-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SeaRg/dxAVysNYHH3jKzefCIJfwTxe36W/bya3VlIHAppiXVhMfds9lWCfHaKQa/ PMIbKy1qUF+cNjeU6vs5ng== 0000950148-02-000068.txt : 20020413 0000950148-02-000068.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950148-02-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20020114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMINIS INC CENTRAL INDEX KEY: 0001078259 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 360769130 STATE OF INCORPORATION: IL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-26519 FILM NUMBER: 2509033 BUSINESS ADDRESS: STREET 1: 1905 LIRIO AVENUE CITY: SATICOY STATE: CA ZIP: 93004-4206 MAIL ADDRESS: STREET 1: 1905 LIRIO AVENUE CITY: SATICOY STATE: CA ZIP: 93004-4206 10-K 1 v77970e10-k.txt FORM 10-K ================================================================================ 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 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 0-26519 SEMINIS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-0769130 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2700 CAMINO DEL SOL, OXNARD, CALIFORNIA 93030-7967 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (805) 647-1572 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS) 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 [ ] 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. [ ] The aggregate market value of the voting stock held by non-affiliates of Seminis, Inc. as of December 17, 2001 was approximately $17.5 million. The number of shares outstanding of the registrant's Class A Common Stock, par value $0.01 per share and Class B Common Stock, par value $0.01 per share, as of December 17, 2001 was 14,681,878 and 45,142,508 shares, respectively. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders of Seminis, Inc. are incorporated by reference into Part III hereof. ================================================================================ SEMINIS, INC. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business...................................................................................... 3 Item 2. Properties.................................................................................... 13 Item 3. Legal Proceedings............................................................................. 14 Item 4. Submission of Matters to a Vote of Security Holders........................................... 14 Item 4A. Executive Officers of the Registrant.......................................................... 15 PART II Item 5. Market Price of the Registrant's Common Equity and Related Stockholder Matters................ 16 Item 6. Selected Consolidated Financial Data.......................................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 18 Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................... 25 Item 8. Financial Statements and Supplementary Data................................................... 25 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.......... 25 PART III Item 10. Directors and Executive Officers of the Registrant............................................ 26 Item 11. Executive Compensation........................................................................ 26 Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 26 Item 13. Certain Relationships and Related Transactions................................................ 26 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 27 Exhibit Index............................................................................................ 28 Signatures............................................................................................... 30
2 PART I ITEM 1. BUSINESS OVERVIEW Seminis is the largest developer, producer, and marketer of vegetable and fruit seeds in the world. Seminis uses seeds as the delivery vehicle for innovative agricultural technology. Seminis develops seeds designed to reduce the need for chemicals, increase crop yield, reduce spoilage, offer longer shelf life and create tastier foods with better nutrition. Seminis focuses its research and development activities on products that are likely to have practical market uses, create significant market value, command premium pricing and capture leading local market share. As a result, Seminis is creating and setting the foundation to capture value through premium pricing at all steps of the vegetable and fruit production and distribution chain: growers, distributors, processors, and consumers. Seminis produces more than 60 species and 4,000 vegetable and fruit seed products. Seminis markets its seeds through three full-line brands -- Asgrow, Petoseed, and Royal Sluis -- and five specialty and regional brands. The product lines marketed under these brands cover most species of vegetables and fruits, including beans, beets, broccoli, Brussels sprouts, cabbage, carrots, cauliflower, celery, Chinese cabbage, cucumbers, eggplant, leeks, lettuce, melons, onions, peas, peppers, pumpkin, radish, spinach, squash, sweet corn, tomatoes, and watermelon. Seminis has established a worldwide presence and global distribution system. Seminis markets seeds in over 120 countries, has 30 research and development facilities, 29 screening farms in 19 countries and production sites in over 25 countries. This allows Seminis to remain close to local markets around the world, adapt its products to any microclimate and meet the preferences of local consumers. Seminis was incorporated in 1999 under Delaware law and is the successor to an Illinois corporation, Seminis, Inc., organized in 1994. The Company's principal executive offices are located at 2700 Camino Del Sol, Oxnard, CA 93030-7967 (telephone (805) 647-1572) and its Internet address is http://www.seminis.com. INDUSTRY OVERVIEW Over the past several decades, improvements in farm productivity have allowed the agricultural industry to keep pace with growing food demand. While many of the steps in agriculture -- tilling, planting and harvesting -- have shown evolution over time, yield-enhancing technologies such as mechanization and the use of hybrid seed and crop protection chemicals have allowed farmers to meet the ever-growing demand for food. More recently, traditional breeding and agritechnology application have opened a window of opportunity for the seed industry to capture value through new business models transitioning from suppliers of raw material (seeds) to growers, to the proposition of valuable traits and characteristics of produce to consumers. One of the biggest challenges of the 21st century will be to further develop sustainable agricultural production systems that can meet the food and nutritional requirements of the world's growing population. The United Nations is projecting that world population will increase by 35% to 7.7 billion from 1995 to 2020, with 95% of the population increase expected in developing countries. Given the limited amount of arable land, which is decreasing, increases in agricultural production must come from improvements in agricultural productivity through technology. In addition, there are concerns related to human health and environmental impact in developed countries, to agricultural production growth achieved through increased uses of chemical inputs such as pesticides. Consequently, the burden of meeting increased demand for food rests primarily on the emergence of new technologies and farming methods that facilitate improvements in crop yields and replace existing agricultural chemicals. In developing countries, which have a relatively large vegetarian population, vegetable and fruit consumption has grown over 75% from 1985 to 1996. Consumption of vegetables and fruits worldwide has increased approximately 50% in the same time period. However, vegetable and fruit yields have not kept pace with consumption increases, growing only 18% per hectare since 1985. Given current population estimates and consumption rates, consumption of vegetables and fruits is expected to increase by 60% from 1996 to 2010. World production of vegetables and fruits must increase to meet expected demand. 3 Two breakthroughs in plant science occurred in the 1980's that may facilitate increased productivity and higher quality vegetables and fruits. The first was the understanding of how genes, the fundamental components of the genetic code, work in plants to produce traits such as disease resistance or higher nutritional content. The second was the development of transformation technology, which is a process to introduce new character traits into plants. By using developments in plant breeding, biotechnology and plant-to-plant genomics, leading vegetable and fruit seed companies are creating the changes in productivity and quality necessary to provide sustainable vegetable and fruit production growth. In addition, vegetables and fruits are proven to be valuable in meeting basic nutritional needs and in preventing disease. They also have very little fat, are low in calories and contain vitamins and other nutritional compounds. Diets high in vegetables and fruits protect against obesity and, thus, against the risk of cardiovascular disease and stroke, and can also protect against diabetes, iron-deficiency anemia and cataracts. According to the World Cancer Research Fund and the American Institute for Cancer Research, there is also a strong and consistent pattern showing that diets high in vegetables and fruits can significantly reduce the risk of cancer. Seminis believes that vegetables and fruits represent nature's most direct delivery mechanism for improved health and nutrition. The world's vegetable and fruit seed industry, with its unique combination of nutritional benefits, local market adaptability, yield enhancing technologies, year-round availability and streamlined production and distribution system, is positioned to meet the world's growing need for healthy and nutritious food products. Seminis' development of seeds that produce disease-resistant, higher-yielding and healthier vegetables and fruits are of growing importance for regional and global markets because of expected increasing consumption of vegetables and fruits, along with a steady increase of harvested land in vegetables and fruits. STRATEGY Seminis' vision is to apply appropriate use of technology to vegetable and fruit seeds to enhance profitability throughout the vegetable and fruit production and distribution chain. To realize this vision, Seminis expects to capitalize on its competitive strengths, which include its ability to consistently introduce new technology through product innovation, a strong germplasm bank, well-established brand names and a worldwide distribution system. Seminis distinguishes itself from its competitors by having a global strategy that addresses local needs. Seminis intends to enhance its leadership position in the global vegetable and fruit seed industry by expanding its existing product lines and introducing high-quality, technologically innovative seeds tailored to local preferences. To implement these strategies, Seminis plans to: - Enhance our leadership position in worldwide vegetable and fruit seed market -- Seminis is the global leader in the vegetable and fruit seed business with $420.5 million in net seed sales during fiscal year 2001. - Expand our technology leadership position through continuous new product innovations -- Seminis' new product development efforts utilize plant breeding as its primary source of new products. While the company invests in biotechnology research, less than 1% of its sales come from genetically modified seeds. Seminis believes that over the long-term biotechnology will be an important contributor of earnings to the company. In 2001, Seminis was awarded 5 US patents. - Capture enhanced value created by proprietary seeds -- As a result of its innovative new product development efforts, Seminis has continued to introduce new products that reduce input costs to growers and provide enhanced consumer value. VALUE CAPTURE STRATEGY Seminis is in the process of implementing a global strategy to capture value. It will leverage its worldwide germplasm base to create synergies amongst previously separated breeding programs. R&D and sales efforts will be focused on products and markets that offer the most potential. Special emphasis will be given to properly priced current and new product pipeline of Seminis. The development of seeds that produce pest-resistant, higher yielding vegetables and fruits with better nutritional value is of growing importance because of expected increases in consumption of vegetables and fruits, and increased health consciousness. By using vegetable and fruit seeds that resist diseases and insects, growers will increase their yield and save significant costs by increasing the efficiency of use (cost/yield) of other farm inputs, such as agricultural chemicals and labor. Processors and distributors benefit from products with longer shelf life and/or reduced spoilage, sugar and solids content, etc. Consumers benefit from healthier, tastier vegetables and fruits that last longer and offer ready-to-eat convenience. Seminis attempts to enhance its profitability by expanding the global vegetable and fruit seed market and capturing a premium price for the benefit its products create throughout the production and distribution chain. 4 Over the last year, Seminis has reviewed its regional product strategy leveraging on brand recognition and breeding track record, while optimizing its infrastructure in sales teams and streamlining its pipeline from over 6,000 products in FY2000 to just over 4,000 in FY2001. Seminis also initiated the implementation of a value capture process to improve the global management and profitability of Seminis' current product lines by bringing together multiple functional disciplines to identify, create and capture the growth possibilities and added-value potential offered by the industry. Seminis believes it is well positioned to increase its growth rate and profitability by capturing value from the vegetables and fruits value chain. According to the Food and Agriculture Organization, worldwide area harvested for vegetables and melons has been growing three times faster than other field crops such as corn, cotton, wheat, with growth accelerating in the last decade to 3.2% CAGR. Additionally consumption of vegetables and melons has been increasing at a higher pace, growing in the last decade to 3.8% CAGR. PRODUCTS Seminis develops and produces vegetable and fruit seeds adapted to the local conditions in which they will be grown. Local requirements are largely dictated by environmental conditions, such as temperature or rainfall, specific requirements for resistance to pests, retail demand for traits, such as shelf life, and consumer preferences for flavor, ready-to-eat convenience and quality. Seminis' depth of product lines enables growers to meet local market demands. DEVELOPED COUNTRIES In developed countries, the growth of the vegetable and fruit seed market is primarily driven by a demand for foods with enhanced nutritive qualities and increased consumer awareness of the health benefits of vegetables and fruits. According to a 1996 consumer survey in the United States, 89% of consumers cited nutritional reasons as to why they eat vegetables and 73% said that they would pay more for healthier versions of the foods they eat. Seeds for the production of vegetables and fruits in developed countries are predominantly hybrids to ensure crop uniformity and productivity. Seminis estimates that, in the United States, 85% of all vegetable and fruit seeds are hybrids. DEVELOPING COUNTRIES In developing countries the growth of the vegetable and fruit seed market is largely driven by rapidly expanding population growth, global produce markets and conversion from the use of open-pollinated seed to hybrid seed varieties. Growers are realizing the value of hybrids and are increasingly converting to hybrid seeds to obtain higher yields per acre, greater uniformity, greater resistance to pests, diseases and environmental conditions and improved quality, flavor and nutrition for consumers. Seminis develops and sells new hybrids specifically designed for the local markets in developing countries. Given the benefits of hybrid seeds, growers are often willing to pay a substantially higher price for hybrid seeds than for open-pollinated seeds. BRAND STRATEGY Through its customer-focused, brand strategy, Seminis provides choices to growers with respect to product, price, promotion and service. It also advances Seminis' goal of providing growers with information to enable growers to anticipate change in consumer trends rather than reacting to them. Seminis has three full-line brands, Asgrow, Petoseed and Royal Sluis, each with its own identity and positioning. Each brand through the years, has featured important products in different regions and market segments, establishing highly valued brand identity, which is being leveraged in the continuous introduction of new products. Seminis also markets five specialized or regional brands, which enable the Company to respond quickly to changing market needs, dietary preferences or regional growing practices. These brands may focus on specialized growing practices, such as greenhouse or protected culture, specific customer segments within a sub-market, such as large lettuce growers in the southwestern United States, or regional and cultural preferences, such as Asian vegetables or fruited crops for the Middle East. With differentiated Seminis brands, growers can exercise their options for choice while staying within the Seminis family. Seminis believes that it can maintain and reinforce its competitive advantage through the careful positioning of its brands. FULL-LINE BRANDS Seminis markets a full-line of seeds under its Asgrow, Petoseed and Royal Sluis brands. These brands are well recognized for consistently developing and marketing high quality seeds for most major vegetable and fruit species. Seminis believes that its brands rank among the leading brands worldwide in the vegetable and fruit seed market. 5 Asgrow and Petoseed enjoy high brand awareness in the United States vegetable and fruit seed industry. According to a 1996 study, Asgrow has a 99% brand-awareness rating among growers, while 88% of growers and dealers have a high awareness of the Petoseed brand. In Europe, growers and dealers also have high brand awareness of Seminis' brands. According to a 1997 independent industry study of over 1,000 growers and distributors, there is a "high" to "very high" awareness of Royal Sluis in many European countries, including France, Italy, the Netherlands, the United Kingdom and Turkey. Similarly, Asgrow and Petoseed have high brand awareness in many European markets, including Asgrow in Italy and Petoseed in Spain. Asgrow -- Asgrow was established in 1856 and was acquired by Seminis in December 1994 from the Upjohn Company for $304.0 million. After the acquisition, Seminis sold the Asgrow agronomics seed business for $240.0 million. Asgrow is known for providing seeds that possess traits satisfying end-consumer demands such as flavor, ready-to-eat convenience and quality. Its strong reputation has been enhanced through its success with hybrids such as carrots and onions. Asgrow is also strong in large seed species such as green beans, where Seminis believes it has a U.S. market share of over 70%. Asgrow also has a strong presence in many European countries. Petoseed -- Petoseed was established in 1950 and was combined with the Asgrow seed business in 1995 for $133.5 million. Petoseed has built its reputation through pioneering work in hybrid tomato development, but expanded its presence in the industry through its full-line of market-driven, innovative products. This brand has strengths in many areas, including hot peppers, onions and lettuce. Seminis believes that, worldwide, growers currently plant more Petoseed hybrid jalapeno peppers than all other hybrid jalapeno brands combined. Petoseed is known for consistently introducing new hybrids with multiple disease resistance enhanced traits and increased field productivity. Royal Sluis -- Royal Sluis was established in 1827 and was acquired by Seminis in 1995 along with Petoseed. The acquisition of Royal Sluis, one of Europe's largest vegetable seed companies, expanded Seminis' European presence. Royal Sluis focuses on high-quality, cool season crops such as broccoli, cabbage, carrots, cauliflower, leeks, lettuce and spinach. In addition to its strong reputation for service and quality, Royal Sluis pioneered new seed technology to improve seed quality and germination. REGIONAL OR SPECIALTY BRANDS In addition to its full-line brands, Seminis markets seeds through regional or specialty brands, which are targeted to respond to the needs of local markets. These needs are driven by dietary preferences, desire for local products, specialized farm growing practices and local environmental and climatic conditions. Bruinsma -- Bruinsma was established in 1934 and was acquired by Seminis in December 1994 along with Asgrow. Bruinsma's reputation was built on its high-quality, protected crop varieties. Protected farming is a practice in which crops are grown from high-value seed in greenhouses or plastic tunnels. This practice continues to expand worldwide and is particularly reflected in European markets, where protected farming is an effective means of meeting consumer demand for vegetables and fruits with premium appearance. Bruinsma focuses on the development and marketing of cucumber, pepper and tomato varieties under protected conditions. California -- California was established in 1972 by Petoseed. California is best known for seeds bred to meet the consumer preferences and farming practices of the Middle East. The California brand concentrates on cucumber, melon, squash and tomato. California brand is also positioned to serve price sensitive segments, mostly in developing countries. Choong Ang -- Choong Ang was established in 1946 and was acquired by Seminis in 1998 for $20.5 million. Choong Ang is one of the top vegetable and fruit seed brands in South Korea. This brand has market strength in Chinese cabbage, hot peppers, oriental melon, radish and watermelon. Horticeres -- Horticeres, as a brand of the Agroceres vegetable seed business, was acquired by Seminis in November 1998 for $19.7 million. Horticeres is a leading brand in Brazil where it is known for beans, lettuce, okra, tomato and tropical cauliflower. Hungnong -- Hungnong was established in 1936 and 70% of the company was acquired by Seminis in 1998 for $120.6 million. The remaining 30% was purchased in fiscal year 1999 for $54.8 million. Hungnong is the leading vegetable seed brand in South Korea. Hungnong is known for its strength in broccoli, cabbage, Chinese cabbage, hot peppers and oriental radishes. Twenty-five percent of Hungnong's sales occur outside of South Korea, with five percent outside Asia, primarily in the United States. 6 SALES AND MARKETING Seminis' product sales are widely diversified geographically, with Europe representing the largest percentage of total sales outside of North and Central America. The table below illustrates the breadth of Seminis' products and sales for each geographic region. FISCAL YEAR 2001 NET SEED SALES BY REGION
AS A PERCENTAGE FISCAL YEAR 2001 OF TOTAL GEOGRAPHIC REGION NET SEED SALES NET SEED SALES - ----------------- ---------------- --------------- (IN MILLIONS) North and Central America ....................... $160.6 38.2% Southern Europe ................................. 79.2 18.8 Northern and Eastern Europe ..................... 41.1 9.8 Middle East and Africa .......................... 37.8 9.0 South America/Australia & New Zealand ........... 43.9 10.4 Asia/Rest of World .............................. 57.9 13.8 ------ ------ $420.5 100.0 ====== ======
Seminis reinforces its brands' market positions through strategic planning, pricing and communications. Seminis believes that, with its strong brands, it has an advantage in the marketplace when introducing new products. The reputation, reliability and trust associated with its brands can lend credibility to new product claims. Over the last year, Seminis has reviewed its regional brand strategy in order to leverage on brand recognition and reputation, while optimizing its infrastructure in sales teams and breeding programs. By doing so, Seminis continues to provide new products in a way that will support brand identity and positioning. Seminis sells its brands worldwide by using a wide range of distribution strategy involving direct sales, dealers, distributors and importers. Largely driven by local market needs, Seminis' distribution strategy for each geographic region is designed to maximize the market penetration of its brands. As a result of the new strategic plan implemented in November 1999, Seminis' brands in North America are being sold through a unified sales force and distributed primarily through a dealer network throughout most of North America, while in the South East US, as well as to specialty customers, sales are primarily directed to the grower/shipper. In Europe, Royal Sluis, Petoseed and Asgrow are typically sold through dealers and sales agents. In the Middle East, Petoseed is Seminis' top brand and is sold through distributors. While an important proportion of its sales are direct to growers, Seminis also fosters close relationships with dealers and distributors. Where there is a market need, Seminis uses these dealers as an outside direct sales force. Dealers extend the Seminis brands' ability to reach growers in areas where there are geographic or other limitations to direct sales efforts. Seminis is highly selective in the dealers and distributors chosen to represent its brands. Dealers are selected based on shared vision, technical expertise, local market knowledge and financial stability. In addition, Seminis builds dealer/distributor loyalty through an emphasis on service, access to breeders, joint trials, ongoing training and extensive promotional material support. ACQUISITIONS All of the sectors of the agricultural industry have experienced significant consolidation during the past several years. Consolidation at the upstream end of the production chain -- among chemical, seed and biotechnology companies -- has been driven primarily by developments in agricultural technology and the need to secure access to the best available seed germplasm. In agronomic crops such as corn, cotton, soybeans, wheat and rice, the consolidation has been led by major agrochemical/biotechnology companies such as Monsanto, Dow, DuPont and recently Bayer. These companies have invested in the seed industry to access delivery systems for their biotechnology products. Access to the best available germplasm has become a key competitive priority in the industry. In vegetable and fruit crops, access to germplasm is an equally important competitive issue. The company with access to the best available germplasm will have the strongest position in the delivery system for future generations of biotechnology products. 7 ACQUISITION PHASE Seminis' core business was created through the acquisition of the Asgrow seed business from the Upjohn Company in December 1994 and the subsequent combination of the Asgrow business with the Petoseed and Royal Sluis businesses in October 1995. Each of these full line brands has a long history - Asgrow for 145 years, Petoseed for 51 years and Royal Sluis 174 years. Seminis has been in the forefront of the consolidation of the vegetable and fruit seed industry and has completed ten acquisitions since its formation in 1994. Seminis has used acquisitions as a cost efficient way to gain access to or ownership of key technologies, patents and germplasm collections, to add developed and proven products to its portfolio and to enter new and established markets. During fiscal 1994, Seminis acquired Asgrow Seed Company from Upjohn and in 1995, it was merged with Petoseed and Royal Sluis. In 1997 Seminis acquired Seneca, a company that focused on hybrid sweet corn for the United States and Canadian markets and a 20% interest in Yates Vegetable Seed Company, that placed its focus in the business of cauliflower, lettuce and onions for the Australian, European and North American markets. Yates also distributed the Asgrow and Genecorp brands in Australia. In fiscal 1998 Seminis completed four acquisitions, including the purchase of a 50% stake in LSL PlantScience LLC to add a new line of tomato varieties, the acquisition of two South Korean companies, Hungnong Seed Co., Ltd. and Choong Ang Seed Co., Ltd., to enhance its product lines for the Asian market, and the acquisition of Nath Sluis to broaden its product lines in India. In November 1998, Seminis acquired the seed business of Sementes Agroceres, S.A., a Brazilian company, to strengthen its presence and product lines in South America. The rapid growth through acquisitions created a highly complex operation that impacted the Company's results. An increasing inventory and accounts receivable as well as production and quality assurance were some of the main problems that the company confronted at that stage. Given Seminis' current situation, the company established concrete plans to accelerate the integration and consolidation process. This would be achieved by implementing a day-by-day production and operation control system and establishing information systems and procedures aimed at integrating acquisitions, leveraging their synergies and increasing overall control. INTEGRATION PHASE Upon the acquisitions, Seminis began a process to integrate the companies and develop a Seminis culture. The main focus was to build a management team, stabilize the brands and link research with the market. Seminis also began the development of key managerial systems and the implementation of SAP. To date SAP has been implemented in the U.S., Holland, France, Belgium, Germany and it is under evaluation in Spain and Italy. Seminis has also developed key systems, unique to the industry, for the management of seed production, operations and sales forecasting. GLOBAL OPTIMIZATION PHASE During fiscal 2000, Seminis initiated the consolidation phase and launched the Global Restructuring and Optimization Plan aimed at cost reduction, worldwide inventory management, rationalization of facilities and products and divestiture of non-operating and non-strategic assets. In August of fiscal 2000, Seminis changed its operating management. Under the new leadership, Seminis rapidly restructured to a more horizontal organization, narrowing and deepening the scope of each operational area through a more focused organization. The main focus of the organization was immediately shifted away from a market share growth strategy to a cash flow and profitability orientation. NEW PRODUCT DEVELOPMENT Seminis relies heavily on plant breeding supplemented with molecular and cellular technology to create continuous new product innovations. Seminis focuses its internal product development activities on products that are likely to have practical market applications, create significant market value, command premium pricing and capture leading local market share. Seminis currently owns or has pending over 160 patents in such areas as virus resistance, product quality, breeding technology, gene expression, cell selection and resistance genes. A total of 5 patents were issued in FY2001. In addition, Seminis has protected more than 403 varieties under plant variety protection laws and has applications pending on an additional 171 varieties. 8 PRODUCT DEVELOPMENT STRATEGY Seminis' new product development efforts utilize plant breeding, proprietary technology, biotechnology, plant-to-plant genomics and plant pathology to introduce innovative products to the marketplace in an efficient and cost-effective manner. Seminis augments its internal product development efforts through technological alliances with leading companies, research institutions and universities. Seminis believes that its internal research and development capability and access to innovative technology, coupled with its extensive germplasm resources, position it to best meet the changing demands and preferences of growers and end-consumers and increase its market share and global reach. PRODUCT DEVELOPMENT PLATFORM Seminis conducts research and development activities in 59 locations throughout the world, including 17 in North America, 13 in Europe, 2 in the Middle East, 4 in South America and 23 in Asia. By diversifying its research and development geographically, Seminis is able to take advantage of local breeding resources and many different microclimates. It is also better able to tailor its products to local tastes and preferences. Each region of the world has unique requirements for the production of vegetables and fruits. These requirements are driven by local environmental conditions such as temperature or rainfall as well as local consumer preference such as very sweet pink tomatoes in Japan or more acidic red tomatoes in Italy. Seminis maintains an internally developed, proprietary database that contains information on local production and local consumer needs. Seminis has compiled the information in this database to enable its plant breeders and marketing and sales personnel to more effectively design new products to meet the needs of local markets. Seminis believes it has the largest research and development staff in the vegetable and fruit seed industry, with over 715 full-time people employed in research and development functions, including over 119 professionals with Ph.D. or M.S. degrees, including 90 plant breeders, 13 biotechnologists and 16 pathologists. Seminis' plant breeding staff is structured by groups of related crops (families). Within each family, breeding is further structured by species to enhance product development efficiencies and adequately respond to changing consumer demands and preferences. All plant breeders have access to technology developed from Seminis' biotechnology, biochemistry and pathology laboratories. Seminis fosters competition among its brands and breeders to ensure that new product development is achieved in an aggressive timeframe. GERMPLASM Seminis owns what it believes is the largest vegetable and fruit germplasm bank in the world. Seminis' germplasm bank is its key strategic asset. Germplasm, Seminis' bank of genetic information, is contained in millions of seeds. These seeds capture the characteristics of vegetables and fruits grown for Seminis' customers in different regions of the world, including input traits, such as resistance to pests and adverse weather conditions, and output traits, such as crop yield, color, texture, flavor and ready-to-eat convenience. This extensive germplasm resource is extremely difficult to replicate, having been developed through more than 100 years of intensive research and development efforts. The merger of the Petoseed, Asgrow and Royal Sluis germplasm, plus the additions of germplasm from Bruinsma, Seneca, Hungnong, Choong Ang, Nath Sluis and the Agroceres vegetable seed businesses, has created a very diverse germplasm resource. The strength of Seminis' germplasm is its extensive diversity of materials available and the genetic characteristics contained in this germplasm. Seminis' breeders utilize its germplasm, as well as its proprietary technologies, to develop innovative products suitable to the needs of different markets and conditions. Seminis' extensive germplasm base is the basis for continued development of innovative products and future growth. TECHNOLOGY Seminis' product development technology positions it as one of the leaders in agricultural innovation. The time and capital required for the development of new products represent the most formidable barrier to entry in the vegetable and fruit seed industry. On average, it takes five to twelve years for a proprietary variety to reach commercial viability. Seminis works to minimize failure in the market by focusing on identifiable market needs and opportunities, while reducing time-to-market and development costs. Seminis employs biotechnology, biochemistry, tissue culture, dihaploids, cytoplasmic male sterility and molecular markers to enhance its plant breeding programs and improve the efficiency of its new product development efforts. 9 Breeding -- Seminis maintains significant breeding programs for 28 major vegetable and fruit species that yield over 300 different varieties each year. No other company has the scope of product development in vegetable and fruit crops. Seminis' breeding strategy is to create vegetable and fruit hybrids and varieties with combinations of traits that are superior to principal competitor hybrids and varieties and that meet or anticipate the changing demands of the market. These improved traits include varieties that are economical to produce, have high field and marketable yields, possess superior disease resistance, environmental tolerance and nutritional content and have long shelf lives, superior processing characteristics and consumer benefits such as improved taste, appearance and nutrition and ready-to-eat convenience. Plant and Genetic Technology -- Through the use of its proprietary processes, Seminis enhances the efficiency of its breeding programs by enabling its breeders to identify and incorporate important plant traits into breeding lines, while significantly reducing the lead-time necessary to introduce commercially viable products. These proprietary processes include the use of tissue culture, dihaploid breeding, cytoplasmic male sterility, molecular markers, genomics and biotechnology. Plant Pathology -- Vegetables and fruits are susceptible to diseases that can affect yield as well as quality of the final product. In order for Seminis' plant breeders to develop vegetable and fruit varieties resistant to diseases, Seminis believes it has established the largest plant pathology group in the industry to identify and understand diseases important in vegetables and fruits. With 14 scientists in a network of laboratories throughout the world, Seminis is currently working on more than 100 different diseases, targeting those that have the greatest impact on commercial vegetable and fruit production. As a result of these efforts, Seminis leads the industry by providing the widest range of disease resistant hybrids that require reduced or no chemical applications while enhancing growers' yield potential. Its plant pathology resources also enable Seminis to maintain rigorous quality control standards. All seed-lots are screened for a wide variety of diseases that could be carried on the seed. Lots that may be contaminated are treated to destroy the disease organisms or are destroyed. STRATEGIC RELATIONSHIPS Seminis actively seeks access to technology applicable to vegetables and fruits from companies, research institutions and leading universities. Either directly or through Savia, majority owner of Seminis, the Company has over 100 technology agreements providing it access to germplasm, genes, technology, patents and proprietary knowledge. Seminis' major strategic relationships include technology agreements with Monsanto, the John Innes Center, Bionova Holding Corporation, an affiliate of Savia, and Mendel Biotechnology, Inc. As a result of its broad technology alliances, Seminis has relative freedom to operate in the vegetable and fruit seed market. Monsanto Technology Collaboration Agreement. Monsanto is a worldwide manufacturer and seller of a diversified line of agricultural products, nutrition and consumer products and pharmaceuticals, with leading agricultural biotechnology. Monsanto has made significant investments in the development of technologies useful in the identification, transfer and expression of genes in plants. Monsanto and Savia executed a worldwide, non-exclusive agreement in January 1997, which provides Seminis access to Monsanto biotechnology applied to vegetables and fruits. Seminis gains early insight into new technologies being developed by Monsanto for agronomic crops that can also improve the input and quality characteristics of vegetables and fruits. Through the agreement, Seminis has access to numerous Monsanto patents and pending patents covering the use of selectable markers, a range of promoters which control gene expression and the agrobacterium transformation system, a common means of transferring genes into plants. It also has access to a range of valuable traits such as Roundup Ready(R) weed control, Bt insect resistance and genes for disease control and quality traits. By partnering with Seminis, Monsanto is able to leverage its research and development investment across the broadest spectrum of crops. John Innes Center Technology Agreement. The John Innes Center and Sainsbury Laboratory are premier agricultural research institutions located in Norwich, England. John Innes has built a substantial technology position for traits involved in improving plant yield, quality and growth characteristics of vegetable crops. On December 1, 1997, John Innes and Savia entered into a five-year agreement which provides Savia and its affiliates with access to significant plant disease control technology that will improve its capability to develop broad fungal disease resistance and enhanced nutritional and health benefits from vegetables. Bionova Holding Corporation Research Agreement. Bionova, an affiliate of Savia, is a biotechnology company focused on developing novel genes for seed and vegetatively propagated plants like strawberries, bananas and grapes. Under the research agreement between Bionova and Seminis, Seminis funds research at Bionova for specific vegetable and fruit crop projects, principally in early stage molecular biology research related to the introduction of Monsanto genes into vegetables and fruits. The agreement also 10 provides access to other genes and technologies including transwitch technology, pea and pepper transformation and agrobacterium transformation. The results of this funded research are the exclusive property of Seminis. Under the terms of the agreement, Seminis pays royalties on all products that are commercialized using Bionova technology. Mendel Biotechnology Equity Participation and Research Agreement. Mendel Biotechnology studies the structure and function of genes using a mustard plant species, Arabidopsis thaliana. This plant is particularly well suited for basic discovery research due to its small size and simple genetic structure. Seminis has a license agreement with Mendel Biotechnology to access genes for the improvement of plant growth and development. In conjunction with Savia's equity stake in Mendel Biotechnology, Savia and Mendel Biotechnology have a technology agreement which provides Seminis access to genes and technology developed by Mendel Biotechnology's genomics effort in vegetables and fruits. Other Technology Agreements and Collaborations. Seminis actively develops collaborations and acquires technologies from private corporations, research institutions and leading universities. Seminis believes that its investment in technology agreements and collaborations reduces the cost and risk normally associated with new product development, as Seminis utilizes collaborators for most of its basic research. Seminis typically shares the value created as a result of its agreements and collaborations with its partners once a product reaches commercialization. PRODUCTION AND OPERATIONS Seminis typically contracts with seed growers to produce its seeds. It also produces seed on company-owned farms. Seminis provides the producer with male and female "parent" lines, which are multiplied into commercial quantities of hybrid seed. The producer returns the hybrid seed to one of Seminis' production facilities for cleaning, quality control, packaging and climate controlled storage, prior to sale to the customer. Seminis' seeds are produced both domestically and internationally in over 30 countries in the Northern and Southern Hemispheres to mitigate growing risks associated with weather or disease in any one region. In the United States, Seminis produces seed in Arizona, California, Idaho, Oregon and Washington through contract production with high-quality, dependable growers. Seeds are produced internationally through subsidiaries in Argentina, Canada, Chile, France, Guatemala, Hungary, Italy, Mexico, New Zealand, Peru, South Africa, South Korea, Thailand and the Netherlands, and through exclusive agents using proprietary Seminis technology in Australia, China, Czech Republic, Denmark, Ecuador, Germany, India, Israel, Italy, Japan, Latvia, New Zealand, Romania, Slovakia, South Africa, Taiwan, Tanzania, Turkey and Vietnam. By geographically diversifying its production facilities, Seminis can schedule its planting on a year-round basis, maximize yield, reduce inventory requirements and ensure adequate supplies. In addition, Seminis manages the availability of quality products throughout the world by maintaining production capabilities for each variety in two locations in each hemisphere. For example, a new variety with strong, unanticipated demand in the Northern Hemisphere can be supplied by using additional production from the Southern Hemisphere. Seminis controls contract production, globally, by providing on-site management and technical personnel to oversee the production process. Seminis supplies producers with stock seed, specialized hybridizing techniques and specialized sowing and harvesting equipment to ensure product quality. Production is split among numerous species, ranging from hand-labor intensive hybrid crops such as peppers and tomatoes, to machine planted and harvested seed crops such as peas, beans and corn. Product quantities are determined by long-term sales forecast, product safety stock in inventory and the production history for the region and product. Seminis has its main processing facilities in California, Idaho/Washington, Chile, and the Netherlands, and auxiliary processing centers in New Zealand, Hungary, and South Korea. The location of seed processing centers is intended to facilitate the flow of seed from production areas to major markets. Seminis' planning department utilizes a specially designed logistics system, which integrates the planning functions in production, operations and sales. The implementation of this system has provided real time information about inventory from crop in ground to finished and available inventory for sales over a four-year time horizon. Using better information systems and efficient capacity utilization, Seminis expects to complete the consolidation and rationalization of its operations over the next year. 11 QUALITY ASSURANCE The mission of the Quality Assurance program is to ensure that Seminis' products and services perform at a level of excellence that meets or exceeds the expectations of the Company's internal and external customers. Quality Assurance oversees an extensive program that is designed to build quality into the seed, beginning at the breeder level, continuing through production, processing and sale of the commercial seed. The Product Quality Evaluation group conducts extensive fieldwork in molecular purity, hybridity and identity analysis, germination and physical purity evaluations and in testing the general health of the seed. The Product Quality Improvement group works closely with Operations, Production, Inventory Management and Customer Service to build in the quality of the seed from the very beginning. This goal is accomplished by defining procedures, guidelines and criteria to be applied along the process, as well as monitoring the correct application. Also included are field inspections, monitoring seed conditioning and treatment processes, and ensuring the proper allocation of seed. The program also interfaces with the customers to ensure their satisfaction with our products and services. The recently created Quality Intelligence Center focuses on gathering, organizing, analyzing and supplying quality related information to all the areas involved in the supply chain. Through this Center, Seminis capitalizes on the experience and historical information available to the Company across regions and functions. The three groups, Product Quality Evaluation, Product Quality Improvement and Quality Intelligence Center, work in conjunction to create a strong Quality Assurance program that accomplishes its mission to benefit Seminis and its customers. COMPETITION Seminis faces direct competition from technological advances by competitors such as other seed companies, chemical and pharmaceutical companies and biotechnology companies, many of which have substantially greater resources than Seminis. To remain competitive, Seminis expends 10% of its revenue in research and development and strives to maintain technological alliances. INTELLECTUAL PROPERTY Seminis uses a wide array of technological and proprietary processes to enhance its germplasm and product development programs. These technologies and proprietary processes enable Seminis to create novel product concepts and reduce the time to market by, in many cases, two to five years. Seminis files for patents on technology that is patentable, although it does not file for patents on all potentially patentable technologies. Seminis currently owns or has pending patents in such areas as virus resistance, product quality, breeding technology, gene expression, cell selection and resistance genes, including 43 issued or allowed patents in Australia, Canada, France, Germany, Great Britain, Italy, the Netherlands, South Africa, and the United States. Seminis currently has 126 patent applications filed, or pending, in Argentina, Australia, Brazil, Canada, Chile, China, the European Union, Hungary, India, Indonesia, Israel, Japan, Mexico, New Zealand, Romania, South Korea, Saudi Arabia, Spain, Thailand, Turkey, Ukraine and the United States. Intellectual property rights protect Seminis products and technologies from use by competitors and others. Intellectual property rights of importance for Seminis include utility patents, registrations under plant variety protection laws and trade secrets. Intellectual property rights focus on open-pollinated varieties, parental lines, traits and gene technologies related to hybrid varieties, novel traits, novel breeding technologies, molecular markers and disease resistance. In many countries, including the United States, the European Union and Japan, plant varieties can be protected under laws which grant rights to plant breeders to protect their seeds, including the right to prevent third parties from importing or exporting, storing, processing, reproducing or selling protected varieties within the territory of protection. Seminis has protected 403 plant varieties under plant variety protection certificates or plant variety right certificates in the United States, the European Union, and other countries. Seminis has filed another 171 applications for plant variety protection in the United States and the European Union. Seminis intends to continue developing comprehensive intellectual property and protection through utility patents, including key varieties and parent lines. Seminis will also aggressively expand protection of its varieties and parent lines through plant variety rights. Proprietary technologies not protected under these mechanisms are protected under trade secret laws. REGULATION The developing, testing and commercialization of seed products are subject to legislation and regulation in various countries. These regulations may govern genetic exclusivity, environmental concerns, product viability, performance and labeling. While regulation adds a cost of doing business to the industry, it also provides protection for research and development investment in new products, thereby encouraging continued new product development. 12 REGISTRATION PROCESS Variety registration varies from country to country, but generally each variety must be phenotypically unique. That is, the size, color, maturity and quality must be verifiably different from the varieties that already exist in the market. Once a variety is registered it cannot be changed. In the United States, the registration process is voluntary and determination that a variety is unique is left to the breeder. In Europe, and many other countries, the registration process is regulated and determination of uniqueness is made in official trials. PHYTOSANITARY CERTIFICATION The purpose of phytosanitary requirements is to prevent the spread of plant diseases that can be carried on seed or other plant tissue. Each seed-producing country has agricultural inspectors that check the seed crops for the presence of specified diseases. After these crops are harvested, laboratory tests are also conducted to ensure that the seed is clean. Having passed the inspection and lab tests, the department or ministry of agriculture of the producing country issues a phytosanitary certificate stating that the seed is free of specified diseases. Importing countries then allow the seed to cross their borders on the basis of these certificates. LABELING OF GENETICALLY ENGINEERED PRODUCTS There are no worldwide, accepted regulations for genetically engineered products. Consequently, Seminis is required to seek and obtain regulatory approvals in each country where seeds will be sold and where the harvested produce will be exported. In the European Union and Switzerland, labeling of genetically engineered products is mandatory, whereas in other countries, such as Canada and the United States, labeling is required only if there is a compositional change or a health risk associated with the product. Japan, Australia and New Zealand are considering labeling requirements. Other regions where Seminis sells products either have labeling requirements similar to the United States or have no labeling requirements. Seminis will comply with the labeling requirements of each country in which it conducts business. ENVIRONMENTAL REGULATION Seminis' business is not sensitive to, or highly regulated by, environmental laws. Seminis uses various equipment which is subject to federal, state and local clean air and water regulations. Also, Seminis' research and quality assurance divisions conduct various agricultural growing operations utilizing chemicals routinely used in any farming operation. Seminis' foreign operations are also subject to laws of foreign jurisdictions as to environmental matters. Seminis believes it is in full compliance with these laws. In its operations, Seminis uses very limited amounts of materials or matters which have been categorized as "hazardous substances." Seminis believes that its use has always been in full compliance with all applicable laws, rules and regulations. Seminis has no knowledge of any current, pending or threatened citation or complaint, civil or criminal, relating to any alleged violation of any law, rule or regulation relating to any environmental matter. EMPLOYEES As of September 30, 2001, Seminis had approximately 2,993 employees. Seminis believes it has good relations with its employees. ITEM 2. PROPERTIES In fiscal year 2000, Seminis relocated to its new worldwide headquarters and processing facility located in Oxnard, California, USA. This facility is equipped with some of the highest quality state of the art seed processing equipment and has been specifically designed with optimum storage conditions for vegetable seed, to further ensure high quality seed inventory. Within the production process, Seminis directly controls significant, open-field production capacity in Chile, Mexico and Peru on land predominantly owned by Seminis. Seminis' main greenhouse production facilities are located in Mexico, on sites owned by Seminis, and in Chile, the Netherlands and France, on sites owned by Seminis, but contracted out to third parties who grow seeds exclusively for Seminis. Seminis maintains several facilities throughout the world, equipped to handle seed harvesting, cleaning, sizing, treating, testing and packaging. In addition to Seminis' Worldwide Headquarters, the company owns and operates production and processing facilities in Idaho, Washington, Chile, France, New Zealand, South Africa, South Korea, Thailand, the Netherlands, Brazil, Italy, India and Hungary. 13 Seminis conducts its research primarily at 6 company-owned research centers in France, Italy, South Korea, the Netherlands and the United States. Seminis owns 43 and leases 18 additional research facilities. ITEM 3. LEGAL PROCEEDINGS Seminis is involved from time to time as a defendant in various lawsuits arising in the normal course of business. Seminis believes that no current claims, individually or in the aggregate, will have a material adverse effect on Seminis' business, results of operations or financial condition. In November 1998, Seminis received notice from Monsanto of a complaint filed by Pioneer Hi-Bred International, Inc. in the United States District Court for the Southern District of Iowa against Asgrow Seed Company LLC. The complaint alleges violations of the Lanham Act, misappropriation of trade secrets and other common law causes of action. Monsanto claimed that indemnities provided by Seminis to Monsanto in connection with Seminis' sale of the Asgrow agronomics business to Monsanto covered the claims in Pioneer's complaint. Also in November 1998, Seminis provided notice to Pharmacia & Upjohn that in connection with Seminis' acquisition of the Asgrow Seed Company and the subsequent sale of the Asgrow agronomics business Upjohn agreed to indemnify Seminis and Monsanto in connection with the matters asserted in Pioneer's complaint. On October 18, 1999, Pharmacia & Upjohn, Monsanto Global Seed Group and Monsanto Company were added as defendants in the Pioneer/Asgrow litigation. In early November 1999, Asgrow, UpJohn and Monsanto each answered Pioneer's amended complaint. Seminis still does not believe that it has any material exposure in connection with this litigation. As part of the formation of LSL PlantScience, LSL Biotechnologies contributed certain agreements between LSL Biotechnologies and a third party. These agreements contain provisions that permanently restrict the third party from engaging in the development or marketing of open field tomato seeds having long-shelf-life characteristics in certain areas in the world, including North America. The Antitrust Division of the United States Department of Justice has filed suit against LSL PlantScience, LSL Biotechnologies and Seminis to delete these restrictive provisions. Seminis continues to believe that there will not be a material impact upon its business if the Department of Justice is successful in deleting the restrictive provisions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to shareholders during the last quarter of the year covered by this report. 14 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table shows our current executive officers and their areas of responsibility. Biographies are included after the table.
NAME AGE TITLE ---- --- ----- Alfonso Romo Garza................... 51 Director, Chairman of the Board and Chief Executive Officer Eugenio Najera Solorzano............. 54 Director, President and Chief Operating Officer Gaspar Alvarez Martinez.............. 46 Vice President and Worldwide Corporate Comptroller Enrique Fernando Osorio Lopez........ 50 Vice President of Treasury, Investor Relations and Information Technology Jorge Barrera Gutierrez.............. 63 Secretary
Alfonso Romo Garza has been the Chairman of the Board of Seminis since October 1995 and Chief Executive Officer of Seminis since January 1, 2000. Mr. Romo has been Chief Executive Officer of Pulsar Internacional, S.A. de C.V., an affiliate of Savia, since 1984. Mr. Romo has also been the Chairman of the Board and Chief Executive Officer of Savia since 1988, and the Chairman of the Board Seguros Comercial America, S.A. de C.V since 1989. Mr. Romo is also a director of Cementos Mexicanos, S.A. de C.V. Eugenio Najera Solorzano has been a Director of Seminis since May 1998. Mr. Najera has been President & Chief Operating Officer of Seminis since August 2000. Since August 1997, Mr. Najera has been in charge of new business development at Savia. From November 1992 to September 1997, Mr. Najera was the Chief Operating Officer of Cigarrera La Moderna, S.A. de C.V. Mr. Najera is a director of Savia and Bionova. Gaspar Alvarez Martinez has been Vice President and Worldwide Corporate Comptroller since December 2000 and was Worldwide Finance Director of Seminis since January 2000. Prior to joining Seminis, Mr. Alvarez served as a Director of the Controlling and Financial Planning areas of Savia, S.A. de C.V. Enrique Fernando Osorio Lopez has been Vice President, Treasury, Investor Relations and Information Technology of Seminis since July 2001, and previously served as Vice President, Treasury and Investor Relations of Savia, S.A. de C.V. from June 1994 through June 2001. Jorge Barrera Gutierrez has been Secretary of Seminis since February 2001. Mr. Barrera is Legal Counselor of Savia, S.A. de C.V., and also a director of Savia since 1970. He is also a director of Empaques Ponderosa, S.A. de C.V. since 1998. 15 PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK Seminis' Class A Common Stock began trading on the NASDAQ National Market System on June 30, 1999 and the initial public offering of Seminis' Class A Common Stock was completed on July 5, 1999. Seminis shares of Class A Common Stock are traded under the symbol SMNS. The following table sets forth, for the quarters ended December 31, 1999, March 31, 2000, June 30, 2000, September 30, 2000, December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001, the high and low prices as reported by the NASDAQ National Market System:
QUARTER HIGH LOW ------- ------- ------- October 1, 1999 through December 31, 1999 ....... $9.6250 $5.0000 January 1, 2000 through March 31, 2000 .......... 7.1875 4.1562 April 1, 2000 through June 30, 2000 ............. 6.4375 2.5000 July 1, 2000 through September 30, 2000 ......... 4.0000 1.0000 October 1, 2000 through December 31, 2000 ....... 1.7500 0.4375 January 1, 2001 through March 31, 2001 .......... 2.5312 0.4688 April 1, 2001 through June 30, 2001 ............. 1.7344 0.9688 July 1, 2001 through September 30, 2001 ......... 1.8000 0.9800
The closing price quoted on the NASDAQ National Market System on September 28, 2001 was $1.370 per share. As of December 17, 2001, there were 14,681,878 shares of Class A Common Stock outstanding with 55 owners of record. Seminis also has 45,142,508 shares of its Class B Common Stock outstanding with 14 owners of record as of December 17, 2001. The Class B Common Stock is not traded on an exchange or in an over-the-counter market. RECENT SALES OF UNREGISTERED SECURITIES The following provides information as to Seminis' securities sold by the Company during fiscal year 2000 and 2001 which were not registered under the Securities Act of 1933. In April, May and June 2000, Seminis converted, $22.0 million, $14.0 million and $6.0 million, respectively, of intercompany advances from Savia into 2,200 shares, 1,400 shares and 600 shares of Class C Preferred Stock. In August and September 2000, Savia made additional equity investments of $10.0 million and $14.0 million, respectively, in exchange for 1,000 shares and 1,400 shares of Class C Preferred Stock. The issuance of such shares was effected in reliance on the exemption from registration under Section 4(2) of the Securities Act. Through September 30, 2000, 662.4 shares of Class C Preferred Stock were issued as dividends. Through December 31, 2000, an additional 299.6 shares of Class C Preferred Stock were issued as dividends. Effective January 2001, the dividends of Class C Preferred Stock have been converted to a cash basis in accordance with the Board resolution on February 24, 1999. No Class C Preferred Stock cash dividends have been paid to date due to the prohibition mandated in the credit agreement of the Syndicated Banks. DIVIDENDS Seminis has never paid cash dividends on its common stock and preferred C stock. Seminis plans to retain all future earnings for use in its business, and, in addition, under Seminis' amended July 1999 credit agreement with Harris Trust and Savings Bank, Bank of Montreal and other lenders, Seminis is prohibited from paying cash dividends on its common stock and preferred C stock. Seminis has paid cash dividends on its mandatorily redeemable preferred B stock in the past, but not in fiscal year 2001. The Company is restricted from paying cash dividends on its mandatorily redeemable preferred B stock until certain conditions are met. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, including the notes thereto, included herein. 16 In fiscal year 2001, gross profit included approximately $73.9 million of non-cash charges for inventory write-downs. Included in this amount was $58.2 million of write-downs which occurred in conjunction with the Company's Global Restructuring and Optimization Plan whereby the Company rationalized its product line from 6,000 to 4,000 varieties as well as imposed more stringent quality standards. The loss from operations also included approximately $19.6 million of severance and other exit charges associated with the Company's Global Restructuring and Optimization Plan and $2.6 million of compensation expense related to restricted stock awards. Income tax expense reflected the establishment of a valuation allowance totalling $62.8 million for certain deferred tax assets. In fiscal year 2000, gross profit included approximately $58.9 million of non-cash charges for inventory write-downs. Write-downs totalling $18.4 million related to the Global Restructuring and Optimization Plan included inventories that were scrapped as part of the consolidation of production and distribution facilities. The loss from operations also included approximately $19.0 million of severance and other exit charges associated with the Company's Global Restructuring and Optimization Plan, a $2.1 charge related to Seminis' research incentive program and a $6.4 million impairment write-down related to the Company's investment in LSL PlantScience. Income (loss) from continuing operations before extraordinary items available for common stockholders in fiscal year 1998 reflects the optional repurchase by Seminis of a portion of its mandatorily redeemable common stock at an amount in excess of the redemption value. Seminis was required to deduct this difference, which totaled $134.3 million, from income (loss) from continuing operations before extraordinary items for purposes of determining income (loss) from continuing operations before extraordinary items available for common stockholders and related per share amounts. Historical data for income (loss) from continuing operations before extraordinary items available for common stockholders reflect deductions for dividends on preferred stock, mandatorily redeemable preferred stock, for accretion of the redemption value of mandatorily redeemable common stock and, in fiscal year 1998, for the excess of purchase price over redemption value of the mandatory redeemable common stock repurchased. At June 29, 2001 and September 30, 2001, the Company was in compliance with all of its financial covenants and obligations under its syndicated credit agreement which as amended on May 31, 2001. At September 30, 2000, December 29, 2000 and March 30, 2001, the Company was not in compliance with previous minimum interest coverage and maximum debt ratio covenants and therefore, outstanding borrowings under this facility were classified as a current liability as of September 30, 2000, December 29, 2000, and March 30, 2001. As disclosed in the past, these factors had raised doubt about the Company's ability to continue as a going concern; however, management believes the revised covenants under the amended credit agreement along with the current operating initiatives have mitigated this uncertainty and as a result long-term portions of borrowings under the syndicated agreement have been classified to long-term debt according to the revised maturity schedule. All amounts outstanding under the credit facility are due on December 31, 2002. ACQUISITIONS AND EFFECTS OF PURCHASE ACCOUNTING Seminis was formed in 1994 to consolidate various industry-leading vegetable and fruit seed brands into one consumer-oriented, agrobiotechnology company. Seminis' core business was created through the acquisition of the Asgrow seed business from the Upjohn Company in December 1994 and the subsequent combination of the Asgrow vegetable and fruit seed business with Petoseed and Royal Sluis businesses in October 1995. In fiscal year 1998, Seminis completed several acquisitions, including the acquisition of two South Korean companies, Hungnong Seed Co., Ltd. ("Hungnong") and Choong Ang Seed Co., Ltd. ("Choong Ang"). In November 1998, Seminis completed the acquisition of the vegetable seed business of Agroceres, a Brazilian company. As a result of these transactions, the results of operations and consolidated financial position reflect the effects of purchase accounting. 17
FISCAL YEAR ENDED SEPTEMBER 30, ---------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS: Net sales ....................................... $ 449,895 $ 474,445 $ 530,633 $ 428,423 $379,544 Gross profit .................................... 217,828 237,340 328,284 265,617 229,437 Research and development expenses ............... 52,441 58,364 62,421 49,416 41,039 Selling, general and administrative expenses .... 191,113 222,632 192,978 158,588 136,438 Management fees paid to Savia ................... -- -- -- 8,465 6,200 Amortization of intangible assets ............... 28,034 30,454 27,896 14,457 12,394 Income (loss) from operations ................... (53,760) (74,110) 44,989 34,691 33,366 Income (loss) from continuing operations before extraordinary items ......... (134,455) (80,783) 2,387 6,762 11,325 Income (loss) from continuing operations before extraordinary items available for common stockholders ....... (152,779) (89,407) (4,097) (133,367) 2,089 Income (loss) from continuing operations before extraordinary items available for common stockholders per common share, basic and diluted ........... $ (2.55) $ (1.49) $ (0.10) $ (4.23) $ 0.07 Weighted average shares outstanding, basic and diluted ............................. 59,824 59,824 43,936 31,536 30,000
AS OF SEPTEMBER 30, -------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital ................................. $245,961 $ 25,056 $349,175 $272,097 $200,792 Total assets .................................... 835,357 998,037 993,362 862,189 519,673 Long-term debt .................................. 248,898 23,468 315,424 394,446 80,331 Subordinated debt due Savia ..................... -- -- -- 35,857 -- Mandatorily redeemable stock Common ........................................ -- -- -- 48,416 122,111 Preferred ..................................... 27,500 25,500 25,000 25,000 25,000 Total stockholders' equity ...................... 319,718 450,880 470,715 160,421 159,681
In fiscal year 2000, long term debt was reclassified as current long term debt due to the non-compliance of certain financial covenants of the Company's syndicated credit agreement. Without the reclassification, long term debt and working capital would have been $320,768 and $321,856, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the "Selected Consolidated Financial Data" and consolidated financial statements, including the notes thereto, appearing elsewhere herein. The following discussion and analysis contains certain "forward-looking statements" which are subject to certain risks, uncertainties and contingencies, including, without limitation, those set forth below, which could cause Seminis' actual business, results of operations or financial condition to differ materially from those expressed in, or implied by, such statements. 18 RISK FACTORS Readers should be aware that there are various risks factors including, but not limited to, those set forth below. - On May 31, 2001, the Company restructured its $310.0 million credit facility. The amendment extended the final maturity of the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, with principal payments of $63.0 million due in fiscal year 2002 and the remaining $230.2 million of the term loan and revolving credit commitments due in the first quarter of fiscal year 2003. Whereas the Company expects to meet its obligations as well as covenant requirements under the amended credit facility through September 30, 2002, the Company must successfully execute a refinancing or recapitalization plan prior to December 31, 2002 in order to meet the final maturity of the facility. The Company intends to pursue various alternatives in order to complete the refinancing or recapitalization, however there can be no assurances that it will be able to do so. Failure to comply with existing covenants which would make the syndicated debt callable or inability to obtain adequate financing with reasonable terms prior to December 31, 2002 could have a material adverse impact on the Company's business, results of operations, or financial condition. - The Company is currently restricted from any additional borrowings under the syndicated credit facility. As of November 2000, Seminis' parent company suspended advancing funds to the Company. - Savia owns approximately 67.9% of the Company's outstanding common stock and controls 81.2% of the vote of its common stock. Accordingly, Savia controls the Company and has the power to approve all actions requiring the approval of our stockholders, including the power to elect all of its directors. Therefore, Savia effectively controls our management. - A new management team has been in place as of August 2000. The Company's ability to generate operating profits and cash flows will be dependent on their successful implementation of the Company's strategic initiatives including, but not limited to, the Global Restructuring and Optimization Plan. - The Company continues to invest in research and development in order to enable us to identify and develop new products to meet consumer demands. In fiscal year 2001, our investment in research and development represented 11.7% of net sales. Despite investments in this area, our research and development may not result in the discovery or successful development of new products, which will be accepted by our customers. - The Company may have the inability to protect its intellectual property due to the uncertainty of litigation and the ineffectiveness of the laws in some of the countries that the Company currently has operations, which could have a material adverse effect on our business, results of operations, or financial condition. - A change in United States law protecting plant patents could take away patent protection for the Company's patented seeds, which could have a material adverse effect on our business, results of operations, or financial condition. - The Company faces substantial competition due to technological advances by competitors such as other seed companies, pharmaceutical and chemical companies, and biotechnology companies. Many of these companies have substantially greater resources than we. If a competitor introduces a competitively successful product, it could take years to develop a competitive seed variety, which could have a material adverse effect on our business, results of operations, or financial condition. - The Company's failure to accurately forecast and manage inventory could result in an unexpected shortfall or surplus of seeds, which could have a material adverse effect on our business, results of operations, or financial condition. - Extreme weather conditions, disease and pests can materially and adversely affect the quality and quantity of seeds produced. There can be no assurance that these factors will not affect a substantial portion of the Company's production in any year and have a material adverse effect on our business, results of operations, or financial condition. - Defective seeds could result in warranty claims and negative publicity and the insurance covering warranty claims may become unavailable or be inadequate which could have a material adverse effect on our business, results of operations, or financial condition. 19 OVERVIEW In order to achieve its position as the premier vegetable and fruit seed company, Seminis has completed nine acquisitions since its formation in 1994 and has incurred significant expenses related to the development of its infrastructure, including its human resource capability, information systems, brand marketing teams, and its research and development capability. Seminis expenses its investments in research and development and in the creation of its worldwide sales capability. The comparability of Seminis' results of operations from year to year has also been affected by the impact of acquisition accounting under purchase accounting principles, interest expense attributable to acquisition financings, and exposure to foreign currency fluctuations. RESULTS OF OPERATIONS The table below sets forth Seminis' results of operations data expressed as a percentage of net sales.
FISCAL YEAR ENDED SEPTEMBER 30, ---------------------------- 2001 2000 1999 ------ ------ ------ Net sales ........................................................... 100.0% 100.0% 100.0% ------ ------ ------ Gross profit ........................................................ 48.4 50.0 61.9 Research and development expenses ................................... 11.7 12.3 11.8 Selling, general and administrative expenses ........................ 42.4 46.9 36.4 Amortization of intangible assets ................................... 6.2 6.4 5.3 ------ ------ ------ Income (loss) from operations ....................................... (11.9) (15.6) 8.4 Interest expense, net ............................................... (8.7) (7.1) (7.9) Other non-operating income, net ..................................... (0.4) 0.5 0.3 ------ ------ ------ Income (loss) from continuing operations before income taxes and extraordinary items ........................................... (21.0) (22.2) 0.8 Income tax benefit (expense) ........................................ (8.9) 5.2 (0.5) ------ ------ ------ Income (loss) from continuing operations before extraordinary items ............................................... (29.9) (17.0) 0.3 ------ ------ ------ Income (loss) before extraordinary items ............................ (29.9) (17.0) 0.3 Extraordinary items, net of income tax .............................. -- -- (1.3) ------ ------ ------ Net loss ............................................................ (29.9)% (17.0)% (1.0)% ====== ====== ======
YEAR ENDED SEPTEMBER 30, 2001 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000 NET SALES Total net sales at actual currency rates decreased 5.2% to $449.9 million for the year ended September 30, 2001, from $474.4 million for the year ended September 30, 2000. The decrease was primarily due to currency fluctuation and divestiture of certain businesses. The weakness of the Euro, the South Korean Won and Brazilean Real accounted for the majority of the $20.9 million decrease in sales from currency fluctuation in comparison to fiscal year 2000. The divestiture of the garden and soybean businesses impacted sales with a further decrease of $17.3 million. At a constant currency rate with fiscal year 2000, net seed sales increased 2.4% to $439.5 million for the year ended September 30, 2001, from $429.2 million for the year ended September, 2000. North America had the largest increase of $8.4 million with significant improvements in Mexico. At a constant currency rate with fiscal year 2000, South America had a sales increase of $2.8 million, despite unfavorable economic conditions in Argentina and Colombia; the Far East also recorded an increase in net seed sales of $0.6 million, even though Korea was negatively impacted by heavy snowfall and an economic downturn; Europe, the Middle East and Africa sales decreased by $1.5 million, mainly due to weather conditions in Southern Europe. Non-core business also increased sales by $3.4 million, at constant currency rates with fiscal year 2000, with Incotec being the major contributor. GROSS PROFIT Gross profit decreased 8.2% to $217.8 million for the year ended September 30, 2001, from $237.3 million for the year ended September 30, 2000. Gross margin decreased to 48.4% for the year ended September 30, 2001, from 50.0% for the year ended September 30, 2000. Both gross profit and gross margin reflected total non-cash inventory writedowns of $73.9 and $58.9 million taken during fiscal year 2001 and 2000, respectively. The writedowns in fiscal year 2001 included approximately $58.2 million of charges taken in conjunction with the Company's Global Restructuring and Optimization Plan whereby the Company rationalize its product line from 6,000 to 4,000 varieties as well as imposed more stringent quality standards. Gross margins in fiscal year 2001 were also positively impacted by price increases resulting from efforts of the Global Restructuring and Optimization Plan. 20 RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses decreased 10.1% to $52.4 million for the year ended September 30, 2001, from $58.4 million for the year ended September 30, 2000. The decrease was due to an approximate $2.0 million charge related to Seminis' research incentive program recorded in the first half of fiscal year 2000, with no corresponding charges in fiscal year 2001. The decrease in expenses was also a result of headcount reduction from the Global Restructuring and Optimization Plan and currency fluctuations from research and development operations in Europe during fiscal year 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased 14.2% to $191.1 million for the year ended September 30, 2001 from $222.6 million for the year ended September 30, 2000. The decrease was primarily the result of headcount reductions following the implementation of the Global Restructuring and Optimization Plan and, in part, the impact of currency fluctuations. Furthermore, the decrease was the result of divestiture of certain non-core businesses totaling $6.9 million, the absence of a $6.4 impairment charge recorded in fiscal year 2000 associated with the Company's investment in LSL PlantScience, and a restructuring charge primarily for severances of $12.0 million in fiscal year 2001 compared $14.0 million in fiscal year 2000. The decrease was partially offset by facility moving costs of $3.3 million compared to $3.1 million, and consulting fees for restructuring of $4.3 million compared to $2.0 million in fiscal years 2001 and 2000, respectively. Additionally, a compensation charge of $2.6 million for a newly established employee stock plan was taken in fiscal year 2001. AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets decreased 7.9% to $28.0 million for the year ended September 30, 2001 from $30.5 million for the year ended September 30, 2000. The decrease was primarily due to the effect of latter stages of accelerated amortization of intangible assets related to purchase accounting. Furthermore, the decrease was attributable to the currency impact from the devaluation of the South Korean Won on Korean based intangible assets. The decrease was partially offset by an increase in intangible asset amortization in a U.S. subsidiary. INTEREST EXPENSE, NET Interest expense, net, increased 17.1% to $39.1 million for the year ended September 30, 2001 from $33.4 million, for the year ended September 30, 2000. The increase was primarily due to higher effective interest rates in this fiscal year compared to last fiscal year. Furthermore, the increase was due to the acceleration of deferred financing cost amortization related to the Company's credit facility. The acceleration was a result of the advancement of the maturity date of the term loan. OTHER NON-OPERATING INCOME, NET Seminis had other non-operating expense, net of $1.6 million for the year ended September 30, 2001, as compared to other non-operating income, net of $2.2 million for the year ended September 30, 2000. Other non-operating expense, net, for the year ended September 30, 2001 included other expense, net of $1.9 million, primarily from the loss on the sale of fixed assets, offset by a foreign currency gain of $1.7 million and a minority interest provision of $1.4 million. Other income in fiscal year 2000 included a $10.0 million gain on the asset sales of MBS, a soybean subsidiary, a currency loss of $5.4 million, primarily associated with Seminis Vegetable Seeds Holland on its U.S. Dollar denominated loan, and a minority interest provision of $1.2 million. 21 INCOME TAX EXPENSE Seminis had an income tax expense of $40.0 million for the year ended September 30, 2001, as compared to an income tax benefit of $24.6 million for the year ended September 30, 2000. The increase in income tax expense during fiscal year 2001 primarily related to a provision of a valuation allowance against the deferred tax assets arising from net operating loss carryforwards. As of September 30, 2001, the Company's tax assets for net operating loss carryforwards primarily consisted of a Netherland's carryforward of $45,655 that has an indefinite life, and a United States carryforwards of $94,456 which will begin to expire in 2020. Although a valuation allowance has been established on these tax assets, the Company has commenced certain initiatives in order to utilize these loss carryforwards before they expire. YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999 NET SALES Net sales decreased 10.6% to $474.4 million for the year ended September 30, 2000, from $530.6 million for the year ended September 30, 1999. The decrease was due to weakness in the North American and European vegetable seed markets, currency fluctuations, and the divestiture of non-core assets in fiscal year 2000. The North American and European markets experienced inventory adjustments as dealers and distributors lowered their overall carrying levels of inventory. Additionally, sales decreased in North America due to acreage reductions stemming from depressed produce prices for fresh market tomatoes, cucumbers, and melons. European sales were also negatively impacted by approximately $18.9 million due to the effect of the devaluation of the Euro. The sales decreases in North America and Europe were partially offset by vegetable seed volume and price increases in the Far East. Sales of watermelon seeds were particularly strong due to superior product offerings by the Company. Furthermore, the sales decrease was due to the June 2000 divestiture of non-core assets related to MBS, a soybean subsidiary. GROSS PROFIT Gross profit decreased 27.7% to $237.3 million for the year ended September 30, 2000, from $328.3 million for the year ended September 30, 1999. Gross margin decreased to 50.0% for the year ended September 30, 2000 from 61.9% for the year ended September 30, 1999. The gross margin was negatively impacted during fiscal year 2000 due to approximately $58.9 million of non-cash charges for inventory write-downs. $33.9 million of the charge related to excess seed calculated based on projected sales and shelf life of the seeds, and the remaining $25.0 million was primarily due to write-offs of low and bad quality seeds. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses decreased 6.5% to $58.4 million for the year ended September 30, 2000, from $62.4 million for the year ended September 30, 1999. During fiscal year 2000 the Company took an approximately $2.0 million charge related to Seminis' research incentive program compared to a $4.0 million charge for the program in fiscal year 1999. The decrease in expenses was also due to the impact of the weaker Euro during fiscal year 2000 compared to fiscal year 1999, as the Company has significant research and development activities in France, Spain, Italy, and the Netherlands. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased 15.4% to $222.6 million for the year ended September 30, 2000, from $193.0 million for the year ended September 30, 1999. General and administrative expenses increased due to a $14.0 million severance charge associated with the Company's Global Restructuring and Optimization Plan, $3.1 million of expenses from the relocation and consolidation of the Company's Saticoy, California and Gonzales, California production and processing facilities to the new Oxnard, California facility, and $2.0 million of expenses related to programs designed to maximize the efficiency of Seminis' product pipeline. Additionally, general and administrative expenses increased due to a $6.4 million impairment write-down associated with the Company's investment in LSL PlantScience. 22 AMORTIZATION OF INTANGIBLE ASSETS Amortization of intangible assets increased 9.2% to $30.5 million for the year ended September 30, 2000, from $27.9 million for the year ended September 30, 1999. The increase was primarily due to amortization of goodwill relating to the acquisition of an additional 25% of Hungnong, a South Korean subsidiary, in August 1999. Furthermore, the increase was related to the strengthening of the South Korean Won during fiscal year 2000 compared to fiscal year 1999, as the Company has a significant amount of goodwill and intangible assets, denominated in South Korean Won, resulting in additional amortization when translated into U.S. Dollars. INTEREST EXPENSE, NET Interest expense, net, decreased 20.3% to $33.4 million for the year ended September 30, 2000 from $41.9 million for the year ended September 30, 1999. The decrease in expense was primarily due to the repayment of debt, using the proceeds from the Company's initial public offering in July 1999, resulting in a lower average debt balance during fiscal year 2000 compared to fiscal year 1999. OTHER NON-OPERATING INCOME, NET Seminis had other non-operating income, net of $2.2 million for the year ended September 30, 2000, as compared to other non-operating income, net of $1.8 million for the year ended September 30, 1999. Other non-operating income, net for the year ended September 30, 2000 includes other income net of $8.7 million offset by a foreign currency loss of $5.4 million and minority interest provision of $1.1 million. Other income primarily includes a $10.0 million gain on the asset sale of MBS and the foreign currency loss is principally associated with expense recorded by Seminis Vegetable Seeds Holland on its U.S. Dollar denominated loan due to the devaluation of the Euro. INCOME TAX EXPENSE Seminis had an income tax benefit of $24.6 million for the year ended September 30, 2000, as compared to an income tax expense of $2.5 million for the year ended September 30, 1999. The Company had a significant income tax benefit during fiscal year 2000 due to the charges associated with the aforementioned inventory write-downs and severance accrual associated with Seminis' Global Restructuring and Optimization Plan. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2000, the Company was not in compliance with certain covenants of its syndicated credit facility, which gave the lenders the right to accelerate payment of all amounts outstanding under the facility. In December 2000, the lenders granted a waiver with respect to these covenants as of September 30, 2000, December 29, 2000, and March 31, 2001 that extended through April 30, 2001, at which time any defaults would once again arise. As the Company did not expect to be in compliance with its covenants once the waiver expired, all outstanding borrowings under the credit facility were classified as a current liability as of September 30, 2000. In connection with granting the waivers, the lenders agreed to reschedule principal payments within fiscal year 2001. The lenders also accelerated the final maturity of the term loan and the termination date for the revolving credit commitments to June 30, 2002 from June 30, 2004. The Company was obligated to deliver a financial plan through September 30, 2002, which detailed cash flow projections on a monthly basis as well as proposed alternatives for the refinancing of the syndicated credit facility or recapitalization of the Company. In April 2001, the Company submitted its financial plan to its lenders, detailing operating initiatives that reduce existing infrastructure and working capital requirements. Additionally, the plan identified alternative sources of capital to repay the bank debt within newly defined terms, which may include the sale of non-strategic assets, debt refinancing and additional equity infusions. On May 31, 2001, the Company's lenders agreed with the financial plan and the terms to restructure the Company's $310.0 million credit facility. Upon receipt of the amended credit agreement, long-term portions of borrowings were reclassified from current liabilities to long-term debt. Among other things, the amendment extended the final maturity of 23 the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, revised principal payment dates under the term loan, instituted a new grid pricing formula to determine interest on borrowings, and revised covenant obligations. Additionally, the amendment requires the Company to submit monthly reports comparing actual cash flows to projections as well as describing the progress and status of any asset sales. Interim principal obligations under the amendment included $16.0 million due in the fourth quarter of fiscal year 2001, and $19.0 million, $4.0 million, $31.0 million, and $9.0 million due in the first, second, third, and fourth quarters of fiscal year 2002, respectively. All remaining amounts will be due in the first quarter of fiscal year 2003. The Company met all required principal and interest payments during fiscal year 2001, and was in compliance with all of its financial covenants under the amended credit agreement at September 30, 2001. In October 2001, the Company completed the sale of an office building in Seoul, South Korea, which generated net proceeds of approximately $20.0 million. The Company used $19.5 million of the proceeds to pay the scheduled $19.0 million of its syndicated debt in October 2001. The Company also sold one of its noncore businesses during fiscal year 2002, which generated additional proceeds of approximately $17.6 million. The Company used $13.0 million of the proceeds to prepay its syndicated debt in January 2002. When combined with cash flows expected to be generated from on-going operations, these additional proceeds will enable the Company to meet all obligations and covenants under the credit facility through September 30, 2002. Supporting this assertion is the fact that the Company has exceeded all cash flow projections on a cumulative basis since March 2001. The Company believes it can continue to improve its operating cash flows through aggressive cash collection efforts, disciplined inventory purchases, and lower operating expenses following the Global Restructuring and Optimization Plan. Whereas the Company expects to meet its obligations as well as covenant requirements under the amended credit facility through September 30, 2002, the Company must successfully execute a refinancing or recapitalization plan prior to December 31, 2002 in order to meet the final maturity of the facility. Based on current projections, the Company will be obligated to pay $230.2 million during the first quarter of fiscal year 2003. The Company intends to pursue various alternatives in order to complete the refinancing or recapitalization, however there can be no assurances that it will be able to do so. Failure to comply with existing covenants which would make the syndicated debt callable, or inability to obtain adequate financing with reasonable terms prior to December 31, 2002 could have a material adverse impact on the Company's business, results of operations, or financial condition. As a result of the Global Restructuring and Optimization Plan the Company has made significant strides in the enhancement of its cash flow. During fiscal year 2001, operating activities of the Company utilized $55.0 million less cash as compared to fiscal year 2000. This improvement in cash flow was primarily due to positive impacts of a decrease in operating expenses related to a 21.2% reduction in global headcount since August 2000 and an overall reduction in working capital arising from strong accounts receivable collections and improved production planning over the Company's inventory levels. These working capital improvements were partially offset by severance related costs due to restructuring and other non-recurring expenses in connection with the Global Restructuring and Optimization Plan. Capital expenditures decreased to $14.3 million for the year ended September 30, 2001, from $41.5 million for the year ended September 30, 2000. The decrease was primarily due to a substantial portion of the investment in Seminis' new headquarters and production facility being incurred in fiscal year 2000, resulting in a significant decrease in overall capital expenditures in the year ended September 30, 2001. During fiscal year 2001, the Company sold its properties in Saticoy, California, Filer, Idaho, and Vineland, New Jersey as part of its efforts to reduce and consolidate operation and production facilities. Other investing activities for the year ended September 30, 2001 included approximately $14.1 million in proceeds from the sale of non-operating assets. In October and November 2000, Seminis received $31.9 million and $14.0 million respectively, of additional capital contributions from Savia. The Company is obligated to pay dividends on these contributions at the rate of 10.0% per year. Through the year ended September 30, 2001, $4.3 million of accrued dividends pertaining to this transaction have been recorded of which $3.5 million are classified in accrued liabilities and $.8 million were paid-in-kind in the form of additional shares and are classified in additional paid in capital. The Company had $2.5 million of accrued dividends relating to Class B Mandatorily Redeemable Preferred Stock at September 30, 2001. These accrued dividends are classified within mandatorily redeemable stock. 24 Seminis' total indebtedness as of September 30, 2001 was $336.1 million, of which $293.2 million were borrowings under the current credit agreement. Additionally, $16.9 million, $6.1 million, $8.0 million, $3.3 million, and $4.6 million were borrowings by the United States, Chilean, Italian, Spanish, and Korean subsidiaries, respectively, and $4.0 million were borrowings primarily by other foreign subsidiaries. Seminis' exposure to foreign currency fluctuations is primarily due to foreign currency gains or losses that occur from intercompany loans between Seminis and its foreign subsidiaries and from the U.S. dollar denominated loan, originated by SVS Holland, B.V., a foreign subsidiary of Seminis. Seminis does not have any material outstanding hedging contracts as of September 30, 2001. GLOBAL RESTRUCTURING AND OPTIMIZATION PLAN In February 2000, the Company announced a global cost saving initiative designed to streamline operations, increase utilization of facilities and improve efficiencies. The first phase of the initiative, which commenced in fiscal year 2000, and focused on North American operations, was completed by the end of fiscal year 2001. In June 2000, the Company announced the second phase, which was targeted at its global operations. An expansion of phase two of the plan was launched in the third quarter of fiscal year 2001 and is expected to be completed by the end of fiscal year 2002. The key elements to Seminis' global restructuring and optimization plan involve: - - Reorganizing its 10 legacy seed companies into four geographical regions; - - Reducing operation and production facilities; - - Reducing headcount that results from the reorganization and facility consolidation; - - Rationalizing the product portfolio; - - Implementing an advanced global logistics management information system; and - - Divesting non-strategic assets. In connection with phase one of the Global Restructuring and Optimization Plan, the Company recorded nonrecurring pre-tax charges to operations of approximately $34.4 million for restructuring costs during fiscal year 2000 that included severance and other exit costs, inventory write-downs and costs associated with streamlining the products portfolio. Of this amount, $18.4 million was included in cost of goods sold for inventory write-downs. The remaining $16.0 million was included in selling, general and administrative expenses and consisted primarily of severance costs. The total phase one and initial phase two severance charge related to a planned 600-employee reduction worldwide in both operational and administrative groups. As part of the implementation of the expanded second phase of the Global Restructuring and Optimization Plan, a pre-tax charge of $12.0 million was recorded in selling, general and administrative expenses by the Company in the third quarter of fiscal year 2001. This charge primarily related to severance and related costs, resulting from an additional planned 250-employee reduction worldwide in both operational and administrative groups. Further employee reductions were identified in the fourth quarter of fiscal year 2001. Additionally, the Company recorded non-cash inventory write-downs of $58.2 million in cost of goods sold in order to comply with more stringent seed quality standards and to further rationalize the Company's product portfolio from 6,000 to 4,000 varieties. The Company also sold its properties in Saticoy, California, Filer, Idaho, Vineland, New Jersey and South Korea as part of its efforts to reduce and consolidate operation and production facilities. There were 758 and 144 employees severed in fiscal year 2001 and 2000, respectively, primarily as part of the Global Restructuring and Optimization Plan. Remaining components of the restructuring accruals are as follows:
AMOUNTS BALANCE AT ADDITIONAL AMOUNTS BALANCE AT CHARGES INCURRED SEPTEMBER 30, CHARGES INCURRED SEPTEMBER 30, 2000 2000 2000 2001 2001 2001 -------- -------- ------------- ---------- --------- ------------- Severance and related expenses ......... $14.0 $ (1.8) $12.2 $12.0 $(12.3) $11.9 Inventory write-down ................... 18.4 (18.4) -- $58.2 $(58.2) -- Other.................................. 2.0 (2.0) -- -- -- -- ----- ----- ----- ----- ------ ----- Total ............................... $34.4 (22.2) $12.2 $70.2 $(70.5) $11.9 ===== ====== ===== ===== ===== =====
To date, there have been no material adjustments to amounts accrued under the plan. RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 141, "Business Combinations" is effective for the Company on July 1, 2001. SFAS No. 141 addresses financial accounting and reporting for business combinations and supercedes APB Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS No. 142, "Goodwill and Other Intangible Assets" is effective for the Company for fiscal years beginning after December 15, 2001, but may be adopted early as of the beginning of fiscal 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets, (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company plans to adopt early this pronouncement in fiscal 2002 and expects no impairment in its goodwill and other intangible assets, and to cease the amortization of goodwill that approximates $9.0 million. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK DISCLOSURES Seminis is exposed to market risk related to changes in interest rates and foreign currency exchange rates. Seminis does not have derivative financial instruments for speculative or trading purposes. The fair value of short-term borrowings approximates cost due to the short period of time to maturity. The fair value of long-term debt was estimated based on current interest rates available to Seminis for debt instruments with similar terms, degrees of risk, and remaining maturities. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that Seminis could realize in a current market exchange. The fair value of Seminis' borrowing arrangements and other financial instruments is as follows:
AT SEPTEMBER 30, 2001 AT SEPTEMBER 30, 2000 ASSET (LIABILITY) ASSET (LIABILITY) ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Short-term borrowings.......... (19,665) (19,665) (20,178) (20,178) Asset (Liability)
PRINCIPAL AMOUNT BY EXPECTED MATURITY AS OF 9/30/01:
TOTAL FAIR THERE- CARRYING VALUE 2002 2003 2004 2005 2006 AFTER VALUE 9/30/01 -------- --------- ------- ------- ------- ------- --------- --------- Long-term debt (including Current maturities)........ $(67,527) $(233,242) $(2,703) $(2,807) $(2,801) $(7,345) $(316,425) $(316,425) Asset (Liability)
PRINCIPAL AMOUNT BY EXPECTED MATURITY AS OF 9/30/00:
TOTAL FAIR THERE- CARRYING VALUE 2001 2002 2003 2004 2005 AFTER VALUE 9/30/00 --------- ------- ------- ------- ------- ------- --------- --------- Long-term debt (including current maturities)...... $(325,658) $(4,234) $(3,205) $(3,324) $(2,765) $(9,940) $(349,126) $(349,126)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and report of independent accountants are filed as part of this report on pages F-1 through F-24. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 25 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding executive officers of the Company is located in Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K. Other information required by this item is incorporated by reference to Seminis' definitive proxy statement for the Annual Meeting of Stockholders which will be filed within 120 days of September 30, 2001 with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to Seminis' definitive proxy statement for the Annual Meeting of Stockholders which will be filed within 120 days of September 30, 2001 with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to Seminis' definitive proxy statement for the Annual Meeting of Stockholders which will be filed within 120 days of September 30, 2001 with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to Seminis' definitive proxy statement for the Annual Meeting of Stockholders which will be filed within 120 days of September 30, 2001 with the Securities and Exchange Commission pursuant to Regulation 14A. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Listing of Consolidated Financial Statements Reference is made to the index set forth on Page F-1. (a)(2) Listing of Financial Statement Schedules. Schedule II -- Valuation and Qualifying Accounts on page S-1 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. (a)(3) Listing of Exhibits -- See Index to Exhibits beginning on Page 28 of this report. (b) Reports on Form 8-K -- Seminis did not file any Form 8-K during the quarter ended September 30, 2001. (c) Exhibits -- See Index to Exhibits beginning on Page 28 of this report. (d) Financial Statement Schedules -- The following consolidated financial statement schedule is included herein: Schedule II -- Valuation and Qualifying Accounts. 27 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- (a)1 Form of Underwriting Agreement (c)2 Merger Agreement by and between Seminis, Inc., an Illinois corporation and Seminis, Inc., a Delaware corporation (c)3.1 Certificate of Incorporation (c)3.2 Certificate of Designations of Class A Mandatorily Redeemable Preferred Stock and Class B Mandatorily Redeemable Preferred Stock of Seminis, Inc. (c)3.3 Certificate of Designations of Class C Redeemable Preferred Stock of Seminis, Inc. (c)3.4 By-Laws (c)4.1 Form of Class A Common Stock Certificate (a)4.2 Registration Rights Agreement by and among Seminis, Inc. and certain shareholders of Seminis, dated October 1, 1995 (c)5 Opinion of Milbank, Tweed, Hadley & McCloy LLP (a)10.1 Seminis, Inc. 1998 Stock Option Plan (b)10.2 Amended and Restated Seminis, Inc. 1998 Stock Option Plan (a)10.3 Share Subscription Agreement by and between Seminis, Inc. and Hungnong Seed Co., Ltd., dated June 12, 1998 (c)10.4 Form of New Credit Facility among Seminis, Inc, Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as lenders, dated as of June 28, 1999 (c)10.5 Form of Letter Agreement between Savia, S.A. de C.V. and Seminis, Inc. dated as of June 21, 1999 (d)10.6 Second Amendment and Waiver to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, Dated as of June 29, 2000, effective March 31, 2000 (d)10.7 Security Agreement Re: Accounts, Inventory and General Intangibles among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of June 29, 2000 (e)10.8 Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of September 30, 2000, effective September 30, 2000. (d)10.9 Extension of Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V., as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of December 30, 2000, effective December 30, 2000. (f)10.10 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of December 29, 2000, effective December 29, 2000. (g)10.11 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of April 30, 2001, effective April 30, 2001.
28
EXHIBIT NUMBER DESCRIPTION ------- ----------- (h)10.12 Modification and Interim Waiver Agreement to Credit Agreement dated as of June 28, 1999 among Seminis, Inc., Seminis Vegetable Seeds, Inc., SVS Holland B.V. as borrowers, Harris Trust and Savings Bank, individually and as Administrative Agent, Bank of Montreal, individually and as Syndication Agent, and the Lenders from time to time parties thereto, as Lenders, dated as of May 31, 2001, effective May 31, 2001. (i)10.13 Revision to (h)10.12 (b)21 Subsidiaries of Registrant 27.1 Financial Data Schedule
- ---------- (a) Incorporated by reference to Seminis' Form S-1 filed on February 11, 1999. (b) Incorporated by reference to Seminis' Amendment No. 2 to Form S-1 filed on May 27, 1999. (c) Incorporated by reference to Seminis' Amendment No. 3 to Form S-1 filed on June 21, 1999. (d) Filed with the June 30, 2000 form 10Q. (e) Filed with the September 30, 2000 form 10K. (f) Filed with the December 30, 2000 form 10Q. (g) Filed with the March 30, 2001 form 10Q. (h) Filed with the June 29, 2001 form 10Q. (i) Filed with this form 10K. 29 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. SEMINIS, INC. By: /s/ EUGENIO NAJERA SOLORZANO -------------------------------- Name: Eugenio Najera Solorzano Title: President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ALFONSO ROMO GARZA Chairman of the Board January 14, 2002 - ----------------------------------------- (Chief Executive Officer) Alfonso Romo Garza /s/ EUGENIO NAJERA SOLORZANO Director and President January 14, 2002 - ----------------------------------------- (Chief Operating Officer) Eugenio Najera Solorzano /s/ JOSE MANUEL GARCIA Director January 14, 2002 - ----------------------------------------- Jose Manuel Garcia /s/ BERNARDO JIMENEZ BARRERA Director January 14, 2002 - ----------------------------------------- Bernardo Jimenez Barrera /s/ CARL G. BALL Director January 14, 2002 - ----------------------------------------- Carl G. Ball /s/ ADRIAN RODRIGUEZ Director January 14, 2002 - ----------------------------------------- Adrian Rodriguez /s/ PETER DAVIS Director January 14, 2002 - ----------------------------------------- Peter Davis /s/ FRANK J. PIPP Director January 14, 2002 - ----------------------------------------- Frank J. Pipp /s/ DR. ELI SHLIFER Director January 14, 2002 - ----------------------------------------- Dr. Eli Shlifer /s/ ROGER BEACHY Director January 14, 2002 - ----------------------------------------- Roger Beachy /s/ CHRISTOPHER J. STEFFEN Director January 14, 2002 - ----------------------------------------- Christopher J. Steffen /s/ MATEO MAZAL BEJA Director January 14, 2002 - ----------------------------------------- Mateo Mazal Beja /s/ GASPAR ALVAREZ MARTINEZ Chief Financial and January 14, 2002 - ----------------------------------------- Accounting Officer Gaspar Alvarez Martinez
30 SEMINIS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................................................................... F-2 Consolidated Balance Sheets as of September 30, 2001 and 2000............................................... F-3 Consolidated Statements of Operations for the Years Ended September 30, 2001, 2000 and 1999................. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2001, 2000 and 1999....... F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 2001, 2000 and 1999................. F-6 Notes to Consolidated Financial Statements.................................................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Seminis, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 27 present fairly, in all material respects, the financial position of Seminis, Inc. and its subsidiaries at September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(2) on page 27 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the financial statements, all outstanding amounts borrowed under the Company's syndicated credit facility must be repaid by December 31, 2002. In the event that the lenders of the credit facility do not renew or extend the final maturity date of the facility, the Company will be obligated to secure alternative sources of financing. There can be no assurance that such financing will be available and the inability to find such financing could have a material adverse impact on the future financial position and operating results of the Company. PRICEWATERHOUSECOOPERS LLP Los Angeles, California January 11, 2002 F-2 SEMINIS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS: AS OF SEPTEMBER 30, ----------------------- 2001 2000 --------- --------- Current assets Cash and cash equivalents ........................................................................ $ 22,323 $ 22,479 Accounts receivable, less allowance for doubtful accounts of $12,094 and $14,178, respectively ... 141,691 162,929 Other receivable ................................................................................. 20,612 -- Inventories ...................................................................................... 279,683 333,287 Prepaid expenses and other current assets ........................................................ 3,436 3,105 --------- --------- Total current assets ...................................................................... 467,745 521,800 Deferred income taxes .............................................................................. -- 5,699 Property, plant and equipment, net ................................................................. 182,261 226,505 Intangible assets, net ............................................................................. 169,664 227,839 Other assets ....................................................................................... 15,687 16,194 --------- --------- $ 835,357 $ 998,037 ========= ========= LIABILITIES, MANDATORILY REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY: Current liabilities Short-term borrowings ............................................................................ $ 19,665 $ 20,178 Current maturities of long-term debt ............................................................. 67,527 325,658 Accounts payable ................................................................................. 45,423 54,455 Accrued liabilities .............................................................................. 89,169 96,453 --------- --------- Total current liabilities ................................................................. 221,784 496,744 Long-term debt ..................................................................................... 248,898 23,468 Deferred income taxes .............................................................................. 15,736 -- Minority interest in subsidiaries .................................................................. 1,721 1,445 --------- --------- Total liabilities ......................................................................... 488,139 521,657 --------- --------- Commitments and contingencies Mandatorily Redeemable Stock Class B Redeemable Preferred Stock, $.01 par value; 25 shares authorized as of September 30, 2001 and 2000; 25 shares issued and outstanding as of September 30, 2001 and 2000 .................................................................... 27,500 25,500 --------- --------- Total mandatorily redeemable stock ........................................................ 27,500 25,500 --------- --------- Stockholders' Equity Class C Preferred Stock, $.01 par value; 14 and 12 shares authorized as of September 30, 2001 and 2000; 12 shares issued and outstanding as of September 30, 2001 and 2000 (Liquidation Value of $129.2 and $117.2 million at September 30, 2001 and 2000, respectively) .................................................. 1 1 Class A Common Stock, $.01 par value; 211,000 and 91,000 shares authorized as of September 30, 2001 and 2000, respectively; 14,682 and 13,976 shares issued and outstanding as of September 30, 2001 and 2000, respectively ...................................................... 147 140 Class B Common Stock, $.01 par value; 60,229 shares authorized as of September 30, 2001 and 2000; 45,142 and 45,848 shares issued and outstanding as of September 30, 2001 and 2000, respectively ......................................................................... 452 459 Additional paid-in capital ....................................................................... 764,657 712,981 Accumulated deficit .............................................................................. (397,485) (244,706) Accumulated other comprehensive loss ............................................................. (48,054) (17,995) --------- --------- Total stockholders' equity ................................................................ 319,718 450,880 --------- --------- $ 835,357 $ 998,037 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-3 SEMINIS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------- 2001 2000 1999 --------- --------- --------- Net sales ................................................................. $ 449,895 $ 474,445 $ 530,633 Cost of goods sold ........................................................ 232,067 237,105 202,349 --------- --------- --------- Gross profit ......................................................... 217,828 237,340 328,284 --------- --------- --------- Operating expenses Research and development expenses ....................................... 52,441 58,364 62,421 Selling, general and administrative expenses ............................ 191,113 222,632 192,978 Amortization of intangible assets ....................................... 28,034 30,454 27,896 --------- --------- --------- Total operating expenses ........................................ 271,588 311,450 283,295 --------- --------- --------- Income (loss) from operations ............................................. (53,760) (74,110) 44,989 --------- --------- --------- Other income (expense) Interest income ......................................................... 1,341 3,872 4,541 Interest expense ........................................................ (40,425) (37,256) (46,444) Foreign currency gain (loss) ............................................ 1,709 (5,374) 985 Minority interest ....................................................... (1,436) (1,157) (1,428) Other, net .............................................................. (1,909) 8,688 2,240 --------- --------- --------- (40,720) (31,227) (40,106) --------- --------- --------- Income (loss) before income taxes and extraordinary items ................. (94,480) (105,337) 4,883 Income tax benefit (expense) .............................................. (39,975) 24,554 (2,496) --------- --------- --------- Net income (loss) before extraordinary items .............................. (134,455) (80,783) 2,387 --------- --------- --------- Extraordinary items, net of income tax of $4,145 .......................... -- -- (6,763) --------- --------- --------- Net loss .................................................................. (134,455) (80,783) (4,376) Preferred stock dividends ................................................. (13,986) (8,624) (4,261) Additional capital contribution dividends ................................. (4,338) -- -- Accretion of Old Class B Redeemable Common Stock .......................... -- -- (2,223) --------- --------- --------- Net loss available for common stockholders ................................ $(152,779) $ (89,407) $ (10,860) ========= ========= ========= Net loss available for common stockholders per common share, basic and diluted Loss before extraordinary items available for common stockholders ....... $ (2.55) $ (1.49) $ (0.10) Extraordinary items, net of income tax .................................. -- -- (0.15) --------- --------- --------- Net loss available for common stockholders .............................. $ (2.55) $ (1.49) $ (0.25) ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-4 SEMINIS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CLASS C CLASS A CLASS B ACCUMULATED TOTAL PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL OTHER STOCK --------------- ---------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE HOLDERS' NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL DEFICIT LOSS EQUITY ------ ------ ------- ------ ------ ------ ---------- ----------- ------------- --------- BALANCE, SEPTEMBER 30, 1998..................... -- -- -- -- 37,386 374 317,826 (144,439) (13,340) 160,421 --------- Comprehensive loss Net loss................. -- -- -- -- -- -- -- (4,376) -- (4,376) Translation adjustment... -- -- -- -- -- -- -- -- (1,603) (1,603) --------- (5,979) Dividends on Redeemable Preferred Stock.......... -- -- -- -- -- -- -- (2,000) -- (2,000) Accretion of Old Class B Redeemable Common Stock.. -- -- -- -- -- -- -- (2,223) -- (2,223) Issuance of Class C Preferred Stock.......... 4 1 -- -- -- -- 42,299 -- -- 42,300 Dividends on Class C Preferred Stock.......... -- -- -- -- -- -- 2,261 (2,261) -- -- Conversion of subordinated debt due Savia........... -- -- -- -- 1,916 19 35,838 -- -- 35,857 Conversion of Old Class B Redeemable Common Stock.. -- -- -- -- 6,772 68 50,571 -- -- 50,639 Issuance of Class A Common Stock.................... -- -- 13,750 138 -- -- 191,562 -- -- 191,700 --- ----- ------ ---- ------ ---- -------- --------- --------- --------- BALANCE, SEPTEMBER 30, 1999..................... 4 1 13,750 138 46,074 461 640,357 (155,299) (14,943) 470,715 Comprehensive loss Net loss................. -- -- -- -- -- -- -- (80,783) -- (80,783) Translation adjustment... -- -- -- -- -- -- -- -- (3,052) (3,052) --------- (83,835) Conversion of shares....... -- -- 226 2 (226) (2) -- -- -- -- Issuance of Class C Preferred Stock.......... 7 -- -- -- -- -- 66,000 -- -- 66,000 Dividends on Redeemable Preferred Stock.......... -- -- -- -- -- -- -- (2,000) -- (2,000) Dividends on Class C Preferred Stock.......... 1 -- -- -- -- -- 6,624 (6,624) -- -- --- ----- ------ ---- ------ ---- -------- --------- -------- --------- BALANCE, SEPTEMBER 30, 2000..................... 12 $ 1 13,976 $140 45,848 $459 $712,981 $(244,706) $(17,995) $ 450,880 === ===== ====== ==== ====== ==== ======== ========= ======== ========= Comprehensive loss Net loss................. -- -- -- -- -- -- -- (134,455) -- (134,455) Translation adjustment... -- -- -- -- -- -- -- -- (30,059) (30,059) --------- (164,514) Conversion of shares....... -- -- 706 7 (706) (7) -- -- -- -- Additional capital contribution............. -- -- -- -- -- -- 45,850 -- -- 45,850 Dividends on additional capital contribution..... -- -- -- -- -- -- 845 (4,338) -- (3,493) Dividends on Redeemable Preferred Stock.......... -- -- -- -- -- -- -- (2,000) -- (2,000) Dividends on Class C Preferred Stock.......... -- -- -- -- -- -- 2,997 (11,986) -- (8,989) Restricted shares issuance................. -- -- -- -- -- -- 1,984 -- -- 1,984 --- ----- ------ ---- ------ ---- -------- --------- -------- --------- BALANCE, SEPTEMBER 30, 2001..................... 12 $ 1 14,682 $147 45,142 $452 $764,657 $(397,485) $(48,054) $ 319,718 === ===== ====== ==== ====== ==== ======== ========= ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 SEMINIS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED SEPTEMBER 30, ------------------------------------- 2001 2000 1999 -------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .................................................... $(134,455) $ (80,783) $ (4,376) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................. 45,054 50,109 46,923 Deferred income tax ....................................... 33,514 (37,459) (5,500) Provision for minority interest in subsidiaries ........... 1,436 1,157 1,428 Loss from extraordinary items, net of income tax .......... -- -- 6,763 Inventory write-down ...................................... 73,850 58,948 11,496 Other ..................................................... 7,274 786 72 Changes in assets and liabilities Accounts receivable ..................................... 15,138 (3,821) (41,303) Inventories ............................................. (23,209) (102,484) (71,591) Prepaid expenses and other assets ....................... (4,759) 8,663 1,004 Current income taxes .................................... (3,069) 9,385 3,627 Accounts payable ........................................ (8,608) 1,999 14,346 Other liabilities ....................................... (15,654) 25,045 (10,662) -------- --------- --------- Net cash used in operating activities ................ (13,488) (68,455) (47,773) -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed and intangible assets .................... (14,280) (41,487) (71,125) Proceeds from disposition of assets ......................... 14,096 11,291 4,520 Exercise of Hungnong put option ............................. -- -- (54,772) Young I1 Chemical Company Note .............................. -- -- 35,612 Agroceres acquisition, net of cash acquired ................. -- -- (19,695) Proceeds from sale of MBS' assets ........................... -- 9,712 -- Other ....................................................... (448) (1,751) (1,779) -------- --------- --------- Net cash used in investing activities ................ (632) (22,235) (107,239) -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt issuances ...................... 1,424 97,184 837,305 Repayments of long-term debt ................................ (33,670) (81,356) (923,006) Net short-term borrowings (repayments) ...................... (856) 15,307 56 Dividends paid .............................................. -- (1,500) (2,000) Issuance of Class A Common Stock ............................ -- -- 191,700 Issuance of Class C Preferred Stock ......................... -- 66,000 42,300 Other ....................................................... -- -- (319) Savia capital contribution .................................. 45,850 -- -- -------- --------- --------- Net cash provided by financing activities ............ 12,748 95,635 146,036 -------- --------- --------- Effect of exchange rate changes on cash and cash equivalents ................................................. 1,216 (1,534) (851) -------- --------- --------- Increase (decrease) in cash and cash equivalents .............. (156) 3,411 (9,827) Cash and cash equivalents, beginning of period ................ 22,479 19,068 28,895 -------- --------- --------- Cash and cash equivalents, end of period ...................... $ 22,323 $ 22,479 19,068 ======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 SEMINIS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Seminis, Inc. (the "Company") is the largest developer, producer and marketer of vegetable and fruit seeds in the world. The Company is a majority-owned subsidiary of Savia, S.A. de C.V. ("Savia") and effectively began operations when it purchased Asgrow Seed Company ("Asgrow") in December 1994. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its majority controlled and owned subsidiaries. Investments in unconsolidated entities, representing ownership interests between 20% and 50%, are accounted for using the equity method of accounting. All material intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior years' financial statements to conform to fiscal year 2001 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the fiscal year, including estimates and assumptions related to customer discounts and allowances. Actual results could differ from those estimates. REVENUE RECOGNITION Product sales are recognized upon shipment of goods and are reduced by provisions for discounts, returns and allowances based on the Company's historical and anticipated experience. CASH AND CASH EQUIVALENTS The Company classifies as cash equivalents all highly liquid investments purchased with an original maturity of three months or less. The Company invests its excess cash in deposits with major international banks, in government securities and in money market accounts with financial institutions. Such investments are considered cash equivalents for purposes of reporting cash flows and bear minimal risk. ACCOUNTS RECEIVABLE Accounts receivable are valued net of reserves for bad debts, discounts and allowances. Calculations of reserves are based on historical experience and anticipated market conditions and are adjusted as management determines necessary. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral. The Company's diversified customer base limits the amount of credit exposure to any one customer. No customer accounts for more than 10% of accounts receivable or sales. INVENTORIES Inventories are stated at the lower of cost or estimated net realizable value. Costs for substantially all inventories are determined using the first-in, first-out ("FIFO") method and include the cost of materials, direct labor and the applicable share of overhead costs. Unharvested crop-growing costs are included as part of inventory and represent costs incurred to plant and maintain seed crops which will be harvested during the subsequent fiscal year. Inventories are periodically reviewed and reserves established for deteriorated, excess and obsolete items. F-7 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Provisions for depreciation have been made using the straight-line and accelerated methods for financial reporting purposes and accelerated methods for tax purposes. Estimated useful lives generally range from 5 to 40 years for buildings and improvements and from 3 to 20 years for machinery and equipment. INTANGIBLE ASSETS Intangible assets consist primarily of the excess of purchase price over the fair market value of net assets acquired in purchase acquisitions, and the costs of acquired germplasm patents and trademarks. Goodwill is amortized over 15 years on a straight-line basis. The costs of acquired germplasm, patents and trademarks are being amortized over 10 to 20 years on an accelerated basis. Other intangibles are amortized over 3 to 10 years on a straight-line basis. CAPITALIZED SOFTWARE COSTS Costs of computer software developed and obtained for internal use are capitalized and amortized over respective license periods or expected useful lives, which range from three to five years. Capitalized computer software costs include external direct costs for licenses and services, and payroll and payroll-related costs for employees who are directly associated with developing or installing such software. IMPAIRMENT OF LONG-LIVED ASSETS The Company continually monitors its long-lived assets to determine whether any impairment of these assets has occurred. In making such determination, the Company evaluates the performance of the underlying businesses, products and product lines. The Company recognizes impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. In fiscal year 2000, the Company recognized a $6,400 impairment write-down associated with its investment in LSL PlantScience. No other material impairments have been experienced. SEEDMEN'S ERRORS AND OMISSIONS The Company maintains third party seedmen's errors and omissions insurance covering claims by growers for losses incurred as a result of seed quality or errors arising in fulfilling customer orders. Such policies are subject to annual renewal and revision and have coverage limits, deductibles and other terms. Provisions are made for anticipated losses in excess of coverage amounts provided by insurance based on historical experience and expected resolution. The Company performs ongoing evaluations of such claims and adjusts reserves as necessary to reflect expected settlements. RESEARCH AND DEVELOPMENT EXPENSES Research and development costs are charged to operations as incurred. Costs attributable to in-process research and development activities acquired in a purchase transaction are written-off at the date of acquisition. INCOME TAXES Deferred income taxes are determined using the liability method. A deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax benefit (expense) is the result of changes in the asset and liability for deferred taxes. A valuation allowance is established against deferred tax assets when all or some portion, of such assets is unlikely to be realized. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The financial statements of the Company's foreign subsidiaries are generally measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are primarily translated at average monthly rates of exchange prevailing during the fiscal year. The resultant translation adjustments are included in accumulated other comprehensive loss as a separate component of stockholders' equity. Gains and losses from foreign currency transactions are included in the consolidated statements of operations. F-8 Subsidiaries operating in highly inflationary economies or primarily using the United States dollar as their functional currency include gains and losses from foreign currency transactions and balance sheet translation adjustments in the consolidated statements of operations. FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash, accounts receivable, notes receivable, accounts payable, accrued liabilities, debt and mandatorily redeemable securities. These balances are stated in the consolidated financial statements at amounts that approximate fair market value unless separately disclosed in the Notes to Consolidated Financial Statements. COMPREHENSIVE INCOME Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income consists of its reported net income or loss and the change in the foreign currency translation adjustment during a period. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Under APB No. 25, compensation cost is recognized based on the difference, if any, on the date of grant between the fair market value of the Company's stock and the amount an employee must pay to acquire the stock. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company accounts for derivative instruments and hedging activities in accordance with the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and No. 138. SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair market value. It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company does not currently have any derivative instruments and therefore adoption of SFAS No. 133 did not have a material impact on the Company's consolidated financial position or results of operations for fiscal year 2001. ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS The Company accounted for shipping and handling fees and costs in accordance with the provisions of EITF 00-10, "Accounting for Shipping and Handling Fees and Costs". EITF 00-10 requires that all amounts billed to a customer in a sales transaction related to shipping and handling, if any, represent revenues earned for the goods provided and should be classified as revenue. It also states that a company may record shipping and handling costs in cost of sales. If such costs are significant and are not included in cost of sales (that is, if those costs are accounted for together or separately on other income statement line items), a company should disclose both the amount(s) of such costs and the line item(s) on the income statement that include them. Freight and handling charges of $1.4 million related to customer shipping were stated on a gross basis in selling expense with a corresponding $1.3 million of revenue stated in net sales in the fourth quarter of fiscal year 2001. In the prior reporting periods, these freight and handling charges were netted with the associated billing of these costs to the Company's customers. Restatements of the prior periods to conform to EITF 00-10 were impractical because there was no system in place to capture this information in the past. F-9 SUPPLEMENTARY CASH FLOW INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30, ----------------------------- 2001 2000 1999 ------- ------- ------- Cash paid for interest ................................... $45,933 $31,890 $53,081 Cash paid for income taxes ............................... 9,530 3,520 4,369 Supplemental non-cash transactions: Class C Preferred Stock dividends ................... 13,986 6,624 2,261 Class B Redeemable Preferred Stock dividend ......... 2,000 500 -- Additional capital contribution dividends ........... 4,338 -- --
Effective January 2001, Class C Preferred Stock and additional capital contribution accrue cash dividends at 10% per annum. The syndicated bank agreement, however, precludes the payment of cash dividends. INCOME (LOSS) PER COMMON SHARE Income (loss) per common share has been computed pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic income (loss) per common share is computed by dividing income (loss) available to common stockholders by the average number of common shares outstanding during each period. Income (loss) available to common stockholders represents reported net income less preferred dividends, additional capital contribution dividends, and accretion of redemption value for redeemable common stock. Diluted income (loss) per common share reflects the potential dilution that could occur if dilutive securities and other contracts were exercised or converted into common stock or resulted in the issuance of common stock. The following table provides a reconciliation of income from continuing operations before extraordinary items and sets forth the computation for basic and diluted income (loss) per share from continuing operations before extraordinary items:
FOR THE YEARS ENDED SEPTEMBER 30, ----------------------------------- 2001 2000 1999 --------- -------- -------- NUMERATOR FOR BASIC AND DILUTED: Income (loss) from continuing operations before extraordinary items ......................................... $(134,455) $(80,783) $ 2,387 Preferred stock dividends ..................................... (13,986) (8,624) (4,261) Additional capital contribution dividends ..................... (4,338) -- -- Accretion of Old Class B Redeemable Common Stock .............. -- -- (2,223) --------- -------- -------- Loss from continuing operations before extraordinary items available for common stockholders ........................................... $(152,779) $(89,407) $ (4,097) ========= ======== ======== DENOMINATOR -- SHARES: Weighted average common shares outstanding (basic) ............ 59,824 59,824 43,936 Add potential common shares: Old Class B Redeemable Common Stock ......................... -- -- 4,909 Less antidilutive effect of potential common shares ........... -- -- (4,909) --------- -------- -------- Weighted average common shares outstanding (diluted) .............................................. 59,824 59,824 43,936 ========= ======== ======== LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS AVAILABLE FOR COMMON STOCKHOLDERS: Basic and diluted ........................................... $ (2.55) $ (1.49) $ (0.10) ========= ======== ========
RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 141, "Business Combinations" is effective for the Company on July 1, 2001. SFAS No. 141 addresses financial accounting and reporting for business combinations and supercedes APB Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS No. 142, "Goodwill and Other Intangible Assets" is effective for the Company for fiscal years beginning after December 15, 2001, but may be adopted early as of the beginning of fiscal 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets, (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company plans to adopt early this pronouncement in fiscal 2002 and expects no impairment in its goodwill and other intangible assets, and to cease the amortization of goodwill that approximates $9.0 million. F-10 NOTE 2 -- LIQUIDITY As of September 30, 2000, the Company was not in compliance with certain covenants of its syndicated credit facility, which gave the lenders the right to accelerate payment of all amounts outstanding under the facility. In December 2000, the lenders granted a waiver with respect to these covenants as of September 30, 2000, December 29, 2000, and March 31, 2001 that extended through April 30, 2001, at which time any defaults would once again arise. As the Company did not expect to be in compliance with its covenants once the waiver expired, all outstanding borrowings under the credit facility were classified as a current liability as of September 30, 2000. In connection with granting the waivers, the lenders agreed to reschedule principal payments within fiscal year 2001. The lenders also accelerated the final maturity of the term loan and the termination date for the revolving credit commitments to June 30, 2002 from June 30, 2004. The Company was obligated to deliver a financial plan through September 30, 2002, which detailed cash flow projections on a monthly basis as well as proposed alternatives for the refinancing of the syndicated credit facility or recapitalization of the Company. In April 2001, the Company submitted its financial plan to its lenders, detailing operating initiatives that reduce existing infrastructure and working capital requirements. Additionally, the plan identified alternative sources of capital to repay the bank debt within newly defined terms, which may include the sale of non-strategic assets, debt refinancing and additional equity infusions. On May 31, 2001, the Company's lenders agreed with the financial plan and the terms to restructure the Company's $310.0 million credit facility. Upon receipt of the amended credit agreement, long-term portions of borrowings were reclassified from current liabilities to long-term debt. Among other things, the amendment extended the final maturity of the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, revised principal payment dates under the term loan, instituted a new grid pricing formula to determine interest on borrowings, and revised covenant obligations. Additionally, the amendment requires the Company to submit monthly reports comparing actual cash flows to projections as well as describing the progress and status of any asset sales. Interim principal obligations under the amendment included $16.0 million due in the fourth quarter of fiscal year 2001, and $19.0 million, $4.0 million, $31.0 million, and $9.0 million due in the first, second, third, and fourth quarters of fiscal year 2002, respectively. All remaining amounts will be due in the first quarter of fiscal year 2003. The Company met all required principal and interest payments during fiscal year 2001, and was in compliance with all of its financial covenants under the amended credit agreement at September 30, 2001. In October 2001, the Company completed the sale of an office building in Seoul, South Korea, which generated net proceeds of approximately $20.0 million. The Company used $19.5 million of the proceeds to pay the scheduled $19.0 million of its syndicated debt in October 2001. The Company also sold one of its noncore businesses during fiscal year 2002, which generated additional proceeds of approximately $17.6 million. The Company used $13.0 million of the proceeds to prepay its syndicated debt in January 2002. When combined with cash flows expected to be generated from on-going operations, these additional proceeds will enable the Company to meet all obligations and covenants under the credit facility through September 30, 2002. Supporting this assertion is the fact that the Company has exceeded all cash flow projections on a cumulative basis since March 2001. The Company believes it can continue to improve its operating cash flows through aggressive cash collection efforts, disciplined inventory purchases, and lower operating expenses following the Global Restructuring and Optimization Plan. Whereas the Company expects to meet its obligations as well as covenant requirements under the amended credit facility through September 30, 2002, the Company must successfully execute a refinancing or recapitalization plan prior to December 31, 2002 in order to meet the final maturity of the facility. Based on current projections, the Company will be obligated to pay $230.2 million during the first quarter of fiscal year 2003. The Company intends to pursue various alternatives in order to complete the refinancing or recapitalization, however there can be no assurances that it will be able to do so. Failure to comply with existing covenants which would make the syndicated debt callable, or inability to obtain adequate financing with reasonable terms prior to December 31, 2002 could have a material adverse impact on the Company's business, results of operations, or financial condition. As a result of the Global Restructuring and Optimization Plan the Company has made significant strides in the enhancement of its cash flow. During fiscal year 2001, operating activities of the Company utilized $55.0 million less cash as compared to fiscal year 2000. This improvement in cash flow was primarily due to positive impacts of a decrease in operating expenses related to a 21.2% reduction in global headcount since August 2000 and an overall reduction in working capital arising from strong accounts receivable collections and improved production planning over the Company's inventory levels. These working capital improvements were partially offset by severance related costs due to restructuring and other non-recurring expenses in connection with the Global Restructuring and Optimization Plan. F-11 Capital expenditures decreased to $14.3 million for the year ended September 30, 2001, from $41.5 million for the year ended September 30, 2000. The decrease was primarily due to a substantial portion of the investment in Seminis' new headquarters and production facility being incurred in fiscal year 2000, resulting in a significant decrease in overall capital expenditures in the year ended September 30, 2001. During fiscal year 2001, the Company sold its properties in Saticoy, California, Filer, Idaho, and Vineland, New Jersey as part of its efforts to reduce and consolidate operation and production facilities. Other investing activities for the year ended September 30, 2001 included approximately $14.1 million in proceeds from the sale of non-operating assets. In October and November 2000, Seminis received $31.9 million and $14.0 million respectively, of additional capital contributions from Savia. The Company is obligated to pay dividends on these contributions at the rate of 10.0% per year. Through the year ended September 30, 2001, $4.3 million of accrued dividends pertaining to this transaction have been recorded of which $3.5 million are classified in accrued liabilities and $.8 million were paid-in-kind in the form of additional shares and are classified in additional paid in capital. The Company had $2.5 million of accrued dividends relating to Class B Mandatorily Redeemable Preferred Stock at September 30, 2001. These accrued dividends are classified within mandatorily redeemable stock. Seminis' total indebtedness as of September 30, 2001 was $336.1 million, of which $293.2 million were borrowings under the current credit agreement. Additionally, $16.9 million, $6.1 million, $8.0 million, $3.3 million, and $4.6 million were borrowings by the United States, Chilean, Italian, Spanish, and Korean subsidiaries, respectively, and $4.0 million were borrowings primarily by other foreign subsidiaries. Seminis' exposure to foreign currency fluctuations is primarily due to foreign currency gains or losses that occur from intercompany loans between Seminis and its foreign subsidiaries and from the U.S. dollar denominated loan, originated by SVS Holland, B.V., a foreign subsidiary of Seminis. Seminis does not have any material outstanding hedging contracts as of September 30, 2001. NOTE 3 -- GLOBAL RESTRUCTURING AND OPTIMIZATION PLAN In February 2000, the Company announced a global cost saving initiative designed to streamline operations, increase utilization of facilities and improve efficiencies. The first phase of the initiative, which commenced in fiscal year 2000, and focused on North American operations, was completed by the end of fiscal year 2001. In June 2000, the Company announced the second phase, which was targeted at its global operations. An expansion of phase two of the plan was launched in the third quarter of fiscal year 2001 and is expected to be completed by the end of fiscal year 2002. The key elements to Seminis' global restructuring and optimization plan involve: - - Reorganizing its 10 legacy seed companies into four geographical regions; - - Reducing operation and production facilities; - - Reducing headcount that results from the reorganization and facility consolidation; - - Rationalizing the product portfolio; - - Implementing an advanced global logistics management information system; and - - Divesting non-strategic assets. In connection with phase one of the Global Restructuring and Optimization Plan, the Company recorded nonrecurring pre-tax charges to operations of approximately $34.4 million for restructuring costs during fiscal year 2000 that included severance and other exit costs, inventory write-downs and costs associated with streamlining the products portfolio. Of this amount, $18.4 million was included in cost of goods sold for inventory write-downs. The remaining $16.0 million was included in selling, general and administrative expenses and consisted primarily of severance costs. The total phase one and initial phase two severance charge related to a planned 600-employee reduction worldwide in both operational and administrative groups. As part of the Implementation of the expanded second phase of the Global Restructuring and Optimization Plan, a pre-tax charge of $12.0 million was recorded in selling, general and administrative expenses by the Company in the third quarter of fiscal year 2001. This charge primarily related to severance and related costs, resulting from an additional planned 250-employee reduction worldwide in both operational and administrative groups. Further employee reductions were identified in the fourth quarter of fiscal year 2001. Additionally, the Company recorded non-cash inventory write-downs of $58.2 million in cost of goods sold in order to comply with more stringent seed quality standards and to further rationalize the Company's product portfolio from 6,000 to 4,000 varieties. The Company also sold its properties in Saticoy, California, Filer, Idaho, Vineland, New Jersey and South Korea as part of its efforts to reduce and consolidate operation and production facilities. There were 758 and 144 employees severed in fiscal year 2001 and 2000, respectively, primarily as part of the Global Restructuring and Optimization Plan. Remaining components of the restructuring accruals are as follows: F-12
AMOUNTS BALANCE AT ADDITIONAL AMOUNTS BALANCE AT CHARGES INCURRED SEPTEMBER 30, CHARGES INCURRED SEPTEMBER 30, 2000 2000 2000 2001 2001 2001 ------- -------- ------------- ---------- --------- ------------- Severance and related expenses ......... $14.0 $ (1.8) $12.2 $12.0 $(12.3) $11.9 Inventory write-down ................... 18.4 (18.4) -- $58.2 $(58.2) -- Other .................................. 2.0 (2.0) -- -- -- -- ----- ------ ----- ----- ------ ----- Total ............................... $34.4 $(22.2) $12.2 $70.2 $(70.5) $11.9 ===== ====== ===== ===== ====== =====
To date, there have been no material adjustments to amounts accrued under the plan. NOTE 4 -- MERGERS AND ACQUISITIONS HUNGNONG SEED CO., LTD In July 1998, the Company acquired newly and previously issued common stock of Hungnong Seed Co., Ltd. ("Hungnong"), a South Korean vegetable seed company representing a 70% ownership interest, for $120,620. The acquisition was funded by capital contributions by the Company's stockholders (Note 10) and borrowings under the Company's long-term debt facility (Note 9). The results of Hungnong's operations have been consolidated with those of the Company since the date of acquisition. The gross acquisition cost of $120,620 includes $86,687 of acquired cash. The acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to the net assets acquired based on their estimated fair market values. The fair market value of assets acquired and liabilities assumed was $196,176 and $144,513, respectively. The balance of the purchase price, $68,957, was recorded as excess of cost over net assets acquired (goodwill) and is being amortized over 15 years on a straight-line basis. In connection with the purchase of its 70% interest in Hungnong, Seminis loaned $35,612 to Young Il Chemical Company which is owned by minority stockholders of Hungnong. In July 1999, the Young Il Chemical Company repaid the entire outstanding balance of its loan due to Seminis. The Hungnong minority shareholders had the option to put their 30% interest in Hungnong to the Company at a price of 2 billion South Korean won for each 1% of outstanding shares plus accrued interest which accrued at 10% per annum from July 15, 1998. In fiscal year 1999, the Hungnong minority shareholders exercised their put option for the remaining 30% of the outstanding shares of Hungnong. As a result, the Company paid $54,772 to increase its ownership in Hungnong from 70% to 100%. The Company also recorded additional goodwill of $34,359 in connection with the 30% put option purchase. The Hungnong 30% put option purchase was partially funded by Savia's December 1998 equity investment in Seminis of $10,000 in exchange for 1.0 shares of Class C Preferred Stock (Note 10) and proceeds of $35,612 from the Young Il Chemical Note which was collected in July 1999. CHOONG ANG SEED COMPANY In July 1998, the Company acquired all of the outstanding shares of Choong Ang Seed Company ("Choong Ang"), a South Korean vegetable seed company, for $20,500. The acquisition was funded by capital contributions by the Company's stockholders (Note 10) and borrowings under long-term debt facilities (Note 9). The results of Choong Ang's operations have been consolidated with those of the Company since the date of acquisition. The gross acquisition cost of $20,500 includes $1,112 of acquired cash. The acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to the net assets acquired based on their estimated fair market values. The fair market value of assets acquired and liabilities assumed was $35,272 and $21,589, respectively. The balance of the purchase price, $6,817, was recorded as excess of cost over net assets acquired (goodwill) and is being amortized over 15 years on a straight-line basis. UNAUDITED PRO FORMA RESULTS Unaudited pro forma consolidated results of operations are presented in the table below for the year ended September 30, 1999. The pro forma results reflect the Hungnong and Choong Ang fiscal year 1998 acquisitions, as well as the fiscal year 1999 Hungnong put option purchase, as if they had occurred at the beginning of the fiscal year: F-13
1999 --------- Total revenues ..................................................... $ 530,633 Income (loss) from continuing operations before extraordinary items ............................................................ 288 Loss from continuing operations before extraordinary items available for common stockholders ................................ (6,446) Loss from continuing operations before extraordinary items available for common stockholders per common share Basic and diluted ................................................ $ (0.15) Weighted average common shares outstanding Basic and diluted ................................................ 43,936
In management's opinion, the unaudited pro forma consolidated results of operations may not necessarily be indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of fiscal year 1999 or of future operations of the combined companies under the ownership and management of the Company. NOTE 5 -- INVENTORIES Inventories consist of the following at September 30, 2001 and 2000:
2001 2000 -------- -------- Seed .................................................. $246,250 $290,629 Unharvested crop growing costs ........................ 25,857 31,663 Supplies .............................................. 7,576 10,995 -------- -------- Total net inventories ....................... $279,683 $333,287 ======== ========
Inventories are presented net of reserves of $114,316 and $94,640 at September 30, 2001 and 2000, respectively. Non-cash inventory write-downs of approximately $73,851 and $58,948 were taken in fiscal years 2001 and 2000, respectively. The write-downs in fiscal year 2001 included approximately $58.2 million of charges taken in conjunction with the Company's Global Restructuring and Optimization Plan. During fiscal year 2001, the Company rationalized its product line from 6,000 to 4,000 varieties as well as imposed more stringent quality standards. F-14 NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at September 30, 2001 and 2000:
2001 2000 --------- --------- Land .................................................. $ 42,383 $ 72,763 Buildings and improvements ............................ 123,893 137,063 Machinery and equipment ............................... 67,518 70,523 Construction in progress .............................. 7,073 606 --------- --------- 240,867 280,955 Less: accumulated depreciation ........................ (58,606) (54,450) --------- --------- $ 182,261 $ 226,505 ========= =========
NOTE 7 -- INTANGIBLE ASSETS Intangible assets at September 30, 2001 and 2000 consist of the following and are net of accumulated amortization for the respective fiscal years as parenthetically noted:
2001 2000 -------- -------- Goodwill (net of $28,017 and $21,654) ................. $ 93,082 $128,387 Software costs (net of $14,603 and $8,017) ............ 17,747 23,491 Trademarks (net of $6,980 and $6,101) ................. 7,920 8,799 Germplasm (net of $64,044 and $58,261) ................ 35,087 48,662 Other intangible assets (net of $10,109 and $6,972) ... 15,828 18,500 -------- -------- $169,664 $227,839 ======== ========
NOTE 8 -- ACCRUED LIABILITIES Accrued liabilities consist of the following at September 30, 2001 and 2000:
2001 2000 ------- ------- Employee salaries and related benefits ................ $34,504 $46,110 Seedmen's errors and omissions ........................ 3,595 3,328 Interest .............................................. 1,184 6,692 Other ................................................. 49,886 40,323 ------- ------- $89,169 $96,453 ======= =======
NOTE 9 -- LONG-TERM DEBT Long-term debt consists of the following at September 30, 2001 and 2000:
2001 2000 --------- --------- Syndicated credit agreement borrowings ................ $ 293,200 $ 322,300 South Korean borrowings due in annual installments through 2007 ........................................ 1,956 2,632 GE Capital borrowings ................................. 16,077 17,773 Other borrowings ...................................... 5,192 6,421 --------- --------- 316,425 349,126 Less current portion .................................. (67,527) (325,658) --------- --------- $ 248,898 $ 23,468 ========= =========
Other borrowing consist of various domestic and foreign, government and non-government loans of less than $2,000 each, bearing interest annually at average rates of 8.5% through 2007. F-15 As of September 30, 2001, long-term debt maturities are as follows:
YEAR ENDING SEPTEMBER 30 ------------ 2002..................................... $ 67,527 2003..................................... 233,242 2004..................................... 2,703 2005..................................... 2,807 2006..................................... 2,801 Thereafter............................... 7,345 -------- $316,425 ========
In July 1999, the Company entered into a new credit agreement with Bank of Montreal and Harris Trust and Savings Bank providing for a $350,000 credit facility. The Company used a portion of the net proceeds of its initial public offering (Note 10) and funds available under the new credit facility to pay loan origination fees and repay indebtedness under its previous credit agreement. The Company's $350,000 credit facility consists of a term loan in the amount of $200,000 and a revolving line of credit in the amount of $150,000. The term loan required semi-annual payments, with the remaining balance due and the revolving line of credit originally maturing on June 30, 2004. The July 1999 agreement contains a number of financial covenants, including net worth and indebtedness tests, and limitations on its ability to make acquisitions, transfer or sell assets, create liens, pay dividends, enter into transactions with its affiliates or enter into a merger, consolidation or sale of substantially all of its assets. The agreement is secured by the intellectual property of Seminis and 100% of the shares of Seminis Vegetable Seeds, Inc., a wholly owned subsidiary of Seminis, Inc., and shares of some other international subsidiaries. The credit agreement provides for events of default typical of facilities of its type, as well as an event of default if Pulsar Internacional, S.A. de C.V., together with its affiliates, which includes Savia, fails to hold a majority of the board of directors or direct management of the Company or control at least 51% of the voting rights of the Company. In June 2000, the Company amended its credit agreement to provide for more relaxed financial covenant ratios as well as to allow for the needed expenses related to the Global Restructuring and Optimization Plan. The Company also entered into a security agreement with the lenders that collateralized certain receivables, general intangibles and inventory. At September 30, 2000, December 29, 2000 and March 30, 2001, the Company was not in compliance with minimum interest coverage and maximum debt ratio covenants and therefore, outstanding borrowings under this facility were classified as a current liability as of September 30, 2000, December 29, 2000, and March 30, 2001. In April 2001, the Company submitted a financial plan to its lenders under its syndicated credit facility, detailing operating initiatives that reduce existing infrastructure and working capital requirements. Additionally, the plan identified alternative sources of capital to repay the bank debt within newly defined terms, which may include the sale of non-strategic assets, debt refinancing and additional equity infusions. On May 31, 2001, the Company's lenders agreed with the financial plan and the terms to restructure the Company's $310.0 million credit facility. Under the revised maturity schedule of the amended credit agreement, long-term portions of borrowings have been reclassified from current liabilities to long-term debt. The amendment extended the final maturity of the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, with principal payments of $63.0 million due in fiscal year 2002. The Company expects to fund these principal payments through improved operating cash flows and the sale of non-strategic assets. The amended credit agreement bears interest according to a grid pricing formula based on the achievement of specified debt levels with current interest at the prime rate plus 2.25%. The effective interest rate at September 2001 was 8.5%. Under the terms of the amended credit agreement, the Company believes it will be able to satisfy all revised covenants ratios during the remaining term of the agreement. The Company is continuing to pursue its efforts of finding alternative sources of capital to improve its capital structure and repay the bank debt. At September 30, 2001, the Company was in compliance with all of its financial covenants and obligations under the amended credit agreement. Loan origination fees of $3,611 were capitalized in fiscal year 1999 in connection with the July 1999 credit agreement, $2,222 were capitalized in fiscal year 2000 in connection with the amended credit agreement, and $2,985 were capitalized in fiscal year 2001 in connection with the May 2001 amended credit agreement. The fees are being amortized to interest expense over the life of the F-16 agreement. Interest expense includes amortization of loan origination fees of $3,075, $843, and $1,560 in fiscal years 2001, 2000, and 1999, respectively. Upon extinguishment of the April 1999 credit agreement, the unamortized loan fees of $4,500 relating to the agreement were charged to results of operations as an extraordinary item of $2,790, net of tax. At September 30, 1998, the Company's credit facility consisted of a $75,000 revolving line of credit and $300,000 in term loans. The Company used borrowings under its April 1999 credit agreement to repay borrowings outstanding under the old agreement existing at September 30, 1998. Upon extinguishment of the old agreement, unamortized loan fees of $6,408, relating to the old agreement were charged to operations as an extraordinary item of $3,973, net of tax. For the fiscal year ended September 30, 2001, the Company incurred interest at a weighted-average rate of 11.19% per annum. NOTE 10 -- CAPITAL STOCK AND MANDATORILY REDEEMABLE EQUITY SECURITIES RECAPITALIZATION In January 1999, the Board of Directors of Seminis, Inc., an Illinois corporation, authorized the reincorporation of the Company in Delaware. In conjunction with the reincorporation the holders of certain securities agreed to a plan for the recapitalization of the Company (the "Recapitalization") to occur concurrently. The Recapitalization was effective June 18, 1999 and provided for the exchange of shares of the Illinois corporation for shares of the Delaware corporation as follows: (i) all preferred stock was exchanged for like preferred stock; (ii) all 6,772 shares of Class B Redeemable Common Stock ("Old Class B Redeemable Common Stock") were converted into one-half the number of such shares of Class B Common Stock; (iii) all Class A Common Stock was exchanged for one-half the number of such shares of Class B Common Stock; and (iv) all options to purchase Class C Common Stock were exchanged for options to purchase Class A Common Stock. Immediately following the Recapitalization, the Company paid a 1-for-1 stock dividend to all holders of Class B Common Stock. INITIAL PUBLIC OFFERING In July 1999, the Company completed an initial public offering of 13,750 shares of Class A Common Stock at an initial offering price of $15.00 per share, raising net proceeds of $191,700. The Company used the net proceeds of the offering and funds available under the new July 1999 credit facility (Note 9) to pay loan origination fees, repay indebtedness under the April 1999 credit agreement and $7,700 of a $20,000 intercompany advance from Savia (Note 15). The remaining $12,300 of the intercompany advance was converted into 1.2 shares of Class C Preferred Stock. CLASS A AND B REDEEMABLE PREFERRED STOCK On October 1, 1995, the Company acquired Petoseed Co., Inc. ("Petoseed") through a tax-free merger (the "Merger") with George J. Ball, Inc. ("Ball"). As part of the transaction, Seminis issued 25 shares of Class A Redeemable Preferred Stock to the stockholders of Ball. Upon the completion of the Company's initial public offering in July 1999, each share of Class A Redeemable Preferred Stock automatically converted into one share of Class B Redeemable Preferred Stock. The Class B Redeemable Preferred Stock has no voting rights. The Company pays quarterly dividends on all issued shares of Class B Redeemable Preferred Stock at a rate of 8% per year. Dividends are cumulative if unpaid and are added to the redemption value of the shares. The liquidation value of the shares is equal to the redemption value at any point in time. Class B Redeemable Preferred Stock is not redeemable at the option of the holder. The Company shall redeem all outstanding shares of the Class B Redeemable Preferred Stock on October 1, 2005. OLD CLASS B REDEEMABLE COMMON STOCK The Company also issued 18,091 shares of Old Class B Redeemable Common Stock to the Ball stockholders as part of the Ball Merger. In November 1997, Savia purchased 3,895 shares of Old Class B Redeemable Common Stock from the former Ball stockholders for $72,875 or $18.71 per share. In January 1998, the Company repurchased 11,319 shares of Old Class B Redeemable Common Stock from the former Ball stockholders for $211,824 or $18.71 per share. Such shares were canceled upon repurchase. F-17 Upon the Recapitalization in June 1999, each share of Old Class B Redeemable Common Stock automatically converted into one share of Class B Common Stock, however, upon the conversion, the Old Class B Redeemable Common Stock lost its redemption and accretion rights. The redemption price of the Old Class B Redeemable Common Stock accreted at an annual rate of approximately 6%. The redemption price was $7.48 per share on the June 18, 1999 conversion date, and $7.15 per share on October 1, 1998. CLASS A COMMON STOCK The Company is authorized to issue up to 211,000 shares of Class A Common Stock. Upon completion of the Company's initial public offering in July 1999, the Company issued 13,750 shares of Class A Common Stock. In addition, 3,677 shares were reserved for issuance of stock options. Class A Common Stock is entitled to one vote per share. CLASS B COMMON STOCK Following the Ball Merger, Savia owned all 30,000 outstanding shares of the Company's Class B Common Stock. During fiscal year 1998, the Company issued 7,386 shares of Class B Common Stock for cash in the amount of $138,200. The share price of $18.71 was based on the fair market value of the Company at the time of the transaction. In February 1999, the Company converted its convertible subordinated debt due Savia of $35,857 into 1,916 shares of Class B Common Stock at $18.71 per share. As part of the Company's recapitalization in June 1999, 6,772 shares of Old Class B Redeemable Common Stock were effectively converted into the same number of shares of Class B Common Stock. Holders of the Class B Common Stock are entitled to three votes per share. In the fourth quarter of fiscal year 2001, 706 shares of Class B Common Stock were converted to Class A Common Stock and in the second quarter of fiscal year 2000, 226 shares of Class B Common Stock were converted to Class A Common Stock. CLASS C PREFERRED STOCK The Company is authorized to issue up to 14 shares of its Class C Preferred Stock. In December 1998, Savia made an equity investment in Seminis of $10,000 in exchange for 1 shares of Class C Preferred Stock to finance the purchase of shares of Hungnong which Seminis was obligated to purchase from the minority shareholders. In March 1999, Savia made an additional equity investment in Seminis of $20,000 in exchange for 2 shares of Class C Preferred Stock to finance working capital requirements. In July 1999, the Company converted $12,300 of an intercompany advance from Savia into 1.2 shares of Class C Preferred Stock. In April, May and June 2000, the company converted $22,000, $14,000 and $6,000 respectively, of intercompany advances from Savia into 2.2 shares, 1.4 shares and .6 shares of Class C Preferred Stock. In August and September 2000, Savia made additional equity investments of $10,000 and $14,000, respectively, in exchange for 1.0 shares and 1.4 shares of Class C Preferred Stock. Shares of Class C Preferred Stock have no voting rights and are redeemable at the option of the Company. Dividends accrue cumulatively at the rate of 10% per year and are payable quarterly. Dividends payable through January 2001 are payable by issuing additional fully paid and non assessable shares of Class C Preferred Stock. Subsequently, the dividends are part of the accrued liabilities. The liquidation value of Class C Preferred Stock at September 30, 2001, included $8,989 of accrued cash dividends classified in accrued liabilities. ADDITIONAL CAPITAL CONTRIBUTIONS In October and November 2000, the Company received additional capital contributions of $31.9 million and $14.0 million, respectively, from Savia to finance additional working capital requirements. The Company is obligated to pay dividends on these contributions at the rate of 10% per year. F-18 NOTE 11 -- INCOME TAXES Income (loss) from continuing operations before income taxes and extraordinary items consists of the following:
2001 2000 1999 --------- --------- -------- U.S. operations ............................ $ (98,826) $ (90,311) $(10,936) Foreign operations ......................... 4,346 (15,026) 15,819 --------- --------- -------- $ (94,480) $(105,337) $ 4,883 ========= ========= ========
The expense (benefit) for income taxes consists of the following:
2001 2000 1999 -------- -------- -------- Current: Federal .............................. $ -- $ -- $ (2,150) State ................................ 125 806 (183) Foreign .............................. 6,336 12,099 10,329 -------- -------- -------- 6,461 12,905 7,996 -------- -------- -------- Deferred: Federal .............................. 23,355 (32,466) (1,705) State ................................ 2,702 (2,824) (145) Foreign .............................. 7,457 (2,169) (3,650) -------- -------- -------- 33,514 (37,459) (5,500) -------- -------- -------- $ 39,975 $(24,554) $ 2,496 ======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of September 30, 2001 and 2000 are as follows:
2001 2000 -------- -------- Deferred tax assets: Accounts Receivable .................................... $ 2,626 $ 1,396 Inventories ............................................ 23,411 20,353 Other accruals ......................................... 12,338 10,636 Net operating loss carryforwards and other credits ..... 59,135 42,732 -------- -------- Total deferred tax assets ...................... 97,510 75,117 Valuation allowances and reserves ...................... (62,769) (18,601) -------- -------- Net deferred tax assets ........................ 34,741 56,516 -------- -------- Deferred tax assets (liabilities): Fixed and Intangible Assets ............................ (28,640) (37,164) Accrued taxes on undistributed foreign earnings ........ (21,837) (13,653) -------- -------- Total deferred tax assets (liabilities) ........ (50,477) (50,817) -------- -------- $(15,736) $ 5,699 ======== ========
Based upon assessment of the net deferred tax assets in the United States and foreign jurisdictions, an increase in the valuation allowance on the remaining deferred tax assets in the United States and the Netherlands was considered necessary as of September 30, 2001. The valuation allowance for deferred tax assets as of September 30, 2001 and 2000 was $62,769 and $18,601, respectively. The net change in the total valuation allowance for the years ended September 30, 2001 and 2000 was an increase of $44,168 and an increase of $11,521, respectively. The Company's tax asset for net operating loss carryforwards and other credits primarily consists of a Netherlands net operating loss carryforward of $45,655 which has an indefinite life, and a United States net operating loss carryforward of $94,456 which will expire in 2020 and 2021. To address current cash flow needs in the United States, the repatriation strategy during fiscal year 2001 for earnings in Korea was changed. Accordingly, tax was recorded for previously undistributed Korean earnings. The earnings for certain other foreign subsidiaries will only be repatriated to the United States to the extent the foreign taxes can be utilized as foreign tax credits against federal taxes. F-19 The expense (benefit) for income taxes varies from income taxes based on the federal statutory rate as follows:
2001 2000 1999 -------- -------- -------- Income tax (benefit) at statutory Federal rate .............................. $(33,068) $(36,868) $ 1,709 State and local income tax (benefit), net of Federal income tax effect ...... (168) (1,312) (213) Research and other tax credits .............................................. (1,064) (1,358) (1,034) Repatriated foreign earnings................................................. 23,739 -- -- Foreign earnings taxed at different rates ................................... 4,385 (2,051) (317) Net increase (decrease) in valuation allowances and reserves ................ 44,168 11,521 (134) Goodwill amortization ....................................................... 3,194 3,558 2,672 Other ....................................................................... (1,211) 1,956 (187) -------- -------- -------- $ 39,975 $(24,554) $ 2,496 ======== ======== ========
NOTE 12 -- EMPLOYEE BENEFITS PENSION AND RETIREMENT PLANS U.S. Plans. The Company maintains a Company-sponsored defined contribution savings plan covering eligible employees. Company contributions are based on a percentage of employee contributions and on employee salaries. Company contributions totaled $2,428, $2,499, and $2,208 in fiscal years 2001, 2000, and 1999, respectively. The Company also maintains a qualified profit sharing plan. Annual contributions are made at the discretion of the Company's board of directors and totaled $566, $440, and $1,058 in fiscal years 2001, 2000, and 1999, respectively. Foreign Plans. In accordance with the local statutory requirements, the Company sponsors retirement and severance plans at several of its foreign locations. The Company has an accrual of $11,531 at September 30, 2001 and $12,932 at September 30, 2000 for anticipated payments to be made to foreign employees upon retirement or termination. The Company provides a defined-benefit pension plan in the Netherlands (the "Netherlands Plan") as required by statute. The following provides a reconciliation of the benefit obligation, plan assets and funded status of the Netherlands Plan as of September 30, 2001 and 2000.
2001 2000 -------- -------- CHANGE IN PROJECTED BENEFIT OBLIGATION: Projected benefit obligation at beginning of year .............. $ 34,193 $ 32,597 Service cost ................................................... 1,393 1,509 Interest cost .................................................. 2,265 1,752 Actuarial loss ................................................. 3,019 4,710 Benefits paid .................................................. (844) -- Translation difference ......................................... 1,653 (6,375) -------- -------- Projected benefit obligation at end of year .................... 41,679 34,193 -------- -------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year ................. 31,978 36,564 Actual return on plan assets ................................... 671 884 Contributions .................................................. 1,035 966 Benefits paid .................................................. (844) -- Translation difference ......................................... 1,303 (6,436) -------- -------- Fair value of plan assets at end of year ....................... 34,143 31,978 -------- -------- Funded status of plan .......................................... (7,536) (2,215) Unrecognized net loss .......................................... 10,981 7,032 Unrecognized prior service cost ................................ (3,322) (3,380) -------- -------- Prepaid pension asset .......................................... $ 123 $ 1,437 ======== ========
F-20 The components of net pension expense of the Netherlands Plan, based on the most recent valuation dates, are as follows:
2001 2000 1999 ------- ------- ------- Service cost ............................... $ 1,393 $ 1,509 $ 1,236 Interest cost .............................. 2,265 1,752 1,928 Actual gain on plan assets ................. (649) (960) (3,992) Net amortization and deferral .............. (1,294) (1,256) 1,403 ------- ------- ------- $ 1,715 $ 1,045 $ 575 ======= ======= =======
Assumptions used in the above calculations are as follows:
2001 2000 1999 ---- ---- ---- Weighted-average discount rate................... 6.0% 6.3% 6.0% Rate of future compensation increases............ 5.5 5.5 5.0 Long-term rate of return on plan assets.......... 8.0 8.0 7.5
STOCK OPTION PLAN In 1998, the Company adopted the Seminis 1998 Stock Option Plan (the "Stock Option Plan") under which key employees and board of director members may be granted options to purchase shares of the Company's authorized and issued Class A Common Stock. The board of directors reserved 3,677 shares for issuance under the plan, and, in July 1998, awarded options to acquire 267 shares by plan participants. During October 1999 and August 2000, 520 options and 432 options were issued at $7.63 and $1.56 per share, respectively. During October 2000 and August 2001, 513 options and 950 options were issued at $1.36 and $1.18 per share, respectively. Under the Stock Option Plan, the option exercise price is equal to fair market value at the date of grant. Options currently expire no later than ten years from the grant date and generally vest over four years. Proceeds received by the Company from exercises will be credited to common stock and additional paid-in capital. Stock option plan activity during the three years ended September 30, 2001 was as follows:
NUMBER WEIGHTED AVERAGE OF SHARES EXERCISE PRICE --------- ---------------- September 30, 1998...................... 3,410 -- Grants................................ -- -- Exercises............................. -- -- Cancellations......................... -- -- ----- September 30, 1999...................... 3,410 -- Grants................................ (952) $ 4.87 Exercises............................. -- -- Cancellations......................... 135 13.02 ----- September 30, 2000...................... 2,593 Grants................................ (1,462) 1.24 Exercises............................. -- -- Cancellations......................... 434 7.11 ----- September 30, 2001...................... 1,565 =====
The following table summarizes information concerning currently outstanding and exercisable stock options:
NUMBER NUMBER OUTSTANDING EXERCISABLE AS OF REMAINING AS OF EXERCISE PRICE 9/30/01 CONTRACTUAL LIFE 9/30/01 -------------- ----------- ---------------- ----------- $ 1.18........ 950 9.92 years 0 1.36........ 434 9.04 years 0 1.56........ 308 8.92 years 77 7.63........ 311 8.04 years 78 18.71........ 109 6.75 years 82 ------ --- 2,112 237 ====== ===
F-21 Pro forma information regarding net income is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its employee stock options granted under the fair market value method of that statement. The weighted average fair value of options granted in fiscal year 2000 was $2.80 per share using the Black-Scholes option pricing model, assuming a weighted average risk-free interest rate of 6.03%, an expected life of five years and no projected dividend yields. Stock price volatility was 55% and 100% for the October 1999 and August 2000 grants, respectively. The weighted average fair value of options granted in fiscal year 2001 was $0.96 per share using the Black-Scholes options pricing model, assuming a weighted average risk-free interest rate of 5.04%, an expected life of five years and no projected dividend yields. Stock price volatility was 100% for both the October 2000 grants and August 2001 grants. For purposes of pro forma disclosures, the estimated fair market value of the options is amortized to expense over the options' vesting periods. There is no material difference in net loss per share in applying the pro forma provisions of SFAS No. 123 for the years ended September 30, 2001, 2000 and 1999. STOCK AWARD PLAN During the quarter ended June 29, 2001, the Company adopted a stock award plan that is subject to shareholders' approval. Certain key executives will be awarded with Company shares that vest after meeting certain quarterly performance criteria over 18 months. Upon meeting each quarterly goal, the shares awarded are immediately vested subject to shareholders' approval. Total number of shares eligible to be awarded under this plan is 4.8 million. Performance targets were met for the first two quarters of the defined periods of the stock award plan, which resulted in an accrual of approximately $2.6 million recorded in selling, general and administrative expenses based on current market value of Common Stock at the date the award was earned. NOTE 13 -- COMMITMENTS AND CONTINGENCIES LEASES The Company leases land, buildings, machinery and equipment under operating leases. Rental expenses aggregated approximately $9,461, $11,973, and 12,420 in fiscal years 2001, 2000, and 1999, respectively. Minimum annual lease commitments under non-cancelable operating leases at September 30, 2001 are as follows:
YEAR ENDING SEPTEMBER 30, ------------- 2002................................... $ 6,225 2003................................... 4,321 2004................................... 3,239 2005................................... 1,915 2006................................... 719 Thereafter............................. 750 ------- $17,169 =======
CONTINGENCIES The Company has been named as a defendant in various lawsuits arising out of alleged seedmen's errors and omissions. The Company maintains third-party seedmen's errors and omissions insurance covering these types of claims, thus policies are subject to annual renewal and revisions and house deductibles and coverage limits. An accrual for management's estimate of exposure related to such claims has been recorded in the financial statements and is disclosed in Note 8. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. Historically, resolution of asserted claims has been in line with management's expectations. F-22 NOTE 14 -- GEOGRAPHIC INFORMATION The Company operates principally in one business segment consisting of the development, production and marketing of vegetable and fruit seeds. Revenues derived from sales to external customers attributed to the Company's country of domicile, to individual countries representing more than 10% of the Company's consolidated net sales and to all other foreign countries in total are summarized as follows:
2001 2000 1999 -------- -------- -------- Net sales: United States ................................. $140,016 $138,774 $151,271 Italy ......................................... 37,933 41,789 50,928 South Korea ................................... 56,583 60,732 53,469 Spain ......................................... 25,717 28,153 28,622 Mexico ........................................ 27,809 22,578 34,426 Other foreign ................................. 161,837 182,419 211,917 -------- -------- -------- Consolidated net sales ................ $449,895 $474,445 $530,633 ======== ======== ========
Long-lived assets other than financial instruments and deferred tax assets located in the Company's country of domicile, located in individual foreign countries representing more than 10% of the Company's consolidated long-lived assets and located in all other foreign countries in total in which the Company holds assets are summarized as follows:
2001 2000 -------- -------- Long-lived assets: United States ........................................... $159,169 $180,101 The Netherlands ......................................... 32,724 33,804 South Korea ............................................. 125,608 194,939 Other foreign ........................................... 50,111 61,694 -------- -------- Consolidated long-lived assets .................. $367,612 $470,538 ======== ========
NOTE 15 -- RELATED PARTIES Balances and transactions with related parties included in the consolidated financial statements are as follows: (a) Research and development expenses included $2,255 in fiscal year 2001 and $2,500 in fiscal years 2000 and 1999 in biotechnology research fees incurred pursuant to an agreement between the Company and Bionova Holding Corporation, a publicly traded company. Savia is the majority stockholder in Bionova. (b) On February 1, 1999, the subordinated debt of $35,857 payable to Savia was converted into 1,916 shares of Class B Common Stock at $18.71 per share. (c) At September 30, 2000, Savia owned 11.70 shares of Class C Preferred Stock. The amount consists of an equity investment made by Savia of $10,000 in December 1998 in exchange for 1 shares of Class C Preferred Stock to finance the purchase of shares of Hungnong (Note 2) and an equity investment in March 1999 of $20,000 in exchange for 2 shares to finance working capital requirements. In addition, Seminis borrowed $20,000 in January 1999 from Savia. Seminis used net proceeds from its initial public offering to repay $7,700 of the intercompany advance and the remaining $12,300 was converted into 1.23 shares of Class C Preferred Stock. The remaining 0.23 shares were issued as payment in kind dividends during fiscal year 1999. In April, May and June 2000, Savia converted $22,000, $14,000 and $6,000 of intercompany advances, respectively, to 2.20, 1.40 and .60 shares of Class C Preferred Stock. In August and September 2000, Savia made additional equity investments of $10,000 and $14,000 in exchange for 1.00 and 1.40 shares of Class C Preferred Stock. The remaining .64 shares were issued as payment in kind dividends during fiscal year 2000. (d) In October and November 2000, Savia made additional capital contributions of $31,850 and $14,000, respectively. (e) In fiscal year 2001, the Company had sales of $944 to Agrobionova, an affiliate of Savia, and a receivable of $617 at September 30, 2001. The Company also had sales of $296 to Bionova, an affiliate of Savia, and a corresponding receivable of $296 at September 30, 2001. F-23 NOTE 16 -- QUARTERLY FINANCIAL DATA (UNAUDITED) The seed business is highly seasonal. Generally, net sales are highest in the second fiscal quarter due to increased demand from Northern Hemisphere growers who plant seed in the early spring. Seminis recorded 33.7% and 39.3% of its fiscal year 2001 and 2000 net sales, respectively, during its second fiscal quarter. Seminis' results in any particular quarter should not be considered indicative of those to be expected for a full year. The following table sets forth results of operations data for the last eight fiscal quarters.
QUARTER ENDED -------------------------------------------------------------------------------------- FISCAL YEAR 2001 FISCAL YEAR 2000 ------------------------------------------ ----------------------------------------- DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, -------- -------- --------- --------- -------- -------- --------- -------- Net sales ............................ $ 81,233 $151,514 $ 106,445 $ 110,703 $ 81,186 $186,604 $ 114,360 $ 92,295 Gross profit ......................... 48,271 92,155 10,238 67,164 50,336 111,863 54,724 20,417 Net income (loss) .................... (16,837) 4,879 (107,090) (15,407) (19,067) 19,408 (19,247) (61,877) Income (loss) from continuing operations before Extraordinary items available for common stockholders ............ (21,086) 216 (111,750) (20,159) (20,706) 17,753 (21,613) (64,841) Income (loss) from continuing operations before extraordinary items available for common stockholders per common share, basic and diluted .................. (0.35) -- (1.87) (0.33) (0.35) 0.30 (0.36) (1.08)
Results for the third quarter of fiscal year 2001 have been restated from those originally issued by the Company in order to reflect the establishment of a valuation allowance for certain deferred tax assets which should have been recognized following the losses incurred during the third quarter. The effect of the restatement was to increase tax expense and net loss by $42.6 million and increase net loss per share by $0.71. NOTE 17 -- SUBSEQUENT EVENT In January 2002, the Company completed the sale of one of its non-core subsidiary, Incotec. Proceeds from the sale totalled $17.6 million, of which $13.0 million was used to prepay future debt maturities under the Syndicated Debt Facilities. The Company expects to record a gain related to the transaction. F-24 VALUATION AND QUALIFYING ACCOUNTS
FOREIGN BALANCE AT ADDITIONS CURRENCY BEGINNING OF CHARGED TO TRANSLATION BALANCE AT YEAR OPERATIONS DEDUCTIONS ACQUISITIONS RECLASSIFICATION ADJUSTMENTS END OF YEAR ------------ ---------- ---------- ------------ ---------------- ----------- ----------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year Ending September 30, 1999 .. 12,451,000 5,199,000 (2,816,000) -- -- 4,000 14,838,000 Year Ending September 30, 2000 .. 14,838,000 4,886,000 (5,152,000) -- -- (394,000) 14,178,000 Year Ending September 30, 2001 .. 14,178,000 5,482,000 (6,461,000) -- (385,000) (720,000) 12,094,000 INVENTORY RESERVE Year Ending September 30, 1999 .. 44,263,000 11,496,000 (14,325,000) -- -- 727,000 42,161,000 Year Ending September 30, 2000 .. 42,161,000 58,948,000 (16,085,000) -- 11,408,000(a) (1,792,000) 94,640,000 Year Ending September 30, 2001 .. 94,640,000 73,851,000 (52,766,000) -- -- (1,409,000) 114,316,000
- ---------- (a) Amount primarily related to reserve reclassification of non-valued (obsolete) seed from a net inventory presentation in fiscal years 1998 and 1999, to a gross inventory presentation in fiscal years 2000 and 2001. S-1 EX-10.13 3 v77970ex10-13.txt EXHIBIT 10.13 Exhibit 10.13 SEMINIS, INC. SEMINIS VEGETABLE SEEDS, INC. SVS HOLLAND B.V. THIRD AMENDMENT TO CREDIT AGREEMENT Harris Trust and Savings Bank Chicago, Illinois The Banks party to the Credit Agreement referred to below Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of June 28, 1999, as amended (the "Credit Agreement"), among the undersigned, SEMINIS, INC., a Delaware corporation ("Seminis"), SEMINIS VEGETABLE SEEDS, INC., a California corporation ("SVS") and SVS HOLLAND B.V., a private company with limited liability incorporated under the laws of The Netherlands ("SVS Holland" and, together with Seminis and SVS, individually a "Borrower" and collectively the "Borrowers"), you (the "Banks") and Harris Trust and Savings Bank, as administrative agent for the Banks (the "Administrative Agent"). All capitalized terms used herein shall have the same meaning as in the Credit Agreement unless otherwise defined herein. The Administrative Agent, the Banks and the Borrowers wish to amend certain provisions of the Credit Agreement, all in the manner set forth in this Amendment. 1. AMENDMENTS. Upon satisfaction of all of the conditions precedent set forth in Section 2 hereof, the following provisions of the Credit Agreement shall be amended as follows: 1.1. Section 1.1(a) of the Credit Agreement shall be amended by adding the following sentence at the end of the last paragraph thereof: "Notwithstanding anything to the contrary contained in this Agreement, the Revolving Credit Notes or any other Loan Document, (i) the Revolving Credit Commitments (including without limitation the Borrowers' ability to obtain L/Cs) were terminated on February 15, 2001, and (ii) the Revolving Credit Loans shall mature, and shall be due and payable in full, on December 31, 2002." 1.2. Section 1.1(b) of the Credit Agreement shall be amended to read as follows: "(b) Intentionally omitted." 1.3. The last paragraph of Section 1.2 of the Credit Agreement shall be amended to read as follows: "The Term Loan made by each Term Credit Lender to the Domestic Borrowers shall be evidenced by a Term Credit Note of the Domestic Borrowers in the form (with appropriate insertions) attached hereto as Exhibit B-1 payable to the order of such Term Credit Lender in the amount of its Term Loan to the Domestic Borrowers, and each Term Loan made by each Term Credit Lender to SVS Holland shall be evidenced by a Term Credit Note of SVS Holland in the form (with appropriate insertions) attached hereto as Exhibit B-2 payable to the order of such Term Credit Lender in the amount of its Term Loan to SVS Holland (such Term Credit Notes are hereinafter referred to individually as a "Term Credit Note" and collectively as the "Term Credit Notes"). The principal amount of the Term Loans outstanding on the Third Amendment Effective Date shall mature in ten (10) installments payable on the dates specified below and with the aggregate principal amount of each such installment on all Term Loans to be in the amount specified below for each payment date:
----------------------------------------------------------------- PRINCIPAL PAYMENT DATE AMOUNT OF PRINCIPAL PAYMENT ----------------------------------------------------------------- July 31, 2001 $2,000,000 ----------------------------------------------------------------- August 31, 2001 $2,000,000 ----------------------------------------------------------------- September 30, 2001 $12,000,000 ----------------------------------------------------------------- October 31, 2001 $19,000,000 ----------------------------------------------------------------- February 28, 2002 $2,000,000 ----------------------------------------------------------------- March 31, 2002 $2,000,000 ----------------------------------------------------------------- June 30, 2002 $31,000,000 ----------------------------------------------------------------- August 31, 2002 $9,000,000 ----------------------------------------------------------------- October 31, 2002 $5,000,000 ----------------------------------------------------------------- December 31, 2002 $99,750,000 -----------------------------------------------------------------
The amount of each installment due on the Term Loans held by each Bank shall be a pro rata part (based on the percentage of the aggregate principal amount of all Term Loans then outstanding which is held by each Bank) of each such aggregate amount." -2- 1.4. The sixth sentence of Section 1.4(a) of the Credit Agreement shall be amended by deleting the phrase "for LIBOR Portions of the Revolving Credit Loans" appearing therein. 1.5. The last sentence of Section 1.4(a) of the Credit Agreement shall be amended to read as follows: "All L/C Participation Fees shall be payable monthly in arrears on the last day of each month and on the final maturity date (scheduled to be December 31, 2002) of the Revolving Credit Loans (whether by lapse of time, acceleration or otherwise), and all L/C Administrative Fees and L/C Issuance Fees shall be payable on the date of issuance of each L/C hereunder and on the date required by Harris." 1.6. Section 1.4 of the Credit Agreement shall be amended by adding the following provision thereto as subsection (d) thereof: "(d) Notwithstanding anything to the contrary contained in this Agreement, Harris may, in its discretion and upon Seminis' request, extend (including, without limitation, in the case of any L/C with an expiration date that is automatically extended unless Harris gives notice that the expiration date will not be extended beyond its then scheduled expiration date, by means of not giving a notice of non-renewal) the expiration date of any L/C outstanding on the Third Amendment Effective Date to a date not later than December 31, 2002, provided, that at the time of such extension (or on the latest date any such notice of non-renewal was required to be given, if applicable) the conditions precedent contained in Section 6.2 shall be satisfied." 1.7. Section 1.8(b) of the Credit Agreement shall be amended to read as follows: "(b) Intentionally omitted." 1.8. Section 2 of the Credit Agreement shall be amended to read as follows: "SECTION 2. INTEREST. Section 2.1. Interest. All Loans shall bear interest (which the Borrowers jointly and severally promise to pay at the times herein provided), at the rate per annum determined by adding the Applicable Margin to the Base Rate as in effect from time to time. Interest on the Loans shall be payable monthly in arrears on the last day of each month in each year and at maturity (whether by lapse of time, acceleration or otherwise) of the applicable Notes and interest after maturity shall be due and payable upon demand. Section 2.2. Deferred Interest and L/C Participation Fees. In addition to the L/C Participation Fees payable pursuant to Section 1.4(a) hereof and the interest accrued pursuant to Section 2.1, from and after May 1, 2001, through the earlier of the date on which a Payment Default occurs and March 31, 2002, (x) the L/C Participation Fee, and (y) interest on all Loans and Reimbursement Obligations shall -3- accrue at an additional rate per annum equal to two and a half percent (2.5%) (the "Deferred Interest"). The Deferred Interest shall be payable immediately upon the occurrence of a Payment Default; provided, however, that (a) if no Payment Default has occurred on or before December 31, 2001, no Deferred Interest shall be payable with respect to the period from May 1, 2001, through December 31, 2001, (b) if no Payment Default occurs between January 1, 2002, and on or before March 31, 2002, no Deferred Interest will be payable with respect to the period from January 1, 2002 through March 31, 2002, and (c) no Deferred Interest shall accrue for any period during which the Applicable Margins have been previously increased by 2.5% due to the existence of an Event of Default as provided in the first proviso to the definition of the term "Applicable Margins" contained in Section 4.1 of this Agreement. Section 2.3. Computation. All interest on the Notes and all fees, charges and commissions due hereunder shall be computed on the basis of a year of 365/366 days for the actual number of days elapsed unless otherwise specifically provided in this Agreement." 1.9. Section 3.1 of the Credit Agreement shall be amended to read as follows: "Section 3.1. Fees and Other Amounts. (a) The Borrowers agree to pay to the Administrative Agent for the pro rata account of the Banks a restructuring fee in the amount of 2.5% of the aggregate principal amount of all Loans and Reimbursement Obligations and the maximum amount available to be drawn under all L/Cs outstanding on the Third Amendment Effective Date, which shall be fully earned on said date and shall be payable in four installments as follows: $776,169 on each of July 31, 2001, August 31, 2001, and June 30, 2002, and $5,433,183 on December 31, 2002; provided, however, that the installments due on June 30, 2002 and December 31, 2002 shall not be payable if all Loans and Reimbursement Obligations have been paid in full and no L/Cs are outstanding on such dates. (b) The Additional Margin (as defined in the Modification Agreement) payable pursuant to Section 14 of the Modification Agreement for the period beginning December 20, 2000, and ending April 30, 2001, shall be payable in two equal installments of $1,140,777.40 payable on May 31, 2001, and June 30, 2001. (c) The waiver fee payable pursuant to Section 18 of the Modification Agreement shall be payable in two installments of $396,281.50 each, payable on May 31, 2001, and June 30, 2001." 1.10. Sections 3.3 and 3.4 of the Credit Agreement shall be amended to read as follows: "Section 3.3. Prepayments. (a) Optional Prepayments. The Borrowers shall have the privilege of prepaying without premium or penalty and in whole or in part (but if in part, then in a minimum principal amount of $500,000 or such greater amount which is an integral multiple of $500,000) any Loan at any time upon prior telecopy or telephonic notice -4- from Seminis to the Administrative Agent on or before 11:00 a.m. (Chicago time) on the Business Day of such prepayment. Any amount prepaid may not be reborrowed. (b) Mandatory Prepayments. The first $18,000,000 of Net Asset Sale Proceeds received by the Borrowers after the Third Amendment Effective Date shall be used to prepay the Term Loans then outstanding ratably in accordance with the outstanding principal amounts thereof. The next $5,000,000 of Net Asset Sale Proceeds received by the Borrowers may be retained by the Borrowers and used for contingency and working capital purposes. All Net Asset Sale Proceeds in excess of $23,000,000 received by the Borrowers after the Third Amendment Effective Date shall be used to prepay the Term Loans then outstanding ratably in accordance with the outstanding principal amounts thereof until all Term Loans have been paid in full and then to prepay the Revolving Credit Loans then outstanding ratably in accordance with the outstanding principal amounts thereof. Each prepayment required by this Section shall be made no later than the Business Day following the date on which such Net Asset Sale Proceeds are immediately available to any Borrower. Net Asset Sale Proceeds received by the Borrowers from the Third Amendment Effective Date through October 31, 2001, shall be applied to the principal installments on the Term Loans payable in calendar year 2001 in direct order of their maturities, and all Net Asset Sale Proceeds received by the Borrowers after October 1, 2001, shall be applied to the principal installments on the Term Loans as follows: 50% of such Net Asset Sale Proceeds shall be applied to the principal installments of the Term Loans in the inverse order of their respective maturities and the remaining 50% of all net Asset Sale Proceeds shall be applied to the principal installments of the Term Loans in direct order of their respective maturities; provided, however, that up to 100% of Net Asset Sale Proceeds received after October 31, 2001, may be applied, at Seminis' election, to pay up to $20,000,000 of the principal installment of the Term Loans that is payable on June 30, 2002. Section 3.4. Intentionally Omitted." 1.11. The following definitions appearing in Section 4.1 of the Credit Agreement shall be amended and restated in their entirety to read as follows: "Applicable Margin" shall mean, during each period specified below, the rate of interest per annum shown below for the range of the aggregate principal amount of the Loans and Reimbursement Obligations and the aggregate amount available to be drawn under all L/Cs outstanding during such period (collectively, the "Bank Debt") specified below: -5-
05/01/01 11/01/01 01/01/02 04/01/02 07/01/02 OUTSTANDING through through through through and Bank DEBT: 10/31/01 12/31/01 03/31/02 06/30/02 thereafter Level I * $275,000,000 2.50% 3.00% 3.25% 3.50% 3.75% Level 2 $245,000,000 2.25% 2.25% 2.50% 2.75% 3.00% to $274,999,999 Level 3 $220,000,000 1.75% 1.75% 2.00% 2.25% 2.50% to $244,999,999 Level 4 ** $219,999,999 1.25% 1.25% 1.50% 1.75% 2.00%
* Greater than or equal to ** Less than or equal to provided, however, that if and so long as any Event of Default has occurred and is continuing, the Applicable Margins as otherwise computed hereunder shall be increased by adding 2.5% per annum thereto; and provided further, that in the case of any Event of Default resulting from non-compliance with any of Sections 7.18, 7.20, 7.22 and 7.23 such increase in the Applicable Margin shall be effective as of the date of the financial statements showing such non-compliance regardless of when such financial statements are actually delivered to the Banks. The Applicable Margins will be adjusted on the first day of each period specified above and upon each date on which the outstanding principal amount of the Borrowers' Bank Debt is reduced (each an "Adjustment Date"). Not later than 2 Business Days after each Adjustment Date, the Administrative Agent shall determine the outstanding Bank Debt level for the applicable period and shall promptly notify the Borrowers and the Banks of such determination and of any change in the Applicable Margins resulting therefrom. Any such change in the Applicable Margins shall be effective as of the relevant Adjustment Date with respect to all Loans outstanding on such date, and such new Applicable Margins shall continue in effect until the effective date of the next redetermination in accordance with this Section. Each determination of the amount of outstanding Bank Debt and Applicable Margins by the Administrative Agent in accordance with this Section shall be conclusive and binding on the Borrowers and the Banks absent manifest error. From the Third Amendment Effective Date until the Applicable Margins are first adjusted pursuant hereto, the Applicable Margins shall be those set forth in Level I. "EBITDA" shall mean for any period, Net Income for such period plus all amounts deducted in arriving at such Net Income amount in respect of (a) Interest Expense, amortization or write-off of debt discount and debt issuance costs and other fees and charges associated with Debt (including the Loans), (b) foreign, federal, state and local income taxes for such period, (c) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period, (d) Extraordinary expenses or losses as defined by generally accepted accounting principles, consistently applied, (e) losses from sale of assets outside the ordinary course of business, (f) the legal and consulting fees for restructuring, (g) unrealized gains or losses under Interest Rate Protection Agreements, (h) expenses or charges related to closing or down-sizing facilities or corporate entities ("Down-Sizing -6- Expenses"), (i) minus (in the case of gains) or plus (in the case of losses) non-cash charges relating to foreign currency gains or losses, (j) non-cash write-offs of inventory, (k) non-cash charges for impairment of long-lived assets, (l) non-cash minority interest expense, (m) minus non-cash minority interest income, and (n) plus (in the case of items deducted in arriving at Net Income) and minus (in the case of items added in arriving at Net Income) non-cash charges resulting from changes in accounting principles; and minus, to the extent included in the statement of such Net Income for such period, the sum of (a) interest income, (b) Extraordinary income or gains as defined by generally accepted accounting principles, consistently applied, (c) gains on sale of assets outside the ordinary course of business; provided, however that the aggregate amount paid in cash and added to Net Income pursuant to clauses (d), (f) and (h) for the period commencing January 1, 2001 through September 30, 2002, shall not exceed $11,500,000. "Hungnong" shall mean Seminis Korea Inc., a corporation organized under the laws of Korea and formerly known as Hungnong Seed Co., Ltd. "Interest Coverage Ratio" shall mean, as of any date, the ratio of (a) EBITDA of Seminis and its Subsidiaries for the 12 consecutive months ended on such date, to (b) the Interest Expense of Seminis and its Subsidiaries for the same period; provided, however, that (i) the Interest Coverage Ratio as of June 30, 2001 shall be the ratio of EBITDA of Seminis and its Subsidiaries for the six consecutive months ended on such date to the Interest Expense of Seminis and its Subsidiaries for the same period, and (ii) the Interest Coverage Ratio as of September 30, 2001 shall be the ratio of EBITDA of Seminis and its Subsidiaries for the nine consecutive months ended on such date to the Interest Expense of Seminis and its Subsidiaries for the same period. "Interest Expense" shall mean, with reference to any period, the sum of all interest charges (including imputed interest charges with respect to Capitalized Lease Obligations, and all amortization of debt discount and expense) of Seminis and its Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles, consistently applied. "Interest Rate Protection Agreements" shall mean any interest rate swap, interest rate cap, interest rate collar or other interest rate hedging agreement or arrangement. "Net Income" means, with reference to any period, the net income (or net loss) of Seminis and its Subsidiaries for such period as computed on a consolidated basis in accordance with generally accepted accounting principles, consistently applied, and, without limiting the foregoing, after deduction from gross income of all expenses and reserves, including reserves for all taxes on or measured by income. "Security Documents" shall mean the Security Agreement, the Intellectual Property Security Agreement, the Current Asset Security Agreement, the General Security Agreement, the Peto Notarial Deed of Pledge, the SVS Notarial Deed of Pledge, any and all other security agreements, mortgages, deeds of trust, pledge -7- agreements and other instruments and documents that grant or create a Lien in favor of the Administrative Agent for the benefit of the Banks, all stock powers delivered in connection therewith, all acknowledgements and other instruments and documents received pursuant to any of the foregoing and all financing statements filed in connection therewith. 1.12. Section 4.1 of the Credit Agreement shall be amended by adding the following definitions thereto in the appropriate alphabetical order: "Cash Flow Projections" shall mean the projected cash flow from SVS for its fiscal years ending on September 30, 2001 and September 30, 2002 attached hereto as Exhibit R. "General Security Agreement" shall mean the General Security Agreement dated as of December 29, 2000, from Seminis, SVS, and the other debtors named therein to the Administrative Agent, as the same may be amended, modified, supplemented or restated from time to time." "Modification Agreement" shall mean the Modification and Interim Waiver Agreement dated as of December 29, 2000, among the Borrowers, the Agent and the Banks. "Net Asset Sale Proceeds" shall mean the cash proceeds received by Seminis or its Subsidiaries in respect of any sale or other disposition of Property other than sales or dispositions permitted by Sections 7.11(a), (b), (c) (to the extent of licenses granted in the ordinary course of business as presently conducted) and (d) hereof, less (a) any transaction expenses reasonably incurred by Seminis or its Subsidiaries in respect of such sale, and (b) (i) the amount of any Debt secured by a Lien on such Property and required to be discharged from, and actually discharged from, the proceeds thereof, and (ii) any taxes actually paid or payable by Seminis or its Subsidiaries concurrently with the completion of such sale or other disposition or within 30 days thereafter (as estimated by a senior financial or accounting officer of Seminis, giving effect to the overall tax position of the Borrowers); provided, however, that Net Asset Sale Proceeds shall not include any proceeds from sales or other dispositions of (x) real estate and improvements thereon located in Saticoy, California, Filer, Idaho and Rengo, Chile, and (y) any other Property by any Foreign Subsidiary to the extent and for so long as such Foreign Subsidiary is prohibited by mandatory provisions of applicable law from remitting such proceeds to a Borrower or, if applicable law permits such a remittance with the consent of any governmental authority, such consent has been requested and has not been granted. "Payment Default" shall mean an Event of Default under Section 8.1(a)(i) hereof. "Third Amendment Effective Date" shall mean May 31, 2001." 1.13. Section 7.4 of the Credit Agreement shall be amended to read as follows: -8- "Section 7.4. Financial Reports. Each Borrower will, and will cause each Material Subsidiary to, maintain a system of accounting in accordance with sound accounting practice and will furnish promptly to each of the Banks and their duly authorized representatives such information respecting the business and financial condition of such Borrower and its Material Subsidiaries as may be reasonably requested and, without any request, Seminis will furnish each Bank: (a) as soon as available, and in any event within 45 days after the close of each of the first three quarterly fiscal periods in each fiscal year of Seminis and within 60 days after the close of the fourth quarterly fiscal period in each fiscal year of Seminis a copy of consolidated and consolidating balance sheets, consolidated and consolidating income statements and consolidated cash flow statements for Seminis and its consolidated Subsidiaries for such quarterly period and the year to date and for the corresponding periods of the preceding fiscal year, all in reasonable detail, prepared by Seminis and certified by the chief financial officer or vice president world-wide corporate controller of Seminis; (b) as soon as available, and in any event within 90 days after the close of each fiscal year of Seminis, a copy of the audit report for such year and accompanying financial statements, including consolidated balance sheets, change in stockholder equity, statements of income and statements of cash flow for Seminis and its consolidated Subsidiaries showing in comparative form the figures for the previous fiscal year of Seminis and its consolidated Subsidiaries, all in reasonable detail, prepared and certified by Price Waterhouse LLP or any of the other independent public accountants of nationally recognized standing commonly known as the "Big Five" accounting firms selected by Seminis, together with any management letters delivered by such accountants to Seminis; (c) no later than 45 days after the last day of each fiscal quarter in each fiscal year of Seminis and within 60 days after the close of the fourth quarterly fiscal period in each fiscal year of Seminis, a Compliance Certificate in the form of Exhibit D attached hereto, prepared and signed by the chief financial officer or vice president world-wide corporate controller of Seminis; (d) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which Seminis shall have filed with the Securities and Exchange Commission or any governmental agency substituted therefor, or any national securities exchange, including copies of Seminis' form 10-K annual report, its form 10-Q quarterly report to the Securities and Exchange Commission and any Form 8-K filed by Seminis with the Securities and Exchange Commission; (e) promptly upon the mailing thereof to the shareholders of Seminis generally, copies of all financial statements, reports and proxy statements so mailed; and -9- (f) as soon as available but in any event within 30 days after the close of each of the first two months of each fiscal quarter of Seminis, commencing January, 2001, consolidated balance sheets and income statements and for Seminis and not less than 90% of Seminis' consolidated Subsidiaries for such month and the year to date period, all in reasonable detail, prepared by Seminis in accordance with generally accepted accounting principles, consistently applied, and certified by the chief financial officer or vice president world-wide corporate controller of Seminis; (g) together with the financial statements delivered pursuant to Section 7.4(f), an Officer's Certificate in the form of Exhibit S attached hereto, prepared and signed by the chief financial officer or vice president world-wide corporate controller of Seminis; (h) as soon as available but in any event within 30 days after the close of each month, commencing April, 2001, a comparison (including without limitation a detail of grower payments variance to budget) of Seminis' actual financial performance for such month and the year to date period (except that for Seminis' fiscal year ending September 30, 2001, such year to date comparison shall commence as of December 1, 2000) to the Cash Flow Projections, all in reasonable detail, prepared by Seminis and certified by the chief financial officer or vice president world-wide corporate controller of Seminis; (i) as soon as available but in any event within 30 days after the close of each month, commencing May, 2001, a written report on the progress and status of Seminis' proposed and pending asset sales, certified by Seminis' chief financial officer or vice president world-wide corporate controller; (j) promptly upon receiving or completing the same, copies of all letters of intent, written offers and purchase agreements entered into by Seminis and its Subsidiaries in connection with any asset sale outside the ordinary course of business; (k) as soon as available but in any event within 30 days after the close of each month, commencing May, 2001, a summary of Seminis' and its Subsidiaries' accounts receivable aging and accounts payable summary by type and grower payable aging by major Subsidiary and on a global basis and an inventory report by major categories of inventory, including reserves by type, all in reasonable detail, prepared and certified by Seminis' chief financial officer or vice president world-wide corporate controller; (l) no later than the 15th day of each month, lists of the accounts receivable of SVS Holland and its Subsidiaries (the "Dutch Pledgors") in the form required by the deeds of pledge executed and delivered by the Dutch Pledgors to the Administrative Agent; and (m) at the Agent's request, but no more frequently than once a month, Seminis shall participate on conference calls with the Agent and the Banks to discuss the results of the Borrowers' and their Subsidiaries' operations and to report any -10- material progress on the matters on which they are being assisted by an investment banking firm or other professional pursuant to Section 7.30 hereof." 1.14. Section 7.6(b) of the Credit Agreement shall be amended to read as follows: "(b) Intentionally omitted." 1.15. Sections 7.8 and 7.9 of the Credit Agreement shall be amended to read as follows: "Section 7.8. Borrowings and Guaranties. Each Borrower will not, and will not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Debt, nor be or remain liable, whether as endorser, surety, guarantor or otherwise, for or in respect of any Debt of any other Person, other than: (a) indebtedness of the Borrowers arising under or pursuant to this Agreement or the other Loan Documents; (b) the liability of the Borrowers and their Subsidiaries arising out of the endorsement for deposit or collection of commercial paper received in the ordinary course of business; (c) indebtedness of the Borrowers and their Subsidiaries existing on the Third Amendment Effective Date and disclosed on Schedule 7.8 hereof and any refinancings thereof which do not increase the principal amount thereof; (d) indebtedness of (i) any Foreign Subsidiary that is a member of the Restricted Group to any other Foreign Subsidiary that is a member of the Restricted Group, and (ii) Seminis and any Domestic Subsidiary that is a member of the Restricted Group to Seminis and any other Domestic Subsidiary that is a member of the Restricted Group; (e) Debt arising out of any currency or commodity hedging transactions entered into in the ordinary course of business that is outstanding on the Third Amendment Effective Date and listed on Schedule 7.8; (f) Debt in a principal amount not to exceed $15,000,000 and on market terms and conditions approved by the Required Banks (which approval shall not be unreasonably withheld); provided that the proceeds of such Debt are used solely to repay a portion of the principal balance of the Loans; (g) any other Debt of Seminis' Foreign Subsidiaries (other than SVS Holland's Debt under the Loan Documents) so long as, except in the case of Debt incurred by Hungnong, Choong Ang and their Korean Subsidiaries, all proceeds thereof in an aggregate amount which, together with the aggregate principal amount of all Debt permitted by Section 7.8(c) hereof exceeds $50,000,000, are used by such Foreign Subsidiaries to repay Debt owed by them to the Borrowers and concurrently used by the Borrowers to repay Loans outstanding under this Agreement; and -11- (h) indebtedness (other than indebtedness permitted by subsection (g) above) incurred to finance the purchase of machinery and equipment by Seminis and its Domestic Subsidiaries in the ordinary course of their business as presently conducted, provided, that (i) the principal amount of such indebtedness does not exceed the fair market value of the Property acquired with the proceeds thereof and (ii) the principal amount of all such indebtedness shall not exceed $10,000,000. Section 7.9. Liens. Each Borrower will not, and will not permit any Subsidiary to, pledge, mortgage or otherwise encumber or subject to or permit to exist upon or be subjected to any lien, charge or security interest of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof), on any of its Properties of any kind or character at any time owned by such Borrower or any Subsidiary, other than: (a) liens, pledges or deposits for worker's compensation, unemployment insurance, old age benefits or social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith deposits made in connection with tenders, contracts or leases to which a Borrower or a Subsidiary is a party or other deposits required to be made in the ordinary course of business, provided in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings and adequate reserves have been provided therefor in accordance with generally accepted accounting principles and that the obligation is not for borrowed money, customer advances, trade payables, or obligations to agricultural producers; (b) the pledge of assets for the purpose of securing an appeal or stay or discharge in the course of any legal proceedings, provided that the aggregate amount of liabilities of any Borrower or a Subsidiary so secured by a pledge of property permitted under this subsection (b) including interest and penalties thereon, if any, shall not be in excess of $10,000,000 at any one time outstanding; (c) liens, pledges, mortgages, security interests or other charges existing on the Third Amendment Effective Date and disclosed on Schedule 7.9 hereto; (d) liens, pledges, mortgages, security interests and other encumbrances on Property which secure only indebtedness permitted by Section 7.8(h) incurred to finance the acquisition of such Property (but only to the extent of the fair market value of such Property); (e) liens for property taxes and assessments or governmental charges or levies which are not yet due and payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles consistently applied; (f) liens incidental to the conduct of business or the ownership of properties and assets (including warehousemen's, grower's lien and attorneys' liens and statutory landlords' liens) or other liens of like general nature incurred in the -12- ordinary course of business and not in connection with the borrowing of money, provided in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (g) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Borrowers and their Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Borrowers and their Subsidiaries; (h) liens and security interests in favor of the Administrative Agent; (i) liens and security interests in favor of the holders of liens otherwise permitted hereby in all supporting evidence and documents relating to any of the above-described property, including, without limitation, computer programs, disks, tapes and related electronic data processing media, and all rights of such Borrower or Subsidiary to retrieve the same from third parties, written applications, credit information, account cards, payment records, correspondence, delivery and installation certificates, invoice copies, delivery receipts, notes and other evidences of indebtedness, insurance certificates and the like, together with all books of account, ledgers and cabinets in which the same are reflected or maintained, all whether now existing or hereafter arising; (j) liens and security interests not otherwise permitted hereby that are granted by Foreign Subsidiaries, provided that (i) such liens and security interests do not attach to any Collateral, and (ii) such liens and security interests secure only Debt of the Foreign Subsidiaries granting such liens that is listed on Schedule 7.8 attached hereto and Debt of Foreign Subsidiaries permitted by Section 7.8(g); and (k) any liens and security interests replacing any of the foregoing." 1.16. Sections 7.10(b) and (c) of the Credit Agreement shall be amended to read as follows: "(b) loans and advances from (i) any Foreign Subsidiary that is a member of the Restricted Group to any other Foreign Subsidiary that is a member of the Restricted Group, and (ii) Seminis and any Domestic Subsidiary that is a member of the Restricted Group to Seminis and any other Domestic Subsidiary that is a member of the Restricted Group; (c) Intentionally omitted;". 1.17. Section 7.11 of the Credit Agreement shall be amended to read as follows: "Section 7.11. Sale of Property. The Borrowers will not and will not permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of all or any part of -13- their Property to any other Person during any fiscal year; provided, however, that each Borrower and their Subsidiaries may make: (a) sales and other dispositions of Inventory in the ordinary course of business; (b) sales or leases of machinery and equipment that is obsolete, unusable or not needed for such Borrower's or Subsidiary's operations in the ordinary course of its business; (c) dispositions permitted by Sections 4 and 6(b) of the Intellectual Property Security Agreement; (d) transfers from (i) any Foreign Subsidiary that is a member of the Restricted Group to any other Foreign Subsidiary that is a member of the Restricted Group, and (ii) Seminis and any Domestic Subsidiary that is a member of the Restricted Group to Seminis and any other Domestic Subsidiary that is a member of the Restricted Group; (e) any other sales and dispositions of Property, provided that, (i) such sales and other dispositions are bona fide sales and dispositions to unaffiliated third parties negotiated at arm's length and for fair value (and, in the case of sales or other dispositions of Property having a fair market value in excess of $10,000,000, for a consideration which the relevant Borrower's or Subsidiary's Board of Directors deems fair value in the exercise of its business judgment), and (ii) the Net Asset Sale Proceeds of such sales and dispositions are applied as required by Section 3.3(b) hereof. The Borrowers shall cause their respective Subsidiaries to remit to such Borrower or SVS all Net Asset Sale Proceeds received by such Subsidiaries no later than the Business Day following the date on which such Net Asset Sale Proceeds are immediately available to such Subsidiary (or, in the case of the Borrowers' Korean Subsidiaries, as soon as all corporate actions necessary to authorize such remittance have been completed), except to the extent and for so long as any Foreign Subsidiaries are prohibited by mandatory provisions of applicable law from so remitting any Net Asset Sale Proceeds or, if such remittance is permitted with the consent of any governmental authority, such consent has been requested and has not been granted." 1.18. Section 7.18 of the Credit Agreement shall be amended to read as follows: "Section 7.18. Capital Expenditures. Without the Required Banks' prior written consent (which consent will not be unreasonably withheld), no Borrower shall expend or incur, or permit any of its Subsidiaries to expend or incur, for: (a) Capital Expenditures outside of the United States of America ("International Capital Expenditures") in an amount in excess of the amounts -14- contemplated in the cash flows for such Subsidiaries as shown on the Cash Flow Projections, (b) Capital Expenditures within the United States of America other than Capital Expenditures in an amount reasonably determined by Seminis and scheduled on the Cash Flow Projections to be the minimum amount necessary for the maintenance of the Property of Seminis and its Domestic Subsidiaries in the United States of America; or (c) Capital Expenditures made by Choong Ang, Hungnong and their Subsidiaries, unless such Capital Expenditures are funded with funds generated by Choong Ang, Hungnong and their Subsidiaries; provided, however, that the aggregate amount of all International Capital Expenditures and Capital Expenditures permitted by subsections (a), (b) and (c) shall not exceed $14,000,000 during the period commencing April 1, 2001, and ending September 30, 2001, and $16,000,000 during Seminis' fiscal year ending September 30, 2002." 1.19. Sections 7.20, 7.21, 7.22 and 7.23 of the Credit Agreement shall be to read as follows: "Section 7.20. Minimum Interest Coverage Ratio. Seminis shall maintain an Interest Coverage Ratio as of the last day of each fiscal quarter of Seminis of not less than the ratio specified for such date below:
INTEREST COVERAGE RATIO SHALL NOT FISCAL QUARTER ENDING BE LESS THAN June 30, 2001 1.75 to 1 September 30, 2001 1.65 to 1 December 31, 2001 1.15 to 1 March 31, 2002 1.45 to 1 June 30, 2002 1.55 to 1 September 30, 2002 1.75 to 1
Section 7.21. Intentionally omitted. Section 7.22. Maximum Debt Ratio. Seminis shall not permit, as of the last day of any fiscal quarter, its Debt Ratio to be greater than the ratio specified for such date below: -15-
DEBT RATIO SHALL NOT BE FISCAL QUARTER ENDING GREATER THAN June 30, 2001 11.50 to 1 September 30, 2001 6.30 to 1 December 31, 2001 6.15 to 1 March 31, 2002 5.20 to 1 June 30, 2002 4.55 to 1 September 30, 2002 4.00 to 1"
Section 7.23. Minimum EBITDA. (a) Cumulative. Seminis shall maintain EBITDA for each period commencing on (i) January 1, 2001, with respect to each fiscal quarter ending in the fiscal year ending September 30, 2001, and (ii) October 1, 2001, with respect to each fiscal quarter ending in the fiscal year ending September 30, 2002, and ending on the last day of each fiscal quarter specified below in an amount not less than the amount specified below for such period:
EBITDA FOR PERIODS SHALL FISCAL YEAR ENDING FISCAL QUARTER ENDING NOT BE LESS THAN September 30, 2001 June 30, 2001 $43,363,000 September 30, 2001 September 30, 2001 $60,351,000 September 30, 2002 December 31, 2001 -$11,749,700 September 30, 2002 March 31, 2002 $35,105,300 September 30, 2002 June 30, 2002 $51,192,300 September 30, 2002 September 30, 2002 $73,419,300
(b) Quarterly. Seminis shall maintain EBITDA for each fiscal quarter specified below in an amount not less than the amount specified below for such fiscal quarter:
EBITDA FOR PERIODS SHALL NOT BE FISCAL QUARTER ENDING LESS THAN June 30, 2001 $7,506,000 September 30, 2001 $10,713,000 December 31, 2001 -$11,749,700 March 31, 2002 $38,697,300 June 30, 2002 $7,929,300 September 30, 2002 $14,069,300
-16- 1.20. Section 7.26 of the Credit Agreement shall be amended to read as follows: "Section 7.26. Restricted Payments. Seminis will not: (a) declare or pay any dividends or other distributions, either in cash or Property, on any capital stock of Seminis (except distributions payable solely in capital stock of Seminis); or (b) directly or indirectly, through any Subsidiary or otherwise, purchase, redeem or retire any of its capital stock or make any other payment or distribution, either directly or indirectly, through any Subsidiary or otherwise, in respect of its capital stock, other than in consideration for the issuance or sale of capital stock of Seminis; (such purchases, redemptions or retirements of equity interests and all such dividends and other distributions and all such payments, prepayments, redemptions, acquisitions and set-offs being herein collectively "Restricted Payments"); provided, however, that so long as no Event of Default or Potential Default shall exist both before and after giving effect thereto, Seminis may make the following Restricted Payments: (i) Seminis may pay dividends in an aggregate amount of up to $2,000,000 in each year on its Class B Preferred Stock, provided that concurrently with the payment of such dividends the Domestic Borrowers shall make principal prepayments on the Term Loans in addition to the principal payments required by Sections 1.2 and 3.3(b) hereof and, if all Term Loans have been fully paid, the Revolving Credit Loans, in an aggregate principal amount equal to three times the amount of such dividends; and (ii) Seminis may pay dividends on its Class C Preferred Stock so long as such dividends are paid solely in additional shares of Class C Preferred Stock." 1.21. The Credit Agreement shall be amended by adding the following provisions thereto as Sections 7.29 and 7.30: "Section 7.29. Additional Collateral Matters. (a) The Borrowers will, and will cause their respective Subsidiaries to, at the times specified on Schedule 7.29 (as such times may be extended by the Administrative Agent in its sole discretion) (i) provide to the Administrative Agent all information regarding the valuation of the Spanish patents and trademarks necessary to complete the Spanish security documents and all information regarding the value of the real estate collateral as the Administrative Agent requests in order to obtain title insurance on the real estate collateral and record the Georgia real estate mortgages (or equivalent), and (ii) proceed to convert its Chilean Subsidiary from a non-stock entity into a stock entity and thereafter grant to the Administrative Agent for the benefit of the Banks a security interest in 65% of such Subsidiary's issued and outstanding stock, and (iii) execute and deliver to the Administrative Agent and its counsel all documents, instruments, certificates and other items required in order to grant the Administrative -17- Agent valid and perfected liens in the collateral agreed upon in Chile (other than the equity interests in its Chilean Subsidiary) and Spain. (b) No later than June 30, 2001, (or such later date as the Administrative Agent and Seminis may agree upon with respect to Collateral located outside the United States) the Borrowers will, and will cause their Subsidiaries to, execute and deliver to the Administrative Agent such amendments and supplements to the Security Documents to which they are a party as the Administrative Agent may request in order to ensure that the Liens granted to it pursuant thereto secure the Term Loans as extended by the last paragraph of Section 1.2 and the Revolving Credit Loans as extended by the last paragraph of Section 1.1(a). Section 7.30. Retention of Investment Bank. No later than June 15, 2001, Seminis shall retain a nationally recognized investment banking firm or other nationally recognized professionals for that purpose to assist Seminis in evaluating its capital structure and lines of business, including, without limitation, evaluating the capital structure of Seminis and its Subsidiaries, identifying alternative sources of equity capital and debt financing for Seminis and its Subsidiaries and assisting Seminis in identifying and evaluating assets to be sold by Seminis and its Subsidiaries. No later than July 31, 2001, Seminis and such investment banking firm or other professionals shall meet with the Banks and present their proposed time line for the foregoing." 1.22. Section 8.1(a) of the Credit Agreement shall be amended to read as follows: "(a)(i) Default in the payment when due of any principal of or interest (including without limitation Deferred Interest) on any Note or any Reimbursement Obligation, whether at the stated maturity thereof or at any other time provided in this Agreement, or of any fee (including without limitation fees payable pursuant to Sections 1.4(a), 3.1 and 3.2 hereof) or other amounts payable by any Borrower to the Administrative Agent or any Bank pursuant to this Agreement, or (ii) default in the payment when due of any other fee or other amount payable by any Borrower pursuant to this Agreement;". 1.23. Section 8.1(b) of the Credit Agreement shall be amended to read as follows: "(b) Default in the observance or performance of any covenant set forth in Sections 7.4, 7.6, 7.8, 7.9, 7.10, 7.11, 7.16, 7.17, 7.18, 7.20, 7.21, 7.22, 7.23, 7.24, 7.26, 7.27 or 7.29 hereof or of any provision of any of the Security Documents requiring the maintenance of insurance on the Collateral subject thereto or dealing with the use or remittance of proceeds of such Collateral;". 1.24. Section 10 of the Credit Agreement shall be amended by adding the following provision thereto as Section 10.16: "Section 10.16. Authorization to Release Liens. The Administrative Agent is hereby irrevocably authorized by each of the Banks to release (a) any liens -18- and security interests covering any Property of the Borrowers or any of their Subsidiaries that is the subject of a sale or other disposition which is permitted by this Agreement or which has been consented to in accordance with Section 12.1, and (b) its security interest in 15% of the total issued and outstanding shares of capital stock of Choong Ang pledged to it and sold to Hungnong." 1.25. Clause (a)(iv) of Section 12.17 of the Credit Agreement shall be amended to read as follows: "(iv) the Administrative Agent must consent, which consent shall not be unreasonably withheld, to each such assignment (provided no such consent is required for any assignment to any affiliate of the assigning Bank),". 1.26. Section 12.1 of the Credit Agreement shall be amended to read as follows: "Section 12.1. Amendments and Waivers. Any term, covenant, agreement or condition of this Agreement and the other Loan Documents may be amended only by a written amendment executed by the Borrowers, the Required Banks and, if the rights or duties of an Agent are affected thereby, such Agent, or compliance therewith only may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Borrowers shall have obtained the consent in writing of the Required Banks and, if the rights or duties of an Agent are affected thereby, such Agent, provided, however, that: (a) without the consent in writing of the holders of all outstanding Notes and unpaid Reimbursement Obligations, or all Banks if no Notes or Reimbursement Obligations are outstanding, no such amendment or waiver shall (i) change the amount or postpone the date of payment of any scheduled payment or required prepayment of principal of the Notes or Reimbursement Obligations or extend the term of any L/C or reduce the rate or extend the time of payment of interest on the Notes or Reimbursement Obligations, or reduce the amount of principal thereof, or modify any of the provisions of the Notes with respect to the payment or prepayment thereof, (ii) give to any Note or Reimbursement Obligations any preference over any other Notes or Reimbursement Obligations, (iii) amend the definition of Required Banks, (iv) alter, modify or amend the provisions of this Section 12.1, (v) intentionally omitted, (vi) alter, modify or amend the provisions of Section 6.1 of this Agreement, (vii) alter, modify or amend any Bank's right hereunder to consent to any action, make any request or give any notice, (viii) release any Borrower from its obligations hereunder, including without limitation release any Domestic Borrower from its obligations as a guarantor under Section 11 of this Agreement, (ix) except as permitted by the Loan Documents, release any of the Collateral; or (x) reduce any fee payable to the Banks pursuant to this Agreement or extend the time for payment thereof, including without limitation, all fees required by Section 3.1 hereof; (b) without the consent of all of the Term Credit Lenders no such amendment or waiver shall alter, modify, waive or amend the provisions of Section 6.2 with respect to any requested Term Loan; and -19- (c) without the consent of all of the Revolving Credit Lenders no such amendment or waiver shall alter, modify, waive or amend the provisions of Section 6.2 of this Agreement with respect to any Revolving Credit Loan or L/C. Any such amendment or waiver shall apply equally to all Banks and the holders of the Notes and Reimbursement Obligations and shall be binding upon them, upon each future holder of any Note and Reimbursement Obligation and upon each Borrower, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived." 1.27. Exhibit D and Schedules 7.8 and 7.9 to the Credit Agreement shall be replaced by Exhibit D and Schedules 7.8 and 7.9 attached hereto, respectively. 1.28. The Credit Agreement shall be amended by adding thereto as Exhibits R and S and Schedule 7.29 the forms attached to this Amendment as Exhibits R and S and Schedule 7.29, respectively. 1.29. The Borrowers acknowledge and agree that until all of the Borrowers' indebtedness, obligations and liabilities to the Administrative Agent and the Banks have been fully paid and all L/Cs have terminated or expired, the Administrative Agent may in its discretion retain Ernst & Young (or other consultants selected by the Administrative Agent) as a financial consultant to the Administrative Agent in connection with this Agreement, the transactions contemplated hereby, the Collateral and any proposed changes to the Borrowers' capital structure and asset sales to be made by the Borrowers and their Subsidiaries. The Borrowers further agree to pay to the Administrative Agent, on demand, all fees and expenses of Ernst & Young (or such other consultants, if applicable) provided that so long as no Event of Default shall have occurred and be continuing the amount payable by the Borrowers pursuant hereto shall not exceed $50,000 per calendar quarter commencing with the calendar quarter ending on September 30, 2001. 2. CONDITIONS PRECEDENT. This Amendment shall become effective upon the satisfaction of all of the following conditions precedent: 2.1. The Administrative Agent, the Banks and the Borrowers shall have executed and delivered this Amendment. 2.2. The Borrowers shall have delivered to the Administrative Agent for the benefit of the Banks in sufficient counterparts for distribution to the Banks: (a) copies of the Articles of Incorporation, and all amendments thereto, of each Domestic Borrower, certified by the Secretary of State of its state of incorporation not earlier than May 1, 2001; (b) copies of the Articles of Association of SVS Holland, certified as true, correct and complete on the date hereof by a Managing Director of SVS Holland; -20- (c) copies of the By-Laws, and all amendments thereto, of each Domestic Borrower, certified as true, correct and complete on the date hereof by the Secretary or Assistant Secretary of each Domestic Borrower; (d) good standing certificates for each Domestic Borrower issued by the Secretary of State of the state of its incorporation and each state in which it is qualified to do business as a foreign corporation, dated no earlier than May 1, 2001; (e) copies, certified as true, correct and complete by the Secretary or Assistant Secretary of each Domestic Borrower and a Managing Director of SVS Holland, of resolutions regarding the transactions contemplated by this Amendment, duly adopted by the Board of Directors of each Domestic Borrower and the Managing Director of SVS Holland, respectively, and satisfactory in form and substance to all of the Banks; (f) an incumbency and signature certificate for each Borrower satisfactory in form and substance to all of the Banks;. 2.3. Legal matters incident to the execution and delivery of this Agreement and the other Loan Documents contemplated hereby shall be satisfactory to each of the Banks and their legal counsel; and the Administrative Agent shall have received the favorable written opinion of Milbank, Tweed, Hadley & McCloy LLP, counsel for the Domestic Borrowers, substantially in the form of Exhibit T, and the favorable written opinion of Stibbe Simont Monahan Duhot, counsel to SVS Holland and SVS Europe, substantially in the form of Exhibit U. 2.4. Each of the representations and warranties set forth in Section 5 of the Credit Agreement shall be and remain true and correct as to each of the Borrowers, except that the representations and warranties made under Section 5.2 (except the last sentence thereof) shall be deemed to refer to the most recent financial statements furnished to the Banks pursuant to Section 7.4 of the Credit Agreement. 2.5. No Potential Default or Event of Default shall have occurred and be continuing. 2.6. The Borrowers shall have paid the Administrative Agent such fees and expenses, including legal fees and the fees for the Administrative Agent's industry consultants and financial consultants, for which the Administrative Agent has submitted an invoice. 2.7. The Dutch Pledgors shall have executed and delivered to the Administrative Agent lists that are current as of May 25, 2001, of their accounts receivable in the form required by the deeds of pledge executed and delivered by the Dutch Pledgors to the Administrative Agent. 3. REPRESENTATIONS AND WARRANTIES. The Borrowers represent and warrant to the Administrative Agent and the Banks as follows: 3.1. Each of the representations and warranties set forth in Section 5 of the Credit Agreement are true and correct as to each of the Borrowers as of the effective date hereof, except that -21- the representations and warranties made under Section 5.2 (except the last sentence thereof) shall be deemed to refer to the most recent financial statements furnished to the Banks pursuant to Section 7.4 of the Credit Agreement. 3.2. The Borrowers are in full compliance with all of the terms and conditions of the Loan Documents and no Event of Default or Potential Default has occurred and is continuing thereunder or shall result after giving effect to this Amendment. 4. MISCELLANEOUS. 4.1. The Borrowers have heretofore executed and delivered to the Administrative Agent certain Security Documents, and the Borrowers hereby agree that the Security Documents shall secure all of the Borrowers' indebtedness, obligations and liabilities to the Administrative Agent and the Banks under the Credit Agreement as amended by this Amendment, that notwithstanding the execution and delivery of this Amendment, the Security Documents shall be and remain in full force and effect and that any rights and remedies of the Administrative Agent thereunder, obligations of the Borrowers thereunder and any liens or security interests created or provided for thereunder shall be and remain in full force and effect and shall not be affected, impaired or discharged thereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Security Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment. 4.2. Each Borrower hereby represents, warrants, acknowledges and agrees that (i) there are no set offs, counterclaims or defenses against the Notes, the Credit Agreement (as amended or otherwise modified hereby) or any other Loan Documents (as amended or otherwise modified hereby or by the security agreement amendments) and (ii) there are no claims (absolute or contingent or matured or unmatured) or causes of action by any Borrower against any Bank or any Agent in connection with the Credit Agreement, the Notes and the other Loan Documents. Notwithstanding the immediately preceding sentence and as further consideration for the agreements and understandings contained herein, each Borrower hereby releases the Agents and the Banks, their respective predecessors, officers, directors, employees, agents, attorneys, affiliates, subsidiaries, successors and assigns, from any liability, claim, right or cause of action which now exists or hereafter arises as a result of acts, omissions or events occurring on or prior to the date hereof, whether known or unknown, in connection with the Credit Agreement, the Notes and the other Loan Documents. 4.3. Reference to this specific Amendment need not be made in any note, document, letter, certificate, the Credit Agreement itself, or any communication issued or made pursuant to or with respect to the Credit Agreement, any reference to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 4.4. This Amendment may be executed in any number of counterparts, and by the different parties on different counterparts, all of which taken together shall constitute one and the same agreement. Any of the parties hereby may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. -22- Upon acceptance hereof by the Administrative Agent and the Banks in the manner hereinafter set forth, this Amendment shall be a contract between us for the purposes hereinabove set forth. Dated as of May 31, 2001. SEMINIS, INC. By Its ---------------------------------- SEMINIS VEGETABLE SEEDS, INC. By Its ---------------------------------- SVS HOLLAND B.V By Its ---------------------------------- -23- Accepted and agreed to as of the day and year last above written. HARRIS TRUST AND SAVINGS BANK, individually and as Administrative Agent By Its Vice President CREDIT AGRICOLE INDOSUEZ By Its ---------------------------------- By Its ---------------------------------- BANK OF AMERICA, N.A. By Its ---------------------------------- THE BANK OF NOVA SCOTIA By Its ---------------------------------- COMERICA BANK By Its ---------------------------------- BANK ONE, NA By Its ---------------------------------- -24- BNP PARIBAS By Its ---------------------------------- By Its ---------------------------------- UNION BANK OF CALIFORNIA, N.A. By Its ---------------------------------- FLEET NATIONAL BANK By Its ---------------------------------- FORTIS CAPITAL CORP. By Its ---------------------------------- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", New York Branch By Its ---------------------------------- By Its ---------------------------------- -25- SANWA BANK CALIFORNIA By Its ---------------------------------- THE FUJI BANK, LIMITED By Its ---------------------------------- THE MITSUBISHI TRUST & BANKING CORPORATION By Its ---------------------------------- U.S. BANK NATIONAL ASSOCIATION By Its ---------------------------------- THE DAI-ICHI KANGYO BANK, LTD. By Its ---------------------------------- -26- EXHIBIT D SEMINIS, INC. SEMINIS VEGETABLE SEEDS, INC. SVS HOLLAND B.V. COMPLIANCE CERTIFICATE This Compliance Certificate is furnished to Harris Trust and Savings Bank and the other Banks (collectively, the "Banks") and Harris Trust and Savings Bank as Administrative Agent (the "Administrative Agent") for the Banks, pursuant to that certain Credit Agreement dated as of June 28, 1999, as amended, by and among Seminis, Inc., a Delaware corporation ("Seminis"), Seminis Vegetable Seeds, Inc., a California corporation, and SVS Holland B.V., a private company with limited liability incorporated under the laws of The Netherlands (the "Borrowers") and the Banks (the "Agreement"). Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected chief financial officer or vice president world-wide corporate controller of Seminis; 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrowers during the accounting period covered by the attached financial statements sufficient for me to provide this Certificate; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Potential Default or 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; and 4. If attached financial statements are being furnished pursuant to Section 7.4(a) of the Agreement, Schedule I attached hereto sets forth financial data and computations evidencing the Borrowers' compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct. 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 Borrowers have taken, are taking or proposes to take with respect to each such condition or event: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this _____ day of _______________________, 200_. SEMINIS, INC. By Its ---------------------------------- D-2 SCHEDULE 1 TO COMPLIANCE CERTIFICATE SEMINIS, INC. SEMINIS VEGETABLE SEEDS, INC. SVS HOLLAND B.V. COMPLIANCE CALCULATIONS FOR CREDIT AGREEMENT DATED AS OF JUNE 28, 1999, AS AMENDED CALCULATIONS AS OF ____________________, 200_ SECTION 7.20. MINIMUM INTEREST COVERAGE RATIO. (a) EBITDA (see attached computation)........................ $ ----------- (b) Interest Expense......................................... $ ----------- (c) Interest Coverage Ratio ((a)/(b))................................................ ________ to 1* *Required to be no less than _____ to 1 Compliance................................................. Yes_____ No_____ SECTION 7.22. MAXIMUM DEBT RATIO. (a) Debt..................................................... $ ----------- (b) EBITDA................................................... $ ----------- (c) Debt Ratio ((a)/(b))..................................... ________ to 1* *Required to be no greater than _________ to 1 Compliance................................................. Yes_____ No_____ SECTION 7.23. MINIMUM EBITDA. A. Cumulative (a) Cumulative EBITDA........................................ $ * ----------- *Required to be no less than $___________ Compliance................................................. Yes_____ No_____
B. Quarterly (c) Quarterly EBITDA......................................... $ * ----------- *Required to be no less than $___________ Compliance................................................. Yes_____ No_____
-2- EXHIBIT R CASH FLOW PROJECTIONS EXHIBIT S SEMINIS, INC. SEMINIS VEGETABLE SEEDS, INC. SVS HOLLAND B.V. OFFICER'S CERTIFICATE This Officer's Certificate is furnished to Harris Trust and Savings Bank and the other Banks (collectively, the "Banks") and Harris Trust and Savings Bank as Administrative Agent (the "Administrative Agent") for the Banks, pursuant to that certain Credit Agreement dated as of June 28, 1999, as amended, by and among Seminis, Inc., a Delaware corporation ("Seminis"), Seminis Vegetable Seeds, Inc., a California corporation, and SVS Holland B.V., a private company with limited liability incorporated under the laws of The Netherlands (the "Borrowers") and the Banks (the "Agreement"). Unless otherwise defined herein, the terms used in this Officer's Certificate have the meanings ascribed thereto in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected chief financial officer or vice president world-wide corporate controller of Seminis; 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrowers during the accounting period covered by the attached financial statements sufficient for me to provide this Certificate; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Potential Default or 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; and 4. During the period covered by this Officer's Certificate, Seminis' Foreign Subsidiaries have not incurred Debt permitted by Section 7.8(g), except as set forth below: NAME OF FOREIGN SUBSIDIARY PRINCIPAL AMOUNT COLLATERAL 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 Borrowers have taken, are taking or proposes to take with respect to each such condition or event: ------------------------------------------------------------------------ ------------------------------------------------------------------------ The foregoing certifications are made and delivered this _____ day of _______________________, 200_. SEMINIS, INC. By Its ---------------------------------- S-2 EXHIBIT T OPINION OF MILBANK, TWEED, HADLEY & MCCLOY LLP EXHIBIT U OPINION OF STIBBE SIMONT MONAHAN DUHOT SCHEDULE 7.8 EXISTING INDEBTEDNESS
- ----------------------------------------------------------------------------- Company Long Term Debt Revolving Lines of Credit - ----------------------------------------------------------------------------- SVS US 17,014,010 - SVS Holland 410,969 - Baxter 845,415 - Garden Holland - 81,471 Incotec NL - 199,232 SVS Chile - 8,825,053 *1 SVS Argentina - - SVS Peru 937,610 250,000 Hungnong Seeds 1,304,214 28,317,518 Choong Ang Seeds 882,859 2,259,376 SVS South Africa 9,634 - SVS India 20,812 752,627 Selekta 903 - Asgrow Italia - 1,261,140 RS Italia 44,259 - Peto Italiana 588,389 5,178,602 SVS Iberica 780,240 4,406,245 *2 Gammavivai - 681,267 Jasco - 492,264 SVS France 800,008 923,100 *3 SVS Germany 130,634 - SVS U.K. - 716,640 Incotec Japan 819,421 - -------------------- -------------------- Total 24,589,377 54,344,535 - -----------------------------------------------------------------------------
- ---------------- 1 Chile's current line with Dresner Bank is frozen. Additional $5.0 million credit line may be available dependent on the outcome of the Syndicated bank agreement in the US. 2 Iberica potentially has $0.4 million additional credit line available upon finalization of Syndicated agreement. 3 France has approximately $4.3 million potential credit line available once the agreement with the Syndicated bank is finalized. SCHEDULE 7.9 EXISTING LIENS SCHEDULE 7.29 ADDITIONAL COLLATERAL MATTERS 1. The Borrowers will provide all information relating to Spanish patents and trademarks described in Section 7.29(a)(i) no later than June 30, 2001. 2. The Borrowers shall provide all information relating to real estate values described in Section 7.29(a)(i) no later than June 15, 2001. 3. Seminis shall convert its Chilean Subsidiary into a stock company and grant the Administrative Agent a security interest in 65% of its stock as described in Section 7.29(a)(ii) no later than August 31, 2001. 4. The Borrowers and their Subsidiaries will execute and deliver to the Administrative Agent the Security Documents for collateral located in Chile (other than the collateral described in 3 above) no later than 10 Business Days after the Foreign Ministry of Chile legalizes the relevant powers of attorney executed by Seminis and its Subsidiaries and for the collateral located in Spain no later July 31, 2001. -----END PRIVACY-ENHANCED MESSAGE-----