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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, 1997.
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of September 30, 1997, was approximately $180,940,647. 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, 1997, was 31,404,483.
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 January 8, 1998, are
incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
Mycogen Corporation, a California corporation ("Mycogen," the "Company" or the
"Registrant") is a diversified agribusiness and biotechnology company that
develops and markets seed for improved crop varieties and provides crop
protection products and services. The Company is organized into two business
segments, Seed and Crop Protection. The Seed segment produces and markets seed
for major agricultural crops and uses biotechnology and traditional and marker-
assisted breeding to develop crop varieties with genetically enhanced pest and
disease resistance, improved vegetable oil profiles and other value-added
characteristics. The Crop Protection segment manufactures and markets
environmentally compatible spray-on biopesticide products and operates Soilserv,
Inc. ("Soilserv"), which provides crop protection services to growers of high-
value crops. Detailed financial information by segment 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.
Industry Background
Biotechnology and advanced plant breeding techniques are combining to create
new, genetically enhanced crop varieties that will play a central role in
enabling agriculture to meet the challenge of feeding and clothing a global
population that is projected to double before the middle of the next century.
Dozens of newly available seed products carry special genetic information that
gives crop plants one or more of a variety of desirable characteristics
classified generally as "input" or "output" traits.
Input traits typically reduce or eliminate the need for, or allow for more
efficient use of, separately purchased and applied chemical inputs such as
pesticides and herbicides that growers use to protect crops and increase yields.
U.S. farmers already are planting corn, cotton, soybean and other major crops
with built-in insect and herbicide resistance on more than 10 million acres.
Growers' experience with these products generally has been favorable, with many
reporting reduced labor and chemical input expense and improved pest
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and weed control. Acceptance of these new seed products is, in effect, bringing
about a convergence of previously separate seed and agricultural chemical
industries. Mycogen believes that this represents a significant opportunity for
technology companies that can develop these input traits and seed companies that
can produce and market seed products carrying them.
Output traits typically increase the value of the crop itself. These include
genetic improvements that enhance the quality or quantity of oil, protein,
starch, fiber and other crop outputs. Seeds for corn, sunflower, soybean,
canola and other crops with enhanced vegetable oil profiles for food, feed and
industrial applications already are widely available. The ability to work at
the genetic level to design crops to meet end users' specifications is expected
to bring about a shift from present crop-handling and processing systems in
which grain and oilseed crops generally are, and treated as, undifferentiated
commodities. Mycogen believes that, in the future, an increasing proportion of
grain production will be "identity preserved," with processors or end users
contracting with growers to produce specific crops with specific
characteristics. The Company believes that this shift will create opportunities
along a value chain stretching from technology providers to seed companies,
growers, grain processors and producers of food and industrial products.
Seed products carrying value-added characteristics generally command premium
prices. In some cases, growers also pay additional "technology fees" directly
to technology providers to gain access to desired traits. This ability to share
in the added value their products provide to growers and end users is opening up
large new sources of revenue for seed and technology companies. For example,
industry estimates indicate that, despite annual worldwide expenditures of some
$8 billion for insecticides, insects cause approximately $12 billion in economic
damage each year. Therefore, the economic opportunity for insect resistant seed
products that offer improved insect control could be substantially larger than
the amount that growers currently spend to protect their crops. Mycogen
believes that there will be even greater opportunities to add and capture value
for developers and marketers of seed for crops with enhanced output
characteristics.
The Company estimates that U.S. farmers spend more than $3.5 billion each year
for planting seeds. Based on industry estimates of acreage planted with new
crop varieties carrying value-added input and/or output traits, seed and
technology companies are believed to have generated more than $200 million in
additional revenues from premium pricing and technology fees for those traits
during the 1997 North American planting season. With the application of
currently available value-added traits in additional crops and continuing
technological advances that are expected to create many more genetically
enhanced plant varieties, agricultural biotechnology is expected to become a
multi-billion dollar industry over the next few years.
Business Strategy
Mycogen's primary focus is on expanding and strengthening its global seeds
business through internal growth, acquisitions and alliances. The Company also
is exploring opportunities to leverage its technology and intellectual property
assets to generate additional revenue by developing and marketing value-added
input and output traits in markets not served by the Seed segment. The Crop
Protection segment continues to focus on providing specialized products and
services to high-value niche markets such as vegetables, tree fruit and nuts,
vines and ornamentals.
Alliances
In December 1995, Mycogen entered into a 10-year technology collaboration with
Pioneer Hi-Bred International, Inc. ("Pioneer"), to develop insect resistance
traits for corn, soybean, canola, sunflower, sorghum and wheat using Mycogen's
proprietary Bacillus thuringiensis ("Bt") protein biotoxin and Bt gene synthesis
technology. As part of that agreement, Pioneer made a $30 million equity
investment in Mycogen and agreed to provided an additional $21 million in
research and development funding. Pioneer paid the first $10 million
installment for research and development in December 1995, and is obligated to
pay a second
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installment of $11 million near the end of calendar year 1998. The
collaboration agreement gives Pioneer non-exclusive rights to all Bt crop
protection technology and associated technologies owned or developed by Mycogen
through December 2005. Mycogen and Pioneer will each market their own seed
products resulting from the collaboration, royalty-free, in North America.
Pioneer will pay a royalty to Mycogen for products carrying jointly developed
traits that it markets outside North America. Under the collaboration
agreement, Mycogen has the exclusive right to license jointly developed traits
to third parties. As of September 30, 1997, Pioneer owned 2 million shares of
the Company's common stock.
In February 1996, DowElanco LLC ("DowElanco") purchased 37% of Mycogen's
common stock formerly owned by The Lubrizol Corporation ("Lubrizol"). In a
simultaneous transaction, the Company issued an additional 9% of its common
stock to DowElanco in return for cash and DowElanco's seeds business, United
AgriSeeds, Inc., a Delaware corporation ("UAS"). (DowElanco, which is a wholly-
owned subsidiary of The Dow Chemical Company, will change its name effective
January 1, 1998, to Dow AgroSciences, LLC.) The acquisition of UAS strengthened
Mycogen's platform for commercializing proprietary, genetically-enhanced seed
products. Mycogen and DowElanco also entered into a technology sharing agreement
to develop and commercialize input and output traits for major crops. DowElanco
has continued to purchase additional shares of Mycogen's common stock in the
public market and through private transactions, and, as of September 30, 1997,
it owned approximately 57% of the Company's common stock.
In December 1996, Mycogen exchanged its European seeds business and other
assets for an 18.75% equity interest in Verneuil Holding, S.A. ("Verneuil"), a
seed company based in France, and obtained an option to purchase DowElanco's
16.25% equity interest in Verneuil. Mycogen and Verneuil also entered into an
agreement for the exchange of germplasm and formed two joint ventures. One
joint venture, V.M.O., will license technology and germplasm from Verneuil and
Mycogen to develop and commercialize oilseed products; the other will license
technology and germplasm from Mycogen and Verneuil to develop insect resistant
seed corn. As part of the agreement, Verneuil and the joint venture companies
will have the right to use the Mycogen(R) brand name for seed products.
Seed Business
Mycogen has made significant progress toward its goal of building a global
seeds business. Agrigenetics, Inc., d/b/a Mycogen Seeds ("Mycogen Seeds"), a
wholly-owned subsidiary of Mycogen, ranks fourth in the U.S. in sales of seed
corn, which accounts for the majority of its seed revenues, second in hybrid
sunflower seed sales, and among the top five in soybean, sorghum and alfalfa.
In September 1996, Mycogen purchased all of the common stock of Santa Ursula
S.A.A.I.C. e I., which did business as Morgan Seeds ("Morgan Seeds"), the third
largest seed company in Argentina. Mycogen merged Morgan Seeds into one of
Mycogen Seeds' existing wholly-owned subsidiaries, Mycoyen, S.A., which
continues to do business under the name Morgan Seeds. Morgan Seeds ranks second
in Argentina in seed corn sales and third in hybrid sunflower seed sales and is
a major exporter of seed products throughout South America. Through its
alliance with Verneuil, the Company also has established a foothold in the
important European seeds market. Mycogen also maintains cotton breeding and
transformation programs and is evaluating opportunities to enter the cotton seed
business to leverage its strong intellectual property position for insect
resistant cotton.
Sales & Marketing - In North America, Mycogen Seeds markets its products under
the Mycogen(R) brand through a network of more than 150 full-time sales
managers, approximately 6,100 farmer/sales representatives and approximately 370
professional agricultural retail outlets. Outside North America, Mycogen Seeds
markets its products primarily through local distributors. In Argentina and
elsewhere in South America, Morgan Seeds markets its products under the
Morgan(R) brand through local distributors.
Seed Production - Most of Mycogen's seed products are produced under annual
contracts with independent growers. The majority of the seeds are dried and
conditioned at production facilities owned by the Company,
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with the balance being conditioned on a contract basis with third parties. The
dried and conditioned seeds are packaged and stored in warehouses owned by the
Company. To ensure adequate conditioning capacity for current and projected
seed sales, improve production efficiency and enhance product quality, Mycogen
has invested $30.4 million in fiscal years 1996 and 1997, to modernize and
expand its seed conditioning and storage facilities in North and South America.
Mycogen believes that its current and planned production facilities and contract
growing arrangements give the Company sufficient production capacity to meet its
projected needs.
Product Development - Mycogen's seeds business strategy is to develop
differentiated, value-added seed products to meet the needs of the agriculture
and food industries. Development of such products requires breeding expertise
and elite, high-yielding, plant breeding material known as germplasm, genes that
confer desirable input and output traits and biotechnology "tools" and
technology to introduce those genes into plant parent lines.
Mycogen maintains extensive corn and sunflower breeding programs in both North
and South America. Mycogen also maintains breeding programs in cotton, soybean,
and sorghum. The object of these programs is to develop diverse pools of
germplasm that allow the Company to produce seed products with outstanding
agronomic characteristics and wide adaptability that makes such seed products
suitable for planting in various climates and maturity zones. The Company has
entered into licensing agreements to expand access to materials for breeding and
developing new products.
In the area of value-added genes for input traits, Mycogen has discovered and
patented more than 50 unique Bt protein toxin genes, some of which are being
used to develop crop varieties with resistance to insects and other pests. The
Company maintains a program to discover novel genes with insecticidal activity.
The Company also has licensed genetic material to confer disease resistance and
tolerance to herbicides used for weed control.
To develop seed products with value-added output traits, the Company has
developed, acquired or licensed genetic material to produce seed products for
grain and oilseeds with enhanced oil profiles and corn plants with special
animal nutrition characteristics for the silage market.
To introduce this special genetic material into germplasm, Mycogen has
obtained access to various plant transformation systems and believes it has
assembled one of the industry's largest collections of proprietary and licensed
biotechnology tools. These include "selectable markers" used in transgenic
plant development and "promoters" and "terminators" that control expression of
traits in plants. The Company also has a broad, worldwide patent position for
synthesis of Bt genes for plant expression.
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The following is a summary of the Company's key development programs for
value-added crop varieties:
<TABLE>
<CAPTION>
Program Commercial Opportunity Major Crops
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<S> <C> <C>
Pest Resistance Yield improvement and displacement Corn, cotton, soybean,
of certain chemical pesticides sunflower, alfalfa, sorghum
and canola
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Herbicide Tolerance Improved efficiency and weed control Corn, cotton and canola
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Disease Resistance Control bacterial and fungal diseases Corn, cotton, peanut and
rice
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Improvement of Feedstuffs Value-added products for on-farm silage uses Corn
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Specialty Oils Value-added specialty oil and food Sunflower, corn, canola
ingredients and peanut
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High Oil Corn Value-added products for on-farm livestock Corn
feeders and poultry producers
</TABLE>
Pest Resistance - 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.
Mycogen's collaboration with Pioneer to develop Bt-based pest resistance
traits in corn, soybean, canola, sunflower, sorghum and wheat has allowed
Mycogen to accelerate product development programs in those 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 - 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.
Disease Resistance - In November 1997, Mycogen licensed exclusive worldwide
rights to use peptidyl membrane interactive molecules developed by Demeter
Biotechnologies, Limited, both for disease resistance traits for seed products
and in topical spray-on products. Synthetic versions of natural peptides have
demonstrated antibacterial and antifungal activity in vitro and have been
expressed in a number of plants, including tobacco, peanut and potato. The
Company plans to use plant transformation and peptide gene technology to develop
transgenic varieties of major crops with resistance to fungal and bacterial
diseases.
Improvement of Feedstuffs - Mycogen has developed and launched a line of new
hybrid corn 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. These TMF(R) (Totally
Managed Feedstuffs(R)) corn hybrids are characterized by their tall stature,
additional leaf material produced on each stalk and high biomass
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production per acre. Silage produced from these varieties also has superior
nutritional qualities that contribute to increased milk and beef production.
Specialty Oils - Mycogen Seeds has developed sunflower, rape (canola), corn and
peanut seeds with genetically enhanced oil properties. In 1996, the Company
acquired rights to oilseed technology for those crops which it had developed
jointly with SVO Specialty Products ("SVO"), 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, the
largest marketer of edible oils in the U.S. 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 and
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.
High Oil Corn - High oil grains provide a cost-effective alternative to
separately purchased fat supplements for livestock and poultry rations. Through
third party license agreements, Mycogen will introduce, for the 1998 planting
season, a limited quantity of seed for corn that produces up to twice as much
oil as traditional grain corn.
Crop Protection Business
Biopesticide products are sold to crop protection markets through Mycogen's
wholly-owned subsidiary, Mycogen Crop Protection, Inc. ("Mycogen Crop
Protection").
Biopesticide Products - The Company currently has registered eight
environmentally compatible biopesticide products. These products are based on
natural agents such as proteins and fatty acid compounds that, in general, have
specific toxic activity on target pests and are not harmful to mammals, fish,
birds and 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 a collaboration with Kubota Corporation ("Kubota").
Biopesticide products are sold through established agricultural product
distributors in the U.S. and many other countries.
Product Development and Applied Technology - The Company has used two distinct
technologies to develop its biopesticides: microbial biopesticide technology
and fatty acid technology.
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Microbial Biopesticide Technology - Mycogen's microbial bioinsecticide products
and technology are based on two key components: 1) biotoxins that are active
against commercially important pests and 2) the Company's proprietary CellCap(R)
encapsulation delivery system.
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, including, but not limited to, caterpillars, beetles,
weevils, parasitic plant and animal nematodes, protozoan pathogens, grubs,
mites, liver flukes and adult houseflies.
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 virtually 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
utilizes its 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.
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 occurring active ingredients and 4) the treated areas require limited
worker safety re-entry restrictions. These characteristics make fatty acid
pesticides useful in certain targeted markets. For example, the contact
activity of fatty acids has been shown to enhance the efficacy of certain
synthetic chemical pesticides. By mixing 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.
Mycogen has 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.
Mycogen pays EB the actual costs of manufacturing, plus a fee based on the
number of units produced. See "Other Charges - Impairment of facilities and
exit costs" in Item 7 for more discussion regarding this facility.
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.
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The following is a table listing the Company's biopesticide products
registered by the Environmental Protection Agency ("EPA") for commercial use.
<TABLE>
<CAPTION>
Product and Biotoxin Target Pest Market
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
M-C(R) (Bt) Army worm, diamond back moth, common Various, including vegetables
cut worm and cotton and cotton
leafworm
- -----------------------------------------------------------------------------------------------------------
MVP(R) (Bt) Leaf-eating caterpillar pests Cotton, tree fruits and vines
MVP(R) II (Bt concentrate)
- -----------------------------------------------------------------------------------------------------------
M-Peril(R) (Bt) European corn borer Corn
(solid granules)
- -----------------------------------------------------------------------------------------------------------
Mattch(R) (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
- -----------------------------------------------------------------------------------------------------------
M-Press(TM) (Bt)* Fall army worm Sweet corn
- -----------------------------------------------------------------------------------------------------------
Scythe(R) Herbicide Broad spectrum of weeds Horticulture and landscape
(fatty acid) management
- -----------------------------------------------------------------------------------------------------------
Thinex(R) (fatty acid) Blossom thinner Apples, pears and stone fruits
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Experimental use permit only.
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.
Patents, Proprietary Technology and Trademarks
As of August 31, 1997, Mycogen held 156 U.S. patents and more than 278 foreign
patents not including patents that have been reassigned or abandoned. The
Company has filed and is pursuing 85 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. Mycogen has a substantial number of trademarks and
trademark registrations in the U.S. and in other countries.
Plant Science Patents - As a result of research conducted by Agrigenetics
Corporation (now Mycogen Seeds) in the 1980s, 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. On October 22, 1996, Mycogen received two additional patents related to
synthetic Bt genes technology. The patents include "composition of matter"
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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 50 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 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.
Although the Company considers, that in the aggregate, its patents and
trademarks constitute valuable assets, it does not regard its business as being
materially dependent upon any single patent or trademark.
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
10
<PAGE>
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 individual 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 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
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. 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 $20.8 million in 1997, $19.2 million in 1996 and $18.2 million in 1995.
11
<PAGE>
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 seeds industry is dominated by large multinational companies
located in the U.S. and Europe. These include Pioneer, the world's largest seed
company; Monsanto Company ("Monsanto") and its affiliate, DeKalb Genetics
Corporation ("DeKalb"); Novartis; 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 plant biotechnology research programs to develop new crop varieties
that are genetically enhanced for increased 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.
Human Resources
As of August 31, 1997, the Company had 966 employees as compared to 887
employees at the end of fiscal year 1996 and 756 at the end of fiscal year 1995.
The increase in employees is attributable to the acquisitions of UAS and Morgan
Seeds. The Company's management believes that it maintains positive relations
with its employees.
ITEM 2. PROPERTIES
The Company owns its principal corporate facility located in San Diego,
California. In addition, Mycogen owns its biopesticide research and development
facility located in San Diego, California, that is 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.
The Company owns and maintains seed research, production, warehouse,
distribution or administrative space in the U.S. at the following locations
which are used primarily by Mycogen Seeds: Marshalltown and Schaller, Iowa;
Breckenridge, Hastings and Olivia, Minnesota; Leland, Mississippi; York and
Gothenburg, Nebraska; and Plainview and Dumas, Texas. Mycogen owns its
executive and administrative facility for Mycogen Seeds in Eagan, Minnesota. In
addition, Mycogen Seeds leases field plant research and/or storage facilities in
Woodland, California; Griffin, Georgia; Savoy, Illinois; Indianapolis, Indiana;
Huxley and Davenport, Iowa; and Arlington, DeForest and Prescott, Wisconsin.
Mycogen Seeds also operates facilities for seed research, production,
warehouse, distribution or administrative space at the following foreign
locations: Chatham, Ontario, and Saskatoon, Saskatchewan, Canada; and Santa
Isabel, Puerto Rico. Morgan Seeds operates facilities for seed research,
production, warehouse, distribution or administrative space at the following
Argentina locations: Colon, Laguna Blanca, San Carlos, San Isidro, San Juan and
Venado Tuerto.
12
<PAGE>
The Company believes that its present facilities are adequate to maintain its
businesses.
ITEM 3. LEGAL PROCEEDINGS
On February 28, 1994, the U.S. Patent Office notified Mycogen's subsidiary,
Mycogen Plant Science, Inc. ("MPSI"), that an interference had been declared
with MPSI's broad application (USSN: 06/535,354) on Bt insect-resistant plants
and Monsanto's narrow application on Bt insect resistant tomatoes.
On May 19, 1995, MPSI filed suit in Federal District Court in San Diego,
California, claiming that Monsanto's 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.
On October 31, 1995, Plant Genetic Systems NV ("PGS") filed suit in the
Central District of North Carolina, claiming that Bt seed corn 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
insect resistant plants.
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 seeds business as a result of
Monsanto's refusal to honor a contract to license certain herbicide tolerance
and insect resistance technology to MPSI. The trial is scheduled for December
1, 1997.
On April 30, 1996, DeKalb filed suit in Federal District Court in Rockford,
Illinois, claiming that Mycogen's and Ciba Seeds' Bt seed corn products infringe
DeKalb's patents covering Bt insect resistance and glufosinate herbicide
tolerance in corn. On July 23, 1996, DeKalb filed a second suit in Rockford,
Illinois, against Mycogen and Ciba Seeds for infringement of U.S. patents
5,538,877 and 5,538,880 relating to insect resistant and herbicide resistant
corn. On August 27, 1996, DeKalb amended its July 23, 1996, lawsuit to add
newly issued U.S. patent 5,550,318.
On August 15, 1996, MPSI filed in Federal District Court in Wilmington,
Delaware, an action to reverse a ruling of the Board of Patent Appeals and
Interferences that a Monsanto truncated Bt gene patent application does not have
claims covering the same invention as a truncated Bt gene patent application
filed by MPSI.
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 ("DPL") 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. The trial is
scheduled for January 12, 1998.
On January 21, 1997, Mycogen filed suit against Ecogen, Inc. in Federal
District Court in Wilmington, Delaware, for patent infringement of Mycogen's
U.S. patents 5,188,960 and 5,126,133 relating to Cry1F Bt toxins. This
technology relates to Mycogen Crop Protection's biopesticide products. On June
11, 1997, the
13
<PAGE>
patent office declared an interference between Mycogen's U.S. patent 5,188,960
and an application filed by Ecogen, Inc.
It is impossible to predict the outcome of each of the above described legal
actions. Management's analysis of the effect of these legal proceedings is
discussed in the Segment Operating Revenues and Income and (Loss) section of
Item 7.
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 1997.
14
<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
("Nasdaq") under the symbol "MYCO." Following are high and low trade prices for
Mycogen Corporation common stock, as reported by Nasdaq for fiscal years 1997
and 1996.
<TABLE>
<CAPTION>
Year ended August 31, 1997 High Low
<S> <C> <C>
4th Quarter............................ 25 18 3/4
3rd Quarter............................ 28 1/2 17 1/2
2nd Quarter............................ 29 1/4 16 3/4
1st Quarter............................ 17 1/8 13 3/4
<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
</TABLE>
At October 14, 1997, there were 4,694 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.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended August 31,
-------------------------------------------------------------------------------------
1997/1/ 1996/1/ 1995 1994/1/ 1993/1/
-------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net Operating Revenues $ 202,407 $ 146,800 $ 106,169 $ 104,383 $ 112,583
Total Revenue 210,973 155,589 113,218 112,760 118,011
Net Loss Applicable to Common
Shares (37,683)/2/ (47,636)/2/ (15,946) (33,234)/2/ (27,514)/2/
Net Loss Per Common Share (1.22)/2/ (1.81)/2/ (.83) (1.81)/2/ (1.69)/2/
Cash, Cash Equivalents and
Securities Available-for-Sale 2,211 68,038 17,600 37,887 66,314
Total Assets 239,687 227,469 159,608 165,726 201,533
Long-term Liabilities 15,544 5,228 3,291 1,207 1,141
Redeemable Preferred Stock -- -- -- -- 40,897
Stockholders' Equity 157,214 181,194 113,703 125,406 107,885
</TABLE>
1 The acquisitions of Morgan Seeds in 1997, UAS in 1996, and Mycogen Seeds in
1993, 1994 and 1996 affect the comparability of the Selected Financial Data.
2 Net loss in 1997, 1996, 1994 and 1993 includes other charges of $31.7
million, $27.6 million, $36.4 million and $23.7 million, respectively, as
discussed in further detail in the Notes to Consolidated Financial
Statements.
16
<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 quarters. Weather also can
affect operating revenues, seed costs, pest populations, the effectiveness of
seeds and pesticides, 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.
SEGMENT OPERATING REVENUES AND INCOME AND (LOSS)
<TABLE>
<CAPTION>
Years ended August 31,
1996
----------------------------
(In thousands) 1997 Actual Pro forma/1/ 1995
- -------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Seed
North America
Corn $ 64,292 $ 52,855 $ 65,424 $ 28,537
Soybean 21,091 16,136 18,358 8,794
Sunflower 6,493 6,576 6,694 10,376
Sorghum 6,831 8,950 8,984 4,042
Other 6,725 5,634 7,547 3,506
Argentina 31,042 1,770 29,441 945
Specialty Oil 22,790 -- -- --
Europe/Other International 3,022 10,114 10,114 9,129
---------- ---------- ------------- ----------
162,286 102,035 146,562 65,329
---------- ---------- ------------- ----------
Crop Protection
SoilServ 31,627 36,019 36,019 32,887
Biopesticides 8,904 9,867 9,867 7,953
---------- ---------- ------------- ----------
40,531 45,886 45,886 40,840
---------- ---------- ------------- ----------
Intersegment Elimination (410) (1,121) (1,121) --
---------- ---------- ------------- ----------
Total Operating Revenues $ 202,407 $ 146,800 $ 191,327 $ 106,169
========== ========== ============= ==========
</TABLE>
/1/ Assumes the acquisitions of Morgan Seeds and UAS occurred on September 1,
1995.
17
<PAGE>
<TABLE>
<CAPTION>
Years ended August 31,
--------------------------------------------------------
(In thousands) 1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Income (Loss)
Seed $ 694 $ (20,227) $ (11,922)
Crop Protection 2,147 316 (2,336)
Intersegment 27 (120) --
-------------- -------------- --------------
Total Operations 2,868 (20,031) (14,258)
Corporate (5,685) (2,527) (1,259)
Other Charges:
Impairment of assets
and exit costs (11,277) (14,905) --
Severance Agreement (9,050) -- --
Acquired in-process
technology -- (10,313) --
Patent litigation fees (9,777) (2,373) --
Equity in loss of
investees (1,626) -- --
Net interest and other (1,602) 3,091 1,074
-------------- -------------- --------------
Net loss before income
taxes (36,149) (47,058) (14,443)
Provision for income taxes (1,534) -- --
-------------- -------------- --------------
Net Loss $ (37,683) $ (47,058) $ (14,443)
============== ============== ==============
</TABLE>
The acquisitions of Morgan Seeds and UAS affect the comparability of the
Consolidated Condensed Financial Statements.
SEED SEGMENT
Fiscal Year Ended August 1997 Compared to 1996
Operating Revenues: Seed operating revenues increased by $60.3 million from
1996 to 1997. The acquisition of Morgan Seeds in September 1997, and the full
year effect of the February 1996 acquisition of UAS accounted for the majority
of the increase. The 1996 pro forma revenues listed in the previous table
assumes that the acquisitions of Morgan Seeds and UAS occurred on September 1,
1995. The increase in revenues of $15.7 million on a pro forma basis is
attributable to a combination of the following factors:
. North American corn volumes were down approximately 59,000 units. The
majority of this decline occurred in the Southern regions of the U.S. and was
primarily due to acreage shifts to soybeans and poor distributor support for
the corn products acquired from DPL. Furthermore, in the Southern regions of
the U.S., where Mycogen does not distribute seeds through its farmer/dealer
network and instead relies on national and regional distributors, total corn
revenues were down over $2 million. In the Northern regions of the U.S.,
Mycogen, for the most part, held volumes despite the brand consolidation of
Mycogen, Lynks and Keltgen Seeds. This significant accomplishment was due to
close coordination with the farmer/dealer network and an improved sales mix
of value-added products consisting of NatureGard(R) hybrids and TMF(R)
hybrids.
18
<PAGE>
. North American soybean revenues increased $2.7 million primarily as a result
of commodity price increases which allowed the Company to increase soybean
prices. Additionally, soybean volumes were 61,000 units higher than last
year.
. North American grain sorghum revenues decreased $1.8 million from last year's
record levels mainly due to a decrease in acres planted throughout the U.S.
and a reduction in available planting seeds. Total sorghum volumes were down
71,000 units.
. Argentine revenues were higher due mainly to higher sales of Morgan Seeds'
new disease resistant single cross hybrids, which produce higher yields.
. Specialty oil revenues of $22.8 million were comprised primarily of high
oleic sunflower oil sales to AC Humko. In fiscal year 1997, the Company
entered into a long-term supply contract with AC Humko. The agreement
initially calls for Mycogen to sell planting seeds at a normal seeds margin
and oil at cost, with AC Humko absorbing oil production risk. The agreement
contemplates a transition to fixed pricing, allowing Mycogen to earn a margin
on oil.
. Europe and other international revenues declined $7.1 million primarily due
to the exchange of Mycogen's European subsidiaries in 1997 for an investment
in Verneuil.
The majority of North American seed operating revenues are recorded during the
second and third fiscal quarters. Second and third quarter operating revenues
also include estimates of seed product returns and the fourth quarter includes
adjustments to reconcile those earlier estimates. Similarly, the majority of
South American seed operating revenues are recorded during the first and fourth
fiscal quarters, including estimates of seed product returns which are adjusted
in the second fiscal quarter.
Operating Results: Seed operating results improved $20.9 million compared to
1996. This improvement is largely due to the acquisition and integration of UAS
into Mycogen's North American seed operations, the acquisition of Morgan Seeds
in Argentina and the exchange of the Company's two European subsidiaries, which
previously had incurred operating losses, for an investment in Verneuil.
Compared to 1996, North American corn margins improved to 50% from 39% and total
seed margins, excluding specialty oil sales, have improved to 44% from 36%.
This improvement is largely due to the combination of decreased discards and
obsolescence ("D&O") and higher corn prices offset by lower soybean gross
margins attributable to higher commodity prices.
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(R) corn
hybrids with Bt or native corn borer resistance and Totally Managed
Feedstuffs(R) silage corn accounted for the majority of a $7.6 million, or
20%, increase in seed corn revenue.
. 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.
19
<PAGE>
. 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 seeds in Argentina and seed corn in Europe.
Operating Results: Seed operating losses for the fiscal year ended August 1996
increased $8.3 million compared to fiscal 1995. Excluding the partial year
impact of the acquisition of UAS, the deterioration was attributable primarily
to a $5.2 million increase in sales and promotional expenses associated with the
increase in sales volumes and lower gross margins of $1.8 million. Higher gross
margins from higher sales volumes were reduced by higher seed costs and higher
product D&O. Seed corn costs were $3 per unit higher due to low production
yields. D&O increased by $5.8 million due to higher quantities of seeds that
did not pass quality standards and higher quantities of excess and obsolete seed
inventory.
CROP PROTECTION SEGMENT
Fiscal Year Ended August 1997 Compared to 1996
Operating Revenues: Crop Protection operating revenues decreased by $5.4
million from 1996 to 1997, as follows:
. Soilserv operating revenues were $4.4 million below last year's record levels
due to pricing pressures from fresh vegetable growers.
. Lower sales of MVP(R) powder to Kubota, M-Peril(R) to the Seed segment and
MVP(R) accounted for a $2.1 million decline in biopesticide operating
revenue. This decline was partially offset by higher sales of Mattch(R)
bioinsecticide attributable to higher insect pressure in Texas.
Operating Results: Operating results improved $1.8 million over 1996. This
improvement is attributable to lower expenses which have more than offset the
impact of lower revenues.
Fiscal Year Ended August 1996 Compared to 1995
Operating Revenues: Crop Protection operating revenues increased by $5.0
million from 1995 to 1996, as follows:
. Soilserv operating revenues were $3.1 million higher due to heavy insect
pressure in Salinas Valley that increased sales of aerial applications and
higher penetration of crop protection markets in Arizona.
. Biopesticide operating revenues were up $1.9 million, due to sales of new
products, Mattch(TM) bioinsecticide and Scythe bioherbicide, higher
international sales of MVP bioinsecticide and higher sales of MVP(R)
concentrate to 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.
20
<PAGE>
Operating Results: 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.
CORPORATE
Fiscal Year Ended August 1997 Compared to 1996
Corporate expenses increased $3.2 million mainly due to certain administrative
and research resources which have been reallocated to pursue acquisitions of
biotechnology assets and develop strategic alliances.
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.
OTHER CHARGES
Impairment of facilities and exit costs: The Crop Protection segment recorded
$10.6 million of charges in fiscal 1997 related to the restructuring of the
biopesticide unit. The charges primarily related to the write-off of Mycogen's
costs associated with the underutilized biopesticide plant. The Seed segment
recorded $.6 million and $14.4 million in 1997 and 1996, respectively, of
impairment losses and exit costs related to the disposal and sale of certain
corn production plant assets and a research facility.
Severance Agreement: Corporate recognized expenses of $9.1 million during 1997
related to the resignation of the Company's chief executive officer. Those
charges include non-cash stock compensation of $7.3 million and severance and
other benefits of $1.8 million.
Patent litigation fees: Currently, the Company is a party to numerous separate
actions arising out of disputes over patent and license rights for insect
resistance and herbicide tolerance technology in plants. The Seed segment
incurred related legal costs of $9.8 million and $2.4 million in 1997 and 1996,
respectively, to enforce the Company's patent position. The Company will
continue to assert and defend its positions in these matters, and therefore,
will continue to incur significant legal expenses.
Acquired in-process technology: In 1996, the Seed segment recorded write-offs
of acquired in-process technology totaling $10.3 million, including $7.2 million
for oilseed technology rights acquired from Lubrizol and $3.1 million related to
the acquisition of UAS. The Company is still evaluating programs related to
that oilseed 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' breeding and development programs.
Equity in loss of investees: The Seed segment recorded equity losses of $1.6
million, including $1.3 million of expenses incurred by the Company's European
subsidiaries during fiscal year 1997 through the date that they were transferred
to Verneuil and $.3 million of losses incurred by V.M.O., the Company's oilseed
joint venture with Verneuil.
21
<PAGE>
NON-OPERATING ITEMS
Interest Income and Expense, Net: In fiscal 1997, interest income and expense,
net, decreased $4.0 million due to cash utilized for business acquisitions and
higher working capital needs as a result of acquisitions and capital
expenditures. Interest income and expense, net, increased $1.5 million to $2.4
million in fiscal 1996 due to higher interest income as a result of more cash
available for investment during the year.
Other Income: Other income of $.7 million was recognized in 1996 upon receipt
of a litigation settlement.
Provision for Income Taxes: The provision for income taxes of $1.5 million in
1997 relates to income reported by Morgan Seeds.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and securities available-for-sale
decreased by $65.8 million to $2.2 million during the fiscal year ended August
1997. The acquisitions of Morgan Seeds and SVO's high oleic assets and the
investment in Verneuil accounted for $37.1 million of this decrease. Cash used
for operating activities of $22.8 million and capital expenditures of $35.7
million also contributed to the decrease. Proceeds of $15 million from long-
term borrowings, $6.9 million from short-term borrowings, $5.6 million from the
sale of common stock and $2.4 million from the sale of production facilities
offset a portion of the decrease. The Company has two bank lines of credit of
$40 million and $10 million, which expire November 1997 and February 1998,
respectively, to fund portions of its seasonal working capital needs, all of
which were unused as of August 31, 1997. Additionally, the Company may borrow
funds of up to $50 million (increased to $75 million as of November 14, 1997)
from DowElanco. Any advances from DowElanco are due September 30, 1998.
During 1997, the Company invested $21.7 million to upgrade seed production
facilities and to add seed production capacity and expects to invest another
$7.0 million during 1998. The Company invested $.7 million in 1997 for a new
business system and expects to invest another $6 million and $2 million in 1998
and 1999, respectively. During 1997, the Company spent $3.8 million for
completion of Mycogen Seeds' new headquarters. Other capital expenditures
totaled $9.5 million for 1997, and are expected to total $12 million during
1998.
On November 12, 1997, the Company's Board of Directors approved a private sale
of $75 million of newly issued common shares to DowElanco. These shares may be
sold in a single transaction or in a series of transactions totaling $75
million.
In December 1995, the Company signed an 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 in December 1995. Pioneer will
provide an additional $11 million in funding near the end of calendar year 1998.
In January 1996, Lubrizol converted its entire interest in shares of preferred
stock into 1,815,274 shares of Mycogen's 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 oilseed technology
from a subsidiary of Lubrizol for $8.0 million. The Company made payments of
$2.5 million and $2.0 million in 1997 and 1996, respectively, and will make a
final payment of $3.5 million in 1998.
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
oilseed technology and certain related assets for $7.6 million
22
<PAGE>
in cash. The Company will continue to pursue an aggressive acquisition and
joint venture strategy for the Seed segment.
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 U.S. 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 will also 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, is also 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, contract and other revenues, and funds from its existing lines of
credit will be sufficient to finance working capital and capital requirements
for the upcoming fiscal year. 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
In fiscal year 1997, there were no reported disagreements on any matters of
accounting principles or procedures or financial disclosures with the Company's
independent auditors.
23
<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.
The information under the heading "Compliance with Section 16(a) of the Exchange
Act" appearing in the Proxy Statement, 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,
1997" 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.
24
<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 30 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.
2.2 Stock Acquisition Agreement by and among Agrigenetics, Inc., Mr. --
Jose Alberto Benegas, Ms. Maria Alejandra Rebagliati and Genetic
Resources (Latin America) Corporation dated September 30, 1996.
Incorporated by reference from Exhibit 2.1 to the Registrant's Form
8-K, filed on October 15, 1996.
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 the 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.
</TABLE>
25
<PAGE>
<TABLE>
<C> <S> <C>
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 Registrant's 1992 Stock Option Plan (as amended and restated --
effective October 17, 1996). Incorporated by reference from Exhibit
10.1 to the Registrant's Registration Statement on Form S-8,
Registration Statement No. 33-21467, filed on February 10, 1997.
10.10 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.
10.11 Supplement to Form of Agreements pertaining to 1992 Stock Option 57
Plan.
</TABLE>
26
<PAGE>
<TABLE>
<C> <S> <C>
10.12 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.
10.13 Revolving Credit Agreement between the Registrant and Harris Bank --
dated August 5, 1994, as amended. 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.
10.14 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.
10.15 Form of Employment/Severance Agreement between the Registrant and --
certain executive officers of the Registrant. Incorporated by
reference from Exhibit 10.22 to the Registrant's Form 10-K for the
year ended August 31, 1996, filed on November 13, 1996.
10.16 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.
10.17 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.
10.18 Collaboration Agreement dated as of December 13, 1995, by and --
between Mycogen Seeds and Pioneer with certain confidential portions
omitted. Incorporated by reference from Exhibit 10.20 to the
Registrant's Form 10-K for the year ended August 31, 1996, filed on
November 13, 1996.
10.19 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").
Incorporated by reference from Exhibit 10.21 to the Registrant's
Form 10-K for the year ended August 31, 1996, filed on November 13,
1996.
10.20 Registration Rights Agreement dated December 13, 1995, by and --
between the Registrant and Pioneer Overseas. Incorporated by
reference from Exhibit 10.22 to the Registrant's Form 10-K for the
year ended August 31, 1996, filed on November 13, 1996.
</TABLE>
27
<PAGE>
<TABLE>
<C> <S> <C>
10.21 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.
10.22 Credit Agreement dated as of February 11, 1997, between Registrant 67
and Bank of America Illinois.
10.23 Loan Agreement, as amended, dated as of April 1, 1997, between 125
DowElanco and Registrant.
10.24 Form of Mycogen Corporation Executive Deferred Compensation Plan 131
between the Registrant and certain executive officers of the
Registrant.
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 Mycoyen, S.A., an Argentina corporation, doing business as Morgan --
Seeds.
* The Company's Notice of Annual Meeting and Proxy Statement dated on --
or about November 24, 1997.
23.1 Consent of Ernst & Young LLP, Independent Auditors. 153
23.2 Consent of Deloitte & Co., Independent Auditors. 155
24 Power of Attorney. 157
27 Financial Data Schedule. 55
99 Purchase Agreement dated February 15, 1995, by and among the --
Registrant, Mycogen Seeds and DPL. 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.
28
<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 24, 1997 By: /s/ CARLTON J. EIBL
--------------------
Carlton J. Eibl
President
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>
<S> <C> <C>
/s/ CARLTON J. EIBL President (Principal November 24, 1997
- ------------------------------------- Executive Officer)
(Carlton J. Eibl)
/s/ NICKOLAS D. HEIN Chairman, Director November 24, 1997
- -------------------------------------
(Nickolas D. Hein*)
/s/ THOMAS J. CABLE Director November 24, 1997
- -------------------------------------
(Thomas J. Cable*)
/s/ JERRY D. CAULDER Director November 24, 1997
- -------------------------------------
(Jerry D. Caulder*)
/s/ PERRY J. GEHRING Director November 24, 1997
- -------------------------------------
(Perry J. Gehring*)
/s/ LOUIS W. PRIBILA Director November 24, 1997
- -------------------------------------
(Louis W. Pribila*)
/s/ DAVID H. RAMMLER Director November 24, 1997
- -------------------------------------
(David H. Rammler*)
/s/ WILLIAM C. SCHMIDT Director November 24, 1997
- -------------------------------------
(William C. Schmidt*)
/s/ G. WILLIAM TOLBERT Director November 24, 1997
- -------------------------------------
(G. William Tolbert*)
/s/ W. WAYNE WITHERS Director November 24, 1997
- -------------------------------------
(W. Wayne Withers*)
/s/ JAMES A. BAUMKER Vice President and Chief November 24, 1997
- ------------------------------------- Financial Officer
(James A. Baumker) (Principal Financial and
Accounting Officer)
</TABLE>
__________________
*By James A. Baumker under power of attorney.
29
<PAGE>
MYCOGEN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Statements of Operations for the years ended
August 31, 1997, 1996 and 1995............................................................ 31
Consolidated Balance Sheets as of August 31, 1997 and 1996.................................. 32
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1997, 1996 and 1995............................................................ 33
Consolidated Statements of Cash Flows for the years ended
August 31, 1997, 1996 and 1995............................................................ 34
Notes to Consolidated Financial Statements.................................................. 35
Quarterly Financial Data.................................................................... 51
Schedule II - Valuation and Qualifying Accounts for the years ended August 31, 1997, 1996
and 1995.................................................................................. 52
Report of Ernst & Young LLP, Independent Auditors........................................... 53
Report of Deloitte & Co., Independent Auditors.............................................. 54
</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.
30
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended August 31,
----------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Net operating revenues:
Unrelated parties................... $201,703 $145,401 $103,701
Related parties..................... 704 1,399 2,468
Contract and other revenues:
Unrelated parties................... 2,841 5,160 4,334
Related parties..................... 5,725 3,629 2,715
-------- -------- --------
Total revenues.................. 210,973 155,589 113,218
-------- -------- --------
Costs and expenses:
Cost of operating revenues.......... 126,857 93,508 66,966
Selling and marketing............... 41,834 37,791 23,544
Research and development............ 24,105 23,645 21,181
General and administrative.......... 17,978 19,689 13,190
Amortization of intangible assets... 3,016 3,514 3,854
Other charges....................... 31,730 27,591 -
-------- -------- --------
Total costs and expenses.......... 245,520 205,738 128,735
-------- -------- --------
Operating loss........................ (34,547) (50,149) (15,517)
Interest income and expense, net.... (1,580) 2,435 914
Exchange gain (loss)................ (22) 2 160
Other non-operating income.......... - 654 -
-------- -------- --------
Net loss before taxes................. (36,149) (47,058) (14,443)
Provision for income taxes.......... (1,534) - -
-------- -------- --------
Net loss.............................. (37,683) (47,058) (14,443)
Dividends on preferred stock.......... - (578) (1,503)
-------- -------- --------
Net loss applicable to common shares.. $(37,683) $(47,636) $(15,946)
======== ======== ========
Net loss per common share............. $ (1.22) $ (1.81) $ (.83)
======== ======== ========
Weighted average number of shares..... 30,920 26,275 19,225
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
August 31,
Assets 1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 1,712 $ 35,854
Securities available-for-sale................................ 499 32,184
Accounts and notes receivable, net of allowances............. 42,102 30,700
Inventories.................................................. 57,135 37,177
Prepaid expenses and other current assets.................... 5,306 1,880
--------- ---------
Total current assets....................................... 106,754 137,795
Net property, plant and equipment.............................. 87,170 54,905
Net intangible assets.......................................... 32,990 22,581
Other assets................................................... 12,773 12,188
--------- ---------
Total assets................................................... $ 239,687 $ 227,469
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings........................................ $ 18,602 $ 1,520
Accounts payable............................................. 21,100 8,697
Accrued compensation and related taxes....................... 6,124 6,755
Deferred revenues............................................ 8,246 12,101
Other current liabilities.................................... 12,857 11,974
--------- ---------
Total current liabilities.................................. 66,929 41,047
Long-term liabilities.......................................... 15,544 5,228
Commitments
Stockholders' equity:
Common stock, $.001 par value, 40,000,000 shares authorized;
31,381,344 and 30,678,537 shares issued and outstanding at
August 31, 1997 and 1996, respectively..................... 31 31
Additional paid in capital..................................... 344,676 330,973
Deficit........................................................ (187,493) (149,810)
--------- ---------
Total stockholders' equity................................. 157,214 181,194
--------- ---------
Total liabilities and stockholders' equity..................... $ 239,687 $ 227,469
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
Number Paid in Stockholders'
of Shares Amount Capital Deficit Equity
--------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1994 19,099 $ 19 $213,696 $ (88,309) $125,406
Issuance of common stock under
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 19,401 19 216,436 (102,752) 113,703
Issuance of common stock
under:
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. 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
Issuance of common stock under:
Employee stock plans...... 622 - 5,608 - 5,608
401 (k) plan.............. 14 - 333 - 333
Compensation related to
resignation of officer.... 66 - 7,316 - 7,316
Compensation related to
employee stock plans......... - - 621 - 621
Change in unrealized gains
and losses on securities
available-for-sale....... - - 303 - 303
Net loss...................... - - - (37,683) (37,683)
Cumulative translation
adjustment................... - - (478) - (478)
--------- -------- -------- --------- --------
Balance at August 31, 1997 31,381 $ 31 $344,676 $(187,493) $157,214
========= ======== ======== ========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
MYCOGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended August 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss............................................ $(37,683) $(47,058) $(14,443)
Items which did not use cash:
Depreciation...................................... 6,297 4,862 4,851
Amortization...................................... 3,717 4,216 4,138
Compensation related to employee stock plans...... 954 689 148
Other charges..................................... 17,794 23,218 -
Provision for doubtful accounts................... 1,553 1,990 292
Provision for deferred taxes...................... 682 - -
Loss on disposal of assets........................ 187 361 693
Changes in operating assets and liabilities, net
of effects of business combinations:
Accounts and notes receivable................... (7,562) 8,432 (3,293)
Inventories..................................... (8,323) 14,179 (1,834)
Prepaid expenses................................ (1,460) 53 (346)
Accounts payable................................ 7,961 (5,328) 3,014
Deferred revenues............................... (3,855) (1,815) 989
Other liabilities............................... (3,050) 4,332 (669)
-------- -------- --------
Cash provided by (used in) operating
activities................................... (22,788) 8,131 (6,460)
-------- -------- --------
Investing activities:
Proceeds from sales of available-for-sale securities 28,140 33,675 8,972
Proceeds from maturities of available-for-sale
securities......................................... 3,703 4,159 21,049
Purchases of available-for-sale securities.......... - (58,272) (12,250)
Capital expenditures................................ (35,653) (13,889) (6,566)
Net cash paid for business combinations............. (37,087) (1,791) -
Prepaid contract manufacturing...................... - (286) (8,825)
Change in intangibles and other assets.............. 2,851 1,596 (1,842)
-------- -------- --------
Cash provided by (used in) investing activities. (38,046) (34,808) 538
-------- -------- --------
Financing activities:
Proceeds from short-term borrowings................. 6,903 1,520 -
Proceeds from long-term debt........................ 15,000 - 2,500
Payments on long-term debt.......................... (852) (4,678) (248)
Proceeds from sale of common stock.................. 5,608 59,900 435
-------- -------- --------
Cash provided by financing activities............. 26,659 56,742 2,687
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents.......................................... 33 102 241
-------- -------- --------
Increase (decrease) in cash and cash equivalents...... (34,142) 30,167 (2,994)
Cash and cash equivalents at beginning of year........ 35,854 5,687 8,681
-------- -------- --------
Cash and cash equivalents at end of year.............. $ 1,712 $ 35,854 $ 5,687
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<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 subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.]
Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
Business Acquisitions and Investments
In September 1996, the Company purchased all of the stock of Morgan Seeds,
located in Argentina, for $27 million in cash. Morgan Seeds' principal products
are corn and sunflower planting seed. The acquisition of Morgan Seeds was
accounted for as a purchase and, accordingly, the assets and liabilities of
Morgan Seeds are included in the Consolidated Balance Sheet as of August 31,
1997 and the results of operations from the acquisition date are reflected in
the 1997 Consolidated Statement of Operation. The excess of the total purchase
price over the fair value of the net assets acquired of $10.0 million was
recorded as goodwill and is being amortized over 25 years.
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 seeds 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.
The following consolidated, pro forma, unaudited summary of operations data
assumes that the acquisition of Morgan Seeds occurred on September 1, 1996 and
1995, respectively, and that the acquisition of UAS occurred on September 1,
1995 and 1994.
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------------------------
(In thousands except per share data) 1997 1996 1995
- ------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Total revenues $ 212,592 $ 200,559 $ 146,873
Net loss applicable to common shares $ (37,665) $ (40,179) $ (13,301)
Net loss per common share $ (1.22) $ (1.42) $ (.56)
</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
35
<PAGE>
not include a 1996 nonrecurring charge of $3.1 million related to the write-off
of acquired in-process technology from the UAS acquisition.
In September 1996, the Company acquired rights to SVO's high oleic sunflower
oil technology and other assets (mainly inventory) relating to its specialty oil
business for $7.6 million. In a related transaction, the company entered into a
supply agreement with AC Humko whereby the Company will produce crude high oleic
sunflower oil exclusively for AC Humko in North America.
In December 1996, the Company exchanged its ownership interest in two European
subsidiaries, Mycogen S.A. and Mycogen SRL, and cash of $2.1 million for an
18.75% ownership interest in Verneuil. The Company obtained a call option
whereby Mycogen can purchase an additional 16.25% interest in Verneuil from
Dowelanco. Dowelanco has a put option that may require Mycogen to purchase
Dowelanco's 16.25% ownership interest in Verneuil after December 1997 if certain
conditions are met. Including related investment costs, the investment in
Verneuil totaled $9.7 million. The investment is accounted for using the cost
method and is included in other assets on the 1997 Consolidated Balance Sheet.
The European subsidiaries' fiscal 1997 operating results are reported in the
Consolidated Statements of Operations as other charges.
The investment in Verneuil is considered a financial instrument. Per
Statement of Financial Accounting Standards ("SFAS") No. 107, "Financial
Instruments: Disclosure," the market value of such instruments is required to
be disclosed. However, it was not practicable to estimate the fair value of
Verneuil because of the lack of a quoted market price and the inability to
estimate fair value without incurring excessive costs. The $9.7 million
carrying amount at august 31, 1997, represents the original cost of the
investment, which management believes is not impaired. No dividends were
received during the three year period ended August 31, 1997.
Supplemental Cash Flow Information
In conjunction with the acquisition of Morgan Seeds, the investment in
Verneuil and the purchase of SVO's high oleic sunflower oil assets in fiscal
year 1997 and the acquisition of UAS and the remaining ownership interest in
Mycogen Seeds in fiscal year 1996 and an acquisition in 1995, cash and non-cash
investing and financing activities were allocated as follows:
<TABLE>
<CAPTION>
Years ended August 31,
-----------------------------------------
(In thousands) 1997 1996 1995
- -------------- ---------- ---------- ---------
<S> <C> <C> <C>
Business acquisitions:
Fair value of assets acquired, net of cash
received of $1.4 million in 1997 and none
in 1996 and 1995 $ 48,741 $ 55,957 $ 1,350
Liabilities assumed (15,396) (20,886) --
Investment in Verneuil 9,697 -- --
Net assets and liabilities of Mycogen S.A.
and Mycogen SRL, excluding cash,
exchanged for Verneuil (5,955) -- --
Liabilities and acquisition costs incurred -- (673) --
Minority interest purchased from Lubrizol -- 21,406 --
Common stock issued -- (54,013) (1,350)
---------- ---------- ---------
Net cash paid for acquisitions $ 37,087 $ 1,791 $ --
========== ========== =========
</TABLE>
36
<PAGE>
Other cash and noncash investing and financing activities were as follows:
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Cash payments for interest $ 2,483 $ 263 $ 389
Cash payments for income taxes $ 403 $ -- $ --
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
</TABLE>
INDUSTRY SEGMENTS
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, South 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 seeds, crop protection services
and biopesticide products purchased by growers.
Financial information by segment is as follows:
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net Operating Revenues
Seed $162,286 $102,035 $ 65,329
Crop Protection 40,531 45,886 40,840
Intersegment Elimination (410) (1,121) --
-------- -------- --------
Total $202,407 $146,800 $106,169
======== ======== ========
Contract and Other Revenues
Seed $ 7,675 $ 7,639 $ 5,606
Crop Protection 482 1,040 1,363
Corporate 409 110 80
-------- -------- --------
Total $ 8,566 $ 8,789 $ 7,049
======== ======== ========
Research and Development Expenses
Seed $ 19,789 $ 18,604 $ 14,827
Crop Protection 3,049 4,816 6,354
Corporate 1,267 225 --
-------- -------- --------
Total $ 24,105 $ 23,645 $ 21,181
======== ======== ========
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Operating Income (Loss)
Seed $(11,349) $(47,818) $(11,922)
Crop Protection (8,490) 316 (2,336)
Corporate (14,735) (2,527) (1,259)
Intersegment Elimination 27 (120) --
-------- -------- --------
Total $(34,547) $(50,149) $(15,517)
======== ======== ========
Identifiable Assets
Seed $195,890 $108,404 $ 87,238
Crop Protection 30,005 40,210 41,994
Corporate 13,886 78,976 30,376
Intersegment Elimination (94) (121) --
-------- -------- --------
Total $239,687 $227,469 $159,608
======== ======== ========
Depreciation and Amortization
Seed $ 6,350 $ 4,592 $ 4,199
Crop Protection 2,579 3,510 3,665
Corporate 1,085 976 1,125
-------- -------- --------
Total $ 10,014 $ 9,078 $ 8,989
======== ======== ========
Capital Expenditures
Seed $ 34,554 $ 11,987 $ 3,263
Crop Protection 865 597 213
Corporate 234 1,305 3,090
-------- -------- --------
Total $ 35,653 $ 13,889 $ 6,566
======== ======== ========
</TABLE>
[Operating revenues, net of estimated returns, are recognized when the product
is shipped to the customer or the service is provided.]
[In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No.131, "Segment Information". Both
of these standards are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-owner sources. Net income and other comprehensive income, including foreign
currency translation adjustment, and unrealized gains and losses on investments,
shall be reported, net of their related tax effect, to arrive at comprehensive
income. The Company intends to adopt SFAS No. 130 in fiscal 1999 and operating
results of prior periods will be reclassified. SFAS No. 131 amends the
requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined in SFAS No. 131, are components of an enterprise for which separate
financial information is available and is evaluated regularly by the Company in
deciding how to allocate resources and in assessing performance. The financial
information is required to be reported on the basis that is used internally for
evaluating the segment performance. As of August 31, 1997, the Company had not
yet determined the impact of SFAS No. 131.]
38
<PAGE>
Operations By Geographic Area
Information on the Company's operations by geographic area is as follows:
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Revenues
U.S. $162,574 $146,329 $104,780
Argentina 47,972 2,123 1,531
Other Non-U.S. 427 7,137 6,907
-------- -------- --------
$210,973 $155,589 $113,218
======== ======== ========
Operating Income/(Loss)
U.S. $(39,364) $(47,786) $(19,272)
Argentina 6,696 252 309
Other Non-U.S. (1,879) (2,615) 3,446
-------- -------- --------
$(34,547) $(50,149) $(15,517)
======== ======== ========
Identifiable Assets
U.S. $164,707 $215,582 $149,169
Argentina 65,196 3,695 1,833
Other Non-U.S. 9,784 8,192 8,606
-------- -------- --------
$239,687 $227,469 $159,608
======== ======== ========
</TABLE>
[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.]
Transfers of products between geographic areas are at prices approximating
those charged to unaffiliated customers and are not material to any geographic
area. The Company's international operations have risks similar to the
Company's domestic operations. Additionally, international operations have the
added risks of different political environments and currency fluctuations.
The Company's international operations have risks similar to the Company's
domestic operations. Additionally, international operations have the added
risks of different political environments and currency fluctuations.
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 and losses on sales of available-for-sale securities for
1997, 1996 and 1995 were not significant. Available-for-sale securities are
summarized as follows:
39
<PAGE>
<TABLE>
<CAPTION>
August 31, 1997
-----------------------------------------------
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 $499 $-- $-- $499
==== === === ====
</TABLE>
<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
======= === ===== =======
</TABLE>
As of August 31, 1997, there were no available-for-sale securities with
original maturities of three months or less that were classified as cash
equivalents, and as of August 31, 1996, there were $31,328,000. All available-
for-sale securities at August 31, 1997 are due within one year.
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) 1997 1996
- -------------------------------- -------- --------
<S> <C> <C>
Trade accounts receivable $40,763 $30,219
Notes and other receivables 5,718 4,282
------- -------
46,481 34,501
Allowance for doubtful accounts (4,379) (3,801)
------- -------
$42,102 $30,700
======= =======
</TABLE>
At August 31, 1997, the significant concentration of the Company's trade
receivables were from farmers located in the U.S., Argentina and other 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 93% and 86% of total inventories at August
31, 1997 and 1996, respectively, 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.]
40
<PAGE>
Inventories at august 31 are comprised of:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ------------------------------------------- -------- --------
<S> <C> <C>
Raw materials and supplies $ 5,969 $ 3,819
Work in process 14,742 10,810
Finished goods 36,424 22,548
------- -------
$57,135 $37,177
======= =======
</TABLE>
Planting seeds are produced by independent growers who contract specific
acreage for the production of seeds for the Company. The compensation of the
independent growers is determined based on yield, contracted acreage and
commodity prices. The commitment for grower compensation is accrued as seeds
are 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,
1997, the Company had short-term futures contracts totaling $27.1 million for
the purchase of commodities (principally soybean and corn) at various dates
during 1997. The fair value of these contracts at August 31, 1997, was $27.4
million. At August 31, 1997, the Company had entered into short-term contracts
totaling $5.9 million for the sale of commodities (principally corn). At August
31, 1997, the unrealized gain on these contracts totaled $.4 million.
Production of hybrid seeds 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 and maintains 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) 1997 1996
- ------------------------------------------- -------- --------
<S> <C> <C>
Land and improvements $ 7,093 $ 4,901
Buildings and improvements 33,238 26,452
Machinery and equipment 44,595 30,171
Leasehold improvements 291 424
Construction in progress 21,739 10,281
-------- --------
106,956 72,229
Accumulated depreciation and amortization (19,786) (17,324)
-------- --------
$ 87,170 $ 54,905
======== ========
</TABLE>
41
<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>
1997
Useful --------------------------------------
Life Accumulated
(In thousands) in years Cost Amortization Net Value
- ------------------------------------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Goodwill 25 $20,301 $ (2,795) $17,506
Purchased technology 3-15 10,317 (4,169) 6,148
Patents 10 8,345 (1,878) 6,467
Non-compete agreements 5-7 2,681 (2,337) 344
Customer base 10 2,386 (365) 2,021
Assembled work force 5 726 (222) 504
------- -------- -------
$44,756 $(11,766) $32,990
======= ======== =======
</TABLE>
<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 agreements 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>
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.
[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.]
Lines of Credit and Short-term Borrowings
In April 1997, the Company entered into an agreement with DowElanco whereby
DowElanco will provide an unsecured advance up to $50 million to meet the needs
of the Company's operations. The advance, which expires in April 1998, provides
for short-term borrowings in U.S. dollars at DowElanco's cost of borrowing (5.9%
at August 31, 1997) plus 1/8% per annum. At August 31, 1997, amounts
outstanding under the advance were $13.5 million.
The company has available a $40 million unsecured revolving bank line of
credit, of which no amounts were outstanding at August 31, 1997. This line,
which expires November 30, 1997, provides for short-term borrowings in U.S.
dollars at the bank's prime rate (8.5% at August 31, 1997) less 1% or in
Eurodollars at an adjusted Eurodollar rate (5.7% at August 31, 1997) plus 1%.
On an annual basis, the Company is required to pay a commitment fee of .15% on
the unused portion.
42
<PAGE>
The Company has available a $10 million unsecured revolving bank line of
credit, of which no amounts were outstanding at August 31, 1997. This line,
which expires February 1, 1998, provides for short-term borrowings at the bank's
reference rate (8.5% at August 31, 1997) less .50% or in Eurodollars at the sum
of the interbank rate or the LIBOR rate (5.6% at August 31, 1997) plus 1%.
Additionally, the Company is required to pay a commitment fee of .125% per annum
on the average daily unused portion of the revolving credit commitment.
The $40 million and $10 million line of credit agreements contain certain
covenants which include the maintenance of a minimum consolidated net worth,
maintenance of certain financial ratios and certain limitations on the
incurrence of indebtedness or liens on the Company's assets.
As of August 31, 1997, Morgan Seeds had $5.1 million of short-term borrowings
outstanding from various banks at interest rates ranging from 7.5% to 8% and
maturing at various dates through January 1998.
Long-term Liabilities
Long-term liabilities (amounts due after one year) at August 31 are as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ---------------------------------------------------- -------- --------
<S> <C> <C>
Unsecured note payable to bank $14,250 $ --
Pension and other liabilities 4,294 2,470
Liability for purchased technology -- 6,000
------- -------
18,544 8,470
Less current portion included in current liabilities (3,000) (3,242)
------- -------
Total long-term liabilities $15,544 $ 5,228
======= =======
</TABLE>
The company has a $14.25 million unsecured term loan due February 1, 2002
which bears interest at a rate of 7.5% through February 1999. the rate of
interest in effect after February 1999 will be determined through negotiations
with the lender and will reflect prevailing rates in effect at that time.
Principal payments are due quarterly and total $750,000. The loan covenants
reflect the same terms as the lines of credit. Maturities on the note payable
are $3.0 million in 1998, $3.0 million in 1999, $3.0 million in 2000, $3.0
million in 2001 and $2.3 million in 2002. As of August 31, 1997, the Company
was not in compliance with certain covenants on its $14.25 million term loan.
The Company has received a waiver from the bank for up to and including August
31, 1998.
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 or $2,000. Effective
January 1, 1997, the Company began matching employee contributions by issuing
shares of the Company's common stock to the plan. Matching contributions to
these plans during the years ended August 31, 1997, 1996 and 1995 totaled
$665,000, $521,000 and $531,000, respectively.
Effective January 1, 1997, the Company adopted an Investment and Savings Plan
whereby individuals, who are employed with the Company on December 31 and who
have met other eligibility requirements, may receive contributions of 2.5% of
their base salary. At August 31, 1997, accrued contributions to the plan were
$427,000.
43
<PAGE>
Commitments
At August 31, 1997, the Company had operating lease commitments on certain
premises, machinery and office equipment which expire at various dates through
2002. Minimum future commitments under non-cancelable lease agreements having
terms in excess of one year total: 1998, $1,424,000; 1999, $441,000; 2000,
$184,000; 2001, $98,000 and 2002, $22,000. The Company also leases equipment
and other facilities on a month-to-month basis. Rent expense under operating
leases totaled $4.3 million, $2.4 million, and $2.0 million in 1997, 1996 and
1995, respectively, and includes rent expense of $.8 million in 1997 incurred by
the Company for leased laboratory facilities from DowElanco.
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.]
[SFAS No. 128, "Earnings Per Share" prescribes new requirements for computing
earnings per share. The application of this statement will be effective
beginning with the Company's second quarter in fiscal 1998. The Company does
not believe adoption of this SFAS No. 128 will have a material impact on its
consolidated financial statements.]
Stock Incentive Plans
Directors and key employees were issued options to purchase the Company's
common stock 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, 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
Granted 1,026,834 $17.08
Exercised (585,296) $ 8.58
Canceled (123,498) $13.86
----------
Balance at August 31, 1997 4,435,990 $12.03
==========
</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. All other options vest in equal yearly
installments from the date of the grant or at the end of three years. Of the
4,435,990 outstanding options, 2,354,757 were vested as of August 31, 1997. As
of August 31, 1997, a total of 5,358,523 shares of common stock were reserved
for future issuance under the plans and 922,533 shares of common stock were
available for future grants.
44
<PAGE>
Pursuant to the Company's 1990 Restricted Stock Issuance Plan, officers and
key employees were awarded a total of 96,000 shares of restricted stock in 1996.
As of August 31, 1997, a total of 38,500 shares of common stock were reserved
for future issuance under the plan. Compensation expense related to these stock
plans was $801,000, $689,000 and $148,000 in 1997, 1996 and 1995, respectively.
Unamortized deferred compensation expense with respect to restricted stock
issued aggregated $611,000 and $1,517,000 at august 31, 1997 and 1996,
respectively.
Pursuant to the Company's 1995 and 1988 Employee Stock Purchase Plans,
employees purchased 41,008 shares at an average price of $14.24 per share,
32,669 shares at an average price of $9.99 per share and 42,334 shares at an
average price of $7.65 per share in 1997, 1996 and 1995, respectively. As of
August 31, 1997, there were 185,891 shares of common stock reserved for future
issuance under the Plan.
[As allowed under SFAS No. 123, "Accounting for Stock-Based Compensation" the
Company has elected to continue accounting for stock compensation under APB
Opinion No. 25, "Accounting for Stock Issued to Employees."] In 1997,
compensation expense recognized under the Company's stock plans totaled $7.3
million and related solely to severance expense for the Company's former
chairman and chief executive officer as discussed in "Other Charges." If the
determination of compensation expense for the Company's option plans had been
based on the fair value at the grant dates for awards under these plans
consistent with SFAS No. 123, the Company's net loss and net loss per common
share would have increased to the following pro forma amounts:
<TABLE>
<CAPTION>
(In thousands except for
per share data) 1997 1996
- --------------------------------- ---------- ----------
<S> <C> <C>
Net loss:
As reported $(37,683) $(47,636)
Pro forma (41,418) (49,256)
Loss per share:
As reported $ (1.22) $ (1.81)
Pro forma (1.34) (1.87)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------- ---------- ----------
<S> <C> <C>
Expected dividend yield 0.0% 0.0%
Expected volatility 45.0% 50.0%
Risk-free interest rates 6.4% 5.6%
Expected option lives (years) 5.0 5.0
</TABLE>
The effects of applying SFAS No. 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma net income (loss) in
future years because they do not take into consideration pro forma compensation
expense related to grants made prior to 1996.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of its employee stock options.
45
<PAGE>
The weighted-average fair values of options granted during 1997 and 1996 were
$6.69 and $6.22, respectively. The following table summarizes information about
stock options outstanding as of August 31, 1997:
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Shares contractual Exercise Shares Exercise
Exercise prices Outstanding Life (years) Price Exercisable Price
- --------------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 4 to $ 7 161,168 .67 $ 5.72 161,168 $ 5.72
8 to 11 2,052,768 6.45 8.68 1,816,508 8.64
12 to 15 1,365,220 7.24 13.96 1,161,871 13.97
16 to 25 856,834 8.99 18.17 146,324 18.24
---------- --------- ---- ------ --------- ------
$ 4 to $25 4,435,990 6.97 $12.03 3,285,871 $10.80
========== ========= ==== ====== ========= ======
</TABLE>
Stockholder Rights Agreement
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.
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.
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>
At August 31, 1997, there were 3,940 shares authorized for issuance of the
Company's Series A Preferred Stock, $.001 par value, and no outstanding shares.
46
<PAGE>
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
$3.3 million, $4.4 million and $3.0 million in 1997, 1996 and 1995,
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 calendar year 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 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 $4.9 million in 1997 and $2.4 million in
1996. Deferred revenues of $3.5 million are included in the Consolidated
Balance Sheet at August 31, 1997. in 1997, DowElanco purchased 1,000,000 shares
of common stock of the Company from Pioneer.
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 and $2.6
million in 1996 and 1995, 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 and $2.5 million in 1996 and 1995, respectively.
In January 1996, the Company agreed to acquire certain rights in oilseed
technology from Lubrizol for $8.0 million. The Company made payments of $2.5
million and $2.0 million in 1997 and 1996, respectively, and will make a final
payment of $3.5 million in 1998.
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. As of August 31, 1997, DowElanco owned 17,923,245
shares of the Company's common stock, or 57.11% of the Company's outstanding
shares of common stock, and may acquire additional shares of the Company's
common stock subject to certain restrictions. In 1997, the Company recorded $.7
million of operating revenues with DowElanco related to sales of seed and $.7
million of contract revenue related to the development of specialty canola and
high oil corn varieties.
Other Charges
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ---------------------------------- -------- --------
<S> <C> <C>
Impairment of facilities and costs
to exit those facilities $11,277 $14,905
Severance 9,050 --
Patent litigation fees 9,777 2,373
Acquired in-process technology -- 10,313
Equity in net loss of investees 1,626 --
------- -------
$31,730 $27,591
======= =======
</TABLE>
47
<PAGE>
The Company has an exclusive manufacturing agreement through 2010 for certain
of its biopesticide products. Under the terms of the agreement, the Company
pays for the actual cost of manufacturing, excluding depreciation, plus a fee
based on the actual number of units produced. The Company originally paid $11.2
million to the manufacturer to fund the construction of a manufacturing facility
which was classified as an other asset. In August 1997, the Company's Crop
Protection segment restructured its biopesticide unit as part of a corporate
initiative to achieve operating profitability for each of the Company's business
units for the fiscal year ending August 31, 1998. The restructuring resulted in
a write-down of the Company's underutilized biopesticide production plant and
overhead reductions to bring costs in line with projected net cash flows.
Accordingly, the Company recognized $9.8 million of impairment costs and $.8
million of exit costs related to this restructuring. The impairment and exit
costs are included in other charges in the Consolidated Statements of
Operations.
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 seeds production. In 1997, impairment
losses of $.6 million were recorded as a result of adjustments to the estimates
made in 1996. 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 other charges in the Consolidated Statements of
Operations. The carrying amount of the assets held for sale at August 31, 1997
total $.4 million and is included in other current assets in the Consolidated
Balance Sheets.
In connection with the resignation of the Company's former chairman and chief
executive officer, Dr. Jerry Caulder, the Company incurred severance charges of
$9.1 million. These charges include non-cash stock compensation of $7.3 million
and severance and other benefits of $1.8 million. In connection with Dr.
Caulder's resignation, Dr. Caulder and DowElanco entered into an agreement
whereby Dr. Caulder has the option to sell to DowElanco any shares acquired by
Dr. Caulder through the surrender of his stock options to the Company at prices
based on a specified formula. This option becomes available upon Dr. Caulder's
resignation from the board of directors of Mycogen and expires after six months.
Options where vesting was accelerated are "marked to market" each quarter until
the options are exercised or expire. For the year ended August 31, 1997, these
charges totaled $2.3 million based on the revaluation of 389,445 options to
$24.75, the closing price of the Company's stock at August 31, 1997. The
Company will incur charges or credits each quarter based on fluctuations in the
value of the Company's stock until the options are exercised or expire.
The Seed segment incurred $9.8 million and $2.4 million in 1997 and 1996,
respectively, to enforce its patent position and license rights to insect
resistance and herbicide tolerance technology in plants. The Company expects to
continue to incur significant legal expenses in defending its positions in these
matters. Because of the nature of its business, the Company is subject to
pending and threatened legal actions which arise out of the normal course of its
business. Based on information furnished by legal counsels, management believes
the outcome of the existing pending and threatened legal actions will not have
an adverse effect on the financial conditions of the Company.
In connection with the acquisition of UAS and the rights in oilseed technology
from Lubrizol in 1996, $10.3 million 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 acquisition date.
The Seed segment recognized equity losses of $1.6 million incurred by the
Company's European subsidiaries through the date they were transferred to
Verneuil, and by an oilseed joint venture with Verneuil.
Income Taxes
At August 31, 1997, the Company has a federal tax net operating loss
carryforward of approximately $129.8 million and a California net operating loss
carryforward of approximately $22.8 million. The Company has federal and state
research tax credit carryforwards totaling approximately $2.7 million and $.5
million,
48
<PAGE>
respectively. The federal tax loss and credit carryforwards will expire in years
1998 through 2012 unless previously utilized. California tax loss and credit
carryforwards, if not utilized, will expire in years 1998 through 2002. The
Company also has a capital loss carryforward of $2.6 million which will expire
in 2000 if not utilized.
At August 31, 1997 and 1996, approximately $6.0 million and $3.5 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.
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 of
the net operating loss and tax credit carryforwards previously described in any
one year. 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.
For financial reporting purposes, net income (loss) before dividends on
preferred stock includes the following components:
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------
(In thousands) 1997 1996 1995
- ---------------------- --------- -------- --------
<S> <C> <C> <C>
Pretax income (loss):
United States $(39,194) $(44,440) $(17,785)
Foreign 1,511 (2,618) 3,342
-------- -------- --------
$(37,683) $(47,058) $(14,443)
======== ======== ========
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years ended August 31,
------------------------------
(In thousands) 1997 1996 1995
- ---------------------- -------- --------- --------
<S> <C> <C> <C>
Current
Federal $ -- $ -- $ --
State -- -- --
Foreign 852 -- --
-------- --------- --------
852 -- --
Deferred
Federal -- -- --
State -- -- --
Foreign 682 -- --
-------- --------- --------
682 -- --
-------- --------- --------
Provision $ 1,534 $ -- $ --
======== ========= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of August 31 are as
follows:
49
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ---------------------------------------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 46,806 $ 24,120
Tax basis of inventory greater than book 3,513 4,532
Reserve for impaired assets 6,110 6,150
Research credit carryforwards 3,247 3,247
Deferred revenue 1,422 3,131
Capitalized research expenditures 2,539 3,016
Acquired in-process technology 2,116 2,706
Tax basis of receivables greater than book 1,778 1,455
Capital loss carryforward 1,073 1,073
Foreign deferred tax assets 2,072 --
-------- -------
Total deferred tax assets 70,676 49,430
Less: Valuation allowance (60,791) (46,633)
-------- --------
Net deferred tax assets 9,885 2,797
Tax depreciation in excess of book (7,099) (2,473)
Other net deferred tax liabilities (714) (324)
-------- --------
Net deferred tax assets $ 2,072 $ --
======== ========
</TABLE>
Due to the uncertainty surrounding the future realization of the deferred tax
assets, a valuation allowance of $60.8 million was included as a reduction of
deferred tax assets at August 31, 1997. The net deferred tax assets of $2.1
million related solely to Morgan Seeds and are comprised of $2.0 million of
current deferred tax assets and $.1 million of non-current deferred tax assets.
The net change in the valuation allowance was $14.2 million, representing a 100%
valuation allowance against the net increase in U.S. deferred tax assets for
fiscal 1997.
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is as
follows:
<TABLE>
<CAPTION>
Years ended August 31,
--------------------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate $ (12,267) $ (16,470) $ (5,055)
State taxes, net of federal benefit (2,103) (2,823) (867)
Benefits eliminated by valuation allowance -- 19,293 5,922
Change in valuation allowance 14,158 -- --
Effect of non-deductible items 1,314 -- --
Other 432 -- --
------------ ----------- ------------
Tax provision $ 1,534 $ -- $ --
============ =========== ============
</TABLE>
Subsequent Events
On November 12, 1997, the Company's Board of Directors approved a private sale
of $75 million of newly issued common shares to DowElanco. These shares may be
sold in a single transaction or in a series of transactions totaling $75
million. The sales price will be calculated for each transaction based on the
average of the Company's closing price on Nasdaq for the 90 calendar days
preceding the transaction.
On November 14, 1997, DowElanco increased the limit of its unsecured advance
to the Company from $50 million to $75 million and extended the maturity date of
such advance to September 30, 1998.
50
<PAGE>
MYCOGEN CORPORATION
QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Quarter
- --------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
<S> <C> <C> <C> <C>
1997:
Net operating revenues $ 16,290 $ 70,281 $84,324 $ 31,512
Cost of operating revenues 10,148 44,169 52,552 19,988
Gross profit 6,142 26,112 31,772 11,524
Contract and other revenues 2,410 2,048 1,883 2,225
Operating expenses 18,919 24,187 33,094 42,463
Operating income (loss) (10,367) 3,973 561 (28,714)
Non-operating income (loss) 139 (168) (619) (954)
Credit (provision) for income taxes -- (1,122) 622 (1,034)
Net income (loss) applicable to common shares (10,228) 2,683 564 (30,702)
Net income (loss) per common share (.33) .08 .02 (.98)
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 common shares (7,796) (24,544) 3,521 (18,817)
Net income (loss) per common share (.40) (1.00) .11 (.61)
</TABLE>
The Company's fiscal quarters end in November, February, May and August.
51
<PAGE>
MYCOGEN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1997, 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, 1997
- ---------------------------------
Allowance for doubtful accounts $3,801 $1,553 $ -- $ (975)/1/ $4,379
Inventory allowances $9,519 $2,437 $ -- $(7,572)/2/ $4,384
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.
52
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
Mycogen Corporation
We have audited the accompanying consolidated balance sheets of Mycogen
Corporation as of August 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 1997. 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 did not audit the financial statements of
Mycoyen, S.A., a wholly-owned subsidiary, which statements reflect total assets
of $65,196,000 as of August 31, 1997, and total revenues of $48,156,000 for the
year then ended. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for Mycoyen, S.A., is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Mycogen Corporation at
August 31, 1997 and 1996, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended August 31, 1997, 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.
/s/ Ernst & Young LLP
San Diego, California
October 10, 1997, except for
the two paragraphs under "Subsequent
Events" in the Notes to Consolidated
Financial Statements as to which the
date is November 14, 1997
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors of
Mycoyen, S.A.
Buenos Aires, Argentina
We have audited the accompanying consolidated balance sheet of Mycoyen, S.A. and
its subsidiary as of august 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the Unites States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the companies at August 31, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
Our audits also comprehended the translation of the Argentine peso amounts into
U.S. dollar amounts for the purpose of consolidation with the financial
statements of Mycogen Corporation. In our opinion, such translation has been
made in conformity with accounting principles generally accepted in the United
States of America, as set forth in Statement of Financial Accounting Standards
No. 52, applicable to foreign currency financial statements to be incorporated
in the financial statements of an enterprise by consolidation.
Buenos Aires, October 1, 1997.
/s/ DELOITTE & Co.
DELOITTE & Co.
Hugo Alberto Luppi (Partner)
Contador Publico (U.B.A.)
C.P.C.E.C.F. - Tomo 56 - Folio 96
54
<PAGE>
Copies of Form 10-K
Shareowners may call (888) SEE-MYCO (888-733-6924) for a stock quote, voice
recordings, fax or mail on demand of news releases and recent SEC filings,
including forms 10-K, 10-Q and 8-K. This information, product information and
other Company information are also available on Mycogen's website:
http://www.mycogen.com. 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.
Annual Meeting
The Annual Meeting of Mycogen Corporation will be held at 10:00 a.m. on January
8, 1998, 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.
55
<PAGE>
EXHIBIT 10.11
SUPPLEMENT TO FORM OF AGREEMENTS
PERTAINING TO 1992 STOCK OPTION PLAN
-57-
<PAGE>
NON-EMPLOYEE BOARD MEMBERS
MYCOGEN CORPORATION
Special Supplement
to
January 25, 1993 Plan Summary and Prospectus
for
1992 Stock Option Plan
The date of this Supplement is March 24, 1997
-58-
<PAGE>
THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Mycogen Corporation (the "Corporation") has previously prepared and
distributed the Official Prospectus (the "Prospectus") for the Mycogen
Corporation 1992 Stock Option Plan (the "Plan"). The Prospectus is dated
January 25, 1993 and has been updated by one or more special supplements. The
Prospectus as so updated summarizes the terms and conditions under which shares
of the Corporation's common stock (the "Common Stock") are to be offered under
the Plan. If you have misplaced your copy of the Prospectus or any of the
supplements, or otherwise wish to obtain new copies, you should contact the
Corporate Secretary at the Corporation's headquarters at 5501 Oberlin Drive, San
Diego, California 92121-1718. The telephone number at the executive offices is
(619) 453-8030.
The purpose of this new Supplement is to (i) inform you of the recent
amendments to the Plan that were approved by the stockholders at the
Corporation's 1996 Annual Meeting held on December 12, 1996, (ii) update the
information in the Prospectus pertaining to the short-swing trading provisions
of Section 16 of the 1934 Securities Exchange Act, as amended (the "1934 Act"),
in order to reflect the changes to those provisions made by the Securities and
Exchange Commission (the "SEC") effective November 1, 1996, and (iii) provide
you with information concerning certain changes in the Federal income tax laws
which may have an impact upon transactions conducted under the Plan.
AMENDMENTS TO THE PLAN
----------------------
Share Increase. The number of shares of Common Stock authorized for
issuance under the Plan has been increased by two million (2,000,000) additional
shares. Accordingly, the maximum number of shares of Common Stock issuable over
the term of the Plan has been increased to 7,566,719 shares.
Director Option Grants. The number of shares of Common Stock subject to the
annual stock option grants to be made to certain non-employee Board members
pursuant to the provisions of the Automatic Option Grant Program has been
increased from 5,000 shares to 7,500 shares. As a result, each non-employee
Board member who is not an officer or other executive of DowElanco will receive
an automatic option grant for 7,500-shares of Common Stock at each annual
stockholders meeting at such individual is re-elected to the Board, beginning
with the 1996 Annual Meeting. However, non-employee Board members who are
officers or other executives of DowElanco will continue to receive an automatic
option grant for only 5,000 shares at each annual stockholders meeting at which
they are re-elected to the Board.
SECTION 16 CHANGES
------------------
Section 16(b) of the 1934 Act requires the Corporation to recover any
profit realized by any officer, Board member or beneficial owner of more than
ten percent (10%) of the outstanding Common Stock (a "Section 16 Insider") from
any purchase and sale, or sale and purchase, of such Common Stock made within a
period of less than six (6) months.
The SEC has recently issued a series of revised rules under Section 16(b)
of the 1934 Act which govern the short-swing liability treatment of certain
transactions effected by a Section 16 Insider under equity incentive plans such
as the Plan. The application of the new rules to Plan transactions may be
summarized as follows.
Option Grant. The receipt of an option grant will not be treated as a
------------
"purchase" of the underlying option shares for short-swing liability purposes.
Option Exercise. The exercise of an option under the Plan will be an
---------------
exempt transaction and will not be treated as a "purchase" of the acquired
shares for short-swing liability purposes.
Delivery of Shares. The delivery of shares of Common Stock in payment of
------------------
the exercise price will be an exempt transaction for short-swing liability
purposes.
-59-
<PAGE>
Sale of Shares. The sale of shares acquired under the Plan will be treated
--------------
as a "sale" for short-swing liability purposes and will be matched with any non-
exempt purchases of Common Stock (e.g. open-market purchases) made within six
(6) months before or after the date of such sale.
Reporting Requirements
The receipt of an option grant must be reported by the Section 16 Insider
on the annual Form 5 required to be filed by the such individual within forty-
five (45) days after the close of the Corporation's fiscal year in which such
option is granted and may be reported on any earlier-filed Form 4. However, the
receipt of an option grant must in all events be reported on or before the due
date for the Form 4 in which the exercise of that option must be reported.
The exercise of the option must be reported on a Form 4 filed within ten
(10) days after the close of the calendar month in which such exercise occurs.
If the exercise price is paid with shares of Common Stock, then the disposition
of those shares should also be reported on the same Form 4.
The sale of Common Stock must be reported on a Form 4 filed within ten (10)
days after the close of the calendar month in which the sale is effected.
As an officer or director of the Corporation, you should consult with
counsel before offering for sale any shares of Common Stock acquired under the
Plan in order to assure your compliance with Section 16 and all other applicable
provisions of Federal and state securities laws.
FEDERAL INCOME TAX CHANGES
--------------------------
The changes in Federal income tax laws that will have an impact upon
transactions conducted under the Plan are summarized as follows:
Regular Tax Rates. Ordinary income is subject to a maximum Federal tax
rate of 39.6% on taxable income in excess of $271,050 ($135,525 for a married
taxpayer filing a separate return). The applicable $271,050 or $135,525
threshold is subject to cost-of-living adjustments in taxable years beginning
after December 31, 1997. Long-term capital gains are taxed at the same rates as
ordinary income, subject to a maximum rate of 28%. Certain limitations are
imposed upon a taxpayer's itemized deductions, and the personal exemptions
claimed by the taxpayer are subject to phase-out. These limitations may result
in the taxation of ordinary income at an effective top marginal rate in excess
of 39.6%.
For the tax year ending December 31, 1997, itemized deductions are reduced
by 3% of the amount by which the taxpayer's adjusted gross income for the year
exceeds $121,200 ($60,600 for a married taxpayer filing a separate return).
However, the reduction may not exceed 80% of the total itemized deductions
(excluding medical expenses, casualty and theft losses, and certain investment
interest expense) claimed by the taxpayer. The applicable $121,200 or $60,600
threshold is subject to cost-of-living adjustments in taxable years beginning
after December 31, 1997.
In addition, the deduction for personal exemptions claimed by the taxpayer
is reduced by 2% for each $2,500 ($1,250 for a married taxpayer filing a
separate return) or fraction thereof by which the taxpayer's adjusted gross
income for the year exceeds a specified threshold amount. The applicable
thresholds for 1997 are $181,800 for married taxpayers filing joint returns (and
in certain instances, surviving spouses), $151,500 for heads of households,
$121,200 for single taxpayers and $90,900 for married taxpayers filing separate
returns. Accordingly, the deduction is completely eliminated for any taxpayer
whose adjusted gross income for the year exceeds the applicable threshold amount
by more than $122,500. The threshold amounts will be subject to cost-of-living
adjustments in taxable years beginning after December 31, 1997.
Further information concerning the tax treatment of your Plan transactions,
please see the section of the Prospectus entitled Questions and Answers on
Federal Tax Consequences.
-60-
<PAGE>
SECTION 16 INSIDERS
MYCOGEN CORPORATION
Special Supplement
to
December 9, 1992 Plan Summary and Prospectus
for
1992 Stock Option Plan
The date of this Supplement is March 24, 1997
-61-
<PAGE>
THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Mycogen Corporation (the "Corporation") has previously prepared and
distributed the Official Prospectus (the "Prospectus") for the Mycogen
Corporation 1992 Stock Option Plan (the "Plan"). The Prospectus is dated
December 9, 1992 and has been updated by one or more special supplements. The
Prospectus as so updated summarizes the terms and conditions under which shares
of the Corporation's common stock (the "Common Stock") are to be offered under
the Plan. If you have misplaced your copy of the Prospectus or any of the
supplements, or otherwise wish to obtain new copies, you should contact the
Corporate Secretary at the Corporation's headquarters at 5501 Oberlin Drive, San
Diego, California 92121-1718. The telephone number at the executive offices is
(619) 453-8030.
The purpose of this new Supplement is to (i) inform you of a share increase
to the Plan that was approved by the stockholders at the Corporation's 1996
Annual Meeting, (ii) update the information in the Prospectus pertaining to the
short-swing trading provisions of Section 16 of the 1934 Securities Exchange
Act, as amended (the "1934 Act"), in order to reflect the changes to those
provisions made by the Securities and Exchange Commission (the "SEC") effective
November 1, 1996, and (iii) provide you with information concerning certain
changes in the Federal income tax laws which may have an impact upon
transactions conducted under the Plan.
-62-
<PAGE>
AMENDMENT TO THE PLAN
---------------------
On December 12, 1996, the Corporation's stockholders approved an amendment
to the Plan to increase the number of shares of Common Stock authorized for
issuance under the Plan by an additional two million (2,000,000) shares.
Accordingly, the maximum number of shares of Common Stock issuable over the term
of the Plan has been increased to 7,566,719 shares.
SECTION 16 CHANGES
------------------
Section 16(b) of the 1934 Act requires the Corporation to recover any
profit realized by any officer, Board member or beneficial owner of more than
ten percent (10%) of the outstanding Common Stock (a "Section 16 Insider") from
any purchase and sale, or sale and purchase, of such Common Stock made within a
period of less than six (6) months.
The SEC has recently issued a series of revised rules under Section 16(b)
of the 1934 Act which govern the short-swing liability treatment of certain
transactions effected by a Section 16 Insider under equity incentive plans such
as the Plan. The application of the new rules to Plan transactions may be
summarized as follows.
Option Grant. The receipt of an option grant will not be treated as a
------------
"purchase" of the underlying option shares for short-swing liability purposes.
Option Exercise. The exercise of an option under the Plan will be an
---------------
exempt transaction and will not be treated as a "purchase" of the acquired
shares for short-swing liability purposes.
Delivery of Shares. The delivery of shares of Common Stock in payment of
------------------
the exercise price will be an exempt transaction for short-swing liability
purposes.
Sale of Shares. The sale of shares acquired under the Plan will be treated
--------------
as a "sale" for short-swing liability purposes and will be matched with any non-
exempt purchases of Common Stock (e.g. open-market purchases) made within six
(6) months before or after the date of such sale.
Reporting Requirements
The receipt of an option grant must be reported by the Section 16 Insider
on the annual Form 5 required to be filed by the such individual within forty-
five (45) days after the close of the Corporation's fiscal year in which such
option is granted and may be reported on any earlier-filed Form 4. However, the
receipt of an option grant must in all events be reported on or before the due
date for the Form 4 in which the exercise of that option must be reported.
The exercise of the option must be reported on a Form 4 filed within ten
(10) days after the close of the calendar month in which such exercise occurs.
If the exercise price is paid with shares of Common Stock, then the disposition
of those shares should also be reported on the same Form 4.
The sale of Common Stock must be reported on a Form 4 filed within ten (10)
days after the close of the calendar month in which the sale is effected.
As an officer or director of the Corporation, you should consult with
counsel before offering for sale any shares of Common Stock acquired under the
Plan in order to assure your compliance with Section 16 and all other applicable
provisions of Federal and state securities laws.
-63-
<PAGE>
FEDERAL INCOME TAX CHANGES
--------------------------
The changes in Federal income tax laws that will have an impact upon
transactions conducted under the Plan are summarized as follows:
Regular Tax Rates. Ordinary income is subject to a maximum Federal tax
rate of 39.6% on taxable income in excess of $271,050 ($135,525 for a married
taxpayer filing a separate return). The applicable $271,050 or $135,525
threshold is subject to cost-of-living adjustments in taxable years beginning
after December 31, 1997. Long-term capital gains are taxed at the same rates as
ordinary income, subject to a maximum rate of 28%. Certain limitations are
imposed upon a taxpayer's itemized deductions, and the personal exemptions
claimed by the taxpayer are subject to phase-out. These limitations may result
in the taxation of ordinary income at an effective top marginal rate in excess
of 39.6%.
For the tax year ending December 31, 1997, itemized deductions are reduced
by 3% of the amount by which the taxpayer's adjusted gross income for the year
exceeds $121,200 ($60,600 for a married taxpayer filing a separate return).
However, the reduction may not exceed 80% of the total itemized deductions
(excluding medical expenses, casualty and theft losses, and certain investment
interest expense) claimed by the taxpayer. The applicable $121,200 or $60,600
threshold is subject to cost-of-living adjustments in taxable years beginning
after December 31, 1997.
In addition, the deduction for personal exemptions claimed by the taxpayer
is reduced by 2% for each $2,500 ($1,250 for a married taxpayer filing a
separate return) or fraction thereof by which the taxpayer's adjusted gross
income for the year exceeds a specified threshold amount. The applicable
thresholds for 1997 are $181,800 for married taxpayers filing joint returns (and
in certain instances, surviving spouses), $151,500 for heads of households,
$121,200 for single taxpayers and $90,900 for married taxpayers filing separate
returns. Accordingly, the deduction is completely eliminated for any taxpayer
whose adjusted gross income for the year exceeds the applicable threshold amount
by more than $122,500. The threshold amounts will be subject to cost-of-living
adjustments in taxable years beginning after December 31, 1997.
Further information concerning the tax treatment of your Plan transactions,
please see the section of the Prospectus entitled Questions and Answers on
Federal Tax Consequences.
-64-
<PAGE>
EMPLOYEES AND CONSULTANTS
MYCOGEN CORPORATION
Special Supplement
to
December 9, 1992 Plan Summary and Prospectus
for
1992 Stock Option Plan
The date of this Supplement is March 24, 1997
-65-
<PAGE>
THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Mycogen Corporation (the "Corporation") has previously prepared and
distributed the Official Prospectus (the "Prospectus") for the Mycogen
Corporation 1992 Stock Option Plan (the "Plan"). The Prospectus is dated
December 9, 1992 and has been updated by one or more special supplements. The
Prospectus as so updated summarizes the terms and conditions under which shares
of the Corporation's common stock (the "Common Stock") are to be offered under
the Plan. If you have misplaced your copy of the Prospectus or any of the
supplements, or otherwise wish to obtain new copies, you should contact the
Corporate Secretary at the Corporation's headquarters at 5501 Oberlin Drive, San
Diego, California 92121-1718. The telephone number at the executive offices is
(619) 453-8030.
The purpose of this new Supplement is to (i) inform you of a share increase
to the Plan that was approved by the stockholders at the Corporation's 1996
Annual Meeting, and (ii) provide you with information concerning certain changes
in the Federal income tax laws which may have an impact upon transactions
conducted under the Plan.
AMENDMENT TO THE PLAN
---------------------
On December 12, 1996, the Corporation's stockholders approved an amendment
to the Plan to increase the number of shares of Common Stock authorized for
issuance under the Plan by an additional two million (2,000,000) shares.
Accordingly, the maximum number of shares of Common Stock issuable over the term
of the Plan has been increased to 7,566,719 shares.
FEDERAL INCOME TAX CHANGES
--------------------------
The changes in Federal income tax laws that will have an impact upon
transactions conducted under the Plan are summarized as follows:
Regular Tax Rates. Ordinary income is subject to a maximum Federal tax
rate of 39.6% on taxable income in excess of $271,050 ($135,525 for a married
taxpayer filing a separate return). The applicable $271,050 or $135,525
threshold is subject to cost-of-living adjustments in taxable years beginning
after December 31, 1997. Long-term capital gains are taxed at the same rates as
ordinary income, subject to a maximum rate of 28%. Certain limitations are
imposed upon a taxpayer's itemized deductions, and the personal exemptions
claimed by the taxpayer are subject to phase-out. These limitations may result
in the taxation of ordinary income at an effective top marginal rate in excess
of 39.6%.
For the tax year ending December 31, 1997, itemized deductions are reduced
by 3% of the amount by which the taxpayer's adjusted gross income for the year
exceeds $121,200 ($60,600 for a married taxpayer filing a separate return).
However, the reduction may not exceed 80% of the total itemized deductions
(excluding medical expenses, casualty and theft losses, and certain investment
interest expense) claimed by the taxpayer. The applicable $121,200 or $60,600
threshold is subject to cost-of-living adjustments in taxable years beginning
after December 31, 1997.
In addition, the deduction for personal exemptions claimed by the taxpayer
is reduced by 2% for each $2,500 ($1,250 for a married taxpayer filing a
separate return) or fraction thereof by which the taxpayer's adjusted gross
income for the year exceeds a specified threshold amount. The applicable
thresholds for 1997 are $181,800 for married taxpayers filing joint returns (and
in certain instances, surviving spouses), $151,500 for heads of households,
$121,200 for single taxpayers and $90,900 for married taxpayers filing separate
returns. Accordingly, the deduction is completely eliminated for any taxpayer
whose adjusted gross income for the year exceeds the applicable threshold amount
by more than $122,500. The threshold amounts will be subject to cost-of-living
adjustments in taxable years beginning after December 31, 1997.
Further information concerning the tax treatment of your Plan transactions,
please see the section of the Prospectus entitled Questions and Answers on
Federal Tax Consequences.
-66-
<PAGE>
EXHIBIT 10.22
CREDIT AGREEMENT
-67-
<PAGE>
CREDIT AGREEMENT
dated as of February 11, 1997
between
MYCOGEN CORPORATION
and
BANK OF AMERICA ILLINOIS
-68-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms....................................................................... 1
1.2. Use of Defined Terms................................................................ 10
1.3. Cross-References.................................................................... 10
1.4. Accounting and Financial Determinations............................................. 10
ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES
2.1. Commitments......................................................................... 11
2.1.1. Revolving Loans........................................................... 11
2.1.2. Term Loan................................................................. 11
2.2. Reduction of Revolving Credit Commitment............................................ 11
2.3. Borrowing Procedure-Revolving Loans................................................. 11
2.4. Borrowing Procedure-Term Loan....................................................... 12
2.5. Eurocurrency Rate Loans and Eurodollar Rate Loans................................... 12
2.6. Quoted Rate Loans................................................................... 12
2.7. Reference Rate Loans................................................................ 13
2.8. Proceeds............................................................................ 13
2.9. Continuation and Conversion Elections............................................... 13
2.9.1. Eurocurrency Rate Loans, Eurodollar Rate Loans and Reference Rate Loans... 14
2.9.2. Quoted Rate Loans......................................................... 15
2.10. Currency Equivalents................................................................ 15
2.11. Funding............................................................................. 16
2.12. Notes............................................................................... 17
ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1. Repayments and Prepayments.......................................................... 17
3.2. Interest Provisions................................................................. 18
3.2.1. Rates..................................................................... 18
3.2.2. Post-Maturity Rates....................................................... 19
3.2.3. Payment Dates............................................................. 19
3.3. Fees................................................................................ 20
3.3.1. Commitment Fee............................................................ 20
3.3.2. Closing Fee............................................................... 20
3.4. Computation of Interest and Fees.................................................... 21
ARTICLE IV CERTAIN INTEREST RATE AND OTHER PROVISIONS
4.1. Fixed Rate Lending Unlawful......................................................... 21
4.2. Deposits Unavailable................................................................ 21
4.3. Increased Capital Costs With Respect to Commitments................................. 21
4.4. Funding Losses...................................................................... 22
4.5. Taxes............................................................................... 22
4.6. Payments, Computations, etc......................................................... 23
4.7. Setoff.............................................................................. 24
4.8. Use of Proceeds..................................................................... 24
4.9. Currency Indemnification............................................................ 24
ARTICLE V CONDITIONS TO BORROWING
5.1. Initial Borrowing of the Company.................................................... 25
5.1.1. Secretary's Certificate................................................... 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.1.2. Delivery of Notes........................................................ 26
5.1.3. Opinion of Counsel....................................................... 26
5.1.4. Letter of Awareness...................................................... 26
5.1.5. Good Standing............................................................ 26
5.1.6. Expenses, etc............................................................ 26
5.1.7. Closing Fee.............................................................. 26
5.1.8. Compliance Certificate................................................... 26
5.2. All Borrowings..................................................................... 26
5.2.1. Compliance with Warranties, No Default, etc.............................. 26
5.2.2. Borrowing Request........................................................ 27
5.2.3. Satisfactory Legal Form.................................................. 27
ARTICLE VI REPRESENTATIONS AND WARRANTIES
6.1. Organization, etc.................................................................. 27
6.2. Due Authorization, Non-Contravention, etc.......................................... 27
6.3. Government Approval, Regulation, etc............................................... 28
6.4. Validity, etc...................................................................... 28
6.5. Financial Information.............................................................. 28
6.6. No Material Adverse Change......................................................... 28
6.7. Litigation, Labor Controversies, etc............................................... 28
6.8. Subsidiaries....................................................................... 29
6.9. Partnerships; Joint Ventures....................................................... 29
6.10. Ownership of Properties............................................................ 29
6.11. Taxes.............................................................................. 29
6.12. Insurance.......................................................................... 29
6.13. Pension and Welfare Plans.......................................................... 29
6.14. Environmental Warranties........................................................... 30
6.15. Regulations G, U and X............................................................. 31
6.16. Accuracy of Information............................................................ 31
6.17. No Default......................................................................... 31
ARTICLE VII COVENANTS
7.1. Affirmative Covenants.............................................................. 31
7.1.1. Financial Information, Reports, Notices, etc............................. 31
7.1.2. Compliance with Laws, etc................................................ 33
7.1.3. Maintenance of Properties................................................ 33
7.1.4. Insurance................................................................ 33
7.1.5. Books and Records........................................................ 33
7.1.6. Environmental Covenant................................................... 34
7.1.7. Taxes.................................................................... 34
7.1.8. Supplemental Performance................................................. 34
7.1.9. Seasonal Clean-up........................................................ 34
7.2. Negative Covenants................................................................. 35
7.2.1. Consolidated Tangible Net Worth.......................................... 35
7.2.2. Consolidated Total Liabilities to Consolidated Tangible Net Worth........ 35
7.2.3. Consolidated Third-Party Indebtedness.................................... 35
7.2.4. Minimum Cash Flow Coverage............................................... 35
7.2.5. Liens.................................................................... 35
7.2.6. Change in Character of Business.......................................... 36
ARTICLE VIII EVENTS OF DEFAULT
8.1. Listing of Events of Default....................................................... 37
8.1.1. Non-Payment of Obligations............................................... 37
8.1.2. Breach of Warranty....................................................... 37
</TABLE>
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<TABLE>
<S> <C>
8.1.3. Non-Performance of Covenants and Obligations............................. 37
8.1.4. Default on Third-Party Indebtedness...................................... 37
8.1.5. Judgments................................................................ 38
8.1.6. Bankruptcy, Insolvency, etc.............................................. 38
8.1.7. Other Bank Agreements.................................................... 39
8.1.8. Change in Ownership...................................................... 39
8.2. Action if Bankruptcy............................................................... 39
8.3. Action if Other Event of Default................................................... 39
ARTICLE IX MISCELLANEOUS PROVISIONS
9.1. Waivers, Amendments, etc........................................................... 39
9.2. Notices............................................................................ 40
9.3. Payment of Costs and Expenses...................................................... 40
9.4. Indemnification.................................................................... 40
9.5. Survival........................................................................... 41
9.6. Severability....................................................................... 41
9.7. Headings........................................................................... 41
9.8. Execution in Counterparts, Effectiveness, etc...................................... 41
9.9. Governing Law; Entire Agreement.................................................... 42
9.10. Successors and Assigns............................................................. 42
9.11. Forum Selection and Consent to Jurisdiction........................................ 42
9.12. Waiver of Jury Trial............................................................... 42
</TABLE>
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of February 11, 1997 between MYCOGEN
CORPORATION, a California corporation (the "Company") and BANK OF AMERICA
ILLINOIS, an Illinois banking corporation (the "Bank").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain a Commitment from the Bank pursuant
to which the Bank shall make to the Company Revolving Loans in a maximum
aggregate principal amount at any one time outstanding not to exceed
$10,000,000, and a Term Loan in a maximum principal amount not to exceed
$15,000,000; and
WHEREAS, the Bank is willing, on the terms and subject to the conditions
hereinafter set forth, to extend such Commitment and make such Loans to the
Company;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Defined Terms. The following terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Agreement" means, on any date, this Credit Agreement as originally in
---------
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Authorized Officer" means, relative to the Company and any action to be
------------------
taken on behalf of the Company, any authorized corporate officer of the Company
or its affiliates and any other employee of the Company duly designated and
authorized by an authorized corporate officer to take such action.
"Bank" is defined in the preamble.
----
"Banking Day" means (a) any day which is neither a Saturday or Sunday nor
-----------
a legal holiday on which banks are authorized or required to be closed in
Chicago, Illinois, (b) relative to the making, continuing, prepaying or repaying
of (i) any Eurodollar Rate Loans, any day on which dealings in Eurodollars are
carried on in the interbank eurodollar market and (ii) any Eurocurrency Loans,
any day on which dealings in the applicable currency are carried on in both the
country of issue of such currency and in the country where payment or
disbursement thereof is to be made.
"Borrowing" means Loans of the same Type and, in the case of Fixed Rate
---------
Loans, having the same Interest Period, made by the Bank on the same Banking Day
and pursuant to the same Borrowing Request in accordance with Section 2.1 and
-----------
2.3.
- ---
"Borrowing Request" means a loan request and certificate duly executed by
-----------------
an Authorized Officer of the Company substantially in the form of Exhibit A
---------
hereto.
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<PAGE>
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
----
otherwise modified from time to time.
"Commitment" means, the Bank's obligation to make Loans pursuant to
----------
Section 2.1.
- -----------
"Commitment Amount" means, on any date, $10,000,000 with respect to the
-----------------
Revolving Loans (in Dollars and/or Dollar Equivalent) and $15,000,000 with
respect to the Term Loan (in Dollars only), as such amount may be reduced from
time to time pursuant to Section 2.2.
-----------
"Company" is defined in the preamble.
-------
"Compliance Certificate" is defined in Section 7.1.1(c).
---------------------- ----------------
"Continuation/Conversion Notice" means a notice of continuation or
------------------------------
conversion and certificate duly executed by an Authorized Officer of the Company
substantially in the form of Exhibit B hereto.
---------
"Default" means any Event of Default or any condition, occurrence or event
-------
which, after notice or lapse of time or both, would constitute an Event of
Default.
"Demand Deposit Account" means account No. ___________ maintained by the
----------------------
Company at the Bank's 231 South LaSalle Street, Chicago, Illinois location, and
any replacements or substitutions therefor.
"Designated Currency" is defined in the definition of "Eurocurrency".
-------------------
"Determination Date" means each of those dates determined in accordance
------------------
with Section 2.10(b).
---------------
"Dollar Equivalent" means, (i) in the case of an amount denominated in
-----------------
Dollars, such amount, and (ii) in any currency other than Dollars, the Dollar
equivalent of such amount as determined in accordance with Section 2.10.
------------
"Dollars" and the sign "$" mean lawful money of the United States.
------- -
"Domestic Dollars" means Dollars on deposit in the United States of
----------------
America.
"Domestic Office" means, the office the Bank set forth below its signature
---------------
hereto, or such other office of the Bank within the United States as may be
designated from time to time by notice from the Bank to the Company.
"DowElanco" means DowElanco, an Indiana partnership consisting of Dow
---------
Chemical Company's subsidiary Rofan Services, Inc. and Eli Lilly & Company,
Inc.'s subsidiary EPCO, Inc.
"Effective Date" means the date this Agreement becomes effective pursuant
--------------
to Section 9.8.
-----------
"Environmental Warranties" is defined in Section 6.14.
------------------------ ------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"ERISA Affiliate" means any corporation, partnership, or other trade or
---------------
business (whether or not incorporated) that is, along with the Company, a member
of a controlled group of corporations or a controlled
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<PAGE>
group of trades or businesses, as described in sections 414(b) and 414(c),
respectively, of the Code or section 4001 of ERISA, or a member of the same
affiliated service group within the meaning of section 414(m) of the Code.
"Eurocurrency" means (i) each of Pounds Sterling, French Francs, Swiss
------------
Francs, Deutschmarks, Canadian Dollars, Australian Dollars, Japanese Yen and
European Currency Units (each, a "Designated Currency"), and (ii) any other
currency (other than Dollars) to which the Bank shall consent, in each case (x)
on deposit outside such currency's country of issuance and (y) as long as such
currency is freely transferable and convertible into Dollars.
"Eurocurrency Rate Loan" means a Loan made in a Eurocurrency and bearing
----------------------
interest, at all times during an Interest Period applicable to such Loan, at a
fixed rate of interest determined by reference to the Interbank Rate (Reserve
Adjusted) or the LIBOR Rate (Reserve Adjusted), as the case may be.
"Eurodollar" mean Dollars on deposit in a bank outside the United States
----------
of America, its territories and possessions, which are available for transfer to
and from the United States of America, its territories and possessions.
"Eurodollar Rate Loan" means a Loan made and payable in Dollars bearing
--------------------
interest, at all times during an Interest Period applicable to such Loan, at a
fixed rate of interest determined by reference to the Interbank Rate (Reserve
Adjusted) or the LIBOR Rate (Reserve Adjusted), as the case may be.
"Event of Default" is defined in Section 8.1.
---------------- -----------
"Fixed Rate Loan" means any Eurodollar Rate Loan, Eurocurrency Rate Loan
---------------
or Quoted Rate Loan.
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
or any successor thereto.
"GAAP" is defined in Section 1.4.
---- -----------
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
------ ------ ------ ---------
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"Indemnified Liabilities" is defined in Section 9.4.
----------------------- -----------
"Indemnified Parties" is defined in Section 9.4.
------------------- -----------
"Interbank Lending Office" means, the office of the Bank designated as
------------------------
such below its signature hereto or such other office of the Bank as designated
from time to time by notice from the Bank to the Company, whether or not outside
the United States, which shall be making or maintaining Eurodollar Rate Loans or
Eurocurrency Rate Loans of the Bank.
"Interbank Rate" means, relative to any Interest Period for Eurocurrency
--------------
Rate Loans or Eurodollar Rate Loans, the rate of interest equal to the average
(rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per
annum at which deposits in immediately available funds (a) in the case of a
Eurodollar Rate Loan, in Eurodollars and (b) in the case of a Eurocurrency Loan,
in either (i) the appropriate Eurocurrency or (ii) Dollars or Eurodollars in an
amount equal to the Dollar Equivalent of such Eurocurrency deposits (plus the
cost of any contract purchased or sold by the Bank to hedge the conversion of
Dollars or Eurodollars, as applicable, into or from such Eurocurrency) are
offered to the Bank's Interbank Lending Office by major banks in the interbank
eurocurrency market as at or about 9:00 a.m. Chicago, Illinois time two (2)
Banking Days prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in
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<PAGE>
an amount approximately equal to the amount of such Eurocurrency Rate Loan or
Eurodollar Rate Loan, as applicable, and for a period approximately equal to
such Interest Period.
"Interbank Rate (Reserve Adjusted)" means, relative to any Loan to be
---------------------------------
made, continued or maintained as, or converted into, a Eurocurrency Rate Loan or
a Eurodollar Rate Loan for any Interest Period bearing interest with reference
to the Interbank Rate, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula:
Interbank Rate = Interbank Rate
-------------------------
(Reserve Adjusted) 1.00 - Reserve Percentage
"Interest Period" means, (a) with respect to any Eurodollar Rate Loan or
---------------
Eurocurrency Rate Loan, the one-month, two-month, three-month or six-month
period as selected by the Company and (b) with respect to (i) any Revolving Loan
bearing interest at the Quoted Rate, the one-week, two-week, three-week, thirty-
day, sixty-day, ninety-day or one hundred and eighty-day period as selected by
the Company and (ii) any portion of the Term Loan bearing interest at the Quoted
Rate, any period ranging from one week to five years as selected by the Company,
in each case beginning on (and including) the date on which such Fixed Rate Loan
is made or continued as, or converted into, a Fixed Rate Loan pursuant to
Section 2.3 or 2.4, in each case as the applicable Borrower may select in its
- ----------- ---
relevant notice pursuant to Section 2.3 or 2.4; provided, however, that
----------- --- -------- -------
(a) the Company shall not be permitted to select Interest Periods
for Fixed Rate Loans to be in effect at any one time which will have
expiration dates occurring on more than five (5) different dates;
(b) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration;
(c) if such Interest Period would otherwise end on a day which is
not a Banking Day, such Interest Period shall end on the next following
Banking Day (unless, if such Interest Period applies to Eurocurrency Rate
Loans or Eurodollar Rate Loans, such next following Banking Day is the
first Banking Day of a calendar month, in which case such Interest Period
shall end on the Banking Day next preceding such numerically corresponding
day);
(d) no Interest Period with respect to any Revolving Loan may end
later than the date set forth in clause (a) of the definition of
"Revolving Credit Termination Date"; and
(e) no Interest Period with respect to the Term Loan may end later
than the date set forth in clause (a) of the definition of "Term Credit
Termination Date".
"LIBOR Lending Office" means the office of the Bank designated as such
--------------------
below its signature hereto or such other office of the Bank as designated for
time to time by notice from the Bank to the Company, whether or not outside the
United States, which shall be making or maintaining Eurodollar Rate Loans or
Eurocurrency Rate Loans of the Bank.
"LIBOR Rate" means, relative to any Interest Period for Eurocurrency Rate
----------
Loans or Eurodollar Rate Loans, the rate of interest equal to the average
(rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per
annum at which deposits in immediately available funds (a) in the case of a
Eurodollar Rate Loan, in Eurodollars and (b) in the case of a Eurocurrency Loan,
in either (i) the appropriate Eurocurrency or (ii) Dollars or Eurodollars in an
amount equal to the Dollar Equivalent of such Eurocurrency deposits (plus the
cost of any contract purchased or sold by the Bank to hedge the conversion of
Dollars or Eurodollars, as applicable, into or from such Eurocurrency) are
offered to the Bank's LIBOR Lending Office by major banks in the London, England
eurocurrency market as at or about 9:00 a.m. Chicago, Illinois time three (3)
Banking Days prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in
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an amount approximately equal to the amount of the Bank's Eurocurrency Rate Loan
or Eurodollar Rate Loan, as applicable, and for a period approximately equal to
such Interest Period.
"LIBOR Rate (Reserve Adjusted)" means, relative to any Loan to be made,
-----------------------------
continued or maintained as, or converted into, a Eurocurrency Rate Loan or a
Eurodollar Rate Loan to any Interest Period bearing interest with reference to
the LIBOR Rate, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
Interbank Rate = LIBOR Rate
-------------------------
(Reserve Adjusted) 1.00 - Reserve Percentage
"Lien" means any security interest, mortgage, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loans" means the Revolving Loans and the Term Loan made by the Bank to
-----
the Company pursuant to this Agreement.
"Loan Document" means this Agreement, the Notes, and each other agreement,
-------------
document or instrument delivered in connection with this Agreement and the
Notes.
"Monthly Payment Date" means the last day of each calendar month or, if
--------------------
any such day is not a Banking Day, the next succeeding Banking Day.
"Notes" means the Revolving Note and the Term Note.
-----
"Obligations" means all obligations (monetary or otherwise) of the Company
-----------
arising under or in connection with this Agreement, the Notes and each other
Loan Document.
"Organic Document" means, relative to the Company, its certificate of
----------------
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Company or any
ERISA Affiliate may have liability, including any liability by reason of having
been a substantial employer within the meaning of section 4063 of ERISA at any
time during the preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Person" means any natural person, corporation, partnership, firm,
------
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
----
"Prior Currency" is defined in Section 2.9.
-------------- -----------
"Property" shall mean all assets and properties of any nature whatsoever,
--------
whether real or personal, tangible or intangible, including without limitation
biotechnology products and techniques and intellectual property.
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"Quarterly Payment Date" means the last day of each March, June,
----------------------
September, and December or, if any such day is not a Banking Day, the next
succeeding Banking Day.
"Quoted Rate" means the rate of interest quoted by the Bank pursuant to
-----------
Section 2.6 applicable to a Borrowing of Quoted Rate Loans.
- -----------
"Quoted Rate Loan" means a Loan made and payable in Dollars bearing
----------------
interest, at all times during an Interest Period applicable to such Loan, at the
Quoted Rate applicable thereto.
"Reference Rate" means, on any date and with respect to all Reference Rate
--------------
Loans, a fluctuating rate of interest per annum equal to the rate of interest
most recently announced by the Bank at Chicago, Illinois as its Reference Rate.
The Reference Rate is not necessarily intended to be the lowest rate of interest
determined by the Bank in connection with extensions of credit. For purposes of
this Agreement, any change in the Reference Rate due to a change in the
Reference Rate shall be effective on the date such change in the Reference Rate
is announced. The Bank will give notice promptly to the Company of changes in
the Reference Rate.
"Reference Rate Loan" means a Loan made and payable in Dollars bearing
-------------------
interest at a fluctuating rate determined by reference to the Reference Rate.
"Reportable Event" has the meaning given to such term in ERISA.
----------------
"Reserve Percentage" means, relative to any Interest Period for
------------------
Eurocurrency Rate Loans or Eurodollar Rate Loans, the reserve percentage
(expressed as a decimal) equal to the maximum aggregate reserve requirements
(including all basic, emergency, supplemental, marginal and other reserves and
taking into account any transitional adjustments or other scheduled changes in
reserve requirements) specified under regulations issued from time to time by
the F.R.S. Board and then applicable to assets or liabilities consisting of and
including "Eurocurrency Liabilities", as currently defined in Regulation D of
the F.R.S. Board, having a term approximately equal or comparable to such
Interest Period. For purposes of this definition, any Eurocurrency Rate Loans
or Eurodollar Rate Loans hereunder shall be deemed to be "Eurocurrency
Liabilities" as defined in Regulation D.
"Revolving Commitment Termination Date" means the earliest to occur of:
-------------------------------------
(a) February 1, 1998;
(b) the date on which the Revolving Credit Commitment is terminated
in full or reduced to zero pursuant to Section 2.2; or
-----------
(c) the date on which any Event of Default occurs.
"Revolving Credit Commitment" means the Commitment of the Bank to make
---------------------------
Revolving Loans to the Company in an aggregate outstanding amount not to exceed
$10,000,000.
"Revolving Loans" means the loans made by the Bank to the Company pursuant
---------------
to Section 2.1.1.
-------------
"Revolving Note" means the promissory note of the Company payable to the
--------------
order of the Bank, in the form of Exhibit C hereto (as such promissory note may
---------
be amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Revolving Loans made by the Bank to the Company hereunder, and all
other promissory notes accepted from time to time in substitution therefor or
renewal thereof.
"Second Currency" is defined in Section 2.9.
--------------- ------------
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<PAGE>
"Subsidiary" means, as to any Person, (i) any corporation of which or in
----------
which such Person, such Person and one or more of its Subsidiaries, or one or
more Subsidiaries of such Person directly or indirectly own 50% or more of the
combined voting power of all classes of stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (ii) any partnership, joint venture or
similar entity of which or in which such Person, such Person and one or more of
its Subsidiaries, or one or more Subsidiaries of such Person directly or
indirectly own 50% or more of the capital interest or profits interest or (iii)
any trust, association or other unincorporated organization of which or in which
such Person, and one or more of its Subsidiaries, or one or more Subsidiaries of
such Person directly or indirectly own 50% or more of the beneficial interest.
"Taxes" is defined in Section 4.6.
----- -----------
"Term Commitment Termination Date" means the earlier to occur of:
--------------------------------
(a) February 1, 2002; or
(b) the date on which any Event of Default occurs.
"Term Credit Commitment" means the Commitment of the Bank to make a Term
----------------------
Loan to the Company in a principal amount not to exceed $15,000,000.
"Termination Event" with respect to any Pension Plan means (i) the
-----------------
institution by the Company, the PBGC or any other Person of steps to terminate
such Plan, (ii) the occurrence of a Reportable Event with respect to such Plan
which the Bank or the Required Lenders reasonably believes may be a basis for
the PBGC to institute steps to terminate such Plan, or (iii) the withdrawal from
such Plan (or deemed withdrawal under section 4062 (f) of ERISA) by the Company
or any ERISA Affiliate which is a substantial employer within the meaning of
section 4063 of ERISA.
"Term Loan" means the loan made by the Bank to the Company pursuant to
---------
Section 2.1.2.
- -------------
"Term Note" means the promissory note of the Company payable to the order
---------
of the Bank, in the form of Exhibit D hereto (as such promissory note may be
---------
amended, endorsed or otherwise modified from time to time), evidencing the Term
Loan made by the Bank to the Company hereunder, and any other promissory notes
accepted from time to time in substitute therefore or renewal thereof.
"Type" means, relative to any Loan, the portion thereof, if any, being
----
maintained as a Reference Rate Loan, Eurocurrency Rate Loan, Eurodollar Rate
Loan or Quoted Rate Loan.
"United States" or "U.S." means the United States of America, its fifty
------------- ----
States and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in section
------------
3(1) of ERISA.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
--------------------
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Schedules to this Agreement
and in each Note, Borrowing Request, Continuation/Conversion Notice, Loan
Document, notice and other communication delivered from time to time in
connection with this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references in
----------------
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in
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any Article, Section or definition to any clause are references to such clause
of such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
---------------------------------------
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder shall be made, and all financial statements required to be delivered
hereunder or thereunder shall be prepared in accordance with, those generally
accepted accounting principles ("GAAP") applied in the preparation of the
financial statements referred to in Section 6.5.
-----------
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Commitments. On the terms and subject to the conditions of
-----------
this Agreement, the Bank agrees to make Loans pursuant to the Commitments
described in this Section 2.1.
-----------
SECTION 2.1.1. Revolving Loans. From time to time on any Banking
---------------
Day occurring from and including the Effective Date but prior to the
Revolving Commitment Termination Date, the Bank will make Revolving Loans
to the Company in aggregate principal amount equal to the Revolving Credit
Commitment. Revolving Loans will be available in Dollars or any
Eurocurrency herein provided for. On the terms and subject to the
conditions hereof, the Company may from time to time borrow, prepay and
reborrow Revolving Loans made to it.
SECTION 2.1.2. Term Loan. On any Banking Day occurring from and
---------
including the Effective Date but prior to the Term Commitment Termination
Date, the Bank will make a term Loan to the Company, in one (1)
disbursement, in an amount not to exceed the Term Credit Commitment. The
Term Loan will be available only in Dollars. The Company may not reborrow
any amounts of the Term Loan which are paid or prepaid hereunder.
SECTION 2.2. Reduction of Revolving Credit Commitment. The Company may,
----------------------------------------
from time to time on any Banking Day occurring after the Effective Date,
voluntarily reduce the Revolving Credit Commitment; provided, however, that all
-------- -------
such reductions shall require at least three (3) Banking Days' prior notice to
the Bank and shall be permanent, and any partial reduction of the Revolving
Credit Commitment shall be in a minimum amount of $1,000,000 (in Dollars and/or
Dollar Equivalent) and in an integral multiple of $1,000,000 (in Dollars and/or
Dollar Equivalent).
SECTION 2.3. Borrowing Procedure-Revolving Loans. By requesting in
-----------------------------------
writing or by telephone (upon request to the Bank, promptly confirmed in
writing) on or before 11:00 a.m., Chicago, Illinois time, on a Banking Day, in
accordance with the provisions of this Section 2.3 applicable to the Type of
-----------
Borrowing requested, the Company, through one of its Authorized Officers may,
from time to time irrevocably request that a Revolving Loan be made (a) in the
case of Reference Rate Loans, in a minimum aggregate amount of $200,000 and
multiples of $200,000, or in the unused amount of the Revolving Credit
Commitment and (b) in the case of Fixed Rate Loans of any Type, in a minimum
aggregate amount of $200,000 and multiples of $200,000. Each Revolving Loan
shall be comprised of the same Type of Loans, and shall be made on the same
Banking Day. Upon request of the Bank, all telephonic or other oral requests
for a Revolving Loan shall be promptly confirmed in writing by delivery to the
Bank of a Borrowing Request therefor (including delivery by facsimile
transmission in accordance with Section 9.2) duly executed by an Authorized
-----------
Officer not later than three (3) Banking Days after the date of any such oral
request, provided, however, that the Company's failure to comply with any of the
-------- -------
above requirements shall not in any manner affect the obligations of the Company
to repay any Revolving Loan in accordance with the terms of this Agreement and
the Revolving Note.
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<PAGE>
SECTION 2.4. Borrowing Procedure-Term Loan. By requesting in writing
-----------------------------
or by telephone (upon request of the Bank, promptly confirmed in writing) on or
before 11:00 a.m., Chicago, Illinois time, on a Banking Day, the Company,
through one of its Authorized Officers may, irrevocably request that the Term
Loan be made. Upon request of the Bank, all telephonic or other oral requests
for the Term Loan shall be promptly confirmed in writing by delivery to the Bank
of a Borrowing Request therefor (including delivery by facsimile transmission in
accordance with Section 9.2) duly executed by an Authorized Officer not later
-----------
than three (3) Banking Days after the date of any such oral request,
provided, however, that the Company's failure to comply with any of the above
- -------- -------
requirements shall not in any manner affect the obligations of the Company to
repay the Term Loan in accordance with the terms of this Agreement and the Term
Note.
SECTION 2.5. Eurocurrency Rate Loans and Eurodollar Rate Loans. Each
-------------------------------------------------
request for a Borrowing of Eurocurrency Rate Loans or Eurodollar Rate Loans
shall be received by the Bank from an Authorized Officer on or before 11:00
a.m., Chicago, Illinois time, on a Banking Day not less than (a) two (2) Banking
Days' prior to the date of the requested Borrowing in the case of Eurodollar
Rate Loans bearing interest with reference to the Interbank Rate (Reserve
Adjusted) and (b) three (3) Banking Days' prior to the date of the requested
Borrowing in the case of Eurocurrency Rate Loans [(whether bearing interest with
reference to the Interbank Rate (Reserve Adjusted) or the Libor Rate (Reserve
Adjusted)] or Eurodollar Rate Loans bearing interest with reference to the Libor
Rate (Reserve Adjusted). Each request shall specify (i) whether such Loan is to
bear interest initially with reference to the Interbank Rate (Reserve Adjusted)
or the LIBOR Rate (Reserve Adjusted), (ii) the borrowing date, which day shall
be a Banking Day, (iii) the amount and, if the Borrowing is to be of
Eurocurrency Rate Loans, the currency of the requested Borrowing and (iv) the
initial Interest Period for such Borrowing.
SECTION 2.6. Quoted Rate Loans. Each request for a Borrowing of
-----------------
Quoted Rate Loans shall be received by the Bank from an Authorized Officer of
the Company on or before 11:00 a.m., Chicago, Illinois time, on the Banking Day
of the requested Borrowing. Each request shall specify (i) the amount of
requested Borrowing and (ii) the initial Interest Period for such Borrowing.
Each such request shall be deemed to constitute a request to receive by
telephone, from the Bank, a quotation of the interest rate that would be
applicable to the Borrowing of Quoted Rate Loans identified in such borrowing
request for the Interest Period specified therein. If such interest rate is
satisfactory to the Company an Authorized Officer of the Company shall, no later
than 11:00 a.m. Chicago, Illinois time, on such date, so indicate. Such
indication by an Authorized Officer of the Company shall constitute an
irrevocable request that such Borrowing of Quoted Rate Loans be made at the rate
the Bank quoted or would have quoted to the Company at the time of such
indication of acceptance, it being understood that the Bank does not guarantee
that the interest rate quoted with respect to a particular requested Borrowing
of Quoted Rate Loans shall continue to be available if such rate is not accepted
by an Authorized Officer of the Company at the time of quotation.
SECTION 2.7. Reference Rate Loans. Each request for a Borrowing of
--------------------
Reference Rate Loans shall be received by the Bank from an Authorized Officer on
or before 11:00 a.m., Chicago, Illinois time, on the Banking Day of the
requested Borrowing. Each request shall specify (i) the borrowing date, which
day shall be a Banking Day and (ii) the amount of requested Borrowing.
SECTION 2.8. Proceeds. Subject to the other provisions of this
--------
Agreement, the Bank will pay to the Company the amount of a Borrowing on the
date designated in the request therefor upon receipt of the documents required
under Sections 5.1 and 5.2 with respect to such Borrowing. Each Borrowing of
------------ ---
Reference Rate Loans, Quoted Rate Loans and Eurodollar Rate Loans shall be
disbursed in Dollars, on the applicable borrowing date, to the Company through
its account with the Bank or if no such account exists, to such account as the
Company shall direct. Each Eurocurrency Rate Loan shall be disbursed in the
currency specified by the Company, at such branch or affiliate of the Bank or
such other bank as the Bank may select.
SECTION 2.9. Continuation and Conversion Elections. By requesting in
-------------------------------------
writing or by telephone (promptly confirmed in writing as hereinafter provided)
to the Bank on or before 11:00 a.m., Chicago, Illinois time, on a Banking Day,
the Company may from time to time irrevocably elect that all or a portion of one
Type of Loans be continued as such Type or converted into another Type of Loans,
in accordance with the
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applicable provisions of this Section 2.4; provided, however, that (i) the
----------- -------- -------
aggregate dollar amount of Loans which may be converted and/or continued at any
one time shall not be less than (a) in the case of Reference Rate Loans, a
minimum aggregate amount of $50,000 and multiples of $200,000, and (b) in the
case of Fixed Rate Loans of any Type, a minimum aggregate amount of $200,000 and
multiples of $200,000, and (ii) no portion of the outstanding principal amount
of any Loans may be continued as, or be converted into, Fixed Rate Loans when
any Default has occurred and is continuing. Each telephonic or other oral
conversion or continuation request referred to in Section 2.9.1 or Section 2.9.2
------------- -------------
shall be promptly confirmed in writing by delivery to the Bank of a duly
completed Conversion/Continuation Notice duly executed by an Authorized Officer
of the Company not later than three (3) Banking Days after the date of any such
oral request. In the absence of receipt of a telephonic or written request for
continuation or conversion with respect to any Fixed Rate Loan in accordance
with the provisions of Section 2.9.1 or 2.9.2, as applicable, such Fixed Rate
------------- -----
Loan shall, on such last day, automatically convert to a Reference Rate Loan.
Each conversion or continuation of a Loan in one currency (the "Prior Currency")
into a Loan in another currency (the "Second Currency") shall result in a Loan
in an amount denominated in the Second Currency equal to the equivalent in the
Second Currency of the Loan amount denominated in the Prior Currency, in each
case determined by the Bank in accordance with the provisions of Section 2.10.
------------
SECTION 2.9.1. Eurocurrency Rate Loans, Eurodollar Rate Loans and
--------------------------------------------------
Reference Rate Loans. Subject to the other provisions of this Agreement,
--------------------
the Company may elect: (a) to continue all or any portion of any
outstanding Eurodollar Rate Loans or Eurocurrency Rate Loans from the
current Interest Period of such Loans into a subsequent Interest Period to
begin on the last day of such current Interest Period and in the same
currency or, in the case of Eurocurrency Rate Loans, in the same or a
different Eurocurrency, (b) to convert any outstanding Reference Rate
Loans into Eurodollar Rate Loans or Eurocurrency Rate Loans or (c) to
convert one Type of Fixed Rate Loan into any other Type of Loan except a
Quoted Rate Loan, such conversion to occur on the last day of the then
current Interest Period of the Loans being converted. The Company shall
give the Bank prior telephonic notice (promptly confirmed in writing) from
an Authorized Officer (x) at least two (2) Banking Days' prior to the date
of continuation or conversion in the case of continuation of or conversion
into a Eurodollar Rate Loan bearing interest with reference to the
Interbank Rate and (y) at least three (3) Banking Days' prior to the date
of continuation or conversion in the case of continuation of or conversion
into a Eurocurrency Rate Loan [whether bearing interest with reference to
the Interbank Rate (Reserve Adjusted) or the LIBOR Rate (Reserve
Adjusted)] or into a Eurodollar Rate Loan bearing interest with reference
to the LIBOR Rate. Each such notice shall specify whether such Loan bears
interest with reference to the Interbank Rate or the LIBOR Rate, the date,
the amount and the Interest Period, if applicable, and, in the case of a
continuation of or conversion into Eurocurrency Rate Loans, the currency
of the such Loans.
SECTION 2.9.2. Quoted Rate Loans. Subject to the other provisions
-----------------
of this Agreement, the Company may elect (a) to continue all or any
portion of any outstanding Quoted Rate Loans from the current Interest
Period of such Loans into a subsequent Interest Period to begin on the
last day of such current Interest Period and in the same currency, (b) to
convert all or any portion of any outstanding Eurodollar Rate Loans or
Eurocurrency Rate Loans to Quoted Rate Loans, such conversion to occur on
the last day of the then current Interest Period of the Loans being
converted, or (c) to convert all or any portion of any outstanding
Reference Rate Loans into Quoted Rate Loans. If the Company desires to
continue or convert outstanding Loans as or into Quoted Rate Loans, the
Company shall give the Bank prior telephonic notice (promptly confirmed in
writing) from an Authorized Officer of the Company of a requested
continuation or conversion under this Section 2.9.2, specifying the date,
-------------
amount and Type of Loans to be continued or converted, the applicable
Interest Periods and requesting that the Bank provide the Company by
telephone a quotation of the interest rate(s) that would be applicable to
the requested Quoted Rate Loans for Interest Period(s) of a duration
designated by such Authorized Officer and commencing (a) on the last day
of the current Interest Period in the case of outstanding Fixed Rate Loans
or (b) on the date such rate quotation is requested in the case of
outstanding Reference Rate Loans. Each such notice and request from the
Company, to be effective, must be received by the Bank no later than 11:00
a.m., Chicago, Illinois time on the Banking Day such conversion into or
continuation of Quoted Rate Loans is to occur. If such interest rate is
satisfactory to the Company an Authorized Officer shall, no later than
11:00
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a.m. Chicago, Illinois time, on such date, so indicate. Such indication by
an Authorized Officer of the Company shall constitute an irrevocable
request that the requested continuation of or conversion into Quoted Rate
Loans be consummated at the rate the Bank quoted or would have quoted to
the Company at the time of such indication of acceptance, it being
understood that the Bank does not guarantee that the interest rate quoted
with respect to a particular requested conversion of or continuation into
Quoted Rate Loans shall continue to be available if such rate is not
accepted by an Authorized Officer of the Company at the time of quotation.
SECTION 2.10. Currency Equivalents.
--------------------
(a) Exchange Rate. Whenever pursuant hereto the Dollar Equivalent
-------------
of an amount denominated in any currency other than Dollars is to be
determined as of a date, such determination shall be made at the spot rate
at which the Bank offers to purchase such currency with Dollars at
approximately 10:00 am., Chicago, Illinois time on such date. Whenever the
equivalent in any currency (other than Dollars) is to be determined as of
a date, such determination shall be made in accordance with the preceding
sentence, substituting such currency in which such equivalent is being
determined for Dollars.
(b) Determination Date. For purposes of determining the Commitment
------------------
Fee referred to in Section 3.3.1, the outstanding balance of the Revolving
-------------
Loans and the Revolving Credit Commitment from time to time, the Dollar
Equivalent of each Loan then denominated in a currency other than Dollars
shall be determined as of each of the dates (a "Determination Date") as
follows:
(i) the date ten (10) Banking Days prior to the last day of
each calendar quarter of each calendar year; and
(ii) the date five (5) Banking Days prior to each of the
following dates (unless such of the following dates is also the last
day of any calendar quarter of any calendar year;
(A) the date a Loan is made;
(B) the date a Eurodollar Rate Loan or Eurocurrency Rate Loan
is continued from the current Interest Period of such Loan
into a subsequent Interest Period;
(C) the date an outstanding Loan is converted from one Type of
Loan into another Type of Loan; or
(D) the date the principal of a Loan, or portion thereof, is
paid or prepaid.
The Dollar Equivalent of any Loan, or portion thereof, determined as of
any Determination Date, shall be deemed to remain unchanged from such
determination until the next succeeding Determination Date.
SECTION 2.11. Funding. As to any Eurodollar Rate Loan or Eurocurrency
-------
Rate Loan the Bank may, if it so elects, fulfill its obligation to make,
continue or convert such Fixed Rate Loans hereunder by causing one of its
foreign branches or Related Parties (or an international banking facility
created by the Bank) to make or maintain such Fixed Rate Loan; provided,
--------
however, that such Fixed Rate Loan shall nonetheless be deemed to have been made
- -------
and to be held by the Bank, and the obligation of the Company to repay such
Fixed Rate Loan shall nevertheless be to the Bank account of such
foreign branch, Related Party or
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international banking facility. In addition, the Company hereby consents and
agrees that, for purposes of any determination to be made hereunder, it shall be
conclusively assumed that the Bank elected to fund all Eurodollar Rate Loans and
all Eurocurrency Rate Loans by purchasing Eurodollar deposits, or deposits in
the applicable Eurocurrency, in its Interbank Lending Office's or LIBOR Lending
Office's interbank eurocurrency market.
SECTION 2.12. Notes. The Revolving Loans made by the Bank to the Company
-----
under this Agreement shall be evidenced by the Revolving Note made by the
Company payable to the order of the Bank in the maximum amount of the Bank's
Revolving Credit Commitment. The Term Loan made by the Bank to the Company
under this Agreement shall be evidenced by the Term Note made by the Company
payable to the order of the Bank in the maximum amount of the Bank's Term
Commitment or if less, the actual amount of the Term Loan made to the Company.
The Company hereby irrevocably authorizes the Bank to make (or cause to be made)
appropriate notations on the grid attached to each Note (or on any continuation
of such grid), which notations, if made, shall evidence, inter alia, the date
----- ----
of, the outstanding principal of, and the interest rate and Interest Period
applicable to the Loans evidenced thereby. Such notations shall be conclusive
and binding on the Company absent manifest error; provided, however, that the
-------- -------
failure of the Bank to make any such notations shall not limit or otherwise
affect any Obligations of the Company.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. The Company shall repay in
--------------------------
full the unpaid principal amount of each Revolving Loan no later than the
Revolving Commitment Termination Date. The Company shall repay the unpaid
principal amount of the Term Loan in twenty (20) consecutive quarterly
installments, each on a Quarterly Payment Date, commencing with the first such
Quarterly Payment Date following the making of the Term Loan, and each such
installment in the amount of $750,000 with the final such payment due and
payable on the Term Commitment Termination Date in the principal amount of the
Term Loan then outstanding. Prior to the Revolving Commitment Termination Date
or the Term Commitment Termination Date, as the case may be, the Company
(a) may, from time to time on any Banking Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of
any Loans; provided, however, that
-------- -------
(i) no such prepayment of any Fixed Rate Loan may be made on
any day other than the last day of the Interest Period for such Loan
or portion thereof;
(ii) all such voluntary prepayments shall require at least
three (3) Banking Days' prior written notice to the Bank;
(iii) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $50,000 and an integral multiple of
$50,000;
(iv) no amount of the Term Loan which is paid or prepaid may
be reborrowed; and
(v) All prepayments of the Term Loan shall be applied to the
installments of the Term Loan in the inverse order of their
maturities.
(b) shall, on each date when any reduction in the Commitment Amount
shall become effective, including pursuant to Section 2.2, make a
-----------
mandatory prepayment of all Loans such that the aggregate amount so
prepaid shall be equal to the excess, if any, of the aggregate,
outstanding principal amount of all Loans over the Commitment Amount as so
reduced; and
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(c) shall, immediately upon any acceleration of the Loans pursuant
to Section 8.2 or Section 8.3, repay all Loans; and
----------- -----------
(d) shall, if on any Determination Date, as a result of an increase
in the value of a Eurocurrency, the aggregate Dollar Equivalent of the
principal amount of all outstanding Loans to the Company exceeds the
Commitment Amount, on the last day of the Interest Period during which
such Determination Date occurs, make a mandatory prepayment of the
aggregate outstanding Revolving Loans to the Company such that the
aggregate amount of prepayments shall be equal to the amount of such
excess.
Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as may be required by Section 4.5. No voluntary
-----------
prepayment of principal of any Revolving Loans shall cause a reduction in the
Revolving Credit Commitment.
SECTION 3.2. Interest Provisions. Interest on the outstanding principal
-------------------
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
-----------
SECTION 3.2.1. Rates.
-----
(a) Reference Rate Loans. That portion of the Loans maintained
--------------------
from time to time as a Reference Rate Loans shall accrue and bear
interest until maturity at a rate per annum equal to (i) the
Reference Rate from time to time in effect minus one-half of one
-----
percent (0.50%) with respect to the Revolving Loans and (ii) the
Reference Rate from time to time in effect minus one-quarter of one
-----
percent (0.25%) with respect to the Term Loan.
(b) Eurodollar Rate Loans and Eurocurrency Rate Loans. That
-------------------------------------------------
portion of the Loans maintained from time to time as a Eurodollar
Rate Loans or Eurocurrency Rate Loans shall accrue and bear interest,
during each Interest Period applicable thereto, at a rate per annum
equal to the sum of the Interbank Rate (Reserve Adjusted) or the
LIBOR Rate (Reserve Adjusted), as the case may be for such Interest
Period plus (i) one percent (1.0%) with respect to the Revolving
----
Loans and (ii) one and thirty-five one hundredth of one percent
(1.35%) with respect to the Term Loan.
(c) Quoted Rate Loans. That portion of the Loans maintained
-----------------
from time to time as Quoted Rate Loans shall accrue and bear
interest, during each Interest Period applicable thereto, at a rate
per annum equal to the Quoted Rate in effect for such Interest
Period.
SECTION 3.2.2. Post-Maturity Rates. After the date any principal
-------------------
amount of any Loan is due and payable (whether at maturity, upon
acceleration or otherwise), the Company shall pay, but only to the extent
permitted by law, interest (after as well as before judgment) on such Loan
at a rate per annum equal to the greater of (a) two percent (2.0%) in
excess of the rate applicable to the unpaid amount of such Loan
immediately before it became due and (b) the Reference Rate in effect from
time to time plus two percent (2.0%).
----
SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall
-------------
be payable, without duplication:
(a) on the Revolving Commitment Termination Date with respect
to the Revolving Loans and the Term Commitment Termination Date with
respect to the Term Loan, as the case may be.
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(b) on the date of any payment or prepayment, in whole or in
part, of principal outstanding on such Loan as the result of a
reduction in the Commitment Amount pursuant to Section 2.2;
-----------
(c) with respect to Reference Rate Loans, on each Monthly
Payment Date occurring after the making of such Loan;
(d) subject to clauses (g) and (h) below, with respect to Fixed
----------- ---
Rate Loans, on the last day of each applicable Interest Period;
(e) with respect to any Reference Rate Loans converted into
Fixed Rate Loans on a day when interest would not otherwise have been
payable pursuant to clause (c), on the date of such conversion;
----------
(f) Upon the acceleration of the Revolving Commitment
Termination Date or the Term Commitment Termination Date, as the case
may be, pursuant to Article VIII, immediately upon such acceleration.
(g) with respect to any Eurodollar Loan or Eurocurrency Loan
having an Interest Period of six months, the last day of the third
month of such Interest Period and the last day of such Interest
Period; and
(h) with respect to Quoted Rate Loans, on the earlier to occur
of (i) the Monthly Payment Date occurring after the making of such
Loan or (ii) the last day of each applicable Interest Period.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable shall be payable upon demand.
SECTION 3.3. Fees. The Company agrees to pay the fees set forth in this
----
Section 3.3. All such fees shall be non-refundable.
- -----------
SECTION 3.3.1. Commitment Fee. The Company agrees to pay to the
--------------
Bank, for the period (including any portion thereof when its Commitment is
suspended by reason of the Company's inability to satisfy any condition of
Article V) commencing on the Effective Date and continuing through the
---------
Revolving Credit Termination Date, a commitment fee at the rate of one-
eighth of one percent (0.125%) per annum on the average daily unused
portion of the Revolving Credit Commitment. Such Commitment Fees shall be
payable by the Company in arrears on each Monthly Payment Date, commencing
with the first such day following the Effective Date, and on the Revolving
Credit Commitment Date for the period then ending.
SECTION 3.3.2. Closing Fee. The Company agrees to pay to the Bank a
-----------
Closing Fee of Fifty Thousand Dollars ($50,000). Such Fee shall be
payable, in full, upon the execution by the Bank and the Company of this
Agreement.
SECTION 3.4. Computation of Interest and Fees. All Fixed Rate Loans
--------------------------------
shall bear interest from and including the first day of the applicable Interest
Period to (but not including) the last day of such Interest Period at the
interest rate determined as applicable to such Fixed Rate Loan. Interest on
each Reference Rate Loan, each Fixed Rate Loan and any fees, shall be computed
on the basis of a year consisting of 360 days and paid for actual days elapsed.
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ARTICLE IV
CERTAIN INTEREST RATE AND OTHER PROVISIONS
SECTION 4.1. Fixed Rate Lending Unlawful. If the Bank shall determine
---------------------------
that the introduction of or any change in or in the interpretation of any law
makes it unlawful, or any central bank or other governmental authority asserts
that it is unlawful, for the Bank to make, continue or maintain any Loan as, or
to convert any Loan into, a Fixed Rate Loan of a certain Type, the obligations
of the Bank to make, continue, maintain or convert any such Loans shall, upon
such determination, forthwith be suspended until the Bank shall notify the
Company that the circumstances causing such suspension no longer exist, and all
Fixed Rate Loans of such Type shall automatically convert into Reference Rate
Loans or, subject to compliance with the applicable provisions of Section 2.9,
-----------
another Type of Fixed Rate Loans, at the end of the then current Interest
Periods with respect thereto or sooner, if required by such law or assertion.
SECTION 4.2. Deposits Unavailable. If the Bank has determined that
--------------------
(a) Dollar or Eurocurrency deposits, as the case may be, in the
relevant amount and for the relevant Interest Period are not available to
the Bank in its relevant market; or
(b) by reason of circumstances affecting the Bank's relevant market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to Fixed Rate Loans of a particular Type,
then, upon notice from the Bank to the Company, the obligations of the Bank to
- ----
make or continue any Loans as, or to convert any Loans into, Fixed Rate Loans of
such Type shall forthwith be suspended until the Bank shall have notified the
Company that the circumstances causing such suspension no longer exist.
SECTION 4.3. Increased Capital Costs With Respect to Commitments. If any
----------------------------------------------------
change in, or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in of, any law or regulation, directive, guideline,
decision or request (whether or not having the force of law) of any court,
central bank, regulator or other governmental authority affects or would affect
the amount of capital required or expected to be maintained by the Bank or any
Person controlling the Bank, and the Bank determines (in its sole and absolute
discretion) that the rate of return on its or such controlling Person's capital
as a consequence of its Commitment or the Loans made by the Bank is reduced to a
level below that which the Bank or such controlling Person could have achieved
but for the occurrence of any such circumstance, then, in any such case upon
notice from time to time by the Bank to the Company the Company agrees that it
shall immediately pay to the Bank additional amounts sufficient to compensate
the Bank or such controlling Person for such reduction in rate of return at the
time suffered or incurred. A statement of the Bank as to any such additional
amount or amounts (including calculations thereof in reasonable detail) shall,
in the absence of manifest error, be conclusive and binding on the Company. In
determining such amount, the Bank may use any reasonable method of averaging and
attribution that it (in its sole and absolute discretion) shall deem applicable.
SECTION 4.4. Funding Losses. In the event the Bank shall incur any loss
--------------
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by the Bank to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a Fixed Rate Loan)
as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any Fixed Rate Loans on a date other than the scheduled last day
of the Interest Period applicable thereto;
(b) any Loans not being made as Fixed Rate Loans in accordance with
the Borrowing Request therefor; or
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<PAGE>
(c) any Loans not being continued as, or converted into, Fixed Rate
Loans in accordance with the Continuation/ Conversion Notice therefor,
then, upon the written notice of the Bank to the Company, the Company agrees
that it shall, within five (5) Banking Days of the Company's receipt thereof,
pay to the Bank such amount as will (in the reasonable determination of the
Bank) reimburse the Bank for such loss or expense. Such written notice (which
shall include calculations in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on the Company.
SECTION 4.5. Taxes. All payments by the Company of principal of, and
-----
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Bank's net
income or receipts (such non-excluded items being called "Taxes"). In the event
that any withholding or deduction from any payment to be made by the Company
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Company will
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Bank an official receipt or other
documentation satisfactory to the Bank evidencing such payment to such
authority; and
(c) pay to the Bank such additional amount or amounts as is
necessary to ensure that the net amount actually received by the Bank will
equal the full amount the Bank would have received had no such withholding
or deduction been required.
Moreover, if any Taxes are directly asserted against the Bank with respect to
any payment received by the Bank hereunder, the Bank may pay such Taxes and the
Company agrees that it will promptly pay such additional amounts (including any
penalties, interest or expenses) as is necessary in order that the net amount
received by the Bank after the payment of such Taxes (including any Taxes on
such additional amount) shall equal the amount the Bank would have received had
not such Taxes been asserted; excluding, however, all such amounts which are so
--------- -------
payable due to the negligence of the Bank.
If the Company fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Bank, the required receipts or other required
documentary evidence, the Company agrees to indemnify the Bank for any
incremental Taxes, interest or penalties that may become payable by the Bank as
a result of any such failure.
If the Bank receives a refund of any amount paid by the Company pursuant
to this Section in respect of amounts required to be withheld or deducted from
amounts due to the Bank under this Agreement and the other Loan Documents, and
if as a result of the Bank's receipt of such refund the net amount received by
the Bank exceeds the amount to which the Bank is entitled under this Agreement
and the other Loan Documents, the Bank shall promptly pay to the Company the
amount of such excess.
SECTION 4.6. Payments, Computations, etc. Unless otherwise expressly
---------------------------
provided, all payments by the Company pursuant to this Agreement, the Notes or
any other Loan Document shall be made by the Company to the Bank. All such
payments required to be made to the Bank shall be made, without setoff,
deduction or counterclaim, not later than 12:30 p.m., Chicago, Illinois time, on
the date due, in same day or immediately available funds, to such account as the
Bank shall specify from time to time by notice to the Company. Funds received
after that time shall be deemed to have been received by the Bank on the next
succeeding Banking Day. The Company hereby authorizes the Bank and the Bank may,
in its sole and absolute discretion, provide for the payment of any amounts
required to be paid in Dollars which are due under this Agreement or the other
Loan Documents, by debiting the Demand Deposit Account for the amount
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then due; provided, however, that the failure of the Company to maintain
-------- -------
sufficient balances in the Demand Deposit Account to provide for such payment
shall not affect the Company's obligation to pay when due all amounts payable by
the Company hereunder or under any other Loan Document. Whenever any payment to
be made shall otherwise be due on a day which is not a Banking Day, such payment
shall (except as otherwise required by clause (c) of the definition of the term
----------
"Interest Period" with respect to Eurodollar Rate Loans or Eurocurrency Rate
Loans) be made on the next succeeding Banking Day and such extension of time
shall be included in computing interest and fees, if any, in connection with
such payment.
SECTION 4.7. Setoff. The Bank shall, upon the occurrence of any Event of
------
Default, have the right to appropriate and apply to the payment of the
Obligations (whether or not then due), any and all balances, credits, deposits,
accounts or moneys of the Company then or thereafter maintained with the Bank.
The Bank agrees promptly to notify the Company after any such setoff and
application; provided, however, that the failure to give such notice shall not
-------- -------
affect the validity of such setoff and application. The rights of the Bank
under this Section are in addition to other rights and remedies (including other
rights of setoff under applicable law or otherwise) which the Bank may have.
SECTION 4.8. Use of Proceeds. The Company will use the proceeds of the
---------------
Loans for general operating capital.
SECTION 4.9. Currency Indemnification. The obligation of the Company to
------------------------
make payments hereunder in the currencies specified in Article III shall not be
discharged as satisfied by any tender or recovery which is expressed in any
other currencies except to the extent that such tender or recovery shall result
in the actual receipt by the Bank of the full amount in the currencies so
specified payable hereunder. The Company's obligations to make payments in the
currencies so specified shall be enforceable as an alternative or additional
cause of action for the purpose of recovery in such currencies of the amount, if
any, by which such actual receipt shall fall short of the full amount in such
currencies payable hereunder, and shall not be affected by judgment being
obtained for any sums due hereunder.
Without limiting the generality of the previous paragraph, the Company
agrees to indemnify the Bank against any loss incurred by it as a result of any
judgment or order being given or made for the payment of any Indebtedness
hereunder and such judgment or order being expressed in a currency other than
the currency of the Indebtedness hereunder and as a result of any variation
having occurred in rates of exchange between the date of any such amount
becoming due hereunder and the date of actual payment thereof. The foregoing
indemnity shall constitute a separate and independent obligation and shall apply
irrespective of any indulgence granted from time to time and shall continue in
full force and effect notwithstanding any such judgment or order as aforesaid.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1. Initial Borrowing of the Company. The obligation of the
--------------------------------
Bank to fund an initial Borrowing of the Company shall be subject to the prior
or concurrent satisfaction of each of the conditions precedent set forth in this
Section 5.1, in addition to the applicable conditions precedent set forth in
- -----------
Section 5.2.
- -----------
SECTION 5.1.1. Secretary's Certificate. The Bank shall have
-----------------------
received from the Company, a certificate, dated the date of the initial
Borrowing, of its Secretary or Assistant Secretary as to
(a) resolutions of its Board of Directors then in full force
and effect authorizing the execution, delivery and performance of
this Agreement and the Notes and authorizing the borrowings hereunder
and each other Loan Document to be executed by it;
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<PAGE>
(b) all documents evidencing other corporate action necessary
for the execution, delivery and performance of any Loan Document;
(c) all approvals or consents, if any, with respect to this
Agreement and the Notes;
(d) the Articles of Incorporation and By-laws of the Company,
as duly adopted and then in effect, copies of which Articles of
Incorporation and By-Laws shall be attached to such certificate; and
(e) the incumbency and signatures of those of its officers
authorized to sign to this Agreement, the Notes and each other Loan
Document executed by it,
upon which certificate the Bank may conclusively rely until it shall have
received a further certificate of the Secretary of the Company canceling
or amending such prior certificate.
SECTION 5.1.2. Delivery of Notes. The Bank shall have received the
-----------------
Notes of the Company duly executed and delivered by the Company.
SECTION 5.1.3. Opinion of Counsel. The Bank shall have received an
------------------
opinion from Loreen P. Collins, counsel to the Company, substantially in
the form of Exhibit F hereto;
---------
SECTION 5.1.4. Letter of Awareness. The Bank shall have received a
-------------------
letter of awareness from DowElanco, in form and substance satisfactory to
the Bank.
SECTION 5.1.5. Good Standing. The Bank shall have received a
-------------
certificate of Good Standing issued by the Office of the Secretary of
State of California, of recent date, and attesting to the good standing
of the Company under the laws of the State of California.
SECTION 5.1.6. Expenses, etc. The Bank shall have received all
-------------
reasonable fees, costs and expenses due and payable pursuant to Section
-------
9.3, if then invoiced.
---
SECTION 5.1.7. Closing Fee. The Bank shall have received the
-----------
Closing Fee referred to in Section 3.3.2 hereof.
-------------
SECTION 5.1.8. Compliance Certificate. The Bank shall have received
----------------------
a duly completed Compliance Certificate and all matters thereon shall be
satisfactory to the Bank.
SECTION 5.2. All Borrowings. The obligation of the Bank to fund any
--------------
Borrowing (including the initial Borrowing) shall be subject to the satisfaction
of each of the conditions precedent set forth in this Section 5.2.
-----------
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both
-------------------------------------------
before and after giving effect to any Borrowing the following statements
shall be true and correct:
(a) the representations and warranties set forth in Article VI
----------
shall be true and correct with the same effect as if then made
(unless stated to relate solely to an early date, in which case such
representations and warranties shall be true and correct as of such
earlier date) except for such changes as are specifically permitted
hereunder; and
(b) no Default shall have then occurred and be continuing or
shall result from such Borrowing.
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SECTION 5.2.2. Borrowing Request. The Bank shall have received a
-----------------
request for such Borrowing in accordance with Section 2.3 or Section 2.4,
----------- -----------
as the case may be. Each request for a Borrowing and the acceptance by
the Company of the proceeds of such Borrowing shall constitute a
representation and warranty by the Company that on the date of such
Borrowing (both immediately before and after giving effect to such
Borrowing and the application of the proceeds thereof) the statements made
in Section 5.2.1 are true and correct.
-------------
SECTION 5.2.3. Satisfactory Legal Form. All documents executed or
-----------------------
submitted pursuant hereto by or on behalf of the Company shall be
satisfactory in form and substance to the Bank and its counsel; the Bank
and its counsel shall have received all information, approvals, opinions,
documents or instruments as the Bank or its counsel may reasonably
request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make Loans
hereunder, the Company represents and warrants unto the Bank as set forth in
this Article VI.
----------
SECTION 6.1. Organization, etc. The Company and each of its Subsidiaries
-----------------
is a corporation validly organized and existing and in good standing under the
laws of the jurisdiction of its incorporation or formation and is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its business requires such qualification,
except such jurisdictions where failure to so qualify and be in good standing is
not reasonably likely to have a material adverse effect on the operations or
financial condition of the Company and its Subsidiaries taken as a whole. The
Company has full power and authority and holds all requisite governmental
consents and other approvals to enter into, deliver and perform the Obligations
under this Agreement, the Notes and each other Loan Document to which it is a
party and to own and hold under lease its property and to conduct its business
substantially as currently conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution,
-----------------------------------------
delivery and performance by the Company of this Agreement, the Notes and each
other Loan Document executed or to be executed by it are within the Company's
corporate powers, have been duly authorized by all necessary corporate action,
and do not (a) contravene the Company's Organic Documents; (b) contravene any
contractual restriction, law or governmental regulation or court decree or order
binding on the Company; or (c) result in, or require the creation or imposition
of, any Lien on any of the Company's properties.
SECTION 6.3. Government Approval, Regulation, etc. The Company and its
------------------------------------
Subsidiaries are in material compliance with all statutes and governmental rules
and regulations applicable to them and no authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or other Person is required for the due execution, delivery or
performance by the Company, of this Agreement, the Notes or any other Loan
Document. Neither the Company nor any of its Subsidiaries is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 6.4. Validity, etc. This Agreement, the Notes and each other
-------------
Loan Document executed by the Company, constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies.
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SECTION 6.5. Financial Information. The audited consolidated balance
---------------------
sheets of the Company and its Subsidiaries as at August 31, 1996, and the
related statements of earnings and cash flow of the Company and its
Subsidiaries, copies of which have been furnished to the Bank, have been
prepared in accordance with GAAP consistently applied, and present fairly the
consolidated financial condition of the corporations covered thereby as at the
date thereof and the results of their operations for the period then ended.
SECTION 6.6. No Material Adverse Change. Since the dates of the
--------------------------
financial statements described in Section 6.5, there has been no material
-----------
adverse change in the financial condition, operations, assets, business,
properties or prospects of the Company and its Subsidiaries taken as a whole.
SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending
------------------------------------
or, to the knowledge of the Company, threatened litigation, action or proceeding
against the Company or any of its Subsidiaries, or labor controversy involving
the Company or any of its Subsidiaries, or any of their respective properties,
which might reasonably be expected to materially adversely affect the financial
condition, operations, assets, business, properties or prospects of the Company
and its Subsidiaries taken as a whole or which purports to affect the legality,
validity or enforceability of this Agreement, the Notes or any other Loan
Document, except as disclosed on the Company's Form 10K dated August 31, 1996 as
filed with the Securities and Exchange Commission, Washington, D.C., in Schedule
--------
6.7 or in Schedule 6.14.
- --- -------------
SECTION 6.8. Subsidiaries. The Company has no Subsidiaries, except those
------------
Subsidiaries which are identified in Schedule 6.8.
------------
SECTION 6.9. Partnerships; Joint Ventures. Neither the Company nor any
----------------------------
of its Subsidiaries is a partner or a joint venturer in any partnership or joint
venture other than the partnerships and joint ventures which are identified in
Schedule 6.9.
- ------------
SECTION 6.10. Ownership of Properties. The Company and each of its
-----------------------
Subsidiaries owns good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all material Liens, charges or claims (including infringement claims with
respect to patents, trademarks, copyrights and the like) except as (a) permitted
pursuant to Section 7.2.5 or (b) disclosed in the Company's SEC Form 10K dated
-------------
August 31, 1996.
SECTION 6.11. Taxes. The Company and each of its Subsidiaries has filed
-----
all tax returns and reports required by law to have been filed by it and has
paid all taxes and governmental charges thereby shown to be owing, except any
such taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books.
SECTION 6.12. Insurance. The Company and each of its Subsidiaries
---------
maintain insurance, including self-insurance, to such extent and against such
hazards and liabilities as is commonly maintained by companies similarly
situated.
SECTION 6.13. Pension and Welfare Plans. No Reportable Event has
-------------------------
occurred, no steps have been taken by the PBGC, the Company or an ERISA
Affiliate to terminate or withdraw from any Pension Plan, and no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise to
a Lien under section 302(f) of ERISA. No condition exists or event or
transaction has occurred with respect to any Pension Plan which might result in
the incurrence by the Company or any ERISA Affiliate of any material liability,
fine or penalty. Except as disclosed in Schedule 6.13 neither the Company nor
-------------
any ERISA Affiliate has any contingent liability with respect to any post-
retirement benefit under a Welfare Plan, other than liability for continuation
coverage described in Part 6 of Title I of ERISA.
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SECTION 6.14. Environmental Warranties.
------------------------
(a) Except as disclosed in Schedule 6.14, neither the Company nor
-------------
any Subsidiary has received any notice to the effect, or has any
knowledge, that its Property or operations are not in compliance with any
of the requirements of applicable federal, state and local environmental,
health and safety statutes and regulations ("Environmental Laws") or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could have material adverse effect on the business,
operations, Property, assets or conditions (financial or otherwise) of the
Company or any Subsidiary;
(b) to the best of the Company's knowledge there have been no
releases of hazardous materials at, on or under any Property now or
previously owned or leased by the Company or any of its Subsidiaries that,
singly or in the aggregate, have, or may reasonable be expected to have,
a material adverse effect on the financial condition, operations, assets,
business, Properties or prospects of the Company and its Subsidiaries;
(c) to the best of the Company's knowledge there are no underground
storage tanks, active or abandoned, including petroleum storage tanks, on
or under any Property now or previously owned or leased by the Company or
any of its Subsidiaries that, singly or in the aggregate, have, or may
reasonably be expected to have, a material adverse effect on the financial
condition, operations, assets, business, Properties or prospects of the
Company and its Subsidiaries;
(d) to the best of the Company's knowledge neither the Company nor
any Subsidiary of the Company has directly transported or directly
arranged for the transportation of any hazardous material to any location
which is listed or proposed for listing on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list or which
is the subject of federal, state or local enforcement actions or other
investigations which may lead to material claims against the Company or
such Subsidiary thereof for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA; and
(e) to the best of the Company's knowledge, except as disclosed on
Schedule 6.14 no conditions exist at, on or under any Property now or
-------------
previously owned or leased by the Company which, with the passage of time,
or the giving of notice or both, would give rise to liability under any
Environmental Law.
SECTION 6.15. Regulations G, U and X. The Company is not engaged
----------------------
principally, or as one of its important activities, in the business of extending
credit for the purpose of, purchasing or carrying margin stock, and no proceeds
of any Loans will be used for a purpose which violates, or would be inconsistent
with, F.R.S. Board Regulation G, U or X.
SECTION 6.16. Accuracy of Information. All factual information
-----------------------
heretofore or contemporaneously furnished by or on behalf of the Company in
writing to the Bank for purposes of or in connection with this Agreement or any
transaction contemplated hereby taken together does not, and all other such
factual information hereafter furnished by or on behalf of the Company to the
Bank taken together will not, on the date as of which such information is dated
or certified, contain any untrue statement of a material fact or omit a material
fact necessary to make the factual information contained therein not misleading
in light of the circumstances in which it was provided.
SECTION 6.17. No Default. Neither the Company nor any Subsidiary is in
----------
default under any material agreement, contract or arrangement to which it is a
party or by which it or its properties may be bound.
ARTICLE VII
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COVENANTS
SECTION 7.1. Affirmative Covenants. The Company agrees with the Bank
---------------------
that, until all Commitments have terminated and all Obligations have been paid
and performed in full, the Company will perform the obligations set forth in
this Section 7.1.
-----------
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The
--------------------------------------------
Company will furnish, or will cause to be furnished, to the Bank copies of
the following financial statements, reports, notices and information:
(a) as soon as available, and in any event within 45 days after
the close of each quarterly fiscal period of the Company (i) a copy
of consolidated balance sheets and profits and loss statements for
the Company and its Subsidiaries (for such quarterly period and the
year to date) for such period of the Company and for the
corresponding periods of the preceding fiscal year, and (ii)
consolidating balance sheets and profit and loss statements for the
Company and each Subsidiary for the year to date, all in reasonable
detail, prepared by the Company and certified by the chief financial
officer of the Company;
(b) as soon as available, and in any event within 120 days
after the close of each fiscal year of the Company, a copy of the
audit report for such year and accompanying financial statements,
including a consolidated balance sheet, reconciliation of changes in
stockholders' equity, profit and loss statement and showing in
comparative form the figures for the previous fiscal year of the
Company, all in reasonable detail, accompanied by the unqualified
opinion of Ernst & Young or other independent public accountants of
nationally recognized standing selected by the Company and
satisfactory to the Bank;
(c) as soon as available and in any event within 45 days after
the end of each quarterly fiscal period a certificate (the
"Compliance Certificate") substantially in the form of Exhibit F
---------
hereto, executed by the chief financial officer of the Company,
showing (in reasonable detail and with appropriate calculations and
computations in all respects satisfactory to the Bank) compliance
with the financial covenants set forth in Sections 7.2.1, 7.2.2,
-------------- -----
7.2.3 and 7.2.4 and stating that no Default has occurred and is
----- -----
continuing or, if there is any such Default, a statement setting
forth details of such Default and the action which the Company has
taken and proposes to take with respect thereto;
(d) as soon as possible, and in any event within ten (10)
Banking Days after the Company learns of the following, give written
notice to the Bank of (a) any material proceeding(s) being instituted
or threatened to be instituted by or against the Company or any
Subsidiary in any federal, state, local, or foreign court or before
any commission or other regulatory body (federal, state, local or
foreign), (b) any material adverse change in the business, Property
or condition, financial or otherwise of the Company, and (c) the
occurrence of any Default;
(e) promptly after the sending or filing thereof, copies of all
reports which the Company sends to its equity securityholders, and
all reports and registration statements (other than S-8 registration
statements) which the Company or any of its Subsidiaries files with
the Securities and Exchange Commission or any national securities
exchange;
(f) promptly after becoming aware of the institution of any
steps by the Company, the PBGC or any ERISA Affiliate to terminate
any Pension Plan, or the failure
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to make a required contribution to any Pension Plan if such failure
is sufficient to give rise to a Lien under section 302(f) of ERISA,
or the taking of any action with respect to a Pension Plan which
could result in the requirement that the Company furnish a bond or
other security to the PBGC or such Pension Plan, or the occurrence of
any event with respect to any Pension Plan which could result in the
incurrence by the Company of any material liability, fine or penalty,
or any material increase in the contingent liability of the Company
with respect to any post-retirement Welfare Plan benefit, notice
thereof and copies of all documentation relating thereto;
(g) such other information respecting the condition or
operations, financial or otherwise, of the Company or any of its
Subsidiaries, or the Company's compliance with this Agreement, as the
Bank may from time to time reasonably request.
SECTION 7.1.2. Compliance with Laws, etc. The Company will, and
-------------------------
will cause each of its Subsidiaries to, comply in all material respects
with all applicable laws, rules, regulations and orders.
SECTION 7.1.3. Maintenance of Properties. The Company will, and
-------------------------
will cause each Subsidiary to, keep and maintain all of its Properties
necessary or useful in its business in good condition; provided, however,
-------- -------
that nothing in the Section shall prevent the Company or any Subsidiary
from discontinuing the operating and maintenance of any of its properties
if such discontinuance is, in the judgment of the Company, desirable in
the conduct of its business.
SECTION 7.1.4. Insurance. The Company will, and will cause each of
---------
its Subsidiaries to, maintain or cause to be maintained insurance with
respect to its properties and business against such casualties and
contingencies and of such types and in such amounts as is customary in the
case of similar businesses.
SECTION 7.1.5. Books and Records. The Company will, and will cause
-----------------
each of its Subsidiaries to, keep books and records which accurately
reflect, in accordance with GAAP, all of its business affairs and
transactions. The Company shall, and shall cause each Subsidiary to,
permit the Bank, by its representatives and agents, to inspect any of the
Properties, corporate books and financial records of the Company and each
Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Company and its Subsidiaries and to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with,
and to be advised as to the same by, its officers at such reasonable times
and reasonable intervals as the Bank may request. The Company shall pay to
the Bank from time to time upon demand an amount sufficient to compensate
the Bank for its reasonable fees, charges and expenses in connection with
each such inspection. All such inspections and audits will be performed by
experienced personnel and, in the case of employees of the Bank, personnel
generally knowledgeable about the industry in which the Company operates.
SECTION 7.1.6. Environmental Covenant. The Company will, and will
----------------------
cause each of its Subsidiaries to,
(a) use and operate all of its facilities and Properties in
compliance with all Environmental Laws where the failure to do so
could have a material adverse affect on the condition, financial or
otherwise, of the Company or any of its Subsidiaries, use
commercially reasonable efforts to keep all necessary permits,
approvals, certificates, licenses and other authorizations related to
environmental matters in effect and remain in material compliance
therewith, and handle all hazardous materials in compliance with all
applicable Environmental Laws; and
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(b) provide such information and certifications which the Bank
may reasonably request from time to time to evidence compliance with
the Section.
SECTION 7.1.7. Taxes. The Company will, and will cause each
-----
Subsidiary to, duly pay and discharge all taxes, rates, assessments, fees
and governmental charges upon or against the Company or any Subsidiary or
against its Properties in each case before the same becomes delinquent and
before penalties accrue thereon unless and to the extent that the same is
being contested in good faith and by appropriate proceedings and adequate
reserves, determined in accordance with generally accepted accounting
principles consistently applied, have been established with respect
thereto.
SECTION 7.1.8. Supplemental Performance. The Company will, and will
------------------------
cause each Subsidiary to, at any time and from time to time upon request
of the Bank take or cause to be taken any action or execute, acknowledge,
deliver or record any further documents or other instruments which the
Bank in its reasonable discretion deems necessary to carry out the
purposes of the Loan Documents.
SECTION 7.1.9. Seasonal Clean-up. The Company will reduce amounts
-----------------
owed under any credit facility used to finance seasonal working
requirements to a maximum of $5 million for a period of 30 consecutive
days during each fiscal year. Because the Company may maintain more than
one credit facility to finance its worldwide business operations, the
seasonal clean-up for each facility may occur during different 30-day
periods.
SECTION 7.2. Negative Covenants. The Company agrees with the Bank that,
------------------
until all Commitments have terminated and all Obligations have been paid and
performed in full, the Company will perform the obligations set forth in this
Section 7.2.
- -----------
SECTION 7.2.1. Consolidated Tangible Net Worth. The Company will
-------------------------------
maintain consolidated tangible net worth in an amount not less than
$130,000,000 as measured at the end of each fiscal quarter during its 1997
fiscal year; an amount not less than $140,000,000 as measured at the end
of each fiscal quarter during its 1998 fiscal year and an amount not less
than $150,000,000 as measured at the end of each fiscal quarter during its
1999 fiscal year and at the end of each fiscal quarter of each fiscal year
thereafter.
SECTION 7.2.2. Consolidated Total Liabilities to Consolidated
----------------------------------------------
Tangible Net Worth. The Company will not permit the ratio of its
------------------
consolidated total liabilities to its consolidated tangible net worth to
exceed 1.0 to 1.0 as measured at the end of each fiscal quarter of each
fiscal year.
SECTION 7.2.3. Consolidated Third-Party Indebtedness. The Company
-------------------------------------
will not permit the total of its Consolidated Third-Party Indebtedness to
exceed $80,000,000 at any time. As used herein, Consolidated Third-Party
Indebtedness shall mean indebtedness for borrowed money (including
capitalized leases and guarantees of such indebtedness and capitalized
leases) of the Company and any Subsidiary, other than such indebtedness
(a) of the Company to any Subsidiary, (b) of any Subsidiary to the
Company, (c) any Subsidiary to any other Subsidiary or (d) of the Company
to any of its affiliates.
SECTION 7.2.4. Minimum Cash Flow Coverage. The Company will not
--------------------------
permit the ratio of (a) its net income from operations and investments
plus depreciation, amortization and other non-cash charges plus interest
---- ----
expense and lease expense less dividends divided by (b) its current
----
portion of long-term debt plus interest expense plus lease expense to be
---- ----
less than 1.0 to 1.0 as measured at the end of each fiscal quarter of each
fiscal year on a rolling four-quarter basis commencing at Company's 1997
fiscal year end.
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SECTION 7.2.5. Liens. The Company will not, and will not permit any
-----
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of its property, revenues or assets, whether now owned or
hereafter acquired, except, without duplication:
(a) Liens outstanding on the Effective Date and listed in
Schedule 7.2.5 or disclosed in the financial statements referred to
--------------
in Section 6.5;
-----------
(b) any renewal or extension of any Lien permitted by this
Section with extension, refunding or refinancing of the indebtedness
secured thereby made without increase in the then outstanding
principal amount thereof and as long as immediately before and after
any such extension, refunding or refinancing of indebtedness no
Default exists which is continuing.
(c) Liens for taxes, assessments or other governmental charges
or levies not at the time delinquent or thereafter payable without
penalty or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(d) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not
overdue for a period of more than 30 days or being diligently
contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside
on its books;
(e) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure
performance of tenders, statutory obligations, leases and contracts
(other than for borrowed money) entered into in the ordinary course
of business or to secure obligations on surety or appeal bonds;
(f) in addition to Liens permitted by clauses (a) through (e)
------- --- ---
above, Liens securing indebtedness, capitalized lease obligations or
other liabilities not exceeding $5,000,000 in the aggregate at any
time outstanding.
SECTION 7.2.6. Change in Character of Business. The Company will
-------------------------------
not, and will not permit any Subsidiary to, engage in any business if, as
a result, there may occur a material adverse change or effect upon the
Company's or such Subsidiary's financial condition or its ability to honor
its financial obligations.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following events
----------------------------
or occurrences described in this Section 8.1 shall constitute an "Event of
----------- --------
Default".
- -------
SECTION 8.1.1. Non-Payment of Obligations. The Company shall
--------------------------
default in the payment or prepayment when due of any principal on any
Loan, or the Company shall default (and such default shall continue
unremedied for a period of five (5) Banking Days) in the payment when due
of any fee, any interest or of any other Obligation.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty
------------------
of the Company made or deemed to be made hereunder or in any other Loan
Document executed by it or any other writing or certificate furnished by
the Company, to the Bank for the purposes of or in connection
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<PAGE>
with this Agreement or any such other Loan Document is or shall be
incorrect when made or deemed made in any material respect.
SECTION 8.1.3. Non-Performance of Covenants and Obligations. The
--------------------------------------------
Company shall default in the due performance and observance of any other
agreement contained herein (other than referred to in Section 8.1.1 or
-------------
8.1.2) or in any other Loan Document executed by it, and such default
-----
shall continue unremedied for a period of 30 days after the earlier of (i)
the day on which the Company first obtains actual knowledge of such
default, or (ii) notice thereof shall have been given to the Company by
the Bank; provided, however, that the Bank shall not take any action
-------- -------
permitted hereunder pursuant to Section 8.3 if (x) such default is of a
-----------
nature which is curable by the Company, (y) the Company is diligently
proceeding to cure such default and (z) such default is so cured within
ninety (90) days of the occurrence thereof.
SECTION 8.1.4. Default on Third-Party Indebtedness. (a) A default
-----------------------------------
shall occur in the payment when due (subject to any applicable grace
period), whether by acceleration or otherwise, of any Third-Party
Indebtedness (as such term is defined in Section 7.2.3) (other than
-------------
indebtedness evidenced by this Agreement and the Notes) of, or guaranteed
by, the Company or any of its Subsidiaries having a principal amount,
individually or in the aggregate, in excess of $1,000,000; or (b) a
default shall occur in the performance or observance of any obligation or
condition with respect to Third-Party Indebtedness of, or guaranteed by,
the Company or any of its Subsidiaries having a principal amount,
individually or in the aggregate, in excess of $1,000,000, if the effect
of such default is to accelerate the maturity of such Third-Party
Indebtedness or such default shall continue unremedied for any applicable
period of time sufficient to permit the holder or holders of such Third-
Party Indebtedness, or any trustee or agent for such holders, to cause
such Third-Party Indebtedness to become due and payable prior to its
expressed maturity.
SECTION 8.1.5. Judgments. Any judgments or orders for the payment
---------
of money aggregating in excess of $5,000,000 (exclusive of any amount
covered by insurance) shall be rendered against the Company or any of its
Subsidiaries or against any property or assets of either and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgments or orders; or
(b) there shall be any period of 60 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
SECTION 8.1.6. Bankruptcy, Insolvency, etc. The Company or any of
---------------------------
its Subsidiaries shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, debts as they become
due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Company
or any of its Subsidiaries or any property of any thereof, or make a
general assignment for the benefit of creditors;
(c) in the absence of such application, consent or
acquiescence, permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Company or any of
its Subsidiaries or for a substantial part of the property of any
thereof, and such trustee, receiver, sequestrator or other custodian
shall not be discharged within 60 days;
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(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of the
Company or any of its Subsidiaries, and, if any such case or
proceeding is not commenced by the Company or such Subsidiary, such
case or proceeding shall be consented to or acquiesced in by the
Company or such Subsidiary or shall result in the entry of an order
for relief or shall remain for 60 days undismissed; or
(e) take any action authorizing, or in furtherance of, any of
the foregoing.
SECTION 8.1.7. Other Bank Agreements. A default shall occur in the
---------------------
payment or performance under any agreement (other than this Agreement and
the Notes) between the Company and the Bank or any Subsidiary or affiliate
of the Bank and continuing beyond respective cure periods, if any.
SECTION 8.1.8. Change in Ownership. DowElanco shall cease to own
-------------------
for any reason, legally and beneficially, at least 50% of all classes of
the issued and outstanding capital stock of the Company.
SECTION 8.2. Action if Bankruptcy. If any Event of Default described in
--------------------
clauses (a) through (d) of Section 8.1.6 shall occur with respect to the Company
- ----------- --- -------------
or any Subsidiary, the Commitments (if not theretofore terminated) shall
automatically terminate and the outstanding principal amount of all outstanding
Loans and all other Obligations shall automatically be and become immediately
due and payable, without notice or demand.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
--------------------------------
(other than any Event of Default described in clauses (a) through (d) of Section
----------- --- -------
8.1.6) with respect to the Company or any Subsidiary) shall occur for any
- -----
reason, whether voluntary or involuntary, the Bank may by notice to the Company
declare the outstanding principal amount of the Loans and other Obligations to
be due and payable and/or the Commitments (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of such Loans and other Obligations
shall be and become immediately due and payable, without further notice, demand
or presentment, and/or, as the case may be, the Commitments shall terminate.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. Waivers, Amendments, etc. The provisions of this Agreement
------------------------
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Company and the Bank. No failure or delay on the part of the Bank, or
the holder of any Note in exercising any power or right under this Agreement or
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Company in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by the Bank, or the
holder of any Note under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 9.2. Notices. All notices and other communications provided to
-------
any party hereto under this Agreement or any other Loan Document shall be in
writing and addressed, delivered or transmitted to such party at its address or
facsimile number set forth below its signature hereto or at such other address
or facsimile number as may be designated by such party in a notice to the other
party. Any notice, if mailed and
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properly addressed with postage prepaid or if properly addressed and sent by
pre-paid courier service, shall be deemed given when sent; provided, however,
-------- -------
that notices to the Bank under Sections 2.3 through 2.9 shall not be effective
------------ ---
until actually received by the Bank; any notice, if transmitted by facsimile,
shall be deemed given when transmitted.
SECTION 9.3. Payment of Costs and Expenses. The Company agrees to pay on
-----------------------------
demand all reasonable expenses of the Bank (including the fees and out-of-pocket
expenses of counsel to the Bank) in connection with (a) the negotiation,
preparation, execution and delivery of this Agreement and of each other Loan
Document, including schedules and exhibits, and (b) any amendments, waivers,
consents, supplements or other modifications to this Agreement or any other Loan
Document as may from time to time hereafter be required, whether or not the
transactions contemplated hereby are consummated; provided, however, that such
-------- -------
expenses and fees for the matters referred to in clause (a) hereof shall not
----------
exceed $10,000.
The Company further agrees to pay, and to save the Bank harmless from all
liability for, any stamp or other taxes which may be payable in connection with
the execution or delivery of this Agreement, the borrowings hereunder, or the
issuance of the Notes or any other Loan Documents or the acceptance of
telephonic or other instructions for making Loans. The Company also agrees to
reimburse the Bank upon demand its reasonable expenses, including fees and out-
of-pocket expenses of counsel (including counsel who may be employees of the
Bank), incurred by the Bank in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
SECTION 9.4. Indemnification. In consideration of the execution and
---------------
delivery of this Agreement by the Bank and the extension of the Commitments, the
Company hereby indemnifies, exonerates and holds the Bank and its respective
officers, directors, employees and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to (a) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of any
Loan; or (b) the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties, except for any such Indemnified
Liabilities arising for the account of a particular Indemnified Party by reason
of the relevant Indemnified Party's gross negligence or wilful misconduct. If
and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
SECTION 9.5. Survival. The obligations of the Company under Sections
-------- --------
4.3, 4.4, 4.5, 4.6, 9.3 and 9.4 shall in each case survive any termination of
- --- --- --- --- --- ---
this Agreement, the payment in full of all Obligations and the termination of
all Commitments. The representations and warranties made by the Company in this
Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.
SECTION 9.6. Severability. Any provision of this Agreement or any other
------------
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 9.7. Headings. The various headings of this Agreement and of
--------
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 9.8. Execution in Counterparts, Effectiveness, etc. This
---------------------------------------------
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Company and the Bank
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and be deemed to be an original and all of which shall constitute together but
one and the same agreement. This Agreement shall become effective when
counterpart hereof executed on behalf of the Company shall have been received by
the Bank.
SECTION 9.9. Governing Law; Entire Agreement. This Agreement, the Notes
-------------------------------
and each other Loan Document shall each be deemed to be a contract made under
and governed by the internal laws of the State of Illinois. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.
SECTION 9.10. Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Company may not assign or
-------- -------
transfer its rights or obligations hereunder without the prior written consent
of the Bank.
SECTION 9.11. Forum Selection and Consent to Jurisdiction. ANY
-------------------------------------------
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE BANK, OR THE
COMPANY SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE
OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO
THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 9.12. Waiver of Jury Trial. THE BANK AND THE COMPANY HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF THE BANK OR THE COMPANY. THE COMPANY ACKNOWLEDGES AND AGREES THAT IT
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK ENTERING INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
[intentionally left blank]
-100-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
MYCOGEN CORPORATION
By: /s/ Carlton J. Eibl
----------------------------
Title: President & COO
------------------------
Address: 5501 Oberlin Drive
San Diego, California
92121
Facsimile No.:
Attention: Mr. James A. Baumker
Vice President and
Chief Financial Officer
BANK OF AMERICA ILLINOIS
By: /s/ John W. Weubbe
----------------------------
Title: Vice President
------------------------
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Facsimile No.: 312-828-1974
Attention: Mr. John W. Weubbe
Vice President
Address of Bank's Domestic Lending Office,
Interbank Lending Office and LIBOR Lending Office:
231 South LaSalle Street
Chicago, Illinois 60697
-101-
<PAGE>
Exhibits and Schedules
----------------------
Exhibit A - Borrowing Request
Exhibit B - Continuation/Conversion Notice
Exhibit C - Revolving Note
Exhibit D - Term Note
Exhibit E - Compliance Certificate
Exhibit F - Opinion of Counsel
Schedule 6.7 - Litigation, Labor Controversies, etc.
Schedule 6.8 - Subsidiaries
Schedule 6.9 - Partnerships and Joint Ventures
Schedule 6.13 - Pension and Welfare Plans
Schedule 6.14 - Environmental Warranties
Schedule 7.2.5- Liens
-102-
<PAGE>
Schedule 6.7
[Litigation, Labor Controversies, etc. -
to be completed by the Company]
Mycogen v. Ecogen, Inc.
Federal District Court, San Diego
(Filed January 1997)
Mycogen Plant Science, Inc. v. Monsanto Company
Federal District Court, San Diego
(Filed May 19, 1995)
Plant Genetic Systems NV v. Mycogen
Central District Court of North Carolina
(Filed October 31, 1995)
(Amended August 13, 1996)
Monsanto Company v. Mycogen
Federal District Court, Wilmington, Delaware
(Filed March 19, 1996)
Mycogen Plant Science, Inc. v. Monsanto
California Court of Appeal, Fourth Appellate District
(Reversal of San Diego County Superior Court ruling
in a Case filed December, 1993)
Mycogen v. Monsanto
Superior Court, San Diego, California
(Filed May 8, 1996)
DeKalb v. Mycogen
Federal District Court in Rockford, Illinois
(Filed April 30, 1996)
-103-
<PAGE>
Schedule 6.7
Page 2 of 2
DeKalb v. Mycogen
Federal District Court, Rockford, Illinois)
(Filed July 23, 1996)
(Amended August 27, 1996)
Mycogen Plant Science, Inc. v. Monsanto
Federal District Court, Wilmington, Delaware
to reverse a ruling of the Board of Patent Appeals and Interferences
(Filed August 15, 1996)
Mycogen v. Monsanto, DeKalb, Delta and Pineland
Federal District Court, Wilmington, Delaware
(Filed October 22, 1996)
-104-
<PAGE>
Schedule 6.8
Subsidiaries
MYCOGEN CORPORATION (A CALIFORNIA CORPORATION) SUBSIDIARIES 1997
SEEDS
Myocgen Plant Science, Inc. (a Delaware corporation)
Agrigenetics, Inc., d/b/a Mycogen Seeds (a Delaware corporation)
United Agriseeds (a Delaware corporation)
Mycogen de Argentina, S.A. - Argentina
Agrigenetics, S.A. de C.V. - Argentina
Mycogen Plant Sciences - Puerto Rico
Mycogen Canada, Inc. - Canada
Santa Ursula S.A.A.I.C. e I. - Argentina
Corporacion de Inversiones Frutihorticolas, S.A.
BIOPESTICIDES
Mycogen Crop Protection, Inc. (a California corporation)
Soilserv, Inc. (a California corporation)
Parasitix Corporation (a California corporation)
Mycosub/BH, Inc. (a Delaware corporation)
Mycosub/BA, Inc. (a Delaware corporation)
Mycogen S.A. de C.V. - Mexico
Mycogen Far East Asia Corporation (a California corporation)
-105-
<PAGE>
Schedule 6.9
Partnerships and Joint Ventures
MJTBH/BT Partnership, L.P. between
Mycosub/BH, Inc. and J T Biotech USA, Inc.
(March 6, 1989)
MJTBA Partnership, L.P. between
Mycosub/BA, Inc. and J T Biotech USA, Inc.
(March 6, 1989)
Agrigenetics, L.P. between
Mycogen and Mycogen Plant Science, Inc.
(August 25, 1992, as amended)
-106-
<PAGE>
Schedule 6.13
Pension and Welfare Plans
Soilserv, Inc.'s Pension Plan
-107-
<PAGE>
Schedule 6.14
Environmental Warranties
None
-108-
<PAGE>
Schedule 7.2.5
Liens
None
-109-
<PAGE>
EXHIBIT A
BORROWING REQUEST
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attention: John W. Weubbe, Vice President
MYCOGEN CORPORATION
-------------------
Ladies and Gentlemen:
This Borrowing Request is delivered to you pursuant to Section 5.2.2 of
-------------
the Credit Agreement, dated as of ____________, 1997 (together with all
amendments, if any, from time to time made thereto, the "Credit Agreement"),
between Mycogen Corporation, a California corporation (the "Company") and Bank
of America Illinois (the "Bank"). Unless otherwise defined herein or the
context otherwise requires, terms used herein have the meanings provided in the
Credit Agreement.
[complete the following, as appropriate]
The Company hereby requests that the Term Loan be made on ______________
in the principal amount of $________________. Such Term Loan shall be made as a
[Eurodollar Rate Loan having an Interest Period of _________________] [Quoted
Rate Loan having an Interest Period of _________] [Reference Rate Loan].
The Company hereby requests that a Revolving Loan be made on ____________
in the principal amount of $______________. Such Revolving Loan shall be made
as a [Eurodollar Rate Loan having an Interest Period of ________] [a
Eurocurrency Rate Loan in ___________ Eurocurrency and having an Interest Period
of ____] [Quoted Rate Loan having an Interest Period of _____] [Reference Rate
Loan].
The Company hereby acknowledges that the delivery of this Borrowing
Request and the acceptance by the Company of the proceeds of the Loans requested
hereby constitutes a representation and warranty by the Company that, on the
date of such Loans, and before and after giving effect thereto and to the
application of the proceeds therefrom, all statements set forth in each of the
subsections of Section 5.2.1 are true and correct in all material respects.
-------------
-110-
<PAGE>
The Company has caused this Borrowing Request to be executed and delivered,
and the certification and warranties contained herein to be made, by its duly
Authorized Official this ____ day of ____________, 1997.
MYCOGEN CORPORATION
By:___________________________________________
Name:
Title:
-111-
<PAGE>
EXHIBIT B
NOTICE OF CONTINUATION/CONVERSION
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attention: John W. Weubbe, Vice President
MYCOGEN CORPORATION
-------------------
Ladies and Gentlemen:
This Continuation/Conversion Notice is delivered to you pursuant to Section
-------
2.9 of the Credit Agreement, dated as of _____________, 1997 (together with all
- ---
amendments, if any, from time to time made thereto, the "Credit Agreement"),
between Mycogen Corporation, a California corporation (the "Company"), and Bank
of America Illinois (the "Bank"). Unless otherwise defined herein or the
context otherwise requires, terms used herein have the meanings provided in the
Credit Agreement.
The Company hereby requests that on ____________, 19___,
[complete the following, as applicable]
(1) $___________ of the presently outstanding principal amount of the
[Term Loans] [Revolving Loans] originally made on __________, 19___ [and
$__________ of the presently outstanding principal amount of the [Term Loans]
[Revolving Loans] originally made on __________, 19___],
(2) and all presently being maintained as [Eurodollar Rate Loans],
[Eurocurrency Rate Loans] [Quoted Rate Loans] [Reference Rate Loans]
(3) be [converted into] [continued as],
(4) [Eurodollar Rate Loans having an Interest Period of _________]
[Eurocurrency Rate Loans in _________ Eurocurrency and having an Interest
Period of ____________] [Quoted Rate Loans having an Interest Period
of ___________] [Reference Rate Loans]
The Borrower hereby certifies and warrants that no Default or Event of
Default has occurred and is continuing.
-112-
<PAGE>
The Borrower has caused this Notice of Continuation/ Conversion to be executed
and delivered, and the certification and warranties contained herein to be made,
by its Authorized Official this ____ day of ____________, 19__.
MYCOGEN CORPORATION
By:____________________________________________
Name:
Title:
-113-
<PAGE>
EXHIBIT C
REVOLVING PROMISSORY NOTE
$10,000,000.00 Due: February 1, 1998
Chicago, Illinois: February 11, 1997
-----------
FOR VALUE RECEIVED, the undersigned, MYCOGEN CORPORATION, a California
corporation (the "Company"), promises to pay to the order of BANK OF AMERICA
ILLINOIS, an Illinois banking corporation (the "Bank"), on February 1, 1998, or
such earlier date as set forth in the Credit Agreement hereinafter referred to,
the principal sum of Ten Million and No/100 Dollars ($10,000,000), or if less,
the then aggregate unpaid principal amount of Revolving Loans (as such term is
defined in the Credit Agreement) as may be borrowed by the Company under the
Credit Agreement. The Company may borrow, repay and reborrow hereunder in
accordance with the provisions of the Credit Agreement. All Revolving Loans and
all payments of principal shall be recorded by the holder in its records or, at
its option, on the schedule (or any continuation thereof) attached to this Note.
The Company further promises to pay to the order of the Bank interest on the
aggregate unpaid principal amount hereof from time to time outstanding from the
date hereof until paid in full at the rates per annum and times determined in
accordance with the provisions of the Credit Agreement.
All payments of principal and interest under this Note shall be made in lawful
money of the United States of America in immediately available funds at the
Bank's office at 231 South LaSalle Street, Chicago, Illinois 60697, or at such
other place as may be designated by the Bank to the Company in writing.
This Note is the Revolving Note referred to in, and evidences indebtedness
incurred under, a Credit Agreement dated as of February 11, 1997 (herein, as it
may be amended, modified or supplemented from time to time, called the "Credit
Agreement") between the Company and the Bank, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Company is permitted and required to make prepayment and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
All parties hereto, whether as makers, endorsers or otherwise, severally waive
presentment, demand, protest and notice of dishonor in connection with this
Note.
This Note is made under and governed by the internal laws of the State of
Illinois.
-114-
<PAGE>
THE COMPANY AND THE BANK WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (I) UNDER THIS PROMISSORY NOTE OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH OR (II) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS PROMISSORY NOTE, AND AGREE THAT SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
MYCOGEN CORPORATION
By: /s/ Carlton J. Eibl
------------------------------------
Title: President & COO
----------------------------------
-115-
<PAGE>
Schedule attached to Revolving Note dated February 11, 1997 of Mycogen
------------
Corporation, payable to the order of Bank of America Illinois.
<TABLE>
<CAPTION>
Type of
Amount Loan & Interest
of Applicable Period Amount of Unpaid
Loan Interest (if Principal Principal Notation
Date Made Rate applicable) Repaid Balance Made By
- ------------- ------------- ------------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate unpaid principal amount shown on this Schedule shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on this Note. The
failure to record the date and amount of any Revolving Loan on this Schedule
shall not, however, limit or otherwise affect the Company's obligations under
the Credit Agreement or this Note to repay the principal amount of the Revolving
Loans together with all interest accruing thereon.
-116-
<PAGE>
EXHIBIT D
TERM PROMISSORY NOTE
$15,000,000.00 Due: February 1, 2002
Chicago, Illinois: February 11, 1997
-----------
On or before February 1, 2002 the undersigned, MYCOGEN CORPORATION, a
California corporation (the "Company"), for value received, hereby promises to
pay to the order of BANK OF AMERICA ILLINOIS, an Illinois banking corporation
(the "Bank"), at its office at 231 South LaSalle Street, Chicago, Illinois
60697, the principal sum of Fifteen Million and No/100 Dollars ($15,000,000), or
if, less, the principal sum of the Term Loan made by the Bank to the Company
pursuant to the Credit Agreement referred to below, which principal sum shall be
payable in twenty (20) equal quarterly installments of $750,000 (other than the
last such installment, which shall be in such amount so as to pay in full the
entire principal amount of the Term Loan then outstanding) on each Quarterly
Payment Date as set forth in Section 3.1 of the Credit Agreement.
-----------
The Company further promises to pay to the order of the Bank interest on the
principal sum hereof from time to time outstanding from the date hereof until
paid in full at the rates per annum and times determined in accordance with the
provisions of the Credit Agreement.
All payments of principal and interest under this Note shall be made in lawful
money of the United States of America in immediately available funds at the
Bank's office at 231 South LaSalle Street, Chicago, Illinois 60697, or at such
other place as may be designated by the Bank to the Company in writing.
This Note is the Term Note referred to in, and evidences indebtedness incurred
under, a Credit Agreement dated as of February 11, 1997 (herein, as it may be
amended, modified or supplemented from time to time, called the "Credit
Agreement") between the Company and the Bank, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Company is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
All parties hereto, whether as makers, endorsers or otherwise, severally waive
presentment, demand, protest and notice of dishonor in connection with this
Note.
This Note is made under and governed by the internal laws of the State of
Illinois.
THE COMPANY AND THE BANK WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (I) UNDER THIS PROMISSORY NOTE OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH OR (II) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS PROMISSORY NOTE, AND AGREE THAT SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
MYCOGEN CORPORATION
By: /s/ Carlton J. Eibl.
--------------------------------------
Title: President & COO
-----------------------------------
-117-
<PAGE>
Schedule attached to Term Promissory Note dated as of February 11, 1997
------------
Mycogen Corporation, payable to the order of Bank of America Illinois.
<TABLE>
<CAPTION>
Type of
Loan &
Amount Applicable Period Amount of Unpaid
of Loan Interest if Principal Principal Notation
Date Made Rate applicable Repaid Balance Made By
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate unpaid principal amount shown on this Schedule shall be rebuttable
presumptive evidence of the principal amount owing and unpaid on this Note. The
failure to record the date and a amount of any borrowing on this Schedule shall
not, however, limit or otherwise affect the Company's obligations under this
Note to repay the principal amount of the Term Loan together with all interest
accruing thereon.
-118-
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished by MYCOGEN CORPORATION (the
"Company") to BANK OF AMERICA ILLINOIS, pursuant to that certain Credit
Agreement dated as of February 11, 1997 (the "Credit Agreement"). Unless
------------
otherwise defined herein, the terms used in this Compliance Certificate have the
meanings ascribed thereto in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
(1) I am the duly elected Chief Financial Officer of the Company;
-------------------------
2. I have reviewed the terms of the Credit Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Company during the accounting period covered by the
attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have no
knowledge of, the existence of any condition or the occurrence of any event
which constitutes Event of Default or Unmatured Event of Default during or at
the end of the accounting period covered by the attached financial statements or
as of the date of this Certificate, except as set forth below;
4. The financial statements required by Section 7.1 of the Credit Agreement
-----------
and being furnished to you concurrently with this Certificate, to the best of my
knowledge, fairly represent the Company's condition in accordance with GAAP as
of the dates and for the periods covered thereby; and
5. The Attachment hereto sets forth financial data and computations
evidencing the Company's compliance with the covenants set for in Sections
--------
7.2.1, 7.2.2, 7.2.3 and 7.2.4 of the Credit Agreement, all of which data and
- ----- ----- ----- -----
computations are, to the best of my knowledge, true, complete and correct and
have been made in accordance with the relevant Sections of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
-119-
<PAGE>
The foregoing certifications, together with the computations set forth in the
Attachment hereto and the financial statements delivered with this Certificate
in support hereof, and made and delivered this 11th day of February 11, 1997.
----- ------------ --
MYCOGEN CORPORATION
By: /s/ James A. Baumker
---------------------------------
Title: Chief Financial Officer
------------------------------
-120-
<PAGE>
ATTACHMENT TO COMPLIANCE CERTIFICATE
MYCOGEN CORPORATION
Compliance Calculations for
Credit Agreement
Dated as of ____________, 1997
Calculations made as of ____________, 199
A. Consolidated Tangible Net Worth (Section 7.2.1)
-----------------------------------------------
<TABLE>
<CAPTION>
Period Required Actual
------ -------- ------
<C> <S> <C> <C>
1. 1997 Fiscal Year greater than or equal
to $130,000,000 $
2. 1998 Fiscal Year greater than or equal
to $140,000,000 $
3. 1999 Fiscal Year
(and each fiscal greater than or equal
year thereafter) to $150,000,000 $
4. Covenant measured
as of the last day
of each fiscal
quarter of each
fiscal year -
Company in compliance?
(Circle Yes or No) Yes / No
--------
</TABLE>
B. Consolidated Total Liabilities to Consolidate Tangible Net Worth (Section
-------------------------------------------------------------------------
7.2.2)
------
<TABLE>
<CAPTION>
<C> <S> <C>
1. Consolidated Total Liabilities $
2. Consolidated Tangible Net Worth $
3. Ratio of Line 1 to Line 2 ______:
4. Ratio on Line 3 must not exceed
1.0 to 1.0 -
Company in compliance?
(Circle Yes or No) Yes / No
--------
</TABLE>
C. Consolidated Third-Party Indebtedness (Section 7.2.3)
-----------------------------------------------------
<TABLE>
<CAPTION>
<C> <S> <C>
1. Consolidated Third-Party Indebtedness $
2. Line 1 may not exceed $80,000,000
at any time -
Company in compliance?
(Circle Yes or No) Yes / No
--------
</TABLE>
D. Minimum Cash Flow Coverage commencing at Company's 1997 Fiscal Year End
-----------------------------------------------------------------------
(Section 7.2.4)
---------------
<TABLE>
<CAPTION>
<C> <S> <C>
1. Net income from operations $
2. Net income from investments $
3. Depreciation, Amortization and
other non-cash Charges $
4. Interest Expense $
5. Lease Expense $
</TABLE>
-121-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
6. Dividends paid or declared $
7. Sum of Lines 1 through 5 $
8. Line 7 minus Line 6 $
-----
9. Current portion of Long-Term debt $
10. Interest expense (Line 4) $
11. Lease Expense (Line 5) $
12. Sum of Lines 9, 10 and 11 $
13. Ratio of Line 8 to Line 12 _____:
14. Ratio on Line 13 must not be
less than 1.0 to 1.0
(measured on a rolling, four
fiscal quarter basis) -
Company in compliance?
(Circle Yes or No) Yes / No
--------
</TABLE>
-122-
<PAGE>
EXHIBIT F
Form of Opinion of Counsel
February 11, 1997
Bank of America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Mr. John W. Weubbe
Vice President
Re: Credit Agreement dated as of February 11, 1997,
between Bank of America Illinois and Mycogen Corporation
Ladies and Gentlemen:
I have acted as counsel for Mycogen Corporation, a California corporation
(the "Company") in connection with the execution and delivery by the Company to
Bank of America Illinois (the "Bank") of that certain (a) Credit Agreement dated
as of February 11, 1997 (the "Credit Agreement") between the Company and the
Bank; (b) Revolving Note dated February 11, 1997, made by the Company payable to
the order of the Bank in the principal amount of $10,000,000 (the "Revolving
Note"); (c) Term Note dated February 11, 1997, made by the Company payable to
the order of the Bank in the principal amount of $15,000,000 (the "Term Note")
(the Credit Agreement, the Revolving Note and the Term Note are referred to
herein as the "Loan Documents"). This opinion is given pursuant to Section
-------
5.1.3 of the Credit Agreement. Capitalized terms not otherwise defined herein
- -----
have the meanings ascribed to them in the Loan Documents.
In rendering this opinion, I have examined the Loan Documents. I have also
examined originals, or copies certified or otherwise identified to my
satisfaction, of such records, documents, certificates and other instruments and
made such inquiries of the Company as in my judgment are necessary or
appropriate for the purposes of the opinions contained herein. I have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to me as originals and the conformity to original documents of all documents
submitted to me as certified or photostatic copies. I have further assumed,
with respect to all documents I have reviewed, the due authorization, execution
and delivery thereof by parties other than the Company. I have relied as to
factual matters upon certificates or statements of such public officials and
such officers and duly appointed agents of the Company as I have deemed relevant
or necessary.
Based upon the foregoing, I am of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California, and has the
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
2. The Company has the corporate power and authority to enter into the
Loan Documents and to perform its obligations thereunder.
-123-
<PAGE>
3. The Loan Documents have been duly authorized, executed and delivered
by the Company and constitute the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
4. The execution and delivery of the Loan Documents by the Company and
the performance by the Company of its obligations thereunder do not and will
not, to the best of my knowledge, (i) contravene or conflict with any provision
of any existing law, statute, rule or regulation applicable to the Company, (ii)
contravene or conflict with, result in any breach of, or constitute a default
under, any indenture, mortgage, deed of trust, credit agreement, loan agreement
or other agreement, contract or instrument binding on it, (iii) conflict with or
result in a violation of any order, writ, judgment or decree which the Company
is a party or by which it may be bound, (iv) conflict with or result in a
violation of the Company's certificate of incorporation or by-laws, or (v)
result in the creation or imposition of any lien.
5. No order, authorization, consent, license or exemption of, or filing
or registration with, any court or governmental department, agency,
instrumentality or regulatory body is or will be required in connection with
either the execution and delivery by the Company of any Loan Documents, or the
performance by the Company of its obligations thereunder that are required to be
performed on or before the effective dates of the Loan Documents with respect to
the transactions evidenced thereby.
6. To my knowledge, except as described in the Loan Documents, there are
no actions, suits or proceedings pending or threatened against or affecting the
Company or the properties of the Company before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to the Company, would have a material
adverse effect on the financial condition, properties or operations of the
Company.
7. The Company is not engaged principally, or in one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying "margin stock" within the meaning of the Regulations G and U of the
Board of Governors of the Federal Reserve Bank.
8. The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
9. The Company is not a "holding company," nor a "subsidiary company" of
a "holding company," nor an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
10. No taxes or other charges, including without limitation, intangible or
documentary stamp taxes, mortgage or recording taxes, transfer taxes or similar
charges, are payable on account of the execution or delivery of the Loan
Documents or the creation of the indebtedness evidenced or secured by any of the
Loan Documents or the recording or filing of any of the Loan Documents.
Very truly yours,
/s/ Loreen P. Collins
-------------------------------
Loreen P. Collins
Legal Counsel
LPC/cm
-124-
<PAGE>
EXHIBIT 10.23
LOAN AGREEMENT
-125-
<PAGE>
LOAN AGREEMENT
This Loan Agreement ("Agreement") is made as of September 29, 1997 between
DowElanco, an Indiana general partnership (the "Lender"), and Mycogen
Corporation, a California corporation (the "Borrower").
The parties hereto have agreed and do hereby agree as follows:
1. The Loan
--------
1.1 The Advance
From the above date to April 1, 1998, the Lender agrees to make from
time to time advances to the Borrower ("Advances"), in an aggregate
amount not exceeding $50,000,000 (fifty million U.S. dollars), at any
time outstanding ("Commitment"). Advances repaid prior to April 1,
1998, may be reborrowed. This Agreement involves U.S. dollars only.
1.2 Repayment
Repayment may be made at any time, provided that the final repayment
be made on or prior to April 1, 1998. Borrower must receive Lender's
request for repayment by 9:00 a.m. Eastern Standard Time on any
Business Day if repayment is to be made that day.
1.3 Cancellation/Reduction
From time to time and upon 30 days written notice, except as provided
under 2, Events of Default, the Borrower or Lender may at any time
-----------------
permanently reduce the Commitment and the unpaid principal and all
interest shall be due and payable immediately.
1.4 Evidence of Debt
The Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower
resulting from the Loan and the amounts of principal and interest
payable and paid from time to time hereunder. In any legal action or
proceeding in respect of the Agreement, the entries made in such
account or accounts shall, unless in case of obvious or manifest
error, be conclusive evidence of the existence and amounts of the
obligations of the Borrower therein recorded.
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1.5 Interest
The Loan shall bear interest from day to day at Lender's cost of
borrowing, as advised from time to time by Lender, plus 1/8% per annum
payable every three months from the date hereof to maturity on the
outstanding balance.
2. Events of Default
-----------------
In the event that:
(A) The Borrower fails to pay any sum payable hereunder when due; or
(B) The Borrower defaults in the due performance and observance of any
other term of this Agreement and such default is not remedied within
15 days after notice of such default; or
(C) The Borrower goes bankrupt or becomes insolvent or is subject to a
receivership either voluntary or compulsory; or
(D) Any order is made or law, decree, regulation or resolution passed for
the liquidation, winding up or dissolution of the Borrower; or
(E) All or any substantial part of the business or assets of the Borrower
is expropriated, nationalized, compulsorily acquired or taken into
public ownership or the Borrower ceases to be able or entitled to
exercise the rights of control or ownership of the same; or
(F) The Borrower ceases to be directly or indirectly controlled by Lender,
then and in any such event, and at any time thereafter if any such event
shall then be continuing, the Lender may, by written notice to the Borrower
declare the Loan immediately due and payable together with all interest
accrued thereon and all other amounts payable hereunder, including all
interest accrued on any past due principal, to the extent permitted by law.
3. Representations and Warranties of Borrower. The Borrower represents and
------------------------------------------
warrants as follows:
(A) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of California;
(B) The execution, delivery and performance by the Borrower of this
Agreement are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene
(i) the Borrower's Articles of Incorporation or By-laws or (ii) any
law or any judgment or contractual restriction binding on or affecting
the Borrower;
(C) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body which has
not already been obtained or made is required for the due execution,
delivery and performance by the Borrower of this Agreement; and
(D) This Agreement is the legal, valid and binding obligation of the
Borrower enforceable against Borrower in accordance with its terms.
4. Covenants of the Borrower; Reporting Requirements. So long as the Loan
-------------------------------------------------
shall remain unpaid, the Borrower will, unless the Lender shall otherwise
consent in writing, furnish to the Lender:
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(A) As soon as practicable, in any event within five Business Days after
the occurrence of each Event of Default, or each event which with
notice or lapse of time or both would become an Event of Default,
which is continuing on the date of such statement, a statement of an
authorized representative of the Borrower setting forth details of
such Event of Default or event and the action which the Borrower
proposes to take with respect thereto; and
(B) Such other information respecting the business, properties or the
condition or operations, financial or otherwise, of the Borrower as
the Lender may from time to time reasonably request.
5. Costs and Expenses
------------------
The Borrower agrees to pay on demand all losses and all costs and expenses,
if any, in connection with the enforcement of this Agreement and any
instruments or other documents delivered hereunder, including, without
limitation, losses, costs and expenses sustained as a result of a default
by the Borrower in the performance of its obligations contained in this
Agreement or any instrument or document delivered hereunder.
6. Alternative Dispute Resolution
------------------------------
The parties shall negotiate in good faith to resolve any dispute arising
out of or relating to this Agreement. In the event that the parties fail
to resolve a dispute by good faith negotiations, or if either party deems a
resolution by such means to be improbable, either party may initiate
mediation of the dispute upon written notice to the other party. Such
mediation shall be conducted promptly in accordance with the Center for
Public Resources Model Procedure for Mediation of Business Disputes. If,
within 60 days after notice of mediation, the parties have failed to
resolve the dispute by mediation, either party may propose binding
arbitration or initiate litigation. If either party requests mediation, it
shall occur in Indianapolis, Indiana.
7. Change of Control. After any change of Control (as defined below) of the
-----------------
Borrower, the Lender may, at its option, upon notice to the Borrower
declare all principal, interest, and other amounts payable under this
Agreement to be immediately due and payable, whereupon the same shall
become immediately due and payable.
8. Definitions. Capitalized terms as to which such capitalization would not
-----------
be required in accordance with standard rules of grammar shall have the
meanings specified below.
"Affiliate" means, with respect to each party hereto, a party that
directly, or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, the party specified. The
term "control" is defined below. For purposes of this Agreement, Borrower
is not an Affiliate of Lender.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banking institutions in Indianapolis, Indiana are required or
authorized by law to suspend operations.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any
individual, corporation, partnership, unincorporated association or other
entity, whether through the ownership of voting stock, by contract or
otherwise. A person who is the owner of 20% or more of a corporation's
outstanding voting stock shall be deemed to have Control of such
corporation.
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9. Miscellaneous
-------------
The Borrower agrees to take all such steps and actions and to execute and
to deliver and/or cause to be delivered all such further documents and
instruments as may be necessary in the opinion of the Lender to establish,
maintain and protect the rights of the Lender hereunder and generally to
carry out the true intent of this Agreement.
10. Assignment
----------
This Agreement may not be assigned in whole or in part by Borrower without
the express written consent of the other party. This Agreement may be
assigned by Lender to any Affiliate.
11. Successors
----------
This Agreement and any instrument or document executed in accordance
herewith shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assignees.
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12. Governing Law
-------------
This Agreement and any instruments or other documents executed in
accordance herewith shall be governed by and construed in accordance with
the laws of the State of Indiana.
13. Amendments, Etc.
---------------
No amendment or waiver of any provision of this Agreement or any instrument
delivered hereunder, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in
writing and signed by an authorized representative of the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date first written above.
LENDER: BORROWER:
DowElanco Mycogen Corporation
By: /s/ SEAN S. SKINNER By: /s/ JAMES A. BAUMKER
------------------- --------------------
Printed: Sean S. Skinner Printed: James A. Baumker
--------------- ----------------
Title: Treasurer Title: Vice President/CFO
--------- ------------------
Date: May 20, 1997 Date: June 10, 1997
------------ -------------
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EXHIBIT 10.24
MYCOGEN CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
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MYCOGEN CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
THIS AGREEMENT, made and entered into as of this _________ day of ________,
19___, by and between Mycogen Corporation, a California corporation,
(hereinafter referred to as the "Corporation" or the "Employer") with offices
located at 5501 Oberlin Drive, San Diego, California 92121-1718 and that
executive employee indicated on the signature page hereto, an individual
(hereinafter referred to as the "Employee").
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation, and has been selected by
the Corporation for participation in this plan; and
WHEREAS, the Corporation recognizes the valuable services heretofore performed
for it by the Employee and wishes to encourage Employee's continued
employment; and
WHEREAS, the Employee wishes to defer a certain portion of compensation
payable to him; and
WHEREAS, the Employer, at its sole discretion, may from time to time
determine by Board of Directors resolution to make supplemental
contributions to the retirement account established hereunder; and
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Corporation shall pay such deferred compensation to the Employee
or his designated beneficiary; and
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained primarily to provide deferred compensation
benefits for the Employee, a member of a select group of management or
highly compensated employees of the Corporation for purposes of the
Employee Retirement Income Security Act of 1974, as amended.
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Corporation shall pay such additional compensation to the
Employee after his or her retirement or other termination of employment or
any death benefit to beneficiaries after the Employee's death; and
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement, maintained primarily to provide deferred compensation
benefits for the Employee, a member of a select group of management and highly
compensated employees of the Corporation, for purposes of the Employee
Retirement Income Security Act of 1974, as amended,
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
1. DEFINITION OF TERMS. Certain words and phrases are defined when first
used in later paragraphs of this agreement. In addition, the following
words and phrases when used herein, unless the context clearly requires
otherwise, shall have the following respective meanings:
(a) Accrued Benefit. The sum of all Supplemental Compensation, as defined
at paragraph 2., below, credited to the Employee's Retirement
Account and due and owing to the Employee or any designated
beneficiaries pursuant to this Agreement, together with
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Additions thereto calculated as set forth in paragraph 3., hereof,
minus any distributions made hereunder.
(b) Affiliate. Any corporation, partnership, joint venture, association, or
similar organization or entity, the employees of which would be treated as
employed by the Corporation under Section 414 (b) or 414 (c) of the Code.
(c) Agreement. This Agreement, together with any amendments or supplements,
thereto.
(d) Board of Directors. The Board of Directors of the Company.
(e) Code. The Internal Revenue Code of 1986, as amended or as it may be amended
from time to time.
(f) Change of Control. A change of control of the Company within the meaning
specified in Section 280G of the Code.
(g) Early Retirement Date. The date the Employee attains the age of fifty-five
(55).
(h) Effective Date. The effective date shall be July 15, 1997.
(i) Election of Contribution. A written notice filed by the Employer with the
Treasurer of the Corporation in substantially the form attached hereto as
Exhibit A, specifying the Annual Supplemental Sum to be credited to the
Employee's Accrued Benefit.
(j) Election of Deferral. A written notice filed by the Employee with the chief
financial officer or controller of the Corporation in substantially the
form attached hereto as Exhibit A, Part 1, specifying the amount of
Compensation to be deferred.
(k) Fiscal Year. The taxable year of the Corporation.
(l) Normal Retirement Date. The date the Employee attains the age of sixty-five
(65).
(m) Plan Year. The calendar year: provided however that the first Plan Year
shall be a period beginning on the date of execution of this Agreement and
ending on December 31 of the same calendar year.
(n) Retirement Account. Book entries maintained by the Corporation reflecting
the Accrued Benefit after application of the Vesting Percentage; provided,
however, that the existence of such book entries and the Retirement Account
shall not create and shall not be deemed to create a trust of any kind, or
a fiduciary relationship between the Corporation and the Employee, any
designated beneficiaries or other beneficiaries under this Agreement. In
determining the Retirement Account, the Accrued Benefit shall be multiplied
by the Vesting Percentage set forth as Exhibit D hereto.
(o) Survivor Benefit. The Survivor Benefit shall be the greater of: (a) the
amount set forth at Schedule 1, attached hereto, which may be updated from
time to time by the Corporation, minus any distributions made hereunder, or
(b) the Retirement Account. In either (a) the absence of any amount set
forth at Schedule 1, or (b) in the event that the Employee's death is the
result of suicide occurring within three years of the date of this
Agreement, then the Survivor Benefit shall be equal to the Retirement
Account.
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(p) Vesting Percentage. The Vesting Percentage set forth at Exhibit D,
representing the portion of the Accrued Benefit which is payable under
the terms of this Agreement, based on Years of Service. The Vesting
Percentage is credited on the first day of each Plan Year following
the Year of Service, e.g., vesting for the first Year of Service shall
be credited on the first day of the second Year of Service. The
Vesting Percentage shall be applied to each Supplemental Sum
independently so that each annual contribution and related additions
shall vest over a five year period, as set forth at Exhibit C, below,
Provided However, that the entire Accrued Benefit shall vest in full
upon the attainment by the Employee of a combined sum of Years of
Service and age in the total amount of sixty-five (65)
(q) Years of Service. A Plan Year in which the Employee is a full time
employee of the Company for the entire Plan Year.
2. DEFERRED COMPENSATION.
(a) Employee Deferrals (Election of Employee).
Commencing on the Effective Date, and continuing through the date on
which the Employee's employment terminates because of his death,
retirement, disability, or any other cause, the Employee and the
Corporation agree that the Employee shall defer into his Retirement
Account the amount set forth in the Election of Deferral, Schedule A,
Part 1,which the Employee would otherwise be entitled to receive from
the Corporation in each Fiscal Year of the Corporation.
The amount selected for deferral by the Employee pursuant to an
Election of Deferral is referred to as the "Annual Deferral Sum". The
amounts of compensation actually deferred, taking into account
discontinuance of deferral pursuant to a Notice of Discontinuance, are
hereinafter collectively included as the "Deferred Amounts". The
Employee's Deferred Amounts shall be credited to the Employee's
Retirement Account as of the dates such Deferred Amounts would, but
for such deferral, be payable to the Employee.
The Employee may elect an Annual Deferral Sum hereunder by filing an
Election of Deferral. The initial Election of Deferral must be filed
within one (1) day of the Effective Date of this Agreement. Such
initial Election of Deferral, if any, shall be effective commencing
with the following pay cycle. Thereafter, an Election of Deferral must
be filed at least ten (10) days prior to the beginning of the Plan
Year to which it pertains and shall be effective on the first day of
the Plan Year following the filing thereof. The Employee may elect to
defer a maximum Annual Deferral Sum of one hundred percent (100%) of
base salary and one hundred percent (100%) of any incentive bonus. The
minimum Annual Deferral Sum, if any is elected, shall be no less than
one percent (1%) of Compensation.
(b) Supplemental Deferral (Election of Employer)
Commencing on the Effective Date, and continuing through the date on
which the Employee's employment terminates because of death, normal
retirement, disability, or any other cause, the Employer may at the
discretion of the Board of Directors, make an Election of
Contribution, as defined at paragraph 4., below. While the amount of
the Election of Contribution shall be determined at the sole
discretion and in such manner as the Board of Directors determines
from time to time, the initial
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policies and procedures for determination of the amount of such
Election of Contribution is set forth at Exhibit A, which may be
amended at any time, Provided However, that the Initial Election of
Contribution, set forth at Exhibit D shall continue in effect unless
terminated or amended by the Board of Directors by subsequent
termination or election.
The amount credited pursuant to an Election of Contribution is
referred to as the "Annual Supplemental Sum". The sum of all Annual
Supplemental Sums set forth on all Elections of Contribution for the
Employee are hereinafter collectively referred to as the
"Supplemental Compensation". The Employee's Supplemental Compensation
shall be credited to the Employee's Retirement Account as of the dates
such Annual Supplemental Sum is approved, or otherwise stated to be
credited by resolution of the Board of Directors of the Employer.
(c) Vesting
The Employee shall vest and have a nonforfeitable right to all amounts
credited to his or her Retirement Account as Supplemental Deferrals,
and all Additions related thereto, in accordance with the schedule set
forth at Exhibit C, attached hereto. In the event Exhibit C is not
completed or there is a change in control of the Employer, the
employee shall be immediately vested in all such amounts credited to
his or her Retirement Account. For purposes of applying any vesting
schedule, the Employee shall be considered as having a completed Year
of Service for each complete year of full-time service with the
Employer or an Affiliate, measured from the later of (1) the
Employee's first date of employment or, (2) the date any amount is
first credited to the Retirement Account of the Participant under this
Agreement. To the extent that any Supplemental Deferrals credited to
the Employee's Retirement Account are not vested at the time such
amounts are otherwise payable to the Employee under paragraph 6. 7.,
9., or 10., below, such amounts shall be forfeited.
3. ADDITIONS TO DEFERRED AMOUNTS AND AMOUNT OF SUPPLEMENTAL.
The Corporation agrees that it will credit Deferred Amounts in the
Employee's Retirement Account with additions thereon ("Additions") from and
after dates Deferred Amounts are credited to the Retirement Account.
Additions to Deferred Amounts shall accrue commencing on the date the
Retirement Account first has a positive balance and shall continue up to the
date that the Retirement Account has been reduced to zero. Additions shall
be calculated as an amount (the "As If Rate") equal to the yield that would
be realized, including any dividends, interest, or other current yield, as
well as any capital gain or loss based on an adjustment to fair market value
on any date of calculation, as if hypothetically invested in whole or
fractional shares in the assets set forth at Schedule 2 (the Calculation
Assets), which may be changed at the sole discretion of the Employer, from
time to time. The Employer shall have no obligation to actually acquire any
of the Calculation Assets set forth at Schedule 2, and such return shall be
only for purposes of calculating Additions to Deferred Amounts hereunder.
The Employee shall have no rights in or to any Calculation Assets set forth
at Schedule 2, as provided elsewhere in this Agreement. The As If Rate shall
be adjusted on the last day of each fiscal quarter the plan year at the mean
trading price of the Calculation Assets on such date or the first business
date thereafter, as quoted in Barrons financial news publication, or in the
absence of a quotation therein, in a similar publication or other
authoritative valuation of the specified Calculation Assets. Any such
designation of new Calculation Assets by the Employer must be in writing.
For purposes of calculating Additions, it shall be assumed that the
Calculation Assets is sold and the alternate Calculation Assets is purchased
on the first business day following such revised designation by the
Corporation.
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Additions related to Supplemental Deferrals are subject to any Vesting
Schedule attached hereto and determined by the Employer. Additions to
Employee Deferrals are not subject to any Vesting Schedule.
4. ELECTION TO MAKE CONTRIBUTION. The Corporation may make an Election of
Contribution by action of the Board of Directors and set forth in a
form of Election of Contribution as set forth at Exhibit A, Part 2, or
such similar form of election as may be approved by the Board of
Directors. Any Election of Contribution shall apply only to the amounts
and years set forth in such Election of Contribution and shall not
require any subsequent contributions beyond those set forth in such
Election of Contribution, Provided However, that the Initial Election of
Contribution at Exhibit D shall remain in effect unless subsequently
terminated or amended by the Board of Directors.
5. TERMINATION OF PLAN. The Employer may at any time during the term of
this Agreement, modify, suspend or terminate this Agreement in any
manner or at any time. Such modification, suspension or termination may
not reduce the Employee's Retirement Account, but may alter modify,
suspend or terminate future Annual Supplemental Sums and any other
aspects of the Agreement.
6. (a) RETIREMENT BENEFIT. The Corporation agrees that, from and after
the retirement of the Employee from the service of the Corporation upon
reaching his or her Early Retirement Date or Normal Retirement Date, the
Corporation shall thereafter pay as a retirement benefit ("Retirement
Benefit") to the Employee in the amount of the Employee's entire
Accrued Benefit in equal monthly installments for one hundred eighty
(180) consecutive months, commencing on the first day of the calendar
month immediately following the Employee's retirement; provided however,
that the Employee may, at his or her sole option make one election prior
to the time benefit payments begin to receive the Accrued Benefit in his
or her Retirement Account in a lump sum or equal monthly installment
payments over a shorter period of either one hundred twenty (120) or
sixty (60) months, to be designated by him in writing (by delivery to
the Corporation of a completed Exhibit D, or similar statement) than
would otherwise apply, or in a single payment. The election referred to
in the preceding sentence must be made at least one year prior to the
date benefit payments begin and shall be irrevocable. In the event of
such election by the Employee, the first designated monthly payment or
the single payment, whichever applies, shall be due and payable on the
first day of the calendar month immediately following the Employee's
retirement. Monthly installment payments, if applicable, shall continue
monthly thereafter, for the period designated by the Employee.
(b) ELECTION OF BENEFITS UPON RETIREMENT DATE. The Employee shall have
the option, upon attaining his or her Early Retirement Date or Normal
Retirement Date, to elect to receive his or her Retirement Benefit,
notwithstanding his or her continued employment with the Corporation
after attaining the Early Retirement Date or Normal Retirement Date.
The Employee's election to receive his or her Retirement Benefit
notwithstanding continued employment must be made in writing at least
one year prior to Early Retirement Date or Normal Retirement Date,
whichever applies. The Retirement Benefit payable upon election pursuant
to this paragraph 6. b. shall be the amount that would have been payable
had the Employee retired from service with the Corporation as of the
Early Retirement Date or Normal Retirement Date, whichever applies. Any
such election shall be irrevocable, and shall result in the termination
of the Employee's right to any further deferrals hereunder.
7. DISABILITY RETIREMENT. Notwithstanding any other provision hereof, the
Employee shall be entitled to receive payments hereunder prior to his or
her Early Retirement Date or Normal Retirement Date, whichever applies,
in any case in which it is
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determined by a duly licensed physician selected by the Corporation
that, because of ill health, accident, disability or general inability
because of age, the Employee is no longer able, properly and
satisfactorily, to perform his or her regular duties as an Employee. If
the Employee's employment is terminated pursuant to this paragraph 7.,
the disability retirement benefit payable hereunder ("Disability
Retirement Benefit") shall be that amount that would have been payable
as a Retirement Benefit had the Employee attained his or her Normal
Retirement Date on the date of the physician's disability determination.
The Disability Retirement Benefit payable under this paragraph 7. shall
be distributed in accordance with the provisions of paragraph 6.a. as if
the Employee had retired on the date of the physician's disability
determination.
8. (a) DEATH BENEFIT PRIOR TO COMMENCEMENT OF RETIREMENT BENEFITS. In the
event of the Employee's death while in the employment of the Corporation
and prior to commencement of the Retirement Benefits or Disability
Retirement Benefits, the Corporation shall pay as a survivor's benefit
the Employee's entire Survivor Benefit in a single lump sum to the
Employee's designated beneficiary (the "Beneficiary"), in accordance
with the last such designation received by the Corporation from the
Employee prior to death. provided however, that the Beneficiary may
elect to receive the Survivor Benefit in either ten (10) or five (5)
annual installments, to be designated in writing by such Beneficiary. If
no such designation has been received by the Corporation from the
Employee prior to death said payments shall be made to the Employee's
then living spouse, if any, and if there is no such living spouse, then
said payment shall be made to the living children of the Employee, if
any, in equal shares, and if there is no surviving spouse or surviving
children, then such payments shall be made to the estate of the
Employee. Such payments shall be made on the first day of the second
month following the Employee's death.
(b) DEATH BENEFIT AFTER COMMENCEMENT OF BENEFITS. In the event of the
Employee's death after commencement of Retirement benefits, Normal
Retirement Benefits, or Disability Retirement Benefits, but prior to the
completion of all such payments due and owing hereunder, the Corporation
shall pay the balance of the Accrued Benefit in a single lump sum the
Employee's designated beneficiary, in accordance with the last such
designation received by the Corporation from the Employee prior to his
or her death. If no such designation has been received by the
Corporation from the Employee prior to death said payments shall be made
to the Employee's then living spouse, if any, and if there is no such
living spouse, then said payment shall be made to the living children of
the Employee, if any, in equal shares, and if there is no surviving
spouse or surviving children, then such payments shall be made to the
estate of the Employee. Such payments shall commence on the first day of
the second month following the Employee's death. At its sole option, the
Corporation may pay the Employee's entire Accrued Benefit as a single
lump sum.
9. TERMINATION BENEFIT. In the event of either
(a) the Employee's termination of employment with the Corporation
before the Early Retirement Date for any reason, other than
disability, retirement or death, or
(b) a Change of Control of the Employer,
the Corporation shall pay to the Employee, as compensation for services
rendered prior to such termination, an amount equal to the total
Retirement Account (the Termination Benefit) in the manner pre-
determined at the time of deferral and set forth in Exhibit A
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(Part 1) Election of Deferral. In the absence of such designation a
single lump sum shall be payable. The Termination Benefit shall be
payable on the first day of the second month following the termination
of the Employee's employment with the Corporation.
10. HARDSHIP WITHDRAWAL. In the event the Employee suffers an
unforeseen financial emergency, as defined hereafter, the Corporation
may, if it deems advisable in its sole and absolute discretion,
distribute to or utilize on behalf of the Employee as a hardship benefit
(the "Hardship Benefit") any portion of the Employee's Retirement
Account. The Corporation shall have exclusive authority to determine
whether to make a hardship distribution, and the Corporation's decision
shall be final and binding on all parties. Any hardship distribution
shall, like all distributions, reduce the amounts available for
subsequent distributions and be deducted from the Retirement Account. The
Employee shall apply for such a Hardship Benefit in writing in a form
approved by the Corporation and shall provide such additional information
as the Corporation shall require. For purposes of this Paragraph,
"unforeseen financial emergency" means an immediate and heavy financial
need caused by an unforeseeable emergency, as described in Treasury
Regulations Section 1.457-2(h) (4) and (5), resulting from any of the
following, and in an amount not in excess of the amount needed to pay for
the following unreimbursed expenses:
(a) expenses which are not covered by insurance and which the
Employee or his or her spouse or dependents (as defined in Code Section
152 (a)) has incurred as a result of, or is required to incur in order
to receive, medical care described in Code Section 213 (d), as a result
of a sudden or unexpected illness;
(b) payment of funeral, marital dissolution and other costs recognized by
the Company to pose an immediate and heavy financial need on the
Employee, or
(c) payment of extraordinary, unforeseeable expenses attributable to
forces beyond the Employee's control in order to prevent eviction of the
Employee from his or her principal residence or foreclosure on the
mortgage of the Employee's principal residence.
No distribution shall be made pursuant to this paragraph in excess of the
amount of the immediate and heavy financial need of the Participant. The
amount of the immediate and heavy financial need may include any amounts
necessary to pay federal, state, or local income taxes or penalties
reasonably anticipated to result from the distribution. Any distribution
under this paragraph shall reduce the Retirement Account. Any
distribution under this paragraph shall be limited to the lesser of
either: (a) the amount designated by the Employee as a requested Hardship
benefit in a form determined by the Company, or (b) Fifty Percent (50%)
of the Retirement Account.
11. IN SERVICE DISTRIBUTION. The lesser of either: (a) the In Service
Distribution amount designated by the Employee on a validly submitted
Election of Deferral in the form set forth at Exhibit A, or (b) the
Accrued Benefit, shall be distributed in a lump sum on the In Service
Distribution Date. The In Service Distribution Date shall be the later of
either: (a) the In Service Distribution Date set forth at Exhibit A, or
(b) a date 12 months after the Election Date as defined in this
Agreement. No In Service Distribution shall be effective unless it is
elected on an Election of Deferral submitted and dated as provided at
Exhibit A.
12. OFFSET FOR OBLIGATIONS TO CORPORATION. If, at such time as the Employee
becomes entitled to benefit payments hereunder, the Employee has any
debt, obligation or other liability representing and amount owing to
the Corporation or an Affiliate of the Corporation, and if such debt,
obligation or other liability is due and owing at the time
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benefit payments are payable hereunder, the Corporation may offset the
amount owing it or an Affiliate against the amount of benefits otherwise
hereunder.
13. BENEFICIARY DESIGNATION. The Employee shall have the right, at any time
to submit in substantially the form attached hereto as Exhibit B, a
written designation of primary and secondary beneficiaries to whom
payment under this Agreement shall be made in the event of death prior to
complete distribution of the benefits due and payable under the
Agreement. Each beneficiary designation shall become effective only when
receipt thereof is acknowledged in writing by the Corporation.
14. CLAIMS PROCEDURE. If any benefits become payable under this agreement,
the Employee (or designated beneficiary in the case of the Employee's
death) shall file a claim for benefits by notifying the Corporation in
writing. If the claim is wholly or partially denied, the Corporation
shall provide a written notice within ninety (90) days specifying the
reason for the denial, the plan provisions on which the denial is based,
and additional material or information necessary to receive benefits, if
any. Also, such written notice shall indicate the steps to be taken if a
review of the denial is desired.
If a claim is denied and a review is desired, the Employee (or designated
beneficiary in the case of the Employee's death) shall notify the
Corporation in writing within sixty (60) days after receipt of a written
notice of a denial of a claim. In requesting a review plan documents and
submit any written issues and comments her or she feels are appropriate.
The Corporation shall then review the claim and provide a written
decision within sixty (60) days of receipt of a request for review. This
decision shall state the specific reasons for the decision and shall
include references to specific provisions on which the decision is based.
15. ASSIGNMENT OF RIGHTS. Neither the Employee nor any designated beneficiary
shall have any right to sell, assign, transfer, or otherwise convey the
right to receive any payments hereunder without the prior written consent
of the Corporation.
16. NO CONTRACT OF EMPLOYMENT. Nothing contained herein shall be construed to
be a contract of employment for any term of years, nor as conferring upon
the Employee the right to continue to be employed by the Corporation, in
any capacity. It is expressly understood by the parties hereto that this
Agreement relates exclusively to discretionary supplemental compensation
as set forth in this Agreement. This Agreement is not intended to be an
employment contract, or to obligate the Company to make any contribution
of an Annual Supplemental Sum, other than as approved at the discretion
of the Board of Directors.
17. CONSTRUCTION OF AGREEMENT. Any payments under this Agreement shall be
independent of, and in addition to, those under any other plan, program,
or agreement which may be in effect between the parties hereto, or any
other compensation payable to the Employee or the Employee's designated
beneficiary by the Corporation.
18. NO TRUST CREATED. Nothing contained in this Agreement, and no action
taken pursuant to its provisions by either party hereto, shall create,
nor be construed to create, a trust of any kind of a fiduciary
relationship between the Corporation and the Employee, the Employee's
designated beneficiary, any other beneficiary of the Employee or any
other person.
19. BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS; UNSECURED GENERAL
CREDITORS STATUS OF EMPLOYEE. The payments to the Employee, the
Employee's designated beneficiary or any other beneficiary hereunder
-139-
<PAGE>
shall be made from assets which shall continue, for all purposes, to be a
part of the general, unrestricted assets of the Corporation; no person
shall have nor acquire any interest in any such assets by virtue of the
provisions of this Agreement. The Corporation's obligation hereunder
shall be an unfunded and unsecured promise to pay money in the future. To
the extent that the Employee or any person acquires a right to receive
payments from the Corporation under the provisions hereof, such right
shall be no greater than the right of any unsecured general creditor of
the Corporation; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the
Corporation.
In the event that, in its sole discretion, the Corporation purchases an
insurance policy or policies insuring the life of the Employee (or any
other property) to allow the Corporation to recover the cost of providing
the benefits, in whole, or in part, hereunder, neither the Employee, the
Employee's designated beneficiary, any other beneficiary nor any other
person shall have nor acquire any rights whatsoever therein or in the
proceeds therefrom. The Corporation shall be the sole owner and
beneficiary of any such policy or policies and, as such, shall possess
and, may exercise all incidents of ownership therein. No such policy,
policies or other property shall be held in any trust for the Employee or
any other person nor as collateral security for any obligation of the
Corporation hereunder.
20. AMENDMENT. This Agreement may not be altered, amended, or revoked
except by a written agreement signed by the Corporation and Employee.
21. INTERPRETATION. Where appropriate in this Agreement, words used in the
singular shall include the plural and words used in the masculine shall
include the feminine.
22. MISCELLANEOUS.
(a) The law of the State of California shall govern this Agreement.
(b) In the event of a material change in Federal or State laws applicable
to this Agreement, the Corporation may, in the Corporation's
reasonable discretion, modify or terminate this Agreement. If the
Corporation elects to terminate this Agreement, the Employee shall be
entitled to receive the Retirement Account, as defined above.
-140-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first hereinabove written.
MYCOGEN CORPORATION
By ___________________________
_____________________________
(Witness)
_____________________________
(Witness)
ATTEST:
By____________________________
Secretary
By___________________________
Employee
-141-
<PAGE>
===============================================================================
SCHEDULE 1
SURVIVOR BENEFIT
===============================================================================
INITIAL SURVIVOR BENEFIT________________
- -------------------------------------------------------------------------------
DATE OF REVISION REVISED AMOUNT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-142-
<PAGE>
Mycogen Corporation
Executive Deferred Compensation Agreement
Schedule 2, Calculation Assets
- --------------------------------------------------------------------------------
The Corporation agrees that it will credit Deferred Amounts in the Employee's
Retirement Account with additions from and after dates Deferred Amounts are
credited to the Retirement Account at the "As If" rate specified in the
Agreement. In determining the "As If" calculation under the agreement the
Company will utilize the following Calculation Assets, subject to the terms of
the Agreement.
FUND Percentage
-----------------------------------------------------------------------
Merrill Lynch Institutional Fund %
-----------------------------------------------------------------------
Merrill Lynch Corporate Bond High Income Fund %
-----------------------------------------------------------------------
Merrill Lynch Corporate Intermediate Term Fund %
-----------------------------------------------------------------------
Merrill Lynch Basic Value Fund %
-----------------------------------------------------------------------
Merrill Lynch Growth Fund %
-----------------------------------------------------------------------
Merrill Lynch Special Value Fund %
-----------------------------------------------------------------------
Merrill Lynch Capital Fund %
-----------------------------------------------------------------------
Merrill Lynch Global Balanced Allocation Fund %
-----------------------------------------------------------------------
100%
--------------------
Mycogen Corporation __________________
By __________________________ Date____________________
-143-
<PAGE>
- -------------------------------------------------------------------------------
MYCOGEN CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
EXHIBIT A - (Part 1) ELECTION OF DEFERRAL (Page 1 of 2)
- -------------------------------------------------------------------------------
1. I acknowledge that the terms and conditions of the Mycogen Corporation
Executive Deferred Compensation Plan ("Agreement") have been explained to me,
including the tax consequences of my decision to participate in the Agreement.
2. I agree to defer a portion of my current compensation, and to have that
income paid to me at a later date pursuant to the terms and conditions of the
Agreement, which is incorporated by reference, in its entirety, in this Election
of Deferral Form.
3. I understand that this Election Form is not an employment agreement, does
not guarantee that I will receive any predetermined amount of compensation, and
does not guarantee that I will receive any bonus.
4. I understand that any compensation I defer will be held as an asset of
Mycogen Corporation, and will remain subject to the claims of the general
creditors of Mycogen Corporation
ELECTION TO DEFER COMPENSATION
I hereby elect to defer (no less than 1% of Compensation, if any deferral is
elected):
__________ (A Stated Amount)
_____% of my future salary
_____% of my future bonus
I understand that I may discontinue deferral of future compensation if
notice is filed at least twenty (20) days prior to any 1st day of the first
month, 1st day of the fourth month, 1st day of the seventh month, or 1st day of
the tenth month of the Plan Year. Such Notice of Discontinuance shall be
effective commencing with the 1st day of the first month, 1st day of the fourth
month, 1st day of the seventh month, or 1st day of the tenth month of the Plan
Year following filing in writing the change I desire. I also understand that if
I discontinue deferral of future compensation during the year, I cannot restart
deferral until the beginning of the succeeding calendar year. The foregoing
Election is voluntarily made by me after reviewing the terms of the Agreement
and with knowledge that this Election is irrevocable until changed in accordance
with the terms of the Agreement.
-144-
<PAGE>
EXHIBIT A - (Part 1) ELECTION OF DEFERRAL (Page 2 of 2)
IN SERVICE DISTRIBUTION
I hereby elect to receive an in service distribution on the In Service
Distribution Date specified below in the amount of the lesser of the Accrued
Benefit, or the following amount:
AMOUNT: ____________________ (Insert Amount)
IN SERVICE DISTRIBUTION DATE:__________________ (At least 12 months after
Effective Date)
IN SERVICE DISTRIBUTION. The lesser of either: (a) the In Service Distribution
amount designated by the Employee on a validly submitted Election of Deferral in
the form set forth at Exhibit A, or (b) the Accrued Benefit, shall be
distributed in a lump sum on the In Service Distribution Date. The In Service
Distribution Date shall be the later of either: (a) the In Service Distribution
Date set forth at Exhibit A, or (b) a date 60 months after the Election Date
defined by this Agreement . No In Service Distribution shall be effective unless
it is elected on a Election of Deferral submitted as required by this
Agreement.
TERMINATION BENEFIT DISTRIBUTION
Supersedes any previous distribution election and applies to all amounts
deferred during the 1997 calendar year, adjusted for earnings, losses, and
administrative expenses credited to or charged against the Employee's Account.
In the event of either
(a) the Employees' termination of employment with the Corporation before
the Early Retirement Date for any reason, other than disability,
retirement, or death; or,
(b) a Change of Control of the Employer,
I wish to receive my 1997 deferrals in the following form: CHECK (i) OR (ii),
BUT NOT BOTH. IF YOU CHECK (ii), YOU MUST INDICATE THE NUMBER OF YEARS OVER
WHICH INSTALLMENT DISTRIBUTIONS SHOULD CONTINUE.
______(i) lump sum;
_____(ii) in _______ substantially equal annual installments.
(N.B. must be at least 5 but no more than 15 years.)
-145-
<PAGE>
This Election of Deferral is executed and Agreed:
__________________________________
(Signature)
__________________________________
(Print Name)
__________________________________
(Social Security Number)
__________________________________(Election Date)
(Date)
Agreed:
Mycogen Corporation
By:__________________________
_______________
(Date)
- -------------------------------------------------------------------------------
-146-
<PAGE>
EXHIBIT A - ELECTION OF CONTRIBUTION (Part 2)
---------------------------------------------
TO: ___________________
(NAME OF EMPLOYEE)
FROM: MYCOGEN CORPORATION
The Company hereby elects to contribute the amount of _______________, and
does credit such amount under the terms of the Mycogen Corporation, Defined
Contribution Executive Deferred Compensation Plan (the "Plan"), as of the
_______ day of ______________, 19__, on behalf of the Retirement Account of the
above named Employee.
This contribution is subject to the terms of the Plan.
Mycogen Corporation
BY:___________________
-147-
<PAGE>
Mycogen Corporation,
EXECUTIVE DEFERRED COMPENSATION AGREEMENT
EXHIBIT B- BENEFICIARY DESIGNATION
----------------------------------
I. _________________________ (Insert Employee's name as it appears in the
Agreement.)
=============================================================================
II. The above-named Employee's Revocable Beneficiary under the Executive
Deferred Compensation Agreement is set forth below:
___1. Employee's spouse, ____________________, if living at Employee's death,
if not, such of the children of the marriage of the Employee and said spouse as
shall be then living, equally.
___2. Employee's spouse, ____________________, if living at Employee's death,
if not, such of the Employee's children as shall be then living, equally.
___3. Such of the following children of the Employee as shall be living at the
Employee's death, equally: ____________________, ____________________,
____________________.
___If this space is checked, and if paragraph 1, 2 or 3 is checked, then the
living children of any deceased child designed shall take the share, divided
equally, which such child would have if living.
___4. Employee's ____________________, if living at the Employee's death, if
not, Employee's ____________________, if then living, if not, Employee's
____________________, if then living. (Insert relationship to Employee and
name.)
___5. Such of the following as shall be living at the Employee's death,
equally:
Employee's______________________________________________________________________
________________________________________
(Insert relationship to Employee and name.)
___6. Employee's ____________________, if living at Employee's death, if not,
such of the following as shall be then living, equally:
Employee's______________________________________________________________________
________________________________________
(Insert relationship to Employee and name.)
___7. Employee's_____________________________________________
____________________________________________________________
(Insert relationship to Employee and name.)
___8. _____________________________________________, as trustee(s) or the
successor trustee(s) under an Agreement dated _______________, 19__, made by and
between (the Employee) (_______________) and said trustee(s), as now existing or
hereafter amended, or if said trust is not in existence at the Employee's death,
the executor(s) or administrator(s) of the Employee.
___9. The trustee(s) or successor trustee(s) under the instrument probated as
the Last Will and Testament of the Employee, or, if the Employee shall die
intestate or shall leave a Will creating no trust, the executor(s) or
administrator(s) of the Employee.
-148-
<PAGE>
___10. Employee's executor(s) or administrator(s).
___11. _____________________________________________________, or its successors.
(Insert Name and address of firm or organization.)
===============================================================================
III. If any one of subparagraphs 1 through 7 of paragraph II above is applicable
and if no individual beneficiary named is living at the Employee's death, the
Beneficiary shall be the executor(s) or administrator(s) of the Employee.
IV. This Designation of Beneficiary revokes all prior designations and shall be
effective as of the date it is filed with the Company. The Employee retains the
right to revoke this Designation of Beneficiary.
Dated at _______________, State of _______________, on _______________, 19__.
_________________________
(Signature of Employee)
Witness:
_________________________
-149-
<PAGE>
CONSENT OF SPOUSE
(Required in Community Property States)
I hereby consent to the designation of the above beneficiary(ies) to
receive the benefits payable under the MYCOGEN CORPORATION, EXECUTIVE DEFERRED
COMPENSATION AGREEMENT a the result of the death of the above Employee and waive
any and all rights necessary to provide the payment of such benefits to such
beneficiary(ies).
Dated at , State of__________, on _______________, 19__.
_____________________________
(Signature of Spouse)
Witness:
_____________________________
FILING ACKNOWLEDGEMENT
Filed with the records of the Company this ___ day of _______________, 19__.
By___________________________
______________________________
Title
-150-
<PAGE>
EXHIBIT C
---------
Mycogen Corporation
EXECUTIVE DEFERRED COMPENSATION AGREEMENT
Vesting Schedule
The Vesting Percentage set forth below represents the portion of each
Annual Supplemental Sum, together with related Additions, which is payable
under the terms of this Agreement, based on Years of Service. The Vesting
Percentage is credited on the first day of each Plan Year following the Year
of Service, e.g., vesting for the first Year of Service shall be credited on
the first day of the Second Year of Service.
<TABLE>
<CAPTION>
Years of Service Cumulative Vesting Percentage
---------------- -----------------------------
<S> <C>
Less than 12 0%
12 but less than 24 0%
24 but less than 36 0%
36 but less than 48 60%
48 but less than 60 80%
60 or more 100%
</TABLE>
-151-
<PAGE>
EXHIBIT D
---------
Mycogen Corporation
--------------------
EXECUTIVE DEFERRED COMPENSATION AGREEMENT
INITIAL ELECTION OF CONTRIBUTION
--------------------------------
Annual Supplemental Sum
The Company hereby elects to contribute an amount equal to any Matching
Contribution Deficiency, as defined below, and shall credit such amount
under the terms of the Mycogen Corporation, Defined Contribution
Executive Deferred Compensation Plan (the "Plan"), as of the day the
related Matching Contribution would have otherwise been made to the
Mycogen Corporation deferred savings plan on behalf of the Employee,
were in not for the limitation on the amount contributed by the Employee
as a result of being characterized as a Highly Compensated Employee under
Internal Revenue Code Section.
Matching Contribution Deficiency
The Company has adopted a deferred savings plan which allows each
Employee to contribute fifteen percent (15%) of compensation on a pre-tax
basis. Under the terms of the deferred savings plan, the Matching
Contributions will be equal to one hundred percent (100%) of such
individual's deferred savings contributions, to the extent those deferred
savings contributions do not exceed two percent (25%) of his/her Eligible
Earnings, and (ii) the Matching Contributions will be equal to twenty
five percent (25%) of such individual's deferred savings contributions,
to the extent those deferred savings contributions exceed two percent
(2%) but not more than six percent (6%) of his/her Eligible Earnings.
However, the aggregate Matching Contribution made on behalf of any
Qualified Participant shall not exceed Two Thousand dollars ($2,000.00)
per Plan Year. Highly Compensated Employees, as defined by the Internal
Revenue Code, may be restricted as to the amount they may contribute to
the deferred savings plan as a result of their status as Highly
Compensated Employees, and therefore the related Matching Contribution
that would otherwise have been contributed for their benefit may be
restricted. The amount of the Matching Contribution that the Company is
actually precluded from contributing and would otherwise have contributed
to the deferred savings plan on behalf of the Employee, but for the
application of the limitations on contributions by Highly Compensated
Employees is referred to here as the Matching Contribution Deficiency.
This contribution is subject to the terms of the Plan, and may be
terminated or amended at the sole discretion of the Board of Directors,
provided however, that this Initial Election of Contribution shall remain
in effect from year to year unless terminated or amended by subsequent act
of the Board of Directors.
-152-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
-153-
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-58721 and Forms S-8 Nos. 333-21467, 333-00901, 333-00899, and
33-66206) and the related Prospectuses of our report dated October 10, 1997,
except for the two paragraphs under "Subsequent Events" in the Notes to
Consolidated Financial Statements as to which the date is November 14, 1997,
with respect to the consolidated financial statements of Mycogen Corporation,
included in the Annual Report (Form 10-K) for the year ended August 31, 1997.
/s/ Ernst & Young
ERNST & YOUNG LLP
San Diego, California
November 24, 1997
-154-
<PAGE>
EXHIBIT 23.2
CONSENT OF DELOITTE & CO., INDEPENDENT AUDITORS
-155-
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
58721 on Form S-3 and Registration Statements No. 333-21467, 333-00901, 333-
00899 and 33-66206 on Forms S-8 of Mycogen Corporation of our report dated
October 1, 1997 (relating to the consolidated balance sheet of Mycoyen S.A. and
its subsidiary as of August 31, 1997, and the related statements of operations,
stockholders' equity and cash flows for the year then ended not presented
separately herein) appearing in the Annual Report on Form 10-K of Mycogen
Corporation for the year ended August 31, 1997.
Buenos Aires, Argentina
November 19, 1997
DELOITTE & Co.
Hugo Alberto Luppi (Partner)
Contador Publico (U.B.A.)
C.P.C.E.C.F. - Tomo 56 - Folio 96
-156-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-157-
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints 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>
<S> <C> <C>
/s/ NICKOLAS D. HEIN Chairman November 24, 1997
- ---------------------------------------
(Nickolas D. Hein)
/s/ THOMAS J. CABLE Director November 24, 1997
- ---------------------------------------
(Thomas J. Cable)
/s/ JERRY D. CAULDER Director November 24, 1997
- ---------------------------------------
(Jerry D. Caulder)
/s/ PERRY J. GEHRING Director November 24, 1997
- ---------------------------------------
(Perry J. Gehring)
/s/ LOUIS W. PRIBILA Director November 24, 1997
- ---------------------------------------
(Louis W. Pribila)
/s/ DAVID H. RAMMLER Director November 24, 1997
- ---------------------------------------
(David H. Rammler)
/s/ WILLIAM C. SCHMIDT Director November 24, 1997
- ---------------------------------------
(William C. Schmidt)
/s/ G. WILLIAM TOLBERT
- --------------------------------------- Director November 24, 1997
(G. William Tolbert)
/s/ W. WAYNE WITHERS
- --------------------------------------- Director November 24, 1997
(W. Wayne Withers)
</TABLE>
-158-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1996
<CASH> 1,712
<SECURITIES> 499
<RECEIVABLES> 46,481
<ALLOWANCES> 4,379
<INVENTORY> 51,135
<CURRENT-ASSETS> 106,754
<PP&E> 106,754
<DEPRECIATION> 19,786
<TOTAL-ASSETS> 239,687
<CURRENT-LIABILITIES> 66,929
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 344,676
<TOTAL-LIABILITY-AND-EQUITY> 239,687
<SALES> 202,407
<TOTAL-REVENUES> 210,973
<CGS> 126,857
<TOTAL-COSTS> 126,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,553
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (36,149)
<INCOME-TAX> (1,534)
<INCOME-CONTINUING> (37,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,683)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
