1996 and 1995............................ 34
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1996, 1995 and 1994...................................................... 35
Consolidated Statements of Cash Flows for the years ended
August 31, 1996, 1995 and 1994...................................................... 36
Notes to Consolidated Financial Statements............................................ 37
Schedule II - Valuation and Qualifying Accounts for the years ended August 31, 1996
and 1995............................................................................ 50
Report of Ernst & Young LLP, Independent Auditors..................................... 51
</TABLE>
All other schedules required by this item have been omitted due to full
disclosure in the Consolidated Financial Statements or related footnotes or due
to inapplicability of the item.
32
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
Net operating revenues:
Unrelated parties..................... $145,401 $ 103,701 $ 102,449
Related party......................... 1,399 2,468 1,934
Contract and other revenues...........
Unrelated parties..................... 5,160 4,334 4,888
Related parties....................... 3,629 2,715 3,489
-------- ---------- ----------
Total Revenues....................... 155,589 113,218 112,760
-------- ---------- ----------
Costs and expenses:
Cost of operating revenues............ 93,508 66,966 62,712
Selling and marketing................. 37,791 23,544 25,307
General and administrative............ 22,062 13,190 16,825
Research and development.............. 23,645 21,181 18,171
Amortization of intangible assets..... 3,514 3,854 2,172
Special charges....................... 25,218 - 36,378
-------- ---------- ----------
Total costs and expenses............ 205,738 128,735 161,565
-------- ---------- ----------
Operating loss......................... (50,149) (15,517) (48,805)
Interest income and expense, net...... 2,435 914 2,328
Exchange gain......................... 2 160 215
Other non-operating income............ 654 - -
Minority interest..................... - - 14,632
-------- ---------- ----------
Net loss............................... (47,058) (14,443) (31,630)
Dividends on preferred stock........... (578) (1,503) (1,604)
-------- ---------- ----------
Net loss applicable to common shares... $(47,636) $ (15,946) $ (33,234)
======== ========== ==========
Net loss per common share.............. $ (1.81) $ (.83) $ (1.81)
======== ========== ==========
Weighted average number of shares...... 26,275 19,225 18,377
======== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
33
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except par value data)
<TABLE>
<CAPTION>
AUGUST 31,
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 35,854 $ 5,687
Securities available-for-sale..................... 32,184 11,913
Accounts and notes receivable, net of allowances.. 30,700 27,402
Inventories....................................... 37,177 33,633
Prepaid expenses.................................. 1,880 1,267
---------- ----------
Total current assets............................. 137,795 79,902
Net property, plant and equipment................... 54,905 49,646
Net intangible assets............................... 22,581 17,759
Other assets........................................ 12,188 12,301
---------- ----------
Total assets........................................ $ 227,469 $ 159,608
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................. $ 1,520 $ -
Accounts payable.................................. 8,697 6,760
Accrued compensation and related taxes............ 6,755 3,553
Deferred revenues................................. 12,101 5,670
Other current liabilities......................... 11,974 5,225
---------- ----------
Total current liabilities........................ 41,047 21,208
Long-term liabilities............................... 5,228 3,291
Minority interest................................... - 21,406
Commitments
Stockholders' equity:
Common stock, $.001 par value, 40,000,000 shares
authorized; 30,678,537 and 19,400,764 shares
issued and outstanding at August 31, 1996 and
1995, respectively................................ 31 19
Additional paid-in capital......................... 330,973 216,436
Deficit............................................ (149,810) (102,752)
---------- ----------
Total stockholders' equity....................... 181,194 113,703
---------- ----------
Total liabilities and stockholders' equity.......... $ 227,469 $ 159,608
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
34
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
SHARES OF
SERIES A COMMON STOCK ADDITIONAL TOTAL
PREFERRED NUMBER PAID-IN STOCKHOLDERS'
STOCK OF SHARES AMOUNT CAPITAL DEFICIT EQUITY
------------ --------- ------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993 - 16,995 $ 17 $ 164,547 $ (56,679) $ 107,885
Issuance of common stock for:
Employee stock plans................ - 104 - 939 - 939
Business acquisition................ - 2,000 2 20,498 - 20,500
Compensation related to employee
stock plans......................... - - - 396 - 396
Preferred stock dividend accrual..... - - - (642) - (642)
Reclassificaton of preferred stock... 3 - - 28,539 - 28,539
Cumulative effect of change in
accounting for investments in debt
and equity securities............... - - - 559 - 559
Change in unrealized gains and losses
on securities available-for-sale.... - - - (1,174) - (1,174)
Net loss............................. - - - - (31,630) (31,630)
Cumulative translation adjustment.... - - - 34 - 34
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 994 3 19,099 19 213,696 (88,309) 125,406
Issuance of common stock for
employee stock plans................ - 148 - 436 - 436
Compensation related to employee
stock plans......................... - - - 148 - 148
Issuance of common stock for
business acquisition................ - 154 - 1,350 - 1,350
Change in unrealized gains and losses
on securities available-for-sale.... - - - 478 - 478
Net loss............................. - - - - (14,443) (14,443)
Cumulative translation adjustment.... - - - 328 - 328
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 1995 3 19,401 19 216,436 (102,752) 113,703
Issuance of common stock for:
Private offering.................... - 3,000 3 29,997 - 30,000
Employee stock plans................ - 472 1 3,500 - 3,501
Compensation related to employee
stock plans......................... - - - 689 - 689
Issuance of common stock for
business acquisitions............... - 5,991 6 80,406 - 80,412
Conversion of Preferred Stock........ (3) 1,815 2 (2) - -
Change in unrealized gains and losses
on securities available-for-sale.... - - - (167) - (167)
Net loss............................. - - - - (47,058) (47,058)
Cumulative translation adjustment.... - - - 114 - 114
------------ --------- ------- ----------- ---------- ------------
Balance at August 31, 1996 - 30,679 $ 31 $ 330,973 $ (149,810) $ 181,194
============ ========= ======= =========== ========== ============
See accompanying Notes to Consolidated Financial Statements
</TABLE>
35
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss............................................ $ (47,058) $ (14,443) $(31,630)
Items which did not use cash:
Depreciation....................................... 4,862 4,851 4,329
Amortization of intangible assets.................. 3,514 3,854 2,172
Amortization of prepaid contract manufacturing..... 702 284 -
Compensation related to employee stock plans....... 689 148 396
Special charges.................................... 23,218 - 26,636
Minority interest.................................. - - (14,632)
Provision for doubtful accounts.................... 1,990 292 3,179
Loss on disposal of assets......................... 361 693 344
Changes in operating assets and liabilities:
Accounts and notes receivable...................... 8,432 (3,293) (2,180)
Inventories........................................ 14,179 (1,834) 6,368
Prepaid expenses................................... 53 (346) 430
Accounts payable................................... (5,328) 3,014 (1,366)
Deferred revenues.................................. (1,815) 989 2,298
Other liabilities.................................. 4,332 (669) (310)
---------- ---------- --------
Cash provided by (used in) operating activities... 8,131 (6,460) (3,966)
---------- ---------- --------
Investing activities:
Proceeds from sales of available-for-sale
securities 33,675 8,972 33,258
Proceeds from maturities of available-for-sale
securities 4,159 21,049 29,483
Purchases of available-for-sale securities......... (58,272) (12,250) (34,753)
Capital expenditures............................... (13,889) (6,566) (4,259)
Net cash paid for business combinations............ (1,791) - (7,000)
Prepaid contract manufacturing..................... (286) (8,825) (2,079)
Change in intangibles and other assets............. 1,596 (1,842) (2,578)
---------- --------- --------
Cash provided by (used in) investing activities... (34,808) 538 12,072
---------- --------- --------
Financing activities:
Proceeds from short-term borrowings................ 1,520 - -
Proceeds from long-term debt....................... - 2,500 -
Payments on long-term debt......................... (4,678) (248) (10)
Redemption of preferred stock...................... - - (10,000)
Proceeds from sale of common stock................. 59,900 435 939
---------- --------- --------
Cash provided by (used in) financing activities... 56,742 2,687 (9,071)
---------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents....................................... 102 241 96
---------- --------- --------
Increase (decrease) in cash and cash equivalents..... 30,167 (2,994) (869)
Cash and cash equivalents at beginning of year....... 5,687 8,681 9,550
---------- --------- --------
Cash and cash equivalents at end of year............. $ 35,854 $ 5,687 $ 8,681
========== ========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
MYCOGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are bracketed in the following
Notes to Consolidated Financial Statements. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
BASIS OF CONSOLIDATION
[The accompanying financial statements include the accounts of Mycogen
Corporation and its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.]
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform to the 1996 presentation.
ACQUISITION OF UAS AND PURCHASE OF LUBRIZOL'S INTEREST IN MYCOGEN SEEDS
In February 1996, the Company issued 4,453,334 shares of common stock to
DowElanco in exchange for $26.4 million in cash and all of the shares in
DowElanco's seed business, UAS. The principal seed products of UAS are corn and
soybean. The acquisition of UAS was accounted for as a purchase and,
accordingly, the results of operations of UAS from the date of acquisition are
reflected in the consolidated financial statements of the Company. The total
purchase price aggregated $34.5 million, of which $3.1 million was allocated to
in-process technology and was written-off upon acquisition.
On December 31, 1993, the Company exchanged $7.0 million in cash and two
million shares of the Company's common stock for an additional 29.5% ownership
of Mycogen Seeds, and in January 1996, the Company acquired Lubrizol's remaining
19.46% ownership interest in Mycogen Seeds by issuing 1,538,008 shares of common
stock. The purchase price totaled $48.9 million for these two transactions.
The following consolidated, pro forma, unaudited summary of operations data
assumes that the acquisition of UAS occurred on September 1, 1995 and 1994 and
the exchange for an additional ownership interest in Mycogen Seeds occurred on
September 1, 1993.
<TABLE>
<CAPTION>
Years ended August 31,
----------------------------------------
(In thousands, except per share data) 1996 1995 1994
- ---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Total revenues $ 172,623 $ 146,873 $ 112,760
Net loss applicable to common shares $ (43,555) $ (13,301) $ (18,567)
Net loss per common share $ (1.54) $ (.56) $ (.97)
</TABLE>
These pro forma results may not be indicative of the results of operations
that would have been reported if the transactions had occurred on the dates
indicated, or which may be reported in the future. These results do
37
<PAGE>
not include the nonrecurring special charges of $3.1 million recognized in 1996
and $26.6 million recognized in 1994 related to the write-off of acquired in-
process technology.
SUPPLEMENTAL CASH FLOW INFORMATION
In conjunction with the acquisitions of UAS and the remaining ownership in
Mycogen Seeds in 1996, an acquisition in 1995, the exchange for an additional
ownership interest in Mycogen Seeds in 1994 and adjustments to the 1993 purchase
price of Mycogen Seeds in 1994, cash and noncash investing and financing
activities were allocated as follows:
<TABLE>
<CAPTION>
Years ended August 31,
---------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
Business acquisitions:
Fair value of assets acquired, other $ 55,957 $ 1,350 $ 26,188
than cash
Liabilities assumed (20,886) -
Liabilities and acquisition costs (673) -
incurred
Minority interest purchased from 21,406 - (1,688)
Lubrizol
Common stock issued (54,013) (1,350) (20,500)
Preferred stock returned 3,000
---------- --------- ---------
Net cash paid for acquisitions $ 1,791 $ - $ 7,000
========== ========= =========
</TABLE>
Other cash and noncash investing and financing activities were as follows:
<TABLE>
<CAPTION>
Years ended August 31,
---------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------- ------------ --------- ----------
<S> <C> <C> <C>
Common stock issued upon conversion of
convertible preferred stock $ 31,582 $ - $ -
Technology rights acquired by incurring
directly related liabilities $ 6,000 $ - $ -
Dividends on preferred stock $ 578 $ 1,503 $ 1,604
Cash payments for interest $ 263 $ 389 $ 254
</TABLE>
INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
The Company is organized into two major segments, Seed and Crop Protection.
Seed segment revenues are derived mainly from sales of planting seeds in North
America and Europe. The six principal product lines are corn, soybean,
sunflower, sorghum, other and international. Crop Protection segment revenues
are derived from customized crop protection services provided by Soilserv in
California and Arizona and sales of biopesticide products mainly in North
America and Japan. Operating revenues and seed costs are impacted by weather.
Weather can influence pest populations, the effectiveness of pesticides and
seeds, seed production yields, commodity prices, growers' planting decisions and
other factors impacting revenues and costs. Operating revenues are also
dependent on a number of other factors, including the degree of market
acceptance of products, the strength of competition in the marketplace and U.S.
and foreign government policies which can affect crop acreage and farmer income.
Acres planted determine quantities of planting seed, crop protection services
and biopesticide products purchased by growers.
38
<PAGE>
Financial information by segment is as follows:
<TABLE>
<CAPTION>
Years ended August 31,
----------------------------------------
(In thousands) 1996 1995 1994
- ----------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Net Operating Revenues
Seed $ 102,035 $ 65,329 $ 70,329
Crop Protection 45,886 40,840 34,054
Intersegment Elimination (1,121) - -
----------- ---------- ----------
Total $ 146,800 $ 106,169 $ 104,383
=========== ========== ==========
Contract and Other revenues
Seed $ 7,639 $ 5,606 $ 5,486
Crop Protection 1,040 1,363 2,891
Corporate 110 80 -
----------- ---------- ----------
Total $ 8,789 $ 7,049 $ 8,377
=========== ========== ==========
Research and Development Expenses
Seed $ 18,604 $ 14,827 $ 12,156
Crop Protection 4,816 6,354 6,015
Corporate 225 - -
----------- ---------- ----------
Total $ 23,645 $ 21,181 $ 18,171
=========== ========== ==========
Operating Income (Loss)
Seed $ (47,818) $ (11,922) $ (45,052)
Crop Protection 316 (2,336) (859)
Corporate (2,527) (1,259) (2,894)
Intersegment Elimination (120) - -
----------- ---------- ----------
Total $ (50,149) $ (15,517) $ (48,805)
=========== ========== ==========
Identifiable Assets
Seed $ 108,404 $ 87,238
Crop Protection 40,210 41,994
Corporate 78,976 30,376
Intersegment Elimination (121) -
----------- ----------
Total $ 227,469 $ 159,608
========== ==========
Depreciation and Amortization
Seed $ 4,592 $ 4,199 $ 3,789
Crop Protection 2,808 3,381 1,815
Corporate 976 1,125 897
----------- ---------- ----------
Total $ 8,376 $ 8,705 $ 6,501
========== ========== ==========
Capital Expenditures
Seed $ 11,987 $ 3,263 $ 2,776
Crop Protection 597 213 955
Corporate 1,305 3,090 528
----------- ---------- ----------
Total $ 13,889 $ 6,566 $ 4,259
========== ========== ==========
</TABLE>
39
<PAGE>
Operating revenues, net of estimated returns, are recognized when the product
is shipped to the customer or the service is provided.
The assets and liabilities of non-U.S. subsidiaries are translated into U.S.
dollars at exchange rates in effect at the balance sheet date. Operating
results are translated at weighted average exchange rates in effect during the
period. Net unrealized translation adjustments are recorded as a separate
component of stockholders' equity. Foreign currency exchange gains and losses
are included in the determination of net loss. Foreign operations and export
sales were not significant for the years ended August 31, 1996, 1995 and 1994.
CASH, CASH EQUIVALENTS AND SECURITIES AVAILABLE-FOR-SALE
The Company invests its excess cash in U.S. government securities,
certificates of deposit and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
that maintain safety and liquidity and match maturities to anticipated cash
requirements. These guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates.
[All debt securities are classified as available-for-sale and are carried at
fair value, with unrealized gains and losses reported in a separate component of
stockholders' equity. The cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity. The amortization, along
with realized gains and losses, interest and dividends are included in interest
income. The cost of securities sold is based on the specific identification
method.]
Gross realized gains on sales of available-for-sale securities totaled $10,000
and $162,000 for the years ended August 31, 1995 and 1994, respectively and
gross realized losses totaled $77,000, $110,000 and $15,000 for the years ended
August 31, 1996, 1995, and 1994 respectively. Available-for-sale securities are
summarized as follows:
<TABLE>
<CAPTION>
August 31, 1996
------------------------------------------------------------
Gross Gross
unrealized unrealized Estimated
(In thousands) Cost gains losses fair value
- ---------------------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Securities of the U.S.
government and its
agencies $ 18,753 $ - $ (211) $ 18,542
Corporate debt securities 13,734 - (92) 13,642
--------- ---------- ---------- -------------
Total $ 32,487 $ - $ (303) $ 32,184
========= ========== ========== =============
August 31, 1995
------------------------------------------------------------
Gross Gross
unrealized unrealized Estimated
(In thousands) Cost gains losses fair value
- ---------------------------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Securities of the U.S.
government and its
agencies $ 11,046 $ - $ (128) $ 10,918
Corporate debt securities 1,004 - (9) 995
--------- ---------- ---------- -------------
Total $ 12,050 $ - $ (137) $ 11,913
========= ========== ========== =============
</TABLE>
40
<PAGE>
Available-for-sale securities with original maturities of three months or less
that were classified as cash equivalents totaled $31,328,000 as of August 31,
1996; there were none as of August 31, 1995. The amortized cost and estimated
fair value of available-for-sale securities, by contractual maturity, are as
follows:
<TABLE>
<CAPTION>
August 31, 1996
----------------------------
Estimated
(In thousands) Cost fair value
- ----------------------------- --------- ------------
<S> <C> <C>
Due in one year or less $11,034 $10,999
Due after one year through
five years 15,990 15,803
Mortgage-backed securities 5,463 5,382
------- -------
Total $32,487 $32,184
======= =======
</TABLE>
Based upon management's intention to hold these securities as available for
sale at any time for use in operations, all available-for-sale securities are
classified as current even though the actual maturity may extend beyond one
year.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at August 31 are comprised of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ---------------------------------- ------- -------
<S> <C> <C>
Trade accounts receivable $30,219 $27,902
Notes and other receivables 4,282 2,085
------- -------
34,501 29,987
Allowance for doubtful accounts (3,801) (2,585)
------- -------
$30,700 $27,402
======= =======
</TABLE>
At August 31, 1996, the significant concentration of the Company's trade
receivables were from farmers located in the united states and various foreign
countries whose ability to pay is dependent upon the agribusiness economics
prevailing in that specific area of the world. As a result, no significant
geographic concentration of credit risk exists.
INVENTORIES
[Seed inventories, which comprise 86% of total inventories at August 31, 1996
and 1995, are stated at the lower of average cost or market. All other
inventories are stated at the lower of first-in first-out cost, or market.]
Inventories at August 31 are comprised of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ----------------------------- ------- -------
<S> <C> <C>
Raw materials and supplies $ 3,819 $ 5,895
Work in process 10,810 3,578
Finished goods 22,548 24,160
------- -------
$37,177 $33,633
======= =======
</TABLE>
Planting seed is produced by independent growers who contract specific acreage
for the production of seed for the Company. The compensation of the independent
growers is determined based on yield,
41
<PAGE>
contracted acreage and commodity prices. The commitment for grower compensation
is accrued as seed is delivered to the Company. The Company's growers select
market prices throughout the year to establish selling prices for seed crops
grown for the Company. The Company follows a policy, common in the industry, of
hedging certain of these seed inventory purchase commitments to minimize risk
due to market price fluctuations. Gains and losses on these contracts are
recorded as adjustments to inventory cost when the contracts are closed. At
August 31, 1996, the Company had short-term futures contracts totaling $13.7
million for the purchase of commodities (principally soybean and corn) at
various dates during 1996. The fair value of these contracts at August 31, 1996,
was $14.4 million. at August 31, 1996, the Company had entered into short-term
contracts totaling $3.5 million for the sale of commodities (principally corn).
At August 31, 1996, the Company had an unrealized loss on these contracts
totaling $280,000.
Production of hybrid seed involves various environmental risks. The parental
inbred lines which are used in production are more sensitive to adverse
conditions than are commercial hybrids grown by farmers. Weather is the most
significant variable. Unfavorable weather can adversely affect seed supplies
and unit costs. To protect against these risks, the seed segment maintains
multiple production locations spread geographically in addition to maintaining
certain levels of inventory that are available for sale during the subsequent
planting season. While the Company believes that its inventory values are
realizable, risks exist that may render portions of the Company's inventory
obsolete or excess. The risk factors include weather and poor planting
conditions that may delay, prevent or change the planting of certain crops, U.S.
and foreign government policies which can affect crop acreage and farmer income
and the introduction of hybrids by competitors that may render the Company's
hybrids obsolete.
PROPERTY, PLANT AND EQUIPMENT
[Property, plant and equipment is recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives, ranging from 15
to 30 years for buildings and improvements and 3 to 15 years for machinery and
equipment. Amortization of leasehold improvements is provided using the
straight-line method over the shorter of the life of the respective lease or
estimated useful life of the asset.] Property, plant and equipment at August 31
is comprised of:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ------------------------------- -------- --------
<S> <C> <C>
Land and improvements $ 4,901 $ 5,173
Buildings and improvements 26,452 24,385
Machinery and equipment 30,171 33,627
Leasehold improvements 424 646
Construction in progress 10,281 2,519
-------- --------
72,229 66,350
Accumulated depreciation and
amortization (17,324) (16,704)
-------- --------
$ 54,905 $ 49,646
======== ========
</TABLE>
42
<PAGE>
INTANGIBLE ASSETS
[Intangible assets are amortized using the straight-line method over each
asset's estimated useful life ranging from three to twenty-five years.]
Intangible assets at August 31 are comprised of:
<TABLE>
<CAPTION>
1996
Useful ---------------------------------------------
Life Accumulated
(in thousands) in years Cost Amortization Net Value
- ----------------------------------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Goodwill 25 $10,267 $(1,979) $ 8,288
Purchased technology 3-15 8,802 (3,451) 5,351
Patents 10 6,686 (1,126) 5,560
Non-compete agreement 5-7 2,681 (2,173) 508
Customer base 10 2,386 (131) 2,255
Assembled work force 5 726 (107) 619
------- ------- -------
$31,548 $(8,967) $22,581
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1996
Useful ---------------------------------------------
Life Accumulated
(in thousands) in years Cost Amortization Net Value
- ----------------------------------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Goodwill 25 $10,342 $(1,638) $ 8,704
Purchased technology 3-15 5,584 (2,832) 2,752
Patents 10 5,909 (649) 5,260
Non-compete agreement 5-7 2,732 (1,689) 1,043
------- ------- -------
$24,567 $(6,808) $17,759
======= ======= =======
</TABLE>
[The carrying value of tangible and other long-lived assets are reviewed upon
a change in market conditions or business strategy. If the projected net cash
flows from product revenues, royalty or license income at that time are less
than the carrying value of the asset, a charge for impairment is recognized to
reduce the carrying value of the intangible asset to its fair value.]
OTHER ASSETS
The Company has an exclusive manufacturing agreement through 2010 for certain
of its biopesticide products. Under the terms of the agreement, the Company
will pay for the actual cost of manufacturing, excluding depreciation, plus a
fee based on the actual number of units produced. Additionally, the Company
paid $11.2 million to the manufacturer to fund the construction of a
manufacturing facility. This payment has been classified as an other asset
which is being amortized over the life of the agreement. Accumulated
amortization totaled $984,000 and $284,000 at August 31, 1996 and 1995,
respectively.
LINE OF CREDIT
The Company has available a $25 million unsecured revolving bank line of
credit, of which $1.5 million was outstanding at August 31, 1996. This line,
which expires November 30, 1996, provides for short-term borrowings in U.S.
dollars at the bank's prime rate (8.25% at August 31, 1996) plus .5% or in
Eurodollars at an adjusted Eurodollar rate (5.875% at August 31, 1996) plus 2%.
On an annual basis, the Company is required to pay a fee of .1% of the total
commitment and a commitment fee of .25% on the unused portion. The credit
agreement contains certain covenants which include the maintenance of a minimum
consolidated net worth, maintenance of certain financial ratios, certain
limitations on the incurrence of indebtedness or liens on the Company's assets
and maintenance of a minimum cash, cash equivalents and securities available-
for-sale balance of $10 million.
43
<PAGE>
LONG-TERM LIABILITIES
Long-term liabilities (amounts due after one year) at August 31 are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- ---------------------------------------- --------- --------
<S> <C> <C>
Liability for purchased technology $ 6,000 $ --
Pension and other liabilities 2,470 1,767
Unsecured note payable to bank -- 2,262
---------- ---------
8,470 4,029
Less current portion included in
current liabilities (3,242) (738)
---------- ---------
Total long-term liabilities $ 5,228 $ 3,291
========== =========
</TABLE>
RETIREMENT PLANS
The Company has a tax deferred retirement and savings plan under Section
401(k) of the Internal Revenue Code whereby eligible employees may defer up to
20% of their gross pay through payroll deductions and contribute it to the plan.
The Company has the option to match a portion of the savings contributions as
prescribed in the plan not to exceed 3% of gross pay. Effective January 1,
1994, Mycogen Seeds' 401(k) plan was combined with the Company's 401(k) plan.
Matching contributions to these plans during the years ended August 31, 1996,
1995 and 1994 totaled $521,000, $531,000 and $489,000, respectively.
COMMITMENTS
At August 31, 1996, the Company had operating lease commitments on certain
premises, machinery and office equipment which expire at various dates through
2001. Minimum future commitments under non-cancelable lease agreements having
terms in excess of one year total: 1997, $559,000; 1998, $392,000; 1999,
$332,000; 2000, $161,000; 2001, $86,000 and thereafter, $11,000. The Company
also leases equipment and other facilities on a month-to-month basis. Rent
expense under operating leases totaled $2.4 million, $2.0 million, and $1.8
million for the years ended 1996, 1995 and 1994, respectively.
NET LOSS PER COMMON SHARE
Net loss per common share is determined by deducting dividends on preferred
stock from net loss and dividing the net result by the weighted average number
of common shares outstanding during the year. Common shares issuable under
common stock equivalents and convertible preferred stock are not included in the
computation of net loss per common share because their effect was not dilutive.
44
<PAGE>
STOCK INCENTIVE PLANS
Directors and key employees have been issued Mycogen stock options under the
Company's 1992 and 1983 Stock Option Plans, as amended. Information about the
status of the plans is presented below:
<TABLE>
<CAPTION>
Shares Average Price
------------------------------
<S> <C> <C>
Balance at August 31, 1993 2,868,820) $ 11.90
Granted 158,500) $ 10.66
Exercised (51,037) $ 9.28
Canceled (175,164) $ 12.95
Balance at August 31, 1994 2,801,119) $ 11.81
Granted 3,208,103) $ 8.63
Exercised (14,193) $ 7.92
Canceled (2,687,843) $ 12.00
Balance at August 31, 1995 3,307,186) $ 8.59
Granted 1,266,500 $ 14.50
Exercised (346,122) $ 9.15
Canceled (109,614) $ 9.30
-------------
Balance at August 31, 1996 4,117,950 $ 10.34
=============
</TABLE>
In December 1994, the Company, at the election of the option holder, repriced
2,209,603 outstanding options through cancellation of options with an average
exercise price of $12.62 and a regrant of new options at an exercise price of
$8.50. The new options vest in equal monthly installments over a new 36-month
period measured from December 1994. Of the 4,117,950 outstanding options,
1,570,190 were exercisable and vested as of August 31, 1996. As of August 31,
1996, a total of 5,943,819 shares of common stock were reserved for future
issuance under the plans and 1,825,869 shares of common stock were available for
future grants.
Pursuant to the Company's 1990 Restricted Stock Issuance Plan, officers were
awarded a total of 96,000 and 96,500 shares of restricted stock in 1996 and
1995, respectively. As of August 31, 1996, a total of 27,500 shares of common
stock were reserved for future issuance under the plan. Compensation expense
related to these stock plans was $689,000, $148,000 and $396,000 in 1996, 1995
and 1994, respectively. Unamortized deferred compensation expense with respect
to restricted stock issued aggregated $1,517,000 and $837,000 at August 31, 1996
and 1995, respectively.
Pursuant to the Company's 1995 and 1988 Employee Stock Purchase Plans,
employees purchased 32,669 shares at an average price of $9.99 per share, 42,334
shares at an average price of $7.65 per share and 53,264 shares at an average
price of $8.74 per share in 1996, 1995 and 1994, respectively. As of August 31,
1996, there were 226,899 shares of common stock reserved for future issuance
under the Plan.
[FASB Statement No. 123, "Accounting for Stock-Based Compensation" prescribes
new requirements for stock-based compensation. The application of this
Statement will be effective beginning with the Company's 1997 fiscal year-end.
As allowed under Statement No. 123, the Company intends to continue accounting
for stock compensation under APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Therefore, the Company does not believe adoption of this Statement
will have an impact on its consolidated financial statements. In accordance
with Statement No. 123, the Company will present pro-forma disclosures of net
income and earnings per share as if the Statement had been applied.]
45
<PAGE>
STOCKHOLDER RIGHTS PLAN
In October 1995, the Company entered into an Amended and Restated Rights
Agreement ("the Rights Agreement") which amended and restated the 1992
Stockholder Rights Agreement. The Rights Agreement provides for the distribution
of a preferred stock purchase right (a "Right") as a dividend for each share of
the Company's common stock held of record immediately prior to a third party
tendering to purchase 25% or more of the Company's common stock. Under certain
conditions involving an acquisition by any person or group of 25% or more of the
Company's common stock, the Rights entitle the holders (other than the 25%
holder) to purchase one one-hundredths of a Preferred share upon payment of an
exercise price per Right. The exercise price is currently $65.00; however, the
purchase price is subject to adjustment under certain conditions. In addition,
in the event of certain business combinations, the Rights permit the purchase of
the common stock of an acquirer at a 50% discount. Under certain conditions, the
Rights may be redeemed by the Company's Board of Directors at a price of $.01
per Right. The Rights have no voting privileges and are attached to and
automatically trade with the Company's common stock. Unless extended, the Rights
will expire on February 20, 2002.
SENIOR CONVERTIBLE CUMULATIVE PREFERRED STOCK, SERIES A
In January 1996, Lubrizol converted 3,158 shares of the Company's Series A
Senior Convertible Cumulative Preferred Stock, representing their entire
interest in preferred stock, into 1,815,274 shares of common stock at a rate of
$17.398 per share which was based on a premium of 25% over the average closing
price of the Company's common stock for the 60 days prior to the conversion. At
August 31, 1996, there were 3,940 shares authorized for issuance of the
Company's Series A Preferred Stock, $.001 par value, and no outstanding shares.
The changes in the number of shares of preferred stock issued and the aggregate
liquidation preference are as follows:
<TABLE>
<CAPTION>
Aggregate
Number of Liquidation
(In thousands, except share data) Shares Preference
- --------------------------------- ------------ -----------
<S> <C> <C>
Balance at August 31, 1994 2,950 $ 29,501
Preferred stock dividend accrual 150 1,503
------------ ---------
Balance at August 31, 1995 3,100 31,004
Preferred stock dividend accrual 58 578
Conversion to common stock 3,158 (31,582)
------------ ---------
Balance at August 31, 1996 -- $ --
============ =========
</TABLE>
CONTRACT AND OTHER REVENUES
[Research and other contract revenues are recorded as earned based on the
percentage of completion basis or on the performance requirements of the
contracts. Payments in excess of amounts earned are deferred. Research costs are
expensed as incurred.] Costs and expenses related to research contracts totaled
$4.4 million, $3.0 million and $4.7 million in 1996, 1995 and 1994,
respectively.
RELATED PARTY TRANSACTIONS
In December 1995, the Company entered into an agreement with Pioneer to
develop transgenic crops with insect resistance. Under the agreement, Pioneer
purchased 3,000,000 shares of the Company's common stock for $30 million and
provided $10 million in research and development funding. Pioneer will provide
an additional $11 million in funding near the end of 1998. Pioneer will receive
non-exclusive rights to all Bt crop protection technology and associated
technologies co-developed by the Company and Pioneer during the next 10 years.
The COmpany and Pioneer are able to market their own products resulting from the
collaboration, royalty-free, in North America. Pioneer will pay a royalty to
Mycogen for jointly developed
46
<PAGE>
technology that it markets through seed products outside of North America. The
Company has exclusive worldwide rights to license jointly developed technology
to third parties. No proprietary seed lines will be shared by the companies.
Contract revenues recognized under this agreement totaled $2.4 million in 1996.
Deferred revenues of $7.6 million are included in the Consolidated Balance Sheet
at August 31, 1996. At August 31, 1996, Pioneer owned 3,000,000 shares of common
stock of the Company or 9.78% of the Company's outstanding shares of common
stock.
Lubrizol, a related party through February 1996, provided to Mycogen Seeds
funding for research and development projects related to planting seeds that
yield plants capable of producing oils with special characteristics. Related
party research revenues under these agreements totaled $1.2 million, $2.6
million and $3.3 million in 1996, 1995 and 1994, respectively. Mycogen Seeds
was the exclusive supplier of specified planting seed to a division of Lubrizol
and managed the production of crops from such planting seed through September
1996. Related party operating revenues recognized under this arrangement
through February 1996, totaled $1.4 million, $2.5 million and $1.9 million in
1996, 1995 and 1994, respectively.
In January 1996, the Company agreed to acquire certain rights in oil seed
technology from Lubrizol for $8.0 million. The Company made an initial payment
of $2.0 million and will pay $2.5 million and $3.5 million in January 1997 and
1998, respectively.
In February 1996, Lubrizol sold its entire interest in the Company, 9,502,348
shares of common stock or 36.58% of the Company's outstanding shares of common
stock, to DowElanco. DowElanco is a joint venture partnership between Dow
Chemical and Eli Lilly and Company engaged in the discovery, development,
manufacture and distribution of agricultural products used in crop protection
and production, and for industrial pest control. As of August 31, 1996,
DowElanco owned 14,614,102 shares of the Company's common stock, or 47.64% of
the Company's outstanding shares of common stock, and may acquire additional
shares of the Company's common stock subject to certain restrictions.
SPECIAL CHARGES
In connection with the acquisition of UAS and the rights in oil seed
technology from Lubrizol in 1996 and the acquisition of an additional ownership
interest in Mycogen Seeds in 1994, $10.3 million and $26.6 million,
respectively, of the purchase price was allocated to certain technologies not
yet completed and, therefore, was written-off as acquired in-process technology
as of the respective acquisition dates.
The Company's Seed segment recognized impairment losses and exit costs
totaling $13.4 million and $1.0 million, respectively, during 1996 as a result
of management's decision to dispose of or sell certain corn production plants
and related assets that did not meet quality production standards in connection
with a plan to upgrade the quality of seed production. The production plants not
sold in fiscal 1996 are expected to be sold during fiscal 1997. The fair values
of the assets were based on letters of intent from prospective buyers and
management estimates. The impairment losses and exit costs are included in
special charges in the Consolidated Statement of Operations. The carrying amount
of the assets held for sale total $1.1 million, of which $.7 million is included
in other current assets and $.4 million is included in other long-term assets in
the Consolidated Balance Sheet at August 31, 1996. Exit costs totaling $.7
million are included in other current liabilities at August 31, 1996.
During 1995, an impairment loss of $1.6 million was recognized by the Crop
Protection segment, reducing the carrying amount of a paid-up, royalty-free,
non-exclusive license included in purchased technology to its fair value as a
result of the discontinuation of a certain product development program. The
fair value was determined using discounted cash flow projections for this
product. The impairment loss is included in amortization expense in the
Consolidated Statement of Operations.
In December 1993, the Company consolidated certain manufacturing locations and
eliminated certain brand names and hybrids. This resulted in restructuring
charges during 1994 of $9.8 million for excess and
47
<PAGE>
obsolete inventories, plant shut-down and the termination of Mycogen Seeds'
pension plan which is included in special charges in the consolidated statement
of operations.
INCOME TAXES
[The Company accounts for income taxes under the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes."] At August 31, 1996, the
Company has a federal tax net operating loss carryforward of approximately $66.8
million and a California net operating loss carryforward of approximately $12.1
million. The Company has federal and state research tax credit carryforwards
totaling approximately $2.7 million and $.5 million, respectively. The federal
tax loss and credit carryforwards will expire in years 1997 through 2011 unless
previously utilized. California tax loss and credit carryforwards, if not
utilized, will expire in years 1997 through 2001. The Company also has a
capital loss carryforward of $2.6 million which will expire in 1999 if not
utilized.
At August 31, 1996 and 1995, approximately $3.5 million and $1.5 million,
respectively, of the deferred tax assets relate to tax benefits associated with
the exercise or disqualifying disposition of stock options. Such benefits are
credited to additional paid-in capital when realized.
Foreign taxable income has been eliminated through the use of net operating
losses in the countries where the income was generated.
The Company incurred a change in ownership, as defined by Internal Revenue
Code Section 382, during 1996. Such change of ownership could limit the use in
any one year of the full amount of the net operating loss and tax credit
carryforwards previously described. However, the Company believes that the
limitation will not have a material impact upon the utilization of its
carryforwards. The Company's use of its net operating loss and tax credit
carryforwards could be further limited in the event of future cumulative changes
in stock ownership.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of August 31 are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -------------------------------------------- ---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 24,120 $ 18,761
Tax basis of inventory greater than book 4,532 2,787
Reserve for impaired assets 6,150 -
Research credit carryforwards 3,247 3,418
Deferred revenue 3,131 -
Capitalized research expenditures 3,016 2,571
In-process technology 2,706 -
Tax basis of receivables greater than book 1,455 1,177
Capital loss carryforward 1,073 1,073
Other items with tax basis greater
than book - 1,309
---------- ----------
Total deferred tax assets 49,430 31,096
Less: Valuation allowance (46,633) (30,499)
---------- ----------
Net deferred tax assets 2,797 597
Tax depreciation in excess of book (2,473) -
Other net deferred tax liabilities (324) (597)
---------- ----------
Net deferred taxes $ - $ -
========== ==========
</TABLE>
48
<PAGE>
Due to the uncertainty surrounding the future realization of the deferred tax
assets, a valuation allowance of $46.6 million was included as a reduction of
deferred tax assets August 31, 1996.
For financial reporting purposes, net income (loss) before dividends on
preferred stock for the years ended August 31 includes the following components:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Pretax income (loss):
United States $(44,440) $(17,785) $(29,474)
Foreign (2,618) 3,342 (2,156)
---------- ---------- ----------
$(47,058) $(14,443) $(31,630)
========== ========== ==========
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense for the
years ended August 31 is:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Tax at U.S. statutory rate 35 % 35 % 35 %
Effect of net operating losses (35)% (35)% (35)%
--------- -------- --------
0 % 0 % 0 %
========= ======== ========
</TABLE>
SUBSEQUENT EVENTS
In September 1996, the Company purchased Morgan Seeds, Argentina's third
largest seed company, for $27 million in cash. Morgan Seeds' principal products
are corn and sunflower planting seed. The acquisition will be accounted for as
a purchase as of the acquisition date.
In September 1996, the Company acquired Lubrizol's technology and assets
relating to specialty sunflowers, including high oleic sunflowers, as well as
technology and assets relating to high oleic and high erucic rapeseed for $7.6
million. In a related transaction, the Company entered into a supply agreement
with AC Humko where by the Company will produce crude high oleic sunflower oil
exclusively for AC Humko in North America. AC Humko, a subsidiary of Associated
British Foods, is a supplier of specialty oils and shortenings, non-dairy
creamers and cheese products to the food processor, food service and retail food
industries.
In October 1996, the Company signed a letter of intent to exchange its
ownership interest in its two European subsidiaries, Mycogen S.A. and Mycogen
SRL, and other assets for an 18.75% ownership interest in Verneuil. The
transaction is subject to the completion of definitive agreements and is
expected to be completed by December 1996.
49
<PAGE>
MYCOGEN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1996
- --------------------------
Allowance for doubtful accounts $2,585 $1,990 $ -- $ (774)/1/ $3,801
Inventory allowances $4,288 $9,737 $ -- $(4,506)/2/ $9,519
Year ended August 31, 1995
- --------------------------
Allowance for doubtful accounts $3,915 $ 292 $ -- $(1,622)/1/ $2,585
Inventory allowances $2,099 $4,602 $ -- $(2,413)/2/ $4,288
</TABLE>
/1/ Amount relates to accounts receivable written off.
/2/ Amount relates to inventory written off.
50
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mycogen Corporation
We have audited the accompanying consolidated balance sheets of Mycogen
Corporation as of August 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 Mycogen
Corporation at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
San Diego, California
October 11, 1996
51
<PAGE>
MYCOGEN CORPORATION
EXHIBIT 27
FINANCIAL DATA SCHEDULE
FISCAL YEAR END: AUGUST 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1996
----------------
<S> <C>
Cash and cash items 35,854
Marketable securities 32,184
Notes and accounts receivable-trade 34,501
Allowances for doubtful accounts 3,801
Inventory 37,177
Total Current Assets 137,795
Property, Plant and Equipment 72,229
Accumulated depreciation 17,324
Total Assets 227,469
Total current liabilities 41,047
Bonds, mortgages, and similar debts -
Preferred stock-mandatory redemption -
Preferred stock-no mandatory redemption -
Common Stock 31
Other stockholders' equity 330,973
Total liabilities and stockholders'
equity 227,469
Net sales of tangible products 146,800
Total revenues 155,589
Cost of tangible goods sold 93,508
Total costs and expenses applicable to
sales and revenues 93,508
Other costs and expenses -
Provision for doubtful accounts and
notes 1,990
Interest and amortization of debt
discount -
Income before taxes and other items (47,058)
Income tax expense -
Income/loss continuing operations (47,058)
Discontinued operations -
Extraordinary items -
Cumulative effect-changes in
accounting principles -
Net income or loss (47,058)
Earnings per share-primary (1.81)
Earnings per share-fully diluted (1.81)
</TABLE>
52
<PAGE>
MYCOGEN CORPORATION
QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data) Quarter Ended
- ------------------------------------------------------------------------------------
First Second Third Fourth
<S> <C> <C> <C> <C>
1996:
Net operating revenues $12,049 $ 35,575 $78,015 $ 21,161
Cost of operating revenues 7,824 21,891 53,406 10,387
Gross profit 4,225 13,684 24,609 10,774
Contract and other revenues 1,571 2,580 2,360 2,278
Operating expenses 13,363 41,255 24,129 33,483
Operating income (loss) (7,567) (24,991) 2,840 (20,431)
Non-operating income 155 641 681 1,614
Dividends on preferred stock 384 194 -- --
Net income (loss) applicable to commmon
shares (7,796) (24,544) 3,521 (18,817)
Net income (loss) per common share (.40) (1.00) .11 (.61)
1995:
Net operating revenues $ 9,509 $ 27,661 $55,869 $ 13,130
Cost of operating revenues 6,245 15,637 34,052 11,032
Gross profit 3,264 12,024 21,817 2,098
Contract and other revenues 1,896 1,715 1,971 1,467
Operating expenses 12,704 14,949 16,512 17,604
Operating income (loss) (7,544) (1,210) 7,276 (14,039)
Non-operating income 529 371 63 111
Dividends on preferred stock 369 373 378 383
Net income (loss) applicable to common
shares (7,384) (1,212) 6,961 (14,311)
Net income (loss) per common share (.39) (.06) .36 (.74)
</TABLE>
The Company's fiscal quarters end in November, February, May and August.
53
<PAGE>
COPIES OF FORM 10-K
Shareowners may reach Mycogen's Investor Relations group by calling (800) 745-
7475, between the hours of 7:30 a.m. and 4:30 p.m., Pacific time, via e-mail at
[email protected], by telefax at (619) 453-0142, or by writing to Investor
Relations, Mycogen Corporation, 5501 Oberlin Drive, San Diego, CA 92121-1718.
News releases, product information, Securities and Exchange Commission filings
including forms 10-K, 10-Q and 8-K and other company information are also
available on Mycogen's Worldwide Web site: http://www.mycogen.com.
ANNUAL MEETING
The Annual Meeting of Mycogen Corporation will be held at 10 a.m. on December
12, 1996, in the Corn Conference room at the Company's headquarters located at
5501 Oberlin Drive, San Diego, California. All shareowners are cordially
invited to attend.
54
<PAGE>
EXHIBIT 10.17
FORM OF EMPLOYMENT/SEVERANCE AGREEMENT
55
<PAGE>
January 1, 1996
Dear
-------------
We are pleased to inform you that the Board of Directors (the "Board") of
Mycogen Corporation (the "Company") has authorized an employment package for you
which will provide certain assurances concerning the terms and conditions of
your continued employment with the Company and will allow you to participate in
a program of severance benefit payments should your employment terminate. The
purpose of this letter agreement (the "Agreement") is to document the terms of
your employment package by providing you with a formal employment contract.
The Company considers it essential to the continuing operation of the
Company and in the best interests of its shareholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the shareholders of
the Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
the your agreement set forth in Sections 10, 11, 12 and 13 of Part Two hereof,
the Company agrees to pay the severance payments and benefits set forth in this
Employment Agreement, under the circumstances described herein.
This Agreement supersedes any written employment agreement between you and
the Company prior to the date hereof.
Part One of this Agreement sets forth certain definitional provisions to be
in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three provides an additional gross-up bonus to you in the particular
circumstance where the payment of or separation benefits generates the
imposition of an excise tax by the Internal Revenue Service. Part Four provides
for certain additional rights and responsibilities of both yourself and the
Company. Part Five concludes this Agreement with a series of general terms and
conditions applicable to your employment benefits.
PART ONE -- DEFINITIONS
DEFINITIONS. For purposes of this Agreement, including in particular the
-----------
severance payments and benefits to which you may become entitled under Part
Three, the following definitions will be in effect:
"CHANGE IN CONTROL" means:
56
<PAGE>
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company in liquidation or dissolution of the Company or a
sale/leaseback of all or substantially all of the Company's assets (with or
without a purchase option);
(iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is or becomes fifty percent (50%) or
less;
(iv) any reverse merger in which the Company is the surviving entity but
in which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred to holders different from those who held the stock immediately
prior to such merger;
(v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities;
(vi) a change in the composition of the Board such that the individuals
elected to the Board at the last meeting of the shareholders at which there is
not a contested election subsequently cease to comprise a majority of the Board;
or
(vii) the occurrence of any other event constituting a "change in control"
under Code Section 280G or the Treasury regulations promulgated thereunder.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"EMPLOYEE" means .
---------------------------------
57
<PAGE>
"EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under Section
3 of ERISA.
"EMPLOYMENT PERIOD" means the period of your employment with the Company
governed by the terms and provisions of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"INVOLUNTARY TERMINATION" means the termination of your employment with
the Company:
(i) involuntarily upon your discharge, dismissal, or the Company's failure
to renew this Agreement pursuant to Section 3 of Part Two, whether or not in
connection with a Change in Control; or
(ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in your position with the Company which materially
reduces your level of responsibility or changes your title, (b) a reduction in
your level of compensation (including base salary, fringe benefits and any non-
discretionary bonuses or other incentive payments earned pursuant to objective
standards or criteria) by more than ten percent (10%), or (c) a relocation of
your principal place of employment by more than fifty (50) miles or a change in
your responsibilities such that you must spend more than twenty percent (20%) of
your working days outside of the San Diego, California area, and such change,
---
reduction or relocation is effected without your written concurrence.
"OPTION" means any option granted to you under the Stock Option Plan which
is outstanding at the time of your Involuntary Termination.
"STOCK OPTION PLAN" means the Company's 1992 Stock Option Plan (including
the predecessor 1983 Stock Option Plan), as amended through the date hereof.
"RESTRICTED STOCK ISSUANCE PLAN" means the 1990 Restricted Stock Issuance
Plan, as revised on April 18, 1991, and as further amended through the date
hereof.
"TERMINATION FOR CAUSE" will mean an Involuntary Termination of your
employment for one or more alleged acts of fraud, embezzlement, misappropriation
of proprietary information or any other verifiable misconduct adversely
affecting the business reputation of the Company in a material manner.
58
<PAGE>
PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT
The following terms and conditions will govern your employment with the
Company throughout the Employment Period and will also, to the extent indicated
below, remain in effect following your termination date.
1. EMPLOYMENT AND DUTIES. The Company will continue to employ you as an
---------------------
executive officer in the position of . You agree to
--------------------------
continue in such employment for the duration of the Employment Period and to
perform in good faith and to the best of your ability all services which may be
required of you in your executive position and to be available to render such
services at all reasonable times and places in accordance with reasonable
directives and assignments issued by the Board or your superiors. During your
Employment Period, you will devote your full time and effort to the business and
affairs of the Company within the scope of your executive office. Your principal
place of operations will be at the Company's corporate offices in San Diego,
California. You may, however, be required to travel periodically to Company
facilities in other geographic locations in connection with your duties.
2. TERM OF AGREEMENT. This Agreement shall be effective as of the date
-----------------
hereof. The term of this Agreement shall continue in effect from such date for
a period of one (1) year from such date, subject to the provisions of this Part
Two, unless sooner terminated by the parties in accordance with the provisions
hereof. No termination or expiration of this Agreement shall affect any rights,
obligations or liabilities of Employee or the Company that shall have accrued on
or prior to the date of termination or expiration.
3. AUTOMATIC EXTENSION. Commencing on the first anniversary of the
-------------------
effective date hereof, and on each succeeding anniversary of the date hereof,
the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, the Company shall have given written notice pursuant to
Section 6 of Part Five that it will not extend the term of this Agreement. The
automatic extension of the term of this Employment Agreement pursuant to this
Section 3 shall not be a modification of this Agreement in any significant
respect within the meaning of Section 280G of the Code and the rules and
regulations thereunder.
4. COMPENSATION.
------------
A. For service in the 1996 calendar year, your base salary will be the
annual rate of . Your annual rate of base salary
---------------------------
will be subject to adjustment each calendar year by the Board.
B. Your base salary will be paid at periodic intervals in accordance
with the Company's payroll practices for salaried employees.
C. You will be entitled to such bonuses (if any) for service rendered
during the Employment Period as the Board may determine in its sole discretion
based upon the recommendation of the Company's Chief Employee Officer and such
additional factors as the Board deems appropriate, including your individual
performance and the Company's profitability.
59
<PAGE>
D. The Company will deduct and withhold, from the compensation payable
to you hereunder, any and all applicable Federal, State and local income and
employment withholding taxes and any other amounts required to be deducted or
withheld by the Company under applicable statute or regulation.
5. EXPENSE REIMBURSEMENT. You will be entitled to reimbursement from the
---------------------
Company for all customary, ordinary and necessary business expenses incurred by
you in the performance of your duties hereunder, provided you furnish the
Company with vouchers, receipts and other substantiation of such expenses within
thirty (30) days after they are incurred.
6. FRINGE BENEFITS. During the Employment Period, you will be eligible to
---------------
participate in any group life insurance plan, group medical and/or dental
insurance plan, accidental death and dismemberment plan, short-term disability
program and other employee benefit plans, including profit sharing plans,
cafeteria benefit programs, and stock option plans, which are made available to
executives and for which you qualify.
7. VACATION. You will accrue paid vacation benefits during the Employment
--------
Period in accordance with the Company policy in effect for executive officers.
8. DEATH OR DISABILITY.
-------------------
A. Upon your death or disability during the Employment Period, the
employment relationship created pursuant to this Agreement will immediately
terminate, and no further compensation will become payable to you pursuant to
Part Two, Section 4. In connection with such termination, the Company will only
be required to pay you (or your estate) any unpaid compensation earned under
Part Two, Section 4 for services rendered through the date of your death or
disability, together with a special termination payment equal to the additional
amount of base salary you would have earned hereunder had your employment
continued for an additional thirty (30) days.
B. You will be deemed disabled if you are, in the Company's reasonable
opinion, unable by reason of any permanent physical or mental injury or illness
to substantially perform the services required of you hereunder either for a
period in excess of one hundred eighty (180) days or for a period of one hundred
eighty (180) days in the aggregate during any two hundred seventy (270) day
period. In such event, you will be deemed disabled as of the end of such one
hundred eightieth (180th) day.
C. Upon death or disability the terms of The Stock Plan will apply.
9. SEVERANCE BENEFITS.
------------------
A. You will be entitled to receive the severance benefits specified
below in the event there should occur an Involuntary Termination of your
employment (other than a Termination for Cause) prior to January 1, 1999,
whether or not effected in connection with a Change in Control:
(i) SEVERANCE BENEFIT. The Company will make a severance payment to
-----------------
you, in one lump sum within fifteen (15) days of the date of your Involuntary
Termination, in an aggregate amount equal to times the sum of (a) the
--------
average annual rate of base salary and
60
<PAGE>
(b) the average bonus paid to you by the Company, in each case for service
rendered in the two (2) immediately preceding calendar years. If a bonus was
paid for only one of those calendar years, then the clause (b) amount will be
equal to that bonus.
(ii) WELFARE BENEFITS. For a period of months,
---------------- ------------------
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
Involuntary Termination. In the event that under applicable law or the terms of
the relevant Employee Benefit Plans such participation, benefits and/or coverage
cannot be provided to Employee following his Involuntary Termination, such
coverage and/or benefits shall be provided directly by the Company pursuant to
this Agreement on a comparable basis. In its sole discretion, the Company may
obtain such coverage and benefits for Employee through private insurance
acquired at the Company's expense. Amounts paid or payable to or on behalf of
Employee pursuant to any "employee welfare benefit plan", as defined in ERISA,
providing health and/or disability benefits, that is sponsored by the Company or
an affiliate of the Company, shall be credited against amounts due under this
Section 9.A.(ii). To the maximum extent permitted by applicable law, the
benefits provided under this Section 9.A.(ii) shall be in discharge of any
obligations of the company or any rights of Employee under the benefit
continuation provisions under Section 4980A of the Code and Part VI of Title I
of the Employee Retirement Income Security Act ("COBRA") or any other
legislation of similar import.
(iii) UNVESTED STOCK. Any unvested shares of the Company's
--------------
Common Stock which you hold under the Restricted Stock Issuance Plan at the time
of such Involuntary Termination will immediately vest in full.
(iv) OPTION ACCELERATION. Each of your Options under the Stock
-------------------
Option Plan will (to the extent not then otherwise exercisable) automatically
accelerate so that each such Option will become immediately exercisable for the
total number of shares purchasable thereunder. Each such accelerated Option,
together with all of your other vested Options, will remain exercisable for a
period of three (3) years following your Involuntary Termination and may be
exercised for any or all of the accelerated shares in accordance with the
exercise provisions of the Option agreement evidencing the grant.
B. You will be entitled to receive the severance benefits specified below in
the event there should occur an Involuntary Termination of your employment
(other than a Termination for Cause) at any time after January 1, 1999, whether
or not effected in connection with a Change in Control:
(i) SEVERANCE BENEFIT. The Company will make a severance payment to
-----------------
you, in one lump sum within fifteen (15) days of the date of your Involuntary
Termination, in an aggregate amount equal to times the sum of (a) the
--------
average annual rate of base salary and (b) the average bonus paid to you by the
Company, in each case for service rendered in the two (2) immediately preceding
calendar years. If a bonus was paid for only one of those calendar years, then
the clause (b) amount will be equal to that bonus.
(ii) WELFARE BENEFITS. For a period of months,
----------------- ------------------
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and
coverages to which he was entitled as an
61
<PAGE>
employee immediately before the Involuntary Termination. In the event that under
applicable law or the terms of the relevant Employee Benefit Plans such
participation, benefits and/or coverage cannot be provided to Employee following
his Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan", as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section B.A.(ii). To the maximum extent permitted
by applicable law, the benefits provided under this Section B.A.(ii) shall be in
discharge of any obligations of the company or any rights of Employee under the
benefit continuation provisions under COBRA or any other legislation of similar
import.
(iii) UNVESTED STOCK. Any unvested shares of the Company's
--------------
common stock which you hold under the Restricted Stock Issuance Plan at the time
of such Involuntary Termination will immediately vest in full.
62
<PAGE>
(iv) OPTION ACCELERATION. Each of your Options under the Stock
-------------------
Option Plan will (to the extent not then otherwise exercisable) automatically
accelerate so that each such Option will become immediately exercisable for the
total number of shares purchasable thereunder. Each such accelerated Option,
together with all of your other vested Options, will remain exercisable for a
period of three (3) years following your Involuntary Termination and may be
exercised for any or all of the accelerated shares in accordance with the
exercise provisions of the Option agreement evidencing the grant.
10. RESTRICTIVE COVENANT. During the Employment Period:
--------------------
(i) You will devote your full working time and effort to the
performance of your duties as an executive officer of the Company.
(ii) You will not directly or indirectly, whether for your own account
or as an employee, consultant or advisor, provide services to any business
enterprise other than the Company, unless otherwise authorized by the Company in
writing.
However, you will have the right to perform such incidental services as
are necessary in connection with (a) your private passive investments, (b) your
charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services hereunder.
11. NON-SOLICITATION. During any period for which you are receiving
----------------
compensation payments pursuant to Part Two, Section 4 and one (1) year
thereafter, you will not directly or indirectly solicit any Company employee to
leave the Company's employ for any reason or interfere in any other manner with
the employment relationships at the time existing between the Company and its
current employees.
12. CONFIDENTIALITY.
---------------
A. You hereby acknowledge that the Company may, from time to time
during the Employment Period, disclose to you confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. You will not, at any
time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this paragraph shall be construed to
prevent Employee from disclosing the amount of his salary.
63
<PAGE>
B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into your possession during the Employment
Period will be returned by you to the Company immediately upon the termination
of the Employment Period or upon any earlier request by the Company, and you
will not retain any copies, notes or excerpts thereof. Notwithstanding the
foregoing, Employee shall be entitled to retain his file or rolodex containing
names, addresses and telephone numbers and personal diaries and calendars;
provided, however, that Employee shall continue to be bound by the terms of
Section 12.A. above to the extent such retained materials constitute
confidential information.
C. Your obligations under this Section 12 will continue in effect after
the termination of your employment with the Company, whatever the reason or
reasons for such termination, and the Company will have the right to communicate
with any of your future or prospective employers concerning your continuing
obligations under this Section 12.
13. OWNERSHIP RIGHTS.
----------------
A. All materials, ideas, discoveries and inventions pertaining to the
Company's business or clients, including (without limitation) all patents and
copyrights, patent applications, patent renewals and extensions and the names,
addresses and telephone numbers of customers, will belong solely to the Company.
B. All materials, ideas, discoveries and inventions which you may
devise, conceive, develop or reduce to practice (whether individually or jointly
with others) during the Employment Period will be the sole property of the
Company and are hereby assigned by you to the Company, except for any idea,
discovery or invention (i) for which no Company equipment, supplies, facility or
trade secret information is used, (ii) which is developed entirely on your own
time and (iii) which neither (a) relates at the time of conception or reduction
to practice, to the Company's business or any actual or demonstrably-anticipated
research or development program of the Company nor (b) results from any work
performed by you for the Company. The foregoing exception corresponds to the
assignment of inventions precluded by California Labor Code Section 2870,
attached as Exhibit A.
C. You will, at all times whether during or after the Employment
Period, assist the Company, at the Company's sole expense, in obtaining,
maintaining, defending and enforcing patents, copyrights and other proprietary
rights of the Company. Such assistance will include (without limitation) the
execution of documents and assistance and cooperation in legal proceedings.
D. You will continue to be bound by all the terms and provisions of
your existing Proprietary Information and Invention Agreements with the Company,
and nothing in this document will be deemed to modify or affect your duties and
obligations under those other agreements.
14. TERMINATION OF EMPLOYMENT.
-------------------------
A. The Company (or any successor entity resulting from a Change in
Control) may terminate your employment under this Agreement at any time for any
reason, with or without cause, by providing you with at least thirty (30) days
prior written notice. However, such notice requirement will not apply in the
event there is a Termination for Cause under subparagraph D below.
64
<PAGE>
B. In the event there is an Involuntary Termination of your employment
with the Company (other than Termination for Cause) during the Employment
Period, you will become entitled to the benefits specified in Part Two, Section
9 in addition to any unpaid compensation earned by you under Part Two, Section 4
for services rendered prior to such termination.
C. Should your employment with the Company terminate by reason of your
death or disability during the Employment Period, no severance benefits will be
payable to you under Part Two, Section 9, and only the limited death or
disability benefits provided under Part Two, Section 8 will be payable, to the
extent applicable.
D. The Company may at any time, upon written notice, terminate your
employment hereunder for any act qualifying as a Termination for Cause. Such
termination will be effective immediately upon such notice.
E. Upon such Termination for Cause, the Company will only be required
to pay you any unpaid compensation earned by you pursuant to Part Two, Section 4
for services rendered through the date of such termination, and no termination
or severance benefits will be payable to you under Part Two, Section 9.
65
<PAGE>
PART THREE -- INTERNAL REVENUE CODE LIMITATIONS
1. CODE LIMITATIONS. Notwithstanding anything to the contrary in this
----------------
Agreement, if Employee is entitled to benefits hereunder following the
occurrence of a Change in Control, in no event shall the present value of
benefits payable under this Agreement, taken together with Employee's benefits
under the Stock Option Plan and Restricted Stock Issuance Plan and other
applicable sources, that, in the opinion of counsel (as identified in Section 3
of this Part Three), are considered "parachute payments" under Section 4999 of
the Code, be reduced by the excise tax imposed by Section 4999 of the Code. In
the event that such benefits so taken together would exceed the amount which is
exempt from the excise tax imposed by Section 4999 of the Code, the Company
shall pay to Employee an additional amount (the "Gross-Up Payment") such that
the net amount retained by Employee, after deduction for the amount of any
excise tax under Section 4999 and any interest charges or penalties in respect
of the imposition of such excise tax (but not any federal, state or local income
tax) on the present value of such benefits, and any federal, state and local
income tax, excise tax and penalties and interest, if applicable, upon the
additional payment provided for by this Section 1, shall be equal to the present
value of such benefits. For purposes of determining the additional amount to be
paid to Employee pursuant to this Section 1, Employee shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the additional payment is to be made and state and
local income taxes at the highest marginal rates of taxation in the state and
locality of his residence on the date the additional payment is made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
from such state and local taxes.
2. DEFINITIONS APPLICABLE TO THIS PART THREE. For purposes of this Part
-----------------------------------------
Three, the term "parachute payment" shall have the meaning ascribed to it under
Section 280G(b)(2) of the Code, and "present value" shall be determined in
accordance with Section 280G(d)(4) of the Code.
3. INTERPRETATION. This Part Three shall be interpreted so as to avoid the
--------------
imposition of excise taxes on Employee under Section 4999 of the Code, or to
minimize such taxes. In applying the provisions of this Part Three if, for any
reason, an exemption from the application of the rules of Section 4999 of the
Code shall be available under the terms of said Section or under any applicable
regulations or rulings thereunder, such exemption shall be fully applied. All
payments under this Agreement or otherwise that are, in the opinion of counsel
(as identified in this Section 3), parachute payments shall be taken into
account in applying the provisions of this Part Three, and no others. In
application of the provisions of this Part Three, calculations necessary to be
made pursuant to the provisions of this Part Three and interpretation of the
Code and applicable regulations for purposes of compliance with this Part Three
shall be made by the private law firm serving as executive compensation and tax
counsel to the Board immediately prior to the Change in Control, and the
determination of such counsel made in good faith shall be binding and conclusive
upon both the Company and Employee. All fees and expenses of such law firm
pertaining thereto shall be borne by the Company. Payments shall be made
pursuant to this Agreement notwithstanding that the status of any payment as a
parachute payment has not been finally determined by the Internal Revenue
Service or any court of competent jurisdiction, or by arbitration as provided in
Section 3 of Part Four. Any Gross-Up Payment, as determined pursuant to Section
1 of this Part Three, shall be paid by the Company to Employee within five (5)
days of the receipt of the law firm's determination. If the law firm determines
that no excise tax is payable by Employee, it shall furnish Employee with a
written opinion that failure to report the excise tax on Employee's applicable
federal income tax return would
66
<PAGE>
not result in the imposition of a negligence (or similar) penalty. Any
determination by the law firm shall be binding upon the Company and Employee. As
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the law firm hereunder, it is possible
that Gross-Up Payments will not have been made in full by the Company,
consistent with the calculations required to be made hereunder (with such
shortfall as "Underpayment"). In the event that the Company exhausts its
remedies pursuant to Section 4 of this Part Three and Employee thereafter is
required to make a payment of any excise tax, the law firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Employee.
4. INTERNAL REVENUE SERVICE CLAIMS. Employee shall notify the Company in
-------------------------------
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
Employee shall not pay such claim prior to the expiration of the thirty (30) day
period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Employee in writing prior to the
expiration of such period that it desires to contest such claim, Employee shall:
(a) give the Company any information reasonably requested by the Company
relating to such claim (without requiring a waiver of Employee's attorney-client
privilege);
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company;
(c) cooperate with the Company in good faith in order to effectively
contest such claim; and
(d) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Employee harmless, on an after-
tax basis, for any excise tax or income tax (including interest and penalties
and respect thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions of this
Section 4, the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Employee to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Employee to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Employee, on an interest-free basis, and shall indemnify and hold Employee
harmless, on an after-tax basis, from any excise tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statue of limitations relating to
67
<PAGE>
payment of taxes for the taxable years of Employee with respect to which such
contested amount is claimed to be due is limited solely to issues relating to
such contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment shall be payable
hereunder and Employee shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
5. INTERNAL REVENUE SERVICE REFUNDS. If, after the receipt by Employee of
--------------------------------
an amount advanced by the Company pursuant to Section 4 of this Part Three,
Employee becomes entitled to receive any refund with respect to such claim,
Employee shall (subject to the Company's complying with the requirements of
Section 4 of this Part Three), promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Employee of any amount advanced
by the Company pursuant to Section 4 of this Part Three, a determination is made
that Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify Employee in writing of its intent to contest such
denial or refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
PART FOUR - ADDITIONAL RIGHTS AND RESPONSIBILITIES
1. MITIGATION. Employee shall not be required to mitigate damages or the
----------
amount of any payment provided for under this Agreement by seeking other
employment or otherwise. The provisions of this Agreement, and any payment
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish Employee's existing rights which would accrue solely as a
result of the passage of time, under any Company Employee Benefit Plan, "Payroll
practice" (as defined in ERISA), compensation arrangement, incentive plan, stock
option or other stock-related plan.
2. LEGAL COSTS. If any legal action or other proceeding is brought by
-----------
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which he may be entitled, in the event and to
the extent that Employee prevails in such action or other proceeding.
Notwithstanding anything hereinabove to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in contesting or disputing the
characterization of any amounts paid pursuant to this Agreement as being
nondeductible under Section 280G of the Code or subject to imposition of an
excise tax under Section 4999 of the Code.
3. FULL SETTLEMENT. The Company's obligations to make the payments provided
---------------
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by an set-off, counterclaim, recoupment, defense or other claim,
or other action which the Company may have against Employee or others.
PART FIVE -- MISCELLANEOUS PROVISIONS
68
<PAGE>
1. SUCCESSORS. This Agreement shall be binding upon and inure to the
----------
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Employment
Agreement). The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to perform this
Employment Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place. Failure
of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Employment
Agreement entitling Employee to the benefits hereunder, as though Employee was
subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.
2. DEATH. Should you die before receipt of all the separation payments to
-----
which you may become entitled under Part Two, Section 9, then such payment or
payments will be made, on the due date or dates hereunder had you survived, to
the executors or administrators of your estate. Should you die before you
exercise your outstanding vested options, then each such option may be
exercised, within twelve (12) months after your death, by the executors or
administrators of your estate or by person to whom the option is transferred
pursuant to your will or in accordance with the laws of inheritance. In no
event, however, may any such vested option be exercised after the specified
expiration date of the option term.
3. INDEMNIFICATION. The indemnification provisions for Officers and
---------------
Directors under the Company's Bylaws will (to the maximum extent permitted by
law) be extended to you, during the period following your Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during your Employment Period.
4. MISCELLANEOUS. The provisions of this Agreement will be construed and
-------------
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between you and the Company relating to the
terms of your employment and the subject of severance benefits and supersedes
all prior agreements and understandings with respect to such subject matter.
This Agreement may only be amended by written instrument signed by you and an
authorized officer of the Company.
5. ARBITRATION. Any controversy which may arise between you and the Company
-----------
with respect to the construction, interpretation or application of any of the
terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Diego, California in accordance with the rules of the
American Arbitration Association then in effect.
6. NOTICES. Any notice required to be given under this Agreement shall be
-------
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 5501
Oberlin Drive, San Diego, California, 92121, and to Employee at his most recent
address reflected in the permanent Company records.
69
<PAGE>
Please indicate your acceptance of the foregoing provisions of this Agreement
by signing the enclosed copy of this Agreement and returning it to the Company.
Very truly yours,
MYCOGEN CORPORATION
By:
-----------------------------
Chairman and
Chief Executive Officer
ACCEPTED BY AND AGREED TO
Signature:
--------------------------
Dated:
------------------------------
70
<PAGE>
EXHIBIT A
---------
Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL ASSIGN OR
OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.
(a) Any provision in an employment agreement which provides that an employee
will assign, or offer to assign, any of his or her rights in an invention to his
or her employer will not apply to an invention that the employee developed
entirely on his or her own time without using the employer's equipment,
supplies, facilities, or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for his employer.
(b) To the extent a provision in an employment agreement purports to require
an employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
71
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
72
<PAGE>
<PAGE>
EXHIBIT 10.20
COLLABORATION AGREEMENT
Confidential treatment has been requested regarding
certain portions of this Agreement.
73
<PAGE>
COLLABORATION AGREEMENT
This COLLABORATION AGREEMENT (the "Agreement") dated as of December 13, 1995 is
made by and between Agrigenetics, Inc., a Delaware corporation doing business as
Mycogen Plant Sciences and having offices at 5501 Oberlin Drive, San Diego,
California 92121 ("MPS"), and Pioneer Hi-Bred International, Inc., 700 Capital
Square, 400 Locust Street, Des Moines, Iowa 50309 ("Pioneer").
WHEREAS, Mycogen Corporation, the parent company of MPS ("Mycogen"), has
developed technology relating to genes encoding insecticidal, miticidal and
nematocidal proteins of Bacillus thuringiensis ("Bt") and other Bacillus species
----------------------
and owns or controls certain technology and patent rights granted or pending
relating to said genes and proteins and the introduction and expression in
plants of natural and synthetic genes, full length and truncated, and synthetic
gene technology including synthetic genes and methods for making said genes;
WHEREAS, Mycogen has exclusively licensed all of its Bt and other Bacillus
species technology and patent rights to MPS for use in plants, which includes
the right to sublicense, develop, make, have made, use, cultivate, market,
distribute and sell plants and planting seed;
WHEREAS, MPS also has developed technology relating to genes encoding
insecticidal, miticidal and nematocidal proteins of Bt and other Bacillus
species and also owns or controls certain technology and patent rights granted
or pending relating to said genes and proteins and the introduction and
expression in plants of natural, synthetic or modified genes, full length and
truncated, and synthetic or modified gene technology, including synthetic or
modified genes and methods for making said genes;
WHEREAS, MPS has capabilities particular to the development of Bacillus species
that may possess useful insecticidal, miticidal and nematocidal traits for
plants and Pioneer desires to engage MPS to conduct research and development on
genes derived from Bacillus species encoding insecticidal, miticidal and
nematocidal proteins;
WHEREAS, Pioneer has developed technology and owns or controls certain
technology relating to the introduction and expression in plants of genes
encoding insecticidal proteins of Bacillus species and to plant breeding and
genetic; and
WHEREAS, MPS and Pioneer desire to form a collaboration with their respective
technology and patent rights related to transforming plants with Bt genes and
other genes encoding insecticidal, miticidal and nematocidal proteins from
Bacillus species ("BIP") effective against mites, insects and nematodes.
The collaboration involves the following four essential components:
74
<PAGE>
1. Combine all current and future BIP genes and enabling technology and patent
rights of both parties under joint Pioneer/MPS research programs in corn
research and research and development programs in soybean, sunflower,
sorghum, wheat and canola for genetically engineered insect, mite and
nematode resistance traits thru transformation with BIP genes to control
certain pests of each crop.
2. Create an environment and structure under the joint Pioneer/MPS research
and development programs to allow the MPS and Pioneer scientists, breeders
and other technical personnel to work together closely so as to best
utilize the technical talent, ingenuity and core competencies of both
companies.
3. Provide each of MPS and Pioneer with the commercial rights to the BIP
insect, mite and nematode resistance traits developed under the Pioneer/MPS
joint research and development programs for each party to breed such traits
into their respective crop parent lines and to produce and sell their own
hybrids and varieties containing such traits. With the sole exception of
the BIP trait, no commercial rights to proprietary germ plasm (in whole or
in part) are granted to either party.
4. Provide MPS with the exclusive right to license all BIP insect, mite and
nematode resistance traits developed under the Pioneer/MPS joint research
and development programs to third parties, subject to certain restrictions
on when one or more third party licensees can commercialize crops
containing such traits.
NOW, THEREFORE, the parties hereby agree as follows.
ARTICLE 1
DEFINITIONS
-----------
The following terms as used in this Agreement will have the meanings as defined
with respect to each such term:
Affiliate. The term "Affiliate" means (1) with respect to MPS, any parent
- ---------
corporation of MPS (including Mycogen), or any partnership, joint venture or
subsidiary in which MPS or such parent corporation has a fifty percent or
greater ownership interest and (2) with respect to Pioneer, any partnership,
joint venture or subsidiary in which Pioneer has a fifty percent or greater
ownership interest.
BIP Genes. The term "BIP Genes" means both MPS BIP Genes and Pioneer BIP Genes.
- ---------
BIP Transformation Event. The term "BIP Transformation Event" means (i) each
- ------------------------
transgenic plant or transgenic plant tissue that expresses insecticidal,
miticidal and nematocidil proteins from a specific transgenic construct
consisting of one or more BIP Genes directly transformed into such plant or
plant tissue and (ii) all progeny plants from such transformed plant or plant
tissue that contain the same BIP transgenic construct.
75
<PAGE>
Business Committee. The term "Business Committee" means the committee
- ------------------
consisting at all times of two (2) representatives of MPS and two (2)
representatives of Pioneer, which is responsible for certain supervisory and
administrative functions as set forth under Section 2.3 of this Agreement.
Combined Technology and Patent Rights. The term "Combined Technology and Patent
- -------------------------------------
Rights" means any and all of (i) the MPS BIP Genes and MPS Enabling Technology;
(ii) the Pioneer BIP Genes and Pioneer Enabling Technology, (iii) Joint Enabling
Technology, and (iv) any and all patent rights including issued and pending U.S.
and foreign patents (including without limitation, any divisionals,
continuations, continuations in part, extensions and re-issues thereof)
currently owned or in the future acquired by MPS or Pioneer, and rights to U.S.
and foreign patents and patent applications currently or in the future licensed
or sublicensed to MPS or Pioneer with respect to which either party has the
right to grant sublicenses, which patent rights cover, with respect to MPS, MPS
BIP Genes, MPS Enabling Technology and Joint Enabling Technology and with
respect to Pioneer, Pioneer BIP Genes, Pioneer Enabling Technology and Joint
Enabling Technology.
Confidential Information. The term "Confidential Information" means any and all
- ------------------------
proprietary information (including, without limitation, information related to
technical, business and intellectual property matters), know-how, data, trade
secrets and biological and other physical materials owned or held by either
party to this Agreement which such party maintains as confidential.
Corn Research Programs. The term "Corn Research Programs" means the research
- ----------------------
programs jointly conducted by MPS and Pioneer as contemplated by Article 5 of
this Agreement.
Europe. The term "Europe" means Western Europe (as defined below) and all other
- ------
European countries (including the former Soviet Republics) located between
Western Europe and Russia.
Western Europe. The term "Western Europe" means the United Kingdom, Ireland,
- --------------
France, Belgium, Netherlands, Denmark, Germany, Luxembourg, France, Spain,
Portugal, Italy, Switzerland and Austria.
Insect Resistant BIP Crops. The term "Insect Resistant BIP Crops" means any and
- --------------------------
all Target Crops (and planting seeds for such crops) containing one or more BIP
Transformation Events jointly developed by Pioneer and MPS under the R&D
Programs contemplated by this Agreement and covered by an approval or an
application for approval from appropriate regulatory authorities for breeding,
production and commercialization of crops containing such BIP Transformation
Event. Insect, mite and nematode resistance is included under this definition
of "Insect Resistant BIP Crops".
Joint Enabling Technology. The term "Joint Enabling Technology" means trade
- -------------------------
secrets, know-how, technology, and other proprietary information, whether or not
patented, which are jointly invented or discovered by (i) MPS or any of its
Affiliates and (ii) Pioneer or any of its Affiliates in connection with the
collaboration under this Agreement.
MPS BIP Genes. The term "MPS BIP Genes" means any and all natural and synthetic
- -------------
genes, full length or truncated, chimeric or hybrid, encoding BIP (and genetic
materials derived therefrom) responsible for insect, mite and nematode
resistance, and any patents covering such genes, having possible applications in
developing BIP Transformation Events under this Agreement, now owned
76
<PAGE>
by MPS or its Affiliate(s) or available for use by or used by such entities
under license or agreement with third parties (which use hereunder is not
restricted under such license or agreement) or developed or acquired during the
term of this Agreement by MPS or its Affiliate(s). If acquired from a third
party then the foregoing BIP genes (and genetic materials derived therefrom)
will not be included in the definition of MPS BIP Genes if the agreement with
the third party restricts such use, provided that MPS or its Affiliate(s) will
use its reasonable efforts in accordance with its good faith business judgment
to provide that the agreement with the third party does not include such
restrictions.
MPS Enabling Technology. The term "MPS Enabling Technology" means trade
- -----------------------
secrets, know-how, technology, and other proprietary information, whether or not
patented, and all patents, now owned by MPS or available for use by or used by
MPS under license or agreement with third parties (which use hereunder is not
restricted under such license or agreement), for developing BIP Transformation
Events and for making, using and selling Insect Resistant BIP Crops containing
one or more BIP Transformation Events, which trade secrets, know-how,
technology, other proprietary information and patents are reasonably necessary
to develop BIP Transformation Events under the R&D Programs and ultimately to
make, use and sell Insect Resistant BIP Crops pursuant to this Agreement. MPS
Enabling Technology also includes advances, enhancements, improvements or
discoveries that MPS owns or becomes entitled to use during the term of this
Agreement, whether or not such are discovered or developed as a result of
research undertaken pursuant to this Agreement, that are reasonably necessary to
develop BIP Transformation Events under the R&D Programs and to make, use and
sell Insect Resistant BIP Crops pursuant to this Agreement. MPS Enabling
Technology excludes any trade secrets, know-how, technology, other proprietary
information and patents, the application of which as contemplated by this
Agreement is restricted under a written agreement between MPS and any
independent third party, provided that MPS will exert its reasonable efforts in
accordance with its good faith business judgment to provide that such agreement
with the third party does not include such restrictions. MPS Enabling
Technology includes, without limitation, trade secrets, know-how, technology,
and other proprietary information and patents related to selectable markers,
promoters, enhancers, matrix attachment regions (MARs), nuclear scaffold
attachment regions (SARs), terminators, synthetic gene construction, plant
transformation, plant tissue regeneration and plant conversions. The foregoing
does not include MPS proprietary germplasm owned or exclusively licensed by MPS.
North America. The term "North America" means the United States, Canada, and
- -------------
Mexico.
Pioneer BIP Genes. The term "Pioneer BIP Genes" means any and all natural and
- -----------------
synthetic genes, full length or truncated, chimeric or hybrid, encoding BIP (and
genetic materials derived therefrom) responsible for insect, mite and nematode
resistance, and any patents covering such genes, having possible applications in
developing BIP Transformation Events under this Agreement, now owned by Pioneer
or its Affiliate(s) or available for use by or used by such entities under
license or agreement with third parties (which use hereunder is not restricted
under such license or agreement) or developed or acquired during the term of
this Agreement by Pioneer or its Affiliate(s). If acquired from a third party
then the foregoing BIP genes (and genetic materials derived therefrom) will not
be included in the definition of Pioneer BIP Genes if the agreement with the
third party restricts such use, provided that Pioneer or its Affiliate(s) will
use its reasonable efforts in accordance with its good faith business judgment
to provide that the agreement with the third party does not include such
restrictions.
77
<PAGE>
Pioneer Enabling Technology. The term "Pioneer Enabling Technology" means trade
- ---------------------------
secrets, know-how, technology, and other proprietary information, whether or not
patented, and all patents, now owned by Pioneer or available for use by or used
by Pioneer under license or agreement with third parties (which use hereunder is
not restricted under such license or agreement), for developing BIP
Transformation Events and for making, using and selling Insect Resistant BIP
Crops containing one or more BIP Transformation Events, which trade secrets,
know-how, technology, other proprietary information and patents are reasonably
necessary to develop BIP Transformation Events under the R&D Programs and
ultimately to make, use and sell Insect Resistant BIP Crops pursuant to this
Agreement. Pioneer Enabling Technology also includes advances, enhancements,
improvements or discoveries that Pioneer owns or becomes entitled to use during
the term of this Agreement, whether or not such are discovered or developed as a
result of research undertaken pursuant to this Agreement, that are reasonably
necessary to develop BIP Transformation Events under the R&D Programs and to
make, use and sell Insect Resistant BIP Crops pursuant to this Agreement.
Pioneer Enabling Technology excludes any trade secrets, know-how, technology,
other proprietary information and patents, the application of which as
contemplated by this Agreement is restricted under a written agreement between
Pioneer and any independent third party, provided that Pioneer will exert its
reasonable efforts in accordance with its good faith business judgment to
provide that such agreement with the third party does not include such
restrictions. Pioneer Enabling Technology includes, without limitation, trade
secrets, know-how, technology, and other proprietary information and patents
related to selectable markers, promoters, enhancers, matrix attachment regions
(MARs), nuclear scaffold attachment regions (SARs), terminators, synthetic gene
construction, plant transformation, plant tissue regeneration and plant
conversions. The foregoing does not include Pioneer proprietary germplasm owned
or exclusively licensed by Pioneer.
R&D Programs. The term "R&D Programs" means any and all of the research and
- ------------
development programs jointly conducted by MPS and Pioneer as contemplated by
Article 2 of this Agreement to develop BIP Transformation Events in the Target
Crops for the purpose of enabling each of MPS and Pioneer to develop and
commercialize Insect Resistant BIP Crops pursuant to the licenses granted under
Article 4.
Research Committee. The term "Research Committee" means the committee
- ------------------
consisting at all times of two (2) representatives of MPS and two (2)
representatives of Pioneer, which is responsible for certain supervisory and
administrative functions as set forth under Section 2.2 of this Agreement.
Target Crops. The term "Target Crops" means any and all varieties of soybean,
- ------------
sunflower, sorghum, wheat and canola. Pursuant to Section 2.13 of this
Agreement, the parties may in the future add additional crops to the list of
Target Crops covered by this Agreement. Also, upon the parties granting one
another licenses with respect to corn as contemplated by Section 5.4 of this
Agreement, corn will be added as a Target Crop.
ARTICLE 2
R&D PROGRAMS
------------
2.1 R&D Programs. MPS and Pioneer will conduct a number of research and
------------
development programs to develop BIP Transformation Events responsible for
resistance against target
78
<PAGE>
pests selected by the parties in each Target Crop. Each party will utilize
its research, development, engineering and other capabilities as set forth
under each R&D Program to develop BIP Transformation Events for each Target
Crop and will use diligent efforts to successfully complete each R&D
Program within the time frame set forth for each such program.
Each current and future R&D Program will be administered as set forth under
this Article 2 by the Research Committee with respect to technical issues
and by the Business Committee with respect to resource and funding issues.
The parties will conduct each R&D Program in such a manner so as to create
an environment for the MPS and Pioneer scientists, breeders and other
technical personnel to work together closely to best utilize the technical
talent, ingenuity and core competencies of both companies.
2.2 The Research Committee. The principal function of the Research Committee
----------------------
is to administer the research and development activities of each R&D
Program. The Research Committee has the authority and responsibility to:
1. Define and evaluate (i) the technical challenges and chance of success
of any potential new R&D Program, (ii) the responsibility of each
party under any potential new R&D Program, and (iii) the resources
needed to pursue any potential new R&D Program.
2. Recommend to the Business Committee the initiation of new R&D Programs
and the responsibilities of each party under such programs.
3. Prior to the formation of any R&D Program and during the course of all
R&D Programs, evaluate and review the need for any third party
technology rights to complete any R&D Program and the royalties or
license fees due to any such third party for such rights.
4. Oversee and assess all technical developments and progress against
objectives of each R&D Program.
5. As programs advance, evaluate and assess resources needed to complete
each part of any R&D program.
6. Direct all research and implement strategies to address technical
challenges.
7. Direct the filing and prosecution of patent applications covering any
joint invention and discoveries pursuant to Section 7.2 of this
Agreement.
8. Interface with, and make recommendations to, the Business Committee.
9. Provide regular quarterly reports to the Business Committee addressing
progress against goals and any significant developments and issues
under each R&D Program.
79
<PAGE>
10. Designate subcommittees by crop and delegate to such subcommittees any
and all authority of the Research Committee related to the R&D
Program(s) for each such crop. All subcommittees will have an equal
number of representatives from both MPS and Pioneer.
Notwithstanding the authority and responsibilities of the Research
Committee as enumerated above, the Research Committee has no authority with
respect to budgetary matters involving any R&D Program, nor does the
Research Committee have the authority to modify or rescind the obligations
of the parties for any part of any R&D Program as set forth on the schedule
attached to this Agreement describing each R&D Program and the obligations
of the parties thereunder.
All decisions of the Research Committee will require unanimity, except with
respect to issues that involve the manner in which resources or strategies
are employed under a particular part of an R&D Program, in which case the
party responsible for such part of the program will have the ultimate
decision making authority after considering the input from the Research
Committee. Each representative of each party on the Research Committee has
one vote with respect to all matters decided by such committee.
The Research Committee will meet on a quarterly basis at places and times
to be scheduled by the parties. In addition to such regular quarterly
meetings, either party can convene a special meeting at anytime reasonably
convenient to both parties upon 14 days prior written notice setting forth
the matters to be discussed and the date of the meeting. Any special
meeting so called will be held at the principal offices of the party who
did not call the meeting so as to provide the most convenient place to
meet.
2.3 The Business Committee. The principal function of the Business Committee
----------------------
is to provide general administration of the relationship between MPS and
Pioneer with respect to this Agreement and of the resources needed to
complete each R&D Program. The Business Committee has the authority and
responsibility to:
1. Based on input and recommendations from the Research Committee,
approve initiation of any new R&D Programs and the assignment of
responsibilities of each party under such programs.
2. Make all go and no-go decisions at each critical decision point of a
program based on input and recommendations of the Research Committee,
including, without limitation, rescinding any R&D Program or any part
of any program.
3. Make all decisions relative to making significant changes to resources
employed under any part of a program.
All decisions by the Business Committee will require unanimity. Each
representative of each party on the Business Committee has one vote with
respect to all matters decided by such committee.
80
<PAGE>
The Business Committee will meet on a semi-annual basis at places and times
to be scheduled by the parties. In addition to such regular semi-annual
meetings, either party can convene a special meeting at any time reasonably
convenient to both parties upon 14 days prior written notice setting forth
the matters to be discussed and the date for such meeting. Any special
meeting so called will be held at the principal offices of the party who
did not call the meeting so as to provide the most convenient place to
meet.
2.4 Current R&D Programs. The parties agree to conduct the following R&D
--------------------
Programs:
1. As the primary trait, soybean resistant to cyst nematodes. As a
secondary trait linked to the primary trait, soybeans resistant to
certain insect pests;
2. As the primary trait, canola resistant to flea beetle. As a secondary
trait linked to the primary trait, canola resistant to certain insect
pests;
3. As the primary trait, sunflower resistant to headmoth. As a secondary
trait linked to the primary trait, sunflowers resistant to certain
insect pests;
4. As a preliminary feasibility study only, sorghum resistant to
greenbug; and
5. As a preliminary feasibility study only, wheat resistant to Hessian
fly.
An outline of each R&D Program and the assignment of responsibilities to
each party for certain parts of each R&D Program are set forth on separate
schedules for each program, which schedules collectively are attached to
this Agreement as Schedule 2.4.
2.5 Initiation of New R&D Programs. Either party at any time prior to the
------------------------------
tenth anniversary of this Agreement can request an evaluation to initiate a
new R&D Program, provided that such potential new R&D Program reasonably
can be completed on or before the tenth anniversary of this Agreement. The
request first is made to the Business Committee, which, if receptive to the
request, will direct the Research Committee to define and evaluate all
aspects of the proposed program.
The Research Committee will present to the Business Committee its
recommendation on the proposed program: (i) who does what; (ii) the
resources needed; (iii) the probability of success; (iv) the anticipated
development schedule; (v) critical decision points and milestones along the
development schedule; and (vi) an estimated time frame for completing the
program. Based on the recommendation of the Research Committee, the
Business Committee will approve or reject the proposed program or resubmit
the proposed program to the Research Committee with suggested revisions for
re-evaluation.
Neither party will be obligated to conduct a new R&D Program that
reasonably cannot be completed on or before the tenth anniversary of this
Agreement if the parties use the same level of diligent efforts as applied
by the parties under then completed and ongoing programs. This Agreement
intends to obligate the parties to develop BIP Transformation Event(s)
under R&D Programs initiated and substantially completed during the first
ten years of this Agreement. However, notwithstanding the foregoing, once
the parties agree to
81
<PAGE>
commence any R&D Program and a description of the program and the
responsibilities of the parties are set forth on Schedule 2.4 of this
Agreement, all obligations of the parties under this Agreement to complete
successfully such R&D Program remain in full force and effect after the
tenth anniversary of this Agreement and continuing thereafter until such
time as such R&D Program successfully concludes or the Business Committee
decides to terminate the program.
If one party wants to pursue the proposed R&D Program but the other party
does not, the party who does not want to pursue the program can defer
initiation of the proposed R&D Program for 18 months after the Business
Committee concludes that the parties cannot agree to initiate the proposed
program. Upon expiration of this 18 month "stand-down" period, the party
wanting to pursue the R&D Program can reintroduce the proposal. If the
other party continues not to want to pursue the program, the party wanting
to pursue the program will be free to do so on its own and, as necessary,
by funding certain activities needed to be done by the other party. The
party who declined participation in the program must perform any and all
activities that the participating party technically, or for the purpose of
obtaining intellectual property rights, cannot perform, provided that the
participating party funds all such activities performed by the non-
participating partner.
The party who declined participation will have the ability to preserve its
commercial rights under this Agreement for any BIP Transformation Events
that may come out of that particular R&D Program by (i) reimbursing the
participating party for 100% of the costs and expenses of such program plus
25% of such costs within two years of initiation of such program and (ii)
committing to participate in any remaining development work as established
under the program as originally recommended to the Business Committee by
the Research Committee. If the non-participating party does not reimburse
the sponsoring party for 100% of the costs and expenses incurred under such
program, plus 25%, within the two year period, the non-participating party
loses all commercial rights to the BIP Transformation Events developed
under that program.
In the event that Pioneer is the non-participating party, then (i) Pioneer
loses all rights under this Agreement with respect to any BIP
Transformation Event(s) developed under such program and (ii) MPS is free
to develop and commercialize such BIP Transformation Event(s) (whether
alone or with third parties) as it decides in its sole discretion without
any limitation whatsoever under Article 4 this Agreement on the activities
of MPS (including licensing to any third parties) with respect to such BIP
Transformation Event(s).
In the event that MPS is the non-participating party, then (i) MPS loses
all rights under this Agreement with respect to any BIP Transformation
Event(s) developed under such program and (ii) Pioneer is free to develop
and commercialize such BIP Transformation Event(s) subject to the
limitations on sub-licensing imposed on Pioneer under Article 4 of this
Agreement on the activities of Pioneer with respect to such BIP
Transformation Event(s).
The party who declined participation in the program must perform any and
all activities that the participating party technically, or for the purpose
of obtaining intellectual property rights, cannot perform, provided that
the participating party funds all such activities performed by the non-
participating partner.
82
<PAGE>
An example of the initiation of a new R&D Program and an example of the
consequence of not participating in such program are set forth on Schedule
2.5 of this Agreement.
In the event that upon considering the initiation of a new R&D Program, MPS
and Pioneer determine that a patent then issued to a third party is
necessary to develop BIP Transformation Events under such prospective R&D
Program or to permit both MPS and Pioneer to commercialize Insect Resistant
BIP Crops using any BIP Transformation Events developed under such
prospective R&D Program, neither MPS nor Pioneer will be obligated in any
way to commence such prospective R&D Program until a license to such third
party patent is obtained for both MPS and Pioneer. Section 2.8 below
addresses the circumstance of a third party patent issuing after
commencement of any R&D Program.
2.6 Assignment of Responsibilities Under Each R&D Program. The Research
-----------------------------------------------------
Committee initially will delineate which party should be responsible for
specific parts of any program based on the technical capabilities of the
parties. The Research Committee's recommendation based on technical
capabilities will be presented to the Business Committee for review and
assessment based on resources and costs. The Business Committee may shift
responsibilities for specific parts of any R&D Program before approval of
the program. Once an R&D Program has been approved by the Business
Committee, then each party will be committed to perform its part of the
program within the levels of effort originally anticipated by the Research
Committee and reviewed and approved by the Business Committee.
2.7 Decisions Under the R&D Programs at Critical Decision Points. As
------------------------------------------------------------
development work under any R&D Program reaches or encounters critical
decision points, the Research Committee will make recommendations on the
best technical way to proceed or to solve a particular problem. If
substantial additional resources are needed (substantially in excess of the
expectations when the program was originally designed), then approval of
the Business Committee will be needed. All issues first are addressed by
the Research Committee based on technical needs and solutions. Based on
the recommendations of the Research Committee, the Business Committee
endorses the recommendations by approving the resources needed to advance
the program.
2.8 Consequences if a Party Fails to Meet Its Responsibilities Under a Program.
--------------------------------------------------------------------------
Upon initiation of any R&D Program, a detailed description of the program
will be set forth on a schedule and attached to this Agreement as part of
Schedule 2.4.
Such descriptions, as set forth on Schedule 2.4 (together with (i) the
obligation of either party to provide the other party with BIP
Transformation Event(s) pursuant to Section 2.10 and (ii) the obligation of
Pioneer to provide MPS with lines converted with BIP Transformation Events
pursuant to Section 2.11), will delineate the commitment by each party to
perform certain parts of any R&D Program. Unless the Business Committee
decides to drop or defer an R&D Program or part of an R&D Program, failure
to perform any part of any R&D Program (together with (i) the obligation of
either party to provide the other party with BIP Transformation Event(s)
pursuant to Section 2.10 and (ii) the obligation of Pioneer to provide MPS
with lines converted with BIP Transformation Events pursuant to Section
83
<PAGE>
2.11) by either party (after notice from the other party and a 90 day cure
period) will result in loss of commercial rights by the non-performing
party to the BIP Transformation Events intended to be developed by that
program. If the parties otherwise agree in writing to a plan to cure any
such failure to perform, which plan may require more then the 90 day cure
period to implement, then the cure does not necessarily have to occur
within 90 days.
Failure to perform under this Section 2.8 shall mean a technical failure to
perform and not a legal failure to perform -- such as the inability of
Pioneer or MPS to obtain additional licenses from third parties as provided
for in Section 7.5.
In the event that Pioneer is the non-performing party, then (i) Pioneer
loses all rights under this Agreement with respect to any BIP
Transformation Event(s) developed under such program and (ii) MPS is free
to develop and commercialize such BIP Transformation Event(s) (whether
alone or with third parties) as it decides in its sole discretion without
any limitation whatsoever under Article 4 this Agreement on the activities
of MPS (including licensing to any third parties) with respect to such BIP
Transformation Event(s).
In the event that MPS is the non-performing party, then (i) MPS loses all
rights under this Agreement with respect to any BIP Transformation Event(s)
developed under such program and (ii) Pioneer is free to develop and
commercialize such BIP Transformation Event(s) subject to the limitations
on sub-licensing imposed on Pioneer under Article 4 of this Agreement on
the activities of Pioneer with respect to such BIP Transformation Event(s).
The party who declined participation in the program must perform any and
all activities that the participating party technically, or for the purpose
of obtaining intellectual property rights, cannot perform, provided that
the participating party funds all such activities performed by the non-
participating partner.
In the event that after the parties begin an R&D Program a patent issues to
a third party that is necessary for MPS and Pioneer to develop BIP
Transformation Events under such R&D Program or to commercialize Insect
Resistant BIP Crops using any BIP Transformation Events developed under
such R&D Program, failure by either MPS or Pioneer to obtain rights under
such third party patent for both MPS and Pioneer will not be considered a
failure to perform any part of the R&D Program by either MPS or Pioneer or,
except for the obligation of both MPS and Pioneer under Section 7.5 to use
good faith efforts to obtain rights under such third party patent for both
MPS and Pioneer, a breach of this Agreement. Notwithstanding the
foregoing, each of MPS and Pioneer will remain obligated to perform any and
all parts of the R&D Program assigned to such party as set forth on
Schedule 2.4 to the extent that the performance of any such part of the R&D
Program by either MPS, or as the case may be, Pioneer will not infringe
such third party patent.
2.9 Consequences If Substantial Additional Resources Are Needed But One Party
-------------------------------------------------------------------------
Does Not Want to Provide Additional Resources. In the event that
---------------------------------------------
substantial additional resources (substantially in excess of the resources
initially anticipated by the Research Committee) need to be devoted by a
party to complete a specific part of an R&D Program, then the Business
Committee will be responsible for resolving any inequities that may result
from the extra effort. If the Business Committee cannot resolve any such
inequities, then the
84
<PAGE>
unaffected party will have the right (but not the obligation) to undertake
or fund the additional work (or provide the personnel to perform the
additional work), provided that the party receiving such funds or
assistance must reimburse the sponsoring party for such additional funds or
assistance plus 25% in order for the party receiving the funds or
assistance to maintain its commercial rights in such R&D Program under this
Agreement. The reimbursement plus 25% is due immediately upon completion of
the additional work and, if not paid, will make such party a "non-
participating party" with respect to that specific R&D Program.
In the event that either MPS or Pioneer is the non-participating party,
then (i) the non-participating party loses all rights under this Agreement
with respect to any BIP Transformation Event(s) developed under such part
of the program and (ii) the participating party who continues the program
is free to develop and commercialize such BIP Transformation Event(s),
subject to the provisions of Article 4 of this Agreement on the activities
of the participating party with respect to such BIP Transformation
Event(s).
The non-participating party in the affected program must perform any and
all activities that the participating party technically, or legally cannot
perform, provided that the participating party funds all such activities
performed by the non-participating party.
An example of the consequences of providing or not providing additional
resources is set forth on Schedule 2.9.
2.10 Access to BIP Transformation Events. Either party will have the right to
-----------------------------------
receive BIP Transformation Events from each R&D Program in such generation
of backcrossed inbreds as set forth on Schedule 2.4 for each R&D Program.
The party responsible for transforming inbred lines of any Target Crop with
BIP genetic constructs under any R&D Program will supply the other party,
upon request of such other party, with the BIP Transformation Event(s) in
the specified, or later generation, of backcrossed inbreds. The receiving
party will be able to utilize such transformed inbreds to conduct
conversions of parent line materials with the subject BIP-Transformation
Event(s).
2.11 Line Conversions By Pioneer for MPS. With respect to each BIP
-----------------------------------
Transformation Event, Pioneer will convert such number of MPS lines as set
forth in the R&D Programs and the Corn Research Programs. MPS will supply
Pioneer with the lines that MPS desires to have converted. Pioneer will
convert such lines on behalf of MPS with the same diligence and within the
same time frame that Pioneer uses in converting its own lines.
Breeders for MPS will be permitted to participate in and to track all such
conversions of MPS lines by Pioneer. MPS will be entitled to all data
generated by Pioneer with respect to such conversions.
2.12 Adding Other Proprietary Genetic Traits Under Any R&D Program. Upon mutual
-------------------------------------------------------------
agreement of the parties by action of the Business Committee, either party
may include a proprietary genetic trait (other than BIP based insect
resistance) under any R&D Program, which trait may be coupled or stacked
with the BIP based insect resistance trait comprising any BIP
Transformation Event. Such proprietary genetic traits (other than BIP
based insect
85
<PAGE>
resistance) may include, without limitation, genes responsible for disease
resistance or for particular oil or nutritional characteristics.
In the event that MPS and Pioneer elect to couple or stack any Pioneer
proprietary genetic trait (other than a Pioneer BIP Gene) with any BIP Gene
in connection with transforming a Target Crop under any R&D Program, so
that the resulting transformed events impart to the Target Crop both BIP-
based insect resistance and another identifiable agronomic trait, then MPS
will not have the right under Section 4.3 to grant sublicenses to any third
parties (other than MPS Affiliates) to any such trait coupled or stacked
with any BIP Transformation Event without Pioneer's prior written approval
and payment to Pioneer from any permitted third party sublicensees of
compensation acceptable to Pioneer.
2.13 Adding Other Crops Under This Agreement. Upon the request of either party,
---------------------------------------
both parties agree to discuss in good faith adding other crops to the list
of Target Crops covered by this Agreement; provided, however, that the
grant of any rights by MPS to Pioneer with respect to such other crops to
MPS BIP Genes or to MPS Enabling Technology will be subject to any licenses
that MPS may grant to third parties with respect to such other crops.
Nothing under this Section 2.13 prevents MPS from granting an exclusive
license to any crop other than corn and the Target Crops to any third party
covering MPS BIP Genes and MPS Enabling Technology. MPS will notify
Pioneer if and when MPS begins actively to seek licensing MPS BIP Genes and
MPS Enabling Technology in any such other crops.
ARTICLE 3
REGISTRATION OF BIP TRANSFORMATION EVENTS
-----------------------------------------
3.1 Registration of BIP Transformation Events in North America. MPS and
----------------------------------------------------------
Pioneer agree to consult with each other as to how they can best use their
collective resources to cooperate and generate all data necessary to obtain
regulatory approvals in North America. Each of MPS and Pioneer will
develop data according to their specific areas of expertise. MPS will
provide information, including characterization of the BIP Genes and gene
products, toxicology and impacts on non-target species. Pioneer will
provide information, including molecular characterizations of BIP
Transformation Events, BIP Gene expression in the field, nutritional
equivalence and agronomic performance of BIP Transformation Events. MPS
will be responsible for preparing all [information and related] data
packages necessary to file any and all applications for approval from all
regulatory authorities in North America to field test, produce and
commercialize Insect Resistant BIP Crops containing one or more BIP
Transformation Events. MPS will take the lead on behalf of MPS and Pioneer
to interact with all such regulatory authorities and will coordinate all
such interactions with Pioneer so that Pioneer representatives can
participate in every aspect of the regulatory process.
Using the information and related data packages and regulatory submissions
prepared by MPS, each of Pioneer and MPS will apply for and obtain their
own authorizations to conduct field tests, experimental use permits and
full registrations in their own names in North America for each BIP
Transformation Event.
MPS and Pioneer will share on an equal fifty-fifty basis any and all out of
pocket expenses, including without limitation, toxicology studies,
consultant fees and expenses, registration
86
<PAGE>
fees and travel expenses incurred by MPS and Pioneer in connection with
preparing all information and related data packages necessary for the
parties to file for regulatory approval of all BIP Transformation Events in
North America. MPS and Pioneer will consult on the choice of consultants
and contract laboratories.
3.2 Registration of BIP Transformation Events Outside of North America. For
------------------------------------------------------------------
the purpose of obtaining approval from any regulatory authorities in any
country outside of North America where either MPS or Pioneer desired to
commercialize Insect Resistant BIP Crops, each of MPS and Pioneer will have
immediate and unrestricted access to, and the right to reference and use,
any and all information, including any data included in any regulatory
package prepared by MPS for registration of any BIP Transformation Event in
North America.
In the event that additional data or information is required for any
regulatory approvals outside of North America, each of Pioneer and MPS will
be responsible for preparing such additional data or information at their
cost for their own use, provided that the parties will consult with each
other as to how they can best use their collective resources to coordinate
regulatory approvals for both MPS and Pioneer in any country.
3.3 Rights of Reference to Regulatory Packages for Registering Non-Target
---------------------------------------------------------------------
Crops. For the purpose of obtaining approval from any regulatory
-----
authorities in any country for any transgenic event or crop developed by
Pioneer or MPS outside of any R&D Program, each of MPS and Pioneer will
have access to, and the right to reference and use, any information,
including any data included in any regulatory package prepared by MPS for
registration of any BIP Transformation Event in North America.
ARTICLE 4
GRANT OF RIGHTS
---------------
4.1 Grant of Research Licenses for Purposes of Conducting the R&D Programs.
----------------------------------------------------------------------
Each party hereby grants to the other party a non-exclusive license to any
and all MPS BIP Genes and MPS Enabling Technology and, correspondingly, to
any and all Pioneer BIP Genes and Pioneer Enabling Technology solely for
the purpose of, and solely to the extent necessary for, enabling each party
to conduct its assigned research and development activities under each R&D
Program.
4.2 MPS Grant of Commercial License to Pioneer. Subject to the terms and
------------------------------------------
conditions of this Agreement, MPS hereby grants to Pioneer a perpetual,
world-wide, non-exclusive license, with no right to grant sublicenses
except to Affiliates of Pioneer (without the right of such Affiliates to
grant further sublicenses), to any and all MPS BIP Genes, MPS Enabling
Technology and Joint Enabling Technology that are part of any and all BIP
Transformation Event(s) developed under any and all of the R&D Programs
solely to the extent necessary for the use, production and sale by Pioneer
of Insect Resistant BIP Crops containing such BIP Transformation Event(s);
provided that:
(i) the license granted to Pioneer hereunder will be royalty free with
respect to the sale by Pioneer and Pioneer Affiliates of Insect Resistant
BIP Crops in North America; and
87
<PAGE>
(ii) the license granted to Pioneer hereunder will be subject to a prepaid
royalty by Pioneer and Pioneer Affiliates to MPS pursuant to Section 4.4 of
this Agreement with respect to the sale by Pioneer and Pioneer Affiliates
of Insect Resistant BIP Crops outside of North America.
The MPS Enabling Technology and Joint Enabling Technology are licensed to
Pioneer to be used as only a part of a BIP Transformation Event, and are
not licensed for use as a separate component or process other than with a
BIP Event.
Pioneer and its Affiliates have the right under the license granted by MPS
to Pioneer under this Section 4.2 to permit distributors, agents and
resellers to distribute and sell Insect Resistant BIP Crops in branded bags
of Pioneer or Pioneer Affiliates using such proprietary packaging and
displaying such Pioneer or Pioneer Affiliate brand name identification with
the same prominence and position as used and displayed by Pioneer or by any
Pioneer Affiliate in the ordinary course of its business. Such proprietary
packaging displaying the brand name identification of Pioneer or Pioneer
Affiliate also may display the name, logo or trademark of any distributor,
agent or re-seller that distributes or sells Pioneer planting seed.
4.3 Pioneer Grant of Commercial License to MPS. Subject to the terms and
------------------------------------------
conditions of this Agreement, Pioneer hereby grants to MPS a perpetual,
worldwide, royalty free, non-exclusive license, with the right as set forth
below to grant sublicenses, to any and all Pioneer BIP Genes, Pioneer
Enabling Technology and Joint Enabling Technology that are part of any and
all BIP Transformation Event(s) developed under any and all of the R&D
Programs solely to the extent necessary for the use, production and sale by
MPS and its sublicensees of Insect Resistant BIP Crops containing such BIP
Transformation Event(s). The Pioneer Enabling Technology and Joint
Enabling Technology are licensed to MPS to be used as only a part of a BIP
Transformation Event, and are not licensed for use as a separate component
or process other than with a BIP Transformation Event.
Pioneer shall provide MPS with access to BIP Transformation Events in the
form of F1 seed containing Pioneer proprietary germplasm. MPS shall make
four backcrosses using MPS inbreds/varieties as the recurrent parent and
then shall use such Pioneer germplasm only as a source of the gene or
vector and MPS shall not knowingly make an effort to recover any
unassociated part of the genome of the non-recurrent parent of the Pioneer
germplasm.
MPS may grant sublicenses under this Section 4.3 to (1) Affiliates of MPS
(without the right of such Affiliates to grant further sublicenses), (2)
SVO Specialty Products, Inc., a Delaware Corporation ("SVO") pursuant to
that certain Technology and Development Agreement dated January 1, 1995
between SVO and MPS, as amended December 13, 1995, and (3) only to one
third party (without the right of such third party to grant further
sublicenses except to Affiliates of such third party) in each of (a) North
America, (b) Europe and (c) the rest of the world with respect to each BIP
Transformation Event in each Insect Resistant BIP Crop, provided that each
such third party will have no right or license to commercialize an Insect
Resistant BIP Crop containing such BIP Transformation Event until such time
that Pioneer is able to commercialize such Insect Resistant BIP Crop
containing such BIP Transformation Event in the same geographic region
(North America, Europe or, as the case may be, the rest of the world) as
the MPS licensee. MPS may grant additional sublicense to any other third
88
<PAGE>
parties (without the right of such third parties to grant further
sublicenses except to their respective Affiliates) in each jurisdiction
identified above to each BIP Transformation Event in each Insect Resistant
BIP Crop provided that such additional third parties will have no right or
license to commercialize Insect Resistant BIP Crops containing such BIP
Transformation Event until the second calendar year after the calendar year
in which Pioneer shall have entered its "RC1" stage (RC1 being a common
designation used within Pioneer for the first recognized year of commercial
sales), of such Insect Resistant BIP Crop containing such BIP
Transformation Event in the jurisdiction (North American, Europe or, as the
case may be, the rest of the world) where the third party licensee(s)
desire to commercialize such Insect Resistant BIP Crop.
An example of the right of MPS to grant sublicenses to third parties under
this Section 4.3 is set forth on Schedule 4.3.
MPS and its Affiliates have the right under the license granted by Pioneer
to MPS under this Section 4.3 to permit distributors, agents and resellers
to distribute and sell Insect Resistant BIP Crops in branded bags of MPS or
MPS Affiliates using such proprietary packaging and displaying such MPS or
MPS Affiliate brand name identification with the same prominence and
position as used and displayed by MPS or any MPS Affiliate in the ordinary
course of its business. Such proprietary packaging displaying the brand
name identification of MPS or MPS Affiliate also may display the name, logo
or trademark of any distributor, agent or re-seller that distributes or
sells MPS planting seed. For the purposes of this Section 4.3, the terms
"distributors", "agents" and "resellers" shall not be deemed to include
third party seed companies that distribute seed in their own branded bags.
4.4 Royalty Payment by Pioneer for Sales Outside of North America. In the
-------------------------------------------------------------
event that Pioneer or any Pioneer Affiliate desires to produce and sell
outside of North America any Insect Resistant BIP Crop containing one or
more BIP Transformation Events developed under any R&D Program, which
planting seed will be advertised or otherwise promoted by Pioneer or a
Pioneer Affiliate as having insect, mite or nematode resistance resulting
from such BIP Transformation Event, then as a condition precedent to
selling such planting seed in any country outside of North America, Pioneer
must pay to MPS a one time, prepaid royalty. Such one-time pre-paid
royalty shall be equal to [CERTAIN CONFIDENTIAL INFORMATION HAS BEEN
REDACTED FROM THIS LINE OF THIS DOCUMENT SUBMITTED FOR PUBLIC RECORD AND
HAS BEEN FILED SEPARATELY WITH THE SECURITIES & EXCHANGE COMMISSION.] of
projected Net Sales over a ten year period of such Insect Resistant BIP
Crop by Pioneer and Pioneer Affiliates which planting seed will be
advertised or otherwise promoted by Pioneer or a Pioneer Affiliate as
having insect, mite or nematode resistance resulting from such BIP
Transformation Event in each such country.
MPS and Pioneer will retain a mutually acceptable marketing firm to analyze
such Net Sales potential for the planting seed described above. With
reference to such analysis, the parties will negotiate in good faith a
prepaid royalty amount. Such royalty amount will be paid by Pioneer to MPS
prior to, and as a condition precedent to, Pioneer or any Pioneer Affiliate
commercializing any Insect Resistant BIP Crop that is the subject of such
royalty payment to MPS in such country.
89
<PAGE>
4.5 License Payments and Royalties to Third Parties. In the event that the
-----------------------------------------------
sale by either MPS (and its sublicensees) or by Pioneer of any Insect
Resistant BIP Crops having one or more BIP Transformation Events developed
under any R&D Program require the payment to any third party of a license
or royalty fee for such third party's technology rights that may be part of
any such BIP Transformation Event(s) in any Insect Resistant BIP Crops,
then the party selling such Insect Resistant BIP Crop(s) will be
responsible for the calculation, administration and payment of any such
license or royalty fee to the third party technology licensor.
4.6 MPS Will Not Provide its BIP Gene Library to Third Parties for Target
---------------------------------------------------------------------
Crops. Except with respect to (i) the grant of licenses by MPS to third
-----
parties to BIP Transformation Events developed under R&D Programs as
permitted under Section 4.3, and (ii) fulfillment by MPS of any obligation
to provide MPS BIP genes to Ciba-Geigy Limited and Ciba-Geigy Corporation
(collectively, "Ciba") under that certain Agreement for Exchange of Insect
Control Technology and Patent Rights dated as of July 14, 1993 by and among
MPS and Ciba (the "MPS/Ciba Agreement), MPS will not provide, until the
tenth anniversary of this Agreement, any of its BIP genes, natural or
synthetic, full length or truncated, encoding BIP (and genetic material
derived therefrom) to any third party for the purpose of enabling such
third party to develop BIP based insect resistance in corn or any Target
Crops. In the event Pioneer does not participate in an R&D Program or fails
to perform its parts of any R&D Program, MPS may grant licenses to third
parties for BIP Genes specific to the R&D Program, or parts thereof, in
which Pioneer did not participate or in which Pioneer failed to perform.
In the event that MPS provides any MPS BIP genes to Ciba under the
MPS/Ciba Agreement and Ciba/MPS develop insect resistance traits in corn
using such MPS BIP genes, then MPS will forfeit any right under this
Agreement to grant a license to third parties (other than to Affiliates of
MPS) to commercialize insect resistant corn containing a competing BIP
Transformation Event that may be developed by Pioneer and MPS under this
Agreement until the second calendar year after the calendar year in which
Pioneer shall have entered its "RC1" stage of insect resistant corn
containing such competing BIP Transformation Event in each jurisdiction
(North America, Europe or, as the case may be, the rest of the world) where
the third party licensee(s) desire to commercialize corn containing such
competing BIP Transformation Event.
4.7 No Licenses Granted Outside of the R&D Programs and the Commercialization
-------------------------------------------------------------------------
of Insect Resistant BIP Crops. Notwithstanding the foregoing and except
-----------------------------
for the licenses granted under Section 5.3 of this Agreement, no licenses
are granted (i) by MPS to Pioneer with respect to MPS BIP Genes or MPS
Enabling Technology or (ii) by Pioneer to MPS with respect to Pioneer BIP
Genes or Pioneer Enabling Technology for any use or activities outside of
the research and development activities under R&D Programs or for the
commercialization of Insect Resistant BIP Crops containing BIP
Transformation Events developed under the R&D Programs. No other licenses
are intended to be granted under this Agreement by either party to the
other with respect to any other technology or intellectual property rights
owned by such party.
ARTICLE 5
RESEARCH PROGRAMS IN CORN
-------------------------
90
<PAGE>
5.1 Research Program in Corn. The MPS/Ciba Agreement restricts until,
------------------------
approximately, the end of 1998 with respect to all countries of the world
except Italy and France (and possibly later in the case of Italy and
France) the ability of MPS to grant licenses to third parties under certain
patent rights owned by MPS for the purpose of engaging in certain
commercial activities involving corn transformed with genetic material
derived from BIP.
Subject to the limitations imposed under the MPS/Ciba Agreement, MPS and
Pioneer will conduct three research programs, which are set forth in detail
on Schedule 5.1, to investigate and evaluate certain BIP Genes and BIP
transformation events utilizing such BIP Genes for resistance in corn
plants to (i) corn rootworm (the Diabrotica sp.), (ii) lepidopteran pests,
such as European corn borer and cutworm (Ostrinias nebialis and Agrotis
ipsilon) and (iii) certain storage grain pests to be identified by the
parties (collectively, the "Corn Research Programs").
5.2 Responsibilities of the Parties. Each party will be responsible for such
-------------------------------
parts of the Corn Research Programs as set forth on Schedule 5.1. The Corn
Research Programs will be administered by the Research Committee and the
Business Committee in the same manner as the administration by such
committees of the R&D Programs under Article 2 of this Agreement, provided
that both committees will ensure (with advice of legal counsel) that for
the applicable restricted period under the MPS/Ciba Agreement the parties
will not engage in commercial activities restricted under the MPS/Ciba
Agreement in any country where such activities would require a license
under MPS patents issued in such country and covered by the MPS/Ciba
Agreement, which license to such MPS patents is restricted under the
MPS/Ciba Agreement from being granted by MPS to any third party for such
commercial activities until after expiration of the applicable restrictive
period under the MPS/Ciba Agreement.
5.3 Grant of Research Licenses for Purposes of Conducting the Corn Research
-----------------------------------------------------------------------
Programs. Each party hereby grants to the other party a non-exclusive
--------
license to any and all MPS BIP Genes and MPS Enabling Technology and,
correspondingly, to any and all Pioneer BIP Genes and Pioneer Enabling
Technology solely for the purpose of, and solely to the extent necessary
for, enabling each party to conduct its assigned research activities under
the Corn Research Programs.
5.4 Future Grant of License. At the earliest possible date permitted under the
-----------------------
MPS/Ciba Agreement, MPS will grant to Pioneer identical license rights in
corn as those granted to Pioneer under Article 4 applicable to Target
Crops.
Concurrently with such grant of license by MPS to Pioneer, Pioneer will
grant identical license rights in corn as those granted to MPS under
Article 4 applicable to Target Crops.
Upon the grant of the licenses described above from each party to the other
party, (i) MPS and Pioneer no longer will be restricted under this Article
5 from pursuing commercial activities with respect to BIP-based insect,
mite and nematode resistance traits in corn in countries where MPS patents
covered by the MPS/Ciba Agreement have issued and (ii) all provisions of
this Agreement will apply to the activities of the parties with respect to
any and
91
<PAGE>
all BIP transformation events created and being evaluated under the Corn
Research Programs.
92
<PAGE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
------------------------------
Each party to this Agreement, only with respect to itself, hereby represents and
warrants to the other party as follows:
6.1 Due Authorization. Each party has all requisite corporate power and
-----------------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated herein and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement, including,
without limitation, the grant of the licenses and the right to grant
sublicenses hereunder, has been duly and validly authorized by proper
corporate action and constitutes a valid and legally binding agreement of
such party, without requiring the consent of any third party or
governmental authority.
6.2 Good Title to Patents. Each party has good title (either as the owner or
---------------------
as a licensee) to patent rights that it owns as of the date of this
Agreement comprising part of the Combined Technology and Patent Rights,
with the right to grant the licenses granted under Article 2 and Section
5.3. Neither party makes any representation or warranty that the practice
or use of any of its technology and patent rights comprising part of the
Combined Technology and Patent Rights will not infringe or interfere with
property rights belonging to any third party. In this regard, each party
represents and warrants that it has to the best of its knowledge provided
full disclosure of information related to its patent rights to the other
party, and the parties acknowledge that each of them has had the
opportunity to conduct a due diligence investigation of the foregoing to
its own satisfaction.
6.3 No Conflicting Agreements. Neither party has entered into any
-------------------------
understanding or agreement with any third party that will in any way
conflict with any right granted, or obligation arising, under this
Agreement.
ARTICLE 7
PATENT PROSECUTION, DEFENSE AND ENFORCEMENT, ADDITIONAL LICENSES
----------------------------------------------------------------
7.1 Patent Prosecution and Defense. Each party, at its own expense, will
------------------------------
diligently prosecute in good faith its patents and patent applications
comprising its part of the Combined Technology and Patent Rights in all
jurisdictions where such patents and patent applications currently are
filed and, with respect to future patent applications where such party
decides to file future patent applications in order to obtain granted
claims in such jurisdictions covering the BIP Transformation Events under
such patents and patent applications and the development and
commercialization of Insect Resistant BIP Crops. Each party also will use
diligent efforts to maintain all licenses to the technology and patent
rights sublicensed by such party to the other party under this Agreement.
In the event that any of the patents or patent applications comprising the
Combined Technology and Patent Rights become the subject of an interference
or opposition or the validity of which is challenged under any proceeding
in the patent office or before any interference, opposition or other
administrative board in any particular jurisdiction, each
93
<PAGE>
party will diligently defend in good faith its own such patent(s) or patent
application(s) in order to obtain or maintain claims in such jurisdictions
covering the BIP Transformation Events under such patent(s) or patent
application(s) and the development and commercialization of Insect
Resistant BIP Crops.
7.2 Joint Inventions and Discoveries. Pioneer and MPS will jointly own all
--------------------------------
joint inventions and discoveries, including, without limitation, Joint
Enabling Technology, jointly invented or discovered by the parties during
the course of this Agreement. The Research Committee will be responsible
for establishing a process for identifying joint inventions or discoveries
for informing the inventors that no publication of such invention or
discovery shall be made without advance written approval from the Committee
and for prosecuting patent applications in any and all jurisdictions
related thereto. The Business Committee will decide upon the jurisdictions
in which each such application will be filed. The cost and expense of
filing and prosecuting any such patent applications and of maintaining
issued patents will be shared on an equal fifty-fifty basis by MPS and
Pioneer.
In the event that one party desires to file and prosecute a patent
application covering Joint Enabling Technology in a particular country and
the other party does not, the party desiring to file such patent
application may do so at its own expense. If the declining party desires
to maintain joint ownership of the Joint Enabling Technology in such
country covered by such patent application, then the declining party must
reimburse the filing party for 100% of all cost and expenses of preparing,
filing and prosecuting such patent application plus 25% thereof on or prior
to the second anniversary of the filing of such patent application. If the
declining party does not reimburse such costs and expenses, plus 25%
thereof, on or before such second anniversary date, then the declining
party hereby forfeits any and all rights to such Joint Enabling Technology
covered by such patent application except to the extent necessary to
commercialize Insect Resistant BIP Crops pursuant to the licenses granted
under Article 4.
Notwithstanding the foregoing, in the event that either MPS or Pioneer
determines in good faith that any such joint invention or discovery,
including, without limitation, any Joint Enabling Technology, should be
held as a trade secret, then neither party will file or prosecute any
patents with respect to such invention or discovery.
7.3 Periodic Updates. At least once every six months, the parties will review
----------------
the status and foreseeable significant developments of all patents and
patent applications comprising the Combined Technology and Patent Rights
with respect to obtaining or maintaining claims covering BIP Transformation
Events and the development and commercialization of Insect Resistant BIP
Crops. Concurrently with such review, the parties will evaluate and
discuss the issuance of patents and any foreseeable significant
developments of patent applications held by third parties that might impact
the ability of Pioneer and MPS to develop and commercialize Insect
Resistant BIP Crops.
7.4 Patent Enforcement. In the event that a third party is misappropriating
------------------
technology or infringing any patent(s) comprising the Combined Technology
and Patent Rights by developing, breeding, transforming, registering,
producing, distributing, advertising, marketing or selling or transgenic
crop containing BIP, then the parties will consult with one
94
<PAGE>
another regarding enforcement of such technology or patent rights. In this
respect, the parties will consider the nature and extent of the
misappropriation or infringement, the strength of such technology or patent
rights with respect thereto, the enforcement of narrower and more specific
technology or patent rights prior to the enforcement of broader and more
basic technology or patent rights comprising the Combined Technology and
Patent Rights, and the existence of facts or circumstances that would weigh
against enforcement of such rights.
If the parties agree that the technology or patent rights comprising the
Combined Technology and Patent Rights should be sufficient to stop the
infringing activity or collect damages or compel the misappropriating or
infringing party to seek a license from either party, then the parties will
consider whether they want to act in concert in an enforcement action. If
either party does not want to engage in a joint enforcement action, then
either party will be free to enforce or, to the extent not otherwise
prohibited under Article 2 of this Agreement, license its own technology
and patents with respect to such infringing third party. If the parties
decide to act in concert in an enforcement action, then the parties will
agree upon (i) retention of legal counsel; (ii) who controls the action;
(iii) sharing of legal and other expenses; (iv) settlement authority and
(v) sharing of damages or other award.
7.5 Additional Licenses. In the event that additional licenses from third
-------------------
parties become necessary to use the BIP Transformation Events to develop
and commercialize Insect Resistant BIP Crops as contemplated by this
Agreement, then the parties will consult as to the best way to obtain such
licenses for the benefit of both MPS and Pioneer and jointly negotiate for
such licenses. In the event that the parties, acting jointly, are unable
to obtain such licenses for the benefit of both MPS and Pioneer, each party
will be free to obtain a license for its own benefit (and not for the
benefit of the other party) for the development and commercialization of
Insect Resistant BIP Crops using the BIP Transformation Events.
ARTICLE 8
FUNDING BY PIONEER
------------------
In addition to Pioneer's commitment to perform its parts of each R&D Program as
set forth under Article 2 and its parts of each Corn Research Program as set
forth under Article 5, Pioneer will pay to MPS a lump sum equal to $10 million
contemporaneously with the execution and delivery of this Agreement by the
parties, and an additional lump sum of $11 million due upon the expiration of
the restriction on the ability of MPS to grant Pioneer a commercial license for
corn under the MPS/Ciba Agreement as described under Article 5. The payments are
for the research and development of BIP Transformation Events derived from
Bacillus species encoding insecticidal, miticidal and nematocidal proteins to be
performed in the future by MPS under the R&D Programs as initially set forth on
Schedule 2.4 and under the Corn Research Programs as set forth on Schedule 5.1.
ARTICLE 9
CONFIDENTIALITY
---------------
For a period of five (5) years from the termination of this Agreement, each
party will keep confidential any and all Confidential Information (not otherwise
excluded from the confidentiality and non-use obligation of this Article 9 as
set forth below) received from the other party in
95
<PAGE>
connection with the performance of this Agreement and will not disclose it to
third parties or use it for any purpose other than pursuant to this Agreement,
without the prior written consent of the disclosing party.
The confidentiality and non-use obligation of this Article 9 will not apply to
information and other items listed under the definition of Confidential
Information:
(a) which is public knowledge at the time of disclosure, or which after
disclosure becomes public knowledge in any way except through the wrongful
act of the party so disclosing it;
(b) which the receiving party is able to prove was in its possession at the
time of disclosure by the disclosing party and which had not been obtained
from the latter, either directly or indirectly;
(c) whose disclosure is compelled by administrative or judicial order; or
(d) which either party received from a third party having the legal right to
disclose such information.
The provisions of this Article 9 will survive any termination of this Agreement.
In the event that MPS determines that Confidential Information received from
Pioneer or any Pioneer Affiliate needs to be disclosed to regulatory authorities
for the sale or use of Insect Resistant BIP Crops or to a third party in
connection with the grant of a license to any BIP Transformation Event to such
third party pursuant to Section 4.3, then disclosure may be made to such third
party only upon Pioneer's prior written consent, which may not be unreasonably
withheld, and only if such third party agrees to be bound by terms of
confidentiality equivalent to those specified with this Article 9.
96
<PAGE>
ARTICLE 10
TERM AND TERMINATION
--------------------
Unless earlier terminated by the written agreement of both Pioneer and MPS, this
Agreement will become effective on the date first written above and will expire
when both Pioneer and MPS cease selling Insect Resistant BIP Crops containing
BIP Transformation Events.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 Indemnification. Except with respect to claims for patent infringement,
---------------
each party ("party A") agrees to protect and indemnify the other party
("party B") and its Affiliates (collectively "Indemnitees") and hold the
Indemnitees harmless from and against any and all costs, expenses, causes
of action and damages, including reasonable attorneys* fees (collectively,
"Indemnified Claims"), including, without limitation, those brought or
asserted by any party or governmental authority relating to environmental,
health or safety matters for personal injury or property damage, which
arise from or in connection with any activity involving Insect Resistant
BIP Crops containing BIP Transformation Events by such party ("party A") or
its Affiliates or the growing, use, purchase or consumption of any plants
or products of any kind utilizing or derived from Insect Resistant BIP
Crops containing BIP Transformation Events sold by such party ("party A")
or its Affiliates, except to the extent caused by the negligence or
misconduct of the Indemnitee, or from the breach of any of the
Representations and Warranties set out in Article 6.
11.2 Notice. Promptly after receipt by an Indemnitee of notice of the
------
commencement of any action or the presentation or other assertion of any
Indemnified Claim that could result in an indemnification claim pursuant
hereto, the Indemnitee will give prompt notice thereof to the indemnifying
party and the indemnifying party will be entitled to assume the defense
thereof. If the indemnifying party elects to assume the defense of any
Indemnified Claim, such election will be deemed to be the consent of the
indemnifying party to having the subject matter of such action be an
Indemnified Claim for purposes of Section 11.1, subject to the exception
noted therein. The indemnified party may, at all times, with counsel of
its own choice and at its own expense, participate in the defense of any
Indemnified Claim. A failure or delay by the Indemnitee to give notice of
an Indemnified Claim will not release or limit the indemnifying party's
obligations hereunder except to the extent that the indemnifying party has
been prejudiced by such failure or delay.
11.3 Settlements. Whether or not the indemnifying party elects to assume the
-----------
defense of any Indemnified Claim, it will not be liable for any compromise
or settlement of any such action or claim effected without its consent,
which will not be unreasonably withheld. The parties agree to cooperate to
the fullest extent possible in connection with any claim for which
indemnification is or may be sought under this Agreement.
97
<PAGE>
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Severability. In the event that one or more provisions of this
------------
Agreement should be, or become, illegal, invalid or unenforceable, then the
parties will substitute legal, valid and enforceable provisions for such
illegal, invalid ones. The substituted provisions will be drafted so that
in their economic effect they so closely resemble the illegal, invalid or
unenforceable provisions that it can be reasonably assumed that the parties
would have contracted on the basis of those new provisions. In the event
that such provisions cannot be drafted, the illegality, invalidity or
unenforceability of one or more of the provisions of this Agreement will
not affect the validity or enforceability of this Agreement as a whole,
unless the affected provisions are of such essential importance to this
Agreement that it can be reasonably assumed that the parties would not have
entered into this Agreement without such provisions.
12.2 No Implied Waivers. Failure of either party to this Agreement to insist
------------------
upon strict observance of or compliance with all its terms and conditions
in one or more instances will not be deemed to be a waiver of its rights to
insist upon such observance or compliance in the future.
12.3 Modifications and Amendments. No alteration, amendment, or supplement to
----------------------------
this Agreement will be of any force or effect unless in writing and signed
by the party bound thereby.
12.4 Entire Agreement. This Agreement constitutes the entire understanding
----------------
between the parties and neither party will be obligated by any condition or
representation other than those expressly stated herein or as may be
subsequently agreed to by the parties hereto in writing.
12.5 No Agency or Partnership. Nothing in this Agreement will be deemed to
------------------------
constitute a partnership, agency, employer-employee or joint venture
relationship between the parties. All activities by the parties hereunder,
including but not limited to the duties described herein, will be performed
by them as independent contractors. Neither party will incur any
obligation or make any commitments for or on behalf of the other party.
12.6 No Assignments. This Agreement will inure to the benefit of and be
--------------
binding upon the parties hereto, their respective Affiliates as permitted
hereunder and their respective successors and assigns. Other than to
successors of either party, no party will assign this Agreement or any
rights or obligations hereunder (other than to (i) the respective
Affiliates of each party as permitted under Article 4 and (ii) with respect
to the grant of licenses by MPS to third parties as set forth under Section
4.3) without the prior written consent of the other party.
12.7 Force Majeure. No liability will result from the delay in performance or
-------------
nonperformance, in whole or in part, if it has been made impracticable by
compliance in good faith with any applicable government or judicial
regulation or order whether or not it later proves to be invalid, or by the
occurrence of a contingency the nonoccurrence of which was a basic
assumption on which this Agreement was made, including, but not limited to,
acts of God,
98
<PAGE>
fire, flood, accident, riot, sabotage, war, insurrection, earthquake,
strike, labor trouble or shortage, or embargo. Upon the occurrence of such
delay, the delayed party shall promptly notify the other and the period of
performance shall be extended to compensate for said delay.
12.8 Headings. The headings of the Articles and Sections of this Agreement are
--------
for convenience only and will not change the substantive provisions of this
Agreement.
12.9 Notices. Any notices permitted or required by this Agreement will be
-------
deemed to be effective upon receipt when sent by telex, telecopier or
postage prepaid certified mail if sent:
(a) In the case of Pioneer to:
Pioneer Hi-Bred International, Inc.
700 Capital Square
400 Locust Street
Des Moines, IA 50309
Attention: Dr. Richard McConnell
Fax: 515/248-4844
with a copy sent to Daniel Cornelison, Esq.
(b) In the case of MPS to:
Mycogen Plant Sciences
5501 Oberlin Drive
San Diego, California 92121
Attention: President
Fax: 619/453-0142
with a copy sent to the General Counsel
or at such other address as each such party may designate in writing.
IN WITNESS WHEREOF, the parties hereby execute and deliver this Agreement as of
the date first written above.
AGRIGENETICS, INC. PIONEER HI-BRED INTERNATIONAL, INC.
d/b/a MYCOGEN PLANT SCIENCES
By: /s/ Jerry Caulder By: /s/ Chuck Johnson
----------------- ------------------------------
Title: President Title: President & Chief Executive Officer
-------------- -----------------------------------
99
<PAGE>
SCHEDULE 2.4: PIONEER / MYCOGEN BIP CROP PROGRAMS
2.4.1 SOYBEAN PROGRAMS
[THIS SCHEDULE, WHICH CONTAINS CONFIDENTIAL INFORMATION, HAS BEEN DELETED FROM
THE COLLABORATION AGREEMENT SUBMITTED FOR PUBLIC RECORD. THE CONFIDENTIAL
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
100
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
101
<PAGE>
SCHEDULE 2.5
------------
Example - initiation of a New R & D Program; Consequence for Non-Participation
- ------------------------------------------------------------------------------
Example - In the year 2000, Pioneer desires to initiate a new R&D Program for a
particular pest of tropical corn. Since corn is a Target Crop covered by the
Agreement, Pioneer can request the initiation of a new R&D Program for the
desired target pest in tropical corn ("Tropical Corn Pest Program").
Pioneer presents a preliminary proposal for such a program to the Business
Committee. The Business Committee directs the Research Committee to define and
evaluate all aspects of the proposed program, including (i) who does what; (ii)
the resources needed; (iii) the probability of success; (iv) the anticipated
development schedule; (v) critical decision points and milestones along the
development schedule; and (vi) (an estimated time frame for completing the
program. The evaluation by the Research Committee is based on the best
utilization of each party's technical capabilities and expertise and not on the
budgetary burden that may fall on either party.
Based on the evaluation of the Research Committee, MPS decides that it does not
have the resources at that time to support its parts of the proposed Tropical
Corn Pest Program. Unless Pioneer and MPS can agree through the Business
Committee on how to reallocate the responsibilities or otherwise help MPS, MPS
can defer initiation of the program as configured by the Research Committee for
18 months. In this example, MPS defers initiation of the program for 18 months
after the Business committee concludes that the parties cannot agree to initiate
the proposed program.
Eighteen months later, Pioneer reintroduces to the Business Committee the
proposed Tropical Corn Pest Program. At that time, with some modifications, MPS
is prepared to perform its parts of the program. The Research Committee
completes detailed description of the Tropical Corn Pest Program, which is
attached to this Agreement as part of Schedule 2.4, thus obligating each part to
perform its parts of the program pursuant to this Agreement.
Suppose, however, that after such 18 month "stand down" period, MPS still is not
prepared to participate in the proposed Tropical Corn Pest Program. In such
event, Pioneer can elect to fund 100% of the program, in which case MPS will be
obligated to perform any and all activities that Pioneer technically, or for the
purpose of obtaining intellectual property rights, cannot perform, provided that
Pioneer funds all such activities performed by MPS. Alternatively, Pioneer can
decide to perform all parts of the program on its own.
Regardless of whether Pioneer decides to perform all parts of the Tropical Corn
Pest Program or whether MPS performs its parts with funding from Pioneer, the
progress of the program (including, without limitation the cost of the program)
is monitored by the Research Committee and the Business Committee in the same
detail as any other R&D Program.
At any time within the first two years of the Tropical Corn Pest Program, MPS
can elect to participate in the program and receive all rights as set forth
under this Agreement with respect to any BIP Transformation Events developed
under such program. MPS can elect to participate in the
102
<PAGE>
Program by (i) reimbursing Pioneer for 100% of the costs and expenses incurred
by Pioneer in performing and or funding all parts of the program plus 25% and
(ii) committing to conducting all remaining parts of the Tropical Corn Pest
Program originally assigned to MPS by the Research Committee when the program
originally was structured.
If MPS does not elect to participate in the Tropical Corn Pest Program within
such two year period, then MPS has no rights under Article 4 of this Agreement
to any BIP Transformation Events developed under such program. If such two year
period expires without MPS electing to participate in the Tropical Corn Pest
Program, then MPS ceases to have any right through the Research Committee or the
Business Committee to monitor or otherwise be appraised of the progress of such
program. In such event, Pioneer is free to develop and commercialize the BIP
Transformation Event(s) targeted under the Tropical Corn Pest Program, subject
to the limitations imposed on Pioneer under Article 4 of this Agreement on the
activities of Pioneer with respect to BIP Transformation Events.
If the case had been that Pioneer was the party electing not to participate,
then Pioneer would cease to have any rights under Article 4 to any BIP
Transformation Event(s) developed under such program. In such event, MPS would
be free to develop and commercialize such BIP Transformation Events(s), alone
and with third parties, as MPS decides in its sole discretion without any
limitation whatsoever under Article 4 on the activities of MPS (including
licensing to any third parties) with respect to such BIP Transformation
Event(s). The same consequence would result if Pioneer failed to perform
conversion of MPS parent lines with the subject BIP Transformation Event(s)
pursuant to Section 2.11.
In the event that upon considering the initiation of a this new R&D Program, MPS
and Pioneer determine that a patent then issued to a third party is necessary
to develop BIP Transformation Events under such prospective R&D Program or to
permit both MPS and Pioneer to commercialize Insect Resistant BIP Crops using
any BIP Transformation Events developed under such prospective R&D Program,
neither MPS nor Pioneer will be obligated in any way to commence such
prospective R&D Program until a license to such third party patent is obtained
for both MPS and Pioneer.
103
<PAGE>
SCHEDULE 2.9
------------
Example - Substantial Additional Resources Needed Under an R&D Program;
- -----------------------------------------------------------------------
Consequences for Non-Participation
- ----------------------------------
Example - A particular R&D Program suffers a set back at the stage of
transforming a particular BIP genetic construct into the Target Crop of
interest. The Research Committee determines that the best viable solution is to
increase the transformation effort by 500%.
Under the program, Pioneer is responsible for transformation work. Pioneer is
skeptical of the probability of success of increasing the transformation effort
and declines to do the work. The Business Committee is not successful in
reaching a compromise.
MPS elects to fund the work. Pioneer then is obligated to do the work with MPS
funding.
After $1 million of additional transformation effort, success is achieved.
Immediately upon completion of such additional transformation work, Pioneer must
reimburse MPS the $1 million of costs incurred plus 25% (an additional $250,000)
in order for Pioneer to maintain its rights under Article 4 to any BIP
Transformation Events developed under that program.
104
<PAGE>
SCHEDULE 4.3
------------
Example - MPS Right to Grant Sublicenses to Third Parties
- ---------------------------------------------------------
Example - Under two separate R&D Programs, the parties successfully develop two
BIP Transformation Events - one responsible for resistant to flea beetle in
canola (the "Flea Beetle Event") and one responsible for resistant to cyst
nematodes in soybeans (the "Nematode Event").
With respect to these two BIP Transformation Events, MPS has the right to grant
the following licenses to third parties (in addition to licenses to MPS
Affiliates):
1. Flea Beetle Event: MPS can grant a license to party A in North America,
-----------------
party B in Europe, and party C in the rest of world and give each such party the
Flea Beetle Event sufficiently far in advance so that each such party can
commercialize transgenic canola containing the Flea Beetle Event in each
jurisdiction (North America, Europe and the rest of the world) at the same time
as Pioneer.
All other licenses granted in each jurisdiction to other third parties must
prohibit such parties from commercializing transgenic canola containing the Flea
Beetle Event until 24 months after the calendar year in which Pioneer reaches
its RC1 stage of transgenic canola containing the Flea Beetle Event. MPS can
provide the Flea Beetle Event to such other third parties in advance of such 24
month lead-time to enable any such other third party to convert its parent
lines, receive governmental registrations and produce commercial hybrids to be
ready for sale immediately upon expiration of such 24 month lead-time.
In addition, after the 24 month lead time, MPS will be allowed to distribute the
transgenic canola containing the Flea Beetle Event through third party seed
companies that are also distributors of Mycogen branded bagged seed products.
2. Nematode Event: MPS has the same licensing rights as described above,
--------------
except that MPS can first license party X in North America (instead of party A),
party Y in Europe (instead of party B), and party Z in the rest of the world
(instead of party C) so that each of X, Y, and Z can commercialize transgenic
soybeans containing the Nematode event in their respective jurisdictions at the
same time as Pioneer. Different parties can receive the Nematode Event than the
parties that receive the Flea Beetle Event.
105
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
106
<PAGE>
SCHEDULE 5.1: PIONEER / MYCOGEN BIP RESEARCH PROGRAMS IN CORN
** TO BE PERFORMED ON MAINLAND USA **
[THIS SCHEDULE, WHICH CONTAINS CONFIDENTIAL INFORMATION, HAS BEEN DELETED FROM
THE COLLABORATION AGREEMENT SUBMITTED FOR PUBLIC RECORD. THE CONFIDENTIAL
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
107
<PAGE>
EXHIBIT 10.21
MYCOGEN CORPORATION
COMMON STOCK PURCHASE AGREEMENT
108
<PAGE>
MYCOGEN CORPORATION
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT ("Agreement") is made as of December
13, 1995 by and between Mycogen Corporation (the "Company"), a California
corporation, and Pioneer Overseas Corporation, an Iowa corporation (the
"Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE THE COMMON STOCK. At the Closing
(as defined in Section 2), the Company shall sell to the Purchaser, and the
Purchaser shall purchase from the Company, upon the terms and conditions
hereinafter set forth, Three Million (3,000,000) shares (the "Shares") of the
Company's Common Stock (the "Common Stock") for a purchase price per share of
Ten Dollars ($10.00), which results in an aggregate purchase price for the
Shares of Thirty Million Dollars ($30,000,000).
SECTION 2. DELIVERY OF THE COMMON STOCK AT THE CLOSING. The completion of
the purchase and sale of the Shares (the "Closing") shall occur at the principal
offices of the Company at 5501 Oberlin Drive, San Diego, California 92121
(telephone number 619/453-8030; facsimile number 619/453-5494) at 10:00 a.m. on
December 13, 1995 (the "Closing Date"), or such later date as the Company and
the Purchaser may agree, subject to the satisfaction (or waiver) of the
conditions hereinafter set forth. At the Closing, the Purchaser shall make
payment of the full purchase price for the Shares by wire transfer of same-day
funds as directed by the Company in writing. At the Closing, the Company shall
deliver to the Purchaser one or more stock certificates registered in the name
of the Purchaser representing the Shares.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Purchaser as of the Closing Date as follows:
3.1. ORGANIZATION. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of California.
The Company has all requisite corporate power and authority to own, lease and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted and to execute and deliver this
Agreement and to consummate the transaction contemplated herein. The Company is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the condition
(financial or otherwise), assets, business or results of operations of the
Company and its Subsidiaries (as hereinafter defined) taken as a whole (a
"Material Adverse Effect").
3.2. SUBSIDIARIES. All of the Company's subsidiaries (the "Subsidiaries")
are listed on Exhibit 21 to the Company's Annual Report on Form 10-K for the
Year Ended August 31, 1995 (the "Form 10-K"). Each of the Company's
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has full
109
<PAGE>
corporate power and authority to own and lease its properties, and to carry on
its business as presently conducted, is duly qualified, registered or licensed
as a foreign corporation to do business and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or the
character of its present operations make such qualification, registration or
licensing necessary, except where the failure so to qualify or be in good
standing would not have a Material Adverse Effect.
3.3. NO BREACH. The execution and delivery of this Agreement by the
Company does not, and the issuance of the Shares of the Company will not, (i)
violate or conflict with the Certificate or Articles of Incorporation or Bylaws
of the Company, (ii) constitute a breach or default (or an event that with
notice or lapse of time or both would become a breach or default) of, or give
rise to any lien, third-party right of termination, cancellation, modification
or acceleration under, any agreement, understanding or undertaking to which the
Company is a party, except where such breach, default, lien, third-party right,
cancellation, modification or acceleration would not have a Material Adverse
Effect, or (iii) subject to obtaining the approvals and making the filings
described in Section 3.6 hereof, constitute a violation of any statute, law,
ordinance, rule, regulation, judgment, decree, order or writ of any judicial,
arbitral, public, or governmental authority having jurisdiction over the Company
or any of its Subsidiaries or any of their respective properties or assets
except as would not have a Material Adverse Effect.
3.4. ISSUANCE AND DELIVERY OF THE SHARES. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable. The issuance and delivery of the Shares is not subject
to preemptive or any other similar rights of the stockholders of the Company or
any liens or encumbrances.
3.5. SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed in a
timely manner all documents that the Company was required to file with the
Securities and Exchange Commission (the "SEC") under Sections 13, 14(a) and
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
during the twelve (12) months preceding the date of this Agreement. As of their
respective filing dates, all documents filed by the Company with the SEC (the
"SEC Documents") complied in all material respects with the requirements of the
Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"),
as applicable. None of the SEC Documents, including the financial statements or
schedules included or incorporated therein, as of their respective dates
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents (the "Financial Statements") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto. The Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the company and any Subsidiaries at the dates thereof and the consolidated
results of their operations and consolidated cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal, recurring
adjustments). As of the Closing
110
<PAGE>
Date, the Company is in compliance in all material respects with the
requirements of the Exchange Act and the Securities Act.
3.6. GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the execution and delivery of the Agreement, or the
consummation of the transactions contemplated by this Agreement except for (a)
the expiration or early termination of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, (b) compliance with the securities
and blue sky laws in the states in which Shares are offered and/or sold, which
compliance will be effected in accordance with such laws, and (c) the filing of
The NASDAQ National Market Notification Form with The NASDAQ National Market and
Form 10-C with the SEC.
3.7. NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed herein or
in the Company's most recent filed Form 10-K (a copy of which has been provided
to the Purchaser), since August 31, 1995, there have not been any changes in the
assets, liabilities, financial condition, business prospects or operations of
the Company from that reflected in the Financial Statements except changes in
the ordinary course of business and changes which would not have, either
individually or in the aggregate, a Material Adverse Effect or have a material
adverse effect on the ability of the Company to perform its obligations under
this Agreement.
3.8. AUTHORIZED CAPITAL STOCK. The authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock $.001 par value, and
5,000,000 shares of serial preferred stock, $.001 par value, of which 19,481,106
shares of Common Stock and 3,100 shares of Series A Preferred Stock are
outstanding prior to the issuance of the Shares. Except as described in the
Company's Form 10-K, there are no outstanding options, warrants, puts, calls,
commitments, convertible or exchangeable securities or similar rights requiring
or providing for the issuance of new or additional equity interests in the
Company. All such outstanding shares are duly authorized, validly issues and
fully paid and nonassessable. There are no preemptive or other similar rights
available to the existing holders of the capital stock of the Company. There
are no voting trusts or other agreements or understandings to which the Company
is a party with respect to the voting of capital stock of the Company.
3.9. LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the best of the Company's knowledge, threatened
against the Company or any of its properties before or by any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable likelihood (in the judgment of the Company) of an adverse decision
that (a) could have a Material Adverse Effect or (b) could impair the ability of
the Company to perform in any material respect its obligations under this
Agreement.
3.10. COMPLIANCE WITH LAW. The Company holds all licenses, franchises,
certificates, consents, permits and authorizations from all governmental
authorities necessary for the lawful conduct of its business, except where the
failure to hold any of the foregoing would not have a Material Adverse Effect.
To the Company's knowledge, the Company has not violated, and is not
111
<PAGE>
in violation of, any such licenses, franchises, certificates, consents, permits
or authorizations or any applicable statutes, laws, ordinances, rules and
regulations (including, without limitation, any of the foregoing related to
occupational safety, storage, disposal, discharge into the environment of
hazardous wastes, environmental protection, conservation, unfair competition,
labor practices or corrupt practices) of any governmental authorities, except
where such violations do not, and insofar as reasonably can be foreseen, will
not have a Material Adverse Effect, and the Company has not received any notice
from a governmental or regulatory authority within three years of the date
hereof of any such violation.
3.11. USE OF PROCEEDS. The Company will apply the net proceeds from the
sale of the Shares to redeem shares of its Series A Preferred Stock and for
general corporate purposes.
3.12. BROKERS AND FINDERS. Neither the Company, nor any officer, director
or employee of the company has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated herein.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser represents and warrants to the Company as follows:
4.1. ACCREDITED INVESTOR. The Purchaser is an "accredited investor"
within the meaning of Rule 501(a) of the Securities Act.
4.2. INVESTMENT REPRESENTATIONS. The Purchaser is aware that the Shares
have not been registered under the Securities Act or any applicable state
securities laws, and agrees that the Shares will not be offered or sold in the
absence of registration under the Securities Act and any applicable state
securities laws or an exemption from the registration requirements of the
Securities Act and any applicable state securities laws. The Purchaser will not
transfer the Shares in violation of the provisions of any applicable federal or
state securities laws. In this connection, the Purchaser represents that it is
familiar with SEC Rule 144 promulgated pursuant to the Securities Act ("Rule
144"), as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
The Purchaser understands that the offering and sale of the Shares is
intended to be exempt from registration under the Securities Act, by virtue of
Section 4(2) and/or Section 4(6) of the Securities Act and the provisions of
Regulation D promulgated thereunder, based, in part, upon the representations,
warranties and agreements contained in this Agreement and the Company may rely
on such representations, warranties and agreements in connection therewith.
The Purchaser is acquiring the Shares for its own account and for
investment, and not with a view to the distribution thereof or with any present
intention of distributing or selling any of the Shares except in compliance with
the Securities Act. The Purchaser represents that by reason of its business and
financial experience, and the business and financial experience of those
persons, if any, retained by it to advise it with respect to its investment in
the Shares, such Purchaser together with such advisors have knowledge,
sophistication and experience in business and financial matters
112
<PAGE>
as to be capable of evaluating the merits and risk of the prospective
investment. The Purchaser's financial condition and investments are such that it
is in a financial position to hold the Shares for an indefinite period of time
and to bear the economic risk of, and withstand a complete loss of, its
investment in the Shares.
4.3. AUTHORITY. The Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby. Upon the execution and delivery of this Agreement by the
Purchaser and by the Company, this Agreement shall constitute a valid and
binding obligation of the Purchaser, enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.4. PURCHASER REVIEW. The Purchaser has carefully examined the SEC
Documents. The Purchaser acknowledges that the Company has made available to
the Purchaser all documents and information that it has requested relating to
the Company and has provided answers to all of its questions concerning the
Company and the Shares. In evaluating the suitability of the acquisition of the
Shares hereunder, the Purchaser has not relied upon any representations or other
information (whether oral or written) other than as set forth in the SEC
Documents or as contained herein.
SECTION 5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwith-
standing any investigation made by any party to this Agreement, all covenants,
agreements, representations and warranties made by the Company and the Purchaser
herein shall survive the execution of this Agreement, the delivery to the
Purchaser of the Shares being purchased and the payment therefor.
113
<PAGE>
SECTION 6. RESTRICTIONS ON TRANSFERABILITY OF SHARES, COMPLIANCE WITH
SECURITIES ACT.
6.1. RESTRICTIONS ON TRANSFERABILITY. The Shares shall not be
transferable in the absence of an effective registration statement under the
Securities Act or an exemption therefrom or in the absence of compliance with
any term of this Agreement. In the absence of an effective registration
statement under the Securities Act, neither the Shares nor any interest therein
shall be sold, transferred, assigned or otherwise disposed of, unless the
Company shall have previously received an opinion of counsel knowledgeable in
federal securities law, in form and substance reasonably satisfactory to the
Company and accompanied by such supporting documents as the Company may
reasonably request, to the effect that registration under the Securities Act is
not required in connection with such disposition. The Company shall be entitled
to give stop transfer instructions to its transfer agent with respect to the
Shares in order to enforce the foregoing restrictions.
6.2. RESTRICTIVE LEGEND. The certificate or certificates representing the
Shares shall bear the following legend restricting transfer:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, PROVIDED THAT AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE."
The certificate shall also include any legend required by any applicable state
securities law.
SECTION 7. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of the
Purchaser to purchase the Shares set forth on the signature page hereof at the
Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions, any or all of which may be waived at the option of the
Purchaser:
7.1. REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.
114
<PAGE>
7.2. COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
7.3. NO PROHIBITION. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement or any
law, rule or regulation prohibiting or restricting such transactions, or
requiring any consent or approval of any person which shall not have been
obtained (except as otherwise provided in this Agreement).
7.4. COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser a certificate executed on behalf of the Company by its Chief Operating
Officer and dated the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 7.1 and 7.2.
7.5. COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale of
the Shares under this Agreement shall have complied with all applicable
requirements of federal securities laws and the Purchaser shall have received
evidence, if any, of such compliance in form and substance satisfactory to the
Purchaser.
7.6. REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered to the Purchaser the Registration Rights Agreement substantially in
the form attached hereto as Exhibit "A" (the "Registration Rights Agreement").
7.7. COLLABORATION AGREEMENT. The Company shall have executed and deliver
to the Purchaser the Collaboration Agreement substantially in the form attached
hereto as Exhibit "B" (the "Collaboration Agreement").
7.8. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
contemplated by this Agreement shall be satisfactory to the Purchaser and such
Purchaser's counsel, and the Purchaser and such Purchaser's counsel shall have
received all such counterpart originals or certified or other copies of such
documents as the Purchaser or such Purchaser's counsel may reasonably request.
SECTION 8. CONDITIONS TO OBLIGATIONS OF COMPANY. The Company's obligation
to issue and sell the Shares to the Purchaser at the Closing is subject to the
fulfillment on or prior to the Closing Date of the following conditions, any or
all of which may be waived at the option of the Company:
8.1. REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchaser in Section 4 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
115
<PAGE>
8.2. COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchaser on or prior to the Closing Date
shall have been performed or complied with in all material respects.
8.3. NO PROHIBITION. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement, or any
law, rule or regulation prohibiting or restricting such transactions, or
requiring any consent or approval of any person which shall not have been
obtained (except as otherwise provided in this Agreement).
8.4. COMPLIANCE CERTIFICATE. The Purchaser shall have delivered to the
Company a certificate executed on behalf of the Purchaser by an authorized
officer thereof and dated the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 8.1 and 8.2.
8.5. COLLABORATION AGREEMENT. The Purchaser shall have executed and
delivered to the Company the Collaboration Agreement.
8.6. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
contemplated by this Agreement shall be satisfactory to the Company and
Company's counsel, and the Company and Company's counsel shall have received all
such counterpart originals or certified or other copies of such documents as the
Company or Company's counsel may reasonably request.
SECTION 9. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed given when sent
both by facsimile (unless the addressee has not provided a valid facsimile
number for such purpose) and either first class mail, postage prepaid, or next-
day delivery service:
(a) if to Company, to Mycogen Corporation, 5501 Oberlin Drive, San
Diego, California 92121, Attention: Carlton J. Eibl, President and Chief
Operating Officer, facsimile number 619/453-0142 with a copy to Page, Polin,
Busch & Boatwright, 350 West Ash Street, Suite 900, San Diego, California 92101-
3436, Attention: Steven G. Rowles, Esq., facsimile number 619/231-1996, or to
such other person at such other place as the Company shall designate to the
Purchaser in writing;
(b) if to the Purchaser, to Pioneer Hi-Bred International, Inc., 700
Capital Square, 400 Locust Street, Des Moines, Iowa 50309, Attention: Daniel
Cornelison, facsimile number 515/248-4844, or at such other facsimile number and
address as may have been furnished to the Company in writing; or
(c) if to transferee or transferees of the Purchaser, at such
facsimile number and address as shall have been furnished by such transferee or
transferees to the Company in writing.
SECTION 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No
116
<PAGE>
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Agreement shall affect, or be used to interpret,
change or restrict, the express terms and provisions of this Agreement.
SECTION 11. AMENDMENTS. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and by the
Purchaser.
SECTION 12. HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 13. SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California (without regard
to conflict of law principles) and the United States of America.
SECTION 15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other party.
SECTION 16. EXPENSES. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transaction
contemplated hereby whether or not the transactions contemplated hereby are
consummated.
SECTION 17. PUBLICITY. Purchaser shall not issue any press releases or
otherwise make any public statement with respect to the transactions
contemplated by this Agreement without the prior written consent of the Company,
except as may be required by applicable law or regulation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
117
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives the day and year first above
written.
MYCOGEN CORPORATION, a California
corporation
By: /s/ Carlton J. Eibl
-------------------------------------
Carlton J. Eibl
President and Chief Operating Officer
PIONEER HI-BRED INTERNATIONAL, INC.,
an Iowa corporation
By: /s/ Chuck Johnson
-------------------------------------
Chuck Johnson
President and Chief Operating Officer
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
118
<PAGE>
EXHIBIT "A"
REGISTRATION RIGHTS AGREEMENT
119
<PAGE>
EXHIBIT "B"
COLLABORATION AGREEMENT
120
<PAGE>
EXHIBIT 10.22
REGISTRATION RIGHTS AGREEMENT
121
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated December 13, 1995 by and between
MYCOGEN CORPORATION, a California corporation (the "Company") and PIONEER
OVERSEAS CORPORATION, an Iowa corporation ("Pioneer").
This Agreement is made in connection with that certain Common Stock
Purchase Agreement dated December 13, 1995 between the Company and Pioneer
relating to the acquisition by Pioneer of 3,000,000 shares of the Company's
Common Stock (such shares of the Company's common stock are referred to as the
"Common Shares") (such Agreement is referred to as the "Stock Purchase
Agreement").
The parties hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) The term "Closing" shall mean the initial sale of the Common
Shares.
(b) The term "Commission" shall mean the Securities and Exchange
Commission or other federal agency at the time administering the Securities Act.
(c) The term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(d) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
(e) The term "Holder" means each of Pioneer, any controlled affiliate
of Pioneer that at any time holds any Registrable Securities and any other third
party to which Pioneer or any controlled affiliate(s) of Pioneer (or both) have
transferred Registrable Securities having a fair market value of at least Five
Million Dollars ($5,000,000) at the time of such transfer and in compliance with
Section 12.2 hereof.
(f) The term "Majority Holders" means the Holders of a majority of
shares of Common Shares included in a registration.
(g) The term "register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
122
<PAGE>
(h) The term "Registrable Securities" means: (i) the shares of the
Common Shares issued pursuant to the Stock Purchase Agreement, and (ii) any
other shares of the Company's Common Stock issued in respect of such shares as a
result of stock splits, stock dividends, reclassifications, recapitalizations or
similar events; provided, however, that shares of the Company's Common Stock
-------- -------
that are Registrable Securities shall cease to be Registrable upon any sale
pursuant to a registration statement or Rule 144 (other than Rule 144(k)) under
the Securities Act.
(i) The term "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(j) The term "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
2. DEMAND REGISTRATION.
2.1. REQUEST FOR REGISTRATION. At any time after the first
anniversary of the Closing and from time to time thereafter, any Holder may make
a written request for registration all or any part of its Registrable Securities
(provided that if the Company is then entitled to use Form S-3 or any successor
form thereto to register shares of its Common Stock, then such requested
registration shall be on Form S-3 or any successor form thereto) under the
Securities Act and, subject to Section 5.4, the securities or blue sky laws of
any jurisdictions designated by any Holder having Registrable Securities
included in such registration (a "Demand Registration"). The Company shall,
subject to Section 2.3 hereof, use reasonably diligent efforts to effect up to
two (2) Demand Registrations for Registrable Securities. Each Demand
Registration shall specify the number of Registrable Securities proposed to be
sold, which shall include at least such number of shares, when combined with
shares to be registered by other persons pursuant to demand registration rights,
to yield an anticipated aggregate offering price, net of underwriting discounts
and commissions, of Ten Million Dollars ($10,000,000), and shall also specify
the intended method of disposition thereof. Upon a request for a Demand
Registration, the Company shall promptly take such steps as are necessary or
appropriate to prepare for the registration under the Securities Act of the
Registrable Securities to be registered and the qualification thereof under
applicable blue sky or other state securities laws, including the preparation of
an appropriate registration statement and filing the same with the Commission as
soon as practicable following the applicable initiating written request for
registration.
If, in the good faith judgment of the Board of Directors of the
Company, a Demand Registration would be seriously detrimental to the Company and
the Board of Directors of the Company concludes, as a result, that it is
essential to defer the filing or effectiveness of such registration statement at
such time, and the Company furnishes the Holders a certificate signed by the
President of the Company to that effect, then the Company shall have the right
to defer such filing for a period during which such disclosure would be
seriously detrimental, provided that the Company may not defer the filing for a
period of more than one hundred twenty (120) days after receipt of the request
for registration from any Holder, and provided further that the Company may not
defer the filing of a registration statement for a Demand Registration more than
once during any twelve (12) month period. The registration statement filed
pursuant to the request of any Holder pursuant to this Section 2.1 may
123
<PAGE>
include other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
2.2. EFFECTIVE REGISTRATION AND EXPENSES. A registration shall not
constitute a Demand Registration until it has become effective and unless each
Holder making the Demand Registration has registered and sold at least ninety
percent (90%) of the Registrable Securities it requests to be included in such
registration. In any registration initiated as a Demand Registration, the
Company shall pay all Registration Expenses in connection therewith, whether or
not such Demand Registration becomes effective, unless such Demand Registration
fails to become effective because the request of registration is withdrawn by
any Holder that proposes to include Registrable Securities in such registration
for any reason other than those set forth in Section 6 hereof or as a result of
any other fault of any such Holder.
2.3. SELECTION OF UNDERWRITERS. If any Demand Registration is in the
form of an underwritten offering, the Company shall select and obtain the
investment banker or investment bankers (which shall be a nationally recognized
prominent investment banking firm) and manager or managers that will administer
the offering (the "Approved Underwriter"); provided, that, the Approved
Underwriter shall be reasonably acceptable to the Majority Holders. If the
Approved Underwriter advises the Holder(s) participating in the Demand
Registration in writing that marketing factors require limitation on the number
of shares to be underwritten, the number of shares to be included in the
underwriting or registration shall be allocated pro rata among the participating
Holders.
3. PIGGY-BACK REGISTRATION. If, at any time after the date hereof, the
Company proposes to file a registration statement under the Securities Act with
respect to an offering by the Company any class of security either for its own
account or for the account or accounts of its security holders (other than a
registration statement on Form S-4 or S-8 or any successor or similar forms
thereto), then the Company shall give prompt written notice of such proposed
filing to each Holder, which notice shall describe in detail the proposed
registration and distribution (including those jurisdictions where registration
under the securities or blue sky laws is intended) and offer such Holders the
opportunity to register such number, as the case may be, of Registrable
Securities as such Holders may request. Upon written request received by the
Company from any Holder within ten (10) days after receipt of such notice by the
Company to such Holder, the Company shall (subject to the provisions of this
Section 3) use reasonably diligent efforts to cause to be registered under the
Securities Act all of the Registrable Securities requested to be registered by
such Holders in such written notice to the Company. The Company is required to
include the Registrable Securities requested by the Holder(s) in an unlimited
number of piggy-back registrations pursuant to this Section 3. Subject to
Section 8, the Company shall request that the managing underwriter or
underwriters of a proposed underwritten offering (the "Company Underwriter")
permit such Holders to participate in the registration for such offering to
include such Registrable Securities in such offering. Notwithstanding the
foregoing, if, in the opinion of the Company Underwriter, the total amount or
kind of securities which such Holders, the Company and any other persons or
entities intend to include in such offering (the "Total Securities") is
sufficiently large to have a material adverse effect on the distribution of the
Total Securities: (i) in the case of an underwritten offering on behalf of the
Company, then the amount or kind of securities to be offered for the account of
such Holders and such other persons or entities shall be reduced pro rata to the
extent necessary to reduce the Total Securities (other than securities the
Company proposes to sell in such primary offering) to the amount recommended by
the Company Underwriter; and (ii) in the case of an underwritten secondary
offering in respect of a registration made on demand of holders of
124
<PAGE>
the Company's securities, then the amount or kind of securities to be offered
for the account of such Holders and such other persons or entities with the
exception of the Company shall be reduced pro rata to the extent necessary to
reduce the Total Securities (other than the securities included therein held by
the holders other than Holder(s) for whom such registration is a demand
registration) to the amount recommended by the Company Underwriter. The Company
shall bear all Registration Expenses in connection with any registration
pursuant to this Section 3.
4. HOLDBACK AGREEMENTS.
4.1. RESTRICTIONS ON PUBLIC SALE BY PIONEER AND OTHER HOLDERS. Each
Holder hereby agrees not to effect any public sale or distribution of the issue
being registered or a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 under the Securities Act, during the ten (10) business
days prior to, and during the ninety (90) day period beginning on, the effective
date of a registration statement of the Company (except as part of such
registration), if and to the extent requested by the Company in the case of a
non-underwritten public offering or if and to the extent requested by the
Company Underwriter in the case of an underwritten public offering; provided,
--------
that each executive officer of the Company, each Director of the company and a
majority in interest of (based on the number of shares of Common Stock or other
securities convertible into or exchangeable or exercisable for shares of Common
Stock of the company held by) holders (other than the Holders) of five percent
(5%) or more of the then outstanding shares of Common Stock of the Company
(after giving effect to the conversion, exercise or exchange of such shares into
Common Stock of the Company; a "5% Holder") shall have agreed to equivalent (or
more stringent) market stand-off arrangements. In order to ensure compliance
with this Section 4.1, the Company hereby agrees to notify each Holder as to the
status and proposed effective date of any registration statement of the Company
that is filed with the Company.
4.2. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees
not to effect any public sale or distribution of any of its securities, or any
securities convertible into or exchangeable or exercisable for such securities
(except pursuant to registrations on Forms S-4 or S-8 or any successor or
similar forms thereto) during the ten (10) business days prior to, and during
the ninety (90) day period beginning on, the effective date of any registration
statement in which any Holder is participating or the commencement of a public
distribution of the Registrable Securities pursuant to such registration
statement. The Company agrees to use diligent efforts to cause each executive
officer of the Company, each director of the Company and each 5% Holder to enter
into a similar agreement with the Company.
5. REGISTRATION PROCEDURES. Whenever registration of Registrable
Securities has been requested pursuant to Section 2 of this Agreement, the
Company shall use diligent efforts to effect such registration and sale of such
Registrable Securities in accordance with the intended method of distribution
thereof as promptly as practicable, and in connection with any such request, the
Company shall, as promptly as practicable:
5.1. prepare and file with the Commission a registration statement
and use diligent efforts to cause such registration statement to become
effective and to remain effective for at least one hundred twenty (120) days (or
such shorter period as is required to dispose of all Registrable Securities
covered by such registration statement); provided, however, that before filing a
-------- -------
registration statement
125
<PAGE>
or prospectus or any amendments or supplements thereto, the Company shall
provide counsel selected by the Majority Holders ("Special Counsel") with an
opportunity to participate in the preparation of such registration statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the Commission, which documents shall be subject to the review of
Special Counsel;
5.2. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period which will terminate when all Registrable Securities covered by such
registration statement have been sold (but in any event no longer than one
hundred twenty (120) days), and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period;
5.3. as soon as reasonably possible, furnish to each participating
Holder and the underwriters prior to filing a registration statement, copies of
such registration statement as proposed to be filed, and thereafter such number
of copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as they may reasonably request in order to facilitate the disposition
of the Registrable Securities;
5.4. use diligent efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any participating Holder requests and do any and all other acts and things that
may be reasonably necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
Holder; provided that the Company shall not be required to (i) qualify generally
--------
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5.4, (ii) subject itself to taxation (other than
taxes connected with such registration transaction which shall be paid by the
Holders with respect to the Registrable Securities) in any such jurisdiction,
(iii) consent to general service of process in any such jurisdiction or (iv)
take any action other than filing appropriate blue sky registration or blue sky
qualification documentation and paying related filing fees;
5.5. notify each participating Holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and the Company shall promptly
prepare a supplement or amendment to such prospectus and furnish to each
participating Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made;
5.6. enter into and perform customary agreements (including an
underwriting agreement in customary form with the managing underwriter, if any,
selected as provided in Section 2 and containing such representation and
warranties by the Company and such other terms and provisions as are customarily
contained in agreements of that type, including, but not limited to,
126
<PAGE>
indemnities to the effect and to the extent provided in Section 7) and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
5.7. use reasonable efforts to obtain an appropriate opinion from
counsel for the Company and a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by opinions of counsel and cold comfort letters typically
given to underwriters in an underwritten public offering, which shall be
addressed to the underwriters, if any, and to the participating Holders;
provided, however, that failure to provide such opinion or letter shall not give
rise to any action, at law or in equity, for damages or injunctive or other
relief, but rather shall only entitle each participating Holder to withdraw
their Registrable Securities from such registration statement;
5.8. advise the Holder(s) promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission or
any state authority or agency suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use all reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued;
5.9. cause the Registrable Shares covered by such registration
statement to be registered with, or approved by, such other public, governmental
or regulatory authorities as may be necessary in the reasonable judgment of
counsel for the Company to facilitate the disposition of such Registrable Shares
in accordance with the plan of distribution set forth in such registration
statement;
5.10. otherwise use its diligent efforts in connection with each
registered offering of Registrable Shares hereunder to comply with all
applicable rules and regulations of the Commission, as the same may hereafter be
amended, including section 11(a) of the Securities Act and Rule 158 thereunder;
5.11. cause all such Registrable Shares to be listed on each
securities exchange or market trading system on which similar securities issued
by the Company are then listed;
5.12. provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
5.13. at reasonable times and upon reasonable notice, and as
necessary to permit a reasonable investigation with respect to the Company and
its business in connection with the preparation and filing of such registration
statement, make available for inspection by the Holder(s) , by any managing
underwriter or other underwriters participating in any disposition of
Registrable Shares, and by any attorney, accountant or other agent,
representative or advisor retained by the Holder(s) or any such underwriters,
all pertinent financial and other records and corporate documents of the
Company; and cause all of the Company's officers, directors and employees and
its independent accountants to furnish all information reasonably requested by,
and to discuss pertinent aspects of the Company's business with, the Holder(s)
and any such underwriter, accountant, agent, representative or advisor in
connection with such registration statement;
5.14. if any registration statement refers to the Holder(s) by name
or otherwise as the holder of any securities of the Company, and if the
Holder(s) reasonably believes it is or may be
127
<PAGE>
deemed to be a control person in relation to, or an Affiliate of, the Company,
then the Holder(s) shall have the right to require (i) insertion in such
registration statement of language, in form and substance reasonably
satisfactory to the Holder(s), to the effect that the ownership by the Holder(s)
of such securities is not to be construed as and is not intended to be a
recommendation by the Holder(s) of the investment quality of, or the relative
merits and risks attendant to the purchase of, the Company's securities covered
thereby, and that such ownership does not imply that the Holder(s) will assist
in meeting any future financial or operating requirements of the Company, or
(ii) in the case where the reference to the Holder(s) by name or otherwise is
not required by the Securities Act or any similar federal or state statute then
in effect, the deletion of the reference to the Holder(s); and
5.15. cooperate in all reasonable respects in the marketing efforts
of the underwriters and the Holder(s), including, without limitation, by making
available, as requested by the underwriters and the Holder(s), the senior
executive officers of the Company for attendance at, and active participation
with the underwriters in, conference calls or informational or so-called
"roadshow" meetings with prospective purchasers of the Registrable Securities
being offered, including meeting with groups of such purchasers or with
individual purchasers, providing information and answering questions by the
Company at such meetings, and traveling to locations in the United States and
abroad as reasonably selected by the underwriters.
The Company may require each participating Holder to furnish to the
Company such information regarding the distribution of such securities as the
Company may from time to time legally require.
128
<PAGE>
6. REGISTRATION EXPENSES. The Company shall pay all expenses (other than
from underwriting discounts and commissions) arising from or incident to the
Company's performance of, or compliance with, this Agreement, including without
limitation, (i) Commission and National Association of Securities Dealers, Inc.
or other exchange registration and filing fees, (ii) all fees and expenses
incurred in complying with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) all printing, messenger and delivery
expenses, (iv) the fees and disbursements of counsel to the Company and of its
independent public accountants and any other accounting and legal fees and
expenses incurred by the Company, and (v) all registration, filing and
qualification fees, regardless of whether such registration statement is
declared effective; provided, however, that if a registration of the Registrable
-------- -------
Securities is withdrawn at the request of the Majority Holders (other than as
contemplated in Section 5.7 or as a result of (i) material adverse information
concerning the business or financial condition of the Company which is made
known to the participating Holders after the date on which such registration was
requested, (ii) a reduction of 15% in the number of Registrable Securities
included in such registration, based on the opinion of the managing underwriter
that the inclusion of all Registrable Securities requested to be included would
materially and adversely affect the offering, (iii) a material breach by the
Company of its obligations under this Agreement, or (iv) a decline of more than
15% of the market price per share for the Registrable Securities from that in
effect on the date on which such registration was requested), the participating
Holders shall pay the Registration Expenses of such registration pro rata in
accordance with the number of shares (including the Registrable Securities)
included in such registration.
In the context of a Demand Registration, in the event the participating
Holders comply with the requirements of this Section 6 and Section 10 of this
Agreement, the provisions of Section 10 with respect to the use (or nonuse) of
such Demand Registration shall apply. The participating Holders shall pay the
fees and disbursements of their own counsel (including the Special Counsel) and
other advisors in connection with any registration of Registrable Securities.
All of the expenses payable by the Company as set forth in this Section 6 are
herein called "Registration Expenses".
7. INDEMNIFICATION; CONTRIBUTION.
7.1. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify, to
the full extent permitted by law, each Holder, officers, directors and agents of
such Holder and each person who controls such Holder (within the meaning of the
Securities Act or the Exchange Act), and any investment advisor thereof from and
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable costs of investigation and attorneys
fees) arising out of or based upon any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, prospectus or preliminary
prospectus or notification or offering circular (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by any Holder expressly for
use therein. The Company shall also indemnify any underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act and the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders.
129
<PAGE>
7.2. INDEMNIFICATION BY THE HOLDERS. In connection with any
registration statement in which any Holder is participating pursuant to Section
2 or 3 hereof, each such participating Holder severally agrees to furnish to the
Company in writing such information with respect to such Holder as the Company
may reasonably request for use in connection with any such registration
statement or prospectus and severally shall indemnify, to the extent permitted
by law, the Company, each other participating Holder, their respective officers,
directors and agents, any underwriter retained by the Company or such other
Holders and each person who controls the Company, any such other Holder or such
underwriter (with the meaning of the Securities Act and the Exchange Act) to the
same extent as the foregoing indemnity from the Company to the Holders, but only
with respect to any such information furnished in writing by such indemnifying
Holder.
7.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement provided that the failure so to notify the
--------
Indemnifying Party shall not relieve it of any liability that it may have to the
Indemnified Party hereunder. In case notice of commencement of any such action
shall be given to the Indemnifying Party as above provided, the Indemnifying
Party shall be entitled to participate in and, to the extent it may wish,
jointly with any other Indemnifying Party similarly notified, to assume the
defense of such action at its own expense, with counsel chosen by it and
satisfactory to such Indemnified Party. The Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(a) the Indemnifying Party agrees to pay the same, (b) the Indemnifying Party
fails to assume the defense of such action with counsel reasonably satisfactory
to the Indemnified Party, (c) the named parties to any such action (including
any impleaded parties) have been advised by such counsel that either (i)
representation of such Indemnified Party and the Indemnifying Party by the same
counsel would be inappropriate under applicable standards of professional
conduct or (ii) there may be one or more legal defenses available to it which
are different from or additional to those available to the Indemnifying Party
(in which case the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party). No Indemnifying
Party shall be liable for any settlement entered into without its written
consent, which shall not be unreasonably withheld or delayed.
7.4. CONTRIBUTION. If the indemnification provided for in this Section
7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative faults of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to
130
<PAGE>
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Sections 7.1, 7.2 and 7.3, any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may participate
in any underwritten registration hereunder unless such Holder (a) agrees to sell
its Registrable Securities on the basis provided in any underwriting
arrangements entered into in accordance with this Agreement and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents, in customary form and otherwise reasonably
required under the terms of such underwriting arrangements.
9. RULE 144. The Company covenants that it shall file any reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the Commission thereunder; and that it shall take such further action
as any Holder may reasonably request, all to the extent required from time to
time to enable such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 under the Securities Act. The Company shall, upon the request of any
Holder, deliver to such Holder a written statement as to whether it has complied
with such requirements. The covenant contained in this Section 9 shall survive
termination of registration rights contained herein pursuant to Section 11 below
for a period of two (2) years.
10. RIGHT TO WITHDRAW. Any Holder may withdraw any of its Registrable
Securities from registration of any Registrable Securities at any time by
written notice to the Company, provided that in the event any such withdrawals
with respect to a Demand Registration would result in the registration of an
insufficient number of Common Shares to yield an anticipated aggregate offering
price, net of underwriting discounts and commissions, of at least $10,000,000,
then the Company shall not be obligated to register such Common Shares and
(other than withdrawals from such registration for any of the reasons set forth
in Section 6) one Demand Registration shall be deemed to have been used for
purposes of Section 2.1 herein unless the participating Holders collectively
reimburse (within thirty (30) days after the termination of such registration)
the Company for all Registration Expenses incurred by the Company prior to the
termination of such registrations.
11. TERM OF REGISTRATION RIGHTS. The registration rights granted to any
Holder hereunder shall terminate on the date on which such Holder would be
entitled to resell all of the Registrable Securities then held by it within
three months pursuant to Rule 144.
131
<PAGE>
12. MISCELLANEOUS.
12.1. NO INCONSISTENT AGREEMENTS. The Company covenants that it will
not undertake obligations with respect to the registration of its securities
that are inconsistent with the registration rights contained in this Agreement.
12.2. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registerable Securities pursuant to this Agreement may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such security who, after such assignment or transfer, holds at least
500,000 shares of Registerable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations),
provided that: (i) the Company is, within a reasonable time after such
transfer, furnished with written notice of the same and the address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including, without limitation, the provisions of Section 4.1 above;
and (iii) such assignment shall be effective only if immediately following such
transfer or assignment the further disposition of the securities by the
transferee or assignee is restricted under the Securities Act.
12.3. REMEDIES. Pioneer and each other Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a reach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
12.4. AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
the provisions of this Agreement may not be amended, modified or supplemented,
and waiver of consents to departures from the provisions hereof may not be given
other than by written instrument signed by the Company and each person who, at
such time, is a Holder.
12.5. NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by hand delivery or registered first-class
mail: (i) if to the Company at Mycogen Corporation, 5501 Oberlin Drive, San
Diego, California 92121, Attention: Carlton J. Eibl, and (ii) if to Pioneer at
700 Capital Square, 400 Locust Street, De Moines, Iowa 50309 Attention: Daniel
Cornelison and (iii) if to any other Holder, at such Holder's address delivered
to the Company in accordance with the foregoing.
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered or five (5) business days
after being deposited in the mail, postage prepaid, if mailed.
12.6. SUCCESSORS AND ASSIGNS. Except as otherwise provided for
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
132
<PAGE>
12.7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
12.8. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly within that State.
12.9. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of
Pioneer and each other Holder shall be enforceable to the fullest extent
permitted by law.
12.10. ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
133
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
MYCOGEN CORPORATION, a Delaware
corporation
By: /s/ CARLTON J. EIBL
-------------------------------
Carlton J. Eibl
President and Chief Operating Officer
PIONEER HI-BRED INTERNATIONAL,
INC., an Iowa corporation
By: /s/ CHUCK JOHNSON
-----------------------
Chuck Johnson
Chief Operating Officer
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
134
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
135
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
136
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Forms S-8 and S-3) and in the related Prospectuses of our report dated October
11, 1996, with respect to the consolidated financial statements of Mycogen
Corporation, included in the Annual Report (Form 10-K) for the year ended August
31, 1996.
/s/ Ernst & Young
ERNST & YOUNG LLP
San Diego, California
November 11, 1996
137
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
138
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry Caulder, Carlton J. Eibl and James A.
Baumker and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign this Form 10-K or any and
all amendments to this Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
<S> <C> <C>
Chairman, Chief Executive
Officer and
/s/ Jerry Caulder Director October 17, 1996
- ------------------------
Jerry Caulder
/s/ Thomas J. Cable Director October 17, 1996
- ------------------------
Thomas J. Cable
/s/ Perry J. Gehring Director October 17, 1996
- ------------------------
Perry J. Gehring
/s/ John L. Hagaman Director October 17, 1996
- ------------------------
John L. Hagaman
/s/ David H. Rammler Director October 17, 1996
- ------------------------
David H. Rammler
/s/ William C. Schmidt Director October 17, 1996
- ------------------------
William C. Schmidt
/s/ A. John Speziale Director October 17, 1996
- ------------------------
A. John Speziale
/s/ G. William Tolbert Director October 17, 1996
- ------------------------
G. William Tolbert
/s/ W. Wayne Withers Director October 17, 1996
- ------------------------
W. Wayne Withers
</TABLE>
139
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1995
<CASH> 35,854
<SECURITIES> 32,184
<RECEIVABLES> 34,501
<ALLOWANCES> 3,801
<INVENTORY> 37,177
<CURRENT-ASSETS> 137,795
<PP&E> 72,229
<DEPRECIATION> 17,324
<TOTAL-ASSETS> 227,469
<CURRENT-LIABILITIES> 41,047
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 330,973
<TOTAL-LIABILITY-AND-EQUITY> 227,469
<SALES> 146,800
<TOTAL-REVENUES> 155,589
<CGS> 93,508
<TOTAL-COSTS> 93,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,990
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (47,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,058)
<EPS-PRIMARY> (1.81)
<EPS-DILUTED> (1.81)
</TABLE>
